Goldman Sachs: India IT: Genpact (G, Neutral, $14.81)

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Genpact (G, Neutral, $14.81)
 Solid pipeline, but pace of decision making remains slow – Genpact indicated that
while its pipeline is at an all time high, the pace of decision making and sales cycle
remain protracted, which coupled with transition delays from existing clients caused
the company to reduce its 2010 guidance in the most recent quarter.

 Contract transition delays resulting from higher focus on faster payback projects –
While Genpact reiterated that it does not expect transition delays to translate to
contract terminations, it expects transitions will take place at a much more gradual and
measured manner in the next 12-18 months. A number of Genpact’s clients are
currently focused on preserving capital and costs, and they are more willing to spend
money on project-based work (re-engineering, analytics, etc) and IT outsourcing work
that can yield faster results.
 European weakness driven by acquisition and execution issues – Management
attributed its underperformance in Europe to the acquisition in the SAP space that it
completed in 2006, due to execution issues as well as the particular countries that it is
exposed to. Genpact has recently replaced senior leadership in its IT business and will
focus to compete in specific segments within IT (e.g., business intelligence) where the
company can leverage its process expertise.
 Focuses on cross-selling and penetrating existing clients – Genpact stressed the
importance of cross-selling and growth from existing customers where the company
believes the runway for additional growth remains large. For perspective, of the
company’s 400 clients, about 300 clients are single service line customers.
 Increased traction of local demand in China – For China, Genpact has 3,500
resources currently that traditionally have been dedicated to serving clients in Japan
and North Asia. The company has had a couple of local client wins recently in the
region for process re-design and SAP work, and it is considering setting up additional
delivery centers in China to position for future growth.