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India Computer Services
NASSCOM BPO Conference
Ta k e- a wa y s
„No pullback in projects seen yet
BPO vendors as well as some of their clients who attended the conference noted
that while the macro events of August have increased caution levels, it has not
borne an impact to business process related spends or decision making so far.
From a medium term perspective, demand trends for the industry remain
favorable with 53% of participants in a recent survey of banking, financial services
and insurance clients indicating a positive bias for outsourcing business process
spends. We remain positive on the BPO space and expect vendors to post
~15%+ rev growth in medium term with steady margins. Genpact is our preferred
pick with CY10-12 EBITDA CAGR of 22% & trading at 15.6xCY12 non-gaap PE.
Operating margins to remain steady
While demand opportunities for the industry are still abundant, tapping these
would require (1) increased use of onsite and near-shore delivery, (2) developing
global delivery centers to service new markets and (3) investments in platforms
and domain skills. Correspondingly, operating margins for BPO vendors over the
medium term are expected to stay steady as benefits from transaction-based
pricing are likely to be offset by increased investments.
New variables : Transaction-based pricing, "Protectionist"
measures
Vendors and clients alike indicated a preference for transaction and output based
pricing models rather than the conventional per-resource based billing. As per
WNS, a lot of deals start on a per-FTE model but evolve into a transaction based
approach as relation between the client and vendor matures. Another key variable
to deal with is protectionist measures in countries like US/UK which is unlikely to
decline in the near term given the US elections in 2012. Vendors intend to
increase their usage of on-shore delivery to address this issue.
Buy Genpact, EXLS; Rate WNS as Underperform
Genpact is our top-pick in the BPO space on beneficial exposure to Finance &
Accounting (F&A) outsourcing and given it is well positioned to capture small-tomid sized deals that are on the rise in the BPO market. Our Buy on EXLS (16.7x
CY12E non-gaap PE, 34% EBITDA CAGR over CY10-12) hinges on its position
of strength in Insurance BPO space. While worst for WNS (9x CY12E non-gaap
PE, 14% EBITDA CAGR over CY10-12) is likely behind, we await more deal
closures to signal a potential turnaround.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Computer Services
NASSCOM BPO Conference
Ta k e- a wa y s
„No pullback in projects seen yet
BPO vendors as well as some of their clients who attended the conference noted
that while the macro events of August have increased caution levels, it has not
borne an impact to business process related spends or decision making so far.
From a medium term perspective, demand trends for the industry remain
favorable with 53% of participants in a recent survey of banking, financial services
and insurance clients indicating a positive bias for outsourcing business process
spends. We remain positive on the BPO space and expect vendors to post
~15%+ rev growth in medium term with steady margins. Genpact is our preferred
pick with CY10-12 EBITDA CAGR of 22% & trading at 15.6xCY12 non-gaap PE.
Operating margins to remain steady
While demand opportunities for the industry are still abundant, tapping these
would require (1) increased use of onsite and near-shore delivery, (2) developing
global delivery centers to service new markets and (3) investments in platforms
and domain skills. Correspondingly, operating margins for BPO vendors over the
medium term are expected to stay steady as benefits from transaction-based
pricing are likely to be offset by increased investments.
New variables : Transaction-based pricing, "Protectionist"
measures
Vendors and clients alike indicated a preference for transaction and output based
pricing models rather than the conventional per-resource based billing. As per
WNS, a lot of deals start on a per-FTE model but evolve into a transaction based
approach as relation between the client and vendor matures. Another key variable
to deal with is protectionist measures in countries like US/UK which is unlikely to
decline in the near term given the US elections in 2012. Vendors intend to
increase their usage of on-shore delivery to address this issue.
Buy Genpact, EXLS; Rate WNS as Underperform
Genpact is our top-pick in the BPO space on beneficial exposure to Finance &
Accounting (F&A) outsourcing and given it is well positioned to capture small-tomid sized deals that are on the rise in the BPO market. Our Buy on EXLS (16.7x
CY12E non-gaap PE, 34% EBITDA CAGR over CY10-12) hinges on its position
of strength in Insurance BPO space. While worst for WNS (9x CY12E non-gaap
PE, 14% EBITDA CAGR over CY10-12) is likely behind, we await more deal
closures to signal a potential turnaround.
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