Genpact (G, Neutral):: Goldman Sachs:: Second Annual IT Services Trip

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Genpact (G, Neutral, covered by Vincent Lin, CFA)
1) Consistent with expectations, margins should improve modestly over time –
Margins on gain-share model (i.e., productivity improvements) are typically higher
than FTE model; however, most RFPs still prefer the FTE model. As the revenue mix
from gain-share model (which we estimate at 10%-15% of revenues) increases over
time, we believe margins should structurally improve, offset by continued wage
inflation and ongoing investments.
2) Headstrong acquisition is a strategic fit and early integration appears on track –
Management estimated that cost synergies should total $1-$2 mn in year 1 and $4 mn
in year 2. Revenue synergies are expected to total $25 mn. EXLS go to market efforts
are centered on a common sales team driving cross selling opportunities.
3) De-risking GE, CPG is the growth engine – With a growth rate of 2%-3% per year the
contribution from GE (30% of revenue) is expected to continue declining as the rest of
the company is expected to sustain a growth pace of 20% yoy growth. Among verticals,
CPG growth momentum is robust; G recently added Walgreens as a major client and is
currently pursuing similar deals in the pipeline.

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Goldman Sachs:: Second Annual IT Services Trip: LT drivers exist, 2012 outlook hazy