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Genpact sees a silver lining

Samad Masood | May 13, 2009
While the economic downturn has hindered growth recently, Genpact has still managed to lift its margins and is even starting to see some green shoots of recovery in financial services.

Indias Genpact passed the US$1 billion revenue mark in 2008, marking it out as a credible global player able to target large global multi-process IT and business process outsourcing (BPO) deals. While the economic downturn has hindered growth recently, Genpact has still managed to lift its margins and is even starting to see some green shoots of recovery in financial services.

Established in 1997 as General Electrics Indian-headquartered global offshore shared-services operation, Genpact was spun out and listed in 2007, and has rapidly expanded from under its former parents wing. For the first quarter ended March 2009, non-GE clients accounted for 58 per cent of revenues, and grew at an impressive 28 per cent, making up for the ongoing 2 per cent decline in GE-related revenues and resulting in total revenue growth of 13 per cent.

Apart from its Six Sigma process culture, the most important asset Genpact inherited from GE is global delivery reach. Almost a third of its 36,000 staff are based outside of India. Around 4,000 of these are in centres in China and the Philippines, with a further 4,000 based in the US, Mexico and Guatemala, and the remaining 2,000 across the UK, Spain, Netherlands, Poland, Hungary, Romania and Morocco. This makes Genpact one of the most geographically diverse BPO delivery operations globally.

Grey clouds dampen expectations

Ovum logoHowever, its not all rosy for Genpact. Eighty-four per cent of the companys revenues are split evenly across the banking and manufacturing industries. Given that Genpact focuses on transaction-heavy horizontal services such as finance and accounting, supply chain management and claims processing, falling business volumes in these sectors due to the economic downturn have held back revenue growth.

Genpact generates a quarter of its revenues from pure IT services, which in normal play is a significant differentiator for the company, enabling it to bid for standalone IT projects as well as combining it with its BPO expertise to deliver on large transformational outsourcing deals.

However, the fall in discretionary spend due to the economic downturn has held back IT services sales, resulting in significantly lower growth for the company from this segment. Indeed, 1Q09 suffered a 12 per cent decline in IT services revenues. Ultimately, Genpact now sees the economic downturn pushing its revenue growth for 2009 down to between 10 per cent and 15 per cent a long way off from the 26 per cent growth it achieved in 2008.

But there is a silver lining

While it seems that Genpacts high reliance on the US banking and manufacturing industries, as well as its significant stake in discretionary IT spend, put it in the centre of the current economic crisis, we actually have a relatively positive outlook for the business. This is mainly due to Genpacts strength as an operating business.

 

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