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BPOs augur well for old economy firms
Leslie D'monte in Mumbai | September 17, 2007 09:01 IST
Old economy companies such as Hero, M&M (Tech Mahindra [Get Quote]), Aditya Birla, Essar, Hindujas and Larsen & Toubro have sprung into action with large acquisitions and major deals.
The BPO subsidiaries of manufacturing companies were earlier dismissed as captive units lacking any service culture, with the exception of Tata Consultancy Services [Get Quote] (TCS), the country's largest IT services provider. But this changed a couple of years ago.
Hardly 10 days back, Gurgaon-based HeroITES - the Rs 400 crore (Rs 4 billion) BPO subsidiary of the two-wheeler company Hero group - acquired Scotland's biggest BPO Telecom Services Centres (TSC) for nearly Rs 330 crore (Rs 3.3 billion).
The company's acquisition plan does not end there. "We will make more acquisitions to scale up our offerings," said Rohit Chanana, president, HeroITES.
In October 2006, the Hindujas-owned HTMT Global Solutions acquired US-based BPO company AFFINA for an undisclosed sum. The acquisition, according to the company, is expected to nearly double its combined revenues to over $130 million (around Rs 600 crore) and catapult it into the top five pure-play BPO companies in India.
The integrated company has a total headcount of over 9,000 employees. The company is also planning four buyouts in the range of $20-$100 million.
This February, Essar Global acquired Global Vantedge, a BPO company owned by Chrys Capital, to have a larger footprint in the BPO segment through its wholly owned subsidiary, Aegis BPO.
The acquisition is expected to contribute over $25 million to the BPO business of Essar and is its fourth acquisition in the last one year. The other three were Customer First and Orion in India and Technion in the US. "Most of the manufacturing companies started BPO units to serve their internal needs. They now see the valuations that an Infosys [Get Quote] or Wipro [Get Quote] can get," says Pradeep Uddhas, global head (sourcing advisory), KPMG.
For these BPO units to run successfully, "they need to get a free-hand just like the Tatas gave FC Kolhi the autonomy to run TCS". "Manufacturing units generally are not known for their service culture. Moreover, the manufacturing pay scales are lower than that of the service industry. When a group gets into IT, there's generally a constant cultural struggle. It's when the groups spin off the subsidiary as a business unit that it tends to become successful," explains a Frost & Sullivan spokesperson.
Take the case of the Aditya Birla Minacs (formerly Transworks), the BPO arm of the Aditya Birla Nuvo [Get Quote] group. It kept a low-profile till a couple of months back despite the $125-million acquisition of Canada-based Minacs Worldwide last May. However, in just four years, it has grown from a $3 million company to a $350-million (around Rs 1,400 crore) one.
The 11,000 employee-strong BPO has chalked out an ambitious strategy and has plans to acquire companies in specific sectors and geographies.
Dev Bhattacharya, group executive president, IT and BPO business, said, "The decision to get into the ITeS industry was taken after a portfolio analysis in 2002. When you enter into a new business in the group, it is very difficult to stay small. We had to re-focus and re-position ourselves and there was strong traction in the BPO industry. TransWorks was doing pretty good, but we wanted to grow fast and get a global footprint."
HeroITES was demerged into a separate independent entity in 2005 "for greater focus and implementing an aggressive growth strategy". The Anil Dhirubhai Ambani group-promoted Reliance [Get Quote] BPO, which was set up in 2002 with a manufacturing parentage, is also firming up plans. It has over 7,800 employees and caters to the BFSI, telecom, utility, media and entertainment and infrastructure verticals.
Said an analyst, "The sleeping giants have woken up to the potential of offshoring and outsourcing. This is just the beginning."