EXLService Holdings, Nasdaq-listed business process outsourcing unit, posted a 77 per cent year-on-year fall in its net income for the quarter ended June 30, besides reporting a foreign exchange loss of about Rs 8 crore (Rs 80 million).
The company has almost Rs 550 crore (Rs 5.5 billion) in cash and recently acquired the operations of European logistics provider, Schneider Logistics, in the Czech Republic.
Rohit Kapoor, the BPO's CEO and president, spoke to Kirtika Suneja on the road ahead in these challenging times. Edited excerpts:
Why did net income nosedive by 77 per cent?
Foreign exchange loss, one-time expenses in the acquisition cost of the Schneider operations and taxes, along with stock compensation, were the main reasons. In the second half of the year, we expect the forex losses to be about Rs 19 crore (Rs 190 million).
Will that impact your expansion plans?
Existing clients are increasing work and the pipeline is healthy, mainly in the BFSI (banking, financial services and insurance) sector. We are getting more work from existing clients in finance and accounting. As far as expansion is concerned, we recently broke even in the Philippines with 650 employees.
We are setting up a new delivery centre in Romania in the third quarter to deliver near-shore, multi-lingual, outsourcing services. This will be in a tier-II city, with four employees.
There are other geographical expansions in the pipeline like setting up delivery centres in South Africa, onshore in the US and China, but not this year. South Africa has a well developed financial services industry and the same time zone as Europe, besides an attractive cost structure.
Onshore in the US will be for certain regulatory and licensing processes, while China is a low-cost destination. Besides, it will be beneficial in servicing clients in the US and help us in expanding in Japan and Asia.Do you plan any acquisitions in these geographies?
We would prefer to buy; else, greenfield operations would be the way. There is enough capital for us to do disciplined acquisitions in a measured manner.
However, we continue to look at the international market and not the domestic market -- though it is attractive -- because it is difficult to combine the infrastructure for the international clients for the domestic ones.
What's the strategy?
We want to be category killers in certain areas by dominating certain verticals like insurance and BFSI. We get around 50 per cent of the revenue from insurance.
Moreover, we have an in-house training academy for insurance. The utilities segment contributes around 25 per cent of the revenues and we will invest in it by partnerships and training. In BFSI, credit cards and mortgages continue to be the
In acquisitions, the sweet spot for us would be $50-75 million (Rs 240-360 crore), though the large deals could be around $100 million (Rs 480 crore) and the small ones in the order of $5-10 million (Rs 25-50 crore). The $100 million acquisition will be in the category killer space.
What are the challenges at this point in time?
The challenges are of taxes and protectionism. The latter is a bigger one, as clients can't openly talk about it and the unemployment rate is high in the US. For this, we will set up a centre in the US as part of the global delivery model, for
meeting the regulatory requirements.
There is some work that can't be offshored, like workflow management and some licensed work, that will be done there.
Image: Rohit Kapoor