Indian Outsourcing: Moving Past Economic Turmoil With A Positive Quarter
July 28 2009 (FinancialWire) (ValueNotes Outsourcing Watch: Insights for Investors) — Infosys Technologies (NASDAQ: INFY), Wipro Technologies (NYSE: WIT), and Tata Consultancy Services (TCS) declared positive results over the past two weeks raising hopes of improved future outlook. Recent deals won by the Indian outsourcing companies indicate a positive sentiment, as companies take more measured decisions. While not all service providers have fared well under the difficult economic circumstances, performance by the top companies in the sector indicates a trend. Though they differ vastly in strategies and strengths, yet together they have managed to hold the industry squarely in place.
The outsourcing industry, like all others suffered huge losses during the economic downturn. The effect on the Indian industry was further accentuated by the fact that US and Europe, the worst hit are also the two biggest markets. Estimates till the last quarter were bleak and outlook for the next quarter saw downward revision by many; sentiments are even lower after the Satyam debacle.
Infosys: Betting big on domestic outsourcing
Nandan Nilekani’s exit to take up responsibility of the Union Government National ID plan was perceived as a big loss to the company, yet the seamless transition has completely restored faith. While he was not involved in the day-to-day running of the company, his presence as a mentor and strategist was highly valued. Infosys meanwhile is betting big on the Indian domestic market, and aiming at earning revenues worth USD 2 billion from the Indian market. Among the most recent developments are two contracts that the company has received from the Indian government - an e-biz platform development project for the Indian Commerce ministry, and another pilot project from the Indian Railways. The emergence of an alternate market will be a boon for many companies that have witnessed business from overseas market dry down to a trickle. No doubt the gap in earnings is huge, but the market is big and opportunities galore.
Wipro: Increasing overseas employee headcount
While the BFSI market went through a major shake up in the last 2-3 quarters, most of the service providers with a bulk of their earnings dependent on this sector suffered. Some of the major banks that received a bail-out package have reported improved earnings, but it will be some time before the market recovers completely. Suresh Senapaty, executive director and CFO, Wipro, said in an interview that despite the negative impact, there were some other positive developments. The company is using many options that include increased presence in other verticals like healthcare, offshore mix, and better employee utilization. The company is also looking at the domestic sector to increase revenues. Wipro plans to increase the number of employees overseas. There are many buyers that prefer service providers with onshore presence. Increasing presence in other countries makes it possible for service providers to achieve its goal of becoming a global company. Offering services to customers from multiple locations will enhance its global delivery capabilities.
TCS: Targeting $3 billion revenues in 5 years
TCS after posting a positive quarter is looking at a much faster growth in the BPO sector. TCS acquired the BPO captive center of Citibank, Eserve, in one of the biggest deals in the outsourcing sector in 2008. According to N. Chandrashekaran, chief operating officer, they are further looking at expansion in BFSI, where it already has a strong presence and healthcare and retail, which the company has identified as segments with potential. The company is also looking at achieving revenues worth $3 billion from BPO over the next five years. Among the verticals that it is looking to grow its business include healthcare, retail, media and utilities. It already offers services in banking and financial services, insurance, pharma, retail, telecom, travel, media and energy. The emerging verticals are set for faster growth as companies are looking to becoming leaner and concentrate more on core activities. This is expected to give the necessary fillip to the outsourcing industry.
Going Forward
It is imperative that in the face of economic slowdown companies expand their horizon, cater to more verticals, and expand market. India has emerged as the new market with public sector being the focus. One of the other emerging trends is that companies are seeking repeat business from existing clients rather than looking at new clients actively. A number of other BPO companies have also reported positive quarter results. Going forward recovery is expected to be slow, but definitely sure to happen.
ValueNotes Outsourcing Watch: Insights for Investors” is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing. The publication analyzes events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established U.S. companies, and emerging investment opportunities.
No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations’ services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited.
ValueNotes is an independent research firm based in Pune, India, and provides a range of custom research and business intelligence services, including India-based research outsourcing solutions. Through a constantly evolving range of products and services, the ValueNotes Outsourcing Practice (http://www.sourcingnotes.com) provides service buyers, vendors, consultants and others in the outsourcing industry with access to in-depth analysis backed by reliable primary intelligence
ValueNotes recently introduced an equity research program intended for institutional investors, primarily focusing on mid-sized, high-growth Indian equities and sectors that offer significant investment potential. The program offers detailed, customized solutions, based on specific client needs and preferences. As part of Investrend’s strategic alliance with ValueNotes, inquiries made to ValueNotes through Investrend include reduced fees, which Investrend passes on to the inquirer, as well as value-added services provided free of charge by Investrend. To arrange a preferred introduction to ValueNotes through Investrend, contact Investrend at valuenotes @investrend.com with “ValueNotes Introduction Request” in the subject line. Additional information is available at the Investrend web site (http://www.investrend.com/articles/secondlevel.asp?level=77).
FinancialWire(tm) is a fully independent, proprietary news wire service. FinancialWire(tm) is not a press release service, and receives no compensation for its news, opinions or distributions. Further disclosure is at the FinancialWire(tm) web site (http://www.financialwire.net/disclosures.php). Contact FinancialWire(tm) directly via inquiries@financialwire.net.
Free annual reports for companies mentioned in the news are available through the Free Annual Reports Service (http://investrend.ar.wilink.com/?level=279).
