- BPO demand trends remain healthy, positive. Channel checks confirm that demand for BPO remains healthy thus far in the June quarter. Customer conversation continue to be productive. Sales cycle times remain static (6 to 12 months), as a reminder sales cycle elongate during difficult economic times. Pipeline lines are healthy and growing. The BPO demand backdrop is not reflective of the macro economic headlines. This is not to imply that BPO can’t or won’t be affected by a macro economic issue, but rather an update of the current trends.
- BPO business model has attractive characteristics that bode well during a downturn. Demand for BPO is driven by cost savingsopportunities, which plays well with customers during a downturn assuming customers visibility on revenues continues. BPO revenues tends to be sticky, meaning once the work goes offshore it rarely, if ever comes back. There tends to be a maintenance aspect to BPO work, higher than IT Services on a comparative basis. BPO has a high level of visibility heading into a year (roughly 60%+ visibility). For perspective, in 2009, WNS grew 11.8%, Genpact grew 7.6% and EXL grew 5.1%. Exposure to the areas of concern in the current economic environment is minimal. The group has little to no exposure to the areas of concern in Europe and little to no exposure on the capital markets side. (See Table on Page 2).
- BPO is at a positive inflection point from a maturity stand point. We have seen positive data regarding the building of BPO pipelines as the adoption of the offering becomes more main stream. BPO vendors have taken steps to increase the speed of adoption by verticalizing and aggressively adding to their sales force providing more “at bats”. For perspective, Genpact plans to roughly double its sales force over two years (over 190 in sales at the end of 2011), EXLService increased its sales force from 28 at the end of 2010 to 67 at the end of 2011, and WNS has 70 sales people, a 70% increase from early 2010.
- Investors have three different BPO choices depending on their strategy. Genpact (G;BUY) is the largest of the group, a “best in class” vendor in the F&A space (2/3 of revenue), heavily steeped in its GE lineage (Six Sigma, etc.). EXLService (EXLS; BUY) produces tremendous earnings power possessing an excellent record of execution. WNS (WNS; BUY) is a turnaround story presenting a great risk/reward at these levels
For more information, please contact:
Joseph D. Foresi