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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.

Profitability is strong and improving for Genpact. Unlike many BPO vendors, which are now seeing profits take a hit as they deal with the effects of the economic downturn, Genpacts close involvement in the financial services industry meant that it was able to take suitable cost-control action early on in 2008. The result is that operating margins have leapt to 12 per cent in 1Q09, from 7 per cent in the previous year. Margins for FY08 were 18 per cent, up from 10 per cent in the previous year. Cash is also growing well, up 14 per cent to $210 million by the end of March 2009. Staff attrition is also comparatively low and falling, down from 24 per cent last year to 21 per cent.

But perhaps the most promising sign for Genpact is that it is starting to see a bottoming out of the downturn in financial services, with clients stabilising and more able to plan for long-term strategic initiatives such as BPO. If true, this would be very good news for Genpacts business, and the BPO industry as a whole. However, wed be cautious about over-hyping this return to growth.

Genpact needs to spend 2009 continuing its expansion into services such as cash management and procurement which help manage and reduce clients costs as well as targeting new verticals such as healthcare. If Genpact rides out 2009 as well as it did in 2008, it will be well positioned for a return to significant growth in BPO across a wider range of clients and services once that post-downturn stablisation does start to kick in.

Samad Masood is an analyst in Ovum's UK software and IT services practice, and specialises in IT services, outsourcing and offshore services. 


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