Want a slice of the BPO pie This is the year

Want a slice of the BPO pie? This is the year

The Economic Times Online

Want a slice of the BPO pie? This is the year JAVED SAYED & PUJA MEHRA

TIMES NEWS NETWORK SATURDAY, FEBRUARY 19, 2005 12:46:02 AM

NEW DELHI: It's one of India's fastest growing industries . And has delivered hefty returns to the private equity and venture capital gang. So far, however, the lack of listed BPOs has prevented ordinary domestic investors from owning a piece of the action.

This could change in '05 as a number of BPOs are slated to hit the bourses. While Allsec Technologies and Paradyne Infotech have already filed offer documents with the Securities and Exchange Bureau of India (Sebi), industry insiders say many more are waiting in the wings.

Public issues from ICICI OneSource and Intelnet Global Services are in the pipeline, according to primary market database Prime Database.

Other BPOs and ITeS companies, too, are understood to be examining the option of primary market offerings, though they are yet to announce any plans. Third-party BPO Sutherland, for instance, is said to be weighing the IPO option.

could potentially go in for listing. BPOs with a capacity of 5,000 seats or so are well placed to go in for IPOs."

Merchant bankers agree. "As industries mature, the IPO route becomes attractive for them. The BPO industry has reached a stage where IPOs make immense sense. We expect several BPOs to be listed during the year," says a merchant banker.

"We have already filed Allsec with Sebi. We are also working on the Exl Services float on the Nasdaq. There are several other BPOs waiting in the pipeline, but it is premature to talk about them," says Avdhoot Deshpande, senior manager, investment banking, IL&FS.

Till now, a significant portion of both the growth and expansion capital of several BPOs has been provided by private equity funds. Both domestic and foreign investors have aggressively pursued investment opportunities in this sector.

In the most high-profile sale in the sector - GE's 60 per cent divestment in Gecis - the buyers were two private equity companies General Atlantic Partners and Oak Hill Capital.

Typically, private equity funds have a medium-term investment horizon. IPOs and the subsequent secondary market route give them a good exit option as and when they decide to liquidate their holdings. Several such investors will thus be mulling IPOs to unlock the value of their investments in BPOs.

The good news, however, is that the IPOs being planned will give retail investors an opportunity to join the BPO party. The industry has delivered handsome returns to stakeholders so far.

The ITeS-BPO sector in India grew by over 40 per cent from $2.5 billion in 2002-03 to $3.6 billion in 2003-04. The sector is expected to register a growth of about 40 per cent in 2004-05 to reach revenues of $5 billion, according to a PricewaterhouseCoopers report.

This is excellent going for an industry which is less than a decade old, particularly when one considers that the total size of the established domestic pharmaceutical industry is around $7 billion.

Of course, as for all other sectors, investors will have to be discriminating. Dhawan cautions, "As the number of listings grow, the quality of IPOs may deteriorate."