AXA's India captive unit to be hived off

Deal in works is for a $500-mn deal over 5 years to manage it

France’s AXA Tech plans to sell its captive unit here, including the shifting of a little over 1,000 employees, to a bidder which will get a five-year $500 million outsourcing deal to manage its information technology (IT) and network infrastructure.

The centre, AXA Technology Shared Services, is a little over a decade old and has been managing legacy IT and network infrastructure for the French insurance company globally. The business shift to adoption of cloud and renting applications also means AXA needed to streamline its operations, which it is preferring to outsource to a local vendor, people familiar with the development said. They declined to name the potential partners.

AXA is looking at the bidder to take over the staff on its rolls, beside managing the legacy IT and network infrastructure with a five year commitment, and also expand its relationship to other group firms. An AXA spokesperson declined comment to queries from Business Standard.

Typically, compensation is nearly a third higher at captives, where employees gain domain expertise, as against that at traditional IT service companies where professionals gain horizontal expertise as they handle multiple clients. Analysts say it makes sense for global firms to look at hiving off captives to large outsourcers once they hit a dead end in terms of resources or work to be moved offshore.

“People join these captive firms mainly due to the higher salary offers. Therefore, if such units are not able to scale even after a few years, the cost of operations goes up. Disruption in use of technology in the financial services sector and emergence of start-ups are also impacting such separate IT entities of bigger companies,” said Pareekh Jain, vice-president at HfS Research, an outsourcing advisory agency.

In April, India's software lobby, National Association of Software and Services Companies (Nasscom) said global in-house centres, as it calls captives, had become an integral component of the fast-growing Indian IT-BPM sector and contributed a fifth or $22 bn in IT-BPM export from India. The country has about 1,050 captives, employing 790,000 professionals. The list is growing as more firms such as Australia’s Telstra are looking to set up their own captives.

India's software and back-office export last year was $108 billion for the year ending March, said Nasscom. This year, it plans to cut the annual growth forecast as Indian software firms struggle to offset growth in new areas such as digital and cloud, with rapid decline in the traditional business which contributes 80 per cent of their revenue.

But, opportunities in captives offloading work to Indian outsourcers could bring relief to Indian services entities, eyeing new capabilities and to deepen relationships with newer clients.

“For the seller, it represents an opportunity to redeploy capital and focus management resources on areas more closely aligned with present and future strategy,” says Sandeep Gupta, an advisor to global firms setting up captives. “The current IT shop might be doing legacy work that is not core to their strategy any more. So, they would like to outsource to a vendor. For an Indian IT company, this would be an opportunity to get domain  capabilities they currently lack. They will not only take over the team but get committed revenue over a longer period. This can help them get revenue and focus on margins by rationalising the existing cost structure.”