Genpact profit down 23%

Says revenue growth, net income in line with expectation, raises full-yr forecast

Genpact, the country’s largest business process outsourcing (BPO) company, reported a 23.3 per cent drop in the net profit to $49 million for the three-month period ended June of 2014 against the same period last year.

The management attributed the drop to “investments in client-facing teams and in domain experts.” The impact of the increased investments was partly offset by operational efficiencies and favourable currency movement during the quarter.

Sequentially, the net profit growth was flat, compared with $50.6 mn at the end of the March quarter. During the June quarter, revenue rose five per cent over a year to $561.6 mn and six per cent sequentially.

N V Tyagarajan, president and chief executive, said the revenue growth, adjusted operating income and net income levels were in line with expectations. “We are being disciplined in executing our strategy, with an emphasis on investments in our chosen verticals, geographies and service lines.” He added the increased focus had resulted in signing two large deals this past quarter, in addition to the one in the earlier one. “In line with our capital allocation aims, we purchased $303 mn of our shares during the quarter, at $17.50 a share,” he said.

Genpact’s selling, general and administrative expenses as a percentage of its revenues increased from 22 per cent during the June quarter of the previous year to 25 per cent in the current year.

After closing an acquisition in the life sciences regulatory affairs space in the past quarter, Genpact has increased its revenue forecast for the full year to $2.24-2.28 billion. Its earlier revenue expectation was $2.22-2.26 bn. “I am excited about the investments we have made and continue to make in our client-facing teams, beginning to translate into a new level of transformative discussions with existing and prospective clients,” said Tyagarajan. He added the company was well poised to meet its aim of investing at least six per cent of its revenue in sales and marketing for the full year. It continues to expect the adjusted operating income margin to be 15 to 15.5 per cent. The drop in revenue contribution from General Electric, the erstwhile parent of Genpact and largest customer, continued; there was a one per cent decline over a year.

GE accounts for 20 per cent of Genpact’s overall revenue. Outside of GE, revenue grew 6.8 per cent over the first quarter of 2013, while BPO revenue from global clients grew by 8.7 per cent, led by growth in the consumer packaged goods, life sciences, insurance and capital markets divisions.

The number of client relationships with revenue over $5 mn grew to 85 from 81 during the earlier quarter. This includes client relationships with more than $15 mn in annual revenue increasing from 26 to 27, and client relationships with more than $25 mn in annual revenue increasing from 12 to 14.

However, Tyagarajan said the “industry pain point” remains, as large deals are taking more time to close and the cycle of revenue conversion continues to be longer.

Around 75.6 per cent of Genpact’s revenue for the quarter came from BPO services, up from 75.1 per cent in the second quarter of 2013. Revenue from information technology services were 24.4 per cent of the total for the quarter, compared to 24.9 per cent in the second quarter of 2013.

Genpact generated $78.8 mn of cash from operations in the quarter, up from $76.1 mn in the second quarter of 2013. It had $376.8 mn in cash and cash equivalents as of June 30.