. The CEO and MD of Firstsource has seen his company complete seven deals in the past five years. But it is the latest that has got the business process outsourcing industry really sitting up and taking notice: Firstsource recently paid $330 million for the US-based MedAssist Holding. The acquisition, intended to help the Indian firm (previously known as ICICI OneSource) boost it clientele among American hospitals, is one of the largest overseas acquisitions and the second largest in the BPO space.
But Mukerji isn't done yet. The Rs 840-crore Firstsource is also rumoured to be in the race to acquire Citigroup Global Services after the first round of bidding. Mukerji carefully steered clear of all talk about Citigroup, but he spoke extensively with Leslie D'Monte on his plans for the healthcare segment, tackling attrition and the growing focus on the domestic market. Excerpts:
How does the MedAssist acquisition help your company?
Hospitals are feeling the pain of managing cash flows. Delinquent claims account for 5 per cent of hospital billings, translating into a $28 billion loss of opportunity.
The acquisition of MedAssist provides us with a platform to grow our business in this segment. The company will add around $50 million to the top line this fiscal (over the next couple of quarters), while it should add $100 million every year subsequently.
The global healthcare segment offers a $4-trillion opportunity by 2015 (27 per cent of the US GDP). There are two segments within this sector, insurance and hospitals (provider side). We entered this space with the acquisition of Rev IT Systems in 2005 and Business Process Management in 2006.
Currently, the hospital care market in the US is worth about $700 billion in revenue, and the administrative costs management market is worth about $100 billion. Today, we offer solutions ranging from the mailroom (front-end) to claims adjudication (back-end).
We currently have a presence in three major verticals "" the banking, financial services and insurance (BFSI), telecom and healthcare. With the acquisition of Customer Asset in 2002, we saw a big opportunity in the banking space. The deal helped us spin-off into the telecom sector.
However, the healthcare segment has been a matter of choice for us. We wanted to be in this segment since 2004. By the end of financial year 2007-08, we see all three verticals contributing to a third of our revenue. We're relatively agnostic when it comes to the verticals.
The integration of teams post acquisitions remains a tough job. What has been your experience?
We have done a very good job of it since we have a lot of experience. All our acquisitions serve as platforms to grow our business. We only acquire profitable businesses. Around 20 per cent of our revenue comes from acquired businesses, and 80 per cent comes for the growth created by the acquired companies. And our customers are satisfied. Around 94 per cent of our business comes from existing ones.
We do not try to integrate everything immediately. For instance, the rebranding of ASG (acquired in 2004) was done only recently. We integrate finance companies pretty quickly, though.
And even though the acquirer sets the tone and culture of the organisation, we continue to learn from each other. Moreover, five senior executives (including the joint MD & COO Raju Venkatraman) are from the managements of acquired companies.
What is your global strategy?
Currently, we have 27 delivery centres, 10 of which are outside India (six in the US, two in the UK and one each in Argentina and the Philippines). We have around 2,500 employees outside India. The addressable global offshore BPO market, according to a Nasscom-McKinsey report, is around $120-150 billion. Less than 10 per cent of this market has been addressed.
We also have a strategic partnership with Metavante, a leading US banking technology and payment processor. It has relationships with over 1,000 banks in the US, and over 90 of the top 100 banks are their customers.
The proposition is for us to combine their technology platforms and client relationships with our ability to run a large-scale operation efficiently.
Are you looking at expanding your domestic business too?
The Indian market is an important part of our strategy. While the domestic business accounted for a little over 2 per cent in end-March, 2007, we expect it to account for nearly 10 per cent this fiscal.
Now, that's a huge leap. We see the BFSI and telecom sectors growing rapidly in India, and accounting for the growth. For instance, we recently won a very large contract from Hutchison, delivery for which is under implementation and we expect telecom revenues to grow quite significantly.
How do you plan to tackle the sore points "" wage inflation and attrition (over 40 per cent last financial year)?
Attrition is higher in metros and in the voice segment at our international delivery centres. Obviously, margins get affected, and subsequently costs.
To arrest this, we have added centres outside of metros and the early indications are that the attrition in those areas is significantly lower. As for wage inflation, entry-level salaries have been reasonably stable for the past two-three years. Competition is rife, and so is poaching. So mid-level salaries are bound to be a sore point. Our industry should be in smaller cities.
Incidentally, we also "internally outsource". We have around 2,500 people who do data capturing but are not on our rolls. We only manage the process, and avoid the headcount overheads.
...and what about rupee appreciation?
We do get into the rates and respective amounts. However, we are 60 per cent covered. We are well diversified across dollar and pound exposures and historically we have seen that these two have not necessarily moved in the same direction. Besides, this year we will see the domestic business grow. Our expectation is that a Re-1 change in the dollar impacts our margins by about 0.3 per cent.
Given your current 37 per cent exposure in the BFSI segment, has the subprime lending crisis affected you?
No. It will not affect it. While we do have one client offering mortgage services, its exposure is restricted to the UK.
What are you doing to move up the value chain?
We are taking on more complex process work. Our business is to make complex things simple. More and more clients are increasingly entrusting their business impacting work on us.
Besides, we have already started offer platform-based services. (wherein the vendor takes care of the input (software, applications and so on), output (transactions, process) and also adds services. However, we consciously also do the low-end of the value-chain work. Why should we lose this advantage to other low-cost countries?
