Delayed decisions by clients and project ramp-ups have returned to haunt the Indian outsourcing industry, with leading business process outsourcing firm ExlService Holdings saying its new clients were taking longer to finalise projects. In an interview with Piyali Mandal, EXLService Vice-Chairman and Chief Executive Officer Rohit Kapoor said the company might lower its annual guidance if such a situation persists. Edited excerpts:
Despite annual profit growth of six per cent, your net income and margins have declined on a quarter-on-quarter basis. Why?
Margins have dropped because of our transformational business, which came down sequentially. We met our sequential revenue growth expectations, driven by expansion of several of our strategic outsourcing customers. Our transformational business trailed our expectations, as the start of certain projects was pushed back. On the net income side, the volume of business on the transformational side was low, and this pulled down profits. Margins were down because of the currency headwinds.
For how many quarters do you expect the transformational business to fare in this manner?
I am optimistic we shall see an improvement over the course of the year, based on strong momentum in our analytics practice. We don’t see any further delays, as since January, we have already signed eight new clients for transformational deals. These deals are significant. We expect our transformational business to grow rapidly in the next three quarters.
How does the overall market look?
The demand outlook is strong, which reflects increasing market acceptance of our services. However, the delay was purely in the transformational business. For existing clients, their decision-making cycles remain constant. It’s only with three strategic prospects that we have seen delays in outsourcing contracts. However, we have not seen any ramp-downs.
What do you think of the pipeline of deals?
We are seeing many opportunities, both in transformation and in outsourcing deals. I think for us, banking, financial services and insurance continue to be growth areas. I don’t think there is an issue with any particular industry, a vertical or geography.
EXLService is known for its aggressive inorganic growth strategy. Are you looking at acquisitions?
We continue to remain active on acquisitions. We do have some deals on the pipeline, but don’t want to talk about it now. We are looking at opportunity areas such as analytics, healthcare and banking and financial services.