EXL readies for European buy

EXL Services, a leading business process outsourcing (BPO) company, is on an expansion spree to cater to its US and UK clients. It is planning to acquire a financial BPO outfit in eastern Europe for about of $15 million (around Rs 60 crore). Plans are also afoot to set up another BPO unit in the Philippines, primarily to expand its voice portfolio in the region, for which it will invest around $7 million (around Rs 28 crore).

Rohit Kapoor, president and COO, EXL Services, told Business Standard, "We are planning to set up a 500-seat facility in the Philippines within the next 4 to 6 months and the centre will primarily expand our voice services for the existing set of our US clients."

Also keen to add an operating BPO or captive unit in eastern Europe in the next 12 months, EXL feels the cost of acquiring an agent organically is much higher at $20,000 a year compared with $5,000 a year in India. "A running business should give us a readymade clientele and business know-how. We are eyeing companies with revenues of around $10-25 million," said Kapoor.

The banking, financial services and insurance (BFSI) sector, which contributes nearly half of EXL's revenues, clearly remains a key buyer of the company's outsourcing services in the UK, with companies driven to reduce their costs further and skills shortages through outsourcing.

EXL seems to be following the industry's direction of having different delivery locations to add capabilities in a certain vertical. Eastern Europe had become a low-cost support area for European languages, offering a better cultural fit than non-European locations, said Kapoor. Central and South America too have become convenient spots for real-time processing for North American companies and EXL is not ruling out an expansion in these geographies too.

"India is still the leader in the overall BPO support, but it makes complete sense for us to be in Europe and America to offer near-shore capabilities to its clients," said Kapoor.

Acquiring a company is the safest bet for EXL since price competition from offshore and traditional suppliers has increased manifold this year. "This also means that offshore providers now have more overheads at higher-cost locations, as they have increased their onshore presence and created vertical marketing and sales organisations. The offshore providers have added costs to the balance sheets," explained Kapoor. With company valuations slipping, a mid-sized or a weaker captive unit is a lucrative bet for the company.

Expanding its front-end capability, EXL has added another vertical called strategic account management and hired a new business head for the same. Besides, the company has also added new verticals such as telecom and transportation to its list. The BPO major claims to be on a hiring spree and will be adding domain experts for newer business verticals. For the quarter ended June 30, EXL's revenues increased 71 per cent to $43.0 million from $25.2 million in the second quarter of 2006, consisting of 56 per cent organic revenue growth and 15 per cent acquisition-related revenue growth.