Citigroup ready to exit Progeon

23% stake in Infosys' BPO subsidiary may fetch $140 mn.

Citigroup is ready to exit Progeon, the business process outsourcing arm of Infosys. Citigroup holds a 23 per cent stake in Progeon.

According to sources close to the development, Infosys and Citigroup have agreed to a valuation of around $600 million for Progeon. This means that the deal can fetch Citigroup about $140 million.

Sources indicated that Progeon's valuation would be around 6-8 times its topline, which is likely to touch $85 million in the current financial year. The firm is likely to end the year with a net profit margin of 20-22 per cent, improving on the previous year's net margin of 15 per cent.

Sanjay Nayar, CEO, India, and area head, Bangladesh, Nepal and Sri Lanka, Citibank, declined to comment on the development. Infosys executives, too, did not offer any comment.

The final call on the valuation for the Citigroup's exit will be taken by the Infosys board when it meets early next month to clear the fourth quarter's financial results of the firm.

Citigroup initially made a $20-million investment in Progeon and until recently, a former Citigroup executive, Akshaya Bhargava, headed the BPO firm.

Infosys' decision to buy out Citigroup from Progeon and make it a wholly owned subsidiary is part of a trend among large Indian infotech players to offer a full-range of services covering the entire information technology-BPO spectrum under their own brands. This has been achieved by Wipro through the acquisition and merger of Spectramind.

Third-party BPO firms are becoming fewer and Indian IT firms are finding it attractive to have in-house BPO capability which allows them to cross-sell their products. This has been very useful from the point of view of client acquisition for the BPO business.

Set up in April 2002, Progeon is among the top 10 third-party BPOs in India, going by the Nasscom 2004-05 rankings. Since inception, it has been focusing on end-to-end outsourcing. It operates in India, the Czech Republic and the Philippines, and employs about 6,200 people.