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Adith Charlie
D. Sampath Kumar

Mumbai, Aug. 12 Companies running outsourcing operations out of India command a better market capitalisation in the US than in India. As on August 10, the market capitalisation on the New York Stock Exchange of Genpact – the BPO arm of General Electric – was 5.28 times its sales revenue. The Nasdaq listed company EXL Service Holdings was valued at 4.89 times its sales.

In contrast, the Indian market is not so generous. Companies such as Firstsource Solutions, Allsec Technologies and Sparsh BPO are valued at the BSE in multiples of 3.99, 2.23 and 2.75 respectively.

Marketmen believe that a US listing is more profitable to Indian BPOs, considering the stupendous valuation enjoyed by Genpact and EXLS when compared with Firstsource. “Though Firstsource is a more profitable BPO with operating margins above 21 per cent, it is trading at lower multiples than Genpact, which has a lower operating margin of around 9 per cent”, said Mr Madhu Babu, Research Analyst, Finquest Securities Ltd.

The valuation gap is because of the ‘greater visibility’ advantage of a US listing as the investors there have deep pockets, according to Mr Harit Shah, IT Analyst, Angel Broking. Moreover there is a premium associated with a stable market.

A US listing can also help in making acquisitions, as stock can be used in acquisitions, instead of cash, according to Mr Nitin A. Khandkar, Senior Vice-President – Research, Keynote Capitals Ltd.

Genpact’s premium valuations could also be attributed to its leadership status in the Indian BPO space and a high employee strength of around 33,000. Genpact also has advantages in terms of an assured stream of revenues from a large client such as GE, said Mr Gaurav Dua, Senior Research Analyst, Sharekhan Securities.

“Price to earnings (P/E) commanded by Genpact (around 25x) is much higher than what Firstsource commands (around 14x), primarily because of Genpact’s global delivery platforms,” said Mr Khandkar.

In the Indian context, start-up BPOs are available at a price to sales ratio (P/S) of 1-1.5, while mature and stable companies might command a P/S of 3-3.5 depending upon their operating margins, added Mr Babu

Does this mean that BPOs should hence prefer an overseas listing? All Indian BPOs cannot go for a US listing owing to stringent disclosure and compliance norms. “Moreover, BPO companies that have been incorporated overseas can only go for a US listing. This is because Indian laws disallow companies incorporated in India to list overseas, unless they are already listed in India” said Mr Shantanu Surpure, Managing Advocate, Sand Hill India Advisors.

While Genpact is registered as a company in Bermuda, the Nasdaq listed WNS and EXL Service have been incorporated in Jersey, Channel Islands (UK) and Delaware (US) respectively. Hence, BPOs that have US listing as a part of their long term strategy should ensure that their companies are incorporated outside India, added Mr Surpure. For an Indian listing, apart from other norms, the company should have been in the previous three years.

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