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Hard hit: A BPO unit

Moumita Bakshi Chatterjee

New Delhi, Sept. 22

With the rupee’s rise against the greenback triggering fears of a margin squeeze, particularly for BPOs and small and medium-sized IT companies, the industry is opting for measures such as increasing operational efficiency, and price re-adjustments in contracts that are new or are up for re-negotiation.

“Rupee appreciation is an issue, particularly for BPOs, but the industry has to learn to cope with it. Forward contract is a short-term solution and the industry has to see opportunities for businesses. We are looking at price readjustments but such price re-adjustments are accompanied by high value addition,” said Mr Raman Roy, who is regarded as a pioneer of the BPO industry, and is also the Chairman of Quatrro BPO Solutions.

Advisory firm Tholons’ CEO, Mr Avinash Vashistha, points out that while one per cent rise in the rupee translates into 20-basis point impact on IT margins, the hit is far more severe in the case of BPOs. “For BPOs, every one per cent rise in the rupee has 50 basis point impact on margin. Given that the rupee appreciated 11-12 per cent over the last few months, the impact on BPO margin adds up to be quite significant,” Mr Vashistha said.

He said offsetting the rupee impact means that companies would also need to hike utilisations. For instance, against the normal scenario of a company using on an average 75-80 per cent of its headcount and maintaining a bench strength of 20-25 per cent, companies will need to reduce the bench strength by half so that the utilisation touches about 85 per cent,” he said.

Mr Sanjay Kamlani, co-CEO of legal outsourcing services firm Pangea3, said that his company was looking at incorporating clauses in new contracts, which would allow it to engage clients in future discussion on pricing in case the currency continued to rise.

Nucleus Software’s Managing Director, Mr Vishnu Dusad, said that rupee rise meant that company needed to be “far more competitive” in terms of operational efficiency. “In our case, we are trying to minimise rework in our projects,” he said.

Nucleus, which is a software provider for banking and financial sector, said that the company was also looking at increasing exposure to consulting where the margins are more attractive. “We are moving some of our people to consulting functions where we have margin of about 30-40 per cent. Additionally, we have increased prices to the tune of 5-10 per cent in new and re-negotiated contracts,” Mr Dusad said.

Mr Prashant Chawla, Chief Operating Officer of Integreon, pointed out that while the company had negotiated a 10-15 per cent increase in price of certain contracts, it was a result of multiple factors including the rupee movement. “It is not just the rupee, but other factors like increase in compensation for professionals, increase in management cost, amongst others.” he said.

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