Infosys BPO saves the day with unprecedented margin

When information technology company Infosys upset the market on Friday with its annual numbers and expectation for the months ahead, its poor cousin, Infosys BPO, sprung a pleasant surprise.

The largest subsidiary of India’s second largest IT services company reported a 400-basis points improvement in operating margins, to 22 per cent in 2011-12. Net profit jumped 44 per cent to $61.9 million. The margins, unprecedented in the BPO sector, are even better than some IT services companies and takes it closer to Infosys’ operating margin of 29.8 per cent in the fourth quarter of 2011-12.

Infosys BPO has completed 10 years of operations. It reported 17 per cent growth in revenue productivity per employee. During the year, headcount growth at 10 per cent was less than revenue growth, indicating focus on offering high-value services with products and platforms. In the fourth quarter, it added 22 clients.

“All the three acquisitions we have done in the past have enabled us to offer more high-end services, which have improved our profit margins to a great extent. While the acquisitions are contributing about 20 per cent to our overall BPO revenues, they have added substantially to our capabilities to become a transformational BPO,” said Swaminathan D, managing director.

The last three acquisitions Infosys made in the past five years are in the BPO segment. In 2007, it struck a multi-million dollar deal with Dutch consumer giant Philips, as a part of which it acquired the latter’s captive BPO centres in India, Poland and Thailand. It then acquired US-based platform-BPO services provider McCamish Systems in 2009. Last year, Infosys BPO acquired an Australian sourcing and category management services provider, the Portland Group.

“These acquisitions have helped our BPO business offer more value-added services and win many new clients across sectors. Today, 30 per cent of our revenues are coming from the platform business,” said V Balakrishnan, chief financial officer and member of the board of Infosys.

In the year ended March 31, 2012, Infosys BPO added 10,400 people on a gross basis (2,500 net hires) and in the ongoing financial year, the company has said it would add 13,000 more.

Swaminathan said attrition continues to be in the north of 35 per cent, mostly in the entry-level. While Infosys has decided to defer giving a wage rise for the time being, Swaminathan said the company may look differently for the BPO subsidiary.

“We may look at it differently (about wage hike) for the BPO. We will definitely give a salary hike. But the timing we will decide,” he added.