'We are exploring new operations, acquisitions...client demand is picking up'

Q&A: Rohit Kapoor, President & CEO, EXL

Nasdaq-listed EXL Service’s net income for the first quarter ended March 31 doubled to $5.6 million (Rs 25.2 crore) while its revenue rose 32 per cent year-on-year. Rohit Kapoor, president and CEO, told Kirtika Suneja about their plans fo exansion. Edited excerpts: 

Attrition has increased with income and revenue. How do you plan to tackle this?  

We experienced attrition of 32.7 per cent in the first quarter, compared to 21 per cent in the first quarter of 2009 and 27.3 per cent for the fourth quarter of 2009. Increased attrition means the market is opening up. 

We will retain our best employees in three ways: providing learning and development programmes, doing talent management programmes and by encouraging equity performers in the middle management. 

What are the hiring plans for this year? 

Earlier, we were hiring 200 people every month; it has almost doubled now, to 300-400 every month. The wage hikes will be in high single-digits for average performers and in double-digits for the best ones. 

What do you plan to do with the $100 million (Rs 450 crore) of cash and cash equivalents? 

We are trying to get some onshore US end-to-end service delivery capability to do data capture and imaging there in the US and processing in India. This acquisition should be $10-25 million (Rs 45-110 crore) and then there are larger deals in the M&A (merger and acquisition) pipeline in the $25-50 million (Rs 110-225 crore) range. 

How mature is the M&A pipeline and will you need to raise money in case of multiple large deals? 

The pipeline is mature and we are in talks with 6-12 companies for buyouts. We are eyeing captives in the banking, financial services and insurance space for the larger acquisitions. In case of these large deals, we will either raise money or have stock deals if required. Moreover, we are exploring new geographies like South Africa and China for both new operations and acquisitions. 

Healthcare is an interesting vertical because of the changes brought in by the reform bill in the US. We are looking at small acquisitions of around $25 million (Rs 110 crore) in the US healthcare segment. 

How healthy is the deal pipeline and what are your clients saying? 

Client demand is picking up and this was one of the reasons, besides the strong first quarter performance and the PDMA acquisition in insurance, that made us increase our full-year guidance (prediction).

We are getting large deals with total contact values of $50 million (Rs 225 crore) over a three to five-year period. Mid-size deals of $10-25 miilion (Rs Rs 45-110 crore) are also happening. So, there is increased demand for business.