BPO back on track, posts 6.5% growth in Jan-March

After almost six quarters of consistent losses, the business process outsourcing (BPO) unit of HCL Technologies has finally reported positive margins. For the quarter ended March 31, 2012, the BPO unit grew by 6.5 per cent to $49.4 million. It made an Ebit (earning before interest and taxes) of $0.2 million, compared to losses of $3.5 million in the quarter ended December 31, 2011.

“We had guided the Street that we would be able to turn-around by this quarter. But this has been possible because of the journey that we have undergone over the last 24 months,” said Rahul Singh, president-business services division and financial services. “We restructured our BPO. We moved out of certain businesses as part of this restructuring and also entered into new verticals and markets. With this, our first phase of restructuring is over and CY12 will see the second phase of this change.”

It seems the company’s decision to slice off flab, and focus more on high-end and non-voice businesses is paying off. Singh said the entity hived off and downsized businesses that had low margins like telecom expense management, and certain voice-based operations. It also entered new verticals like insurance, healthcare, publishing and certain specific telecom services.

According to the company, over the last six months it has signed deals worth $2.5 billion. Of this, almost 12 per cent of deals were in the BPO segment. “We realised that if we want to be profitable, cost-cutting alone would not help,” Singh said. “We would also need to get into new businesses that allows us to generate and manage profitability. So in 2011, we moved out of telecom expense management. We had multiple sites in the US catering to this which we consolidated. We substituted this decline in business by focusing onto new verticals.”

For the CY12, Singh and his team will kick-off the second phase of the BPO restructuring plans. “CY12 will be about margin neutrality. We think for the next four quarters our Ebit would be in the similar range,” he said. “We still need to do away with a few things in our portfolio, as we want to have industry Ebit and over some period be at par with company-level Ebit.”

Singh said the focus of the second phase of restructuring would mean getting better aligned to the customer, increasing cross-selling opportunities into existing customer base and delivering BPO services in a domain-centric manner. The company is also developing an integrated delivery model that would allow customers to work with it in different regions.

Rather, Singh noted that every new deal that the BPO unit signed over the past few quarters have had cross-selling opportunity. Almost 30-35 per cent of the BPO units’ turnover now comes from new deals. Singh had also managed to grow the business by not adding to the headcount.

Another important feature of this growth had been maintaining its non-linear focus. For the March ended quarter, the BPO unit had a headcount of 9,990, down from 11,021 in the December quarter. HCL Technologies Business Services would perhaps be having one of the lowest attrition (6.4 per cent) in the BPO sector.