IT companies create pricing pressure: WNS

WNS, the NYSE-listed business process outsourcing (BPO) company, said some information technology (IT) services firms were creating pricing pressure to garner more customers.

“We did see some irrational price discounting in some of the deals by IT services players, especially those who want to get into the BPO segment. While in general, the pricing environment is tough, we have successfully ramped up operations of some of our existing customers,” said WNS CEO Neeraj Bhargava.

He feels that the very same companies, which thought BPO was a low-cost work, are now looking at steady revenue streams from this segment. Bhargava feels that the IT industry is extremely vulnerable as it caters to the discretionary IT spend.

With discretionary IT spend taking a hit as a result of the current slowdown in the US market, IT firms are now focusing their attention to strengthen their BPO offerings. Compared to IT services companies, BPO firms cater to operations that are core to organisations’ functions, said analysts.

WNS is tracking five large deals and is confident of closing them by the end of March 2009. “We have always targeted deals that would, over a period of time, generate revenue of at least $10 million. So, they might be smaller when we start, but we have the opportunity to grow,” added Bhargava.

He believes that while the next year will be tough for everyone, going ahead, offshoring will increase as clients will be firming up IT budgets soon. With the travel industry under pressure, the company sees growth from insurance and its analytics offerings.

Having recently acquired Aviva’s captive BPO unit, Aviva Global Services (AGS), Bhargava now wants to focus on organic growth. “In terms of acquisitions, the deal flow will lessen for the next three to six months. As for us, we would like to focus on the integration of AGS into WNS and try and deliver the numbers that we have promised our shareholders,” said Bhargava.

The current slowdown has impacted attrition levels among BPOs positively. For WNS too, the attrition has come down significantly. “We think attrition will come down further. However, unlike others, we are not increasing the work hours, we are certainly reducing the bench,” said Bhargava.

With attrition down, the company also believes that salary growth across the board will be slower. As reported by Business Standard earlier, the top management had forgone a part of its bonuses earlier due to rising attrition, but that certainly is in check now. “We did forgo a part of our bonuses and we are still trying hard to get the numbers to a desired level. We certainly want our bonuses this time,” said Bhargava.

For 2008-09, WNS has a capex of $25 million, which the company plans to use for expanding its SEZ infrastructure. “Our Gurgaon SEZ is live, the one in Mumbai will be ready by February-March 2009. In the next two-three years, we think close to 20-25 per cent of revenues will come from SEZs,” said Bhargava.

With revenue from the UK close to 60 per cent, Bhargava feels that the currency fluctuation will impact the numbers. After its second quarter results, the company reduced its revenue guidance to between $385 million and $400 million from the previous $425-435 million.