ITeS-BPO Sector: Growing Up Fast

The speed at which the ITeS-BPO sector is maturing in India is
really astonishing. The industry, now hardly a decade old, has seen many waves
of consolidation and cross-border mergers. The sector has also seen within its
short life increasing focus on particular domains and moving up the value chain
in terms of providing high-end outsourcing services. Unlike its older sibling,
the software services sector, the BPO sector didnt get too much time to grow
into a mature industry.

Of course, maturity has come with solid growth. According to
Nasscom, the ITeS-BPO industry has grown to $8.4 bn in fiscal 2007 from $6.3 bn
in the last year, clocking a healthy 33% growth. The domestic sector also
contributed a reasonable 14% to the overall sector revenues, which now directly
employs over five lakh people. Given the size of the global BPO market at around
$150 bn, the scope of growth for the sector remains buoyant, notwithstanding
country level competition from other third and second world countries.

There are only a few publicly listed BPO companies in India at
this point of time, though given the number of large BPO companies already in
India, this could improve in the medium to long term. The two well-known
companies listed on Indian markets include FirstSouce and AllSec Technologies.

Allsec Technologies:Decline
in Sales and Profits

Chennai-based Allsec Technologies is a pure play, third-party BPO company
offering both voice and non-voice services established in 1998. The company
provides BFSI, tech support, quality assurance and HR processing service. The
company has currently around 3,000 employees on its pay roll. The net sales for
the quarter ended June 30, 2007 was Rs 25.90 crore against Rs 26.66 crore for
the quarter ended June 30, 2006, recording a marginal negative growth of 6%.
Profit after taxes was at Rs 45.73 crore against Rs 67.78 crore recording a
downward movement of 32%. On a sequential basis, profit after taxes was lower by
34.62% compared to Rs 69.92 crore of the previous quarter sequentially.
Similarly, for the year ended March 31, 2007, Allsec clocked net profit of Rs
24.07.63 crore compared to Rs 20.25 crore for fiscal 2006. Revenues stood at Rs
127.52 crore compared to Rs 93.90 crore for the previous year.

During the quarter, the company announced that it is setting up
a new 200-seat facility at Trichy, Tamil Nadu, which is expected to become
operational in the second quarter this year. The new facility will bring in
additional manpower and will meet the growing demands of the existing customers.
The company targets $100 mn business in the next two years from around $35 mn at
present. To meet the growth target the company plans an acquisition in the US
for around Rs 165 crore. Recently, Allsec has acquired 100% equity in B2K, a
600-seat facility located in Bangalore that is primarily involved in providing
technical support services. On earnings prospect, the company has stated that it
will grow by around 40% this fiscal year. The stock currently trades at Rs 178.

FirstSource: Impressive Results

Formerly known as ICICI OneSource, FirstSource provides business process
management to companies in the banking and financial services, telecom, media,
and healthcare industries. The company has over 14,000 people across 24 centers
in India, the Philippines, UK, US, and Argentina. The company reported net
revenue of Rs 270.01 crore for the first quarter ending June 30, 2007, compared
to Rs 160.86 crore for the same quarter last year. Net profit after tax stood at
Rs 44.31 crore, up 231.8% compared to Rs13.36 crore the previous year. On
sequential basis net profit was up by 27% from Rs 34.8 crore previous quarter
ending March 2007. Net sales for 2006-07 stood at Rs 816.85 crore for the year
ended March 31, 2007 compared to Rs 548.75 the previous year. Similarly, net
profit was at Rs 97.25 crore for the year March 31, 2007, compared to Rs 246.7
crores achieved last year showing a y-o-y growth of 294.2%.

The company has stated that it has commenced operations in five
new centers, Chennai, Vijaywada, Cochin, Trichy, and Hubli for delivery of BPO
services. The total seat capacity envisaged at these five centers is approx
imately 2,500. Recently, FirstSource acquired MedAssist Holding, a leading
provider of revenue cycle management in the healthcare industry in the US. The
acquisition is valued at Rs 1,350 crore. MedAssist, headquartered in Louisville,
Kentucky, has 1,400 employees. It has over 1,000 clients including hospitals,
large physician groups and alternate site providers. FirstSource has decided to
merge RevIT Systems.

Earlier this year, the company had acquired US-based BPO in the
healthcare sector called BPM. The company has appointed John Cutrone as
president, North America operations. Cutrone has worked with companies like IBM,
Price WaterhouseCoopers, Brother International, and Smith Corona. The company
has given a guidance of growth on 50% for the fiscal year 2008. The stock
currently trades at Rs 82.