Genpact IPO Good Bet Long Term but May have a Shaky Start

Genpact IPO – The India Street Analysis

Introduction:

Genpact Limited, a business process outsourcing company (BPO) based in India plans to raise about USD 700 million through its IPO (initial public offering) at the New York Stock Exchange. The company had filed a registration statement with the Securities and Exchange Commission (similar to SEBI) in US on May 11 this year. The company has proposed a price band of USD 16 – 18 and the issue size is 35.29 million shares. It has requested for the ticker ‘G’ previously used by Gillette a few years ago before it was taken over by Proctor & Gamble. Morgan Stanley, Citi and JPMorgan are the co-lead underwriters.

“Business Process Outsourcing” means relocating entire business functions to either self-owned or third party service providers, typically in low cost locations like India. Two Indian BPO’s have been listed in US so far; WNS Holdings (NYSE) and EXL Service (NASDAQ).

Genpact is registered in the Caribbean island of Bermuda and has operations in China, Hungary, India, Mexico, The Netherlands, Philippines, Romania, Spain, United Kingdom and United States.

The company was formerly known as GE Capital International Services. It was founded in 1997 at Gurgaon, India. General Atlantic and Oak Hill Capital Partners acquired a 62.63% stake in Genpact from General Electric in 2005.

Genpact has 5 sites in India at Gurgaon, Hyderabad, Bengaluru, Jaipur and Kolkata. As of 2007, it has an employee strength of 30,000 globally.

Business Overview:

Genpact serves the following industries: Banking and Finance, Insurance, Manufacturing, Transportation and Automotive.

Banking and Finance:

Genpact has more than 650 associates and 3,500 full time employees serving businesses across USA, Europe, Australia and Asia from its global locations in India, China, USA, Mexico and Hungary. A range of customer end financial products including private label credit cards, dual cards (PLCC with credit card functionality), retail finance, auto finance, personal loans and mortgage are supported. The services include finance and accounting, sales / marketing analytics, customer services and financial services collections / operations.

Insurance:

More than 1,800 employees serve the insurance operations. Life insurance, health insurance, annuities and pensions, mortage insurance, liability insurance and property / casualty insurance are the key areas covered. These services fall into 4 categories viz. insurance policy set up and maintenance, agent support, billing / collections, risk assessment / marketing and IT services.

Manufacturing:

The company serves high end manufacturing industries like power systems, transportation etc. Services include online support, payment collections, procurement assistance and execution, vendor co-ordination, production planning / control and sales / marketing.

Transportation:

Genpact provides customer relationship and trade support, business operations support, finance and accounting, employee services and marketing support to global airlines, travel agencies, logistics service providers, car rental firms etc.

Automotive:

Genpact's service solutions comprise of supporting clients across component and sourcing execution, manufacturing forecasting and planning, financing, after sales and dealer support. It helps its clients gain control over their supply chain costs by providing transactional procurement functions remotely, while also providing inventory management planning through analytical techniques unique to the offshore industry.

Genpact has direct fibre optic connectivity to US, Europe and Australia, thus enabling redundancy for links and equipment. It has more than 500 servers and 10,000 desktops to perform the operations.

The proceeds of the IPO is proposed to be used for repayment of debts outstanding under credit facilities and for working capital and general corporate purposes, including potential acquisitions.

Financial performance in the past:

Description	2004	2005	2006
Income	165.50	187.90	252.20
Expenditure	83.60	171.00	209.00
Net income	81.90	16.90	43.20
Profit before tax	90.20	10.70	33.90
Income tax	6.70	-6.40	-5.90
Net profit	83.40	17.10	39.80

1. All figures are in million USD.

2. The financial year is considered as January – December.

3. It is to be noted that the general, selling and administrative expenses for 2004, 2005 and 2006 were 76.3, 117.5, 159.2 million USD, the main reason for drop in net profits.

Indian companies listed at NYSE:

11 Indian companies are listed at NYSE, out of which 9 are constituents of Nifty. Patni computer systems is a constituent of Nifty Junior index. The full list is as follows: Dr.Reddy’s Laboratories, HDFC Bank, ICICI Bank, MTNL, Patni Computer Systems, Satyam Computer Services, Sterlite Industries, Tata Motors, VSNL, Wipro and WNS Holdings.

WNS Holdings got listed on July 26, 2006. EXL Service got listed at NASDAQ on October 20, 2006. Let us analyze the daily charts of these two stocks, since these are Indian BPO companies listed in US.

We can see the “double top” formation in both the charts between mid November 2006 and mid February 2007. This is a bearish sign. As a result, both the stocks had almost fallen back to their opening price on listing, which is a key support level. In both cases watch the “upward gap” or the “rising window” nearly a month after listing; a “downward gap” or “falling window” just after the first peak in case of EXLS and after the second peak in case of WNS. These indicate nearly identical demand supply gap scenario for both the stocks. EXLS is still bearish; WNS has just begun an upmove and currently in second wave.

EXL Service

http://groups.google.com/group/theindiastreet/web/EXLS.JPG

WNS Holdings

http://groups.google.com/group/theindiastreet/web/WNS.JPG

Charts courtesy: Yahoo! Finance

Conclusion:

As of now, the IPO details are being scrutinized by the SEC. Given the technical scenario of both EXLS and WNS, Genpact may be a shaky starter at NYSE. Another factor to be considered is the exchange rate. An appreciating Indian Rupee, for example, may fetch lower revenues in Indian currency; but the local expenditures, overheads and other expenses may have to be met in local currency. This gives a distinct disadvantage. However, going by the fundamentals, business model, infrastructure, personnel and support services, Genpact is likely to perform well in the long term.

SUNDARAMURTHY VADIVELU

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India Real Estate Jitters

By F. Colton

I have recently read about a few laws the India Government has passed to slow the real estate market in India. The false claim that too many foreign real estate funds are driving up real estate values is complete rubbish. First and most importantly, I can count on two hands the number of foreign real estate funds that have actually invested money on a real estate project in India. It's just not happening like the media claims. Foreign Real Estate funds find the India market appealing, but it still lacks the transparency available in other more mature markets.

So how are the real estate prices being driven up? For one, local Indian developers and local speculators are driving the cost of real estate up. Most are ignoring real estate fundamentals and are paying any price to participate. The smart ones are forming Joint Ventures with landowners to reduce their exposure and risk. Most of these joint ventures are win-win scenarios.

Real estate is a cycle of booms and busts. The Indian government may try and smooth the peaks and valleys but inevitably the cycle must continue. Moreover, India is in need of a complete overhaul in infrastructure. Why scare away the very investor you are looking to attract to help build out the infrastructure India sorely needs? There is no so called bubble in the India real estate marketplace. Of course prices are too high in some areas and will come down. However, the fact remains that almost 95% of the buildings in India are Class D or F in other parts of the developed world.

India needs foreign capital to drive its real estate market and to compete with other Asia countries. Foreign investment brings jobs and skill development not currently found in domestic India. The India Government should be focused on enticing FDI and not protectionism. India has momentum, but as history has shown, it can change overnight by thoughtless, short-term strategies that may get one reelected but not allow the country to modernize.

In summary, India is at yet another cross roads. This won’t be the last one but it is an important signpost directing foreign investment in or out. Unlike more mature markets, India’s modernization depends on foreign capital. The world is globalizing and is looking for alternative investments outside of the US and Europe. India can either open the door a little wider to foreign capital or discontinue FDI liberalization and risk foreign capital finding other alternative markets. Large foreign investors are a finicky bunch.

The author is the Editor, The India Street.

Fresh dollars heading for Indian realty

New Delhi, India: Nearly two dozen US funds are raising $3.5 billion for investments in Indian realty. This is over and above the $2.5 billion invested by overseas realty funds in India to date. Those raising the money include Wall Street powerhouses such as Blackstone Group ( $1 billion) Goldman Sachs ($1 billion), Citigroup Property Investors ($125 million), Morgan Stanley ($70 million) and GE Commercial Finance Real Estate ($63 million). Others raising the money are: JP Morgan, Warburg Pincus, Merrill Lynch, Lehman Brothers, Warren Buffett’s Berkshire Hathaway, Colony Capital and Starwood Capital.

Considering that most US funds had showed no interest in investing in realty in India, their bullish outlook now has surprised many. The answer lay in the policy changes of February 2005 that allowed 100% foreign investments in construction projects with fast-track approvals. But the real attraction is potential investment returns of 25% and more in Indian projects that might be hard to come by in the US and Western Europe today.

One such determined big player is Goldman Sachs. Today there is a sea change in perceptions. For about a year now, Goldman Sachs’s Whitehall Street Real Estate Funds have been exploring the Indian market and checking out potential investment partners. Some time back, the firm announced its plans to invest up to $1 billion over the next two years in Indian private equity, real estate, private wealth management, and other businesses in the country for its institutional clients. A month later, California Public Employees’ Retirement System invested $100 million in a $400-million real estate fund promoted by IL&FS.

What is attracting investors in particular is India’s urban office space market, which is at 60 million sq ft, compared with New York City’s 400 million sq ft or New Jersey’s 175 million sq ft.

Bangalore has 25 million sq ft of office and high-tech space, of which 9 million sq ft was built last year. For investors, this is a glass half-full or half-empty.

Tishman Speyer is among the first US developers to invest in India. Last year, the New York City-based firm formed a joint development company with ICICI Venture Funds of Mumbai that will have a war chest of $2.5 billion. Tishman Speyer and ICICI Venture Funds are bringing in $300 million each in equity and will invest equally in projects. So far, the Tishman Speyer-ICICI Venture Funds combine has signed memoranda of understanding for two ventures in India. One is a $200-million project for residential and commercial development on 42 acres in Bangalore’s prime Whitefield suburb. The second one is in Karnataka’s Devanahalli , where Tishman Speyer and ICICI Venture Funds are buying a 25-acre plot whose final use has not yet been decided.

Similarly, New York-based developer Vornado Realty Trust has teamed up with The Chatterjee Group, a venture capital firm also located in New York. The Chatterjee Group has more than $1.5 billion in investments, including some in Indian real estate development projects and business process outsourcing operations. Vornado’s investments through this partnership are primarily in the booming market for information technology parks in cities like Bangalore, Hyderabad and Navi Mumbai.

Source: The Financial Express.

Destination India: Perfect for FDI

By Dhruva Jyoti Chowdhury

Kolkata, India: If you are an Investor in India, not just the mushrooming IT, companies InfoTech, healthcare services telecom, BPO or the real estate, you can put your hard earned money on almost everything to get better gains and good returns. Recently, a study conducted by the University of Tennessee, School of Information Services, USA, A more definite edge for the Indian techie lies in the conference room has been confirmed. Indian workers tend to have shorter meetings with fewer people than their US counterparts, says a study. The average US tech professional meeting lasted 55 minutes, compared to 47 minutes in India. More telling, and the real time-waster, was that US meetings averaged eight people compared to five in India. “Anecdotally, it seemed Indians were more focused. US firms tend to try involving everyone in the hope this would spur an innovative thought,” said Assistant Professor Suzie Allard associated with the study. Not only that, even the intra-office communication also showed slight differences. US workers were much more likely to use emails and less likely to communicate verbally. Allard said this difference needed more investigation. US researchers did note how many Western-educated Indians spoke of returning home or, if their children were studying overseas, their offspring indicating an intention to return because the “lifestyle tradeoff” was increasingly tilted in favour of India. The study also suggests that the Indian workers are trained to sleep only on national holidays but US workers spend half their day in meetings and are more likely to take work home. The study covered the work practices of over 100 engineers and tech professionals in six firms in India and the US that dealt in InfoTech, healthcare services and telecom sectors. The study, overseen by Professor Carol Tenopir, focused on innovators in cutting-edge fields. US workers were more than twice as likely to be doing something else during such meetings – reading emails, surfing the net. Another was that US workers often complained they needed to take their work home. “Indian workers rarely said anything about that. They seemed to get a lot more done at office,” said Allard. “US workers seemed to spend a lot of time doing other things and find it hard to get continuous work time.” Indian meetings tend to be lead by one individual. “Everyone got to speak, but there was a big leader culture,” said a researcher. “There was more variety in US meetings with leadership often being diffused across several people.” Indian workers also used information resources in their office more than their US counterparts. “Indian engineers were more likely to talk about using such resources than Americans,” says Allard. She suspects this is a function of corporate culture, with Indian firms more interested in training workers on how to use such resources.

IBM to invest US$6 bn in India

New Delhi, India: IBM Corp Chief Executive Samuel Palmisano met with Indian business leaders and executives from client companies on Tuesday as he wrapped up a two-day trip to review the company's new investments and expansion in India.

IBM is investing US$6 billion to set up new research facilities and expand its outsourcing centers in India. The company has hired thousands of engineers and software professionals since Palmisano unveiled the three-year investment plan last June.

Company officials declined to immediately comment on the visit and Palmisano avoided journalists after addressing Indian business leaders at a close-door meeting.

IBM sees India as a key base to support services for clients around the globe, helping the company fend off competition from low-cost Indian service providers that are increasingly grabbing worldwide technology consulting business.

It also wants to seize the opportunities in the fast-growing India market. Currently, sales in India form a negligible part of IBM's global revenue, but the Armonk, New York-based company is beginning to win large orders from Indian companies.

In March, it won a 10-year contract to manage the information technology infrastructure of Indian mobile company Idea Cellular in a deal valued between US$600 million and US$800 million.

IBM now employs about 53,000 people in India, second only to the United States, where it has about 125,000 employees. Most of them are employed at the company's outsourcing centers that cater to IBM's clients worldwide.

Source: ExpressIndia.com and the Associated Press.

Lobby firms told to improve US-India trade

Washington: The US-India Business Council (USIBC) has asked 22 Washington-based professional lobbying firms specialising in US-India trade to develop a "roadmap" for trade and investment in India.

Included in the initiative to lead the two countries towards a successful Doha conclusion and eventually a free trade agreement - potentially the largest ever negotiated - is Patton Boggs, a firm championing the US-India civilian nuclear advocacy programme for USIBC.

"USIBC's greatest contribution to free-market democracy in the coming years - consistent with securing a successful conclusion to the Doha Development Round - will be to prepare and execute a 'Roadmap' that charts the course towards a Free Trade Agreement between the US and India," said Ron Somers, USIBC president.

"The ultimate goal is to unleash market forces supporting free trade and investment in a socially-sustainable manner. The ultimate goal is to create the freest feasible trade and investment climate between the US and India, one which protects respective national interests and is most-importantly inclusive," he said.

Two-way trade between the US and India stands at a mere $32 billion. In contrast, two-way trade between the US and China is more than 10 times this amount, at $350 billion.

The 22 professional firms specialising in US-India trade to receive the Request for Proposal (RPF) are all members of USIBC comprising 250 of the largest US companies investing in India and two dozen global Indian companies interested in strengthening US-India commercial ties and deepen two-way trade.

"The US-India Business Council (USIBC) is making US-India trade and investment its top advocacy priority for 2007 and is determined to dedicate USIBC's considerable energy and resources to deepening US-India trade, identifying and removing barriers on both sides, and clearing the way for a new era of trade cooperation," the RPF said.

Recognising that months and years of dedicated effort will be necessary to meaningfully deepen trade and investment beyond current levels, the RFP solicits professional guidance and support for researching, preparing and defining, and then executing an activist agenda -a "Road Map" - that charts the logical progression towards deeper, more robust US-India trade and investment, USIBC said.

USIBC has asked the 22 companies to send in their proposals by May 15 - with contract award to occur by June 15 - in time for USIBC's 32nd Anniversary 'Global India' Summit on June 27. The summit will feature Indian Commerce Minister Kamal Nath, Secretary of State Condoleezza Rice, US Secretary of Commerce Carlos Gutierrez, Reliance Industries CEO Mukesh Ambani, Boeing CEO Jim McNerney, Warburg Pincus President Chip Kaye, and former Defence Secretary William S. Cohen, among others.

USIBC promises to include on the menu at this event for the first time Indian mangoes - highlighting the fact that this fruit has been held up by trade barriers for the past 18 years, the business lobby said.

The Bush administration, working through the Office of the US Trade Representative Susan Schwab, together with the US Department of Commerce and the US Department of Agriculture, has cleared the way for Indian mango exports to the US this harvest season, it noted.

USIBC applauds Abbott Laboratories for promoting Indian public health through global price reductions

Washington, D.C. - U.S. – India Business Council (USIBC) applauds Abbott’s decision to significantly reduce the cost of its life-saving drug, Kaletra (a protease inhibitor to treat HIV/AIDS), in 40 developing countries, including, India.

The reduced price is lower than any generic price available in the world today for this medicine and is approximately 55 percent less than the average current price in these countries. Abbott and the World Health Organization have agreed on a balanced approach which increases access to this vital drug while preserving the incentives which encourage the development of new drugs in India and around the globe.

USIBC President, Ron Somers, praised Abbott’s social responsibility saying that “this is good news for nearly 5.7 million Indians living with HIV/AIDS. This agreement, endorsed by the WHO, contributes to India’s public health and demonstrates the benefits of innovation through intellectual property protection.”

The U.S.-India Business Council is the premier advocacy organization representing over 250 of the largest U.S. companies investing in India, joined by global Indian companies, promoting economic reforms with an aim to deepen trade relations and broaden commercial ties. For more information, visit www.usibc.com.

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