The Hindu Business Line : Rupee impact: BPOs operating in India feel the heat

Chennai/Mumbai, Aug. 11 Some business process outsourcing (BPO), or ITES companies operating in India have felt the pinch in their profit margins due to the appreciation of the rupee.

The table alongside tells us that profits (before interest, depreciation and taxation), as a percentage of revenues, have dipped for some companies in the quarter ending June 2007.

Nasscom, the apex representative body for both IT and BPO companies, has said that the rise of the rupee has been too quick for companies to react with measures that offset the currency impact.

Rupee appreciation impacts BPO companies more than it does IT companies. For, a significant chunk of expenses for BPO companies remains in India; while IT services companies have some expenses in dollars due to sales force or other development centres being located onsite. This turns favourable when the dollar weakens.

Mr Gaurav Dua, senior research analyst, Sharekhan Securities, says, “A one per cent rise in the rupee against the dollar will have a 75-80 basis points impact on the operating margins for BPO companies, unlike IT companies where the impact is about 40 basis points.”

New rates

Some companies are negotiating new rates with both existing and new clients. Says Shanmugam Nagarajan, founder and chief people officer, 24/7 Customer, which is renegotiating rates, “We have also added a currency fluctuation clause in our contracts which would adjust pricing according to exchange rate movements.”

How receptive are clients to this proposal? Says he, “Almost all our clients are fine with this. They are global companies and understand the impact of currency fluctuation.”

Another plan of action is for companies to decrease their bench strength. (That is, reduce the number of people not yet on projects, but who remain ready to take on any new work that is assigned to them.) This makes more people generate revenue. However, industry watchers feel that reducing bench strength so quickly is not possible.

Mr Indrajeet Kelkar, research analyst with Dolat Capital Markets, sees bench strength as a necessary evil.

The bench, he says, is a compromise that a company makes for the sake of future growth. “The BPO industry is manpower-intensive and revenues rise with man-months billed; the company hence cannot reduce headcount at will,” he says.

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