Genpact Ltd, India’s biggest back-office services firm, will see assured billing from its biggest client and former parent General Electric Co. drop by three-fourths by 2013 from the $360 million (Rs1,476 crore) annual guaranteed revenues currently, the call centre company said in a regulatory filing for a planned initial public offer (IPO).
Services for GE account for almost three quarters of Genpact’s revenues, which stood at $613 million in 2006.
Genpact—formerly wholly and now 60% owned by GE— plans to raise about $600 million in a stock offering to repay debt and for general corporate purposes, including acquisitions, and plans to list its shares on the Nasdaq stock market in the US.
Under a contract beginning January 2005, signed after Genpact was spun off from its parent in 2004, GE is bound to annually purchase $360 million worth of services from Genpact till 2010.
This minimum annual committed amount of $360 million might be reduced to $270 million in 2011, $180 million the year after and $90 million in 2013.
The billing from GE in the last two years has exceeded the minimum assured amount; in 2006, GE bought $453 million worth services from Genpact, but the issuer that first began its work as a GE captive outsourcer in 1997 acknowledged the usual risks of having a client accounting for a big chunk of its revenues.
“GE accounts for a significant portion of our revenues and any loss of business from, or change in our relationship with, GE could have a material adverse effect on our business, results of operations and financial condition,” Genpact, which has its registered office in Bermuda, said in a filing with the US stock market regulator Securities and Exchange Commission late on Friday. The language is standard for such filings.
Genpact is the fourth back-office services firm with bulk of its operations in India to have an IPO. WNS Holdings, India’s second-biggest call centre firm, and smaller rival EXL Holdings Inc. sold stock in initial share sales last year, followed by a float by FirstSource Solutions Ltd earlier this year.
Analysts said the GE business is not likely to fall below the assured amount in the coming years, but noted that the overall risks for Genpact from such a high dependence on one client were high.
“If over 70% of their business is coming from GE, it is a highly risky both from the investment and other (non-GE) clients’ point of view. It’s nothing more than a glorified captive,” said Sudin Apte, research head at the Indian unit of Forrester Research. “Ideally, one single client should not account for more 15-20% of revenues.”
On the flip side, said Harit Shah, research analyst at Mumbai-based Angel Broking, “a big client can provide a stable revenue stream and be great arm candy for reference of future clients.”
Calls to Genpact seeking comment were not returned.
Its non-GE clients, 35 at last count, increased net revenues from $42.2 million in 2005 to $158.3 million in 2006. The firm had more than 28,000 employees and operations in nine countries on 31 March 2007.