Birla May Purchase Outsourcing Rivals: Corporate India

Indian billionaire Kumar Mangalam Birla is considering acquiring business process outsourcing companies to help double revenue at his unit that aids customers manage payroll, claims and computers.

Aditya Birla Nuvo Ltd. (ABNL), Birla’s company that runs the group’s financial, telecommunications, information technology and chemical divisions, may also sell a stake in the unit Aditya Birla Minacs Worldwide Ltd., according to Rakesh Jain, Nuvo’s managing director. Sales at Minacs rose 23 percent to 20.8 billion rupees ($377 million) in the year ended March.

Birla, who runs businesses including the world’s biggest maker of viscose staple fiber and India’s second-largest aluminum producer, is aiming to boost Minacs’ revenue to more than $1 billion even as it finds it difficult to add new clients, Jain said without elaborating. A twofold jump in sales will catapult the company to India’s No. 2 provider of outsourced services after Tata Consultancy Services Ltd. (TCS), according to data compiled by Bloomberg.

“We know that this is not a global-sized business,” Jain said in an interview at his office in Mumbai. “We will evaluate how to grow the business,” including mergers and acquisitions, and may seek an investor for the unit, he said.

Shares of Nuvo were little changed at 772.5 rupees in Mumbai today. The benchmark Sensitive Index declined 0.2 percent.

Bain Capital Partners LLC, a private-equity firm, agreed to pay $1 billion to buy a 30 percent stake in outsourcing company Genpact Ltd. from General Atlantic LLC and Oak Hill Capital Partners LP this month.

Deal Value

Bain paid 17.3 times Genpact’s earnings, according to data compiled by Bloomberg. Similar sized companies trade at an average of 17.6 times earnings.

India’s Essar Group is in talks to sell a stake in its outsourcing unit Aegis Ltd., Chief Executive Officer Prashant Ruia said in June, without elaborating. BPO companies will have to ensure they can offer better value to clients from any transaction they do, according to Sanjoy Sen, senior director at Deloitte Touche Tohmatsu India Pvt.

“The so-called gold rush period in this industry is over and now only innovations can grow the business,” Sen said in a phone interview from London yesterday. “Making an acquisition will be a big boon if it helps the buyer in moving up the value chain of the outsourcing business.”

Birla paid C$120 million ($120.3 million) to acquire call- center operator Minacs Worldwide Inc. in June 2006, a month after its founder Elaine Minacs died.

Revenue Target

Birla is purchasing companies to help his group boost combined revenue by 63 percent to $65 billion in three years. Birla in July agreed to buy Terrace Bay Pulp Inc., a paper pulp mill in Canada, for $300 million and to secure raw material supplies. Nuvo in April agreed to buy a controlling stake in an entity to be created by splitting store operator Pantaloon Retail India Ltd. to widen the reach of its apparel brands.

Nuvo expects to complete acquiring the retail chain in the next three months, Sushil Agarwal, chief financial officer at Nuvo said in an interview. The company may spend an additional 1 billion rupees to buy shares of the retailer in an open offer, apart from the 8 billion rupees it has invested, he said.

The purchases will help Nuvo spur growth as the debt crisis in Europe and a weaker recovery in the U.S. prompt companies to reduce spending on information technology.

“New business acquisition is under pressure,” at the group’s information technology division, Agarwal said in a conference call with analysts on Aug. 6. The company “will focus on operational efficiencies to improve margin.”

‘Business Philosophy’

Revenue at the unit grew 27 percent to 6 billion rupees in the three months ended June 30. Profit more than doubled to 190 million rupees helped by the depreciation of the rupee, Agarwal said on the call. Nuvo posted a 5.5 percent gain in net income in the quarter ended June 30 to 2.7 billion rupees, it said in a statement on Aug. 6.

Tata Consultancy, India’s biggest software exporter, reported revenue of 15.2 billion rupees ($275 million) at its BPO division in the three months ended March 31, while Genpact had sales of $330 million in the period.

“Our philosophy has been that you have to be a leader in the business, whether global leader or in India,” Nuvo’s Jain said. Minacs is “not an asset that the company is looking to exit immediately.”

To contact the reporters on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net; George Smith Alexander in Mumbai at galexander11@bloomberg.net

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net

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