Margins to stay flattish as compared to 2011: Genpact's CEO

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

Genpact has reported a strong set of fourth quarterly numbers. The BPO major beat market expectations and posted a 33% increase in net profits to USD 61.1 million.

The topline growth too was robust - rising 30% to USD 442.7 million. The president and CEO Tiger Tyagarajan tells CNBC-TV18 the strong growth was a result of better focus on servicing its clients needs and increased revenues from global clients.

Tyagarajan confirmed that their relationships with existing clients are strong and expanding and that their order pipeline is healthy. "We will continue to invest for growth and expect adjusted income from operations margin in 2012 of 16-16.5%," he adds.

The company continues to invest in new product innovations and services but even with all this investment he sees their margins staying flattish as compared to 2011.

GE revenues for some time now have been flat to low single-digit growth which is the way Genpact thinks about 2012 as well.

Below is an edited transcript of his interview with CNBC-TV18. Watch the accompanying video for more.

Q: What is the outlook amid the kind of headwinds and challenges that you are seeing especially with regards to the US and the European markets? Is that going to have an impact as far as your guidance is concerned?

A: The guidance that we have given and the expectations that we have set for 2012 on the earnings call today is in the context of the current economy and it is interesting. I wouldn't say headwinds, I would say it is more volatile, more uncertain, which is the way the world has been from our perspective in 2011 and more importantly from our client's perspective.

What that means is that you should be prepared for volatility; our client should be prepared for it. It actually sets up some interesting opportunities, as clients continue to think about variablization of their overall cost, driving improvements in their overall operating environment across the board, there are some really interesting opportunities that we continue to see, but it is a very volatile uncertain world.

Q: What is the guidance that you are holding out?

A: Our guidance that we have given the street in terms of revenues is USD 1.84 billion to USD 1.88 billion. That's broadly from 15-17.5% growth rate on revenue. That's given the range of services that we offer in terms of diversity as well as the geographic diversity of our portfolio now. So, it's Europe, its Asia-Pacific which has been very high growth rates particularly in China, Japan and the US as well. So, it's a very broad portfolio. Some parts of our portfolio in terms of services such as analytics is growing at a 50% plus rate for the last two years and we expect that to continue into 2012.

Q: Are you seeing margins coming under pressure? What is the broad range of margin expectations? Will they be between the 16-18% mark?

A: We have guided to 16-16.5% at the adjusted operating income margin level. It's a much narrower guidance, but it's reasonably similar to what we delivered in 2011. We will continue to drive productivity. Our whole investment strategy is to take the dollars that we save on productivity and invest it in the front end, in client facing teams, in domain expertise there. We have added substantially in 2011 - 45 business development and sales resources across the globe with deep industry domain expertise and we will continue to do that.

We are investing in new product innovation, services that combine technology and analytics and really add value to our clients. In global growth, in terms of new delivery centers, we opened up Dubai and Brazil in the latter part of 2011 and will continue to invest in those new centers as we drive growth into those centers. So, broad investment, that then takes our margin to a flattish margin as compared to 2011.

Q: There has been a lot of talk about budget cuts. Are you beginning to see that with your clients as well? Are people cutting budgets at this point of time or is the decision-making cycle delayed?

A: No, decision-making is actually very stable. Across the board, our decision-making cycle times haven't really changed or they haven't worsened. A smaller part of our business than for a lot of our competitors is being dependent on discretionary budgets. For example, some part of our IT business is dependent on discretionary budgets. In the capital market space, some of the IT budgets and IT spends are dependent on discretionary budgets, but otherwise a large portion of our portfolio is non-discretionary.

So, whether you are doing finance and accounting or a company is running insurance operations or mortgage operations or for a life sciences company actually figuring out how the sales force should be deployed, all of those are non-discretionary. So, actually for us, it's less about budgets and it's more about what our clients are trying to do and of course decision cycle times are important, which is very stable.

Q: Give us a sense of the outlook as far as the revenue coming in from GE is concerned? For this quarter, GE revenues are up by about 1.6%

A:  GE revenues for some time now have been flat to low single-digit growth which is the way we think about 2012 as well. We have penetrated GE substantially with a range of services that we offer; we offer those services globally and across all their business units. Our penetration with GE means that we tend to do very high value added work.

There is some interesting work that we are doing to drive global platforms for GE as they continue to penetrate into merging markets and grow in emerging markets across the globe - India, China, Middle East, Brazil and we are doing some very interesting things to set up their back offices for them, but other than that flat to low single digits is the way we think about GE.