Re rise, mkts led to lower price: Experts
India’s largest BPO Genpact raised about $494 million on NYSE on Thursday, which is about $107 million less than expected.
By Harsimran Singh, TNN |
NEW DELHI: India’s largest BPO Genpact raised about $494 million on NYSE on Thursday, which is about $107 million less than expected. The company scaled down the offer price from $16-$18 to $14 due to ‘poor market conditions’. But experts had already rated the much awaited IPO as over priced.
“Even if the company performs exceptionally well in the next three years, at an offer price of $17 the company’s share was selling at one year forward PE of nearly 61 and two year forward PE of nearly 49,” said Vivek Gupta, an analyst with SeekingAlpha.com, a website tracking markets.
Three things hit Genpact IPO—the market conditions, rupee appreciation and that it was not the first BPO to list. The rupee appreciation was also factored in probably by investors. Though Genpact says that rupee won’t hurt it’s balance sheet since its hedged adequately, the reality is different.
The rupee has appreciated about 6.8% in the last three months. Most BPOs have got hit. Infosys BPO margins have fallen from 22% to 17%. Thus investors would have taken into account the future margins of the BPO while shelling out money. Genpact earned $613 million last year over a net profit of about $57 million. Genpact has over 80% of its employee base offshore (in India) and currency fluctuation has affected its margins in terms of salary hikes and infrastructure costs.
The Greenshoe option was also left unexercised. The global markets are indeed not in a good shape due to meltdown in US sub-prime lending market and an impending fear of rise in interest rates. In the last 10 days, the Nasdaq Composite has fallen from above 10,200 points to about 9584 as on Thursday. Nasdaq TMT index has fallen from above 7250 to near 6800 level at present. But the market condition was not that bad to absorb a good IPO, if it was rightly priced.
Even if we take a 50% appreciation in Genpact’s net profit the EBIDTA multiple which it was asking for was about 28 times at a share price of $18. Experts say that a multiple of 18 times would have been better.
Currently, call centre business commands a revenue multiple of about one, BFSI outsourcing about two and travel business about four multiple. WNS which has a large travel vertical (due to British Airways parentage) commended a similar multiple.
The IPO will also affect its buyout plans. If Genpact plans to buy Citi which is being valued at about $700-$800 million, it can’t absorb the cost alone. Experts say, the best way to buy will be make its existing investors (Oak Hill or General Atlantic Partners) interested. They may shell out cash and then later merge it with Genpact. “Moreover, at $700-$800 million we are talking of a revenue multiple of around four for Citi BPO which has only one client. It will be an expensive deal to buy Citi BPO,” says a source.
“Even if the company performs exceptionally well in the next three years, at an offer price of $17 the company’s share was selling at one year forward PE of nearly 61 and two year forward PE of nearly 49,” said Vivek Gupta, an analyst with SeekingAlpha.com, a website tracking markets.
Three things hit Genpact IPO—the market conditions, rupee appreciation and that it was not the first BPO to list. The rupee appreciation was also factored in probably by investors. Though Genpact says that rupee won’t hurt it’s balance sheet since its hedged adequately, the reality is different.
The rupee has appreciated about 6.8% in the last three months. Most BPOs have got hit. Infosys BPO margins have fallen from 22% to 17%. Thus investors would have taken into account the future margins of the BPO while shelling out money. Genpact earned $613 million last year over a net profit of about $57 million. Genpact has over 80% of its employee base offshore (in India) and currency fluctuation has affected its margins in terms of salary hikes and infrastructure costs.
The Greenshoe option was also left unexercised. The global markets are indeed not in a good shape due to meltdown in US sub-prime lending market and an impending fear of rise in interest rates. In the last 10 days, the Nasdaq Composite has fallen from above 10,200 points to about 9584 as on Thursday. Nasdaq TMT index has fallen from above 7250 to near 6800 level at present. But the market condition was not that bad to absorb a good IPO, if it was rightly priced.
Even if we take a 50% appreciation in Genpact’s net profit the EBIDTA multiple which it was asking for was about 28 times at a share price of $18. Experts say that a multiple of 18 times would have been better.
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Currently, call centre business commands a revenue multiple of about one, BFSI outsourcing about two and travel business about four multiple. WNS which has a large travel vertical (due to British Airways parentage) commended a similar multiple.
The IPO will also affect its buyout plans. If Genpact plans to buy Citi which is being valued at about $700-$800 million, it can’t absorb the cost alone. Experts say, the best way to buy will be make its existing investors (Oak Hill or General Atlantic Partners) interested. They may shell out cash and then later merge it with Genpact. “Moreover, at $700-$800 million we are talking of a revenue multiple of around four for Citi BPO which has only one client. It will be an expensive deal to buy Citi BPO,” says a source.
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