Capgemini buys 51% in Lever's India BPO

MUMBAI: European IT services major Capgemini is acquiring 51% stake in Unilever India Shared Services (Indigo), a captive BPO company set up by Unilever in India. Indigo has around 600 employees in Chennai at its development centre. The captive centre carries out finance and accounting-related processing for Unilever companies in 45 countries.

Announcing the deal in Paris on Thursday, Paul Hermelin, CEO of Capgemini, said that the company will look to acquire the remaining stake at a later date. Neither Capgemini nor Unilever was willing to disclose the cost of the acquisition. Since the deal includes the price of acquisition of the stake and a revenue contract for future business, the total cost may not be very high.

Indigo had revenues of Rs 22.3 crore for the year ending December ’05. Mr Hermelin also pegged the average per head revenue of Indigo at e20,000 (Rs 17.4 lakh). Since captive BPO units are primarily cost centres, revenues or earnings are not likely to be the relevant benchmarks in valuing the deal.

Instead, the valuation is likely to be based more on land, building and other infrastructure. Lazard was the sole advisor to the deal. Capgemini and the Unilever group have also entered into a seven-year agreement to deliver the full range of BPO F&A services to all the Unilever companies, which Indigo currently serves.

Capgemini has been looking at expanding its India presence for some time now. In the recent past, Capgemini officials announced that they were looking at acquisitions in India and had set aside $500m for the purpose.

In the last 18 months, Capgemini’s senior officials had a range of meetings with several mid-sized IT and BPO companies in the country, though nothing appears to have fructified till date, said sources.

Capgemini plans to scale up its head-count in India from around 6,000 to 10,000 employees by ’07 in a bid to catch up with global rivals like IBM Global Services, Accenture and EDS. Even Indian vendors like TCS, Infosys, Satyam, HCL Technologies and Patni are ahead of Capgemini.

The Indigo acquisition is, therefore, a small step for the Paris-based, global IT major. It could use it as a platform to expand the client base beyond Unilever. According to D Sundaram, finance director, Hindustan Lever Limited (HLL) and chairman of Indigo, Indigo’s expertise and capabilities can be leveraged to extend the business outside of the Unilever group.

As part of its global strategy, Capgemini plans to increase its overall operating margins to 8% by ’08. Most US services firms are trying to reduce their cost of operations by shifting back-end processing units to low-cost countries like India, East Europe and even China.

Capgemini’s outsourcing division currently has an operating margin of 2%, the company plans to raise it to 4% by the end of the current fiscal.

The bulk of the revenues generated by Capgemini’s India operations will get reflected in its outsourcing division. The operating margins are currently low because the company is still investing in infrastructure and people across its delivery centres in India and other low-cost countries.