INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

GENPACT PLANS INDIA'S LARGEST IPO IN US, TO RAISE $500-600M

India's largest BPO company has finalised its plans for an initial public offering (IPO) in the US markets. Genpact will raise between $500-$600 million. This will be the largest IPO by an Indian company in the US.

Genpact officials refused to comment on the IPO or any other issue relating to financials, citing a quiet period. Pramod Bhasin, CEO of Genpact, refused to talk on the issue at all.

Genpact board has already approved the issue and merchant bankers Morgan Stanley and Goldman Sachs have been appointed for the issue.

The public issue is important as Genpact is the largest BPO company from India, and the issue will fulfil the huge demand for Indian BPO shares in the US market. The issue will also affect the valuations and demand for two other Indian BPO firms, which went public late last year -- WNS, which got listed on NYSE, and EXL Services, which is listed on the NASDAQ. Both WNS and EXL saw a huge demand for their shares when they went public, even after the issue, they command very high valuations.

For instance, WNS which has an EPS of 0.53, commands price/earning ratio of 63 times. The market capitalisation of the firm is more than 5.5 times its sales. Similarly, EXL Service commands a P/E of 52 times on an EPS of 0.48, and its market capitalisation is more than 6.8 times its sales. If the same kind of valuation is taken for Genpact, then at revenues of around $620 million for December 2006, its enterprise value is taken at a conservative 6 times sales it would be more than $3.7 billion.

Merchant bankers claim that Genpact will be able to command a much higher valuation than its peers because of its size. Genpact is said to have projected that it will cross $1.2 billion in revenues in the next two years. This is based on organic growth only, if the IPO goes through, the company will have cash and stock to grow even inorganically.

Genpact is owned by General Atlantic Partners and Oakhill Capital, who jointly control 60% of the equity of the company. The remaining 40% is owned by US conglomerate GE.

The IPO is not likely to see a huge sale of shares by the existing shareholders. Bulk of the issue will be fresh issue of shares and the funds will be available for Genpact to fund growth.

While the private equity funds Oakhill Capital and General Atlantic Partners (GAP) are not expected to sell their holding, the value of their stake will go up substantially.

The two funds had picked up the stake in Genpact in 2004 and in two years, have increased the value of their holding by five to six times. This is a fairly high rate of return for the investment made by a private equity funds. The returns for GAP and Oakhill will compare or may be even higher then the gains that Warburg Pincus made on its Bharti investment. It is a two-year-old investment and their returns are going to be really high. And as they won't exit at the IPO, they will continue to ride the growth of Genpact in the coming years.

While several Indian companies have offered equity from the US market, they have been mostly secondary offerings of shares, not IPOs. Infosys started the trend with its secondary offering of ADRs. Several companies such as Wipro, Satyam, ICICI, and HDFC have followed suit. During the dotcom era, there were two successful IPOs of internet companies Rediff.com and Sify.com.