Lots of business, but little profit for call centres here

Adith Charlie

Mumbai, Dec. 5

‘A lot of business with little income’

This seems to be the common complaint among the captains of BPO firms that provide third party collections and debt recovery services for clients in the banking and financial services space.

In spite of bagging new contracts (for collections-related work), there is little by way of corresponding revenues for the collections unit of these back-office firms, as they are paid on a per-realisation basis, according to Mr Milan Sheth, Partner, Advisory Services, Ernst & Young. In other words, if a BPO company is able to manage collection of $250 from a bank’s customer, it keeps a percentage of that amount as its fee. (Indian BPO companies telephonically follow up with delinquent debtors overseas and also track their whereabouts. Some vendors also engage last mile collection agents overseas.)

However, in the US, a growing number of people are falling behind on their mortgage payments because of the credit crunch. Credit reporting agency TransUnion LLC found that 3.96 per cent of people holding a mortgage were at least 60 days behind in payments for the quarter ended September 30, compared with 2.56 per cent in third-quarter 2007. This has made collections difficult for Indian vendors.

Mr Ananda Mukerji, Managing Director & CEO, Firstsource Solutions, said in a recent conference call with analysts: “…collections business, we are seeing liquidation concerns on both sides and we have seen negative pressure on that aspect. We expect continued stress on liquidation rates and pressure on profitability and we are monitoring the situation closely and taking corrective action at the operating level and in terms of juggling the portfolio we work…”

Firstsource, which generates 10 per cent revenues from BFSI collections, expects the pressure on its collection business to continue for the next few quarters. A questionnaire sent to Aegis BPO, another back office firm which provides services in this space, remained unanswered at the time of going to press.

So how should companies work around this trend?

BPO firms should try to ensure that billing is not exclusively modelled on a per-realisation basis, according to Mr Vineet Mittal, CEO, Stream BPO. A mix of pay per realisation and fixed billing rate (on an hourly basis) would be ideal.

Firstsource is being cautious on the kind of collections work that it is undertaking.

“…there is a lot of paper on offer out there, we are making sure that we pick up paper on which we can make the kind of margins we want to make in this business at this point in time, but there is a trade-off to some extent between adding collectors and trying to add revenue and the impact on profits…., “Mr Mukerji said

Read more »»

Vendors hope to ride out the global auto crash

Vishwanath Kulkarni
Shamik Paul

Bangalore, Dec. 5 Notwithstanding the impending collapse of North American auto firms such as General Motors, Ford Motors and Chrysler, the Indian IT firms are cautiously optimistic that global automakers would sustain long-term investments in futuristic technologies such as fuel efficiency and emission control systems.

However, the IT firms are cautious about the impact in the short-term as they expect some cut in budgets on discretionary ‘nice-to-have’ projects as auto companies affected by the declining demand and credit crunch await a bail-out package.

Already battered by the meltdown in the US financial services sector, the Indian IT vendors had set eyes on sectors such as manufacturing and retail to offset the impact.

The auto sector is a major component of the manufacturing vertical for many an Indian vendor.

No cancellations

TCS, which serves clients such as Chrysler and Ferrari, is cautious about the dynamic developments in the North American auto industry and has adopted a “watch-and-see” stance.

“We have not seen any reduction in projects or cancellation of contracts,” said Mr Reghuayaswamy, Vice-President and Global Head of Engineering and Industrial Services practice at TCS. However, there is an increasing interest to offshore as clients want to control costs.

Mr Reghuayaswamy expects the auto companies to maintain their sustenance type of budgets that are already committed. While there could be pressure on the discretionary budgets, customers would go ahead with investments in programs relating to fuel efficiency, emission controls, electronic systems, better engine management and hybrid vehicles, he said.

TCS earns about five per cent of its revenues from the automotive clients.

Customers cautious

“Customers are cautious about the outlook and the decision making has got delayed,” said Mr Ravi Pandit, Chairman and Group CEO of KPIT Cummins Infosystems Ltd. “Investments would grow in areas of technology innovation and on newer products that are essential for companies to remain competitive when the economy starts looking northwards again,” he said.

KPIT, which earns about a third of its revenues from the auto engineering and auto IT, said it has not seen any project cancellations so far. “While US companies are awaiting decision on the auto bail-out plan expected in the next two weeks, we expect renewed activity from European customers in the New Year,” said Mr Pandit, adding that investments in futuristic technologies relating to higher mileage and advanced safety systems would be sustained.

Other major vendors such as Wipro and Satyam, who serve companies such as General Motors, did not comment.

Sensing a slowdown, Geometric Ltd started diversifying a few quarters ago to reduce its dependence on auto and moved into new verticals such as oil and gas, fashion and high tech, said Mr Ajit Joshi, Senior Vice-President and Head- Product Lifecycle Management (PLM) solutions.

Geometric provides PLM solutions to auto companies, which helps them to manage the entire lifecycle of the product right from conception through design and manufacture to service and disposal. Admitting the increasing pressure on rates, Mr Joshi said the company was also witnessing some delays in new project starts. However, there have not been any major cut back on the existing PLM projects as these help companies in product innovations and reduce time to market. Mr Joshi felt that European automakers, which are closely following their US counterparts in the IT off-shoring wave, will be an opportunity for the India Inc to grab.

Analysts not upbeat

However, analysts are not optimistic unlike the IT vendors. “Business will suffer to an extent for vendors who have exposure to the auto industry as IT spends for clients will take a back seat,” said Mr Harit Shah, equity analyst at Angel Broking Ltd.

“There is likelihood that new projects will be delayed or cancelled, and there would be pricing pressure as well,” Mr Shah predicted.

Read more »»

Personal income-tax collections down 31% in November

Our Bureau

New Delhi, Dec. 5 The Centre’s personal income-tax collections were pegged at Rs 5,782 crore in November 2008, reflecting a 31.28 per cent decline over the collections of Rs 8,414 crore recorded in the same month last year.

Corporate tax collections too declined in November 2008 on a year-on-year basis. In November 2008, the Centre’s corporate tax collections stood at Rs 4,561 crore, recording a decline of 41 per cent over the collection level of Rs 7,741 crore in the same month last year.

Personal income-tax collections indirectly mirror the state of the economy as these represents taxes from the salaried and informal businesses.

Seasonality

There is seasonality in direct tax collections and November is not generally a month where one sees strong corporate tax collections, industry observers pointed out.

Official data released by the Central Board of Direct Taxes (CBDT) here today showed that personal income-tax collections (includes BCTT, STT and FBT) during April-November 2008 stood at Rs 67,215 crore, reflecting a 15.28 per cent increase over the Rs 58,304 crore collected in the same period last year.

The break-up

While fringe benefit tax (FBT) grew 34.47 per cent during April-November 2008 at Rs 4,120 crore (Rs 3,064 crore), banking cash transaction tax (BCTT) grew 17.33 per cent at Rs 421 crore (Rs 359 crore). Securities transaction tax (STT), however, declined by 15.42 per cent to Rs 4,165 crore (Rs 4,924 crore).

For the April-November 2008 period, corporate tax collections grew 26.82 per cent at Rs 1,09,735 crore (Rs 86,526 crore).

Direct tax

Net direct tax collections for the first eight months of the current fiscal stood at Rs 1,77,251 crore, up 22.2 per cent from Rs 1,45,053 crore recorded in same period last year.

This 22.2 per cent increase in direct tax collections till November this fiscal is a shade lower than the 25 per cent increase in collections targeted for fiscal 2008-09.

The Centre had recently revised the direct tax collection target for 2008-09 to Rs 3,95,000 crore. In 2007-08, the direct tax collections of the centre stood at Rs 3,14,468 crore (provisional).

Read more »»

Ashok Chavan is new Maharashtra Chief Minister

Rahul Wadke

Mumbai, Dec. 5 Mr Ashok Chavan, Industries Minister of Maharashtra, is the new Chief Minister of the State.

The decision comes about 36 hours after the position fell vacant with the resignation of Mr Vilasrao Deshmukh. He had resigned owning moral responsibility for the Mumbai terror attack, where gunmen held the financial capital under siege for over 60 hours.

The Senior Congress party leader Mr Pranab Mukherjee made the announcement after over 24 hours of hectic parleys and discussions with the Congress high command on Friday. In a parallel development, the NCP leader, Mr Chhagan Bhujbal, was named the Deputy Chief Minister and Home Minister.

In the first government of Mr Deshmukh, he had held the same portfolio. He resigned from his position in December 2003 over the fake stamp paper scam.

Also in the race for the top post were the former Chief Minister, Mr Narayan Rane, and the Co-operation Minister, Mr Patangrao Kadam. But before the announcement was made, Mr Rane alleged that he had been sidelined by the party.

Political Career

The 50-year-old Mr Chavan hails from a Congress loyalist family in Nanded. His father, late Shankarrao Chavan was also Chief Minister of Maharashtra and Union Home Minister.

The junior Mr Chavan started his political career in 1987-88 when he was elected as Member of Parliament from Nanded parliamentary constituency. In July 1992, he was elected as member of the Maharashtra Legislative Council. He was Minister of State for Public Works between 1993 and 1994. Between 1995 and 1999 he was the General Secretary, Maharashtra Pradesh Congress Committee.

In October 1999, he was elected as an MLA from the Mudkhed Assembly constituency in Nanded. In the same month, he was inducted as Cabinet Minister for Revenue and Protocol. Again, he contested the Assembly elections from Mudkhed in October 2004 and won by a margin of 71,000 votes. In November 2004 he was inducted into the Cabinet and since then has been holding charge of Industries, Mining, Cultural Affairs and Protocol.

Read more »»

SEBI: Ensure cos maintain security deposit with SEs

Our Bureau

Mumbai, Dec. 5 The capital market regulator, Securities and Exchange Board of India, has asked stock exchanges to ensure that all listed companies maintain the mandatory security deposit with them.

Under the listing agreement, companies have to deposit one per cent of the money collected from public shareholders with the exchanges as security deposit.

Of this, 50 per cent shall be made in cash and the balance can be provided as bank guarantee.

According to SEBI, in many cases bank guarantees kept with the stock exchanges by companies have expired and the exchanges had not asked them to renew such guarantees.

“By allowing the bank guarantees to expire, the stock exchanges have compromised with an important mechanism available for redressal of investor grievances,” SEBI said in a circular issued on Friday.

SEBI has asked stock exchanges to recoup immediately any shortfall in the deposit that has been caused due to the expiry of bank guarantees by taking either cash or fresh or re-validated bank guarantees from the companies concerned.

The bourses should invoke bank guarantees before it expires if any issuer company failed to meet the shortfall within the given timeframe, the circular added.

The regulator has directed the stock exchanges to keep one per cent security deposit at all times.

SEBI also told the exchanges that no adjustment of the security deposit against any dues of the company payable to the exchanges would be permitted.

The security deposit can be released by the exchanges only after obtaining a no-objection certificate from SEBI, the circular said.

The stock exchanges have also been directed to put in place a system to keep track of the bank guarantees so that bourses have sufficient time to alert the issuer companies to provide fresh or renewed bank guarantees.

The SEBI measure will fall hard on companies which had raised big amounts through IPOs and rights issues recently and are not complying with the SEBI regulations, said an analyst.

Read more »»