Genpact leverages GE and private equity for an IPO

Genpact --- A disaster
I don't know why such a hue and cry is made out of Genpact IPO. I had friends who had worked with Genpact and know the extent of the company’s competencies. The company makes a net profit of $ 39.4 million out of a revenue base of $ 600 million which is almost 6.5% of its revenue. This is much below other sectors in India viz telecom, retail, electricity, mining, manufacturing, real estate or engineering. Also, potential investors have to remember the following things:-
1) Genpact's earnings and net income is under a tax regime in India where IT and ITES (IT Enabled) Services that are 100% export oriented have 0% corporate tax burden on them. This will potentially change from 2009-2010 onwards as it brings an end of 20 year tax holiday to IT and BPO industry by the Indian government. The unequal tax regime that taxes manufacturing to cross subsidies IT and ITES is patently discriminatory in nature.
2) Genpact's revenue is a linear function of its head count. The cost of labor in India is on rise as more and more MNCs outsource service sector jobs to India and manufacturing, retail, telecom in the country is on a roll. Genpact has no product offering which usually ensures a non-linear growth in revenue w.r.t head count.
3) GE accounts for 74% of Genpact's revenues and except for Analytics services all other off-shored work are pretty low-tech and low-end in nature. What this means is that GE, after its exit in IPO, should create multiple vendors in India and emerging markets to keep the cost of low-end service real "low". This translates to lesser revenue and more pricing pressure on Genpact. In case of Analytics, GE has opened a captive center at Hyderabad in 2006 October and is moving work there from Genpact's Bangalore office. Again the failure of Genpact to create products or climb up the Analytics value chain is contributing to its diminishing leverage with respect to its biggest customer, GE.
4) Genpact is facing more than 35% attrition in its most prestigious service offering that is Analytics. The attrition in low-end services is well beyond this mark. With revenues linaer to head count, attrition means revenue erosion. Worse, the attrition has happened at a talented skill level and at middle and senior management levels as well in Analytics, eroding the level of service of late. This has prompted GE Money to open its Hyderabad Analytic’s center
5) Genpact's total failure to combine IT skills with ITES offerings like Analytics are a pointer to management failure to create long term value in the space of business services and It services.

I am an ex employee of Genpact. This is from my experience in the company :

One thing that I can say is that Genpact pays pathetic salaries to its associates and the general management gyan thrown around for consumption of its "process associates" is that the company does all this to have a tight control on cost and want to be cost competitive. Now, when it comes to its CEO salary it pays a whopping Rs. 12 crores (p.a.)+ dividends from stocks + potential value of stocks if they can make "a kill" at the expense of the US investor in their IPO. No wonder, the Indian PM Dr. Manmohan Singh has lamented the trend of greed and lust that Corporate India has demonstarted. Indian CEOs should start benchmarking themselves not with US ( which had a long history of corporate greed and bungling a la Enron, World Comm and even Jack Welch in GE ) but with Europe and Japan where CEO pay is a decent multiplier of lowest pay in the company. European and Japanese companies own a huge array of products and patents and has contributed to value creation for the respective societies. And if CEOs of Genpact et al complain that in USD, euro and yen, European and Japanese CEOs get paid higher, lets have currency parity and lets see where the cheap service of sweat shops that Genpact has created go !

The CEO pay to lowest salaries in Japan and Europe is typically varies from 15 : 1 to 20: 1.

In USA it is 30:1 to 300:1 ( which they say is unhealthy )

In India's Genpact CEO salary : lowest Genpact salary = 12 crore INR : 70,000 INR =1400: 1

Any comments Mr. Basin ?

For more enlightment on this topic see also :

http://globalteamwork.blogspot.com/2007/05/genpact-ceo-pramod-bhasin-took-home-2.html

http://globalteamwork.blogspot.com/2007/05/genpact-ceo-pramod-bhasin-took-home-2.html

http://www.financialexpress.com/fe_full_story.php?content_id=129698

Vide the above two links it is apparent that :

1) The total compensation of Infosys chairman and chief mentor, NR Naryana Murthy, in FY06 was Rs 41.60 lakh while that of CEO, president and MD, Nandan Nilekani, was Rs 41.17 lakh.

2) On the other hand, India’s largest software company, TCS, which is about a billion dollars larger than Infosys, hiked the total compensation of its CEO and MD, S Ramadorai by 100% from Rs 94.69 lakh in FY05 to Rs 2.44 crore in FY06. While his salary more than tripled from Rs 22.08 lakh to Rs 80 lakh, commissions linked to performance rose from Rs 65 lakh to Rs 125 lakh.

3) Mr. Bhasin who heads a $ 600 million sweat shop called Genpact ( in contrast to 3-4 billion dollar Infosys and TCS ) takes home $ 2.98 million = Rs. 11.92 crores.

4)Genpact net income and net income as percentage of revenues is also much below Infosys and TCS.

5) The main client GE is pissed off with Genpact...so much to credit to Bhasin's calibre !

6) Genpact board should trim Bhasin's take home to saner limits to generate investor confidence in the company.