Aditya Birla taps PE firms for BPO arm

The diversified Aditya Birla Group is looking to unlock value for its BPO-IT business, Aditya Birla Minacs.

According to two independent sources in the know, the group is exploring the possibility of tapping private equity investors for a significant minority stake in the company or may even exit the business, provided it gets a significant exit premium.

Investment bank UBS is believed to have reached out to marquee fund houses and strategic investors for an initial due diligence exercise.

However when contacted, Deepak Patel, chief executive officer, Aditya Birla Minacs, said: "We do not comment on market rumours."

Aditya Birla Minacs is part of Aditya Birla Nuvo, the $4-billion diversified group company with businesses across sectors, including financial services, apparels, telecom and fertilisers.

In a space where scale is increasingly becoming critical, Minacs, with its focus on voice-based work and specialised verticals like auto and telecom, has not grown the way many of its peers have.

According to some analysts, its focus on North America has also made it more vulnerable to the volatility in those markets.

Aditya Birla Minacs have grown its order book to $775 million during FY11, but analysts say its margins are still not comparable to its Indian peers.

Net sales for the previous financial year stood at Rs 1,692 crore (around $376 million), while its earning before income tax, depreciation and amortisation was Rs 183 crore (Rs 1.83 billion).

"Increasingly IT and BPO operations are becoming scale play.

Or, if you are a niche player, then acquiring those skills and focus is extremely difficult and takes time.

The recent M&A

deals in the BPO space are also making investors think this is the right time to sell out.

This might be easier said than done," said a M&A advisory executive.

Sources said the buyout of Intelenet -- a pure play BPO with revenue of Rs 1,265 crore (Rs 12.65 billion)-- by UK's Serco for a whopping 385 million pounds (around Rs 2,770 crore) has encouraged many companies to again explore strategic options.

Industry watchers however felt, it may be difficult for Nuvo to get a suitor for Minacs at similar valuations. Under such circumstances, it is still not clear, if the Birlas will go ahead with the transaction.

"The Group has been evaluating a situation where they could either rope in a private equity player, which not only gets in the financial power, but also access to customers.

In case this does not pan out they are also open to look for a complete exit from the business," said an industry source in the know.

The group forayed into the BPO business in 1994 and founded Transwork Information Services.

The Group also forayed into the IT services business with PSI Data Systems, which was later listed on the Indian bourses.

In 2006, in one of the biggest acquisitions in the Indian BPO space, Transworks acquired Canada-based BPO firm Minacs. From a revenue of Rs 162 crore (Rs 1.62 billion) in FY06, the BPO operations touched Rs 1,777.2 crore (Rs 17.77 billion) in FY09.

However, the Mincas acquisition brought with it not only integration challenges but also acted as a stress on the firms' profitability.

In FY07, while the BPO business revenue touched Rs 1,015.5 crore (Rs 10.15 billion), it reported a net loss of Rs 17.5 crore (Rs 175 million).

The BPO businesses profitability was further impacted in FY08 because of currency volatility.