Mastek closing down BPO practice

Mid-size IT solutions firm Mastek Ltd is in the process of closing down its business process outsourcing practice.

In the last two years, the city-based company had stopped pitching in for renewal of back office contracts and has significantly reduced the number of people in its BPO-specific team.

Process outsourcing does not fit into Mastek’s business model of driving non-linear growth (by increasing revenue realised per employee), Mr R.S. Desikan, Group Chief Financial Officer, told Business Line.

“Though our BPO practice is not loss making at all, it is derogatory to our margins. It does not give us the scope to increase average revenues per employee to the level we want to take it to,” said Mr Desikan.

Mastek operates on operating margins of 15.94 per cent, according to Google Finance. According to technology analysts, margins in the BPO industry are in the 10 to 12 per cent range. For the fiscal ended March 2008, Mastek generated Rs 916 crore in revenues with around 4,000 employees.

Mastek will be completely out of the BPO business by the end of the current fiscal. “One client has asked us to carry operations for another 3 to 4 months till they transition it another vendor,” said Mr Desikan

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Mastek does back-office work related to cheque truncation and processing. The company’s earnings from its BPO operations have been coming down for several quarters now. According to details available on the company’s Web site, Mastek’s revenues from BPO (as on the quarter ended September 2008) was down by 35.7 per cent to Rs 3.63 crore as against Rs 5.65 crore reported for the corresponding quarter a year ago. On the manpower front too, Mastek has been steadily reducing capacity. As on September 2008, it employed 20 people in its BPO team as against 142 people in the corresponding quarter two years ago.

“Most of the employees of our BPO practice were absorbed into our internal operations. Several employees left on their own,” said Mr Desikan.

Mastek had forayed into the back office business through Carretek in May 2003, which was formed as a partnership between US-based Carreker Corporation and Mastek. From being a joint venture, Carretek became a 100 per cent owned practice of Mastek, which generates majority revenues from the Government and insurance space.

Source: TheHinduBusinessLine