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Suresh Yannamani, President, HOV Services Limited

Anil Mascarenhas / 12:03 , Mar 05, 2010

Suresh Yannamani, President, HOV Services Limited, is responsible for shaping the current vision, strategy and building HOV Services into one of the largest BPO companies along with a very capable management team. Suresh previously held the title of Executive Vice President, BPO Services for LASON since 2003. Suresh joined LASON as part of the Vetri Systems acquisition in 1999. Prior to joining Vetri Systems, Suresh worked at IBM from 1995 to 1997, with responsibility for the design, development and implementation of Financial Management Information Systems for the Healthcare and Financial Service Industries. Suresh started his career with Coopers & Lybrand in 1993. Suresh graduated from Eastern Michigan University with an MBA in Corporate Finance and Information Systems in 1992. He completed the Executive Management Program with the University of Michigan in 1997. He graduated from University of London, with a Bachelors of Science degree in Chemistry in 1988.

HOV Services Limited one of the largest end-to-end BPO company headquartered in Chennai, India provides healthcare, Finance and Accounting, document lifecycle and e-content services to the Banking, Insurance, Healthcare, Government, Telecom, Publishing, Retail, Automotive and Manufacturing industries.   Its clients include over 50% of the FORTUNE 100 and are some of the largest companies in the industries served. RightShore delivery centers strategically located in India, North America, China and Mexico with over 9000+ associates working together to Exceed Expectations of our clients.  

Speaking with Anil Mascarenhas of India Infoline, Suresh Yannamani says, "As scale begins to play a bigger role, smaller companies are going to look for safety in higher end offerings…"

Explain to us your business model
Our mission is to deliver significant & identifiable value and improve return-on investment for our clients. We accomplish this primarily by delivering end to end business solutions seamlessly linking our hosted services platforms with our client’s platforms. We leverage our global presence, extensive footprint in the US, India, China, Mexico and Canada by combining our deep domain expertise enabled with best–of-breed technology. Our clients benefit immensely through our domain experts providing continuous improvements and right shore delivery.

What potential do you see for IT-enabled services?
We believe IT-Enabled Services industry is still in its infancy – it has lot of potential for future growth. Our MNC clients have outsourced a very small portion of the business that could be outsourced and this is the biggest opportunity for us. As per NASSCOM estimates, the healthcare and retail verticals are expected to grow at a rate three times greater compared to other core verticals. Our presence in healthcare is very strong, constituting around 40% of our total revenue and we are well positioned to grow with clients – which include most of the healthcare companies in the US.

Our challenge is to leverage our domain experience and success in current markets we serve to other rapidly growing markets where we have significant presence such as growing healthcare services market in India and China, two of the world’s fastest growing economies. We strategically invested in India and China over the last 7 years to prepare for entering these markets with our portfolio of services as and when the markets are ready.

What then are the challenges?
While we are well positioned, the challenge is to stay focused in light of so many opportunities as these economies go through explosive growth, retain best talent, continue to innovate most of all improve outcome for our clients.

Our efforts and investments in technology have begun to pay off - our Profit after tax has improved from under 5% to over 10% in the last 2 years and our headcount has decreased from a high of 15,500+ to approximately 9,000. We believe this healthy change in our value proposition will continue to bear fruit for the near term.

How is the business environment unfolding? What would you still cite as the key risks?
Our key market is the US with future growth coming from Europe, India and China. US markets cooled off over the last two years with an unemployment rate around 10%. Our strategies to invest in defensive and or /regulated sectors, diversified client base with majority of the business coming from FORTUNE 100® has paid off well except in the accounts receivable collections business which declined substantially. In late 2007, as the markets were beginning to go through dislocation, we examined all aspects of our business strategies and focused key factors important to our clients and our Company’s growth. Hallmark of our strategy included reinforcing cost management, heavy investment in technology, process re-engineering, investments in our core services, shortening turnaround time and increase quality – all this translates into far better value for our clients and creates a competitive position for us.

We continue to marshal our resources to invest in areas where we are already have strategic advantage and exit out of areas where we cannot reasonably in foreseeable future, we cannot attain larger footprint or target margins or it is not strategic -- a recent example is exiting out of our accounts receivable collections business. A key risk is the relationship between growth and margins – by that we mean revenue growth slows down and margins remain under pressure. This can potentially slowdown the investments to innovation in the ITES, which is in our opinion key for the BPO industry to continue to enjoy strong future growth. Another risk is slow down of decisions by companies as they examine the economic & political climate and its impact. We believe these are temporary blips on an otherwise sound long term growth prospects.

Tell us more about your restructuring. What kind of operational efficiency do you expect from the same? What will be the potential write-offs?
We sold the accounts receivable collections business in January 2010 for US$12mn in cash. This material transaction represents the sale of the following assets:

  • 100% interest in Bay Area Credit Services, LLC,
  • 100% interest in HOV AR Management Services Private Limited; and
  • 30 % minority interests in TRAC Holdings, LLC (TRAC) and SAM Holdings, LLC (SAM)

This will allow us to improve equity value for our shareholders, improves our management focus and consolidates our position- thus, allowing us to invest more in services where already we are positioned well and now can better leverage our strengths.

What change do you expect to see in your Operating margin and PAT margins following the restructuring?
Our Operating margins would be enhanced anywhere between 17% -18% from current level of 12.6% and Net Profit Margin is expected to be around 9 %- 10% from current level of 5.6% as reported for Nine months result ended December 2009.

What are the emerging trends in the IT-Enabled Industry? Do you see consolidation?
We believe clients are going to outsource more but to fewer vendors. The consolidation is inevitable in the industry as scale does matter for BPO companies. Clients will favor certain industries – pay per use or pay per member models. For example healthcare in the emerging markets or the rapidly growing mobile telephone market in India where core assets and functions are being outsourced.

As scale begins to play a bigger role, smaller companies are going to look for safety in higher end offerings such as knowledge services, business intelligence and emerging BPO services which are evolving and larger companies will either acquire these services or build their own platforms to better serve their clients.

The BPO industry similar to the IT industry will most likely develop/grow domestic footprints in the markets affected by the recession by building a truly global delivery model in order to tone down the concern related to government policies.

What are your capex plans? How would they be funded?
We are adding facilities in India, China and Europe and investing in our US facilities to meet our growth and client demands. So, our capex requirement is correlated to business opportunities at any given point of time. We have sufficient reserves and majority of our capex funding is done internally.

What are the company’s short term and long term goals?
We aspire to "Exceed Expectations" by being a global leader in the BPO industry whose value is recognized by clients for outcome we deliver, by shareholders for the profits we generate, recognition of our employees by our stakeholders and we aspire to be the most admired company by our stakeholders.

What would you say are the key differentiating factors that will hold HOVS in good stead?
Our strategy weaves many items to help us differentiate and position us for success and a sample of some of key differentiators are:

  • Innovation – continue to innovate delivery of services by combining domain expertise and technology
  • Business model by service type to create win-win partnership between our clients and us. For example, pay per member or by outcome based
  • Hosted services combined with delivery from right shore locations
  • The best customer experience from initial engagement to deployment
  • Continuous improvements and delivering highest end-to-end process quality

You started off as a software services company in 1989. Briefly walk us through your journey so far. What are some of the important lessons learnt?
We have come a long way in our evolution from a software development company to one of the leading, end to end service providers, during which we acquired several entities with diverse solution offerings. During this period, our company was listed on both the NSE & BSE, and consistently recognized as a top provider of BPO, KPO solutions by these prestigious outsourcing publications - a significant triumph in of itself.

You have done a number of acquisitions. What is your inorganic and organic growth strategy?
Yes we have grown in size through various acquisitions in past few years. Currently, our primary focus is to grow organically. By organic, I refer to increases in both volume and the cross selling of various services to all of our existing clients. We intend to remain focused on our core service offerings and continue to build upon our successes.

Give us a break-up of your business composition. How is the pie likely to change?
Our average revenue contribution for the nine months of the current fiscal 2009-10 constitutes about 30% from Healthcare Payer / Provider services, 24% from Document Life Cycle Services, 16% from Account Receivable Management Services, 13% from Presentment Services, 7 % from Content transformation services, 5 % from F&A services, 4 % from Construction Management Services and the balance 1.0% from Employee Verification Services.

Going forward, due to restructuring, the revenue contribution from our ARM business, approximately 17% to total revenue, will not be part of our existing business composition.

Tell us more about your clients. Which are the verticals you cater to and plan to enter?
Our customers include over 50% of FORTUNE 100 companies across key verticals such as banking & financial services, telecommunications, healthcare, insurance, construction, publishing and government. Our Top 350 clients contribute to approximately 95% of total revenue. Our customers count on us for the highest level of security compliance and rate us high in terms of excellence in Customer Services. Top 30 Clients have been with HOVS for 5+ years.

Brief us on your financials. What is the outlook?
During the nine months of the current fiscal, our consolidated Total Income including ARM business has decreased by 1.4% to Rs6.64bn from Rs6.73bn over the corresponding period last fiscal year. EBITDA for the same period has increased by 3% to Rs837mn from Rs818mn over the corresponding period last fiscal year and Net Profit has increased by 37.2% to Rs372mn from Rs271mn from the corresponding period last fiscal year.

As per the pro forma for nine months of the current fiscal, our Total Income excluding figures of ARM business amounted to Rs5.50bn, EBITA- Rs982.0 Million and Net Profit - Rs570.6mn.

EBITA margins excluding figures of ARM business would have been 17.8% much better than existing 12.6% which are inclusive of ARM Business figure. Similarly, Net profit margins would have been 10.4% exclusive figures of ARM business compare to existing figure of 5.6%.

How much do the Top 10 clients contribute to your revenues and profit?
Our top 10 clients in the current fiscal 2010-11 contributed to around 46% of revenues.

What is your message to shareholders?
We continually strive to create value for all our stakeholders by leveraging the strong foundation we have built during the last several years. Our strategy to marshal our resources to focus on just a few services and outcome based value propositions served us well over the last several years as the world economies cooled off.

Our strategy to invest heavily in technology to change the contribution between technology and people to heavily weighted, towards technology has transformed us.

Following are few of the highlights of our Company:

  • Serve more than half of the Fortune 100 ©
  • Top 30 Clients have been with HOVS 5+ years
  • 9,000+ associates worldwide
  • Headquarters in US, India and China
  • [56] Delivery centers – [32] in the US and Canada, [12] in India, one in China and one in Mexico
  • 25+ year experience delivering solutions to Healthcare, Financial Services, Manufacturing, Retail, Publishing and Government Markets
  • Consistently recognized as a top provider of BPO, KPO solutions by these prestigious outsourcing publications.

We have implemented investor friendly measures in the form of Equity Share Buy-Back offer and recently declared an interim dividend of Rs2 per share for the current fiscal 2009-10. And you can count on us to stay vigilant and continue the management focus on key factors – cost management, innovation, better end-to-end process deployment, cost of ownership, quality and continue improving the profitability and overall financial value for all stakeholder.