– Larger pure-play LPO firms in India are financially better off than smaller players
June 2012: The global economy continues to be in a fragile state. Businesses across industries are feeling the strain as they are forced to scale back and revaluate their business models. The legal process outsourcing (LPO) industry is no different. But despite experiencing a slowdown since 2008, there are clear indications of revival. The growth in the LPO industry in India is being driven by the large pure-play Indian LPO companies.
This was one of the findings of a report titled “Legal Process Outsourcing: Financial Performance Review” published by ValueNotes, a market intelligence and consulting firm. The report analyses the key financial ratios of 32 “pure-play” Indian LPO companies, which exclusively provide LPO services.
Large LPO players are most financially healthy
Top-4 pure-play Indian LPO firms
It is evident from the analysis of the financial results of these pure-play LPO firms in India that the larger ones are financially better off than their smaller counterparts. There are four clear frontrunners emerging viz. Integreon, Intellevate, Pangea3, and UnitedLex. These companies have been able to sustain positive operating margins in each of the last five years, and have consistently maintained a high revenue per employee.
Tough times for smaller LPO providers
Hit by slowing growth, rising costs and under-utilisation, smaller LPO firms in India have been forced to take on more debt. “An area of concern for the small LPO service providers is their inability to maintain consistent operating profits, resulting in rising debt levels,” says Arun Jethmalani, Managing Director of ValueNotes. “However,” he adds, “there are a select few among the smaller providers that are financially sound, and have demonstrated the potential to grow profitably.” These include Amatra, Brain League, KLexServe, and Legasis.
Up-and-coming pure-play Indian LPO firms
The overall scenario for the larger service providers in the Indian LPO industry looks promising as the quantum of their revenue and profit growth outweigh short-term liquidity problems. The situation is gloomy for the smaller service providers. They will need to urgently address the challenges of a falling top line coupled with rising costs and debt that they are unable to service. It is critical for them to improve the key metrics of sales growth and revenue per employee (RPE) to turn profitable and stay in business. This dichotomy between the performance of the larger and smaller players indicates a consolidation phase in the LPO industry in India.