Nasdaq-listed EXL Service, a leading Indian business process outsourcing firm, is now looking at the domestic BPO market too. It wants to set up SEZ units and centres across the country to facilitate this growth.

Rohit Kapoor, COO and co-founder, EXL Service, talks to Business Standard about the company's third-quarter performance, growth plans and outlook. Excerpts:

How are you tackling the rising rupee?

If you compare our results to the last year for the same quarter, certainly the margins have come down. However, we've been able to actually increase the profitability on a sequential basis.

Our volume growth and operational efficiencies have helped us do so. It is also fortunate that we have about 52 per cent of our business coming from the UK. For the third quarter, we had hedging gains of approximately $2.3 million.

We have also approached all our new customers to sign up at a fixed price as long as the exchange rate remains within a certain price band. If the exchange rate goes outside of that band, the billing is adjusted automatically to account for that. This provides us against forex fluctuation. With our existing customers we're working out a similar deal.

What are your plans for the domestic market?

We want to do domain-specific work, primarily back-office and transaction-based work here. We do not want to do tele-marketing and tele-sales. The number of people to be hired will be very high, and that is not an attractive area for us.

Our domestic business will primarily be in the domains that we are already in, in the international markets � insurance, banking and financial services, telecom, transportation and utilities. BFSI is, however, going to be the predominant area in India.

In the domestic BPO business (we can only do about 15-20 per cent of our domestic work from here), we plan to create separate infrastructure in tier-II and tier-III cities with a separate team. We have now expanded into Noida, Gurgaon and Pune. We will be looking at cities like Hyderabad along with other tier-II cities. We've got three- to five-year plans, which include making investments in SEZs as well as staying with the STPI units that we already have.

STPI units are fully depreciated, so we get the depreciation benefit for working in the existing STPI unit. The lease rentals in the STPI units are also much lower than an those in SEZs.

We are better off retaining our existing work in STPIs even if there is no extension of tax sops after 2009.We will, however, expand all new activities in SEZs. We have applied for two till now -- one in Hyderabad for acquiring our own SEZ and the other in Greater Noida. However, we haven't received any approval or been granted any land so far.

What about your expansion and M&A plans?

The last acquisition we did was Inductus. Right now, we're focused on expanding into the Philippines and trying to build a centre there. We're also expanding into Eastern Europe, which is primarily going to be driven by an inorganic strategy and are looking at acquisition opportunities in Europe.

Acquisitions in Europe will be primarily for our finance business. In Eastern Europe, typically the companies available are small. For us, the ideal deal size would be something that has revenues between $10-25 million. 

In the Philippines, we will build our own units, and we are looking at land and other infrastructural requirements. We have allotted about $10 million as investment for the area. We have about $91 million (around Rs 360 crore) in cash on our balance sheet right now, and we have currency as stock that we can use as well.

What has been the effect of the sub-prime crisis on you business?

Only 7 per cent of our revenues come in from our clients dealing in the mortgage industry. We have two customers in the mortgage industry, one a prominent mortgage bank, which has very little exposure to the sub-prime market, making up only  4 per cent of its total business.

The other client is a sub-prime lender,  accounting for less than 2 per cent of our revenues.