It helps investors to place their bets on India

Business processing outsourcing, or BPO as it's known in the trade, offers a solid opportunity for investors.

Many basic back-office operations can be handled more cheaply overseas, and inexpensive telecommunications makes it feasible for a client in the United States to talk to a customer-service representative in India. WNS (Holdings) Limited gives investors a chance to place their bets on India's booming service industry.

The company serves customers in the travel, banking, financial services, insurance and health care industries primarily in the United States and the United Kingdom. In travel, WNS (Holdings) Limited provides reservations, customer service, Web support and accounting services. In banking, the company provides mortgage and loan processing and insurance processing.

The company's clients include Air Canada, British Airways, Virgin Atlantic Airways, FirstMangus Financial, IndyMac Bank, Tesco and Travelocity, a subsidiary of Sabre Holdings.

WNS (Holdings) Limited began operations in 1996 as a division of British Airways and incorporated in 2002. Based on revenue for 2004 and 2005 and so far this year, WNS (Holdings) Limited is now one of the top two processing outsourcing companies in India. On March 31, the company had 10,433 employees, including about 9,700 handling 400 different types of business transactions for about 125 clients.

A report prepared by the National Association of Software and Service Companies, a trade organisation in India, estimates that the offshore business processing industry will grow at a compound annual rate of 37 per cent, reaching $55 billion in fiscal year 2010 from the current $11.4 billion.

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The report estimates that companies based in India grabbed 46 per cent of offshore business processing outsourcing revenue in 2005 and the nation will retain its dominant position for the foreseeable future. In India, the industry is expected to grow to $25 billion in 2010 from $5.2 billion in 2005. Retail banking, insurance, travel and hospitality are expected to offer the greatest potential for offshore outsourcing.

In India, WNS's competitors include Genpact, ExlService Holdings, Progeon, a division of Infosys Technologies, Tata Consultancy Services and Wipro BPO, a division of Wipro Technologies. US competitors include Accenture, Affiliated Computer Services, Electronic Data Services and IBM.

The company's revenue grew at a compound annual rate of about 55 per cent from 2003 to 2006, increasing to $202.8 million in 2006 from $54.6 million in 2003. For the year ended March 31, 2006, WNS (Holdings) Limited reported net income of $18.3 million on revenue of $202.8 million compared with a net loss of $5.8 million on revenue of $162.2 million in fiscal year 2005.

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Like many new companies, WNS (Holdings) Limited derives most of its revenue from a handful of clients. In fiscal year 2006, the company's top five customers represented 41 per cent of revenue and the top 20 customers represented 73 per cent of revenue. Loss of one or more major clients would pound revenue.

WNS (Holdings) Limited of Mumbai, India, formerly known as Bombay, plans to offer 10,428,708 American Depositary Shares representing an equal number of ordinary shares at $18 to $20 per ADS through underwriters led by Morgan Stanley. The proposed New York Stock Exchange Symbol is WNS.

The IPO is expected to be priced the week of July 24. Selling shareholders, including Warburg Pincus of New York and British Airways, plan to offer 5,955,024 ADS. The company will receive nothing from the sale of these shares. The company expects to raise about $73.9 million in the initial public offering and plans to use net proceeds for general corporate purposes, including capital expenditures, working capital and possible acquisitions.

WNS (Holdings) Limited's planned IPO offers great promise. India, unlike Russia or China, is a solid democracy with rule of law and a free press. The educated elite speak English and are eager participants in the modern world, unlike the terrorists who recently bombed commuter trains in Mumbai.

There is little to distinguish WNS (Holdings) Limited from its competitors. As a result, the company must constantly provide solid service at a good price, limiting future price increases. This may eventually crimp revenue growth, but not for years as more companies farm out their support services to overseas providers such as WNS (Holdings) Limited in an effort to hold down costs.

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Historically, low wages in India have made outsourcing attractive to major companies in the United States, United Kingdom and Europe. But rapid economic growth in India has forced employers to scramble for skilled employees and to boost wages. Pay is rising faster in India than in developed Western nations and the decline of the dollar and the pound against the Indian rupee would erode the company's competitive advantage.

If you want to invest overseas, India is a good bet. Expect WNS (Holdings) Limited to show some life in early trading. Keep an eye on the stock because the sector offers the prospect of steady growth for the next several years.