Kotak has a price target of ₹56 on Sagility, which implies a potential upside of 22% on the stock.
Firstsource’s share price target of ₹375 is nearly at the same level at which the stock closed on Monday.Kotak has also ascribed a price target of ₹4,000 on eClerx, which is an upside of 2.2% from Friday’s close.
The brokerage said the Indian BPO sector has ascended the value chain and is well-positioned to benefit from the cost optimisation priorities of clients, leading to increased outsourcing of processes and dependence on offshore delivery.
While Gen AI will have an initial impact on customer management services, but industry-specific BPOs are likely to be less-impacted in verticals with higher regulatory scrutiny, according to Kotak’s note.
The brokerage is of the view that Indian pure-play BPO companies have a relatively favourable mix of offerings in comparison to larger global peers, enabling better medium-term growth.
Indian BPOs placed as challengers to benefit from cost-optimisation initiatives
Kotak said Indian pure-play BPO services peers are well-positioned as – challengers to gain share from large global players, led by:
- A shift toward an outcome-based engagement model
- More efficient delivery, aided by leaner cost structures.
- The evolving technology landscape places large incumbents at a greater revenue deflation risk.
Gen AI remains a medium-term risk
Over the last few years, enterprises have automated most of the routine and repetitive tasks to generate efficiencies, Kotak said. Gen AI can unlock additional productivity benefits and outscores ‘dumb’ bots with its adaptability, it added
Data would be the cornerstone of the success of Gen AI initiatives, providing an incremental opportunity for BPO service providers to offer data annotation, collection and curation services for LLMs, according to Kotak. However, disruption is likely int he existing book of businesses. Kotak believes initial adoption would be in industry-agnostic use cases in support functions.
Industry-specific BPO more resilient
The brokerage believes the trade-off between the extent of efficiency improvements and investments required for reasonable model accuracy would influence enterprise adoption.
Coverage
Kotak said increased sales aggression under the current management teams has aided better performance at Firstsource and eClerx. Cost pressures of US healthcare payer clients and enhanced capabilities have opened new growth avenues for Sagility and Firstsource, it said.
| Company | Buy | Hold | Sell |
| Sagility | 7 | 0 | 0 |
| Firstource | 9 | 2 | 3 |
| eClerx | 7 | 2 | 1 |
Kotak said premium valuations are justified, given the structural tailwinds challenger status and improved performance.
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