BPO companies can better navigate Gen AI, macro uncertainty than IT cos

This is partly due to the nature of BPO companies’ work, which does not depend on clients’ non-essential expenditure to earn revenue. 

At least one expert said BPO companies could make use of the AI-led transformation.  

“BPO firms are very well placed to exploit AI models as they are all about the process and data. The struggle the IT-centric firms have is that they are too restricted to IT-only relationships, when the core driver of GenAI and agentic is coming from the business functions,” said Phil Fersht, chief executive of HFS Research, a US-based global research and advisory firm.

Billionaire Sanjiv Goenka-owned Firstsource ended the January-March period with $250 million in revenue, up 0.4% sequentially. This gives it a run rate of $1 billion; that is, if the Mumbai-based company gets at least $250 million in the rest of the four quarters, it will get a revenue of at least $1 billion.  

The company reported $944 million in revenue for the year ended March 2025, up 23.4% on a yearly basis. This puts it in the league of mid-cap companies that have reported double-digit growth. At least four companies earning annual revenue between $1 billion and $5 billion have reported double-digit growth for the fiscal year. 

Firstsource’s growth comes at a time when AI is expected to eat up the revenue of BPO companies. Simply put, BPO companies provide customer support to clients. This work is expected to be automated, which would translate to lower billing rates for executives and, therefore, lower revenue. 

Pressures on BPOs

The company’s management said it can also withstand macroeconomic conditions better than its larger peers because it is not dependent on clients’ non-essential expenditure or much of its revenue.  

“One of the things that I think is important to bear in mind is that the traditional BPM businesses do not have the same kind of discretionary pressures as the IT services side has,” said Ritesh Idnani, chief executive of Firstsource, during the company’s post-earnings interaction with analysts on 28 April. Idnani added that “a substantial part of our business is annuity recurring business of which we have greater visibility.”

He said that Firstsource was better poised than its larger peers to overcome the double whammy of Gen AI and macroeconomic uncertainty. 

“At a billion-dollar revenue run-rate, we believe we are at the right scale to be the disruptor. We are large enough to drive a significant impact for our clients, yet agile enough to innovate rapidly. Unlike our larger peers, we are not restrained by excessive bureaucracy or legacy operations, allowing us to proactively capitalize on AI-driven advancements and emerging industry shifts,” said Idnani. 

At least one expert explained the management’s stance.  

“At US $1 billion revenue run rate, FirstSource believes that it is getting the best of both worlds in the sense that it is neither too small to be not invited to deals nor is it too large to be weighed down by legacy projects. It can act as a disruptor to larger incumbents,” said Girish Pai, head of equity research at Bank of Baroda Capital Markets, on 29 April. 

Hearteningly, for Firstsource investors, the company is expecting growth between 12% and 15% for FY26 in constant currency terms.  

Order book

Behind Firstsource’s positive outlook is its healthy order book. In FY25, Firstsource bagged 14 large deals, five of which came in the fourth quarter and three each in the first three quarters. Any deal fetching upwards of $5 million in revenue annually is considered a large deal at Firstsource. The company’s management attributed these large deals to domain expertise, automation, and AI.

 Growth was not limited to Firstsource. Larger peer Genpact ended December 2024 with $4.77 billion in revenue, up 6.5% on a yearly basis. The company expects to cross the $5 billion mark this year, expecting net revenues in the range of $4.862 billion to $5.005 billion, representing year-over-year constant currency growth of 1.9% to 4.9%. 

EXL also reported a 12.5% yearly growth in revenue to end December 2024 with $1.84 billion. Its revenue is expected to cross the $2 billion mark in 2025 as the company has outlined revenue between $2.035 billion and $2.065 billion, representing an increase of 11% to 13% on a constant currency basis. 

However, WNS reported a revenue decline of 0.6% on a yearly basis to $1.31 billion. Still, its management expects a revenue of at best $1.4 billion for the year ended March 2026.  

Genpact and EXL follow a January-December financial calendar, whereas Firstsource and WNS follow an April-March financial calendar. 

Double-digit growth for BPO companies comes at a time when the country’s big five have struggled to grow due to macroeconomic uncertainty and a drought of big-ticket deals. 

Single-digit growth

Tata Consultancy Services Ltd, Infosys Ltd, and HCL Technologies Ltd reported full-year growth of 3.78%, 3.85%, and 4.3%, respectively. Wipro Ltd and Tech Mahindra Ltd reported revenue declines of 2.72% and 0.21%, respectively.  

Even some of the country’s mid-caps reported single-digit growth.  

LTIMindtree Ltd, the country’s sixth-largest IT outsourcer, reported a 4.81% full-year growth, whereas the seventh-largest Mphasis Ltd reported 4.43% full-year growth.  

It is in this backdrop that BPO companies continue to do well. 

Still, Idnani said that companies would have to do much more than merely offer clients AI-led productivity benefits. 

“The traditional labour-linked strengths like large-scale global delivery centres, optimized employee pyramid and shared services factories could become weaknesses. And just a token use of AI and automation for incremental productivity gains will not help. In our view, companies that will be able to pivot their entire business model to the new axis will be the net gainers from this shift. Thus, size will be a critical success factor. As past experiences show, both very large and sub-scale companies find it difficult to adapt to such transformative changes in the industry model,” said Idnani. 

However, with more automation, headcount is expected to reduce. Still, Firstsource, EXL, WNS, and Genpact increased their headcount during the April-March 2025 period, ending with 34,651 employees, 60,652 employees, 64,505 employees, and 142,900 employees, respectively.  

Traditionally, IT service providers are billed for the number of hours their executives spend on client work. With AI-driven automation, clients are now looking to bill employees of IT services and BPO companies based on the business outcome rather than the number of hours they clock. 

Balance headcount, pricing

HFS Research’s Fersht said that companies need to maintain a balance. 

“But this hypergrowth comes with high stakes. Scaling headcount while shifting to outcome-based pricing is a balancing act—one that introduces revenue unpredictability just as Firstsource is making massive bets on AI and workforce transformation. Clients love the concept, and many have declared they are ready to commit at scale. This is surely the calm before the storm when enterprise customers are ready to move on from the traditional BPO model,” added Fersht. 

A third expert said that BPO companies are leaning into AI more aggressively than their larger IT peers, as the new technology can impact their whole business model. 

“They (BPO companies) know that AI is going to disrupt their business model and therefore they are leaning into it more aggressively than their IT services peers that are looking for revenue opportunities,” said Peter Bendor-Samuel, founder of Everest Group. 

“The more AI you put into a BPO company, the higher the profit potential for the service that comes out of those companies. AI has some cannibalization effect, but typically if you’re ahead of your competitors, you’re more than making up for that,” said Bendor-Samuel.