New York, March 29, 2022 -- Moody's Investors Service ("Moody's") affirmed Genpact Limited's ("Genpact") Baa3 issuer rating. Moody's also affirmed 1) the Baa3 rating on Genpact International, LLC's senior unsecured bank credit facilities that were assumed by Genpact USA, Inc., of which Genpact Global Holdings (Bermuda) Limited and Genpact Luxembourg S.a r.l. are also co-borrowers; and 2) the Baa3 senior unsecured rating on Genpact Luxembourg S.a r.l., a wholly owned subsidiary of Genpact Limited. Genpact Limited provides an unconditional guaranty supporting the rated debt instruments issued by its subsidiaries. The outlook on all ratings is stable.
The following ratings/assessments are affected by today's action:
Ratings Affirmed:
..Issuer: Genpact International, LLC (Assumed by Genpact USA, Inc.)
....Senior Unsecured Bank Credit Facility, Affirmed Baa3
..Issuer: Genpact Limited
.... Issuer Rating, Affirmed Baa3
..Issuer: Genpact Luxembourg S.a r.l.
....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3
Outlook Actions:
..Issuer: Genpact International, LLC
....Outlook, Remains Stable
..Issuer: Genpact Limited
....Outlook, Remains Stable
..Issuer: Genpact Luxembourg S.a r.l.
....Outlook, Remains Stable
RATINGS RATIONALE
"Genpact's growing revenue base is supported by sticky, long-term contracts that provide stability throughout economic cycles. The company's offshore footprint and business process expertise create an attractive value proposition for multinational companies seeking to outsource non-core functions and reduce costs.", said Ignacio Rasero, Moody's Senior Credit Officer. "Genpact faces strong competition against formidable players with deep pockets, which limits profitability. A track-record of investment-grade financial policies position the company well within the Baa3 rating category."
Genpact's Baa3 rating reflects its growing global scale and end-market diversification, with revenue as of fiscal year 2021 exceeding $4 billion. Balanced financial policies with a net leverage target under 2.0x (per the company's definition) support the credit. Genpact generates the majority of its revenue from long-term managed services contracts, which provide stability and predictability to its top line. The company's services typically support critical back-office business functions for its clients, such as accounting or collections, creating a sticky relationship that mitigates slowing demand during cyclical economic downturns. An excellent liquidity position and good free cash flow generation capacity are credit positive. Long-term demand for business process outsourcing ("BPO") services will continue to enable growth, as clients seek to partner with global providers to reduce cost and optimize non-core functions.
Genpact competes against much larger providers with deep pockets, such as Accenture plc (Aa3 stable), International Business Machines Corporation "IBM" (A3 stable), Capgemini SE (unrated), Tata Consultancy Services Limited (Baa1 stable) and other global BPO firms. Some of these providers could exert pricing pressure or bundle their solutions with other services that Genpact does not offer, which could lower growth and profitability rates. Moreover, BPO firms compete for a scarce talent pool to deliver their services. Employee attrition rates are typically high in the industry, leading to wage pressure and increasing costs to hire or retain talent, which constrains margin expansion. Genpact has reduced its customer concentration since its spin-off from General Electric in 2005, but the top five clients still generate over 24% of total revenue, reflecting high concentration.
The stable outlook reflects Moody's expectation for steady revenue growth in the mid to high single-digit percentage range over the next 12 months. Profitability will be pressured by high attrition rates, wage inflation and higher travel costs. EBITDA margin is expected to diminish slightly towards the 19.25% - 19.5% range (Moody's adjusted). Moody's anticipates Genpact will employ moderate financial policies such that gross debt/EBITDA remains in line with historical levels below 3.0x (Moody's adjusted).
Genpact has excellent liquidity. As of December 31, 2021, the company had cash and cash equivalents of $899 million and $498 million of available capacity under its $500 million revolving credit facility due August 2023. Moody's expects the company will repay the $350 million 3.7% notes due April 2022 with cash on hand, and will refinance its $500 million (undrawn) revolver and $561 million term loan facilities due August 2023 over the next 12 months, such that debt/EBITDA will be sustained in the 2.0x-3.0x range (Moody's adjusted). Moody's expects the company will generate over $650 million of operating cash flow in 2022 (Moody's adjusted), which provides ample capacity to fund capital expenditures and dividends with internal sources. Moody's anticipates Genpact will dedicate excess cash flow to finance tuck-in M&A targets and shareholder distributions.
The senior unsecured bank credit facilities, including a $500 million revolving credit facility and a $561 million term loan, are subject to compliance with two financial covenants. The Debt to EBITDA Ratio (as defined in the Credit Agreement) must be below 3.0x. The Interest Coverage Ratio (as defined in the Credit Agreement) must be at least 3.0x. Moody's expects Genpact will sustain an ample headroom against these financial covenants over the next 12 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if the company increases its scale, relative to industry peers and issuers in the rating category, and continues to demonstrate resiliency throughout economic cycles. An upgrade would require diminishing customer concentration and sustained revenue growth and profitability, with EBITA margin percentage rates approaching the high teens as Genpact increases the proportion of higher margin revenue linked to specialized contracts or new technologies. Conservative financial policies with debt/EBITDA sustained below 2.0x could also be required for an upgrade.
The ratings could be downgraded if (i) revenue growth slows down or profitability diminishes, indicating a weakened competitive position; (ii) long-term financial policies become more aggressive with debt/EBITDA expected to be at or above 3.0x; or (iii) liquidity deteriorates.
The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Genpact Limited is a Bermuda-incorporated company that provides business process outsourcing, consulting, analytics, and information technology services focused on improving operations across various industry segments: Banking, Capital Markets and Insurance ("BCMI"); Consumer Goods, Retail, Life Sciences and Healthcare ("CGRLH"); and High Tech, Manufacturing and Services ("HMS"). The company employs over 109,000 employees worldwide, with the majority based in India. As of fiscal year 2021, Genpact generated $4.0 billion in revenue. The company was formed in 2005 as a spin-off from General Electric and is listed in the New York Stock Exchange.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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Ignacio Rasero
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Karen Nickerson
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
