Robotic Process Automation (RPA): The Next Big Thing

In the simplest terms, RPA is a process where repetitive, high-volume activities are replaced by machines with the help of Machine Learning and Artificial Intelligence. Simple Google searches should tell you how big this industry is bound to become.

Specific to India, there is a lot of optimism about India’s talent in RPA (Which should not come as a surprise). For instance:

http://www.cxotoday.com/story/automation-the-next-big-thing-in-the-indian-market/

Some articles claim that the expected growth in the industry is about 36% for the next few years: https://tech.economictimes.indiatimes.com/news/corporate/rpa-in-india-the-time-is-now/64299080

This thread is to discuss opportunities in the RPA space in the listed stocks universe.

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To start off the discussion, let me introduce you to Hinduja Global Solutions (HGS) (https://www.teamhgs.com/).

HGS largely works as a BPO outsourcing partner for Healthcare and Telecom in the United States, UK and India. Here is a crux of their business activities:

The overall break-up is like this:

While you can check more of this in their Annual Report, I’m particularly excited about their capabilities in Automation. For instance, here’s a sketch of one of their solutions in Automation called ‘DigiCX’:

Here’s a short article on how DigiCX offers customer value:

The strength of their financials also offer adequate support:

Last but not the least, the company is rated highly by current and prospective employees. For a company where human capital plays the most vital role in delivering performance, this is all the better:

The company currently trades at a P/E of 6.86. Even when I don’t believe in absolute P/E levels, I don’t think I have to even begin justifying just how undervalued it is. Although, fair disclosure, I hold HGS in my portfolio. My views may obviously be biased.

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Hi Dinesh, thanks for initiating this thread.
Nowadays almost every reasonably successful company in business services and application management space is heavily into RPA. So what needs digging is if Hinduja has any differentiated offerings in this space which puts them ahead of competition. Otherwise a significant rerating could be hard to come by.

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@dineshssairam What are the other comapnies focussed on Robotic Automation in india?

Firstsource Solutions is the closest competitor. However, Healthcare, Telecom and BFSI contribute almost equally to their bottom-line, whereas they have little to no exposure to FMCG companies. In fact, I believe that in half a decade from now, even pure-play IT companies like TCS, Infosys and HCL may try to go big this segment (Analytics + Automation). If someone else has been holding / researching these companies, we could have a better discussion.

I’ve personally never liked investing in pure-play IT companies majorly because the chances of disruption is very high and the service they offer is almost commoditized. But the Analytics & RPA industry is up for grabs by anyone. Not to mention, the market size is too massive to be met with the supply from just one or two players.

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Just a word of caution, RPA is being done by all major IT Service providers where it’s being created under Digital as a separate bucket.

It’s basically automation of a manual process using tools like Automation anywhere , UIPath etc and its simpler compared to AI and can be learned quickly and can be done by Junior folks

No Investments in any IT stock as I don’t see long term growth in excess of 20 percent

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i work in analytics domain for biggest pure play IT companies mentioned and its being offered by every IT company. In fact, i think HGS is at losing end because its major chunk of revenue comes from BPO and KPO(based on my limited knowhow) type of work which will get automated by AI or RPA and the one who automate are IT companies. So i believe, if one is betting on AI & RPA it should be IT rather than BPO service providers.

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This is not a new thing and has been around for years. Just last year I was involved in helping a small Gujarati company figure out the right RPA tool (settled for UiPath) for automating a loan underwriting process by accessing a Mortgage Management software, accessing their document management system and following a set of rules to implement a checklist against HMDA docs.

The objective was to reduce a 18-30minute process to under 10 mins. We did achieve something like 6-10 mins but not without some human intervention. The roughly 60% reduction in processing times meant that they could let go 60% of their workforce (not sure what they did though). Now the clients themselves know that automation significantly reduces processing time for their BPO provider and they do renegotiate contracts accordingly.

Another challenge was that there were restrictions on document usage but these could be overcome by cleverly designing the automation (say screen reading instead of downloading a document to local machines). Some customers insist that no automation is used and it would a violation if the BPO does so as they need human oversight on some things. In all, the one that gets paid well is the RPA software maker and the person who designs the automation. The BPO adds some bps to their margins but how this will add 2 lakh jobs, am not sure. Isn’t automation supposed to reduce the workforce?

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In India most of the RPA automation is done on manual processes as underlying systems are weak or non-existent. Most of the times it’s a patch work solution (jugaad) rather than designing robust systems. HGS do perform low end bpo work (payroll processing) where margins would be thin. View RPA as business enabler rather than business itself. If overall business is mediocre adding pinch of RPA won’t help.

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While that’s largely true, my thesis for investing in HGS is that they will slowly start offering RPA and other Automation solutions as well as a cross-sell. Here’s a quote from their latest concall:

On the new services, over the last four years, we have invested a significant amount in developing new capabilities like robotic process automation, digital services like social care, analytics, Work@Home and platform based services. We are working on multiple engagements related to these services. The feedback from clients has been positive and our focus is to continue to provide them with differentiated experience, led by technology based solutions. The recent acquisition of Element is a part of that digital strategy.

The ‘Element’ they’re referring to is Element Solutions, which they recently acquired:

However, as already mentioned by me, the threat of disruption is still definitely big. But at the current valuation levels, I think the risk-reward pendulum is skewed more towards reward than risk. This is what I mentioned in my PF thread too:

RPA is table stakes today for any BPO and IT Services provider. Zero differentiator. Everyone just needs to do it wherever the opportunity presents itself. While I don’t know anything about HGS, capabilities in RPA is not a reason to invest. If they have an industry/talent differentiation (backed by real technology assets rather than power point pitches), then yes, certainly worth investing in. In the RPA space, as phreakv6 says, it’s the RPA providers like UiPath, BluePrism etc. who are capturing most of the value. The best RPA software vendors will likely be acquired.

Almost every IT/BPO company worth its salt will have something to say about Digital, AI/Machine Learning, Automation etc. in any conference call. Take those comments with more than a pinch of salt.

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I don’t think RPA is the next big wave in IT/BPO. As asarun mentioned, every provider has capabilities in it. In reality very few RPA projects actually provide the benefits that it is supposed to provide as getting FTE reduction depends on many factors including how many processes each employee is involved in - often it is a n:n relationship.
Also, IT/BPO are commodity now - probably best to stick with lowest cost provider who has scale.

There is no expansion in margins for HGS it is more are less flat for 10% for many years, even though they are claiming to develop new capabilities. Trade payables & receivables trends also do not indicate they have much bargaining power even after four years of investment. These technologies have very small shelf life of novelty (Big data?).

I think they might need acquire & provide new capabilities just to maintain pace with the market. Even small IT service providers nowadays are coming up with chat bots

just came accross Affordable robotic and automation limited which is into the following services -

could be an interesting way to play this trend which doesnt necessarily has to be only in the IT sector … they cater to the manufacturing sector - auto mostly

Which company is this? @sagararya

dude
just read again.you ll get your answer

Sorry dude. I thought that “Affordable robotic and automation” a generic description. FYI for others: https://www.screener.in/company/541402/

its listed on SME and is tightly held