Executive Summary / Key Takeaways

• Advanced Technology Solutions (ATS) is redefining Genpact's economics: With 20% year-over-year growth in Q3 2025—marking the fifth consecutive quarter of acceleration—ATS now drives over half of total revenue growth while delivering 2x revenue per headcount and 70% annuitized revenue under non-FTE commercial terms, creating a structurally higher-margin business model.

• The "last mile" moat creates defensible pricing power: Twenty-five years of domain-specific process expertise across financial services, healthcare, and manufacturing positions Genpact uniquely as enterprises shift from AI experimentation to production-scale deployment, a capability pure-tech competitors cannot easily replicate.

• Margin inflection is underway and accelerating: Gross margin expanded to 36.4% in Q3 2025, up 80 basis points year-over-year, while adjusted operating margins reached 17.4%, as the revenue mix tilts toward ATS and away from traditional headcount-based Digital Operations.

• Valuation disconnect presents opportunity: Despite superior growth metrics, expanding margins, and a 6.5% free cash flow yield, Genpact trades at 14.96x earnings and 10.41x EV/EBITDA—significant discounts to peers like Accenture (ACN) (21.92x, 13.32x) and Cognizant (CTSH) (18.69x, 10.12x), suggesting the market has not yet priced the quality of this transformation.

• Execution risks center on macro sensitivity and scaling: While the ATS pipeline remains robust, Digital Operations faces headwinds from supply chain and tariff-related deal delays, and the company must prove it can scale AI solutions from pilot to production without diluting its domain expertise advantage.

Setting the Scene: From BPO to AI-Led Transformation Partner

Genpact Limited, founded in 1997 and headquartered in Hamilton, Bermuda, began as a pure-play business process outsourcing provider, leveraging labor arbitrage to run client operations more efficiently. For two decades, this model delivered steady growth but constrained margins and tied revenue to headcount. The company built its reputation on deep process expertise—understanding the friction points in financial services, healthcare, and manufacturing workflows at the keystroke level. This accumulated knowledge, while intangible, would become the foundation for a strategic pivot that is now reshaping the company's economics.

The business process outsourcing industry stands at an inflection point. The traditional model of moving work to lower-cost locations faces pressure from automation, AI, and changing global trade dynamics. Clients no longer seek merely to cut costs; they demand transformation. The market is transitioning from "lift and shift" to "intelligent operations," where value creation comes from AI-led insights and autonomous processes rather than labor savings. This shift favors providers who can combine technology with domain expertise—a rare combination that Genpact has methodically assembled.

Genpact occupies a distinct position in this evolving landscape. Unlike Accenture's broad consulting-led approach or Cognizant's engineering-heavy model, Genpact has focused on the "last mile"—the intersection of industry domain, functional process, and technology implementation. The company's 2024 "three plus one execution framework" laid the groundwork, emphasizing partnerships, Data-Tech-AI, simplification, and establishing Genpact as its own best credential for AI-led transformation. In June 2025, this evolved into "GenpactNext," a strategy explicitly designed to establish Genpact as a global leader in Advanced Technology Solutions while leveraging Core Business Services as a foundation.

Enterprises are moving beyond AI experimentation. In 2024, client spending represented more of a shift of dollars than net new incremental investment, as companies experimented cautiously. By 2025, the conversation has changed. Clients are no longer asking for use cases; they are asking how to reorganize their entire operations around AI. Genpact's 25 years of process documentation at scale becomes a competitive moat. While tech companies can build AI models, only Genpact has the body of experience to understand exceptions across industries and embed that knowledge into software.

Technology, Products, and Strategic Differentiation: The Last Mile Advantage

Genpact's technological differentiation centers on its ability to operationalize AI at scale, a capability it has built through three interconnected initiatives: the AI Gigafactory, agentic solutions, and strategic acquisitions.

The AI Gigafactory, launched in early 2025, functions as an AI accelerator designed to rapidly scale solutions from pilot to full production. By Q3 2025, it supported approximately 100 clients—more than doubling quarter-over-quarter—with over 330 GenAI solutions deployed or going live, a 1.5x increase from the prior year. Most enterprises struggle to move beyond proof-of-concept. The Gigafactory provides prebuilt models, accelerators, and a systematic approach to scaling, reducing time-to-value from months to weeks. Databricks partnership enhances this capability, creating a platform that competitors cannot easily replicate.

Agentic solutions represent the next evolution. In February 2025, Genpact launched its first agentic solution for accounts payable, delivering measurable productivity gains through reduced manual effort and faster processing times. By September 2025, the company announced two additional suites: the Genpact Insurance Policy Suite for commercial and specialty insurance, and the Genpact Record-to-Report Suite for financial close processes. These solutions embed AI agents directly into workflows, enabling autonomous decision-making at the keystroke level. The rapid growth in agentic contract value—over 30% from new clients—demonstrates market appetite for outcomes-based pricing rather than headcount-based models.

The June 2025 acquisition of XponentL Data for $160.16 million strengthens Genpact's data strategy and engineering capabilities. XponentL brings differentiated domain-led data design expertise and strategic partnerships that enhance Genpact's ability to guide clients through the entire AI transformation lifecycle. This acquisition is not merely additive; it accelerates the pivot toward ATS by deepening the company's capability in the data foundation layer that underpins all AI solutions.

The "last mile" advantage manifests in the commercial terms of ATS contracts. Approximately 70% of ATS revenue is annuitized, and about 70% comes from non-FTE commercial terms—meaning clients pay for outcomes, not bodies. This creates three critical benefits. First, it decouples revenue growth from headcount, enabling non-linear scaling. Second, it generates higher gross margins, as the value delivered exceeds the cost of delivery. Third, it creates switching costs: once Genpact's AI agents are embedded in a client's core processes, replacing them requires not just new software but re-architecting operations.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

Genpact's Q3 2025 results provide clear evidence that the ATS pivot is delivering tangible financial benefits. Net revenues increased 6.6% year-over-year (6% constant currency) to $1.291 billion, driven by strong demand for data and AI solutions and ramp-ups from recently signed deals. More importantly, gross margin expanded 80 basis points to 36.4%, while adjusted operating margin reached 17.4%—a 30 basis point improvement. This margin expansion is not cyclical; it is structural, driven by the mix shift toward ATS.

The segment performance reveals a tale of two businesses. High Tech and Manufacturing delivered 14.4% revenue growth and 24.6% AOI growth, powered by ramp-ups of recently signed deals and strong demand for ATS. Financial Services grew 3.4% with 9.8% AOI growth, showing steady demand for AI-led transformation. Consumer and Healthcare, however, grew only 0.9% with a 3.3% AOI decline in the quarter, reflecting investments in additional resources to drive future growth and macro-related caution.

This divergence shows where Genpact's value proposition resonates most strongly. High Tech and Manufacturing clients face intense pressure to automate complex supply chains and engineering processes—exactly where Genpact's domain expertise plus AI creates maximum impact. Financial Services, with its regulatory complexity and data intensity, represents a stable growth engine. Consumer and Healthcare's slower growth reflects both macro headwinds and the segment's later-stage adoption curve.

The revenue disaggregation tells the real story. Advanced Technology Solutions grew 20% year-over-year to $311 million, marking the fifth consecutive quarter of accelerating growth and driving more than half of total revenue growth. Core Business Services grew 3% to $980 million, providing stable cash flow but clearly being rotated out of as Genpact pivots. This rotation is deliberate and beneficial: incremental revenue from ATS generates much higher gross margins, lifting overall profitability.

Cash flow quality underscores the transformation's health. Net cash from operating activities increased 27.7% to $526.2 million for the nine months ended September 30, 2025, driven by higher net income, increased non-cash expenses, and a $40 million decrease in operating assets and liabilities. A $45 million advance client payment in Q3 highlights customer commitment and working capital efficiency. Net cash used in investing activities rose to $123.6 million, primarily due to the XponentL acquisition and increased capex—investments that will fuel future ATS growth.

The balance sheet remains robust. With net debt to EBITDA below 3x and interest coverage above 3x, Genpact has ample capacity to fund growth. The Board's 11% dividend increase to $0.17 per share and $500 million share repurchase authorization demonstrate confidence in sustained cash generation. This capital allocation strategy—returning at least 50% of cash flow to investors while funding ATS growth—balances discipline with investment.

Outlook, Guidance, and Execution Risk

Management's guidance evolution throughout 2025 reveals both confidence and prudence. After a conservative reset in Q1 due to supply chain and tariff-related deal delays, Genpact has raised its outlook in both Q2 and Q3. The full-year 2025 guidance now calls for 6.1% to 6.4% revenue growth, with ATS growing in the mid- to high teens and CBS in low single digits. Adjusted diluted EPS is expected at $3.60 to $3.61, representing 10.2% growth—again outpacing revenue.

For Q4, management expects 4% to 5% revenue growth, with ATS continuing mid-teens expansion and CBS growing low single digits. Gross margin is projected at 36.4% and adjusted operating margin at 17.4%, maintaining the elevated levels achieved in Q3. Operating cash flow guidance of approximately $650 million includes the $45 million advance payment, indicating underlying strength.

These assumptions embed several key judgments. First, management assumes the macro environment stabilizes, particularly for Digital Operations deals in manufacturing, consumer goods, and high-tech hardware—the segments most affected by tariff uncertainty. Second, it assumes ATS momentum continues, driven by agentic solutions and the AI Gigafactory's scaling. Third, it assumes the company can execute on its growing pipeline without sacrificing margins.

The execution risks are material. Scaling from 100 AI Gigafactory clients to the implied hundreds needed for long-term growth requires not just technology but talent. Genpact is investing aggressively in AI leadership and practitioners, but competition for this talent is fierce. Client concentration remains a vulnerability: the Q1 2025 deal delays, while not cancellations, showed how macro uncertainty can quickly impact revenue timing. The company must also navigate the transition from FTE-based to outcome-based pricing without disrupting existing client relationships.

Management commentary suggests they are aware of these risks. BK Kalra noted that the large deal pipeline is 80% higher year-over-year, indicating strong underlying demand. Michael Weiner characterized the Q1 delays as "timing related" rather than lost business. Their cautious macro stance—"somewhat muted" but "clarified a little from the paralysis"—reflects prudent guidance that leaves room for upside if conditions improve.

Risks and Asymmetries: What Could Break the Thesis

The investment case faces three primary risks that could materially alter the trajectory.

Macro and Trade Policy Sensitivity: Digital Operations remains vulnerable to supply chain disruptions and tariff-related uncertainty. In Q1 2025, several large deals in manufacturing, consumer goods, and high-tech hardware were pushed out due to these factors. While management insists these are timing issues, not cancellations, prolonged uncertainty could compress CBS growth below the low single-digit guidance, dragging overall revenue and margins. The risk is particularly acute because CBS still represents roughly 75% of revenue, providing a large base that could offset ATS gains if it deteriorates.

Competitive Pressure from Scale Players: Accenture and Cognizant are investing heavily in AI and have larger balance sheets to fund acquisitions and talent. Accenture's global delivery network and Cognizant's strong U.S. presence could pressure Genpact in large deal competitions. However, Genpact's differentiation lies in its process expertise—what BK Kalra calls "understanding the friction points at the keystroke level." This moat is defensible but not impenetrable, especially if competitors acquire similar capabilities or if clients prioritize scale over specialization.

Execution at Scale: The AI Gigafactory's rapid client growth—from 30 in Q1 to 100 in Q3—creates execution risk. Scaling AI solutions requires consistent delivery quality, and any failure could damage credibility. Additionally, the shift to non-FTE pricing models, while margin-accretive, requires clients to adopt new procurement mentalities. If adoption slows, ATS growth could decelerate faster than expected.

The asymmetries favor upside. If macro conditions stabilize, the large deal pipeline could convert faster than the conservative guidance implies, particularly in Digital Operations. Faster ATS adoption could drive margins above the 17.4% target, creating operating leverage. The market may re-rate the stock as the ATS mix becomes more visible, narrowing the valuation discount to peers.

Valuation Context: Discounted Quality

At $46.37 per share, Genpact trades at a significant discount to its transformation progress. The 14.96x P/E ratio compares favorably to Accenture's 21.92x and Cognizant's 18.69x, despite Genpact's superior ATS growth and margin expansion trajectory. The 10.41x EV/EBITDA multiple is in line with Cognizant's 10.12x but below Accenture's 13.32x, even as Genpact's operating margins (17.4% adjusted) exceed both.

Cash flow metrics tell a similar story. The price-to-free-cash-flow ratio of 12.58x and price-to-operating-cash-flow of 11.08x imply a free cash flow yield of approximately 6.5%—attractive for a company growing EPS at 10%+ and reinvesting in a high-growth segment. The enterprise value of $8.77 billion represents 1.75x revenue, a discount to Accenture's 2.34x and Cognizant's 1.83x, despite ATS revenue growing at 20% versus peers' mid-single-digit rates.

Balance sheet strength supports the valuation. Net debt to EBITDA below 3x and a current ratio of 1.51 provide financial flexibility. The 1.47% dividend yield, while modest, is well-covered with a 21.37% payout ratio and has grown 11% annually, signaling management's confidence.

The discount appears rooted in market perception. Investors may still view Genpact as a traditional BPO player, missing the ATS transformation's margin and quality implications. As ATS approaches 25% of revenue and drives the majority of growth, this perception should shift, potentially narrowing the valuation gap.

Conclusion: A Transformation at a Reasonable Price

Genpact is executing a strategic pivot that is rare in the services industry: shifting from headcount-based revenue to AI-led, outcome-based solutions while maintaining profitability and returning capital to shareholders. The ATS segment's 20% growth, 70% annuitization, and 2x revenue per headcount demonstrate a business model with superior economics that is becoming a larger part of the whole. Margin expansion to 36.4% gross and 17.4% operating margins provides tangible evidence that the mix shift is working.

The central thesis hinges on two variables: the sustainability of ATS momentum and the stabilization of the macro environment affecting Digital Operations. The former appears strong, with five consecutive quarters of accelerating growth and a robust pipeline. The latter is more uncertain, though management's conservative guidance and strong client dialogue suggest delays are temporary.

Genpact's "last mile" moat—its deep process expertise combined with AI capabilities—positions it uniquely as enterprises move from experimenting with AI to operationalizing it at scale. While larger competitors have scale advantages, none can match Genpact's 25-year accumulation of domain knowledge embedded in its solutions. The valuation discount to peers provides a margin of safety for investors, while the ATS transformation offers a clear path to sustained earnings growth and potential multiple expansion. For investors willing to look beyond the traditional BPO label, Genpact represents a quality AI-led transformation story at a reasonable price.