The sale of captive BPOs in India is expected to pick up steam. But how is a company, which has only done outsourcing work for its parent company, valued? CNBC-TV18 reports.

Captive BPOs who do outsourcing work only for their parent companies are fast being put on the block. In June, HDFC and Barclays'' sold their captive BPO, Intelenet back to its management and buyout firm Blackstone. Two months later, Phillips followed, selling its captive offshoring arm to Infosys under an outsourcing deal. Citigroup is also expected to sell a stake in its BPO -- headquartered in India.

While Intelenet was valued at Rs950 crore or twice its current revenues, Infosys got Philips'' captive arm under an outsourcing deal, where it had to take only $28 million as a written-down asset value.

But how exactly is a captive BPO valued?

Ranu Vohra, CMD, Avendus Advisors, answers, "You would try and see how this company can be transformed to a standalone entity, how much it will take to get third-party business, to what extent is the revenue road map going forward and what is the adjusted profit margin."

In the case of captive BPOs, experts say, paying a premium multiple to current revenue or profit numbers is not enough. They add that one must add the costs of bringing in a new sales team post the sell off. That''s because a captive BPO doesn''t need to sell its services, but after sell-off, it needs to pitch for other clients'' business.

Also, future business promised by the selling party, which retains a stake also determines the value. Sometimes, buyers need to promise upfront savings to the seller, based on cost savings it may bring in post the sell off. That, industry experts say, may turn out to be their Achilles Heel.

Raman Roy, CMD at Quatrro, said, "Just the fact that there is a decrease is not good enough. It is the also the comfort whether you will be able to deliver on that or not."

Experts add that some captives enjoy higher valuations, either because of their scale or their niche expertise. But scale might also be affected if the selling party insists that its people and processes cannot be used for competitors work.