Avendus kpo - analytics

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Avendus kpo - analytics

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  2. 2. Note To Reader Dear Reader, Big Data and analytics are the in-demand sectors at the moment. Industry estimates suggests that in 2009 alone enough data was created to fill stack of DVDs to reach to the moon and back, and data is only expected to grow further. With the increasing volume, velocity and variety in the data, the ability of organizations to derive meaningful insights from this knowledge base is getting diminished. In a tough economic environment, the ability to make smart decisions will be the difference between being a leader versus being a laggard. This is where Data Analytics makes its mark. Harnessing Big Data in conjunction with data analytics capabilities provides an opportunity for industry leaders to consolidate positions, and for the laggards to regain lost ground. The ability to model and predict business outcomes with a certain degree of confidence is a concept that has always fascinated decision makers, but the concept is seemingly becoming more accessible and meaningful. Especially in an environment where storage costs have diminished tremendously while data generation has witnessed explosive growth and businesses are connecting with their consumers in a new and increasingly digital world. However, our interactions with industry professionals and the analysis of available secondary data seems to suggest that the offshore data analytics services sector is still in a nascent stage of development - with significant headroom for growth. The absence of clear market leaders offers in its wake tremendous growth opportunities as well as hurdles that are inherent in any industry where the concept is still seeking broad-base acceptance. Keeping the above in mind, we thought a report on this segment would be timely and topical. In this report, we have tried to capture insights and trends in the data analytics services market. We hope that you will find this report useful and look forward to your feedback and continued patronage. Warm Regards, Amit Singh Executive Director Avendus Capital 2
  3. 3. Disclaimer This note is distributed by Avendus on a strictly confidential basis. It has been prepared exclusively for benefit and internal use of recipient and does not carry any right of reproduction or disclosure. The information and projections contained herein can not be disclosed, reproduced or used in whole or in part without express prior written permission of Avendus The information contained in this note has not been independently verified by Avendus. No representation or warranty is given by Avendus as to the achievement or reasonableness or completeness of any idea and/or assumptions presented here. None of the company or its respective affiliates shall have any liability (including liability to any person by reason of negligence or negligent misstatement) for any loss arising from use of this note and its contents (express or implied) This note does not claim to contain all information that recipient may require. Recipient should not construe any information contained herein as advice relating to business, financial, legal, taxation or investment matters. Recipients are advised to consult their own business, financial, legal, taxation and other advisors regarding the industry and its constituents Where this note summarizes provisions of other documents, recipient should not rely on the summary and the relevant document must be referred for any conclusion 3
  4. 4. Executive Summary  Global knowledge services outsourcing market is estimated to grow at a CAGR of 24% between 2010 to 2015 to reach USD 7.9 Bn. India will remain the largest provider of these services with ~70% market share during this period  Global data analytics outsourcing, a subset of the global knowledge services outsourcing market, represented a USD ~500-5501 Mn market opportunity in 2010, out of which India delivered USD 375 Mn  Though the market has been around since the early 2000’s, the exponential growth in data generation, significant decrease in data storage cost and increased need for companies to make decisions based on actionable insights, has increased the demand for data analytics  One of the earliest adopters of knowledge services, the financial services industry accounts for the highest share of the analytics industry  BFSI, retail, health and pharma sectors are the most penetrated verticals with ~75% of the vendors catering to these segments 1  Greater availability of transactional data in financial services, retail and CPG compared to other verticals is driving the analytics demand within these segments Huge Talent Supply  Estimates suggests a talent shortage of 140,000-190,000 professionals with analytical capabilities in the US by 2018, representing ~40% of the total demand Gap Anticipated  This talent supply gap expected to boost demand for analytics outsourcing services, and represents a USD 20 Bn offshore opportunity1  Highly fragmented market  large number of vendors due to absence of critical mass and most vendors with revenues less than USD 10 Mn1  Large proportion of vendors with India presence  talent shortage coupled with the cost advantage has made offshoring a requirement  Lack of scaled up vendors indicates few inorganic growth opportunities with significant scale in this space  Fragmented internal analytics practices at end clients are being mirrored by service providers as well  Lack of established industry leaders, which should lead to consolidation as players attempt to establish such a position  At an early stage of its industry life cycle, analytics vendors reflect strong growth opportunities and significant upside potential  Multiple adjacent supplier categories and lack of scaled players will make pure-play providers more likely to emerge as market leaders  Fragmented market and lack of industry leaders provide an opportunity for analytics services vendors to adopt an acquire a core and then grow strategy  IT / BPO vendors are trying to reposition themselves as transformational partners to clients using analytics as a beachhead  With increased demand for assets of reasonable scale, analytics services providers can command a valuation of 2.0x – 4.0x EV / Revenue multiple, with scaled up players being on the higher end of the spectrum High Growth Market BFSI, Retail And Health Driving Vertical Demand Fragmented Business No Established Leadership Attractive Investment Opportunity Source: (1) Avendus Estimates 4
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  7. 7. Knowledge Services Outsourcing | One Of The Fastest Growing BPO Segments Knowledge Services Outsourcing Market Global Market (USD Bn)1 Indian Knowledge Services Outsourcing Market1 (% of global market) CAGR: 41% 2.4   Highly fragmented industry with most players being subscale 2.9 69% 2008 While the North America remains dominant market for service providers (~65% share), growing demand from UK and continental Europe is expected to reduce the market share of North America from 65% to 55% by 2015 1 29% 31% 2010 2015E 71% 2010 1.2 2006 India contributed 70% of the global knowledge services outsourcing market in 2010, employing 70,000+ professionals 1 Others CAGR: 22% CAGR: 10% Global knowledge services industry grew at CAGR of over 41% between 2006-08  India Knowledge services refer to business services that are based on tacit as well as explicit knowledge of the provider and usually can not be quality checked at the point of delivery. Knowledge Services are typically judgment based as opposed to being rule based  7.9  2015E Growth Drivers For Knowledge Services Outsourcing Demand Side Growth Drivers  Supply Side Growth Drivers   Increased availability of low cost employees with specialized skills in developing countries like India and China Availability of diverse talent pool including statisticians, lawyers etc. enables knowledge services outsourcing vendors to offer high quality services Outsourcing demand shifting from the mature segments (IT, contact centers) to complex judgment based knowledge services Increased and changing requirements for regulatory compliance - Proliferation of vendors due to absence of critical mass and specialized nature of services  -   Acceptance of outsourcing of core business activities like clinical trials, market segmentation etc. Evolving buyer needs are driving innovation and leading to a higher degree of alignment with vendors thus also fuelling competition - Complex nature of work and judgment based nature of services provides strong career path for employees. This attracts talent towards the pure-play service providers Inability of even large end-user companies to attract and retain highly skilled talent especially in non core areas Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry – Creating Global Business Impact, 2011 7
  8. 8. Knowledge Services Outsourcing | Data Analytics To Lead The Market With 2x Average IT / Knowledge Services BPO Industry Growth Rate Outsourcing Data Analytics To Lead The Market With 2x Average IT / BPO Industry Growth Rate Data Analytics And LPO Services Are Expected To Drive Growth In Knowledge Services Market Indian Offshore Knowledge Services Market1 CAGR % (2010-15)  LPO 18% 2010 = USD 2.0 Bn 44% 23% Business Research Data Analytics  20% 21% Data Analytics Legal Process Outsourcing Data analytics and legal process outsourcing services expected to emerge as the fastest growing segments primarily driven by organisations seeking data driven decision making 25% Business Research 19% Despite its strong growth, business research is expected to lose market share due to growth in other segments 29% 39% 2015(E) = USD 5.6 Bn Business research accounts for the largest share of the knowledge services outsourcing market in India  17% 21% Others Note: Others include data management services and market research Knowledge Services Outsourcing Market – Components Services1 Market Research     Data Management And Reporting Business Research Data Modeling And Analytics Legal Process Outsourcing Others Research design and project planning  Market assessment  Data entry  CRM analytics  Contract management  Social media research  Competitive intelligence  Data processing   Litigation support  Data collection and survey programming  Business partner identification  Data conversion Sales & marketing analytics  Data warehousing  Risk analytics  Procurement services Data validation and processing  Compliance management Marketing and sales support  Financial research  Data cleansing   Newsletter and updating databases Equity research and financial analytics Data analysis and report writing  Best practices identification  Data reporting  Document management  E-discovery HR analytics   Supply chain analytics Segments Expected To Lead Growth Source: (1) Nasscom, 2011 Mature Segment High Growth Segment Nascent Segment 8
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  10. 10. Overview Of Data Analytics Outsourcing Services (1/2) Strong 25% CAGR Till 2015 Led By Increased Analytics Adoption Research and analytics as a segment has significant headroom for growth with current penetration at less than 10% of the total addressable market 2  North America is likely to remain the largest market for analytics offshoring contributing 65% of demand3, Demand from other nations in APAC is expected to increase with financial services leading the demand 79% 375 Data Analytics 2010 Lack of inhouse talent, increased acceptance of outsourcing of core business activities, high margin pressures and explosion in data generation are primary drivers for increased demand  21% Data analytics services market share of the total knowledge services outsourcing market is expected to increase from 18.5% in 2010 to 20.6% in 2015  1,150 Data analytics is the science of examining raw data for the purpose of drawing business related conclusions about the information and for modeling and predicting business outcomes  Data Analytics as % of Total Indian Knowledge Services Outsourcing Market (2015)   India Data Analytics Services1 (USD Mn) Others 2015E Analytics Services - High Billing Rate And Higher Margin Business Requirement For Specialized Skills Revenue Per FTE Per Annum EBITDA Margins (%) (USD ‘000) 18-20 30 30% LPO4 35 15-30% 50-70 EBITDA margins for reasonable sized assets in the analytics business are comparable to that of large established KPOs. As the vendors move higher up in the value chain, margins from analytics services is expected to increase further 15-20% Knowledge Services4 Average revenue per FTE for analytics outsourcing services is amongst the highest within the BPO and KPO services at USD 50,000-70,000 per employee per annum  BPO4  25-35% Data Analytics4 Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry – Creating Global Business Impact, 2011 (2) Everest Research (3) HfS, 2011 (4) Avendus Estimates, Industry Research High Medium Low 10
  11. 11. Overview Of Data Analytics Outsourcing Services (2/2) India To Continue As Major Analytics Services Supplier  India dominates the supplier landscape, catering to a large part of the total demand  Given its headstart, mature delivery models and domain expertise, India would maintain its dominance in the near to medium term  Buyers of services are expected to mitigate concentration risk and leverage local expertise of other emerging centers like China, Philippines, Eastern Europe, Latin America  As the industry matures, Indian analytics service providers will move towards providing more complex services like model development, services based on proprietary IP, consultative offerings and expand offerings beyond traditional verticals  India was ranked 2nd (3.9 Mn graduates in 2010) after China (6.3 Mn graduates in 2010)1 in terms total annual graduates. However, India will retain its attractiveness as the outsourcing destination due to its large talent pool with process expertise and knowledge of English language  India was ranked ahead of other offshoring destinations like China, Philippines, Sri Lanka on the security of intellectual property index by AT Kearney in its Global Services Location Index, 2011. Security is a key determinant for growth in such businesses  Clients’ concerns regarding data security could lead to setting up of onshore delivery teams along with offshore delivery Poland Romania China India Philippines Costa Rica Sri Lanka Chile South Africa Argentina Mature Competitors Emerging India Scores Above Competing Nations On Critical Parameters Industry Maturity Spectrum Of Services Talent Availability India China Philippines Eastern Europe Latin America Source: (1) Nasscom Strategic Review 2011 High Medium Low 11
  12. 12. Why Now ? | Increased Relevance Of Data Analytics Exponential Increase In Data Generation Exponential Increase In Digital Data Generated (Zettabytes)1 35.00  Amount of data generated has increased exponentially over the past few years and is expected to maintain strong growth momentum  Adoption of ERP, CRM, SCM is allowing companies to capture trillions of bytes of information about customers, suppliers and operations 0.02 0.80 Integration and analysis of this vast amount of data is boosting demand for analytics 2002 2009  2020 Increased Affordability Of Data Storage In The Last Decade  Decrease in data storage cost encourages companies to store more data, which in turn increases the desire to unlock the value of the data through technology platforms and usage of manpower  With cloud computing’s demonstrated track record of cost savings and efficiencies, the cost of data storage is expected to further decrease Significant Reduction In Data Storage Hardware Cost (USD / Gigabytes)2 10.00 Proliferation Of Smart Phones Coupled With Increase In Unstructured Data 0.10   IBM estimates that by 2015 there will be 20x more mobile data and content and 40x more mobile transaction spending as compared to year 2010 levels Increased data generation due to expansion in social media, smartphones adoption and increased multimedia content provides strong growth opportunity in the analytics market 2000 2010 Worldwide Mobile Subscriber Base5 (Bn) Basis Of Competition And Growth For Individual Firms   Increased competition for same customer spend has led to greater need for companies to create differentiation by leveraging analytics and to make decisions based on customer insights 94.0% Demonstrated benefits of predictive analytics has lead to wider adoption of analytics across organizational functions  According to IBM’s survey, organizations agreed that the use of business information and analytics differentiates them within their industry making them twice as likely to outperforms peers 64.0% 11.5% 7.50 4.60 0.70 2000 2009 2020 Shortage Of Skilled Analytics Professionals  By 2018, US is expected to face a shortage of 140-190K analytics professionals, representing ~40% of the total talent demand3  this shortage represents a USD 20 Bn offshore opportunity 4 Source: (1) IDC, McKinsey Global Institute. 1 Zettabyte = 1012 Gigabytes (2) Estimate based on cost s of 30.0 Gigabytes Maxtor Hard Drive in August 2000 and 1.0 Terabyte Seagate Pipeline Hard Drive in August 2010 (3) McKinsey Global Institute May 2011 (4) Assuming a billing rate of USD 60 / hour (5) Source: Marketresearch.com; percentage indicates worldwide mobile penetration 12
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  14. 14. Data Analytics Value Chain Phase 1 Phase 2 Data Collection   Data collection from primary source – CRM, customer feedback etc. Data collection from secondary sources through following steps: - Problem Definition - Research Design Formulation - Data Integration, Validation And Storage  Integrating data from multiple sources  Extraction, transformation and loading  Data warehousing  Data de-duplexing  Data validation and cleansing Phase 4 Advanced Analytics Data Analysis and Reporting Phase 5 Presentation and Action  OLAP  Predictive analytics  Ad-hoc query  Behavioural analytics  Statistical modeling  Risk analytics  MIS reporting  Sales & marketing analytics  Structured reports  Social media analytics  Customized dashboards  Web analytics  Data collection from primary and secondary sources - Phase 3  Analyzing and interpreting results  Consulting services to clients  Policy making based on insight  Operational or tactical decision making Developing scorecards Data verification Complexity Level Of Analytics Services Mix Consultative Solutions Advanced Predictive Analytics Simple Analytics Data Storage And Filtering  Research And Data Collection  Includes research services and collection of data from primary, internal and external sources Communication Skills Source: (1) HfS Includes data cleaning, maintenance and actual entry  Low-end service with limited revenues potential   Includes running models generating insight based on simple statistical analysis, dashboards, alerts and ad-hoc reports  Deliver value to clients through building partnership and providing consultative offerings  High-end offerings to create client stickiness   Advanced level of analytics  Create predictive model to build advanced models to create actionable insights  Requires application of highly specialized skills Typically involves decisions that might require long term commitment from the client Advanced Mathematical Skills And Modeling Deep Domain Knowledge And Business Understanding Constitutes a major proportion of KPO-centric analytics work Database Handling Statistical Analysis 14
  15. 15. Data Analytics Value Chain | Services Providers As Integral Part Of Value Chain Big Data Generation Internal Data Sources Big Data Management Storage Big Data generation through internal and external data sources Mining Processing External Data Sources Market Research Data Market Research Data Big Data Analytics Analytics Filtering Big Data management through storage, processing and filtering of data to turn data into actionable information Reporting Big data consumers including data scientists who creates predictive / statistical models by leveraging data analytics software and solutions Enterprise Data Sources Data Warehouse Providers / Data Aggregators Data Analytics Services Providers (Onsite And Offshore) Social / Unstructured Data Sources Data Integration, Data Discovery And Data Visualization Software Vendors Data Analytics Software Solution Providers Secondary / Market Research Data Sources Note: Trademarks and logos are proprietary of the respective companies Representative list of vendors 15
  16. 16. Data Analytics Value Chain | Key Industry Verticals Deep Domain Nature Of Services Require A Vertical Centric Approach To Analytics Services Major Verticals Financial Services Retail, CPG Healthcare, Pharma Telecom Manufacturing Claims And Renewal Analytics Demand Forecasting Evidence Based Medicine Collection Management Demand Forecasting And SKU Rationalization Sales Force Analytics Marketing Mix Analytics Drug Treatment Effectiveness Subscriber Profiling Media ROI Optimizations Collection And Recovery Scorecards Performance Analysis Clinical Analytics Churn Management Assortment Planning Portfolio Analytics Category Management Average Length of Stay Revenue Assurance Route And Distribution Optimization Portfolio Management Trade Promotion Optimization Key Opinion Leader Analysis Customized Offerings And Up-Selling Vendor Performance Management Pricing And Risk Analytics Customer Loyalty Analytics  Initial analytics demand was primarily driven by large financial services companies, which was catered to by in-house and offshore captives centers  Greater availability of transactional data in financial services, health, retail and CPG compared to other verticals have played a critical part in driving analytics demand in these segments  BFSI, retail, health and pharma estimated to be the most penetrated verticals with ~75% of the vendors catering to these segments1  As the industry matures telecom, media and entertainment and travel will emerge as strong long term growth opportunities with large volume of data generation  Emergence of Big Data and new channels of client connection like social media would further fuel growth in mature as well as emerging verticals Source: (1) Avendus estimates HfS, 2011 Mature Verticals Emerging Verticals 16
  17. 17. Data Analytics Value Chain | Key Horizontals In A Largely Vertical Centric Industry Major Analytics Domains Horizontal Functions Risk Risk based pricing, fraud detection and prediction, recovery management, loss forecasting, risk profiling, portfolio stress testing Segmentation, marketing mix optimization, competitor analysis, channel analysis, sales performance analysis, campaign analysis, sales pipeline reporting and, channel analysis Sales & Marketing Supply and demand analysis, strategic sourcing, quality control, inventory analysis, order fulfilment analysis Supply Chain Customer Analytics Loyalty analytics, customer life time value, propensity analytics, churn analytics, customer segmentation, up-sell / cross sell Web Analytics Click analytics, customer lifecycle analytics, social media analytics, sentiment analysis, online traffic analysis, conversion analysis Human Resource Recruitment analytics, compensation analytics, talent analytics, training analytics, retention analytics, workforce analytics Risk And Sales & Marketing Are The Two Biggest Domains Driving Demand For Analytics Analytics Domain Demand1 (%) Others 10%  Source: (1) Primary Research HfS, 2011  From traditional domains like risk and sales & marketing, scope of data analytics application has spread to other domains like supply chain management, logistics, operations, HR analytics and web analytics  Risk And Sales & Marketing 90% Risk and sales & marketing dominate the demand with ~90% of the total analytics application and are expected to drive the analytics demand going forward as well Overlap of talent requirement, sharing of best practices and certain intrinsically similar business needs would lead to the emergence of a few horizontal specific players Mature Domains Emerging Domains 17
  18. 18. Key Trends In Analytics Services Adoption (1/2) Increased Adoption Of Analytics Due To Benefits Offered By Software-as-a-Service (SaaS) Models Business Analytics SaaS Market (USD Mn)1 A 1,344  Installation is complex and time consuming  Onsite installations with infrequent updates of the software and processes  888 High upfront capital requirements  1,079 Requires large commitment to IT budgets and dedicated analytics manpower 737 615  2008 2009 2010E 2011E 2012E 2013E B Analytics Challenges 1,692 Requirement to update software systems according to organizational change and changes in data sources SaaS Benefits  + Reduces large initial CAPEX, shifting the lowered costs to OPEX  No requirement to install applications due to SaaS delivery model  Hosted model allows for greater uptime and frequent updates  Reduces dedicated IT and analytics manpower • SaaS business analytics market is expected to grow at CAGR of 24% between 2010-131 • Post deployment customization and concerns regarding data security and privacy have been major hurdles for SaaS adoption. Such concerns are progressively diminishing Leveraging Unstructured Data Through Text Analytics Shift Towards Text Analytics Due To Large Volumes Of Unstructured2 And Real Data Unstructured Data 75% Source: (1) Source: Accenture (2) SAS Whitepaper 2011 Unstructured data i.e. typically text heavy data which is not part of predefined data models or tables constitutes ~75-80% of the total data generated  Structured Data 25%  Text analytics uses analytical tools to annotate and extract information from unstructured data sources to identify and predict trends  Deriving insights from unstructured data, generated through multiple sources like websites, customer contact, social media, blogs, claims etc. and which represent real time data. Going forward, data is expected to play a critical role in organizational decision making  Gartner estimated text analytics software market at USD 835 Mn in 2010, representing only 8% of the USD 10.5 Bn BI, analytics and performance management software market. This presents a significant headroom for the future growth of the text analytics business 18
  19. 19. Key Trends In Analytics Services Adoption (2/2) Mobile Analytics Expected To Unlock Significant Value For Organizations Mobile / Personal Data Could Provide USD 100 Bn Potential Revenue Opportunity Over The Next Decade1   37 According to IBM estimates, by 2015, there will be 20x more mobile data and content and 40x more mobile transaction spending as compared to 2010 levels  2 30 Proliferation of mobile and smart phones provides significant business opportunity from mobile analytics and revenue generation based on mobile, personal and location based data Not restricted to a single vertical, mobile analytics is expected to create business value across industries leveraging mobile generated data to provide new, better and targeted offerings 100-120 5 39 GPS Navigation People Tracking, Remote LBS, Personal Car entertainment Safety etc Geo-targeted Mobile Advertising Toll Collection Total (USD Bn) Other Key Trends Increased Focus On Predictive Analytics  Shift from simple reporting and statistical analysis to advanced analytics which predict future events, behaviors or outcomes  Historical events are of less interest as companies focus on forecasting future trends  Real Time Analytics Predictive analytics and data mining software market to reach USD 1.8 Bn size by 2014 2  Real time analytics refer to dynamic analysis and reporting, based on real time data  Real time analytics could facilitate better and quicker decision making by providing up-todate information in areas like CRM, pricing, risk etc. Social Analytics - Utilizing Social Network Data For Decision Making With Analytics Integration Of ERP And Analytics Software   Social analytics refer to analyzing insights trapped inside social networks data such as emoticons, tweets, text messages, call center notes, blogs, online posts etc. With increasing popularity of social networks, focus on deriving customer insights based on online behaviour is receiving significant attention from CXOs Source: (1) McKinsey Global Institute, Big Data 2011 (2) Forrester Research Most G2000 organizations have some form of transactional system (ERP) and CRM systems in place  The next growth of enterprise application expected from BI solution implementation   Large amount of data generation necessitates integration of the two key sides of the business decision making – data generation and data analysis  Estimates suggests that 60% BI implementations fails to realize the envisaged value due to inadequate integration with the business requirements 19
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  21. 21. Demand Drivers For Analytics (1/2) Demand Side Analytics Drivers Exponential Increase In Digital Data Generated (Zettabytes)1  Explosion in data generation has highlighted the need for advanced analytics capabilities to leverage the same for business benefits  Enterprise wide adoption of ERP, CRM, SCM tools leading to high data generation has laid the foundation for use of BI solutions  Amount of digital data generated is expected to increase by more than 44 times in the next 10 years  Integration and analysis of this vast quantum of data has been the key demand driver for analytics services – including outsourced services 35.0 Exponential Increase In Data Generation 0.8 2009 2020 Insights To Drive Business Decsions2 Top Performers Lower Performers 20% Use insights to guide future strategies 27% CXOs are keen to shift from intuition based decision making to datadriven actions  Profitable leveraging of data analytics by industry leaders such as Amazon and Google is a testimony to the power of analytics  Demonstrated Advantage Of Analytics  53% 45% A survey by IBM indicates that organizations that use analytics are twice as likely to outperform peers Use insights to guide day-to-day operations Survey Suggests Only 1/3rd Of Respondent Companies Are Prepared To Compete Based On Analytics3 Company Not Prepared 13% Increased C-Suite Attention Company Prepared 36% Source: (1) IDC (2) IBM (3) July 2010 Information Week Financial Services Analytics Survey of 220 financial industry professionals  Company Neither Prepared Nor Unprepared 51% 50% of respondents in an IBM survey accorded top priority to improvement of information and analysis  Top-performing organizations show a 5x higher usage of analytics as opposed to low performers2  Despite C-Suite acknowledgement of importance of analytics, most of the organizations are still not equipped to completely realize benefits from data analytics 21
  22. 22. Demand Drivers For Analytics (2/2) Demand Side Analytics Drivers Top 3 Organisational Challenges (% Of Respondents)1  61% 50% 46% Growth Reducing Costs And Increasing Efficiencies Competitive And Margin Pressures Innovating To Achieve Competitive Differentiation Top 5 Drivers For BI And Analytics Implementation For Banks2 35% 32% 29% 28% 26% Analytics is fast moving from a discretionary spend category to an integral tool for competitive differentiation  Achieving competitive differentiation, growing revenue and cost reduction emerged as the top 3 challenges faced by organization in a recent IBM survey  Organizations that proactively use data generated insight appear to identify and predict trends better and are quick to adopt industry practices thus giving them a competitive edge  Increased pressure for regulatory compliance and greater transparency in sectors like banking, insurance and healthcare is expected to increase the demand for analytics  Inadequacy of in-house and centers to adapt to complex risk compliance norms like Basel III and Solvency II, could led to greater demand for third party services  An IDC survey suggests that reporting and regulatory compliance requirements is amongst the top drivers for BI and analytics Increased Regulatory Compliance Requirements Reporting Cost Reduction Risk Better View Management Into Financial Data Source: (1) IBM (2) IDC Financial Insights 2010. Based on survey of 6,000 IT and budget decision makers from 280 banking firms Regulation Compliace 22
  23. 23. Acute Talent Shortage Coupled With Cost Savings Driving Demand Offshore Capabilities Are Becoming A Necessity Supply Gap For Talent With Deep Analytical Skills Expected In US1 (000’s) 440-490 140-190  Knowledge Intensive  300 150  Analytics services require employees with advanced educational qualifications along with relevant domain knowledge Talent Shortage 150  2008 Employment Additional Supply 2018 Supply Talent Gap According to Mckinsey report, by 2018 US will face a shortage of 140,000-190,000 people with deep analytical skills representing ~40% of the total talent demand  Offshore analytics service providers can bridge this talent gap to provide skilled employees across geographies. 2018 Projected Demand Significant Cost Advantage Through Offshoring Analytics Services 2 30% 100% - - 70% Cost Savings 45% Typical Analytics Project Cost Total Cost Other Costs Actual Cost 55%  Employee costs account for 60%-70% of the total cost for analytics projects2 Off-shoring provides a significant cost arbitrage with respect to salary costs Globalization Required  In order to bridge the talent gap providers will need to set up offshore centers where additional talent exists Labor Cost Shortage Of Analytics Professionals Represents A USD 20 Bn Offshore Opportunity3 Source: (1) McKinsey (2) HfS (3) Assuming a billing rate of USD 60 / hour 23
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  25. 25. Service Provider Landscape | Mix Of Services Providers 1 Pure Play Analytics Vendors Salient  Domain and/or vertical expertise as go to market strategy Features  Leverage expertise and technological platforms to provide specialized services and establish leadership position in niche  Provide greater level of service, competitive pricing and service depth  Fragmented segment with majority of players lacking scale  Lack of funds hinders technological innovation Challenges Pure Play 2 KPOs Salient Analytics Service Providers  Forward integration  generate new business through selling services to new and existing clients  KPOs Integrated provider of a wide range of services Features Captives  Use analytics to improve margins Challenges  Build capabilities and acquire scale to win new clients 3 IT / BPO Vendors Salient Attempt to leverage client base to cross sell analytics services Features  Reinforce positioning as end-to-end solution provider  Create value-added differentiator through providing capabilities in high-value analytics services  IT / BPO Vendors  Enhance analytics capabilities to better serve clients and move up the value chain Challenges  Ability to acquire and retain requisite expertise and build an internal culture of innovation needed in analytics 4 * Representative Vendor List  Shift from captives dominated market to proliferation of third party vendors  The market structure is a mix of service providers like captives, IT / BPO players and pure play analytics providers Source: (1) Tholons, Market Research And Analytics, 2008 (2) HfS Trademarks and logos are proprietary of the respective companies Salient Features Captives   Emerged as early providers of knowledge services Matured captive centers now operate as strategic partner providing higher value propositions to parent through services expansion Challenges  Remain competitive with evolving technology and cost pressures  Providing attractive career path to employees 25
  26. 26. Critical Success Factors For Analytics Services Providers Strong focus on visualization techniques to make the presentation of analytics findings more intuitive Analytics services require high degree of domain knowledge along with reasoning, interpretation and judgmental capabilities unlike the primarily rule driven and repetitive work of BPO services  Attracting strong talent pool with specialized skills remains the critical success factor to meet client demand for analytics services  Non linearity of revenue by leveraging domain understanding and technology platforms also create entry barriers for new entrants  Increasing trend towards automation of services for more routine type analysis Concerns around data security is one of the biggest hurdles in adoption of offshore analytics services. The data being seen as a source of competitive differentiation by most clients  Service providers are implementing strict data security standards and employee training programs and policies are geared to address these concerns  PRIMARY FACTORS Deep industry vertical expertise and client relationships at CXO levels are critical for market penetration   Shift from project based engagements to outcome based delivery models ensures recurring stream of revenues and long term client relationships  Focus on higher value add services, consultative approach and embedding of proprietary IP to deliver services lead to higher client stickiness  Ability to maintain consistent service quality and high levels of client satisfaction are essential for success as the services are high impact in nature unlike normal back office operations  Given its specialized nature of its service and talent requirement, scalability is a big hurdle and vendors are addressing it through a combination of long term engagement with premier educational institutes, automation and technological interventions and advanced inhouse training programs  Unlike typical services companies, this segment has greater capital requirements and hence access to capital is critical to scale as well Strong Talent Pool Technology Know-how Infrastructure And Data Security SECONDARY FACTORS   Vertical And Domain Expertise Client Partnership Model Process Maturity Scalability 26
  27. 27. Future Trends Long Term Horizon Critical Success Factors  Evolved large scale project management capabilities  Short Term Horizon Off-shore delivery base with 1,000+ employee strength, along with onshore and nearshore presence  Increased demand for analytics services from Asian countries Significant management expertise and relationships within the market Time Emergence of 4-5 large pure play analytics vendors (>USD 500Mn) Market expansion and penetration into new domains and verticals Potential listing by few large analytics vendors Critical Success Factors  Increased focus on building onshore and near shore capabilities Scalability to execute large projects  Management bandwidth to drive sales & marketing efforts  Consolidation in the fragmented industry Sizeable employee base (>500+) along with off-shore delivery base  Current Focus/Priority Build proprietary IP to gain sub segment leadership Critical Success Factors Existing suppliers to scale up the business  Build capabilities through hiring and training talented workforce  Sales & marketing focus to acquire clients  Strengthen data security and privacy policy to build client confidence Entry of new players via Organic and inorganic route Industry Maturity 27
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  29. 29. Evolution Of Indian Offshore Analytics Industry Shift From Captive Domination To Third Party Providers 2000-05 Captives Were Early Movers  Market Maturity And Growth  2005-10 Growth Of Third Party Vendors  Growth in Indian analytics market triggered by setting up of captive centers  Initial focus on verticals with large data generation and high growth like financial services, retail etc.  Proliferation of third party vendors, mostly with small business size but strong growth trajectory like MarketRx, SMS, Marketics, PharmArc Vendors were vertically aligned  Emergence of specialized service providers   Strong demand growth for financial analytics services  Early movers included GE, Citibank, JP Morgan, UBS, American Express etc. Smaller size of market and hence fell below the radar of established IT / BPO players 2002 2003 2004 2010-15 Strife For Market Leadership 2005    Entry of large IT / BPO company into analytics space through organic and inorganic growth route (Cognizant acquired MarketRx, WNS acquired Marketics etc.)    2006 2007 2008 2009 2010 Expected growth of data analytics (25% CAGR 2010-15) to outpace Indian knowledge service outsourcing demand (23% CAGR 2010-151) Few scaled suppliers like MuSigma and Fractal Analytics are expected to emerge as market leaders with strong base and services offerings Emergence of new areas like HR analytics, supply chain analytics etc. Service providers increasingly moving towards platform / SaaS based delivery models – Wipro’s acquisition of Promax, IBM’s acquisition of RedPill Focus on global delivery capabilities India is expected to remain preferred destination despite strong competition from Philippines, China etc 2011 2012 2013 2014 2015 Year Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry – Creating Global Business Impact, 2011 HfS, 2011 29
  30. 30. Indian Offshore Analytics Industry | Following The Path Of Prior Outsourcing Segments Mature Phase Start-up Phase OFFSHORE IT SERVICES Post 2000 1995-2000 1978-1995  Patni, TCS, HCL and Satyam, Infosys founded  Driven by short-term revenues mainly on-site   1989: GE Medical Systems pilots a software development project located out of Bangalore  Inflection Point: Y2K resulting in the need for a large and skilled workforce coupled with lowered cost of connectivity  Evolution of a more holistic view on global sourcing  Market consolidation, importance of scale Early adopters begin outsourcing a large portion of their IT spend  Multiple players over USD 1Bn in revenue OFFSHORE BPO SERVICES 2000-2008 1985-2000 Captives set up by British Airways (BA), American Express (Amex), GE Post 2008  Performed non-core / call center activities  Inflection Point: Liberalization of the telecom sector resulting in affordable bandwidth  Emergence of leaders in the space – Genpact , EXL WNS, Firstsource, Sutherland, Intelenet  3rd party BPOs emerge and captives are spun off    Enhanced focus of corporations on efficiency/cost Offer end-to-end services and become strategic partners with clients  Multiple players with USD 500 Mn in revenue OFFSHORE ANALYTICS 2000-2010  Growth in Indian analytics market through setting up of captive centers  Proliferation of third party vendors, predominately small and limited scale  Emergence of technology capabilities and frameworks that enable the processing of Big Data on low cost platforms  Benefits realized by early adopters resulting in wider adoption and exponential growth  Potential for 5-7 large pure play vendors with over 250 Mn in revenue to emerge as leaders in the analytics space  Public market listings or strategic acquisitions by leading ITO/BPO companies 30
  31. 31. Evolving Delivery Model | Shift From Ad-hoc Projects To Partnership Based Models Delivery models are still evolving in the rapidly expanding analytics market  Increased preference towards long-term / retained capacity (FTE) based models ensure recurring revenue streams  Consultative approach, end-to-end service execution (analysis to execution), automation and gaining shares are increasingly becoming key differentiators for services vendors  Benefits To Vendors  Highly specialized nature of services and requirement for close collaboration with the clients will lead to increase in the onsite presence of the service providers - Onsite requirement for analytics services providers expected to be at 20-25%, which is in line with onsite effort mix for leading outsourced IT services providers Analytics Center Of Excellence (ACE)  Outcome Based Model   FTE Based/Flexible Services Model     Project Based Engagement    Ad-hoc project engagements without any ongoing commitment Initial capability assessment to evaluate fit for a deeper relationship Least attractive to vendors due to uncertain revenues and low returns  FTE based delivery constitutes the largest share of the total delivery contracts Cost-effective alternative to expanding internal team Allows effective employee career path due to larger size of vendor teams as opposed internal captives Vendors brings domain and vertical expertise  Compensation linked to achievement of specific objectives Partnership approach towards client engagement Gain-sharing increases vendor’s accountability and also encourages innovation Risk loaded against vendor    Create analytics centers for clients, staffed with consultants that work with clients on a dedicated basis Leverage vendors’ expertise, technology and platforms to benefit from industry best practices High client involvement and value addition through consultative approach Vendor as strategic partner instead of a pure low cost provider $ Client Involvement 31
  32. 32. Growth Capital Needs Of The Fragmented Analytics Industry Presents An Attractive Investment Opportunity CURRENT MARKET SITUATION Highly Fragmented Market, High Capital Requirement, Need For Increased Funding  High growth nature of the business has resulted in the emergence of many players in this space  The offshore analytics industry is currently highly fragmented with most vendors with revenues lesser than USD 10Mn2  Realization among vendors for the need to expand portfolio of offerings through addition of new verticals and domains and to achieve scale to win and execute client projects and build technology and platforms  need for additional funding EXPECTED FUTURE TRENDS Emergence Of Market Leaders With Scale, Range Of Service Offerings And Technology And Platforms  Few large vendors are expected to emerge as market leaders with a strong employee base, global delivery capabilities, a multitude of services offerings and technology and platforms  Demand from newer market segments due to greater competition and lowered cost of storing information for end clients  Large players would acquire smaller companies as the Indian analytics vendors scale up and mature  Potential listing by top 2-3 vendors Translating Into An Attractive Investment Opportunity For PE Funds ATTRACTIVENESS OF ANALYTICS TO PE INVESTORS  Opportunity to invest in an established but high growth sector with sub-scale vendors and no clear market leaders     Ability to scale operations through productization of offering and expansion of global delivery capabilities Diversify operations to emerge as an end-to-end solutions provider for clients  service portfolio expansion and adding new domains and / or verticals to the offerings portfolio Leverage fragmented market for inorganic growth RECENT PE INVESTMENTS IN THE ANALYTICS SPACE1 Target Investor Capital Invested • USD 108Mn  December, 2011 • USD 25Mn  April, 2011 • USD 84Mn  September, 2011 Sale to a strategic or IPO provides typical exit routes Source: (1) Mergermarket (2) Avendus Estimates Trademarks and logos are proprietary of the respective companies 32
  33. 33. Focus On Inorganic Growth Pure Play Vendors Multi Vertical KPO Vendors High Value Chain Analytics Offerings High value Analytics Vertical Focus Acquisition Focus IT / BPO Players Niche Niche Multi Domain Domain Focus BPO / KPO Low Low High Low High Geographic Diversification Operations Scale Inorganic Growth Drivers Inorganic Growth Drivers  Service portfolio expansion and adding new domains and / or verticals to the offerings portfolio  Expand into analytics delivery services   Build scale and compete with niche players  Emerge as a niche leader through deeper domain expertise   Inorganic Growth Drivers Inorganic Growth Drivers Scale-up through client addition and new delivery capabilities Expand volume in the existing space (more coverage, newer markets), add more and complex processes   Acquire technology and platforms     Offer high end services and move up the value chain to a fast growth and profitable market segment Diversify operations to emerge as endto-end solutions provider for the clients Acquire new clients Strengthen nearshore capabilities Acquire technology and platforms Analytics services is an area of need for most large IT/BPO firms ‒ IT / BPO Firms Facing Challenges In Analytics Market  Falling margins due to increasingly commoditized nature of core business is resulting in firms trying to build high margin analytics capabilities ‒ Firms are trying to reposition themselves as transformational partners to clients using analytics as a beachhead In-house attempts have been largely unsuccessful in developing requisite capabilities with firms restricted to providing lower end services ‒ ‒  High end analytics services (predictive/behavioural analytics) are hard to replicate because of the specialized domain expertise required Pure play analytics vendors have an inherent advantage while recruiting talent due to targeted market positioning Lack of scaled up vendors has resulted in an ‘acquire a core and then grow’ strategy Current Positioning Expected Positioning 33
  34. 34. Transactions In Data Analytics Outsourcing Services Segment Date Target Description Country Deal Type Acquirer / Investor Jun-12 Coalition Development UK based company that provides research analytics and business intelligence solutions for the financial services sector UK M&A CRISIL 45 Jan-12 PharmARC Life sciences focused company providing sales & marketing analytics solutions to global pharma and healthcare companies India M&A US NA Dec-11 Mu Sigma Analytics outsourcing company that provides decision science and analytics services US Funding General Atlantic NA Nov-11 Copal Partners Provider of consultative research and analytical service UK M&A Moody's Corporation NA Sep-11 Opera Solutions Provider of BI and predictive analytics services within BFSI, healthcare and government services US Funding SilverLake Sumeru, Accel-KKR NA Sep-11 EmPower Research US based integrated media and business research company with strong capabilities in social media research, media monitoring and measurement US M&A Genpact NA Feb-10 SMS Provider of technology-enabled marketing services and solutions US M&A Genpact 43 Sep-09 Redpill Solutions Provider of advanced customer analytics services to businesses in diverse industries Singapore M&A IBM 12 Oct-07 MarketRx Provider of analytics, web based solutions, market research and software services for pharma and biotechnology companies US M&A Cognizant Mar-07 Marketics Technologies Provider of offshore analytics service to enhance marketing effectiveness India M&A WNS   Deal Value (USD Mn) 135 65 Industry trends suggests that EV / Revenue multiples for analytics services providers have ranged between 2.0x – 4.0x, with scaled-up players at the higher end of the spectrum PE funds have paid higher multiples for analytics services providers, demonstrating the confidence in the ability of scaled up asset to provide strong growth and higher returns Source: Mergermarket Representative list 34
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  36. 36. In Conclusion  Given the projected benefits to user organizations, analytics has emerged as the dominant skill to invest in for services providers  Due to the current fragmented nature of the vendor landscape, we anticipate consolidation and emergence of 3-4 players with greater than USD 500 Mn revenue from high end analytics services within the next 5 years  Development of proprietary IP tools and ability to attract and retain talent would be the two most critical growth factors  Valuation trends expected to remain high in the 2x-3x revenue range over the next 1-2 years 36
  37. 37. Glossary Particulars Description APAC Asia - Pacific BFSI Banking, Financial Services and Insurance BI Business Intelligence BPO Business Process Outsourcing CAPEX Capital Expenditure CPG Consumer Packaged Goods CRM Customer Relationship Management EBITDA Earning Before Interest, Tax, Depreciation and Amortization ERP Enterprise Resource Planning EV Enterprise Value FTE Full-time Equivalent HR Human Resources IP Intellectual Property IPO Initial Public Offering KPO Knowledge Process Outsourcing LBS Location Based Services LPO Legal Process Outsourcing OLAP On Line Analytical Processing OPEX Operating Expenditure RDBMS Relational Database Management System ROI Return On Investment SCM Supply Chain Management 37
  38. 38. About Avendus Capital Avendus Overview Avendus Capital is a leading financial services firm which together with its group companies provides customised solutions in the areas of financial advisory, equity capital markets, alternative asset management and wealth management. Avendus Securities through its Institutional Equities practice is able to offer clients best-in-class research-driven advice to help them take investment decisions, while Avendus PE Investment Advisors manages funds raised from its investors by investing in public markets. The Group relies on its extensive track record, in-depth domain understanding and knowledge of the economic and regulatory environment, to offer research based solutions to its clients that include institutional investors, corporates and high net worth families. Avendus Capital has consistently been ranked among the top-five corporate finance advisors in India and has emerged as the advisor of choice for cross-border M&A deals and has closed 40 cross-border transactions in the past 4 years. Headquartered in Mumbai, the firm has offices in New Delhi and Bangalore. Avendus Capital, Inc (US) and Avendus Capital (UK) Pvt. Ltd. located in New York and London, respectively, are wholly owned subsidiaries offering M&A and Private Equity syndication services to clients in the respective regions. For more information, please visit www.avendus.com 38
  39. 39. Contacts AMIT SINGH PUNEET SHIVAM Executive Director Executive Director Head - Technology Group, and Co-Head Business Process Outsourcing Group Head of US Business and Co-Head - Business Process Outsourcing Group Email: amit.singh@avendus.com Email: puneet.shivam@avendus.com Cell: +91 98864 11118 Landline: +1 646 707 0886 Landline: +91 080 6648 3601 JEFF BAKER DIPESH JAIN Associate Vice President Email: jeff.baker@avendus.com Cell: +1 914 924 9382 Landline: +1 646 707 0886 Associate Email: dipesh.jain@avendus.com Cell: +91 77609 81787 Landline: +91 80 6648 3634 Avendus Capital Pvt. Ltd. Mumbai IL& FS Financial Centre B Quad, 5th fl, Bandra Kurla Complex Bandra East, Mumbai, India 400051 Phone: +91-22-6648 0050 / 0950 Fax: +91-22-6648 0040 / 0940 Avendus Capital Inc. Bangalore # 1 & 2, The Millenia Tower A, 10th Fl, Murphy Road, Ulsoor, Bangalore, India 560001 Phone: +91-80-4115 0000 Fax: +91-80-2555 0868 New Delhi Suite 22A/B, The Aman Lodhi Road New Delhi – 110003 Phone: +91-11-4535 7500 www.avendus.com Avendus Capital (UK) Pvt. Ltd. New York 499 Park Avenue, 12th fl. New York NY 10022 Phone: +1-646-707 0789 Fax: +1-646-707 0899 London 33, St. James’s Square, London SW1Y 4JS, UK Phone: +44 203 159 4353 Fax: +44 207 661 9400 Avendus Capital (UK) Private Limited is regulated and Authorized by the FCA 39

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