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India : IT & ITes Sector Report_August 2013

The Indian IT-BPM sector is projected to grow at a CAGR of 9.5% to reach USD 300 billion by 2020, driven by strong demand for exports and a large talent pool. India maintains a 52% share of the global outsourcing market, facilitated by cost competitiveness and significant foreign direct investment. The sector's growth is supported by evolving business dynamics, technological advancements, and increasing domestic demand, particularly from large enterprises and small to medium-sized businesses.

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Source: NASSCOM; Aranca Research Note: BPM - Business Process Management, USP - Unique Selling Proposition Strong growth opportunities • The IT-BPM sector in India is estimated to expand at a CAGR of 9.5 per cent to USD300 billion by 2020. The sector increased at a CAGR of 25 per cent over 2000–13, 3-4 times higher than global IT-BPM spend Leading sourcing destination • India is the world’s largest sourcing destination, accounting for approximately 52 per cent of the USD124–130 billion market. The country’s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be its USP in the global sourcing market Largest pool of ready to hire talent • India’s highly qualified talent pool of technical graduates is one of the largest in the world, facilitating its emergence as a preferred destination for outsourcing Most lucrative sector for investments • The sector ranks fourth in India’s total FDI share and accounts for approximately 37 per cent of total Private Equity and Venture investments in the country
• The engineering sector is delicensed; 100 per cent FDI is allowed in the sector • Due to policy support, there was cumulative FDI of USD14.0 billion into the sector over April 2000 – February 2012, making up 8.6 per cent of total FDI into the country in that period Growing demand Source: Nasscom, Aranca Research Note: SEZ stands for Special Economic Zone, BFSI stands for Banking, Financial Services and Insurance; E stands for Estimate, F stands for Forecast Growing demand • Strong growth in demand for exports from new verticals • Expanding economy to propel growth in local demand Global footprints • IT firms in India have delivery centres across the world; as of 2012, IT firms had a total of 580 centres in 75 countries • India’s IT & ITes industry is well diversified across verticals such as BFSI, telecom, retail Policy support • Tax holidays extended to the IT sector • SEZ scheme since 2005 to benefit IT companies with single window approval mechanism, tax benefits,etc Competitive advantage • India has cost savings of 60– 70 per cent over source countries • India remains a preferred destination for IT & ITeS in the world. With 52 per cent market share, India continues to be a leader in the global sourcing industry • The country has a huge talent pool 2013E Industry value: USD108 billion 2020F Industry value: USD300 billion Advantage India
• By early 90s, US-based companies began to outsource work on low-cost and skilled talent pool in India • IT industry started to mature • Increased investment in R&D and infrastructure started • India increasingly seen as a product development destination • The number of firms in India grew in size and started offering complex services such as product management and go-to market strategies • Western firms set up a number of captives in India Pre-1995 1995-2000 2000–05 2005 onwards • Firms in India became multinational companies with delivery centres across the globe (580 centres in 75 countries, as of 2012) • Firms in India make global acquisitions • The IT sector is expected to employ about 3.0 million people directly and around 9.5 million indirectly, as of FY13 • India’s IT sector is at an inflection point, moving from enterprise servicing to enterprise solutions
Source: Nasscom, Aranca Research IT&ITeS sector • Market Size: USD56.3 billion during FY13 • Over 78 per cent of revenue comes from the export market • BFSI continued as the major vertical of the IT sector • Market size: USD20.9 billion during FY13 • Around 85 per cent of revenue comes from the export market Business Process Management (BPM) IT services • Market size: USD17.9 billion during FY13 • Over 79 per cent of revenue comes from exports • Market size: USD13.3 billion during FY12 • The domestic market accounts for a significant share • The domestic market is experiencing growth as the penetration of personal computers is rising in India Hardware Software products and engineering services
Source: Nasscom, Aranca Research Note: E - Estimates Market size of IT industry in India (USD billion)India’s technology and BPM sector (including hardware) is estimated to have generated USD108 billion in revenue during FY13 compared to USD100.9 billion in FY12, implying a growth rate of 7.4 per cent The contribution of the IT sector to India’s GDP rose to approximately 8 per cent in FY13 from 1.2 per cent in FY98 22 22 24 29 32 32 41 47 50 59 69 76 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013E Domestic Export
Source: Bloomberg, Aranca Research Note: 2012 (calendar year) revenues were considered for all the companies Market share of IT players based on revenues (2012)TCS is the market leader, accounting for about 10.1 per cent of India’s total IT & ITeS sector revenue The top six firms contribute around 36 per cent to the total industry revenue, indicating the market is fairly competitive Company name Market share TCS 10.7 per cent Wipro 7.2 per cent Cognizant 6.8 per cent Infosys 6.3 per cent HCL Tech 4.2 per cent Tech Mahindra 1.1 per cent
Source: Nasscom, Aranca Research; Note: E stands for Estimate Growth in export revenue (USD billion) Total exports from the IT-BPM sector (excluding hardware) are estimated at USD76 billion during FY13; the industry rose at a CAGR of 13.1 per cent during FY08-13E despite weak global economic growth scenario Export of IT services has been the major contributor, accounting for 57.9 per cent of total IT exports (excluding hardware) BPM accounted for 23.5 per cent of total IT exports during FY13 Sector-wise breakup of export revenue FY13E 22.2 25.8 27.3 33.5 39.9 43.9 9.9 11.7 12.4 14.1 15.9 17.8 8.8 10 10.4 11.4 13.0 14.1 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013E IT services BPM Software products and engg. services 57.9% 23.5% 18.6% IT services BPM Software products and engg. Services CAGR: 13.1%
Source: Nasscom, Aranca Research Notes: C&U - Construction & Utilities, T&T - Travel and Tourism, T& M - Telecom & Media, BFSI - Banking, Financial Services and Insurance The figures mentioned are for IT and BPM only and do not include engineering services and hardware exports Export revenue growth across verticals (USD billion) BFSI is a key business vertical for the IT-BPM industry. It generated export revenue of around USD31 billion during FY13, accounting for 41.0 per cent of total IT-BPM exports from India Approximately 85 per cent of total IT-BPM exports from India is across four sectors: BFSI, telecom, manufacturing and retail. The hitherto smaller sectors are expected to grow Distribution of export revenue across verticals (FY13) 28 13 11 7 3 2 2 31 14 12 8 4 2 2 BFSI T&M Manufacturing Retail Healthcare T&T C&U FY12 FY13 41% 18% 16% 10% 5% 3% 3% BFSI T & M Manufacturing Retail Healthcare T & T C & U
Source: Nasscom, Aranca Research Note: ROW is Rest Of the World, APAC is Asia Pacific Geographic breakup of export revenue (USD billion) US has traditionally been the biggest importer of Indian IT exports; over 60 per cent of Indian IT-BPM exports were absorbed by the US during FY13 Non US-UK countries accounted for just 21.0 per cent of total Indian IT-BPM exports during FY12 Europe, one of the fast growing IT markets in 2012, is expected to emerge as a potential market as higher inclination towards offshoring firms would increase demand for IT services Distribution of export revenue across geographies (FY13) 42 12 8 5 2 47 13 9 6 2 US UK Continental Europe APAC ROW FY12 FY13 62% 17% 11% 8% 2% US UK Continental Europe APAC ROW
Source: Nasscom, Aranca Research Category Number of players % of total export revenue % of total employees Work focus Large sized 11 47-50% ~35-38% • Fully integrated players offering full range of services • Large scale operations and infrastructure • Presence in over 60 countries Mid sized 85-100 32-35% ~28-30% • Mid tier Indian and MNC firms offering services in multiple verticals • Dedicated captive centers • Near shore and offshore presence in >30-35 countries Emerging 450-600 9-10% ~15-20% • Players offering niche IT-BPM services • Dedicated captives offering niche services • Expanding focus towards sub Fortune 500/ 1000 firms Small >4,000 9-10% ~15-18% • Small players focussing on specific niches in either services or verticals • Includes Indian providers and small niche captives
Global delivery model • The number of global delivery centres of IT firms in India reached 580, spreading out across 75 countries, as of 2012 • As of 2009, over 150 centres were set up by various Indian IT firms in North America Global sourcing hub • India continues to maintain a leading position in the global sourcing market. Its market share increased to 52.0 per cent in 2012 from 50.0 per cent in 2011 Engineering offshoring • India is the most preferred location for engineering offshoring, according to a customer poll conducted by Booz and Co • Companies are now offshoring complete product responsibility Patent filing • Increased focus on R&D by IT firms in India resulted in rising number of patents filed by them • The number of patents filed by the top three IT companies increased to 858 in 2012 from 150 in 2009
Changing business dynamics • India’s IT market is experiencing a significant shift from a few large-size deals to multiple small-size ones • Delivery models are being altered, as the business is moving to capital expenditure (capex) based models from operational expenditure (opex), from a vendor’s frame of reference Large players gaining advantage • Large players with a wide range of capabilities are gaining ground as they move from being simple maintenance providers to full service players, offering infrastructure, system integration and consulting services New technologies • Disruptive technologies, such as cloud computing, social media and data analytics, are offering new avenues of growth across verticals for IT companies Growth in non-linear models • India’s IT sector is gradually moving from linear models (rising headcount to increase revenue) to non-linear ones • In line with this, IT companies in India are focusing on new models such as platform-based BPM services and creation of intellectual property
Consumerisation of IT • Global outsourcing is being used to drive fundamental re-engineering of end-to-end processes • Increased emphasis on beyond cost benefits • IT firms in the current phase have moved up the value chain, providing innovation-led growth to clients from SLA satisfaction and RoI calculations Emergence of Tier II cities • Tier II and III cities are increasingly gaining traction among IT companies, aiming to establish business in India • Cheap labour, affordable real estate, favourable government regulations, tax breaks and SEZ schemes facilitating their emergence as a new IT destination • Giving rise to the domestic hub and spoke model, with Tier I cities acting as hubs and Tier II, III and IV as network of spokes SMAC technologies, an inflection point for Indian IT • Social, Mobility, Analytics and Cloud (SMAC), a paradigm shift in IT-BPM approaches experienced until now, is leading to digitisation of the entire business model • IT vendors in India to generate USD225 billion from SMAC-related revenue by 2020 Note: SLA - Service Level Agreement; RoI - Return on Invesmtnet
Note: STPI stands for Software Technology Park of India, SEZ stands for Special Economic Zone Growth drivers Talent Pool Domestic growth Infrastructure Global demand Policy support • Computer penetration expected to increase • Government likely to become a major contributor to domestic demand by 2013–14 • 4.7 million graduates are estimated to have been added to India’s talent pool in FY13 • Strong mix of young and experienced professionals • Global IT offshore spending is expected to rise at a CAGR of 8.0 per cent during FY11–13 • Global BPM spending is estimated to expand at a CAGR of around 7.0 per cent during FY11–13 • Tax holidays for STPI and SEZs • Procedural ease and single window clearance for setting up facilities • Robust IT infrastructure across various cities in India such as Bengaluru • Delivery centres spread across various countries
Source: Nasscom, Aranca Research Note: Small and Medium Business; E indicates estimated numbers Domestic IT market by customer segment (FY2013E) Large enterprises account for a significant share of the IT market and added USD15bn to domestic revenue in FY13 Expansion of Indian firms in global markets is leading to increasing spend on IT for efficient and cost-effective operations SMB, another potential demand pool for IT services in domestic market Adoption of technology for enhancing product visibility, reach and operational efficiencies is leading to higher demand for IT services from SMBs With 46 million units, India has the second largest SMB base in the world 47% 26% 15% 12% Large enterprises SMB Governement Consumers Total market = USD32 billion
Source: Nasscom, Aranca Research Note: UT - Union Territory Domestic revenue from IT and BPM (USD billion)Introduction of large eGovernance projects to provide better services through IT and focus on the formation of the cyber policy led to higher demand for IT and hardware from the government The Central Government and State/UT Government allocated 0.9–1.2 per cent and 2.8–3 per cent, respectively, of total budget on IT spend under the 12th Five Year Plan Strong consumer demand for IT service and products: Advent of smartphones, tablets, iPads, Rising computer literate population Enhanced Internet and mobile penetration Growing disposable income strengthening consumer purchasing power 15.5 FY13 FY15F FY20F ~22-23 ~90-100
Source: Nasscom, Aranca Research Note: Ovals indicate CAGR Export revenue from IT and BPM (USD billion)Global IT-BPM spending to grow 5–6 per cent to nearly USD2 trillion by 2013 Global sourcing to rise at a faster pace of 9–11 per cent to USD124–130 billion in 2013 Emergence of SMAC would provide USD1 trillion market by 2020 Emerging economies are likely to be a major contributor to IT spend growth IT spend in emerging economies to grow 3-4 times faster than advanced economies The BRIC IT market is estimated at USD380–420 billion by 2020 Emerging segments are expected to drive growth of Indian IT-BPM exports 48 ~106-111 FY11 FY14F Core and non core segment’s growth prospects 22 11 1.2 7.6 3.2 3.1 35 15 2 13 5.5 5.5CADM ER&D ITconsulting ISsourcing Knowledge services Software testing FY13E FY16F Core segments Emerging segments 17% 10% 19% 20% 20% 21%
Source: Nasscom, Aranca Research Note: Graduates includes both graduates and post graduates Graduates addition to talent pool in India (in millions) Availability of skilled English speaking workforce has been a major reason behind India’s emergence as a global outsourcing hub India added around 4.7 million graduates to the talent pool during FY13 Growing talent pool of India has the ability to drive the R&D and innovation business in the IT-BPM space 3.2 3.5 3.7 4.0 4.4 4.7 FY2008 FY2009 FY2010. FY2011 FY2012 FY2013E
Source: Nasscom, Aranca Research Training expenditure by Indian IT-BPO sectorAbout 2 per cent of the industry revenue is spent on training employees in the IT-BPM sector 40 per cent of total spend on training is spent on training new employees A number of firms have forged alliances with leading education institutions to train employees 24% 6% 13% 27% 19% 11% Salaries for inhouse training staff External training (new recruits) External training (existing employees) Recruitment cost Employee welfare Other costs
Source: Nasscom, Aranca Research Note: NAC - Nasscom Assessment of Competence, IIIT - Indian Institutes of Information Technology Short term Medium term Long term • Enhance over all yield of employees • Improve employability • Expand to tier 2 cities • Lower skill dependence Objectives Initiatives • Industry to enhance investment in training • Use NAC and NAC – Tech to assess employability of talent pool • Identified new tier 2 locations • Bring down investment on training • Develop specialist and project management expertise • Launched the National Faculty Development Programme to increase suitability of Faculty • Aiding industry access to specialist programmes offered by independent agencies • Expand education capacity • Promote reforms in education • Expansion of higher education infrastructure; 20 new IIITs to be set up by the government • Programme to increase PhDs in technology
Source: Nasscom, Aranca Research, STPI As of FY2011, 6,554 STPI units were operational, while 5,564 units have exported IT services and products. During FY11, STPI units accounted for approximately 76.0 per cent of total IT exports IT-SEZs have been initiated with an aim to create zones that lead to infrastructural development, exports and employment Characteristics of STPI and SEZ in India Parameters STPI SEZ Term 10 years 15 years Fiscal benefits • 100 per cent tax holiday on export profits • Exemption from excise duties and customs • 100 per cent tax holiday on exports for first five years • Exemption from excise duties and customs Location and size restrictions • No location constraints • 23 per cent STPI units in tier II and III cities • Restricted to prescribed zones with a minimum area of 25 acres
Source: Nasscom, E&Y, Aranca Research IT sector employment distribution in Tier I and Tier II/III cities 1,821 1,615 175 3,230 2008 2018E Tier I locations Tier II/III locations Trends in tier II and III cities • 43 new tier II/III cities are emerging as IT delivery location; this could reduce pressure on leading locations • Cost in newer cities is expected to be 28 per cent lower than leading cities • Lower cost and attrition, affordable real estate and support from local government, such as tax breaks, STPI and SEZ schemes, are facilitating this shift of focus • Over 50 cities already have basic infrastructure and human resource to support the global sourcing and business services industry • Some cities are expected to emerge as regional hubs supporting domestic companies
Source: Zinnov, Nasscom, Aranca Research Number of GIC’s in India 2000 2005 2010 2012 ~180 450+ 700+ 750+ Key highlights • Global In-House Centers (GIC), also known as captive centers, are one of the major growth drivers of the IT- BPM sector in India • As of FY2012, the captive segment accounted for 16- 18 per cent of the IT-BPM industry revenue • The impact of the segment goes beyond revenue and employment, as it helped in developing India as a R&D hub and create an innovation ecosystem in the country • Within the captive landscape, ER&D/SPD (Engineering Research & Development /Software Product Development) is the largest sub-segment • Companies from North America and Europe are major investors in the captive segment in India, accounting for over 90 per cent of captives in the country
Source: Venture Intelligence, Nasscom, Aranca Research PE-VC investments in IT & BPM (USD billion) The IT & BPM sector continued to attract PE and VC investments in 2012, accounting for a significant proportion in terms of volume (around 37 per cent) and value (approximately 40 per cent) Value increased at an impressive 68.4 per cent over 2011 eCommerce accounted for 31 VC deals in 2012 About 64 per cent of VC deals in India were in the software, internet and mobile industry Two of the largest PE deals in the sector during 2012 were: JP Morgan’s buyout of M*Modal (USD1,100 million) Bain Capital, GIC investment in Genpact (USD1,000 million) In 1Q13, the industry attracted 26 deals at a value of USD105 million Share of IT-BPM in PE-VC investments 0.8 1.9 3.2 2008 2011 2012 184 379 484 393 58 25 32 40 2009 2010 2011 2012 Number of deals Share of IT-BPM
Source: All the figures are taken from International Data Corporation (IDC) and Nasscom and are FY10 estimates Notes: SMB - Small and Medium Businesses • BRIC nations, continental Europe, Canada and Japan have IT spending of approximately USD380–420 billion • Adoption of technology and outsourcing is expected to make Asia the second largest IT market • Government, healthcare, media and utilities have IT spend of approximately USD190 billion, but account just 8 per cent of India’s IT revenue • A number of sectors are expected to depend on technology and service providers to reduce the cost to serve• SMBs have IT spend of approximately USD230– 250 billion, but contribute just 25 per cent to India’s IT revenue • The emergence of new service offerings and business models would aid in tapping market profitably and efficiently New verticals New customer segments New geographies
Growth trend of traditional verticals Traditional verticals i.e. BFSI, telecom and manufcaturing, continue to remain the largest in terms of IT adoption, and are expected to grow at an average of 15% Implementation of cloud environment and mobility way forward for traditional verticals Emphasis on other emerging verticals (such as education, healthcare and retail) to aid growth in IT firms in India Shift from IT adoption infrastructure, automation and digitisation to smart IT marks future trend of services in emerging verticals Growth trend of emerging verticals 128 80 339 195 126 506 243 193 595 BFSI Telecom Manufacturing FY10 FY13E FY15F 17.2 11.6 4.4 34.5 17.5 8.7 39.5 24.8 9.7 Education Healthcare Retail FY10 FY13E FY15F Source: Nasscom, Aranca Research
Source: Nasscom, Aranca Research Note: SMB - Small and Medium Business Market size of other progressing verticals by 2020 (USD billion) As IT is increasingly gaining traction in SMB’s business activities, the sector offers impressive growth opportunities and is estimated at approximately USD230–250 billion by 2020 In a bid to reduce cost, governments across the world are exploring outsourcing and global sourcing options Technologies, such as telemedicine, mHealth, remote monitoring solutions and clinical information systems, would continue to boost demand for IT service across the globe IT sophistication in the utilities segment and the need for standardisation of the process are expected to drive demand Digitisation of content and increased connectivity is leading to a rise in IT adoption by media 250 90 58 25 17 SMB Government Healthcare Utilities Media
Source: Nasscom, Aranca Research Note: Size of bubble indicates market size, *CAGR and market size for Big data/analytics is till 2015 Growing technologies future growthEmerging technologies present an entire new gamut of opportunities for IT firms in India SMAC provide USD1 trillion opportunity Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around USD650–700 billion by 2020 Social media is the second most lucrative segment for IT firms, offering a USD250 billion market opportunity by 2020 Cloud Social Media Enterprise mobility Big data/analytics* 10% 20% 30% 40% 50% 60% 0 200 400 600 800 CAGRtill2020 Market size USD billion
Source: Nasscom, Aranca Research Emerging geographies to drive the next growth phase for IT firms in India BRIC provides USD380–420 billion opportunity by 2020 Focus on building local credible presence, high degree of domain expertise at competitive costs and attaining operational excellence hold key to success in new geographies Countries offering growth potential to IT firms Country IT spend India’s penetration Key segments Canada USD63 billion ~1.5 per cent Enterprise applications, cyber security, healthcare IT Europe USD230 billion <1.5 per cent IT sourcing, BPM, IS outsourcing, CAD Japan USD235 billion <1 per cent CRM, ERP, Salesforce automation, SI Spain USD26 billion <1.5 per cent IT sourcing, SI Mexico USD29 billion ~4 per cent IT sourcing, BPM Brazil USD47 billion ~2 per cent Low level application management, artificial intelligence, R&D China USD105 billion <1 per cent Software outsourcing, R&D Australia USD48 billion ~4 per cent Procurement outsourcing, infrastructure software & CAD
Source: TCS website and Annual Report, Aranca Research Segment-wise revenue breakdown (FY13) 66%5% 12% 3% 3% 13% IT solutions and services Engineering and industrial services Infrastructure services Global consulting Asset leverage solutions Business process outsourcing Tata Consultancy Services Established in 1968, Tata Consultancy Services (TCS) is an Information Technology (IT) services, consulting and business solution company . It provides end-to-end technology and technology-related services to global enterprises. The company’s business is spread across the Americas, Europe, Asia Pacific, and Middle East and Africa (MEA). Achievements: • 2013: Won Best Performing Consultancy Brand award in Europe • 2013: Received Red Hat North America Awards for System Integrator Partner of the Year • 2012: TCS China ranked amongst the top 10 global services providers in China • 2012: TCS BaNCS won Xcelent Customer Base Awards 2012
Source: TCS website and Annual Report, Aranca Research Number of customersFinancial performance (USD billion) 6.0 6.3 8.2 10.2 11.6 1.4 1.7 2.3 2.8 3.1 FY09 FY10 FY11 FY12 FY13 Revenue Operating profit 214 76 42 25 5 458 208 143 81 27 8 522 245 170 99 43 14 556 277 196 115 48 16 USD1 million+ USD5 million+ USD10 million+ USD20 million+ USD50 million+ USD100 million+ FY5 FY11 FY12 FY13
1968 2001 2003 2005 2007 2009 2011 2013 Energy resources & Utilities Consolidation of market position through CMC acquisition Expansion of geographic presence 1968 India’s first software service company Issue of an IPO in the market in India and raised USD1.2 billion in 2004 FY03 Became the first software company in India to cross USD1 billion revenue FY13 USD11.6 billion revenue Life Sciences & Healthcare Manufacturing Media & Entertainment Retail and consumer packaged goods BFSI Acquisition of IT service firm Alti in France in 2013 With a brand value of over USD1 billion, TCS consolidates position as one of the largest IT players FY13 Active client base: 1,156 New clients: 153 Source: TCS website and Annual Report, Aranca Research
Source: HCL Technologies website and Annual Report, Aranca Research Segment-wise revenue breakdown (FY13) 32% 24% 20% 19% 5% Custom application services Infrastructure services Enterprise application services Engineering & R&D services Business services HCL Technologies Established in 1991, HCL Technologies Ltd is an IT services company providing enterprise and custom application, business transformation, infrastructure management, business process outsourcing and engineering services. The company’s network of 26 offices is spread across the US, Europe and Asia Pacific Achievements: • 2013: Won IT Europa, European IT Excellence Awards and Asia Pacific Enterprise Leadership Award 2013 • 2012: Received Market Facing Innovation award at the NASSCOM Innovation Awards, 2011 • 2011: Received Operational Excellence & Quality award at BPO Excellence Awards 2010–11
Source: HCL Technologies website and Annual Report, Aranca Research Number of customersFinancial performance (USD billion) 1,879 2,228 2,560 3,452 4,345 3,459 250 317 321 438 656 682 FY08 FY09 FY10 FY11 FY12 9MFY13 Revenue Operating profit 386 152 92 44 25 14 10 422 187 98 51 29 15 10 USD1 million+ USD5 million+ USD10 million+ USD20 million+ USD30 million+ USD40 million+ USD50 million+ 31-Mar-12 31-Mar-13
1997 1998 1999 2000 2002 2004 2006 2008 2010 2011 2012 2013 Life Sciences & Healthcare Organic growth through prudent strategies Diversification of business and geography mix 1997 Established with spun-off HCL’s R&D business Adoption of non- linear strategy; formation of JVs and alliances FY06 Signed the largest ever software service deal with DSG FY12 Revenue crossed USD4 billion Media Retail & Consumer Packaged Goods Telecom Manufacturing Financial Services Acquisition of Capitalstream and AXON Group USD100 million+ clients reached 5 FY09 Launch of IPO Source: HCL Technologies website and Annual Report, Aranca Research
Source: Infosys website and Annual Report, Aranca Research Segment-wise revenue breakdown (FY13) 34% 22% 20% 24% Financial services & Insurance Manufacturing Energy utilities, Communication and Services Retail, Consumer packaged goods, Logistics and Life Sciences Infosys Limited Established in 1981, Infosys Limited is engaged in consulting, engineering, technology and outsourcing services. The company’s end-to-end services include consulting and system integration. It operates through 30 offices across India, the US, China, Australia, the UK, Canada and Japan. Achievements: • 2013: Ranked first in the annual Euromoney Best Managed Companies in Asia survey • 2013: Received NASSCOM Business Innovation Award 2013 for Infosys Edge • 2012: Identified as an innovation leader in KPMG’s Global Technology Innovation Survey 2012
Number of customersFinancial performance (USD billion) 5.0 4.8 6.0 7.0 7.4 1.7 1.6 1.8 2.0 1.9 FY09 FY10 FY11 FY12 FY13 Revenue Operating profit 399 190 132 233 97 16 448 213 137 231 84 15 USD1 million+ USD5 million+ USD10 million+ USD20 million+ USD50 million+ USD100 million+ 2012 2013 Source: Infosys website and Annual Report, Aranca Research
1981 1991 1993 1995 1997 1999 2002 2006 2010 2012 Logistics and Distribution Organic growth Large client acquisitions 1981 Founded in Pune with an initial capital of USD250 Expansion across the world and offshore business 1993 Launched IPO FY13 USD7.4 billion turnover Industrial manufacturing Healthcare, Pharmaceuticals & Biotech Financial service Automotive Aerospace, Defense & Airlines Acquisition of Lodestone Holding AG Strong diversified client base of 798 clients 1999 Reached USD100 million and listed on NASDAQ Source: Infosys website and Annual Report, Aranca Research
National Association of Software and Services Companies (NASSCOM) Address: International Youth Centre Teen Murti Marg, Chanakyapuri, New Delhi – 110 021 Phone: 91 11 2301 0199 Fax: 91 11 2301 5452 E-mail: info@nasscom.in
APAC: Asia Pacific BFSI: Banking, Financial Services and Insurance BPM: Business Process Outsourcing CAGR: Compounded Annual Growth Rate C&U: Construction & Utilities FDI: Foreign Direct Investment GOI: Government of India INR: Indian Rupee IT&ITeS: Information Technology-Information Technology Enabled Services NAC: Nasscom Assessment of Competence RoI: Return on Investment ROW: Rest Of the World
SEZ: Special Economic Zone SLA: Service Level Agreement SMB: Small and Medium Businesses STPI: Software Technology Parks of India T&M : Telecom & Media T&T: Travel and Transport USD: US Dollar USP: Unique Selling Proposition UT: Union Territory Wherever applicable, numbers have been rounded off to the nearest whole number
Year INR equivalent of one US$ 2004-05 44.95 2005-06 44.28 2006-07 45.28 2007-08 40.24 2008-09 45.91 2009-10 47.41 2010-11 45.57 2011-12 47.94 2012-13 54.31 Exchange Rates (Fiscal Year) Year INR equivalent of one US$ 2005 45.55 2006 44.34 2007 39.45 2008 49.21 2009 46.76 2010 45.32 2011 45.64 2012 54.69 2013 54.45 Exchange Rates (Calendar Year) Average for the year
India Brand Equity Foundation (“IBEF”) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Aranca and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.

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India : IT & ITes Sector Report_August 2013

  • 2.
  • 3.
    Source: NASSCOM; ArancaResearch Note: BPM - Business Process Management, USP - Unique Selling Proposition Strong growth opportunities • The IT-BPM sector in India is estimated to expand at a CAGR of 9.5 per cent to USD300 billion by 2020. The sector increased at a CAGR of 25 per cent over 2000–13, 3-4 times higher than global IT-BPM spend Leading sourcing destination • India is the world’s largest sourcing destination, accounting for approximately 52 per cent of the USD124–130 billion market. The country’s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be its USP in the global sourcing market Largest pool of ready to hire talent • India’s highly qualified talent pool of technical graduates is one of the largest in the world, facilitating its emergence as a preferred destination for outsourcing Most lucrative sector for investments • The sector ranks fourth in India’s total FDI share and accounts for approximately 37 per cent of total Private Equity and Venture investments in the country
  • 4.
    • The engineeringsector is delicensed; 100 per cent FDI is allowed in the sector • Due to policy support, there was cumulative FDI of USD14.0 billion into the sector over April 2000 – February 2012, making up 8.6 per cent of total FDI into the country in that period Growing demand Source: Nasscom, Aranca Research Note: SEZ stands for Special Economic Zone, BFSI stands for Banking, Financial Services and Insurance; E stands for Estimate, F stands for Forecast Growing demand • Strong growth in demand for exports from new verticals • Expanding economy to propel growth in local demand Global footprints • IT firms in India have delivery centres across the world; as of 2012, IT firms had a total of 580 centres in 75 countries • India’s IT & ITes industry is well diversified across verticals such as BFSI, telecom, retail Policy support • Tax holidays extended to the IT sector • SEZ scheme since 2005 to benefit IT companies with single window approval mechanism, tax benefits,etc Competitive advantage • India has cost savings of 60– 70 per cent over source countries • India remains a preferred destination for IT & ITeS in the world. With 52 per cent market share, India continues to be a leader in the global sourcing industry • The country has a huge talent pool 2013E Industry value: USD108 billion 2020F Industry value: USD300 billion Advantage India
  • 5.
    • By early90s, US-based companies began to outsource work on low-cost and skilled talent pool in India • IT industry started to mature • Increased investment in R&D and infrastructure started • India increasingly seen as a product development destination • The number of firms in India grew in size and started offering complex services such as product management and go-to market strategies • Western firms set up a number of captives in India Pre-1995 1995-2000 2000–05 2005 onwards • Firms in India became multinational companies with delivery centres across the globe (580 centres in 75 countries, as of 2012) • Firms in India make global acquisitions • The IT sector is expected to employ about 3.0 million people directly and around 9.5 million indirectly, as of FY13 • India’s IT sector is at an inflection point, moving from enterprise servicing to enterprise solutions
  • 6.
    Source: Nasscom, ArancaResearch IT&ITeS sector • Market Size: USD56.3 billion during FY13 • Over 78 per cent of revenue comes from the export market • BFSI continued as the major vertical of the IT sector • Market size: USD20.9 billion during FY13 • Around 85 per cent of revenue comes from the export market Business Process Management (BPM) IT services • Market size: USD17.9 billion during FY13 • Over 79 per cent of revenue comes from exports • Market size: USD13.3 billion during FY12 • The domestic market accounts for a significant share • The domestic market is experiencing growth as the penetration of personal computers is rising in India Hardware Software products and engineering services
  • 7.
    Source: Nasscom, ArancaResearch Note: E - Estimates Market size of IT industry in India (USD billion)India’s technology and BPM sector (including hardware) is estimated to have generated USD108 billion in revenue during FY13 compared to USD100.9 billion in FY12, implying a growth rate of 7.4 per cent The contribution of the IT sector to India’s GDP rose to approximately 8 per cent in FY13 from 1.2 per cent in FY98 22 22 24 29 32 32 41 47 50 59 69 76 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013E Domestic Export
  • 8.
    Source: Bloomberg, ArancaResearch Note: 2012 (calendar year) revenues were considered for all the companies Market share of IT players based on revenues (2012)TCS is the market leader, accounting for about 10.1 per cent of India’s total IT & ITeS sector revenue The top six firms contribute around 36 per cent to the total industry revenue, indicating the market is fairly competitive Company name Market share TCS 10.7 per cent Wipro 7.2 per cent Cognizant 6.8 per cent Infosys 6.3 per cent HCL Tech 4.2 per cent Tech Mahindra 1.1 per cent
  • 9.
    Source: Nasscom, ArancaResearch; Note: E stands for Estimate Growth in export revenue (USD billion) Total exports from the IT-BPM sector (excluding hardware) are estimated at USD76 billion during FY13; the industry rose at a CAGR of 13.1 per cent during FY08-13E despite weak global economic growth scenario Export of IT services has been the major contributor, accounting for 57.9 per cent of total IT exports (excluding hardware) BPM accounted for 23.5 per cent of total IT exports during FY13 Sector-wise breakup of export revenue FY13E 22.2 25.8 27.3 33.5 39.9 43.9 9.9 11.7 12.4 14.1 15.9 17.8 8.8 10 10.4 11.4 13.0 14.1 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013E IT services BPM Software products and engg. services 57.9% 23.5% 18.6% IT services BPM Software products and engg. Services CAGR: 13.1%
  • 10.
    Source: Nasscom, ArancaResearch Notes: C&U - Construction & Utilities, T&T - Travel and Tourism, T& M - Telecom & Media, BFSI - Banking, Financial Services and Insurance The figures mentioned are for IT and BPM only and do not include engineering services and hardware exports Export revenue growth across verticals (USD billion) BFSI is a key business vertical for the IT-BPM industry. It generated export revenue of around USD31 billion during FY13, accounting for 41.0 per cent of total IT-BPM exports from India Approximately 85 per cent of total IT-BPM exports from India is across four sectors: BFSI, telecom, manufacturing and retail. The hitherto smaller sectors are expected to grow Distribution of export revenue across verticals (FY13) 28 13 11 7 3 2 2 31 14 12 8 4 2 2 BFSI T&M Manufacturing Retail Healthcare T&T C&U FY12 FY13 41% 18% 16% 10% 5% 3% 3% BFSI T & M Manufacturing Retail Healthcare T & T C & U
  • 11.
    Source: Nasscom, ArancaResearch Note: ROW is Rest Of the World, APAC is Asia Pacific Geographic breakup of export revenue (USD billion) US has traditionally been the biggest importer of Indian IT exports; over 60 per cent of Indian IT-BPM exports were absorbed by the US during FY13 Non US-UK countries accounted for just 21.0 per cent of total Indian IT-BPM exports during FY12 Europe, one of the fast growing IT markets in 2012, is expected to emerge as a potential market as higher inclination towards offshoring firms would increase demand for IT services Distribution of export revenue across geographies (FY13) 42 12 8 5 2 47 13 9 6 2 US UK Continental Europe APAC ROW FY12 FY13 62% 17% 11% 8% 2% US UK Continental Europe APAC ROW
  • 12.
    Source: Nasscom, ArancaResearch Category Number of players % of total export revenue % of total employees Work focus Large sized 11 47-50% ~35-38% • Fully integrated players offering full range of services • Large scale operations and infrastructure • Presence in over 60 countries Mid sized 85-100 32-35% ~28-30% • Mid tier Indian and MNC firms offering services in multiple verticals • Dedicated captive centers • Near shore and offshore presence in >30-35 countries Emerging 450-600 9-10% ~15-20% • Players offering niche IT-BPM services • Dedicated captives offering niche services • Expanding focus towards sub Fortune 500/ 1000 firms Small >4,000 9-10% ~15-18% • Small players focussing on specific niches in either services or verticals • Includes Indian providers and small niche captives
  • 13.
    Global delivery model • Thenumber of global delivery centres of IT firms in India reached 580, spreading out across 75 countries, as of 2012 • As of 2009, over 150 centres were set up by various Indian IT firms in North America Global sourcing hub • India continues to maintain a leading position in the global sourcing market. Its market share increased to 52.0 per cent in 2012 from 50.0 per cent in 2011 Engineering offshoring • India is the most preferred location for engineering offshoring, according to a customer poll conducted by Booz and Co • Companies are now offshoring complete product responsibility Patent filing • Increased focus on R&D by IT firms in India resulted in rising number of patents filed by them • The number of patents filed by the top three IT companies increased to 858 in 2012 from 150 in 2009
  • 14.
    Changing business dynamics • India’sIT market is experiencing a significant shift from a few large-size deals to multiple small-size ones • Delivery models are being altered, as the business is moving to capital expenditure (capex) based models from operational expenditure (opex), from a vendor’s frame of reference Large players gaining advantage • Large players with a wide range of capabilities are gaining ground as they move from being simple maintenance providers to full service players, offering infrastructure, system integration and consulting services New technologies • Disruptive technologies, such as cloud computing, social media and data analytics, are offering new avenues of growth across verticals for IT companies Growth in non-linear models • India’s IT sector is gradually moving from linear models (rising headcount to increase revenue) to non-linear ones • In line with this, IT companies in India are focusing on new models such as platform-based BPM services and creation of intellectual property
  • 15.
    Consumerisation of IT •Global outsourcing is being used to drive fundamental re-engineering of end-to-end processes • Increased emphasis on beyond cost benefits • IT firms in the current phase have moved up the value chain, providing innovation-led growth to clients from SLA satisfaction and RoI calculations Emergence of Tier II cities • Tier II and III cities are increasingly gaining traction among IT companies, aiming to establish business in India • Cheap labour, affordable real estate, favourable government regulations, tax breaks and SEZ schemes facilitating their emergence as a new IT destination • Giving rise to the domestic hub and spoke model, with Tier I cities acting as hubs and Tier II, III and IV as network of spokes SMAC technologies, an inflection point for Indian IT • Social, Mobility, Analytics and Cloud (SMAC), a paradigm shift in IT-BPM approaches experienced until now, is leading to digitisation of the entire business model • IT vendors in India to generate USD225 billion from SMAC-related revenue by 2020 Note: SLA - Service Level Agreement; RoI - Return on Invesmtnet
  • 16.
    Note: STPI standsfor Software Technology Park of India, SEZ stands for Special Economic Zone Growth drivers Talent Pool Domestic growth Infrastructure Global demand Policy support • Computer penetration expected to increase • Government likely to become a major contributor to domestic demand by 2013–14 • 4.7 million graduates are estimated to have been added to India’s talent pool in FY13 • Strong mix of young and experienced professionals • Global IT offshore spending is expected to rise at a CAGR of 8.0 per cent during FY11–13 • Global BPM spending is estimated to expand at a CAGR of around 7.0 per cent during FY11–13 • Tax holidays for STPI and SEZs • Procedural ease and single window clearance for setting up facilities • Robust IT infrastructure across various cities in India such as Bengaluru • Delivery centres spread across various countries
  • 17.
    Source: Nasscom, ArancaResearch Note: Small and Medium Business; E indicates estimated numbers Domestic IT market by customer segment (FY2013E) Large enterprises account for a significant share of the IT market and added USD15bn to domestic revenue in FY13 Expansion of Indian firms in global markets is leading to increasing spend on IT for efficient and cost-effective operations SMB, another potential demand pool for IT services in domestic market Adoption of technology for enhancing product visibility, reach and operational efficiencies is leading to higher demand for IT services from SMBs With 46 million units, India has the second largest SMB base in the world 47% 26% 15% 12% Large enterprises SMB Governement Consumers Total market = USD32 billion
  • 18.
    Source: Nasscom, ArancaResearch Note: UT - Union Territory Domestic revenue from IT and BPM (USD billion)Introduction of large eGovernance projects to provide better services through IT and focus on the formation of the cyber policy led to higher demand for IT and hardware from the government The Central Government and State/UT Government allocated 0.9–1.2 per cent and 2.8–3 per cent, respectively, of total budget on IT spend under the 12th Five Year Plan Strong consumer demand for IT service and products: Advent of smartphones, tablets, iPads, Rising computer literate population Enhanced Internet and mobile penetration Growing disposable income strengthening consumer purchasing power 15.5 FY13 FY15F FY20F ~22-23 ~90-100
  • 19.
    Source: Nasscom, ArancaResearch Note: Ovals indicate CAGR Export revenue from IT and BPM (USD billion)Global IT-BPM spending to grow 5–6 per cent to nearly USD2 trillion by 2013 Global sourcing to rise at a faster pace of 9–11 per cent to USD124–130 billion in 2013 Emergence of SMAC would provide USD1 trillion market by 2020 Emerging economies are likely to be a major contributor to IT spend growth IT spend in emerging economies to grow 3-4 times faster than advanced economies The BRIC IT market is estimated at USD380–420 billion by 2020 Emerging segments are expected to drive growth of Indian IT-BPM exports 48 ~106-111 FY11 FY14F Core and non core segment’s growth prospects 22 11 1.2 7.6 3.2 3.1 35 15 2 13 5.5 5.5CADM ER&D ITconsulting ISsourcing Knowledge services Software testing FY13E FY16F Core segments Emerging segments 17% 10% 19% 20% 20% 21%
  • 20.
    Source: Nasscom, ArancaResearch Note: Graduates includes both graduates and post graduates Graduates addition to talent pool in India (in millions) Availability of skilled English speaking workforce has been a major reason behind India’s emergence as a global outsourcing hub India added around 4.7 million graduates to the talent pool during FY13 Growing talent pool of India has the ability to drive the R&D and innovation business in the IT-BPM space 3.2 3.5 3.7 4.0 4.4 4.7 FY2008 FY2009 FY2010. FY2011 FY2012 FY2013E
  • 21.
    Source: Nasscom, ArancaResearch Training expenditure by Indian IT-BPO sectorAbout 2 per cent of the industry revenue is spent on training employees in the IT-BPM sector 40 per cent of total spend on training is spent on training new employees A number of firms have forged alliances with leading education institutions to train employees 24% 6% 13% 27% 19% 11% Salaries for inhouse training staff External training (new recruits) External training (existing employees) Recruitment cost Employee welfare Other costs
  • 22.
    Source: Nasscom, ArancaResearch Note: NAC - Nasscom Assessment of Competence, IIIT - Indian Institutes of Information Technology Short term Medium term Long term • Enhance over all yield of employees • Improve employability • Expand to tier 2 cities • Lower skill dependence Objectives Initiatives • Industry to enhance investment in training • Use NAC and NAC – Tech to assess employability of talent pool • Identified new tier 2 locations • Bring down investment on training • Develop specialist and project management expertise • Launched the National Faculty Development Programme to increase suitability of Faculty • Aiding industry access to specialist programmes offered by independent agencies • Expand education capacity • Promote reforms in education • Expansion of higher education infrastructure; 20 new IIITs to be set up by the government • Programme to increase PhDs in technology
  • 23.
    Source: Nasscom, ArancaResearch, STPI As of FY2011, 6,554 STPI units were operational, while 5,564 units have exported IT services and products. During FY11, STPI units accounted for approximately 76.0 per cent of total IT exports IT-SEZs have been initiated with an aim to create zones that lead to infrastructural development, exports and employment Characteristics of STPI and SEZ in India Parameters STPI SEZ Term 10 years 15 years Fiscal benefits • 100 per cent tax holiday on export profits • Exemption from excise duties and customs • 100 per cent tax holiday on exports for first five years • Exemption from excise duties and customs Location and size restrictions • No location constraints • 23 per cent STPI units in tier II and III cities • Restricted to prescribed zones with a minimum area of 25 acres
  • 24.
    Source: Nasscom, E&Y,Aranca Research IT sector employment distribution in Tier I and Tier II/III cities 1,821 1,615 175 3,230 2008 2018E Tier I locations Tier II/III locations Trends in tier II and III cities • 43 new tier II/III cities are emerging as IT delivery location; this could reduce pressure on leading locations • Cost in newer cities is expected to be 28 per cent lower than leading cities • Lower cost and attrition, affordable real estate and support from local government, such as tax breaks, STPI and SEZ schemes, are facilitating this shift of focus • Over 50 cities already have basic infrastructure and human resource to support the global sourcing and business services industry • Some cities are expected to emerge as regional hubs supporting domestic companies
  • 25.
    Source: Zinnov, Nasscom,Aranca Research Number of GIC’s in India 2000 2005 2010 2012 ~180 450+ 700+ 750+ Key highlights • Global In-House Centers (GIC), also known as captive centers, are one of the major growth drivers of the IT- BPM sector in India • As of FY2012, the captive segment accounted for 16- 18 per cent of the IT-BPM industry revenue • The impact of the segment goes beyond revenue and employment, as it helped in developing India as a R&D hub and create an innovation ecosystem in the country • Within the captive landscape, ER&D/SPD (Engineering Research & Development /Software Product Development) is the largest sub-segment • Companies from North America and Europe are major investors in the captive segment in India, accounting for over 90 per cent of captives in the country
  • 26.
    Source: Venture Intelligence,Nasscom, Aranca Research PE-VC investments in IT & BPM (USD billion) The IT & BPM sector continued to attract PE and VC investments in 2012, accounting for a significant proportion in terms of volume (around 37 per cent) and value (approximately 40 per cent) Value increased at an impressive 68.4 per cent over 2011 eCommerce accounted for 31 VC deals in 2012 About 64 per cent of VC deals in India were in the software, internet and mobile industry Two of the largest PE deals in the sector during 2012 were: JP Morgan’s buyout of M*Modal (USD1,100 million) Bain Capital, GIC investment in Genpact (USD1,000 million) In 1Q13, the industry attracted 26 deals at a value of USD105 million Share of IT-BPM in PE-VC investments 0.8 1.9 3.2 2008 2011 2012 184 379 484 393 58 25 32 40 2009 2010 2011 2012 Number of deals Share of IT-BPM
  • 27.
    Source: All thefigures are taken from International Data Corporation (IDC) and Nasscom and are FY10 estimates Notes: SMB - Small and Medium Businesses • BRIC nations, continental Europe, Canada and Japan have IT spending of approximately USD380–420 billion • Adoption of technology and outsourcing is expected to make Asia the second largest IT market • Government, healthcare, media and utilities have IT spend of approximately USD190 billion, but account just 8 per cent of India’s IT revenue • A number of sectors are expected to depend on technology and service providers to reduce the cost to serve• SMBs have IT spend of approximately USD230– 250 billion, but contribute just 25 per cent to India’s IT revenue • The emergence of new service offerings and business models would aid in tapping market profitably and efficiently New verticals New customer segments New geographies
  • 28.
    Growth trend oftraditional verticals Traditional verticals i.e. BFSI, telecom and manufcaturing, continue to remain the largest in terms of IT adoption, and are expected to grow at an average of 15% Implementation of cloud environment and mobility way forward for traditional verticals Emphasis on other emerging verticals (such as education, healthcare and retail) to aid growth in IT firms in India Shift from IT adoption infrastructure, automation and digitisation to smart IT marks future trend of services in emerging verticals Growth trend of emerging verticals 128 80 339 195 126 506 243 193 595 BFSI Telecom Manufacturing FY10 FY13E FY15F 17.2 11.6 4.4 34.5 17.5 8.7 39.5 24.8 9.7 Education Healthcare Retail FY10 FY13E FY15F Source: Nasscom, Aranca Research
  • 29.
    Source: Nasscom, ArancaResearch Note: SMB - Small and Medium Business Market size of other progressing verticals by 2020 (USD billion) As IT is increasingly gaining traction in SMB’s business activities, the sector offers impressive growth opportunities and is estimated at approximately USD230–250 billion by 2020 In a bid to reduce cost, governments across the world are exploring outsourcing and global sourcing options Technologies, such as telemedicine, mHealth, remote monitoring solutions and clinical information systems, would continue to boost demand for IT service across the globe IT sophistication in the utilities segment and the need for standardisation of the process are expected to drive demand Digitisation of content and increased connectivity is leading to a rise in IT adoption by media 250 90 58 25 17 SMB Government Healthcare Utilities Media
  • 30.
    Source: Nasscom, ArancaResearch Note: Size of bubble indicates market size, *CAGR and market size for Big data/analytics is till 2015 Growing technologies future growthEmerging technologies present an entire new gamut of opportunities for IT firms in India SMAC provide USD1 trillion opportunity Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around USD650–700 billion by 2020 Social media is the second most lucrative segment for IT firms, offering a USD250 billion market opportunity by 2020 Cloud Social Media Enterprise mobility Big data/analytics* 10% 20% 30% 40% 50% 60% 0 200 400 600 800 CAGRtill2020 Market size USD billion
  • 31.
    Source: Nasscom, ArancaResearch Emerging geographies to drive the next growth phase for IT firms in India BRIC provides USD380–420 billion opportunity by 2020 Focus on building local credible presence, high degree of domain expertise at competitive costs and attaining operational excellence hold key to success in new geographies Countries offering growth potential to IT firms Country IT spend India’s penetration Key segments Canada USD63 billion ~1.5 per cent Enterprise applications, cyber security, healthcare IT Europe USD230 billion <1.5 per cent IT sourcing, BPM, IS outsourcing, CAD Japan USD235 billion <1 per cent CRM, ERP, Salesforce automation, SI Spain USD26 billion <1.5 per cent IT sourcing, SI Mexico USD29 billion ~4 per cent IT sourcing, BPM Brazil USD47 billion ~2 per cent Low level application management, artificial intelligence, R&D China USD105 billion <1 per cent Software outsourcing, R&D Australia USD48 billion ~4 per cent Procurement outsourcing, infrastructure software & CAD
  • 32.
    Source: TCS websiteand Annual Report, Aranca Research Segment-wise revenue breakdown (FY13) 66%5% 12% 3% 3% 13% IT solutions and services Engineering and industrial services Infrastructure services Global consulting Asset leverage solutions Business process outsourcing Tata Consultancy Services Established in 1968, Tata Consultancy Services (TCS) is an Information Technology (IT) services, consulting and business solution company . It provides end-to-end technology and technology-related services to global enterprises. The company’s business is spread across the Americas, Europe, Asia Pacific, and Middle East and Africa (MEA). Achievements: • 2013: Won Best Performing Consultancy Brand award in Europe • 2013: Received Red Hat North America Awards for System Integrator Partner of the Year • 2012: TCS China ranked amongst the top 10 global services providers in China • 2012: TCS BaNCS won Xcelent Customer Base Awards 2012
  • 33.
    Source: TCS websiteand Annual Report, Aranca Research Number of customersFinancial performance (USD billion) 6.0 6.3 8.2 10.2 11.6 1.4 1.7 2.3 2.8 3.1 FY09 FY10 FY11 FY12 FY13 Revenue Operating profit 214 76 42 25 5 458 208 143 81 27 8 522 245 170 99 43 14 556 277 196 115 48 16 USD1 million+ USD5 million+ USD10 million+ USD20 million+ USD50 million+ USD100 million+ FY5 FY11 FY12 FY13
  • 34.
    1968 2001 20032005 2007 2009 2011 2013 Energy resources & Utilities Consolidation of market position through CMC acquisition Expansion of geographic presence 1968 India’s first software service company Issue of an IPO in the market in India and raised USD1.2 billion in 2004 FY03 Became the first software company in India to cross USD1 billion revenue FY13 USD11.6 billion revenue Life Sciences & Healthcare Manufacturing Media & Entertainment Retail and consumer packaged goods BFSI Acquisition of IT service firm Alti in France in 2013 With a brand value of over USD1 billion, TCS consolidates position as one of the largest IT players FY13 Active client base: 1,156 New clients: 153 Source: TCS website and Annual Report, Aranca Research
  • 35.
    Source: HCL Technologieswebsite and Annual Report, Aranca Research Segment-wise revenue breakdown (FY13) 32% 24% 20% 19% 5% Custom application services Infrastructure services Enterprise application services Engineering & R&D services Business services HCL Technologies Established in 1991, HCL Technologies Ltd is an IT services company providing enterprise and custom application, business transformation, infrastructure management, business process outsourcing and engineering services. The company’s network of 26 offices is spread across the US, Europe and Asia Pacific Achievements: • 2013: Won IT Europa, European IT Excellence Awards and Asia Pacific Enterprise Leadership Award 2013 • 2012: Received Market Facing Innovation award at the NASSCOM Innovation Awards, 2011 • 2011: Received Operational Excellence & Quality award at BPO Excellence Awards 2010–11
  • 36.
    Source: HCL Technologieswebsite and Annual Report, Aranca Research Number of customersFinancial performance (USD billion) 1,879 2,228 2,560 3,452 4,345 3,459 250 317 321 438 656 682 FY08 FY09 FY10 FY11 FY12 9MFY13 Revenue Operating profit 386 152 92 44 25 14 10 422 187 98 51 29 15 10 USD1 million+ USD5 million+ USD10 million+ USD20 million+ USD30 million+ USD40 million+ USD50 million+ 31-Mar-12 31-Mar-13
  • 37.
    1997 1998 19992000 2002 2004 2006 2008 2010 2011 2012 2013 Life Sciences & Healthcare Organic growth through prudent strategies Diversification of business and geography mix 1997 Established with spun-off HCL’s R&D business Adoption of non- linear strategy; formation of JVs and alliances FY06 Signed the largest ever software service deal with DSG FY12 Revenue crossed USD4 billion Media Retail & Consumer Packaged Goods Telecom Manufacturing Financial Services Acquisition of Capitalstream and AXON Group USD100 million+ clients reached 5 FY09 Launch of IPO Source: HCL Technologies website and Annual Report, Aranca Research
  • 38.
    Source: Infosys websiteand Annual Report, Aranca Research Segment-wise revenue breakdown (FY13) 34% 22% 20% 24% Financial services & Insurance Manufacturing Energy utilities, Communication and Services Retail, Consumer packaged goods, Logistics and Life Sciences Infosys Limited Established in 1981, Infosys Limited is engaged in consulting, engineering, technology and outsourcing services. The company’s end-to-end services include consulting and system integration. It operates through 30 offices across India, the US, China, Australia, the UK, Canada and Japan. Achievements: • 2013: Ranked first in the annual Euromoney Best Managed Companies in Asia survey • 2013: Received NASSCOM Business Innovation Award 2013 for Infosys Edge • 2012: Identified as an innovation leader in KPMG’s Global Technology Innovation Survey 2012
  • 39.
    Number of customersFinancialperformance (USD billion) 5.0 4.8 6.0 7.0 7.4 1.7 1.6 1.8 2.0 1.9 FY09 FY10 FY11 FY12 FY13 Revenue Operating profit 399 190 132 233 97 16 448 213 137 231 84 15 USD1 million+ USD5 million+ USD10 million+ USD20 million+ USD50 million+ USD100 million+ 2012 2013 Source: Infosys website and Annual Report, Aranca Research
  • 40.
    1981 1991 19931995 1997 1999 2002 2006 2010 2012 Logistics and Distribution Organic growth Large client acquisitions 1981 Founded in Pune with an initial capital of USD250 Expansion across the world and offshore business 1993 Launched IPO FY13 USD7.4 billion turnover Industrial manufacturing Healthcare, Pharmaceuticals & Biotech Financial service Automotive Aerospace, Defense & Airlines Acquisition of Lodestone Holding AG Strong diversified client base of 798 clients 1999 Reached USD100 million and listed on NASDAQ Source: Infosys website and Annual Report, Aranca Research
  • 41.
    National Association ofSoftware and Services Companies (NASSCOM) Address: International Youth Centre Teen Murti Marg, Chanakyapuri, New Delhi – 110 021 Phone: 91 11 2301 0199 Fax: 91 11 2301 5452 E-mail: info@nasscom.in
  • 42.
    APAC: Asia Pacific BFSI:Banking, Financial Services and Insurance BPM: Business Process Outsourcing CAGR: Compounded Annual Growth Rate C&U: Construction & Utilities FDI: Foreign Direct Investment GOI: Government of India INR: Indian Rupee IT&ITeS: Information Technology-Information Technology Enabled Services NAC: Nasscom Assessment of Competence RoI: Return on Investment ROW: Rest Of the World
  • 43.
    SEZ: Special EconomicZone SLA: Service Level Agreement SMB: Small and Medium Businesses STPI: Software Technology Parks of India T&M : Telecom & Media T&T: Travel and Transport USD: US Dollar USP: Unique Selling Proposition UT: Union Territory Wherever applicable, numbers have been rounded off to the nearest whole number
  • 44.
    Year INR equivalentof one US$ 2004-05 44.95 2005-06 44.28 2006-07 45.28 2007-08 40.24 2008-09 45.91 2009-10 47.41 2010-11 45.57 2011-12 47.94 2012-13 54.31 Exchange Rates (Fiscal Year) Year INR equivalent of one US$ 2005 45.55 2006 44.34 2007 39.45 2008 49.21 2009 46.76 2010 45.32 2011 45.64 2012 54.69 2013 54.45 Exchange Rates (Calendar Year) Average for the year
  • 45.
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