Professional Documents
Culture Documents
October, 2012.
TABLE OF CONTENTS
EXPLANATION OF RISK SCORE ............................................ 3
EXECUTIVE SUMMARY .................................................... 4
PRODUCT PROFILE ...................................................... 5
MACRO ECONOMIC ANALYSIS .............................................. 7
Macro Economic Growth ...................................................................................................... 7
Quarterly Performance .......................................................................................................... 9
Interest Rate Risk ................................................................................................................ 11
Foreign Exchange Fluctuations ......................................................................................... 13
GOVERNMENT REGULATIONS .............................................. 14
Government Initiatives ........................................................................................................ 14
DEMAND SUPPLY DYNAMICS .............................................. 15
Market Size........................................................................................................................... 15
Exports ................................................................................................................................. 16
Demand Drivers ................................................................................................................... 19
Projections ........................................................................................................................... 21
COMPETITIVE SCENARIO ................................................ 22
Nature of Industry................................................................................................................ 22
Recent IS Outsourcing Contract ........................................................................................ 25
Industry Risk Score reflects the effect that the various factors have on
the business prospects and operating environment of the industry over
the next 12 months. The risk score arrived at is an aggregate of the
individual scores assigned to the relevant industry parameters
identified.
The industry risk scores have been graded on an 8 point scale with 1
indicating low risk and 8 indicating high risk.
Industry Risk Score 3
Favorable Factors (+)
Emergence
shoring concept.
contribute towards
the
overall
of
other
low
cost
Indian competitors.
rising
cost
ownership,
increasing
of
work
wells
as
corporate
are
Page 3
EXECUTIVE SUMMARY
Page 4
PRODUCT PROFILE
Data Centre
Services
Managed Hosting
and Co-Location
Services
Desktop Support
IT Service
Desk
Remote Monitoring
and Management
IT Infrastructure
Services
Device and
Performance Mgmt
Network (LAN,
WAN) Services
Vulnerability
Assessment
Enterprise
Security
Content Protection
Services
Source: D&B Research
Growing
operational
complexities,
globally
spread
operations,
Page 5
Infrastructure
Outsourcing:
USD 114.1Bn
Global Spending
on IT
Infrastructure
Services: USD
187.8 Bn
Hosting
Infrastructure
Services: USD
29.4 Bn
Network and
Desktop
Outsourcing:
USD 44.3 Bn
Page 6
Indias GDP has grown at a CAGR of ~7.86% over the period FY 200712 while Index of Industrial Production (IIP) grew at a CAGR of ~6.5%
during the same period.
Macro Economic Indicator
15.5%
9.5%
9.3%
8.4%
8.4%
6.7%
12.9%
6.5%
8.23%
5.28%
5%
3.2%
2.5%
FY 2007
FY 2008
FY 2009
5.8%
FY 2010
FY 2011
FY 2012
FY 2013E
Interest rate hike, high inflation, higher fiscal deficit and the influence of
external macro factors resulted in sharp decline in GDP to 6.48% in FY
2012 from the level of 8% plus GDP growth witnessed in previous two
fiscal.
The countrys IIP growth figure also reflected a steep fall of over 5
percentage point to 3.2 % in FY 2012 as compared 8.23% registered
during the previous fiscal.
In the midst of current economic slowdown, RBI has cut down Indias
GDP growth forecast to 5.8% for FY 2013 in October 2012 from the
earlier projection of 6.5%.
As seen in below chart, the services sector has registered the maximum
growth over the period FY 2007-12 followed by the industrial sector,
while growth in the agriculture lags far behind.
Page 7
6,551
6,557
6,625
FY 2008
FY 2009
FY 2010
12,679
11,200
11,697
FY 2008
FY 2009
13,587
14,047
FY 2011
FY 2012
6,192
FY 2007
FY 2011
FY 2012
FY 2007
19,240
25,772
23,333
21,216
FY 2010
28,181
9.79%
6.58%
3.31%
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
Agriculture
Industry
Services
59.0%
57.7%
57.2%
56.1%
54.4%
27.0%
28.1%
27.8%
28.1%
28.7%
14.0%
14.7%
14.5%
16.8%
15.8%
17.4%
28.7%
54.0%
Agriculture
FY 2007
Industry
FY 2008
FY 2009
Services
FY 2010
FY 2011
FY 2012
Page 8
Quarterly Performance
4.0%
2.0%
0.0%
Q1:FY
2011
Q2:FY
2011
GDP Growth
Q3:FY
2011
Q4:FY
2011
Q1:FY
2012
Agricuture
Q2:FY
2012
Q3:FY
2012
Industry Service
Q4:FY
2012
Q1: FY
2013
Services
12.0%
10.0%
8.5%
9.2%
7.6%
8.0%
8.2%
8.6%
9.6%
6.0%
8.0%
6.7%
6.1%
7.9%
7.0%
6.8%
5.3%
5.5%
0.4%
-0.2%
Q4: FY
2012
Q1: FY
2013
4.0%
2.0%
1.2%
3.2%
0.0%
-2.0%
Q1: FY
2011
Q2: FY
2011
Q3: FY
2011
Q4: FY
2011
Q1: FY
2012
GDP Growth
Q2: FY
2012
Q3: FY
2012
IIP Growth
Page 9
Page 10
1.20%
5% 15%
10%
1.00%
4% 12%
9%
0.80%
8%
3%
9%
2%
6%
0.20%
1%
3%
5%
0.00%
0%
0%
4%
0.60%
7%
3M-LIBOR(LHS)
6%
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
0.40%
3M-MIBOR(LHS)
As a result, the industry players have been demanding the interest rate cut
to revive the domestic economy which have been witnessing a decline in
GDP growth in last four consecutive quarters of FY 2012 on y-o-y basis.
which saw last hike of 25 basis points each on 25 October 2011 to reach
th
8.5% and 7.5%, respectively. On April 17 2012, RBI slashed the repo rate
(rate at which RBI lend money to commercial banks) and reverse repo by 50
Page 11
basis point for the first time in three years even though the inflation rate
remain elevated in order to boost sluggish economic growth.
Movement: Inflation, CRR & Repo Rate
10.0%
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
WPI (LHS)
CRR (RHS)
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
30th October
2012; CRR rate
cut to 4.25%
Jan-10
Oct-09
Jul-09
Apr-09
Repo Rate
Also, the CRR which kept increasing in phases from 5% to 6%, during
February to April 2010 and remained at same level thereafter was slashed
by 50 basis point to 5.5% on Jan 24, 2012. Since March 2012, CRR has
been reduced thrice (each time by 25 basis point) inorder to infuse the
primary liquidity in banking system and supports the GDP growth. Wiith
th
recent cut of 25 basis point in 30 October 2012, the CRR currently stands
at 4.25%.
Because of the sustained high inflation, RBI in its Monetary Policy Review in
September 2012, kept the key policy rate unchanged against expectation of
the industry experts who were expecting a rate cut as a measure to prevent
the decelerating economic growth.
Page 12
As most of the exports are billed in US dollars terms, the exchange rate
of USD in ~INR has a significant impact on the industry.
Indian Rupee depreciated from ~INR 45.6/USD (average for the year) in
FY 2011 to ~INR 47.86/USD in FY 2012. In FY 2012, this depreciation
however muted favorable implication on the export realizations as many
of the top players abide by foreign exchange contracts due to which
they enjoyed benefit only to the extent of currency hedging done by
them.
Rupee has been losing ground against USD in YTD of FY 2013 amid
some fluctuation which is expected to bolster the export earnings for the
industry.
Exchange Rate (INR per USD)
Inverse Scale
43.5
YTD FY'13
INR Depreciating
FY'12
INR Depreciating
45.5
47.5
49.5
FY'11
INR Appreciating
51.5
53.5
55.5
01/Oct/12
01/Aug/12
01/Jun/12
01/Apr/12
01/Feb/12
01/Oct/11
01/Aug/11
01/Jun/11
01/Apr/11
01/Feb/11
01/Dec/10
01/Oct/10
01/Aug/10
01/Jun/10
01/Apr/10
57.5
01/Dec/11
Page 13
GOVERNMENT REGULATIONS
Government Initiatives
With this increase allocation the government aim to expand the eDevelopment of the country by creating e-Infrastructure, expedite the egovernance process, accelerating R&D activities, building knowledge
network and securing India's cyber space.
Service tax rate increased from 10% to 12% which will have negligible
impact on the profitability of IT players as they will be able to pass on
this increased cost to the client. Existing surcharge of 5% on domestic
companies and 2% on other than domestic company will continued to
be levied.
Page 14
450
410
400
2,500
335
2,000
350
273
300
223
1,500
250
182
200
1,000
1,212
1,562
1,724
2,025
2,413
150
500
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
100
50
IT Services (LHS)
Page 15
Exports
19.0%
16.8%
16.9%
FY 2010
FY 2011
17.0%
14.4%
15.0%
13.5%
13.0%
11.0%
9.0%
7.0%
5.0%
FY 2008
FY 2009
FY 2012
400.0
335.1
1,800
1,600
217.7
1,200
250.0
170.3
1,000
800
300.0
258.3
1,400
200.0
120.9
150.0
1184.7
1296.5
1526.9
1824.4
200
894.5
600
400
350.0
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
100.0
50.0
0.0
IT Services (LHS)
Page 16
BFSI, 41.2%
Others (, 39.8%
Telecom, 19.0%
All these industries are highly consumer oriented and require constant
consumer interaction which results in high usage of IT Services. Indian
companies are also increasingly catering to the pharmaceutical,
healthcare, utilities and transportation industries.
Continental
Europe , 11.60%
UK, 17%
US, 61.5%
Page 17
Both these regions are highly technology dependent and also face high
labor costs, which led them to outsource some of their technology part
to low cost destinations, such as India.
and
geographies
with
offerings
such
as
Application
Page 18
Demand Drivers
1.70
1.7
1.61
1.54
1.6
1.5
1.40
1.4
1.3
1.2
1.1
1
2008
2009
2010
2011
Sources: Nasscom
Indias huge talent pool with around 0.5 million engineering graduates
per annum also assures high quality of work to the global clients. The
Indian IT-ITES has grown rapidly on account of its huge talent pool
available at lower costs. An average wage rate for Indian computer
programmer is ~15% of his counterpart in the US. This wage
differentiation can help the companies in developed world to save ~20%
by outsourcing their work to low cost destinations such as India.
Page 19
Page 20
Projections
Projection: IT Infrastructure Services (~INR BN)
775.8
620.7
500.5
410.3
FY 2012
FY 2013P
FY 2014P
FY 2015P
Going forward, industry sources also suggest that revenue from RIM
services will account for about 1/3 share of the total IT services
segment revenue by 2020.
Page 21
COMPETITIVE SCENARIO
Nature of Industry
Wipro Ltd.,
6.8%
Infosys Ltd.,
6.7%
Others , 78.1%
The annual growth in top line and bottom line financial of the key
players are as follow:
Companies
FY 2012
% Y-o-Y
FY 2011
FY 2012
% Y-o-Y
TCS Ltd.
292.34
388.00
32.7%
75.70
109.76
45.0%
Wipro Ltd.
262.63
316.19
20.4%
48.44
46.85
-3.3%
Infosys Ltd.
253.37
312.03
23.2%
64.43
84.70
31.5%
Source: CMIE,
Page 22
to FY 2011. Both TCS Ltd. and Infosys Ltd reported a robust growth in
net profit whereas Wipro Ltd. reported a negative growth in net profit.
Wipro though report a healthy growth in net sales however it net profit
declined marginally because of the losses to the tune of ~INR 2.787 Mn
in FY 2012 as against gain of ~INR 326 Mn in FY 2011 due to the
changes in the fair value of forward exchange contract.
Page 23
Page 24
Indian companies are also bagging major outsourcing deals which will
help them to increase revenues from IT Infrastructure Services. Some
of the recent contracts signed by the Indian players are as:
Month
Company
Client
Brief Details
Cloud Service Contract
October 2012
IBM
October 2012
Netmagic
Solutions
Ratnakar Bank
HCL
Freescale
Semiconductor to
5 year IT Infrastructure
contract worth $60-80Mn
deal as per industry
sources
September
2019
September
2012
Infosys Ltd
Ministry Of
Corporate Affair
(MCA)
To execute second
phase of the ministrys
e-governance
programme- MCA21To start in Jan 2013-July
2021,
Deal worth ~INR 3.59
Bn
Feburary
2012
Mahindra
Satyam
FuelQuest
To provide
implementation and
support services to Fuel
Quest. Fuel Quest is a
technology solution
provider to energy sector
and is expanding its
operation in BRIC
region.
June 2011
IBM
Page 25
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ICC Chambers,
Saki Vihar Road, Powai,
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Page 26