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India

Sector Review Information Technology (IT)

Gaurav Lahoti
(91) 9960743789 Gaurav.l@itm.edu

09 May 2011

Sector Overview
Sharply surplus production Market Size of IT Sector Domestic
Export growth

Indias IT sector is expected to cross $100 billion mark in FY 2012-2013. But, with rise in revenue it is expected that growth rate will decline in current year. Indias domestic market for It Industry shows growing trend of 22.4% in financial year 2010. Export market CAGR for IT & ITES in 20072012 is stands at 15.4%. Due to economical crisis in global market in year 2010 growth trend dip in year. IT sector employed 2.5 million people directly & 8.1 million people indirectly in India. Indias IT industrys revenue is generated by sell of products out of India i.e. export Export market like US & Europe plays very important role as they are big hub for Indian Export. IT sector in recent past in 2011 faces decline in growth rate due to US & European crisis as these markets are demand dr5ivers for IT Industry. Major players in IT industry easily raise capital from public borrowing & share capital. Interest rate of Banking firm also affect adversely to IT Industry as working capital of IT industry such as TCS, Infosys are financed by Banking firms. IT industry in past decade showing positive growth rate year over year.

Employment at peak

Demand driver

Factors of Production

Positive revenue trends in IT Industry

Positive revenue trends in IT Industry

Figure 1

Fair value for BJH and BRCM pegged at replacement cost

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India

Sector Review

09 May 2011

GDP contribution of IT sector

GDP contribution of IT sector rose to 6% approximately

Source: Information Technology Annual Report


Production Analysis of IT Production is rising year over year but growth rate of production is decline over Industry past two years. Amount below are in 1000 USD.

mm

Major Players

Top 5 players in IT industries are:

Rank 1 2 3 4 5

Company Name Tata Consultancy Services Infosys Technologies Ltd. Wipro Technologies Ltd. Cognizant HCL Tech

Market Share 8.5% 7.9% 6.9% 5.2% 4.0%

Source: Aranca Research

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India

Sector Review

09 May 2011

Comparison of two big players of market

Measures of Financial performance Market Cap P/E EV/EBITDA ROE (%) ROCE (%)

TCS 241,029 (cr.) 23.76 16.02 49.5 59.3

Infosys 132,755 (cr.) 17.59 11.71 31.2 42.7

Inventories of IT department

Inventories are falling as shown in following graph. Grey scales shows US economy fall/ crisis

Source: FRED
Foriegn Investment in IT Sector

100% of Foreign Direct investment (FDI) is allowed in Technology Sector

Sector
Services Computer Software & Hardware

FDI Inflow (millions of Rs.)


787,420

% of total inflow
22.39

391,109

11.12

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India

Sector Review

09 May 2011

Government Tax policy may impact future growth of IT sector

Government policies towards taxes of raising 2% service tax this year may affect future of IT sector. But, in IT sector there is no big government undertaking to compete with Private Sector entities.

Strength:
SWOT Analysis

Weakness : 1) Depends on US and European countries for exports 2) Non availability of skilled workers

1)

Growing Industry with high profitability

2)

Maximum Export Business

Opportunities: 1) Asia is considered to be the second largest IT market due to adoption of Technology & outsourcing of Technologies 2) Demand is much more higher than supply

Threat: 1) Duplicability of Product & cheaper Product 2) Growing Chinese market 3) BRIC countries contribution is growing

Geographical distribution of IT sector India

Bangalore the Silicon Valley of India is currently leading the Information technology industries in India.

Total inventory - office City space (In million square ft.) Bangalore Chennai Kolkata Mumbai Pune Delhi NCR Hyderabad 50.35 45.76 19.42 38.80 28.27 15.99 14.48

Total Inventory - IT-ITES space (In million square ft.) 40.28 36.61 15.54 13.52 17.45 11.99 11.54 Source: Tribiz

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India

Sector Review

09 May 2011

Merger & Acquisition in IT Tech Mahindra bids to acquire Satyam for Rs.1,757 cr. for its 31% shares. Tech Industry in recent Past Mahindra paid Rs. 58 for each share of Satyam.

Take Over

Growth Drivers

Talented Workers Global Demand Growth Drivers Infrastru cture

Policy Support

Domestic Growth

Future of Indian IT sector

In future Indian IT sector will flourish due to increasing demand from outside market and it is estimated that growth rate for IT industry is 16% for this year. Indian IT sector is supposed to touch Landmark of 225 Billion USD till 2020 and employ over 6 million people directly till 2020. With continuous growth of FDI inflow IT industry will become top contributor in Indias GDP.

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