IT-BPO Industry Insights Nov2011

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Research & Intelligence

QUARTERLY INDUSTRY REVIEWNOVEMBER 2011


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Copyright 2011

NASSCOM

International Youth Center, Teen Murti Marg, Chanakyapuri,

New Delhi 110 021, India

Phone: 91-11-23010199, Fax: 91-11-23015452

E-mail: [email protected]


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Report Coverage

SECTIONS COVERAGE

Analysis of key economic indicators - GDP, Inflation, Stock Market,Employment Growth and Technology indicators

Analysis of Indian IT-BPO industry performance during the quarter.The analysis is based on the results declared by the top 151 India-centric IT-BPO companies which comprise about 40-45% of the

industry

Analysis of results of key MNC IT-BPO industry players. Policy changes, industry news and happenings, analyst speak

Key developments among the top companies covering transactionactivity, M&A announced, Alliances and partnerships signed, Changes indelivery footprint

ECONOMY WATCH

INTERNATIONALSECTION

SUPPLIEROVERVIEW

1: Includes TCS, Infosys, Wipro, HCL, Cognizant, Hexaware, Patni, Polaris, Tech Mahindra, Mindtree, Hinduja Global, WNS,

Genpact, EXL & Firstsource2: Includes IBM, Accenture, Capgemini, Atos Origin, Steria

INDUSTRYPERFORMANCE


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SECTION IMPACT COMMENTS

EconomyWatch Global macro-economic environment continues to remain uncertain.IndiaTechnologyIndicators

Mobile subscriptions, Internet Users, PC install base, and Broadband subscribersin India continue to grow substantially indicating the growing influence oftechnology

IndustryPerformance For the sample set, strong revenue growth of 4.9% in Q2FY12; Y-o-Y growth20.4%

Margins take a hit during the quarter mainly due to currency fluctuations and forexlosses

Q2FY12 employee base up by 20% YoY, 5.7% QoQ growth, FY2012 hiring targetsimilar to FY2011

Strong hiring momentum-while declining trend in attrition continues Net client addition regain lost momentum Revenue Drivers-

Geography- Emerging Markets ,RoW increasing steadily while Europemarket recovering gradually

Verticals-Manufacturing, Retail and Utilities, Serviceline-ER&D, RIM, Testing

GlobalLandscape Companies continued to grow despite stagnant macro-economic scenario Employee hiring remains steadySupplierOverview Global TCV market recorded remarkable steady growth and is expected to beback in line with pre-recession levels by the year end

Companies expanding their footprint by setting up centers in Tier-2 /tier-3 andonshore locations

SUMMARY


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Global macro-economic environment continuesto remain uncertain

GDP growthper cent

EmploymentGrowth

per cent

Inflationper cent

World GDP growth for 2011 and 2012estimated at 4.0%. Emerging / developingeconomies growing but outlook cautious

Employment growth in advanced economiesincreased marginally, unemployment still major

concern.

Inflation in USA projected to reduce in FY2012though the current levels substantially high inemerging economies fuelled by risingcommodity prices

-2.4%

0.6% 0.8%

2009 2010 2011

0.21.8

2.51.2

2009 2010 2011 2012

USA Inflation

0.7%

5.1% 4.0%

4.0%

2009 2010 2011 2012

Equity Markets

Equity markets have retreated specifically inthe European markets as a result of theimpending turmoil

63.4 63.652.2

70.7 76.0 79.5

Jan-09 Jan-10 Jan-11

DJ Euro Stoxx S&P 500

Source: IMF Global Economic Outlook, September 2011


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6

INDIA TECHNOLOGY INDICATORS

42.149.3

53.2

2009(Mar)

2010(Mar)

2010(Oct)

584.3811.6

865.7

2010(Mar) 2011(Mar) 2011(Aug)

8.8

11.9 12.7

2010(Mar)

2011(Mar)

2011(Aug)

13.5

16.219.7

2009(Mar)

2010(Mar)

2011(Mar)

PC INSTALL BASE MOBILE SUBSCRIBERS

BROADBANDSUBSCRIBERS INTERNET SUBSCRIBERS

Source: TRAI

million million

million million


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7

Q2FY12 revenue growth at 20.4% Y-o-Y, while Q-o-Q grows at 4.9%, Industry on track for FY2012 growth

of 16-18%

Margins take a hit as SG&A levels and forex losses continue to increase

Growth in Emerging Markets ,RoW increasing steadily, while Europe recovering gradually

Emerging verticals key growth driver with major verticals like Retail and Utilities growing their share

remarkably. Manufacturing reported a steady growth. ER&D, RIM and Testing main revenue drivers, BPO

covering lost ground

INDUSTRY PERFORMANCE

IT-BPO REVENUE GROWTH IT-BPO NET PROFIT MARGINS

10.3%

5.3%

3.9%

4.9% 4.9%

Sep-10 Dec-10 Mar-11 Jun-11 Sep-11

Strong positive quarter for IT-BPO companies,QoQ revenue growth of 4.9%


46.5

44.845.3

44.7

45.8

19.6%21.3%

20.3%

19.6%19.1%


INR/USD Rate NPM


8/18

Q2FY12 employee base up by 20% YoY, 5.7% QoQ growth, FY2012 hiring target similar to FY2011

Larger companies hiring almost double compared to last quarter with freshers accounting for most of

the additions- points to strong demand scenario going forward

The attrition challenge seems to be cooling off- this quarter records the lowest during the last 6

quarters

IT-BPO NET HIRING ATTRITION


Strong hiring momentum-while declining trend inattrition continues

19.9% 20.0% 20.1% 19.5%17.1%

38.0%40.9%

42.6%40.7%

37.5%


IT Services BPO

34 32 29 26

40

5.8%

5.0%4.3%

3.6%

5.4%


Net Hiring Change in Total Employee Base

000 Numbers


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9

Fixed price contracts continue to fall as customers restructure contracts

Client addition increases this quarter after witnessing a lull, as customers look at renewing contracts


REVENUES FROM FIXED PRICE CONTRACTS

42.1%

43.5%

43.2%

42.9%

42.3%


NET CLIENT ADDITIONS

Note: The set includes only IT Service companies

Indian companies regain lost momentum withnew client additions while fixed priced contractsfall further

Numbers

32723328

34033464

3531

69

56

75

61

67

15

35

55

75

3100

3200

3300

3400

3500

3600


Number of Active clients

Net Client addition


10/18


11/18

11

With companies focusing on increasing operational efficiencies and investing for future growth, there is a

steady increase in SG&A expenses

SG&A levels highest in last two years, growth in this quarter the fastest QoQ growth in last two years


SG&A Growth SG&A as per cent of Total Revenue

Note: The set includes only IT Service companiesSG&A: Sales. General & Administration

Increase in SG&A as companies start investingfor growth

14.3%

16.1%15.9%

16.1%16.4%


11.5%12.3%

3.7%4.5%

9.0%



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INTERNATIONAL SECTION

Despite the turmoil in the global economy, IT-BPO companies maintain growth momentum

REVENUES TOTAL EMPLOYEES

Includes IBM, Accenture, Capgemini, Atos Origin & Steria* Employees exclude IBM

Companies continued to grow despite a looming global economic crisis

With the buyers remaining aggressive about reducing and keeping down operating costs, there is a

continued overhaul of service delivery models and pricing cuts

Improved operational expense a key factor for broad-based growth in revenues

Employee additions improve during the quarter

333

378

447

Sep-09 Sep-10 Sep-11

000 Numbers

26.1

27.6

31.1

Sep-09 Sep-10 Sep-11

USD billion

12.5%

18.2%

5.7%14%


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SUPPLIER OVERVIEW

INDUSTRYWISE ITO CONTRACTS AWARDED INDUSTRYWISE BPO CONTRACTS AWARDED

Global TCV market recorded remarkable steady growth and is expected to be back in line with pre-recession levels by the year end

ITO and BPO contracts impacted by low restructurings and new scoping of contracts

Financial Services , the largest sectors grew marginally this quarter while Telecom and Manufacturing

recorded a slight dip

The Americas region contract improved but will need to exceed the average of the prior 5 years to

reach the 2010 TCV levels Source: TPI Index

TCV USD billion

Global TCV market steady while ITO and BPOcontracts decline marginally

13.9

23.3

20.3

14.112.3

19.9

14.012.3

11.3

3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

6.0

7.9

4.0

6.05.6

3.1

7.26.8 6.6

3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

TCV USD billion

-8%

-3%


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Mergers & Acquisitions

SUPPLIER OVERVIEW

Buyer Seller Value Services/Vertical

Genpact, India High PerformancePartners, USA

Not disclosed Software Platformsfor Mortgage

Industry

Chakkilam Infotech, India Cigniti Inc., USA Not disclosed Software Testing

GlobalLogic , India Method, USA Not disclosed Design and

Innovation

Aditi Technologies, India Cumulux, USA Not disclosed Cloud Computing

IBS Software, India Moveo Systems, India Not disclosed Solutions for Airports

IMI Mobile, India Skinkers, UK Not disclosed Digital Solutions for

Mobiles

Illustrative

Source: Compiled from news articles

Buyer Seller Value Services

Red Hat, USA Gluster, India USD 136 Mn Cloud Computing

EXL Services, USA Trumbull Services, USA Not disclosed Insurance

Serco, USA Excelior, Australia AUD 13.2 Mn BPO

Walt Disney, USA Indiagames, India Not Disclosed Gaming


15/18

Aegis plans to open a 300-seatercentre at Chhindwada, MP at an

investment of USD 2 million by

2012 which will be its sixth centre

in a tier-III town

Ciber, Inc, opened its new SEZ

centre in Bangalore with a seating

capacity of 750

New Delivery Centers established/announced

SUPPLIER OVERVIEW

INDIA

Illustrative


InterGlobe Technologies,

plans to open its second

centre in Manila, the

Philippines which will have

a 1,000-seat capacity.IRELAND

PHILIPPINES

HCL Technologies plans to

establish a software delivery centre

in Dublin, Ireland, that will create

80 jobs for IT graduates over three

years.

SOUTH AFRICA

Wipro Technologies plans to set up a 1,000

seater delivery centre in South Africa

DUBAI Genpact opened a facility in Dubai to provide

services such as claims processing,

customer service, etc

Intelenet opened a 200-seat facility in Dubai

which will service clients in different

languages


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List of Outsourcing Deals During the Quarter

Buyer Supplier DealValue

ContractDuration

Services Remarks

UK Based

Client

Hexaware

Technologies

USD 250

Mn

5 years IT Services Offer services across verticals, including

enterprise solutions,, application

management and remote infrastructure

Friends Life,

UK

Diligenta,

TCS

subsidiary

USD 2200

Mn

15 years BPO Provide administrative responsibility for

insurance and pension services

Maharashtra

Govt., India

Accenture Not

disclosed

Not

disclosed

E-Governance Build an online portal and create a

database for financial inclusion of

unorganised workers

MSEDC Ltd,

India

Zensar

Technologies

, India

Not

disclosed

Not

disclosed

IT Services Implement SAP's ERP software across

all activities of the corporation such as

finance, metering, human resources

Karnataka

Government

TCS, India Not

disclosed

Not

disclosed

E-Governance Provide a solution facilitating integrated

financial management of all spending

and resource mobilisation of state

treasury funds

Department of

Posts, India

Infosys Ltd. Rs 700-

750

crores

Not

disclosed

IT Services Provide postal banking and insurance

solutions

SUPPLIER OVERVIEW

Illustrative



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IT-BPO Industry Insights Nov2011