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Telecommunication August2013 130926012700 Phpapp01

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Page 1: Telecommunication August2013 130926012700 Phpapp01
Page 2: Telecommunication August2013 130926012700 Phpapp01
Page 3: Telecommunication August2013 130926012700 Phpapp01

Second-largest subscriber base

• With a subscriber base of nearly 898 million, India has the second-largest telecom network in the world

Third-highest number of internet users

• With 25.3 million internet subscriptions, India stood third-highest in terms of total internet users in 2012

Rising penetration rate • Urban teledensity stood at 147 per cent and rural teledensity is 41 per cent as of March

2013, up from 111 per cent and 21.2 per cent, respectively, in 2009

Affordability and lower rates

• Availability of affordable smartphones and lower rates are expected to drive growth in the Indian telecom industry

Source: Planning commission, Aranca Research

Page 4: Telecommunication August2013 130926012700 Phpapp01

• 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: BMI (Business Monitor international) Report, Aranca Research Notes: * figure for 2013 is up to March 2013; MNP - Mobile Number Portability; E - Estimates (2016E - Estimates for 2016)

Robust demand

• India is the world’s second-largest telecommunications market, with 898 million subscribers as of March 2013

• With 70 per cent of population staying in rural areas, the rural market will be a key growth driver in coming years

Attractive opportunities

• Telecom penetration in the nation’s rural markets is expected to increase to 70 per cent by 2017 from the 41.0 per cent as of March 2013

• India is expected to feature among the top 10 broadband markets by 2013

Policy support

• The government has been proactive in its efforts to transform India into a global telecommunication hub; prudent regulatory support has also helped

• National Telecom Policy 2012 proposes unified licensing, full MNP and free roaming

High ratings

• The country has a strong telecommunication infrastructure

• In telecommunication ratings, India ranks ahead of peers in the West and Asia

2013*

Number of subscriber: 898 million

FY16E

Number of subscriber:

1.2 billion

Advantage India

Page 5: Telecommunication August2013 130926012700 Phpapp01

Source: Aranca Research

• Comprises establishments operating and maintaining switching and transmission facilities to provide direct communications via airwaves

• Consists of companies that operate and maintain switching and transmission facilities to provide direct communications through landlines, microwave or a combination of landlines and satellite link-ups

• Includes internet service providers (ISPs) that offer broadband internet connections through consumer and corporate channels

Mobile (wireless)

Fixed line (wireline)

Internet services

Telecom

Page 6: Telecommunication August2013 130926012700 Phpapp01

Worldwide, India is currently the second-largest telecommunication market and has the third highest number of internet users

India’s telephone subscriber base expanded at a CAGR of 26.8 per cent to 895.5 million during 2007-12

Teledensity (defined as the number of telephone connections for every hundred individuals) increased from 23.9 in 2007 to 73.3 in 2012

In March 2013, the total telephone subscription was 898 million, while teledensity was 73.3

Growth in total subscribers

23.9

33.2

47.9

66.2 70.9 73.3 73.32

20

40

60

80

200

400

600

800

1,000

2007 2008 2009 2010 2011 2012 2013*

Telephone subscribers (Millions) Teledensity- (RHS)

Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate

2013* - Data as of March 2013

Page 7: Telecommunication August2013 130926012700 Phpapp01

Wireless and wireline revenues (USD billion) Indian telecom sector’s revenue grew by 13.4 per cent to USD64.1 billion in FY12

Wireless and wireline revenue increased at a CAGR* of 11.9 per cent to USD40.8 billion over FY07-12.

Revenues from the telecom equipment segment in FY12 stood at USD23.5 billion as compared to USD23.4 billion in FY11

For 9M’13, the telecom sector’s revenue grew to USD30.6 billion

23.2

32.1

33.1 33.3 37.7

40.8

FY07 FY08 FY09 FY10 FY11 FY12

Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate

*CAGR has been calculated in Indian Rupee terms

CAGR*:11.9%

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Composition of telephone subscribers (2013*) India’s telephone subscriber base reached 898 million in March 2013

The wireless segment (96.6 per cent of total telephone subscriptions) dominates the market, while the wireline segment accounts for the rest

Urban regions account for 61.1 per cent of telecom subscriptions, while rural areas constitute the remaining

Urban Wireless,

58.4%

Rural Wireless,

38.2%

Urban Wireline,

2.6%

Rural Wireline,

0.8%

Source: Telecom Regulatory Authority of India, Aranca Research Notes: 2013* - Data as of March 2013

Page 9: Telecommunication August2013 130926012700 Phpapp01

Wireless subscriptions (in million) During 2006–12, wireless subscriptions increased at a CAGR of 34.0 per cent to 864.7 million

In 2013*, while urban wireless teledensity stood at 140.7, rural teledensity stood at 40.2

The subscriber base declined slightly due to disconnection of inactive mobile subscribers

150

234

347

525

752

894 865 862

2006 2007 2008 2009 2010 2011 2012 2013*

CAGR: 34.0%

Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate

2013* - Data as of March 2013

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Growth in Wireless teledensity The mobile segment’s teledensity surged 5.3x from 13.5 per cent in 2006 to 70.9 per cent in 2013*

GSM services continue to dominate the wireless market with an 88.1 per cent share (June 2012); CDMA accounts for the remaining 10.9 per cent

70.9%

70.8%

74.2%

63.2%

44.7%

30.0%

20.4%

13.5%

2013*

2012

2011

2010

2009

2008

2007

2006

Source: Telecom Regulatory Authority of India, Aranca Research Notes: Teledensity - The number of telephone lines for every 100

people in a country, GSM - Global System for Mobile Communications, CDMA - Code Division Multiple Access

2013* - Data as of March 2013

Page 11: Telecommunication August2013 130926012700 Phpapp01

Wireless market share in terms of total subscribers (2013*)

Bharti Airtel is the market leader, with a 21.7 per cent share of total subscription; Vodafone follows with a 17.6 per cent share market share

The top five players – Bharti Airtel, Vodafone, Reliance, Idea, and BSNL – account for over 79 per cent of the total subscribers

21.7%

17.6%

14.2%

14.0%

11.7%

7.7%

6.9%

3.7% 1.4%

1.3% Bharti Airtel

Vodafone

Reliance

Idea

BSNL

Tata

Aircel

Unitech

Sistema

Others

Source: Telecom Regulatory Authority of India, Aranca Research Notes: BSNL - Bharat Sanchar Nigam Limited

2013* - Data as of March 2013

Page 12: Telecommunication August2013 130926012700 Phpapp01

Fixed line segment subscription and teledensity

Total fixed line subscription stood at 30.2 million, while teledensity reached 2.5 per cent due to wide usability of wireless segment in 2013*

BSNL is the market leader with a 67.7 per cent share followed by MTNL with 11.5 per cent market share

BSNL, MTNL, and Bharti together account for 90 per cent of the total fixed-line market

Fixed line market share (2013*)

2.0%

3.0%

4.0%

25

28

31

34

37

40

2006 2007 2008 2009 2010 2011 2012 2013*

Wireline subscription (Millions)

67.7%

11.5%

10.9%

5.0%

4.1%

0.9%

BSNL

MTNL

Bharti

Tata

Reliance

Others

Source: Telecom Regulatory Authority of India, Aranca Research Notes: BSNL - Bharat Sanchar Nigam Limited

2013 * - Data as of March 2013

Page 13: Telecommunication August2013 130926012700 Phpapp01

Internet subscriptions (in million) The number of Internet subscribers increased at a CAGR of 19.7 per cent to 25.3 million in 2012 from 8.6 million in 2006

By 2016, internet subscriptions are expected to rise to 215.0 million, with a penetration rate of 16.2 per cent

8.6 10.4

12.9

15.2

18.7

22.4

25.3

2006 2007 2008 2009 2010 2011 2012

Source: Telecom Regulatory Authority of India, Business Monitor International, Aranca Research

Notes: CAGR - Compound Annual Growth Rate; BSNL - Bharat Sanchar Nigam Ltd

CAGR: 19.7%

Page 14: Telecommunication August2013 130926012700 Phpapp01

Total internet service providers revenues in USD billion

Total internet service provider’s revenues stood at USD2.2 billion in 2012, CAGR* of 12.2 per cent over 2009-12

1.8

2.1 1.9

2.2

2009 2010 2011 2012

Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate

*CAGR has been calculated in Indian Rupee Terms

CAGR*: 12.2%

Page 15: Telecommunication August2013 130926012700 Phpapp01

Broadband subscriptions (in million) Broadband subscription increased at a CAGR of 38.8 per cent during 2006–12

Growth is set to pick up pace even further; the market is set to post a CAGR of 72.1 per cent during 2011–15, with subscriptions increasing to 117.6 million by end-2015

Broadband subscription was 15.1 million as of March 2013

2.1 3.1

5.5

7.8

10.9

13.4

15.0 15.1

2006 2007 2008 2009 2010 2011 2012 2013*

Source: Telecom Regulatory Authority of India, Aranca Research Note: CAGR - Compound Annual Growth Rate

2013* - Data as of March 2013

CAGR: 38.8%

Page 16: Telecommunication August2013 130926012700 Phpapp01

Market break-up by broadband subscriptions (2013*)

BSNL has the largest share (66.0 per cent) of the total broadband market

Bharti Airtel has the second-largest share (9.3 per cent) of the total broadband market

BSNL 66.0%

Bharti 9.3%

MTNL 7.2%

Others 17.5%

Source: Telecom Regulatory Authority of India, Aranca Research Notes: BSNL - Bharat Sanchar Nigam Ltd; MTNL - Mahanagar Telephone Nigam Ltd

Notes: 2013* - Data as of March 2013

Page 17: Telecommunication August2013 130926012700 Phpapp01

Company Ownership Presence

Mahanagar Telephone Nigam Ltd (MTNL)

Government (56.3 per cent) Fixed line and mobile telephony (in Delhi

and Mumbai), data and internet

Bharat Sanchar Nigam Ltd (BSNL)

Government (100 per cent) Fixed line and mobile telephony (GSM –

outside Delhi and Mumbai), data and internet in 22 circles

Reliance communications

ADAG Group (approximately 67.9 per cent)

Mobile (CDMA) and Broadband

Bharti Airtel Bharti Group(45.7), Pastel Ltd (15.57 per cent), LIC

India (4.3 per cent)

Broadband and mobile (GSM) in 22 circles

Vodafone Essar Vodafone (74 per cent),

Telecom Investment India (19.5 per cent)

Broadband and mobile (GSM) in 22 circles

Source: Companies’ websites, Aranca Research

Page 18: Telecommunication August2013 130926012700 Phpapp01

Green telecom

• The green telecom concept aims at reducing the carbon footprint of the telecom industry through reduced energy consumption

• TRAI initiated a consultation process in May 2010, requesting inputs from firms across the telecom value chain to provide recommendations on green telecom’s framework and implementation

Expansion to rural markets

• There are over 62,443 uncovered villages in India; these would be provided with village telephone facility with subsidy support from the government’s Universal Service Obligation Fund (thereby increasing rural teledensity)

• In February 2013, the rural subscriber base accounted for 38.9 per cent of the total subscriber base, thereby fuelling the sector’s growth

Emergence of BWA technologies

• BWA technologies such as WiMAX have been among the most significant recent developments in wireless communication

• WiMAX is expected to have attracted around 8 to 10 million subscribers and account for around USD1–1.5 billion in 2012

Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India

Page 19: Telecommunication August2013 130926012700 Phpapp01

Telecom Finance Commission

• The Telecom Commission (TC) is likely to set up a Telecom Finance Corporation (TFC) for channelling funding for telecom projects at competitive rates in order to facilitate investment in the sector

Rising Investments

• To boost local research and manufacturing of telecom products, the government has proposed an investment of USD32.2 billion in three phases: i) USD9.2 billion to the Telecom Research and Development Fund, ii) USD4.6 billion for the Telecom Entrepreneurship Promotion Fund, and iii) USD18.4 billion to the Telecom Manufacturing Promotion Fund during the 12th Five Year Plan

Outsourcing Non-core Activities

• As part of the recent outsourcing trend, operators have outsourced functions such as network maintenance, IT operations, and customer service

Mobile Banking

• During November 2012, 4.7 million mobile banking transactions were reported, up 6.4 per cent from a year ago

• Availability of affordable smartphones is expected to boost the growth of various transactions conducted via phones

Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India

Page 20: Telecommunication August2013 130926012700 Phpapp01

The surge in the subscriber base has necessitated a network expansion covering a wider area, thereby creating a need for significant investment in telecom infrastructure

To curb costs and focus on core operations, telecom companies have been segregating their tower assets into separate companies

Creating separate tower companies has helped telecom companies lower operating cost and improve capital structure, and also provided an additional revenue stream

Emergence of Tower Industry

Rising

Competition

Higher operating cost and

debt burden

Focus on tower

sharing to reduce costs

Segregation of towers

into separate

companies

Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India

Page 21: Telecommunication August2013 130926012700 Phpapp01

The growing need for towers and rise in tower sharing have led to emergence of independent telecom tower companies (ITTCs) along with the Telecos-owned Tower companies

Ownership of towers (2010) Market share of tower companies in 2010 (based on towers owned)

Telcos owned 72%

ITTC 28%

7.0%

9.5%

9.7%

11.2%

15.2%

15.2%

32.2%

Others

GTL Infrastructure Limited

Bharti Infratel Limited

Viom Networks Limited

Reliance Infratel Limited

Bharat Sanchar Nigam Limited

Indus Tower Limited

Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India

Page 22: Telecommunication August2013 130926012700 Phpapp01

Growing demand

Inviting Resulting in

Growing demand Increasing investments Policy support

Higher real income and

changing lifestyles

Growing young population

Increasing MOU and data

usage

Reduction in the license fee

Relaxed FDI Norms

Encourages firms to expand to rural areas

Higher FDI inflows

Increasing M&A activity

Notes: FDI - Foreign Direct Investment; MOU - Minutes of Use per month and per subscriber; M&A - Mergers and Acquisitions

Page 23: Telecommunication August2013 130926012700 Phpapp01

Rising per capita income in India (USD) Rising incomes has been a key determinant of demand growth in the telecommunication sector in India

Nominal per capita income is estimated (IMF) to have recorded a CAGR of 11.2 per cent over 2000–12 (USD1491.9)

Strong income growth is set to continue; IMF forecasts indicate a CAGR of 7.0 per cent during 2012-17 (to USD2,095.1)

-5%

0%

5%

10%

15%

20%

25%

30%

300

600

900

1,200

1,500

1,800

2,100

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1F

201

2F

201

3F

201

4F

201

5F

201

6F

201

7F

Gross domestic product per capita, current prices Growth

Source: IMF, Aranca Research Notes: CAGR - Compound Annual Growth Rate

Page 24: Telecommunication August2013 130926012700 Phpapp01

Indian residents shifting from low to high income groups (%)

The emergence of an affluent middle class is triggering demand for the mobile and internet segments

A young and growing population is aiding this trend (especially demand for smart phones)

1 3

7 2 6

17 12

25

29 35

40

32 50

26 15

2008 2020 2030

Globals (>18412.8) Strivers (9206.4-18412.8)

Seekers (3682.5 - 9206.4) Aspirers (1657-3682.5)

Deprived (<1657)

Source: McKinsey Quarterly Report, Aranca Research

Million Household,100%

222 273 322

Page 25: Telecommunication August2013 130926012700 Phpapp01

MVAS revenues (in USD billion) The MVAS industry is expected to expand to USD5.4 billion by 2013 from USD2.0 billion in 2011, representing a CAGR* of 27.2 per cent

The share of non-voice revenues, which currently stand at around 10 per cent of telecom operators’ revenues, is estimated to rise to over 30 per cent in the next five to seven years

A decline in smartphone prices and data subscription rates is likely to drive the demand for MVAS

2.1

2.6

3.5

4.4

5.4

2009 2010 2011 2012 2013E

Source: Deloitte, Aranca Research Notes: CAGR - Compound Annual Growth Rate;

CAGR has been calculated in Indian Rupee terms MVAS - Mobile Value-Added Services, *CAGR in terms of Indian

Rupee

CAGR*: 27.2%

Page 26: Telecommunication August2013 130926012700 Phpapp01

Internet - dial up access MOU (per month per subscriber)

Minutes of usage of dial-up internet access increased to 411 in 2010 from 205 in 2006, a CAGR of 19 per cent

205.0 210.0 222.0

324.0

411.0

2006 2007 2008 2009 2010

CAGR:19.0%

Source: Telecom Regulatory Authority of India, Aranca Research Notes: MOU - Minutes of Use, CAGR - Compound Annual Growth Rate

Page 27: Telecommunication August2013 130926012700 Phpapp01

In terms of telecom ratings, India competes primarily with China, Indonesia and Philippines

In terms of country risk, India has an edge over Philippines, Pakistan, Bangladesh, Laos, Cambodia, Thailand, Vietnam and Sri Lanka

Telecom Industry Rewards

Country rewards

Telecom industry risks

Country risk

Telecom Rating

India 60.0 32.1 60.0 56.4 52.6

China 63.3 31.7 70.0 67.9 57.2

Indonesia 62.5 45.0 60.0 57.7 57.1

Philippines 45.0 46.7 60.0 51.0 48.6

Pakistan 55.0 42.0 60.0 37.6 50.0

Bangladesh 52.5 36.7 60.0 46.8 48.9

Laos 40.5 39.0 50.0 39.7 41.4

Cambodia 44.0 38.3 50.0 36.8 42.4

Thailand 47.5 32.7 60.0 56.8 47.1

Vietnam 40.0 33.3 60.0 46.9 42.4

Sri Lanka 33.8 26.7 50.0 48.0 36.6

Source: BMI, Aranca Research, Note: explanation of the indicators given under appendix

Page 28: Telecommunication August2013 130926012700 Phpapp01

Reduction in license fees

• The Government of India plans to cut license fees up to 33 per cent for operators that cover services for over 95 per cent of the residential areas in a calling circle

• The issuance of several international and national long-distance licenses has created opportunities and attracted new companies into the market

Abolishment of roaming charges

• During May 2012, the Union Cabinet declared to abolish roaming charges and allow mobile number portability even outside designated circles (without having to pay extra charges)

• This policy is expected to become effective from October 2013

Relaxed FDI norms

• FDI of up to 74 per cent is allowed in basic and cellular, unified access, national/international long distance, and V-Sat services as well as public mobile radio trucked services

• FDI of up to 100 per cent is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail

Notes: FDI - Foreign Direct Investment; TRAI - Telecom Regulatory Authority of India; DoT - Department of Telecommunication; WiMAX - Worldwide interoperability for Microwave Access Telecommunications, VoIP - Voice over Internet Protocol

Page 29: Telecommunication August2013 130926012700 Phpapp01

Allowed the use of WiMAX

• In August 2008, the Department of Telecommunication ( DoT) allowed operators to use WiMAX networks as an alternative to cable and DSL to offer voice services

• This would enable faster delivery of wireless broadband services

Set up internet connections

• The Department of Information Technology intends to set up over 1 million internet-enabled common service centres across India as per the National e-Governance Plan

Expansion to rural areas

• The USOF identified 5,000 villages, and is in the process of developing a scheme to connect through wireless broadband

• It also intends to provide 888,832 broadband connections in rural areas by 2014 • The USOF also has plans to strengthen the OFC network in rural and remote areas

Notes: USOF - Universal Service Obligation Fund; OFC - Optical Fibre Cable

Page 30: Telecommunication August2013 130926012700 Phpapp01

Financial support • The USOF is expected to extend financial support to operators providing service in rural

areas and encourage active infrastructure sharing among the operators

Enhanced spectrum limit

• An increase in the prescribed limit on spectrum from 6.2MHz to 2x8 MHz (paired spectrum) for GSM technology in all areas other than Delhi and Mumbai where it will be 2x10MHz (paired spectrum)

• Telecom players can however obtain additional frequency; there will be an auction of spectrum subject to the limits prescribed for merger of licenses

Relaxing M&A norms

• The government has recommend a liberal norm of up to 35 per cent market share for the resultant entity as "safe harbour" for the mergers and acquisition in the Indian telecom sector subject to the presence of 12 or more service providers in that circle

• If the spectrum held by the combined entity exceeds the prescribed limit after the merger, the excess spectrum must be surrendered within a year of the merger being permitted

Notes: USOF - Universal Service Obligation Fund; OFC - Optical Fibre Cable

Page 31: Telecommunication August2013 130926012700 Phpapp01

Source: Digital Dawn, KPMG report 2013, Aranca Research

‘Broadband for all’ with a minimum download

speed of 2Mbps

Unified licensing, delinking of spectrum from license, online

real-time submission and processing

Aims at a ‘One Nation-One license’ regime

with no roaming charges and nation

wide number portability

Increase rural teledensity from 39 to 70 per cent by 2017, and 100 per cent by

2020

Liberalisation of spectrum, and convergence of

network, services and devices

National Telecom Policy - 2012

Page 32: Telecommunication August2013 130926012700 Phpapp01

Cumulative FDI inflows into telecommunication (USD billion)

Cumulative FDI inflows into the telecom sector over FY01-FY13 amounted to USD287 billion

During this period, FDI into the sector accounted for an 6.6 per cent share of total FDI inflows into the country

FDI inflow stood at USD93 million for April 2012-February 2013 and is expected to touch USD100 million by FY13

4 10 15 20 26 35

57

92

134

172

207

253

287

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13*

Source: Department of Industrial Policy & Promotion, Aranca Research Note: FY13* - Data mentioned is from April 2012 - January 2013

Page 33: Telecommunication August2013 130926012700 Phpapp01

Source: Thomson Banker, Deal Tracker, Aranca Research Notes: M&A - Merger and Acquisition

Merger and Acquisition deals (2010 to 2013)

Target Acquirer Acquisition price

(USD million) Division acquired

Bharti Airtel Qatar Foundation (2013) 1,300 Stake

Qualcomm India Pvt Ltd Bharti Airtel Ltd (2012) 165 Broadband wireless access

Zain’s African operations Bharti Airtel Ltd (2010) 11 Entire business

Radiacion Kavveri Telecom Products Ltd

(2011) 27.5 Telecom unit

Kavveri Telecom Products Ltd Investor Group (2010) 9.9 -

Tata AutoComp Mobility Trimble Navigation Ltd (2010) 5.1 -

Eduexel Infotainment Ltd Discovery Infoways Ltd (2010) 0.9 -

Page 34: Telecommunication August2013 130926012700 Phpapp01

ZTE enters into agreement with Calyx

• ZTE Telecom India, the wholly owned subsidiary of China’s ZTE Corp, entered into an exclusive agreement with Pune-based Calyx Group to market and distribute its products across India

• ZTE plans to enter the Indian smartphone market with five models priced at USD107–275 • It also plans to introduce tablet PCs in the Indian market after the smartphone launch

Reliance Jio Infocomm and Vodafone

• To tap the growth in broadband technologies and infrastructure expansion, Reliance Jio Infocomm and Vodafone entered into an agreement to build and maintain an 8,000 km submarine telecom and data cable system

• The system is expected to be operational by 2014 and would connect six countries through landing points in Oman, UAE, India (Mumbai and Chennai), Sri Lanka, Malaysia and Singapore

Mobile wallet by Vodafone

• Vodafone India and ICICI Bank launched M-Pesa, a service for mobile money transfer and payment

• The service would allow customers to transfer money to any mobile phone in India, debit and deposit funds, withdraw cash from designated outlets, pay bills, and shop at select merchant establishments. M-Pesa would be available across India in the next 12–18 months

Source: Thomson Banker, Deal Tracker, Aranca Research Notes: M&A - Merger and Acquisition

Page 35: Telecommunication August2013 130926012700 Phpapp01

Set up in 1995, Bharti Airtel is India’s largest mobile operator with presence in all of India’s 22 circles

It is the country’s leading mobile operator, with a customer base of more than 271 million as of March 2013. It is the world’s fourth-largest telecom operator

Revenues increased from USD4 billion in FY07 to USD14.8 billion in FY13, a CAGR* of 24.2 per cent

Major segments (FY13) Revenues (in USD billion)

66.8%

15.7%

8.1%

5.8%

2.5%

0.7% 0.5%

Mobile

Tower Infrastructure

Airtel Business

Telemedia

Digital TV

Consolidated Africa

Others

4.0

6.7

8.2 8.8

13.1 14.9 14.8

FY07 FY08 FY09 FY10 FY11 FY12 FY13

CAGR*: 24.2%

Source: Company website, Aranca Research Note: *CAGR - Compound Annual Growth Rate, CAGR is calculated in INR terms

Page 36: Telecommunication August2013 130926012700 Phpapp01

Total subscribers (million) Bharti Airtel has over 271.2 million subscribers, out of which mobile service subscription accounts for 72.3 per cent as of FY13

The total subscriber base expanded at a CAGR* of 39.3 per cent to 271.2 million from 37.1 million over FY07-13

Bharti Airtel has a mobile subscriber base of 196 million, of which 188 million is in India

Bharti Airtel plans to buy optical network gear from Ciena Communications Inc in order to expand capacity of its i2i undersea cable network that connects India to Singapore

The company has plans expansion plans in Africa to tap the huge growth potential

Source: Company website, Aranca Research CAGR - Compounded Annual Growth Rate,

*CAGR is calculated in Indian Rupee term

37.1 62

94.5

131.3

220.9

251.6

271.2

FY07 FY08 FY09 FY10 FY11 FY12 FY13

CAGR*: 39.3%

Page 37: Telecommunication August2013 130926012700 Phpapp01

Revenues (USD billion) Established in 1994, Vodafone is one of India’s leading mobile operators, with more than 141.5 million customers as of January 2013

In February 2007, Vodafone unveiled a high-growth five-year strategy for India; the company planned to offer low-cost handsets and wireless connectivity to the country’s rural areas. This move resulted in the company becoming the leading mobile phone service provider in rural India

In August 2008, Vodafone introduced Apple’s iPhone to the Indian market

Vodafone's revenues from India increased at a CAGR* of 23.2 per cent over FY07-13; revenues stood at USD7.4 billion in FY13

Source: Company website, Aranca Research CAGR - Compounded Annual Growth Rate,

*CAGR is calculated in Indian Rupee term

2.1

3.9 4.4

4.9

5.9

6.7 7.4

FY07 FY08 FY09 FY10 FY11 FY12 FY13

CAGR*: 23.2%

Page 38: Telecommunication August2013 130926012700 Phpapp01

Total subscribers (million) Vodafone’s customer subscription increased at a CAGR** of 29.9 per cent to 147.5 million during 2007-12

In March 2013, Vodafone’s subscriber base stood at 153.0 million

Gujarat, Uttar Pradesh, Maharashtra, and West Bengal together account for over 45 per cent of total customer base

Vodafone Group plans to invest heavily in the establishment of a fiber-optic network in India

Vodafone plans to invest USD400-500 million by 2015 to purchase 3G equipment

39.9 60.9

91.4

124.3 147.7

147.5 153.0

2007 2008 2009 2010 2011 2012 2013*

CAGR**: 29.9%

Source: Company website, Aranca Research Note: 2013* represents data till March 2013

**CAGR - Compounded Annual Growth Rate

Page 39: Telecommunication August2013 130926012700 Phpapp01

Number of MNP requests (in millions) Mobile Number Portability (MNP) in India was introduced in November 2010

MNP allows subscribers to change their mobile service provider while retaining their old mobile number

The portability service was made available for both postpaid and prepaid customers as well as on both GSM and CDMA platforms

The implementation of MNP has brought a slew of benefits for customers in terms of better plans and offers

MNP would be implemented nationwide by mid-2013. This would help users to retain their numbers even if they move from one state to another, essentially shifting across telecom circles

32.8

44.8

Jan-12 Jan-13

Source: Trai Report, Aranca Research

Page 40: Telecommunication August2013 130926012700 Phpapp01

• The number of wireless

subscribers is expected to

reach approximately 1.2

billion by 2016

• Of the total subscribers,

around 55 per cent are likely

to be from urban areas and

the rest would be rural

subscribers (45 per cent)

• The rural teledensity is

expected to reach 70 per cent

by 2017 from the 41 per cent

as of March 2013

• Rural telecom users are set

to account for over 60 per

cent of the handsets market

(by volume) by 2012

• The Internet penetration is

expected to grow steadily and

is expected to be bolstered by

government policy

• The current broadband

penetration rate is 1.5 per

cent and is likely to be 9.4 per

cent by 2015

• The country is expected to

feature among the top 10

broadband markets by 2013

Increasing mobile subscribers Untapped rural markets Rising internet penetration

Source: KPMG report 2013, Aranca Research

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• Telecom infrastructure is

expected to increase at a

CAGR of 20 per cent during

2008–15 to reach 571,000

towers in 2015

• TRAI has made several

recommendations for the

development of telecom

infrastructure including tax

benefits and recognising

telecom infrastructure as

essential infrastructure

• The Indian Mobile Value-

Added Services (MVAS)

industry is expected to reach

USD5.8 billion by 2013, from

USD2.0 billion in 2009

• The Indian cloud computing

market is expected to grow at

a CAGR of 76 per cent over

the period till 2012 (to

USD15-18 billion)

• The production of electronic

and related equipment

touched USD19.8 billion in

FY12

• It is anticipated to reach

USD52.0 billion by 2020

• NTP 2012 is likely to fuel

further growth with its ‘Broad

for all’ schemes and policies

to increase rural penetration

Development of telecom infrastructure

Growth in MVAS and Cloud computing

Telecom equipment market

Source: Press information bureau,Government of India, Aranca Research Notes: VAS - Value-Added Services, NTP - National Telecom Policy

Page 42: Telecommunication August2013 130926012700 Phpapp01

Mobile app market size (USD billion) The mobile application (app) market is expected to expand at a CAGR* of 70.4 per cent during 2012 to 2015 and reach USD100 billion

The mobile app market is estimated to increase 9.4 per cent to USD22.1 billion in 2013 from USD20.2 billion in 2012

The segment’s growth is expected to be driven by rising mobile connections and availability of low-range smartphones

Over 100 million apps are downloaded every month across different platforms such as iOS, Blackberry, Nokia, and Android

20.2

100

2012 2015F

Source: Gartner, Aranca Research Notes: CAGR - Compounded Annual Growth Rate,

*CAGR is calculated in INR terms, F - Forecast

CAGR: 70.4%

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Association Of Unified Telecom Service Providers Of India (AUSPI) B-601, Gauri Sadan 5, Hailey Road, New Delhi – 110 001, India Tel: 91 11 23358585 Fax: 91 11 23327397 Website: http://www.auspi.in/

Association Of Competitive Telecom Operators (ACTO) 601, Nirmal Tower, 26, Barakhamba Road, Connaught Place, New Delhi – 110 001, India Tel.: 91 11 43565353 / 43575353 Fax: 91 11 43515353 E-mail: [email protected] Website: www.acto.in

Internet & Mobile Association Of India (IAMAI) F-36, Basement, East of Kailash, New Delhi – 110 065, India Tel: 91 11 46570328 E-mail: [email protected] Website: www.iwww.iamai.in

Page 44: Telecommunication August2013 130926012700 Phpapp01

BMI telecoms business environment ratings

Industry rewards: it considers Average revenue per users, number of subscribers, subscriber growth, and number of operators

Country rewards: it considers urban/rural split, age range, GDP per capita, USD

Industry risks: it considers regulatory independence

Country risk: it rates the country on short-term external risk, policy continuity, legal framework corruption

Telecom ratings: overall rating of the above indicators

Page 45: Telecommunication August2013 130926012700 Phpapp01

BWA: Broadband wireless access

CAGR: Compound annual growth rate

DoT: Department of Telecommunication

FDI: Foreign direct investment

FTTH: Fibre to the home

FY: Indian financial year (April to March)

IMF: International Monetary Fund

INR: Indian Rupee

IPTV: Internet protocol television

M&A: Mergers and acquisitions

MoU: Minutes of use per month and per subscriber

MPEG: Moving Picture Experts Group

Page 46: Telecommunication August2013 130926012700 Phpapp01

OFC: Optical fibre cable

TRAI: Telecom Regulatory Authority of India

USOF: Universal Service Obligation Fund

USD: US Dollar

VAS: Value-added services

WiMAX: Worldwide Interoperability for microwave access telecommunications

Wherever applicable, numbers have been rounded off to the nearest whole number

Page 47: Telecommunication August2013 130926012700 Phpapp01

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

Page 48: Telecommunication August2013 130926012700 Phpapp01

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.

Page 49: Telecommunication August2013 130926012700 Phpapp01
Page 50: Telecommunication August2013 130926012700 Phpapp01
Page 51: Telecommunication August2013 130926012700 Phpapp01

Robust asset growth • Total Indian banking sector assets has reached USD1.5 trillion in FY12 from USD1.3

trillion in FY10, with 73 per cent of it being accounted by the public sector

Growing lending and deposit

• Total lending and deposits have increased at CAGR of 22.8 per cent and 21.2 per cent, respectively, during FY06-13 and are further poised for growth, backed by demand for housing and personal finance

Higher ATM penetration • Total number of ATMs in India have increased to 1,04,500 in 2012 and is further expected

double over the next two years, thereby taking the number of ATMs per million population from 85, at present, to about 170

Rising rural penetration • With the help of Financial Inclusion Plan (FY10-13), the banking connectivity in India

increased more than threefold to 211,234 villages in 2013 from 67,694, at the beginning of the plan period

Source: Planning Commission, Aranca Research ATM - Automated Teller Machine

Page 52: Telecommunication August2013 130926012700 Phpapp01

• 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: IBA report titled “Being five-star in productivity - Roadmap for excellence in Indian banking”; Aranca Research; Notes: NPA – Non Performing Assets

Robust demand

• Increase in working population and growing disposable incomes will raise demand for banking and related services

• Housing and personal finance are expected to remain key demand drivers

• Rural banking is expected to witness growth in the future

Innovation in services

• Mobile, Internet banking and extension of facilities at ATM stations to improve operational efficiency

• Vast un-banked population highlights scope for innovation in delivery

Policy support

• Wide policy support in the form of private sector participation and liquidity infusion

• Healthy regulatory oversight and credible Monetary Policy by the Reserve Bank of India (RBI) have lent strength and stability to the country’s banking sector

Business fundamentals

• Rising fee incomes improving the revenue mix of banks

• High net interest margins, along with low NPA levels, ensure healthy business fundamentals

FY12

Total asset size:

USD1.5 trillion

FY25E

Total asset size:

USD28.5 trillion

Advantage India

Page 53: Telecommunication August2013 130926012700 Phpapp01

Source: Indian Bank’s Association, Aranca Research, BMI Notes: RBI - Reserve Bank of India, FDI – Foreign Direct Investment

Note: The data on number of banks belongs to FY11

• Closed market

• State-owned Imperial Bank of India was the only bank existing

• RBI was established as the central bank of country

• Quasi central banking role of Imperial Bank came to an end

• Imperial Bank expanded its network to 480 branches

• In order to increase penetration in rural areas, Imperial Bank was converted into State Bank of India

• Nationalisation of 14 large commercial banks in 1969 and 6 more banks in 1980

• Entry of private players such as ICICI intensifying the competition

• Gradual technology upgradation in PSU banks

1921

1935

1936 -1955

1956-2000

2000 onwards

• Number of banks increased to 27 public sector banks, 22 private sector banks and 41 foreign banks

• Advent of mobile and internet banking

• Growing FDI in the Indian banking sector

Page 54: Telecommunication August2013 130926012700 Phpapp01

Reserve Bank of India

Banks Financial Institutions

Scheduled Commercial Banks (SCBs)

Cooperative credit institutions

Public sector banks (27)

Private sector banks (22)

Foreign banks (41)

Regional Rural Banks (RRB) (62)

Urban cooperative banks (1,674)

Rural cooperative credit institutions (96,751)

All-India financial institutions

State-level institutions

Other institutions

Source: RBI - Reserve Bank of India, Aranca Research Note: The data on number of banks belongs to FY12

Page 55: Telecommunication August2013 130926012700 Phpapp01

Growth in credit off-take over past few years (USD billion)

Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate.

Note: FY14* - RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee

Credit off-take has been surging ahead over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit

During FY06–13, credit off-take expanded at a CAGR** of 22.8 per cent to USD991 billion

Total credit off-take is estimated to grow to USD1,140 billion in FY14

Demand has grown for both corporate and retail loans

352

495

610 552

742 896

916 991

1,140

0%

5%

10%

15%

20%

25%

30%

0

200

400

600

800

1,000

1,200

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14*

Amount (USD billion) Growth- RHS (%)

Page 56: Telecommunication August2013 130926012700 Phpapp01

Growth in deposits over the past few years (USD billion)

Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate

Note: FY14*- RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee

Deposits have grown at a CAGR** of 21.2 per cent during FY06–13; in FY13 total deposits stood at USD1,274.3 billion

Total deposits are estimated to grow to USD1,452.7 billion in FY14

Deposit growth has been mainly driven by strong growth in savings amid rising disposable income levels

Access to the banking system has also improved over the years due to persistent government efforts; at the same time India’s banking sector has remained stable despite global upheavals, thereby retaining public confidence over the years

489

665

822 763

1,030

1,182 1,170 1,274

1,453

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14*

Page 57: Telecommunication August2013 130926012700 Phpapp01

Total Banking sector assets (USD billion)

Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate

*Growth and CAGR is in terms of Indian rupee

Total banking sector assets have increased at a CAGR* of 8.2 per cent to USD1.5 trillion during FY10–12

FY10–12 saw growth in assets of banks across sectors

Assets of public sector banks, which account for 73 per cent of the total banking asset, grew at an average of 7.5 per cent

Private sector expanded at an CAGR* of 11.3 per cent, while foreign banks posted a growth of 6.7 per cent

1,290

1,336

1,510

1,150

1,250

1,350

1,450

1,550

0

300

600

900

1,200

FY10 FY11 FY12

Foreign banks Private banks

Public Banks Total Assets -RHS

Page 58: Telecommunication August2013 130926012700 Phpapp01

Growth in money supply over past few years (USD billion)

Source: Department of Industrial Policy and Promotion, Working group for 12th Five year plan, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Narrow money (M1)

is as defined by sum of currency with public and Deposit money of the public M2 is the sum of Narrow money and Post office saving deposit

M3 refers to sum of M2 and Time deposit with banks

Total money supply increased at a CAGR* of 13.9 per cent to USD1.5 trillion during FY06–13

Narrow money supply (M1) rose at a CAGR* of 12.5 per cent while its components currency with public and Deposit money of the public grew at a CAGR of 15.7 and 8.8 per cent during FY06–13

Board money supply (M2) increased at a CAGR* of 12.5 per cent to USD348.1 billion during FY06-13

Money supply (M3) grew at a CAGR* of 17.4 per cent to USD1.5 trillion during FY06-13

Time deposits with banks have shown highest average growth of 19.2 per cent to USD1.2 trillion during FY06–13

0

300

600

900

1,200

1,500

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Currency with the public Deposit Money of the Public

Time Deposits with Banks Total Post Office Deposits

616

824

1,010 932

1,252

1,443 1,425 1,539

Page 59: Telecommunication August2013 130926012700 Phpapp01

Interest income growth in Indian banking sector (USD billion)

Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate,

CAGR is calculated in Indian rupee term

Public sector banks account for over 73 per cent of interest income in the sector

They lead the pack in interest income growth with a CAGR* of 21.1 per cent over FY09-12

Overall, the interest income for the sector has grown at 19 per cent CAGR* during FY09-12 56.9

63.8

76.3

101.0

17.7 17.3 20.2 27.9

6.3 5.5 5.9 7.6

FY09 FY10 FY11 FY12

Public Banks Private Banks Foreign Banks

Page 60: Telecommunication August2013 130926012700 Phpapp01

Net Interest Margins growth (FY12)

Source: Indian Bank’s Association, Aranca Research

Net Interest Margin (NIM) for scheduled commercial banks stood at 2.9 per cent in FY12, up from 2.6 per cent in FY08

Foreign banks, State Bank of India & its associates as well as private sector banks posted higher NIM at 4.0, 3.2 and 3.1 per cent, respectively in FY12

Net Interest Margin across sector (FY12)

3.2%

2.6%

2.8% 3.1%

4.0%

2.9%

SBI & itsassociate

Nationalisedbanks

Public sectorbanks

Privatesector banks

Foreignbanks

Scheduledcommercial

bank

2.58%

2.63%

2.54%

2.91% 2.90%

FY08 FY09 FY10 FY11 FY12

Average

Page 61: Telecommunication August2013 130926012700 Phpapp01

Healthy net interest margins (FY12)

Source: Company Reports, Aranca Research Note: HDFC – Housing Development Finance Corporation,

ICICI – Industrial Credit and Investment Corporation of India, SBI – State Bank of India

Indian banking sector enjoys healthy net interest margins (NIM) compared with global peers

HDFC leads the large banks with a NIM of over 4 per cent

Prominent Chinese banks have NIM’s between 2-3 per cent, significantly lower than Indian peers

Despite virtually zero cost funds, the banks in the US have NIM’s comparable to Indian peers

4.22%

2.73%

3.85% 3.59%

HDFC ICICI SBI Axis

Page 62: Telecommunication August2013 130926012700 Phpapp01

‘Other income’ growth in Indian banking sector (USD billion)

Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate,

CAGR is calculated in Indian rupee term

Public sector banks account for about 59 per cent of income other than from interest (‘other income’)

‘Other income’ for public sector banks has risen at a CAGR* of 5.7 per cent during FY09-12

Overall, ‘other income’ for the sector has risen at 4.5 per cent CAGR* during FY09-12

8.9

10.2 10.0 10.5

3.7 4.3 4.3

5.1

3.1 2.1

2.3 2.3

FY09 FY10 FY11 FY12

Public Banks Private Banks Foreign Banks

Page 63: Telecommunication August2013 130926012700 Phpapp01

Gross NPAs to Gross Advances (FY12)

Source: Reserve Bank of India (RBI), Aranca Research

Despite the global financial crisis, net non-performing assets (NPA) of Indian banking sector have declined over the past few years

Although net NPA levels increased to 1.28 per cent in FY12 from 0.97 per cent in FY11, it is relatively stable

Privates sector banks maintained lowest gross non-performing assets to gross advances at 2.08 per cent in FY12

NPA levels over the year

3.17%

2.08%

2.68%

Public sector banks Private sector banks Foreign banks

1.02% 1.00%

1.05%

1.12%

0.97%

1.28%

FY07 FY08 FY09 FY10 FY11 FY12

Page 64: Telecommunication August2013 130926012700 Phpapp01

Return on assets

Source: Reserve Bank of India (RBI), Aranca Research

Loan-to-Deposit ratio for banks across sectors has increased over the years

Private and foreign banks have posted high return on assets than nationalised and public banks

Loan-to-Deposit ratio

91

%

10

0%

97

%

12

8%

12

6%

79

% 1

03

%

96

%

14

3%

17

5%

89

%

88

%

88

%

15

3%

17

6%

SBI & itsassociate

Nationalisedbanks

Public banks Private banks Foreign banks

FY10 FY11 FY12

77

%

71

%

73

%

77

%

70

%

80

%

74

%

76

%

80

%

81

%

82

%

76

%

78

%

82

%

83

%

SBI & itsassociate

Nationalisedbanks

Public banks Private banks Foreign banks

FY10 FY11 FY12

Page 65: Telecommunication August2013 130926012700 Phpapp01

Market share of bank groups by deposits

Source: IBA statistics, Aranca Research

Share of public sector banks in total deposits have also declined from 78.2 per cent in FY05 to 77.5 per cent in FY12

This is largely due to the fact that private banks are rapidly capturing share in savings deposit

78.2% 77.5%

17.1% 18.2%

4.7% 4.3%

FY05 FY12

Public banks Private banks Foreign banks

Page 66: Telecommunication August2013 130926012700 Phpapp01

Improved risk management practices

• Indian banks are increasingly focusing on adopting integrated approach to risk management

• Banks have already embraced the international banking supervision accord of Basel II; interestingly, according to RBI, majority of the banks already meet capital requirements of Basel III

• Most of the banks have put in place the framework for asset-liability match, credit and derivatives risk management

Diversification of revenue stream

• Banks are laying emphasis on diversifying the source of revenue stream to protect themselves from interest rate cycle and its impact on interest income

• Focusing on increasing fee and fund based income by launching plethora of new asset management, wealth management and treasury products

Technological innovations

• Indian banks, including public sector banks are aggressively improving their technology infrastructure to enhance customer experience and gain competitive advantage

• Internet and mobile banking is gaining rapid foothold • Customer Relationship Management (CRM) and data warehousing will drive the next

wave of technology in banks

Source: Indian Bank's Association, Indian Banking sector 2020, Aranca Research

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Focus on financial inclusion

• RBI has emphasised the need to focus on spreading the reach of banking services to the un-banked population of India

• Indian banks are expanding their branch network in the rural areas to capture the new business opportunity

Derivatives and risk management products

• The increasingly dynamic business scenario and financial sophistication has increased the need for customised exotic financial products

• Banks are developing Innovative financial products and advanced risk management methods to capture the market share

Consolidation

• With entry of foreign banks competition in the Indian banking sector has intensified • Banks are increasingly looking at consolidation to derive greater benefits such as

enhanced synergy, cost take-outs from economies of scale, organisational efficiency, and diversification of risks

Source: Indian Bank's Association, Indian Banking Sector 2020, Aranca Research

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Increasing focus on Woman Banking

• Total lending by public sector banks to self-employed women touched USD43 billion in FY12 from USD31 billion in FY10

• In July 2012, RBI extended lending to individual women up to USD965 under the weaker section

Wide usability of RTGS and NEFT

• Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are being implemented by Indian banks for fund transaction

• Securities Exchange Board of India (SEBI) has included NEFT and RTGS payment system to the existing list of methods that a company can use for payment of dividend or other cash benefits to their shareholders and investors

Know Your Client

• RBI mandated the Know Your Customer (KYC) Standards, wherein all banks are required to put in place a comprehensive policy framework in order to avoid money laundering activities

• The KYC policy is now mandatory for opening an account or any making any investment such as mutual funds

Source: Indian Bank's Association, Indian Banking Sector 2020, Business India Aranca Research

Page 69: Telecommunication August2013 130926012700 Phpapp01

Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research

• In the last few years, technology is being increasingly used by Indian banks

• Banks are using technology at various levels such as, back-office processing, convergence of delivery channels, IT-enabled business process reengineering as well as communication with customers

• Indian banks currently devote around 15 per cent of total spending on technology

• Spending on technology is expected to increase at an annual rate of 14.2 per cent

• Banks in the country are set to benefit further as they move ahead in implementing additional technological advancements

• Technology has allowed banks to increase their

scale rapidly and manage increased business

and transactions volume with lesser man power

and reduced costs (at the operational level)

• Digital analytics is providing deeper insights

into customer needs and enabling banks to

offer highly targeted products and services; this

is likely to pick up pace in the coming years

• New channel-integration technologies are

enabling a more seamless end-to-end

experience for banking customers

• Offering new opportunities to engage and

interact with customers and thereby build

relationship and grow revenues; social media

has a crucial role to play in this

Increasing usage of technology

Page 70: Telecommunication August2013 130926012700 Phpapp01

Growth in ATMs

Source: IBA statistics, Aranca Research Notes: CAGR* - Compound Annual Growth Rate,

CAGR is calculated in Indian rupee term

The wide scope and ease of online banking has led to a paradigm shift from traditional branch banking to net banking

The total number of people using net banking has increased to 7 per cent in 2012

Extensions for facilities such as fund transfer, account maintenance and bill payment at ATM stations have reduced branch banking footfall

ATMs in India have increased to 1,04,500 in 2012 and are further expected to double over the next two years

The increase would take the number of ATMs per million population from the current 85 to about 170

16,750 21,509

27,088

34,789 43,651

60,153

74,743

104,500

2005 2006 2007 2008 2009 2010 2011 2012*

CAGR: 29.9%

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• Deposit of cash

• Withdrawal of cash

• Mini-statement

• Balance Inquiry

• Coupon Dispensing

• Fulfilling request from customers

• Account transfer

• Touch screen menus

• Bill payment

• Mobile recharging

1988-1994

1995-1999

2001-2004

2004-2006

2007 onwards

• Check deposit with scanning

• Customised ATMs

Source: IBA statistics, Aranca Research

Page 72: Telecommunication August2013 130926012700 Phpapp01

Notes: GDP - Gross Domestic Product, KYC - Know Your Customer, RBI - Reserve Bank of India, ATM - Automated Teller Machine

Economic and demographic drivers

Policy support Infrastructure financing Technological innovation

• Favourable demographics and rising income levels

• Strong GDP growth (CAGR of 7.0 per cent expected over 2012–17) to facilitate banking sector expansion

• The sector will benefit from structural economic stability and continued credibility of Monetary Policy

• Extension of interest subsidy to low cost home

buyers

• Simplification of KYC

norms, introduction of no-

frills accounts and Kisan

Credit Cards to increase

rural banking penetration

• RBI is considering giving

more licenses to private

sector players to

increase banking

penetration

• India currently spends 6

per cent of GDP on

infrastructure; Planning

Commission expects this

fraction to grow going

ahead

• Banking sector is

expected to finance part

of the USD1 trillion

infrastructure

investments in the 12th

Five Year Plan, opening

a huge opportunity for the

sector

• Technological innovation

will not only help to

improve products and

services but also to reach

out to the masses in cost

effective way

• Use of alternate channels

like ATM, internet and

mobile hold significant

potential in India

Page 73: Telecommunication August2013 130926012700 Phpapp01

64.9

53.9

66.9

76.4 74.8

81.0

FY08 FY09 FY10 FY11 FY12 FY13**

Growth in credit to housing finances (USD billion)

Source: Reserve Bank of India (RBI), Aranca Research Note: * CAGR - Compound Annual Growth Rate,

CAGR* - is calculated in INR terms FY13**: Data till February 2013

Rapid urbanisation, decreasing household size and easier availability of home loans has been driving demand for housing

Credit to housing sector increased at a CAGR* of 11.1 per cent during FY08–13

As of February 2013, credit to housing sector was at USD81.0 billion compared to USD76.0 billion a year ago

Demand in the low- and mid-income segments exceeds supply three- to four-fold

This has propelled demand for housing loan in the last few years

CAGR: 11.1%

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65.2

54.7

63.3

74.9 73.3

79.0

FY08 FY09 FY10 FY11 FY12 FY13**

Growth in personal finance (excluding housing)

Source: Reserve Bank of India (RBI), Aranca Research Note: *CAGR - Compound Annual Growth Rate,

CAGR* - is calculated in INR terms FY13**: Data till February 2013

Growth in disposable income has been encouraging households to raise their standard of living and boost demand for personal credit

Credit under the personal finance segment (excluding housing) rose at a CAGR of 10.8 per cent during FY08–13

Unlike some other emerging markets, credit-induced consumption is still less in India

CAGR*: 10.8%

Page 75: Telecommunication August2013 130926012700 Phpapp01

India’s working age population and GDP per capita (USD)

Source: World Bank, IMF, Aranca Research Note: E - Expected, F - Forecasted, GDP - Gross Domestic Product

Rising per capita income will lead to increase in the fraction of the Indian population that uses banking services

Population in 25-60 age group is expected to grow strongly going ahead, giving further push to the number of customers in banking sector

0

500

1,000

1,500

2,000

2,500

0

100

200

300

400

500

600

700

2001 2006 2011E 2016FPopulation (Million) GDP per capita - RHS (USD)

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Total loans: growth forecast over 2011-17 (USD billion)

Source: Reserve Bank of India, Business Monitor International Ltd (BMI), Aranca Research

Note: *CAGR - Compound Annual Growth Rate CAGR* - is calculated in INR terms

India’s GDP is forecasted to expand at a healthy CAGR* of 7.0 per cent during 2012-17 to USD2,735.7 billion

Strong GDP growth will facilitate banking sector expansion

Total banking sector credit is expected to increase at a CAGR* of 18.1 per cent to USD2.4 trillion by 2017

The sector will also benefit from economic stability and credibility of Monetary Policy 896

2,435

75

432

326

315

371

2011 2012 2013 2014F 2015F 2016F 2017F

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Loan/GDP vs. GDP per-capita in select countries

Source: World Bank Financial Access report 2010, IMF, Aranca Research

Despite healthy growth over the past few years, the Indian banking sector is relatively underpenetrated

Loans-to-GDP ratio is low (62 per cent) relative to many of its emerging markets peers as well as developed economies such as the US and UK

Estonia

Bulgaria Hungary

Czech Republic

Poland Turkey

Vietnam

India

China

Germany

UK

US

0%

50%

100%

150%

200%

250%

300%

350%

0 10,000 20,000 30,000 40,000 50,000 60,000

Total loans / GDP

Per-capita GDP (USD)

Size of the bubble represents GDP per capita

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747

839 1,065

1,626 1,661

2,063 2,022

2,182 2,403

2,923

3,969

India SouthAfrica

Brazil Poland Turkey Malaysia US Ireland Austria UK Belgium

Banking penetration (deposits/ '000 adults) in India is lower than a number of peers in Emerging countries

Advanced economies

Deposit accounts per 1,000 adults

Source: World Bank Financial Access Report 2010, IMF, Aranca Research

Limited banking penetration in India is also evident from low branch per 100,000 adults ratio

Branch per 100,000 adults in India stands at 747 compared to 1,065 for Brazil and 2,063 for Malaysia

Bank deposit accounts per 1000 adults in India stands at 953.1 compared to 1,032.7 in Brazil and 1,642.2 in Malaysia

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HDFC Bank

• Established in 1994, HDFC Bank is the second largest private sector bank in India. HDFC was amongst the first to receive an 'in principle' approval from the RBI to set up a bank in the private sector

• Divisions – Retail banking, Wholesale banking and Treasury operations

• Size – Number of branches and extensions: 3,062*

• Number of ATMs: 10,743*

• Number of employees: 66,076 as on March 31, 2012

• Total assets: USD73.5 billion*

• Recognition –

• Best Retail Bank in India (Asian Banker:2012)

• Best Performing Bank – Private (CNBC TV18:2011)

Net profit USD (millions)

Source: Company Annual Reports, Aranca Research Note: * - As on March 2013

Note: * CAGR - Compound Annual Growth Rate, CAGR*: is calculated in INR terms

FY13**: Data till February 2013

237.8

331.3 467.7

614.3

818.0

1,076.5

1,235.8

FY07 FY08 FY09 FY10 FY11 FY12 FY13

CAGR: 31.6%

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Income break-up (FY13) Advances and deposits (USD billion)

Source: Company Annual Reports, Aranca Research

10 13

21 26

33

41 44

14

21

30 35

43

51 54

FY07 FY08 FY09 FY10 FY11 FY12 FY13

Advances Deposits

70%

30% Net InterestIncome

Other Income

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147.6 264.1

452.7 485.4

753.0

936.4

998.0

FY07 FY08 FY09 FY10 FY11 FY12 FY13

Axis Bank

• Established in 1994, Axis Bank is the third largest private sector bank in India. The bank is capitalised to the extent of USD86.0 million with the public holding at 54.1 per cent as on 31st March, 2012

• Divisions – Treasury, retail banking, corporate/wholesale banking and other banking business

• Size – Number of branches and extensions: 1,947*

• Number of ATMs: 11,245*

• Number of employees : 31,738 as on March 31,2012

• Total assets: USD63 billion*

• Recognition –

• Most Productive Private Sector Bank award (FIBAC:2011)

• 3rd strongest bank in Asia Pacific region (Asian Banker: 2011)

Net profit USD (Millions)

Source: Company Annual Reports, Aranca Research Note: FIBAC - FICCI and Indian Banks’ Association Conference

* - As on December 2012

CAGR: 37.5%

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Income break-up (FY13) Advances and deposits (USD billion)

Source: Company Annual Reports, Aranca Research

60%

34%

6%

Net Interest income

Fee Income

Other Income

8

12 17

22

30

35

46

12

18

24

29

39

46

36

FY07 FY08 FY09 FY10 FY11 FY12 FY13

Advances Deposits

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1.6

2.2

2.4 2.5 2.3

3.2

2.0

FY07 FY08 FY09 FY10 FY11 FY12 9M '13

State Bank of India

• Established in 1955, State Bank of India is the largest public sector bank in India. The bank is capitalised to the extent of USD129.3 million with the government holding of 62.31 per cent as on May 2013

• Divisions – Treasury, retail banking, corporate/wholesale banking and other banking businesses

• Size – Number of branches and extensions : 15,003**

• Number of ATMs : 61,500*

• Total Assets: USD257.3 billion*

• Recognition –

• SBI ranked 29th amongst the most reputed company in the world in 2009 rankings

Net profit (USD billions)

Source: Company Annual Reports, moneycontrol.com, Forbes, Aranca Research

Note: *CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms

** - As on December 2012

CAGR: 15.1%

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Income break-up (9M ‘13) Advances and deposits (USD billion)

Source: Company Annual Reports, Aranca Research

89%

11%

Net Interest Income

Other Income

112

151 148

192

224 231

160 142

188 195

242 276 273

184

FY07 FY08 FY09 FY10 FY11 FY12 9M'13

Advances Deposits

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Source: Company Annual Reports, Aranca Research

The RBI has aimed to provide banking services through a banking branch in every village having a population of more than 2000

Financial inclusion has permitted banks to utilise the services of non-governmental organisations (NGOs), micro-finance institutions (other than Non-Banking Financial Companies) and other civil society organisations as intermediaries in providing financial and banking services to all sections of the society, mainly the weaker sections and lower income groups

The Financial Inclusion Plan (2010–13) has increased the penetration of banking services in rural areas

Banking connectivity

Business Correspondents

Basic Savings Bank Deposit Accounts

(BSBDA)

Kissan Credit Cards and General Credit Cards

outstanding

• Increased more than threefold from 67,694 villages, at the beginning of the plan period, to 211,234 by December 2012

• Numbers of Business Correspondents have increased from 34,532 in March 2010 to

152,328 in December 2012

• Total number of BSBDA have gone up from 73.45 million in 2010 to 171.43 million by 2012

• Kissan Credit Cards outstanding have gone up from 24.3 million in 2010 to 31.7 million by

2012, while General Credit Cards outstanding have gone up from 1.4 million to 3.1 million

during the same period

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GDP of agriculture, forestry & fishing sector, at current prices (USD Billion)

Source: McKinsey estimates, Aranca Research Notes: CAGR – Compounded Annual Growth Rate, QE – Quick Estimate, RE – Revised Estimate

The real annual disposable household income in rural India is forecasted to grow at CAGR of 3.6 per cent over the next 15 years

The Indian agriculture, forestry & fishing sector has grown at a fast pace, clocking a CAGR of 14.2 per cent over the past seven years

Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector

Real disposable household income in rural India (USD)

133 151

174 194

225

265

295

FY06 FY07 FY08 FY09 FY10 FY11QE

FY12RE

1,875 2,167

2,667

3,229

2010 2015 2020 2025

CAGR: 14.2% CAGR: 3.6%

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Banking penetration in rural India picking pace

• Of the 600,000 village habitations in India only 5 per cent have a commercial bank branch

• Only 40 per cent of the adult population has bank accounts

• Debit card holders constitute only 13 per cent of the population and only 2 per cent have a credit card

• 51.4 per cent of nearly 89.3 million farm households do not have access to any credit either from institutional or non-institutional sources

• Only 13 per cent of farm households are availing loans from the banks in the income bracket of < USD1000

Soaring rural teledensity opens avenue of mobile banking

Source: TRAI, Aranca Research Note: * Indicates as on February 2013

Agriculture requires timely credit to enable smooth functioning. However, only one-eighth of farm households avail bank credit

Local money-lending practices involve interest rates well above 30 per cent, therefore making bank credit a compelling alternative

Tele-density in rural India soared to nearly 40.8 per cent in February 2013 from less than 1 per cent in 2007

Banks, telecom providers and RBI are making efforts to make inroads into the un-banked rural India through mobile banking solutions

0.4 9.2

15.2

24.3

37.5 39.9

40.8

2007 2008 2009 2010 2011 2012 2013*

Rural Teledensity

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Evolution of mobile banking

• Mobile banking allows customers to avail banking services on the move through their mobile phones. The growth of mobile banking could impact the banking sector significantly

• Mobile banking across the world is still at a primitive stage with countries like China, India and UAE taking the lead

• Mobile banking is especially critical for countries like India, as it promises to provide an opportunity to provide banking facilities to a previously under-banked market

• RBI has taken several steps to enable mobile payments, which forms an important part of mobile banking; the central bank has recently removed the transaction limit of INR50,000 and allowed banks to set their own limits

• Mobile banking transactions in India will cross 340 million by 2015 and would result in cost savings of approximately INR11 billion (USD230 million)

Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research

Mobile commerce

Payment of bills

Mobile banking (fund transfers,

etc.)

Mobile recharge

Mobile remittances

Page 89: Telecommunication August2013 130926012700 Phpapp01

Indian Banks' Association

World Trade Centre, 6th Floor

Centre 1 Building,

World Trade Centre Complex,

Cuff Parade, Mumbai - 400 005

India E-mail: [email protected]

Page 90: Telecommunication August2013 130926012700 Phpapp01

ATM: Automated Teller Machines

CAGR: Compound Annual Growth Rate

FY: Indian financial year (April to March)

GDP: Gross Domestic Product

INR: Indian rupee

KYC: Know Your Customer

NIM: Net interest margin

NPA: Non-performing assets

RBI: Reserve Bank of India

USD: US Dollar

Wherever applicable, numbers have been rounded off to the nearest whole number

Page 91: Telecommunication August2013 130926012700 Phpapp01

Year INR equivalent of one USD

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 USD

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

Page 92: Telecommunication August2013 130926012700 Phpapp01

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.

Page 93: Telecommunication August2013 130926012700 Phpapp01
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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

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• 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

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• 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

Page 98: Telecommunication August2013 130926012700 Phpapp01

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

Page 99: Telecommunication August2013 130926012700 Phpapp01

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

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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

Page 101: Telecommunication August2013 130926012700 Phpapp01

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 productsand engg. Services

CAGR: 13.1%

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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

BF

SI

T &

M

Ma

nu

factu

rin

g

Reta

il

He

alth

care

T &

T

C &

U

FY12 FY13

41%

18%

16%

10%

5% 3%

3%

BFSI

T & M

Manufacturing

Retail

Healthcare

T & T

C & U

Page 103: Telecommunication August2013 130926012700 Phpapp01

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 ContinentalEurope

APAC ROW

FY12 FY13

62%

17%

11%

8% 2%

US

UK

Continental Europe

APAC

ROW

Page 104: Telecommunication August2013 130926012700 Phpapp01

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

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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

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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

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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

Page 108: Telecommunication August2013 130926012700 Phpapp01

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

Page 109: Telecommunication August2013 130926012700 Phpapp01

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

Page 110: Telecommunication August2013 130926012700 Phpapp01

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

Page 111: Telecommunication August2013 130926012700 Phpapp01

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 5.5 C

AD

M

ER

&D

IT c

onsu

ltin

g

IS s

ou

rcin

g

Kn

ow

led

ge

serv

ice

s

So

ftw

are

test

ing

FY13E FY16F

Core segments Emerging segments 17%

10%

19%

20% 20%

21%

Page 112: Telecommunication August2013 130926012700 Phpapp01

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

Page 113: Telecommunication August2013 130926012700 Phpapp01

Source: Nasscom, Aranca Research

Training expenditure by Indian IT-BPO sector About 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 inhousetraining staff

External training (newrecruits)

External training (existingemployees)

Recruitment cost

Employee welfare

Other costs

Page 114: Telecommunication August2013 130926012700 Phpapp01

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

Page 115: Telecommunication August2013 130926012700 Phpapp01

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

Page 116: Telecommunication August2013 130926012700 Phpapp01

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

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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

Page 118: Telecommunication August2013 130926012700 Phpapp01

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

Page 119: Telecommunication August2013 130926012700 Phpapp01

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

Page 120: Telecommunication August2013 130926012700 Phpapp01

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

Page 121: Telecommunication August2013 130926012700 Phpapp01

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

Page 122: Telecommunication August2013 130926012700 Phpapp01

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 growth Emerging 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

CA

GR

till

20

20

Market size USD billion

Page 123: Telecommunication August2013 130926012700 Phpapp01

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

Page 124: Telecommunication August2013 130926012700 Phpapp01

Source: TCS website and Annual Report, Aranca Research

Segment-wise revenue breakdown (FY13)

66% 5%

12%

3%

3%

13%

IT solutions andservices

Engineering andindustrial services

Infrastructureservices

Global consulting

Asset leveragesolutions

Business processoutsourcing

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

Page 125: Telecommunication August2013 130926012700 Phpapp01

Source: TCS website and Annual Report, Aranca Research

Number of customers Financial 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

USD1million+

USD5million+

USD10million+

USD20million+

USD50million+

USD100million+

FY5 FY11 FY12 FY13

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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

Page 127: Telecommunication August2013 130926012700 Phpapp01

Source: HCL Technologies website and Annual Report, Aranca Research

Segment-wise revenue breakdown (FY13)

32%

24%

20%

19%

5% Custom applicationservices

Infrastructure services

Enterprise applicationservices

Engineering & R&Dservices

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

Page 128: Telecommunication August2013 130926012700 Phpapp01

Source: HCL Technologies website and Annual Report, Aranca Research

Number of customers Financial 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

USD1million+

USD5million+

USD10million+

USD20million+

USD30million+

USD40million+

USD50million+

31-Mar-12 31-Mar-13

Page 129: Telecommunication August2013 130926012700 Phpapp01

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

Page 130: Telecommunication August2013 130926012700 Phpapp01

Source: Infosys website and Annual Report, Aranca Research

Segment-wise revenue breakdown (FY13)

34%

22%

20%

24%

Financial services &Insurance

Manufacturing

Energy utilities,Communication andServices

Retail, Consumerpackaged goods,Logistics and LifeSciences

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

Page 131: Telecommunication August2013 130926012700 Phpapp01

Number of customers Financial 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

USD1million+

USD5million+

USD10million+

USD20million+

USD50million+

USD100million+

2012 2013

Source: Infosys website and Annual Report, Aranca Research

Page 132: Telecommunication August2013 130926012700 Phpapp01

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

Page 133: Telecommunication August2013 130926012700 Phpapp01

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: [email protected]

Page 134: Telecommunication August2013 130926012700 Phpapp01

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

Page 135: Telecommunication August2013 130926012700 Phpapp01

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

Page 136: Telecommunication August2013 130926012700 Phpapp01

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

Page 137: Telecommunication August2013 130926012700 Phpapp01

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