it bpm industry insights dec 2013 final

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Research & Intelligence

QUARTERLY INDUSTRY REVIEWDECEMBER 2013



Copyright ©2013

NASSCOM ®

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E-mail: [email protected]



Report Coverage

SECTIONS COVERAGE

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

• Analysis of Indian IT-BPM industry performance during the quarter.

The analysis is based on the results declared by the top 151 India-

centric IT-BPM companies which comprise about 40-45% of the

industry

• Analysis of results of key MNC IT-BPM industry players.

• Policy changes, industry news and happenings, analyst speak

• Key developments among the top companies covering transaction

activity, M&A announced, Alliances and partnerships signed, Changes in

delivery footprint

ECONOMY WATCH

INTERNATIONAL

SECTION

SUPPLIER

OVERVIEW

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

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

INDUSTRY

PERFORMANCE



SECTION IMPACT COMMENTS

Economy

Watch

• Global macro-economic environment look sluggish while near term outlook

remains positive

India

Technology

Indicators

• Mobile subscriptions, Internet Users, PC install base, and Broadband subscribers

in India continue to grow substantially indicating the growing influence of

technology

Industry

Performance • For the sample set, revenue growth of 4.4% in Q2FY2014; Y-o-Y growth 14.3% as

demand environment improved

• Margins slightly affected due to compensation, and other overhead costs andcurrency fluctuations

• Nearly 3X net employee addition since last quarter (growth of 1.8% compared to

0.7% last quarter)- attrition rises slightly though not a concern area

• Industry able to mine existing clients well- strong realization per client aiding

higher revenue growth. New client additions has improved considerably

• Revenue Drivers-

• Major verticals (BFSI, Manufacturing), major geographies (USA & Europe),

major segments (RIM, testing & BPM)- the main growth drivers with

significant rise in new deals and projects signed

Global

Landscape • Revenue growth remained weaker due to turbulent economic scenario

• Employee hiring remains steady reflecting promising outlook

• Emerging markets is the major growth driver for Global firms

Supplier

Overview

• Global TCV market shows signs of improvement; an upswing in large size contract

deals

• Companies expanding their footprint by setting up centers in Tier-II /tier-III andonshore locations

SUMMARY



INDIA TECHNOLOGY INDICATORS

906.62

867.8 870.6

2012(Sep)

2013(Mar)

2013(Sep)

15.115.1

15.4

2012(Sep)

2013(Mar)

2013(Sep)

21.0

23.0

21.6

2011(Mar)

2012(Mar)

2013(Mar)

TELEPHONE SUBSCRIBERS MOBILE SUBSCRIBERS

BROADBAND SUBSCRIBERS INTERNET SUBSCRIBERS1

1: Data excludes internet access by mobile subscribers. As of March 2013 the total internet subscribers including mobile was 164.81 million

Source: TRAI

million million

million million

937.7

898.0 899.9

2012(Sep)

2013(Mar)

2013(Sep)



Global macro environment remains cautious- volatilityand unpredictability continues in spending decisions

OUTLOOK-GLOBAL

Revised IT Spending growth for 2013Revised GDP growth rates for 2013

3.1%

5.6%

2.9%

3.8%

World India

As of July-13 As of Oct-13

Source: Gartner, IDC, IMF, NASSCOM

• The World economic outlook continues to remain cautious over the past three months- GDP growth rates

continue to decline in 2013

• Economic uncertainty and fluctuating currencies has contributed to volatile IT spending patterns, leading to

cut in IT spending forecasts for 2013

2.0%

4.9%

0.8%

4.0%

Gartner IDC

As of June-13 As of Sep-13



7

Q2FY2014 revenue grew by 4.4%, up by 0.9% as compared to Q2FY2013, as demand environment

improved. Y-o-Y it grew at 14.3%, despite a volatile and cautious global economic environment

Margins slightly affected as wage hikes and currency volatility continues this quarter

Discretionary spending improving with signs of demand pick up in key markets like US and Europe

Core verticals (BFSI, Manufacturing), Core markets (USA and Europe), and major segments (RIM, Testing

and BPM) grew significantly during the quarter with rise in new deals and projects signed

INDUSTRY PERFORMANCE

IT-BPM REVENUE GROWTH

Revenue momentum increasing


3.5%3.6%

2.3%

3.3%

4.4%

Sep-12 Dec-12 Mar-13 June-13 Sep-13

Rev Growth

Done

IT-BPM NET PROFIT MARGINS

55.154.2 54.2

55.9

62.1

20.2%

19.5%

20.3%

19.8%

19.5%

Sep-12 Dec-12 Mar-13 Jun-13 Sep-13

INR/USD Rate NPM-Overall

Source: NASSCOM



Employee growth of 1.8 per cent Q-o-Q; and ~6.6 per cent Y-o-Y. Nearly 3X net employee addition sincelast quarter Q1FY2014

Revenue per employee increases by 2.6 per cent Q-o-Q, indicating increasing trend towards non-linear

growth

Hiring momentum has picked up this quarter indicates growing ‘Just-in-Time’ hiring

Marginal increase in attrition; however, not a big concern

IT-BPM NET HIRING ATTRITION


3X headcount growth compared to Q1FY14;

slight increase in attrition

14.0% 13.8% 13.9% 14.3% 15.0%

36.0% 37.1%

33.2%35.3% 35.7%


IT Services BPM

31

17 19

6

17

3.6%

1.9%2.0%

0.7%

1.8%


Net Hiring Change in Total Employee Base‘000 Numbers

Source: NASSCOM



9

Fixed price contracts highest in the last 3 years, aiding companies to limit headline price cuts , as providersre-engineer and adopt innovative pricing models

Record gross client additions in the last one year, growth of 7% Y-o-Y

Industry able to mine existing clients well- strong realization per client aiding higher revenue growth

Revenue per client up by 2% Q-o-Q, 4% Y-o-Y


REVENUES FROM FIXED PRICE CONTRACTS

44.6%

45.7%

46.3%

45.7%

46.4%


CLIENT DETAILS

Note: The set includes only IT Service companies

* Number of active clients doesn’t include TCS

Industry able to add new clients and mine existing

ones; fixed price contracts on an upswing

Numbers

2,118

2,205

2,224 2,223

2,260

100 100 100

102

104

97

99

101

103

105

2,000

2,100

2,200

2,300


Number of Active clientsRevenue/Client (Indexed to Sep-12=100)

Source: NASSCOM



Employee utilization including trainees on a Q-o-Q basis picking up marginally, but still significant

headroom for growth

Onsite effort remain stable as industry expends significant efforts to hire locally


CAPACITY UTILIZATION ONSITE-OFFSHORE EFFORT MIX

Note: The set includes only IT Service companies

Utilization picking up marginally, however, onsite

employee mix remain unchanged

72.4% 72.3% 72.3% 72.4% 72.5%

76.6%76.2% 76.1%

76.8% 76.6%

ep-12 Dec-12 Mar-13 Jun-13 Sep-13

Incl Trainees Excl trainees

21.5% 21.6% 21.8% 22.2% 22.2%

78.5% 78.4% 78.2% 77.8% 77.8%


ONSITE EFFORT % OFFSHORE EFFORT %

Source: NASSCOM



INTERNATIONAL SECTION

While scenario for global firms looks adverse,

employee addition promises good outlookREVENUES TOTAL EMPLOYEES

Note: Revenues Includes IBM, Accenture, Capgemini, Atos Origin & Steria; Employees exclude IBM

Revenue growth declined for this quarter as compared to the previous one, however, a recorded growth on

a yearly basis (11.1% Y-on-Y)

BFSI showed a slight uptick while telecom continued its decline. Emerging sectors and Public sector were

the growth drivers for most of the global companies

Consulting growth continues to be a dampener, while Outsourcing growth hits a soft patch, but expected

to remain positive as weaker economic environments would drive more cost-driven projects

Employee additions improved during the quarter, though over 50 per cent addition in offshore locations

USD billion

15.9%

2.2%-4.7%

1.4%

33.8

39.237.4

Mar-13 Jun-13 Sep-13

483490

501


Source: NASSCOM



SUPPLIER OVERVIEW

QUARTERLY MOVEMENTS OF GLOBAL DEALS DISTRIBUTION OF CONTRACTS AWARDED

Global TCV market shows the signs of improvement on a Q-o-Q basis; over 50 percent increase in total value

of deals as compared to 3Q12

Government, Banking & Financial Services, Pharma & Healthcare and Retail exhibited > 25 percent growth in

terms of value over 2Q13 while all the other sectors have shown a decrease

Longer tenure deals (deals more than 5-years) contributed to more than 90 percent of the deal value unlike the

previous quarter with almost equal value of deals between 1 to 5-years and deals more than 5 years

New scope deals and large deals TCV offers a better outlook across all regions

Source: KPMG Deal Analysis

TCV USD billion

Global ACV markets shows signs of improvement

20.3

43.9

53.3

299

426 422


Deal size Number of deals

32747.5

864.7

9 1.2

Split of number of deals Split of deal value

ITO Deals BPO Deals Bundled



Average tenure per contract is on rise; industry

growing towards large size contracts

SUPPLIER OVERVIEW

Annualized* contract value comparison per quarter

Total annualized contract value has increased by more than 50 percent as compared to 3Q12, indicating

steady growth in market activity

Average deal tenure has increased by 5 months as compared to last year indicating revival in large deal

contracts




~ 65 percent deals originated from USA followed by

Europe; Italy, Australia among the other key outsourcers

SUPPLIER OVERVIEW

DEALS BY GEAPGRAPHY

AMERICAS continues to be the major outsourcing region and the value of deals has nearly doubled in the

as compared to 3Q12 with only a 15 percent increase in deal numbers

EMA has also shown a growth of 16 percent in deal value as compared to 3Q12. However, ASPAC has

shown a decrease of 44 percent during the same period




Buyer Seller Value Services/Vertical

SQS Software SystemsAG, Germany

Thinksoft Global Services Ltd,India

INR 148.1 crores Financial software testing firm

Oracle, US Bitzer Mobile, India Not disclosed Mobile solutions firm

Apax Partners, US GlobalLogic, India INR 2,578 crores IT outsourcing firm

Cognizant Technology

Solutions

Equinox Consulting, France Not disclosed Business consulting services across

investment banking, asset

management, retail banking,

insurance, and specialized financial

services

Parallax Capital Partners,

US

Iden Trust Inc. USA (US arm of

Polaris Financial Technology)

Not disclosed IdenTrust offers trusted identity

solutions to global financialinstitutions, government agencies

and corporations

Thomson Reuters Omnesys Technologies, India Not disclosed Provider of sell-side order

management systems (OMS) and

high frequency trading solutions for

Indian exchange traded

instruments

Mergers & Acquisitions

SUPPLIER OVERVIEW

Illustrative

Source: Compiled from news articles



New Delivery Centers and Employee additions

announced during the quarter

SUPPLIER OVERVIEW

Illustrative


Company Employee

Additions

during the

year

Location

E-infochips 600 India

Dassault

Systems

600 India

Infosys, India 8,000 Pune

Persistent

Systems

600 Nagpur &

Pune

Aegis 3,000 India

Company Expansion

location

Details

Infosys, India Eindhoven,

Netherlands

Leverage the new BPO center

to deliver critical business

processes such as finance &

accounting and other high

value services for its global

clients, provide end-to-end

outsourcing services in Dutch,

English, French & German

Axtria Inc, USA Gurgaon,

India

The new facility will house

Axtria’s new product

innovation lab and will focus

on research into upcoming

trends including bid data,

machine learning, and

decision sciences

CSS Corp, India Costa Rica Focus on projects in software

development, network and

application support to

enterprises

SAP Labs,India

Bangalore,India

The new facility is expectedto be operational in 2016

EMPLOYEE ADDITIONS DELIVERY CENTERS



List of Outsourcing Deals During the Quarter

Buyer Supplier Deal

Value

Contract

Duration

Services Remarks

Perpetual, Australia Tech Mahindra,

India

Not

disclosed

Not

disclosed

IT Services Secured an outsourcing deal

from Australian financial

services firm Perpetual to

provide registry services

(technology support for several

superannuation and pension

products)

Etisalat, UAE Tech Mahindra,

India

Not

disclosed

Not

disclosed

IT Services End-to-end ICT and technology

services to Etisalat clients

Aero Intelligence,

US

Ramco Systems,

India

USD 125

million

Multi-year IT Service Cloud-based aviation software

services to the Aero’s clients

Corporation Bank,

India

HP, India INR 400

crores

7 years BPM Switching and managing the

bank's core-banking software

SUPPLIER OVERVIEW

Illustrative




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Check ou r latest Research Newsletter NASSCOM Research Newsletter-November 2013

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UPCOMING REPORTS

Reports Released in the Last Quarter

India – A Hub for

Analytics Products:

Analytics Product

Excellence Matrix

Engineering

analytics: Mining

insights from

machine data

Indian SMEs: Building

Sustainable Business

Models Around Next

Gen Solutions

Managing in a Multi-

generational Workplace: A

study to determine the

competencies at play

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http://www.nasscom.in/sites/default/files/uploads/mailers/2013/Research_Newsletters/August/

http://www.nasscom.in/six-converging-technology-trends-driving-tectonic-shift-businessconsumer-ecosystem




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