Indian IT Software and Services – FY10

Performance and Future Trends

New Delhi, 4th February 2010
What we need to cover today

• Industry Performance – Snapshot of FY10

• FY11 Outlook

• NASSCOM Focus Areas for 2010

We entered 2009 amidst speculation and
uncertainty

• How will the Indian IT-BPO industry weather the

storm?

• How will the industry remain competitive in this

scenario?

• What will happen to our core markets?

• What would be the new areas for growth?
However, Industry exhibits strength
due to strong fundamentals and ability to re-engineer
Indian IT-BPO sector-Export * revenues (USD
billion)

49.7 •India continues to take centre stage in

5.5% – 51% of total sourcing market
47.1
• Industry accounts for 25% of India’s
10.0 exports; 10.5% of services revenues
9.6
• Over 900 captives in India
12.4
accounting for USD 10.6 billion; 650+
11.7 are Engineering design
•Engineering design services and
Product Development clocking USD
10 billion
25.8 27.3 •Transformation, new business
models, driving organization wide
efficiencies

FY09 FY10E
IT Services BPO S/W prod and Engg

Source: NASSCOM Strategic Review 2010

* Excluding Hardware
Domestic Market is at an inflection point-
healthy growth of 12% in FY10
Indian IT-BPO Domestic revenues* (INR billion)

662
590 12% •60+ Large transformational deals in
131 telecom, Retail, BFSI, e-governance
123 •BPO continues to be the fastest
108 growing segment at 22%
89 •IT services to grow by 12%
•Government IT spend estimated at INR
150 billion in 2009
•USD 9 billion business opportunity in e-
423 Governance over next 3 years
378

FY09 FY10E

IT Services BPO S/W products

* Excluding Hardware
Source: NASSCOM Strategic Review 2010
The Industry added 90,000 jobs in FY10
Direct Employment (‘000), FY09-FY10

• Industry directly employs nearly 2.3

4%
2,200 2,290 mn professionals
• Greater efficiencies at play – 4%
500 525 employee growth for 5.5% revenue
growth in exports and 12% in
domestic
738 768
• 70%+ workforce within 18-30 yrs
• Rapidly expanding into Tier 2 / Tier
3 cities – currently operating out of
958 993 45+ locations
• 58% employee workforce
originating from tier 2/3 cities
FY09 FY10E
IT Services exports BPO exports
IT-BPO Domestic

Source: NASSCOM Strategic Review 2010

Core themes for FY10 – Diversification
across new verticals/geographies, service
lines, global delivery platform…
USD Bn USD Bn
CAGR:
CAGR:
21.3%
39%

New 8.3
New
service 4.3 4.7
verticals
lines 1.6
FY2007 FY2010E
FY2007 FY2010E
RIM Retail+Healthcare+Utilities

No. of
USD Bn
CAGR: CAGR: centers
20.3% 15%

New Global
markets 4.7 Delivery 340 450
2.7
Centers

FY2007 FY2010E FY2007 FY2009

Asia Pacific & RoW Global Delivery Centers

RIM: Remote Infrastructure Management

Source: NASSCOM Strategic Review 2010
…Achieving greater efficiencies and flexibility
to retain competitiveness and value creation… INDICATIVE
Average utilization rates, Dec07-Dec09 Attrition Rates, Dec07- Dec09

74.2% 15.0%
70.8% 12.9% 11.8%
68.7%

Dec 07 Dec 08 Dec 09

Dec-07 Dec-08 Dec-09

Utilization rates up by 6%- increased use Attrition levels down by 3%- lower
of existing bench strength recruitment and training costs

Onsite as a % of total revenues, Dec07- Dec09 SG&A, Dec07-Dec09

48.4%
20.3%
45.3% 44.9% 18.7%
17.4%

Dec 07 Dec 08 Dec 09

Dec 07 Dec 08 Dec 09

Shift of onsite personnel to offshore - SG&A expenses reduced by 3%

Reengineering delivery models, reduce costs

Source: Annual reports/Quarterly reports; NASSCOM Strategic Review 2010

Data for companies comprising 40% of industry revenues
…Transforming the way we operate and
way we impact client’s business
Industry measures
• Investing in sales teams to target new
markets
• New pricing models
• Building strong understanding of client
domains; vertical and process specific
business knowledge
• Investing in in-house training
centres/research labs; Reinvestment in IP
creation
• Leveraging alternative talent
streams/locations to provide low cost
products/services
• Leveraging disruptive technologies -
“Everything as a Service” delivery model;
Platform solutions
Customer Impact
•Risk sharing with the service
provider
•Moving from Capex to Opex
mode
•Access to service delivery
excellence through platform
and cloud solutions
•Market facing innovation for
emerging markets from R&D
centers in India
•Reengineered processes
optimizing operations
Going forward, rebound expected in
Worldwide IT – BPO spend
Worldwide IT spending Growth (%) Worldwide BPO spending Growth (%)

5.6% 12.5%
5.1% 5.5%
7.4%
3.3% 7.0%
3.1% 7.3% 5.9%

2.4%

2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012

December 2009 Forecast

-3.3%
December 2009 Forecast

IT indices, contracted in 2009, showing signs of stabilization, and even some

modest, early signs of recovery in latter part of 2009; Positive 2010 forecasts

Source: IDC
FY11 Outlook: Software and services
export revenues to grow by 13-15%...
Indian IT-BPO sector-Export revenues* (USD
billion) • FY11 software and services growth
forecast 13-15% (USD)
Growth of 13-15%
• Core markets back to previous levels;
56-57 tremendous headroom for growth in core
49.7 and emerging markets
47.1
• Globalization driving global sourcing
models to remain competitive and
leverage global talent, capital pools
• Offerings around cloud computing,
SaaS, platforms - address new customer
segments
• RIM and BPO – growth drivers

FY09 FY10E FY11P

Source: NASSCOM Strategic Review 2010

* Excluding Hardware
FY11 Outlook: Software and services
domestic revenues to grow by 15-17%...
Indian IT-BPO sector-Domestic revenues*
(Rs billion)
•FY11 software and services growth
Growth of 15-17% forecast 15-17% (INR)

761-775
•Fastest growing market in the APAC
region in terms of IT spending
662
590
•Greater IT adoption in retail,
healthcare, telecom, BFSI
•SaaS based solutions for the untapped
Indian SMB segment (IT spend at over
INR 300 billion in 2009)

FY09 FY10E FY11P

* Excluding Hardware
Source: NASSCOM Strategic Review 2010
However, the industry has been
challenged on multiple fronts

• Issues of Protectionism and Visas

• Cost competitiveness, currency fluctuations,
inflation

• Increasing Geo-political risk

• Business environment concerns – bandhs,
taxation (service tax, transfer pricing)

Concerted effort required by all stakeholders

– Industry, NASSCOM, Government
Key Focus Areas for NASSCOM in 2010

• Targeting new growth engines - enhance and grow opportunities in the

domestic market, penetrate new geographies and verticals

• Collaborate with the government to drive Inclusive Growth Agenda through

ICT solutions

• Engaging with international governments to address protectionist sentiments

• Enabling policy framework for simplification of regulatory and legal regime

• Nurturing India’s demographic dividend by building capacity and enhance

employability

• Positioning and differentiating “India” as a strategic hub for service delivery

 15

To Summarize – Sustaining growth

with positive outlook
• The economic environment will take another 2 to 3
quarters to stabilize
• Timing and strength of the recovery varies across
regions, with Asia leading the way, the US following
and Europe lagging behind
• Crisis viewed as an opportunity - Industry still
growing strongly due to strong fundamentals and
its ability to reengineer
• Past 18 months spent on becoming leaner and
productive - efficiencies gained would not be lost!
• Growth in global outsourcing enabler for cost
efficiencies
• Industry will be net hirer, continue to create
employment opportunities