Indian Domestic BPO Market Jan 2008

Indian Domestic BPO Market – An Emerging
Opportunity
January 2008
Key Findings
Indian Domestic BPO is USD 1.8Bn industry in FY2008* and is expected to grow at a CAGR of 35% for the next 4
years, becoming a USD 6Bn industry in FY2012
Historically a captive market, outsourcing began in full earnest between 2003-08, with most 3rd party vendors growing
at over 100% to capture a 18% share of the overall market in FY2008
With the emergence of several large, proven and well-capitalized vendors, outsourcing will continue its momentum. It is
expected that 3rd party vendors’ market share will increase to 30% in FY2012
Oligopolistic market str

structure ithin the 3rd party
ct re within part vendor
endor landscape;
landscape top 12 pla
players
ers acco
account
nt for 75% of the third part
party
domestic BPO revenues in FY2008
Customer care and Sales and Marketing are the two largest business segments and accounts for over 78% of the
overall market in FY2008
Banking, Insurance and Telecom are the key industry verticals and account for 68% of the overall market in FY2008;
Retail and Media and Entertainment are the emerging verticals
Because of the attractiveness of the market, many Global BPOs are entering this space, both organically and through
acquisitions
i iti
We expect rapid consolidation in this industry with 8-10 large players emerging as distinct market leaders over the next
18-24 months
*FY follows April-March cycle
Private & Confidential

Rapid growth of Indian economy over the last few years has resulted in increased
consumption…
GROWTH OF INDIA’S GDP (USD BN)
India’s growth has accelerated progressively since 1960s. From the ‘Hindu
Rate of Growth’ of 3.5% up to 1980, growth accelerated to 6% following the 9.0% 9.4%
8.5%
reforms in 1980s and early 90s
7.5% 1,031
Over the past four years, the GDP growth performance has been even more 892
impressive, averaging 8.5% per year; and over the last fiscal it was 9.4%, 782
the fastest rate in 18 years 691
615
In 2006, India became the 12th largest economy at current exchange rates
and 3rd largest in purchasing power parity terms 3.8%
It is now widely believed that India’s growth acceleration is more structural

than cyclical, with an investment boom and high productivity enhancing the
economy’s productivity. Consequently India is projected to enjoy sustainable
growth th rate
t off 8-9%
8 9% till 2020
2020. FY03 FY04 FY05 FY06 FY07
GDP at Market Prices Real GDP Growth Rate

Economic growth has brought about a spurt in per capita GDP, resulting in a
rapidly growing middle class. Per Capita GDP increased at a CAGR of 8.6% Source: Ministry of Statistics and Programme Implementation
between FY04 to FY07.

DRIVERS OF CONSUMPTION GROWTH IN INDIA (USD BN)
A recent study by McKinsey Global Institute states that India will witness 48 1,738
209
rapid
p g growth of its middle class – households with disposable
p incomes from
1 058
1,058
USD 5,000 – 50,000 a year. That class, which now comprises of about 50Mn
people (~5% of population) will enlarge to about 583Mn people (~41% of
population) by 2025.
Rising incomes, the creation of a massive middle class and growing
population will propel India to become the 5th largest consumer market by 422
2025. Consumption
p will increase at an aggregate
gg g rate of 7.3 p
percent
annually over the next 20 years to reach nearly USD 1.7 Trillion
Private Disposable Growth in Changes in Private

Source: The McKinsey Quarterly, Lehman Brothers Report titled ‘India: consumption Income no. of savings consumption
2005 Growth households 2025
Everything To Play For’, Goldman Sachs BRIC Report
Note: Contribution to
overall 80% 16%
6% 4%
%
1 A uniform
1. if exchange
h rate
t off 40 INR tto a USD h
has b
been used
d ffor allll consumption
years growth
2. Financial year is March ending Source: McKinsey Global Institute, “The Bird of Gold – The Rise of India’s Consumer Market

…fueling the growth of Indian domestic economy
BANKING INSURANCE
RISE OF CONSUMERISM IN INDIA
The shape of the income pyramid will undergo significant change

674.0 99.0 in the next 20 years. A McKinsey study divides the Indian
88.4
540.0
76.0 households in five economic classes based on real annual
459.0 70.4
390.0
disposable income.
income
NO. OF HOUSEHOLDS BY ANNUAL INCOME BRACKET (Mn)

FY04 FY05 FY06 FY07E FY04 FY05 FY06 FY07E
Bank Deposits (USD Bn) No. of Life Insurance Policies Issued (Mn) Globals (>INR 1000K) 1.2 9.5
2.4 33.1
TELECOM REAL ESTATE Strivers (INR 500
500-1000K)
1000K)
10.9 94.9
Seekers (INR 200-500K)
166.0
38 91.3 93.1
Aspirers (INR 90-200K)
31
Deprived (<INR 90K) 101.1 49.9
25
90.1
19 2005 2025
52.2
22
33.6 Key changes in consumption pattern
FY04 FY05 FY06 FY07 FY04 FY05 FY06 FY07
Discretionary spend will rise from 52% to 70% of total private
No. of Mobile Subscribers… Real Estate Addition by IT Sector… consumption by 2025
Food will show the highest decline while spends on
RETAIL AVIATION health, education, transportation and communication will soar
Impact on business
16.0 35.0
As consumer income rises, they become more discerning.
12.0 Product Differentiation and Quality of Service will become
25.2
critical success factors.
9.0 19.4
7.0 15.7 Customer support, CRM, Loyalty Marketing and Marketing
Analytics
y will gain
g p
prominence as key
y business enablers
FY04 FY05 FY06 FY07 FY04 FY05 FY06 FY07
Size of Organized Retail Industry (USD Bn) No. of Domestic Passengers…

Spurred by the growth in consumption, the Indian Domestic BPO market is
expected to grow at a CAGR of 35% for the next 4 years
DOMESTIC BPO REVENUES (USD MN) MANPOWER EMPLOYED BY DOMESTIC BPO SECTOR
5,953 907,000
4,409
549,000 705,000
3,266
2,419 332,000
1,792 427,000
1,328 194,000
950
660 258,000
141,000
FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E

Source: Actuals till FY07 are Nasscom estimates; Projections from FY08 onwards are Source: Avendus Estimates
Avendus Estimates
At USD 1.8Bn, Domestic BPO industry constitutes less than 0.2% of India’s GDP
Outsourcing as an industry has been around since early 90s with introduction of credit cards and mobile phones in the country; BFSI and Telecom continue to be
the largest verticals even today
Lack of experience with outsourcing, absence of 3rd party vendors with significant scale and relatively slower growth experienced by target verticals resulted in
the market being predominantly captive till 2003
Early adopters of outsourcing started by outsourcing call center work to 3rd party vendors. Outsourcing began in full earnest only between 2003-08 resulting in
100%+ growth rate enjoyed by most 3rd party BPO players during this period.
Average revenue per person is about USD 5400 per annum; this is expected to grow at an average of 5% per annum

With the emergence of several large and proven 3rd party BPO players, their market share will
increase from the current 18% to 30% by 2012; Top 12 players account for 75% of the 3rd
party market share
3rd PARTY DOMESTIC BPO REVENUES (USD MN) MANPOWER EMPLOYED BY 3rd PARTY DOMESTIC BPO SECTOR
1,783 272,000
1 160
1,160
186,000
127,000
758
497 61,000
328 88,000
170 9,000
, 17,000
42 86
33,000
FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E
Source: Avendus Estimates Source: Avendus Estimates
3rd PARTY MARKET SHARE

Key reasons for rapid increase in market share of 3rd party players
With most underlying customer industries growing at between 20-70% per
annum, there is an increasing realization to focus on the core business while
30%
partnering with 3rd party vendors to tackle the non-core operations
26%
Several large 3rd party players with proven delivery experience, robust and
23%
21% scalable infrastructure and a referenceable client base have emerged
18%
Increasing realization of the attractiveness of the Indian domestic BPO
13% business is resulting in many large players previously focused on
International BPO to now focus on the domestic sector
9%
6% High attrition rates of between 55-65% per annum is putting an enormous
strain on management bandwidth of organizations running their captive
operations
Source: Avendus Estimates

Customer care and sales and marketing are the two largest business segments
accounting for 78% of the revenues
SERVICE LINES OF DOMESTIC BPO SECTOR Segment CAGR Key 3rd Party Details
(2004-06) Players
Customer 110% Aegis, HTMT, Largest and fastest growing segment.

Care IBM, InfoVision, Dominated by voice-based inbound and
Omnia, Mphasis, outbound activities spanning the entire
33% Sparsh customer lifecycle from origination to retention.
retention
42%
51% Driven primarily by growth in sectors like BFSI,
Telecom & Consumer Durables.
S&M 45% Andromeda, One of the largest segment of the domestic

37%
32% Direm, BPO market. Predominantly focused on
27% InfoVision, outbound voice-based activities aimed at up-
Kankei,, Omnia selling
g and cross-selling
g various p
products.
10%
12%
11% 12% HR 82% Cross-Domain, Primarily driven by basic payroll processing
8% 5% Hewitt, Ma Foi, services. It is expected to move high-end
9% 6% 5% Teamlease contracts where the HR outsourcing provider
2004 2005 2006 will manage the entire employee systems.
Customer Care Sales & Marketing HR F&A Others
Dominated by specialist HR firms.
F&A 16% Bill Junction, F&A services are focused on transaction

Source: Nasscom-IDC Study processing and are driven primarily by demand
Venture Infotek,
from the retail banking and credit card products
in BFSI sector (e.g. credit card processing,
electronic bill payment etc.)
Others 19% Dialnet Other discrete BPO activities in specific areas

Communications include examples like participant contact for
television game shows, order management etc.
While majority of the business in domestic BPO is in the call center space today, we believe two factors will drive growth in the back office processing segments.
Emergence of sophisticated players, which have different process capabilities and
Increased maturity among customers

Banking, Insurance and Telecom constitute nearly 68% of the overall market;
Retail, Media & Entertainment are the emerging verticals
VERTICAL SPLIT OF DOMESTIC BPO REVENUES

Verticals Typical Processes Outsourced
Telecom Customer support, cross-selling, analytics, data

36% 35% 34% 32% validation, HR
37%
Banking and Customer support
support, marketing and sales
sales, collections
collections,
Financial billing, transaction processing, analytics, HR
Services
20% 22% 24% 25%
21%
Travel Customer support, sales and marketing, revenue
9% 8% 7% 7% accounting
10% 4%
4% 4% 4%
4% Manufacturing Customer support, sales and marketing, transportation,
(Consumer supply chain management,
management AP and AR processing
27% 31% 31% 31% 32% Durables,
Automobiles etc)
Others (Retail, HR, customer support, marketing and sales, billing,
FY2008 FY2009 FY2010 FY2011 FY2012
Media) transaction processing, analytics, CRM
Telecom Banking Insurance Travel Others
* Others consists of sectors like Retail, Media & Entertainment, Consumer

Durables, Technology, Automotive and Public Information

BPO opportunity from Banking sector is currently about USD 380Mn; Expected to
grow at a CAGR of 38% to USD 1.5Bn in FY2012
GROWTH IN ADVANCES BY BANKS IN INDIA (USD BN) BPO REVENUES FROM BANKING SECTOR (USD MN)
1,231 1,483
1,026
1,058
855
713
720
594
495
477
379
300
FY07 FY08E FY09E FY10E FY11E FY12E FY07 FY08E FY09E FY10E FY11E FY12E
Source: Motilal Oswal Report

p on Indian Banking
g Sector Source: Avendus Estimates
MARKET SHARE OF INDIAN BANKS BY ADVANCES (FY2007) MANPOWER CATERING TO BANKING BPO
225,905
PNB Bank of Baroda

5% 4%
Canara Bank
5% 169 291
169,291
121,009
ICICI
10%
70,099
84,119
58,416
Others
59%
SBI
17%
FY07 FY08E FY09E FY10E FY11E FY12E
Source: Reserve Bank of India
Traditionally in the Indian banking sector, customer service and back-office transaction processing has been decentralized across branches. Consequently the
operations are handled at a branch level rather than in a centralized operations center.
Outsourcing in the banking sector is primarily led by private banks like ICICI and HDFC and MNC banks like Citibank, HSBC, ABN Amro etc.
Most of the outsourced work is customer service, telemarketing, contact point verification and collections, with bulk of the transaction processing work still being
captive
In our analysis, we have assumed that barring a few PSU banks, all the remaining PSU banks do not have any centralized BPO operations. However, with
increasing competition from private banks and an impending deregulation of the banking sector in FY2010, we have assumed some degree of BPO work from
PSU banks FY2010 onwards
9

BPO opportunity from Insurance sector is currently about USD 190Mn; Expected to
grow at a CAGR of 20% to USD 390Mn in FY2012
GROWTH IN LIFE INSURANCE PREMIUM COLLECTED (USD BN) BPO REVENUES FROM INSURANCE SECTOR (USD MN)
80
389
70
324
61
53 270
46 225
40
187
156
Source: McKinseyy Source: Avendus Estimates

MARKET SHARE OF LIFE INSURANCE COMPANIES BY
PREMIUM COLLECTED (FY2006) MANPOWER CATERING TO INSURANCE BPO
HDFC 59,231
Bajaj Allianz Standard Others
3% 1% 6%
45,332
ICICI 51,818
P d ti l
Prudential 34 695
34,695
4%
39,659
30,353
LIC
86%
Source: Insurance Regulatory & Development Authority Source: Avendus Estimates
The Insurance Regulatory and Development Authority (IRDA) Act of 1999 deregulated the insurance sector in India and allowed the entry of private companies into
the insurance sector. Moreover, the flow of Foreign Direct Investment (FDI) was also restricted to 26% of the total capital held by the Indian Insurance Companies.
In our analysis, we have considered only Life Insurance industry and not considered General Insurance industry, which is more B2B focused
Life Insurance industry in India is dominated by Life Insurance Corporation of India (LIC), which commanded a 86% share of the premiums collected in FY2006
For the purposes of estimation,
estimation we have assumed that LIC conducts all its transaction processing work through its branch offices,
offices while it is the private players who
have a centralized BPO looking after customer service and back-office operations. Thus the size of the market opportunity is a very conservative estimate.
Like Banking, Insurance BPO is also mostly captive, with customer service and telemarketing being the most commonly outsourced functions
10

BPO opportunity from Telecom sector is currently about USD 660Mn; Expected to
grow at a CAGR of 31% to USD 1.9Bn in FY2012
GROWTH IN WIRELESS SUBSCRIBERS (MN) BPO REVENUES FROM TELECOM SECTOR (USD MN)
530
1,933
426
342 1,478
274 1,130
220 865
177
661
506
Source: Edelweiss Capital

p Report
p on Telecom Sector Source: Avendus Estimates
MARKET SHARE OF TELECOM OPERATORS (OCT 2007) MANPOWER CATERING TO TELECOM BPO
Others
17% Airtel 294,444
24%
Tata
9% 189,874
236 447
236,447
122,441
152,474
BSNL Reliance 98,323
15% 18%
Vodafone Essar
17%
Source: AUSPI, COAI Source: Avendus Estimates
Telecom sector has been one of the early adopters of outsourcing in India
Most of the work outsourced is customer service, telemarketing and collections
With the number portability soon to be introduced by the Department of Telecom, sophisticated analytics based services like customer churn analysis, churn
management, behavioral segmentation etc. will gain prominence.
However for the purpose of estimation
estimation, we have assumed no change in service levels or increase in services performed by Telecom BPOs,
BPOs (i(i.e.
e number of BPO
FTEs required per 1000 customers has been held constant for the projection period) thereby making this a very conservative estimate
11

BPO opportunity from Travel sector is currently about USD 76Mn; Expected to grow
at a CAGR of 40% to USD 210Mn in FY2012
GROWTH IN DOMESTIC AIR PASSENGERS (MN) BPO REVENUES FROM TELECOM SECTOR (USD MN)
122 214
98
166
78
128
63
99
50
40 76
39
Source: Center for Asia Pacific Aviation Source: Avendus Estimates
MARKET SHARE OF DOMESTIC AIR CARRIERS (CY 2006) MANPOWER CATERING TO TELECOM BPO
32,644
Others
12%
Kingfisher Jet Airways 21,469 26,470

9% 31%
14,117
17,409
Air Sahara (now
JetLite)
9%
7,611
Air Deccan Indian

18% 21% FY07 FY08E FY09E FY10E FY11E FY12E
Source: Directorate General of Civil Aviation
Travel & Hospitality sector, particularly domestic and international air travel, has seen an exponential growth in recent times
The signing of a 10-year contract by Indian Railways with a consortium of Omnia BPO and Spanco Telesystems for the provision of integrated train enquiry system
demonstrates the changing mindset towards customer service
For the purposes of estimation, we have only considered the BPO requirements of domestic air and rail travel sectors
The primary functions outsourced are customer carecare, online booking of tickets,
tickets passenger information services while back-office processes like revenue
accounting continue to be captive for now
12

Tighter cost control by moving to tier 2/3 cities, leveraging economies of scale and a modest
increase in price will boost margins for domestic BPOs, steady state net income margins of 12% is
expected for most established players by FY12
Key Elements of Cost Structure of Domestic BPO Players
CHANGING COST STRUCTURE OF DOMESTIC BPOs (% OF REVENUES)
Personnel costs account for nearly 46% of revenues currently. Wage costs
have been rising between 10-12% annually in all major cities of India.
However with almost all domestic BPOs now moving to tier 2/3 cities, both
wage costs and attrition are likely to temper. Salaries in tier 2/3 cities are
60-70% of tier 1 cities and attrition levels are less than 15% per annum.
46% Telecom & Connectivity costs account for 8% of revenues. Over the last
48% 49% 50% 50% few years, telecom costs have been steadily decreasing
Rent & Utilities account for 8% of revenues and are increasing between 4-
7% per annum
Sales & Marketing costs account for between 8% of revenues currently. It
10% b i still
being ill early
l ddays ffor outsourcing
i iin d
domestic
i markets,
k a consultative
l i
8% 7% 6% 5% approach to selling is required, increasing the sales and marketing costs.
8% 8% 9% 9% 10% General & Administrative costs account for 10% of revenues currently.
8% With most top tier Domestic BPOs growing between 75-100% per annum
8%
8% 8% over the last few years, costs have spiraled. With increase in the scale of
8%
8% 7% operations and infusion of professional management team, operating
6% 5% %
4%
6% 6% l
leverage will
ill kick-in,
ki k i resulting
lti iin d
decrease off G&A costs
t as a percentage
t off
5% 5% 5%
revenues.
FY08 FY09 FY10 FY11 FY12
Depreciation accounts for about 6% of revenues currently. With over 50%
Direct Salary General & Administrative Sales & Marketing growth projected by most companies, a high degree of capex would need
to be maintained, keeping it around the same level over the next few years.
Rent & Utilities Telecom & Connectivity Costs Depreciation
Tax – A full corporate
p tax rate of 33.99% is applicable
pp to the Indian
FY08 FY09 FY10 FY11 FY12 Domestic BPO sector
EBITDA Margin 20% 20% 21% 22% 23%
Net Margin 9% 10% 11% 11% 12%
Note:
p
1. Base cost structure is Avendus’ expectation of FY08 financials for most of the top-tier
p pure-play
p p y domestic
BPO firms
2. A YoY price increase of 5%, 5%, 4% and 3% is assumed for FY09, FY10, FY11 and FY12 resp.
3. Rounding errors may occur
13

Key trends in the Domestic BPO market
Increase in minimum scale criteria for Entry of International Call Center

participating in a RFP Operators in Domestic Market
With client industries growing between Domestic business acts as a hedge to

20-70% pa, it is critical for them to identify global business. Most leading IT/BPO
vendors capable of growing at the same companies including
rate. Scale and capitalization have thus Firstsource, Wipro, Mphasis etc. are
become key y factors in winning g business. looking to scale up their domestic business
Quality of service and

ability
bilit to
t scalel rapidly
idl
Movement to tier 2/3 cities are the key concerns Emergence of scale players
Almost all new facilities are coming up of clients The last few years have seen the
in tier 2/3 cities to tap a ready pool of emergence of several large, well-capitalized
low cost resources well-versed in players for e.g. Sparsh, InfoVision, Aegis
vernacular language With emergence of etc.
scale players, the
industry is rapidly
consolidating
Increasing outsourcing to 3rd party vendors Market Consolidation
Severe drain on management bandwidth to Aegis has led with 3 acquisitions in last 2
continuously recruit, train and monitor back years. Over the next 18 -24 months, 8-10
office staff when their core business is large players would dominate the entire
growing at between 20-50% third party vendor space in domestic BPO
Emergence of large players with proven
track record, referenceable client base and
dedicated focus to domestic BPO market
14

With scale and proven delivery experience with marquee client base emerging as critical
success factors, new players are going to find it increasingly difficult to penetrate the market
Referenceable
client base
Strong Access to
Management Capital
Team
Critical Success
Factors for
D
Domestic ti BPO
vendors
Scale National
Footprint
15

Despite pricing levels in domestic BPO being significantly lower than its international
counterpart, the EBITDA margins are equally attractive.
FINANCIAL METRICS
Metric Domestic BPO International BPO
Annual revenue per FTE (USD) 5,100-5,700 18,000-20,000
Gross Margin 35 40%

35-40% 35 40%
35-40%
EBITDA Margin 18-20% 17-22% The key difference is Net Margin stems from
tax exemption granted to Global BPOs in
Net Margin 8-10% 10-15% India u/s 10A of STPI Act. This exemption
is currently proposed to be withdrawn in
April 2009
BUSINESS METRICS
Metric Domestic BPO International BPO
Avg. annual salary of agents (USD) 2,000 4,500
Annual Attrition Rate 55-65% 65-75%
Wage Inflation 5-10% 10-15%
C
Currency IImpactt (USD against
i t INR) N
None 13% iin llastt 12 months
th
Location Tier 2/3 cities Tier 1 cities
16

English-speaking capabilities being the key skill required, International call centers
are constrained to tier 1 cities resulting in much higher cost structures
International Call-Center Indian Domestic Call-Center
Since all clients are either US/ UK based, the key language With 15 major languages spoken in various parts of India,
requirement is English having multi-lingual capabilities becomes necessary to serve the
Language Requirement domestic market
Typical call center agents are graduates, who have studied in Since the preference is for vernacular speakers, graduates
English-medium schools. However investment still needs to be with or without a formal training in English are acceptable. This
Wages and Training made for accent training to enable client interaction, resulting in expands the potential talent pool immensely resulting in lower
Costs
significantly higher wage and training costs. Typical salaries of cost of wages. Typical salaries of agents is USD 165 pm
agents is USD 375 pm
Since English speaking graduates are concentrated around Search for vernacular language talent makes this industry
a few major cities of India, almost all International call more spread out across India. Especially attractive are tier
Locational Constraint centers are located in the 7 cities of Delhi (incl. NCR), 2/3 cities, with a view to keep costs under control. Wages in
Mumbai, Bangalore, Chennai, Hyderabad, Pune, Kolkata these cities is about 60-70% of tier 1 cities, resulting in
most new facilities being set up there
Geographic concentration in a few major cities results in supply Annual attrition rates in tier 1 cities is 55-65% while that in
side imbalances resulting in higher annual salary increments and tier 2/3 cities is around 20-25%. Annual increments are about
Attrition Rate &
high attrition rates, resulting in higher recruitment and training 10-15%, but with most growth coming in tier 2/3 cities, where
Recruitment Costs
costs. Annual increments are about 10-15% while attrition rate is salary costs are 60-70% of that of tier 1 cities, overall wage
about 65-75% per annum inflation is about 5-10%
Another fallout of presence in tier 1 cities is higher Rent, utilities and transportation expenses in tier 2/3 cities
rent, utilities and transportation costs. are a fraction of tier 1 cities.
Rent, Utilities &
Transportation
17

Recent comments by BPO industry leaders reflect a growing interest in Domestic
BPO
At present 4% of our revenues come from the local market. We Our domestic business will primarily be in the domains that we
expect local BPO revenues to be 10% of our business in the next are already in…BFSI is, however, going to be the predominant
12 months. Margins are better than or equal to what we get from area in India. We plan to create separate infrastructure in tier-II
international business
business. and tier-III cities with a separate
p team. We will be looking
g at cities
like Hyderabad along with other tier-II cities.”
Ananda Mukherjee, CEO Firstsource Solutions
Source: The Economic Times, Jul 2007 Rohit Kapoor, President EXL Service
Source: Interview with Rediff Money, Nov 2007
We plan to ride this wave of the domestic BPO boom and

consolidate our position further by focusing on areas that are
traditionally considered weak in the domestic BPO sector such as
service quality.
Our strategic entry into the domestic outsourcing market in India
Susir Kumar, CEO Intelenet Global
has begun to yield results.
results This gives us a unique early mover
Source: Interview with Nasscom, Apr 2006
advantage into this growing market. Seven new clients were
added this year in the domestic business, including major wins in
the Telecommunications, Banking and Insurance domains. Strong
foundations have been laid to grow this business line profitably in
the coming years.”
The main reason why we got into domestic market is because it
acts as a hedge to our global business Partha De Sarkar, CEO Hinduja TMT
Source: FY06 Annual Report, Aug 2006
Alok Mishra, CFO Mphasis

Source: Mint, Nov 2007
18

There has been a spate of recent outsourcing contracts contributing to a growth
rate of over 100% in the last 3 years for 3rd party players
Timing of Contract Size Client Vendor Duration Nature of Engagement

Signing (INR Mn)
Dec’07 Undisclosed Idea Cellular Mphasis Undisclosed Inbound and outbound customer service
Jan’07 8,000-10,000 Indian Railways Bharat BPO (A 50:50 10 years Voice and SMS-based integrated train enquiry services
JV between Omnia &
S
Spanco))
May’06 Undisclosed Centurion Bank Indecomm Global Undisclosed Created a JV called Centillion Solutions to focus on back-
of Punjab office processing services to retail banking & related financial
services.
Jan’06 50 Delhi Sparsh 5 years Sparsh will set up a voice and web-based public grievance
Government management system and providing contact center services.
Aug’05 10,000 Airtel HTMT, Mphasis, IBM 4-5 years Airtel’s call center operations for all its subscribers across 23
Daksh, TeleTech India circles would be handled by the 4 vendors
Aug’05 2500 SBI Mphasis 3-5 years The engagement involves handling of customer support
operations, mainly voice based inbound services
Aug’05 800 BSNL Sparsh 3 years Sparsh will be responsible for BSNL’s domestic call center
operations
Aug’05 50 Air India Sparsh 3 years Inbound customer service to all domestic passengers
May’00 Undisclosed Star TV Dialnet Based on the Star Plus' biggest game show 'KBC' used the IVR platform of
Communications duration of the Dialnet for the callers participating in the quiz for screening of
show contestants. Dialnet handled over 100 Mn calls during the
p of the show. It also p
span provides IVR facilities to other
shows of the network
Note: We have compiled only publicly listed information. Since almost all companies in this sector are privately-held, most of the outsourcing contracts are not in pubic domain.
19

Evidence of institutional interest is already seen in the market; We expect at least 3 out of top
10 players to consider a strategic or financing transaction in the next 18-24 months
RECENT TRANSACTIONS IN DOMESTIC BPO
Year Acquirer Target Nature of Transaction Deal Size (in USD M)
2007 3i Infotech Linear Financial & Management

g Systems
y Acquisition
q 3
2007 Aegis Teletech India (A JV between Teletech & Bharti Airtel) Acquisition 13
2007 Motilal Oswal RT Outsourcing Investment 8
2007 Intelenet Sparsh BPO Open offer (for 20% stake) 16
2006 Aegis Customer First Acquisition NA
2006 Aegis Orion Acquisition NA
2005 Intelenet Sparsh BPO (Domestic BPO business of Spanco Telesystems) Acquisition 22
Several large international and Indian BPO players have expressed a keen interest in entering this space.
We expect at least 3 out of the top 10 domestic BPO players to consider a strategic or financing transaction in the next 18-24 months
20

Key Findings
Indian Domestic BPO is USD 1.8Bn industry in FY2008* and is expected to grow at a CAGR of 35% for the next 4
years, becoming a USD 6Bn industry in FY2012
Historically a captive market, outsourcing began in full earnest between 2003-08, with most 3rd party vendors growing
at over 100% to capture a 18% share of the overall market in FY2008
With the emergence of several large, proven and well-capitalized vendors, outsourcing will continue its momentum. It is
expected that 3rd party vendors’ market share will increase to 30% in FY2012
Oligopolistic market str

structure ithin the 3rd party
ct re within part vendor
endor landscape;
landscape top 12 pla
players
ers acco
account
nt for 75% of the third part
party
domestic BPO revenues in FY2008
Customer care and Sales and Marketing are the two largest business segments and accounts for over 78% of the
overall market in FY2008
Banking, Insurance and Telecom are the key industry verticals and account for 68% of the overall market in FY2008;
Retail and Media and Entertainment are the emerging verticals
Because of the attractiveness of the market, many Global BPOs are entering this space, both organically and through
acquisitions
i iti
We expect rapid consolidation in this industry with 8-10 large players emerging as distinct market leaders over the next
18-24 months
*FY follows April-March cycle
21

Appendix A: Profile of Key Players

Profiles of Key Players in the Indian Domestic BPO Market
• Overview: Subsidiary y of Essar Group,

p p
providing
g
• Overview: One of the largest BPO service provider
multichannel customer relationship management,
• Overview: Provides customer acquisition and in India offering voice based services (inbound &
including contact center, database management,
retention services outbound), transaction processing in CRM and F&A
analytical services and market intelligence.
• Locations: Mumbai, Delhi, Pune, Chennai and service lines
• Locations: Bangalore, Chandigarh, Chennai,
Bangalore • Locations:
Cochin, Coimbatore, Delhi, Hazira, Hyderabad,
• Employees: 3,600+ Bangalore, Chandigarh, Gurgaon, Kolkata, Mumbai,
Kolkata, Mumbai and Pune
Pune and Vizag
• Employees*: 10,000+
• Overview: A leading provider of customer lifecycle • Overview: One of the largest independent ITES
• Overview: A Hinduja group company, it is one of the
management solutions across companies in India, providing customer
leading providers of inbound contact center services
BFSI Telecom,
BFSI, Telecom Healthcare and Media verticals contact direct marketing
contact, marketing, loyalty and fulfillment
& transaction processing
• Locations: programs
• Locations: Bangalore, Chennai, Durgapur,
Bangalore, Chennai, Hubli, Indore, Kochi, Kolkata, M • Locations:
Hyderabad, Mumbai and Mysore
umbai, Pondicherry and Trichy Bangalore, Chennai, Delhi, Gurgaon, Hyderabad, Ko
• Employees*: 11,000+ lkata, Mumbai and Pune
• Financials: (FYE March07): $39.3Mn# • Employees: 8,100+
• Financials: (FYE March07): $186.6Mn#
Source: Company data, Reuters; 1 USD = 39.5 INR; * Includes employees catering to International BPO operations as well; # Includes both International and Domestic BPO revenues
23

Profiles of Key Players in the Indian Domestic BPO Market contd.
• O
Overview:
i Th BPO A
The Arm off K
Kankei
k iGGroup off • Overview: A subsidiary of EDS
EDS, providing contact
center solutions to telecom sector • Overview: Part of MCorpGlobal group of companies
companies, providing voice-based services (inbound and is engaged in providing domestic contact center
& outbound), SCM, direct marketing & CRM services • Locations:
services to travel and telecom sector
• Locations: Ahmedabad, Bangalore, Chennai, Delhi, Ahmedabad, Bangalore, Noida, Pondicherry and
Indore • Locations: Bangalore, Chennai, Delhi, Hyderabad,
Hyderabad, Kolkata, Mumbai and Pune Kolkata, Mumbai, Noida and Pune
• Employees: 2,500+ • Employees*: 17,000+
• Employees: 3,000+
• Financials (FYE March07): $ 302.7Mn#
• Market Cap p ((21/11/2007):
) $1.1Bn
• Overview: Domestic subsidiary of Intelenet Global

Services (P) Ltd., providing customer
• Overview: Subsidiary of Reliance contact, transaction processing services
• Overview: A Tata Enterprise and a wholly owned
Communications providing customer life cycle
Communications,
subsidiary
b idi off T
Tata
t SSons Ltd
Ltd., providing
idi b both
th voice
i & • Investor: The Blackstone Group
management & customer contact solutions
non voice based BPO services. • Locations:
• Locations: Navi Mumbai and Chennai
• Locations: Hyderabad, Mohali and Pune Bangalore, Chennai, Gurgaon, Kolkata, Mumbai and
• Employees: 7,800+ Pune
• Financials (FYE March07): $ 22.1Mn
Source: Company data, Reuters; 1 USD = 39.5 INR; * Includes employees catering to International BPO operations as well; # Includes both International and Domestic BPO revenues
24

Contact Details
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Landline: +91-22-6648 0983 Landline: +91-22-6648 0981
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Indian Domestic BPO Market – An Emerging

 Oligopolistic market str

*FY follows April-March cycle

Private & Confidential

 It is now widely believed that India’s growth acceleration is more structural

GDP at Market Prices Real GDP Growth Rate

between FY04 to FY07.

Private Disposable Growth in Changes in Private

Private & Confidential

The shape of the income pyramid will undergo significant change

NO. OF HOUSEHOLDS BY ANNUAL INCOME BRACKET (Mn)

FY04 FY05 FY06 FY07 FY04 FY05 FY06 FY07

Size of Organized Retail Industry (USD Bn) No. of Domestic Passengers…

Private & Confidential

FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E

Private & Confidential

Source: Avendus Estimates Source: Avendus Estimates

3rd PARTY MARKET SHARE

Source: Avendus Estimates

Private & Confidential

Customer 110% Aegis, HTMT, Largest and fastest growing segment.

S&M 45% Andromeda, One of the largest segment of the domestic

F&A 16% Bill Junction, F&A services are focused on transaction

Others 19% Dialnet Other discrete BPO activities in specific areas

Private & Confidential

VERTICAL SPLIT OF DOMESTIC BPO REVENUES

Telecom Customer support, cross-selling, analytics, data

Source: Avendus Estimates

* Others consists of sectors like Retail, Media & Entertainment, Consumer

Private & Confidential

Source: Motilal Oswal Report

PNB Bank of Baroda

Private & Confidential

Source: McKinseyy Source: Avendus Estimates

Private & Confidential

Source: Edelweiss Capital

Private & Confidential

Source: Center for Asia Pacific Aviation Source: Avendus Estimates

Kingfisher Jet Airways 21,469 26,470

Air Deccan Indian

Private & Confidential

Net Margin 9% 10% 11% 11% 12%

Private & Confidential

Increase in minimum scale criteria for Entry of International Call Center

With client industries growing between Domestic business acts as a hedge to

Quality of service and

Increasing outsourcing to 3rd party vendors Market Consolidation

Private & Confidential

Private & Confidential

Metric Domestic BPO International BPO

Annual revenue per FTE (USD) 5,100-5,700 18,000-20,000

Gross Margin 35 40%

Metric Domestic BPO International BPO

Avg. annual salary of agents (USD) 2,000 4,500

Annual Attrition Rate 55-65% 65-75%

Wage Inflation 5-10% 10-15%

Location Tier 2/3 cities Tier 1 cities

Private & Confidential

International Call-Center Indian Domestic Call-Center

Private & Confidential

We plan to ride this wave of the domestic BPO boom and

Alok Mishra, CFO Mphasis

Private & Confidential

Timing of Contract Size Client Vendor Duration Nature of Engagement

Oligopolistic market str

It is now widely believed that India’s growth acceleration is more structural

Oligopolistic market str