THE INDIAN IT INDUSTRY

OVERVIEW:
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The Indian information technology (IT) industry has played a key role in putting India on the global map and is now envisioned to become a US$ 225 billion industry by 2020.

Over the past decade, the Indian IT-BPO sector has become the country s premier growth engine, crossing significant milestones in terms of revenue growth, employment generation and value creation, in addition to becoming the global brand ambassador for India.

The sector is estimated to aggregate revenues of US$ 88.1 billion in FY2011, with the IT software and services sector (excluding hardware) accounting for US$ 76.1 billion of revenues.

The estimated export revenues is gross US$ 59 billion in FY2011 and contributes 26 per cent as its share in total Indian exports (merchandise plus services), employing around 2 million employees. Within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010.

The domestic IT-BPO revenues excluding hardware are expected to grow at almost 16 per cent to reach US$ 17.35 billion in FY2011.

There are several reasons for the growth of Indian IT industry and they are as follows:
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High Quality Delivery: According to Process Maturity People published by Carnegie Software Industry Institute, approximately 158 companies are certified SEI CMM Level 5 in India higher than any other country in the world. It suggests that Indian companies are highly quality conscious and focus on achieving operational excellence while delivering their services.

Significant Cost Benefits: The NASSCOM Strategic Review 2009 indicates that company s experience cost savings of around 60-70% by outsourcing their IT and BPO requirements to India as compared to their source locations and suggests that the cost advantage provided by ITES industry is sustainable even in the long term.

Abundant Skilled Resources: India has a large and highly skilled English speaking labour pool. According to the NASSCOM Strategic Review 2009 the total graduate turnout in India

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in that fiscal year is expected to be 3.5 million out of which technical graduate turnout is expected to be approximately 5.14 lacs
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Complete Bouquet of Services: The Indian IT companies offer a one stop solution to their clients and have developed length and breadth service offering capabilities.

Effective Service Delivery Model: The Indian IT companies have developed the global delivery model and have effectively integrated onsite and offshore execution capabilities to deliver seamless, scalable services to their clients.

CLASSIFICATION:
India's IT industry caters to both domestic and export markets. Exports contribute around 75% of the total revenue of the IT industry in India. The IT industry can be broadly divided into four segments y y y y

IT services Softwares (includes both engineering and Research and Development) ITES-BPO Hardware

KEY GROWTH DRIVERS:

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Strong economic growth Rapid advancement in technology infrastructure Increasingly competitive Indian organisations Enhanced focus by the government and Emergence of business models that help provide IT to new customer segments

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INVESTMENTS:
Between April 2000 and December 2010, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ 10,601 million, according to the Department of Industrial Policy and Promotion.

GOVERNMENT INITIATIVES:
Government sector is a key catalyst for increased IT adoption through sectors reforms that encourage IT acceptance, National eGovernance Programmes (NeGP) , and the Unique Identification Development Authority of India (UIDAI) programme that creates large scale IT infrastructure and promotes corporate participation. The government has constituted the Technical Advisory Group for Unique Projects (TAGUP) under the chairmanship of Nandan Nilekani. The Group would develop IT infrastructure in five key areas, which includes the New Pension System (NPS) and the Goods and Services Tax (GST) The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country. Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions. Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion of software exports from the country, there are currently 51 STPI centres where apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. But the most important incentive available is 100 per cent exemption from Income Tax of export profits, which has been extended till 31st March 2011. Government is also setting up Information Technology Investment Regions (ITIRs). These regions would be endowed with excellent infrastructure and would reap the benefits of co-siting, networking and greater efficiency through use of common infrastructure and support services.

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Moreover, according to NASSCOM government, IT spend was US$ 3.2 billion in 2009 and is expected to reach US$ 5.4 billion by 2011. Further, according to NASSCOM, there is US$ 9 billion business opportunity in e-governance in India.

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FINANCIAL ANALYSIS Inter Firm Comparison

Sl. NO. 1 2 3 4 5 6 7 8 Particulars Net Sales Growth Rate Operating Profit Margin (%) Net Profit Margin (%) Current Ratio TOL/TNW Debt Equity Ratio Interest Cover Debtors Turnover Ratio
Satyam TCS
-31.10

HCL Infosys
4.32

Wipro
6.58

Tech
8.63

2.87 29.5 24.26 0.93 0.49 0.01 718.14 1.72

3.19 -1.38% 1.58 0.54 0.01 6.39 2.01

37.68 26.25 3.24 0.18 0 4164.5 1.76

26.59 20.4 1.59 0.7 0.31 58.58 2.39

31.02 21.86 1.43 0.72 0.28 15.89 4.82

Turnover: The last fiscal year has shown a sluggish growth rate in turnover. The reason for this is the economic recession in the global economies like USA and UK which are the major clients of the Indian Software Industry. But the Indian IT Industry has come out strong with their value proposition deals and full service strategies. The best of the lot is HCL Tech with an increase of 8.63% because of acquisition of new deals and TCS which has maintained its supremacy. However, Mahindra Satyam is still recovering after the scam and the global recession has made it tougher for them. Mahindra Satyam has seen a downturn in turnover to the tune of Rs 30,000 million and 31.10%. Profitability: The profitability of the companies has increased since last fiscal year due to cost management. The companies have improved their costs by managing their direct, general and selling and distribution expenses. Increase in depreciation and interest rates is still a concern. The most profitable company would be Infosys with 37.68% operating margin and 26.59% net profit margin showing an increase of 4.3% since last fiscal year. Mahindra Satyam suffered a loss to the tune of Rs 1239 million and PAT margin of negative 1.38%. Liquidity 55 | P a g e

Leverage:

About the Company: A leading information, communications and technology (ICT) company providing top-class business consulting, information technology and communication services. Leveraging deep industry and functional expertise, leading technology practices and a global delivery model, they enable companies achieve their business goals and transformation objectives. Mahindra Satyam (Satyam), a new brand identity of Satyam Computer Services Ltd., is a global information technology (IT) and software solutions provider. The services offered by the company include systems design, software development, system integration, and application maintenance. Its IT services include application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services. Satyam operates through two business segments, namely, IT services and business process outsourcing (BPO) services. They are powered by a pool of talented IT and consulting professionals across enterprise solutions, client relationship management, business intelligence, business process quality, operations management, engineering solutions, digital convergence, product lifecycle management, and 56 | P a g e

infrastructure management services, among other capabilities. Their development and delivery centers in the US, Canada, Brazil, the UK, Hungary, Egypt, UAE, India, China, Malaysia, Singapore and Australia serve numerous clients, including several Fortune 500 companies.

Particulars Net Sales Growth Rate Operating Profit Margin (%) Net Profit Margin(%) Current Ratio Interest Cover TOL/TNW Debt Equity Ratio Debtors Turnover Ratio

2006 24.85 25.77 26.09 6.32 437.06 0.17 0 4.91

2007 27.89 24.56 22.24 5.76 206.06 0.18 0 4.49

2008 30.95 22.49 20.38 5.15 331.69 0.20 0 4.2

2009 -12.19 -1.95 -93.98 0.93 -42.58 4.43 -4.57

2010 -31.10 3.74 -1.37 2.04 9.27 0.54 0.02 4.41

Strengths:
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Global Presence Comprehensive Service Portfolio Strategic Alliances

Weaknesses:
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Limited Investor Confidence Financial Performance

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About the Company: Tata Consultancy Services Limited (TCS) is an Indian software services and consulting company. It is one of India s oldest and largest providers of information technology and business process outsourcing services. As of 2007, it is Asia s largest information technology firm. The company is listed on the National Stock Exchange and Bombay Stock Exchange in India.TCS is part of one of Asia s largest conglomerates, the Tata Group, which has interests in areas such as energy, telecommunications, financial services, manufacturing, chemicals, engineering, materials, government and healthcare.

Tata Consultancy Services was established in the year 1968. It began as the Tata Computer Centre , a division of the Tata Group, whose main business was to provide computer services to other group companies. However, the potential of computerization and computer services was realized early on, and an electrical engineer from the Tata Electric Companies, Fakir Chand Kohli, was brought in as the 58 | P a g e

first General Manager. Soon after, the company was named Tata Consultancy Services. TCS s first software export project was undertaken in 1974 when it converted the Hospital Information System from Burroughs Medium Systems COBOL to Burroughs Small Systems COBOL. This project was carried out entirely by TCS Mumbai on the ICL 1903 Computer. In 1980, TCS and a sister concern accounted for 63% of the Indian software industry exports, $4 million shared by 21 firms. In 1984, TCS set up an office in the Santacruz Electronics Export Processing Zone (SEEPZ).

The early 1990s saw a tremendous surge in TCSs business, which also resulted in a massive recruitment drive by the company. In early and mid-1990s, TCS re-invented itself to become a software products company. In the late 1990s, to accelerate its revenue growth, TCS decided to employ a three-pronged strategy developing new products with high revenue earning potential, tapping domestic and other fast growing markets and focusing on inorganic growth through mergers & acquisitions. In late 1998, the company decided to concentrate on new revenue opportunities including Y2K and Euro conversion. E-business was a major area of focus in the late 1990s.In 1999, TCS started an annual IT Quiz called TCS IT WIZ in India. It has been a great success and a matter of craze among young students inclined towards IT while in 2004, TCS became a publicly listed company. In 2008 Tata Consultancy Services was involved in a variety of industries. Some of these included telecom, government, insurance, manufacturing, high tech, and banking and financial services. They offer product life cycle management and systems integration to their customers.TCS topped the Dataquest DQTop20 list of IT Services providers in India for 2008.

TCS also ranked among Top 25 in Business Week s 2007 Information Technology 100. In 2007, TCS was awarded top position in 2007 Global Services 100, Top 10 Best Performing IT Services providers category. Board of Directors: Executive Name N Chandrasekaran S Mahalingam Phiroz A Vandrevala Designation CEO and MD CFO and Executive Director Executive Director and Head, GCA

Board of Directors: Non Executive Name Ratan N Tata S Ramodarai Designation Chairman Vice Chairman 59 | P a g e

Laura Cha Prof Clayton M Christensen Aman Mehta Dr. Ron Sommer Vekataraman Thyagaranjan Dr Vijay Kelkar Ishaat Hussain Financial Analysis:

Director Director Director Director Director Director Director

Particulars
Net Sales Growth Rate (%) Operating Profit Margin (%) Net Profit Margin (%) Current Ratio TOL/TNW Debt Equity Ratio Interest Cover Debtors Turnover Ratio Strengths:
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2006
26.65 29.71 24.05 2.19 0.01 0.01 700.35 5.93

2007
33.03 28.79 25 1.93 0.01 0.01

2008
24.05 27.11 24.11 1.98 0.00 0.01

2009
20.87 26.87 20.74 1.83 0.00 0.01

2010
2.87 28.93 24.13 1.49 0.00 0.01 674.43 6.54

1,179.14 1,383.58 784.41 5.83 5.66 6

It's highly professionally managed IT consulting and services company under the belt of TATA.

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Vast Global Presence. Diversified Portfolio of Services. Financial Performance. Focus on inorganic growth through merger and acquisition. Employee management. High level of customer relationship management. Cost advantage. Reputation management in mind of customer.

Weaknesses:
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High Concentration on Developed Economies. Over dependence on US market. 60 | P a g e

y y

Not diversified. Least presence in economy like china,Russia,Eastern Europe.

About the Company: Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally. Wipro provides comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services to corporations globally. The Group's principal activity is to offer information technology services. The services include integrated business, technology and process solutions including systems integration, package implementation, software application development and maintenance and transactio processing. n These services also comprise of information technology consulting, personal computing and enterprise products, information technology infrastructure management and systems integration 61 | P a g e

services. The Group also offers products related to personal care, baby care and wellness products. The operations of the Group are conducted in India, the United States of America and Other countries. Wipro Technologiesdeals in followingbusinesses: y IT Services
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Product Engineering Solutions Technology Infrastructure Service Business Process Outsourcing Consulting Services

Financial Analysis:

Particulars
Net Sales Growth Rate
Operating Profit Margin(%) Net Profit Margin( %) Current Ratio TOL/TNW Debt Equity Ratio Interest Cover Inventory Turnover Ratio Debtors Turnover Ratio

2006
22.45
24.28 19.53 1.42 0.01 0.01 735.79 69.56 6.06

2007
33.80
23.78 20.34 1.68 0.03 0.03 442.14 57.23 6.01

2008
27.83
21.24 17.19 2.54 0.33 0.33 30.71 39.41 5.62

2009
22.95
22.12 13.53 1.1 0.40 0.4 23.85 56.15 5.32

2010
6.58
24 20.97 1.34 0.31 0.31 49.41 45.4 4.98

Strengths:
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Quality Standards Strong financial performance 62 | P a g e

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Diversified operations Broad range of R&D services Large employee base

Weaknesses:
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Higher attrition rate Dependence on Mature markets

About the Company: Infosys Technologies Limited, incorporated in the year 1981 provides consulting and IT services. Infosys has been a pioneer in offering innovative solutions to its clients. The company offers a wide range of software services, namely application development and maintenance, corporate performance management, independent validation services, infrastructure services, packaged application services and product engineering and systems integration. Board of Directors:

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Name S D Shibulal N R Narayana Murthy Omkar Goswami Jeffrey S Lehman Deepak M Satwalekar Marti G Subrahmanyam R Seshasayee Sridar A Iyengar S Gopalakrishnan K V Kamath Srinath Batni K Dinesh David L Boyles Ravi Venkatesan

Designation Director & COO Chairman & Chief Mentor Independent Director Independent Director Independent Director Independent Director Additional Director Independent Director Managing Director & CEO Independent Director Director Director Independent Director Additional Director

Financial Analysis:

Particulars
Net Sales Growth Rate Operating Profit Margin (%) Net Profit Margin (%) Current Ratio TOL/TNW Debtors Turnover Ratio

2006
37.87 34.45 30.17 0.93 0.32 2.02

2007
45.65 33.33 31.45 1.63 0.16 2.09

2008
19.01 32.57 32.59 1.01 0.28 2.37

2009
29.50 34.94 33.13 1.26 0.19 2.01

2010
4.32 36.21 35.57 1.04 0.18 1.84

Strengths:

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Since the company is based in India its competitive advantage is enhanced. The Indian economy, despite weak economic indicators such as relatively high rates of inflation, has low labor costs. The workforce has relatively high skills levels in Information Technology. Couple these two elements together and you have an operational basis that offers low-cost based, highly skilled competitive advantage. Trained Indian personnel often speak very good English and are sensitive to Western culture, underpinned by India's colonial past.

Infosys is in a strong financial position. The business turned over more than $4 billion in 2008. This means that it has the capital to expand, and also the basis to leverage potential investors.

The company has bases in 44 global development centres, most of which are located in India, although the company has offices in many developed and developing nations. This means not only that Infosys is becoming a global brand but also that it has the capability to support the global operations of multinational clients.

Weaknesses:

Infosys on occasion struggles in the US markets, and has particular problems in securing United States Federal Government contracts in North America. Since these contracts are highly profitable and tend to run for long periods of time, Infosys is missing out on lucrative business. Added to this is the fact that its competitors do well in terms of securing the same Federal business (and one should also take into account that many of its competitors are domiciled in the US and there could be political pressure on the US Government to award contracts to domestic organizations).

Despite being a huge IT company in relation to its Indian competitors, Infosys is much smaller than its global competitors. As discussed above, Infosys generated $4 billion in 2008, which is relatively low in comparison with large global competitors such as HewlettPackard($91 billion), IBM ($91 billion), EDS ($21 billion) and Accenture ($18billion).

It is sometimes argued that Infosys is weaker when it comes to high-end management consultancy, since it tends to work at the level of operational value creation. Competitors such as IBM and Accenture tend to dominate this space.

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About the Company: HCL Technologies is one of the two businesses both of them separately listed in India falling

under the corporate umbrella of HCL Enterprise, with combined annual 2010 revenues of US$ 5.7 billion. HCL Enterprise is founded in 1976 and is one of India's original IT garage start ups. HCL Technologies is a relatively young company, formed in 1991 when HCL's R&D business was spun off to focus on the growing IT services industry. During last 15 years, HCL has expaned its service portfolio in IT applications (custom applications for industry solutions and package implementation), IT infrastructure management, and business process outsourcing, while maintaining and extending its leadership in product engineering.

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HCL's main service offerings are along the following business lines:


Engineering and R&D Services (ERS) - ERS is a major focus area for HCL since its inception in 1997. This group offers engineering services and solutions in hardware, embedded, mechanical and software product engineering across industries like Aerospace & Defense, Automotive, Consumer Electronics, Industrial Manufacturing, Medical Devices, Networking & Telecom, Office Automation, Semiconductor, Servers & Storage and Software Products.

Enterprise Transformation Services (ETS) - This is in a way is the consulting arm of HCL Technologies with a motto of "Advise to Execute". The portfolio consists of Process Transformation Services, Data Management Services, Integration Services, Architecture Services, Disruptive Technology Services (Including Cloud related services) and IT Strategy, and Change Management services.

* Business Processing Outsourcing (BPO) - This division of HCL Technologies focuses on Transformational BPO constituting Full Process and Multiple Process outsourcing. The Unit runs 25 delivery centers across India, UK and USA and offers 24x7 multi-channel, multi-lingual support in eight European and eight APAC languages.


Custom Application Services - This is a domain-driven service line of HCL providing development, support & maintenance of customized IT Applications to various industries.

IT Infrastructure Management - HCL s IMS group is the fastest growing business line and has won many accolades for its unique service offerings. The services include End User Computing Services, Data Center Services, Cross Functional Services, Enterprise Network Services, Security Services, Integrated Operation Management, and Mainframe & AS400 Services.

Enterprise Application Services (EAS) - This groups provides package implementation services in SAP, Oracle and Microsoft in areas like in ERP, SCM, CRM, HCM, EPM, BI and Middleware. In 2008, HCL has acquired Axon Group plc, a pure SAP player. The new company is known as HCLAXON.

Board of Directors: Name Shiv Nadar Vineet Nayar TSR Subramaniam Robin Abrams Subroto Bhattacharya Amal Gadguli Designation Chairman and CSO Vice Chairman and CEO Director Director Director Director 67 | P a g e

Probir Chandra Sen

Director

Financial Analysis:

Particulars
Net Sales Growth Rate
Operating Profit Margin(%) Net Profit Margin(%) Current Ratio TOL/TNW Debt Equity Ratio Interest Cover Debtors Turnover Ratio

2006
18.32
26.69 21 0.99

2007
24.26
24.86 29.11 1.41

2008
22.47
26.58 16.68 1.12

2009
1.29
29.72 20.63 1.59

2010
8.63
27.83 20.18 1.92

0.01
0.01 62.16 6.37

0.01
0.01 68.58 5.55

0.01
0.01 62.07 5.45

0.15
0.15 51.14 3.79

0.28
0.28 13.24 2.84

Strengths
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Wide Range of Products and Services like Bpo s, Software Services, Infrastructure Management which cater into both large and medium size companies. Global Coverage in countries like U.S, Europe, Japan etc Strong employees base of upto 50000Pax. Support sales activities by understanding the customer business better. Keep uptodate on what competition is doing. Its revenue has increased from 60.7bn in 2007 from 114bn in2009 which shows its increasing trend.

Weakness One of the key weakness of HCL is that it has lost projects in continuation like recently BFSI cuts projects. HCL has always a weakness in TIER1 sectors. 68 | P a g e

Total asset turnover is one of the weakness of HCL as they has always failed to materialize its assets in right direction. Lack of innovation and distribution network especially in case of laptops has reflected HCL s weakness.

CHALLENGES FACED BY THE INDIAN IT INDUSTRY:

1. Indian software industry has become expensive due to the rapid increases in the cost for the manpower. These days the salaries of the middle to top management of any organization are comparable to the costs in the developed nations, add to that the salaries of the lower levels such as the team leaders and the developers has also increased at around 10-20% every year. This increase in the salaries without correspondent increase in output levels per person is eating into the profit levels of the software services companies. 2. Though initially India provided less expensive highly skilled manpower; currently it has ran out of that skilled manpower and whatever manpower is available is either not skilled enough or very expensive. 3. Indian Education system is not able to output the skilled manpower in terms of skill level in the numbers required. The quality is sore point when comes to the education. There are only a few Indian universities and institutions which can be regarde of international d quality. The better educational institutions are highly subsidized by the government and 69 | P a g e

hence the development of the same has not been as good as it could have been and money making has been the sole criteria when it comes to the private sector institutions. There are some good institutions in the private sector as well but they are as expensive as any in the developed nations. 4. Infrastructure in India has not been able to keep pace with sustained development in the software industry. e.g. the rental in the housing markets have increased nearly 4 fold in last 5 years, however the incomes for these software professionals have not increased in the same proportion. Further added is the traffic levels in the software dominated cities is another example of the bottlenecks in the infrastructure. 5. Due to the high Dollar inflows into the county due to its lucrative stock market return the Indian Rupee has become very strong compared to the Dollar. The government is also not keen to improve the situation due to the high prices of crude petroleum in the international markets since the petroleum products are highly subsidized in India and any weakening of Indian Rupee will add to the subsidy burden. 6. The Eastern European countries provide as much cost benefit as Indians do and they currently are as competitive as Indians are in cost. Similarly other Asian countries are exhibiting better cost benefit advantage compared to Indian Software Industry. 7. The Advantage for the Indian software industry has been its early beginning, and a large English Speaking population the highest in the world. But due to the globalization of economy that advantage is not significant anymore. We have Indian software professionals working in non-English speaking countries similarly now manpower from less expensive non-English speaking countries is trying to compete for the big bucks of Software Services Industry.

ROAD AHEAD:
The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise. According to a report prepared by McKinsey for NASSCOM called 'Perspective 2020: Transform Business, Transform India' released in May 2009, the exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020. Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities emerge in areas such as public sector and healthcare and as geographies including Brazil, Russia, China and Japan opt for greater outsourcing. 70 | P a g e

References:

http://www.ibef.org/industry/informationtechnology.aspx http://www.ibef.org/artdispview.aspx?in=38&art_id=28088&cat_id=121&page=2 http://www.scribd.com/doc/22813031/Comparative-Analysis-of-Indian-I-T-Industry http://www.mahindrasatyam.com/corporate/about_us.asp http://www.authorstream.com/Presentation/aSGuest83712-796852-tcs/ http://www.scribd.com/doc/32322839/COMPANY-PROFILE-2010-infosys

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