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Indian IT ITES FY05 Results FY06 Forecast

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  • 8/15/2019 Indian IT ITES FY05 Results FY06 Forecast

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    TM

    This material was used by NASSCOM during an oral presentation; it is not a complete record of the discussion.

    No part of this document may be circulated, quoted, or reproduced for distribution without prior written approval

    from NASSCOM.

    Indian IT-ITES FY05 Results and FY06 Forecast

    S. Ramadorai, Chairman NASSCOM, CEO & MD TCS

    Kiran Karnik, President NASSCOMPress Conference, Bangalore

    June 2, 2005

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    FY05 results have exceeded last years forecasts

    9.211.2 12.0

    3.6

    5.15.23.9

    4.24.8

    FY04 FY05P FY05

    Domestic Market

    ITES-BPO Exports

    IT Software and Services Exports Overall software and services(exports + domestic) grew by 32%against a forecast of 25%

    Exports grew by 34%

    Strong growth validates the

    economics of offshore outsourcing

    Highest growth since the slowdown

    in 2001

    Domestic revenues* grew by 23%

    *FY04 estimate restated (up from USD3.6bn); includes

    value of domestic ITES-BPO; forecast growth of 16.7% was

    on a base of USD 3.6bn

    16.7

    20.5

    22.025%*

    32%

    USD Billion

    Source: NASSCOM

    30.4%

    44.4%

    23.0%

    21.7%

    41.7%

    16.7%*

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    Indian ITES-BPO

    0.3 0.6

    3.6

    5.2

    FY04 FY05

    ExportsDomestic

    Driven by strong fundamentals and broad based growth

    Indian IT Software & Services

    3.64.2

    9.2

    12.0

    FY04 FY05

    ExportsDomestic Software and services* grew by 27%

    Indian vendors establishing theirpresence in high-margin segments

    MNCs ramping-up offshore deliverycapabilities in India

    SME growth about 20-22%

    Increasing interest in R&D /engineering services / embeddedsystems

    FY05 revenue from productdevelopment & R&D services ~USD3.0bn (up from USD 2.3bn in FY04)

    ITES-BPO* grew by nearly 49% Steady growth in traditional services

    Increasing traction in high-endprocess outsourcing

    Growing domestic segmentSource: NASSCOM

    Source: NASSCOM

    * Includes domestic and export revenues

    USD Billion

    USD Billion

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    Market indicators remained strong in FY05

    While US and UK remain the dominant markets

    Indian companies gaining traction in newer geographies; Japan, Germany, Singapore

    Geographical mix

    Focus on improving revenue mix and increasing realizations, utilization

    Mid-sized companies instead emphasizing domain knowledge and process managementskills and demonstrating the value of a focused solutions provider; walking away fromprice-driven deals

    BPO firms balancing voice and non-voice business portfolios to diversify revenue and raiseseat utilization

    Indian players instrumental in cross border M&A activity in IT services and BPO

    Vendor maturity

    Stable pricing environment (marginal upward bias)

    IT Services: Onsite rates USD 55-65 per hour; offshore rates USD 18-26 per hour

    BPO: Wider range; some segments more susceptible to downward pressure

    Cost-margin profile supported by declining technology costs, tighter discretionary controls,

    increased rollout of variable compensation schemes, a shift to lower-cost campus recruits,sales and marketing leverage through more effective account mgmt, and scale economies

    Pricing trends andindustry profitability

    Rapid volume growth; clients continued to ramp up engagement sizes with leading vendors

    Over 660, USD 1mn+ clients with the top-4 players alone up from 441 in FY04

    Steady increase in net client additions across all four quarters

    Client wins / increasedpenetration

    Expansion of services: infrastructure management, network management, consulting New geographies and vertical markets all leading to a sustained demand backdrop

    Growth in addressablemarket

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    And the sector scaled record levels of employment

    242

    360

    416

    490

    588

    697

    348

    254

    180

    10670

    42

    FY00 FY01 FY02 FY03 FY04 FY05

    IT Software and Services

    ITES-BPO

    Industry employee base crossed the 1million mark in FY05 IT Software and services employee base has grown at a CAGR of 23.6% (FY00-05)

    ITES-BPO employee base has grown at a CAGR of 52.6% (FY00-05)

    Indirect employment attributed to IT-ITES 2.5 million in FY05

    CAGR 29.8%

    Employee numbers 000s

    Source: NASSCOM

    37.0%

    18.5%

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    Outlook for FY06 is positive; export growth 30-32%

    9.212.0

    3.6

    5.2

    7.3

    15.2

    FY04 FY05 FY06P

    ITES-BPO Exports

    IT Software and Services Exports Current penetration of IT budgets ofGlobal 1000 clients is low relative tothe opportunity size

    Emerging service opportunities in

    BPO, infrastructure management,

    testing services, consulting, etc. Indias offshore value proposition

    remains the strongest

    Superior offshore process

    management and service delivery

    capabilities

    Talent pool: size does matter esp.

    when you need to scale-up

    12.8

    17.2

    22.5

    USD Billion

    Source: NASSCOM

    30-32%

    25-27%

    40-42%

    30.4%

    44.4%

    34%

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    Forecast growth for domestic market in FY06 25%

    6.0

    4.8

    3.9

    FY04 FY05 FY06P

    Domestic Market

    Growth forecast for the domestic marketis relatively lower highlighting the

    different stages of maturity in the

    markets

    With progressive deregulation and rising

    competition, companies are increasing

    their focus on the domestic market;

    especially on emerging sectors such as

    retail, logistics, telecommunications and

    SMEs

    Significant untapped potential, rapidadoption and small base likely to result

    in high growth (rate) in domestic BPO

    USD Billion

    Source: NASSCOM

    25%

    23%

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    Indian IT-ITES on track to reach USD 50bn exports byFY09

    4.8

    2.64.0

    6.2 7.7

    9.6

    12.8

    17.2

    3.93.02.62.51.9

    1.7

    FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY09^

    DOMESTIC MARKET* EXPORTS*USD Billion

    Source: NASSCOM ^NASSCOM McKinsey Study 2002

    13-15

    50-52

    31.2%

    37.0%

    34.7%

    30.7%

    18.9%

    23.5%

    31.3%FY99-05

    31.2%FY99-09

    31.1%FY05-09

    CAGR

    10 YR TARGET

    ACHIEVED

    REQUIRED

    * Includes IT Software and Services as well as ITES-BPO

    Industry performance tracked continuously andtargets revisited every three years

    NASSCOM-McKinsey Study 1999, 2002 & 2005

    INDUSTRY TOTALPERIOD

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    Key trends likely to shape industry growth in FY06

    Offshore penetration of the Fortune 500 increased by 33% in 2004 (from 300 to400)

    Recent momentum complemented by low penetration levels (value ~2%) will continue todrive rapid offshore adoption

    While a direct face-off between offshore-centric players and global serviceproviders is unlikely (given their differing revenue mix); the degree of competition is

    set to increase: Global IT majors will gain noticeable scale in their offshore service delivery capability

    to be leveraged while bidding for new contracts

    Indian / offshore-centric vendors will steadily gain market share in segments oftraditional IT outsourcing highlighting the adaptability of the offshore model

    Greater global delivery model (GDM) adoption; increased interest in newer offshoredestinations though India is expected to remain the leader

    Pricing trends in BPO likely to be susceptible to downward pressure, increasing theemphasis on operational excellence to sustain margins

    Integration of IT-BPO contracts to become more common

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    While other destinations are also emerging...

    20044.7

    0.5

    0.9

    1.8

    1.9

    12.6

    17.2

    39.6

    Others

    Mexico

    Philippines

    Eastern

    Europe

    China

    Canada

    India

    Total

    200810.0

    1.1

    2.6

    6.4

    5.0

    20.9

    48.0

    94.0

    Others

    Mexico

    Philippines

    Eastern

    Europe

    China

    Canada

    India

    Total

    Total value of outsourcing

    to India USD 17.2bn in

    2004 estimated at 44% of

    the worldwide total Worldwide spend is

    forecast to reach USD

    94bn by 2008

    Value of work outsourced

    to India is forecast to reach

    USD 48bn by 2008

    Source: neoIT

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    India still ranks as the preferred destination

    Comparative rating for offshore destinationsSource: AT Kearney

    5.455.465.585.595.617.12Total

    0.922.632.021.770.931.31Sub Total

    0.170.390.30.220.10.18Security of Intellectual Property

    0.050.430.380.28-0.1Culture adaptability

    0.130.40.280.240.150.2Country infrastructure

    0.571.411.061.030.680.83Country risk

    Business Environment (Scale: 1-3)

    0.941.360.920.731.362.09Sub Total

    0.110.170.180.11-0.13Employee retention

    0.140.250.170.140.070.21Language

    0.190.330.330.270.210.25Education

    0.08-0.010.020.60.47Size & availability of labour

    0.420.610.230.190.481.03BPO experience

    People Skills and Availability (Scale: 1-3)

    3.591.472.643.093.323.72Sub Total

    0.230.340.130.260.090.3Tax and regulatory

    0.220.220.270.330.230.23Infrastructure cost

    3.140.912.242.533.19Compensation

    Financial Structure (Scale: 1-4)

    PhilippinesSingapore

    Czech

    RepublicMalaysiaChinaIndiaFactors

    1

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    Sustained competitiveness in spite of rising people costs

    Source: GECIS

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    Five Ss For IT Take-off

    Expand Skill sets to create value

    Bigger pool to stem attrition/wage inflation

    Create academic Alliances through UGC

    Skills certification for BPO-entry level

    Certification for front line supervisors

    SKILLS

    Secure Destination for added value

    Strengthen IT Act further

    4E framework for trusted Sourcing

    Improve Data Protection & Privacy Laws

    India as a Centre of Process Excellence

    SECURITY

    Synergize to capture value

    Sharing knowledge & learning's

    Co-operate and compete to grow

    Hardware Software synergies

    SYNERGY

    Scale New Ground

    Bring growth to Tier I & II towns

    GATS to ensure people movement

    Emphasize off-shoring benefits

    SCALABILITY

    Score Globally With R&DCollaborate with Academia

    Forge Alliances

    SCORE

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    Idea generation

    Create

    business

    Propositions

    Drive and

    Shape

    Industry

    People

    SpeedProductivity

    Scalable Architecture

    Real Time

    SystemsIPR

    Create Standards

    Brand Creation

    Productization

    Collaborate with

    Educational Institutes

    to attract people

    Invest in R&DEncourage entrepreneurship

    Solution mindset

    Collaborate

    with Academia

    Incubation labs

    Innovating to Stay Ahead

    NASSCOM as

    Facilitating Body


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