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SECTOR COVERAGE

Date: - 29TH Oct 2013

Information Technology
The information technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth. Information Technology (IT) is defined as the design, development, implementation and management of computer-based information systems, particularly software applications and computer hardware. Today, it has grown to cover most aspects of computing and technology. The ITES industry provides services that are delivered over telecom or data network to a range of external business areas. Examples of such business process outsourcing (BPO) include customer service, web-content development, back office management and network consultancy etc. The Indian IT and ITES industry has continued to perform its role as the most consistent growth driver for the economy. Service, software exports and BPO remain the mainstay of the sector. Over the last five years, the IT and ITES industry has grown at a remarkable pace. A majority of the Fortune 500 and Global 2000 corporations are sourcing IT and ITES from India and it is the premier destination for the global sourcing of IT and ITES accounting for 55 per cent of the global market in offshore IT services and garnering 35 per cent of the ITES/BPO market. India is one of the fastest-growing IT services markets in the world and there are reports that three-quarters of large Indian enterprises are planning to increase IT spending in 2013, with an average IT budget of $ 12.2 million. The BPO sector including the domestic and exports segments continue to grow from strength to strength, witnessing high levels of activity both onshore as well as offshore. The companies continue to move up the value-chain to offer higher end research and analytics services to their clients. India's leadership position in the global IT and BPO industries are based primarily on the following advantages. India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to touch $ 84 billion - $ 87 billion. The Indian IT infrastructure market is projected to grow by 9.7 per cent y-o-y to reach $ 2.1 billion in 2013. IT Industry body National Association of Software and Services Companies (Nasscom) has created a separate unit to drive its new found enthusiasm for software products, and has set a target of $ 10 billion in revenues from software products by 2020. Growth Nasscom forecast information technology (IT) exports from India will grow 12-14% in the next fiscal, faster than the revised 10.9% growth it predicted for the year to 31 March, as economic recovery in the US and Europe may prompt more companies to farm out work to India to save costs. An increase in global technology spending and opportunities created through adoption of technologies such as social media, mobility analytics and cloud computing are expected to spur growth in 2013-14. In fiscal 2014, India's information technology and business process management (IT-BPM) industry is likely to add $12-15 billion incremental revenue, a measure of market share growth that has evolved as the new benchmark for the Indian IT sector. The local IT market is expected to grow at 13-15%, driven by spends by the government and the banking, financial services and insurance (BFSI) sector

Exports of computer software and information technology services

India's ITeS exports have lost momentum, as per the recently released Reserve Bank of India's annual survey of exports of computer software and information technology services indicates that over the five-year period since 2007-08, though exports of both computer-related services and overall software services have increased, the pace has been lethargic. After recording relatively low rates of growth of 4.6 and 6.3 per cent in 2008-09 and 2009-10, the industry appeared to be recovering its past momentum, with the rate touching 23 per cent in 201112. But the growth rate has slumped again to 9 per cent in 2011-12. To make the BoP and annual export survey figures comparable, the RBI adds on the exports of the overseas subsidiaries of Indian companies to its estimate of the exports of domestic firms. This total is close to, though not exactly equal to, the NASSCOM figure that is used in the balance of payments statistics. This is an advantage since the NASSCOM figures are available for a longer time period. If India's export performance in software and ITeS is measured using the NASSCOM-BoP figures, the slowdown in export growth is even sharper.

The annual rate of growth of 'software services exports' rose from 19 to 38 per cent between 2001-02 and 200405, only to decline thereafter to a low of 7.4 per cent in 2009-10. It has since fluctuated in the 6-12 per cent range. This loss of software and ITeS export momentum at a time when India's current account deficit is wide, leading to a weakening of the rupee and uncertainty about the stability of capital flows, is of much significance. If we take the year 2012-13, provisional figures suggest that net invisible receipts (from services, remittances and income from abroad), helped cover as much as 54 per cent of India's merchandise trade deficit or excess of goods imports over goods exports. Of these invisibles, net software export earnings amounted to as much as 60 per cent. Hence, if the merchandise trade deficit remains high and rises, while software exports stagnate, the impact on the current account deficit, India's overall balance of payments and the rupee can be damaging. 2

Indian exports of software and IT-enabled services have been dependent on a few developed English-speaking markets and with the developed-countries still grappling with growth concerns, especially the US, the Indian IT industry will take time to recover. Indian rupee deprecation India rupee, the worst performer among Asian currencies this year, plunged to a new historic low of 68/$ on concerns about the impact on government's worsening finances while implementing the much-hyped food security Bill, which promises heavily subsidized grains to the poor. The currency has been into a tailspin after Federal Reserve Chairman Ben Bernanke indicated that the quantitative easing programme could be tapered later in the year. Any, tapering in liquidity by the US Fed on improved prospects would mean a reversal of dollar inflows from emerging economies like India The falling Indian currency is a perfect metaphor for the free fall of Indian economy seems to be in, given the sub 5% GDP growth, snail-paced recovery in Industrial activity, burgeoning Current Account Deficit (CAD) and worrisome issue of global investors pulling out capital. A weak currency might worsen the already-stressed trade deficit but on the same time a weaker rupee is good news for Indian software firms, most of whom derive over half of their revenue from the US. On average one percentage point depreciation in the rupee translates into a 30-50 bps gain in operating margins for information technology (IT) companies.

Government Initiatives for the sector FDI up to 100 per cent under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing & Analysis services. The Government of India's move to do away with the mandatory requirement of 10 hectares of minimum land area for setting up an IT and ITeS special economic zones (SEZ) is expected to provide a major boost to the real estate and IT sector. The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims to increase revenues of IT and ITES industry from $ 100 billion to US$ 300 billion by 2020 and expand exports from $69 billion to $ 200 billion by 2020. The Government of India also plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model. Not only the central government but various state government's too are taking various measures for the growth of the IT sector- The Government of West Bengal plans to spend Rs 41 crore ($ 7.37 million) to roll out citizen-centric services electronically across 19 districts including Kolkata. Kerala has set an ambitious target of becoming a cent per cent digital state in governance. The State has around 600 small, medium and large IT firms employing over 80,000 professionals directly and nearly three times the number indirectly. Concerns Indian IT companies are concerned about a proposed US legislation that restricts the issue of H1-B visas. Key points of the legislation include, requiring all companies to make a good faith effort to hire Americans first; prohibiting employers from advertising only to H1B visa holders; and prohibiting companies from outsourcing visa holders to other companies. It was reported that of the top 12 companies which bagged more than 40,000 of the 134,740 H1B visas approved in 2012 all had a strong India presence. India has long lobbied against a 2010 U.S. 3

law that significantly increased fees for visa applications, saying it violates the country's commitments on trade in services. Government has been saying that it will file a formal complaint to the World Trade Organization against the US over its visa policies. Though, industry body NASSCOM has said that Indian software industry need not panic at the US Immigration Bill as some of the provisions are positive and another bill is also under preparation by the American government which is has positive features for the domestic industry. Though, the legislation is still not a law but if implement, the higher visa fee will effectively reduce the availability of visas. Road Ahead Globalization has a profound impact in shaping the Indian IT industry over the years with India capturing a sizeable chunk of the global market for technology sourcing and business services. Over the years the growth drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency and sustainable energy. Traditional business strongholds would make way for new geographies, there would be new customers and more and more of SMEs will go for IT application and services. Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also extended to IT sector for STPI and SEZs. Further, the country is providing procedural ease and single window clearance for setting up facilities. Growth in offshoring is expected to outclass the growth in overall IT spend across the various verticals. Offshoring as a per cent of total spend is also expected to rise across the various verticals. India has the opportunity to tap the growing offshoring market with its cost advantage, expertise and huge talent pool. Going forwards the Indian IT sector is likely to derive nearly 20 percent of the business from new geographies by 2020 with transport, healthcare, utilities, media and others adding to the present verticals of financial services, hi-tech and telecom and manufacturing sectors being served by Indian companies. Industry Statistical Analysis Key Industry ratio Description Company count Margin Ratios EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) Performance Ratios ROA(%) ROE(%) ROCE(%) Asset Turnover(x) Sales/Fixed Asset(x) Working Capital/Sales(x) Efficiency Ratios Fixed Capital/Sales(x) Receivable days Inventory Days Payable days Growth Ratio Net Sales Growth(%) Core EBITDA Growth(%) EBIT Growth(%) PAT Growth(%) Financial Stability Ratios Total Debt/Equity(%) Current Ratio(x) Quick Ratio(x) Interest Cover(x)

2013 97 31 28.05 27.06 17.82 25.96 30.47 0.85 3.58 2.41 0.28 81.66 2.11 43.06 16.44 14.98 12.7 12.52 0.13 2.27 2.26 28.47

2012 97 31.37 28.96 27.82 18.61 26.96 31.5 0.85 3.58 2.47 0.28 76.94 2.7 41.31 22.75 26.97 31.25 21.96 0.13 2.29 2.27 25.46

2011 97 30.32 27.08 26.31 17.93 26.31 28.08 0.82 3.44 2.33 0.29 71.62 2.92 38.75 18.74 14.51 14.67 12.68 0.14 2.38 2.35 35.24

2010 97 31.44 28.04 27.31 18.87 28.58 29.57 0.82 3.35 1.84 0.3 74.96 2.85 35.45 5.41 22.32 25.38 20.65 0.17 2.81 2.79 38.43

2009 97 27.09 23.57 22.99 19.12 28.79 28.79 0.95 3.99 2.4 0.25 72.84 2.44 27.87 23.83 9.59 7.5 6.19 0.16 2.53 2.51 40.67

Aggregated Industry Balance Sheet DESCRIPTION No of Companies Share Capital Share Warrants & Outstandings Total Reserves Shareholder's Funds Minority Interest Long-Term Borrowings Secured Loans Unsecured Loans Deferred Tax Assets / Liabilities Other Long Term Liabilities Long Term Trade Payables Long Term Provisions Total Non-Current Liabilities Trade Payables Other Current Liabilities Short Term Borrowings Short Term Provisions Total Current Liabilities Total Liabilities Non-Current Assets Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment A/c Capital Work in Progress Intangible assets under development Pre-operative Expenses pending Assets in transit Non Current Investments Long Term Loans & Advances Other Non Current Assets Total Non-Current Assets Currents Investments Inventories Sundry Debtors Cash and Bank Other Current Assets Short Term Loans and Advances Total Current Assets Miscellaneous Expenses not written off Total Assets Contingent Liabilities Book Value Adjusted Book Value Total Current Assets Excluding Current Investments Net Current Assets (Including Current Investments) Total Debt

2009 97 3564.4 527.68 72852.76 76944.84 552.81 4187.99 10710.82 -442.43

2010 97 3798.63 508.91 91194.43 95501.96 614.45 7607.33 12233.98 -1048.57

14456.38 9179.07 12996.58 8583.82 30759.46 122713.49 53395.26 16227.78 0.06 37167.42 5367.61

18792.74 11052 11120.67 13311.45 35484.12 150393.28 61340.39 19339.02 21.72 41979.65 5483.74 6.13

2011 97 4204 350.53 111293.61 115848.14 709.54 526.26 5582.38 4948.6 -1110.54 1223.59 76.87 1816.44 12537.35 11947.11 13676.02 6635.41 12488.8 44747.35 173842.38 68345.08 22765.11 147.91 45432.06 3718.59 768.36

2012 97 4174.94 833.98 133272.68 138281.6 878.31 1157.37 6095.03 4779.86 -1155.09 1829.62 127.44 2745.85 14422.71 13103.26 18548.22 7301.28 16086.41 55039.17 208621.79 80068.39 26594.01 158.98 53315.4 4629.79 1012.81

2013 97 4875.1 486.57 156475.12 161836.79 1187.43 1232.95 7291.14 2539.9 -1635.21 1832.9 178.73 3372.73 13580.18 14735.46 23587.88 9667.35 18319.72 66310.4 242914.8 87965.77 30421.91 167.17 57376.69 6171.73 1255.73

2161.74 0 44696.77 5555.47 1166.83 26119.43 25266.51 6513.09 13367.15 77988.49 28.23 122713.49 10545.27 418.39 418.39 72433.02 47229.02 14898.81

5510.03 0 52979.56 13018.91 1300.79 25824.03 30365.59 8589.7 18264.94 97363.96 49.76 150393.28 13670.33 511.55 511.55 84345.06 61879.84 19841.31

5363.19 10243.66 4329.61 69855.47 10560.1 1702.67 32416.23 37589.57 11377.14 10209.92 103855.62 131.28 173842.38 12377.16 644.34 644.34 93295.53 59108.27 19039.88

6126.78 14121.6 5033.24 84239.62 10774.05 2061.86 41504.23 45037.62 15834.07 8865.14 124076.98 305.2 208621.79 12318.81 752.3 752.3 113302.93 69037.81 19995.32

7202.44 16469.45 4542.89 93018.93 16512.61 1714.46 46821.58 49991.08 19977.45 14343.55 149360.73 535.14 242914.8 14252.13 881.03 881.03 132848.12 83050.33 23578.92 5

Aggregated Industry Profit & Loss Statement DESCRIPTION No of Companies Gross Sales Less: Inter divisional transfers Less: Sales Returns Less: Excise Duty Net Sales Increase/Decrease in Stock Raw Material Consumed Power & Fuel Cost Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Less: Expenses Capitalised Total Expenditure Operating Profit (Excl OI) Other Income Operating Profit Interest PBDT Depreciation Profit Before Taxation & Exceptional Items Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Extra items Minority Interest Share of Associate Other Consolidated Items Consolidated Net Profit Adjustments to PAT Profit Balance B/F Appropriations Equity Dividend % Earnings Per Share Adjusted EPS

2009 97 119055.44

2010 97 128933.44

2011 97 152240.67

2012 97 187492.22

2013 97 219810.37

128.79 118926.65 -132.72 6623.65 926.1 56211.88 6985.96 10410.18 1099.51 4538.22 92936.92 25989.73 3256.41 29246.13 766.11 28480.03 3838.44 24641.58 -203.13 24438.45 3368.49 21069.96 40.69 -109.02 97.17 21098.81 -28.79 24239.62 45309.63 1400 104.69 104.69

102.71 128830.72 -174.08 6879.73 1019.54 61083.57 6629.9 10356.89 1181.39 2979.78 97199.9 31630.82 3379.25 35010.08 1053.96 33956.11 4413.76 29542.35 -64.9 29477.45 4915.1 24562.35 71.06 -145.96 141.21 24628.66 20.54 34920.67 59569.86 2000 108.71 108.71

118.65 152122.02 -45.36 7991.56 1178.92 73583.21 6856.8 11686.01 1151.1 2630.24 115278.28 36843.74 4080.24 40923.98 1204.77 39719.21 4779.62 34939.59 -174.03 34765.56 6397.54 28368.02 -202.3 34.12 -0.3 28199.54 18.46 44766.42 72984.41 1400 132.43 132.43

130.99 187361.23 -208.25 11160.9 1367.96 91063.53 8581.53 13275.67 1446.68 3779.51 144086.16 43275.08 6428.06 49703.14 1598.33 48104.81 5579.55 42525.26 -154.77 42370.49 10629.55 31740.93 -22.67 -167.17 687.84 1.04 32239.98 88.55 58915.51 91244.04 2500 145.66 145.66

11.6 219798.78 -220.72 8210.76 1574.49 111322.8 11499.7 14948.6 1042.63 3958.54 168441.07 51357.71 6864.46 58222.16 1841.26 56380.9 6588.23 49792.67 -249.62 49543.05 12169.26 37373.79 -20.16 -244.22 603.05 -22.79 37689.67 -502.58 75171.71 112358.81 2200 164.84 164.84

Aggregated Industry Cash Flow Statement DESCRIPTION No of Companies Gross Sales Less: Inter divisional transfers Less: Sales Returns Less: Excise Duty Net Sales Increase/Decrease in Stock Raw Material Consumed Power & Fuel Cost Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Less: Expenses Capitalised Total Expenditure Operating Profit (Excl OI) Other Income Operating Profit Interest PBDT Depreciation Profit Before Taxation & Exceptional Items Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Extra items Minority Interest Share of Associate Other Consolidated Items Consolidated Net Profit Adjustments to PAT Profit Balance B/F Appropriations Equity Dividend % Earnings Per Share Adjusted EPS

2009 97 119055.44

2010 97 128933.44

2011 97 152240.67

2012 97 187492.22

2013 97 219810.37

128.79 118926.65 -132.72 6623.65 926.1 56211.88 6985.96 10410.18 1099.51 4538.22 92936.92 25989.73 3256.41 29246.13 766.11 28480.03 3838.44 24641.58 -203.13 24438.45 3368.49 21069.96 40.69 -109.02 97.17 21098.81 -28.79 24239.62 45309.63 1400 104.69 104.69

102.71 128830.72 -174.08 6879.73 1019.54 61083.57 6629.9 10356.89 1181.39 2979.78 97199.9 31630.82 3379.25 35010.08 1053.96 33956.11 4413.76 29542.35 -64.9 29477.45 4915.1 24562.35 71.06 -145.96 141.21 24628.66 20.54 34920.67 59569.86 2000 108.71 108.71

118.65 152122.02 -45.36 7991.56 1178.92 73583.21 6856.8 11686.01 1151.1 2630.24 115278.28 36843.74 4080.24 40923.98 1204.77 39719.21 4779.62 34939.59 -174.03 34765.56 6397.54 28368.02 -202.3 34.12 -0.3 28199.54 18.46 44766.42 72984.41 1400 132.43 132.43

130.99 187361.23 -208.25 11160.9 1367.96 91063.53 8581.53 13275.67 1446.68 3779.51 144086.16 43275.08 6428.06 49703.14 1598.33 48104.81 5579.55 42525.26 -154.77 42370.49 10629.55 31740.93 -22.67 -167.17 687.84 1.04 32239.98 88.55 58915.51 91244.04 2500 145.66 145.66

11.6 219798.78 -220.72 8210.76 1574.49 111322.8 11499.7 14948.6 1042.63 3958.54 168441.07 51357.71 6864.46 58222.16 1841.26 56380.9 6588.23 49792.67 -249.62 49543.05 12169.26 37373.79 -20.16 -244.22 603.05 -22.79 37689.67 -502.58 75171.71 112358.81 2200 164.84 164.84