Comprehensive Pack

IT Services

1
• Industry Overview :3

• Exports

• Operating Parameters :9

• Analysis of Risks : 20

• Growth Outlook : 34

• Domestic Market : 51

• Cloud Computing : 56

• Analytics : 74

2
 Industry Overview

3
 Though global IT industry has been growing at 5.9% CAGR,
IT services segment growth has been muted.

GLOBAL SIZE AND SEGMENTATION

Source: Nasscom
4
 US and EMEA account for 80% of the global IT spending.

IT/ITES REGION-WISE SPENDING

Source: Crisil Research

5
 Size of Indian IT industry is $166 bn and exports constitute
76%.

Indian IT industry Overview

Source: Nasscom, Crisil Research

6
 Proportion of exports have increased from 69% in 2011-12 to
76% in 2017-18.

Indian IT industry : EXPORTS VS DOMESTIC MIX

2011-12 2017-18

Exports 69% 76%

Domestic 32% 24%

Source:, Nasscom
7
Indian IT industry : TOP 4 PLAYER’S GROWTH

Note: Top 4 players in the consideration set are TCS, Infosys, Wipro, HCL

Source: Company Reports, Nasscom

8
 Operating parameters

9
KEY OPERATING PARAMETERS

• Margins

• Billing Rates

• Onsite Billing

• Utilization Rates

• Employee costs, attrition and additions

• R&D spend

• Type of contracts

10
 Net Margins have remained static over the years due to cost
cutting of IT players.

NET MARGINS

Source: Company reports, CRISIL Research

11
 Billing rates for the Indian IT players have remained flat over
the last few years.

Billing Rate

•Indian IT services exporters

have not been able to raise

billing rates over the past few

years, ever since the financial

crisis in 2008-09.

Source: Nasscom
12
 Though the proportion of onsite billing is maintained, several
factors have made Indian IT companies to hire locals for their
onsite roles.
• Players face several issues in
SHARE OF ONSITE IN THE OVERALL MIX onsite front:
 'Protect And Grow
American Jobs Act‘ to
increase jobs for locals.
 Proposal to increase
minimum wage for H-1B
workers from $60,000 to
$100,000.
 Barring the spouse of H1B
visa workers from seeking
employment.
• Indian IT players are expected
to increase local hiring as short-
term solution.
• Thus, Infosys has already
announced plans to hire around
Source: Company reports, CRISIL Research 10,000 local employees in the
13 United States.
 Utilization rates have peaked and further increase in utilization
is not possible.

Utilization Rates (including trainees) at all-time high

Source: Company reports, CRISIL Research

14
 Employee costs of Tier-1 companies are lower than that of the
mid-tier companies due to economies of scale.

Employee Costs as % of Revenues

Source: Crisil Research

15
FOCUS ON TIER 2 CITIES

• Companies are expanding their delivery centres to Tier II cities, which have

much lower rents/capital value and hence give a cost advantage.

• In recent years, many such centres have come up in Tier II cities.

• In fact, 55% of Infosys’s new capacity addition under construction (by

number of seats) are in Tier II cities.

16
 Employee attrition rate has been around 15%.

EMPLOYEE ATTRITION RATES

Source: Company Reports, Nasscom

17
 While Indian firms have increased their R&D budgets, they lag
behind their international peers.

R & D SPEND
While the consolidated annual

R&D budget for Wipro is around

$50 million and that for Infosys

was nearly $120 million, they

both dwarf the amount put in by

their international competitors

like IBM, which had a $6 - $6.5

billion annually in R&D.

18
 Due to Client pressure, Indian IT services companies have been slowly
moving towards fixed-price contracts with service-level agreements
(SLAs).

FIXED PRICE CONTRACTS WITH SLAs ON THE RISE

• Clients want tighter control on

costs and productivity

• Indian IT companies have begun

designing productivity-linked

contracts to provide greater value

to clients and are thus investing

more in improving clients‘

Source: Company Reports, Crisil Research processes.

19
 Analysis of Risks

20
 Type of Risks

• CURRENCY RISKS
• POLITICAL RISKS
• COMPETITION FROM LOW COST COUNTRIES
• GEOGRAPHICAL RISKS
• AUTOMATION RISKS
• VERTICAL RISKS
•Verticals are the industries which the clients belong to. Verticals include
BFSI, Telecom, Retail, Pharma, Manufacturing, Logistics etc.
•If a software company is too much dependent on one or two verticals, it is
considered to carry a high vertical risk. (Ex: Aricent Technologies)
• SERVICE LINE RISKS

21
Type of Risks

• SERVICE LINE RISKS

•Service lines are the type of work that a software company is doing for
their clients.
•It could vary between low-end and high-end.
•Low-end Service lines
•Low-end service lines are Programming (CAD), Maintenance,
Support, Testing, Infrastructure Management Services etc.
•These services are highly commoditized and there is strong
competition from low-cost countries.
•Companies typically get $25/hr to $30/hr for the low-end services
•High-end Service lines
•IT consulting, Analytics, Systems Integration are high end service lines.
•IT consulting and Analytics require significant business management
skills and overall business perspective rather than IT and programming
skills.
•Companies command much higher billing rates for these high-end
22services (it could go even upwards of $100 / hr)
ILLUSTRATION OF VERTICAL AND SERVICE LINE RISKS
Service Verticals
Lines
BFSI Tele Manufa Reta Pharma Logistics Utilities Media
com cturing il
Programm
ing
Maintenan
ce
Testing
IMS
Analytics
IT
Consulting

23
Which of these risks affect the Indian IT companies?

• High
• CURRENCY RISKS
• About 75% of industry revenues are
from exports

• POLITICAL RISKS • High

• COMPETITION • High
FROM LOW COST • Competition from countries like
COUNTRIES Vietnam, philipines, China etc
• High
• GEOGRAPHICAL RISKS • 80% of exports to US and UK (62%
to US and 18% to UK)
24
 Indian companies are affected by all these risks in a
big way

• High
• VERTICAL RISKS
• About60% of industry revenues are
from 2 verticals: BFSI and Telecom

• High
• SERVICE LINE RISK • More than 90% of the revenues
come from low-end service lines

25
ILLUSTRATION OF VERTICAL AND SERVICE LINE RISKS
Service Lines Verticals
BFSI Telecom Manufacturing Retail Pharma

Programming (Custom
Application
Development)
Application
Management
Software Testing
Infrastructure
Outsourcing
IT Consulting
Analytics
Systems Integration

26
26
 High end services like Consulting, Analytics etc constitute a
very small proportion of India’s IT exports.

SERVICE LINE MIX OF INDIAN EXPORTS

Source: Nasscom
27
OVERCOMING RISKS

• Difficulty of overcoming a risk involves:

• How much of existing competencies can be transferred?

• How much of new learning or effort or investment is involved?

28
OVERCOMING RISKS
Geographical Risks

BFSI BFSI
Application Development Application Development
US Germany

• This involves understanding the practices (cultural, business and

regulatory) of the new geography
•Existing competencies in Vertical and Service Line will be helpful to
over come this risks

29
OVERCOMING RISKS
Vertical Risks

BFSI Healthcare
Application Development Application Development

• This involves understanding the new vertical

•Services Line Competencies can be used to over come this risks

30
 Service Risks

Application Development, IT Consulting, Analytics

IMS, Support etc

• This risk is very difficult to overcome because:

 Very little of existing competencies can be transferred
 Tough competition from big players (Accenture,
EDS (HP) etc)
 Brand positioning of Indian IT players
• But it is important to overcome the service line risk as:
•This involves moving up the value chain (removing other risks is
more a horizontal movement)
31
• Billing rates can be improved only by moving up the service line risk
 62% of exports from India are to US while around 15% are to UK.

IT EXPORTS BY GEOGRAPHIES

Overall Indian IT Industry TCS (Q4 2018)

Source: Nasscom

32
 About 70% of IT exports are from 2 verticals – BFSI and Telecom.

IT EXPORTS BY VERTICALS
TCS (Q4 2018)
Overall Indian IT Industry

Source: Nasscom
33
 Growth OUTLOOK

34
 Exports growth are expected to be in the range of 7-8% CAGR
between 2018 to 2023.

EXPECTED EXPORTS GROWTH

Source: Crisil Research

35
 About 70% of all incremental growth in IT exports is expected to
be in digital services.

IMPORTANCE OF DIGITAL SERVICES

Source: Nasscom, Crisil Research

36
 Digital growth would be felt across all sectors.

Key factors driving digital growth across segments

Source: Crisil Research

37
 About 80% of all incremental growth in IT exports is expected to
be in digital services.

DIGITAL SERVICES USE CASE BY SECTORS

Source: Nasscom, Crisil Research

38
 Though Indian companies are shifting focus to digital, they are behind
their global peers.

SHARE OF DIGITAL REVENUES

Source: Company Reports

39
 Skill set requirements are changing in the digital era.

SKILL-SET CHANGE IN THE DIGITAL ERA

• In the past when robust coding
knowledge was the major skill
requirement.
• But in digital are, the employees
need to be more adaptive to
change.
• Skills based around application
development, big data analytics,
and knowledge of specialised
languages such as Python are in
Source: NASSCOM, Crisil Research demand today.
40
 Companies have fine tuned their recruitment and reskilling
policies to strengthen their Digital competencies.

RECRUITMENT AND RESKILLING STRATEGIES

• Companies are changing recruitment strategies.
• For instance, lateral hiring and hiring of post graduates have increased.
• Since post graduates in computer and data sciences already posses skills with
respect to digital services they require less training and can be deployed faster.
• Internally too, companies have started up-skilling of employees as it helps
improve utilization, for example:
• Tata Consultancy Services has deployed its Integrated Digital Learning
Platform to impart digital skills to employees, and has been able to train
more than 150,000 employees .
• Wipro has developed a training platform, Newton’s Cradle, to re-skill its
employees. It was been able to impart digital training to more than 40,000
41 employees.
 Companies have fine tuned their recruitment and reskilling
policies to strengthen their Digital competencies.

ACQUISITIONS AND PARTNERSHIPS

• Acquisitions are the fastest mode of technology and intellectual property

acquisition.
• Key focus area for Indian firms has been acquiring firms that specialise in
cloud-based delivery, data analytics and visualisation, and artificial
intelligence, based out of the Silicon Valley or Israel.
• For instance, many companies today utilise Amazon’s cloud services.
• Hence, all Indian Tier I majors, namely, TCS, Infosys, Wipro and HCL, have
partnerships with Amazon in order to provide their services on its cloud
platform.

42
 IT biggies are acquiring niche companies having strength in
SMAC.

ACQUISITIONS TO IMPROVE DIGITAL STRENGTH

Source: Company reports, CRISIL Research

43
 Future employee additions to be skill-driven and not scale-driven

EMPLOYEE STRENGTH DOMESTIC

EXPORTS

Employee additions in the next 5 years would be less than the

additions during the previous 5 years.
44
Source: Crisil Research
 In the future Retail ,Health care and other smaller segments
expected to grow faster than BFSI and Telecom.

VERTICAL- WISE GROWTH

Source: Crisil Research, Nasscom

45
RETAIL VERTICAL

• Growth in E-commerce is expected to provide a boost to the field of purchase

analytics.
• IT service adoption is increasing because of both operational and customer
side requirements:
• Operational: the need to manage logistics, reordering and inventory
control, adoption of technologies like RFID.
• Customer : monitoring consumer opinions on social media and
predicting purchase intentions, engaging customers at every contact
point, adoption of omni-channel platforms, and big data analytics.

46
HEALTHCARE VERTICAL

• As per reports from IBM, data in the healthcare space is currently growing
globally at 48% per year.
• This has driven hospitals in key markets to adopt artificial intelligence (AI)
based patient intelligence services.
• For example, IBM's Watson platform can learn from past records and suggest
treatment options for patients.
• Such services which help improve operating metrics are finding increased
adoption by large healthcare organisations around the world.

47
 BFSI VERTICAL

• The main priorities of banks remain automation, business intelligence,

compliance and security.
• Automation: Automation, aided by artificial intelligence, has also
started gaining traction as banks look to automate certain highly
repetitive tasks such as clearing of lower-valued cheques.
• Business Intelligence: Business intelligence solutions based around big
data and deep learning have also found traction, as in, for instance, the
usage of big data to predict the probability of default.
• Compliance: Dodd Frank Act which was enacted after the 2008-09
financial crisis has increased the compliance requirements.
• Security: Security requirements has been an important source of
revenues
• Insurance: Insurance players have been increasingly investing in data
and analytics to make smarter decisions and gain customer insights
into the development of new products and services. For example, IBM
Watson, an AI based platform, is capable of faster processing and
claims to carry out a detailed analysis of a customer's past records up to
48
25% faster.
 MANUFACTURING VERTICAL

• Digital technologies, Internet of Things to push revenue from manufacturing.

• Use of technology for cost optimization, business process simplification,
predictive diagnosis and maintenance, disaster planning and recovery is also
gaining prominence across users, leading to incremental demand.
• Internet of Things (IoT):
• Companies are increasingly deploying automated robots, increasing
sensor count and investing in machine-to-machine communication
under the IoT framework.
• The large amount of information generated under such a framework
is expected to push demand for suitable software and solutions, to
make sense of generated information.

49
 TELECOM VERTICAL

• Profitability pressures to drive digital adoption by telecom.

• NASSCOM estimates that adoption of technologies like robotic process
automation in areas like database management, customer interaction and
invoice processing can cut costs across ends by 20-30%.
• Other major demand drivers for the segment include customer experience
management, self-service, network optimisation

50
 DOMESTIC MARKET

51
DOMESTIC IT SERVICES REVENUE TREND

Source: Crisil Research

52
 KEY STRENGTHS AND INITIATIVES OF INDIAN IT INDUSTRY

SMAC GROWTH (SOCIAL, MOBILE, ANALYTICS, CLOUD)

• Revenue from implementation of solutions using newer digital

technologies based on SMAC (social, mobile, analytics and cloud) and
artificial intelligence are growing above the industry average.
• They will continue to outperform industry growth for both the next year
and over the long term.

53
 KEY STRENGTHS AND INITIATIVES OF INDIAN IT INDUSTRY

Shift towards offering higher-value services

• Upward movement of players in the value chain to boost billing rates.
• Increased use of cloud technology by large corporate firms and small and medium
enterprises to increase business opportunities.
• Apart from undertaking mergers and acquisitions, Indian players have made
significant investments in in-house training programmes, and external certification
programmes to enhance their capability to offer digital services.
Diversified talent pool:

• India has the largest employable pool of graduates and post-graduates.

• Domain specialists such as chartered accountants, doctors, lawyers, statisticians,
engineers, and MBAs (master of business administration) form ~25% of the Indian
IT services industry workforce.
• This enables vendors to efficiently provide vertical-specific solutions.

54
 KEY STRENGTHS AND INITIATIVES OF INDIAN IT INDUSTRY

Geographical Spread
• Indian companies already cater to around 78 countries and are trying to improve
their access to key markets through acquisitions..

Low cost of operations:

• According to National Association of Software and Services Companies (NASSCOM),
the cost of operations even in Tier-I cities in India is seven times cheaper than Tier 2
cities in source countries and 30-50% lower than other low-cost destinations.

55
 Analytics : How it is used?

56
57
Source: Avendus
58
Source: Avendus
59
Source: Avendus
 Analytics : Overview

60
GLOBAL ANALYTICS INDUSTRY

61
Source: Avendus
 Analytics -service market has been growing at a faster rate.

GLOBAL ANALYTICS INDUSTRY

62
Source: Avendus
INDIAN ANALYTICS MARKET

63
Source: Avendus
TRANSFORMATION FROM INFORMATION TO DECISION-BASED
ANALYTICS

64
 TYPE OF ANALYTICS

DESCRIPTIVE OR DIAGNOSTIC ANALYTICS

•Descriptive analytics is used to understand the trend or pattern in past data.

• Very few basic questions like, "What has happened?", "Why did it
happen?", are answered through descriptive analytics.
•Standard reports on regular basis ( e.g. monthly MIS), adhoc reports, query
drill down to understand various underlying parameters and alerts which
have some predefined constraints are few examples of descriptive analytics.
•It can be performed using standard tools like Microsoft excel, SAS
(Statistical Analysis Software), SPSS (Statistical Product and Service
Solutions) etc.

65
TYPE OF ANALYTICS
PREDICTIVE ANALYTICS
•Predictive analytics is used to forecast future trends or patterns in various
scenarios.
•Questions like - "What is going to happen tomorrow to a particular
parameter (e.g. sales, profit, etc)?", "What will happen if there is a
constraint?" - are answered through predictive analytics.
•Statistical modeling, forecasting or predictive modeling fall in this
category.
•Although, predictive analytics can be performed using standard tools
similar to descriptive analytics, it requires significant statistical and domain
knowledge to predict the future.
66
TYPE OF ANALYTICS
PRESCRIPTIVE ANALYTICS
•Prescriptive analytics is used to prescribe optimum action for the
company to achieve some target within a set of constraints.
•Questions like - "What is the right thing to do to increase sales?", "How
to spend my advertising money?", "What is the right price at which this
product should be launched?" - are answered through prescriptive
analytics.
•Optimisation using scenario analysis, predicting future constraints are
few actions which are known as prescriptive analytics.
•Doing this not only requires high level of business knowledge, but also
super computers to process various forms of complex data and constraints
within
67
limited time.
ANALYTICS: TRENDS
• Analytics adoption has seen rapid growth for the past few years
• Analytics players like EXL has grown at an average rate of ~50% from fiscals
2015 to 2018.
• Presently, most analytics focus on descriptive and diagnostic offerings
• However, going forward, the industry to move towards predictive analytics
Later, prescriptive analytics wherein analysis of the action which needs to be
taken, will become dominant.
• Key to this will be Artificial Intelligence, wherein decisions are taken based on
algorithms and Natural Language Processing (NLP) as it allows for better data
capture for decision taking.

68
RECENT MERGERS AND ACQUISITIONS • M & As to acquire new

capabilities and technologies.

• For example,

 HGS has acquired Inbenta,

which specialises in the AI and

NLP domain

 EXL has acquired SCIO

Inspire, which focuses on

healthcare analytics.
69
INDIAN ANALYTICS COMPANIES BY VERTICALS AND SEGMENTS

INDIAN ANALYTICS INDIAN ANALYTICS

FIRMS BY SEGMENT FIRMS BY VERTICALS

70
Source: Avendus
 Customer Analytics, Financial Analytics, HR Analytics are the
widely used services.

HORIZONTAL AND VERTICAL MAPPING

71
Source: Avendus
 SERVICES AND PLAYERS

72
 SERVICES AND PLAYERS

73
 ANALYTICS: GROWTH DRIVERS

74
 WHAT’S DRIVING ANALYTICS INDUSTRY?

75
Source: Avendus
 MAJOR TECHNOLOGY DRIVERS FOR THE INDUSTRY

76
Source: Avendus
 OTHER GROWTH DRIVERS

77
Source: Avendus
 OTHER GROWTH DRIVERS

78
Source: Avendus
79
 ANALYTICS : PLAYERS

80
 GLOBAL PLAYERS

81 Source: Avendus
 INDIAN PLAYERS

82
Source: Avendus
 INITIATIVE BY MAJOR PLAYERS IN ANALYTICS SPACE

83
Source: Avendus
 INITIATIVE BY MAJOR PLAYERS IN ANALYTICS SPACE

84
Source: Avendus
 INITIATIVE BY MAJOR PLAYERS IN ANALYTICS SPACE

85
Source: Avendus