Second-largest subscriber base
• With a subscriber base of nearly 898 million, India has the second-largest telecom network in the world
Third-highest number of internet users
• With 25.3 million internet subscriptions, India stood third-highest in terms of total internet users in 2012
Rising penetration rate • Urban teledensity stood at 147 per cent and rural teledensity is 41 per cent as of March
2013, up from 111 per cent and 21.2 per cent, respectively, in 2009
Affordability and lower rates
• Availability of affordable smartphones and lower rates are expected to drive growth in the Indian telecom industry
Source: Planning commission, Aranca Research
• The engineering sector is delicensed; 100 per cent FDI is allowed in the sector
• Due to policy support, there was cumulative FDI of USD14.0 billion into the sector over April 2000 – February 2012, making up 8.6 per cent of total FDI into the country in that period
Growing demand
Source: BMI (Business Monitor international) Report, Aranca Research Notes: * figure for 2013 is up to March 2013; MNP - Mobile Number Portability; E - Estimates (2016E - Estimates for 2016)
Robust demand
• India is the world’s second-largest telecommunications market, with 898 million subscribers as of March 2013
• With 70 per cent of population staying in rural areas, the rural market will be a key growth driver in coming years
Attractive opportunities
• Telecom penetration in the nation’s rural markets is expected to increase to 70 per cent by 2017 from the 41.0 per cent as of March 2013
• India is expected to feature among the top 10 broadband markets by 2013
Policy support
• The government has been proactive in its efforts to transform India into a global telecommunication hub; prudent regulatory support has also helped
• National Telecom Policy 2012 proposes unified licensing, full MNP and free roaming
High ratings
• The country has a strong telecommunication infrastructure
• In telecommunication ratings, India ranks ahead of peers in the West and Asia
2013*
Number of subscriber: 898 million
FY16E
Number of subscriber:
1.2 billion
Advantage India
Source: Aranca Research
• Comprises establishments operating and maintaining switching and transmission facilities to provide direct communications via airwaves
• Consists of companies that operate and maintain switching and transmission facilities to provide direct communications through landlines, microwave or a combination of landlines and satellite link-ups
• Includes internet service providers (ISPs) that offer broadband internet connections through consumer and corporate channels
Mobile (wireless)
Fixed line (wireline)
Internet services
Telecom
Worldwide, India is currently the second-largest telecommunication market and has the third highest number of internet users
India’s telephone subscriber base expanded at a CAGR of 26.8 per cent to 895.5 million during 2007-12
Teledensity (defined as the number of telephone connections for every hundred individuals) increased from 23.9 in 2007 to 73.3 in 2012
In March 2013, the total telephone subscription was 898 million, while teledensity was 73.3
Growth in total subscribers
23.9
33.2
47.9
66.2 70.9 73.3 73.32
20
40
60
80
200
400
600
800
1,000
2007 2008 2009 2010 2011 2012 2013*
Telephone subscribers (Millions) Teledensity- (RHS)
Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate
2013* - Data as of March 2013
Wireless and wireline revenues (USD billion) Indian telecom sector’s revenue grew by 13.4 per cent to USD64.1 billion in FY12
Wireless and wireline revenue increased at a CAGR* of 11.9 per cent to USD40.8 billion over FY07-12.
Revenues from the telecom equipment segment in FY12 stood at USD23.5 billion as compared to USD23.4 billion in FY11
For 9M’13, the telecom sector’s revenue grew to USD30.6 billion
23.2
32.1
33.1 33.3 37.7
40.8
FY07 FY08 FY09 FY10 FY11 FY12
Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate
*CAGR has been calculated in Indian Rupee terms
CAGR*:11.9%
Composition of telephone subscribers (2013*) India’s telephone subscriber base reached 898 million in March 2013
The wireless segment (96.6 per cent of total telephone subscriptions) dominates the market, while the wireline segment accounts for the rest
Urban regions account for 61.1 per cent of telecom subscriptions, while rural areas constitute the remaining
Urban Wireless,
58.4%
Rural Wireless,
38.2%
Urban Wireline,
2.6%
Rural Wireline,
0.8%
Source: Telecom Regulatory Authority of India, Aranca Research Notes: 2013* - Data as of March 2013
Wireless subscriptions (in million) During 2006–12, wireless subscriptions increased at a CAGR of 34.0 per cent to 864.7 million
In 2013*, while urban wireless teledensity stood at 140.7, rural teledensity stood at 40.2
The subscriber base declined slightly due to disconnection of inactive mobile subscribers
150
234
347
525
752
894 865 862
2006 2007 2008 2009 2010 2011 2012 2013*
CAGR: 34.0%
Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate
2013* - Data as of March 2013
Growth in Wireless teledensity The mobile segment’s teledensity surged 5.3x from 13.5 per cent in 2006 to 70.9 per cent in 2013*
GSM services continue to dominate the wireless market with an 88.1 per cent share (June 2012); CDMA accounts for the remaining 10.9 per cent
70.9%
70.8%
74.2%
63.2%
44.7%
30.0%
20.4%
13.5%
2013*
2012
2011
2010
2009
2008
2007
2006
Source: Telecom Regulatory Authority of India, Aranca Research Notes: Teledensity - The number of telephone lines for every 100
people in a country, GSM - Global System for Mobile Communications, CDMA - Code Division Multiple Access
2013* - Data as of March 2013
Wireless market share in terms of total subscribers (2013*)
Bharti Airtel is the market leader, with a 21.7 per cent share of total subscription; Vodafone follows with a 17.6 per cent share market share
The top five players – Bharti Airtel, Vodafone, Reliance, Idea, and BSNL – account for over 79 per cent of the total subscribers
21.7%
17.6%
14.2%
14.0%
11.7%
7.7%
6.9%
3.7% 1.4%
1.3% Bharti Airtel
Vodafone
Reliance
Idea
BSNL
Tata
Aircel
Unitech
Sistema
Others
Source: Telecom Regulatory Authority of India, Aranca Research Notes: BSNL - Bharat Sanchar Nigam Limited
2013* - Data as of March 2013
Fixed line segment subscription and teledensity
Total fixed line subscription stood at 30.2 million, while teledensity reached 2.5 per cent due to wide usability of wireless segment in 2013*
BSNL is the market leader with a 67.7 per cent share followed by MTNL with 11.5 per cent market share
BSNL, MTNL, and Bharti together account for 90 per cent of the total fixed-line market
Fixed line market share (2013*)
2.0%
3.0%
4.0%
25
28
31
34
37
40
2006 2007 2008 2009 2010 2011 2012 2013*
Wireline subscription (Millions)
67.7%
11.5%
10.9%
5.0%
4.1%
0.9%
BSNL
MTNL
Bharti
Tata
Reliance
Others
Source: Telecom Regulatory Authority of India, Aranca Research Notes: BSNL - Bharat Sanchar Nigam Limited
2013 * - Data as of March 2013
Internet subscriptions (in million) The number of Internet subscribers increased at a CAGR of 19.7 per cent to 25.3 million in 2012 from 8.6 million in 2006
By 2016, internet subscriptions are expected to rise to 215.0 million, with a penetration rate of 16.2 per cent
8.6 10.4
12.9
15.2
18.7
22.4
25.3
2006 2007 2008 2009 2010 2011 2012
Source: Telecom Regulatory Authority of India, Business Monitor International, Aranca Research
Notes: CAGR - Compound Annual Growth Rate; BSNL - Bharat Sanchar Nigam Ltd
CAGR: 19.7%
Total internet service providers revenues in USD billion
Total internet service provider’s revenues stood at USD2.2 billion in 2012, CAGR* of 12.2 per cent over 2009-12
1.8
2.1 1.9
2.2
2009 2010 2011 2012
Source: Telecom Regulatory Authority of India, Aranca Research Notes: CAGR - Compound Annual Growth Rate
*CAGR has been calculated in Indian Rupee Terms
CAGR*: 12.2%
Broadband subscriptions (in million) Broadband subscription increased at a CAGR of 38.8 per cent during 2006–12
Growth is set to pick up pace even further; the market is set to post a CAGR of 72.1 per cent during 2011–15, with subscriptions increasing to 117.6 million by end-2015
Broadband subscription was 15.1 million as of March 2013
2.1 3.1
5.5
7.8
10.9
13.4
15.0 15.1
2006 2007 2008 2009 2010 2011 2012 2013*
Source: Telecom Regulatory Authority of India, Aranca Research Note: CAGR - Compound Annual Growth Rate
2013* - Data as of March 2013
CAGR: 38.8%
Market break-up by broadband subscriptions (2013*)
BSNL has the largest share (66.0 per cent) of the total broadband market
Bharti Airtel has the second-largest share (9.3 per cent) of the total broadband market
BSNL 66.0%
Bharti 9.3%
MTNL 7.2%
Others 17.5%
Source: Telecom Regulatory Authority of India, Aranca Research Notes: BSNL - Bharat Sanchar Nigam Ltd; MTNL - Mahanagar Telephone Nigam Ltd
Notes: 2013* - Data as of March 2013
Company Ownership Presence
Mahanagar Telephone Nigam Ltd (MTNL)
Government (56.3 per cent) Fixed line and mobile telephony (in Delhi
and Mumbai), data and internet
Bharat Sanchar Nigam Ltd (BSNL)
Government (100 per cent) Fixed line and mobile telephony (GSM –
outside Delhi and Mumbai), data and internet in 22 circles
Reliance communications
ADAG Group (approximately 67.9 per cent)
Mobile (CDMA) and Broadband
Bharti Airtel Bharti Group(45.7), Pastel Ltd (15.57 per cent), LIC
India (4.3 per cent)
Broadband and mobile (GSM) in 22 circles
Vodafone Essar Vodafone (74 per cent),
Telecom Investment India (19.5 per cent)
Broadband and mobile (GSM) in 22 circles
Source: Companies’ websites, Aranca Research
Green telecom
• The green telecom concept aims at reducing the carbon footprint of the telecom industry through reduced energy consumption
• TRAI initiated a consultation process in May 2010, requesting inputs from firms across the telecom value chain to provide recommendations on green telecom’s framework and implementation
Expansion to rural markets
• There are over 62,443 uncovered villages in India; these would be provided with village telephone facility with subsidy support from the government’s Universal Service Obligation Fund (thereby increasing rural teledensity)
• In February 2013, the rural subscriber base accounted for 38.9 per cent of the total subscriber base, thereby fuelling the sector’s growth
Emergence of BWA technologies
• BWA technologies such as WiMAX have been among the most significant recent developments in wireless communication
• WiMAX is expected to have attracted around 8 to 10 million subscribers and account for around USD1–1.5 billion in 2012
Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India
Telecom Finance Commission
• The Telecom Commission (TC) is likely to set up a Telecom Finance Corporation (TFC) for channelling funding for telecom projects at competitive rates in order to facilitate investment in the sector
Rising Investments
• To boost local research and manufacturing of telecom products, the government has proposed an investment of USD32.2 billion in three phases: i) USD9.2 billion to the Telecom Research and Development Fund, ii) USD4.6 billion for the Telecom Entrepreneurship Promotion Fund, and iii) USD18.4 billion to the Telecom Manufacturing Promotion Fund during the 12th Five Year Plan
Outsourcing Non-core Activities
• As part of the recent outsourcing trend, operators have outsourced functions such as network maintenance, IT operations, and customer service
Mobile Banking
• During November 2012, 4.7 million mobile banking transactions were reported, up 6.4 per cent from a year ago
• Availability of affordable smartphones is expected to boost the growth of various transactions conducted via phones
Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India
The surge in the subscriber base has necessitated a network expansion covering a wider area, thereby creating a need for significant investment in telecom infrastructure
To curb costs and focus on core operations, telecom companies have been segregating their tower assets into separate companies
Creating separate tower companies has helped telecom companies lower operating cost and improve capital structure, and also provided an additional revenue stream
Emergence of Tower Industry
Rising
Competition
Higher operating cost and
debt burden
Focus on tower
sharing to reduce costs
Segregation of towers
into separate
companies
Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India
The growing need for towers and rise in tower sharing have led to emergence of independent telecom tower companies (ITTCs) along with the Telecos-owned Tower companies
Ownership of towers (2010) Market share of tower companies in 2010 (based on towers owned)
Telcos owned 72%
ITTC 28%
7.0%
9.5%
9.7%
11.2%
15.2%
15.2%
32.2%
Others
GTL Infrastructure Limited
Bharti Infratel Limited
Viom Networks Limited
Reliance Infratel Limited
Bharat Sanchar Nigam Limited
Indus Tower Limited
Source: Aranca Research Note: BWA - Broadband Wireless Access, TRAI - Telecom Regulatory Authority of India
Growing demand
Inviting Resulting in
Growing demand Increasing investments Policy support
Higher real income and
changing lifestyles
Growing young population
Increasing MOU and data
usage
Reduction in the license fee
Relaxed FDI Norms
Encourages firms to expand to rural areas
Higher FDI inflows
Increasing M&A activity
Notes: FDI - Foreign Direct Investment; MOU - Minutes of Use per month and per subscriber; M&A - Mergers and Acquisitions
Rising per capita income in India (USD) Rising incomes has been a key determinant of demand growth in the telecommunication sector in India
Nominal per capita income is estimated (IMF) to have recorded a CAGR of 11.2 per cent over 2000–12 (USD1491.9)
Strong income growth is set to continue; IMF forecasts indicate a CAGR of 7.0 per cent during 2012-17 (to USD2,095.1)
-5%
0%
5%
10%
15%
20%
25%
30%
300
600
900
1,200
1,500
1,800
2,100
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1F
201
2F
201
3F
201
4F
201
5F
201
6F
201
7F
Gross domestic product per capita, current prices Growth
Source: IMF, Aranca Research Notes: CAGR - Compound Annual Growth Rate
Indian residents shifting from low to high income groups (%)
The emergence of an affluent middle class is triggering demand for the mobile and internet segments
A young and growing population is aiding this trend (especially demand for smart phones)
1 3
7 2 6
17 12
25
29 35
40
32 50
26 15
2008 2020 2030
Globals (>18412.8) Strivers (9206.4-18412.8)
Seekers (3682.5 - 9206.4) Aspirers (1657-3682.5)
Deprived (<1657)
Source: McKinsey Quarterly Report, Aranca Research
Million Household,100%
222 273 322
MVAS revenues (in USD billion) The MVAS industry is expected to expand to USD5.4 billion by 2013 from USD2.0 billion in 2011, representing a CAGR* of 27.2 per cent
The share of non-voice revenues, which currently stand at around 10 per cent of telecom operators’ revenues, is estimated to rise to over 30 per cent in the next five to seven years
A decline in smartphone prices and data subscription rates is likely to drive the demand for MVAS
2.1
2.6
3.5
4.4
5.4
2009 2010 2011 2012 2013E
Source: Deloitte, Aranca Research Notes: CAGR - Compound Annual Growth Rate;
CAGR has been calculated in Indian Rupee terms MVAS - Mobile Value-Added Services, *CAGR in terms of Indian
Rupee
CAGR*: 27.2%
Internet - dial up access MOU (per month per subscriber)
Minutes of usage of dial-up internet access increased to 411 in 2010 from 205 in 2006, a CAGR of 19 per cent
205.0 210.0 222.0
324.0
411.0
2006 2007 2008 2009 2010
CAGR:19.0%
Source: Telecom Regulatory Authority of India, Aranca Research Notes: MOU - Minutes of Use, CAGR - Compound Annual Growth Rate
In terms of telecom ratings, India competes primarily with China, Indonesia and Philippines
In terms of country risk, India has an edge over Philippines, Pakistan, Bangladesh, Laos, Cambodia, Thailand, Vietnam and Sri Lanka
Telecom Industry Rewards
Country rewards
Telecom industry risks
Country risk
Telecom Rating
India 60.0 32.1 60.0 56.4 52.6
China 63.3 31.7 70.0 67.9 57.2
Indonesia 62.5 45.0 60.0 57.7 57.1
Philippines 45.0 46.7 60.0 51.0 48.6
Pakistan 55.0 42.0 60.0 37.6 50.0
Bangladesh 52.5 36.7 60.0 46.8 48.9
Laos 40.5 39.0 50.0 39.7 41.4
Cambodia 44.0 38.3 50.0 36.8 42.4
Thailand 47.5 32.7 60.0 56.8 47.1
Vietnam 40.0 33.3 60.0 46.9 42.4
Sri Lanka 33.8 26.7 50.0 48.0 36.6
Source: BMI, Aranca Research, Note: explanation of the indicators given under appendix
Reduction in license fees
• The Government of India plans to cut license fees up to 33 per cent for operators that cover services for over 95 per cent of the residential areas in a calling circle
• The issuance of several international and national long-distance licenses has created opportunities and attracted new companies into the market
Abolishment of roaming charges
• During May 2012, the Union Cabinet declared to abolish roaming charges and allow mobile number portability even outside designated circles (without having to pay extra charges)
• This policy is expected to become effective from October 2013
Relaxed FDI norms
• FDI of up to 74 per cent is allowed in basic and cellular, unified access, national/international long distance, and V-Sat services as well as public mobile radio trucked services
• FDI of up to 100 per cent is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail
Notes: FDI - Foreign Direct Investment; TRAI - Telecom Regulatory Authority of India; DoT - Department of Telecommunication; WiMAX - Worldwide interoperability for Microwave Access Telecommunications, VoIP - Voice over Internet Protocol
Allowed the use of WiMAX
• In August 2008, the Department of Telecommunication ( DoT) allowed operators to use WiMAX networks as an alternative to cable and DSL to offer voice services
• This would enable faster delivery of wireless broadband services
Set up internet connections
• The Department of Information Technology intends to set up over 1 million internet-enabled common service centres across India as per the National e-Governance Plan
Expansion to rural areas
• The USOF identified 5,000 villages, and is in the process of developing a scheme to connect through wireless broadband
• It also intends to provide 888,832 broadband connections in rural areas by 2014 • The USOF also has plans to strengthen the OFC network in rural and remote areas
Notes: USOF - Universal Service Obligation Fund; OFC - Optical Fibre Cable
Financial support • The USOF is expected to extend financial support to operators providing service in rural
areas and encourage active infrastructure sharing among the operators
Enhanced spectrum limit
• An increase in the prescribed limit on spectrum from 6.2MHz to 2x8 MHz (paired spectrum) for GSM technology in all areas other than Delhi and Mumbai where it will be 2x10MHz (paired spectrum)
• Telecom players can however obtain additional frequency; there will be an auction of spectrum subject to the limits prescribed for merger of licenses
Relaxing M&A norms
• The government has recommend a liberal norm of up to 35 per cent market share for the resultant entity as "safe harbour" for the mergers and acquisition in the Indian telecom sector subject to the presence of 12 or more service providers in that circle
• If the spectrum held by the combined entity exceeds the prescribed limit after the merger, the excess spectrum must be surrendered within a year of the merger being permitted
Notes: USOF - Universal Service Obligation Fund; OFC - Optical Fibre Cable
Source: Digital Dawn, KPMG report 2013, Aranca Research
‘Broadband for all’ with a minimum download
speed of 2Mbps
Unified licensing, delinking of spectrum from license, online
real-time submission and processing
Aims at a ‘One Nation-One license’ regime
with no roaming charges and nation
wide number portability
Increase rural teledensity from 39 to 70 per cent by 2017, and 100 per cent by
2020
Liberalisation of spectrum, and convergence of
network, services and devices
National Telecom Policy - 2012
Cumulative FDI inflows into telecommunication (USD billion)
Cumulative FDI inflows into the telecom sector over FY01-FY13 amounted to USD287 billion
During this period, FDI into the sector accounted for an 6.6 per cent share of total FDI inflows into the country
FDI inflow stood at USD93 million for April 2012-February 2013 and is expected to touch USD100 million by FY13
4 10 15 20 26 35
57
92
134
172
207
253
287
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13*
Source: Department of Industrial Policy & Promotion, Aranca Research Note: FY13* - Data mentioned is from April 2012 - January 2013
Source: Thomson Banker, Deal Tracker, Aranca Research Notes: M&A - Merger and Acquisition
Merger and Acquisition deals (2010 to 2013)
Target Acquirer Acquisition price
(USD million) Division acquired
Bharti Airtel Qatar Foundation (2013) 1,300 Stake
Qualcomm India Pvt Ltd Bharti Airtel Ltd (2012) 165 Broadband wireless access
Zain’s African operations Bharti Airtel Ltd (2010) 11 Entire business
Radiacion Kavveri Telecom Products Ltd
(2011) 27.5 Telecom unit
Kavveri Telecom Products Ltd Investor Group (2010) 9.9 -
Tata AutoComp Mobility Trimble Navigation Ltd (2010) 5.1 -
Eduexel Infotainment Ltd Discovery Infoways Ltd (2010) 0.9 -
ZTE enters into agreement with Calyx
• ZTE Telecom India, the wholly owned subsidiary of China’s ZTE Corp, entered into an exclusive agreement with Pune-based Calyx Group to market and distribute its products across India
• ZTE plans to enter the Indian smartphone market with five models priced at USD107–275 • It also plans to introduce tablet PCs in the Indian market after the smartphone launch
Reliance Jio Infocomm and Vodafone
• To tap the growth in broadband technologies and infrastructure expansion, Reliance Jio Infocomm and Vodafone entered into an agreement to build and maintain an 8,000 km submarine telecom and data cable system
• The system is expected to be operational by 2014 and would connect six countries through landing points in Oman, UAE, India (Mumbai and Chennai), Sri Lanka, Malaysia and Singapore
Mobile wallet by Vodafone
• Vodafone India and ICICI Bank launched M-Pesa, a service for mobile money transfer and payment
• The service would allow customers to transfer money to any mobile phone in India, debit and deposit funds, withdraw cash from designated outlets, pay bills, and shop at select merchant establishments. M-Pesa would be available across India in the next 12–18 months
Source: Thomson Banker, Deal Tracker, Aranca Research Notes: M&A - Merger and Acquisition
Set up in 1995, Bharti Airtel is India’s largest mobile operator with presence in all of India’s 22 circles
It is the country’s leading mobile operator, with a customer base of more than 271 million as of March 2013. It is the world’s fourth-largest telecom operator
Revenues increased from USD4 billion in FY07 to USD14.8 billion in FY13, a CAGR* of 24.2 per cent
Major segments (FY13) Revenues (in USD billion)
66.8%
15.7%
8.1%
5.8%
2.5%
0.7% 0.5%
Mobile
Tower Infrastructure
Airtel Business
Telemedia
Digital TV
Consolidated Africa
Others
4.0
6.7
8.2 8.8
13.1 14.9 14.8
FY07 FY08 FY09 FY10 FY11 FY12 FY13
CAGR*: 24.2%
Source: Company website, Aranca Research Note: *CAGR - Compound Annual Growth Rate, CAGR is calculated in INR terms
Total subscribers (million) Bharti Airtel has over 271.2 million subscribers, out of which mobile service subscription accounts for 72.3 per cent as of FY13
The total subscriber base expanded at a CAGR* of 39.3 per cent to 271.2 million from 37.1 million over FY07-13
Bharti Airtel has a mobile subscriber base of 196 million, of which 188 million is in India
Bharti Airtel plans to buy optical network gear from Ciena Communications Inc in order to expand capacity of its i2i undersea cable network that connects India to Singapore
The company has plans expansion plans in Africa to tap the huge growth potential
Source: Company website, Aranca Research CAGR - Compounded Annual Growth Rate,
*CAGR is calculated in Indian Rupee term
37.1 62
94.5
131.3
220.9
251.6
271.2
FY07 FY08 FY09 FY10 FY11 FY12 FY13
CAGR*: 39.3%
Revenues (USD billion) Established in 1994, Vodafone is one of India’s leading mobile operators, with more than 141.5 million customers as of January 2013
In February 2007, Vodafone unveiled a high-growth five-year strategy for India; the company planned to offer low-cost handsets and wireless connectivity to the country’s rural areas. This move resulted in the company becoming the leading mobile phone service provider in rural India
In August 2008, Vodafone introduced Apple’s iPhone to the Indian market
Vodafone's revenues from India increased at a CAGR* of 23.2 per cent over FY07-13; revenues stood at USD7.4 billion in FY13
Source: Company website, Aranca Research CAGR - Compounded Annual Growth Rate,
*CAGR is calculated in Indian Rupee term
2.1
3.9 4.4
4.9
5.9
6.7 7.4
FY07 FY08 FY09 FY10 FY11 FY12 FY13
CAGR*: 23.2%
Total subscribers (million) Vodafone’s customer subscription increased at a CAGR** of 29.9 per cent to 147.5 million during 2007-12
In March 2013, Vodafone’s subscriber base stood at 153.0 million
Gujarat, Uttar Pradesh, Maharashtra, and West Bengal together account for over 45 per cent of total customer base
Vodafone Group plans to invest heavily in the establishment of a fiber-optic network in India
Vodafone plans to invest USD400-500 million by 2015 to purchase 3G equipment
39.9 60.9
91.4
124.3 147.7
147.5 153.0
2007 2008 2009 2010 2011 2012 2013*
CAGR**: 29.9%
Source: Company website, Aranca Research Note: 2013* represents data till March 2013
**CAGR - Compounded Annual Growth Rate
Number of MNP requests (in millions) Mobile Number Portability (MNP) in India was introduced in November 2010
MNP allows subscribers to change their mobile service provider while retaining their old mobile number
The portability service was made available for both postpaid and prepaid customers as well as on both GSM and CDMA platforms
The implementation of MNP has brought a slew of benefits for customers in terms of better plans and offers
MNP would be implemented nationwide by mid-2013. This would help users to retain their numbers even if they move from one state to another, essentially shifting across telecom circles
32.8
44.8
Jan-12 Jan-13
Source: Trai Report, Aranca Research
• The number of wireless
subscribers is expected to
reach approximately 1.2
billion by 2016
• Of the total subscribers,
around 55 per cent are likely
to be from urban areas and
the rest would be rural
subscribers (45 per cent)
• The rural teledensity is
expected to reach 70 per cent
by 2017 from the 41 per cent
as of March 2013
• Rural telecom users are set
to account for over 60 per
cent of the handsets market
(by volume) by 2012
• The Internet penetration is
expected to grow steadily and
is expected to be bolstered by
government policy
• The current broadband
penetration rate is 1.5 per
cent and is likely to be 9.4 per
cent by 2015
• The country is expected to
feature among the top 10
broadband markets by 2013
Increasing mobile subscribers Untapped rural markets Rising internet penetration
Source: KPMG report 2013, Aranca Research
• Telecom infrastructure is
expected to increase at a
CAGR of 20 per cent during
2008–15 to reach 571,000
towers in 2015
• TRAI has made several
recommendations for the
development of telecom
infrastructure including tax
benefits and recognising
telecom infrastructure as
essential infrastructure
• The Indian Mobile Value-
Added Services (MVAS)
industry is expected to reach
USD5.8 billion by 2013, from
USD2.0 billion in 2009
• The Indian cloud computing
market is expected to grow at
a CAGR of 76 per cent over
the period till 2012 (to
USD15-18 billion)
• The production of electronic
and related equipment
touched USD19.8 billion in
FY12
• It is anticipated to reach
USD52.0 billion by 2020
• NTP 2012 is likely to fuel
further growth with its ‘Broad
for all’ schemes and policies
to increase rural penetration
Development of telecom infrastructure
Growth in MVAS and Cloud computing
Telecom equipment market
Source: Press information bureau,Government of India, Aranca Research Notes: VAS - Value-Added Services, NTP - National Telecom Policy
Mobile app market size (USD billion) The mobile application (app) market is expected to expand at a CAGR* of 70.4 per cent during 2012 to 2015 and reach USD100 billion
The mobile app market is estimated to increase 9.4 per cent to USD22.1 billion in 2013 from USD20.2 billion in 2012
The segment’s growth is expected to be driven by rising mobile connections and availability of low-range smartphones
Over 100 million apps are downloaded every month across different platforms such as iOS, Blackberry, Nokia, and Android
20.2
100
2012 2015F
Source: Gartner, Aranca Research Notes: CAGR - Compounded Annual Growth Rate,
*CAGR is calculated in INR terms, F - Forecast
CAGR: 70.4%
Association Of Unified Telecom Service Providers Of India (AUSPI) B-601, Gauri Sadan 5, Hailey Road, New Delhi – 110 001, India Tel: 91 11 23358585 Fax: 91 11 23327397 Website: http://www.auspi.in/
Association Of Competitive Telecom Operators (ACTO) 601, Nirmal Tower, 26, Barakhamba Road, Connaught Place, New Delhi – 110 001, India Tel.: 91 11 43565353 / 43575353 Fax: 91 11 43515353 E-mail: [email protected] Website: www.acto.in
Internet & Mobile Association Of India (IAMAI) F-36, Basement, East of Kailash, New Delhi – 110 065, India Tel: 91 11 46570328 E-mail: [email protected] Website: www.iwww.iamai.in
BMI telecoms business environment ratings
Industry rewards: it considers Average revenue per users, number of subscribers, subscriber growth, and number of operators
Country rewards: it considers urban/rural split, age range, GDP per capita, USD
Industry risks: it considers regulatory independence
Country risk: it rates the country on short-term external risk, policy continuity, legal framework corruption
Telecom ratings: overall rating of the above indicators
BWA: Broadband wireless access
CAGR: Compound annual growth rate
DoT: Department of Telecommunication
FDI: Foreign direct investment
FTTH: Fibre to the home
FY: Indian financial year (April to March)
IMF: International Monetary Fund
INR: Indian Rupee
IPTV: Internet protocol television
M&A: Mergers and acquisitions
MoU: Minutes of use per month and per subscriber
MPEG: Moving Picture Experts Group
OFC: Optical fibre cable
TRAI: Telecom Regulatory Authority of India
USOF: Universal Service Obligation Fund
USD: US Dollar
VAS: Value-added services
WiMAX: Worldwide Interoperability for microwave access telecommunications
Wherever applicable, numbers have been rounded off to the nearest whole number
Year INR equivalent of one US$
2004-05 44.95
2005-06 44.28
2006-07 45.28
2007-08 40.24
2008-09 45.91
2009-10 47.41
2010-11 45.57
2011-12 47.94
2012-13 54.31
Exchange Rates (Fiscal Year)
Year INR equivalent of one US$
2005 45.55
2006 44.34
2007 39.45
2008 49.21
2009 46.76
2010 45.32
2011 45.64
2012 54.69
2013 54.45
Exchange Rates (Calendar Year)
Average for the year
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Robust asset growth • Total Indian banking sector assets has reached USD1.5 trillion in FY12 from USD1.3
trillion in FY10, with 73 per cent of it being accounted by the public sector
Growing lending and deposit
• Total lending and deposits have increased at CAGR of 22.8 per cent and 21.2 per cent, respectively, during FY06-13 and are further poised for growth, backed by demand for housing and personal finance
Higher ATM penetration • Total number of ATMs in India have increased to 1,04,500 in 2012 and is further expected
double over the next two years, thereby taking the number of ATMs per million population from 85, at present, to about 170
Rising rural penetration • With the help of Financial Inclusion Plan (FY10-13), the banking connectivity in India
increased more than threefold to 211,234 villages in 2013 from 67,694, at the beginning of the plan period
Source: Planning Commission, Aranca Research ATM - Automated Teller Machine
• The engineering sector is delicensed; 100 per cent FDI is allowed in the sector
• Due to policy support, there was cumulative FDI of USD14.0 billion into the sector over April 2000 – February 2012, making up 8.6 per cent of total FDI into the country in that period
Growing demand
Source: IBA report titled “Being five-star in productivity - Roadmap for excellence in Indian banking”; Aranca Research; Notes: NPA – Non Performing Assets
Robust demand
• Increase in working population and growing disposable incomes will raise demand for banking and related services
• Housing and personal finance are expected to remain key demand drivers
• Rural banking is expected to witness growth in the future
Innovation in services
• Mobile, Internet banking and extension of facilities at ATM stations to improve operational efficiency
• Vast un-banked population highlights scope for innovation in delivery
Policy support
• Wide policy support in the form of private sector participation and liquidity infusion
• Healthy regulatory oversight and credible Monetary Policy by the Reserve Bank of India (RBI) have lent strength and stability to the country’s banking sector
Business fundamentals
• Rising fee incomes improving the revenue mix of banks
• High net interest margins, along with low NPA levels, ensure healthy business fundamentals
FY12
Total asset size:
USD1.5 trillion
FY25E
Total asset size:
USD28.5 trillion
Advantage India
Source: Indian Bank’s Association, Aranca Research, BMI Notes: RBI - Reserve Bank of India, FDI – Foreign Direct Investment
Note: The data on number of banks belongs to FY11
• Closed market
• State-owned Imperial Bank of India was the only bank existing
• RBI was established as the central bank of country
• Quasi central banking role of Imperial Bank came to an end
• Imperial Bank expanded its network to 480 branches
• In order to increase penetration in rural areas, Imperial Bank was converted into State Bank of India
• Nationalisation of 14 large commercial banks in 1969 and 6 more banks in 1980
• Entry of private players such as ICICI intensifying the competition
• Gradual technology upgradation in PSU banks
1921
1935
1936 -1955
1956-2000
2000 onwards
• Number of banks increased to 27 public sector banks, 22 private sector banks and 41 foreign banks
• Advent of mobile and internet banking
• Growing FDI in the Indian banking sector
Reserve Bank of India
Banks Financial Institutions
Scheduled Commercial Banks (SCBs)
Cooperative credit institutions
Public sector banks (27)
Private sector banks (22)
Foreign banks (41)
Regional Rural Banks (RRB) (62)
Urban cooperative banks (1,674)
Rural cooperative credit institutions (96,751)
All-India financial institutions
State-level institutions
Other institutions
Source: RBI - Reserve Bank of India, Aranca Research Note: The data on number of banks belongs to FY12
Growth in credit off-take over past few years (USD billion)
Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate.
Note: FY14* - RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee
Credit off-take has been surging ahead over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit
During FY06–13, credit off-take expanded at a CAGR** of 22.8 per cent to USD991 billion
Total credit off-take is estimated to grow to USD1,140 billion in FY14
Demand has grown for both corporate and retail loans
352
495
610 552
742 896
916 991
1,140
0%
5%
10%
15%
20%
25%
30%
0
200
400
600
800
1,000
1,200
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14*
Amount (USD billion) Growth- RHS (%)
Growth in deposits over the past few years (USD billion)
Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate
Note: FY14*- RBI’s growth estimates ** Growth and CAGR is in terms of Indian rupee
Deposits have grown at a CAGR** of 21.2 per cent during FY06–13; in FY13 total deposits stood at USD1,274.3 billion
Total deposits are estimated to grow to USD1,452.7 billion in FY14
Deposit growth has been mainly driven by strong growth in savings amid rising disposable income levels
Access to the banking system has also improved over the years due to persistent government efforts; at the same time India’s banking sector has remained stable despite global upheavals, thereby retaining public confidence over the years
489
665
822 763
1,030
1,182 1,170 1,274
1,453
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14*
Total Banking sector assets (USD billion)
Source: Reserve Bank of India (RBI), Aranca Research; Note: CAGR - Compounded Annual Growth Rate
*Growth and CAGR is in terms of Indian rupee
Total banking sector assets have increased at a CAGR* of 8.2 per cent to USD1.5 trillion during FY10–12
FY10–12 saw growth in assets of banks across sectors
Assets of public sector banks, which account for 73 per cent of the total banking asset, grew at an average of 7.5 per cent
Private sector expanded at an CAGR* of 11.3 per cent, while foreign banks posted a growth of 6.7 per cent
1,290
1,336
1,510
1,150
1,250
1,350
1,450
1,550
0
300
600
900
1,200
FY10 FY11 FY12
Foreign banks Private banks
Public Banks Total Assets -RHS
Growth in money supply over past few years (USD billion)
Source: Department of Industrial Policy and Promotion, Working group for 12th Five year plan, Aranca Research Notes: CAGR* - Compound Annual Growth Rate, CAGR is calculated in Indian rupee term Narrow money (M1)
is as defined by sum of currency with public and Deposit money of the public M2 is the sum of Narrow money and Post office saving deposit
M3 refers to sum of M2 and Time deposit with banks
Total money supply increased at a CAGR* of 13.9 per cent to USD1.5 trillion during FY06–13
Narrow money supply (M1) rose at a CAGR* of 12.5 per cent while its components currency with public and Deposit money of the public grew at a CAGR of 15.7 and 8.8 per cent during FY06–13
Board money supply (M2) increased at a CAGR* of 12.5 per cent to USD348.1 billion during FY06-13
Money supply (M3) grew at a CAGR* of 17.4 per cent to USD1.5 trillion during FY06-13
Time deposits with banks have shown highest average growth of 19.2 per cent to USD1.2 trillion during FY06–13
0
300
600
900
1,200
1,500
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Currency with the public Deposit Money of the Public
Time Deposits with Banks Total Post Office Deposits
616
824
1,010 932
1,252
1,443 1,425 1,539
Interest income growth in Indian banking sector (USD billion)
Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate,
CAGR is calculated in Indian rupee term
Public sector banks account for over 73 per cent of interest income in the sector
They lead the pack in interest income growth with a CAGR* of 21.1 per cent over FY09-12
Overall, the interest income for the sector has grown at 19 per cent CAGR* during FY09-12 56.9
63.8
76.3
101.0
17.7 17.3 20.2 27.9
6.3 5.5 5.9 7.6
FY09 FY10 FY11 FY12
Public Banks Private Banks Foreign Banks
Net Interest Margins growth (FY12)
Source: Indian Bank’s Association, Aranca Research
Net Interest Margin (NIM) for scheduled commercial banks stood at 2.9 per cent in FY12, up from 2.6 per cent in FY08
Foreign banks, State Bank of India & its associates as well as private sector banks posted higher NIM at 4.0, 3.2 and 3.1 per cent, respectively in FY12
Net Interest Margin across sector (FY12)
3.2%
2.6%
2.8% 3.1%
4.0%
2.9%
SBI & itsassociate
Nationalisedbanks
Public sectorbanks
Privatesector banks
Foreignbanks
Scheduledcommercial
bank
2.58%
2.63%
2.54%
2.91% 2.90%
FY08 FY09 FY10 FY11 FY12
Average
Healthy net interest margins (FY12)
Source: Company Reports, Aranca Research Note: HDFC – Housing Development Finance Corporation,
ICICI – Industrial Credit and Investment Corporation of India, SBI – State Bank of India
Indian banking sector enjoys healthy net interest margins (NIM) compared with global peers
HDFC leads the large banks with a NIM of over 4 per cent
Prominent Chinese banks have NIM’s between 2-3 per cent, significantly lower than Indian peers
Despite virtually zero cost funds, the banks in the US have NIM’s comparable to Indian peers
4.22%
2.73%
3.85% 3.59%
HDFC ICICI SBI Axis
‘Other income’ growth in Indian banking sector (USD billion)
Source: Indian Bank’s Association, Aranca Research Notes: CAGR* - Compound Annual Growth Rate,
CAGR is calculated in Indian rupee term
Public sector banks account for about 59 per cent of income other than from interest (‘other income’)
‘Other income’ for public sector banks has risen at a CAGR* of 5.7 per cent during FY09-12
Overall, ‘other income’ for the sector has risen at 4.5 per cent CAGR* during FY09-12
8.9
10.2 10.0 10.5
3.7 4.3 4.3
5.1
3.1 2.1
2.3 2.3
FY09 FY10 FY11 FY12
Public Banks Private Banks Foreign Banks
Gross NPAs to Gross Advances (FY12)
Source: Reserve Bank of India (RBI), Aranca Research
Despite the global financial crisis, net non-performing assets (NPA) of Indian banking sector have declined over the past few years
Although net NPA levels increased to 1.28 per cent in FY12 from 0.97 per cent in FY11, it is relatively stable
Privates sector banks maintained lowest gross non-performing assets to gross advances at 2.08 per cent in FY12
NPA levels over the year
3.17%
2.08%
2.68%
Public sector banks Private sector banks Foreign banks
1.02% 1.00%
1.05%
1.12%
0.97%
1.28%
FY07 FY08 FY09 FY10 FY11 FY12
Return on assets
Source: Reserve Bank of India (RBI), Aranca Research
Loan-to-Deposit ratio for banks across sectors has increased over the years
Private and foreign banks have posted high return on assets than nationalised and public banks
Loan-to-Deposit ratio
91
%
10
0%
97
%
12
8%
12
6%
79
% 1
03
%
96
%
14
3%
17
5%
89
%
88
%
88
%
15
3%
17
6%
SBI & itsassociate
Nationalisedbanks
Public banks Private banks Foreign banks
FY10 FY11 FY12
77
%
71
%
73
%
77
%
70
%
80
%
74
%
76
%
80
%
81
%
82
%
76
%
78
%
82
%
83
%
SBI & itsassociate
Nationalisedbanks
Public banks Private banks Foreign banks
FY10 FY11 FY12
Market share of bank groups by deposits
Source: IBA statistics, Aranca Research
Share of public sector banks in total deposits have also declined from 78.2 per cent in FY05 to 77.5 per cent in FY12
This is largely due to the fact that private banks are rapidly capturing share in savings deposit
78.2% 77.5%
17.1% 18.2%
4.7% 4.3%
FY05 FY12
Public banks Private banks Foreign banks
Improved risk management practices
• Indian banks are increasingly focusing on adopting integrated approach to risk management
• Banks have already embraced the international banking supervision accord of Basel II; interestingly, according to RBI, majority of the banks already meet capital requirements of Basel III
• Most of the banks have put in place the framework for asset-liability match, credit and derivatives risk management
Diversification of revenue stream
• Banks are laying emphasis on diversifying the source of revenue stream to protect themselves from interest rate cycle and its impact on interest income
• Focusing on increasing fee and fund based income by launching plethora of new asset management, wealth management and treasury products
Technological innovations
• Indian banks, including public sector banks are aggressively improving their technology infrastructure to enhance customer experience and gain competitive advantage
• Internet and mobile banking is gaining rapid foothold • Customer Relationship Management (CRM) and data warehousing will drive the next
wave of technology in banks
Source: Indian Bank's Association, Indian Banking sector 2020, Aranca Research
Focus on financial inclusion
• RBI has emphasised the need to focus on spreading the reach of banking services to the un-banked population of India
• Indian banks are expanding their branch network in the rural areas to capture the new business opportunity
Derivatives and risk management products
• The increasingly dynamic business scenario and financial sophistication has increased the need for customised exotic financial products
• Banks are developing Innovative financial products and advanced risk management methods to capture the market share
Consolidation
• With entry of foreign banks competition in the Indian banking sector has intensified • Banks are increasingly looking at consolidation to derive greater benefits such as
enhanced synergy, cost take-outs from economies of scale, organisational efficiency, and diversification of risks
Source: Indian Bank's Association, Indian Banking Sector 2020, Aranca Research
Increasing focus on Woman Banking
• Total lending by public sector banks to self-employed women touched USD43 billion in FY12 from USD31 billion in FY10
• In July 2012, RBI extended lending to individual women up to USD965 under the weaker section
Wide usability of RTGS and NEFT
• Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are being implemented by Indian banks for fund transaction
• Securities Exchange Board of India (SEBI) has included NEFT and RTGS payment system to the existing list of methods that a company can use for payment of dividend or other cash benefits to their shareholders and investors
Know Your Client
• RBI mandated the Know Your Customer (KYC) Standards, wherein all banks are required to put in place a comprehensive policy framework in order to avoid money laundering activities
• The KYC policy is now mandatory for opening an account or any making any investment such as mutual funds
Source: Indian Bank's Association, Indian Banking Sector 2020, Business India Aranca Research
Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research
• In the last few years, technology is being increasingly used by Indian banks
• Banks are using technology at various levels such as, back-office processing, convergence of delivery channels, IT-enabled business process reengineering as well as communication with customers
• Indian banks currently devote around 15 per cent of total spending on technology
• Spending on technology is expected to increase at an annual rate of 14.2 per cent
• Banks in the country are set to benefit further as they move ahead in implementing additional technological advancements
• Technology has allowed banks to increase their
scale rapidly and manage increased business
and transactions volume with lesser man power
and reduced costs (at the operational level)
• Digital analytics is providing deeper insights
into customer needs and enabling banks to
offer highly targeted products and services; this
is likely to pick up pace in the coming years
• New channel-integration technologies are
enabling a more seamless end-to-end
experience for banking customers
• Offering new opportunities to engage and
interact with customers and thereby build
relationship and grow revenues; social media
has a crucial role to play in this
Increasing usage of technology
Growth in ATMs
Source: IBA statistics, Aranca Research Notes: CAGR* - Compound Annual Growth Rate,
CAGR is calculated in Indian rupee term
The wide scope and ease of online banking has led to a paradigm shift from traditional branch banking to net banking
The total number of people using net banking has increased to 7 per cent in 2012
Extensions for facilities such as fund transfer, account maintenance and bill payment at ATM stations have reduced branch banking footfall
ATMs in India have increased to 1,04,500 in 2012 and are further expected to double over the next two years
The increase would take the number of ATMs per million population from the current 85 to about 170
16,750 21,509
27,088
34,789 43,651
60,153
74,743
104,500
2005 2006 2007 2008 2009 2010 2011 2012*
CAGR: 29.9%
• Deposit of cash
• Withdrawal of cash
• Mini-statement
• Balance Inquiry
• Coupon Dispensing
• Fulfilling request from customers
• Account transfer
• Touch screen menus
• Bill payment
• Mobile recharging
1988-1994
1995-1999
2001-2004
2004-2006
2007 onwards
• Check deposit with scanning
• Customised ATMs
Source: IBA statistics, Aranca Research
Notes: GDP - Gross Domestic Product, KYC - Know Your Customer, RBI - Reserve Bank of India, ATM - Automated Teller Machine
Economic and demographic drivers
Policy support Infrastructure financing Technological innovation
• Favourable demographics and rising income levels
• Strong GDP growth (CAGR of 7.0 per cent expected over 2012–17) to facilitate banking sector expansion
• The sector will benefit from structural economic stability and continued credibility of Monetary Policy
• Extension of interest subsidy to low cost home
buyers
• Simplification of KYC
norms, introduction of no-
frills accounts and Kisan
Credit Cards to increase
rural banking penetration
• RBI is considering giving
more licenses to private
sector players to
increase banking
penetration
• India currently spends 6
per cent of GDP on
infrastructure; Planning
Commission expects this
fraction to grow going
ahead
• Banking sector is
expected to finance part
of the USD1 trillion
infrastructure
investments in the 12th
Five Year Plan, opening
a huge opportunity for the
sector
• Technological innovation
will not only help to
improve products and
services but also to reach
out to the masses in cost
effective way
• Use of alternate channels
like ATM, internet and
mobile hold significant
potential in India
64.9
53.9
66.9
76.4 74.8
81.0
FY08 FY09 FY10 FY11 FY12 FY13**
Growth in credit to housing finances (USD billion)
Source: Reserve Bank of India (RBI), Aranca Research Note: * CAGR - Compound Annual Growth Rate,
CAGR* - is calculated in INR terms FY13**: Data till February 2013
Rapid urbanisation, decreasing household size and easier availability of home loans has been driving demand for housing
Credit to housing sector increased at a CAGR* of 11.1 per cent during FY08–13
As of February 2013, credit to housing sector was at USD81.0 billion compared to USD76.0 billion a year ago
Demand in the low- and mid-income segments exceeds supply three- to four-fold
This has propelled demand for housing loan in the last few years
CAGR: 11.1%
65.2
54.7
63.3
74.9 73.3
79.0
FY08 FY09 FY10 FY11 FY12 FY13**
Growth in personal finance (excluding housing)
Source: Reserve Bank of India (RBI), Aranca Research Note: *CAGR - Compound Annual Growth Rate,
CAGR* - is calculated in INR terms FY13**: Data till February 2013
Growth in disposable income has been encouraging households to raise their standard of living and boost demand for personal credit
Credit under the personal finance segment (excluding housing) rose at a CAGR of 10.8 per cent during FY08–13
Unlike some other emerging markets, credit-induced consumption is still less in India
CAGR*: 10.8%
India’s working age population and GDP per capita (USD)
Source: World Bank, IMF, Aranca Research Note: E - Expected, F - Forecasted, GDP - Gross Domestic Product
Rising per capita income will lead to increase in the fraction of the Indian population that uses banking services
Population in 25-60 age group is expected to grow strongly going ahead, giving further push to the number of customers in banking sector
0
500
1,000
1,500
2,000
2,500
0
100
200
300
400
500
600
700
2001 2006 2011E 2016FPopulation (Million) GDP per capita - RHS (USD)
Total loans: growth forecast over 2011-17 (USD billion)
Source: Reserve Bank of India, Business Monitor International Ltd (BMI), Aranca Research
Note: *CAGR - Compound Annual Growth Rate CAGR* - is calculated in INR terms
India’s GDP is forecasted to expand at a healthy CAGR* of 7.0 per cent during 2012-17 to USD2,735.7 billion
Strong GDP growth will facilitate banking sector expansion
Total banking sector credit is expected to increase at a CAGR* of 18.1 per cent to USD2.4 trillion by 2017
The sector will also benefit from economic stability and credibility of Monetary Policy 896
2,435
75
432
326
315
371
2011 2012 2013 2014F 2015F 2016F 2017F
Loan/GDP vs. GDP per-capita in select countries
Source: World Bank Financial Access report 2010, IMF, Aranca Research
Despite healthy growth over the past few years, the Indian banking sector is relatively underpenetrated
Loans-to-GDP ratio is low (62 per cent) relative to many of its emerging markets peers as well as developed economies such as the US and UK
Estonia
Bulgaria Hungary
Czech Republic
Poland Turkey
Vietnam
India
China
Germany
UK
US
0%
50%
100%
150%
200%
250%
300%
350%
0 10,000 20,000 30,000 40,000 50,000 60,000
Total loans / GDP
Per-capita GDP (USD)
Size of the bubble represents GDP per capita
747
839 1,065
1,626 1,661
2,063 2,022
2,182 2,403
2,923
3,969
India SouthAfrica
Brazil Poland Turkey Malaysia US Ireland Austria UK Belgium
Banking penetration (deposits/ '000 adults) in India is lower than a number of peers in Emerging countries
Advanced economies
Deposit accounts per 1,000 adults
Source: World Bank Financial Access Report 2010, IMF, Aranca Research
Limited banking penetration in India is also evident from low branch per 100,000 adults ratio
Branch per 100,000 adults in India stands at 747 compared to 1,065 for Brazil and 2,063 for Malaysia
Bank deposit accounts per 1000 adults in India stands at 953.1 compared to 1,032.7 in Brazil and 1,642.2 in Malaysia
HDFC Bank
• Established in 1994, HDFC Bank is the second largest private sector bank in India. HDFC was amongst the first to receive an 'in principle' approval from the RBI to set up a bank in the private sector
• Divisions – Retail banking, Wholesale banking and Treasury operations
• Size – Number of branches and extensions: 3,062*
• Number of ATMs: 10,743*
• Number of employees: 66,076 as on March 31, 2012
• Total assets: USD73.5 billion*
• Recognition –
• Best Retail Bank in India (Asian Banker:2012)
• Best Performing Bank – Private (CNBC TV18:2011)
Net profit USD (millions)
Source: Company Annual Reports, Aranca Research Note: * - As on March 2013
Note: * CAGR - Compound Annual Growth Rate, CAGR*: is calculated in INR terms
FY13**: Data till February 2013
237.8
331.3 467.7
614.3
818.0
1,076.5
1,235.8
FY07 FY08 FY09 FY10 FY11 FY12 FY13
CAGR: 31.6%
Income break-up (FY13) Advances and deposits (USD billion)
Source: Company Annual Reports, Aranca Research
10 13
21 26
33
41 44
14
21
30 35
43
51 54
FY07 FY08 FY09 FY10 FY11 FY12 FY13
Advances Deposits
70%
30% Net InterestIncome
Other Income
147.6 264.1
452.7 485.4
753.0
936.4
998.0
FY07 FY08 FY09 FY10 FY11 FY12 FY13
Axis Bank
• Established in 1994, Axis Bank is the third largest private sector bank in India. The bank is capitalised to the extent of USD86.0 million with the public holding at 54.1 per cent as on 31st March, 2012
• Divisions – Treasury, retail banking, corporate/wholesale banking and other banking business
• Size – Number of branches and extensions: 1,947*
• Number of ATMs: 11,245*
• Number of employees : 31,738 as on March 31,2012
• Total assets: USD63 billion*
• Recognition –
• Most Productive Private Sector Bank award (FIBAC:2011)
• 3rd strongest bank in Asia Pacific region (Asian Banker: 2011)
Net profit USD (Millions)
Source: Company Annual Reports, Aranca Research Note: FIBAC - FICCI and Indian Banks’ Association Conference
* - As on December 2012
CAGR: 37.5%
Income break-up (FY13) Advances and deposits (USD billion)
Source: Company Annual Reports, Aranca Research
60%
34%
6%
Net Interest income
Fee Income
Other Income
8
12 17
22
30
35
46
12
18
24
29
39
46
36
FY07 FY08 FY09 FY10 FY11 FY12 FY13
Advances Deposits
1.6
2.2
2.4 2.5 2.3
3.2
2.0
FY07 FY08 FY09 FY10 FY11 FY12 9M '13
State Bank of India
• Established in 1955, State Bank of India is the largest public sector bank in India. The bank is capitalised to the extent of USD129.3 million with the government holding of 62.31 per cent as on May 2013
• Divisions – Treasury, retail banking, corporate/wholesale banking and other banking businesses
• Size – Number of branches and extensions : 15,003**
• Number of ATMs : 61,500*
• Total Assets: USD257.3 billion*
• Recognition –
• SBI ranked 29th amongst the most reputed company in the world in 2009 rankings
Net profit (USD billions)
Source: Company Annual Reports, moneycontrol.com, Forbes, Aranca Research
Note: *CAGR - Compound Annual Growth Rate, CAGR* - is calculated in INR terms
** - As on December 2012
CAGR: 15.1%
Income break-up (9M ‘13) Advances and deposits (USD billion)
Source: Company Annual Reports, Aranca Research
89%
11%
Net Interest Income
Other Income
112
151 148
192
224 231
160 142
188 195
242 276 273
184
FY07 FY08 FY09 FY10 FY11 FY12 9M'13
Advances Deposits
Source: Company Annual Reports, Aranca Research
The RBI has aimed to provide banking services through a banking branch in every village having a population of more than 2000
Financial inclusion has permitted banks to utilise the services of non-governmental organisations (NGOs), micro-finance institutions (other than Non-Banking Financial Companies) and other civil society organisations as intermediaries in providing financial and banking services to all sections of the society, mainly the weaker sections and lower income groups
The Financial Inclusion Plan (2010–13) has increased the penetration of banking services in rural areas
Banking connectivity
Business Correspondents
Basic Savings Bank Deposit Accounts
(BSBDA)
Kissan Credit Cards and General Credit Cards
outstanding
• Increased more than threefold from 67,694 villages, at the beginning of the plan period, to 211,234 by December 2012
• Numbers of Business Correspondents have increased from 34,532 in March 2010 to
152,328 in December 2012
• Total number of BSBDA have gone up from 73.45 million in 2010 to 171.43 million by 2012
• Kissan Credit Cards outstanding have gone up from 24.3 million in 2010 to 31.7 million by
2012, while General Credit Cards outstanding have gone up from 1.4 million to 3.1 million
during the same period
GDP of agriculture, forestry & fishing sector, at current prices (USD Billion)
Source: McKinsey estimates, Aranca Research Notes: CAGR – Compounded Annual Growth Rate, QE – Quick Estimate, RE – Revised Estimate
The real annual disposable household income in rural India is forecasted to grow at CAGR of 3.6 per cent over the next 15 years
The Indian agriculture, forestry & fishing sector has grown at a fast pace, clocking a CAGR of 14.2 per cent over the past seven years
Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector
Real disposable household income in rural India (USD)
133 151
174 194
225
265
295
FY06 FY07 FY08 FY09 FY10 FY11QE
FY12RE
1,875 2,167
2,667
3,229
2010 2015 2020 2025
CAGR: 14.2% CAGR: 3.6%
Banking penetration in rural India picking pace
• Of the 600,000 village habitations in India only 5 per cent have a commercial bank branch
• Only 40 per cent of the adult population has bank accounts
• Debit card holders constitute only 13 per cent of the population and only 2 per cent have a credit card
• 51.4 per cent of nearly 89.3 million farm households do not have access to any credit either from institutional or non-institutional sources
• Only 13 per cent of farm households are availing loans from the banks in the income bracket of < USD1000
Soaring rural teledensity opens avenue of mobile banking
Source: TRAI, Aranca Research Note: * Indicates as on February 2013
Agriculture requires timely credit to enable smooth functioning. However, only one-eighth of farm households avail bank credit
Local money-lending practices involve interest rates well above 30 per cent, therefore making bank credit a compelling alternative
Tele-density in rural India soared to nearly 40.8 per cent in February 2013 from less than 1 per cent in 2007
Banks, telecom providers and RBI are making efforts to make inroads into the un-banked rural India through mobile banking solutions
0.4 9.2
15.2
24.3
37.5 39.9
40.8
2007 2008 2009 2010 2011 2012 2013*
Rural Teledensity
Evolution of mobile banking
• Mobile banking allows customers to avail banking services on the move through their mobile phones. The growth of mobile banking could impact the banking sector significantly
• Mobile banking across the world is still at a primitive stage with countries like China, India and UAE taking the lead
• Mobile banking is especially critical for countries like India, as it promises to provide an opportunity to provide banking facilities to a previously under-banked market
• RBI has taken several steps to enable mobile payments, which forms an important part of mobile banking; the central bank has recently removed the transaction limit of INR50,000 and allowed banks to set their own limits
• Mobile banking transactions in India will cross 340 million by 2015 and would result in cost savings of approximately INR11 billion (USD230 million)
Source: PWC, ‘Searching for new frontiers of growth’, Aranca Research
Mobile commerce
Payment of bills
Mobile banking (fund transfers,
etc.)
Mobile recharge
Mobile remittances
Indian Banks' Association
World Trade Centre, 6th Floor
Centre 1 Building,
World Trade Centre Complex,
Cuff Parade, Mumbai - 400 005
India E-mail: [email protected]
ATM: Automated Teller Machines
CAGR: Compound Annual Growth Rate
FY: Indian financial year (April to March)
GDP: Gross Domestic Product
INR: Indian rupee
KYC: Know Your Customer
NIM: Net interest margin
NPA: Non-performing assets
RBI: Reserve Bank of India
USD: US Dollar
Wherever applicable, numbers have been rounded off to the nearest whole number
Year INR equivalent of one USD
2004-05 44.95
2005-06 44.28
2006-07 45.28
2007-08 40.24
2008-09 45.91
2009-10 47.41
2010-11 45.57
2011-12 47.94
2012-13 54.31
Exchange Rates (Fiscal Year)
Year INR equivalent of one USD
2005 45.55
2006 44.34
2007 39.45
2008 49.21
2009 46.76
2010 45.32
2011 45.64
2012 54.69
2013 54.45
Exchange Rates (Calendar Year)
Average for the year
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This presentation is for information purposes only. While due care has been taken during the compilation of this
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Source: NASSCOM; Aranca Research Note: BPM - Business Process Management, USP - Unique Selling Proposition
Strong growth opportunities
• The IT-BPM sector in India is estimated to expand at a CAGR of 9.5 per cent to USD300 billion by 2020. The sector increased at a CAGR of 25 per cent over 2000–13, 3-4 times higher than global IT-BPM spend
Leading sourcing destination
• India is the world’s largest sourcing destination, accounting for approximately 52 per cent of the USD124–130 billion market. The country’s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be its USP in the global sourcing market
Largest pool of ready to hire talent
• India’s highly qualified talent pool of technical graduates is one of the largest in the world, facilitating its emergence as a preferred destination for outsourcing
Most lucrative sector for investments
• The sector ranks fourth in India’s total FDI share and accounts for approximately 37 per cent of total Private Equity and Venture investments in the country
• The engineering sector is delicensed; 100 per cent FDI is allowed in the sector
• Due to policy support, there was cumulative FDI of USD14.0 billion into the sector over April 2000 – February 2012, making up 8.6 per cent of total FDI into the country in that period
Growing demand
Source: Nasscom, Aranca Research Note: SEZ stands for Special Economic Zone, BFSI stands for Banking, Financial Services and Insurance; E stands for Estimate, F stands for Forecast
Growing demand
• Strong growth in demand for exports from new verticals
• Expanding economy to propel growth in local demand
Global footprints
• IT firms in India have delivery centres across the world; as of 2012, IT firms had a total of 580 centres in 75 countries
• India’s IT & ITes industry is well diversified across verticals such as BFSI, telecom, retail
Policy support
• Tax holidays extended to the IT sector
• SEZ scheme since 2005 to benefit IT companies with single window approval mechanism, tax benefits,etc
Competitive advantage
• India has cost savings of 60– 70 per cent over source countries
• India remains a preferred destination for IT & ITeS in the world. With 52 per cent market share, India continues to be a leader in the global sourcing industry
• The country has a huge talent pool
2013E
Industry value:
USD108 billion
2020F
Industry value:
USD300 billion
Advantage India
• By early 90s, US-based companies began to outsource work on low-cost and skilled talent pool in India
• IT industry started to mature
• Increased investment in R&D and infrastructure started
• India increasingly seen as a product development destination
• The number of firms in India grew in size and started offering complex services such as product management and go-to market strategies
• Western firms set up a number of captives in India
Pre-1995
1995-2000
2000–05
2005 onwards
• Firms in India became multinational companies with delivery centres across the globe (580 centres in 75 countries, as of 2012)
• Firms in India make global acquisitions
• The IT sector is expected to employ about 3.0 million people directly and around 9.5 million indirectly, as of FY13
• India’s IT sector is at an inflection point, moving from enterprise servicing to enterprise solutions
Source: Nasscom, Aranca Research
IT&ITeS sector
• Market Size: USD56.3 billion during FY13
• Over 78 per cent of revenue comes from the export market
• BFSI continued as the major vertical of the IT sector
• Market size: USD20.9 billion during FY13
• Around 85 per cent of revenue comes from the export market
Business Process Management (BPM)
IT services
• Market size: USD17.9 billion during FY13
• Over 79 per cent of revenue comes from exports
• Market size: USD13.3 billion during FY12
• The domestic market accounts for a significant share
• The domestic market is experiencing growth as the penetration of
personal computers is rising in India
Hardware
Software products and engineering services
Source: Nasscom, Aranca Research Note: E - Estimates
Market size of IT industry in India (USD billion) India’s technology and BPM sector (including hardware) is estimated to have generated USD108 billion in revenue during FY13 compared to USD100.9 billion in FY12, implying a growth rate of 7.4 per cent
The contribution of the IT sector to India’s GDP rose to approximately 8 per cent in FY13 from 1.2 per cent in FY98
22 22 24 29 32 32
41 47 50 59
69 76
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013E
Domestic Export
Source: Bloomberg, Aranca Research Note: 2012 (calendar year) revenues were
considered for all the companies
Market share of IT players based on revenues (2012) TCS is the market leader, accounting for about 10.1 per cent of India’s total IT & ITeS sector revenue
The top six firms contribute around 36 per cent to the total industry revenue, indicating the market is fairly competitive
Company name Market share
TCS 10.7 per cent
Wipro 7.2 per cent
Cognizant 6.8 per cent
Infosys 6.3 per cent
HCL Tech 4.2 per cent
Tech Mahindra 1.1 per cent
Source: Nasscom, Aranca Research; Note: E stands for Estimate
Growth in export revenue (USD billion)
Total exports from the IT-BPM sector (excluding hardware) are estimated at USD76 billion during FY13; the industry rose at a CAGR of 13.1 per cent during FY08-13E despite weak global economic growth scenario
Export of IT services has been the major contributor, accounting for 57.9 per cent of total IT exports (excluding hardware)
BPM accounted for 23.5 per cent of total IT exports during FY13
Sector-wise breakup of export revenue FY13E
22.2 25.8 27.3 33.5
39.9 43.9 9.9
11.7 12.4 14.1
15.9 17.8
8.8 10 10.4
11.4
13.0 14.1
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013E
IT services BPM Software products and engg. services
57.9% 23.5%
18.6% IT services
BPM
Software productsand engg. Services
CAGR: 13.1%
Source: Nasscom, Aranca Research Notes: C&U - Construction & Utilities, T&T - Travel and Tourism, T& M - Telecom & Media, BFSI - Banking, Financial Services and Insurance
The figures mentioned are for IT and BPM only and do not include engineering services and hardware exports
Export revenue growth across verticals (USD billion)
BFSI is a key business vertical for the IT-BPM industry. It generated export revenue of around USD31 billion during FY13, accounting for 41.0 per cent of total IT-BPM exports from India
Approximately 85 per cent of total IT-BPM exports from India is across four sectors: BFSI, telecom, manufacturing and retail. The hitherto smaller sectors are expected to grow
Distribution of export revenue across verticals (FY13)
28
13 11
7 3 2 2
31
14 12
8 4 2 2
BF
SI
T &
M
Ma
nu
factu
rin
g
Reta
il
He
alth
care
T &
T
C &
U
FY12 FY13
41%
18%
16%
10%
5% 3%
3%
BFSI
T & M
Manufacturing
Retail
Healthcare
T & T
C & U
Source: Nasscom, Aranca Research Note: ROW is Rest Of the World, APAC is Asia Pacific
Geographic breakup of export revenue (USD billion)
US has traditionally been the biggest importer of Indian IT exports; over 60 per cent of Indian IT-BPM exports were absorbed by the US during FY13
Non US-UK countries accounted for just 21.0 per cent of total Indian IT-BPM exports during FY12
Europe, one of the fast growing IT markets in 2012, is expected to emerge as a potential market as higher inclination towards offshoring firms would increase demand for IT services
Distribution of export revenue across geographies (FY13)
42
12 8
5 2
47
13 9
6 2
US UK ContinentalEurope
APAC ROW
FY12 FY13
62%
17%
11%
8% 2%
US
UK
Continental Europe
APAC
ROW
Source: Nasscom, Aranca Research
Category Number of
players
% of total export
revenue
% of total
employees Work focus
Large sized 11 47-50% ~35-38%
• Fully integrated players offering full range of services
• Large scale operations and infrastructure
• Presence in over 60 countries
Mid sized 85-100 32-35% ~28-30%
• Mid tier Indian and MNC firms offering services in multiple verticals
• Dedicated captive centers
• Near shore and offshore presence in >30-35 countries
Emerging 450-600 9-10% ~15-20%
• Players offering niche IT-BPM services
• Dedicated captives offering niche services
• Expanding focus towards sub Fortune 500/ 1000 firms
Small >4,000 9-10% ~15-18%
• Small players focussing on specific niches in either services or verticals
• Includes Indian providers and small niche captives
Global delivery model
• The number of global delivery centres of IT firms in India reached 580, spreading out across 75 countries, as of 2012
• As of 2009, over 150 centres were set up by various Indian IT firms in North America
Global sourcing hub • India continues to maintain a leading position in the global sourcing market. Its market
share increased to 52.0 per cent in 2012 from 50.0 per cent in 2011
Engineering offshoring • India is the most preferred location for engineering offshoring, according to a customer poll
conducted by Booz and Co • Companies are now offshoring complete product responsibility
Patent filing
• Increased focus on R&D by IT firms in India resulted in rising number of patents filed by them
• The number of patents filed by the top three IT companies increased to 858 in 2012 from 150 in 2009
Changing business dynamics
• India’s IT market is experiencing a significant shift from a few large-size deals to multiple small-size ones
• Delivery models are being altered, as the business is moving to capital expenditure (capex) based models from operational expenditure (opex), from a vendor’s frame of reference
Large players gaining advantage
• Large players with a wide range of capabilities are gaining ground as they move from being simple maintenance providers to full service players, offering infrastructure, system integration and consulting services
New technologies • Disruptive technologies, such as cloud computing, social media and data analytics, are
offering new avenues of growth across verticals for IT companies
Growth in non-linear models
• India’s IT sector is gradually moving from linear models (rising headcount to increase revenue) to non-linear ones
• In line with this, IT companies in India are focusing on new models such as platform-based BPM services and creation of intellectual property
Consumerisation of IT
• Global outsourcing is being used to drive fundamental re-engineering of end-to-end processes
• Increased emphasis on beyond cost benefits • IT firms in the current phase have moved up the value chain, providing innovation-led
growth to clients from SLA satisfaction and RoI calculations
Emergence of Tier II cities
• Tier II and III cities are increasingly gaining traction among IT companies, aiming to establish business in India
• Cheap labour, affordable real estate, favourable government regulations, tax breaks and SEZ schemes facilitating their emergence as a new IT destination
• Giving rise to the domestic hub and spoke model, with Tier I cities acting as hubs and Tier II, III and IV as network of spokes
SMAC technologies, an inflection point for
Indian IT
• Social, Mobility, Analytics and Cloud (SMAC), a paradigm shift in IT-BPM approaches experienced until now, is leading to digitisation of the entire business model
• IT vendors in India to generate USD225 billion from SMAC-related revenue by 2020
Note: SLA - Service Level Agreement; RoI - Return on Invesmtnet
Note: STPI stands for Software Technology Park of India, SEZ stands for Special Economic Zone
Growth
drivers
Talent Pool
Domestic growth
Infrastructure
Global demand
Policy support
• Computer penetration
expected to increase
• Government likely to become
a major contributor to domestic
demand by 2013–14
• 4.7 million graduates are estimated to have been
added to India’s talent pool in FY13
• Strong mix of young and experienced professionals
• Global IT offshore
spending is expected to
rise at a CAGR of 8.0 per
cent during FY11–13
• Global BPM spending is
estimated to expand at a
CAGR of around 7.0 per
cent during FY11–13
• Tax holidays for STPI and
SEZs
• Procedural ease and single
window clearance for setting
up facilities
• Robust IT infrastructure across
various cities in India such as
Bengaluru
• Delivery centres spread across
various countries
Source: Nasscom, Aranca Research Note: Small and Medium Business; E indicates estimated numbers
Domestic IT market by customer segment (FY2013E)
Large enterprises account for a significant share of the IT market and added USD15bn to domestic revenue in FY13
Expansion of Indian firms in global markets is leading to increasing spend on IT for efficient and cost-effective operations
SMB, another potential demand pool for IT services in domestic market
Adoption of technology for enhancing product visibility, reach and operational efficiencies is leading to higher demand for IT services from SMBs
With 46 million units, India has the second largest SMB base in the world
47%
26%
15%
12%
Large enterprises
SMB
Governement
Consumers
Total market = USD32 billion
Source: Nasscom, Aranca Research Note: UT - Union Territory
Domestic revenue from IT and BPM (USD billion) Introduction of large eGovernance projects to provide better services through IT and focus on the formation of the cyber policy led to higher demand for IT and hardware from the government
The Central Government and State/UT Government allocated 0.9–1.2 per cent and 2.8–3 per cent, respectively, of total budget on IT spend under the 12th Five Year Plan
Strong consumer demand for IT service and products:
Advent of smartphones, tablets, iPads,
Rising computer literate population
Enhanced Internet and mobile penetration
Growing disposable income strengthening consumer purchasing power
15.5
FY13 FY15F FY20F
~22-23
~90-100
Source: Nasscom, Aranca Research Note: Ovals indicate CAGR
Export revenue from IT and BPM (USD billion) Global IT-BPM spending to grow 5–6 per cent to nearly USD2 trillion by 2013
Global sourcing to rise at a faster pace of 9–11 per cent to USD124–130 billion in 2013
Emergence of SMAC would provide USD1 trillion market by 2020
Emerging economies are likely to be a major contributor to IT spend growth
IT spend in emerging economies to grow 3-4 times faster than advanced economies
The BRIC IT market is estimated at USD380–420 billion by 2020
Emerging segments are expected to drive growth of Indian IT-BPM exports
48
~106-111
FY11 FY14F
Core and non core segment’s growth prospects
22 11 1.2 7.6 3.2 3.1
35
15 2 13
5.5 5.5 C
AD
M
ER
&D
IT c
onsu
ltin
g
IS s
ou
rcin
g
Kn
ow
led
ge
serv
ice
s
So
ftw
are
test
ing
FY13E FY16F
Core segments Emerging segments 17%
10%
19%
20% 20%
21%
Source: Nasscom, Aranca Research Note: Graduates includes both graduates and post graduates
Graduates addition to talent pool in India (in millions)
Availability of skilled English speaking workforce has been a major reason behind India’s emergence as a global outsourcing hub
India added around 4.7 million graduates to the talent pool during FY13
Growing talent pool of India has the ability to drive the R&D and innovation business in the IT-BPM space
3.2 3.5
3.7 4.0
4.4
4.7
FY2008 FY2009 FY2010. FY2011 FY2012 FY2013E
Source: Nasscom, Aranca Research
Training expenditure by Indian IT-BPO sector About 2 per cent of the industry revenue is spent on training employees in the IT-BPM sector
40 per cent of total spend on training is spent on training new employees
A number of firms have forged alliances with leading education institutions to train employees
24%
6%
13%
27%
19%
11%
Salaries for inhousetraining staff
External training (newrecruits)
External training (existingemployees)
Recruitment cost
Employee welfare
Other costs
Source: Nasscom, Aranca Research Note: NAC - Nasscom Assessment of Competence, IIIT - Indian Institutes of Information Technology
Short term
Medium term
Long term
• Enhance over all yield of employees
• Improve employability
• Expand to tier 2 cities
• Lower skill dependence
Objectives Initiatives
• Industry to enhance investment in training
• Use NAC and NAC – Tech to assess employability of talent pool
• Identified new tier 2 locations
• Bring down investment on training
• Develop specialist and project management expertise
• Launched the National Faculty Development Programme to increase suitability of Faculty
• Aiding industry access to specialist programmes offered by independent agencies
• Expand education capacity
• Promote reforms in education
• Expansion of higher education infrastructure; 20 new IIITs to be set up by the government
• Programme to increase PhDs in technology
Source: Nasscom, Aranca Research, STPI
As of FY2011, 6,554 STPI units were operational, while 5,564 units have exported IT services and products. During FY11, STPI units accounted for approximately 76.0 per cent of total IT exports
IT-SEZs have been initiated with an aim to create zones that lead to infrastructural development, exports and employment
Characteristics of STPI and SEZ in India
Parameters STPI SEZ
Term 10 years 15 years
Fiscal benefits
• 100 per cent tax holiday on export profits
• Exemption from excise duties and customs
• 100 per cent tax holiday on exports for first five years
• Exemption from excise duties and customs
Location and size restrictions
• No location constraints
• 23 per cent STPI units in tier II and III cities
• Restricted to prescribed zones with a minimum area of 25 acres
Source: Nasscom, E&Y, Aranca Research
IT sector employment distribution in Tier I and Tier II/III cities
1,821 1,615
175
3,230
2008 2018E
Tier I locations Tier II/III locations
Trends in tier II and III cities
• 43 new tier II/III cities are emerging as IT delivery location; this could reduce pressure on leading locations
• Cost in newer cities is expected to be 28 per cent lower than leading cities
• Lower cost and attrition, affordable real estate and support from local government, such as tax breaks, STPI and SEZ schemes, are facilitating this shift of focus
• Over 50 cities already have basic infrastructure and human resource to support the global sourcing and business services industry
• Some cities are expected to emerge as regional hubs supporting domestic companies
Source: Zinnov, Nasscom, Aranca Research
Number of GIC’s in India
2000 2005 2010 2012
~180
450+
700+ 750+
Key highlights
• Global In-House Centers (GIC), also known as captive centers, are one of the major growth drivers of the IT-BPM sector in India
• As of FY2012, the captive segment accounted for 16-18 per cent of the IT-BPM industry revenue
• The impact of the segment goes beyond revenue and employment, as it helped in developing India as a R&D hub and create an innovation ecosystem in the country
• Within the captive landscape, ER&D/SPD (Engineering Research & Development /Software Product Development) is the largest sub-segment
• Companies from North America and Europe are major investors in the captive segment in India, accounting for over 90 per cent of captives in the country
Source: Venture Intelligence, Nasscom, Aranca Research
PE-VC investments in IT & BPM (USD billion)
The IT & BPM sector continued to attract PE and VC investments in 2012, accounting for a significant proportion in terms of volume (around 37 per cent) and value (approximately 40 per cent)
Value increased at an impressive 68.4 per cent over 2011
eCommerce accounted for 31 VC deals in 2012
About 64 per cent of VC deals in India were in the software, internet and mobile industry
Two of the largest PE deals in the sector during 2012 were:
JP Morgan’s buyout of M*Modal (USD1,100 million)
Bain Capital, GIC investment in Genpact (USD1,000 million)
In 1Q13, the industry attracted 26 deals at a value of USD105 million
Share of IT-BPM in PE-VC investments
0.8
1.9
3.2
2008 2011 2012
184
379
484
393
58 25 32 40
2009 2010 2011 2012
Number of deals Share of IT-BPM
Source: All the figures are taken from International Data Corporation (IDC) and Nasscom and are FY10 estimates
Notes: SMB - Small and Medium Businesses
• BRIC nations, continental Europe, Canada and
Japan have IT spending of approximately
USD380–420 billion
• Adoption of technology and outsourcing is
expected to make Asia the second largest IT
market
• Government, healthcare, media and utilities have
IT spend of approximately USD190 billion, but
account just 8 per cent of India’s IT revenue
• A number of sectors are expected to depend on
technology and service providers to reduce the
cost to serve • SMBs have IT spend of approximately USD230–250 billion, but contribute just 25 per cent to India’s
IT revenue
• The emergence of new service offerings and
business models would aid in tapping market
profitably and efficiently
New verticals New
customer segments
New geographies
Growth trend of traditional verticals
Traditional verticals i.e. BFSI, telecom and manufcaturing, continue to remain the largest in terms of IT adoption, and are expected to grow at an average of 15%
Implementation of cloud environment and mobility way forward for traditional verticals
Emphasis on other emerging verticals (such as education, healthcare and retail) to aid growth in IT firms in India
Shift from IT adoption infrastructure, automation and digitisation to smart IT marks future trend of services in emerging verticals
Growth trend of emerging verticals
128 80
339
195
126
506
243
193
595
BFSI Telecom Manufacturing
FY10 FY13E FY15F
17.2 11.6
4.4
34.5
17.5
8.7
39.5
24.8
9.7
Education Healthcare Retail
FY10 FY13E FY15F
Source: Nasscom, Aranca Research
Source: Nasscom, Aranca Research Note: SMB - Small and Medium Business
Market size of other progressing verticals by 2020 (USD billion)
As IT is increasingly gaining traction in SMB’s business activities, the sector offers impressive growth opportunities and is estimated at approximately USD230–250 billion by 2020
In a bid to reduce cost, governments across the world are exploring outsourcing and global sourcing options
Technologies, such as telemedicine, mHealth, remote monitoring solutions and clinical information systems, would continue to boost demand for IT service across the globe
IT sophistication in the utilities segment and the need for standardisation of the process are expected to drive demand
Digitisation of content and increased connectivity is leading to a rise in IT adoption by media
250
90
58 25
17
SMB Government Healthcare Utilities Media
Source: Nasscom, Aranca Research Note: Size of bubble indicates market size,
*CAGR and market size for Big data/analytics is till 2015
Growing technologies future growth Emerging technologies present an entire new gamut of opportunities for IT firms in India
SMAC provide USD1 trillion opportunity
Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around USD650–700 billion by 2020
Social media is the second most lucrative segment for IT firms, offering a USD250 billion market opportunity by 2020
Cloud
Social Media
Enterprise mobility
Big data/analytics*
10%
20%
30%
40%
50%
60%
0 200 400 600 800
CA
GR
till
20
20
Market size USD billion
Source: Nasscom, Aranca Research
Emerging geographies to drive the next growth phase for IT firms in India
BRIC provides USD380–420 billion opportunity by 2020
Focus on building local credible presence, high degree of domain expertise at competitive costs and attaining operational excellence hold key to success in new geographies
Countries offering growth potential to IT firms
Country IT spend India’s penetration Key segments
Canada USD63 billion ~1.5 per cent Enterprise applications, cyber security, healthcare IT
Europe USD230 billion <1.5 per cent IT sourcing, BPM, IS outsourcing, CAD
Japan USD235 billion <1 per cent CRM, ERP, Salesforce automation, SI
Spain USD26 billion <1.5 per cent IT sourcing, SI
Mexico USD29 billion ~4 per cent IT sourcing, BPM
Brazil USD47 billion ~2 per cent Low level application management, artificial intelligence, R&D
China USD105 billion <1 per cent Software outsourcing, R&D
Australia USD48 billion ~4 per cent Procurement outsourcing, infrastructure software & CAD
Source: TCS website and Annual Report, Aranca Research
Segment-wise revenue breakdown (FY13)
66% 5%
12%
3%
3%
13%
IT solutions andservices
Engineering andindustrial services
Infrastructureservices
Global consulting
Asset leveragesolutions
Business processoutsourcing
Tata Consultancy Services
Established in 1968, Tata Consultancy Services (TCS) is an Information Technology (IT) services, consulting and business solution company . It provides end-to-end technology and technology-related services to global enterprises. The company’s business is spread across the Americas, Europe, Asia Pacific, and Middle East and Africa (MEA).
Achievements:
• 2013: Won Best Performing Consultancy Brand award in Europe
• 2013: Received Red Hat North America Awards for System Integrator Partner of the Year
• 2012: TCS China ranked amongst the top 10 global services providers in China
• 2012: TCS BaNCS won Xcelent Customer Base Awards 2012
Source: TCS website and Annual Report, Aranca Research
Number of customers Financial performance (USD billion)
6.0 6.3
8.2
10.2
11.6
1.4 1.7 2.3
2.8 3.1
FY09 FY10 FY11 FY12 FY13
Revenue Operating profit
214
76
42 25
5
458
208
143
81
27 8
522
245
170
99 43
14
556
277
196 115
48 16
USD1million+
USD5million+
USD10million+
USD20million+
USD50million+
USD100million+
FY5 FY11 FY12 FY13
1968 2001 2003 2005 2007 2009 2011 2013
Energy resources & Utilities
Consolidation of market position through CMC
acquisition
Expansion of geographic presence
1968 India’s first
software service company
Issue of an IPO in the market in India and raised USD1.2
billion in 2004
FY03 Became the first
software company in India to cross
USD1 billion revenue
FY13 USD11.6
billion revenue
Life Sciences &
Healthcare
Manufacturing
Media & Entertainment
Retail and consumer packaged goods
BFSI
Acquisition of IT service firm Alti in
France in 2013
With a brand value of over USD1 billion, TCS
consolidates position as one of the largest IT
players
FY13 Active client base: 1,156 New clients:
153
Source: TCS website and Annual Report, Aranca Research
Source: HCL Technologies website and Annual Report, Aranca Research
Segment-wise revenue breakdown (FY13)
32%
24%
20%
19%
5% Custom applicationservices
Infrastructure services
Enterprise applicationservices
Engineering & R&Dservices
Business services
HCL Technologies
Established in 1991, HCL Technologies Ltd is an IT services company providing enterprise and custom application, business transformation, infrastructure management, business process outsourcing and engineering services. The company’s network of 26 offices is spread across the US, Europe and Asia Pacific
Achievements:
• 2013: Won IT Europa, European IT Excellence Awards and Asia Pacific Enterprise Leadership Award 2013
• 2012: Received Market Facing Innovation award at the NASSCOM Innovation Awards, 2011
• 2011: Received Operational Excellence & Quality award at BPO Excellence Awards 2010–11
Source: HCL Technologies website and Annual Report, Aranca Research
Number of customers Financial performance (USD billion)
1,879 2,228
2,560
3,452
4,345
3,459
250 317 321 438 656
682
FY08 FY09 FY10 FY11 FY12 9MFY13
Revenue Operating profit
386
152
92
44 25 14 10
422
187
98
51 29 15 10
USD1million+
USD5million+
USD10million+
USD20million+
USD30million+
USD40million+
USD50million+
31-Mar-12 31-Mar-13
1997 1998 1999 2000 2002 2004 2006 2008 2010 2011 2012 2013
Life Sciences & Healthcare
Organic growth through prudent
strategies
Diversification of business and
geography mix
1997 Established with spun-off HCL’s R&D business
Adoption of non-linear strategy;
formation of JVs and alliances
FY06 Signed the largest ever
software service deal with DSG
FY12 Revenue
crossed USD4 billion
Media
Retail & Consumer
Packaged Goods
Telecom
Manufacturing
Financial Services
Acquisition of Capitalstream and
AXON Group
USD100 million+ clients reached 5
FY09 Launch of
IPO
Source: HCL Technologies website and Annual Report, Aranca Research
Source: Infosys website and Annual Report, Aranca Research
Segment-wise revenue breakdown (FY13)
34%
22%
20%
24%
Financial services &Insurance
Manufacturing
Energy utilities,Communication andServices
Retail, Consumerpackaged goods,Logistics and LifeSciences
Infosys Limited
Established in 1981, Infosys Limited is engaged in consulting, engineering, technology and outsourcing services. The company’s end-to-end services include consulting and system integration. It operates through 30 offices across India, the US, China, Australia, the UK, Canada and Japan.
Achievements:
• 2013: Ranked first in the annual Euromoney Best Managed Companies in Asia survey
• 2013: Received NASSCOM Business Innovation Award 2013 for Infosys Edge
• 2012: Identified as an innovation leader in KPMG’s Global Technology Innovation Survey 2012
Number of customers Financial performance (USD billion)
5.0 4.8
6.0
7.0 7.4
1.7 1.6 1.8 2.0 1.9
FY09 FY10 FY11 FY12 FY13
Revenue Operating profit
399
190
132
233
97
16
448
213
137
231
84
15
USD1million+
USD5million+
USD10million+
USD20million+
USD50million+
USD100million+
2012 2013
Source: Infosys website and Annual Report, Aranca Research
1981 1991 1993 1995 1997 1999 2002 2006 2010 2012
Logistics and Distribution
Organic growth
Large client acquisitions
1981 Founded in
Pune with an initial capital of
USD250
Expansion across the world and
offshore business
1993 Launched
IPO
FY13 USD7.4 billion
turnover
Industrial
manufacturing
Healthcare,
Pharmaceuticals &
Biotech
Financial service
Automotive
Aerospace, Defense &
Airlines
Acquisition of Lodestone Holding
AG
Strong diversified client base of 798
clients
1999 Reached USD100 million and listed
on NASDAQ
Source: Infosys website and Annual Report, Aranca Research
National Association of Software and Services Companies
(NASSCOM) Address: International Youth Centre Teen Murti Marg, Chanakyapuri, New Delhi – 110 021 Phone: 91 11 2301 0199 Fax: 91 11 2301 5452 E-mail: [email protected]
APAC: Asia Pacific
BFSI: Banking, Financial Services and Insurance
BPM: Business Process Outsourcing
CAGR: Compounded Annual Growth Rate
C&U: Construction & Utilities
FDI: Foreign Direct Investment
GOI: Government of India
INR: Indian Rupee
IT&ITeS: Information Technology-Information Technology Enabled Services
NAC: Nasscom Assessment of Competence
RoI: Return on Investment
ROW: Rest Of the World
SEZ: Special Economic Zone
SLA: Service Level Agreement
SMB: Small and Medium Businesses
STPI: Software Technology Parks of India
T&M : Telecom & Media
T&T: Travel and Transport
USD: US Dollar
USP: Unique Selling Proposition
UT: Union Territory
Wherever applicable, numbers have been rounded off to the nearest whole number
Year INR equivalent of one US$
2004-05 44.95
2005-06 44.28
2006-07 45.28
2007-08 40.24
2008-09 45.91
2009-10 47.41
2010-11 45.57
2011-12 47.94
2012-13 54.31
Exchange Rates (Fiscal Year)
Year INR equivalent of one US$
2005 45.55
2006 44.34
2007 39.45
2008 49.21
2009 46.76
2010 45.32
2011 45.64
2012 54.69
2013 54.45
Exchange Rates (Calendar Year)
Average for the year
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