India's IT Infrastructure Services

IT Infrastructure Services
Sectoral Risk Outlook
October, 2012.
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TABLE OF CONTENTS
EXPLANATION OF RISK SCORE ............................................ 3
EXECUTIVE SUMMARY .................................................... 4
PRODUCT PROFILE ...................................................... 5
MACRO ECONOMIC ANALYSIS .............................................. 7
Macro Economic Growth ...................................................................................................... 7
Quarterly Performance .......................................................................................................... 9
Interest Rate Risk ................................................................................................................ 11
Foreign Exchange Fluctuations ......................................................................................... 13
GOVERNMENT REGULATIONS .............................................. 14
Government Initiatives ........................................................................................................ 14
DEMAND SUPPLY DYNAMICS .............................................. 15
Market Size........................................................................................................................... 15
Exports ................................................................................................................................. 16
Demand Drivers ................................................................................................................... 19
Projections ........................................................................................................................... 21
COMPETITIVE SCENARIO ................................................ 22
Nature of Industry................................................................................................................ 22
Recent IS Outsourcing Contract ........................................................................................ 25

EXPLANATION OF RISK SCORE
Industry Risk Score reflects the effect that the various factors have on
the business prospects and operating environment of the industry over
the next 12 months. The risk score arrived at is an aggregate of the
individual scores assigned to the relevant industry parameters
identified.
The selected parameters are government regulations, demand supply

dynamics, competitive scenario, macro-economic variables, resource
risk and profitability and cost structure. The scores given to individual
parameters reflect the extent of positive/ negative impact on the
business operating environment.
The industry risk scores have been graded on an 8 point scale with 1
indicating low risk and 8 indicating high risk.
Industry Risk Score 3
Favorable Factors (+)
Unfavorable Factors (-)
Government of Indias focus on e-
Emergence
governance plans augurs well for
destinations may affect Indian off-
the IT infrastructure industry.
shoring concept.
Several IS Outsourcing contract
Global majors have also made
bagged by industry players are
India as their base of operations.
expected to push the sales growth
With access to low cost operations,
of the leading IT players and
these companies try to minimize
contribute towards
major competitive advantage of
the
overall
revenue growth of IT industry.
of
other
low
cost
Indian competitors.
In the wake of rapid changing

technology,
rising
cost
ownership,
increasing
of
work
related complexities, government

as
wells
as
corporate
are
increasing adopting for managed

IT services.
D&Bs assessment of the industry risk score is based on assessment of the
sector specific risk factors and a sectors relative standing amongst other
sectors within D&Bs portfolio of industries.

Page 3
EXECUTIVE SUMMARY
IT Infrastructure Management Service (also referred as IS outsourcing)

cover the entire spectrum of IT Infrastructure and the complete life cycle
of IT Services. IT Infrastructure Services caters to the organisations
computer hardware, network and system security related needs.
Rapid changing technology is creating robust scope for the growth of

Infrastructure-as-a-Service (IAAS). Revenues from the IT Infrastructure
Services have grown from ~INR 182 Bn in FY 2008 to ~INR 410 Bn in
FY 2012, registering a CAGR of 23%.
Export revenues from IT Infrastructure Services grew at CAGR of 29 %

over the same period. Their share to total export earnings of the IT
Services industry increased from 13.5% to 18.4% over the period FY
2008-12.
Growing preference towards offshoring of IT Infrastructure Services,

increasing IT spending by Indian companies for internal needs along
with IT support for infrastructure development companies as well as
increasing Indian Government spend are leading to growth of IT
Infrastructure Services.
Major companies in this service offering include Wipro, HCL, TCS,

Infosys, Tulip Telecom among others, with Wipro being a major player.
Apart from these companies there are some foreign companies which
also offer IT services bundled with their product offerings. Increasing
demand has also led to emergence of specially focused companies
such as Allied Digital and Glodyne Technoserve.
Cloud Computing especially storage facilities offered on cloud are

expected to provide new growth avenues for IT Infrastructure Services
providers.
Revenue from IT Infrastructure Services is expected continue growing

at a healthy double digit CAGR of 23% to increase to ~INR 775.8 Bn by
FY 2015.

Page 4
PRODUCT PROFILE
IT Infrastructure Services cater to the organisations computer

hardware, network, system security and disaster recovery related
needs.
The service providers are entrusted with managing and maintaining

desktop, laptop and mainframe computers, handheld devices, printers,
operating systems. They are also responsible for e-mail management,
data communications, telecommunications network, firewalls as well as
storage management.
Following exhibit depicts gamut of IT Infrastructure Services:
Exhibit 1 : Range of IT Infrastructure Services

Storage
Management
Data Centre
Services
Managed Hosting
and Co-Location
Services
Desktop Support
IT Service
Desk
Remote Monitoring
and Management
IT Infrastructure
Services
Device and
Performance Mgmt
Network (LAN,
WAN) Services
Safety and Fault

Management
Vulnerability
Assessment
Enterprise
Security
Content Protection
Services
Source: D&B Research
Growing
operational
complexities,
globally
spread
operations,
requirement to handle huge data and hence, necessity to utilize huge


Page 5
number of IT products has led to burgeoning demand for IT

Infrastructure Services.
Global spend on IT Infrastructure Services increased by 1.5% in CY

2011. The share of global spending on various IT infrastructure services
is estimated to account for about 78% of the total IT Outsourcing
services spending in 2011.
Exhibit 2 : Global Spending on IT Infrastructure Services (2011e)
Infrastructure
Outsourcing:
USD 114.1Bn
Global Spending
on IT
Infrastructure
Services: USD
187.8 Bn
Hosting
Infrastructure
Services: USD
29.4 Bn
Network and
Desktop
Outsourcing:
USD 44.3 Bn
Source: Nasscom, D&B Research
Key Benefits of IS outsourcing
Optimal use of resources

Process Automation
Reduce technology complexities
Compliance Management helps in Managing risk
Cost optimization

Page 6
MACRO ECONOMIC ANALYSIS

Macro Economic Growth
Indias GDP has grown at a CAGR of ~7.86% over the period FY 200712 while Index of Industrial Production (IIP) grew at a CAGR of ~6.5%
during the same period.
Macro Economic Indicator
15.5%
9.5%
9.3%
8.4%
8.4%
6.7%
12.9%
6.5%
8.23%
5.28%
5%
3.2%
2.5%
FY 2007
FY 2008
FY 2009
GDP Growth Rate
5.8%
FY 2010
FY 2011
FY 2012
FY 2013E
IIP Growth Rate
Source:CSO; RBI D&B Estimates
Interest rate hike, high inflation, higher fiscal deficit and the influence of
external macro factors resulted in sharp decline in GDP to 6.48% in FY
2012 from the level of 8% plus GDP growth witnessed in previous two
fiscal.
The countrys IIP growth figure also reflected a steep fall of over 5
percentage point to 3.2 % in FY 2012 as compared 8.23% registered
during the previous fiscal.
In the midst of current economic slowdown, RBI has cut down Indias
GDP growth forecast to 5.8% for FY 2013 in October 2012 from the
earlier projection of 6.5%.
As seen in below chart, the services sector has registered the maximum
growth over the period FY 2007-12 followed by the industrial sector,
while growth in the agriculture lags far behind.

Page 7
GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity

Agriculture (INR Bn)
Industry (INR Bn)

7,287
7,091
10,212
6,551
6,557
6,625
FY 2008
FY 2009
FY 2010
12,679
11,200
11,697
FY 2008
FY 2009
13,587
14,047
FY 2011
FY 2012
6,192
FY 2007
FY 2011
FY 2012
FY 2007
Services (INR Bn)
19,240
25,772
23,333
21,216
FY 2010
CAGR (FY 2007-12)

30,692
28,181
9.79%
6.58%
3.31%
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
Agriculture
Industry
Services
Source: Business Beacon
In FY 2012, services sectors contribution towards GDP stood at 59%,

followed by industry (27%) and agriculture (14%). Also, the share of
services in the GDP of our country is observed to be increasing, while
that of agriculture is seen declining over the period FY 2007-12.
59.0%
57.7%
57.2%
56.1%
54.4%
27.0%
28.1%
27.8%
28.1%
28.7%
14.0%
14.7%
14.5%
16.8%
15.8%
17.4%
28.7%
54.0%
Contribution towards GDP by Key Economic Activity
Agriculture
FY 2007
Industry
FY 2008
FY 2009
Services
FY 2010
FY 2011
FY 2012
Source: Business Beacon; D&B Research
The annual growth rate of services sector, industry and agriculture

sector declined to 8.91%, 3.38% and 2.76% in FY 2012 as compared
9.35%, 7.16% and 7.03% respectively, registered in previous fiscal.

Page 8
Quarterly Performance
As seen in below graphs, the overall economic activity witnessed a

declining trend in all 4 quarters of FY2012 when compared with
quarterly growth of FY 2011. Only exception to this trend was the 4%
growth registered in agriculture sector in Q1 FY 2012 as against 3%
growth registered in Q1 FY 2011.
Yearly Q-o-Q change in Sectoral GDP Compositon (%)

12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Q1:FY
2011
Q2:FY
2011
GDP Growth
Q3:FY
2011
Q4:FY
2011
Q1:FY
2012
Agricuture
Q2:FY
2012
Q3:FY
2012
Industry Service
Q4:FY
2012
Q1: FY
2013
Services
Sources: Business Beacon
Yearly Q-o-Q Growth Trend (%)
12.0%
10.0%
8.5%
9.2%
7.6%
8.0%
8.2%
8.6%
9.6%
6.0%
8.0%
6.7%
6.1%
7.9%
7.0%
6.8%
5.3%
5.5%
0.4%
-0.2%
Q4: FY
2012
Q1: FY
2013
4.0%
2.0%
1.2%
3.2%
0.0%
-2.0%
Q1: FY
2011
Q2: FY
2011
Q3: FY
2011
Q4: FY
2011
Q1: FY
2012
GDP Growth
Q2: FY
2012
Q3: FY
2012
IIP Growth
Sources: Business Beacon
In Q1 FY 2013, Indias Quarterly GDP growth grew by just 5.5% as

compared to 8% GDP growth in the same quarter in previous fiscal.
However, the GDP growth was marginally higher against the 5.3% in
preceding quarter (Q4 FY 2012). Growth in the entire segment declined
in Q1 FY 2013 from the year ago level.

Page 9
In Q1 FY 2013, the GDP growth of agriculture, industry and services

slowed down from 3.7%, 5.6% and 10% to 2.9%, 3.6% and 7%,
respectively. In sequential preceding quarter, the GDP of agriculture,
industry and services grew by 1.7%, 1.9% and 8%. Thus, growth in
services sector slowed to 7% in Q1 FY 2013 from 8% in Q4 FY 2012
whereas GDP of agriculture and industry reported a higher growth in Q1
FY 2013 on sequential q-o-q basis.
In Q1 FY2013, the Index of Industrial Production (IIP) reported a

negative growth of 0.2% on y-o-y basis and of 6.7% decline as
compared to preceding quarter i.e Q4 FY 2012

Page 10
Interest Rate Risk

International Interest Rate Movement
Domestic Interest Rate Movement
1.20%
5% 15%
10%
1.00%
4% 12%
9%
0.80%
8%
3%
9%
2%
6%
0.20%
1%
3%
5%
0.00%
0%
0%
4%
0.60%
7%
3M-LIBOR(LHS)
6%
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
0.40%
3M-MIBOR(LHS)
10-Yr US T-Bond (RHS)
10-Yr GOI Security Yield (RHS)
Source: RBI, US Treasury, D&B India Research
Domestic interest rates have started firming up in 2010 amid prospects of

economic revival after facing sharp decline in the previous one and half
years.3M MIBOR has reflected an increasing trend since November 2009.
During FY 2012, 3M MIBOR remained in the range of 9.06%-11.06% which
reflects expensive credit availbility to corporate which have either delayed or
stalled the capacity expansion activities and have pull down the overall
economic growth.
In the midst of bleak economic outlook on domestic economy, investor have

become risk averse. This is well captured by the increasing yield on 10Yrs
G-Sec since April 2009. During FY 2012, it remained in the range of 8.108.88%.
The prevailing uncertainty in the global economic environment like crises in

the euro zone, sustained weakness of the US economy, elevated
commodity prices etc. have adversely impacted consumer confidence
across the globe and have potential to substantially lower the consumption
demand, resulting in a slowdown.
As a result, the industry players have been demanding the interest rate cut
to revive the domestic economy which have been witnessing a decline in
GDP growth in last four consecutive quarters of FY 2012 on y-o-y basis.
To curb burgeoning inflation, RBI adopted the monetary policy tightening

since February 2010. RBI kept on increasing the repo and reverse repo rate
th
which saw last hike of 25 basis points each on 25 October 2011 to reach
th
8.5% and 7.5%, respectively. On April 17 2012, RBI slashed the repo rate
(rate at which RBI lend money to commercial banks) and reverse repo by 50

Page 11
basis point for the first time in three years even though the inflation rate
remain elevated in order to boost sluggish economic growth.
Movement: Inflation, CRR & Repo Rate
10.0%
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
17th April 2012;

Repo Rate cut
by 50 Basis
point
WPI (LHS)
CRR (RHS)
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
30th October
2012; CRR rate
cut to 4.25%
Jan-10
Oct-09
Jul-09
Apr-09
Index (2004-05) = 100

170.0
165.0
160.0
155.0
150.0
145.0
140.0
135.0
130.0
125.0
120.0
Repo Rate
Source: Office of the Economic Advisor; RBI
Also, the CRR which kept increasing in phases from 5% to 6%, during
February to April 2010 and remained at same level thereafter was slashed
by 50 basis point to 5.5% on Jan 24, 2012. Since March 2012, CRR has
been reduced thrice (each time by 25 basis point) inorder to infuse the
primary liquidity in banking system and supports the GDP growth. Wiith
th
recent cut of 25 basis point in 30 October 2012, the CRR currently stands
at 4.25%.
Because of the sustained high inflation, RBI in its Monetary Policy Review in
September 2012, kept the key policy rate unchanged against expectation of
the industry experts who were expecting a rate cut as a measure to prevent
the decelerating economic growth.

Page 12
Foreign Exchange Fluctuations
IT infrastructures services is largely an export oriented industry. Indias

IS outsourcing generated exports worth ~INR 335.09 Bn in FY 2012
registering Y-o-Y growth of ~30%.
As most of the exports are billed in US dollars terms, the exchange rate
of USD in ~INR has a significant impact on the industry.
Indian Rupee depreciated from ~INR 45.6/USD (average for the year) in
FY 2011 to ~INR 47.86/USD in FY 2012. In FY 2012, this depreciation
however muted favorable implication on the export realizations as many
of the top players abide by foreign exchange contracts due to which
they enjoyed benefit only to the extent of currency hedging done by
them.
Rupee has been losing ground against USD in YTD of FY 2013 amid
some fluctuation which is expected to bolster the export earnings for the
industry.
Exchange Rate (INR per USD)
Inverse Scale
43.5
YTD FY'13
INR Depreciating
FY'12
INR Depreciating
45.5
47.5
49.5
FY'11
INR Appreciating
51.5
53.5
55.5
01/Oct/12
01/Aug/12
01/Jun/12
01/Apr/12
01/Feb/12
01/Oct/11
01/Aug/11
01/Jun/11
01/Apr/11
01/Feb/11
01/Dec/10
01/Oct/10
01/Aug/10
01/Jun/10
01/Apr/10
57.5
01/Dec/11
~INR Touched Lowest

against USD at 57.26
on 29th June, 2012
Source: Ministry of Finance, Government of India

Page 13
GOVERNMENT REGULATIONS
Government Initiatives
The IT industry, which offers IT Infrastructure Services, is gaining

importance in the Indian economy as its contribution to national GDP
has grown from 6.4% in FY 2008 to ~7.5% in FY 2012. Further,
willingness of the Indian government to boost the services sector
enabled the industry to make rapid strides within short time.
In the Union Budget 2012-13, the Central plan outlay to Department of

Information Technology (DIT) was increased to ~INR 53.63 Bn against
~INR 36.19 Bn in previous budget.
~INR 17.29 Bn was allocated for e-Government which includes

investment towards Electronic Governance (~INR 9.75 Bn) and towards
NIC to the tune of ~INR 7.54 Bn.
~INR 5.34 Bn towards e-Learning initiative, which includes investment

towards National Knowledge Network ~INR 3.6 Bn and Manpower
Development including Skill Development in IT ~INR 1.28 Bn.
With this increase allocation the government aim to expand the eDevelopment of the country by creating e-Infrastructure, expedite the egovernance process, accelerating R&D activities, building knowledge
network and securing India's cyber space.
An increase in the weighted tax deduction allowed on in-house R&D

expense from 150% to 200% was extended for five year period up till
2017 in Union Budget 2012-13. This is likely to promote new technology
innovations in the computer hardware segment.
Service tax rate increased from 10% to 12% which will have negligible
impact on the profitability of IT players as they will be able to pass on
this increased cost to the client. Existing surcharge of 5% on domestic
companies and 2% on other than domestic company will continued to
be levied.

Page 14
DEMAND SUPPLY DYNAMICS

Market Size
Revenue Trend (INR Bn)
3,000
450
410
400
2,500
335
2,000
350
273
300
223
1,500
250
182
200
1,000
1,212
1,562
1,724
2,025
2,413
150
500
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
100
50
IT Services (LHS)
IT Infrastructure Management Services (RHS)
Source: Nasscom, D&B Research
Revenue generated by the Indian IT Services industry has increased

increased at a CAGR of 19% (in rupee terms) over the period FY 200812. In rupee terms, the industry increased from ~INR 1,212 Bn in FY
2008 to ~INR 2,413 Bn in FY 2012 while in dollar terms, the industry
increased from ~USD 30.08 Bn to ~USD 52.30 Bn over the same
period, registering a CAGR of 14.8% over the same period.
Economic growth, increasing computerization by Indian industries as

well as e-governance projects has also fuelled demand for IT
Infrastructure Services in the domestic market.
Indian IT industry has been aggressively pursuing opportunities in the IT

Infrastructure Outsourcing market. This is evident from the stunning
CAGR growth of 23% over the period FY 2008-12. Revenues from the
IT Infrastructure Services grew from ~INR 182 Bn to ~INR 410 Bn over
the same period.
The contribution of IT Infrastructure Services to total IT services

revenue has increased from 15% in FY 2008 to 17% in FY 2012.

Page 15
Exports
IT services is the largest segment of IT-BPO industry and accounted for

about 58% in total export earning in FY 2012. India is rapidly emerging
as a preferred destination for outsourcing of IT Infrastructure Services
on account of low cost base as well as increasing technical capabilities
of the Indian IT companies. This has led to increase in share of IS
outsourcing in the total IT Services export earnings.
Revenue Contribution of IS Outsourcing in IT Services Exports
18.4%
19.0%
16.8%
16.9%
FY 2010
FY 2011
17.0%
14.4%
15.0%
13.5%
13.0%
11.0%
9.0%
7.0%
5.0%
FY 2008
FY 2009
FY 2012
Export earnings from IS Outsourcing registered an impressive CAGR

growth of 29% (in rupee terms) over the period FY 2008-12, wherein
those from IT services grew at a modest rate of 20% over the same
period. In dollar terms, the revenue increased from USD 3 Bn in FY
2008 to USD 7 Bn by FY 2012, registering a CAGR of 24%.
Export Revenue (~INR Bn)
2,000
400.0
335.1
1,800
1,600
217.7
1,200
250.0
170.3
1,000
800
300.0
258.3
1,400
200.0
120.9
150.0
1184.7
1296.5
1526.9
1824.4
200
894.5
600
400
350.0
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
100.0
50.0
0.0
IT Services (LHS)
IS Outsourcing Services (RHS)
Source: D&B Research, Nasscom

Page 16
Banking, Financial Services and Insurance (BFSI) vertical forms the

largest share of exports followed by Telecom forms the third largest
share of exports for IT Services industry.
IT Services: Sector wise Exports (FY 2012)
BFSI, 41.2%
Others (, 39.8%
Telecom, 19.0%
All these industries are highly consumer oriented and require constant
consumer interaction which results in high usage of IT Services. Indian
companies are also increasingly catering to the pharmaceutical,
healthcare, utilities and transportation industries.
The following chart represents Indias major IT Services export

destinations in FY 2011.
IT Services : Exports Destination (INR Bn),FY 2011

APAC, 7.50%
Rest of the World

, 2%
Continental
Europe , 11.60%
UK, 17%
US, 61.5%
Source: D&B Research, Nasscom STR 2011

Page 17
The US is a major export destination for the Indian IT Services exports,

followed by the Europe.
Both these regions are highly technology dependent and also face high
labor costs, which led them to outsource some of their technology part
to low cost destinations, such as India.
However, India is now trying to lower dependence on these regions and

is increasingly targeting the unexplored territories such as Latin
America, Middle East, Africa and Asia-Pacific.
Indian IT companies have established their presence across these

verticals
and
geographies
with
offerings
such
as
Application
Development and Maintenance, Packaged Software Implementation,

BPO etc. With established client base, it is becoming easier for these
companies to offer IT Infrastructure Services as a part of the extended
value chain.

Page 18
Demand Drivers
The robust growth of IT Infrastructure services has been attributed to

the convergence of Information, Communication & Entertainment.
Increasing usage of technological products has led IT Infrastructure to

become backbone for the global companies. Worldwide, the companies
are preferring computerization as well as automation to streamline their
costs. Hence, many of them are spending huge amounts on IT. This
further created opportunity for the export-oriented Indian IT industry.
Worldwide IT Spending (~USD Trillion)
1.8
1.70
1.7
1.61
1.54
1.6
1.5
1.40
1.4
1.3
1.2
1.1
1
2008
2009
2010
2011
Sources: Nasscom
Indias huge talent pool with around 0.5 million engineering graduates
per annum also assures high quality of work to the global clients. The
Indian IT-ITES has grown rapidly on account of its huge talent pool
available at lower costs. An average wage rate for Indian computer
programmer is ~15% of his counterpart in the US. This wage
differentiation can help the companies in developed world to save ~20%
by outsourcing their work to low cost destinations such as India.
Domestic demand also augurs well for the IT Infrastructure Services

providers. Significant IT adoption in sectors like Telecom, BFSI,
Manufacturing verticals, ITeS, Education, Small Office / Home Office
(SOHO), Small & Medium Enterprises, (SMEs), and e-Governance
have been augmenting the need of managed IT Infrastructure services.
Increasing demand for hardware and networking products from the

companies also provides new growth avenues to players in IT
infrastructure services.

Page 19
Cloud Computing is expected to be a future demand driver for the IT

Infrastructure industry. As the customer pays only rent to access IT
services over internet and does not require investing in the physical
infrastructure, it is creating low cost alternative for huge base of small
sized companies across the globe. Storage facilities on the cloud are
especially gaining importance and have resulted in increasing demand
for data centres.
Government led National eGovernance programme (NeGP) include

implementation of required IT infrastructure to support it mission of
transforming traditional service delivery mechanisms on electronic
platform. Within NeGP, the implementation of required IT infrastructure
includes four broad platform i.e State Wide Area Network (SWAN),
State Data Centre (SDC), National e-Governance Service Delivery
Gateway (NSDG) and State Service Delivery Gateway (SSDG).
Also, the ambitious Unique Identification (UID) project worth ~INR 32 Bn

for Phase-I and Phase-II over the five year period FY 2010-14 creates
vast opportunities for IT Infrastructure Services providers.
countrys infrastructure backbone especially telecom and its increased

reliability, availability of low-cost, high speed bandwidth

Page 20
Projections
Projection: IT Infrastructure Services (~INR BN)
775.8
620.7
500.5
410.3
FY 2012
FY 2013P
FY 2014P
FY 2015P
Increasing global demand for Remote Infrastructure Management (RIM)

or offshoring of IT Infrastructure Services on the back of increasing
ownership cost is expected to fuel growth of the Indian IT industry.
The increasing government and private sector spending on technology

is expected to drive the domestic IT Infrastructure revenues to grow at a
CAGR of 23% over the period FY 2012-15.
Going forward, industry sources also suggest that revenue from RIM
services will account for about 1/3 share of the total IT services
segment revenue by 2020.

Page 21
COMPETITIVE SCENARIO
Nature of Industry
The growing requirement of managed IT infrastructure services has

resulted into many IT players expanding their services offering to
include various infrastructure services.
With increased maturity, key IT companies like TCS, HCL, Wipro,

Infosys now offers end-to-end infrastructure services.
Indian IT-ITeS industry is dominated by Tata Consultancy Services

which corners 8.4 % of the market share. Wipro ranks at the second
place with a share of 6.8% closely followed by Infosys with a market
share of 6.7%.
Market Share: Indian IT -ITeS Industry (FY 2012)

TCS Ltd., 8.4%
Wipro Ltd.,
6.8%
Infosys Ltd.,
6.7%
Others , 78.1%
Source: D&B Research. *Note: Based On Net Sales
The annual growth in top line and bottom line financial of the key
players are as follow:
Companies
Net Sales * (~INR Bn)

FY 2011
PAT* (~INR Bn)
FY 2012
% Y-o-Y
FY 2011
FY 2012
% Y-o-Y
TCS Ltd.
292.34
388.00
32.7%
75.70
109.76
45.0%
Wipro Ltd.
262.63
316.19
20.4%
48.44
46.85
-3.3%
Infosys Ltd.
253.37
312.03
23.2%
64.43
84.70
31.5%
*Notes Standalone financial are considered
Source: CMIE,
Despite the challenging macroeconomic environment, the top three

players reported a healthy growth in net sales in FY 2012 as compared

Page 22
to FY 2011. Both TCS Ltd. and Infosys Ltd reported a robust growth in
net profit whereas Wipro Ltd. reported a negative growth in net profit.
TCS Ltd., Indias largest IT Company posted an increase 32.7% in net

sales in FY 2012 as compared to 27% increase in previous fiscal.
Various factors such as double digit growth across diversified verticals
and geography, balanced business portfolio, product innovation,
customer centric approach, timely execution of projects, focus on
pricing, helped in achieving a robust growth in net sales and maintaining
the margins in FY 2012.
Wipro though report a healthy growth in net sales however it net profit
declined marginally because of the losses to the tune of ~INR 2.787 Mn
in FY 2012 as against gain of ~INR 326 Mn in FY 2011 due to the
changes in the fair value of forward exchange contract.
Major international companies having presence in the IT Infrastructure

Services arena include HP, Fujitsu, IBM, Cognizant, Accenture,
Capgemeni, CISCO, CSC etc.
Key Trend
Domestic IT companies have grown on account of low cost base which
helped them to win big outsourcing deals. However, as major foreign
players have made India as base, they also enjoy the advantage of low
costs. Hence, the major advantage of domestic companies to offshore
work to India is expected to diminish in future.
Indian companies are also expected to face competition from emerging

outsourcing destinations such as Philippines, Poland, Hungary,
Romania etc.
All these factors are leading Indian companies to focus on the

increasing domestic demand. Most of these companies intend to
increase their domestic revenue share. However, even in domestic
market, competition is intense as global industry majors have already
forayed into it.
Indian companies are increasingly looking for global delivery model.

They are setting up development centers in Latin America, South East
Asia and Eastern European countries to take advantage of low cost and
also cater the local market.

Page 23
Globally, distinction between pure play software and hardware players

is also reducing. This phenomenon is leading many Indian companies
to venture into IT Infrastructure Services in order to increase their
overall appeal.
Application Development and Maintenance services which used to

provide major chunk of revenues to the domestic IT players, are getting
affected due to the falling billing rates. Hence, the companies are now
venturing into new high value services such as IT Consulting,
Infrastructure Management, Product Development, and end-to-end
turnkey solutions.
Large IT players are increasingly adopting inorganic growth route like

strategic acquisition, mergers, joint venture etc. to expand their
business portfolio. For eg, TCS recently acquired CRL which is a
pioneering startup company in High Performance Computing (HPC)
solutions. This will strengthen TCS capabilities in the arena of
Infrastructure Management, Engineering and Industrial Services. This
will also enable TCS capability to establish cloud based industry
platform.

Page 24
Recent IS Outsourcing Contract
Indian companies are also bagging major outsourcing deals which will
help them to increase revenues from IT Infrastructure Services. Some
of the recent contracts signed by the Indian players are as:
Month
Company
Client
Brief Details
Cloud Service Contract
October 2012
IBM
October 2012
Netmagic
Solutions
Ratnakar Bank
5 year contract for IT

infrastructure
hosting,
managed services, and
security services
HCL
Freescale
Semiconductor to
5 year IT Infrastructure
contract worth $60-80Mn
deal as per industry
sources
September
2019
September
2012
Infosys Ltd
Kwality Dairy India
IBM SmartCloud SAP

Express Dairy Solution,
in one of the first such
deployments
in
the
Indian dairy industry
Ministry Of
Corporate Affair
(MCA)
To execute second
phase of the ministrys
e-governance
programme- MCA21To start in Jan 2013-July
2021,
Deal worth ~INR 3.59
Bn
Feburary
2012
Mahindra
Satyam
FuelQuest
To provide
implementation and
support services to Fuel
Quest. Fuel Quest is a
technology solution
provider to energy sector
and is expanding its
operation in BRIC
region.
June 2011
IBM
India Info Line
10 year deal worth ~INR

2.98 Bn for managed IT
services.

Page 25
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Saki Vihar Road, Powai,
Mumbai - 400 072
Tel: +91-22 2857 4190/92/94, 6676 5555
Fax: +91-22-2857 2060
Email: dbindia@vsnl.com
URL: www.dnb.com
Bangalore
# 7/2 Gajanana Towers ,
1st Floor , Annaswamy Mudaliar Street,
Opposite Ulsoor Lake,
Bangalore 560042
Tel: 080-40731100
Fax: 080- 40731110
Email: dnbblr@vsnl.com
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FB-01,NSIC STP Centre, NSIC Bhawan,
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Email: dbdelhi@mail.dnb.co.in
Kolkata
166 B, S.P. Mukherjee Road,
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Tel: +91-33-24650204
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Email: dbkolkata@mail.dnb.co.in
Chennai
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Chennai 600 008
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Email: dbmadras@mail.dnb.co.in
Hyderabad
#103, Saeed Plaza,
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Hyderabad 500 004
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Email: hyd2_dnbhyd@sancharnet.in
Ahmedabad
001, Samruddhi, Opp.Old High Court,
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Tel: +91-079-27540558 / 27540559
Fax: +91-079-27540560
Email: dnbahd@icenet.net

Page 26

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IT Infrastructure Services

Sectoral Risk Outlook

Dun & Bradstreet Information Services India Private Limited.

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Dun & Bradstreet Information Services India Private Limited

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Sectoral Risk Outlook

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EXPLANATION OF RISK SCORE

The selected parameters are government regulations, demand supply

Unfavorable Factors (-)

Government of Indias focus on e-

governance plans augurs well for

destinations may affect Indian off-

the IT infrastructure industry.

Several IS Outsourcing contract

Global majors have also made

bagged by industry players are

India as their base of operations.

expected to push the sales growth

With access to low cost operations,

of the leading IT players and

these companies try to minimize

major competitive advantage of

revenue growth of IT industry.

In the wake of rapid changing

related complexities, government

increasing adopting for managed

Sectoral Risk Outlook

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IT Infrastructure Management Service (also referred as IS outsourcing)

Rapid changing technology is creating robust scope for the growth of

Export revenues from IT Infrastructure Services grew at CAGR of 29 %

Growing preference towards offshoring of IT Infrastructure Services,

Major companies in this service offering include Wipro, HCL, TCS,

Cloud Computing especially storage facilities offered on cloud are

Revenue from IT Infrastructure Services is expected continue growing

Sectoral Risk Outlook

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IT Infrastructure Services cater to the organisations computer

The service providers are entrusted with managing and maintaining

Following exhibit depicts gamut of IT Infrastructure Services:

Exhibit 1 : Range of IT Infrastructure Services

Safety and Fault

requirement to handle huge data and hence, necessity to utilize huge

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number of IT products has led to burgeoning demand for IT

Global spend on IT Infrastructure Services increased by 1.5% in CY

Exhibit 2 : Global Spending on IT Infrastructure Services (2011e)

Source: Nasscom, D&B Research

Key Benefits of IS outsourcing

Optimal use of resources

Sectoral Risk Outlook

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MACRO ECONOMIC ANALYSIS

GDP Growth Rate

IIP Growth Rate

Source:CSO; RBI D&B Estimates

Sectoral Risk Outlook

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GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity

Industry (INR Bn)

India's IT Infrastructure Services

India's IT Infrastructure Services