Survival of Indian companies lies in invocation. First they innovated offshore model and they became giants of corporate India. As long as they continue to innovate, they will become bigger n bigger. One day they will be giants among global corporates aswell.
In this journey they will get brakes like INR appreciation, salary costs, worldwide recession, competition etc. etc.
Like other industry, companies with strong management will survive all that.
Indian IT companies have to venture out into other geographies and hire local talents. If Brazil or China offers better margins, they need to be present there. If mega projects means volume growth, they need to do that. Crossing horns with IBMs, Accenture, EDS is very much on the cards. I expect to see it happening as US goes into recession. Time at other side of recession will see bigger and stronger INFY, TCS and Wipro.
From market perspective, I expect PE discount shrinking. A 30-40 PE is not sustainable and when this re-rating happens, one can see blood in markets.
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Posted: 21/Jan/2007 at 2:53pm
The Indian IT story seems to be on a continuing roll. And the performance is exceptional because it continues quarter after quarter, even on an increasing base.
Particularly striking are the results for the December quarter, which have been splendid, despite the rupee appreciating by 3.6 per cent over the period.
India’s software and services exports grew by a compound annual rate of 30.4 per cent during 2001-06. That is exceptional in itself as the early part of the decade saw a slowdown because of the dotcom and telecom bubbles bursting, followed by the 9/11 episode in New York that set back global business sentiment as well as business visits. Growth picked up sharply since 2003 to give the overall trajectory.
And 2006-07, it seems will see new peaks being scaled.The first three quarters have seen leaders achieve a topline growth of well over 40 per cent.TCS has hit a quarterly run rate of a billion dollars, taking it towards the $ 4 billion milestone, while Infosys is headed for the $ 3 billion mark.
Very rapid growth is usually bought at a price. Japanese and Korean firms, during their aggressive expansionary phase have often sought global market share by temporarily ignoring margins. But the Indian IT majors have also posted bottomline growth of well over 40 per cent.
Infosys has performed the best with net profit growth (on a year on year basis) in three successive quarters going over 50 per cent. In the latest quarter, TCS has scored a net profit growth of 49 per cent and HCL Technologies 58 per cent.
The numbers are the result of several factors all playing into each other. Offshoring has become mainstream even as anxieties over the consequences of globalisation have gripped the skilled middle class in the developed economies.
And the Indian companies have done very well for themselves to be able to grab the biggest share of these offshoring orders. Top Indian firms have been able to deliver in terms of both quality and innovation and so are winning more complex work and bigger deals.
Phiroz Vandrevala, EVP, TCS, sees TCS’s performance as a result of its “well articulated strategy”. At least two of the large deals the firm won recently, resulted from the capabilities that it gained from the acquisition of the Australian firm FNS. Plus, large deals won earlier like the ABN Amro one have gained traction.
Tech Mahindra, which bagged a one billion dollar deal from BT, saw its top line grow by 131 per cent and bottomline by 122 per cent in the December quarter.
The BT order ensured there will be a continued flow of work and above average growth will remain the norm. Unsurprisingly, its newly listed stock is rivalling that of Infosys in attractiveness. For the industry as a whole, Vandrevala expects current growth and margins to persist right through financial year (2007-08).
Perhaps the most dramatic example of exceptional growth is Cognizant which “has been posting industry leading revenue growth of over 50 percent for the last 12 quarters,” says R Chandrasekaran, president and managing director.
This has catapulted Cognizant to the number four position in the software league table, displacing Satyam and is attributed to the firm being very well positioned in the healthcare and life sciences segment which has taken to offshoring in a big way. This segment accounts for 22 per cent of the firm’s revenues and the duo has been growing at more than 75 per cent.
Even till a year or so ago, conventional wisdom was that the industry is consolidating and there was not much hope for tier two firms that do not have niche offerings.
But a string of tier two firms like Sonata, Geometric and iGate too have done well. Asserts iGate chief Phaneesh Murthy, “We do not believe that a tier-II service provider should develop a niche.
There is enough room to offer full services, even with the four top players around.” There’s no stopping these tech companies.
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Posted: 23/Jan/2007 at 11:33pm
This is a very very interesting topic, so we cannot try to find out the future or share view in a single post or para.
But I would put my thoughts this way:
1. The Big 3 (or 5) Tech Majors of India are trying to become the Indian equivalents of IBM/Accenture/EDs and they arent trying to become anything else. Atleast as of now.
2. The targets for 2010 are easily acheivable. But the biggest problem is that the number of people employed. It would be running to 2-3 lakhs. I feel that HR issues and Poltiics will start taking more and more of management time.
3. Now it is more and more clear that Software Products is not the future of our Indian IT Cos. The rise of Open source movement(Linux etc) has tilted the balance away from Software Product makers , to Software Service providers. That also explains why a Microsoft gets into making XBox and a Apple gets most of its profits from iPod.
4. The Big 3 Indian Tech Majors will accumulate a few billion dollars free cash in next few years. What will they do? The logical thing to do is Buyout of Mid Sized Tech firms. Not necessarily Software Sweatshops like EDS or Cap Gemini.. they could buy in other sectors as well. Wipro will use the profits to buy into newer sectors like energy , foods etc(remember, they are into things like Lighting, Pumps etc).. Wipro is probably trying to become some kind of a global conglomerate into many sectors. Maybe TCS buys out a computer hardware maker (why not?) and a Infy Buys out a Yahoo. Never rule out all these things.
5. I think that portals would be the hottest and most profitable business by 2010. By that time, all the fringe players would have died and the only ones with brand (or web address)recall would survive. And there is this rule of thumb that as years roll on, Technology fads become habits and habits owned by businesses become brands. Orkut, Yahoo, Hotmail, Rediff, bharat matrimony could be brands valued at par or even more than a Surf or a Colgate or a Pepsi.
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Posted: 23/Jan/2007 at 2:00am
Nasscom sees 33% growth for IT, ITeS
MUMBAI: Nasscom on Tuesday released its forecast for the Indian IT and BPO industry. The industry association has predicted a growth rate of 32.6% growth in total software and BPO export revenues, marginally lower than the growth of 33.3% in FY06. The industry is forecast to touch $31.3 billion in exports in FY07 compared to $23.6 billion in FY06. If the local software and BPO industry revenues are also taken into the account, revenues will likely touch $39.7 billion in FY07, and if IT hardware sales are also included, the total revenues will touch $47.8 billion in FY07.
The IT industry’s contribution to the GDP is expected to rise from 4.8% in FY06 to 5.4% in FY07. “The size and the scale of the industry has grown, though the growth may be less its on a bigger base. And the industry is on track to reach the targeted $60 billion in software and services exports by 2010”, Nasscom president Kiran Karnik said. To reach this target, software exports have to grow at a CAGR of 24.2% for the next four years. The industry has grown at well over the targeted rate at a CAGR of 34.6% in the last few years.
“We have to double whatever we have achieved so far - so the figure is big, although the growth rate may be lesser than what we’ve grown so far. The three-year outlook is based on opportunities and challenges,” Mr Karnik said. On the other hand, if the total IT industry continues to grow at the same rate as it is growing today, it will be touch $100 billion by FY10, according to Nasscom.
The domestic IT industry, has moved away from hardware-led growth and is deriving greater momentum from the software and services sector. It is projected at $15.9 billion in FY07, representing a 21% growth over the previous year. However, hardware is still a large portion of the domestic pie at $7.6 billion compared to $5.6 billion from services, $1.6 billion from software and $1.2 billion from BPO. At these levels, the domestic BPO industry has logged a sharp 30% growth, IT services 25% and hardware a 12% growth over FY06.
The number of people employed by the software and BPO industry has also grown rapidly, from 2,84,000 in ‘00 to 1.6 million for FY06. This is a 26% growth in manpower in FY07 compared to a 22% growth in FY06. As before, the industry’s growth was led by export services, which is forecast to be $18.1 billion in FY07. However, engineering services, R&D and software product development services have made a substantial contribution to export revenues. Revenues from this segment are expected to account for $4.9 billion, compared to $ 4.0 billion recorded in FY06.
For exports, the US and UK were the largest markets. “The share of Europe has steadily increased, newer markets are also keeping pace,” Nasscom pointed out in its review. For FY06, revenues from Americas totalled 67%, Europe 25% and rest of the world, 7.7%.
The growth in large deals and unbundling of multi-million dollar contracts - a key feature in this fiscal - has resulted in Indian players growing their share of the pie in the contracts of over $50 million to 7% in 2006, as compared to 1% in 2002. Multinationals announced investments worth over $10 billion in FY07, but the amount will be invested over a period of a few years.
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Posted: 23/Jan/2007 at 9:14am
Over the next 5 years the growth in IT industry could offset a lot of our current account deficit problems.
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3. Now it is more and more clear that Software Products is not the future of our Indian IT Cos. The rise of Open source movement(Linux etc) has tilted the balance away from Software Product makers , to Software Service providers. That also explains why a Microsoft gets into making XBox and a Apple gets most of its profits from iPod.
That's not entirely true, its just part of the story not the complete story. Outsouring is nothing but asking a cheaper guy to do the same job. That's what these companies are leveraging. If any Indian company needs to be acknowledged globally, it should move gradually move towards software products...that's where the real money is. Also please understand that not all softwares are free. If u spend time building something - wouldn't u expect money from it? Only the basic platforms and some utility tools are free. Otherwise there wouldn't have been money in the techology sector globally! Look at the few indian product based software companies - they r minting huge money.
4. The Big 3 Indian Tech Majors will accumulate a few billion dollars free cash in next few years. What will they do? The logical thing to do is Buyout of Mid Sized Tech firms. Not necessarily Software Sweatshops like EDS or Cap Gemini.. they could buy in other sectors as well. Wipro will use the profits to buy into newer sectors like energy , foods etc(remember, they are into things like Lighting, Pumps etc).. Wipro is probably trying to become some kind of a global conglomerate into many sectors. Maybe TCS buys out a computer hardware maker (why not?) and a Infy Buys out a Yahoo. Never rule out all these things.
If these guys start buying out products and sell them in the US mkts - that's what will be the greatest thing. Imagine taking over the Cisco's, IBMs, NetApps or Symantics or even Microsofts....all these have a spectacular/niche product lines that have a huge global market.
5. I think that portals would be the hottest and most profitable business by 2010. By that time, all the fringe players would have died and the only ones with brand (or web address)recall would survive. And there is this rule of thumb that as years roll on, Technology fads become habits and habits owned by businesses become brands. Orkut, Yahoo, Hotmail, Rediff, bharat matrimony could be brands valued at par or even more than a Surf or a Colgate or a Pepsi.
Technology integration would be the next big thing. Mobile, Laptops, wesites, banks, airlines, malls -- giving a complete solution to the end user is what will drive this market for the consumer. Just look at the time indian banks took to get computerized and have a central banking system.
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Posted: 27/Jan/2007 at 10:14am
Dear Tushar,
You set my brain cells working... let us try to debate further...
3. That's not entirely true, its just part of the story not the complete story. Outsouring is nothing but asking a cheaper guy to do the same job. That's what these companies are leveraging. If any Indian company needs to be acknowledged globally, it should move gradually move towards software products...that's where the real money is. Also please understand that not all softwares are free. If u spend time building something - wouldn't u expect money from it? Only the basic platforms and some utility tools are free. Otherwise there wouldn't have been money in the techology sector globally! Look at the few indian product based software companies - they r minting huge money.
Well i was trying to say same thing differently - Software as Product vs Software as a Service. My view is that Software as a Product is not that much of a growing business and its best days are gone. We will not have another Unix or another Oracle or Another MS Office or another Java. What we will have is another Infosys or another Accenture, the solution providers who use these tools to provide total solutions. So Indian Cos are right in concentrating on service aspect and not trying to launch a rival to oracle or adobe.
4. If these guys start buying out products and sell them in the US mkts - that's what will be the greatest thing. Imagine taking over the Cisco's, IBMs, NetApps or Symantics or even Microsofts....all these have a spectacular/niche product lines that have a huge global market.
Exactly.. but they need not buy SW cos alone. A TCS could buy a consumer electronics company, an Infosys can buy a Portal like Yahoo and Wipro could buy even some power equipment company... Diversification is very much a possibility. Of course, not now... it will be after a few years, when these IT majors have cash reserves of many billion dollars .
5.Technology integration would be the next big thing. Mobile, Laptops, wesites, banks, airlines, malls -- giving a complete solution to the end user is what will drive this market for the consumer. Just look at the time indian banks took to get computerized and have a central banking system.
True. Technology integration - and bringing software applications to the Mobile Phone platform will be the biggest area of activity in next 10 years. But my only concern is that the business of Software services is likely to get too much commoditized over coming years... that would make Portals, which survive on Brand recall a better business. A sugar maker commands lesser P/E than a Branded Biscut Maker right? Likewise a Infy in future may deserve lesser P/E than a Naukri.
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