>INFORMATION TECHNOLOGY SECTOR: Indian IT vendors: New growth opportunities

Indian Tier 1 IT vendors appear to be poised for the next wave of growth, driven by the return of stable IT budgets, improved decision making at clients and higher thrust on offshoring and global delivery model. We expect multiple growth drivers over FY10-FY13E which predominantly includes underpenetrated service lines like Infrastructure managed services, BPO, Package implementation, Engineering and R&D services, as well as increasing focus on new markets like Latin America, Middle east , India and China.

Service line wise growth opportunities:
a) While Remote Infrastructure management services (IMS) is a USD100bn opportunity, Indian exports from this service line stood at USD4bn for FY09, which represents just 4% penetration.

b) BPO services have already been witnessing robust traction for Indian Offshore vendors but can still count a USD130Bn opportunity as on FY09, of which Indian vendors derive just USD12.8bn as on FY09 which represents 9.8% penetration.

c) Consulting and Package implementation, which has been the key growth arenas during the 2003–2008 upcycle for Indian Tier 1 vendors still has a huge market opportunity. The ERP services market which includes ERP, SCM, CRM etc, is a USD71bn opportunity as on CY10 and the top four IT vendors derive just USD3.46bn in revenues from package implementation and consulting as on FY10.

d) Finally Engineering design and R&D services is touted as another growth arena by the Nasscom with a potential for Indian vendors to derive over USD35bn-USD40bn by 2020 as compared to USD8bn (Approx) as on FY09.  Vertical wise growth opportunities: Governments across the world spend around USD154bn on IT services and Indian IT vendors currently have a very minimal penetration in this segment. We expect Government and Healthcare verticals as strong growth opportunities over the coming period. Geographical growth opportunities: Indian vendors are fast expanding the addressable market by ramping up client base in emerging markets like Latin America, Australia, NZ, Middle East, and China. Vendors like TCS have reached critical mass in emerging geographies and are poised for further scalability.

Indian IT vendors: New growth opportunities
Infosys Tech: Infosys appears to be banking on non linear growth initiatives as its new growth drivers. Some of the initiatives include platform BPO, Pay per use services, and Application platforms (Mobile Flypp, Shopping trip 360, Itransform).

TCS: We believe that TCS key growth drivers would be its strong geographical mix with 20% of the revenues derived from the emerging markets like Latin America, India, Australia, NZ, Middle East etc. Platform BPO also appears to be a key forte.
Wipro: Wipro has strong competency in the IMS and BPO service lines, which contribute to 21% and 10.5% of the total revenues respectively for FY10. We expect these two service lines along with testing to be growth drivers for Wipro.

HCL tech: HCL Tech has well diversified service line mix with Enterprise application services, IMS, and Engineering design services, which account to 21.4%, 22%, and 19% of the total revenues and could be strong growth drivers.

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