IT Services

Market Size

USD 52 billion in CY12

Annual Growth Rate

17% for CY11-CY12

Exports

USD 40 billion in CY12

India's Share

60% of Global Outsourcing spend

Industry Median EV/EBITDA

7.2x (ttm)

Industry Median EV/Sales

0.7x (ttm)

Industry Median P/E

10.3x (ttm)

Indian IT Services Industry 2013

Indian IT Industry, which has transformed India’s image on the global platform, is a USD 52 Bn industry which grew at 17% during the year 2011-2012.

About USD 40 Bn is export revenue whereas the remaining USD 12 Bn is domestic revenue. Export revenue is growing at a rate of 19% compared to domestic revenue growth of 11% in dollar terms, affected by the depreciating rupee.

India is the world’s leading global sourcing destination for IT services with a share of 60% of global outsourcing spend. Bangalore, Hyderabad, Chennai, Delhi and Mumbai account for nearly 90% of this Industry’s exports.

“IT services is the use of technical expertise to support the management of information and processes in any establishments. IT services market can be segmented by the type of service:  Project Based, Long-term outsourcing, and Support & Training”

Industry Trends

SMAC or Social networks, Mobile devices, Analytics / Big data and Cloud computing are emerging technologies that will profoundly change how companies operate, interact with customers, engage with employees, and bring innovative products and services to market.

Banking, Financial Services & Insurance (BFSI) and Telecom sectors continue to be the largest consumers of IT services as they form 60% of IT and ITeS exports in 2012.

Global Acquisitions by Indian IT firms

In 2012, IT and  ITeS sector saw cross-border M&A  transactions worth $1.4 Bn with a majority of the deals happening in Europe and North America. Primary reasons driving these acquisitions are:

  • Increasing local presence in the US and Europe
  • Acquiring employees with a specific skill set
  • Strengthening their capability in a particular segment

Acquirer

Target

Country

Rationale

 TCS  Alti SA

France

Inroads into German and French markets

 Infosys  Lodestone

Switzerland

Strengthening SAP consulting expertise

 MphasiS  DigitalRisk

US

Acquiring US Clients and  specialized skill

 Wipro  Promax

Australia

Strengthening skills in Analytics area

Market Share of Top 5 IT Companies

 

Company

2012 IT Services
Revenue (USD Bn)

2012 Market Share

TCS

9.0

17%

Cognizant

6.7

13%

Infosys

6.3

12%

Wipro

5.6

11%

HCL Technologies

3.7

7%

Top 5

31.4

60%

Indian IT Services Revenue

52.0

100%

 
IT Company Valuation

Company

EV/EBITDA

EV/Revenue

P/E

TCS

15.4x

4.5x

21.3x

Cognizant

10.5x

2.2x

18.1x

Infosys

9.2x

2.6x

13.8x

Wipro

11.6x

2.4x

15.4x

HCL Tech

9.8x

2.0x

14.6x

Industry Median

7.2x

0.7x

10.3x

Source: Capital IQ, as of 31 May 2013; EV: Enterprise Value (measure of company's value); EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization (measure of company's profitability

 
M&A in Indian IT

Year

Acquiring Company

Target Company

EV/EBITDA

EV/Revenue

2009

Tech Mahindra

Mahindra Satyam

9.1x

1.6x

2011

iGate Corporation

Patni Computer Systems

7.5x

1.8x

2006

Electronic Data Systems

MphasiS BFL Ltd

21.8x

3.4x

Source: Press Releases, Company Websites


PE & VC Investments in Indian IT
 
Indian IT-BPO industry is ranked number one in terms of total value of investments by PE/VC firms.
 

Date

Target Company

Private Equity

Consideration

Nov-12

KPIT Cummins

ChrysCapital, CX Partners

30 Mn

Aug-12

AGS Transact Technologies

Actis LLP Private Equity

40 Mn

Apr-12

Trimax IT Infrastructure & Services

Aditya Birla Private Equity

20 Mn

Dec-08

CMS Computers Limited

Blackstone Group

50 Mn

Source: Press Releases, Company Websites
 

End Notes

Source: Analyst Reports, Company Press Releases, Yahoo Finance

CY: Calendar Year ending December

All multiples are as on Dec 31st 2012

Conversion Rate: 1 USD = 50 INR

ttm: trailing twelve months, or last twelve months

EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization - a measure of company’s profitability

EV: Enterprise Value - a measure of company’s worth