Unnati Sector Report:

IT, ITeS, Telecom, Media & Education

Junior Security Analysts:

Senior Security Analyst:

Shreyans Gangwal ([email protected])

Nirmal Bari ([email protected])

Omkar Tungare ([email protected])

TABLE OF CONTENTS
TELECOM ......................................................................................................... 3
Overview .......................................................................................................... 3
Regulatory Framework ......................................................................................... 4
Government Policies & Impact ................................................................................ 5
Value Chain of Telecom ...................................................................................... 11
Description & Analysis .................................................................................. 11
Key Trends ................................................................................................ 13
Trends & Highlights of Voice & Data Services Industry ................................................. 15
Telecom Circles & Teledensity .............................................................................. 22
Airwaves & Bands .............................................................................................. 23
Growth Drivers ................................................................................................. 24
Player Profile ................................................................................................... 25
IT/ITES ........................................................................................................... 28
Overview ........................................................................................................
Revenue Breakup: Verticals............................................................................
Revenue Breakup: Geographies .......................................................................
IT/ITeS Value Pyramid ........................................................................................
Revenue Models ................................................................................................
Current Market Scenario .....................................................................................
Hedging Techniques & Impacts .............................................................................
Growth Drivers .................................................................................................
Mergers & Acquisitions .......................................................................................
Challenges ......................................................................................................
Industry Trends & Outlook ...................................................................................
Player Profile ...................................................................................................

28
29
29
30
31
31
32
33
35
37
38
39

MEDIA & ENTERTAINMENT .................................................................................. 43

Overview ........................................................................................................
Television .......................................................................................................
Value Chain ...............................................................................................
News & Trends ...........................................................................................
Key Players ................................................................................................
Print .............................................................................................................
Value Chain ...............................................................................................
News & Trends ...........................................................................................
Key Players ................................................................................................
Films .............................................................................................................
Value Chain ...............................................................................................
News & Trends ...........................................................................................
Key Players ................................................................................................
Radio .............................................................................................................
News & Trends ...........................................................................................
Key Players ................................................................................................
Music .............................................................................................................
News & Trends ...........................................................................................
Key Players ................................................................................................
Player Profile ..............................................................................................

IT/ITeS/Telecom/Media/Education

43
44
44
45
46
46
47
47
48
48
49
49
50
50
50
51
51
51
52
52

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EDUCATION..................................................................................................... 54
Overview ..................................................................................................
Key Segments .............................................................................................
Value Chain ...............................................................................................
Business Model in Non Profit Segments ..............................................................
Trends & Outlook ........................................................................................
Player Profile .............................................................................................

IT/ITeS/Telecom/Media/Education

54
55
56
56
57
58

Page 2

TELECOM
OVERVIEW

Telecom sector contributes nearly 3% to Indias GDP and has seen a tremendous growth in the last few
years. It has emerged as the worlds second largest network and has the third largest number of
internet users in the world after China & the US. The teledensity in the rural parts has been on a
constant rise and the emergence of an affluent middle class is triggering demand for the mobile and
internet segments. With 70 per cent of the population, staying in rural areas, the rural market will be a
key growth driver in coming years.
The revenue from the sector currently stands at around Rs
1398 billion with 897 million subscribers as on April 2013.
Its revenue is divided into about 75% from mobile services
& the rest by fixed line, National Long Distances &
International Long Distances. Revenue growth has seen a
robust CAGR of close to 11% in the past 5 years.
The Mobile subscriber base in India is estimated to grow by
9% to 696 million this year, as per the technology
researcher Gartner. The mobile service penetration in the
country is currently at 51 % & is expected to grow to 72%
by 2016. Government has been very proactive in the sector
Revenue Breakup (Source: TRAI)
and has been constantly introducing & proposing new
policies all of which appear to be pro-consumer in the long
term. However the sector recently has witnessed volatility
on the policy framework point of view & has been abuzz since last year with the NTP-2012 launch,
cancelation of 122-2G licenses, low faring spectrum auctions, hefty fines for 3G roaming and a fairly
neutral impact of the Union Budget of 2013.
Also the telecom infrastructure in India is expected to grow at a CAGR of 20 per cent during 2008-15 to
reach 571,000 towers in 2015. Further, the production of electronic and related equipment is also
anticipated to reach US$ 52 billion by 2020, creating huge
opportunities for private players which is in line with the
predictions for the new FDI limits.
Market dynamics have been fiercely competitive and the
sector has traditionally been marred by a declining
ARPU(Average Revenue per user) and Minutes of usage; a
trend which has been improving lately. The major players
in the service providers sector are Bharti Airtel, Vodafone,
Reliance Communications & Idea Cellular.
The shift in focus from Voice to data is seen as the next big
Revenue Split Operator wise Source: TRAI
source of revenue with Fitch predicting a boost in income
by 10% by 2015. Looking forward to newer technologies of
the likes of 4G are going to be a game changer for the revenue sources. As per a study by Cisco
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Internet traffic in India is expected to reach from 393 petabytes per month in 2012 to 2.5 exabytes per
month in 2017.The sector is going to witness a slew of events with auctions for the 4G licenses, the
proposal of the spectrum bill, spectral re-farming and re-auction of airwaves among a few which will
be monumental in shaping the future.

POLICY & REGULATORY FRAMEWORK

TDSAT
Judiciary

Regulatory
Trifecta

TRAI
Regulator

DOT
Licensor

The key regulatory bodies of the telecom industry are the Department of telecom which is the licensor,
TRAI, which functions as the regulator and TDSAT which is the judiciary body.
1. Department of Telecom (DoT)
The DoT comes under the purview of Ministry of Communications and Information Technology. The
Department of Telecom formulates developmental policies for the accelerated growth of the
telecommunication services. The Department is responsible granting licenses for various telecom
services like Unified Access Service Internet and VSAT services, managing radio frequency in close
coordination with the international bodies and enforcing wireless regulatory measures by monitoring
wireless transmission of all users in the country.
DoT has got 5 major divisions to carry out these tasks which are Wireless Planning Coordination (WPC),
Telecom Engineering Center (TEC), Center for Development of Telematics (C-DoT), Public sector
undertakings like BSNL & TERM Cells (Vigilance Telecom Monitoring Cells)
2. Telecom Regulatory Authority of India (TRAI)

TRAI is the regulator of the business of telecommunications in the country. Its job is to provide an

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effective regulatory framework and adequate safeguards to ensure fair competition and protection of
consumer interests by the means of regulating a fair policy environment
Settlement of disputes between service providers, advising the government, assessing service quality
and traffic are some of its major functions.
3. Telecom Disputes settlement & Appellate Tribunal (TDSAT)
TDSAT is the judicial body & was established with the view to protect the interest of the consumers
and service providers of the telecommunication. The TDSAT can adjudicate any disputes that arise
between a group of consumers and service providers, a licensee and a licensor, and also between two
or more than the service providers. The power and function of Telecom Disputes Settlement &
Appellate Tribunal includes that it can hear the appeal and also dispose appeals that are against any
order, direction, or decision of the TRAI.
Non regulatory bodies
A. Cellular Operators Association of India (COAI)
The COAI was set up in 1995 as a registered non- governmental, and non-profit society. COAI is the
lobbying body of the GSM operators in India and it interacts on its behalf with the licensor, the telecom
industry associations, the management spectrum agency, and the policy makers. The core members are
Aircel, Airtel, Idea, Vodafone, Videocon, Loop and Spice. The tower telecom companies and telecom
equipment manufacturers are also part of this association.

B. Association of Unified Telecom Service Providers of India (AUSPI)

AUSPI is the representative industry body of Unified Access Service Licensees providing telecom
services in the country with CDMA and GSM technology, fixed line services and value added services.
The Association interacts on policy and regulatory issues with various Government bodies and other
apex industry organizations on behalf of its members. The members of AUSPI are Reliance
Communications, HFCL, Tata Tele and Sistema Shyam Telecom.

GOVERNMENT POLICIES & IMPACTS

There have been many policies & proposals impacting the telecom sector in India and some of them
have had a major impact such as:
1.
2.
3.
4.
5.
6.

Impact of 2G allocation & Re-allocation

National Telecom Policy 2012
Spectrum Re-farming
Proposal for Unified Licensing
The Union Budget 2013 Impacts
100% FDI cap

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1.2G spectrum allocation

Following the 2G spectrum scam, all the 122 2G licenses allotted on or after January 2008 were
cancelled by the Supreme Court in February 2012.
November 2012 auction
The auction process for the 800 MHz and 1800 MHz spectrum vacated by the Supreme Court order
began on 12 November 2012.
The key points related to the spectrum auction are summarized in the table below:

Source: CRISIL, TRAI, DoT

The pan-India reserve price per block was quite high not only with respect to the 2G spectrum auction
reserve price in 2008 but also the 3G spectrum auction reserve price in 2010.
Impact
The auction of spectrum vacated as a result of the Supreme Court's license cancellation order (in
February 2012) witnessed a much muted response due to the high reserve prices for spectrum. Other
reasons include slow revenue realization of 3G spectrum acquired at high prices and the resultant high
debt of players to get 3G and Broadband Wireless Access (BWA) along with the Capital Expenditure
spends for network rollouts.
March 2013 auction
Airwaves in Delhi, Mumbai, Karnataka and Rajasthan circles for the 1800 MHz band were to be
auctioned along with pan India circles for the 800 MHz band. Although the 900 MHz band was to be
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auctioned in the Delhi, Mumbai and Kolkata circles, it was cancelled as current operators in the band
had moved the Delhi High Court to stop the auction of the band. The government reduced the reserve
price for 1800 MHz by 30% and for 800 MHz by 50% from the 2012 spectrum auction.
Impact
There were no bidders for the 1800 MHz band and only one bidder Sistema Shyam Teleservices
Limited for the 800 MHz band. Another round of auctions was scheduled to take place in later part of
2013.Inspite of the reduction in reserve prices, they were still high which resulted in such a small
response. Only 24 blocks out of the total of 61 put up for auction could be sold.

2. National Telecom Policy, 2012

Delinking spectrum in respect to future licenses, introduction of Unified Licensing and online real
time submission and processing
Unified licensing: Unified license for Voice, Data, Video, broadcast, IPTV, VAS etc. In a non-exclusive
and non-discriminatory manner. (Key implication- Voice can be sent via data channels)
Approved the proposal to re-farm spectrum, which involves redistribution of airwaves in the 900 MHz
band largely held by incumbents, and substituting it with frequencies in the 1800 MHz
Removal of roaming charges across the nation and provide free roaming to telecom users
Intra-circle mobile number portability facility on a nationwide basis
Minimum broadband speed definition changed to 2 Mbps from the existing broadband download speed
of 256 kbps (ISPs were forced to increase their speeds when the previous regime under Dayanidhi Maran
changed the definition of broadband to mean 256kbps and above)
Objective of increasing the rural teledensity from the existing level of 39% to 70% by 2017 and 100%
by 2020.
Facilitate resale of licenses at service level in both wholesale and retail.
Technology neutral unified services that allow telecom operators to deploy any kind of services on
any kind of technology platform.
Target to meet 80% Indian telecom sector equipment demand by 2020 and provide preferential
market access for domestically manufactured telecommunication products including mobile devices,
SIM cards.

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Major Impacts of NTP:

Abolition of roaming charges: It can lead to reduction in revenues of telecom operators. As per rough
estimates Airtel, Idea and Rcoms revenue will be reduced by almost 4.0% (to Rs.2800mn), 5.2% (to Rs.
728mn) and 4.2% (to Rs. 856mn) of total NLD revenue, respectively
Spectrum sharing Under new policy spectrum pooling, sharing and trading is allowed, which will
lead to reduction in the operating cost of service providers, also unified licensing regime will make
things easier for TSPs as they will be able to give all the services (Voice, Data, MVAS)
Re-farming Scare- This is perceived as the probable loss of the more effective 900 MHz spectrum and
lack of infrastructure in 1800 band to sustain the existing network if a migration is required.

3. Spectrum Re-farming
It is a proposal for re-farming of incumbent operators in the 900 MHz band to the 1800 MHz band when
the licenses come up for renewal in 2014-15. The idea was first presented by TRAI and has since then
been pursued by DoT. The present 1800 MHz band is being used by the armed forces and will be
vacated as soon as a dedicated optical fiber network is completed by DoT. However, incumbent telcos
can participate in the spectrum auctions to buy back their share of the 900 MHz band.
Impact

It will allow new players to get share of the 900 MHz band by the means of auctions
900 MHz band is cost efficient as lower capex is required for network rollout. The challenge of
shifting 900 MHz network to 1800 MHz network will involve huge costs for the incumbent
telecom companies. This involves possible scrapping of existing equipment as well as buying
new equipment.
Quality of the network will be affected. 900 MHz signals travel farther and penetrate better. So
to give a comparable network quality, telcos operating in the 1800 MHz will have to increase
tower density.
It will negatively affect telcos profitability because of the higher proposed spectrum reauction prices (two times of that for 1800 MHz band) for the 900 MHz band.
Telecom infrastructure investments by GSM telcos of over Rs 150,000 crore will become
redundant.

4. Unified Licensing
Unified Licensing will allow operators to offer telephone, internet and related communications services
under a single license. It is part of the government initiative to adopt One Nation One License policy.
Under unified licensing regime, the spectrum will be delinked from licenses.

A unified license will be valid for 20 years from the date of issue alongwith an option to renew
it for another 10 years.
Telcos will have to pay an entry fee of Rs. 15 crores for the license. In addition to this, an
annual license fee of 8% of adjusted gross revenue of the company will have to be paid.
A licensee cannot have a stake in the business of another licensee holding spectrum in the
same service area.
Roaming pacts between the various licensees have been allowed but a licensee cannot acquire
customers in the circles in which it does not operate.
DTH is not covered under the unified licensing regime.

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Impact

Telcos who have a stake in other licensees will have to give up their stake. For example,
Vodafone will have to sell off its 4.4% stake in Bharti Airtel.
The limitations put on the telcos on the use of technology will be removed.
With the same media being used for different services, it would help build telcos economies of
scale. As a result, better services would be made available to the consumers at cheaper
price.

5. The Union Budget 2013

The Union Budget of 2013 did not have a much impact on the sector. Below are some of the positives &
negatives
Positives:

Zero duty for the import of plant machinery for the semiconductor industry. Telecom
equipment manufacturers to benefit from this proposal.
Low cost finance to be made available through the National Clean Energy Fund. This will help
telecom players in the introduction of clean energy and reduction in dependence on
conventional energy sources.

Negatives:

No special support doled out to the struggling telecom sector.

Service tax has been increased from 10% to 12%.
The excise duty on mobile phones costing more than Rs. 2000 has been increased from 1% to 6%.

Impact:

Overall, the impact is gauged to be neutral.

Domestic manufacturers would not be affected by the increase in the excise duty on mobile
phones as most of their models are priced below Rs. 2000. There will be a marginal impact on
the sales of smartphones. This in turn may impact the spreading of 3G, 4G, data services and
mobile value added services as smartphones are the main drivers of growth of these.
The thrust towards adoption of clean energy will help reduce the high costs(25% of opex costs)
of the telecom players due to the use of electricity or diesel.
Government expects revenues of more than Rs. 400 billion through spectrum auctions,
spectrum license fees, spectrum usage charges and one-time spectrum charges.
The tariffs on the various segments are as follows-

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Source: CRISIL Research

6. Increase in the FDI Cap

The government has allowed 100% foreign direct investment (FDI) in the telecom sector. Of this, upto
49% will be through the automatic route and the rest through the Foreign Investment Promotion Board
(FIPB) route. Earlier the FDI cap was 74%.

Impact

Unlikely to translate into newer players entering the telecom market. But we can expect
foreign players like Vodafone and Sistema to increase their stake in existing ventures. Foreign
players would also look out for market consolidation by the acquisition through M&A deals.
Smaller Indian players like Loop, Videocon Telecom, Uninor, Stel and HFCL may become
potential targets for takeovers.
The telecom players will be able to lower their financial burden by infusion of fresh capital.
The move will help reduce their debt burden as well, whose current combined value for all the
players stands at a whopping 40 billion dollars.
The high capital demands of the telecom sector for increased network roll-outs and offering of
new services (3G, 4G and BWA etc.) can be easily addressed.
Foreign partners can increase their ownership or take complete ownership of the business.

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VALUE CHAIN OF TELECOM

Telecom Infrastructure Providers

Telecom Tower
Owners( Passive
Infrastructure)

Telecom Network Operators

Telecom Equipment
Manufacturers
(Active
Infrastructure)

Mobile Value Added Services

Mobile & Other Services to Retail

& Enterprise Customers

Telecom Infrastructure Providers

Tower Industry

India is the second largest mobile

market in the world. There are
currently about 400,000 telecom
towers (BTSs) in the country. The
enormous growth of the
telecommunications in the country
has unfortunately not been
accompanied by a corresponding
growth of the Telecom equipment
manufacturing industry. Resultantly,
while only about 12.5% of the
Source: KPMG
demand for telecom equipment is
being met by domestic production,
the Indian products account for a mere 3% of the demand
The towers are of two types:
GBT (Ground Based Towers) GBs are generally erected in rural
and semiurban areas. Each GBT can accommodate 5 to 6 tenants.
RBT (Roof based Towers) RBTs are installed in urban areas. Each
RBT can have 2 to 3 tenants

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Source: CRISIL Research

Care Ratings estimates that Base Transceiver Station (BTS) deployment by service providers in
India stands at 680,465 as on September 2011, grown over 20% from September 2010. Due to
high CAPEX (Rs. 1.5 to 2 million/Tower) and tariff war industry felt the heat and started to
discover its crucial weakness that is the low Tenancy Ratio of 1.6. In 2011, just 10000 towers
were erected due to capital intensive nature of this industry plus viability problems in rural
areas, low tariffs and hence the profitability and already burdened balanced sheets due to 3GBWAspectrum auctions.

Growth Drivers:

Growing data requirement would need more BTSs

Congestion in urban areas due to 2G subscriber growth
Increased data usage as telephony in India moves from voice to data
Rural subscriber growth
Planned roll-outs of 3G and 4G services

Setbacks:

Low power availability hours

High diesel cost (consumption and pilferage- 15-20% of total diesel cost)

Low backhaul connectivity (India's 1,000,000 km Optical Fiber Cable (OFC) network is
predominantly limited to urban areas and bigger villages is proving to be less due to high data
requirement of 3G and 4g services)
Increasing rents and saturation in urban areas

Regulatory Issues:

Telecom Regulatory Authority of India (TRAI) has issued instructions, mandating 50%of all rural
telecom base station towers and 33% of all urban towers to be migrated to hybrid power within
the next 5-years (Hybrid solutions are a combination of renewable energy sources and grid
electricity)

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Deployment of telecom towers will not be permitted on and around 100 mtr of educational,
religious and health infrastructures
Within 300 mtr radius of any monument, under Archaeological Survey of India and State
Archaeology, permission to construction of towers will be denied
Also within 100 mtr of high security buildings and
zones, where natural drainages located and local
administration has imposed restriction, permission
will not be given for tower installation
Propose changes in fee structure to bring tower firms
under the unified licensing regime, which will force
them to pay revenue to the government.

Key Major Trends

Shift towards better Tenancy Ratios

Shift from diesel powered to hybrid powered Towerse.g. Bharti Infratel has been able to save 25.64
million liters of diesel after powering 12,000 tower
sites with solar energy under Power P7 Project
Indus Towers Ltd. would be replacing diesel
generators with batteries in 20,000 of its110,000
towers by next year

Active Infrastructure
Active infrastructure consists of electronics that power a wireless
network such as radio antenna, BTS/cell sites and cables.
Typically, a wireless telecommunications network in a circle consists
of several mobile switching centers (MSCs). Each of these is
connected to 8-10 base station controllers (BSCs), which are
connected to 60-80 base transceiver stations (BTSs).

Backhaul
Backhaul refers to the backbone that connects the active
infrastructure at the tower site with the BSC and MSC. In India,
traditionally, wireless operators used microwave as backhaul.
However, they are progressively moving to optic fiber-based links.
Source: CRISIL Research

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Challenges for tower companies

As passive infrastructure business has
evolved into a separate industry around
the world, many tower companies in the
telecom industry face several challenges.
These include:

High capital requirement: Tower

deployment is a highly capital-intensive
activity. The installation of each tower
requires an investment of Rs 20-30 Lakhs.
Thus, tower companies the world over
end up being highly leveraged

Regulatory clearances: Apart from

dealing with telecom regulators, tower
companies also have to deal with other
governmental bodies such as municipalities,
forestry departments and environmental departments

Source: CRISIL

Operational cost optimization: Although operational costs such as power and fuel are generally
passed on to the operators, these are usually subject to agreed maximum limits. Thus, tower
companies must work towards building controls to limit operational costs. Tower companies also face
the problem of finalizing the cost-sharing percentage and building a technology road map

Handling of local issues: Tower deployment and operation involves dealing with location-specific
issues, including dealing with the landlord and local authorities, and running operations across a
variety of geographies and terrains

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TRENDS & HIGHLIGTS OF VOICE & DATA INDUSTRY

This industry makes the most significant chunk of the telecom industry considering the total impact
and revenue. As per TRAI data, following are the major highlights:

The overall teledensity of the country stood at 73.16 as on 30 April 2013.

Mobile Number Portability requests increased from 89.70 million subscribers at the end of
March 2013 to 91.73 million at the end of April 2013. In the month of April 2013 alone, 2.03
million requests have been made for MNP.
Active wireless subscribers on the date of Peak VLR in April 2013 are 724.52 million, 83.56% of
the total subscribers.
Broadband subscription reached 15.09 million in April 2013.

To capture the net change in last financial year, comparative analysis has been done with the
subscription data as on March 31, 2013 and following trends have been observed:

Attribute
Wireless subscribers
Wireline subscribers
Urban subscribers
Rural subscribers
Internet subscribers

As on March 2012
919.17
32.17
620.53
330.82
19.51

As on March 2013
867.80
30.21
548.80
349.22
21.61

Percentage growth
-5.59%
-6.09%
-11.56%
5.56%
10.77%

*all figures are in millions, Source: TRAI indicator report August 2013.
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Trends in telephone subscribers and

teledensity in India (Source: TRAI)

Market share: Rural and Urban

Composition of telephone subscribers as

at March 31, 2013

Major trends

11.56% y-o-y fall in number of

urban subscribers affects the
overall teledensity of the country.
The reason for the fall is the
closing down of inactive
connections by the telecom players
in the urban market where the
phenomenon of multiple-sim usage
per user is highly prevalent.
The rural market shows a robust ySource: TRAI
o-y growth of 5.56%, representative
of its untapped potential but also of the beginning of its growth trajectory.

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The wire line segment continues to

be a minor segment with respect to
the much larger wireless segment.
Internet subscriber growth of more
than 10% y-o-y due to increased
penetration of services like 3G and
BWA as well as the increased use of
smartphones.
Source: TRAI

Wireless Industry
According to TRAI data, total wireless (GSM+CDMA) subscriber base registered a growth of 0.36% over
the previous quarter and subscriber base increased from 864.72 million at the end of Dec-12 to 867.80
million at the end of Mar-13. The year-on-year (Y-O-Y) negative growth rate of Wireless subscribers for
Mar-13 is 5.59%. Wireless teledensity slightly increased from 70.82 at the end of Dec-12 to 70.85 at the
end of Mar-13.

Source: TRAI

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The recent trends in

wireless subscriptions
can be shown in the
following chart

Source: TRAI

There is an increase in
the share of rural
customers as regards
wireless connections.

Source: TRAI

GSM services continue

to dominate the
wireless segment as
opposed to CDMA.

Source: TRAI

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Trends in ARPU
As per COAI data, ARPU for GSM overall has declined 25% between March-2010 to March-2012 due to
declining minutes usage.QoQ, ARPU has continuously declined.

Source: COAI

However, recent quarter results show increasing ARPUs driven by increased use of data services and
the recent trend in hiking of tariffs by the telcos.

Quarter
ARPU

Apr-Jun 12
114.71

Jul-Sep 12
111.92

Oct-Dec 12
114.08

Jan-Mar 13
119.60

Wire-line Industry
Wireline segment is continuing on the declining path. Broadband connections through showed a ray of
hope to this segment however popularity of USB dongles took over that opportunity also. Wireline
subscriber base declined from 32.17 million at the end of Mar-12 to 30.21 million at the end of Mar-13.
The overall wireline teledensity is showing a declining trend. At the end of April 2013, it was just 2.45.

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Service provider market share as on 30 April 2013

Source: TRAI

The wire line subscriber base and teledensity is falling in both rural and urban markets.

Source: TRAI

Internet data services: Internet data

access is through narrowband and broadband.
Although definition for broadband has been
changed from >256 Kbps to >2Mbps, it will take
some time to appear in TRAI statistics. Total
Broadband subscriber base has increased from
14.50 million at the end of June 2012 to 15.05
million at the end of March 2013. Yearly growth
in broadband subscribers is 8.98% during the
last one year. Number of Narrowband
subscribers decreased from 6.59 million at the
end of Dec-12 to 6.56 million at the end of Mar13, thereby showing a quarterly decrease of
0.5%. The total Internet leased line customers
stood at 41,041 at the end of Mar-13 as compared to 39,788 at the end of Dec-12, registering an
increase of about 3.15%.

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Market Share of industry players in

Broadband ( 256 Kbps download)
Segment

There are 185 service providers

providing internet service
(excluding internet access by
wireless phone) as at end of
March 2013.

Trends in internet subscription

The past decadal profile of internet subscriptions is as follows

Source: TRAI

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TELECOM CIRCLES & TELEDENSITY

Telecom Circles or Licensed Service Areas (LSAs) refer the region in which a service provider has the
license to offer its services. India is divided into 22 telecom circles & licensing in these is provided by
the Department Of Telecom (DoT).

Further these circles are classified into 4 categories, namely: Metros, A, B & C.

Circle
Metro
A
B
C

Regions covered
Delhi, Kolkata , Mumbai
Gujarat, Daman Diu, Dadra and Nagar Haveli, Andhra Pradesh, Karnataka,
Maharashtra(except Mumbai), Tamil Nadu, Pondicherry
Haryana, Kerala, Lakshadweep, Minicoy, Madhya Pradesh, Chattisgarh, Punjab,
Chandigarh, Rajasthan, UP-East, UP-West, West Bengal
Assam, Bihar, Jharkhand, Arunachal Pradesh, Meghalaya, Mizoram, Nagaland,
Manipur, Tripura, Orissa, Himachal Pradesh, Jammu and Kashmir
Source: Department Of Telecom

The importance of these circles is in understanding their revenue potential based on various factors
like teledensity, user income levels and average minutes of usage and availability of spectrum.

Teledensity
Teledensity refers to the number of telephone
subscribers per 100 people in a specified
geographic area. Teledensity is often used to
compare the level of access to voice and data
communications services between metropolitan
and rural areas, or between one country and
another.
Teledensity can be seen as an economic indicator
of the health of the sector and its rate of growth
directly translates in revenue generation. Below
is a snapshot of the total number of subscribers
as on 30th April 2013.

Source: COAI, TRAI

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Source: TRAI quarter Report

AIRWAVES & BANDS

The word airwaves or spectrum refers to a

collection of various types of electromagnetic
radiations of different wavelengths. Airwaves
are the radio frequencies on which all
communication signals travel.
In India, the telecom spectrum frequencies
and the services offered in each are listed
below:

The International Telecommunication

Union (ITU) at the World Radio Communication Conferences allocates spectrum frequencies for
the use of various countries. Since the mobile communication technologies provide
international roaming facilities, it is essential to allocate spectrum in the common bands which
are being used the world over. Secondly the mobile handsets which are manufactured are
aligned to the GSM 900/1800 bands. If radio frequencies are allotted in any other bands then
the handsets will not be compatible to those bands
Telecom operators in India who obtained licenses prior to 2001 were allotted spectrum in the
900 MHz band, while the later entrants obtained spectrum in the 1800 MHz band. In the case of

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operators offering services on the CDMA platform, spectrum has been allotted in the 800 MHz
band
The higher the frequency band, the lesser is the reach on that band. Hence, as the frequency
band goes up, operators need a higher capex to be able to provide services as compared to the
same services being offered on a lesser frequency band
Spectrums are sold by a market-auction process and are currently sold in blocks of 1.25 MHz
each. There are criticisms to this practice and many players have suggested to reduce the
block size to 200 KHz. Wireless Planning and Coordination (WPC) Wing is responsible for this
process
Presently, 100 MHz spectrum is ear marked for GSM services and 20 MHz is earmarked for CDMA.
Out of this 65 MHz of GSM band is still with Defence forces. The minimum amount of spectrum
required for launching GSM services is 4.4 MHz
Over the years the government has been taking steps to frame policies to ensure efficient
utilization of spectrum, which is a scarce resource. However efforts of DOT and TRAI have
resulted in controversies. Therefore the Government decided to go ahead with the auctioning
of 3G and BWA spectrum with an open and transparent format

GROWTH DRIVERS

Mobile Value Added Services The segment derives majority of its revenues from game based
applications and music downloads. The Indian MVAS industry is expected to cross $10 billion
mark by 2015.
The governments decision to allow 100% FDI in the telecom sector will help reduce the debt
load of current players as well as make available fresh capital for rollout of new networks as
well as services like 3G, 4G and BWA.
Data services will be major driver of growth of revenues of telcos. The lowering cost of
smartphones will increase demand for data services. According to a CRISIL study, high speed
internet services will have an increasing share in revenue generation and garner revenues of
approximately Rs. 137 billion in FY16.
Although the urban market is saturating, the rural market will drive future growth of the
industry. Y-o-y, the rural market is showing robust growth rates in terms of subscriber base as
well as revenue generation. MVAS targeted towards the rural population will further add to
revenue growth.
As the number of telecom players will reduce due to consolidation or exit of smaller players,
pricing power will return to the telcos which will drive up ARPU.

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PLAYER PROFILE

Airtel
Bharti Airtel Limited is a leading global
telecommunications company with operations in
20 countries across Asia and
Africa .Headquartered in New Delhi, India, the
company ranks amongst the top 4 mobile service
providers globally in terms of subscribers. It is
the largest cellular service provider in India.
Airtel is the third largest in-country mobile
operator by subscriber base, behind China Mobile and China Unicom. In India, the company's
product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services,
high speed DSL broadband, IPTV, DTH, enterprise services including national & international long
distance services to carriers.It had 191.39 million subscribers as of July 2013 and net addition of
476,593 subscribers in the month of July 2013.The proportion of active subscribers is more than
95%, second highest among all telecom players.
It had 28.45% of market share as of July 2013 in the wireless segment and 11% market share in the
wire line segment, the highest among private telcos. Its customer base grew by 7.78% y-o-y from
FY12 to FY13. It has the highest ARPU among all the players. For Jan-Mar 13 quarter, its ARPU was
138.14.It had 27.58% market share of internet access by wireless phone subscribers as at March
2013.It covers 465,482 towns and villages in India.
Its area of operation includes Andhra Pradesh, Delhi, Gujarat, Haryana, Karnataka, Kerala, Kolkata,
Madhya Pradesh, Maharashtra, Mumbai, Punjab, Rajasthan, Tamil Nadu (incl. Chennai), UP(East)
and UP(West).

Business divisions
It has four business divisions

Mobile services This division provides the wireless mobile telephony services and contributes
for the majority of revenues and profits.
Telemedia Services This division provides broadband internet access using DSL, internet
leased lines, IPTV and fixed line telephone services.
Airtel business This division provides end-to-end telecom solutions to corporates. It also
manages the national fibre optic network of Airtel.
Digital TV services This division provides direct-to-home (DTH) TV servicesacroos India. As of
Dec-2012, it had about 7.9 million customers.

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Financials
During the year ended March 31, 2013, the Company recorded consolidated revenues of 803,112 Mn, a
growth of 12.4% over the year ended March 31, 2012. Depreciation and Amortization (D&A) costs for
the year went higher by 21,283 Mn, up 16%, due to continued expansion of networks and investments in
new technologies and licenses. D&A costs grew by 13% in India and South Asia and by 23% in Africa. Due
to EBITDA margin drop and higher D&A costs in India, consolidated EBIT dropped by 9% to 93,740 Mn
and the EBIT margin for the full year dropped from 14.5% last year to at 11.7%. Full year EBIT margin of
India and South Asia stood at 13.7%. Consolidated EBITDA at 248,704 Mn grew by 5%, and the EBITDA
margin dropped from 33.2% for the previous year to 31.0% for the year under review. This decline was
mainly due to cost pressures and fall in voice realization rates across India and Africa. In India and
South Asia, the Mobile EBITDA margin dropped by 3.2%, from 33.9% to 30.7%.
The overall voice realization rate per minute has decreased by 3.6% from 36.64p to 35.31p.
(Source: Annual report 2012-13)

The following charts show a positive picture about financial health (Source: Annual Report)

Customer base('000)
300000

220878

200000
100000

97593

251646

271227

137013
Customer base('000)

0
FY09

FY10

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FY11

FY12

FY13

Page 26

Revenue(Rs. million)
1000000
800000
600000
400000

595383
373521

418948

FY09

FY10

714508

803112

Revenue(Rs. million)

200000
0
FY11

FY12

FY13

Cash Profit(Rs. million)

250000
200000
150000

153801

162817

180581

204836

208008

Cash Profit(Rs. million)

100000
50000
0
FY09

FY10

FY11

FY12

FY13

Key recent happenings

In March 2010, it bought Zains mobile operations in 15 African countries.

In August 2010, it acquired 100% stake in Telecom Seychelles.
On 5th April 2012, it launched Airtel Money an m-Commerce platform which will enable users
to pay bills, transfer money and conduct financial transactions through their mobile phones.

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IT/ITES
OVERVIEW

The Indian IT industrys revenue for

2012-13 (estimates by NASSCOM) has
touched $108 billion contributing a
major part towards the GDP. The
sector has shown a robust growth rate
of 11.5%(CAGR) over the last 5 years
and NASSCOM has predicted the
revenue growth in FY14 to around 1214 %(y-o-y).
The industry is divided into 4
components namely IT Services, ITeS
BPO, Software Products & Hardware.
The sector is heavily export oriented
with exports accounting for over 70% of
the revenue and thus has a high
Source: NASSCOM
correlation with the international
economies. Geographical concentration of
the clients in the US/Europe, exchange rate fluctuations and the growing demand for employee
remuneration are some areas of key concerns. The below chart depicts the growth of IT exports
(Source: Crisil Research)
The revenue source of the exports is still
dominated by the BFSI sector and
thus is largely dependent on the
health of the BFSI sector as well.
However the trend is changing now,
sectors like retail, healthcare &
utilities are generating more and
more business.
North America (Largely United
States) has been the key market for
Indian IT services exports followed
by Europe. Indian IT exports are thus
highly sensitive to IT spends in these
countries. Also in a scenario the
Source: CRISIL
currency devaluates with respect to
dollar, it favors the sector as most of
the revenue is dollar driven although domestic demand is also picking up. Various sources like the UIDAI,
passport generation are constantly adding to domestic demand and currently the domestic revenue
contributes about 29.8% to the $108 billion dollar industry. Revenues of the top 4 players (TCS, Infosys,
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Wipro and HCL) have grown by 20.8 per cent (y-o-y) in 2012-13 to touch Rs 1,714.1 billion which was
mainly a volume driven growth.

The Indian IT exports account for about 7.6% of the Global IT Industry and the revenue is best
understood as a spit from various verticals and geographies.
(Source: Crisil & NASSCOM)

Source: CRISIL

The US accounts for over 60 per cent of

the total IT services export revenues.
The slowdown in the US economy and
the subsequent decrease in IT spending
by the US Corporation took a heavy toll
on the Indian IT players. Consequently,
Indian companies began diversifying their
portfolio to include other geographies
such as Europe and Asia Pacific.
Europe has emerged as the second
largest IT/ITeS market after the US. In
2012-13, Europe (including UK)
accounted for 28 per cent of India's IT
services exports. Within Europe, UK is
the largest market for Indian exports
with a share of almost 60 per cent.
Source: Gartner

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Indian IT companies have gained a significant market in the European region by garnering large
contracts and deals from the region.
On a global scale the revenue from IT as identified by Gartner is the most from Software Publishing
& Internet services followed by the Baking sector.

IT/ITES VALUE PYRAMID

The Indian IT services industry has

evolved from being a pure play IT
service provider to offering end-to-end
execution capabilities. Currently, its
clientele constitutes the top 2,000
corporations of the world. Indian
companies have expanded their service
mix to systems integration, network
management, packaged software
implementation and areas of products
and technological services. Over the
years, the Indian IT industry has moved
up the value chain and positioned itself
as a global player.
The Indian IT sector can be broadly
classified into following segments:Source: Gartner

1. IT software: The companies which provide software application design, development,

maintenance, integration and re-engineering services to various other industries like
banking ,insurance, retail, telecom, manufacturing etc. Recently many players have started
offering IT/ business consulting services along with basic software services.
Examples include TCS, HCL Tech, Infosys etc.
2. ITES-BPO: These companies provide business and knowledge process outsourcing
services like payroll management, voice based general and technical support services,
legal processes etc. Many IT software services firms have developed their BPO arms and
many pure play BPOs have entered the IT services segment. Companies like eClerx
Services, First source etc. form a part of this segment.
3. IT Hardware: This segment has companies which provide hardware like desktop, laptop, system
accessories and components, printers etc. Examples include HCL info, Zenith etc.
4. IT Education: This segment consists of companies which provide professional certifications and
training programs to corporate as well as individual customers. Some of them have collaborated
with schools and colleges to conduct training programs. We have companies like Educomp
Solution, NIIT, Everonn Education etc.

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REVENUE MODELS

The IT industry has been offering

customized revenue models according to
the needs of the customers.

Transaction based model Here the billing is done on per transaction basis.
Outcome based model The billing depends on the end deliverables and not on duration or
cost of the service process.
Time and material billing model The billing is done according to how much resources in
terms of time, personnel and materials are used for project execution.
Fixed cost billing model In this model, the customer pays the services provider a fixed
amount irrespective of the amount of resources employed.
Product subscription and license based model The billing is done as per the usage of the
product or application. Customer pays for the license to use a particular software application.

CURRENT MARKET SCENARIO

Although the bulk of revenue of the major IT players is generated from the BFSI vertical,
companies are focusing on other verticals such as manufacturing, engineering and healthcare.
Focus is also towards opportunities in emerging economies of Latin America, Africa and Middle
East.
The Indian IT industry continues its growth trajectory. Along with the traditional verticals,
others such as retail, energy & utilities and healthcare have also been key growth drivers.
The recent depreciation in the value of the rupee will have a positive impact as IT/ITeS
companies can hope for cheaper exports, higher margin and competitive pricing.
Indian IT players are moving up the value chain by offering remote infrastructure management
and enterprise application services.
With the ending of STPI tax break, IT companies experienced a rise in their tax outgo. Also with
MAT rate of 20% even on SEZs, the tax outgo remained high.
Along with Indian IT players, global IT players like IBM, Accenture, Cognizant and Capgemini
have also increased their headcount in India.

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The companies are shifting to tier II/tier III cities to save on land and operating costs. Also it
helps them to reduce employee wage cost.
Companies are shifting focus onto building non-linear revenue business models based on
intellectual property/products, cloud based offerings like software as a service (SaaS) and
other platform based solutions.
Companies are also aligning themselves to a vertical-specific strategy and developing process IP,
specific to certain verticals.
The BPO segment is facing competition from other emerging economies like Phillippines, Sri
Lanka and Poland.
US being the major market for all the IT and BPO players, changes in current H1B visa rules and
local opposition in US to outsourcing of jobs is an area of concern.

HEDGING TECHNIQUES & IMPACTS

Hedging is a technique of making an investment to reduce the risk of adverse price movements in an
asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures
contract.
To reduce volatility in cash flows, Indian IT services companies take to hedging - locking the exchange
rate for their revenues. The companies earn 80 per cent of their revenues, in foreign currencies, from
exports of IT services to developed nations. About 60 per cent of the revenues are earned in US dollars.
But they incur most of their costs in Indian rupees. Movements in the value of the rupee relative to the
dollar accentuate the mismatch between costs and revenues, making the companies' earnings and cash
flows more volatile.
Hedging helps the companies offset gains or losses in their operating cash flows with gains or losses of
hedge instruments, and thus attain steady net cash flows.

Hedging Policy
Indian IT services companies follow strict guidelines on hedging as stipulated by their boards. On an
average, Indian IT services vendors hedge around 40-70 per cent of their net exposure for the
immediately following twelve months.

Hedging Instruments
Although, there are various derivative instruments available in the market, companies mostly use
forward contracts to hedge their future cash flows. Players typically enter into agreements with banks,
which offer forward contracts at a predetermined price (strike price) and duration, to convert their
foreign currency revenues into INR.
The second most commonly used derivative instrument is the currency option. Players use this
instrument to protect their cash flows in an appreciating rupee scenario, while simultaneously
retaining the option to discontinue the contract when the rupee starts to depreciate.

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Swaps and futures are other hedge instruments that are used to minimize interest rate risk and thirdparty risk in addition to minimizing currency risk. The following table shows the various types of hedge
instruments and their basic features.

Source: CRISIL Research

Impact
Hedging helps the companies offset gains or losses in their operating cash flows with gains or losses of
hedge instruments, and thus attain steady net cash flows.

GROWTH DRIVERS OF IT-ITES INDUSTRY

Moving up the value chain: High end IT/Business consulting engagements with client provide a
high
margin growth opportunity to the players. The trend is visible in with Infosys getting
31% of its revenues from consulting and system integration in FY 12 as compared to 21% in FY
07
Ability to deliver high quality at lower cost: Indian IT companies have the ability to deliver
quality, with most of them being CMM level 5 software firms, at a lower cost as compared to
any other destination offering similar level of quality. This stamps the position of country as
the preferred destination for high end IT services and other outsourcing activities. Even for
lower end services India has traditionally been the favorite due to its low cost talent pool.
Bundling of high and low end services makes a compelling proposition to the clients
Acquisition of strategic companies: Many Indian players have made a string of acquisitions to
gain new markets and new clients in unexplored geographies. The acquisitions allow acquirer to
build the missing competency in the company. It also helps to get employees who understand
the local languages and customers better. Some of the deals could also bring in IP based
products which can be employed worldwide by Indian IT companies
Focus on non-linear growth: The emphasis of the industry has shifted to Non-linear growth
models which delink the revenue growth from the employee strength growth
Implementations which involve transaction based revenue models utilizing the IP based
products and platforms developed by the company mark the beginning of a new chapter of high

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margin growth. The number of employees with the top 4 firms has been consistently rising with
for the last few years and projected to grow at a CAGR of 20 over a period of 5 years from 2010
to 2014.Thus nearly doubling the employee strength. Such huge workforce might become
difficult to manage

Cloud based offerings: Cloud

based offerings allow software,
platform and infrastructure as
a service and allow pay as you
use model. It is a compelling
offer for new investment for
SMB category. According to a
Forrester research public
cloud is expected to record a
CAGR of 27% by the year 2020.
It is one business model which
can deliver non-linear returns
Source: Forester Research

BIG data: With digitization every

industry produces loads of data recording transactions at each and every step. Even the data
which is available online in forms of blogs,facebook posts, tweets etc. have their own story to
tell. The new age big data solutions effectively combine data internal to organization and
publicly available external data to provide a way to gain insight into consumer, supplier and
market as whole thus granting clients an edge over competitors. According to Nasscom-CRISIL
report Indian Big Data industry is projected to grow at CAGR of 83%. The IT services segment is
expected to acquire the majority market share with current market share of 82.9% in the big
data services market.

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Mobility: The world is going mobile with devices like smart phones and tablets becoming
commonplace. It is new platform to provide solutions ranging from news and training modules
for IT industry. The app world has already gained a sizeable market. The number of smart
phones has already outnumbered the active PCs, which provides an opportunity to migrate all
the solutions earlier developed for PCs to the mobile platforms like tablets and smart phones

MERGERS & ACQUISITIONS

Faced with increasing competition from international players, wage inflation and volatile currency, it is
imperative for Indian IT service players to explore new opportunities. Mergers & Acquisitions help in
growing inorganically in high-end service-lines and under-penetrated markets for cash rich Indian IT
service providers and can lead to considerable benefits such as:

Efficiencies in operations and delivery services and cost synergies

Economies of scale from consolidation of shared services, and
Opportunity to play in larger deals and more verticals and to cross-sell key solutions to a
broader client base

Indian IT service players have undertaken acquisitions in the past to gain entry into markets, in terms
of geographies, service lines and clients. Acquisitions, involving Indian companies, grew by close to 33
per cent over 1999-2008. The pros & cons of growing inorganically have been highlighted in the
following table (Source: Crisil Research)

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Diversifying Portfolio
Indian IT service players have limited exposure to high value service lines like consulting and network
integration. They, instead, earn a bulk of their revenues from application development, maintenance,
infrastructure management and support. MNCs hold the edge in this regard and continue to control a
lions share of high-end IT services globally.

Untapped Market Potential

Traditionally, the US has constituted the largest share of revenues of Indian IT service vendors more
than 61 per cent. However, over the last couple of years, revenue contribution has increased from
Europe and emerging markets in the Middle East and Asia Pacific. Companies in the UK, France and
Germany have increased the proportion of off shoring, predominantly in the retail, utilities and
insurance space

Opportunity for Larger Deals

Both TCS and Infosys acquired BPOs to expand their presence in the insurance vertical. The typical
modus operandi of Indian IT companies has been to penetrate the market with low-end service lines
and subsequently, permeate to provide a range of services to their existing clientele.

M&A Activity in the past

Acquirer
Geometric
Software
Solutions
eClerx Services
TCS
L&T Infotech
Tech Mahindra
Mphasis
Genpact
iGate Global
Solutions
Infosys
Wipro
Technologies
KPIT Cummins
Infosystems

Target
3Cap
Technologies

Germany

Jan 2013

Deal amount
($US million)
14.5

Agilyst
Alti
Citigroup Fund
Services Canada
Comviva
Technologies
Digital Risk
Headstrong
Patni Computer
Systems
Portland Group
Promax
Applications
Group
Systime Global
Solutions

US
France
Canada

Apr 2012
Apr 2013
Feb 2011

16
98
40

India

Sep 2012

48

US
US
India

Nov 2012
Apr 2011
Jan 2011

202
550
1222

Australia
Australia

Dec 2011
May 2012

37
36

India

May 2011

23

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Target country

Acquisition date

Page 36

CHALLENGES FOR THE IT INDUSTRY

Protectionism sentiments: With elections approaching in the US the cry against outsourcing is
getting louder. The recent attempt to pass an anti-outsourcing bill which was rightly defeated
in the US senate underlines the seriousness of any such attempts in future. Even in the euro
zone with the current austerity drive the situation is even worse. The unemployment rate has
made a new high of 24.6 percent in Spain. Protectionist sentiments might arise even there. The
economic environment as a whole is uncertain leading to companies to cutting back on
discretionary IT spending
Impact of US Visa Norms: Another area of concern is the proposed H1B and L1 visa restrictions
in the new US immigration bill. If implemented, it will increase the visa expenses for the IT
companies as well as mandate them to employ more local employees. Hiring of more local
employees will result in higher wage expenses. The new proposed legislation will reduce the
margins and affect the competitiveness of the IT players significantly. Under the new laws,
offshore vendors who have more than half of their US-based workforce on H1B visas will have
to pay a $10,000 fee per every additional H1B worker. North America accounts for about 60% of
the total revenues for the Indian IT sector and, according to The Wall Street Journal, these
reforms can wipe out a quarter of the global revenues for this $100 billion industry.
Commoditization: There is a danger that of companies might not be able to differentiate
among the offerings in the basic application development business leading to commoditization
of the service reducing the overall margins of the segment which forms a major portion of the
industry revenue
Employee cost: The increasing wages of employee threaten to derail the profitability of the
companies. However the hikes are difficult to avoid as the high demand for skilled people
might lead to an increase in attrition which is cooling currently. Also the industry has to
continuously invest in training its employees in rapidly changing technological environment
Talent acquisition and retention: The employees are currently the biggest assets for a
company in this sector. It is a huge challenge to not only acquire the highly skilled people but
also to retain them as there is always a threat of them being poached by the rivals leading to
project delays
Threat from rivals: Countries like Philippines which have cheap availability of English speaking
labour are threatening to take carve out a market share for themselves in lower end voice
based services. China is also developing its talent pool of English speaking individuals to take
on the IT industry. In 2011, the market value of China's software and information services was
valued at around $60 billion registering a growth of 40 percent year-on-year, according to an
annual report issued by the electronic technology information research institute under the
Ministry of Industry and Information Technology. However the Chinese demand formed more
than 87 percent of the market share
Infrastructure: Any service industry needs the underlying infrastructure like power and digital
networks to offer uninterrupted service. The latest episodes of blackout and current network
facilities paint an image of infrastructure which is lagging behind its competitors like China

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INDUSTRY OUTLOOK

According to CRISIL estimates, the IT services exports are expected to grow at 14% CAGR over
the next five year period. Currently, only 5.6% of the global IT services requirements are
serviced by Indian IT firms. Hence, there is a lot of opportunity for growth.
New areas of growth will be cloud services, data analytics and big data. Non-linear business
models will drive growth. Higher value services like infrastructure management services (IMS),
integration services (system and network integration) and IT consulting are expected to drive
up billing rates.
Depreciation in the value of the rupee will help marginally. But for greater profits, strong
business fundamentals and continuous innovation in offerings will be required.
Apart from better service offerings, efforts are also being done in the direction to offer
software products to move up the value chain. iSPIRT(Indian Software Product Industry Round
Table), a body of software product companies, has been formed within NASSCOM. Software
product development will help the players to develop and leverage IPR as well develop
platforms which can be customized according to the needs of the individual clients.
Increased government spending on computerization and e-governance initiatives will help
garner revenues from domestic sources.
As most of the big players have a huge amount of cash in their balance sheet, they are
expected to grow inorganically wherever they can create synergy between their operations and
those of the company acquired.
A further shift to tier II/III cities where cheaper labour is available would place Indian
companies in a better position to compete with rivals from other emerging economies for low
end work.
Expansions in North America and European subsidiaries of big players will help them get closer
to clients and hire more local talent which will also pacify any protectionist sentiments and
overcome visa issues.
Some of the significant challenges the industry may face are increasing competition from global
majors, a potential resource crunch, uncertain macro-economic conditions and steadily rising
employee costs. Another significant threat is due to the trend of captive data centres of large
multinational corporations. The presence of such data centres reduces the amount of IT work
that is being outsourced by the corporations.
Indian ITeS firms are expected to expand into key business activities like knowledge process
outsourcing (KPO), legal process outsourcing (LPO) and engineering services outsourcing (ESO)
apart from their usual offering of business process outsourcing(BPO).
National Electronic Policy 2012 by DoIT entails setting up of semiconductor wafer fabrication
facilities, preferential treatment for domestic manufacturers etc., to curb imports in a
segment which is expected to be worth $450 billion by 2020. This policy is expected to give a
fillip to indigenous electronic hardware manufacturing.

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PLAYER PROFILE

Tata Consultancy Services

TCS is the largest IT player in India with revenues of US$ 11.57 billion in FY 2012-13. Founded in 1968,
it is headquartered in Mumbai and has presence in 44 countries with 199 branches worldwide. revenues
have grown over 22% CAGR over the last 4 years. It had won Business Standards Company of the Year
in 2012.
Service lines
The company service lines along with the contribution of each service line in the revenues in FY 201213 is as follows

Source: TCS annual report

Clients
Some of its key Clients are ABB, Aviva, British Airways, Cisco, ING, Microsoft, Chrysler etc.
The company follows a customer-centric model which has helped it to acquire new clients as well as
retain old ones. It has been successful in increasing its customer base y-o-y.
A snap-shot of the number of customers according to revenue buckets is as follows
Revenue
bucket

Number of customers
FY13

$
$
$
$
$
$

1 mn +
5 mn +
10 mn +
20 mn +
50 mn +
100 mn +

IT/ITeS/Telecom/Media/Education

FY12
556
277
196
115
48
16

FY11
522
245
170
99
43
14

458
208
143
81
27
8

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Revenue generation
By verticals
The growth of the company has been contributed to by the growth in all the verticals. CAGR in retail &
CPG (40%), BFSI (30%), telecom (23%) and other verticals (24%) were significant.
The following chart shows the impressive growth in the companys verticals from FY05 to FY13

In FY13, BFSI vertical was the dominant

revenue generating vertical followed by Retail
and CPG, Telecom, Manufacturing and others.
The contribution of verticals in FY13 is as
follows:

Source: Annual Report

By geographies
Over the last nine years, CAGR in Americas and Europe has been more than 25%. CAGR in emerging
markets such as Asia-Pacific and Middle East & Africa has been more than 35%. The presence of the
company in established as well as emerging markets has been an important factor for the growth of the
company as well as for maintaining growth momentum.

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The following chart shows the growth of the

company in various geographies

In FY13, North America, the UK and Europe were the main revenue generators for the company.
(79.3%) In addition to these, the company has strong focus and growth in Latin America, Middle-East
and Asia-Pacific.
The contributions of various geographies in FY13 are as follows

Source: TCS annual report

Financials

Revenue
70000

62989

60000

Rupees crores

The overview of
companys financial results
is shown on the next page.
The revenue growth of the
company has been
impressive from FY05 to
FY13.

48894

50000

37325

40000
30000
20000
10000

9748

2781330029
22620
18685
13264

Revenue

0
IT/ITeS/Telecom/Media/Education

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Page 41

Source: TCS annual report

The revenue of the Company aggregated 62,989.48 crores in fiscal 2013 (48,893.83 crores in fiscal
2012), registering a growth of 28.83%. Revenue in USD in fiscal 2013 was 11.57 billion (USD 10.17 billion
in fiscal 2012). The net profit after tax (PAT) for fiscal 2013 was rupees 13917.31 crores. It was rupees
10413.49 crores in fiscal 2012. There was a growth of 33.65% y-o-y.

Key recent acquisitions

In October 2010, acquired Supervalu Services India.

In August 2012, acquired Computational Research Laboratories from Tata Sons to acquire
expertise in high performance computing (HPC) and cloud offerings.
In April 2013, acquired Alti SA of France to increase its foot-print in Europe.

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MEDIA & ENTERTAINMENT

OVERVIEW

Television

Music

Print

Media &
Entertainment

Radio

Film

The Media & Entertainment Industry comprises of various verticals such as television, print, film, radio
&music.The Indian M&E industry grew from Rs 728 billion in 2011 to Rs 820 billion in 2012; marking a
growth of 12.6 per cent. The industry as per Crisil Research is expected to grow steadily at a 13 per
cent CAGR to cross Rs 1.3 trillion by 2017. Backed by strong consumption in Tier 2 and 3 cities,
continued growth of regional media and fast increasing new media businesses, the industry is estimated
to touch INR 926 billion in 2014. Some factors expected to contribute to growth are high penetration of
media translating into high advertising spends & higher consumption of media products, widespread
availability of digital media distribution platforms & expanding international market for Indian content.
Advertising is the major source of revenue across the industry verticals. Television & print are the
biggest sources of revenue from advertisements. Advertising spends have been increasing but at a
slower pace since the last 2 years. 2013 & 2014 are expected to be better due to increased government
spending on account of forthcoming elections. With the rise in the consumption of digital data, digital
advertising is expected to overtake print & television in advertising revenues.

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Subscription to the above mentioned verticals

makes the other contributor to revenue which is
non-advertising. Subscription is also expected to
increase at a CAGR of 10% over the course of 6
years.Overall contribution to the revenue by the
various sources in 2012 is depicted in the graph.

Revenue

Television
16%

Newspaper
Films
51%

Radio
Music

24%

Others

Data Source: Crisil Research

TELEVISION

Television is the largest medium for media delivery in India in terms of revenue, representing around
51% of the total media industry. Television penetration in India is still at approximately 60 percent of
total households. Television industry has evolved and come a long way since the launch of Star TV in
1992 and now has over 150 million TV households and over 800 registered channels. The total Indian
television industry revenues stood at around Rs 386 billion in 2012 witnessing a rise over the previous
year owing to increased advertising revenues and a steady growth in subscription revenues too.
There has been a significant increase in demand for satellite bandwidth, with the introduction of HD
channels, DTH expansion, and new channel launches. This increases the options to the consumer, who
may be amenable to paying more for content in the medium to long term

Value Chain of the Television Industry

Distributors

Content
Providers

Broadcasters

IT/ITeS/Telecom/Media/Education

Multi system
Cable
Operators

Local Cable
Operators

Cable &
Satellite
Subscibers

Page 44

The television distribution value chain comprises three players MCO (Multi System Cable Operator),
LCO (Local Cable Operators) and broadcasters. LCOs enjoy a virtual monopoly in most regions leading
to under reporting of subscriptions. Other problems associated with Analog Television services are poor
broadcast quality and capacity constraints in terms of number of channels that can be transmitted.
However, this scenario is set to change with the advent of digitalization of analogue cable networks
and continuous expansion in DTH
Television broadcasters draw their revenues from two main sources, viz., advertising revenue
(revenues earned through the sale of time slots during programmes) and subscription revenue
(proceeds collected from subscriber households that distributors pass on to the broadcasters).
The television content business, especially general entertainment programming, is characterised by the
presence of large number of content houses and low entry barriers. Competition and entry barriers are
relatively higher in case of niche content, where exclusivity and intellectual property rights (IPRs) are
involved (e.g., cricket matches).

Advertising & Subscription

In 2011, Advertising rates faced pressure from the global and domestic economic slowdown, resulting in
a lower than expected increase in advertising revenues which did improve in 2012 as mentioned
previously.
Most Important parameter for advertiser is Television Rating (TVR) which measures the popularity of a
program or advert by comparing the number of target audience viewers who watched against the total
available as a whole. One TVR is equivalent to 1% of a target audience. E.g. In 2011 Top TVR of 4.1%
was enjoyed in General entertainment Channel (GEC) program category was by Sathiya Sath Nibhana
on Star Plus.
Subscription industrys key metric is ARPU, which is about 165 for analog cable and 170 for DTH and CAS
due to fierce competition. With digitization it is expected to rise in coming future.

Key Trends
Reduction In Television Ad- Time: TRAI has suggested on putting a cap on the television ad time from
20 mins/hr to 12 mins/hr which is going to not only impact the revenues but may deter players from
looking forward to television as their primary advertisement channel. Advertising revenues in television
grew 10% y-o-y in 2012 and with this regulation TV could lose its appeal. Usually FMCG companies are
the largest advertisers in TV ads which are now increasingly targeting online channels like youtube.
Ambuiguity of FDI Limits: TRAI recommended the FDI limits in the news channels to be increased to
49% from the current 26% which was put on hold by the government. This limit is largely speculated to
not bring much tangible benefits to the sector as the players have hardly been able to use the current
levels, although increasing the limits with a wide scope including print also would tremendously benefit
the news industry.
Niche Genres- Marketers have started taking niche genres seriously as these channels have become
most cost effective medium for the brands

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HD Package takers are increasing amongst DTH subscribers, which will be instrumental in increasing
ARPU Subscription driven, advertisement free channels: Such channels require a non-capped tariff
regime, which is still being discussed by TRAI with the industry stake-holders channels in the four
southern markets
Multiscreen Consumption- With growing no. of tablets, smartphones in tandem withinternet
penetration and fast internet technologies multiscreen consumption is increasing.

Regulator-Broadcaster-Distributor Regulatory Issues: A no. of regulatory issues involve between these 3

players.

According to TRAI when a platform or a multi-system operator approaches channel for its
content, then there is no question of carriage. On the other hand, when the channel
approaches the platform to be carried then the concept of carriage applies. Distributors have
quoted viability problem as providing 500 channels create a lot of infrastructure investment
and there is no ad revenue share model between broadcaster and MSO.
Another issue involves TRAI regulations regarding Duration of advertisements in television
channels to all broadcasters, after several complaints from subscribers on the increasing
duration and distracting formats of TV ads which had affected the TV viewing experience. Here,
broadcasters are questioning TRAIs jurisdiction over these matters.

Key Players
Content producers:
Balaji telefilms, BAG films ltd, Dish TV, IBN 18 ltd, New Delhi telefilms ltd, UTV software
communications ltd, Sahara One media and entertainment ltd, Sun TV network ltd, television eighteen
India ltd, TV today network ltd, wire and wireless India ltd, Zee entertainment enterprises ltd and ZEE
news ltd.

PRINT

Print industry consists mainly of newspapers and magazines. India, along with China, is one of the
largest newspaper markets in the world. The Indian newspaper industry is characterized by extreme
fragmentation and regional diversity. With over 2,000 daily newspapers in the country, no single
newspaper dominates national circulation. Out of the total daily newspapers published, around 90 per
cent are Hindi and other vernacular language newspapers, while the rest are in English.
While around 68 million copies were circulated on a daily basis in 2012, the readership increased by 4
per cent y-o-y to about 260 million. The newspaper industry size was estimated to be around Rs 180
billion in 2012 and as per Crisil Research it is expected to grow by about 8 to 10 per cent in 2013.

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Value Chain

Publisher

Distributor

Vendor

Customer

Print Media contributed to about 24% to the total revenues of the M&E industry and shares about 56% of
the total revenues from advertisements. Revenue from Non English papers in FY13 was about Rs 39
billion and the major costs. Here the production costs account for roughly 40-50% of the total operating
costs and the industry operating margins are of the order of 20-22%.
Revenue Sources:

Advertisements
Subscripton

Key Metrics of industry is Average Issue Readership. Top 10 publications as per IRS are as below.

Source: IRS

Key Trends
Rise of digital media: More and more users move to online as internet penetration is increasing along
with no. and credibility online newspaper websites and blogs for information and knowledge. Also the
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convergence of various sources and absence of each time access charges, online platform is
substituting print media slowly and steadily
Content is the king: large content aggregators are taking away advertising revenue from the publishers.
In fact success lies in quick response and content superiority in terms of language and analysis today.
Hybrid pay model where commoditized content is free of cost or nominal fees and analyzed matures
and insight driven content is major driver behind subscription revenue is evolving from this trend only
Expansion to alternate media: Dainik Bhaskar operates a radio station by the name 94.3 MYFM.
National dailies such as Times Group have established a diversified portfolio of media properties; Radio
Mirchi, Times Outdoors, Mirchi Movies, ET Now, SimplyMarry.com, TimesJobs.com etc.

Evolution as Brand Activation Medium: The industry is providing activation solutions to brands for
promotions, brand/product launches, brand awareness campaigns, consumer fairs, exhibitions and
other mega social events
Wage Bill Implications: Wage Board has proposed recommendation that might affect the profitability
of this industry. As proposed recommendation divides the newspaper companies into certain classes as
per their gross revenue and-- has introduced a variable pay component which including many
allowances for the employees. As a result of the variable pay, there would be around 35 percent and 20
percent increase in the wages of employees working in the newspaper companies which can increase
wage cost from 15-20% to 25-30% of total revenues

Key Publisher and distributor

Bennett Coleman and Company Ltd (BCCL), Deccan Chronicle Holdings Ltd,Mid- Day Multimedia Ltd, HT
Media Ltd

FILMS

The Indian film industry is the second largest in the world in film production and theatrical admissions.
The size of the Indian films industry was estimated to be around Rs 121 billion for the year ended 2012.
Domestic theatrical revenues contributed to about 75 per cent of the total film revenues (excluding
advertisement) during the year. The average ticket prices in the industry increased by around 15 per
cent y-o-y to Rs 40 in 2012 from Rs 35 a year ago. The Revenue Snapshot of film industry in 2012 is
given below.

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Revenue
Domestic box
office
9%

Overseas Box
office

8%

Cable & Satellite

Rights
Home Video
74%

Ad Revenue

Value Chain

Producer

Distributor

Exhibitor

Producers (such as Eros, Reliance and UTV along with joint ventures of foreign media houses
such as Fox and Viacom 18) finance their films through internal accruals, bank finance, and
private finance
Film distributors buy theatrical distribution rights from a producer for distributing the films
within a territory or across several territories. They then sell the rights for screening the film
to the exhibitor. The distribution rights are normally purchased for a period of 3 years
Exhibitors are the link between the film distributors and the audience. The revenues collected
by the theatre owners get divided between the owner and the distributor. Exhibitors Include
Single Screen Exhibitors, multiplexes, digital and broadcasters through C&S rights

Key Trends

Rise of 3D Cinema
Increasing ancillary revenue from sources like Pay per view and License & Merchandise items
like toys, apparel, goodies etc.
Declining Home video format
Growing popularity of Hollywood
Increasing in-film tourism advertising

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Growing Sequel trend in films

Rise of Digital Marketing

The increasing number of multiplexes help at each and every step of the value chain from Producers to
consumers. Domestic theatrical revenues are expected to remain the mainstay; alternate streams such
as C&S rights, audio, merchandising and a growing overseas market would continue to be key revenue
sources for large budget films. Albeit on a lower base, the trends in Hindi Cinema would be mirrored in
regional cinema.

Key Players
Production segment
Aamir khan production, Mukta Arts, Red Chillies Entertainment, Percept Picture Company, PVR Pictures,
Yash Raj Films, Dharma Productions, Balaji Telefilms, Hari Om Entertainment, Sahara One, Viacom 18
Motion Pictures, UTV Motion Pictures, Reliance Entertainment, Eros International, Excel Entertainment

Distributors segment
Aashirvad Cinemas, AVM Productions, Dharma Productions, Eros Entertainment, Excel Entertainment,
Fox Star Studios, PVR Pictures, Rajshri Productions Pvt. Ltd., Red Chillies Entertainment, Reliance
Entertainment, Sahara One, Shree Ashtavinayak Cine Vision Ltd, Sun Pictures, Tips Music Films, Ultra
Distributors, UTV Motion Pictures, Viacom 18 Motion Pictures, Vishesh Films, Yash Raj Films, Mowgli
Productions Private Limited, Trinity Cinemas Private Limited
Exhibitors segment
Cinemax India Ltd, Inox Leisure Ltd, Mukta Arts Ltd, Prime Focus Ltd, PVR Ltd, Pritish Nandy
Communications Ltd, Reliance media works etc.

RADIO

Radio corresponds to about 2% of the revenue in the M&E industry and after the implementation of
Phase 2 reforms of privatization, the radio industry has grown to over 240 private channels.
Government had announced a slew of reforms in the phase 2 throwing open 338 frequencies across 91
cities to private players, more importantly, it shifted from a fixed fee to a revenue-share based
licensing regime.
With the proposed phase 3 of privatization in progress and the increased FDI limit to 26% radio
revenues are expected to share a larger piece of the pie from their current levels.
Key Trends
Start of Phase 3 of FM Broadcast: As per Ministry of Information and Broadcasting FM Phase-III Policy
extends FM radio services to about 227 new cities, in addition to the present 86 cities, with a total of
839 new FM radio channels in 294 cities, Phase-III policy will result in coverage of all cities with a
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population of one lakh and above withprivate FM radio channels. The Reserve Price for new channels in
existing FM Phase-IIcities shall be the highest bid price received for that city in Phase-II. In cities which
are being taken up afresh, the reserve price shall be the Highest Bid price received during FM Phase-II
for that category of cities in that region.
Mobile User as Target Group: With the rise of M-VAS, FM players are foraying into app markets. Radio
Mirchi and Big FM have already launched applications for mobile radio where a user can listen to a
Mumbai radio station from any city in India. Mirchi Mobile (the VAS application launched by Radio
Mirchi) is now offered by most of the Telecom companies. It has been well accepted and has 8-10
million subscribers, out of which 50percent are active subscriber
Lowering Royalty cost: In 2011, Radio Industry won a major case against Indian Performing Right
Society Limited (IPRSL) regarding lowering of royalty cost which brought the cost down by 30%.
Although regional players have not included in IPRSL like T-Series, but its a great respite for industry
as a whole
Advertiser Shift: Growing sectors like retail and services performed better in radio spends than the
average. On the other hand, financial services and telecom, which are traditionally heavy spenders on
radio, were seen to be shying away from the medium due to pressure on the overall macro growth
rates.

Key Players
Entertainment Network India, Music Broadcast and Radio, HT music and entertainment, ADLABS films,
SUN TV etc.

MUSIC

Revenue from the music industry in 2012 stood at Rs 7 billion declining 22.2% y-o-y from 2011s revenue
of 9 billion. Industry is witnessing a decline in sales of physical music and an increase in consumption of
the digital music. Launch of legal streaming services such as Gaana.com and mobile applications (apps)
promoted music consumption on digital platforms and promoted legal options as well to consume music
digitally.

Key Trends

Digital music format as a viable option: Earlier there was a misconception that digital format of
music would kill the industry. However organized e-commerce players entry like Flipkart with
Flyte and royalty from Online streaming sites, music industry has high hopes from this format
Independent Music: Shows like MTV Unplugged and independent online uploads are promoting
independent music and content generation
Regional Music: After the South Indian music industry, Punjabi, Bhojpuri, Marathi and Gujarati
are considered as attractive markets for non-Hindi music consumption. Punjabi music has a
huge consumer base, not only in India but internationally, in markets such as the US, Canada
and UK. The Punjabi language music market has the potential to grow at around 25 percent for
the next two-three years.

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Upcoming Music Publishing Industry: The music publishing companies act as a conduit to
efficiently connect licensees (artists, labels, distributors, music services) with licensors
publishers and songwriters). This format is new in India but is slowly picking up.

Key Players: SaReGaMa India ltd, Aditya music ltd, Tips Ltd, Venus Music, EMI group, Sony and
universal.

PLAYER PROFILE

HT Media Ltd.
HT Media, founded in 1924, is one of the largest mass media company in the country. Its headquarters
are in New Delhi and it employs nearly 3000 employees. It has a wide presence in print, electronic,
radio and digital media. Its most popular offerings include the newspapers Hindustan Times, Hindustan,
Mint and the FM radio station Fever 104.

Business Divisions
The business of the company is divided according to the specific segments it caters to.

Print The division publishes the newspapers Hindustan Times an English daily, Hindustan a
Hindi daily and Mint a business newspaper with an exclusive agreement with Wall Street
Journal to publish the Journals articles.
Internet This business division is handled by a subsidiary known as Firefly e-ventures. It
operates the web portals hindustantimes.com, livemint.com, shine.com, desimartini.com and
htcampus.com.
Radio In a partnership with Virgin Radio, it operates a radio channel Fever 104 in Delhi,
Mumbai, Bengaluru and Kolkata.
Events and Solutions This division offers customer targeting and event management solutions.
Education This division has offerings related to the educational field. HT Edge, HT Next, HT
Education and Study Mate are some of the chief offerings in this segment.

Financials
Total Consolidated Revenues for FY13 registered a growth of 3 percent, up from 2,07,647 lac rupees in
FY12 to 2,14,222 lac rupees in FY13. This growth was due to higher circulation revenue and a robust 6%
y-o-y growth in radio segment. The revenue from the digital segment witnessed the highest growth in
percentage terms. The growth in this segment shows the strong performance of web portal offerings.
Personnel costs registered an increase of 10 percent which was in line with the Companys expansion
into new geographies and new businesses. Consolidated EBITDA registered a growth of 4 percent from
36,188 lac in FY12 to 37,639 lac in FY13. EBITDA margin improved from 17 percent to 18 percent.
Consequently, net profits grew by 1 percent from 16,549 lac in FY12 to 16,765 lac in FY13.
A snapshot of companys financial performance during FY13 is as follows
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Source: Annual report

The recent trends in the revenues and profits can be shown as follows-

Revenue
250000
200000
150000

145380

181017

207647

214222

Revenue

100000
50000
0
FY10

FY11

FY12

FY13

Net Profit
18091

20000
15000

16549

16765

13591

10000

Net Profit

5000
0
FY10

FY11

FY12

FY13

All figures are in rupees lac

From the above charts, we can observe that the revenues of the company exhibit a robust growth rate.
We see a fall in the net profit for FY12 over the previous year as 2011-12 saw a dip in the growth rate
of the overall media and entertainment industry.
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Recent news

In June 2013, shine.com entered into a strategic partnership with social recruitment platform
MyParichay. This partnership will make shine.com the first Indian job portal to integrate
recruitment services through Facebook.
In July 2013, HT Media acquired Webitude a premier social media organization. This
acquisition will allow the company to offer strong digital solutions that leverage the combined
power of mobile and social media.

EDUCATION
OVERVIEW

The Indian education system is one of the

largest in the world. The education sector
is divided into two main segments; the core
segment comprises of schools (K-12 or
Kindergarten to XII) and higher education,
while the non-core comprises of coaching
classes, pre-schools and vocational
trainings and ancillaries.
The sector is highly regulated by the center
& the respective state governments.
Multiple regulations have also created
disparities in the number of institutions,
infrastructure and quality of education
across different states. Of these, the "not
for profit" diktat is a major factor
constraining investments in the education
sector. This rule has also resulted in the
emergence of various business models and
Source: Technopak Research
exploitation of legal loopholes to evade this regulation. During the financial year 2011-12, the Central
Government allocated USD 8 billion to the Department of School Education and Literacy itself, which is
the main department dealing with primary education in India. Yet, there exists a huge demand and
supply gap, which requires a sizable and sustainable public and private investment
According to the Indian Education Investment Report 2013 by Franchise India the Education market in
India currently stands at a staggering y-o-y growth of 15 per cent. However, there is further demand of
investments to the tune of USD 100 billion for construction and provisioning of educational facilities,
especially in K-12 and higher Education segments.

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The current spending on education stands at INR 1,035 per month for an urban household and INR 293
for a rural household. The private sector is rapidly spreading its horizon in the education market and
currently accounts for 48 per cent of its total revenue. The private education sector is estimated to
reach US$ 70 billion by 2013 and US$ 115 billion by 2018, according to consulting firm Technopak.
India has 450 million students and with ever increasing population the number is only going to rise. The
twelfth five year plan proposes to take education spending by government to USD 100 billion. This
would take India to top10 markets by education spend.

KEY SEGMENTS
The Indian Education sector can be segmented under four broad heads, namely, Schooling, Higher
Education, Vocational Education & Skill Development and Ancillary.
Schooling Segment: The
schooling segment covers the
largest population of our society
as compared to any other form
of education. The segment is
also the largest education
segment valued at USD 44 billion
in 2011 and is expected to reach
USD 144 billion by the year 2020.
Higher Education: The Indian
Higher Education system, currently
estimated at US$ 11 billion, is
largest in the world in terms of
number of institutes (646
Universities and 33,023 colleges)
and 3rd largest in terms of
enrolment (17 million), just behind
China and the USA. Despite this, the Gross Enrolment Ratio (GER) in Higher Education in India is 16% as
compared to the global average of 23%.
Ancillary Segments: Some of its key constituents include Technology-related Products and Services,
Sports Education, Facility Management, Education Travel, Educational Resources, Tutoring, Transport
Management, Test Preps, Uniforms, Stationery, Admissions Outsourcing, Child Skill Enhancement
Programs, Curriculum, Assessment & Performance Analytics, Education Events, and Psychological and
Career Counseling. The segment is largely unregulated and, typically, has asset-light business models.
Further, it currently comprises mostly unorganized and local players

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VALUE CHAIN

At each segment of the

industry there can be two
models of ownership i.e.
owned setup and
franchise setup. Each
segment might take
education consulting or
other services based on
their ownership firms
business model. Also each
of them can opt for value
addition by using
media/teaching aids as a
part of their teaching
methodology. These
services might be offered
by their owner firms subsidiary or third parties as shown below.

BUSINESS MODEL: NON-PROFIT EDUCATION SECTOR

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TRENDS & OUTLOOK

Education sector is at an inflection point and is expected to grow exponentially. Government is setting
higher targets of GER and is investing more and more. Vocational training is going to be the key in
increasing the skilled workforce. Though currently the sector is heavily regulated and plagued by
quality issues, it is still said to attract huge investments and global integration with international
universities. The sector is expected to be dominated by the private players. The private education
sector is estimated to reach US$ 70 billion by 2013 and US$ 115 billion by 2018, according to consulting
firm Technopak. Pre-school business in India is expected to touch Rs 13,300 crore (US$ 2.20 billion) by
2015-16, out of which branded pre-schools are expected to contribute about Rs 4,500 crore (US$ 747.66
million), according to a report by Crisil.

Despite having the largest Kindergarten to Grade 12 (K-12) population globally, India has a low
enrolment rate in schools, especially at the senior secondary level. The enrolment percentage has
fallen from 113% at primary to 81% at middle school and then to 31% at secondary & higher secondary
levels. Low enrolment and high drop-out rates are caused by low availability of schools in rural areas,
low awareness, and prevalence of child labor amongst lower income strata.

Growing Need for Alliances

Several foreign players have established a large number of collaborations with Indian institutes. Some
of the recent collaborations include:

London School of Economics & Political Science (UK) and City School of Social and Managerial
Sciences (Chennai)
Educomp and Raffles, Singapore are offering design courses

New Education Paradigm

India is seeing an influx of world class education infrastructure despite several challenges. A new breed
of institutions are being spawned by large corporate entities and educationists that aim to set global
benchmarks.

Growth of Online courses

Some examples include National Program on Technology Enhanced Learning, or NPTEL. It is an
initiative by seven Indian Institutes of Technology (IIT Bombay, Delhi, Guwahati, Kanpur, Kharagpur,
Madras and Roorkee) and the Indian Institute of Science (IISc) for creating course content in
engineering and science

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Growth of Private Players

Government Initiatives
The Central Government plays a vital role in the evolution and monitoring of educational policies and
programs. Some of the initiatives taken by the government for the infrastructural development of
education sector are:
The Government of India and the Government of the United States (US) have identified eight joint
projects worth US$ 250,000 each in the education sector
The Department of Space/ Indian Space Research Organization (ISRO) has established an endowed
fellowship at the Graduate Aerospace Laboratories of the California Institute of Technology, California
and USA
Under the Union Budget 2013-14, the Government of India allocated:

Rs 27,258 crore (US$ 4.52 billion) to Sarva Shiksha Abhiyaan (SSA)

Rs 65,867 (US$ 10.94 billion) crore to the Ministry of Human Resource Development, an
increase of 17 per cent over the RE of the current year
Rs 5,284 crore (US$ 877.91) to Ministries/Departments for scholarships to students belonging to
scheduled castes (SC), scheduled tribes (ST), other backward classes (OBC), minorities and girl
children
Rs 160 crore (US$ 26.58 million) to the corpus of Maulana Azad Education Foundation to raise
its corpus to Rs 1,500 crore (US$ 249.21 million) during 12th Plan period
Rs 4,727 crore (US$ 785.37 million) for medical education, training and research

K-12 School Trends: The rise of IB schools in India over the last few years is one of the key evidences
of the increasing demand for quality education
Gross Enrolment Ratio (GER)
GER in Higher Education in India is 16% as compared to the global average of 23%. The Government has
set an aggressive target of achieving a GER of 30% by 2020

PLAYER PROFILE

NIIT Ltd.
NIIT Ltd., founded in 1981, is a global talent development company. Its headquarters are in Gurgaon
and employs over 4000 people. It provides training services mainly in the field of individual skill
development, IT, BFSI and BPO enterprise training and school education. It has a presence in 40
countries and has impacted more than 35 million learners since its inception. It has provided computerbased learning to over 17,000 government and private schools across the country cumulatively
impacting lives of more than 10 million students.

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Business divisions

Individual Learning Solutions This division focuses on individual skill development. IT, BFSI
and BPO/KPO training courses are offered by this division.
School Learning Solutions This division provides training to government and private schools.
Corporate Learning Solutions This division offers tailor-made trainings and administration
services training to corporates.

The following pie-chart shows the percentage of the total revenue earned by each division in FY13.

Revenue
Individual

Schools

Corporate

32%
49%
19%

Financials
The following charts show the recent financial health of the company

Source: Annual report

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The financial results for the company in FY13 were as follows

Source: Annual report

We can see that there is a drastic fall in the revenues as well as profits for FY13. During the year, the
companys consolidated income from operations is Rs. 9,608 million as against Rs. 12,603 million in the
previous year and net profit is Rs. 263 million as against Rs. 1,102 million in the previous year. The
main cause for the y-o-y reduction in revenue and profit is that the IT companies have reduced their
intake. This has resulted in lower number of people seeking training to enhance their IT skills. Also, a
direct comparison between the financials of the two years will not give a full picture due to the
divestment of Element K, a subsidiary, in October 2011.

Key recent news

In August 2013, the company entered into a tripartite MoU with NIIT University and Autodesk
Inc. to redefine the design education ecosystem in India. It will focus on research and
development in the design arena.
In October 2011, it sold Element K to SkillSoft for $110 million. It had bought Element K in 2006.

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