IT ITes Telecom Media Education 2017 PDF

UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP
UNNATI
SECTOR IT/ TELECOM, MEDIA & ENTERTAINMENT AND
REPORT EDUCATION
2017-18
Harshita Wadher | Sanjana Jain

IT, Telecom, Media & Education
Table of Contents
Information Technology & IT enabled Services ........................................................................................ 4
Executive summary ................................................................................................................................. 4
Evolution of Indian IT Industry .............................................................................................................. 6
Types of Services and Service lines........................................................................................................ 7
Value Chain of an IT Company................................................................................................................ 8
Revenue Models ...................................................................................................................................... 9
Regulatory Scenario .............................................................................................................................. 10
Sector Performance ............................................................................................................................... 12
Global IT-BPM Industry Outlook ......................................................................................................... 12
Indian IT-BPM Industry Outlook.......................................................................................................... 14
Export Market ........................................................................................................................................ 21
Indian IT-BPM Industry- Future Outlook ............................................................................................ 27
Impact of GST ......................................................................................................................................... 29
Buyback Boom ....................................................................................................................................... 30
Indian IT-BPM Industry- Going Digital ................................................................................................ 31
Government Support............................................................................................................................. 32
Growth Drivers of Indian IT Industry .................................................................................................. 33
Challenges faced by Indian IT industry ............................................................................................... 36
Emerging Technologies and Opportunities......................................................................................... 40
M&A and PE Analysis ............................................................................................................................ 53
Valuation ................................................................................................................................................ 55
Telecom ...................................................................................................................................................... 59
Executive Summary............................................................................................................................... 59
Evolution of Indian Telecom Industry ................................................................................................. 60
Value Chain of Telecom......................................................................................................................... 61
Advent of Digital Services ..................................................................................................................... 66
The key drivers for Development of Digital Services are: ................................................................... 67
Defining Digital Services in the realm of Telecom Service Providers.................................................. 69
Outlook ................................................................................................................................................... 71
Revenues ................................................................................................................................................ 75
Unnati Sector Report 2017-18 | 1

Policy and Regulatory Framework ...................................................................................................... 78

Disruption caused by Reliance Jio ........................................................................................................ 80
Mergers and Acquisition norms 2014 ................................................................................................. 83
Consolidation in Telecom Industry ...................................................................................................... 84
The Idea-Vodafone Merger................................................................................................................. 85
Key Regulatory Policies ........................................................................................................................ 87
Telecom Infrastructure Providers (Tower Industry) ............................................................................. 90
Overview ................................................................................................................................................ 95
Key Growth Drivers ............................................................................................................................... 96
Key Risks/Challenges ............................................................................................................................ 97
Consolidation moves by operators ...................................................................................................... 98
Media & Entertainment........................................................................................................................... 101
Executive Summary............................................................................................................................. 101
Television ............................................................................................................................................. 102
Print Media Industry ........................................................................................................................... 109
Film Industry ....................................................................................................................................... 114
Radio Industry ..................................................................................................................................... 119
Player profile ....................................................................................................................................... 123
Education ................................................................................................................................................. 126
Executive Summary............................................................................................................................. 126
Regulatory Evolution of the Indian Education sector ...................................................................... 127
Education Landscape in India ............................................................................................................ 128
Key Segments of Indian Education Sector ......................................................................................... 129
Indian Educational Sector Performance – FY 2016 .......................................................................... 130
Online Education in India ................................................................................................................... 131
Government Initiatives ....................................................................................................................... 132
Impact of GST ....................................................................................................................................... 133
Notable trends in Education sector ................................................................................................... 134
Growth Drivers of India Education Sector ........................................................................................ 135
Challenges faced by Indian Education Sector ................................................................................... 136

INFORMATION
TECHNOLOGY

Information Technology & IT enabled Services
Executive summary
Worldwide, 2016 has been a year of continued technology disruptions (IoT, cloud, AI, etc.) and
political upheavals led by the UK voting to leave the EU (Brexit) and the US Presidential
elections. The year also saw a decline in GDP of key markets (USA, UK and Japan). While the
implications of the political changes are yet to be fully felt, technology implications are visible
everywhere. Driverless cars are now a reality, driverless trucks are being beta-tested in a few
cities around the world; artificial intelligence has enabled intelligent personal assistants and
robotics has found its way into household chores, hospitality industry, media, and medical fields.
In 2016, the global technology industry saw fairly modest rise in growth, about 4%, after a
couple of years of flat growth. Global IT-BPM market stood at USD 1.2 trillion in 2016 (excl.
hardware).
From being a $16bn industry in 2003-04 to $143bn in 2016 and $300bn by 2020, IT industry has
made a mark on the global image of India. Capability of the Indian IT industry to provide IT
services complying with the international quality of standards at a fraction of cost, providing a
strong mix of young and experienced professionals, robust IT infrastructure and policy support
from the government helped the industry to grow at a rapid pace that we see today and expect it
to continue in the long-run.
FY2017 will see the Indian IT- industry revenue touching USD 154 billion, up from USD 143
billion in FY2016 and showing a growth of 8 per cent. In addition, eCommerce will fetch USD
33 billion. In its contribution to the national exchequer, IT-BPM continues to fare favourably on
several parameters - share in total service exports is estimated at 49% and it contributes 7.7% to
India’s GDP. Overall, the industry is estimated to employ nearly 3.9 million people, an addition
of 170,000 people (approx.) over FY2016.
The enterprise imperative for going digital is fuelled by confluence of factors, including an
expanding base of demanding digital-savvy consumers, intensified competition from digital-
savvy competitors and disruptive new-entrants. The necessity to stay ahead couldn’t have been
more overpowering. Nonetheless, India is strongly placed to be the digital transformation partner
for global businesses. The sector comprises over 16,000 firms that span every technology
segment, with over 8,000 firms offering digital solutions. One of the very few large economies
that has been growing at more than 7%, and most commendably, it has sustained the position of
being the world’s No. 1 preferred location for setting up technology business. India is also home
to 4,750+ start-ups offering a ready ecosystem for collaboration and partnerships in niche
technology areas.

Indian IT industry has largely been an export-oriented industry which accounts for 67% share in
the total revenue with USD 108 billion revenue off USD 143 billion total revenue, up 10.3%. In
FY2017, IT-BPM exports from India is expected to reach USD 117 billion, a 7.6% growth over
the previous year and an addition of USD 8.2 billion. Domestic IT-ITeS is growing steadily due
to improvement in economy and increased focus on optimization of business processes
especially from banking and financial services, healthcare and retail sectors. E-commerce is
driving rapid growth of domestic IT-BPM services in India attracting unprecedented levels of
global interest and funding.
The industry has grown for more than 20% CAGR for two decades. India is the world’s largest
outsourcing destination accounting for approx. 56% of $162-166bn. IT companies help save
$200bn for US companies annually. The sector ranks fourth in FDI and approx. 37% of the total
PE and venture investments in the country. New technologies (SMAC) are expected grow 20-
30% CAGR over the medium term.
By 2020, India’s IT-BPM sector total revenue is projected to reach USD 200-225 billion and
between USD 350-400 billion by 2025. Digital technologies will continue to define the sector
and revenue from these is likely to have a 23 per cent share by 2020 and >38 per cent by 2025.
Indian service providers face a significant opportunity as digital technologies continue to be
embedded in an ever widening range of products and services.
To avail this growing opportunity, firms have to develop offerings along new digital service
lines, while re-inventing traditional declining service lines. The need of the hour is to invest in a
portfolio with fundamentally different economics, putting more resources towards
transformational and disruptive technologies, re-skill the existing resource pool, build
capabilities and forge partnerships with niche players and platforms to develop an ecosystem to
deliver digital solutions.

The IT industry was at the

nascent stage. By early 90s,
US-based companies began
to outsource work on low-
Pre- 1995 cost and skilled talent pool
This phase was characterized in India. Their peak
by the industry growing contract size was less than
rapidly, with the industry $5 million.
size increasing to just under 1995-
$1 billion. Companies 2000
offered services in the areas
of e-business, ERP and Y2K
Firms in India grew in
to several Fortune 500
2000- terms of their size and
companies. . Peak contract
scope of services offered
size reached $5 million 2005
as more and more
dollars
western companies
setup their bases in the
Firms in India became country.
multinational companies
2005-2016
with delivery centres
across the globe. India’s IT
sector is at an inflection The US$ 150 billion Indian
point, moving from IT industry employs nearly
enterprise servicing to four million people. India
2017
enterprise solutions ranks third among global
start-up ecosystems with
more than 4750 start-ups.
Indian IT and BPM industry
is expected to grow to US$
300 billion by 2020. Indian
IT exports are projected to
grow at 7-8 per cent in
2017-18
Evolution of Indian IT Industry

Types of Services and Service lines
IT Services:
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, and Infosys etc.
BPM/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.
R&D and Product Development
Indian software companies have largely stayed away from product development. Even industry
majors that set ambitious targets for product revenues have given up their targets over time. For
example, the major firm Infosys Technologies had about 4% revenues from software products in
2001-02 (SEC 2002), though at one time they hoped to achieve a target of 40% revenues from
products by 2000.
eCommerce:
Electronic commerce or ecommerce is a term for any type of business, or commercial transaction
that involves the transfer of information across the Internet.
Hardware:
This segment has companies which provide hardware like desktop, laptop, system accessories
and components, printers etc. Examples include HCL info, Zenith etc.

Value Chain of an IT Company

For an IT firm, the main activities can be summarized as:
Technological Procurement Market

Inter-relations
Interrelations Interrelations Interrelationships
•Firm Infrastructure •Technology •Product •Outbound logistics
•Human Resource Development and Interrelationships •Marketing & Sales
Management Support Services •Inbound logistics •Service
•Operations
Value chain of IT companies
The following flow process would sum up the whole value chain of a traditional IT company:
Strategy & Business Management

Strategy and business management activities translate market opportunity and technological
opportunity (opportunity creation) into requirements or backlog needed for guiding the software
development. This includes analysis of user feed-back, user needs, market position and networks,
required technology, competences and matching them with the resources, strategy and business
model of the firm.
Acquisition
Acquisition activities include renewal of the software and technology base-line used for
development activity, relationship management for content, data and infrastructure service
providers (IaaS, PaaS) as well as activities related to acquiring new competences and competent
human resources.
Software Development
Software development includes activities needed form producing the software release or service
platform based on the requirements or backlog provided. The main activities here are design,
development, integration, and testing.
Asset Management
Asset management activities are clustered under two intermediate groups for syndicated assets
and for user created assets. The activities for managing syndicated assets are involved when 3rd
party media or other content coming into the firm through the upstream acquisition activity is
managed and provided as a part of a software release (e.g. in games) or on a service platform as a
service.
Customer Interface
Customer interface activities form the interface to deliver software, software-based services and
professional IT services to the direct downstream customer as well as to respond to in-bound
operational requests and feedback from the customer.

Revenue Models
The IT industry has been offering customized revenue models according to the needs of the
clients.
Product
Transaction Outcome Fixed cost Time and
subscription &
Based Based billing material based
license based
Revenue Models in IT Industry
1. Transaction based – The billing is done on a transaction basis.
2. Outcome based – The billing depends on the final deliverables and not on the duration or
cost of the services provided.
3. Fixed cost billing – A fixed amount is agreed with the client prior to the acceptance of the
project. The amount is arrived at after an estimate of the resources employable and the fee is
not altered.
4. Time & Material based – The billing is done according to the length of the project and the
number resources- personnel and material employed.
5. Product subscription & license based – The billing is done as per the usage of the product
or application

Regulatory Scenario
Acknowledging the huge potential of the IT sector in the development of the Indian economy,
the Indian government is set to take several initiatives to promote the industry. Amendments to
the IT policy of 2000 and provisions in the National IT Policy, 2011 aim at maximizing the
available potential and enabling IT proliferation within India. In addition, strengthening laws
related to violations of privacy and confidentiality could be conducive for the development of the
industry.
IT Act 2000
It aims to recognize all transactions carried out via electronic data interchange and other means
of electronic communication. Its primary purpose is to boost e-governance in India.
Some of the major features of the act are:
1. Digital Signatures: The controller of certifying authorities issued licenses to Safescrypt Ltd,
National Informatics Centre (NIC), Institute for Development and Research in Banking
Technology (IDRBT), and Tata Consultancy Services (TCS), which allowed them to issue
digital signatures. In July 2001, the Government of India issued a set of laws known as the
Information Technology (Certifying Authority) Regulations, 2001. These regulations detail
the functioning of the certifying authorities in issuing digital signatures.
2. IPR laws for computer software: Indian laws only accord copyright protection to computer
programmes and do not offer patent protection. The Indian Copyright Act regards copying
from an engraving as an infringement of the copyright, but does not consider an engraving
produced independently from the same picture as a violation. Copyright laws generally do not
protect the owner from independent creations or reverse engineering, which many software
and hardware companies have leveraged upon.
3. Privacy: The IT Act of 2000 deems any person who secures any electronic record, book,
register, correspondence, information, document or other material without prior consent and
discloses the information to a third-party, as punishable. The punishment ranges from an
imprisonment or a fine, which may extend to Rs 100,000 or both.
Policies Relating to Inbound and Outbound Investments
Relaxation of limits on overseas investments:
The Indian government has progressively relaxed limits on overseas investments allowed to
Indian companies, enabling them to enhance delivery capabilities across geographies. Earlier in
around 2002-03, the limit for overseas investments through automatic approval was increased
from to $100 million from $50 million, while the limit for joint venture investments was hiked to

50 per cent of net worth from 25 per cent. Over the years, there have been significant
developments on this front. The current ceiling on overseas investment for Indian companies
stands at 200 per cent of their net worth.
Foreign Exchange related policies:
According to RBI guidelines, Indian software companies need to repatriate 30 per cent of the
value of on-site contracts. The rest 70 per cent can be utilized for expenses abroad. However, in
case of offshore projects, 100 per cent of the value of contract needs to be repatriated to India.
Incentives provided under EXIM policy:
Depreciation of 100 per cent can be availed over a period of five years for computers and
computer peripherals for units in export-oriented units (EOU), electronic hardware technology
parks (EHTP) and special economic zones (SEZs).
Imports of all kinds of computers into India without any licenses is allowed.
An EOU/EPZ/EHTP/STP unit may import, without any payment of duty, all types of goods,
including capital goods required for its activities.
Import of second-hand capital goods (without any age limit) by units located in
EOU/EPZ/EHTP/STP is allowed.

Sector Performance
Global IT-BPM Industry Outlook

Current Scenario
Technology disruption and its continued impact was felt in 2016 in even greater measure,
brought about by the usual aspects – IoT, Cloud, AI etc. The Brexit referendum and the
American Presidential Election, the outcomes of which were most unexpected, and threw global
markets in a tailspin for some time. Interestingly, these megatrends did nothing to slow down the
steady march of digital and allied high-end technologies. Driverless cars, Artificial Intelligence,
intelligent personal assistants and robotics are all screaming for greater visibility, as the din
grows louder. This only reiterates that the process of globalisation in an interconnected world,
aided by technology, is not something that can be reversed.
Performance Analysis- FY 2016
In 2016 global IT-Industry saw fairly modest rise in growth, about 4%, after a couple of years of
flat growth. Global IT-BPM market stood at USD 1.2 trillion in 2016 (excl. hardware).
• IT services grew due to investments in cloud infrastructure and buyer’s acceptance of the
cloud model
• BPM grew 4%; key drivers include increased BPaaS adoption across industries, RPA and
adherence to various government compliances
• Packaged software: Was the fastest growth segment (6.2%) in 2016. Investments being done on
applications that facilitate enterprise and IT operations, such as enterprise resource management
and operations & manufacturing applications, collaborative applications, SaaS, etc
• The growth in hardware segment declined in 2016 (USD 971 billion) vis-à-vis 2015 (USD 973
billion) impacted by declining demand for PCs
• Global ER&D spend grew a little less than 1% to USD 1.5 trillion, impacted by the
strengthening of the US dollar against other major currencies
Global sourcing market growth continues to outperform IT-BPM spend growth; in 2016, global
sourcing grew 1.7X to reach USD 173-178 billion. India continued as the world’s No.1 sourcing
destination with a share of 55 per cent. New delivery centres set up worldwide in 2016 grew
~32% to 258 centres with 15% being set up in India and over 53% in Europe and Latin America
a testament of the growing nearshore model.

Growth over FY-2015
Source: Nasscom Strategic Review 2017
Growth was experienced in the following sectors: IT Services (due to cloud); BPM at 4%
(increased adoption of BPaaS & RPA); packaged software at 6.2% was the highest, and Global
R&D at a little over 1%. Interestingly, but not belying expectations, the growth in hardware
segment declined in 2016 (USD 971 billion) vis-à-vis 2015 (USD 973 billion) impacted by
declining demand for PCs.
Future Trends

Indian IT-BPM Industry Outlook

As per CRISIL research the Indian information technology (IT) services sector is expected
to grow at a slower pace between 2015-16 and 2020-21 in the export and domestic segments
compared with the previous five years. As commoditisation of services will keep billing rates
under pressure, growth will largely be volume-driven.
India’s IT-BPM industry is feeling the impact of the global slowdown and global political
uncertainties as clients go slow on their decision-making and investment processes. The industry
is projected to grow nearly 8% in FY2017 – from USD 143 billion in FY2016 to USD 154
billion (excl. eCommerce), an addition of over USD 11 billion.
Share in total service exports is estimated at >49% and the industry’s contribution relative to
India’s GDP is >7.7%. Overall, the industry is estimated to employ nearly 3.9 million people, an
addition of ~170,000 people over FY2016.
IT services segment has a 52% share, followed by BPM and ER&D and packaged software (19%
each) and hardware (9%). eCommerce market is estimated at USD 33 billion, a 19% growth over
FY2016.
The industry comprises 16,000+ firms that offer the complete range of services. With a presence
of over 4,750 start-ups –India is the 3rd largest start-up ecosystem in the world.

Indian IT-BPM Domestic Market
In FY2017, India’s domestic IT-BPM market is likely to grow 8.5% y-o-y to reach USD 38
billion (excl. eCommerce). IT services is the largest segment with close to 40.5% share, followed
by hardware (~37%), software products (12.5%) and BPM with 10% share.
IT services is to record the fastest growth of 11.4%;demand for mobile apps, website
development and consulting services (around customer experience, IoT, and analytics) are the
key growth drivers.
Software products, though, only one-third the size of IT services segment, is to grow 10.4% to
USD 4.8 billion due to the ever growing demand for cloud-based solutions, particularly from
SMBs. Rapid digitisation and GST implementation is expected to further catalyse growth as
firms would focus on modifying/implementing ERP solutions to simplify their supply chain and
inventory management systems.
BPM is expected to be a USD 4 billion market, 6% y-o-y growth. The growing eCommerce
market and demand from BFSI, retail, telecom industries as well as government’s ‘Digital India’
initiatives are the key growth factors.

Indian IT-BPM Export Market
In FY2017, IT-BPM exports from India is expected to reach USD 117 billion, a 7.6% growth
over the previous year and an addition of USD 8.2 billion.
ER&D and product development continues to be the fastest growing segment at 10.5% driven by
global OEMs increasingly embedding software & services into their products. IT services
growing at 7% driven by growth in software testing and ISO. BPM exports, at 7.5% y-o-y
growth, are being driven by cloud (BPaaS), mobility and advanced analytics.
On an average, all regions expected to see growth of 7.5%; however, USA and Asia, the fastest
growing at 7.8%.Between them, USA and Europe (incl. UK) account for about 90% share of
exports. Emerging verticals including retail, healthcare, travel & transportation, etc. are expected
to grow at nearly 8%, faster than industry average. BFSI, hi-tech/telecom continue to be the
mainstay with over 58% share.
Sector-Wise Performance Analysis and Future Trends
Revenue of Indian IT-BPM Industry (excluding hardware) in FY-2016

Source: Avendus Report

Indian IT Market
Current Performance- FY 2016
Revenue from IT services amounted to USD 75 Bn, constituting 24% of the total Indian IT-BPM
Market revenue. Export revenue amounted to USD 61Bn, which amounts to 81% of the total IT-
services revenue. The geography, vertical and service line-wise breakup of the revenue has been
provided below:
Future Trends
• Firms are building automation platforms and segregated digital units

• Enterprise mobility – Managed mobility services to grow at 30.5% CAGR in 2014 –
2019 period
• SaaS adoption rates to reach 35% by 2020 from present 15%
• Pricing shift to hybrid and outcome based
• Increased emphasis on value addition and innovation, gaining customer experience, and
building digital talent pool
• ~40% of revenue growth by 2020 expected to come from new industries turning to
offshoring and new geographies, particularly Asia-Pacific and Europe

Indian BPM Market
Revenue from BPM market amounted to USD 28Bn, constituting 7% of the total Indian IT-BPM
Market revenue. Export revenue amounted to USD 24Bn, which amounts to 86% of the total
BPM market revenue. The geography, vertical and service line-wise breakup of the revenue has
been provided below:
Future Trends
• Next gen models such as BPaaS, cloud analytics, and robotics will have an all pervasive
effect on industry
• Text, mobile analytics to unlock significant value
• Hiring local talent to become a strategic imperative
• Increased preference for standardized, cloud based platforms for non-core processes
• RPA & autonomics expected to grow and help integrate legacy business processes in the
handling of repetitive and rule-based tasks through machine learning
• Shifted focus from cost and productivity to customer experience and building client
brands

Indian ER&D Market
Revenue from ER&D amounted to USD 22Bn, constituting 55% of the total Indian IT-BPM
Market revenue. Export revenue amounted to USD 20Bn, which amounts to 90% of the total
ER&D market revenue. The geography, vertical and service line-wise breakup of the revenue has
been provided below:
Future Trends
• Automotive & Hi-tech – key verticals expected to drive growth

• SMART products/solutions – robotics, 3D printing, IoT, Industry 4.0, Analytics – key
growth Drivers
• IoT – critical area of investment
• After market solutions, obsolescence management – emerging opportunities
• Greater focus on IP and end-to-end solutions
• Govt. initiatives – smart factories, cities, buildings – all leveraging IoT/connected devices
technology, to become another key driver
Indian Software Market
Revenue from the packaged software market amounted to USD 6.5Bn, constituting 14% of the
total Indian IT-BPM Market revenue. Export revenue amounted to USD 2.1Bn, which amounts
to 32% of the packaged software market revenue. The geography, vertical and service line-wise
breakup of the revenue has been provided below:
Future Trends
SaaS Gaining Prominence
• Enterprise SaaS expected to grow 4.5x by 2020

• ~ 8 million SMBs market in India presents a huge opportunity for SaaS vendors. SMBs
are increasingly adopting SaaS based applications as it reduces time and costs, and offers
easy access and compatibility
Growing Trend for Verticalization
• Demand for verticalized software continues to grow as more complex business models
demand solutions for specific needs
• India to become a rapidly growing Fin-Tech Hub with BFS generating the highest
revenue for the Indian products segment. Over 200 unique Indian firms offer Fin-Tech
solutions out of which 30 are mature firms with global demand

Export Market
Future Trends
CRISIL Research expects the industry’s growth to slow down, in dollar terms, between 2015-16
and 2020-21 versus the previous five years. Growth will be mainly driven by volume, with
companies increasing their focus on offering services via new technologies, such as cloud and
related applications, and mobility services.
Export Estimation by Nasscom, CRISIL
What will drive the export market?
 Digital Technologies
Disruptive technologies such as SMAC (Social, mobile, analytics and cloud) and artificial
intelligence, which are explained later in the report will drive the export market as they
continue to outperform the industry.Over the long term, there will be a shift in focus
towards higher-value services and increase in share of IT consulting in export revenue.
As per CRISIL research global IT spend is expected to grow at 3-4% CAGR during
2015-16 to 2020-21 and it will be primarily driven by increased adoption of cloud
services.
 Increasing regulatory requirements

Global IT outsourcing is expected to increase by 6-7% CAGR from during 2015-16 to
2020-21, driven by increasing demand for regulatory compliance in the BFSI (banking,
financial services and insurance) sector. Stringent regulations like Dodd-Frank Act, Fair

and Accurate Credit Transaction Act and greater compliance and need to enhance
customer engagement and interaction will drive the growth.
 Change in service-line mix

Over the period of years, industry focus has shifted to high value projects such as package
implementation and remote infrastructure management. Upward movement of players in
value chain will boost billing rates. Digital services will drive the growth over
infrastructure outsourcing, application development and testing services.
 Global economic recovery

As per CRISIL research IT services exports growth will be flat at 10% in 2016-17 from
10% in 2015-16. Steady economic recovery in key economies geographical expansion
and use of IT services to improve operational efficiencies in business processes will drive
the volume. However, uncertainty remain over Brexit impact and upcoming US
Presidential elections.
 Cross-Currency headwinds yet strong business momentum

In 2015-16 dollar revenue growth was impacted because of cross currency pressures.
However, volume growth remained healthy is most verticals which is expected to
continue as per CRISIL research.
Slower Employee growth
Quest for higher productivity is redefining hiring in the information technology (IT) space.
Breaking away from the traditional linkage of employee strength to revenue growth, IT services
companies are now implementing automated platforms to perform traditional services as billing
rates are under pressure in commoditized services; also, this will ensure higher productivity per
employee. Developing automation platforms will reduce the total employee headcount required
for traditional services such as application management and software support services.
Employee growth projection by Nasscom, CRISIL

Key Verticals contributing to IT exports
BFSI
Typically, the financial services segment has shown more willingness to outsource a large share
of its requirement of IT/ITeS services. Hence, it (includes securities, banking and insurance
services) comprises the largest segment of the Indian IT services industry. Of the total IT/ITeS
exports as well, the segment accounts for around 43 per cent share.CRISIL Research expects
BFSI to remain the largest vertical, growing 9-12% CAGR for the next five years. Going
forward growth will be driven by need for higher spend by BFSI firms for digital transformation
and data analytics due to rising volume of data. Increasing regulatory requirements, use of AI in
decision making and advisory and higher spending by Insurance players to comply with new
regulatory norms for the healthcare sector will drive the growth in segment.
Telecom
The telecom vertical accounts for the second-largest share in IT services and comprises around
18% of Indian IT/ITeS exports.Given the current slowdown in IT spending by the telecom
equipment segment, Indian companies have increased focus on telecom service providers.
Several global telecom equipment firms such as Cisco, Lucent, Nokia and Nortel, and service
providers like AT&T, British Telecom and Vodafone outsource a significant portion of their IT
services requirement to Indian companies. The telecom segment is under pressure owing to
relatively flat mobile revenue and declining wireline revenue. Services offered by over-the-top
players (OTT) such as Facebook, Snapchat and Google are forcing traditional players to provide
differentiated services as well. A cloud-based approach enables telecom players to develop and
deploy customised applications for digital customers. Century Link and Verizon have made
major acquisitions to enter the cloud-computing provider market.
Manufacturing
The manufacturing sector contributed about 16% share in IT/ITeS exports. Given the
intensifying competition in the manufacturing space and the sector's close linkages with
economic cycles, the primary focus of IT investments by the manufacturing sector is on
improving competitiveness through enterprise software such as product lifecycle management,
supply chain management (SCM), customer relationship management (CRM), enterprise
resource planning and e-business initiatives. Growth in IT investments in the manufacturing
sector is likely to be largely driven by small- and medium-sized companies.
Adoption of digital technologies, focus on cost optimisation and simplification of business

process is driving revenue from this segment. Use of technology for predictive diagnosis and
maintenance, disaster planning, and recovery is also gaining prominence across users, leading to
incremental demand.

For e.g., Cummins, USA's biggest manufacturer of diesel and natural gas engines, offers
Cummins Connected Diagnostics, which allows fleets to easily access useful, real-time engine
data, thereby enabling them to make more informed business decisions and reduce
costs.Utilisation of disruptive technologies such as 3D printing to increase operational efficiency
is also expected to propel growth over the next five years.
Retailing
The share of the retail sector in total Indian IT services export's is about 10%. Given the growing
competition in the industry, retailers are likely to significantly step up IT spending to reduce
costs and improve competitiveness. As a result, the retailing sector is likely to be a significant
market for Indian IT services companies. IT investments by the retailing sector are largely
expected in supply chain and logistics management, CRM applications, and e-business
initiatives. Retail segment spends are mainly driven by streamlining through digital operations
and integration of various outlets to provide unified shopping experience to customers. Players
are investing in big data and analytics to take informed decisions.
Utilities
The utilities sector accounts for about 4% of Indian IT/ITeS exports. In several developed
countries, especially the US, the UK, Europe, Australia and Japan, utilities like electricity, gas
and water supply are being gradually deregulated and opened to competition. As a result,
several new power generating companies, independent power producers, energy service
providers, independent system operators, utility distribution companies and power exchanges
have emerged. Growth in IT spending by utilities is being driven by government mandates and
green technology.
Healthcare
The healthcare segment accounts for 4-5% of Indian IT/ITeS exports. Investments in IT by the
healthcare sector are likely to be mainly on patient management systems and maintaining
electronic medical records. For instance, in the US, regulatory provisions (Health Insurance
Portability and Accountability Act) require healthcare service providers to maintain an
increasing proportion of their medical records in electronic form to enable patients to switch
service providers easily. IT investments in the healthcare sector are also likely to be driven by
emerging technologies such as biotechnology and bioinformatics.
Government
The government segment accounts for a sizeable portion of worldwide IT spend. Several large
global software companies, especially in the US, earn a significant portion of their revenues from
government sector projects. However, in India, given the low billing rates, delay in payments and
lack of clear technical specifications by users, most large players have not focused on
undertaking software development work for the government.

Key trends in Exports market
 Changing business model of Indian IT Vendors

Demand from clients for greater agility, enhanced user experience and cost reduction is
pushing IT services players to enhance their digital service offerings. Large IT companies
plan to make sizeable investments to enhance their ability to provide digital and automation
solutions to clients.
Source: CRISIL Research
 Acquisitions of automation companies

To meet client requirements, major IT service providers such as Infosys, TCS and Wipro are
training their workforce in artificial intelligence, including machine-to-machine solutions, and
recruiting individuals well-versed in digital services. Top IT players are also eyeing
acquisitions in digital and automation space to cope with changing business requirements.
 Shift towards SLA driven business model
Indian IT services companies have been slowly moving towards fixed price and service-level
agreement (SLA) model from one that was based on time and materials. The global slowdown
has encouraged this trend as clients have trimmed costs. Indian IT companies have begun to
design productivity-linked contracts to provide greater value to clients, and are thus investing
more in improving clients' processes. To balance the spurt in investments, it is imperative that
Indian IT vendors improve efficiencies and focus on non-linear revenue sources, such as
developing intellectual property-based products.
 Companies expanding presence in Tier II and III cities

Companies are expanding their delivery centres in Tier-II and III cities to gain cost
advantages. Over last few years, new delivery locations (Bihar, Chandigarh, Kerala and
Punjab) have seen relatively faster export growth. Infosys is expanding its presence in
Bhubaneshwar, Jaipur, Mangalore and Thiruvananthapuram and has also acquired 50 acres in
Mohali. The incremental sitting capacity will account for around 8% of the company's total
sitting capacity in Tier-II and III cities.
 Untapped Market opportunities

Traditionally, the US has accounted for the bulk (around 60%) of Indian IT service vendors'
revenues. However, over past two years, revenues from Europe and emerging markets
in Middle East and Asia-Pacific have increased. Clients in retail, utilities and insurance space
in the UK, France and Germany are offshoring IT services.
 Intense global competition

With large IT services multinational companies (MNC) such as IBM, Accenture, Cognizant,
and Capgemini setting up sizeable development centres in India, the cost arbitrage enjoyed by
Indian IT services companies has shrunk significantly. Global IT services companies are now
successfully replicating the offshore model, which has so far been the exclusive domain of
Indian IT service providers, thus intensifying challenges for domestic players. Growth in
global IT spends has slowed down over past three years. Multinational IT services companies,
which historically focused on large deals, are now looking at smaller deals with shorter
turnaround periods, to support growth. US Presidential elections and Brexit have resulted in
increased global uncertainties.

Indian IT-BPM Industry- Future Outlook

On June 2, 2017, Indian IT industry body Nasscom forecasted the sector’s export revenues to
grow at 7-8% in 2017-18, around the growth levels seen last year, as the industry faces continued
headwinds from the US market. The more-than-$150 billion industry saw exports rising 7.6% in
2016-2017. Revenue for the domestic market is projected to grow at 10-11% in 2017-18. The
Indian IT industry is facing uncertainty as US President Donald Trump considers tougher US
visa policy, raising fears of higher labour costs as companies look at hiring more expensive US
workers.But the industry is also expected to benefit from positive factors, such as improvements
in financial services and digital businesses, while focusing on increasing investments in
digitization and automation. The Indian IT industry is expected to add around 130,000-150,000
new jobs during the year.
FY 18 –Key Trends
•Financial services revival with Fed increasing rates

•Higher growth in Digital
•Legacy business improvement
•Increased automation based projects driving deals
•India market growth driven by enterprise digital adoption

The domestic information technology (IT) services segment is expected to scale Rs 1,438 billion
in 2020-21 from an estimated Rs 895 billion in 2015-16, reflecting a CAGR of about 10%.
Growth is likely to be slower at a CAGR of 10%, compared to 12.3% in the previous five year
period.
Long-term growth will come from a range of factors such as: technological up gradation, e-
governance initiatives of governments, IT adoption by state governments and ramp-up in orders
from the central government; the largest contributor to domestic IT revenue. Investment in
emerging verticals by IT-intensive sectors such as banking, finance, insurance and telecom will
also boost growth. The government's spending on digitisation, IT infrastructure improvement and
implementation of technology in healthcare, manufacturing and agriculture are all expected
to contribute to the growth.
Domestic Market is not as attractive as exports market. Low billing rates, delays in decision
making and payments, low margin and fierce competition due to small projects have been the
major deterrents for the domestic market.

Impact of GST
Goods and Service Tax has been implemented in India with effect from July 1, 2017. The IT
sector with services such as software development, mobile app development, website design and
more, is one of the major sectors that is likely to be impacted.
Tax Rate
The prevailing service tax rate on IT services is 15%. However, the recommended revenue
neutral rate is at 15–15.5% and the standard rate is expected to be around 17–18%. Therefore,
the cost of IT services will elevate, especially for end customers who do not usually claim the tax
input credit.
Cascading Effects of Taxes

The cascading effect of taxes will be effectively addressed under the GST regime. Traders, under
GST, will be eligible to avail the credit of services such as in the case of AMC (Annual
Maintenance Service) contracts. Currently, IT service providers can’t claim credits of quality
including the assessment or deal charge spent on setting the IT infrastructure. Also, services
charged by an IT service provider to a client who is a broker is an expense incurred for the IT
service provider. Under GST, both the IT service providers and their clients will be eligible to
claim full credit of GST.
Business Process Change

Under GST, which is a destination-based tax, tax is collected by the state where the goods or
services will be consumed. Most IT companies are registered only with the Central Service Tax
authorities and usually all billing and accounting tasks are carried out from a central location.
Under the GST regime, service providers are required to obtain registration for all the states that
they are catering to, i.e. all states that they have customers in.
eCommerce Sphere
For eCommerce traders, the GST is expected to increase administrative costs. Also, since e-
tailers have hundreds of sellers on their platforms, it significantly increases compliance burden.
Small sellers will face cash-flow issues and will claim for refunds on the tax paid on inputs,
which the eCommerce platform may not support. The tax collection at source (TCS) guideline
under GST will increase the administration and documentation workload for eCommerce firms.
Compliance
The model GST law recognizes at least 111 points of taxation which means IT companies
providing services all over India will have to seek registration in as many as 37 jurisdictions that
will include 29 states, seven union territories and the Centre. This means that IT companies will
have to register and file compliance reports at as many as 111 points.

Buyback Boom
Seven IT companies in India either announced or discussed buyback of shares within a span of
45 days, between January 31,2017 and March 31, 2017. It began with IT services provider
Cognizant Technology Solutions Corp. announcing to return $3.4 billion to shareholders by way
of dividends and buybacks over the next two years. Tata Consultancy Services announced
India’s largest buyback offer worth Rs.16000cr, buying back 5.61 cr equity shares at a price of
Rs.2850. Also, Infosys announced share buyback worth Rs.13000cr at Rs.1150 per share
representing one-fifth of the company’s paid-up equity capital and free reserves. Buyback by
Infosys among other things, was a move to arrest the fall in its share price caused by the
departure of CEO Vishal Sikka.
The biggest reson for such buyback offers by Indian IT companies is the huge amounts of cash
representing about 40% of the total assets, coupled with global uncertainties.
A buyback reassures investors that the company has confidence in itself and is determined to
work towards creating value for shareholders. And as a result of this, a buyback announcement
leads to a increase in the share price. Further, buyback offers tax arbitrage opportunities, where
the programme delivers a higher value to shareholders compared to a dividend distribution. This
is because in India, a 15 per cent tax is levied on companies distributing the dividend. In
addition, the recipients have to pay 10 per cent more if dividend income exceeds Rs 10 lakh in a
year. On the other hand, buybacks in India do not attract any tax liability.
However, there are arguments that Indian IT companies would be sacrificing future growth
opportunities if they return large amounts of cash. However, large amount of cash is generated
each passing year by the Indian IT companies. In the nine months till December 2016, TCS
generated free cash flow of $2.68 billion, and Infosys generated $1.24 billion of free cash flow.
Indian IT-BPM Industry- Going Digital

Multiple technology trends, including social, media, mobility, analytics, cloud computing,
Internet of Things, Artificial Initelligence, and Blockchain Technology, which have been
discuussed in details later in the report, are fusing relationships between customers boosting
agility within the enterprise and in the market, and leading to increased collaboration among
internal and external stakeholders.These technologiees are changing the dynamics of the business
world nd have a significant impact on the Indian IT-segment. The Inddian It-Industry is going
digital.

Government Support
In the Union Budget 2017-18, the Government of India announced the following key proposals:
The Government of India has allocated Rs 10,000 crore (US$ 1.5 billion) for BharatNet project
under which it aims to provide high speed broadband to more than 150,000 gram panchayats by
2017-18.
Prime Minister of India, Mr Narendra Modi, has launched the Bharat Interface for Money
(BHIM) app, an Aadhaar-based mobile payment application that will allow users to make digital
payments without having to use a credit or debit card. The app has already reached the mark of
10 million downloads.
Some of the major initiatives taken by the government to promote IT and ITeS sector in India are
as follows:
The Telecom Regulatory Authority of India (TRAI) will soon release consultation papers ahead
of framing regulations and standards for the rollout of fifth-generation (5G) networks and
Internet of Things (IoT) in India
The Government of Gujarat has signed 89 MoUs worth Rs 16,000 crore (US$ 2.3 billion) in the
IT sector, during Vibrant Gujarat Global Summit-2017
The Government of Telangana has signed an agreement with network solutions giant Cisco
Systems Incorporation, to cooperate on a host of technology initiatives, including Smart Cities,
Internet of Things, cybersecurity, education digitisation of monuments
The Government of India has launched the Digital India program to provide several government
services to the people using IT and to integrate the government departments and the people of
India. The adoption of key technologies across sectors spurred by the 'Digital India Initiative'
could help boost India's Gross Domestic Product (GDP) by US$ 550 billion to US$ 1 trillion by
2025
Government of India is planning to develop five incubation centres for IoT start-ups, as a part of
Prime Minister Mr Narendra Modi's Digital India and Startup India campaign, with at least two
centres to be set up in rural areas to develop solutions for smart agriculture
The Pune Smart City Development Corporation (PSCDCL) has signed a memorandum of
understanding (MOU) with the European Business and Technology Centre (EBTC), which will
allow it to gain access to real-time knowledge of technologies, solutions and best practices from
Europe

Growth Drivers of Indian IT Industry

Digital India Key Enabler
With 375+ million Internet subscribers, India has the 2nd largest user base after China. India is
high jacking global market shares everywhere, be it the number of internet users, smartphone
users, app downloads, and online payments. There is significant push from the government to go
Digital; the global technology giants are supporting this; and the 1.3+ billion people are
embracing it in a manner like never before. The year-end also witnessed demonetisation of
higher value notes, which is giving a significant boost to digital payments – leading to a cashless,
paperless economy. Government of India through its ‘Digital India’ mission has successfully
initiated a number of projects which include the National Digital Literacy Mission, e-kranti
mission, wi-fi hotspots, NOFNs being laid, newer technologies are being tried to bring Internet
closer to the masses. Among the proposed 100 smart cities, 60 cities are already undergoing
developments, with a proposed fund allocation of ` 2 billion/city/year. With these initiatives,
coupled with ‘Make in India’, India has embarked upon the journey of becoming a ‘Digital
Nation’ in its truest sense.
India’s Value Proposition: Partner of the future

India is setting itself up to be the digital transformation partner for global businesses. Over the
past 25 years, it has set up an USD 154 billion business; which comprises over 16,000 firms that
span every technology segment, with over 8,000 firms offering digital solutions. It has
continuously been the world’s No. 1 preferred location for setting up technology business; is one
of the world’s fastest growth economies and emerging as the R&D hub for global MNCs in
digital technologies. India is also home to 4,750+ start-ups offering a ready ecosystem for
collaboration andpartnerships in niche technology areas. Its global operating model has over 700
ODCs across 80 countries and offers flexibility in terms of business and pricing models.
Low Cost of Operations

Indian IT companies have very low cost of operations as compared to their source countries for
services. The costs of operations are normally 8-10 times lower than the source countries and 35-
50% lower than the other low-cost countries. Besides these, acquisition of strategic companies,
focus on inorganic growth model, SMAC model, rise in smartphone use and internet penetration
and focus on markets beyond US and Europe esp. BRIC and APAC regions are new growth
drivers for the IT companies.

Talent Pool
Availability of skilled English speaking workforce has been a major reason behind India’s
emergence as a global outsourcing hub. During FY10-16, number of graduates addition to talent
pool in India grew at a CAGR of 8.39 per cent. India added more than 6 million graduates to the
talent pool during FY16. The office space absorption by the information technology (IT) and IT-
enabled services (ITeS) companies increased by 10% to 16.81 million square feet (sq. ft.) in
2016 over the previous year.About 2 per cent of the industry revenue is spent on training
employees in the IT-BPM sector. US$ 1.6 billion is spent annually on training workforce and
growing R&D spend. Forty per cent of total spend on training is spent on training new
employees. Numerous firms have forged alliances with leading education institutions to train
employees.
Emergence of Tier II/III cities and IT-SEZs

IT-SEZs have been initiated with an aim to create zones that lead to infrastructural development,
exports and employment. As on 31st March 2017, there were over 218 operational SEZs across
the country.
Telangana government is planning to set up more IT hubs beyond Hyderabad. The state
government has sanctioned US$ 3.7 million to develop IT incubation centres in Khammam and
Karimnagar districts and decentralize the IT sector.
Over 50 cities already have basic infrastructure and human resource to support the global
sourcing and business services industry. Some cities are expected to emerge as regional hubs
supporting domestic companies. Odisha Government signed a MoU with Software Technology
Parks of India (STPI) for setting up 4 software technology centres.
In February 2017, Persistent Systems, a Pune-based company, secured development rights to a
number of patented innovations for enhancing security of financial services from The United
Services Automobile Association (USAA).
Tremendous growth of Global In-house Centres

Global In-House Centres (GIC), also known as captive centres, are one of the major growth
drivers of the IT-BPM sector in India. They also operate in engineering services and software
product development. In March 2017, there were over 1500 GICs operating out of India. GICs in
India today represent a US$ 23.1 billion industry. The impact of the segment goes beyond
revenue and employment, as it helps in developing India as a R D hub and create an innovation
ecosystem in the country.Within the captive landscape, Engineering Research and
Development/Software Product Development (ER D/SPD) is the largest sub-segment.
Companies from North America and Europe are major investors in the captive segment in India,
accounting for over 90 per cent of captives in the country.

Newer Untapped Geographies
As per Gartner study overall IT spend worldwide will grow at a CAGR of 2.1% ($3413 billion to
$3793 billion) from 2015 to 2020. Emerging geographies would drive the next growth phase for
IT firms in India. BRIC would provide US$ 380–420 billion opportunity by 2020. Focus on
building local credible presence, high degree of domain expertise at competitive costs and
attaining operational excellence hold key to success in new geographies. Emphasis on export of
IT services to current importers of other products and services.
Source: IBEF Report, July, 2017
Emergence of New Verticals
Govt. sectors have a huge potential for IT enabled services, as IT penetration is low in the sector.
Increasing digitalisation will lead to growth in revenues for IT sector in coming year.
Technologies, such as telemedicine, health, remote monitoring solutions and clinical information
systems, would continue to boost demand for IT service across the globe.
IT sophistication in the utilities segment and the need for standardisation of the process are
expected to drive demand.
Digitisation of content and increased connectivity is leading to a rise in IT adoption by media.
RBI is executing a plan to reduce online transaction costs to encourage digital banking in India.
In March 2017, the government set a target of achieving 25 billion digital transactions for banks
with the help of PoS machines, transactions enabled and merchants, which have been added in
firms. In March 2017, Samsung launched a mobile payment service, through which it facilitates
the customers to make payments at numerous retail locations instead of using mobile wallets,
credit or debit cards.

Challenges faced by Indian IT industry

Despite being very robust in nature, Indian IT industry too is facing many challenges in itself.
Let us put some light on them:
H1B Visa Reform Bill
India’s software services industry, already facing pressures on profitability and revenue, has
become the latest target of the Trump administration’s moves to protect American jobs. The US
administration has drafted an executive order to overhaul the H1B work-visa programme that
software services firms based in India use to send skilled workers to the US.
It provides for more than doubling the minimum salary of H1B visa holders to $130,000. The
draft bill will make it difficult to replace US employees with foreign workers and will create
huge uncertainties for Indian companies such as Tata Consultancy Services Ltd (TCS), Infosys
Ltd and Wipro Ltd. If implemented, the reforms may force TCS, Infosys and Wipro to make
fundamental changes in their business strategies, including hiring more American workers and
raising salaries they pay to employees working on client sites in the US and all this could erode
operating margins by as much as 3 percentage points.
Further it provides that the lottery system will be replaced by a new system to ensure that the
Visas are allotted to the most skilled or highest paid individuals. And if the ‘higher-salary first’
method is followed, the annual H1B quota could be filled at a minimum salary of $75,000, with
more than 50% of the quota being filled by applications where the salary is higher than $90,000.
The majority of LCA (labour condition application) filings by Indian companies in 2015-16 were
for salary levels below $75,000. And if the Indian IT companies raise salary levels for on-site
staff to $75,000 to try and get a higher share of the H1B quota, their margins can be impacted by
40-120 basis points.
The bill proposes to prohibit any company with more than 15 per cent of its workforce on H1-B
visa from placing H1-B employees at client sites (the US company) or contracting for the
services of those workers. Currently, H1-B visa holders have no restriction on working at client
sites. Further, Indian IT services companies would not be able to place L-1 employees (whether
specialized or managerial) at client sites unless the company supervised and controlled those
employees, and the parent US company attests that for 90 days before and after the L-1 petition
filing it had not laid off any employees in the same area performing similar job duties.
Effectively, this will deter clients from rationalizing manpower at their end and outsourcing the
work to Indian vendors.

Each visa will cost $10,000 in case a company has more than 50 per cent onsite employees
working on H-1B or L-1 visa. If the proportion is between 30-50 per cent, then it will cost
$5,000 for each additional visa application. Presently, the per visa application cost is $2000-2500
and 60-70% onsite employees work on H1B or L1 visas.The Bill also proposes a hard limit on
the percentage of H-1B and L-1 employees that could make up a company's workforce in the US.
The ceiling is proposed to be enforced in phases - 75 per cent from October-September 2014-15,
65 per cent from October-September 2015-16, and 50 per cent thereafter. In such cases,
companies will have no option other than hiring local professionals. Hence, while the overall
number of employees working onsite is expected to reduce over the long run, if this Bill is
passed, the proportion of local hires is expected to increase.
High Employee Costs:
Employee costs is the most incurred expenses in the IT industry with the PnL statement carrying
more than 40% of the total expenses as salaries and employee benefits.
In the last decade, revenues of the IT services industry have grown at a 20 per cent CAGR,
driven by volumes. During this time, employee count has also more or less grown at the same
pace. However, in recent times, players are finding it increasingly difficult to maintain the same
employee growth rate as a significantly larger employee base does not allow them to grow their
employee count at the same pace, thereby limiting their revenue growth as well. Also, for tier-1
vendors, employee cost as a proportion of revenue has been increasing over the years with
continuous salary hikes, even though billing rates have remained flat.
Currency Fluctuations and Hedging
Currency fluctuations pose a major challenge to the revenues of the IT companies as they earn a
major chunk of their revenues from exports. Hence, to prevent that companies perform hedging
in the derivatives market. As already discussed in the report, these hedging instruments involve
costs in it and hence the companies have to bear the currency risks so as their top-line doesn’t
gets affected.
Risks related to Billing Rates
Due to fierce competition from the large firms like Accenture Plc. or IBM or even from the
smaller firms which compete over costs, billing rates for projects have declined to a very low
level ($14 from $25 earlier) than they earlier used to be. The RFP prepared by the companies
while bidding for the projects is so similar that cost is the only factor that could differentiate
them. To compete domestic companies like TCS, Infosys, CTS are offering price discounts as
much as 25% to win multi-million contracts from companies like Aetna, Pfizer, AZ, etc.

Lack of Knowledge-based Capital
In many OECD countries, business investment in knowledge-based capital (KBC) has increased
faster than investment in physical capital (machinery, equipment, buildings). The value of many
of the successful companies resides almost entirely in their KBC. Indian IT industry totally lacks
in that aspect.
Attrition Rate and Less productive Middle Management
Attrition rates have been very high in IT companies from the past 3-4 years. The main reasons
for high attrition has been the salary dissatisfaction, low increments, significant salary hikes, role
change, and opportunities to go abroad. Along with the attrition costs, companies have been
incurring costs from the unproductive middle management which doesn’t involves itself into the
coding work and innovative practices but draws huge salaries. Recent layoffs done by TCS have
been an instance of that.
Increasing competition from other nations
India has been facing stiff competition from the other off-shoring nations like China, Vietnam,
Phillippines, Mexico, etc. These countries have been providing ITeS/BPM services at a very low
cost and hence providing a competition to the Indian BPO services. It is estimated that in the
ongoing decade India might lose about $30 billion in terms of foreign exchange earnings to the
Philippines, which has become the top destination for Indian investors, thus the need to reduce
costs and make operations leaner is increasingly becoming significant across the BPO industry
(KPMG report). Around 30 per cent graduates in the Philippines are employable, unlike 10 per -
cent in India where the training consumes considerable amount of time, the study highlighted.
India has lost more than 10% of market share to these countries in the IT-BPM business.
High Geographical Concentration
Traditionally, US contribute 60% to the revenues of the Indian IT companies. Such a high
geographical concentration possess a significant risk to the companies as can be seen from the
fall in the revenues of the IT companies after the recession hit the US market. Thus, the focus
should lie on expanding to other economies too and diversify the geographical concentration.
Captive IT services
More and more firms have started to have an in-house IT wing for their internal purposes. In
order to provide a comprehensive solution to their clients, many firms have started integrated IT
services with their product. This foray by other firms is eating into the market share of IT
companies.

Currency hedging and its importance
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
Hedging Policy
Indian IT services companies follow strict guidelines on hedging as stipulated by their boards.
On an average, Indian IT services vendor’s 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.
Swaps and futures are other hedge instruments that are used to minimize interest rate risk and
third-party risk in addition to minimizing currency risk. The following table shows the various
types of hedge instruments and their basic features.

Emerging Technologies and Opportunities

By 2020, India’s IT-BPM sector total revenue is projected to reach USD 200-225 billion and
between USD 350-400 billion by 2025. Digital technologies will continue to define the sector
and revenue from these is likely to have a 23 per cent share by 2020 and >38 per cent by 2025.
Indian service providers face a significant opportunity as digital technologies continue to be
embedded in an ever widening range of products and services.
To avail this growing opportunity, firms have to develop offerings along new digital service
lines, while re-inventing traditional declining service lines. The need of the hour is to invest in a
portfolio with fundamentally different economics, putting more resources towards
transformational and disruptive technologies, re-skill the existing resource pool, build
capabilities and forge partnerships with niche players and platforms to develop an ecosystem to
deliver digital solutions.
SMAC
With over 4.5 billion mobile subscribers and over 2.5 billion internet users, many believe that we
have already entered the post-digital era. Multiple technology trends, including social media,
mobility, and cloud computing are fusing relationships between customers boosting agility
within the enterprise and in the market, and leading to increased collaboration among internal
and external stakeholders. The rising presence and reach of the internet, coupled with the prolific
growth of Smartphones, tablets and related technologies, has provided consumers with
unmatched access to information on the go, thereby helping them make informed purchasing
decisions.
Social
Whether connecting people and their friends, customers and businesses, or co-workers across the
globe, social technology is all about bringing people together. Early platforms like MySpace and
Facebook showed people were willing to communicate and build relationships online much like
they did in their day-to-day lives. Then started the idea of using these platforms as a new channel
to access consumers. This idea kick started major investments in advertising across social
platforms. A recent study showed that 83% of 21000 surveyed social media users reported first
learning about businesses’ new products and services on platforms like Twitter, Facebook and
YouTube. But social media is not just building awareness and improving sales. Companies with
digital brands also leverage social platforms to build closer relationship with their customers.
Mobile

For 2017, the number of smartphone users in India is estimated to reach 299.24 million, with the
number of smartphone users worldwide forecast to exceed 2.3 billion users by that time. India,
the second most populous country in the world, is projected to pass the United States in number
of smartphone users in 2017. Around 223 million people in the U.S. will use a smartphone by
2017, compared to 340 million in India. Reliable internet connections from 3G and 4G services
enable people to shop, interact and go online anytime, anywhere. Businesses are now using
mobile technology to provide a differentiated experience and new value to customers.
Companies are now providing mobile apps for shopping and promotions along with connected
payment services.
Analytics
The rapid rise of social and mobile technologies has also generated massive amount of data.
More data has been created in the last two years than in all of human history and by 2020 the
total size of digital universe is expected to be 44 zettabytes of data. Businesses have turned to
advanced analytics to make sense of all this information. Moving forward a data-driven culture
has even become a competitive differentiator for some enterprises based on how well they are
able to gain insights from the analytics and take actions as a result.
Banking Healthcare Retail Transportation Government
•Fraud •Smarter EHRs •Inventory •Traffic •Program

Detection •Preventive Management Management Management
•Cross-selling Healthcare e.g. Tesco e.g. City of •Crime
Products e.g. •Durg •Promotional Cologne Prevention e.g.
Santander Discovery e.g. Analysis e.g. •Smarter Roads Memphis
bank in Spain Eli Lilly Walmart •Intelligent cars Police
•Customer •Store Department
Retention e.g. Operations •Citizen
Citigroup Services
Industry Applications

Cloud Computing
Cloud computing is a pay per use IT consumption and delivery model that enables real time
delivery of configurable computing resources such as networks, servers, storage, applications
and services. These are highly scalable resources delivered over the internet to multiple
companies, which pay only for what they use. Initially, many businesses pursued cloud as a way
to shift IT costs from capital expenditures to operational expenditures. As the technology
matured, it became clear that cloud computing could deliver more profound benefits.
The best example of cloud computing is Google Apps where any application can be accessed
using a browser and it can be deployed on thousands of computers through the Internet. The
National Institute of Standards and Technology defines three basic service models- Infrastructure
as a Service, Platform as a Service and Software as a Service.
a) Infrastructure as a Service (IaaS)- A hardware level service, provides end users

provides computing resources such as processing power, memory, storage, and networks
for cloud-users to run their applications on demand. This allows the users to maximize
the computing capabilities without having to own and manage their own resources.
Examples include Amazon Web Services, Google Compute Engine, Open Stack and
Eucalyptus.
b) Platform as a Service (PaaS)- It provides the users the ability to develop and deploy an
application on the development platform provided by the service provider. It provides
programming languages like Java, Ruby; application frameworks like Jumla, Wordpress;
database like Cloundant, Redis and other tools. Examples include Google App Engine,
Windows Azure Compute.
c) Software as a Service (SaaS)- It provides the end users the ability to access an
application over the Internet that is hosted and managed by the service provider. The end
user is exempted from managing the application, thedevelopment platform and the
underlying infrastructure. Example one can make his or her own document in Google
docs online, can easily edit a picture on pixlr.com.
Industry Application
Banking Designing, developing and prototyping applications faster than ever,for e.g.
Westpac bank in Newzealand
Media Benefit from mobile and cloud centric information technology to scale their
business,for e.g. Accuweather
Hospitality Airbnb used cloud to let travelers book private rooms, apartments, give
feedback and share feedback and make payments through the app
Transportation Accelerate time to market and differentiate customer experience, Uber's
dynamic pricing algorithm through cloud

How Indian IT-BPM industry can leverage this opportunity?
IT spending dimensions are changing. IT operational budgets are on rise with 69% of IT
organizations getting larger operational budgets. Capital spending, on the other hand is flat. A
net 56% of IT organizations are increasing spending on cloud applications, but just 10% are
spending more on data center infrastructure. IT-BPM industry need to take these trends into
account and accordingly devise a strategy. There will be a significant shift in the nature and
proportion of work. More automation of operational tasks in the cloud will mean IT resources
will need to be reskilled to perform service integration tasks. Indian IT –BPM companies will
need to differentiate by using Agile methods to translate application requirements into business
functionality.
Global cloud IT market revenue is expected to increase from $180 billion in 2016 to $390 billion
in 2020, attaining a compounded annual growth rate (CAGR) of 17%.
The public cloud services market in India is projected to grow 38 percent in 2017 to total $1.81
billion, according to Gartner, Inc. The highest growth will continue to be driven by infrastructure
as a service (IaaS) which is projected to grow at 49.2 percent in 2017, followed by 33 percent in
software as a service (SaaS) and 32.1 percent in platform as a service (PaaS). The increase of
SaaS and PaaS are indicators that the migration of application and workloads from on premises
data centers to the cloud, as well as the development of cloud ready and cloud native
applications, are fueling the growth in the cloud space.
Indian IT Cloud Computing Products

Company
TCS Cloud Advise, Cloud Mpower, Cloud Architect, Cloud Build, Cloud Govern
Infosys Hybrid Cloud Transformation, SAP on Cloud, AWS Workload Migration to
Cloud, Cloud Security Services
Wipro Cloud Advisory, Cloud Infrastructure Services, Cloud Application
Migration, Public Cloud Applications, Cloud Management Services
Cloud computing products offered by Indian IT giants

Automation and Robotics
The robotic automation also known as robotization is automation of industrial and business
processes with the help of robots or different types of guises. For example, industrial robots are
used in manufacturing units and software robots are used in business processes in service sectors.
Cloud technology is delivering almost limitless computing power to fuel the complex operations.
Unprecedented volumes of data are creating a vast pool of information for machines to access
and learn from. Robotics is also empowered by internet of things and artificial intelligence.
Robotics and automation are quickly proliferating across the economy. In light of these
developments, Indian IT-BPM companies can leverage these new tools to improve efficiency
and drive business growth. Although automation provides a tremendous opportunity for Indian
IT-BPM industry, there are some challenges that companies need to aggressively address. The
global IT robotic automation market is anticipated to grow with the CAGR of 50.3% in the
forecast period 2016-2023.
 38% of jobs in the United States, 35% of jobs in Germany, 30% of UK jobs and 21% of
jobs in Japan could be at potential risk of automation by the early 2030s--PWC
 More than 85% of customer interactions will be managed without a human by 2020—
Gartner
 Automated vehicles could threaten or alter 2.2 million to 3.1 million existing U.S. jobs,
including 1.7 million truck drivers—Executive Office of the President, December 2016
 The world’s largest asset manager, BlackRock Inc., is entrusting more of its $5.1 trillion
in assets to robot stock pickers to decide what to buy and sell. Seven portfolio managers
are expected to leave—The Wall Street Journal
Industry Sub-segment Applications

Manufacturing Automotive Tesla's new $5 billion Gigafactory 1 in the Nevada desert, which is
still under construction, will be almost 100% automated in the future
Telecom Cambridge Industries Group (CIG),China's leading suppliers of
Equipment telecom equipment,is in the process of replacing two-thirds of its
3,000-strong human workforce with robots
E-Commerce Amazon has 30,000 fulfillment robots working in its warehouses
worldwide, and the company is expected to replace all employees
who perform repetitive tasks with machines in the not-too-distant
future
Financial MasterCard has teamed up with Pizza Hut to roll out cashier and
Services customer service robots at the company's restaurants in China
Hotel Mario the robot helps human hotel staff check in guests at the Ghent
Marriott Hotel in Belgium.

Impact On IT Industry
Technology enabling a greater play of non-voice channels
• BPM industry has been one of the early adopters of technological advancements by
introducing Interactive Voice Response(IVR), which enables computers to interact with
humans
• New technology levers such as RPA are leading to shift from voice to multi channel
integrated services with new business imperatives such as process optimisation and
automation
• Around 15% - 20% of the BPM business is now getting automated with various new age
technologies including RPA
Automation to Improve Productivity

• RPA uses software to automate repetitive processes that humans would otherwise do,
freeing these people for higher value work
• Apple Siri, Microsoft Cortana, IBM Watson and Google DeepMind are all examples of
software robots which are now mainstream
• Bank processes, invoice processing, order processing and claims management – are
prime candidates for RPA application, as they are rules-driven, data-intensive and
repetitive in nature, and they cross multiple systems
• It is estimated that AI will deliver over USD 70 Bn in net productivity-led gains for IT-
BPM service providers by 2020. 80% of the USD 70 Bn productivity gains will come
from infrastructure services and business process management services.

Artificial intelligence
AI is the simulation of human intelligence processes by machines, especially computer systems.
These processes include learning (the acquisition of information and rules for using the
information), reasoning (using the rules to reach approximate or definite conclusions), and self-
correction. Particular applications of AI include expert systems, speech recognition and machine
vision. With the advent of the digital revolution, the world’s data has been doubling every 12 to
18 months. Approximately 80% of this data is unstructured. With such high volumes of data, it is
impossible to ingest and make sense of it using traditional computing technologies. In this
context, artificial intelligence and cognitive computing hold an unprecedented degree of promise.
Industry Sub-segment Applications

Healthcare Diagnostics IBM backed Pathway Genomics has come up with its blood test kit
for cancer called CancerInterceptDetect for people who have never
been detected with cancer to see if early diagnosis is possible
Mining Medical Google DeepMind launched the Google DeepMind Health project
Records which intends to give faster, better treatment to patients
Virtual Nursing Molly, developed by the startup sense.ly is the world's first virtual
Assistant nurse. With a smiling, amicable face coupled with a pleasant voice
Molly uses machine learning to support patients with chronic
conditions in-between doctor’s visits
Financial Personal wallet.AI builds AI that pieces together millions of of pieces of data
Services Finance to help make informed decisions
Stock Trading Sentient Technologies has been doing algorthmic trading with its AI
platform for more than a year now
Customer At the Commercial Bank of Dubai, a virtual customer assistant named
Service Sara is available 24/7 to assist visitors in filling out forms and getting
up to date answers on saving and investing
Manufacturing Foxconn, the No.1 EMS manufacturer have been planning to deploy
10,000 robots to offset increasing cost of labour in their Chinese
development center
E- Commerce E-commerce giant Flipkart is working on an artificial intelligence
(AI) solution that will give it an edge over rivals by helping it make
smarter decisions in ordering, distribution and pricing products on its
platform.
Industry Applications
Auto, healthcare, robotics, financial services consumer and technology markets will be the most
affected by the rise of artificial intelligence and machine learning. India is the third largest global
site for Artificial Intelligence companies. And the Indian IT companies are increasingly tapping
these opportunities.

Also, very recently:

• Intel is betting on Artificial Intelligence (AI) to drive demand for its electronic chips, for
which it is aiming to train 15,000 scientists, developers, engineers and students on AI in
India over the next one year (2018)
• On March 14, 2017, Wipro launched Cloud Bot Digital Consultant, as a part of its AI
and cloud strategies, that helps enterprises hyper-automate processes, redefine operations
and enable their digital journeys
Increased AI leads to the question whether demand for maintenance for IT companies will go
down. The way maintenance workload will be serviced will definitely change. Fundamental laws
of arithmetic are at play here. Every piece of code you write requires a certain amount of time.
Consumer apps can be written in one week or less that may stay alive for consumers between 12-
16 weeks. The ratio of maintenance cycle to development cycle is more or less the same 1:5 or
1:6 as before. Every software system needs maintenance. The timeframe for which they are
being serviced is changing due to shorter cycles. And thus, the workload is not changing but the
methods are changing.

Blockchain Technology
At a pure computing level, the blockchain is a decentralized ledger, that is, a list of all
transactions across a peer-to-peer network. If one takes a look at any interaction that two
individuals have through the Internet, they are all intermediated: Banking transactions, payments,
e-commerce, social network interactions, email, job searches, property rentals, online auctions .
Blockchain eliminates the need for any of these intermediaries: banks, payment companies, stock
brokers, servers, companies like AirBnb, Ebay, Facebook, Linkedin, etc, by two simple steps:
1. A ledger, that is, a decentralized list of all transactions in the network that are
simultaneously shared by all members of such network.
2. The immutability of such list, which is guaranteed because the ledger can be
reconstructed only backwards — that is, each transaction in the ledger links to the
previous one, so if the chain is violated/hacked, the “blockchain” will be broken.
The Reserve Bank of India has successfully tested blockchain technology for trade application,
in partnership with MonetaGo, a New York based cryptocurrency firm, and other financial
institutions. The Institute for Development and Research in Banking Technology (IDRBT),
an arm of the Reserve Bank of India, is developing a model platform for blockchain technology.
Indian IT consulting players like TCS, Infosys and Cognizant have shifted their focus of
Investments to Bitcoin’s Blockchain technology. They have begun to explore its use cases, and

the potential implementation of the blockchain technology in their day-to-day operations. While
bank transfers and settlement of payments normally take three days, to even weeks, blockchain-
based payment verification systems secured by multisignature technology take less than 10
minutes, while guaranteeing top-tier security standards.
Bitcoin
Bitcoin is a peer-to-peer payment system and digital currency introduced as open source
software in 2009 by pseudonymous developer Satoshi Nakamoto. It is a cryptocurrency, so-
called because it uses cryptography to control the creation and transfer of money. Users send
payments by broadcasting digitally signed messages to the network. Participants known as
miners verify and timestamp transactions into a shared public database called the block chain, for
which they are rewarded with transaction fees and newly minted bitcoins.Bitcoin has quadrupled
in price this far in 2017, with no sign that the bull will be ending any time soon. Some key
statistics:
• On August 31, 2016, bitcoin was trading at $576.
• Which means bitcoin is up over 740% over the past 12 months.
• It closed 2016 trading at about $954.
• So, thus far in 2017, it is up over 400%.
• Bitcoin started the month of August, 2017 at $2,738.
• And has hit record after record in August, 2017, surging 77%.
Factors driving the growth

 Japan and Korea driving trade -Trading volumes in Japanese yen and Korean won
have risen and combined account for around 48.6 percent of trading. This is because of a
recently passed legislation that allowed retailers in Japan to begin accepting bitcoin as a
legal currency.
 Political uncertainty globally- Bitcoin has acted as a safe haven for investors worried
about political instability and the performance of other asset classes. U.S. equities saw a
sell-off before rebounding, while the political establishments in America and Brazil are
facing potential scandals.
 Scaling debate resolution- In May 2017, at the annual Consensus conference, held in
New York, an agreement has been signed for the adoption of SegWit with a planned hard
fork to a 2MB blocksize within six months.


Internet of Things (IoT)

Internet of Things is the network of physical objects- devices, vehicles, buildings and other items
embedded with electronics, software, sensors and network connectivity- that enables these
objects to sense or interact with their internal state or environment. The goal of IoT is to enable
things to be connected anytime, anyplace, with anything and anyone ideally using any
path/network and any service. The world IoT Market is poised to be a $328 billion market by
2020. The Indian IoT market is poised to reach $15 billion by 2020 accounting for nearly 5% of
the global market.
Primary factors driving Indian companies to deploy IoT-

• Instant and real time decision making
• Rise of big data analytics
• Increasing smartphone and mobile internet penetration
• Changing lifestyle of consumer becoming more tech savvy
• Need for maintaining a safe and secure work environment to avoid cyber threats
• Increased cost effectiveness and high ROI
Over $1 billion investment has been committed by Indian Government on building 100 smart
cities every year for the next five years.
Industrial Key Players Key Sub-Segments Emerging Trends

IoT
Industrial Atoll Solutions; Equipment Sensors; • Increasing focus on big
Internet Algo Engines Machine Monitoring data analytics
Embedded Ineda Systems; Embedded • Development of

Computing Auviz Systems Computing; embedded encryption;
Embedded Security • Secured computing;
• Wireless connectivity
Niche Cardiac Design Labs; Healthcare; • Remote patient
Solutions Get Active; Retail; monitoring;
Mobstac Security • Personalised consumer
experiences;
• Visualisation solutions
Connected Igate; Smart Lighting; • Reducing traffic
Cities Indrion Traffic Monitoring congestions and
accidents;
• Energy optimisation
solution

A successful IoT implementation requires both technical expertise and business process
knowledge specific to the industry and the business problem the system is designed to solve. IoT
vendors rarely have any of the core domain expertise or the implementation ability to manage an
IoT solution set, especially if it concerns a large array of consumers or industrial clients. And
thus, IoT vendors need partners, system integrators, and BPO providers who can dive in and do
all the grunt work needed to keep these systems working, such as business process flow, testing,
and analytics software. These play into the core competencies of Indian IT services who are
looking for opportunities to deploy their skills and employees. Indian IT giants like Infosys,
Wipro, TCS, etc; are increasingly tapping these opportunities. Very recently-
• TCS launched Intelligent Urban Exchange' (IUX) for 'Adaptive Streetlight Optimisation'
that allows cities to derive greater value from the costly LED lighting by reducing the
payback period to almost half. It also helps cities to jump-start smart city projects in other
domains by leveraging smart streetlight wide area networks (WAN) and a common data
analytics platform.
• TCS joined forces with Siemens for industrial IoT on MindSphere. Siemens MindSphere
and TCS solutions will enable customers to explore new models that capitalize on IoT
innovation and realize the opportunities presented by the digital economy.
• TCS will collaborate with chipmaker Intel to design a reference architecture that could be
used for rolling out Internet of things (IoT), cloud, 5G and AI by its customers. The
partnership will also see both companies jointly investing in Centres of Excellences
(CoEs) across India and the US to provide industry specific solutions for optimising cost
and improving productivity.

M&A and PE Analysis

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
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 lion’s 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.
Operational efficiency
Indian IT Companies have recognized the importance of automation in adding value to the
client’s business processes. Recently, Indian IT companies are getting equipped with the
automation capabilities by acquiring companies and startups in automation space.

M&A Trends
Acquisition spree- In calendar year 2016, three of the five largest IT companies in India—
Wipro Ltd, HCL Technologies Ltd and Tech Mahindra Ltd—together spent over $1.5 billion on
acquisitions (Tata Consultancy Services Ltd and Infosys Ltd did not make a single buyout). 2017
will see a more aggressive merger and acquisition (M&A) streak. And Indian IT firms are likely
to buy more boutique design firms and artificial intelligence companies.
More corporate venture funds and stronger partnerships with start-ups- The year 2017 will
see more of the smaller IT firms (less than $400 million in revenue) set up corporate venture
arms. The five largest companies could further strengthen their engagements with start-ups.
Battle for supremacy in era of Industrial Internet- The battle between industrial
conglomerates for promoting their cloud platforms like Predix (General Electric Co.), Sinalytics
(Siemens AG) and Uniformance (Honeywell International Inc.) is a redux of the legacy war
between enterprise resource application players SAP AG and Oracle Corp.
Recent Mergers and Acquisitions
• Cisco has announced that it will buy artificial intelligence startup MindMeld for $125
million
• In June 2017, solutions provider Perficient bought Clarity, a 160-person Chicago
software consultancy that has annual revenues of $27 million. The company was
purchased to fold into Perficient's dedicated Microsoft business group, thanks to its
custom app and cloud development capabilities
• The Palo Alto Networks $105 million purchase of LightCyber in February, 2017, was a
classic technology add-on. Palo Alto also acquired Cyvera in 2014 to add endpoint
security capabilities and CirroSecure in 2015 to add capabilities for SaaS application
security.
• HCL Technologies has announced acquisition of companies like Geometric (for USD
200 million) and Butler America Aerospace (USD 85 million)
• Tech Mahindra Ltd. to acquire CJS Solutions Group LLC, a US based healthcare IT
services and consulting firm. Tech Mahindra also acquired The Bio Agency, which
specializes in digital transformation and innovation
• Wipro Technologies acquired InfoServer ($ 8.7 million) in January, 2017 and Appirio in
October,2016

Valuation
Tata Consultancy Services
Established in 1968, Tata Consultancy Services (TCS) is an Information Technology (IT)
services, consulting and business solution company. The company provides end-to-end
technology and technology-related services to global enterprises. The company’s business is
spread across the Americas, Europe, Asia-Pacific and Middle East and Africa (MEA). TCS
accounts for nearly half of the Indian IT industry’s combined market capitalization.
In February,2017, the board of TCS approved the proposal to buy back up to 5.61 crore equity
shares for an aggregate amount not exceeding Rs 16,000crore. The shares under the buyback
represent 2.85 per cent of the total paid-up capital at Rs 2,850 per equity share.
Infosys
Established in 1981, Infosys Ltd. is engaged in consulting, engineering, technology and

outsourcing services. The company’s end-to-end services include consulting and system
integration. Infosys operates through 30 offices across India, the US, China, Australia, the UK,
Canada and Japan. In November 2016, Infosys invested around US$ 4.89 million in a venture
fund, Stellaris Venture Partners, so as to gain access to new and innovative technology offered
by upcoming enterprises.
However, the company has been under the scanner for both corporate governance and
management-founder conflict, the latter leading to the resignation of Vishal Sikka, its CEO and
managing director (MD), on August 18, 2017. The Infosys stock was down 9.6 percent by end of
day on August 18, and was more than 14 percent down at the close of trading on August 22. Rift
between the founders and the board was relating to internal investigations constituted by Infosys
after two whistleblower complaints to market regulator Sebi alleged improprieties in its $200
million acquisition of Panaya, questions over the severance payout made to former CFO Rajiv
Bansal and alleged excessive expenses incurred by its current CEO Vishal Sikka in Palo Alto.
On August 19, 2017, Infosys announced Rs 13,000-crore share buyback offering Rs 1,150 per
share to purchase around 4.92 percent of the stocks held by the shareholders. On 24 August
2017, Infosys brought co-founder Nandan Nilekani back as non-executive chairman with
immediate effect.

Trends over the last quarter
 The growth for TCS has been slowing down over the past 2 quarters compared to the
same quarter a year ago
 The lower growth has been attributed to drop in revenues from BFSI
 Growth is largely led by life sciences, healthcare and energy verticals
 Constant currency revenue growth of 10% w/o Brexit impact
Trends over the last quarter
 Infosys management had indicated that it expects its revenues to rise 11.5 to 13.5 % in
constant currency terms in FY17
 The revenue guidance was revised downwards for the 3rd time in the year after each
quarterly results by the management, the recent revision suggests 8.4% - 8.8% growth in
constant currency
 Consulting and Finance business are the key drivers of growth
 The AI platform Mana is helping improve efficiency and win new accounts

Financial Analysis
TCS Infosys
12 months ending FY 2017 FY 2016 FY 2017 FY 2016
Market Capitalization 4,791,686.7 4,966,069.5 2,336,511.0 2,784,572.2
Cash & Equivalents 456,630.0 275,980.0 325,950.0 327,720.0
Preferred Equity 0.0 0.0 0.0 0.0
Minority Interest 3,660.0 3,550.0 0.0 0.0
Total Debt 2,890.0 2,450.0 0.0 0.0
Enterprise Value 4,341,606.7 4,696,089.5 2,010,561.0 2,456,852.2
EV/ Sales 3.68 4.32 2.94 3.93
EV/ EBITDA 13.44 15.31 10.81 14.39
EV/ Free Cash Flow to firm 17.35 24.78 17.45 25.36
P/E 18.23 20.46 16.28 20.64
Average 19.74 24.71 18.04 20.04
High 22.23 27.32 21.48 22.39
Low 17.06 20.46 15.44 17.38

Telecom

Telecom
Executive Summary
Telecommunication services are globally recognized as one of the driving forces for the socio-
economic development of a nation. The Indian Telecommunication industry is one of the fastest
growing in the world. With a CAGR of approximately 30 percent since 1995, the Indian telecom
market is still growing strong. The high growth of the Indian telecom market can mainly be
attributed to mobile services which have grown at a CAGR of more than 84 percent during the
period 1995-2009. The rest is contributed by National long distance (NLD), fixed-line services
and International Long Distance (ILD). India has been maintaining stable growth in terms of
increase in number of telephone subscribers. During the quarter ending March-17 net addition of
42.8 million subscribers was recorded. The year on year (Y-O-Y) growth of wireless subscribers
is 13% over the same quarter of last year.
An increased focus on and aggressive expansion by operators in rural areas, as well as the launch
of 4G services by telecoms has led to an increase in the industry subscriber base. As a result,
rural tele-density rose to 56.47 per cent as of March 2017, from 39 per cent as of December
2012. Rural penetration is expected to grow going forward, as the scope for urban subscriber
additions has diminished. Also, with rising demand for data services, 3G and 4G subscribers are
expected to constitute a major proportion of subscribers by the end of 2021-22.
Mobile data consumption in India has grown at a superfast 24 times in the past five fiscals. As
per CRISIL Research report, that data traffic is expected to multiply four-fold times i.e. it is
estimated to reach 2.3 GB per user by 2022. Also, the data subscribers are expected to double
from 420 million in March 2017 to 900 million by 2022. Data as a percentage of wireless
revenue is expected to improve tremendously from 22% in 2015-16 to 40% in 2017-18.
According to CRISIL the EBITDA margin of operators will decline in 2017-18, an outcome of
aggressive pricing and network deployments. It will subsequently recover in 2018-19. Owing to
high capital expenditure and debt resulting from multiple auctions, the leverage and return
metrics would remain subdued in the near term.
With the release of guidelines on the sharing, trading and liberalization of spectrum, regulatory
clarity in the telecom sector is improving. Consolidation has been possible in the industry due to
the evolved and better regulatory environment in the industry. Post-consolidation, CRISIL
Research expects the number of players in the market to reduce from 13-14 operators per circle
to 6-8 operators.
As telecom operators are focusing on increasing market penetration with limited capital
expenditure, it is favorable for telecom operators to lease towers from tower companies. Hence,

outsourcing of infrastructure related activities to the telecom infrastructure providers has led the
telecom infrastructure to be seen as a different industry. Investments in telecom infrastructure is
expected to see a rise because in the next few years, growth in data demands will pave the way
for infrastructure providers to establish and maintain in-building solutions, small cells, public
Wi-Fi and fiberisation of backhaul networks
Evolution of Indian Telecom Industry
State Led Monopoly Liberalization and The Growth Phase

Institutional Reform
•Entry of private sector in •Liberalization of Indian •Bharat Sanchar Nigam

telecom equipment Economy – 1990s Limited established –
manufacturing - 1984 •Private sector 2000
•Formation of Mahanagar participation in provision •National Long Distance
Telephone Nigam Limited of VAS such as cellular and International Long
(MTNL) and Videsh and paging services – Distance services opened
Sanchar Nigam Limited 1992 to competition – 2000
(VSNL) – 1986 •National Telecom Policy •CDMA technology
•Telecom commission set announced – 1994 launched - 2000
up - 1989 •Telecom Regulatory •Internet Telephony
Authority of India (TRAI) initiated – 2000
established – 1997 •Reduction in license fees
•National Telecom Policy – 2000
announced - 1999 •VSNL privatized – 2002
•Launch of mobile services
by BSNL – 2002
•Calling party pays (CPP)
implemented – 2003
•Broadband Policy
formulated – 2004
•Telecom-Technology
convergence
Evolution of Indian Telecom Industry (Source: Crisil Research)
Indian Telecom sector began as a state run monopoly when telecommunication was considered
as unreliable over long distances and post was considered as a better communication channel.
Telecom was considered as a luxury at that time. In 1985 the Department of Posts and Telegraph
were set up as distinct departments under the central government. Being a state run monopoly,
the telecom sector suffered from under investment. As a result, in 1990, the waiting list for
Direct Exchange Lines (DELs) rose to millions (1.7 million) with an average waiting period of
around 48.9 months. This put pressure on the government to surrender its monopoly and focus
on growth in the sector.
The announcement of National Telecom Policy in 1994 provided the big push in reform and
liberalization of the sector. Monopoly was managed by Department of Telecommunication
(DoT), which besides service provision, performed multiple other functions such as policy
formulation, pricing, regulation, spectrum management, and research and development, among
others. The Athreya Committee set up in 1990 recommended the reorganization of DoT,

specifically the separation of service provision from policy and regulation. But the
recommendations were not considered till the year 2000. NTP 1994 focused on private
investment and quality of services but it failed to acknowledge the need of a regulator in the
sector. India’s tele-density was merely 0.8 percent against the world average of 10 percent at that
time. In 1997 TRAI was set up to provide an independent regulatory framework to, facilitate
competition and protect consumer interest, but suffered persistent conflict with the DoT. NTP
1999 attempted to address some of the major issues in NTP 1994 but the institutional structure in
telecom acquired greater stability in the year 2000 with the amendment of TRAI Act. The new
TRAI Act created the Telecommunications Dispute Settlement and Appellate Tribunal
(TDSAT), a body that was envisaged to fast track the dispute settlement process. BSNL was
created in the year 2000 separating service provision from policy (DoT) and regulation (TRAI).
The beginning of the 21st century led to huge growth in the Indian Telecom sector. Replacement
of government regulations by the market oriented practices was the biggest growth driver for the
Indian telecom sector. In September 2002, telecom tariffs were assigned to competitive forces;
the requirement for service providers to obtain approval from the TRAI on tariff changes was
dispensed. In 2003, the Calling Party Pays (CPP) regime was introduced, which arguably was the
most important factor responsible for the explosive growth in mobile telephony. From a luxury
when it was first introduced, the mobile service is now used every day by over 1 billion Indians.
Value Chain of Telecom

Telecom services are provided through an interaction between the telecom operators and telecom
infrastructure providers. While telecom operators provide various services to the customers
directly, they utilize the services provided by the telecom infrastructure providers.

Interaction between Telecom operators and Infrastructure providers
Active Infrastructure
Active infrastructure comprises of the core elements required by the telecom companies for their
day-to-day operations. It is required to carry the wireless signals and providing coverage through
operating on dedicated set of radio channels of defined frequency. Elements like Base
Transceiver Stations (BTSs), base station controllers (BSCs), mobile switching centers (MSCs)
and radio antenna come under this category of infrastructure.
Passive Infrastructure
Passive infrastructure comprises of the elements which enable the active infrastructure to operate
in an efficient manner. The main function of passive infrastructure is to support the active
infrastructure in the transmission of wireless signals. For example, telecom towers do not play
any role in the transmission of wireless signals but they are required to host the antennas at an
appropriate height required to transmit the signals. Telecom towers, battery back-up, shelters,
air-conditioners and power regulation equipment come under the category of passive
infrastructure.
Backhaul
It is the wireless communications infrastructure that transports telecom signals, including data
and video, from a base station to the core mobile network which processes the traffic. Medium
like microwaves can be used as backhaul. The optimum choice for selecting a backhaul depends
on the network capacity, expected data speed, relative cost and availability of spectrum space.
Due to cost considerations, microwaves are being used as backhaul in India. However, with the
data surge propelled by the 4G boom, over the next five years the existing microwave network
needs to be upgraded to optic fiber-based links. This upgrade is required to optimally handle
surges in data flows since microwave is considered less effective in a 3G/4G environment.
Airwaves and 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
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 reducing the block
size to 200 KHz. Wireless planning and Coordination (WPC) Wing is responsible for this
process
Value Added Services
Value Added Services (VAS) are the non-core services provided by the telecom operators
including all the services provided other than the voice calls and fax transmissions.

VAS Components (Source: CRISIL Research)
Data revenues mainly come from internet browsing, videos streaming and gaming. Non-data
revenues can come from SMS or other VAS. Other VAS includes Caller ring back tone (CRBT)
and downloading images, music and themes. Traditional VAS and SMS contributed heavily to
the non-voice revenues but with the advent of internet, their share in the non-voice revenues has
gone down and Internet based VAS are replacing the other segments very quickly.
Four different players interact with each other to provide VAS to the customers. These players
are Content Owners, Content Aggregators, Technology enablers and Telecom operators.
Content Owners: Content owners are the legal owners of the copyrighted material around
which VAS services are built. As the material is copyrighted, some percentage of revenue is
shared with the content owners. In India, most of the content in VAS is based upon Bollywood
movies and music. Wallpapers and games built around the theme of Bollywood movies are also a
major source of revenue in the VAS segment for the mobile operators.
Content Aggregators: They are responsible for aggregation of content from the content owners.
They also perform in-house development of content if required. They provide the content to the
mobile operators. Some content aggregators provide the content directly to the clients through
their websites.
Technology Enabler: Their main role is to provide a platform that can act as a bridge between
the content aggregators and mobile operators. Apart from development of such a platform, they
also maintain the functioning of the platform. They also handle the reconciliation of accounts
and billing between the content aggregators and mobile operators.
Mobile Operators: Mobile operators are responsible for providing the value added services to
the end users. After getting the content from the content aggregators, it is their responsibility to
publish the content and provide various services for that content.
Distribution Channels for VAS
Mobile operators can use a number of different distribution channels for providing various value
added services. There are various different distribution channels like SMS, GPRS, IVR, CRBT
etc. The selection of a distribution channel is dependent on the type of content. For example
news updates, cricket scores etc. can be provided using the SMS distribution channel.
Distribution channels for VAS (Source: CRISIL Research)
Short message service (SMS): Information based content like news updates, live cricket scores
etc. can be transmitted over SMS.
WAP/GPRS: rich content such as songs, videos and games are generally transmitted over
GPRS.

Interactive voice response (IVR): IVR technology is mostly used to allow customers to choose
their ringtones.
Caller ring back tone (CRBT): CRBT allows user to select an audio which will be heard by the
calling party before the called party picks up the call.
Retail: Many mobile operators provide the value added services to the customers directly
through their retail outlets. For example, top mobile operators have a number of retail outlets
where customer can go in and select a song which will be downloaded to customers mobile.
Internet to mobile: User can also download data directly from the content aggregator website to
their PC or mobile.
Revenue Sharing
As the Value Added Services are provided because of the interaction between four different
players, revenue generated from VAS is shared between these players. The proportion of
revenues which is given to the content owners, content aggregators and technology enablers is
decided by the contract between these players and the mobile operator.
Revenue Sharing for Value Added Services (Source: CRISIL Research)
Telecom operators retain a major chunk of VAS revenues and shares only around 30-40% of
revenues with the content owners, content aggregators and technology enablers.
Advent of Digital Services

In this increasingly digital environment it is vital for Telecom Service Providers (CSPs) to
reinvent their business model and provide new services for the digital age, in addition to their
current traditional carrier services — voice, messaging, data and video. These new services, that
we refer to as Digital Services, have a key specific feature — contrary to traditional
communications services where CSPs are in control of the end-to-end delivery, they are
delivered by CSPs’ in tandem with other players. The industry must therefore figure out how to
better leverage its unique position to optimize its role within the Digital Services value chain.
The key drivers for Development of Digital Services are:

1. Proliferation of Devices and Deployment of Necessary Infrastructure
Growing Usage of Smart Devices – According to industry forecasts, the number of mobile
internet connections will exceed 10 billion by 2018 and will be 1.4 times greater than the world’s
population. It was estimated that 73% of internet users in 2013 accessed the internet from a
mobile device. In Jan 2017, mobile internet traffic was found to be 79% of the total web traffic.
This is predicted to rise to 90% in 2018. Both these facts establish the importance of the mobile
platform, and have led various industries such as financial services and healthcare to sharpen
their focus on the mobile interface.
2. Expansion and Advancement of Network Infrastructure
Owing to the ever increasing demand for faster internet connections, migration to 4G or long-
term evolution (LTE) based networks is happening at a much faster rate compared to the earlier
migration from 2G to 3G networks. According to Ericsson, 65% of the world’s population will
be covered by LTE by 2019. The migration from existing infrastructure to a 4G ecosystem might
seem a capital intensive endeavor now, but such transformation will have a net positive impact

for operators. In terms of capacity, initial 4G deployments will deliver a 1.2 times improvement
over high end 3G configurations with considerably larger gains when compared with earlier 3G
systems. Small cell topology improvements in 4G would be enough to provide the capacity boost
needed to mitigate demand peaks. LTE (Long Term Evolution) is also 55% cheaper than HSPA
and 92% cheaper than EDGE (Enhanced Data rates for GSM Evolution) in terms of cost per MB
– thus, offering the same data pack over 4G LTE network would effectively reduce the cost for
the operator compared to 3G/HSPA (High Speed Packet Access) network.
3. Evolution of the Technology Ecosystem to Support Digital Services
Some key recent development in technology and applications are acting as key enablers for the
future of advanced digital services. The advancement in design and manufacturing processes of
computing chips, the development of smaller, cheaper, low/self powered sensors, the
implementation of IPv6, the progression of cheaper cloud computing resources, and as discussed
above faster communication standards such as 4G-LTE and beyond — together form the great
technology platform to support in creation and delivery of digital services. Cloud computing has
witnessed increasing migration of firms to cloud environments to achieve cost-efficiency,
scalability and agility. Implementation of IPv6 ensures superior quality of service (QoS) for the
more advanced internet applications. Other developments such as the quest of deriving more
insights from big data, the ongoing research and development on wearable smart devices and the
wider acceptance of new technologies by every industry is leading to rapid commercialization
and deployment, and greater technological breakthroughs.
4. Changing Consumer Behavior
Ever increasing usage and ownership of digital devices is increasingly changing the way
consumers engage with their community and seek information about topics that matter to them.
The digital demographic has kept pace with advancements in technology and have come to
expect their service providers keep up with the pace of technology adoption as well. This
behavior is expected to be more pronounced and consumers will seek ever-smarter and more
efficient ways to access information find products and engage with their communities.
5. Telecom Service Provider’s Quest for New Services and Revenues Streams
Over the last few years, Telecom service providers have been witnessing increasing pressure on
traditional revenue sources with the commoditization of voice and messaging services.
Saturating markets and growing competition within the industry and also disruptive substitution
by OTT services have increased the business challenges for telcos. This has forced telcos to look
beyond the core business of providing voice and data services, and explore and experiment
different approaches to find new niches in the digital economy. Telecom operators are busy
creating dedicated business units to offer Digital Services, demonstrating their focus on these
new services and revenue streams.

Defining Digital Services in the realm of Telecom Service Providers

As per the Capgemini Consulting-MIT whitepaper, there are three key areas where a majority of
the digital opportunities lie for telecom players — Mobile money transactions, Over-the-Top
services and Internet of things (IoT)
Mobile Money Transactions
The term Mobile Money Transactions (MMT) encompasses Mobile Payments, Mobile Banking
and Mobile Commerce. Deloitte India predicts that in 2017, mobile and digital payments will
finally overtake physical card payments as the predominant non-cash payment mode.
CSP driven mobile money transaction (Source: Capgemini report)
Bank driven mobile money transaction (Source: Capgemini report)

Third party driven mobile money transaction (Source: Capgemini report)
OTT Services
The rapid adoption of technologically capable smart phones and ready availability of high-speed
data has provided consumers with access to a wide-variety of communication services, which go
beyond traditional voice and messaging services. Industry players refer to such services as over-
the-top or OTT services. Broadly these services refer to text messaging services, voice based
communication services, delivery of audio-visual media, and similar services provided over the
internet rather than via a service provider’s own dedicated, managed network. OTT services are
delivered directly from such service providers to consumer using the open internet connection,
which is independent of consumer’s Communication Service Provider, without the need for any
major infrastructure investment on the part of the provider; and because there is little investment
required by OTT service providers, they are generally lower in cost compared to similar services
by CSPs. For instance, the cost structure of Whatsapp is about 2% of a typical MNO’s cost
structure. OTT services have already disrupted the traditional revenue models of CSPs —
whether they are pure telecommunication service providers or cable/satellite companies. Some
key examples of OTT service providers are WhatsApp (for text messaging), Skype (for long
distance voice calls) and or Netflix (for audio-visual content). After several attempts to thwart
OTT provision of content and communication services, CSPs are finally moving to embrace
OTT as a key digital service of the future.
Internet of things
Considered as the next wave of business transformation- following computers, the internet, and
mobile communications — the Internet of ‘Things’ is going to expedite the next industrial
transformation. IoT is essentially a network of physical objects, containing embedded technology
to communicate/sensor interact with their internal states or the external environment. IoT has its
roots spread across many vertical application domains, ranging from automotive and machinery
to home automation and healthcare. The uptake of IoT and its impact can only be measured by
the “connectivity ecosystem” built across verticals, encompassing universally accepted

connectivity standards. In this context, there are technologies such as Bluetooth, Infra-red, which
offer short distance connectivity. CSPs, in this case are well positioned — with network
connectivity, roaming and interoperability credentials, customer care, billing and distribution
capabilities — to enable connectivity required for an effective implementation of IoT. Yet, to
deal with completely different verticals and to stay relevant in the IoT ecosystem, CSPs need to
develop partnerships with the existing stakeholders such as technology and application providers
in the IoT value chain.
Outlook
Sector Potential at 2020: Encouraging Investments (Deloitte Services sector report)
With a telephone subscriber base of more than 1 billion (as per data released by TRAI) and
internet subscriber base of 422.19 million at the end of March – 17, India has world’s second
largest network and the second largest number of internet users in the world after China. 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.
Tele-density
Tele-density is the number of telephone connections for every hundred individuals living within
an area.

Teledensity in India (Source: TRAI)
It has been increasing steadily with maximum growth seen in the rural areas. Tele-density has
already reached to around 93% in Mar-17 from 12% in Mar-06. Subscription in Urban Areas
increased from 609.69 million at the end of Mar-16 to 692.97 million at the end of Mar-17
(13.65% Y-O-Y increase), and Urban Tele-density increased from 154.01 to 171.80 during the
same period. Rural subscription increased from 449.17 million in Mar-16 to 501.61 million in
Mar-17(11.61% Y-O-Y increase), and Rural Tele-density also increased from 51.37 to 56.91
during the same period.
Wireless Segment
The number of wireless subscribers has been growing at an average of about 90 million between
2014-15 and 2016-17. The wireless subscriber base rose from 1,034 million as of Mar-16, to
1,170 million as of Mar-17, an annual jump of 137 million subscribers, with Reliance Jio
capturing 109 million of the additions since the commercial launch of its operations in
September 2016. The year-on-year (Y-O-Y) growth of wireless subscribers is 13.25%.

Note: Net additions are on a quarterly basis give active subscribers as a percent,as a per cent it ihas
dropped
Source: Telecom Regulatory Authority of India (TRAI), CRISIL Research
As per the CRISIL research report, The number of 3G subscribers in India is expected to peak in
2019-20 at 225 million, post which migration to 4G networks is expected to pick up pace.
Operators are expected to keep 3G data tariffs at attractive price points till 2018-19, post which
3G data tariffs are expected to increase while 4G data tariffs fall, leading to faster migration to
4G networks.
Urban areas have been the focus of subscriber additions for telecom operators hence the bulk of
the net additions during 2016-17 were in urban areas (~84 million subscribers), due to the greater
uptake of 4G services in these areas. As per CRISIL Research estimates, subscriber additions are
expected to be steady over the forecast period (2017-18 to 2021-22), driven by rising penetration
of operators in rural areas. Rural net additions are expected to contribute entirely to net addition
during the period. Urban subscribers, on the other hand, are expected to decline over 2017-18
with the ceasing of the free offer from Reliance Jio and the weeding out of inactive
subscribers. A clean-up of the subscriber base, mainly in urban areas, would enable rural net
additions to outpace urban net additions over our forecast period.

Market Share (Mar-17) %

4.19 0.73
4.31 Bharti
Vodafone
7.14 23.39 Idea
7.77 Reliance Jio

BSNL
8.63
17.87 Aircel
9.29 Reliance Com

Telenor
16.7
Sistema
Market share subscriber wise wireless (Source: TRAI)
The private players hold around 90% market share of the wireless subscribers whereas PSUs
(BSNL and MTNL) hold only 10% of the market share. Top 4 players (Bharti, Vodafone, Idea
and Reliance Jio) hold more than 65% of the market share in the wireless segment.
Wireline Segment
The number of wireline subscribers has been falling consistently every quarter,
reaching 24.4 million in March 2017 from 25.2 million in March 2016 and 30.2 million in March
2013. Bharat Sanchar Nigam Ltd (BSNL), the largest operator in this segment, continues to lose
subscribers, though it retains leadership position. The pace of decline in the wireline subscriber
base is moderating with the rising adoption of wireline broadband services through digital
subscriber lines. For most private operators, a high proportion of landline subscribers double up
as broadband subscribers. However, with the emergence of players like Hathway, who offer
triple-play services, subscribers opting for wireline services for broadband will see a decline. The
downtrend in wireline subscriber base can largely be attributed to dwindling subscriptions in
rural areas, where rising affordability is enabling greater adoption of mobile services. Private
operators are targeting increase in wireline broadband penetration to push up their average
revenue per user (ARPU). However, it is unlikely that minor additions by private operators
would prevent the fall in wireline subscriber numbers.

Expected Decline in the Wireline Subscribers (Source: Crisil Research)
Market Share (Mar-17) %

4.81 1.08 0.57 0.23
BSNL
7.17
Bharti
MTNL
14.19
Tata
56.1
15.84 Reliance
Quadrant
Vodafone
Market share wireline subscriberwise (Source: TRAI)
PSUs (BSNL and MTNL) hold about 70% of the total market share in the Wireline subscribers
market. All the private players combined hold the remaining 30% of the market share.
Revenues
According to CRISIL Research the revenue of the telecom services industry to rise at an 8-9%
compound annual growth rate (CAGR) until 2021-22. Mobile services, which account for more
than 77% of the industry's revenue, will drive growth. Revenue from NLD, fixed-line services,
and ILD will constitute the balance.

The telecom sector slumped to the lowest on-year growth in 2016-17 in revenue in the past
decade, despite a hefty increase of over 3.5 times in data traffic. Competition during the first half
was relatively less, compared with the second half, which went through the twin impact of the
launch of Reliance Jio's free services in September 2016 and demonetisation in November 2016.
Incumbents sharply reduced their data tariffs (mainly 4G) to prevent their data customers from
migrating to RJio's free-of-any-charge network. National long-distance (NLD) revenue has also
decreased during the year, due to free voice across India being offered by RJio. The pressure on
NLD revenue is expected to remain during the next 3-4 years, as voice gets marginalised because
of data. International long-distance (ILD) revenue declined because of traffic migration to
cheaper, over-the-top applications, such as WhatsApp, Viber and Skype.
Amid consolidation, pricing stability is expected to return post 2017-18 and mobile revenue
is expected to grow at 10% over the next five years until 2021-22. Growth is expected as data
realisation is expected to improve from the levels achieved in 2016-17
Data traffic is expected to almost quadruple in the next five years, reaching 24 trillion MB for
2021-22 from 6.3 trillion MB in 2016-17. Data as a percentage of total revenue is expected to
improve tremendously from 26% in 2016-17 to 40% in 2017-18.
Data revenue set to almost double in two years (Crisil Research)
4G is expected to contribute almost 85% of the total data traffic in the country, while 2G and 3G
are expected to contribute the rest with demand coming mostly from rural areas. This mix will be
supported by the availability of cheaper 4G handsets and reduction in data tariffs, which
would drive data uptake on a mass scale.

Figure: Data revenues to grow primarily on 4G (CRISIL Research)
The likely entrance of Reliance Jio in the market in the second half of 2016, will have a direct
impact on data usage and tariffs. Though data tariffs are expected to decrease during this period,
usage is pegged to more than compensate for the revenue drop. Premium data subscribers are
also expected to grow in urban areas, and will command a higher ARPU. Coverage for 3G is
slated to increase to pan-circle levels for operators.
Despite the rapid uptake of 3G over the past year, 2G data still constitutes around 30% of
industry data revenue. However, this mix is expected to change on the back of growth in 3G
revenue and commercial 4G rollouts. 3G is expected to command majority of the data revenue
share till 2017-18 till 4G forms a sizable chunk of usage and subscribers.
Share of 2G/3G/4G BTS (Source: TRAI, Crisil Research)

According to CRISIL Research data usage per subscriber (blended for 2G, 3G, and 4G users) is
expected to rise at over 12% CAGR, reaching 2.2GB in 2021-22 from 375 MB in 2015-16 and
1.25GB in 2016-17
Revenue from fixed-line services is expected to remain stable during the next five years (a result
of increasing adoption of mobile services). On the other hand, NLD and ILD revenue is forecast
to fall at a 1.2% and 1% CAGR, respectively.
Telecom Industry Revenue (CRISIL Research)
Credit Profile
As per CRISIL research report, credit profile of telcos is at a low point and this stress may
continue in 2017-18 as well. With estimated debt outstanding of Rs 4.0-4.2 trillion as in 2016-17,
the telecom industry's credit profile has deteriorated. India has one of the lowest average revenue
per user (ARPU) globally. Three out of four large players have reported net losses in 2016-17
and these are expected to continue, further impacting credit profiles. Total debt of the sector is
concentrated among smaller players (other than top three players), which contribute ~25% of
revenue while amounting to 50-60% of total debt. Interest coverage ratio for smaller players is
already below 1.0, suggesting extreme pressures on earnings to service debt. Smaller players are
expected to be hit much more than bigger players like Bharti, Idea and Vodafone. Ability of
smaller players to retain a significantly deteriorating market share will be critical in the medium
term. Continuous capital expenditure in spectrum has further capped probability of improving
returns, which is reflected in consolidation drive across players.
Policy and Regulatory Framework

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 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, Reliance Jio, Telenor and Vodafone. 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, Tata Tele and Sistema Shyam Telecom.
Disruption caused by Reliance Jio

RJio launched its 4G services in India in September 2016 with path-breaking and innovative
tariff points amid free voice services, clearly targeting maximum subscriber and revenue market
share.
RJio Infrastruture Investment
Fuelled by an investment of Rs 1,50,000 crore and backed by partnerships with eight global
carriers — British Telecom, Deutsche Telecom, Millicom, MTS, Orange, Rogers, Telia Sonera
and Tim — Jio has successfully created the largest only 4G and LTE networks not only in India,
but in the world. A 2,50,000 kilometres route of fibre optic cables and 90,000 eco-friendly 4G
towers work to provide unmatchable 4G coverage in all of India’s 22 telecom circles (call zones
which differentiate between local and STD calls).
While all the existing network providers are using a modified 2G/3G infrastructure to provide 4G
in India, Jio has set up a Greenfield network (created from scratch) that offers higher bandwidth
and faster speeds. The Jio network is also future-proof and capable of offering 5G and 6G
connectivity as and when the technology materializes. After establishing this infrastructure,
Reliance Jio’s next hurdle was acquiring customers. And they did it by offering the Indian
population a wide range of free offers.
Timeline of the RJio Offers
The first offer was the Reliance Jio Welcome Offer when the company first announced its
launch. With this, the operator provided users with 4GB of free data usage per day at 4G speeds
(and at 128kbps thereafter). Also free were 100 SMSs per day, Jio apps, and all STD and local
calls. The offer came into effect from September 5 and lasted till December 31. To avail free
services under the Jio Welcome Offer, customers only had to become a Jio user by procuring a
Jio SIM card – a recharge was not required.Shortly after the offer was launched, Jio competitors
launched offers of their own, providing calls and data at heavily discounted rates.
Thereafter a number of offers were launched by the company – The Happy New Year offer, with
Jio free services coming to an end on December 31, the operator announced the Jio Happy New
Year Offer a full month ahead of the cutoff date, extending free services for another three
months. Under the Jio Happy New Year Offer, customers could get free services till March 31,

but there was one major difference – the free 4G data was capped at 1GB per day, after which
the speed would go down to 128kbps. If the 1GB data cap was exhausted, users could purchase a
Booster Pack and continue with high-speed Internet.
This offer came as a jolt to those who expected Reliance Jio to start charging for services starting
January 1. With the offer came complaints against it from other telcos. The Telecom Regulatory
Authority of India(TRAI) asked Jio to explain how the Happy New Year Offer does not violate
the rule against promotional offers after 90 days. In response, the operator cited the lowered free
data cap of 1GB per day, and paid Booster Packs, which the regulator deemed sufficient for
continuing the largely-free services for 3 months.
With Happy New Year Offer coming to a close soon, Reliance Industries Chairman Mukesh
Ambani announced a new subscription service named Jio Prime, which would provide
members several benefits. The company’s free data, SMSs, and app subscription were to end on
April 1, but Jio Prime users could continue with the same for roughly Rs. 10 per day. The Jio
Prime subscription cost Rs. 99 for the whole year, and with a Rs. 303 recharge you could get
1GB data per day, along with all the other freebies.
However, users had to sign up with Prime and buy the recharge before the services went paid on
April 1. However, it turned out that Jio wasn't done with freebies. On March 31, just a day ahead
of going paid, the company announced the Summer Surprise Offer, which gave users the free
services for three months on recharge of Rs. 303 or higher - you just needed to sign up for Jio
Prime first. The company also extended the deadline for signing up to Jio Prime to April 15, up
from March 31. Within a week of being announced, the offer was pulled by the
operator following a TRAI order stating that it violated regulatory framework, but sign-ups for
the Prime service continued for a few days more, even after it was cancelled
Barely had the Summer Surprise offer been cancelled that Jio rolled out yet another new offer.
The new Jio Dhan Dhana Dhan offer is quite similar to the Jio Summer Surprise offer as both
include usage till end of June, and so those who are part of the Summer Surprise offer cannot
enrol in the new offer. The Jio Dhan Dhana Dhan offer will provide three months (84 days) of
services to new Jio customers as well as those who could not join the Jio Prime service.
The recent launch of the new 4G feature phone by RJio would be a “key headwind” for
incumbents. This could prove to be disruptive for the large 2G GSM subscribers, 65 percent of
the revenues of top incumbents. By entering the 4G feature phone market with a bundled
offering which could be between Rs 500 and Rs 1,000, RJio is looking at converting the 400-plus
million feature phone customers (who use 2G or 3G) across the country to 4G services.
Understanding the RJio Market Strategy
With a huge capex investment, multitude of offers, launch of 4G feature phones and the Jio App
ecosystem, Reliance is echoing a loss-leader strategy: sacrifice short-term (even if its as long as
3-4 years) profitability, have more Indians come online/use data, hike prices slowly and reap the
rewards of the larger addressable market. However, the industry seems nervous about its blood-
shed approach.
This loss-leader strategy comes with its own consequences for competition and consumer
protection. A large part of margin contraction happened in the second half of 2016-17, with the
aggressive entry of Reliance Jio with its 'Jio Welcome Offer' and continuation through 'Happy
New Year Offer'. Margins for the incumbents have dropped sequentially for Q4 2016-17 with
Idea Cellular and Reliance Communications reporting their first ever net losses for the year. As
per CRISIL research continued pricing pressure from RJio's Dhan Dhana Dhan offer, will keep
tariffs subdued for the first half of 2017-18. Realisations, though, have come under enormous
pressure with the incumbents offering 4G data for as low as Rs 10 per GB (as against Rs 250 per
GB a year ago). Telecom players have undergone another round of data tariff cuts to match Jio's
offering, post the expiry of its free services' period. With the incumbents responding to RJio's
'Dhan Dhana Dhan' offer, price per GB for 4G has gone down even further to Rs. 4-6.
Impact of the Offers on the industry and incumbents
Post the end of the offer, the company already acquired 109 million subscribers as in March
2017. As per company releases, 72 million subscribers had enrolled for prime
membership. Activity ratio, however, remained a concern for the telco with 73.5% of its
subscribers being inactive.
The Dhan Dhana Dhan offer translated into an ARPU of Rs 96 for these three months. This plan
was offered to consolidate the healthy subscriber base which the company had amassed during
its free offer period. While the competitive intensity of the industry would remain high, the
pricing by RJio indicates some easing of pressure on ARPU. On 13th July, 2017 RJIO added an
Rs 399 plan (84 days) with the same benefits as the 'new' Rs 309 plan, but with a higher duration.
The new RJIo tariffs mean an uptick in ARPU, although it still remain below prevailing industry
ARPU (Bharti Airtel reported ARPU of Rs 158 for Q4FY2017, Vodafone at Rs 142 and Idea at
Rs 142)
The entry and disruption caused by Reliance Jio, the tariff wars which subsumed, the dented
EBITDA margins of the incumbents due to aggressive pricing , the debt taken to secure spectrum
and the network capital expenditure to roll out new networks, has affected the leverage metrics
of major operators. Owing to the above factors consolidation in the Indian mobile telecom
industry has become imminent. The competitive position of smaller operators has progressively
become weaker. Given their lack of scale economies and existing low levels of pricing, the
smaller operators are not likely to turn profitable anytime in the foreseeable future. Data on
numbers ported after the implementation of MNP (mobile number portability) in January 2017
also indicate that established operators are gaining at the expense of smaller operators. The

mobile services market, therefore, has increasingly become polarised towards the established
operators.
A new wave of mergers and acquisitions, which started in November 2015 with Reliance
Communications’ agreement to acquire Sistema’s Indian wireless business, has gained
considerable momentum over the last 15 months with several more announcements having been
made. The final shape of the consolidation would be contingent on merger and acquisition
(M&A) norms.
Mergers and Acquisition norms 2014

Key Guidelines
a) As a result of the transfer of assets/licenses/authorization from the acquired company to the

acquiring company, the licenses/authorization of the acquired company will be absorbed in the
resultant entity. The date of validity of the various licenses/authorization shall be as per the
licenses/authorization and will be equal to higher of the two periods on the date of the merger.
However, the validity of the spectrum shall remain unchanged.
b) The Unified License with respective authorization is to be obtained for any additional service
or any license area or service area.
c) The spectrum cap in a band for access services if 50%. Taking it into consideration, the
transfer/merger of licenses of the companies shall be allowed where the market share for access
service in the respective service area of the resultant entity is up to 50%, failing which the
resultant entity should reduce its market share limit to 50% within a period of one year from the
date of approval of merger or acquisition or amalgamation by the competent authority. If the
resultant entity fails to reduce its market share to 50%, the licensor shall initiate suitable action.
d) For determining the afore-mentioned market share, market share of both subscriber base and
Adjusted Gross Revenue (AGR) of the licensee in the relevant market shall be considered. Also
the entire access market will be the relevant market. Exchange Data Records (EDR) shall be used
for calculation of wireline subscribers and Visitor Location Register (VLR) shall be used for
calculation of the market share of the wireless subscribers. Depending on the application date,
the two reference dates can be either 31st December or the 30th June of each year.
e) If the acquired company has paid an entry fee for holding a part of spectrum (4.4 MHz/2.5
MHz), the acquiring company has to pay the difference of the entry fee and the market
determined price of the spectrum from the date of the approval on a pro-rata basis for the
remaining period of validity to the Government. However, no separate charge shall be levied for
spectrums acquired through auction conducted from the year 2010 onwards.

f) The spectrum usage charge (SUG) as prescribed by the Government from time to time shall
also be payable.
g) Upon implementation of the merger of licenses in a service area, the total spectrum held by
the resultant entity must not exceed 25% of the total spectrum assigned for the access services
and 50% of the spectrum assigned in a given band. In case of future auctions, the relevant
conditions prescribed for such auctions shall be applicable. However, in case both the transferor
and the transferee company had been allocated one block of 3G spectrum through the auction in
2010, the resultant entity shall also be allowed to retain 2 blocks of 3G spectrum in the respective
areas, but being within 50% of the spectrum band cap.
h) Excess spectrum beyond the prescribed limits has to be surrendered within one year of the
merger. The applicable Spectrum Usage Charges on the total spectrum holding of the resultant
entity shall be charged by the Government.
i) All demands related to the licenses of the merging entities will have to be cleared by either of
the two licensees before the issue of the permission for the merger. An undertaking shall be
submitted by the resultant entity to the effect that any demand raised for the pre-merger period of
the transferor or the transferee company shall be paid.
j) If because of the merger/transfer of the licenses in a service area, the resultant entity becomes a
“Significant Market Power (SMP)”, then the extant rules and regulations applicable to SMPs
would also apply to the resultant entity. The SMP in respect of access service is defined by TRAI
from time to time.
Consolidation in Telecom Industry

In the past 1-2 years, there has been consolidation in terms of spectrum, revenue, and
subscribers. Medium-sized and small operators are slowly getting marginalised. Their revenue
market share continues to decline. Guidelines for sharing and trading spectrum have also
opened an exit route for small and medium-sized operators, who could divest their spectrum
holdings to large operators (what Telenor, Tikona and Videocon have done with Bharti
Airtel). Alternatively, they could merge to take on competition (Aircel and RCOM, and Idea and
Vodafone). RJio's entry has hastened the process of consolidation in the industry.
Consolidation to be a game-changer
There are many positives that can be derived from the consolidation drive happening in the
industry currently.
Return of pricing power

When there are 4-5 telecom operators in a country, the competitive intensity generally
diminishes, leading to return of pricing power with the telecom operators. The current fierce
competitive intensity in the industry is leading to erosion of revenue and deterioration of
financial health of the players.
Realisation of operational synergies
Currently, with 9-10 operators in the industry, of which 7-8 have pan-India coverage, networks
across the nations have been deployed. Distribution networks have also been established by each
player. With consolidation, duplication in mobile networks and distribution networks will be
reduced. Network capital expenditure will also be reduced, while eliminating redundant sites will
reduce both opex and capex.
The Idea-Vodafone Merger

British telecom major Vodafone and Aditya Birla group-run Idea Cellular announced
the merger of their operations on March 20, 2017 creating the largest mobile operator by
customer and revenue market share.
According to the proposed deal structure, Vodafone will own 45.1 per cent in the new company
after transferring 4.9 per cent to the Aditya Birla group for Rs 3,874 crore in cash concurrent
with completion of the merger. Idea will hold 26 per cent of the combined entity while the rest
will be owned by public shareholders. Idea and Vodafone said the merged entity will be jointly
controlled by Vodafone and the Aditya Birla group as per shareholders' agreement. Vodafone
and the Birla group announced that Kumar Mangalam Birla would be chairman of the new
entity.
The all-share merger for both partners excludes Vodafone's 42 per cent stake in Indus Towers
and will be effected through issuing new shares in Idea to Vodafone and result in Vodafone
deconsolidating Vodafone India.
Consolidation will lead to a game-changing scenario if the merger talks between the second and
third largest telecom operators - Vodafone and Idea Cellular, respectively, materialize. The
merger is expected to be completed in 2018. Merger has been initiated by both companies and
approvals are being sought. While the Competition Commission of India has approved the
proposed merger, approvals from Securities & Exchange Board of India (Sebi) and National
Company Law Tribunal (NCLT) are being sought. If the merger goes through, it will lead to the
emergence of the largest telecom operator in India in terms of spectrum, revenue, and
subscribers. If the deal transpires, it is likely to have large-scale ramifications in the telecom
industry with the emergence of three dominant operators – Idea-Vodafone, Bharti Airtel, and
Reliance Jio. Idea will issue new shares to Vodafone, and both companies will have equal
shareholding in the merged entity. While Vodafone’s stake in Indus Towers will be kept out of
the transaction, Idea has not revealed whether its stake will be included or not.

Market-share dynamics
The combined entity will have a revenue and subscriber market share of 44% and 36%,
respectively.
It will be the leading telecom player, ahead of Bharti, which has a revenue market share of 35%
(including Telenor) at present. The spectrum market share of the combined entity will be ~26%,
as against Bharti’s 22%, and Reliance Jio’s ~19%.
The combined entity will be the top operator in 11 circles comprising 54% of the total
subscribers in India.
According to the merger and acquisition guidelines, the subscriber and revenue market share of a
combined entity cannot exceed 50% in each circle. However, the merged entity will breach the
revenue market share condition in five circles – Gujarat, Maharashtra, Kerala, Madhya Pradesh,
and Uttar Pradesh (West).
Spectrum situation
The combined Idea-Vodafone entity will have pan-India 3G and 4G coverage with multiple
carriers in most circles, with an average of 9 MHz and 17 MHz, respectively, per circle, and
best-in-class coverage and capacity spectrum.
The coverage spectrum footprint in 900 MHz in 17 circles (the remaining five circles are small)
contributes to over 90% of industry revenue, providing the combined entity with a significant
competitive edge. The future spectrum requirements of the combined entity will reduce
significantly.
As per the guidelines, a telecom operator cannot hold more than 50% spectrum of the allotted
band in a circle. This cap will be breached in two bands – 900 MHz in the five circles of
Maharashtra, Gujarat, Kerala, Uttar Pradesh (West), and Haryana, and 2500 MHz in Maharashtra
and Gujarat. The merged entity will have to surrender ~13 MHz spectrum in the 900 MHz band,
and 20 MHz in the 2500 MHz band.
The circle-level spectrum-holding cap of 25% will not be breached in any circle.
Aircel and Reliance Communications (including Sistema Shyam/MTS) have also announced a
merger, which has got regulatory approvals. The combined entity will be called "Aircom" and
will be fourth largest telecom operator in India after the incumbents with ~180 million
subscribers (subscriber market share of 15%). Revenue market share for the combined entity will
be ~10%.
Overall, in the next 1-2 years, the industry could have 5-7 major telecom operators.

Key Regulatory Policies

Spectrum Sharing
 Two operators in a circle can pool their spectrum holdings to increase spectral efficiency
 Both operators should have spectrum in the band they want to share
 Traded spectrum can be shared
 Spectrum can be shared for the remaining life of the license period or till the expiry of the
sharing agreement, whichever is earlier
 Only liberalised spectrum can be shared
 Spectrum usage charges (SUC) for both operators will increase by 0.5% of the aggregate
gross revenue of the circle post sharing, and will be calculated on the entire spectrum
holdings of the two operators in the band
 Operators will have to pay Rs 50,000 each as non-refundable fees for each circle where
they wish to enter into a sharing agreement
Impact
This guideline is expected to improve customer experience as operators will have sufficient
spectrum to offer uninterrupted services. The requirement of the spectrum to be shared needing
to be in the same frequency band restricts sharing.
Spectrum Trading
 Allows operators to trade spectrum, giving the buyer the right to use traded spectrum
 The entire liberalised spectrum in all bands can be traded
 Market-determined prices will have to be paid to trade administratively allotted spectrum
 The seller will need to hold the spectrum for two years before entering into a trading
agreement
 Trading is to be permitted for the entire circle and not for parts of a circle
 After the agreement, the combined spectrum with the buyer should not be more than 25%
of the spectrum allotted in that circle and not more than 50% of the spectrum in that
particular band
 The buyer will be required to pay a non-refundable 1% trading fee to the government on
the transactional amount or market-determined price in the previous auction, whichever is
higher
Impact
Spectrum-sharing promotes industry consolidation and offers smaller operators an exit option. It
also allows some operators to get rid of excess/underutilized spectrum, monetize their assets, and
reinvest in circles that promise greater growth. These guidelines will help larger operators beef
up their holdings in circles in which they failed to acquire spectrum in past auctions.
Spectrum Liberalization guidelines
As per the November 2015 guidelines, operators can liberalise their entire administratively
allotted spectrum holding in the 800 and 1800 MHz bands in a circle for the balance period of
right-to-use spectrum. This can be done by paying the latest auction-determined prices.
However, in cases where the auction cost is more than a year old, the market rate would be
decided by indexing the last price at the State Bank of India prime lending rate. Operators will
also have to pay Rs 50,000 as non-refundable fee for each circle where they wish to liberalise
spectrum. They will then be able to offer services such as 4G using the same radio waves.
Impact
This will directly impact Idea, RCOM, Tata Teleservices, and Aircel, which have huge quantities
of unliberalised spectrum in the 800 and 1800 MHz bands, both suitable for 4G. Once
liberalised, the operators can trade the spectrum.
Mobile Virtual Network Operator (MVNO) licenses
The DoT has decided to give licenses to MVNOs to set shop in India. Through the licenses,
MVNOs will be able to offer services of a telecom operator, without actually owning the
spectrum and related infrastructure. Entry fees has been set at Rs 75 million for offering all
services. MVNOs who do not wish to offer all services will have to pay Rs 1.5 million for
national-level internet services and Rs 12.5 million for a long-distance telecom license.
Impact
This will provide the existing telecom operators to utilise their under/un-utilised spectrum by
leasing out minutes and data on their network. Players like BSNL/MTNL, Tata, RCOM, and
Aircel could hugely benefit from this regulation. This will also provide companies and banks
with a large customer base an opportunity to connect their customers through mobile services.
Call drop charges
TRAI had ordered operators to pay Re 1 per call drop to consumers for a maximum of 3 calls a
day, and intimate subscribers for each drop. The government had also asked operators to make
more network investments to address the issue. Operators cited lack of spectrum, reconfiguration
of spectrum bands, and prohibition on installing more towers, as the main reasons for call drops.
They offered a hike in tariffs to counter the fall in revenue as a result of call drops, which would

also maintain profitability and capex levels. The Supreme Court, however, overturned the
decision stating that TRAI had no powers to impose penalties.
Impact
The Final take was that even though the directive was quashed by the Supreme Court, operators
started making investments to beef up their networks to reduce call drops. They have installed a
large number of base transmission stations (BTS) to address the concern. TRAI regularly comes
out with road tests, which show the level of call drops in different cities across different
periods. Some operators have also started giving free voice minutes (Vodafone and Telenor) if
a call gets dropped on their networks.
Goods and Services Tax (GST)
The GST Bill was passed by the Parliament in the first week of August 2016. The GST Council
has set 18% as the rate for telecom services.
Impact
Mobile bills for postpaid subscribers will go up as the GST rate has been set above the current
15% (including Krishi Kalyan Cess and Swachch Bharat Cess) on mobile bills. However, for
prepaid subscribers, telecom operators might have to take some loss if the tax increase is not
passed on, due to competitive pressure. Also, since telecom circles are not aligned with
geographical boundaries for some states and union territories, confusion may arise with different
rates imposed by different states. As a result, price of a prepaid pack may vary across regions in
a same circle, which might lead to pricing discrepancies and consumer complaints. The GST Bill
has specifically denied input tax credit on telecom towers. This will lead to cascading tax for this
sector. Diesel - one of the key inputs for telecom towers - is kept out of GST at present. Thus, no
input tax credit of taxes paid on diesel will be available to telecom companies.
Spectrum Usage Charges (SUC)
The DoT has fixed 3% as the minimum rate for calculating spectrum usage charges for all the
telecom operators. For the spectrum which will be bought in the upcoming auctions, SUC has
been set at 3%.
Impact
Most telecom operators will not benefit from the floor rate set by the DoT. Of the two major
telecom operators which hold spectrum in 2300MHz spectrum band (SUC for which were set at
1% in the auctions of 2010), Bharti Airtel will not be impacted much as it holds sufficient

spectrum in other bands, taking its weighted average SUC to above 3%. However, RJio will have
to pay slightly more than its actual SUC (at ~2.9%) as a result of this directive.
Net Neutrality
In February 2016, TRAI favoured net neutrality and ruled out differential pricing of data
services. According to differential pricing, an operator could charge different prices for access to
different websites on its network. It may decrease data usage charges for access to a particular
website or application, while charging more for access to another website. Any violation of
TRAI's order would invite a fine of Rs 50,000 per day, subject to maximum Rs 5
million. However, the order will not apply to data that flows over private networks or closed
electronic communications networks.
Impact
This will provide a level-playing field to all the content providers. There will be no restriction on
what and how much content a person can access. Start-ups will have easier access to potential
customers, which will help them grow even faster depending on content.
Telecom Infrastructure Providers (Tower Industry)
Technology & Chipset Network Infrastructure Wireless Carriers

Manufacturers providers
•Develops wireless •Includes both active •Provide wireless

communication and passive voice and data
technology and infrastructure services to the
chipsets. For providers. For clients. For example:
example: Texas example: Indus Bharti
Instruments Towers
Telecom Infrastructure Providers in Telecom value chain( Source:Crisil)
To provide various services to the customers, Telecom companies require some basic
infrastructure to be set up. As the cost of setting up telecom infrastructure, telecom companies
tend to outsource the infrastructure requirements to telecom infrastructure providers. The basic
infrastructure comprises of three main components:
1. Active infrastructure
2. Passive infrastructure
3. Backhaul

Active infrastructure
Active infrastructure comprises of the core elements required by the telecom companies for their
day-to-day operations. It is required to carry the wireless signals and providing coverage through
operating on dedicated set of radio channels of defined frequency. Elements like Base
Transceiver Stations (BTSs), base station controllers (BSCs), mobile switching centers (MSCs)
and radio antenna come under this category of infrastructure.
Passive infrastructure
Passive infrastructure comprises of the elements which enable the active infrastructure to operate
in an efficient manner. The main function of passive infrastructure is to support the active
infrastructure in the transmission of wireless signals. For example, telecom towers do not play
any role in the transmission of wireless signals but they are required to host the antennas at an
appropriate height required to transmit the signals. Telecom towers, battery back-up, shelters,
air-conditioners and power regulation equipment come under the category of passive
infrastructure.
Backhaul
It refers to the intermediate link between the active infrastructure like antenna at the tower site
with the BSCs and the MSCs. A number of mediums like microwaves can be used as backhaul.
The optimum choice for selecting a backhaul depends on the network capacity, expected data
speed, relative cost and availability of spectrum space. Due to cost considerations, microwaves
are being used as backhaul in India. But most of the infrastructure providers are now moving to
optic fibre-based links as the expected data speed is increasing day-by-day.
Tower Company Offerings
The tower segment, traditionally divided into ground-based towers (GBT) and roof-top towers
(RTT), has marginally diversified into IBS (in-building solutions), micro-cell (small-cell)
sites, and Wi-Fi-hotspots due to an increase in data traffic and technological advancements.
These new technologies, having begun to proliferate in the Indian sub-continent on a small scale,
are expected to expand their presence in the future.

Tower Company offerings (Source : CRISIL Research)
Types of Towers: There are two types of towers:
1. Ground Based Towers (GBT): As the name suggests, ground based towers are erected
on the ground. They are mostly installed in rural and semi-urban areas as land is easily
available in these areas. GBTs can accommodate 3-5 tenants.
2. RoofTop Towers (RTT): Rooftop towers are generally installed in urban areas where
land is not very easily available. They are erected on the terrace of buildings in urban
areas. They can accommodate 2-3 tenants.
Add-on services to complement existing offerings
Other offerings that form part of infrastructure in telecom sector include micro-cell (small-cell)
sites, WiFi-hotspots and in-building solutions (IBS).
Small cell sites - a developing technology
Small cells are specially designed radio-access nodes with a typical range of between 10 metres
and 1-2 kilometres. A spike in the number of mobile subscribers has increased mobile traffic and
density. Some towers (or macro cells) are capable of handling this increase in traffic while others
are not. Thus, in high density areas (highly populated cities, malls, etc.), mobile operators install
small cell sites at strategic distances from towers (or macro cells), so as to offload excess data
during times of high mobile traffic. This contributes to the efficient functioning of towers.
Wi-Fi hotspots to support calling in areas with little to no cellular network

A Wi-Fi (wireless fidelity) hotspot is a physical area in which individuals can access internet
using Wi-Fi enabled devices (smartphones, laptops, etc.). The infrastructure consists of a router
(or antenna) that emits radio signals with the help of transmitters (Wi-Fi antennas). The antennas
are stronger in terms of area covered (300-500 feet radius) when compared to routers (100-150
feet radius). While Wi-Fi as a technology has grown among Indian households; public areas have
not witnessed such widespread growth.
In areas where cellular network is poor or non-existent, Wi-Fi calling can be used to connect
calls. This differs from over-the-top (OTT) applications (WhatsApp Calling, Skype, etc.) as it
does not require the user to create an account; users may utilise their phone dialers, address
books etc. to make or receive calls.
In-building solutions
"In-building solutions (IBS)" or "in-building cellular enhancement system" is a method of

enhancing the cellular network reach of mobile operators within buildings, by setting up nodes
(radio transmitters/receivers) at regular intervals inside buildings. These interconnected nodes
are relayed to a main receiver/transmitter, which carries out data interchange with a local
telecom tower. These solutions can be found at airports, malls and buildings where strength of
cellular networks is poor.
Tenancy Ratio: Tenancy ratio refers to the number of tenants (operators) who have put up their
antennae and other active infrastructure on the towers. Higher number of tenants means a higher
rent for the tower.
Types of Tower companies
Operator Controlled Tower Companies
In operator controlled tower companies, the telecom service provider builds and owns the tower.
The service provider can choose to use the tower solely for its own operations or it can also let
other service providers to be tenants for the towers. All the processes required to setup towers
like acquiring land and getting approvals are managed by the service provider in this case. For
e.g. Idea Cellular which has around 9500 towers in the country.
As the capital required to set up tower infrastructure is very high, several companies can join
hands and form an independent tower company. For e.g. Indus Towers is an independently
managed company jointly owned by Bharti Airtel, Vodafone and Idea. This type of joint
ventures is independently managed so they provide infrastructure on a non-discriminatory basis.
Independent Tower Companies
Independent tower companies are third-party passive infrastructure providers who build, own
and lease out towers to service providers. From identifying land to acquiring it and getting

approvals, all the processes involved in building a tower are the responsibilities of the tower
company. Major players in this segment are Viom Networks, GTL Infrastructure, American
Tower Corporation (ATC) and Tower Vision.
Type of tower companiea (Source: CRISIL Research)
Major Players and Market Share

Market share of major TOCO (Source:Crisil)
Overview
Rise in Tenancy Ratios
The telecom tower industry is expected to witness a 9% growth in rental revenue in 2016-17 to
Rs 275 billion. The telecom tower industry's revenue (excluding energy revenue) is expected to
grow at 5.5% CAGR over the next five years, to reach Rs 331 billion by 2020-21, with increase
in tenancy levels (number of tenants per tower). Expansion of services by operators (primarily in
rural areas), rollout of 3G and 4G services (both necessitating installation of more base
transceiver stations (BTS) and surge in data traffic (estimated seven-fold increase over the next
five years) will push the industry's tenancy ratio to 4.09 times by March 2021 from 2.62 times in
March 2016.
High operating leverage
As the industry has a high operating leverage, every additional 'new' tenant leads to a minimal
increase in the operating cost and boosts the operating margin. The current rental margin of the
industry is 65%, and is expected to remain steady, as the majority of new additions are loaded
sites, where an increase in the rental revenue is offset by higher rental cost. A key monitorable
would be the impact of the Supreme Court ruling of imposing the property tax on telecom towers
and the ability of players to pass on the additional cost to operators.
Investments in the tower sector
CRISIL Research expects investments in the new telecom towers to increase over the long term,
considering that the tenancy ratio shows signs of peaking. It is estimated that 40,000 towers
would be added over the next five years, and an investment of Rs 470 billion would be channeled
towards setting up new towers, as well as maintaining and upgrading the tower base over the
next five years. Over long term, margins and return metrics may see some pressure as telecom
operators negotiate aggressively to reduce their cost.
With increasing focus on sharing infrastructure and pruning costs in a capital-intensive industry,
consolidation is on the cards. The recent sale of Viom's tower portfolio to American Tower
Corporation and Reliance Infratel's tower portfolio sale to Brookfield Asset
Management are cases in point. Other companies are also seeking to monetise their stakes in
their tower assets.
BTS additions to rise rapidly
As per CRISIL research fiscal 2017 is expected to end at a record high base transceiver station
(BTS) addition, with over 300,000 BTSs estimated to be added by telecom operators as they look

to ride the surge in data usage. This follows aggressive acquisitions made by the operators at
recent auctions to augment capacity to handle large data traffic.
Between 2015-16 and 2016-17, telecom operators have aggressively added BTSs to rollout and
expand 3G and 4G services, and following the entry of Reliance Jio. The number of BTSs are
expected to double from ~863,000 in March 2015 to ~1,665,000 BTS in March 2018.
Expected BTS additions (Source:Crisil)
Share of 3G and 4G BTS to rise
Going ahead, operators will set up more 3G and 4G BTSs to tap the ever-rising demand for data
services. These are expected to be setup in Urban areas where the demand is higher. 2G BTS
would be added at a slower place and primarily in rural areas.
Revenue per tower to increase marginally
In order to moderate the network cost, which accounts for ~35% of their overall expense,
operators negotiate intensely over rent per tower per tenant. Over the last few years, rentals per
tower decreased on account of loading of towers (an incremental revenue of ~10-15% of new
tenancy) and new contracts entered at lower rentals. CRISIL Research estimates that average
rental per tower per tenant has come down by 5.3% CAGR between 2011-12 to 2015-16.
Key Growth Drivers

 Strong surge in data usage- Leading telecom operators have reported a rising share
of data revenue in total wireless revenue in recent years. The increase can be attributed to
both a rise in subscribers, as well as data usage per subscriber. With the spread of 3G and
4G services, CRISIL research expects a three-fold increase in the quantum of data
consumption between 2016-17 and 2020-21.To accommodate this increase in traffic,
various telecom operators have started strengthening and upgrading their network
capabilities, which is evident from their incremental base transceiver station (BTS) in
2015-16. Net additions of ~88,000 3G and ~195,000 4G BTSs were
made, representing 52% and 327% on-year increase, respectively. Additions are expected
to grow further in the medium term, as operators look to roll out 4G in new service areas,
while simultaneously strengthening their networks.
 Low penetration in rural areas- Penetration of telecom services in urban areas in terms
of active subscribers stands close to 152%, whereas rural penetration is just below 50%,
indicating further scope for subscriber additions in rural areas. The share of rural mobile
subscribers in the total base has been rising gradually over the years and stood at 42% as
of September 2016. Rising subscriber additions in rural areas will prompt operators to
plug gaps across the country and improve service offerings in these regions. This will
necessitate installation of more towers and BTSs in rural regions (mainly circles B and C)
that would also lead to improvement in their subscriber per BTS ratio..
 Focus on improving QOS- In October 2015, the Telecom Regulatory Authority of India
(TRAI) came out with a regulation for telecom companies to compensate consumers from
January 1, 2016 for call drops. As per the regulation, the operators will have to
compensate customers Re 1 for each call drop, with a cap of Rs 3 per day. The move
came as operators failed to improve quality of service (QoS). However, the Supreme
Court dismissed TRAI's decision of imposing penalty, in May 2016. Despite this,
operators have committed to add ~100,000 BTS by July 2017 for a net capex of Rs 200
billion, in order to improve the QoS.
Key Risks/Challenges
 Operator consolidation: With an increase in operator consolidation, tenancy ratio and

the demand for additional sites may go down as the consolidating companies may use the
same site for their operations.
 Infrastructure sharing: Telecom operators may enter into contracts for infrastructure
sharing which may decrease the tenancy ratio and thus the revenues for the telecom
infrastructure providers.
 Zoning: Urban planning ministries and municipal corporations across states are gradually
placing restrictions on the construction of telecom towers ('zoning'), stating that these
pose a health hazard. Mobile tower radiation in India is governed by guidelines drawn
from the recommendations of the International Commission on Non-Ionizing Radiation

Protection. All operators were asked to get their BTSs certified for radiation. Operators
emitting more than the approved levels of radiation have to pay a fine of Rs 10,00,000
per BTS, double the fine imposed earlier.
 Spectrum sharing: With a view to reducing congestion, which leads to call drops within
the telecom space, the government of India approved 'spectrum sharing' in August, 2015.
Spectrum sharing will be permitted where two entities possess spectrum in the same band
in a particular area. This can impact the revenue of tower players in a negative manner as
the demand to set up new BTS stations (or towers) will reduce as players sign deals to
share spectrum.
Consolidation moves by operators

Over last two years, the tower industry has witnessed a series of consolidation moves by
operators who are looking to sell tower assets and raise funds to expand network or reduce debt.
The investments have come from both independent operators like ATC infrastructure and asset
management companies like Brookfield. Amongst tower companies, Reliance Infratel sold 51%
of its equity for Rs 110 billion to pare its debt on books. Similarly, Viom sold 51% of equity to
help SREI group to pare its debt. Bharti Airtel has been following this strategy by selling its
telecom towers in Africa. It has sold ~10,750 of its 12,500 tower portfolio for ~Rs 120 billion in
14 African countries as of December 2016, and expects to sell off the remaining portfolio soon.
The company plans to use the proceedings to reduce its debt of ~Rs 835 billion.
Major deals in telecom tower sector
In addition, speculations of Bharti partially/completely exiting Bhati Infratel and sale of tower
assets by Idea Celluar and Tower Vision are also making rounds. GTL Infrastructure is expected

to go under hammer in February 2017 with speculations of interest from Canada-based pension
fund, Abu Dhabi-based investors and Reliance Infratel.
Quality of tenants and rental per tower to determine valuations of operators
CRISIL Research believes that tower companies with better quality of tenants (i.e., Bharti Airtel,
Idea and Vodafone) would command higher valuation per tower, compared with their peers. This
can be clearly seen from the recent sale of Viom at an enterprise value (EV) per tower of ~Rs 5.2
million versus that of players such as Indus (Rs 6.6 million), Bharti Infratel (Rs 8.1 million) and
Idea Towers (Rs 7.5 million). Operator-wise tenant breakdown shows that operators such as
Vodafone or Idea, contribute to 18-20% of Viom's revenue, whereas players such as Tata and
Uninor contribute to ~50%. Similarly, Aircel is a major tenant for GTL Infra. For BSNL Towers,
BSNL and MTNL are major tenants. As a result, EV per tower of these companies is less than Rs
6 million. In contrast, players such as Airtel, Idea and Vodafone are major tenants for Indus
Towers, contributing to over 75% of the company's revenue.
Enterprise value depends on tenants as larger tenants such as Airtel are industry leaders and have
presence across all circles. Growth prospects of these companies are also higher than those
of their peers, since they can provide various technologies (2G, 3G and 4G) in all/major
circles. They also have higher revenue share in each circle.
This can also be seen from revenue per tower per month metrics of these tower companies.
Companies such as Bharti Infratel and Indus commanded a significant premium over their
competitors. Operators with stake in Indus prefer it over other tower companies, as economic
gains on consolidated levels are higher than the low rentals offered by other operators.
Acquisition of Viom by ATC will help in improving average realisation per tower as well as
tenancy ratio for ATC.
Enterprise valuation, EV/tower and towers of various companies as in March 2016

MEDIA &
ENTERTAINMENT

Media & Entertainment

Executive Summary
The Indian media and entertainment industry has been on a steady growth trajectory over
last five years. Continuous expansion in reach of various segments, steady growth in
television amid rising digitization, better coverage of regional newspapers and emergence and
rapid expansion of new segments like digital would be key growth drivers. According to KPMG-
FICCI report the Indian Media and Entertainment is expected to grow at a faster pace of 14%
over the period 2016-21, with advertising revenue expected to increase at a CAGR of 15.3%
during the same period. However, in 2017, advertising revenues are expected to grow at
marginally slower rate of 13.1% due to lingering effects of demonetization and initial volatilities
arising from GST implementation.
Television and print continued to dominate by accounting for over 70% of industry revenues.
Other segments such as radio, films and digital grew steadily. The digital advertising continued
its high growth trajectory with a 28% growth in 2016 to reach 15% share in overall advertising
revenue.
According to the KPMG- FICCI report television is expected to grow at a CAGR of 14.75% over
the next five years as both advertising and subscription revenues are projected to exhibit strong
growth at 14.4% and 14.8% respectively Print growth, expected at 7.3% CAGR continues to be
driven by growing regional markets with rural demand expected to be strong on the back of
multiple government initiatives supplemented by headroom for circulation growth. Films are
expected to grow at 7.7% CAGR though largely on the back of growing acceptance of regional,
expansion in the overseas market and higher contribution of digital revenue streams. Slow
growth in screen count, along with inconsistency in content quality would act as the primary
limiting factor. Radio is expected to grow the fastest amongst the traditional sectors at a CAGR
of 16.1 per cent, with operationalisation of new stations in both existing and new cities,
introduction of new genres and radio transitioning into a reach medium. Digital advertising is
expected to grow at aCAGR of 31 per cent to reach INR294.5 billion by 2021, contributing 27
per cent to the total advertising revenue by that point.
Indian media and entertainment industry: Size

Source: KPMG in India analysis,2017
Television
The industry's revenue scaled over Rs 619 billion in fiscal 2017, compared with Rs 568 billion in
the previous year, as both advertising and subscription revenues rose. This owed to higher cable
and satellite (C&S) penetration, emanating from robust growth in digital cables as well as direct-
to-home (DTH). TV has the widest reach among primary media delivery modes.
Industry structure and characteristics
Content providers - They supply content either on a commissioned or sponsored basis. As their
importance is associated with content exclusivity and reputation, some of these providers
produce some/all content themselves like Balaji Telefilms Ltd,
Broadcasters - Broadcasters uplink content supplied by providers to a satellite for broadcasting

into TV homes. There is intense competition amongst them as entry barriers are low and viewers
have plenty of options. Their share in the TV subscription revenue is about 15%, expected to
increase once the full benefits of digitisation kick in. Like Network 18 Ltd, New Delhi
Television Ltd, Sahara One Media and Entertainment Ltd, Sun TV Network Ltd, TV Today
Network Ltd, Zee Entertainment Enterprises Ltd and Zee Media Corporation Ltd
Distributor - The distributor links broadcasters with end consumers. There are around 5,000
MSOs and 60,000 local cable operators (LCOs) in the Indian market. This is a highly fragmented
and unorganised chain. LCOs tend to under-report subscribers particularly in smaller towns,
given the lack of addressable systems. MSOs, in turn, control a number of LCOs and act as a
link between the LCOs and broadcasters. DTH operators are also classified as distributors.

MSOs Like Den Networks, Hathway Cable & Datacom, Siticable Ltd and DTH operators like
Dish TV India Ltd
Subscribers - There are over 160 million C&S subscribers in the country who pay charges of Rs
100-400 per month, depending on their location. These subscribers often do not have a choice in
terms of subscription, as LCOs enjoy monopoly in their respective areas. However, this situation
is gradually changing with an increasing acceptance of digital viewing platforms (digital cable
and DTH) and a shift to digital cable in large cities, with the digitisation deadline mandated by
the information and broadcasting ministry.
Television Value chain works in the following manner:
Value Chain in Television Industry (Source: CRISIL Research)
Bar chart showing the number of households subscribing using different types of networks:

No of subscribers using different type of networks (Source: KPMG 2017 analysis)
The following table shows different stages of digitization in the country-
Different phases of digitization in the country (as of December 2016)
The process of digitising this medium began with Phase 1 in 2012 and has progressed slowly,
with persistent challenges. At the end of 2016, the digitisation of C&S households was around 70
per cent108, up from 60 per cent in 2015, with parts of Phase 3 and a substantial base in Phase 4,
still non- digitised. The Ministry of Information and Broadcasting (MIB) extended the deadline
for Phase 3 and 4 of DAS to 31 January 2017 and 31 March 2017 respectively.
With around 47 million estimated C&S households yet to be digitised, the resurgence of
FreeDish observed in 2016 is likely to gather further momentum in 2017 As per KPMG-FICCI
estimates, the active subscribers for Pay DTH and Digital Cable grew by 24 per cent in 2016,
reaching a base of 54 and 45 million respectively. The subscriber growth for FreeDish was
impressive at 47 per cent YoY, touching an active base of 22 million subscribers at the end of
2016
Highlights of Television segment - 2016

Television had a steady run in 2016, with another year of double digit growth despite headwinds
on account of demonetisation. The growth in subscription revenues was impacted due to the slow
pace of digitisation and Average Revenue Per User (“ARPU”) realisations from the addressable
C&S base.
The year also saw a flurry of M&A activity in the TV segment. The acquisition of Ten Sports by
Sony Pictures Networks created a two player market for sports broadcast genre in India. The
strategic acquisition of Reliance Broadcast Network’s GEC channels, Big Magic and Big Ganga,
by Zee Entertainment Enterprises Limited helped the company consolidate their presence in the
GEC space. On the distribution side, the merger of Dish TV and Videocon D2H created the
largest DTH player in the country, setting the tone for further potential consolidation in the
competitive TV distribution segment.
The OTT segment saw broadcaster owned platforms and independents consolidating their
presence, while telecom operators like Airtel and Reliance Jio and global players like Netflix and
Amazon entered the market with varied video offerings. The launch of high speed data services
by telecom operators and increasing propensity of users to consume content ‘on the go’ bode
well for the growth of OTT in the near term. Currently, AdvertisingVideo On Demand
(“AVOD”) is the dominant business model, but with consumption becoming widespread and
original content coming into play, Subscription Video On Demand (“SVOD”) models are set to
gain traction.
TV Industry Size (Source: KPMG report)
Revenue
Television industry revenue trends (CRISIL research)

The subscription revenue growth was tepid at 7% in 2016, on account of the impact of DD
FreeDish subscriber additions and slow progress around digitisation with Phase 3 and 4
deadlines revised to January and March 2017 respectively. Further, since, distributors are
focused on covering the entire Phase 3 and 4, challenges around implementation of subscriber
management systems, packaging for consumers, revenue distribution between LCOs and MSOs
and non-implementation of RIO deals persist. The same has resulted in a flat ARPU growth for
the distributors in 2016, with the percentage share of broadcasters in subscription revenue
remaining flat.
Television advertising was steady at an 11 per cent growth in 2016, aided by strong performance
of sports properties like Indian Premier League (IPL) and T20 Cricket World Cup, and the
launch of 4G services in the second half of the year. The emergence of Free to Air channels as a
major source of reach and viewership has the potential to translate into a large advertising market
in the future, albeit with risks around cannibalisation of subscription revenues. Even though
factors like slow consumption pickup, Broadcast Audience Research Council (BARC) data
recalibration, and the November event of demonetisation pulled down advertising spends, the
blip is not likely to last beyond 2017 with, demonetisation being a short term impact.
Defining Trends
Demonetisation was a late surprise for the TV industry in 2016. There was a negative impact
observed on advertising revenues of broadcasters, and while the revenues for distributors were
not significantly impacted, a marginal decline was seen in subscriber additions for Q4 CY’16.
The impact though has been short term, and a bounce- back has been observed since January
2017 varying, across genres and channels, and a full recovery is likely to take another quarter
pulling down the growth estimates for 2017.
Broadcast Audience Research Council (BARC) - Gaining Acceptance
2016 was the first full year in which BARC (Urban and Rural) data was available across the
entire 52 weeks. In January 2016, BARC introduced the metric of ‘000 Impressions as a
measurement tool for viewership, with the terminology decided keeping in mind the long term
strategy of BARC moving into digital measurement.
The coverage of rural viewership by BARC opened up whole new marketing opportunities for
broadcasters and advertisers in 2016. The BARC measurement panel and sampling, being
essentially mass based, led to a decline in ratings of some genres. General Entertainment
Channel (GEC) gained at the cost of English entertainment and movies, youth, kids and other
niche genres.
The new genre – Free to Air Channels

The year 2016 saw Free to Air (FTA) channels build on last year’s momentum to emerge as the
vehicles of choice for advertisers. The viewership trends that emerged with BARC’s rural
measurements in October 2015, got re- affirmed in 2016, and FTA channels continued to achieve
reach, viewership and resultant advertisement spends.
The rise of FTA genre has seen a commensurate increase in interest from advertisers in 2016 as
well. Brands who have a substantial rural consumption base were now able to measure their
spend performance, which resulted in sustained inflow of the advertising monies. The FTA
channels garnered an estimated INR4-5 billion of the overall TV advertising pie in 2016; which
is expected to rise to INR8-10 billion in 2017 as the channels gain, prominence in the upcoming
annual budget planning exercise for advertisers according to the KPMG report.
However, given this rapid advertising revenue growth in the near term, the same could result in
an adverse impact on subscription revenues in the long run with a material number of subscribers
in Phase 3 and 4, and new additions to the C&S fold, likely to find FreeDish as an attractive
option as compared to Pay DTH and MSOs. However, the increase in advertising revenue pie
could compensate a part of negative impact on subscription revenues.
Consolidation
Consolidation emerged as one of the biggest themes in the television and broadcasting space in
2016 with deal activity witnessed across broadcasting and distribution.
Broadcast Segment - In September 2016, Zee Entertainment Enterprises Limited sold their
sports business under the TEN Sports umbrella, to Sony Pictures Networks India for INR25.84
billion.31 This put Sony’s sports profile at par with Star India’s. It ensured round the year cricket
offering by Sony, along with inclusion of properties like WWE (World Wrestling
Entertainment), football tournaments such as the UEFA Champions League and Europa League
and the US Open tennis, along with others In November 2016, Zee Entertainment Enterprises
Ltd. (ZEEL) consolidated their presence in the GEC segment through the acquisition of
television and radio businesses of Reliance Broadcast Network for INR18.72 billion33. The
acquisition consisted of FM brand 92.7 Big FM and two TV channels - Big Magic (comedy
entertainment) and Big Ganga (Bhojpuri entertainment), along with four other TV licenses.34
The two channels strengthen ZEEL offerings’s in the growing FTA segment. The television
industry is moving towards further consolidation with players across the value chain eyeing
inorganic expansion opportunities. With the rapid growth of OTT platforms and the TRAI tariff
orders leaving viewing choices entirely in the hands of consumers, niche channels could look at
consolidation opportunities in the near future.
Distribution Segment - The DTH sector too saw consolidation with Essel Group’s, Dish TV
acquiring a controlling stake in Videocon Industries Limited’s, Videocon D2H. Essel Group will
hold 55.4 per cent, while Videocon will hold the balance 44.6 per cent in the merged entity35.

The merged entity will constitute 27 million36 net subscribers, making it the.6 largest DTH
player in the country
Future Outlook – Vertical integration of media and telecom operators
OTT Video has emerged as an important media consumption platform in the last 2 years and
stakeholders across the TV value chain have looked to establish their presence on this growing
medium. However, the proliferation of OTT platforms brings with it challenges around
fragmentation. A successful OTT play needs to have two key elements – Strong content creation
capabilities; and an ability to reach the end consumer through a wide distribution platform. In
India, both broadcast network based platforms and telecom providers have strong and upcoming
OTT platforms, however, lack an element of the end-to-end capability as outlined above.
The global markets point towards a unique trend of potential consolidation between content
creators and telecom service providers, in creating an integrated media play. With Reliance’s
investments in media assets of Network 18 and an integrated telecom play in the form of
Reliance Jio38, vertical integrations of such nature could play out in the years to come.
GST impact on Television
The Goods and Services Tax (GST) is envisaged to be implemented by the Central government
in FY’2018 and is expected to simplify the multiple incidence of taxes currently being levied by
Central and State governments. The GST impact on TV distributors (DTH and MSOs) is
expected to be largely positive, with the tax incidence likely to come down with the single GST
rate as compared to the current levy of Service tax at 15 percent and Entertainment Tax
(depending upon the state). The MSOs however, might have a higher tax outgo for broadband
services, which current attract a Service tax of 15 per cent. TV broadcasters would likely see a
rise in taxation from the current service tax to the final GST rate. The broadcasters though, have
been pitching with the government for parity with print for being considered as an item of mass
consumption. The availability of input tax credit for production companies could help bring
down their tax outgo.
OTT – Complimenting the TV Screen
The year witnessed a proliferation of Over the Top (OTT) video platforms across the value
chain, with broadcasters, content creators, independent players and telecom operators, all staking
a claim to the fast growing digital consumption pie. India saw the entry of two of the largest
international Video on Demand (VoD) players – Netflix and Amazon Prime Video. It also
witnessed the entry of Reliance Jio network with its bouquet of media services, free of cost for a
specified time period. Hotstar and VOOT are amongst the leading OTT video platforms in India
after YouTube. They have fared well on their strategy to deliver existing content across all
platforms and screens.

On the monetisation front, Advertisement Video on Demand (AVOD) has emerged as the
business model of choice for most players. AVOD intends to build habit amongst consumers to
experience online video and allows platforms to achieve critical viewership. Of Hotstar’s total
revenues of INR1.85 billion in FY’16, 75 per cent was contributed by advertising and only 13
percent was subscription based. To extract both data costs and subscription revenues from Indian
consumers would need high quality tentpole content.
Print Media Industry

The Indian print industry witnessed many ebbs and flows in 2016. While factors such as steady
revival of the consumption cycle driven by better monsoons, the 7th Pay Commission payout and
productive festive season gave the industry much needed impetus, this growth was counterpoised
by demonetisation towards the end of the year.
Size of India’s Print Industry (Source: KPMG report)
Segment-wise size of India’s Print Industry (Source: KPMG report)
In 2016, the Indian print industry grew at 7 per cent. This growth was driven by regional
language newspapers, followed by Hindi and English at 9.4 per cent, 8.3 percent and 3.7 per
cent, respectively1. While English newspapers struggled, Hindi and other regional language
newspapers continued their growth story. The switch to digital platforms continued rapidly in
Tier I cities, this further dented the growth of English newspapers. The revenue landscape for
traditional newspapers saw familiar trends - advertising dominating circulation revenue, local
advertisers increasingly contributing to ad spends and ad revenue in English newspapers
continuing to lead Hindi and regional language newspapers. Except for a few magazines with
niche content, the print magazines segment continued to struggle during the digitalization era

In contrast to the developed markets, the print industry in India continues to grow on the back of
demographic and socio-economic factors, rising literacy levels, improved penetration and hyper-
localisation. However, improved bandwidth with the launch of 4G network and the increased
focus of the government on implementing ‘Digital India’ had all industry players wary of the
threat of digital media and changing consumer habits. Most traditional Indian players have
embraced a two-fold approach by investing in digital news to explore new opportunities
presented by digital disruption. Also, while digital news is bourgeoning, the struggle to get the
business model right and monetise the segment intensifies.
The increase in affluence and consumption levels in regional markets has been the key growth
driver for print over the last decade. This trend is likely to sustain with increase in literacy as
well as emergence of a younger generation that is more aspirational. This has attracted the
attention of both advertisers as well as content creators across all media types – cinema,
television, print, radio, etc.
CAGR
Growth
INR billion 2011 2012 2013 2014 2015 in 2015 2016P 2017P 2018P 2019P 2020P (2015-
2020P)
Advertising
139 150 163 176 189 7.3% 204 222 242 255 280 8.6%
revenue
Circulation 69 75 81 87 94 8.2% 101 108 114 103 107 6.1%

revenue
Total print 209 224 243 263 283 7.6% 305 330 356 358 387 7.8%
market
Newspaper
197 211 230 249 269 8.0% 291 316 343 344 372 8.2%
revenue
Magazine 12 13 14 14 14 1.6% 14 13 13 14 14 -1.8%

revenue
Total print 209 224 243 263 283 7.6% 305 330 356 384 412 7.8%
market
Print media industry
Value chain

Newspaper
Distributor Vendor
Publisher
The major sources of revenue for the print media industry can be broadly classified into:
Advertisement
Circulation
The majority of the income for the print media industry is through advertisements. In 2015,
circulation revenue witnessed growth of 8.2 per cent. One of the primary reasons for sustaining
this high growth rate was an increase in cover prices in mature markets such as metros and tier I
cities. This growth is largely coming from Tier II and Tier III cities with regional language
editions outperforming the national editions and English dailies.
In India, traditional newspapers are better positioned with a share of nearly 38 per cent of the
overall ad spend in 2016 and 7 per cent CAGR in ad revenues over the last five years
In 2016, revival of consumption cycle on the back of improving macro factors in the pre
demonetization period led advertisers to all major consumption sectors, key being Fast Moving
Consumer Goods (FMCG), Automobile and Education.
The FMCG sector is one of the largest contributors to ad spent across media and competition
among existing players has further stepped up since the entry of a new player in the market
(Patanjali). Automobile sector’s ad spend in 2016 was driven by new launches and increase in
Education sector’s ad spend is in line with growing literacy levels in Tier II and Tier III regions.
The Real Estate sector has been struggling over the past few years and it was further impacted by
demonetisation. Contribution of e-commerce sector declined as players reduced their ad spends
across all traditional mediums i.e. television, radio and print.

Sector wise contributor to newspaper advertisement (Source: KPMG Report)

Dawn of Digital News in India
Increasing penetration of internet enabled mobile phones and dropping data cost is increasing
digital news consumption. The Indian newspaper industry is a peculiar paradox, while traditional
newspapers are still growing, in parallel, the digital media is also becoming more important to its
future. Digital platforms are rapidly changing the overall media environment in terms of how
people find information, engage with public affairs, and entertain themselves, and in terms of
where advertisers invest their money.
Though companies are investing in digital news platforms, monetisation is a key challenge. The
industry needs to look beyond immediate returns, initial financial viability and tread unknown
waters rather than follow the herd. Some models which are currently prevalent include:
Source: KPMG in India’s Analysis , 2016-17

Digital news is still in its nascent stages in India, and the search for a model to monetise digital
news continues.
Future Outlook
The projected growth of Indian newspaper industry is pegged at 7 per cent. The growth will be
driven by a growing Indian economy, increasing literacy levels, performance of Hindi and other
regional language newspapers, increase in consumption, GST rollout and an ever changing
digital landscape. The advertising and circulation is expected to grow by 8.0 per cent and 5.8 per
cent, respectively, with growing focus on Hindi and other regional language newspapers driven
by higher literacy levels and consumption in Tier II and Tier III cities.37 The traditional
newspapers would continue its dependence on advertising which is expected to grow at a steady
pace, however its share in advertising pie is expect to shrink to 27 per cent in favour of digital
media. The English newspaper industry continues facing headwinds with flat or low single digit
growth resulting from acceptance of digital news among English readers.
Newspapers are aware of the need to change for a digital future, most of them are already
invested in multiple digital platforms, implementing social media and digital integrated
newsroom strategies, targeting niche audience markets and cutting costs with innovative
production processes. There is a huge opportunity in mobile growth, with more than
70 per cent of readers in western countries reading newspaper via mobile device. Similar trends
could be seen in India as internet usage is increasingly shaped by mobile growth.
Key Growth Drivers
Regional market strong: The growth of newspaper in India is being led by Hindi and
vernacular publications. This has largely been seen in the rural and small towns with existing
publications launching new editions and new publications entering the market.
Growth of Digital platforms: The introduction of the in house websites allows companies to
grab more audience and monetize content through digital platforms. For instance Rajasthan
Patrika has launched a website called “Catch” to segregate its customers, both on print and
digital platform. Other print players such as HT media and DB group have also segregated news
on their digital platform according to the taste of audience.
FMCG favors print media: For the second consecutive time, FMCG became the largest
contributor to print and TV, overtaking auto and education. As per the Pitch Madison Media
Advertising Outlook, the advertising pie of FMCG companies was 14.6%, which is significantly
higher than the share of FMCG companies in 2009 of 7.2%. FMCG companies are targeting Tier
II and Tier III cities for their next level of growth and the ability of the print medium to directly
reach out to the target audience with it plethora of editions has likely resulted in increase in
advertising spend on the print medium.
Increasing Readership: The growing impetus towards education has led a stark increase in the
national literacy rates over the past several years, propelling newspaper readership in the
country. The readership of print media is likely to increase further as the Indian government is
targeting to achieve the universal literacy goal by 2060.
Challenges
Validity of IRS data: The validity of IRS (Indian Readership Survey) data for readership
measurement has been called into question by the industry majors. The sector in the short term
suffers from the lack of a robust measurement system, critical for decisions on media planning
and allocations.
Rise of digital media: More and more users are moving online for information and knowledge
as internet penetration is increasing along with the number and the credibility of online
newspaper websites and blogs.
FM radio phase 3 auctions: With FM radio phase 3 auctions the growing reach of radio is
expected to have an adverse impact on smaller and regional players in the print media which do
not have the capability to compete with the large print players who have diversified in
advertising avenues other than print. Eg HT media operates Fever FM
Film Industry
In year 2016, Indian film industry continued to face headwinds. The industry’s revenue declined
to a small extent – largely as a result of the slowdown in two of its key revenue streams –
domestic theatricals and cable and satellite (C&S). The overall box office collections of Hindi
movies declined compared to the previous year. Regional markets continued to grow with the
increasing reach. The film exhibition industry continued to face its long persisting challenge –
screen density. While multiplexes grew both through an increase in ticket prices and addition of
new screens, single screens continued to struggle leading to continued closures or conversion of
single screens into multiplexes. Various initiatives were taken by players to strengthen the
ancillary revenue streams such as food and beverages (F&B) and in cinema advertising. While

the C&S market witnessed a steep decline for certain regional markets, the sale of digital rights
emerged as a key new revenue stream for the film industry due to global players investing
substantial amounts to build their Indian content libraries. The small to medium budget film
segment which had been facing a weak C&S uptake has been a major beneficiary. Additionally,
investments in the development of original content by these platforms have opened new avenues
to showcase work by production houses and individual talent. This segment is expected to grow
at a fast pace and contribute significantly in coming year
Value Chain
Producers Distributors Exhibitors Consumer
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 Production Value Chain:

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.
Industry Outlook
Overall, the industry is projected to grow at a CAGR of 7 percent till 2021 to be worth INR206.6
billion.2.7 The growth is expected to be driven by additional new revenue streams in the form of
sale of digital rights, resurgence of C&S market in the light of competition from digital
platforms, continuing growth of the overseas market and growth of ancillary revenue streams
such as in cinema advertisements.
.Table showing the revenues earned by movies from various sources:

Film Industry performance (Source: KPMG India’s Analysis)

Theatricals
Domestic theatricals has remained the main source of revenue with a 70 per cent share in the
total revenues of the Indian film industry. The box office collection of Bollywood movies
declined in 2016 over the previous year and the total gross box office collection was around
INR37 billion. Of the leading 50 Hindi movies, the number of movies which were able to record
a positive return on investment reduced from 27 in 2014 to 18 in 2016. This segment is expected
to grow at a CAGR of 5.6 per cent over the next five years.2 This is likely to be a combination of
expansion in the exhibition sector – addition of multiplex screens and conversion of single
screens into multiplex along with increase in average ticket prices (ATPs) - with converted single
screen moving into higher ATP brackets. Biographical or biopics dominated the box office
collections in 2016
The four southern markets including Tamil, Telugu, Kannada and Malayalam continue to
dominate the regional film market with Tamil and Telugu being the largest language markets.
Tamil cinema produces more than 250 movies per annum.
Digital technology, apart from securely delivering films in a cost efficient and secure manner
across the country, has also helped cut revenue losses owing to piracy. Today, 80-100 per cent of
films are distributed digitally vis-a-vis 50 per cent physical prints in 2010. The industry has
achieved 90-95 per cent digitization of screens.
Cable & Satellite: Cable & Satellite(C&S) rights contributed ~11 per cent o the overall
industry’s revenue in 2016.36 However, it witnessed a negative growth of 4 per cent from
INR15.9 billion in 2015 to INR15.3 billion in 2016.36 This can be attributed to the steep decline
in C&S rights market of Tamil and Telugu movies.
Home Video: The contribution of home video revenues to overall industry revenues is
extremely low (~1 per cent). Home video segment as a revenue stream has been marginalized
due to consumption shifting to digital platforms. Home videos are now being released much
earlier for most films – Overseas home videos release in ~2 weeks while domestic home videos

release in about a month’s time.

Ancillary Revenue Streams: Ancillary revenue streams witnessed a growth of 51 per cent from
INR10.2 billion in 2015 to INR15.5 billion in 2016 and became the second largest contributor to
the overall industry’s revenue.44 Major proportion of this growth came on the back of steep
increase in the digital rights prices of movies due to heightened competition in OTT landscape.
In cinema advertising and movie’s music rights revenue streams continued to grow at a steady
pace.
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
Growing Sequel trend in films
Rise of Digital Marketing
The increasing number of multiplexes helps 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 cities.
Tax & regulatory Framework
The approval of GST is a step in the right direction, however a key challenge is how GST could
be used to integrate the large number of taxes and provide a simpler tax regime which is
beneficial to both the industry and the government. Under the current consideration, while
entertainment tax is being subsumed within GST, local body taxes have been kept out. Even
though local body taxes form a small part of the overall taxes (INR18.5 crores in 2014), keeping
it out of GST leaves room for uncertainty in taxation even after a uniform tax structure.
The Cinematograph Act 2013 will alter the guidelines for selection criteria for the advisory
panel. In addition, single board certification could be implemented which would expedite the
certification process along with an expanded classification of films. On the piracy front, stricter
penalties are expected to be implemented for unauthorized duplication of content.
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 Pvt.Ltd. , Trinity Cinemas
Pvt.Ltd.
Exhibitors segment
Cinemax India Ltd, Inox Leisure Ltd, Eros International, Prime Focus Ltd, PVR Ltd,
PritishNandy Communications Ltd, Reliance media works etc
Radio Industry
2016 began with a lot of expectations – the previous year witnessed robust growth, fuelled by an
octane charged e-commerce environment flush with private equity funds, economic growth,
increase government spending and overall positive outlook from the economy. The completion
of the first batch of Phase III auctions further provided strong tail winds to the radio industry
.
Radio broadcasting: A brief timeline (Source:CRISIL)

The broad structure of the Indian Radio Industry is as follows:
Key trends
 The cap on Foreign Direct Investment for FM radio was hiked from 26% to 49% which
provided a boost to the industry.
 The phase 3 completion will result in proliferation of more channels and deeper
penetration of radio mainly in tier 2 and tier 3 cities which will lead to volume growth.
 The industry witnessed ad rates being hiked. For eg 92.7 Big FM hiked rates by 30-35%,
Red FM hiked ad rates by 35% etc
 Ecommerce companies have emerged as big spenders on radio and other sectors like
auto, retail, and consumer durables also contributed to the revenue growth.
 Radio is gaining its foothold as the marketing medium and the same is expected to fuel
the growth in coming years. Currently 10% of radio advertising comes from government
and political parties.
 Content differentiation continues to remain a key aspect with both music and non music
content. For eg 94.3 MY FM launches “paiso ka ped” reality show which aimed attaking
radio out of the studio and interacting with the listeners personally.
FM auctions
Stage 1 of phase 3 FM radio auctions were the most expensive ever in the history of FM
industry. As a matter of fact INR 5.22 billion was paid for stations in Mumbai, Delhi and
Bengaluru alone. The non-refundable one time entry fee (NOTEF) of INR10.55 billion along
with Non-refundable One-time migration fee (NOTMF) of INR39.33 billion was much higher
than previous auctions. In the stage 1 of phase 3 FM radio auctions 97 channels were allotted in
56 cities and 38 channels remained unsold in 22 cities.
The e-auction of the second batch of FM Radio Phase-III channels comprising 266 channels in
92 cities is to be held around mid-September this year. The channels include 227 channels in 69
fresh cities and 38 channels in 22 existing cities which had remained unsold as there were no
bids.
Other developments
 Radio Mirchi joined hands with Delhi International Airport Limited (DIAL) for setting
up a 24X7 custom-produced airport radio.
 Radio Mirchi and DIAL launched MIRCHI T3 which is India’s first airport radio that
seeks to transform and enhance the travel experience of passengers.
Key Growth Drivers
 Increase in the listener base on account of new stations in tier 2 and tier 3 cities. The
current radio listeners are estimated at 110 million to 120 million in India which is only a
small fraction of the total population.
 The new stations are expected to be operational by Q3 of 2016. By creating additional
inventory, Phase 3 is likely to provide an opportunity for local advertisers to reach out to
their target audience in an efficient manner.
 The macroeconomic conditions have been positive.
 The E-commerce companies are expected to continue their spending on advertisements
and moreover a revival in auto sector, launch of 4G in Telecom and strength in FMCG is
expected to drive revenue growth.
Key challenges
 Measuring the stations reach accurately is still a challenge which limits the stations
catering to niche audiences to convince the advertisers of their reach.
 Regulatory structure needs to be revised to allow consolidation and promote growth. For
eg on a national level no entity can hold more than 15% channels allocated in the country
excluding channels allocated in Jammu and Kashmir.
 Need for the establishment of the Copyright Board to impose royalty tarrifs specified by
the Old copyright board which was dissolved owing to the copyright amendments on 21st
June 2012.
Radio Advertising Vs Other media:

 Cost effective Medium
 Low content costs as companred to TV

 Different prime time slots as compared to TV
Impact of GST
The Goods and Services Taxes (GST) bill was passed by the Lok Sabha in 2015. The bill was
amended and was approved by the Rajya Sabha on 3rd august 2016. The amended bill got
approval in Lok sabha on 8th august 2016. This has a mixed impact on the media and
entertainment industry. Currently a customer pays a service tax around 14.5-15% for all
broadcast services like Television (Cable+DTH), Films as well as digital content. Above that a
8-12% entertainment tax is also levied increasing average tax rate to around 25%. Under GST
consumers will be required to pay single tax which is expected to be around 18-20%.
In present scenario production houses and theatre chains pay service tax for processes like
theatrical rights, satellite rights etc. Under GST all these taxes under one tax rate and also save
theatre chains theatre chains like PVR from dealing with different tax rates in different parts of
the country.
Having said that, post GST implementation, the introduction of local body entertainment tax will
be of great advantage as then, every local body will be able to levy tax. As a consequence, media
companies will have to pay additional tax apart from GST. Post GST implementation, the
companies are likely to observe a rise in compliance costs too due to filing of multiple tax
returns across all the states they operate in. Another big challenge for the media companies
under GST would be to account for the advertising revenues generated.
Future Outlook
There is enormous scope of growth in radio industry mainly on account of achieving a national
footprint like TV and radio. With completion of phase 3 radio industry has the potential to
outperform the overall advertising industry. According to a KPMG report with a forecasted of
CAGR of 17.1% till 2020, industry revenues are expected to double by 2020.
With the FDI cap increased foreign inflows are expected in the sector which can drive the
growth. There are some key contentious issues of high reserve prices for the auctions, high
license fees, the 15% limit on total no of frequencies etc but the industry remains resilient.

Key players
Entertainment Network India, Music Broadcast and Radio, HT music and entertainment,
ADLABS films, SUN TV etc.
Player profile
PVR Ltd was incorporated in April 1995, pursuant to a joint venture agreement between Priya
Exhibitors Private Limited and Village Roadshow Limited of Australia. The company
established the first multiplex in the country in Delhi in 1997 (PVR Saket) and has expanded its
presence significantly, since then.
In 2012, PVR entered into an agreement to acquire a 69.27% stake in rival multiplex operator,
Cinemax for an all-cash consideration of Rs 3.95 billion (135 movie screens). The company
currently holds 93.19% stake in Cinemax India through its wholly-owned subsidiary, Cine
Hospitality Pvt Ltd.
PVR has a JV with Major Cineplex Group based in Thailand, to introduce life entertainment
concepts to Indian consumers. It also has a 100% shareholding in PVR Pictures, its film
production arm. However, in order to focus primarily on the film exhibition space, the company
decided to wind up its film production business, after its last production 'Shanghai' was released
in June 2012.
Update
 PVR is now the first Indian cinema exhibition company to cross the landmark of 500
screens. At the end of July 16, total screen count reached 552, operating at 120 properties
in 47 cities and serving approx 75 million patrons annually.
 An important milestone was the launch of North India’s first Superplex at Noida, a 15-
screen Megaplex, the largest of all our multiplexes.
 The company has a vision of 1,000 PVR screens by 2020.
 PVR closed the deal for Rs 433 crore, and will take over operations of 32 screens of DT
Cinemas from June 1, the company said. Initially, the deal was for 39 screens valued at
Rs 500 crore.
 PVR partnered with Paytm and Just Dial for online booking of tickets.
 PVR gains on selling its stake in “bluO” to Smaaash Entertainment
Financial performance 2016-17
 The revenue rose 15% YOY to achieve 2062 crores

 EBIDTA rose 7% YOY to reach 349crores from 323 crores in FY16
 PAT saw a dip from 9321 Lakhs in 2015-16 to 9292 Lakhs in 2016-17
 EPS saw a dip from 20.74 to 19.58

Stock performance in last 1 year (Source: Moneycontrol)
Profit/Loss Statement 2015-16 (Source: PVR annual report 2016-17)

EDUCATION

Education
Executive Summary
The Indian education sector has been recognized as a “Sunrise Sector” for investment in the
recent past. This recognition stems from the fact that the sector offers a huge untapped market in
regulated and non-regulated segments due to low literacy rate, high concentration in urban areas
and growing per capita income. India holds an important place in the global education industry.
The country has more than 1.4 million schools with over 227 million students enrolled and more
than 36,000 higher education institutes. India has one of the largest higher education systems in
the world.
According to a 2016 report by management consulting firm Technopak, India’s education market
is valued at $100 billion currently while the digital learning market is estimated at $2 billion. The
education sector in India is poised to witness major growth in the years to come as India will
have world’s largest tertiary-age population and second largest graduate talent pipeline globally
by the end of 2020. The Indian education market is expected to almost double to $180 billion by
2020, buoyed by the rapid expansion of the digital learning market and the world’s largest
population in the age bracket of six to 17 years even as the sector continues to be plagued by
poor infrastructure and a shortage of trained teachers.
Introduction to technology has led to enhanced acceptance of alternatives modes of online

learning in India. The online education market is USD 247 million in 2016 with approximately
1.57 million paid users. Online education is expected to grow to USD 1.96 Billion over the next
five years.
The distance education market in India is expected to grow at a Compound Annual Growth Rate
(CAGR) of around 34 per cent during 2013-14 to 2017-18. Gross Enrolment Ratio (GER) in
higher education reached 24.5 per cent in 2016. Government has a target Gross Enrolment Ratio
of 30 per cent to be achieved by 2020, which will also boost the growth of the distance education
in India.
Higher education system in India has undergone rapid expansion. Currently, India’s higher
education system is the largest in the world enrolling over 70 million students while in less than
two decades, India has managed to create additional capacity for over 40 million students.
India’s IT firms are working with academic institutions and setting up in-house institutes to
groom the right talent as these companies move to Social Media, Mobility, Analytics and Cloud
(SMAC) technologies.100 percent FDI (automatic route) is allowed in the Indian education
sector.

Regulatory Evolution of the Indian Education sector
In 1964, the Kothari

Commission was appointed to
make a detailed survey of all
the education branches in India
1960- and advice government on
policies for the development of
In 1992, the National
1990
education at all stages and in
Policy on Education-1986 all its aspects.
was revised.
In 1995 the National 1990-
Programme of Nutritional
2000
Support to Primary
Education (NP-NPSE)
was launched as a RMSA was launched in March
sponsored scheme by the 2009 with the objective to
Centre 2000- enhance access to secondary
2010 education
The RTE, became operative in
2010 according to which every
In 2012 the amendment of
child has a right to elementary
the Indian Institute of
2010- education
Technology Act, 1961
took place which 2015
envisages inclusion of 8
new IITs
In June 2016, New Policy on
Education (NPE) was
2016
formulated for promotion of
education in India.
In May 2016, the Human
Resource Development
Ministry launched Shala
Asmita Yojana to track the
movement of all students in
India.

Education Landscape in India
Source: Study by KPMG in India and Google, May, 2017
India has a multi-layered formal education system ~ 260 million students enrolled in more than ~
1.5 million schools and ~39000 colleges catering to 27.5 million under-graduate and 4 milion
post-graduate students.
Formal education includes primary and secondary schools, graduation, post-graduation and
diploma courses. Schools are governed by central and state bodies, viz CBSE, ICSE, state and
international boards. India has one of the largest education systems in the world, primarily
dominated by private schools. Higher education in India though govered by UGC, has a three-
tier structure comprising the university, college and course. Different regulatory bodies like Bar
Council of India (BCI), Medical Council of India (MCI), among others, manage different
professional courses.
Informal Education includes pre-primary, coaching classes, vocational eduactiion, multi-media

and technology based educational courses acting as a supplement to or substitute of formal
education. India’s informl market is one of the largest in the world. Pre-primary market has low
barriers and has witnessed large number of players in the last few years. Test preparation
contributes to a significant portion of informal education in India.
The online channel for education in India includes primary and secondary education to hobbies
and language learning across formal and informal norms. Online players have developed B2B,
B2C and C2C inn lines with requirements of the users.

Key Segments of Indian Education Sector

The Indian Education sector can be segmented under six broad heads, namely, K-12, Higher
Education, Professional Education, Vocational Training, Skill Development, and Other
educational services.
Source: PWC Higher Education Sector in India

Indian Educational Sector Performance – FY 2016

According to a 2016 report by management consulting firm Technopak, India’s education market
is valued at $100 billion currently while the digital learning market is estimated at $2 billion. The
Indian education market is expected to almost double to $180 billion by 2020, buoyed by the
rapid expansion of the digital learning market and the world’s largest population in the age
bracket of six to 17 years even as the sector continues to be plagued by poor infrastructure and a
shortage of trained teachers.
The K-12 segment is valued at $52 billion with a market share of 52%. With the current
enrolment of 260 million, the K-12 segment offers the largest and most attractive segment for
digital learning providers in India.
Digital learning in the K-12 space comprises segments such as smart class solutions, online
tutoring, online preparation for exams, simulation and virtual reality, STEM learning, AR and
robotics and assessment Currently, in the K-12 segment, there are 1.5 million schools with 260
million students. Of the 1.5 million schools, 1.1 million are run by the government. The
additional capacity requirement in the K-12 segment is 40 million and teachers’ requirement is 2
million while in colleges and universities and in vocational training centres, the additional
capacity required is 20 million each.
Private investment in education
The number of private investments in the education sector so far in 2016 was 42, the lowest in
the last five years, according to News Corp VCCEdge, the data and research platform of
VCCircle. The deal value, however, is the second highest in the last five years helped by two big
funding rounds in Byju’s, incorporated as Think & Learn Pvt. Ltd.
It even beat the 2015 deal value at $166 million coming from a deal volume of 81 deals, the
highest in the last five year. The deal value was the highest in 2014 at $243 million on the back
of the $143 million investment in Bengaluru-based Manipal Global Education Services.
Mergers and acquisition activity in the education space has seen 16 deals in 2016, just a deal
lower than 17 deals struck last year. The deal value at $47 million is the highest in the last five
years.
The demand for education exists both at the student and employment level with 619 million
population (students) falls in the 0-24-year age group. The total workforce in the country is
estimated at 474 million, of which 232 million persons were employed in agriculture, 115
million in industries and 127 million in the services sector.
These favourable demographics brings enormous economic opportunities. However, the ability
to seize these opportunities depend on how successfully the challenges plaguing the Indian
education system can be addressed.
Online Education in India

The education market in India standing at USD $100 Billion represents a lucrative opportunity
for monetization. Introduction to technology has led to enhanced acceptance of alternatives
modes of learning in India. India has witnessed a tremendous increase in the total internet user
population from 2011 to 2016 with internet penetration of 31% in 2016. Approximately 439
million users are expected to grow to 735 million by 2021, presenting a positive future outlook
for online business in India. The online education market in India is USD 247 million in 2016
with approximately 1.57 million paid users.

Government Initiatives
The Union Budget 2017-18 has made the following provisions for the education sector:
The Budget has pegged an outlay of Rs 79,685.95 crore (US$ 11.952 billion) for the education
sector for financial year 2017-18, up from Rs 72,394 crore (US$ 10.859 billion) in 2016-17—a
9.9 per cent rise.
The Government of India has allocated around Rs 17,000 crore (US$ 2.55 billion) towards
skilling, employment generation, and providing livelihood to millions of youth, in order to boost
the Skill India Mission
Source: Study by KPMG in India and Google, May, 2017
Other Initiatives
Study Webs of Active-Learning for Young Aspiring Minds (SWAYAM): It is Indian electronic
e-education platform which intended to address the needs of school level 9-12 to Under Graduate
and Post Graduate students covering all disciplines
Sarva Shiksha Abhiyan: To provide useful and elementary education for all children in the 6-14
age group
Pradhan Mantri Kaushal VikasYojana: To enable and mobilize a large number of Indian youth to
take up outcome based skill training and become employable and earn their livelihood
Unnat Bharat Abhiyaan Under Unnat Bharat Abhiyaan: All technical and higher education
institutions will adopt five villages each; identify technology gaps and prepare plans for
innovations that could substantially increase the skills, incomes and growth in the rural areas
Pandit Madan Mohan Malaviya National Mission on Teachers and Teaching: Focusing on the
preparation of teachers and their working condition in classrooms, schools and colleges, as also
their continuous professional development, ensuring that best talent in the country are made
available to shape the future generations
Impact of GST
The GST on coloring books, exercise books, notebooks, crayons will be 12 per cent whereas for
pens and school bags, it would be 18 per cent. Services related to education, provided by any
educational institution to its students, faculty and staff like transportation, catering, midday
meals, admissions, examinations, housekeeping etc. have been exempted under GST. The
educational institutions that have been granted the exemption from GST are pre-schools and
higher secondary educational institutes both private and Govt.
The exemption has also been granted to the services provided by the Indian Institutes of
Management to their students.
The education services provided by the below are also exempted from GST:
National Skill Development Corporation set up by the Government of India
Sector Skill Councils approved by the National Skill Development Corporation
Assessment agencies approved by the Sector Skill Council or the National Skill Development
Corporation
Training partners approved by the National Skill Development Corporation or the Sector Skill
Council are also included
However, as the educational services led by training and coaching foundations don’t help in
getting legally perceived qualifications therefore these are not exempted from GST.
Higher Education Institutions and Private Institutions
The exemption under GST has been granted just for pre-schools till higher secondary education
and since universities and other advanced educational institutions have not been mentioned in the
exception list, and thus GST of 18% is expected to be levied on this.
Higher education in the private segment will end up being more costly and in turn, rivalry for
admissions in government schools/colleges/foundations will increment. There will be a 3 to 5%
of the obligation jump on the cost of administrations that will over the long haul impact the
common man. The burden will be the most on middle class families who obtain education loans
or put their life-long savings into educating their wards at reputed institutions.
Coaching Institutes
Coaching institutes form an integral part of education today as clearing competitive exams and
entrance exams seems just impossible without taking professional coaching on how to clear and
attempt them. GST has raised the rate of taxes to 18% from 14% for these coaching institutes.

Notable trends in Education sector

Private schools adopting franchise models: Various operating models like a mix of franchisee
and owned-schools are being used by the private players to ensure their economic viability.
Emergence of International School Segment: With increasing awareness, private Indian

players are collaborating with international brands to provide international standard quality
education.
International collaborations: In order to seek international exposure in today’s globalized

world, many Indian universities and colleges have entered into JVs and agreements with
international universities to provide world class education.
Multi campus model gaining popularity: Many private institutions are adopting multi city
campus model to scale up their operations and expand in the tier2 and tier 3 cities.
Corporate Partnerships and Collaborative research methodology: Many companies are now
outsourcing the R&D to various universities’ departments and promoting the culture of
collaborative research between the corporate and academia.
Increasing use of technology: Schools are investing in information and multimedia education
technologies to provide better education to schools. New education techniques such as e-learning
and m- learning are being used by private schools and also promoted by government. This has
helped in teaching students sitting far away in rural areas, provides cost-effective courses for
students and makes students well-versed with curriculum.
Widening of courses: In the past, traditional courses like medicine, law and other subjects were
considered the top most courses by prospective students, but now times has changed and the
students are seeking for other unusual courses options like telecommunication engineering,
automobile engineering, radio jockeying, news anchoring, event management, content writing,
and other courses which are the most sought after courses.

Growth Drivers of India Education Sector

Robust Demand
Huge demand and supply gap with additional requirement of 2,00,000 schools, 35,000 colleges,
700 universities and 40 million seats in the vocational training centres
Increasing Investments
The FDI in the education sector in India has increased at a CAGR of 45.91% from Rs.167.49
crore in 2011 to Rs.1,107.55 crore in 2016. Furthermore, during 9MFY17, the FDI inflow in the
education sector is Rs.856.37 crore
Demographics
Largest population in the world of about 500 million in the age bracket of 5-24 years. Literacy
rate of around 74% compared to world average of 84%
Policy Support
Several initiates taken by the Government of India as discussed earlier in the report shall
contribute to the growth of the Indian education sector
Growth Drivers of Online Education
Online education provides a low cost alternative

 Lower infrastructure cost and a larger student base helps leverage on the economies of
scale and hence reduced prices via the online channel
 Online skill enhancement courses are around 53% cheaper than the offline alternatives
Online channel provides quality education to potential students

 Areas where quality of offline education is low witnesses higher adoption of non-
traditional educational methods. For example states like Jammu & Kashmir and Bihar
 Open courses and distance learning enrolments in India to rise to 10 million in 2021
growing a CAGR of around 10 %
Government initiatives to drive adoption of online education

 Government initiatives like SWAYA, E-Basta, Digital India, Skill India will enable the
infrastructure needed by students to study online
Internet and smartphone penetration witnessing exponential growth across India

 Around 31% internet penetration today with around 439 million internet users today
 Nearly 735 million interent users and 180 million new mobile users projected by 2021
Large fraction of Indian population is young, thus enlarging the target population for
online education

Challenges faced by Indian Education Sector

High Dropout Rate
The enrolment gap from elementary to secondary levels suggest that although a larger number of
children are entering the educational system, a significant proportion of them are not progressing
through the system to complete the elementary/secondary cycle of education, particularly, among
disadvantaged groups, especially for girls from these groups.
High Proportion of out-of-school children
India has the largest number of OoSC in the world: more than that of sub-Saharan Africa. There
is a huge disparity in the schooling experiences of urban and rural children, rich and poor
children — varying transition rates i.e. progress of students from elementary to secondary level
(rural: ~87 and urban: ~98) and percentage of OoSC (rural: 7.8% and urban:4.3%). Of the 6.064
million OoSC, 76% belong to the SC, ST and other minorities. Uttar Pradesh, Bihar, Rajasthan
and West Bengal account for over 70% of the OoSC in the country.
Poor quality of teachers
The majority of the government and private schools face challenges pertaining to the quality of
teaching. The dismal performance of applicants in the teacher eligibility test (pass rates
fluctuating between 1% and 11%) highlights the inadequate knowledge imparted to the aspirants
during their B.Ed. and D.Ed. courses. 8% of the existing elementary schools are single-teacher
schools and approximately 5 lakh sanctioned teaching posts in the country stand vacant.
Limited focus on analytical learning
In India, rote-learning and syllabus focused learning are prevalent. Most Indian students have
never had the opportunity to apply the knowledge they have learned. This goes back to the
syllabus and examination-focused teaching that happens in classrooms across India.
Outdated Delivery Methods
With outdated teaching methodologies, there is no growth in student learning outcome, which is
reflected in the scores of standardized tests taken by Indian students. Even though the use of
technology is a part and participle of the education system world over, in India it remains a
luxury – only 24.4% schools have access to computers.
Lacking Regulatory Continuity
Policies at a regional and national level often change due to the pendulum swings of political
cycles breaking continuity, severely impacting the outcome of prior measures.

IT ITes Telecom Media Education 2017 PDF

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

IT ITes Telecom Media Education 2017 PDF

Caricato da

Copyright:

Formati disponibili

UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP

Harshita Wadher | Sanjana Jain

Unnati Sector Report 2017-18 | 1

Policy and Regulatory Framework ...................................................................................................... 78

Unnati Sector Report 2017-18 | 2

Unnati Sector Report 2017-18 | 3

Information Technology & IT enabled Services

Unnati Sector Report 2017-18 | 4

Unnati Sector Report 2017-18 | 5

The IT industry was at the

Evolution of Indian IT Industry

Unnati Sector Report 2017-18 | 6

Types of Services and Service lines

Unnati Sector Report 2017-18 | 7

Value Chain of an IT Company

Technological Procurement Market

Value chain of IT companies

Strategy & Business Management

Unnati Sector Report 2017-18 | 8

Revenue Models in IT Industry

1. Transaction based – The billing is done on a transaction basis.

Unnati Sector Report 2017-18 | 9

Some of the major features of the act are:

Policies Relating to Inbound and Outbound Investments

Relaxation of limits on overseas investments:

Unnati Sector Report 2017-18 | 10

Foreign Exchange related policies:

Incentives provided under EXIM policy:

Unnati Sector Report 2017-18 | 11

Global IT-BPM Industry Outlook

Performance Analysis- FY 2016

Unnati Sector Report 2017-18 | 12

Growth over FY-2015

Source: Nasscom Strategic Review 2017

Unnati Sector Report 2017-18 | 13

Indian IT-BPM Industry Outlook

Source: Nasscom Strategic Review 2017

Unnati Sector Report 2017-18 | 14

Indian IT-BPM Domestic Market

Source: Nasscom Strategic Review 2017

Unnati Sector Report 2017-18 | 15

Indian IT-BPM Export Market

Source: Nasscom Strategic Review 2017

Sector-Wise Performance Analysis and Future Trends

Revenue of Indian IT-BPM Industry (excluding hardware) in FY-2016

Unnati Sector Report 2017-18 | 16

Current Performance- FY 2016

Source: Avendus Report

• Firms are building automation platforms and segregated digital units

Unnati Sector Report 2017-18 | 17

Indian BPM Market

Current Performance- FY 2016

Source: Avendus Report

Unnati Sector Report 2017-18 | 18

Indian ER&D Market

Current Performance- FY 2016

Source: Avendus Report

• Automotive & Hi-tech – key verticals expected to drive growth

Indian Software Market

Current Performance- FY 2016

SaaS Gaining Prominence

• Enterprise SaaS expected to grow 4.5x by 2020

Growing Trend for Verticalization