The Big Get Smarter

One news that the DQ Top 20 members, that is the top 20 Indian companies in

terms of revenue, will really like to hear is that their hold on the Indian IT

industry increased last year. In FY 2003-04, the share of DQ Top 20 companies

was 50%-Rs 46,279 crore in the total industry size of Rs 92,924 crore. Last

fiscal, this share went up to almost 53%-Rs 65,329 crore out of a total of Rs

124,039 crore. This effectively means that the existing Top 20 players put up a

good show. And they not only worked harder, but smarter too. Obviously, better

growth rate was the prime reason for this consolidation. The Top 20 grew 41%-from

Rs 46, 279 in 2003-04 to Rs 65,329 crore in 2004-05. But the industry, in

general, grew only 33%-from Rs 92,924 crore in 2003-04 to Rs 124,039 crore

last year.

Battle

in the Club



While the big brothers beat the smaller players in terms of market share

consolidation and growth, there were quite a few significant upsets in the Top

20 hierarchy. The top 6 players-TCS, Wipro, Infosys, HP, IBM, and Satyam

managed to retain their ranks, but there were ups and downs in store for those

below. But, even here, TCS has left all others far behind with a stunning

performance. Until last year, TCS, which was a division of Tata Sons, reported

only standalone revenues. However, after the IPO, the number 1 is reporting a

consolidated revenue, including the numbers of CMC. Infosys has managed to

reduce the gap with number 2 Wipro, and, on the same lines, HP has narrowed the

gap with Infosys.

Beyond the Top six positions, Cisco moved from its 11th slot in FY 2003-04 to

the 10th last year. Industry gurus suggest that Cisco should be on the watch

list. Tech Pacific, slipped by one rank. Much of this can be attributed to the

Ingram-Tech Pacific merger blues. But with the former Tech Pacific chief heading

the new Ingram, this year should be better. Redington had a good year with 43%

growth, yet slipped by one position.

While Intel did a good job of marginally improving growth in the time of

falling PC prices, it held to its 9th rank Another great fall has been that of

the industry darling Moser Baer, which, not so long ago, was the most talked

about manufacturing success story from India. Escalating operating cost, result

of mounting oil prices led to a sharp hike in polycorbonate prices, which led to

Moser Baer moving into the red. The lack-lustre global market was also to blame

for the 10% dip in its revenues. This proved to be the showstopper for Moser

Baer, which came down from the 14th to the 18th position last year. All this,

along with a below average show by Samsung, which underwent lots of

re-structuring and top management change, helped Patni to jump up two ranks from

the 16th to the 14th slot last year. Off-shore wave helped Cognizant catapult

itself to the 16th rank. Incidentally, Cognizant at 80%, was also the fastest

growing DQ Top 20 company last fiscal.

Fortunately for the existing members, last fiscal saw nobody exiting the

elite club.

After the great swing of FY 2000-01, when the consolidated revenues of the DQ Top 20 club members sky-rocketed, growth has been slow and steady. Last fiscal was another big jump, and similar growth is expected to continue

Overall, software exports focused companies, among the DQ Top 20,

outperformed hardware vendors and distributors. One will have to mention

Microsoft here, which is doing a good job in terms of making money out of the

domestic market also. Next to the software companies, the fastest growing

companies were either dealing in networking equipment or were into distribution

business.

Segment-wise Revenue Break-up Besides the traditional software, there is quite a bit of services also, including remote network management, customized software and consulting. With India getting stronger on the outsourcing front, growth in this domain is unlikely to come down in the coming years

The domestic versus exports focus players, and their respective positions,

might see more shifts as the Indian market grows faster and becomes bigger. An

emerging trend to support this is the increasing number of channel players,

which have emerged in the list of India's Top 51 to 200 IT companies. They are

making money not just by box pushing, but by offering value added services such

as network and systems integration involving security, storage, and even network

management solutions. As markets in B & C category towns grow, we will see

more push coming from these players to move up the DQ list of the country's

Top 200 companies.

Exports and More



Exports continue to be the bread and butter, and, therefore, the passion of

the DQ Top 20 players. While the overall contribution to their kitty from

exports remained at 55% last year-no change over the previous year-the

growth rate was better. While the exports revenue grew 32% in fiscal 2003-04, it

went up by 43% last fiscal.

There was 1% increase of software and services exports to their overall

kitty. The amount will actually translate to about Rs 10,943 crore. While there

is a lot of that traditional software, codes in it, there is quite a bit of

services also, including remote network management, customized software

consulting, and some bit of packaged software. And with India getting stronger

on the outsourcing front, growth in this domain is unlikely to plunge in the

coming years. Revenues from the sale of systems, peripherals, networking

equipment, and other miscellaneous items, has seen a little downward shift. This

is understandable, considering the dropping hardware and networking equipment

prices, and the growing role that channel players are playing in the domestic

market. What is eye-catching in this number jumble is the domestic services such

as facilities management and IT outsourcing-where the DQ Top 20 players earned

significantly higher revenues last year, than they did in the previous year-114%

jumped. Clearly sign of a growing, as well as a maturing domestic market. It

would not be surprising if we see contribution from this line of business go up

in the next couple of years.

Vertical Landing

Revenue Trends For the DQ Top 20 companies, quarter-wise revenues did not see much shift. However, industry watchers say that as the domestic market expands, especially with governments becoming big buyers, there is a possibility of the size of business in the JFM quarter going up in the years to come

For the DQ Top 20, revenues from selling outside India got 55% of total

business last year, but in the domestic market, they did get their own share of

the action. In terms of actual numbers their business from the domestic market

expanded from Rs 21,021 crore in 2003-04 to Rs 29,283 crore last year, almost a

40% increase. Government, with its spending down a little, discovered that it

needs to do a lot of serious thinking and planning before spending. In a year

when e-governance and computerization of government departments was discussed at

every forum, spending seems to have taken a bit of a back-stage. IT champions in

various departments, and state IT secretaries, have gone back to the drawing

board, and promise to start taking purchase decisions from this year. In

general, the BFSI sector, banking in particular, remained un-stoppable. This was

actually the vertical with the biggest IT spending last year. Projects ranged

from national and international networks like that of the SBI, to country-wide

ATM networks, to banking security systems, to on-line and mobile banking

applications. While contribution of BFSI went up by 3% points, the actual

numbers and growth is mind-boggling. From Rs 3,972 crore in 2003-04, the

spending went up to Rs 7,639 crore last year, a growth of over 92%.

The other vertical which was generous in IT spending was IT & Telecom. In

fact their investments went up marginally last year over the previous year. The

growing rage that BPO is for India is a self-explanation for the amount of IT

spending that is happening there. On the telecom front, with the competition for

subscriber acquisition hotting up between the many operators, there was no end

to value added services and rapid network expansion, and higher service

flexibility, all of which come with IT. Telecom and IT, including BPO and Call

Centers, will continue to be big investors in the future too, somewhat similar

to BFSI. While there is only a 1% point growth in revenues from this vertical,

in actual numbers it is superb. Vis-à-vis Rs 4,706 crore spent by this vertical

in FY 2003-04, the spending went up to Rs 6,863 crore last year, a growth of

almost 47%.

Segment-wise Revenue Break-up by Verticals BFSI , IT & Telecom, and Energy saw growth. BFSI was the largest IT spender and saw some of the biggest national and international projects being implemented. In telecom, competition among service providers to acquire subscribers fueled IT growth The Domestic Market The domestic market had its own share of action. In terms of actual numbers domestic market expanded by almost a 40% increase. And this growth will continue, most probably at the same rate, especially as channel players get more active Exports Lead Again Exports continue to be the bread and butter, and, therefore, the passion of the DQ Top 20 players. While the overall contribution to their kitty from exports remained unchange over the previous year-the growth rate was better

As far as the manufacturing vertical goes, fiscal 2003-04 was a year when a

lot happened. In fact, 6% of the domestic spending was in manufacturing, as we

saw major automobile manufacturers, steel, cement, and engineering tool makers

spend heavily on IT. Experts feel that there is usually a brief lull after the

first phase of investments in a sector like this. However, with the government

now talking of giving telecom, networking, and IT manufacturing another push,

one expects manufacturing to again hot up soon. Players like Nokia, Elcoteq,

Alcatel, Flextronics, Samsung, Motorola, and LG have already announced

manufacturing plans for consumer equipment. If PC penetration and phone and

internet density in the country has to happen as per the Ministry of IT and

Communications' plans-250 mn phone users by 2007, and 40 mn internet users,

including 20 mn broadband users, by 2010-local manufacturing of a range of

products will have to happen here.

A not so good picture emerged from the SOHO vertical, where it's

contribution to the DQ Top 20 players' kitty has gone down from 7% to 5%. The

explanations for this are many. There was a steep drop in prices of branded PCs

and peripherals, which impacted revenues more than numbers. The aggression that

the channel players have shown in reaching out to B & C towns, and beyond,

has shifted lots of business to them. And once again, a big SOHO population did

buy PCs when prices came down in the early part of last year. Ever since, there

has been a big hue and cry about the low cost PCs, the sub-10K PCs, and the sub

25-K notebooks. A lot of SOHO users have got stuck in the "wait and

watch" game.

Energy, as a vertical, also saw a big jump from a contribution of 2% to 4% to

the DQ Top 20 kitty. While we saw the oil and gas companies continue to be

liberal spenders last year also, the emerging sector was power. And with power

and electricity privatization, and corporati—zation happening at a better pace

now, one would only expect this vertical to become a bigger spender.

Those Lurking



While this was the tale of the DQ Top 20 players, a quick mention of those

hovering on the sidelines will be only fair. For instance, Mahindra British

Telecom, which was ousted of the DQ Top 20 club in 2003-04, with its renewed

focus on not just telecom software but associated services too, will be a

serious threat to those at the bottommost positions of the ladder. Similarly,

Sun Microsystems, which is exploiting the growing domestic market to the hilt

with a product range beyond servers, can be a serious DQ Top 20 contender next

year. And lastly, SAP, which has shown rapid growth last year, just needs to

maintain this growth, and it could be in.

Similarly, beyond the Top 50 companies, there is a very aggressive queue of

very aggressive players waiting to push their way in. They are smaller, and

likely to manage strong growth too. Times are surely going to get hotter and

more interesting



next year.

Ibrahim Ahmad