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Macroeconomic Analysis

After a promising start to the decade in 2010-11 with achievement like GDP growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4 of GDP in 2009-10, as well as containing current account deficit to 2.6 per cent from 2.8 per cent in 2009-10. GDP growth decelerated sharply to a nine year low of 6.5 per cent during 2011-12. The slowdown was reflected in all sectors of the economy but the industrial sector suffered the sharpest deceleration which decelerated to 2.9 per cent during 2011-12 from 8.2 per cent in 2010-11. The centres finances for 2011-12 experienced considerable slippages as key deficit indicators turned out to be much higher than budgeted due to shortfall in tax revenues and overshooting of expenditure. The gross fiscal deficit (GFD)-GDP ratio moved up to 5.8 per cent in 2011-12 compared to the budgeted ratio of 4.6 per cent. The substantial increase in subsidies during 2011-12 on account of high crude oil prices further impacted the deficit of the Government.

GDP Growth Profile: According to the first advance estimates of national income for the year 2012-13 of the Central Statistics Office (CSO), the Indian economy is expected to grow at its slowest pace in a decade at a mere 5 per cent in 2012-13, on the back of dismal performance by the farm, manufacturing and services sectors, The estimate is lower than the 6.2 per cent growth clocked in 2011-12 and is the lowest since 2002-03,when the economy grew by 4 per cent only.Services sector, including finance, insurance, real estate and business services are likely to grow by 8.6 per cent during this fiscal, against 11.7 per cent in the last fiscal. GDP Estimates for 2013-2014
Credit Suisse Credit Suisse lowered Indias GDP growth forecast for 2013-14 to 6.9 percent from its earlier forecast of 7.2 percent in December 2012. Their reason, according to a note from the bank, is the delayed response from the RBI in cutting key interest rates to boost economic growth. The bank also acknowledges the fact that this revised forecast is still above other forecasts for 201314. Reserve Bank of India According to the results of the 22nd round of the Survey of Professional Forecasters published by the RBI in January 2013, the projected growth rate for 2013-14 was revised down to 6.5 per cent from 6.6 per cent in the 21st round. Morgan Stanley On the other hand, Morgan Stanley lowered its growth forecast for India from 6.2 percent to 6 percent in March 2013. Its reasons for the revision were a lower-than-expected growth in the previous financial year at 5 percent and continuing challenges in the domestic and external environment.

External Sector
Indias balance of payments which have deteriorated sharply in 2011-12, showed some improvement in the first half of 2012-13, the merchandise trade deficit in the first half of 201213 has remained at the same level compared to the first half of 2011-12 as fall in exports due to sluggish global demands almost equally matched by import contraction mainly reflecting slowdown in domestic economic activity.

Trade Balance
With imports growth turning positive from September 2012 and export growth remaining subdues, concerns regarding a deteriorating trade deficit have been reinforced. The trade deficit for April - December, 2012-13 was estimated at US $ 147.2 billion which was 7.2% higher than the deficit of US $ 137.3 billion during April -December, 2011-12.

Inflation
The annual rate of inflation, based on monthly WPI, stood at 5.79% (provisional) for the month of July, 2013 (over July, 2012) as compared to 4.86% (provisional) for the previous month and 7.52% during the corresponding month of the previous year. Build up inflation rate in the financial year so far was 3.12% compared to a build-up rate of 2.98% in the corresponding period of the previous year.

Exchange Rate Analysis The Indian Rupee has plunged to yet another new record low in a week that has seen the currency make its worst performance in twenty years. The Rupees dramatic decline has been caused by speculation that the US Federal Reserve is getting closer to reducing the stimulus measures that had bolstered demand for emerging-market assets. As a result foreign investors are withdrawing their funds out of India and other places such as South Africa, Indonesia and Brazil. Since Federal Reserve Chairman Ben Bernanke first announced plans to begin reducing the Central Banks stimulus measures, global funds have cut holdings of Indian debt by $9.9 billion leaving the Rupee vulnerable to the nations record current-account deficit. Current Rupee (INR) Exchange Rates:
The Pound Sterling/ Indian Rupee Exchange Rate is currently in the region of: 100.4528 < The Euro/Indian Rupee Exchange Rate is currently in the region of: 85.9472 < The US Dollar/Indian Rupee Exchange Rate is currently in the region of: 64.3269 < The Australian Dollar/Indian Rupee Exchange Rate is currently in the region of: 57.8769 < The New Zealand Dollar/Indian Rupee Exchange Rate is currently in the region of: 50.1619 < The Canadian Dollar/Indian Rupee Exchange Rate is currently in the region of: 60.9121 <

Global Economic Situation and Prospects As per The United Nations World Economic Situation and Prospects (WESP), 2013 report, four years after the eruption of the global financial crisis, the global economy is still struggling to recover. During 2012, growth of the world economy has weakened further. The global economy is expected to grow at 2.2 per cent in 2012, at 2.4 per cent in 2013 and 3.2 per cent in 2014. The economic woes in Europe, Japan and the United States are spilling over to developing countries through weaker demand for their exports and heightened volatility in capital flows and commodity prices.Economies in developing Asia have weakened considerably during 2012, as the regions growth engines, China and India, have shifted into lower gear. While a significant deceleration in exports has been a key factor behind the slowdown, both economies also face a number of structural challenges that hamper growth. Given persistent inflationary pressures and large fiscal deficits, the scope for policy stimulus in India and other South Asian countries is limited. Prospects for Indian Economy in 2013-2014 A slow recovery is likely to shape up in 2013-14 with progressive implementation of some of the reforms announced since mid-September 2012. These include, inter alia, liberalisation of FDI in multi-brand retail, amendment of the Banking Regulation Act and the setting up of the Cabinet Committee on Investments chaired by the Prime Minister to expedite decisions on approvals/clearances for implementation of mega projects.Global risks may have temporarily reduced in terms of part resolution of the US fiscal cliff issues and financial fragility issues in the euro area. However, going forward the euro area risks remains significant, as key economies in the region are contracting. In this milieu, it is imperative that reform measures continue to be executed efficiently and domestic inflation recedes further, to support sustainable recovery in India.

Industry Analysis (IT-BPO)


The Global ITES-BPO ScenarioIndian ITES-BPO continues to grow from strength to strength, witnessing high levels of activity both onshore as well as offshore. Continuing pressure on cost bases at a time of growing competitiveness is driving companies to look at offshore outsourcing as a strategic alternative. Access to global talent, economies of scale, process engineering and enhancements, wage arbitrage, increased profit margins and improvements in quality are some of the gains that companies have realized. Complementing the growth in ITES-BPO exports was the spurt in domestic demand for especially in the BFSI and telecom verticals. The industry also witnessed a high degree of M&A activity involving some of the key players in the sector. In spite of theconsolidation, the share of the top 20 players remained relatively unchanged atapproximately 49 percent of the industry as the rest of the industry also witnessed impressive growth.

SWOT Analysis
Some of the key drivers (strengths) of the Indian ITES-BPO industry include: Competitive pressures on client organizations Ability of Indian vendors to ramp-up operations rapidly Widening breadth of services Shift towards high-value services Sustained cost advantage - In spite of the rising elements of cost, Indianoffshore operations provide cost savings of 40-50 per cent Delivery process enhancement and improvement Access to an abundant skill pool - India has the largest English speaking ITtalent pool in the world - over 120,000 trained IT professionals andapproximately 3 million other graduates are added each year

Weaknesses Recent months have seen a rise in the level of attrition rates among outsourcing workers who are quitting their jobs to pursue higher studies. Of late workers have shown a tendency not to pursue BPO as a full-time career. The cost of telecom and network infrastructure is much higher in India than in the US. Local infrastructure Political influence

Opportunities
To work closely with associations like Nasscom to portray India as the most favoured BPO destination in the world. India can be branded as a quality outsourcing destination. $90 billion ITES business by 2014.

Threats The anti-outsourcing legislation in the US state of New Jersey. Three more states in the United States are planning legislation against outsourcing Connecticut, Missouri and Wisconsin. Workers in British Telecom have protested against outsourcing of work to Indian BPO companies. Other BPO destinations such as China, Philippines and South Africa could have an edge on the cost factor.

Key markets:
The US remains the key market, accounting for over two-third of the total ITES-BPO exports from India. Western Europe, primarily the UK, accounts for approximately 20 percent.

Market segmentation:
Customer care and support services remain the largest segment, accounting for 38 per cent of the sectors employee base and a third of its revenues. Finance, administration and content development were the next three segments contribution 23 per cent, 14.9 per cent and 15 per cent, respectively to the revenues.

Competitive Advantage of India in this Sector


Cost savings: Data monitor, a leading UK-based business information company, research indicates that 67-72% of costs to call centres operating in the US/UK is directly linked to manpower costs. India, on the other hand spends only 33-40% of costs on man power. This includes training, benefits and other incentives for labour. Abundant Human resource: It has been identified that there is a large computer literate population is available in our Indian population composition through the recently conducted census survey. Language Competence: India has got good English speaking cluster of population and all the higher studies are being taught inEnglish.

Concentration Ratio and Herfindahl Index Analysis


BPO Caterpillar Ind Genpact India HSBC Electronic IBM Daksh Buzz. TCS e-Serve Infosys BPO WNS Global Servi Aegis American Expre I Firstsour.Solu. Sales(cr) Sales % 28600.45 4368.3 3471.49 2062.78 1906.52 1791.64 1312.41 1232.43 987.1 970.19 880.82 0.152735 0.121379 0.072124 0.06666 0.062644 0.045888 0.043091 0.034513 0.033922 0.030797

Concentration Ratio(4 firms) Herfindahl Index(10 firms)

0.412899 0.058884

A concentration ratio of 0.41 shows that the top four firms have a good market share in this industry. But the Herfindahl Index of 0.059(<0.1) shows that there is high competition in this industry with low concentration of top firms. This suggests that the firms have to regularly upgrade themselves in technology and be competitive with respect to prices and services provided by it.

Q12013 Report for IT BPO sector in India


Key Sector Data Market Cap (RsCrore) Market Cap (USD Million) P/E P/BV Debt/Equity ROA (%) ROE (%) EV/Sales EV/EBITDA 796847 132808 19.8 4.9 0.1 20.9 24.8 3.3 12.8

Period

Sales % ChgYoY 20 23 25 24

Operating Profit 17 24 25 18

PBIDT% ChgYoY 18 26 26 20

Adjusted PAT % ChgYoY 18 18 20 16

OPM (%) 20.8 21.0 21.0 20.0

PBIDT Margin (%) 23.1 23.6 23.9 23.1

PBT Margin (%) 19.4 19.9 20.4 19.8

PAT Margin (%) 16.2 15.6 14.9 14.0

201103A 201203A 201303E 201403E

Across markets, technology and innovation are being seen as growth drivers. Investment in innovation has emerged as a differentiator in the market place. Investment in technology has been enabling companies to connect with customers and influence their purchase decisions on a real-time basis. As a result, spending on technology and related services grew at a rate faster than the GDP growth. The worldwide spending on technology and related services in 2012 was USD 1.9 trillion, a growth of 4.8% over 2011. Spend on IT, BPO and software products, continued to have the majority share of 58% of total IT spend, standing at USD 1 trillion. While banking, financial services & insurance (BFSI) and manufacturing remained the largest verticals in terms of total share in IT spending, emerging verticals such as healthcare, retail, government and utilities were the drivers of incremental growth in 2012. The IT spend in emerging markets like Asia-Pacific continues to grow at a faster pace than in mature geographies on account of investments by corporations to bring their IT infrastructure on par with global standards.

Market Analysis & Review


Share of Segments Indias share in the global BPO spend is about 3.2%. In 2009, the ITES/BPO sector recorded about US $ 15 billion in revenues and has grown at a CAGR of 33% in BPO exports. Customer interaction, and Finance and Accounting services account for a significant portion of BPO revenues. As in the case of the IT Services Industry, those who have scale have demonstrated ability in garnering large value contracts. Most leading IT companies have BPO divisions/subsidiaries. Leading players are Genpact, IBM Daksh, WNS, and Wipro BPO.

Demand Drivers for ITES/BPO KPO as a growth area: The growing area in this segment is what is called as Knowledge Process Outsourcing (KPO). As per industry estimates, the Indian industry can tap into an opportunity worth US $ 12 billion by 2010 employing 250,000 persons in this area moving beyond simple voice and data services. Increasing global spends on BPO sector: The global spend on BPO is expected to grow at a CAGR of 10% to 12% till 2012 from its current size of US $ 462 billion. This is expected to drive growth in the Indian BPO sector. As indicated in the previous sections on IT, domestic GDP growth and increasing domestic IT spends will also fuel growth of the BPO sector in the domestic context.

Key Success Factors The key success factors for the Indian BPO industry are the following: Ability to move up the value chain through KPO service offerings. Ability to attract and retain talent. Ability to integrate with IT Service offerings through end-to-end solutions. Demonstrate process compliance in aspects related to client confidentiality and information security. Managing pricing pressures through adequate scale.

Key Risk Factors In addition to risk factors mentioned under the section on IT Services industry, data theft and information security present themselves as serious reputation risks for companies in the industry. Additionally, the industry is also prone to regulatory risks as a result of the need for outsourcing service providers to comply with various regulations such as GrammLeach-Bliley Act (GLBA), Data Protection Act of the UK, and Sarbanes-Oxley Act. Share of the Indian BPO industry in the global sourcing market

Service offering by the Indian ITeS BPO companies

Revenue of the Indian ITeS BPO industry during FY07-11E

F&A and knowledge services emerging as growth drivers for the Indian ITeS BPO companies. The Indian ITeS BPO companies have steadily built up capabilities, acquiring expertise and domain knowledgeacross verticals and service lines, over the past decade. Customer interaction services (CIS) remains the mostimportant service line, contributing to 42.5% of export revenue in FY11E. Revenue from this service line postedan estimated CAGR of 14.3% during FY07-11 and stood at USD6,014mn in FY11.

The Way Forward


The Indian ITeS BPO industry has evolved considerably over the past two decades with India capturing a sizeable chunk of the global market for technology sourcing and business services. The industrys growth story has traditionally been driven by low cost services across verticals such as manufacturing, telecom and BFSI among others. However, new verticals such as climate change, mobile applications, healthcare, energy efficiency and sustainable energy are fast emerging as growth drivers. Demand from domestic market is also expected to grow further as Indian companies increase their technology adoption. Traditional business strongholds are expected to make way for new geographies and customers,while offerings such as Remote Infrastructure Management (RIM) that are complex, add effectively add value to the customer value chain across diverse customer demography will be in focus.

Company Analysis
No Of Companies Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Total Asset Turnover Ratio Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) Latest 85 2013 2 2012 2 2011 23 2010 59

0.37 0.29 2.29

0.15 0.14 4.84

0.17 0.14 2.75

0.37 0.28 3.1

0.32 0.24 2.41

2.14 111.55 5.4 0.88 5.27 27.06 20.67 23.14 22.15 15.76 18.3

0.59 146.98 1.09 0.2 13183.83 45.46 43.54 45.46 31.31 29.4 8.58

0.98 238.64 1.9 0.32 13.28 41.93 37.6 39.1 28.65 24.32 11.94

1.52 64.04 3.57 0.46 11.98 38.59 32.56 35.87 29.62 23.59 15.14

2.12 85.1 4.57 0.73 10.18 29.56 23.41 27.25 26.53 20.38 17.2

Debt-Equity-ratio for the industry is declining from 2010 to 2013 which signifies lower level of debt in the capital structure of companies. Current ratio for the industry has improved over the past four years, with the present current ratio as 4.84. Turnover ratio for the industry is declining which means inefficient use of inventory and asset. Lower debtor turnover ratio means that the industry should focus on improving its credit policies which could actually pose a threat on its receivables, given the volatile exchange rate environment.

Key Ratios for American Express India Pvt. Ltd.

12-Mar Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) 3.41 0 17.92 0 22.9 18.84 22.9 16.71 12.65 21.21 14.78 0 0 4.94

11-Mar 0 0 4.16

10-Mar 0 0 3.11

9-Mar 0 0 2.25

3.1 0 17.03 0 22.41 17.84 22.41 18.25 13.68 20.77 16.25

2.84 0 40.95 0 36.26 30.82 36.26 29.97 24.52 45.19 35.96

2.6 0 34.93 0 21.82 16.35 21.82 17.62 12.15 33.47 24.88

Comparison of the company ratios with Industry ratios The company has no debt component in the capital structure of the company. Current ratio of the company has also improved along with industry standard with the present current ratio is 4.94. The debtor turnover ratio of the company is declining over the years and the decline is quite measurable from 2010 to 2011. Therefore it is very necessary for the company to focus on improving its credit policies.

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