private and confidential

private and confidential

india - a destination for cross-border m&a

opportunities

a discussion document

march, 2008

change your perspectivesee what makes

the difference

mosaiccapital mergers & acquisitions | private equity

telecom - media - technology

2private and confidential


the india proposition – select economic criteria

4th largest economy in the world; 2nd largest GDP among the developing countries (based on purchasing power parity)

over the past 15 years, has been the second fastest growing economy in the world, after China, with an average annual growth rate exceeding 6.5%

displaced the US as the second-most favoured destination for foreign direct investment (FDI) in the world after China. (source: AT Kearney's FDI Confidence Index)

key metrics probably the most preferred country for future R&D investments, with slightly more than 40 percent of CEOs indicating they will likely make such investments over the next three years

most mature and well developed capital markets amongst developing countries

3-4 years of unabated “bull-run” based on record corporate growth & earnings have provided Indian companies the necessary foundation for expansion with minimal leverage

modest inflation despite spiraling crude prices

2005 2006 2007

Real GDP (% change) 9.2 8.6 7.9

Nominal GDP (US$ bil.) 808.9 897.8 1035

Nominal GDP Per Capita (US$) 738 808 918

Consumer Price I ndex (% change) 4.2 5.8 5.7

Wholesale-Producer Price I ndex (% change) 4.7 4.9 5.4

Policy I nterest Rate (% ) 6 6 7.25

Short-term I nterest Rate (% ) 10.75 10.94 10.82

Broad Money Supply (LCU bil.) 25291.9 29424.2 37114.7

Fiscal Balance (% of GDP) -4.1 -3.7 -3.6

Unemployment Rate (% ) 12.8 12.2 11.9

Current Account Balance (US$ bil.) -9.2 -15.6 -22.4

Current Account Balance (% of GDP) -1.1 -1.7 -2.2

Trade Balance (US$ bil.) -40.2 -53.9 -65.7

Trade Balance (% of GDP) -5 -6 -6.3

Exchange Rate (LCU/ US$, end of period) 45.06 44.24 45.12

Exchange Rate (LCU/ Euro, end of period) 53.16 58.27 62.26



the india proposition – availability of funds

Foreign Capital Inflow (net)

10184 8814 855110840

16736

2802223400

05000

1000015000

200002500030000

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

US$ M

illion

FDI Inflows

21674031

6125 5036 43225987 7661

19000

0

5000

10000

15000

20000

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

US$ M

illion



the india proposition – availability of funds

Acquirer Target Sector %Stake Value - USD MnTemasek Holdings Bharti Airtel Telecom 4.99% 1,906.74 Consortium GMR Infrastructure Real Estate & Infastructure Mgt 9.00% 1,000.00 Consortium Bharti Infratel Telecom 10.00% 1,000.00 ICICI Venture Funds Jaypee Infratech Real Estate & Infastructure Mgt N.A. 800.00 Carlyle Group HDFC Banking & Financial Services 5.60% 650.00 Avenue Capital SKIL Infrastructure Real Estate & Infastructure Mgt 26.00% 500.00

USD 500 Mn Plus PE Deals - India

Sector Wise Break-up - Volume

6067

31 35

61

151

0

40

80

120

160

Banking &FinancialServices

IT & ITES Media,Entertainment &

Publishing

Pharma,Healthcare &

Biotech

Real Estate &InfrastructureManagement

Others

No

. o

f D

eals

Sector Wise Break-up - Value

17%

4%5%

2%

36%

36%

Banking & Financial Services

IT & ITES

Media, Entertainment & Publishing

Pharma, Healthcare & Biotech

Real Estate & Infrastructure Management

Others



the india proposition – the global indian: cross border acquisitions

* list excludes the take-over of Arcelor by Mittal Steel (essentially Indian promoter and management team)

China 38,406.40 1,913.00 Hong Kong 26,930.20 765.00 India 26,676.80 1,141.00 Malaysia 25,956.60 873.00 South Korea 24,493.80 255.00 Taiwan 21,396.30 175.00 Singapore 15,713.80 465.00 Philippines 7,754.50 128.00 Thailand 7,555.10 268.00 Indonesia 5,117.70 117.00 Industry Total 201,531.40 6,216.00

Any Involvement Asia M&A By Target Nation - CY 2006

Target Nation Deal Value (US$ Mil)Number of

Deals

Acquirer Target Sector Value - USD Mn Deal TypeTata Steel Corus Steel 12,201.60 AcquisitionVodafone Hutchison Essar Telecom 10,830.00 MajorityHindalco Industries Novelis Inc Aluminium 6,000.00 AcquisitionSuzlon Energy REpower Power & Energy 1,700.93 Controlling StakrEssar Steel Holdings Algoma Steel Inc Steel 1,580.00 AcquisitionUnited Spirits Whyte & Mackay Breweries & Distilleries 1,112.99 AcquisitionTata Power PT Kaltim Prima Coal Power & Energy 1,100.00 Significant Stake

Billion Dollar Plus M&A Deals



the india proposition – the global indian: cross border acquisitionsAmtek Auto Zelter GmbH, Germany, GWK Group, UK, Lloyds (Brierly Hill),

UK, Midwest Mfg. Co., USA, Tiplex-Kelton Group, JL French’s (Witham) Limited

Asian Paints Delmege Forsyth (Sri Lanka), Pacific Paints (Australia), Berger International,SCIB Chemical (Egypt), Taubmans Paints (Fiji)

Bharat Forge CDP Aluminiumtechnik, Germany, Federal Forge, USA, Imatra Forging Group,Sweden and Scotland

Havell’s India Ltd

SLI Sylvania lighting business, acquisition price USD 300 million

Indian Hotels Hotels in Zambia and Australia

Marico Sundari LLC, USA, consumer division of Enaleni Pharmaceuticals

MindTree Consulting

TES-PV Electronic Solutions

Motherson Sumi

Reiner Präzision GmbH and G+S Kunststofftechnik GmbH in Germany, Empire Rubber

Reliance Communications

Yipes Holding Inc, acquisition price USD 300 million

Reliance Industries

Gulf Africa Petroleum Corporation (GAPCO)

Reliance Life Science

GeneMedix Plc, acquisition price USD 28.80 million for a 74% stake

Sterlite Monte Cello Corporation, Netherlands, the holding company of copper mines in Australia

Sundaram Fastners

Dana Spicer, UK, Peiner Umformtechnik GmbH, Germany, PUT Grundstucks GmbH

Tata Tea Tetley, Good Earth, JEM_A, Glaceau

VSNL Teleglobe International Holdings, Tyco Global Network

Wipro Spectramind, GE’s healthcare software arm, global Energy practice of American Management Systems, Nervewire, US, Ericsson's Indian R&D arm, OkI Techno Centre Singapore



the india proposition – Telecom and Media, Entertainment & Publishing

Target Acquirer Deal Size StakeTil-Tex Antenna Inc Kavveri Telecom Products 2.50 100%Yipes Holding Inc Reliance Communication 300.00 100%Voxmobili SA OnMobile 35.69 100%AEI Cables Paramount Communications 26.50 100%ADA Cellworks GTL International 25.00 100%IRP & patents of Sigma Wireless Kavveri Telecom Products N.A. 100%

Indian Cross Border Telecom Deals - CY 2007 (USD Mn)

Investee Investors Deal Size StakeAsianet Satellite Communications Providence 66.67 N.A.Ordyn Technologies Aureos Capital 9.30 N.A.Spice Telecom Consortium 30.00 20%Microqual Techno Pvt Ltd Consortium 10.00 N.A.Bharti Airtel Temasek Holdings 1,906.74 5%Infrastructure unit of Reliance Communications Consortium 337.50 5%Aster Tower Consortium 35.00 N.A.Tejas Networks Ltd Goldman Sachs 22.09 N.A.Bharti Inratel Consortium 1,000.00 10%

Indian PE Telecom Deals - CY 2007 (USD Mn)

Target Acquirer Deal Size Stake

FunAsiA Pyramid Saimira N.A. 100%

Lumiere Infinity Film Completion N.A. 25%

Carlisle Publishing S4 Ind Software 3.50 100%

Knibble.com FX Labs Studio 3.00 100%

Indian Cross Border Media, Ent. & Publishing Deals - CY 2007 (USD Mn)

Investee Investors Deal Size Stake

Madhouse Media Angel Investors 0.23 N.A.

Tata Sky Temasek Holdings 55.56 10%

UFO Moviez 3i Group 22.00 N.A.

B.A.G. Infotainment IDBI 0.45 10%

B.A.G. Infotainment Bank of Baroda 0.45 10%

B.A.G. Infotainment Sameer Gehlaut 5.70 25%

Nimbus Communications Consortium 125.00 N.A.

Eenadu Group Blackstone Group 275.00 26%

NDTV Networks Consortium 120.00 24%

NDTV Networks Plc Com Ventures 20.00 N.A.

INX Media Temasek Holdings N.A. 19%

INX Media New Silk Route N.A. 20%

INX Media New Vernon N.A. 6%

Games2Win Consortium 5.00 N.A.

India TV Fuse+Media 11.50 19%

Hathway Cable Chyrs Capital 60.00 12%

Prana Studio Sherpalo Ventures N.A. N.A.

Hathway Cable Chyrs Capital 60.00 15%

Kreeda Games Consortium N.A. N.A.

Mindworks Global Media Helion Venture 15.00 N.A.

Digicable Network Ashmore Investment N.A. 49%

Right Angle Media Amwal Al Khaleej 35.35 N.A.

Palador Pictures Consortium 6.00 15%

B.A.G. Films & Media Fidelity 14.42 10%

Percept Holdings Future Group 46.51 15%

Hurix Systems Helion Venture 5.10 N.A.

Live Media Draper Fisher Jurvetson N.A. N.A.

Gemini Industries DE Shaw 55.81 N.A.

mGinger Draper Fisher Jurvetson 1.50 N.A.

mGinger NEA Indo-US Ventures 0.50 N.A.

Dish TV Indivision Capital 58.14 5%

Indian PE Media, Ent. & Publishing Deals Deals - CY 2007 (USD Mn)



Indian mobile market to cross US$25 billion

According to Gartner, Cellular services market in India in 2011 is expected to be US$25.6billion. Total earnings of cellular services market in 2006 was US$8.95 billion and would reach US$25.617 billion by 2011 growing at a compounded annual growth rate (CAGR) of 18.4%. Cellular market penetration is also projected to increase from 12.7% in 2006 to 38.6% in 2011

The overall penetration will primarily be driven by an increased focus on rural market. By 2011, Gartner expects 58% of the rural population and 95% of the urban population to be covered with mobile connections. It is indicating that there was still scope for reducing mobile tariff, although call rates have reduced to about 2.6 cents per minute, it remained high compared with fixed-line rates at 0.9 cents per minute

Rural market presents immense growth opportunities as mobile penetration was just 2%. Many firms are planning to tap this market by introducing handsets that would cost below Rs1,000

the Indian telecom market



Current Statistics

The total number of telephone subscribers has reached 264 mn at the end of November 2007 of which 225 mn were mobile subscribers and 39 mn were fixed/landline subscribers. The overall tele-density improved further to 23% in November 2007 compared to 22% in October 2006.

The Average Revenue per User (ARPU) for the GSM, CDMA and broadband services segment were at Rs275, Rs173 and Rs200 respectively.




Wireless mobile segment Wireless segment has yet again witnessed a feverish growth with the total subscriber base

touching 225m in November 2007 compared with 143m in November 2006 and adding up 60.3m subscribers during Apr-Nov 2007

Lower handset prices coupled with an increased urge to stay connected while on the move have been driving the growth in wireless segment

Wireless penetration currently stands at 20.4% (up 69bps MoM) The wireless-to-fixed penetration is at ~495% and wireless-to-total penetration is at

~85.6% Bharti, RCOM and Vodafone were major gainers in absolute terms on a MoM basis




GSM mobile segment The GSM segment comprises 72% of the overall wireless market The total number of subscribers in the metro region jumped by 41% to 54.1 mn during October

November 2007 compared with same period of 2006 Subscriber base in Circle A touched the 90 mn mark during October-November 2007, growing by

29% Circle B registered a decline of 6% in subscriber base during October-November 2007 compared

with same period of 2006 Circle C has market share of just 14% in all India mobile users, with a subscriber base of 19.6 mn –

this circle showed 80% growth during October-November 2007 compared with same period of 2006 GSM service providers are rapidly enhancing coverage and reach of service, which is getting

reflected in the healthy subscriber growth

CDMA mobile segment The CDMA market is witnessing stiff competition with players like Reliance Communications and

Bharti Airtel losing ground to Tata Teleservices over a period of time Revenue from call charges comprised 62% and rental charges 18% of the revenues of the CDMA

players




Wire-line segment The wire-line subscriber base declined yet again to 39.31 mn in November 2007 compared with 39.41 mn

in October 2007 Although the private players witnessed growth in subscriber base, it was the public companies that lost the

ground and dragged the growth The wire-line segment is still led by PSUs – BSNL dominance in the fixed line remained intact with a market

share of 82%, followed by MTNL at 9%; Bharti Airtel remained the leader amongst the private players, garnering a share of 5%, BSNL commands 73% in the urban landscape and almost cent percent in the rural areas

Internet & broadband segment India currently has 72 broadband service providers, having a subscriber base of 2.87 mn as of November

2007 Out of the 72 broadband service providers, only 13 service providers are having subscriber base more than

10,000 and these providers share 98% of the total market There were 9.63 mn wire-line Internet subscribers at the end of September 2007 compared to 9.22 mn at

the end of June 2007, registering a growth of nearly 4.37% The growth trend indicates a slight increase in the market share of PSU-owned internet service providers

(ISPs) vis-à-vis private operators The growth in Broadband segment has not been satisfactory – it is still slow and below the expected levels As per the recent TRAI proposal, companies like BSNL and MTNL should be allowed to appoint franchisees

and spectrum for 3G and WiMAX should be made available at the earliest to boost the deployment of broadband using these technologies

The regulator has also laid down policies for hastening implementation of Internet protocol TV (IPTV) platform across the country




Operating strategy: Stay big; get bigger; expand world-wide

All of the Indian telecom majors, both private, namely: Reliance Communications, Bharti Televentures, Tata, AV Birla Group, Aircel, Essar; and government owned namely: MTNL and BSNL – all have explicit intents to expand world-wide – with special emphasis on emerging markets such as Africa and Asia

Reliance, Bharti, MTNL and other Indian companies have already made moves in acquiring licenses in various countries in Africa including those in Kenya, Gabon, Tanzania, etc

VSNL (Tatas) and Flag (Reliance) already together rank as worlds second biggest ethernet backbone in the world

Scale is a key competitive strength in this business segment and RCOM’s recent moves reflect an ambition to leverage this facet to drive growth. It recently announced the completion of FALCON, a 2.5Tbps sub-sea cable system which connects 11 countries in the Middle–East with the FLAG’s existing cable system. RCOM also intends to spend $1.5bn over the next three years to build an IP-overlay on FLAG’s sub-sea cable network. Though bandwidth sales and IRUs currently account for the largest portion of revenues, IP-based services are the fastest growing segment. RCOM faces significant competition from VSNL which is also gearing up to focus on this profitable market segment

Bharti Airtel, which had earlier bagged the licence to become Sri Lanka’s fifth GSM-based service provider, will launch second and third generation mobile services in the island nation by the end of the current fiscal and invest about US$200m by 2012. Bharti will have to compete with the Telekom Malaysia-owned Dialog Telecom (the largest operator in the country), Celltel Lanka (owned by Luxembourg-based service provider Millicom International




The Indian entertainment and media industry is one of the fastest growing industries and has outperformed the Indian economy

According to FICCI PwC report, the television industry revenues are expected to grow from the present Rs 191 bn (USD 4.77 bn) to Rs 519 bn (USD 12.97 bn) by 2011, implying a 22% compounded annual growth rate

The radio industry recorded a growth of nearly 58% in 2006 – the share of radio in the total advertising industry increased from 2.4% to 3.1% during the year

According to PwC report, the print industry is expected to grow from Rs 128 bn (USD 3.2 bn) in 2006 to Rs 232 bn (USD 5.8 bn) by 2011, at 12.6% CAGR

the Indian media market

Currently, the size of film industry is estimated to be around Rs 230 bn (USD 5.8bn), which is supposed to be the largest in the world

The Indian media and entertainment industry will grow at twice the rate of the country’s GDP in a few years, driven largely by the emergence of regional players, technology and digitisation



Radio industry The radio industry recorded a growth of nearly 58% in 2006 The share of radio in the total advertising industry increased from 2.4% to 3.1% during the same year This is further expected to increase to 5.5% by 2011 as per the FICCI-PwC report on the Indian

entertainment and media industry The size of the radio industry is projected to increase at a CAGR of 28% from Rs 5 bn in 2006 to Rs 17 bn

by 2011 The major advertisers on radio are the entertainment channels, real estate firms and retailers - all these

industries are expected to witness robust growth in the years to come More than 90 channels across various languages and genres are being launched this year

Film industry The Indian film industry is the biggest film industry in the world in terms of number of viewers, with an

audience of more than 3 billion compared with Hollywood’s 2.6 billion globally The size of the Indian domestic film industry is likely to double to Rs 400 bn (around USD 10 bn) in the next

three years, creating employment opportunities for about 6m people by 2010 Currently, the size of film industry is estimated to be around Rs 230 bn (around USD 6 bn), which is

supposed to be the largest in the world - it produces 800 films in different languages and earns nearly USD 100 mn of foreign exchange




Print industry The structure of the Indian print media industry is highly fragmented with regional dominance The Indian print media segment primarily comprises newspaper and magazine publishing According to PwC report, the print industry is expected to grow from Rs 128 bn in 2006 to Rs 232 bn by

2011, at 12.6% CAGR While the newspaper industry is estimated at Rs 112 bn, the magazine segment is valued at Rs 16 bn

Print media – revenues The primary source of revenues for a newspaper companies is advertising and subscription - the other

sources include providing news to other agencies and sale of scrap paper The subscription revenues formed nearly 39% of the total print media revenues of Rs 128 bn in 2006 Print ads have the highest share of the ad pie in the media industry – dailies and magazines combined had

a share of 48% of the total Rs 131 bn advertising revenues in 2005 Looking ahead, print media would continue to dominate other media in terms of revenues from advertising,

with a market share of 46% of the total ad spend (Rs 293bn) by 2010 Advertising revenues formed 61% of the total print media revenues in 2006 and is expected to touch 66%

of the total Rs 206 bn revenues in 2010




Television The television industry in India has come a long way from the time when only a

couple of Doordarshan channels were broadcast for a limited duration of the day Today, there are 300 channels across various languages and genres catering to

audiences 24 hours a day The size of the industry is estimated to be approximately Rs 191 bn - with 112

mn TV households, India is the third largest television market in the world, next only to China and the US

Regulations The Ministry of Information and Broadcasting is aiming for a further cut in

entertainment tax to 25-30% - with technology and digitisation fuelling the 18% CAGR, a tax breather will only enhance the growth

FDI Cap for FM Radio may be raised to 26% - retaining the current 20% FDI cap in radio companies, Government may allow an additional 6% for FIIs and others

India to increase cable TV foreign investment cap - India is set to raise the foreign direct investment limit in cable television to 74% from 49% and allow 100% ownership in down linking general and entertainment channels




Outlook The Indian media and entertainment industry will grow at twice the rate of the country’s GDP in a

few years, driven largely by the emergence of regional players, technology and digitisation Around 28% of the 100 mn pay TV households would be going digital by 2010, as a result of this

trend In a digitised Indian media and entertainment environment, DTH would emerge leader over the next

three years, while IPTV would gain close to 1m subscribers by 2010 A booming Indian economy, literate population on the rise, increasing consumerism, entry of global

brands in the country and opening of the sector to foreign investors would drive the growth in print media

Newspaper companies entering into newer regions and segments would lead to stronger growth - with the economy expected to be robust and increasing penetration of newspapers, the advertisement revenues are expected to remain strong

The share of the print media in the total ad pie is expected to go down due to increasing competition from other forms of media like the Internet – the Internet has emerged as the most actively used medium for news, as it offers instant news just like television and has a long shelf-life like newspapers




the india proposition – Information Technology & ITeS

Target Acquirer Deal Size Stake

AdDynamix Ybrant Technologies 10.00 100%

eSys Technologies Teledata Informatics 105.00 N.A.

Global Vantedge Aegis BPO 22.22 100%

Thought Digitial Zensar Technologies 24.90 100%

BPO Lason HOV Services 148.00 100%

ICE Enterprise Solutions Genpact N.A. 100%

Valley US Quintegra Solutions 9.50 100%

JadeLite Technologies Quintegra Solutions 1.00 100%

Links Group International Paradyne Infotech 4.75 100%

Emacs Technologies Core Projects & Technologies 3.00 100%

Massif Technologies Nihar Info Global 0.03 51%

Seenetix Ybrant Technologies N.A. 100%

Dynatex ISGN N.A. 100%

West Talk Corporate Triton Corp N.A. 100%

New Begininings Finance Triton Corp N.A. 80%

Rubicon Group EMR Technology Ventures 20.00 100%

TCS Brasil TCS 33.40 49%

Com Creation Inc Cambridge Technology 3.50 100%

Cross Roads Detailing Moldtex Technologies 1.30 100%

DCI Digital Communications Kaveri Telecom Products 2.20 100%

DGIT Solutions ORG Informatics N.A. 100%

Capco Capital Markets i-Flex Solutions N.A. 100%

BPM Inc First Source Solutions N.A. 100%

Soltius Pte Teledata Informatics 45.00 100%

Syndesis Limited Subex Azure 164.50 100%

Dunn Solutions Cranes Software 13.95 100%

Logan Orviss Patni Computers N.A. 100%

Ask n Learn Educomp Solutions 3.88 100%

FLovate Technol WNS Holdings N.A. 100%

Orion Technology Rolta N.A. 100%

US based company Maples ESM N.A. 100%

Benson Transcription Bhilwara Scribe N.A. 100%

Metrikus Persistent Systems N.A. 100%

Boston Communications Group Megasoft Ltd 65.00 83%

Philips Global Finance Infosys Technologies 28.00 100%

Taratec Development Corp Patni Computers 27.20 100%

Indian Cross Border IT & ITeS Deals - CY 2007 (USD Mn)



the india proposition – Information Technology & ITeS

Target Acquirer Deal Size StakeClearorbit Take Solutions 20.60 100%Consultancy division of Logistics Solutions Kaashyap Technologies 8.50 100%Vector Insurance Services Mastek 4.50 90%Reckon Up Logix Microsystems 4.00 100%Prefered Financial Group Quatrro BPO N.A. 100%Infocrossing Inc Wipro Technologies 600.00 100%TekSoft Inc Geometric Solutions N.A. 18%MedAssist Holdings First Source Solutions 330.00 100%Four Lakes Colorgraphics Murugappa Group 110.00 100%Zavata Inc Apollo Hospitals 180.00 100%Zero Octa Kale Consultants N.A. 100%Telecom Service Centre Hero Group 80.00 100%Converso Contact Centres Usha Martin Group N.A. 100%Apex Document Solutions Tricom India 2.00 100%Savicca Educomp Solutions N.A. 70%Host Department Nettlinx LTD N.A. 100%Okl Techno Centre Wipro Technologies N.A. 100%Comnet International Infinite Computer Solutions N.A. 100%Azzurri Education Core Projects & Technologies 30.00 100%KC Management Group Core Projects & Technologies 12.00 100%Hamlet Computer Group Core Projects & Technologies 3.00 100%LocaModa Inc Mahindra & Mahindra & Reliance Port Terminals 6.18 N.A.Kingdom Builders Allsec Technologies 1.50 100%PA Corporation Quintegra Solutions 49.00 100%Industronics Berhad Ruia Group N.A. 30%Castek Software i-Flex Solutions N.A. 49%J&B Software 3i Infotech 25.25 100%NINtec B.V. Gateway Technolabs N.A. N.A.Nitor Global Solutions Satyam Computers 5.50 100%Agadia Systems Prithvi Information Solutions 4.50 100%Ohio based KPO Mold Tek Technologies 2.00 100%TES-PV Solutions Mind Tree Consulting 6.55 100%International Innovations Inc California Software Company 1.32 100%Capital Market Solutions Fortis Financial Services N.A. 76%Integro Technologies Aurionpro Solutions N.A. 100%Huron Graffenstaden Jyoti CNC Automation 55.81 100%Oridian Ybrant Technologies 13.00 100%Upstream & Travelport ISO Intelnet Global Services 75.00 100%Dalglen Hero Group 74.42 100%Inatech Infosolutions California Software Company 6.17 49%Reps Resources CS Software Enterprise N.A. 51%

Indian Cross Border IT & ITeS Deals - CY 2007 (USD Mn)



The services sector is one of the most significant sectors of the Indian economy, contributing nearly 55% to the GDP in 2006–07

The sector continues to be the key driver of economic activities holding a share of more than 44% of GDP. The contribution of the IT industry to the country’s economy is increasing - the industry’s contribution to the nation’s GDP has gone up to 5.4% in FY07 as against 4.8% in FY06

The Indian ITES-BPO segment continues to chart strong year-on-year growth, witnessing high levels of activity both onshore and offshore

The IT software services and BPO industries have had a mixed year (2007) – the rupee played spoil sport, but top players reacted quickly in tightening the slack in the system

The year 2008 promises to bring in newer growth opportunities, potentially billion dollar ones, for the Indian IT industry

The export-driven Indian IT/ITeS industry — which has been dominated by application development and maintenance (ADM), voice-based BPO services and BFSI vertical — could see new and niche areas scaling up rapidly

Growth of IT services market is primarily being driven by growth of the economy, small and midsize businesses, government projects and increased customer focus – Indian IT services market is pegged to grow to US$10.73 billion by 2011 with anticipation of more contracts from firms, grappling with high attrition of IT staff

the Indian information technology & ITeS market



ITeS-BPO Segment The Indian ITES-BPO segment continues to chart strong year-on-year growth, witnessing

high levels of activity both onshore as well as offshore The industry is moving up the value chain into KPO to raise profits BPO market prospered with year-on-year TCV (Total Contract Value) growth of 147% for

2007 The current hot spots in KPO industry are engineering and design, basic data search,

integration and management and biotech and pharma These opportunities in the KPO will help the Indian market climb the global value and

knowledge chain




Industry Trends BPO entities have been at the front position of large mergers and acquisitions (M&A) in the

Indian IT space as compared to IT services firms India's knowledge process back-office (KPOs) firms are venturing overseas for acquisitions as

they scale-up, struggle for talent, try to beat a rising rupee and face competition from big software firms

Indian firms are looking to partner with or acquire local firms in Germany in an effort to tap European market for offshore IT services which, apart from growing at a fast clip, is also emerging as a natural hedge against a slowdown in the US, which accounts for the bulk of their business

BPO services that are moving into Tier 2 and 3 cities and it is now expected that IT services will follow suit, though at a slower pace

Outlook Indian domestic IT/ITES market revenue is likely to reach Rs1,100 billion in 2008, an increase

of 24% growth For the domestic IT/ITeS sector, 2008 would also mark the beginning of the second growth

phase characterised by the opportunities arising out of leveraging the IT infrastructure built up

With the slowdown in the US economy, a strong rupee and questions over extension of the STP scheme looming large, 2008 will be a crucial year for the Indian BPO industry

Global clients will turn to new countries as inflation and employee turnover in Indian cities like Bangalore and Pune will frustrate them – talent shortage will push them to Tier-II within India, and to Latin America, Eastern Europe and Asia. Canada, Brazil, Chile, Costa Rica and Mexico will be some of the new hot spots in providing sourcing solutions




IT Software Services (ITSS) Segment The IT software services and BPO industries have had a mixed year (2007) Large IT companies with robust margins suffered an impact on their bottom line, but were

able to absorb or even counter the effect - however, the smaller ones, which had lower margins, were hard hit.

More and more global corporations are trying to improve their cost efficiency and thus outsourcing their technology requirements to low-cost countries like India




Industry Trends The Banking and Financial Services (BFS) vertical forms the largest contributor to the total

IT services revenue in India, and has maintained its lead over other verticals for a considerable number of years, almost 38% of the US$24 billion IT services business

IT companies are looking for ways to extend their value chain and bolster bottom-line – the uncertainty and cutting costs are some of the aspects which the IT companies would have to keep in mind during 2008

After sustained focus on Western shores, China is now high on their charter for Indian IT services providers

The year 2007 appears to have been a year of consolidation for the security industry with organisations demanding better performing and flexible security solutions with constrained budgets and vendors responding with consolidated offerings

With the US slowdown and a depreciating dollar, US tech firms are likely to push for export-led growth for earnings - hence, the Indian market is emerging as a hot spot growth area

Outlook According to Gartner, Indian IT services market is pegged to grow to US$10.73 billion by

2011 with anticipation of more contracts from firms, which are grappling with high attrition of IT staff

The market segments that are expected to witness strongest growth are consulting, IT management and business process management services with five-year CAGR of 28.1%, 23.8% and 27.1% respectively

However, some risks pertain to this scenario including uncertainty over the future evolution of the tax regime governing computer manufacturers and importers, and rupee appreciation

IT sector faces moderate threat through resource crunch, weakening dollar, sub-prime crisis and recession fears in the US




key contact information

Sanjay [email protected] phone: +44 (0) 7738321449facsimile: +44 (0) 208 711 3943

Vinay Shah & Ashutosh [email protected] phone: +91 (0) 9967642785facsimile: +44 (0) 20 66325631

Vikram [email protected] phone: +44 (0) 9886409387facsimile: +44 (0) 80 25091532

private and confidential

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