Vol 7. Issue 4. 1 - 30 NOV 2020 | For Private Circulation Only
pg 4. GCCs IN INDIA - To be or not to be... pg 41. Interview: Mr Sashidharan Balasundaram, ISG Research
pg 44. Indian Economy: Trend Indicators
pg 46. PhillipCapital Coverage Universe Ground View - Previous Issues
GROUND VIEW Vol 7. Issue 4. 1 - 30 NOVEMBER 2020
MANAGING DIRECTOR & CEO IT SERVICES Vineet Bhatnagar Vibhor Singhal Karan Uppal EDITORIAL BOARD Manish Agarwalla INFRASTRUCTURE Kinshuk Bharti Tiwari Vibhor Singhal Deepika Bhandari DESIGN & ILLUSTRATION Chaitanya Modak LOGISTICS, www.inhousedesign.co.in TRANSPORTATION Vikram Suryavanshi EDITOR Roshan Sony MEDIA, CONSUMER DISCRETIONARY
HEAD- INSTITUTIONAL Ankit Kedia st st EQUITIES 1 Sep 2020 Vol 7. Issue 3 1 Jul 2020 Vol 7. Issue 2 Kinshuk Bharti Tiwari METALS Vikash Singh RESEARCH AUTOMOBILES MIDCAPS Saksham Kaushal Deepak Agarwal Amar Kant Gaur Vineet Shanker
AGRI INPUTS REAL-ESTATE Deepak Chitroda Vaibhav Agarwal Dhaval Somaiya BANKING, NBFCs Manish Agarwalla STRATEGY Sujal Kumar Anjali Verma Pradeep Agrawal Manoj Rawat
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HEALTHCARE, CORPORATE SPECIALTY CHEMICALS COMMUNICATIONS Surya Patra Zarine Damania Hrishikesh Patole Mrunal Pawar Rishita Raja
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2 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 3 Letter from the MD CONTENTS
I would like to continue expressing my sincere gratitude to all frontline COVID-19 warriors; words cannot adequately capture their courage in fighting this crisis. As always, I hope you and your loved ones are staying safe and doing well. While the prolonged uncertainty, ups and downs, and anxiety continues, the silver lining – that we got to spend so much quality time with our loved ones – has been appreciated by many. We live in a different world now, and for the foreseeable future, it will be a ‘post-covid-19’ world. But the indomitable human spirit has prevailed and we have adapted both personally and professionally, faster-than-anticipated, to a virtual way of working. The show must indeed go on, and it has gone on, 4. COVER STORY considering everything that has happened. GCCs IN INDIA – To be or not to be... By Vibhor Singhal & Karan Uppal
The pandemic has had an economic fallout across sectors. But what has turned out to be adversity for one, has emerged as an opportunity for others. While the Indian IT services vendors have 41. INTERVIEW seen a significant jump in the demand environment for their services, Mr Sashidharan the other part of the Indian IT ecosystem – the captives (or the Balasundaram, Global Capability Centers (GCCs)) have faced multiple headwinds Senior Manager, like Business Continuity Planning (BCP) issues and financial stress for ISG Research their parent organizations. This, our technology team believes, can lead to an unprecedented opportunity for IT services providers – in terms of acquiring some of these GCCs; a win-win situation for both the parties. Vibhor Singhal and Karan Uppal, from our technology 44. Indian Economy: Trend Indicators team, have dug deep into this scenario, and have carried out some interesting analysis of how the scenario could playout, and of who could be the potential winners and losers. 46. PhillipCapital Coverage Universe Valuation Summary
In addition to this riveting story, they have also interviewed Mr Sashidharan Balasundaram, Senior Manager at ISG Research, one of the largest global IT consulting firms – to understand the GCC landscape in India, and how the current pandemic could impact it.
Cheers and Best Wishes, Vineet Bhatnagar
2 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 3 COVER STORY
BY VIBHOR SINGHAL & KARAN UPPAL
pg. 6 INDIAN GCC LANDSCAPE How it all began ______pg. 9 EVOLUTION OF GCCS IN INDIA From cost efficiency to value creation ______pg. 18 FUTURE GROWTH POTENTIAL What’s in store for GCCs in India ______pg. 22 INSOURCING-OUTSOURCING CYCLES Third-party vendors or captive centres? ______pg. 25 FOCUS SECTION GCC Monetization – a massive opportunity for service providers ______pg. 35 CRYSTAL GAZING Potential buyers and sellers ______
4 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 5 The Indian IT industry, ever since its birth five decades ago, has always been composed of two critical parts – the third-party IT services providers (TCS, Infosys, Cognizant, etc.) and GCCs (Global Capability Centres – the captives). Both have their own important place in the ecosystem, and have grown together over the last five decades.
This year, the Covid-19 pandemic has had a wide- ranging multi-dimensional impact on various industries. With the world moving to WFH (Work from Home), technology adoption has seen unexpected and unprecedented acceleration across enterprises and consumers. This has led to a significant reset in the demand environment for the technology industry, especially for Indian IT services vendors.
As for the GCCs – when they were forced to shut operations due to the lockdowns imposed by various governments (including India), the world realized that many of them did not have credible Business Continuity Planning (BCP) and were not prepared for a WFH scenario. It is expected that the economic/financial crisis has led (or will lead) to many of the MNCs struggling financially, eventually leading them to terminate/postpone their plans to set-up/expand their GCCs in India/ROW. It is also widely anticipated that many MNCs might actually shut down their GCCs, by selling them off to IT services vendors – to effectively monetize their ‘non-core’ assets to remain financially viable.
This presents an unprecedented opportunity for the Indian IT-services vendors, to acquire these talent houses, and boost their inorganic growth, while expanding their geographical, vertical and technological reach. It promises to be an interesting time ahead, with both parts of the Indian IT ecosystem looking to grow together while also at the cost of each other.
4 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 5 INDIAN GCC LANDSCAPE
How it all began
An overview of the Indian IT Services Industry and GCCs in India
The beginning of the Indian IT industry The global technology outsourcing landscape
India’s IT services industry was born in 1967 with the The global technology industry stands at US$ 2.5trillion creation of Tata Consultancy Services. In 1974, Burroughs (FY19, including ER&D, excluding products). It grew by 5.4% (an American mainframe manufacturing company) asked in 2019. In contrast, the global sourcing industry stands TCS (its India sales agent then) to provide programmers for at a mere US$ 300bn, just 12% of the global tech spend. the installation of system software for an American client. However, global sourcing spend has outgrown global tech This led to the birth of the Indian outsourcing industry. spend with a CAGR of 7% over the last five years. Simultaneously, the first software export zone, SEEPZ – a precursor to the modern-day IT park – was established in Mumbai in 1973. It has been almost five decades since then, The Indian outsourcing business and the IT industry has come a long way. It not only provides The Indian outsourcing industry stands at US$ 156bn critical support and services to thousands of companies (FY19: NASSCOM, including ER&D, excluding products) across the world, but it is also the largest private sector representing 53% market share of global sourcing – making employer in the country. it the leader in the industry, by far. A large part of the Indian In the 70s, the Indian IT industry struggled. The state then IT outsourcing industry comprises of the glamour boys such was hostile to it, imposing high import tariffs, as high as as TCS, Cognizant, Infosys, and Mindtree, and a plethora 135% on hardware and 100% on software. Eventually, in of third party service providers. However, a decent chunk 1984, a New Computer Policy (NCP-1984) was formulated, of it is composed of the captive centres – the GCCs – set which offered a package of reduced import tariffs (by 60%) up by various global companies in India. In 2019, GCCs on hardware and software. This gave life to the Indian IT contributed US$ 28bn to the Indian outsourcing industry, industry, that has today achieved a size of US$ 200bn – contributing to 7% of the country’s GDP. Global sourcing landscape (FY19)
The beginning of GCCs or captives
However, what is left unsaid most of the times, is the role of captives or GCCs (Global Capability Centres) in this growth and evolution of the industry. The history of captives in India started in 1985, with Texas instruments (TI) setting up its captive/R&D centre in Bengaluru. TI was attracted to India because of the country’s engineering talent and costs advantage. What followed was an avalanche of global companies setting up their captives in India, initially as cost centres, that have now evolved into full grown centres of innovation and IP creation. Source: NASSCOM Source:
6 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 7 making up for 20% of the overall business. Over the last five Salient features of the current GCC landscape in India years, GCCs have seen a higher CAGR of 9.9% compared to • No of MNCs with GCCs in India: 1,250+ the total Indian IT outsourcing industry CAGR of 8.4%. • GCC Market size: US$28bn
India has evolved as one of the hotbeds for setting up • Employed workforce: c.1mn GCCs over the last two decades • Global 2000 firms with GCCs in India: 383
Over this period, the GCC industry has taken a huge leap, • Key countries: USA, UK, Germany, France, Switzerland, not just in numbers, but also in the quality of the services Japan, Canada, Singapore, China it offers. From a cost-arbitrage driven model, to a value • Key verticals: Software/Internet, BFSI, Consulting, addition one, Indian GCCs have come a long way. Healthcare, Telecom, Automotive, Manufacturing
• Key cities: Bengaluru, Hyderabad, NCR, Mumbai, Chennai, Pune
Distribution of GCCs in India based on HQ location
Source: Nasscom, Zinnov
6 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 7 Distribution of GCCs in India by verticals
Source: Nasscom, Zinnov
Location-based split of GCCs
Source: Nasscom, Zinnov
8 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 9 EVOLUTION OF GCCs IN INDIA From cost efficiency to value creation Mapping the last four decades of GCCs in India
It all began with Texas Instruments across industries, technology is becoming a central part of business strategy. Hence, GCCs The first wave of offshoring started in 1985 with have transitioned from being just offshore centres Texas Instruments setting up a first captive/R&D providing cost arbitrage – to centres of innovation centre in Bengaluru, India. Texas Instruments was and IP creation. Enterprises are rapidly adopting attracted to India’s engineering talent and costs digital technologies, building new products and advantage. The 1990s is when the first wave services, transforming their business models of offshoring happened in India; many MNCs through these GCCs. were testing and proving this model/concept by assigning non-core designated functions.
In addition to the cost advantage, the first wave IT Services: Traditional application managment of offshoring was also driven by organizations that to Cloud/AI wanted to focus on areas of core competency. For IT services, offshoring to captives began with Processes that did not significantly impact traditional custom application management and revenues were lifted, re-engineered, and shifted application support in the 1990s. In the early to offshore centres, where skilled graduates 2000s, the services being delivered out of captives delivered services. Results were measured based got expanded to package implementations, on pre-defined benchmarks on dedicated time testing applications. Later, Infrastructure lines, leaving no scope of subjective judgement Management Services (IMS), consulting, platform- for evaluation. But now, owing to rapid disruptions based solutions, cloud, and cybersecurity
GCC Evolution Before 2004 2004 to 2009 2009-2014 After 2014 Key Focus First time offshoring, cost Cost arbitrage and mature Business impact and Competitive advantage for arbitrage delivery thought leadership the enterprise Vertical Adoption Hi-tech, airlines, financial Ecommerce, internet, Broad-based adoption by all major industry verticals services (BFSI), telecom manufacturing, professional services IT Services ADM, technical support SI, testing, package imple- Infra outsourcing, consulting, Cloud migrations, cybersecu- mentation platform-based solutions rity, core modernizations BPO Data processing, document Finance and accounting, Legal Process Outsourcing Analytics, automation, BPaaS management, customer care procurement, HRO (LPO), analytics, KPO, plat- form-based solutions ER&D Product support, digitizing Product design, prototype Engineering analysis, India/APAC based product engineering drawings, mi- testing, 3D modelling, 2D to product conceptualizations designs, industrial IoT, digital grations of CADs to systems 3D conversion twins, designing
8 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 9 gained prominence. Software giant Microsoft, to another, converting 2D drawings into 3D, etc. for example, has been running its research lab The major driver for offshoring during this phase in India since 2005. The lab employs a large was largely cost-related, as the high-volume number of PhD scholars conducting research on activities required limited application of domain theory and algorithms, machine learning and knowledge. However, some organizations saw artificial intelligence, systems including cloud, unlimited competency of Indian engineering security and privacy, programming languages, talent, and started setting up captive centres, like networking, and technologies for the emerging Texas Instruments, to carry out activities like chip markets. Another example is of IBM’s India R&D designs. Posts the 1990 era, the captive centres centre – it was set up in the 1990s mostly to gradually elevated their scope of offshore activities support its global business; but today, it is working in terms of the value proposition and knowledge on modern technologies like artificial intelligence intensity. India centres began to service higher- and robotics. It is using data analytics to deliver end engineering activities such as 3D modelling, predictive agricultural insights for farmers with low- 2D to 3D conversion, finite element analysis, end smartphones to help boost yields and lower computational fluid dynamics (CFD) analysis, input costs. drawing up technical specifications for tenders, plant engineering, redesigning for improved cost/performance ratio and value engineering. BPO: From Data processing, customer care to Today, Indian centres are also working on product analytics conceptualization, designing India/Asia Pacific specific products for local markets, Industrial American Express, General Electric, and British Internet of Things (IoT), digital twins, etc. Airways were the first ones to set up an in-house BPO facility in Gurgaon in the early 1990s. The early reasons for considering offshoring India is now a destination of choice to India were centred around reducing costs Indian units serve various verticals like telecom, and minimizing the effort spent on “non- utilities, heavy engineering, pharmaceuticals, core” activities. These activities – such as data automotive, aerospace and electric/electronic processing, document management, customer machinery design. The country is clearly the care (primarily voice, to begin with) – were the destination of choice for auto majors like Ford, first to be outsourced to Indian captive BPO units. General Motor, Cummins, Johnson Controls, With increasing confidence of the companies in Nissan, Toyota and BMW for engineering design the capabilities of their Indian operations, higher work, which they do either through captive centres value-added activities such as processing of HR, or third-party service providers. Companies accounting (F&A) and other non-core functions like Ford, DailmerChrysler, General Motors, were also offshored. Today, apart from non-core, Caterpillar, Texas Instruments, Motorola, Bechtel, functions like analytics and insights are also being and Emerson have set up captive units in India. offshored to Indian units. Boeing has a research and technology centre in Bengaluru, which plays a crucial role in areas ER&D: From high-volume work to cutting edge like materials and processes, flight sciences, and R&D structure and software. Rolls-Royce has R&D centres in Bengaluru and Pune, focussing on areas At the onset of the 1980s, the Engineering, like data analysis, electrical systems, computer- Research and Development (ER&D) segment aided design and aerospace projects. catered primarily to offshore requirements of high volume, low value activities such as scanning and digitization of engineering drawings, migration of Computer Aided Design (CAD) from one system
10 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 11 CASE STUDY Texas Instruments sets up first R&D centre in India in 1985!
Initially attracted by the country’s engineering talent, Texas Instruments it develops has the involvement and contribution of the company’s (TI) became the first multi-national company to set up an R&D centre engineers in India. in India (in Bangalore) in 1985. It started its India operations with In the past decade, TI has recognized the semiconductor market the development and support of Electronic Design Automation (EDA) potential in India. Today, with seven sales and applications support software systems, which are used for integrated circuit design. In 1989, operations across eight cities in India, it has one of the largest pres- the company set up another R&D facility in Bangalore to enhance its ences in the country amongst semiconductor companies. TI India has operations in the Asia Pacific region. made significant inroads into various market segments like industrial, In 2006, it opened another R&D centre in Chennai to focus on the telecom, medical, consumer, and automotive. It works closely with wireless segment. Through its Indian operations, TI works in the areas customers to design products for large emerging segments including of library and software tools, SoC, signal processing technologies and industrial, automotive, energy, electronic manufacturing, education, microcontrollers. Many of TI’s strategic businesses globally are integral and healthcare. to the R&D work that takes place in TI India. Almost every product that
Texas Instruments in India – Timeline and key developments
Source: PWC
10 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 11 Timeline – from being captives to becoming GCCs
Originally called captive centres in the early 1990s, they were user computing, server and storage management, network offshore facilities that performed designated functions for and voice management, remote infrastructure monitoring, large organizations. The 1990s marked the early adoption and support and IT service management. period, as a lot of MNCs established and ramped up the 1998-06 – Rapid growth: Global financial services sector captive centres in India. However, due to unprecedented (BFSI) rapidly adopted the captive model during the digital disruption in industries worldwide, the role of Indian explosive growth phase. BPO captives also started during captives has evolved from being designated function- this phase. In 2006, captives delivered US$ 8bn worth of oriented captives to becoming value providers. services. Indian engineers’ coding skills and their comfort 1985 - Initiation: TTI set up its first R&D centre in India in with English brought a lot of jobs to Bengaluru. MNCs that 1985, the first multinational to set up a technology centre had spent over five years came here in a big way because in India, starting an era of offshoring in the country. Initially of talent, out-of-the-box thinking, and the ability to use attracted by India’s engineering talent, today, many of its global tools seamlessly. More than 78 global banking and strategic businesses globally are integral to the R&D work financial services companies, including Goldman Sachs, that takes place in TI India. Almost every product that it Deutsche Bank, JP Morgan and Standard Chartered, set up develops has the involvement and contribution of the captive units in India to employ a combined 250,000 people, company’s engineers in the country. according to Zinnov.
1990-98 - Early adoption: During this phase, many 2006-09 – Introspection: Many captives faced the companies established and ramped up captive centres in dilemma of their relevance and cost while some of them India. Initial adopters were from verticals like hitech and were monetized due to the global financial crisis hitting in telecom and involved IT related work like ADM (Application 2008-09. The biggest example of captive monetization was Development and Management). BPO captives were still TCS acquiring Citigroup Global Consulting Services (CGSL), few. Some examples of the work profile included application Citigroup’s BPO captive, for US$ 505mn in an all-cash deal in development, maintenance, Y2K issues, service desks, end- Oct 2008. Similarly, Wipro acquired Citi Technology Services
Source: PWC
12 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 13 (CTS), the technology and infrastructure outsourcing arm After 2009 – Coming of Age: Many captives reoriented of Citibank, for US$ 127mn in Dec 2008. Both transactions themselves and are now being seen as business partners involved multi-million multi-year Masters Service Agreements rather than a back office. Captives are now taking end-to- (MSA) for providing services to Citibank. end ownerships in product development and processes. However, growth continued, and new captives continued Following are some of the recent examples – a) Tesco’s getting added. Captives delivered US$ 10.6bn worth of captive is now managing mission-critical applications, apart services in 2009. from managing global operations; b) Bosch’s captive now offers services to customers other than Bosch; c) Ford’s India captive is the second-largest software development centre for Ford globally, and also its global analytics hub.
Digitisation is changing the way MNCs are leveraging their GCCs
Global firms are looking at developing countries for R&D because these countries are becoming huge consumers, with Developing products from India and China at the forefront of this trend. In fact, markets are shifting to what used to be called the developing world India for India and the or the emerging world. Development activities require a lot of local content; sitting in the US, Germany, or Japan one world cannot develop products that will be used in India or China. Multinational companies are using their centres in India, to not only develop products that can be sold in India, but also to be tested in the Indian market and then sold in other countries.
12 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 13 Quick example # 1 Quick example # 2 Quick example # 3 JP Morgan India employees Samsung tweaked ABB – end-to-end are creating global its washing machine engineering of smart solutions for the bank design to better suit sensor for electric motors India markets developed in India
JP Morgan has global technology centres in Bengaluru, Samsung has five R&D centres in India. It The Bengaluru centre is one of ABB’s Mumbai, and Hyderabad. These centres are at the developed its ActivWash washing machines seven R&D centres in the world. In core of JP Morgan’s new tech playbook, including in India to meet the unique demands of Bengaluru, the company has a global blockchain, API (application programming interfaces), local customers. research centre, a business R&D unit and AI (artificial intelligence). A third of its 50,000 tech Dipesh Shah, Managing Director, Samsung for product development, and a global employees are based in India. Overall, it employs about R&D Centre, Bengaluru, in an interview engineering and services centre in 34,000 people in the country. to Fortune India explained that in India, the same building. This is unique In a media interview, JP Morgan’s CIO Lori Beer people don’t trust an automatic washing because even though ABB does a mentioned that most of the technolgy talent in India machine to do its job; they still prefer to rub lot of R&D in Europe and the US, it collars and cuffs themselves first. “This was consists of its own employees, as the bank wants to houses different functions in different strange behaviour, because it’s an automatic build core products and services completely different countries or cities. Bengaluru is its only washing machine, but people still had to do and wants to build it internally. Indian teams are centre where different functions – from this additional manual job. So, we provided creating global solutions with complete product conceptualisation to remote monitoring a sink on top of the washing machine, analytics – are at the same location. ABB ownership. Beer manages a tech budget of more than which allows people to do the rubbing. This started an R&D centre here, because US$10bn, one of the largest technology budgets within product is now sold worldwide” the BFSI sector. of the availability of talent and the At Samsung, he explained, in the 1990s, availability of business cases and The projects piloted out of India include trade finance the cost factor was important, and the customers in the market. and next-gen payment platforms in investment second was the availability of talent. In the banking. Here, Beer also piloted the concept of ‘virtual beginning, Bengaluru helped the company ABB India’s unit developed a branch’ – where 300 clients across the globe were scale up really fast, in the rapidly changing smart sensor (used to monitor the connected to a branch. Cross-border payments, which mobile market. performance, efficiency, reliability require documentations, were created virtually. This “Samsung India R&D contributed to and lifespan of electric motors); it was was replicated in many Asian countries, Latin America, development of 3G and 4G for the global both conceptualized and developed in and Mexico. The CIO mentioned that applications world. 4G was done from Bengaluru. When India. It can be retrofitted to almost any built out of India were enabling four lines of business this kind of jump comes in technology, you low-voltage motor and connected to the – retail, investment banking, wealth management, need a lot of people to scale it, and take industrial IoT. With the smart sensor, and commercial banking. The new roles in which JP it worldwide. Bengaluru really helped in ABB can monitor vibrations, and voltage scaling these.” Morgan has begun hiring talent include architects, of motors, and using analytics, it can data scientists, hybrid cloud, and cyber security experts. predict ways to improve the efficiency of The bank has developed several digital innovations the motor. The company has many more including Finn, a mobile only bank with tools designed products developed in India – such to help customers take control of their money. JP as solar pumps for rural areas with no Morgan’s Chase Business Quick Capital delivers small electricity. These products are now sold business customers same day access to capital in a around the world. digital way. Source: Fortune India Source: Fortune India
14 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 15 Quick example # 4 Quick example # 5 Quick example # 6 SAP Labs India – Royal Dutch Shell Lowe’s set up its first developing software working on a waste-to- technology centre outside products for the world fuel project from India, the US in Bengaluru for global deployment
SAP’s R&D centre in Bengaluru is present in Royal Dutch Shell has a technology centre in Lowe’s, a home-improvement company, India since the last 20+ years. It employs more Bengaluru, one of the three centres of the competes with its larger US rival Home British-Dutch company; the other two are than 8,000 people and is already the second Depot, and generates a majority of its in Amsterdam (Netherlands), and Houston biggest R&D location for SAP globally, after its revenues through sales from its offline (US). headquarters in Germany. stores. It announced its first captive centre / Initially, the goal of SAP Labs India was to The Shell Technology Centre in Bengaluru GCC in India in 2015, where the goal was is developing the IH2 technology for global meet local requirements catering to localized not just costs arbitrage, but also to focus on deployment. It was invented by the US- software and legal requirements. However, the next-generation customer experience based Gas Technology Institute (GTI) in 2009, over the last 20 years, focus has changed by laying emphasis on technology and and has been further refined through joint to developing and conceptualizing more analytics to provide its customers with a development with Shell-owned CRI Catalyst more personalized shopping experience. This products in India, to be used both domestically Company. and globally. SAP Fashion Management Bengaluru-based centre enabled Lowe’s to Shell’s IH2 is more advanced than other Solution is completely conceived, designed, become an omni-channel home-improvement waste-to-fuel projects, and the price of this and developed out of SAP Labs India. The company and was its first technology fuel is expected to be quite competitive product enables fashion companies to manage innovation centre outside the US. with oil prices. More importantly, the their business processes across one large fuel produced through this process is The mandate was completely different data system. This product was developed in much cleaner, and will meet Bharat-6 from being a single-function cost-arbitrage collaboration with global brands like Giorgio specifications, the new standards for model. Instead, the GCC’s focus was on Armani, Adidas, Luxottica, and Tommy Hilfiger. pollutant emissions implemented in India enablement of omni-channel retail, analytics, The platform brings wholesale, retail, and in 2020. and personalized shopping experience. fashion-specific processes in one back-end Lowe’s wanted to increase the share of system, and is now being licensed by more online revenues and was looking to leverage than 125 customers across the globe. Bengaluru’s start-up culture and talent pool. In an interview to Fortune India, Dilipkumar This centre started with just 11 employees, Khandelwal, Managing Director, SAP Labs but in about 12 months the team size was India, said “Today, there is no software or over 300. product development or (strategic initiatives for SAP in the next five years) that’s not been developed out of India. Today there is not a single thing which goes out of SAP, which doesn’t have a significant India footprint. A large part of the work for building a global software meeting the global requirements is done out of India”.
Source: Fortune India Source: Fortune India
14 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 15 GCCS: Growing in size and revenue the last five years due to increasing focus of enterprises on building products and platforms, and the rising penetration As of now, India has 1,250+ GCCs, with a talent pool of of software across industries. The IT BPM market size has more than 1mn employees. The total market size of GCCs seen a CAGR of 8% to US$ 12.6bn, driven by volume in India is US$ 28.3bn (up from US$ 19.5bn in FY15, 10% growth in IT BPM work, infrastructure management, etc. CAGR in the last five years). Within that, the market size of As per Nasscom, ER&D will dominate the GCCs market Engineering Research & Outsourcing (ER&D) is US$ 15.7bn with an increased focus on digital transformation and (up from US$ 10.2bn, 11% CAGR in last five years) while IT- end-to-end ownership of global product developments BPM is US$ 12.6bn (up from US$ 9.3bn, 8% CAGR). from India. The key verticals where mainstream software The ER&D market size has grown faster than IT-BPM over product development is happening is BFSI, retail, media and professional services.
GCC distribution (ER&D and IT-BPM), GCC evolution in India market size (USD bn) and growth
Talent split in GCCs Talent split of GCCs within ER&D and IT-BPM
In the talent split of the GCC landscape, IT-BPM employs about 590,000 people, while ER&D is at around 410,000. Within ER&D, the largest share of talent (70%) is in Software Product Development (SPD) followed by Embedded System Design (ESD) and Mechanical Engineering Services (MES). SPD is the order of the day among ER&D GCCs, re- emphasizing the digital transformation focus. Within IT-BPM, the talent split between IT and BPM is around 60:40.
Note: Within ERD - Software Product Development (SPD), Embedded System Design (ESD), Mechanical Engineering Services (MES) (for all the above charts) Zonnov Nasscom. Source:
16 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 17 As MNCs across verticals shift to cloud infrastructure, the business services to India, and increasing focus on data emphasis on ADM and IMS is rising. India’s role in global analytics to solve business-focused problems. Going forward, engineering is demonstrated through large work in ADM as per Nasscom, as GCCs gain ownership, Procurement and SPD. In BPM, large work around finance & accounting (VMO) and S&M (pre-sales) will lead the next leap of growth and knowledge services points to MNCs shifting their global in BPM workloads.
Despite strong growth, GCCs’ share in total IT exports remains stable
Although more enterprises are leveraging GCCs for their core technology projects, the share of the Indian GCCs to Share (%) of captives in IT exports is flat total export has remained stable in the last 4-5 years. While it appear that due to strong growth of GCCs in India over the last 5-10 years, insourcing by MNCs is eating into the share of Indian IT services players, the current share of Indian GCCs to the total export revenue for the industry stands at 21%, which has been stable (the share was 20% in FY15). However, Indian IT services companies continue to compete with GCCs for incremental revenue and digital talent. Source: NASSCOM Source:
16 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 17 FUTURE GROWTH POTENTIAL
What’s in store for GCCs in India
They are transforming into the global sourcing hubs from just single-function providers
GCCs have come a long way from when they first started – as to significant changes in their governance model. Adoption cost centres to take advantage of cost-arbitrage and India’s of Agile has allowed IT functions to be integrated and talent pool. Today, GCCs are perceived as competency shared, and the work now involves a full lifecycle of product centres and business enablers for the organisation. development. GCC employees, too, are now hired from tier- Increasing collaboration between IT & R&D teams has led 1 institutes; they have a defined technical career path.
18 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 19 Indian GCCs are ready to take the next big leap over the GCCs will focus on these three key aspects over the next coming decade decade:
GCCs are transforming into a global sourcing hub for • Adoption of digital technologies the parent organisation’s entire IT and business process o Building new-age technology CoEs around AI/ML, needs. They are all set to become hubs for the digital Cloud, IoT, etc. and futuristic products of global companies, and evolve o Transitioning to hyper-converged infrastructure for from being enablers - to being strategic business partners. supporting digital work-loads. Single-function GCCs will expand into other functions and o API-led development to reduce the time-to-market for new multi-function centres will be set up. There will be new age applications. increasing focus on business value and innovation, which will • Delivery model transformation be adequately supported by high quality talent, technology, o Adoption of productized models for product and and leadership, hired from the best universities/companies. application development. Overall, partnerships between GCCs and ecosystem players o Becoming hotbeds for multi-function shared services will become deeper and wider, leading to an enhancement in centres. the quality and quantity of their work profile. • Future skills development o Re-skill the workforce and acquire niche skills.
Digital Tech adoption across verticals
Domain Software/In- BFSI Semicon Telecom Auto Electronics Industrial ternet AI/ML Creating generic AML pattern Developing new Enhancing AI solutions for Home automa- Intelligent power malware signa- detection, age chipsets for network capabil- autonomous tion using AI/Ml solutions using tures, ML based improving CX next-gen AI/ML ity with AI/ML, cars, and IoT, Ml based AI, AI led video security solutions solutions, smart improving user cyber security surveillance for nano-chipsets device interac- solutions human detection tion through AI & tracking IoT IoT led payments building high- Marketing IoT led solutions end reference assistance for smart platform, IoT led cities, building platforms infrastructure, connected engines Data Analytics Customer ana- data analytics in Network monitoring predictive analyt- lytics, Contextual cash manage- analytics, edge driver behaviour, ics solutions for extraction, Dis- ment, payment computing warranty diag- control systems ease detection analytics, cash solutions nostics, demand management forecasting and analytics product mix prediction Cloud / Cyber Connectivity Fraud detection GPU accelerated home automa- connected cars, Security platforms, cloud containers tion products, infotainment SaaS, PaaS, IaaS Cloud SDN systems solutions solutions RPA Chatbots, Loan/ Claims process- ing automation Blockchain Global payment, Supply chain P&C Insurance, Capital Markets
18 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 19 Six key domains have emerged as new-age technology hotbeds, where GCCs in India can present a value MNCs with GCCs in India from the largest global 2000 firm proposition to assert their increasing importance on the global technology landscape:
• Artificial Intelligence (AI)/ Machine Learning (ML) • Internet of Things (IoT) • Data Analytics • Cloud / Cyber security • Remote Process Automation (RPA) • Blockchain
GCCs should make significant headway in these domains over the next decade. BFSI and industrial verticals are where majority of the use-cases have been developed till date, – but their applications are only expected to expand, as these technologies gain momentum and credibility.
Regional split: Global 2000 firms with A MAMMOTH opportunity for expansion GCCs in India The opportunity for the expansion of GCCs remains HUGE– not just in terms of numbers, but in terms of their scope of work. As per Nasscom, only 383 of the Global 2000 firms have GCCs in India. Around 80% of the Global 2000 firms are yet to leverage the Indian opportunity. Within the regional split, Americas and Europe lead, with 28% and 22% of Global 2000 firms having GCC presence in India, followed by APAC at 10%. Potential growth opportunity of the Indian GCC landscape remains immense. Source: NASSCOM, Zinnov NASSCOM, Source: More than 1600 firms have not leveraged the India advantage yet North American firms have the highest penetration with over 176 firms having a GIC in India, followed by Euro- pean firms
20 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 21 Challenges for GCCs be long-term:
Companies across the globe are actively deliberating 1) GFC crisis: (2008-09) – The 2008-09 GFC crisis’ impact setting up their own captives versus engaging with a third- was limited to a handful of sectors - primarily housing, party service provider. This dilemma itself is a testimony of BFSI. India did not see any major effect on its economy, the value that GCCs provide. However, GCCs are also not and actually benefitted from increased outsourcing. But without their share of challenges: given the propensity to conserve cash, in times of crisis, most MNCs prefer third-party services vendors over • Domain knowledge: Even after over four decades of setting up their own captives in India. being in operations, GCCs in industries such as insurance, BFSI and energy, still do not have enough people with 2) Eurozone sovereign debt crisis: (2011-12) – The 2011- adequate skill sets and deep domain knowledge; this limits 12 Eurozone debt crisis was born out of the GFC crisis, the growth potential. but directly impacted the credit rating of European countries, leading to an overall weak macro and demand • Leadership: Leaders who have an ability to match both environment in EU. This led to the postponement/ technical and business perspectives are very rare in the cancellation of plans of many EU companies to set-up/ Indian GCC ecosystem. Leaders with the adequate skillset expand their captives in India and elsewhere in the world. prefer to work for third party vendor, where they can see a clear career path to the CXO position, as opposed to a 3) Brexit: (2016) – As Britain voted to move out of the EU longer and uncertain future in GCCs. Union in 2016, it created large financial implications for companies with business across Europe. They had to • Talent attraction: GCCs are facing a significant challenge split their operations between UK and EU; many of them in attracting talent, as a number of newer GCCs and opted for Eastern Europe (Austria, Hungary, Poland) start-ups are coming up with competitive talent-attracting as destinations for their captive units rather than India. policies. The Indian start-up ecosystem has undergone In fact, the city of Cluj-Napoca (in Romania) – which is exponential expansion over the last decade, leading to famously touted as Silicon Valley of Eastern Europe – was salary levels reaching unprecedented levels. This has born out of the Eurozone debt crisis and Brexit. become a severe headache, not only for GCCs, but also for traditional Indian IT vendors; the USP for both is their cost- 4) Covid-19: (2019-20) – The world is currently reeling under arbitrage models. the Covid-19 pandemic, and will take some time to come out of it. It is an unprecedented healthcare crisis, fast • Financial constraints/cost arbitrage: While Indian GCCs taking the shape of an economic and financial crisis too. have traversed the value chain and are now increasingly The calamity has impacted GCCs operations in two ways: demonstrating their effectiveness as centres of excellence (COEs), the cornerstone of their existence remains the a) As GCCs were also forced to shut operations due cost-arbitrage model. However, an increase in the quality to the lockdowns imposed by various governments of work being delivered and higher competition to attract/ (incl. India), the world has realized that GCCs did not retain talent has meant greater pressure on maintaining the have credible Business Continuity Planning (BCP) and cost arbitrage. were not prepared to Work-from-Home (WFH), unlike IT services vendors, which promptly and efficiently • Technology disruptions: With the technology disruption migrated to WFH. caused by digital transformation, GCCs are facing difficulties in keeping pace with the transformation, both b) The economic/financial crisis has led (or will lead) to in terms of infrastructure and talent. Simple case in point many of the MNCs struggling financially, eventually being availability of data scientists (for analytics) and leading them to terminate/postpone their plans to set- people trained in cloud application development (cloud). up/expand their GCCs in India/ROW. It is also widely anticipated that many MNCs might actually shut down The last decade has been an eventful one – with multiple their GCCs, by selling them off to IT services vendors – crises, technology disruptions, and the rise of the right- to effectively monetize their ‘non-core’ assets to remain wing across the world. Many of these events have directly financially viable. impacted the growth of GCCs in India – an impact that might
20 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 21 INSOURCING-OUTSOURCING CYCLES
Third-party vendors or captive centres?
Both approaches reduce costs on non-core activities
Ever since the dawn of the IT outsourcing industry, the their “IP”, the technology. But as technology becomes companies have had this perennial dilemma – whether to commonplace, the same companies prefer to outsource outsource to a third-party vendors or set-up own captive its development/maintenance – looking to save costs centres /GCCs. Both models have their own advantages rather than innovate. A classic example is the auto and disadvantages – but both offer one value proposition industry. In the early 2000s, when infotainment systems unequivocally – both lower costs incurred on the non core were key product differentiator, auto OEMs across the aspects of business.This one agenda has driven the growth world preferred to develop it in-house, in their own for both third-party vendors and GCCs over the last three GCCs. As the decade turned, and the technology decades – and this will not change in the next three. What became commonplace, it is now the first piece of keeps changing, however, is the proclivity towards either business they want to outsource. of the two, depending on the parents’ financial condition, 3) Global macro-economic factors: Global events, too, play state of technology development and disruption, and global their part in determining the trajectory of the insourcing- macro-economic factors. outsourcing cycle. Events such as GFC provided Historically, global MNCs have switched from one model to boost to outsourcing while ones like Brexit impacted another – from insourcing to outsourcing and vice-versa – it negatively. The current Covid-19 pandemic, which primarily due to three factors: is fast transforming from a healthcare to an economic to a financial crisis, is expect to negatively impact the 1) Financial state and business priorities of the company: insourcing cycle, and lead to many GCCs being sold Outsourcing today is as much a business decision as and/or further outsourcing to the third-party vendors a cost decision. Hence, the business outlook/strategy (discussed in detail in the next section). and the financial state/preferences have dictated the insourcing-outsourcing decision for companies. A To illustrate the different insourcing-outsourcing cycles, we company in good financial health and/or looking to deep-dive into the case of UBS. The Swiss bank is a prime grow its business across emerging markets, typically example of how enterprises prefer different models (third- tends to favour insourcing. A company with stretched party vs. captives) at different points of time, depending on financials, just looking to save costs on IT, tends to prefer different business requirements and the macro environment. outsourcing. In fact, many a times, the same company The covid-19 pandemic is one macro event that will force switches from one model to another, depending on its many enterprises to rethink their IT outsourcing strategies. priorities. Classic example is UBS – discussed in detail While few might decide in favour of setting up captives, later in this article. majority will look to sell their captive units – to monetize 2) State of technology development/disruption: non-core assets and reduce operating costs. That is the main Technology is no longer just an enabler, but also a USP thesis of this report – discussed in more detail in the next for many businesses. The advent of digital technologies, section. especially, has completely changed the perspective of global leaders about technology. As a new technology raises its head, it becomes a key differentiator and business USP for companies. In that phase of technology, companies tend to prefer insourcing – to keep control on
22 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 23 CASE STUDY: Perfecting the insourcing-outsourcing cycles
UBS remains a key BFSI client for almost all IT vendors across • Today, UBS has multiple IT outsourcing vendors on its the world. It has been, by far, one of the largest and most rolls, including Accenture, Cognizant, Infosys, Wipro, HCL diversified clients for the outsourcing industry. It has had a Tech, Luxoft and ePAM. long and interesting history of outsourcing. In 2013, it began building up its own capacity in India and • UBS started its own captive, ISC (Indian Service elsewhere. Today, 10,000 people work at UBS in India – Centre) in Hyderabad in 2006, which rapidly grew to almost 6,000 employed through external providers, and over 2,000 employees, providing services that were not yet 4,000 on its own payrolls. commercially available in the market. • Later, as a shift in strategy to “BUY” rather than “BUILD”, Current scenario it sold the ISC to Cognizant in 2009 for US$ 75mn. UBS remains a key account for many vendors. For Wipro The sale marked the start of the next stage in the and Luxoft, it is one of their top clients – while it contributes development of the UBS offshoring and outsourcing a substantial share of revenues for Cognizant and ePAM. strategy – where it engaged various vendors across the Accenture and Infosys, too, derive a decent share of their world. BFSI revenues from UBS.
The flip-flop of UBS’s outsourcing strategy UBS is a key client for multiple vendors
In 2018, UBS started to focus more on increasing its internal IT staff, at the expense of external vendors
22 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 23 Moving to insourcing • In 2018, more than 30% of UBS’s staff was offshored. It
In October 2018, UBS reported a 7% jump in its staff count decided to shift more activities from high-cost to low-cost to 63,684 people, from 59,470 a year ago. This was a result locations, using its own offshore and nearshore shared of it expanding its captive centres in Mumbai/Pune, which it services centres. intended to use as global insourcing hubs. Thereafter, UBS • With the opening of a second site in Pune in 2018, it now decided to keep 60% of its IT services in-house; almost 70% operates six offshore service centres in India, China, and was outsourced to third-party vendors in 2018. The company Poland, and two nearshore centres in Switzerland and the took this U-turn in its outsourcing strategy on two counts: US.
• Expanding captive centres is one of its largest levers for • For its outsourced services, it decided to consolidate cost reduction, which in turn is a strategic pillar of its third-party vendor locations from 35 in 2018 to only corporate transformation plan. 9 by 2020. This was to reduce costs and improve risk
• The management believes that the typical business management. processes outsourced ten years ago (like data inputting) • It is internalizing select activities, currently performed by can be digitized or automated. With the speed of external providers, to enable higher productivity, lower digitization picking up, classic IT services providers (like costs, and to build critical in-house knowledge. Over Wipro, Cognizant, etc.,) are struggling to keep up with June 2018-19, it increased internal staff by over 3,000. this speed. Majority were hired into its offshore centres in India. This
Over the next year, as the company increased its overall increase was more than offset by a huge reduction of workforce count by 3%, it reduced its external staff by a 5,500 in external headcount, leading to an overall decline whopping 25% – from 21,805 in June 2018 to touch 16,277 of roughly 2,289. in June 2019. This was supposed to lead to significant • It intends to further reduce the external headcount, cost saving for the company. Key details about this new through automation of processes, specifically in outsourcing strategy: operations and IT.
• It has reduced vendors by 45% since 2013 and aims to Significant reduction in UBS’s external push this above 50%. In addition, it has implemented workforce over 2018-19 measures to further tighten its internal demand management. “To say it in very simple terms: We will buy less, cheaper, and smarter.”
• Automation is expected to be a key driver for cost efficiency.
While UBS’ insourcing strategy intends to cuts vendor revenues, it represents a strategic bet on India. The company and its management realize the strategic significance of India, with the huge pool of engineers, mathematicians, statisticians, physicists, and other highly-qualified science and technology graduates. Hence the importance of India as a delivery / innovation centre for UBS is definitely increasing. But at the same time, it also represents the perfect flip-flops that MNCs undergo, in terms of their outsourcing strategy,
Source: UBS Source: from captives in one decade to third-party in another.
24 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 25 FOCUS SECTION GCC Monetization – a massive opportunity for service providers
PhillipCapital India’s IT research team’s exclusive database provides details of India’s GCC landscape
To understand the massive opportunity represented by the GCCs/Captives, PhillipCapital India’s IT research team has created an exclusive and exhaustive database, which represents the overall GCC landscape in India. It contains the following aspects Vertical distribution • List of the MNCs (1,200+) operating their GCCs/captives out of India • Verticals that they belong to (e.g. BFSI, retail, manufacturing) • Geographic region they belong to (America, Europe, APAC) • Services provided by the GCCs to the parent (IT, BPO, ER&D, etc.) • Headcount • Location PhillipCapital’s database gives a broad-based understanding and insights into the GCC landscape in India. In terms of geography, 66% of all GCCs operating out of India are headquartered in America, 25% are from Europe, 7% are from Asia Pacific, and 1% from the Rest of the World.
Geographic distribution Service-line distribution Source: NASSCOM, Zinnov, PhillipCapital India Research PhillipCapital Zinnov, NASSCOM, Source:
24 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 25 The Indin GCC landscape - PhillipCapital India database Geography
Americas UK Germany Rest of EU Japan RoW Total Software/Internet 258 17 2 21 1 16 315 IT & services 109 7 3 11 3 6 139 Manufacturing 82 8 15 25 8 5 143 BFSI 56 9 2 11 1 6 85 Healthcare & Lifesciences 57 3 9 11 2 4 86 Telecom 47 5 1 6 1 10 70 Industrial 25 4 5 25 1 2 62 Hi-Tech 28 0 3 9 9 7 56 Automotive 18 3 14 15 8 4 62 Media/Entertainment 26 8 1 2 0 3 40 Consulting 33 6 1 4 0 2 46 Semiconductors 26 2 1 3 2 1 35 Retail & CPG 22 4 1 6 0 2 35 Travel & Transportation 9 3 0 7 1 2 22 Oil & Gas 9 2 0 4 0 0 15 Aerospace and defence 7 1 0 6 0 0 14 Total 812 82 58 166 37 70 1225 IT-BPM 449 43 10 48 6 30 586 ER&D 248 24 40 93 27 29 461 SPD 9 1 0 1 0 0 11 IT-BPM & ER&D 60 4 7 17 4 8 100 IT-BPM & SPD 36 6 1 5 0 3 51 Consultancy 10 4 0 2 0 0 16 Total 812 82 58 166 37 70 1225
Key GCCs in different verticals operating out of India Software/Internet Manufacturing BFSI Healthcare Automotive Adobe Akzo Nobel JP Morgan Abbott Fiat Chrysler Google Adidas Goldman Sachs AstraZeneca Ford Microsoft BASF BNP Paribas GlaxoSmithkline Honda Oracle Danaher Nomura Mylan Hyundai Pegasystems Cummins AIG Pfizer John Deere Indeed Dow Chemical Barclays Boston Scientific Komatsu Go-Jek Dupont American Express Johnson & Johnson Continental Retail CPG Travel Aerospace Telecom Energy AB inbev Amadeus Airbus AT&T Exxon Mobil GAP Expedia Boeing Verizon Baker Hughes Hersheys Fedex Bombardier Telstra Castrol Lowe’s Sabre Lockheed Martin Sprint Shell Modelez Travel Tripper Safran Ciena Total Pepsico Kuoni Thales Ericsson Valvoline Target Maersk Collins Aerospace Netgear Halliburton Source: NASSCOM, Zinnov, PhillipCapital India Research PhillipCapital Zinnov, NASSCOM, Source:
26 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 27 Amongst verticals, software/internet forms the majority share o Servicenow launched its new innovation centre in followed by IT and services, manufacturing, and BFSI. Hyderabad in 2018 for product engineering and Software/Internet developing ServiceNow’s next generation AI and machine learning capabilities. • This vertical represents 26% share of the total with MNCs IT & Services like Adobe, GE Digital, Google, Microsoft, Temenos, Oracle, Pegasystems, Servicenow, Indeed, and Go-Jek • This vertical represents 11% share of the total with MNCs operating out of India. like Fujitsu and Ripple operating out of India.
• 82% of the Software GCCs are headquartered in • 78% of the IT and services GCCs are headquartered in Americas, 13% are from Europe. the Americas, 15% in Europe.
• Bengaluru and Hyderabad have the highest proportion o Ripple claims to be the only enterprise blockchain of MNCs in the software/internet domains. New product company with products in commercial use by development, testing and support work happens in these hundreds of customers across 55+ countries. development centres. o Fujitsu global delivery centres in Pune, Noida and o For example, Temenos’ Bengaluru and Chennai Hyderabad cater to its US operations. offices are involved in designing and supporting Manufacturing leading banking products like T24 (Temenos’ award winning core banking platform). • This vertical represents 12% share of the total with MNCs like Akzo Nobel, Adidas, BASF, Caterpillar, Cummins, o Similarly, Pegasystems, which has two development Dow Chemical, Danaher, and Dupont operating their centres with 1,500 employees in Hyderabad (1,100) GCCs/captives out of India. and Bengaluru (400), carries out its new product development and support work from its captive • 57% of the manufacturing GCCs are headquartered in the centres. Americas while 33% are in Europe (6% in UK and 10% in Germany).
Common size – geography-wise
Geography Americas UK Germany Rest of EU Japan RoW Software/Internet 32% 21% 3% 13% 3% 23% IT & services 13% 9% 5% 7% 8% 9% Manufacturing 10% 10% 26% 15% 22% 7% BFSI 7% 11% 3% 7% 3% 9% Healthcare & Lifesciences 7% 4% 16% 7% 5% 6% Telecom 6% 6% 2% 4% 3% 14% Industrial 3% 5% 9% 15% 3% 3% Hi-Tech 3% 0% 5% 5% 24% 10% Automotive 2% 4% 24% 9% 22% 6% Media/Entertainment 3% 10% 2% 1% 0% 4% Consulting 4% 7% 2% 2% 0% 3% Semiconductors 3% 2% 2% 2% 5% 1% Retail & CPG 3% 5% 2% 4% 0% 3% Travel & Transportation 1% 4% 0% 4% 3% 3% Oil & Gas 1% 2% 0% 2% 0% 0% Aerospace and defence 1% 1% 0% 4% 0% 0% Total 100% 100% 100% 100% 100% 100% Source: NASSCOM, Zinnov, PhillipCapital India Research PhillipCapital Zinnov, NASSCOM, Source:
26 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 27 • Majorly, manufacturing MNCs have their ER&D centres in who carry out administrative support, business India where they develop and support key products for analytics, supply chain management, finance and the Asia market. accounting and other roles.
o Caterpillar’s India presence includes state-of-the art o Unilever’s technology and innovation centre in manufacturing facilities, research and development Bengaluru currently provides IT services to its global centres, service and support organizations. operations.
o In April 2018, Dow Chemical inaugurated a state- BFSI of-the-art application development hub, ‘Dow • This vertical represents 7% share of the total, with MNC India Technology Centre’ (DITC) in Navi Mumbai, banks such as JP Morgan, Goldman Sachs, Deutsche with highly skilled, research and development Bank, Nomura, BNP Paribas, Barclays, Allianze, AIG, and specialists with capabilities in analytical science, American Express operating their GCCs/captives out of material science, process optimization, and IP search India. analysis to support business units in India and extend application support to markets in the region. • 66% of the BFSI GCCs/captive centres are headquartered in the Americas while 26% are in Europe. Retail & CPG • BFSI vertical MNCs’ IT-BPM centres are also one of the • There are about 35 retail and CPG GCCs in India. largest employers in India. • It represents 3% of overall GCCs with MNCs like AB o AIG’s analytics and service team supports commercial inbev, GAP, Hersheys, Lowe’s, Modelez, Pepsico, and insurance by providing insights through accurate and Target operating out of India. comprehensive data capture, catastrophe modelling, • 63% of the retail and CPG GCCs/captive centres are from risk engineering, advanced portfolio analytics, and the Americas while 31% are from Europe. actuarial services.
o Target employs around 2,100 people in Bengaluru o BNP Paribas’ India centre provides application
Common size – vertical wise
Geography Americas UK Germany Rest of EU Japan RoW Total Software/Internet 82% 5% 1% 7% 0% 5% 100% IT & services 78% 5% 2% 8% 2% 4% 100% Manufacturing 57% 6% 10% 17% 6% 3% 100% BFSI 66% 11% 2% 13% 1% 7% 100% Healthcare & Lifesciences 66% 3% 10% 13% 2% 5% 100% Telecom 67% 7% 1% 9% 1% 14% 100% Industrial 40% 6% 8% 40% 2% 3% 100% Hi-Tech 50% 0% 5% 16% 16% 13% 100% Automotive 29% 5% 23% 24% 13% 6% 100% Media/Entertainment 65% 20% 3% 5% 0% 8% 100% Consulting 72% 13% 2% 9% 0% 4% 100% Semiconductors 74% 6% 3% 9% 6% 3% 100% Retail & CPG 63% 11% 3% 17% 0% 6% 100% Travel & Transportation 41% 14% 0% 32% 5% 9% 100% Oil & Gas 60% 13% 0% 27% 0% 0% 100% Aerospace and defence 50% 7% 0% 43% 0% 0% 100% Source: NASSCOM, Zinnov, PhillipCapital India Research PhillipCapital Zinnov, NASSCOM, Source:
28 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 29 services and operations support to the group Automotive including development of new applications, features, • There are about 62 automotive OEMs and tier-1 GCCs in extensions, interfaces, upgrades as well as enhancing India. and maintaining existing applications. • It represents 5% of overall GCCs with MNCs such as Healthcare Continental, Fiat Chrysler, Ford, Honda, Hyundai, John • This vertical represents 7% share of the total with MNC Deere, and Komatsu operating out of India. pharma companies such as Abbott, AstraZeneca, • 52% of the automotive GCCs/captive centres are from GlaxoSmithkline, Mylan, Pfizer, and Johnson & Johnson Europe (23% from Germany alone) while 29% are from operating their GCCs/captives out of India. US. • 66% of the healthcare GCCs/captive centres are o Continental’s R&D centre headcount has doubled to headquartered in the Americas while 27% are from around 3,000 employees from 1,400 in 2015, and it is Europe. one of the three systems & technology hubs world- • Majority of the healthcare and life sciences GCCs are wide. operating as ER&D centres for the parent. o In 2016, Ford announced its new technology centre o For example, in 2016 Abbott picked up an entire in Chennai, which is its third R&D base in Asia. This under-construction space in Mumbai to set up its centre is a hub for product development, mobility innovation and development centre. solutions and business services for India and also for the world. o AstraZeneca has its Global Technology Centre (GTC) in Chennai, which provides IT services and support o Hyundai’s Hyderabad R&D centre coordinates with its to the group with an employee strength of +2,400. Namyang (Hwaseong, South Korea) centre to improve AstraZeneca also has a R&D centre in Bengaluru to synergies between Hyderabad and Namyang, reduce support AstraZeneca’s global established medicines the time-to-market, and address competitive intensity. portfolio. Its team of 90 employees consists of scientific experts in the fields of regulatory science, clinical science, and patient safety.
Why would the MNCs sell their GCCs now ?
2005-15 was a period of hyper growth – it saw many new GCCs set up by companies based out of US, Europe, Japan, The pace of new GCCs has slowed since 2015 and the Middle East. The total number of GCCs set up saw a CAGR of 7% between 2005 and 2015. These GCCs had embraced the at-scale local talent availability and benefited from lower costs of operations. But from 2015 to the present, growth of new captives being set up has slowed down – to 1% CAGR from 2015 to 2019 (vs. 7% during 2005-15). Future growth will be impacted by the financial pressure posed by the Covid-19 crisis as well.
Covid-19-led impact on demand on several industries such as retail (non-essential), travel & transportation, manufacturing, and automobiles is leading to severe pressure on firms to continue with their existing operations. As the volume of work falls, it becomes difficult to justify the costs of running Source: Nasscom Source:
28 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 29 captive centres. Hence, there has been an active interest GMTC-I in 2004 in Bengaluru, and it contributed to GM’s from MNCs to sell their captives at the moment. global programs across propulsion systems, vehicle engineering, controls development, testing, creative So why would parents sell GCCs/captives? design and special projects. It houses a design studio 1. Monetization: A GCC/captive is often viewed by and an engineering centre with state-of-the-art, in-house its parent organization as a liquid asset, which it can electronics hardware and software testing and validation relatively easily slice off and sell to generate immediate infrastructure. TCS can leverage this sort of infrastructure cash. This situation is further exacerbated by the and technology domain knowledge to win new clients in pressures that the parent organization faces due to the the automotive space. pandemic. An example can be JC Penney, which has filed 3. Geographic expansion: Acquisition of captives can for bankruptcy in the US; or Fedex (possibly) hiving off its also open the gates for a service provider for expansion captive centre in India to generate some liquidity. into new geographies. Setting up a delivery centre with 2. Operational: Parent organizations will often sell a captive capacities in the thousands and then acquiring talent that has either served its purpose or never lived up to from local markets can be daunting. Service providers can expectations. They might find it useful to transfer work really benefit by acquiring a captive in such geographies, to service providers, as these are much better versed with pre-existing delivery infrastructure. A good example with latest technologies across diverse spectrums. Also, would be HCL Tech’s acquisition of Volvo’s external parents may realise that having a captive is not as cheap IT business; here, HCL on-boarded 2,500 Volvo IT or efficient as third-party service providers. employees, which made HCLT the largest Indian-heritage 3. Strategic: After setting up and running a captive, parent firm present in the Nordic region. organizations may realise it is best to focus on their 4. Vertical expansion: Besides geographic expansion, core business and outsource non-core work to service a service provider can expand its vertical delivery providers. Recent examples include ABN AMRO selling capabilities by acquiring a captive, or create a completely a majority stake in Stater (mortgage services player in new vertical for itself. For example, the acquisition Benelux and Germany) to Infosys to focus more on its of PSA Group’s R&D centre in Germany by French core business – selling mortgages. Similarly, HCL Tech engineering major Segula Technologies expanded the acquired Volvo’s external IT services in Nordics business latter’s capacity by 2,000 employees and gave it a strong as that was not the core business of Volvo group. presence in Europe’s largest automotive market. Europe has very large R&D spending and while Segula already has a presence in automotive R&D, this acquisition Why would service providers want to acquire GCCs/ expanded its capabilities, reach, and client exposure. captives? In terms of leveraging the R&D centre further, Segula’s 1. Access to talent: Acquiring a GCC/captive will help MD mentioned that the company wants to use the a service provider get access to niche talent, which is competencies of these 2,000 engineers to increase difficult to tap from the market due to unavailability of the Segula’s market share with other German automakers necessary skillsets or lack of domain experience. And that such as Volkswagen, BMW, and Daimler. talent can be leveraged to win new clients in the market. For example, TCS acquired certain assets of GM’s captive in 2019; 1,300 employees of General Motors India were transferred to TCS. Through this deal, TCS got key talent in the advanced automotive ER&D space, which it can leverage for its other clients and also to win new clients.
2. Access to key IP or technology: A service provider would benefit from the key IP or technology by acquiring the captive. When TCS bought GM’s captive in 2019, it benefitted through GM’s key technologies being delivered out of its India centre. GM had established
30 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 31 CASE STUDIES:
Case Study # 1 Case Study # 2 TCS to acquire Postbank Systems from TCS to acquire staff and select assets Deutsche Bank of Pramerica Systems from Prudential Financial
Year: 2020 Year: 2020 No of Employees: 1,500 No of employees: 1,500
In October 2020, Tata Consultancy Services and Deutsche In October 2020, Tata Consultancy Services and Prudential Bank AG announced an agreement under which TCS will Financial Inc. (PFI) announced an agreement under which acquire 100% of the shares of Postbank Systems AG (PBS) TCS will acquire staff and select assets of Pramerica from Deutsche Bank AG. PBS is a full-range captive IT Systems Ireland (Pramerica), a subsidiary of Prudential. PFI service provider; it offers project management, application will retain the Pramerica Ireland entity, which will continue management, and infrastructure support services to to operate from Letterkenny and will focus on providing Postbank and other subsidiaries of Deutsche Bank (DB). regional business services, reporting under its global asset manager, PGIM. PBS and its c.1,500 employees will become part of TCS, deepening the relationship between the two organizations. Pramerica’s 1,500 employees will be transferred to TCS. This will add to TCS’ scale in Germany and strengthen its As part of TCS’ new Global Delivery Centre in Ireland, growth outlook. TCS is ranked by analysts as the fastest- they will continue to provide PFI with a range of business, growing IT service provider in Germany, with a 10-year digital, and technology services, while also expanding CAGR of over 24%. The transaction is expected to be TCS nearshore capabilities to provide the multifunctional, complete by the end of 2020, and is subject to both parties digital services and solutions to other customers in Ireland, finalizing further agreements and regulatory and government the UK, Europe and the US. approvals. This transaction is yet another example of global banks For DB, this deal will help in its restructuring plan to reduce and insurance companies shedding non-core assets costs. As per media articles, its cost restructuring plan is as they navigate through economic uncertainty. For centred around cutting 18,000 jobs with half of those job Prudential, shedding the operation is expected to help the cuts expected to be in Germany. insurer trim costs, as it aims for US$ 750mn in savings by the end of 2023. For TCS, acquiring Pramerica will bring TCS is already a IT services provider to DB. For TCS, this multi-year services contracts, strategy expertise and a acquisition will further deepen its relationship with DB, development centre in Ireland. It will also enhance TCS’ and help gain more market share in DB’s overall spend, capabilities in Insurance from Ireland, to service EU and US as it paves the way for fetching more business in other customers. Pramerica Systems has 80% IT services work transformational and strategic projects within Deutsche Bank. while 20% is BPS (actuarial and customer engagement TCS can leverage the domain skills of 1,500 employees to processes). TCS will be offshoring a lot of that work and expand in other accounts in Germany in BFSI and other will redeploy these teams to service other customers verticals. It gets ready infrastructure and talent in Germany, from a new nearshore centre in Ireland. It will generate a from where it can service the larger European market. Lastly, revenue of USD 300mn over the next five years from this language and culture are still huge barriers in Europe, deal. which are addressed for TCS via acquiring local talent. The company will earn a revenue of EUR 460mn (USD 543mn) over the next five years from this deal.
30 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 31 Case Study # 3 Case Study # 4 Infosys signs the largest deal in its history Infosys acquires 75% stake in ABN with Vanguard, takes over 1,300 of its AMRO’s mortgage services unit (Stater) employees
Year: 2020 Year: 2019 No of Employees: 1,300 No of employees: NA
In 2020, Infosys entered into a multi-year agreement with In March 2019, Infosys signed a large deal with ABN Vanguard, which is perhaps the biggest deal the company AMRO, the third largest bank in the Netherlands, has ever signed (approximately USD 1.5bn as per media headquartered in Amsterdam. As a part of the deal, articles). Through the partnership, Infosys will assume Infosys acquired 75% of the shareholding in Stater N.V., day-to-day operations, supporting Vanguard’s Define a wholly owned subsidiary of ABN AMRO Bank N.V., that Contribution (DC) recordkeeping business, including offers pure-play, end-to-end mortgage administration software platforms, administration, and associated services in the Netherlands, Belgium, and Germany. processes. Also, approximately 1,300 Vanguard employees, Infosys paid EUR 127.5mn for a 75% stake in Stater. ABN currently supporting the full-service recordkeeping client AMRO will continue to hold the remaining 25%. Stater is administration, operations, and technology functions, will a market leader and one of the largest mortgage service transition to Infosys. All Vanguard employees currently providers in the Benelux region, operating across the performing these roles will be offered comparable positions mortgage and consumer-lending value chain, with deep at Infosys, in close proximity to Vanguard’s offices in Malvern, capabilities in digital origination, servicing, and collection. PA, Charlotte, NC, and Scottsdale, AZ. Transitioning Stater also brought deep European mortgage expertise employees will receive the same salary and comparable and a robust digital platform to drive superior customer benefits for a transition period of 12 months. experience for Infosys’ clients.
Martha King, MD of Vanguard Institutional Investor Group, At the time of acquisition, Stater serviced 1.7mn will move to Infosys to head the latter’s Mid Atlantic mortgage and insurance loans for approximately 50 Retirement Services Centre of Excellence and serve as its clients in The Netherlands and Belgium. The company Chief Client Officer. As per media articles, Infosys has set was started in 1997, and had a solid client base, including up a 3,000-seater facility in Bengaluru to service the deal, many of the largest Dutch and Belgian banks for their which includes BPS services and digital transformation work, most important product – mortgages. to take Vanguard’s record keeping services onto a cloud ABN AMRO’s management revealed that while mortgages platform. are a key product for the bank, providing administrative For Vanguard, the deal allows the company to focus on its mortgage services is not a core activity. Hence, the core business – retirement services and asset management. management is quite happy to hand over majority control Additionally, it has successfully avoided negative media to Infosys, where it will continue to hold 25% stake, attention (had it laid off 1,300 employees) by transferring and will remain a strategic client for Stater. As the same employees to Infosys. employees were going to service ABN AMRO, comfort level is also ensured. Infosys acquires key talent in the core retirement-services industry via this deal, which it can leverage to grow in other For Infosys, as it was already operating in mortgage BFSI accounts in the US. Infosys currently serves half of the services, this deal has only added revenue in a similar top-20 retirement service firms in the US, helping clients to line of business, along with access to a key client – ABN manage risk, improve participant experience, and deliver AMRO. Also, Stater gave direct access to the key markets better retirement plan outcomes through technology of Netherlands, Belgium and Germany. Infosys can services and digital solutions. Since it is a large deal, it leverage Stater’s clients to cross-sell and up-sell its other provides revenue visibility; also, there is the possibility of core IT services. increasing the scope of the deal in future.
32 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 33 Case Study # 5 Case Study # 6 Cognizant inks multi-year agreement with HCL Tech buys Volvo’s external IT ING, takes over ING employees services arm
Year: 2012 Year: 2016 No of employees: 1,000 No of employees: 2,500
In June 2012, Cognizant expanded its relationship with ING, In 2016, HCL Tech acquired Volvo’s external IT business US, to offer a comprehensive array of insurance business along with signing a significant IT outsourcing deal process services, and acquired over 1,000 ING employees (infra and applications) of approximately US$ 1bn+ with in Minot, North Dakota, and Des Moines, Iowa, to create Volvo group. With this acquisition, HCL Tech added a US-based centre of excellence for insurance and finance 40 key clients in the Nordics region and France to its business process services. ING US is a US-based retirement, portfolio. Approximately 2,500 employees working for investment management, and insurance operation of Dutch- the Volvo Group were transferred to HCL across 11 based ING Groep N.V. Cognizant was to provide specific countries. HCL Tech gave consideration of US$ 130mn technology systems for ING US for seven years, building on for Volvo’s external IT business which generated revenue its already existing relationship with ING, with a deal contract of US$ 190mn over the last twelve months preceding value of US$ 330mn. the acquisition. This unit offers services related to IT infrastructure, mainframe services, and application The centre was to be part of Cognizant’s global delivery operation services to third-party clients. network and would allow it to provide an expanded range of business-process services, spanning the insurance and With the acquisition of Volvo’s external IT business, HCL financial services industries, from the US. As part of the Tech gained significant advantage in the Nordics and the multi-year agreement, Cognizant was to purchase ING US’s wider European region. It also gained highly skilled talent existing facility in Minot, North Dakota, and sub-lease offices from Volvo along with domain skills and expertise. HCL in the ING US facility in Des Moines, Iowa, providing business Tech claims to be the largest IT services provider of Indian and workplace continuity for ING’s customers and the origin in the Nordics. The company has also announced employees, who would transition to Cognizant. an automotive centre of excellence in Gothenburg, based on the domain expertise of the Volvo team, to serve the For ING, the expanded relationship with Cognizant offered former’s global automotive and manufacturing customers. job continuity for its employees. At the same time, it allowed it to focus more on its core business of providing retirement, For Volvo group, providing IT services to clients was not investment management, and insurance solutions. its core activity. Hence, by divesting the business, it could focus more on its own business, which itself was facing For Cognizant, the expanded relationship helped it to significant disruption. Secondly, it also ensured that the acquire top quality talent from ING in the retirement, company didn’t have to lay-off a large number of its investment management, and insurance segments. It could people. capitalise its onshore centre for servicing other BFSI clients for providing business-process services.
32 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 33 Case Study # 7 Case Study # 8 TCS acquires certain assets Wipro secured one of its largest deals and of General Motors Technical acquired Alight India’s operations Centre, Bengaluru
Year: 2018 No of Employees: 9,000 Year: 2019 No of Employees: 1,300 In June 2018, Wipro secured one of its largest contracts worth c.US$ 1.6bn, spanning 10 years, from US-based Alight Solutions. As a part of the contract, Wipro was to buy Alight Solutions’ India General Motors (GM) is a client of TCS since the last 16 years. operations for US$ 117mn in cash. Alight had developed a rich set of technology and delivery It acquired certain assets of the GM Technical Centre – India capabilities across its India centres located in Gurgaon, Noida, Mumbai, and Chennai. It provides (GMTC-I) in Bengaluru, and also won a large deal from GM, benefits of administration and cloud-based HR and financial solutions to 1,400 clients serving 19mn supporting its global vehicle programs with engineering employees and their 18mn family members. Alight India had a workforce of 9,000 employees. It design services for the next five years. Over 1,300 employees reported revenues of Rs 11.32bn in FY18 and Rs 5.31bn in FY17. of GMTC-I were transferred to TCS, including teams focused Wipro’s focus was to modernize Alight’s core technology assets and automate its operations, to on propulsion systems, vehicle engineering, controls enhance the user experience of Alight’s end customers. The deal increased Wipro’s strength in development, testing, creative design, and special projects. administration and cloud-based HR services and financial solutions, which it could cross sell to its Through this deal, GM was to benefit from the scale and other clients. cross-sectoral knowledge of TCS, while TCS was to benefit from the influx of world-class engineering talent. GMTC-I Alight’s management had indicated that this deal would enable it to accelerate investment in was established in 2004 in Bengaluru, and it contributed consumer-facing technologies and services across its health, wealth, and cloud operations by to GM’s global programs across propulsion systems, vehicle leveraging Wipro’s industry-leading strengths in automation, machine learning and data analytics. engineering, controls development, testing, creative design and special projects. It houses a design studio and an engineering centre with state-of-the-art, in-house, electronics hardware and software testing and validation infrastructure. Case Study # 9
From GM’s perspective, it was able to hive off certain assets Wipro buys ATKO’s Captive Centre along with of GMTC-I (which were operational since 2004) along with winning a large deal the attached employees, without attracting negative media attention related to large-scale layoffs. Also, because the same employees would be working on GM projects, there was comfort in terms of deliverables. From TCS’s perspective, it was able to make the relationship stronger by winning a five-year Year: 2014 deal with an approximate value of US$ 600-700mn, with the No of Employees: 500 possibility of recurring revenue. This was also the first time in the automotive space that a large ‘lift and shift’ deal took place; In July 2014, Wipro won a significant deal of approximately US$ 1.1bn for 10 years from the hitherto, deal sizes in automotive ER&D outsourcing were small Canadian logistics and utilities firm ATCO Ltd, and in the process, also bought the information (US$ 50-100mn size; project-based work). Additionally, TCS technology (IT) services business of ATKO for US$ 195mn. As part of the deal, Wipro absorbed about got key talent in the advanced automotive ER&D space, which 500 employees in Canada, and 50 in Australia. ATCO I-Tek, ATCO’s IT services business, had about it could leverage for its other clients, and also win new clients. 700 employees. As part of the ATCO contract, Wipro agreed to provide infrastructure management, This is a prime example of captives of OEMs not being as cost application development and maintenance, and asset management. efficient as service providers. Wipro mentioned that the deal gave it significant local capability in markets like North America and Australia where ATKO has a presence. Most of the ATCO employees came with significant domain knowledge and presence in those markets, which enabled Wipro to provide many services to utilities firms in other markets as well.
For ATKO, this deal led to outsourcing of its own IT infra and application development costs. Also, it got to focus on its own business while selling the non-core captive centre.
34 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 35 CRYSTAL GAZING
Potential buyers and sellers
PhillipCapital presents, from its own rich database, a set of MNCs that could possibly monetize their GCCs
In this section, we present a list of MNCs that might consider let any workers go until 1 Oct. It was expected that by monetizing their GCCs based in India. We have evaluated October, the US would have had enough time to get the several parameters listed below to arrive at a list of 34 MNCs coronavirus under control, and return to more typical travel from PhillipCapital’s exclusive database. and expenditure levels. In Europe, German airlines Lufthansa laid off 22,000 permanent employees as it predicted muted The Covid-19 pandemic is causing significant demand- and demand recovery for travel. Just like airlines, another sector supply-side pressures, and an uncertain near-future demand that took a hit was retail. While a move to online shopping environment for many industries including aerospace, travel, was already causing significant demand reduction for brick- hospitality, manufacturing, and oil & gas, to name a few. and-mortar stores, the pandemic put even more pressure on One of the most devastating effects it has had is on the non-food traditional retailers. travel sector. Scores of airline workers were laid off in US and Europe, as the demand for travel (both business and leisure) We have collated a list of 35 retailers who have already file sank significantly. In the US, the government’s coronavirus for bankruptcy this year. A report from S&P Global Market relief aid didn’t get extended beyond September, causing Intelligence in July 2020 identified 40 retailers that have filed airlines to go ahead with layoffs in October 2020. A provision for bankruptcy, which is already higher than 2018 and 2019. of the CARES Act (the US government’s US$ 2.2tn economic The wave of filings also means permanent store closures are stimulus package) covered nearly 75% of the airlines’ piling up. Some of the significant ones include department payroll expenses, with the stipulation that they should not store giant JC Penney, Gold’s Gym, Aldo etc.
Major airlines laid off thousands of Retail bankruptcies employees due to low demand
Date Company Country Layoffs
Mar-20 Westjet Canada 7,000
Jun-20 Air Canada Canada 16,500
Jul-20 British Airways UK 12,000
Oct-20 American Airlines US 19,000
Oct-20 United Airlines US 13,000
Oct-20 Lufthansa Germany 22,000
Oct-20 IAG UK 12,000 Source: S&P Global Market Intelligence
Source: Media articles Source: Data compiled July 23, 2020. S&P Global Market Intelligence’s bankruptcy coverage is limited to public companies or private companies with public debt where either assets or liabilities at the time of the bankruptcy filing are greater than or equal to $2 mn, or private companies where either assets or liabilities at the time of the bankruptcy filing are greater than or equal to $10mn
34 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 35 These datapoints indicate the demand stress these sectors Retailers that have filed for bankruptcy are currently facing. Oil & gas companies are under pressure because of low oil prices while manufacturing companies Date Retailer Category are facing supply disruptions due to unavailability of either Jan-20 Papyrus Stationery raw materials or labour due to travel restrictions and Feb-20 Pier 1 Imports Home Improvement social distancing norms. We think these sectors, which still Mar-20 Art Van Furniture Home Improvement face significant demand pressure, might consider GCC Mar-20 Modell’s Sporting Goods monetization options. So, from our database of 1,200+ Mar-20 Dean & Deluca Grocery retailer captives, we have identified a list of 34 potential candidates Apr-20 True Religion Apparel & accessories that might consider selling off their GCCs/captive centres by Apr-20 Roots USA Apparel & accessories analysing their financial May-20 Neiman Marcus Department Stores May-20 J Crew Group Apparel & accessories May-20 Gold’s Gym Gym Potential sellers – small May-20 JC Penney Department Stores May-20 Aldo Footwear May-20 John Varvatos Apparel & accessories single-function GCCs with May-20 Tuesday Morning Discount Home Goods May-20 Sage Stores Department Stores struggling parents May-20 Centric Brands Apparel & accessories May-20 Hertz Rental Car Company The list is narrowed down using the following criteria: May-20 Advantage Rental Car Company May-20 Le Pain Quotidien Bakery & Café Chain • Verticals – Aerospace & Defence, Automotive, Industrials, Healthcare, Retail & CPG, Manufacturing, Oil & Gas, Jun-20 GNC Holdings Healthcare Chain Travel & Transport, Telecom and BFSI. These verticals are Jun-20 24 Hour Fitness Gym facing higher business pressure due to the pandemic. Jun-20 Chuck E Chese Entertainment Centres Jul-20 Lucky Brand Denim Maker/Brand • Debt/equity ratio – Current debt/equity ratio is more than Jul-20 Sur la Table Kitchen accessories 1.5, indicating higher leverage. Jul-20 Brooks Brothers Apparel & accessories • Interest coverage ratio – lower interest coverage ratio, Jul-20 RTW Retailwind Women Lifestyle Retailer indicating stretched financials. Jul-20 Ascena Retail Group Apparel & accessories • Newsflow about companies’ financial stress / restructuring Jul-20 NPC International Fast Food Operator plans / layoffs Jul-20 G Star Apparel & accessories Jul-20 Muji USA Stationary Based on the above parameters, we have narrowed down 34 companies (listed below) which we think can monetize Jul-20 Ney York & Company Apparel & accessories their GCCs. Not surprisingly, the list includes companies from Aug-20 Lord & Taylor Department Stores sectors such as automotives, retail & CPG, manufacturing, Aug-20 Tailored Brands Apparel & accessories semiconductors, and aerospace; those that are facing a lot Aug-20 Stein Mart Discount Department Stores of demand-side pressure due to the ongoing pandemic. Sep-20 Century 21 Discount Department Stores
Source: Media articles Source: Stressed balance sheets and an uncertain demand environment can lead to these companies putting their GCCs/captives on the block, for much-needed liquidity.
36 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 37 List of Potential GCC/Captive Sellers
Sr. No GCC owner Region Vertical Currency Debt/ Equity Ratio Net Debt ($ mn) 1 Rockwell Collins (Collins Aerospace) Americas Aerospace and defense USD 1.1 7,191 2 Thales Europe Aerospace and defense EUR 1.1 3,481 3 GRUPO ANTOLIN Europe Automotive EUR 11.8 165 4 John Deere Americas Automotive USD 4.0 3,270 5 American Axle & Manufacturing(AAM) Americas Automotive USD 3.8 3,235 6 Tenneco Americas Automotive USD 2.8 4,474 7 General Motors* Americas Automotive USD 2.3 (2,877) 8 Federal Mogul Americas Automotive USD (0.3) 150 9 Ford Americas Automotive USD 4.7 (7,610) 10 Delphi Europe Automotive USD 3.5 1,419 11 Banca Sella Europe BFSI EUR NA NA 12 Deutsche Bank Europe BFSI EUR NA NA 13 BNP Paribas Europe BFSI EUR NA NA 14 American Express Americas BFSI USD NA NA 15 Prudential Process Management Services Americas BFSI USD NA NA 16 Eli Lilly Americas Healthcare & Lifesciences USD 5.9 13,487 17 Amgen Americas Healthcare & Lifesciences USD 3.1 21,520 18 Kimberly-Clark Americas Manufacturing USD 36.6 7,709 19 3M Americas Manufacturing USD 2.1 18,848 20 Halliburton Americas Oil & Gas USD 1.4 9,235 21 Lowe's Americas Retail & CPG USD 12.0 22,874 22 Hershey Americas Retail & CPG USD 2.6 3,987 23 Kelloggs Americas Retail & CPG USD 2.6 8,072 24 GAP Americas Retail & CPG USD 2.3 6,023 25 JCPenney Americas Retail & CPG USD 5.9 4,511 26 GAP Americas Retail & CPG USD 2.3 6,023 27 PepsiCo Americas Retail & CPG USD 2.3 27,890 28 Diageo Europe Retail & CPG GBP 2.0 16,572 29 General Mills Americas Retail & CPG USD 1.6 12,241 30 Danone Europe Retail & CPG EUR 1.0 14,685 31 CommScope Americas Telecom USD 5.5 9,456 32 Verizon Americas Telecom USD 2.1 1,30,549 33 Sabre Holdings Americas Travel & Transportation USD 3.6 2,985 34 Senvion* Europe Industrial EUR 1.8 196
Source: Bloomberg Note: Above financial data is of latest Fiscal years. *General Motors has already transferred assets and employees of its Bengaluru technical centre to TCS in Sep 2019; # Senvion, Germany based wind turbine maker sold its Indian operations to a strategic investor in April 2020.Last year, Senvion had filed for insolvency in a German court. Note: This is just an indicative list, based on our research, of companies that “might be likely” to monetize their GCCs.
36 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 37 Potential buyers - large/mid size IT services companies
Buying GCCs can turn out to be a mammoth opportunity for service providers and can enhance their inorganic growth. FY20 net cash - large caps (USD mn) Today, service providers are sitting on significant cash balances, compared with what they had during GFC crisis. Services providers are also more open to consider buying the struggling captives, as companies like Infosys and Coforge have quoted in the recent earnings calls. They benefit from the opportunity to increase presence in underpenetrated verticals, geographic expansion, capability expansions, talent, etc.
Net cash position of Indian IT players has improved since the GFC crisis IT services players around the globe have been very strong FCF generators. Since the GFC crisis, net cash positions of the big IT players have improved significantly, thanks to the consistent growth in the overall business, and strong FCF conversion. For example, TCS had a net cash position of less than US$ 1bn in FY09; by FY20, it had a chest of US$ 5bn. FY20 net cash - mid caps (USD mn) FCF conversion (FCF/PAT) in FY20 for TCS stood at 93%. As seen from the charts aside, tier-1 IT services players are in a much better position, having strong net cash positions. This cash can be deployed in M&As, where along with niche technology and design firms, captives are also being considered. PhillipCapital analysts’ recent interaction with industry advisors confirm this. Probable candidates include TCS, HCL Tech, Wipro, Tech Mahindra and Cognizant who have been aggressive in M&A activities in the last 3-4 years and/or have strong cash positions.
The current exposure to verticals of IT services companies provides a clue about the potential acquisition of GCCs for individual companies. The BFSI vertical is well penetrated and hyper competitive, comprising of large Indian vendors Source: Company, PhillipCapital India Research PhillipCapital Company, Source: competing with global service providers such as Accenture and Capgemini. Players like Tech Mahindra and HCL Tech, which have lower revenue share from BFSI (relatively), are likely to acquire GCCs in this space. Some of the midcap companies like LTI, Coforge, and Mphasis are over- dependent on BFSI, so they could diversify by expanding into verticals such as Retail & CPG (for LTI, Mphasis), Healthcare (Mphasis and Coforge), and Manufacturing (Mphasis).
38 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 39 Indian IT companies’ current exposure to various verticals
BFSI Retail & CPG Manufacturing ENU Healthcare Hitech Telecom Travel Others TCS 32% 15% 9% 10% 9% 7% 19% Infosys 32% 15% 9% 12% 7% 9% 13% 3% Wipro 31% 16% 8% 13% 14% 13% 5% HCL Tech 22% 10% 18% 11% 14% 17% 8% Tech M 16% 8% 16% 10% 39% 11% LTI 46% 11% 16% 11% 11% 6% LTTS 32% 13% 21% 34% MindTree 20% 22% 50% 8% Cyient 14% 12% 3% 5% 28% 27% 10% Coforge 51% 30% 19% Persistent 32% 19% 49% Mphasis 63% 12% 12%* 13%
Mphasis* - Logistics & transport Source: Company, PhillipCapital India Research
The table below captures the areas in which tier-1 and selected tier-2 companies can acquire GCCs, or, where they can expand and diversify their vertical exposures
Likely segments of acquisitions for Indian IT players
TCS Infosys Wipro HCL Tech Tech M LTI MindTree Mphasis Manufac Manufac Manufac BFSI BFSI Retail & CPG BFSI Retail & CPG Telecom Hitech Telecom Telecom Retail & CPG Telecom ENU Manufac Hitech Healthcare Retail & CPG ENU Healthcare Healthcare
Source: Company, PhillipCapital India Research
Captive acquisitions by Indian IT players
Companies Year Name of Captive Consideration ($mn) 2008 Citi Global Services 505 TCS 2010 SuperValu Inc 100 2020 Post Bank Systems (Deutsche Bank subsidiary) NA 2008 Citi Technology Services 127 Wipro 2014 ATCO I-Tek 195 2018 Alight Solutions 117 Infosys 2018 Stater NV (ABN AMRO IT Services unit) 128 HCL Tech 2016 Volvo IT 135 2008 T-Systems India (Deutsche Telekom Subsidiary) NA 2009 UBS India Captive 75 Cognizant 2009 Invensys NA 2011 Corelogic 50 2012 ING NA
Source: Company data, PhillipCapital India Research
38 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 39 is not as cheap or efficient as having third-party service providers. Conclusion 3. Strategic: After setting up and running a captive, parent organizations may realise it is best to focus on their core Indian IT services industry is an integral part of the Indian business work, and outsource non-core work to service economy (7% of GDP, largest private sector employer) and providers. the global IT landscape (53% marketshare of the global sourcing industry). Of this, GCCs form a small but integral At the same time, third party service providers are likely to part – contributing 20% of the total industry. Over the next latch onto these assets because: decade, this part of the industry is expected to undergo 1. Access to talent: Acquiring a GCC/captive will help significant transformation, with multiple forces pulling it in service providers get access to niche talent, which is different directions. Covid-19 has just accentuated one of difficult to tap from the market due to unavailability of the those drivers. required skillsets, or due to lack of domain experience. It can leverage this talent to win new clients in the market. The GCC market is expected to continue to expand, driven 2. Access to key IP or technology: Service providers by the evolution of the industry, enhancement of its delivery would benefit from the key IP or technology by acquiring capabilities, and low penetration levels. With only 383 of captives. A GCC’s infrastructure and technology domain the Global 2000 firms having a GCC in India, 80% of them knowledge can be leverage to win new clients in the are yet to leverage this opportunity. Also, Indian GCCs same/different industry. have a long way from when they first started as cost centres 3. Geographic expansion: Acquisition of captives can open to take advantage of the cost arbitrage and talent pool in the gates for a service provider in terms of expansion into India. Today, GCCs are perceived as competency centres new geographical markets, circumventing the daunting and business enablers for the organisation. Increasing task of setting up a delivery centre with capacities in the collaboration between the IT and R&D teams has led to thousands and then acquiring talent from local markets. significant changes in their governance model. Adoption of 4. Vertical expansion: Similar to a geographic expansion, Agile has allowed IT functions to be integrated and shared, service providers can expand their vertical delivery and the work now involves the full lifecycle of product capabilities by acquiring captives or by creating development. Their employees, too, are now hired from Tier- completely new verticals for themselves. 1 institutes and have more defined technical career paths.
What Covid-19 has accentuated is another driver, which Overall, Covid-19 is likely to provide a significant boost could well see the GCC footprint diminishing in India. The to the monetization of GCCs in India – with transactions pandemic-led impact on demand on several industries like being win-win deals. These would provide sellers with retail (non-essential), travel & transportation, manufacturing, quick monetization of ‘non-core’ assets to help run their automobiles, etc., is leading to severe pressure on firms core businesses strongly – at the same time, the sales to continue with the existing operations. As the volume of would provide buyers a unique opportunity to expand their work falls, it becomes difficult to justify the costs of captive footprints and boost growth, utilizing idle balance-sheet cash. centres. Hence, there has been an active interest from MNCs As corroborated by our exclusive database of GCCs in India, to sell their captives at the moment. the scope for captive monetization is immense, and can Parent enterprises are expected to sell their captives for the lead to mammoth opportunities for the Indian IT Services following reasons: companies (like TCS, CTSH, Infosys etc). This, in addition to 1. Monetization: A GCC/captive is often viewed by the organic boost the sector has received, due to accelerated its parent organization as a liquid asset, which it can digital adoption and cloud migration, presents a remarkable relatively easily slice off and sell to generate immediate opportunity for the sector, to make up for its lackadaisical cash. This situation is further exacerbated by the growth of FY15-18. That an adversity like Covid-19 would turn pressures that parent organizations face due to the into this mammoth opportunity for the IT Services sector – pandemic. who would have thought!! 2. Operational: Parent organizations will often sell a captive that has either served its purpose or never lived up to expectations. Also, parents may realise having a captive
40 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 41 INTERVIEW – Sashidharan Balasundaram
1. GCC/Captives centres have in terms of developing human-capital seen significant growth in last two around these new-age requirements. decades. How do you see the growth Cyber security, data scientists, and of captives in the next 5-10 years? digital technologist are/will be the Global Capability Centres (GCCs) are next in-demand talent requirements. a key part of the Indian IT and BPO Our research says an estimated 3.5mn Services growth story. They have cyber security jobs will be available, been contributing to incremental job but unfilled, by 2021. This could be creation; now with focused growth the next growth driver for GCCs in beyond Tier 1 cities, in search of the modern digitally transformed and low cost, less populated, and highly transforming era. skilled employee bases - Tier 2 cities With increasing levels of work-from- To dig deeper into the GCC will see more takers. Also, with man- anywhere adoption among GCCs, landscape in India, and the machine combination, as Software service providers, and enterprises, opportunity presented by the BOTs take more mundane work with comes a new set of challenges and higher efficiency and accuracy, skills opportunities – such as remote monetization of these needed to do those mundane tasks are employee management, technical captives, we interviewed now primarily RPA Developer, Tester, support, 100% availability, business Mr Sashidharan and Process Engineering. Successful continuity and improved security implementation of automation use- requirements for end-point devices, Balasundaram, Senior cases at scale will increase the GCCs networks, data centers, cloud Manager at ISG Research. role in strategic and key technology infrastructure, web applications, email, decisions for the parent enterprise. voice and video conferencing solutions. Over the next five years, enterprises 2. Which are the other locations Mr Balasundaram has over are expected to incrementally adopt that compete with India for GCCs 12 years of experience modern and repeatable technologies units? What do these locations in operations, strategy, in making the business processes have as a competitive advantage/ more resilient, low cost, scalable, disadvantage? technology research and and secure. GCCs will play a greater India continues to be the favourite procurement consulting role in achieving agile, repeatable, location for GCCs with the talent within IT services, consistent, and cost-effective digital availability across domains, and transformations in their parent manufacturing, banking new-age technologies. To keep this enterprises. India will see increase in momentum going, government, and insurance verticals. He new GCCs in manufacturing ER&D, educational institutions, and industry has expertise in consulting, financial services, supply chain, retail, should come together to develop the travel, e-commerce, media and telco competitive intelligence and curriculum for the next generation in particular, owing to the increased technologies and up-skill the existing formulating strategies for demand and shift in consumer talent. To compete with the European the go-to-market approach. expectations, high investments to GCC destinations such as Poland, address the changing demands, quick An electronics engineer from Austria, and Czech Republic, it’s demand cycles, and new business important to set-up language and Anna University, Chennai, he model evolution. This makes the talent- multi-cultural institutes in India to has a post-graduate degree hubs like India ideal destinations for develop German, French, Spanish, GCCs. in global business strategy Danish, and other European language Location dependent solutions are skills among our human-capital. This and analysis from Alliance shifting to Cloud. This will have could increase India’s opportunity Manchester Business School, increased demand and opportunities to pick-up language-based business The University of Manchester, aligned to these net new skills will be processes from both private and public in-demand globally. In the past, there sectors, and hi-tech and complex UK. has been significant demand for skills engineering work that is not sent in automation and analytics. While offshore to GCCs or service providers this continues, India has capitalized as of now. However, the drivers will
40 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 41 be those skills that are scarce and in- to run the day-to-day operations 5. BFSI vertical has some of the demand for Digital Transformation and supporting Vanguard’s record-keeping largest captive centres in India. Engineering. business, including its software Do you think they will continue to 3. Captives are significant job platforms, administrations, and expand their captive centres, or providers, employing about a million associate processes. This partnership give incremental work to service people. Do you think we can see expands the digital enablement providers? high involuntary attrition and a in client experience for Vanguard. On 1st October 2020, Goldman Sachs pause in new hiring from captives Approximately 1,300 Vanguard roles announced its intent to open its second over the next year? – currently supporting the full-service India office in Hyderabad, which is recordkeeping client administration, Captives may pause hiring in non-core expected to be operational in the operations, and technology functions – areas, adoption of RPA will increase, second half of 2021, with about 500 will transition to Infosys. new skills such as bot developers, employees. This announcement, in testers, and process engineers will be Insourcing decision will be made when: the middle of the pandemic, reiterates hired. From a core-area perspective, • Ongoing work becomes more the role India and its local talent plays if the parent enterprises are of the proprietary, IP-driven, and complex in supporting global enterprises’ key business areas, day-to-day operations, “keeping the lights on” is good • There is less satisfaction with innovation, and making them digitally enough category, hiring will be frozen. the service levels of outsourcing competitive. If they are the “seize the opportunity partners to transform the business” category, This does not mean outsourcing • Cost saving goals are not met you will see increased hiring, especially providers will see any decline in data scientists, AI/ML developers, and • Increasing cost then projected while demand. Financial services verticals analytics specialist. India reported an outsourcing have experienced high disruption increased tax collection for September • Less value is derived from the in the recent years from digital 2020, signalling reduction in pay-cuts outsourcing relationship banking, straight through processing, and businesses coming back to pre- Setting-up captive centres are auditor-less insurance audits via covid levels – which resonates for the also a significant growth driver for video applications, bot-AI-based current situation of GCCs. Outsourcing Service Providers; this risk underwriting, and more, in both 4. Has Covid had a negative/positive means Build-Operate-Transfer is also customer experience as well as time to impact on perspective? Will clients a significant business for Indian and process areas. prefer outsourcing now, more than Western service integrators with scale 6. ER&D services companies like in-sourcing? and operational capability. LTTS, Tata Elxsi, KPIT, Cyient have The outsourcing vs. insourcing dilemma Industries such as utilities, capital seen deal pipeline pickup in recent is dependent on each enterprise’s markets, banking, insurance, quarters. Does it mean that more unique scenario. Key parameters such automotive, transportation, travel, companies are now outsourcing their as cost, risk, value and control should retail CPG, and industrial equipment ER&D work as it cheaper? Can ER&D be assessed to arrive at a decision. are highly prone to volatility, due outsourcing industry benefit out of this pandemic as it may be expensive In 1H 2020, we observed some to changing market conditions, to run a captive? enterprises’ outsourcing decisions continuously evolving customer being put on hold after detailed expectations, and regulatory Nasscom released the global ER&D provider evaluations; some have requirements. Technology is the market statistics in 2019, which extended their current outsourcing enabler in all of these industries, highlighted 33% or US $30 billion agreements to keep the lights on to bridge the gap between today’s revenue India derived from global for another 12-24 months. This is reality and tomorrow’s expectation. outsourced ER&D spend of about a temporary COVID19 induced Speed and agility are two primary US $90 billion. Digital Twins, Plant scenario. Enterprises are showing drivers to establish market leadership. Engineering, Production Analytics, intent and interest to move ahead with For enterprises to develop any new Predictive Maintenance, Supply-Chain outsourcing as planned; it is just that technology by themselves leveraging Engineering, Design and Testing are the time of decision has shifted by 1-2 their GCCs will be time consuming in some of the key investments’ pandemic quarters. the speed race. As we have seen from has only accelerated. In the near term the 2008 great recession fuelled by owing to the travel restrictions, we Enterprises such as Vanguard, the Lehman Brothers’ collapse, outsourcing could expect increased offshoring in largest defined contribution asset providers are the best go-to strategic Engineering space. manager in the US, have embraced the partners for GCCs to accelerate from opportunity at hand and established In the automotive space, with the ideation to development to production a strategic partnership with Infosys uptick in electrification and the urge to updates, with speed and agility. to reduce the carbon emissions, many
42 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 43 large auto manufacturers have joined Manufacturing (DLM) has been a This is very similar to large capital hands in Research and Development, significant portion of all of Cyient’s Investments; decisions are made joint product strategy, where better operations, which have been based on opportunities presented, innovation ecosystem is built. From impacted by the pandemic and a considering the risk, opportunity, as a supplier standpoint, large battery slowdown in manufacturing. Amid well as strategic focus on the capital technology development and the pandemic, Cyient Australia has that a service provider is looking to manufacturing providers are created, acquired Integrated Global Partners invest. which also increases the opportunity for US$ 8.56mn – to strengthen In some cases, you would see service for ER&D services companies. its digital capabilities in energy providers expanding in low-growth • LTTS has launched an Electric and mining industries. Cyient also verticals such as BFSI. Institutions in Vehicle (EV) laboratory at its added one of the top-3 med-tech this vertical have been large spenders Bangalore Design Centre; this lab is enterprises to its client-list in 2Q on technology, and many large banks expected to cater global customers FY21. The transportation business have already invested heavily in digital for EV testing, and evaluate and is driving its growth, while its transformation, while many continue verify the performance, endurance, semiconductor BU experienced to run their own captives successfully. and electromagnetic compatibility de-growth, and continues to Service providers who are already of EVs. Also, LTTS announced see softness due to a decline working with these BFSI enterprises eight multi-million-dollar deal wins in one of its key clients. Cyient may see an existing opportunity. in its 2Q FY21 financial review, looks very optimistic, as the new Further, with reducing profits in signalling growth in new business. business opportunities across its banking, and increasing customer This includes three deal-wins above business lines are seeing increased expectation in insurance, and changing US$ 15mn in TCV, and three above offshoring and demand is just investor preferences in investment US$ 10mn in TCV. However, it opening up. banking, fin-techs compete in every is important to note that overall • Tata Elxsi is the only engineering BFSI ecosystem such as payments, revenue is down by 6.3% yoy. services provider that has seen AML, lending, deposits, capital markets • In 1QFY21, KPIT won a US$ 60mn 11.1% revenue increment yoy trading, mutual funds, P2P Lending, five-year contract from a tier-1 in 1HFY21; profit before tax has insurance, KYC – STP. BFSI enterprises automotive system supplier for increased by 45% in the same need partners to be successful in this autonomous driving, ADAS, and period. Embedded product heavily-competed industry when it safety electronics products as a design contributes to almost 87% comes to technology. This, in turn, strategic software partner; also of its revenue, while industrial drives some banks to monetize their five other contracts in the same design and visualization, system captives to IT service providers with quarter from Automotive suppliers; integration, and support contribute long-time retention contracts; you see in 2QFY21, it won 5 deals from to the remaining 13%. Revenue these billion-dollar, 10 year+ contracts OEM car manufacturers across increment is driven by healthcare are back on the table via this approach. US, Europe, and Asian markets and transportation verticals, where Enterprises in manufacturing, travel, for autonomous driving, electric Tata Elxsi signed a multi-year deal transportation, tourism, hospitality, power train, in-car networking, with a tier-1 European automotive and retail are heavily impacted by and connected car technologies. supplier and won new OEM clients the COVID19 pandemic, these KPIT is re-iterating its position as in 1HFY21. enterprises look to monetize assets software integrator partner across • Volvo Group formed strategic that are non-strategic in nature to CASE (Connected, Autonomous, alliance with Samsung SDI for the sustain this blow, while also partnering Shared, Electric) aligned practices. joint development of battery packs with service providers to emerge as KPIT has also seen a 15.4% decline specifically developed for Volvo stronger players back in the market. in revenue yoy; significant revenue Group’s truck applications. From a service provider stand point, investments are made to grow account decline from Americas and Asian FY21 is expected be far better than opportunity, market share, long-term clients in 1HFY21. the slump ER&D service provider has outsourcing contracts, industrial IP • Cyient is repositioning itself as a experienced in FY20. and talent acquisition at a high level. Digital-engineering provider, with 7.In which areas or geographies will Strategy-level nuances differ from deep expertise in design, build service providers be interested in provider to provider based on their across its key verticals such as buying a captive? What would be investment appetite and expansion aerospace and defence, energy the criteria, considerations involved targets. and utilities, communications, for service providers to buy a transportation, medical captive? and healthcare. Design Led
42 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 43 Indian Economy – Trend Indicators
Monthly Economic Indicators
Growth Rates (%) Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 IIP -4.6 -6.6 2.1 0.4 2.2 5.2 -18.7 -57.3 -33.4 -16.6 -10.8 -7.4 0.2 PMI 51.4 50.6 51.2 52.7 55.3 54.5 51.8 27.4 30.8 47.2 46.0 52.0 56.8 58.9 Core sector -5.1 -5.5 0.7 3.1 2.2 6.4 -8.6 -37.9 -21.4 -12.4 -8.0 -7.3 -0.8 WPI 0.3 0.0 0.6 2.8 3.5 2.3 0.4 -1.6 -3.4 -1.8 -0.2 0.4 1.3 1.5 CPI 4.0 4.6 5.5 7.4 7.6 6.6 5.8 7.2 6.3 6.2 6.7 6.7 7.3 7.6 Money Supply 9.7 10.6 9.8 10.4 11.2 10.2 8.8 10.7 11.7 12.3 13.2 12.6 12.2 11.6 Deposit 9.4 10.3 9.7 10.1 11.2 10.0 7.9 9.8 10.7 11.0 12.0 10.9 10.5 10.1 Credit 8.8 8.9 8.0 7.1 8.3 7.5 6.2 6.7 6.2 6.2 6.3 5.5 5.1 5.1 Exports -6.6 -1.6 -0.3 -1.8 -1.7 2.9 -34.6 -60.3 -36.5 -12.4 -10.2 -12.7 6.0 -5.1 Imports -12.0 -15.0 -12.7 -8.8 -0.8 2.5 -28.7 -58.6 -51.0 -47.6 -28.4 -26.0 -19.6 -11.5 Trade deficit(USD Bn) -21.9 -34.7 -31.0 -22.4 0.8 1.3 -11.4 -55.9 -79.5 -105.2 -64.0 -51.2 -76.6 -25.9 Net FDI (USD Bn) 2.0 2.6 2.8 4.3 5.3 2.7 4.0 0.2 0.2 -0.8 3.2 17.7 2.4 FII (USD Bn) 2.2 2.7 6.0 -0.5 1.7 -1.5 -15.0 -1.8 -0.4 3.3 0.6 6.8 -0.3 ECB (USD Bn) 4.9 3.4 2.1 2.1 8.4 4.2 7.4 1.0 1.5 1.0 2.1 1.8 5.2 Dollar-Rupee 71.4 71.1 71.5 71.2 71.3 71.5 74.4 76.2 75.7 75.7 75.0 74.6 73.5 73.5 FOREX Reserves (USD Bn) 433.6 442.6 451.1 457.5 471.3 481.5 475.6 479.5 493.5 506.8 534.6 541.4 542.0 560.7 NRI Deposits (USD Bn) 132.9 133.7 132.7 133.1 133.6 132.5 130.6 129.3 131.1 132.7 135.1 137.8
Quarterly Economic Indicators
Balance of Payment (USD Bn) Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Exports 83.4 83.4 83.1 87.4 82.7 80.0 81.2 76.5 52.3 Imports 129.1 133.4 132.4 122.6 129.5 119.6 117.3 111.6 62.3 Trade deficit -45.8 -50.0 -49.3 -35.2 -46.8 -39.6 -36.0 -35.0 -10.0 Net Invisibles 29.9 31.0 31.5 30.6 31.8 32.1 33.4 35.6 29.8 CAD -15.8 -19.1 -17.8 -4.6 -15.0 -7.6 -2.6 0.6 19.8 CAD (% of GDP) -2.3 -2.9 -2.7 -0.7 -2.1 -0.9 -0.4 0.1 3.9 Capital Account 4.8 16.6 13.8 19.2 28.6 13.6 23.6 17.4 0.6 BoP -11.3 -1.9 -4.3 14.2 14.0 5.1 21.6 18.8 19.8
GDP and its Components (YoY, %) Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Agriculture & allied activities 3.8 2.5 2.0 1.6 3.0 3.5 3.6 5.9 3.4 Industry 7.8 4.7 4.4 1.4 3.8 -0.2 -0.4 0.0 -33.8 Mining & Quarrying -7.3 -7.0 -4.4 -4.8 4.7 -1.1 2.2 5.2 -23.3 Manufacturing 10.7 5.6 5.2 2.1 3.0 -0.6 -0.8 -1.4 -39.3 Electricity, Gas & Water Supply 7.9 9.9 9.5 5.5 8.8 3.9 -0.7 4.5 -7.0 Services 7.3 7.2 7.3 8.3 5.5 6.1 4.9 3.5 -24.3 Construction 6.4 5.2 6.6 6.0 5.2 2.6 0.0 -2.2 -50.3 Trade, Hotel, Transport and Communications 8.5 7.8 7.8 6.9 3.5 4.1 4.3 2.6 -47.0 Finance, Insurance, Real-Estate & Business Services 6.0 6.5 6.5 8.7 6.0 6.0 3.3 2.4 -5.3 Community, Social & Personal Services 8.8 8.9 8.1 11.6 7.7 10.9 10.9 10.1 -10.3 GDP at FC 6.9 6.1 5.6 5.6 4.8 4.3 3.5 3.0 -22.8
44 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 45 Annual Economic Indicators and Forecasts
Indicators Units FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Real GDP/GVA growth % 5.4 6.1 7.2 8.0 8.0 6.6 6.0 3.9 -6-7 8-10
Agriculture % 1.5 5.6 -0.2 0.6 6.8 5.9 2.4 4.0 4.2 3.5-4.0
Industry % 4.5 4.2 8.1 11.9 8.4 6.8 4.5 0.8 -11.6 12-14
Services % 7.0 6.9 9.0 8.6 8.1 7.8 7.7 6.4 -7.9 11-13
Real GDP ` Bn 85463 90636 97121 104919 113190 121042 128031 133011 123700 136070
Real GDP US$ Bn 1571 1499 1588 1603 1687 1878 1844 1887 1672 1890
Nominal GDP ` Bn 99440 112335 124680 137719 153624 170950 189712 203398 184940 208104
Nominal GDP US$ Bn 13.8 13.0 11.0 10.5 11.5 11.3 11.0 7.2 -9.1 12.5
WPI (Average) % 1828 1858 2039 2104 2290 2652 2714 2885 2499 2890
CPI (Average) 10.2 9.5 6.4 4.9 4.5 3.6 3.4 4.7 4.5-5 3.3-3.7
Money Supply % 13.6 13.5 12.0 10.3 7.3 9.6 10.6 10.5 '11-12 '11-12
CRR % 4.00 4.00 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Repo rate % 7.50 8.00 7.50 6.75 6.25 6.00 6.25 5.15 4.0 3.5-3.75
Reverse repo rate % 6.50 7.00 6.50 5.75 5.75 5.75 6.00 4.90 3.35 3-3.15
Bank Deposit growth % 14.2 14.6 12.1 9.7 11.2 6.2 9.6 9.5 '10-11 '11-12
Bank Credit growth % 14.1 13.5 12.5 10.7 4.7 9.8 13.0 8.0 '6-7 '10-11
Centre Fiscal Deficit ` Bn 5209 5245 5107 5328 5356 5911 6344 7119 13316 8182
Centre Fiscal Deficit % of GDP 5.2 4.6 4.1 3.9 3.5 3.5 3.4 3.5 8.0 4.0
State Fiscal Deficit % of GDP 2.0 2.2 2.6 3.1 3.5 2.4 2.9 3.1 4.0 3.5
Consolidated Fiscal Deficit % of GDP 6.9 7.1 6.6 7.0 7.0 5.9 6.3 6.6 12.0 7.5
Exports US$ Bn 306.6 318.6 316.7 266.4 280.1 309.0 337.2 320.4 278.8 320.6
YoY Growth % -1.0 3.9 -0.6 -15.9 5.2 10.3 9.1 -5.0 -13.0 15.0
Imports US$ Bn 502.2 466.2 460.9 396.4 392.6 469.0 517.5 477.9 358.5 430.1
YoY Growth % 0.5 -7.2 -1.1 -14.0 -1.0 19.5 10.3 -7.6 -25.0 20.0
Trade Balance US$ Bn -195.6 -147.6 -144.2 -130.1 -112.4 -160.0 -180.3 -157.5 -79.7 -109.6
Net Invisibles US$ Bn 107.5 115.2 116.2 107.9 97.1 111.3 123.0 132.8 106.9 115.0
Current Account Deficit US$ Bn -88.2 -32.4 -27.9 -22.2 -15.3 -48.7 -57.3 -24.7 27.2 5.4
CAD (% of GDP) % -4.7 -1.7 -1.4 -1.1 -0.7 -1.8 -2.1 -0.9 1.1 0.2
Capital Account Balance US$ Bn 89.3 48.8 90.0 41.1 36.5 91.4 54.4 83.2 35.5 65.5
Dollar-Rupee (Average) 54.4 60.5 61.2 65.5 67.1 64.5 69.9 70.5 72-76 70-75
Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research
44 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 45 7.6 8.7 7.4 0.2 2.1 0.5 1.7 3.3 -1.0 17.8 12.7 38.5 32.8 50.8 10.7 22.0 29.7 20.0 27.5 19.6 43.5 23.3 13.0 25.5 19.1 18.0 FY21E 8.8 8.9 1.9 7.0 6.2 5.7 ROCE (%) -3.3 16.6 17.8 49.9 30.5 34.9 11.2 16.6 32.3 23.5 66.2 24.1 37.8 23.6 22.9 34.1 25.2 10.7 15.3 13.7 FY20E 7.1 8.3 1.1 -3.0 -7.5 -5.5 -5.1 19.6 13.2 51.7 46.3 30.4 11.4 21.2 26.7 19.5 17.3 19.8 81.7 22.5 11.4 13.5 10.5 19.5 17.4 -21.9 FY21E 8.9 8.3 5.1 8.1 8.2 ROE (%) 20.0 18.8 51.2 32.2 32.1 11.9 17.2 28.3 25.6 86.4 23.8 23.4 10.3 22.2 25.9 20.9 10.8 14.2 -14.6 -11.2 102.9 FY20E 9.7 6.7 29.9 15.9 29.9 34.4 31.1 29.1 21.4 10.4 19.9 43.2 14.1 24.6 44.4 52.1 11.7 70.8 51.7 15.3 38.5 58.4 42.8 35.8 19.4 167.9 FY21E 9.0 5.1 34.7 14.4 35.1 47.2 32.8 28.4 25.9 13.5 17.4 51.6 12.7 29.3 50.0 59.4 13.6 49.6 38.7 15.5 55.9 14.9 24.3 23.9 19.8 27.6 EV/EBITDA (x) EV/EBITDA FY20E
8.5 4.8 4.1 1.5 9.0 3.2 3.9 3.5 3.9 2.3 0.9 3.9 5.3 4.5 4.0 24.0 21.8 13.6 10.6 12.0 64.7 16.0 28.0 FY21E
P/B (x) 9.2 5.4 4.4 1.6 4.2 4.5 3.7 4.2 2.4 0.8 4.3 4.2 4.5 4.8 26.7 19.4 14.9 10.0 57.3 13.6 88.7 17.5 27.9 FY20E
36.5 46.4 47.1 44.9 36.4 21.0 42.5 12.1 20.2 61.3 17.8 47.0 53.4 79.2 20.1 43.0 20.1 23.0 -28.5 -95.7 118.4 268.2 430.2 FY21E
P/E (x) -4.4 29.0 52.2 46.5 60.2 36.5 17.6 58.0 14.9 17.5 66.3 15.3 50.1 58.1 86.2 23.7 78.8 45.9 20.7 51.7 54.3 33.8 107.9 FY20E
3.7 0.5 8.2 6.7 8.9 8.9 6.6 2.7 12.6 27.9 36.3 22.8 17.7 47.1 -20.5 -16.5 -13.5 -13.7 -33.4 -84.7 -59.8 -87.4 FY21E -154.1
9.4 9.6 0.2 0.0 1.7 5.1 4.7 -5.7 -3.1 22.5 17.7 10.8 22.5 23.7 -23.0 -12.2 -16.6 -34.5 -24.5 -57.6 -12.7 -79.7 -58.5 FY20E EPS Growth (%) EPS Growth
8 9 1 -6 -1 32 34 76 54 15 35 11 15 10 35 11 16 10 61 192 152 225 152 FY21E
8 7 9 2 9 40 30 59 64 13 32 12 14 30 17 15 24 41 EPS ( ` ) -39 191 176 206 148 FY20E 362 540 -221 4,484 9,194 2,171 4,185 2,268 1,289 7,276 FY21E -1,632 -3,682 -2,799 10,886 18,163 58,065 44,103 81,612 16,855 21,651 41,808 10,109 16,810 30,359 -18,478 1,31,711 ` mn) 339 493 PAT ( 5,643 8,165 2,599 3,136 1,848 3,203 1,228 5,177 4,282 4,948 FY20E -1,452 10,500 14,196 57,756 51,000 69,350 15,479 19,882 35,509 15,176 15,776 29,559 -91,994 1,52,682 682 6,906 8,195 2,481 6,530 1,796 4,550 4,983 6,185 1,133 9,472 FY21E 10,038 15,408 14,006 25,293 70,657 44,227 20,006 32,564 73,539 16,702 24,664 39,592 1,13,557 1,61,537 2,43,108 ` mn) 581 7,211 6,906 2,051 8,771 5,440 2,138 6,758 FY20E EBIDTA ( 11,308 14,690 12,017 18,432 74,276 50,962 96,000 17,924 28,643 63,506 24,177 21,430 39,580 12,254 11,737 11,147 1,79,043 2,51,487 8,720 9,112 FY21E 66,378 63,596 72,835 47,356 27,132 92,617 33,373 26,285 58,041 10,732 64,641 65,263 1,31,125 6,88,264 2,61,955 4,40,077 4,55,245 1,33,129 4,72,091 1,62,693 1,04,637 2,90,070 1,33,721 24,92,091 8,258 8,344 FY20E 67,788 69,177 73,150 44,876 26,549 87,036 98,265 38,858 34,413 87,425 16,604 80,558 57,610 Net Sales ( ` mn) 1,14,440 7,16,904 2,91,115 3,82,730 4,51,361 1,22,953 4,48,655 2,00,096 2,82,891 1,72,672 26,10,680 28 37 857 164 488 426 178 891 877 900 724 564 346 611 280 268 131 232 189 45.6 17.0 ` bn 2,111 5,003 2,348 1,715 1,196 Mkt Cap ` 91 378 401 187 698 705 191 509 708 171 787 157 499 CMP 3,557 6,988 1,163 1,128 1,567 3,078 2,129 1,348 2,620 3,060 2,049 1,403 17,786 FMCG Automobiles Automobiles Automobiles FMCG FMCG FMCG Automobiles FMCG FMCG FMCG Sector Automobiles FMCG FMCG Retail FMCG FMCG Automobiles Retail Automobiles Retail Automobiles Retail Retail Automobiles Automobiles - Britannia Maruti Suzuki ogies Ceat Marico Industries Colgate Emami Bajaj Auto Hindustan Unilever Bajaj Corp Foods Tech Agro Name of company Mahindra & Mahindra Mahindra ITC Nestle Titan Company Titan Dabur India Consumer Godrej Products Tata Motors Tata Jubilant Foodworks Hero MotoCorp Hero Trent* Ashok Leyland ABFRL* V-Mart* Bharat Forge Bharat Escorts Endurance Technol Endurance Valuation Summary PhillipCapital India Coverage Universe: Valuation
46 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 47 - - 8.0 2.0 1.3 4.3 1.8 0.4 0.9 0.9 0.1 6.9 0.3 2.8 0.8 1.7 9.6 3.2 -1.6 31.2 24.3 11.3 13.2 11.2 16.4 -64.8 FY21E - - 2.0 0.8 3.6 1.8 0.4 0.2 3.6 1.6 0.1 0.3 5.5 1.0 1.9 4.0 ROCE (%) 25.2 25.8 14.2 15.3 14.5 23.2 18.8 15.3 20.5 15.0 FY20E - 7.9 8.6 7.4 1.3 6.4 5.9 8.7 5.8 8.2 1.0 7.3 -1.4 16.9 10.9 12.4 33.4 23.6 11.5 12.4 12.6 11.0 15.3 -14.4 -64.5 FY21E - 7.1 7.2 2.1 0.9 4.3 3.0 6.6 -0.3 -0.0 ROE (%) 16.4 12.9 21.8 13.5 26.8 14.9 10.3 14.0 17.0 13.4 20.1 18.6 14.8 16.9 17.4 -88.5 FY20E - 9.3 3.1 3.6 7.1 7.1 1.2 0.7 3.5 9.3 7.3 -1.8 13.6 15.7 31.5 48.1 36.5 25.2 25.5 57.2 57.2 16.8 44.9 49.3 21.0 FY21E - 6.9 3.1 9.7 7.8 4.3 1.1 1.1 3.9 9.4 7.1 15.7 11.5 37.5 50.3 23.5 15.5 23.2 49.8 10.4 36.5 12.1 30.4 34.6 15.3 EV/EBITDA (x) EV/EBITDA FY20E
3.8 2.4 6.0 1.0 1.9 1.8 1.2 1.6 0.3 5.5 0.2 1.8 0.8 3.8 5.6 3.3 7.1 1.5 1.7 4.0 3.1 17.8 11.6 13.5 FY21E
P/B (x) 4.5 2.8 7.4 1.1 2.7 2.0 1.1 1.7 0.3 5.8 0.2 1.8 0.9 4.5 5.9 3.6 7.7 1.6 2.0 4.1 3.2 20.7 12.0 14.6 FY20E
5.6 4.1 9.4 -8.6 -2.4 24.5 22.6 53.2 12.6 22.7 23.0 75.5 25.5 86.0 45.3 93.4 13.5 68.4 26.4 64.1 11.0 65.2 42.9 384.7 FY21E -131.9
P/E (x) 5.2 8.7 29.1 38.2 60.9 14.7 12.6 13.3 77.4 39.7 38.8 59.6 53.4 70.3 14.6 44.0 17.9 41.5 11.0 11.7 61.6 18.4 103.3 FY20E -322.6
2.4 8.2 5.9 -7.7 -5.4 19.1 68.9 14.3 16.7 55.9 27.5 17.9 -42.1 -54.9 -24.7 -35.8 -32.0 -35.4 -57.1 123.3 354.8 FY21E -145.1 -557.4
3.0 3.6 8.9 -6.9 23.7 22.2 58.3 25.4 10.3 84.7 50.5 45.9 11.8 17.0 40.3 13.4 88.9 -68.3 -16.1 -60.4 -17.4 134.8 FY20E -102.7 -100.1 EPS Growth (%) EPS Growth
2 7 9 3 1 4 4 -2 57 21 36 78 19 26 37 29 16 10 50 85 11 35 34 -19 -120 FY21E
6 1 4 4 4 9 -1 -0 48 12 31 35 16 64 28 16 12 11 12 42 79 17 52 26 33 EPS ( ` ) FY20E 28 -83 146 743 736 -225 1,069 8,510 1,151 3,120 5,516 3,676 5,256 1,197 2,702 FY21E -1,289 69,235 80,624 27,761 17,826 34,282 -18,409 3,12,629 1,42,881 1,69,138 1,03,828 ` mn) -6 -1 44 479 183 786 PAT ( 5,460 2,553 7,537 3,380 7,330 5,722 7,730 1,852 4,025 2,551 1,715 FY20E -1,210 79,308 59,469 16,272 27,101 72,510 31,687 2,62,573 1,44,881 475 115 791 2,354 1,758 2,628 8,516 8,971 4,409 8,085 1,697 4,724 1,369 1,701 1,642 FY21E 43,021 49,666 -18,324 5,66,255 3,46,459 1,19,314 6,87,380 2,55,903 1,80,256 1,06,466 1,58,808 ` mn) 760 108 5,494 1,030 4,159 1,314 7,531 6,867 2,533 3,699 4,960 2,069 1,805 2,198 FY20E EBIDTA ( 41,618 64,980 10,274 44,475 11,350 4,87,496 2,81,012 1,00,208 6,81,326 2,34,382 1,96,910 1,74,215 132 829 4,875 FY21E 19,763 14,946 21,269 12,932 13,033 91,030 71,880 64,182 82,922 22,035 47,600 47,100 20,106 17,774 6,63,480 3,71,439 1,54,919 2,94,699 1,90,882 2,81,116 1,58,053 1,42,832 11,02,657 121 6,523 FY20E 33,362 16,942 28,080 76,064 16,101 12,649 94,292 63,228 76,581 88,300 24,820 28,773 48,843 49,771 20,618 21,167 Net Sales ( ` mn) 5,61,863 3,32,671 1,34,997 9,80,848 2,52,062 2,02,113 2,74,510 1,27,480 6 16 99 73 29 77 44 34 63 48 1.9 643 217 516 464 252 139 ` bn 15.8 31.6 7,678 3,231 3,757 2,130 1,823 2,097 4,048 Mkt Cap ` 47 65 95 183 468 439 239 596 165 850 623 258 824 760 930 179 289 380 554 228 160 CMP 1,395 1,898 2,186 2,251 1,156 Retail Banks Banks Sector Banks Retail Banks Banks Retail Banks Paints/Tiles Banks Paints/Tiles Banks Paints/Tiles Banks Con Elec Con NBFC NBFC Con Elec Con Con Elec Con Con Elec Con Con Elec Con Con Elec Con Con Elec Con Con Elec Con Consumer Oth Consumer Shoppers Stop* HDFC Bank ICICI Bank Name of company Kotak Mahindra Bank Mahindra Kotak Thangamayil Thangamayil State Bank ofState India AXIS Bank KDDL Indusind Bank Asian Paints Bank of Baroda Kajaria Ceramics Kajaria Indian Bank Somany Ceramics DCB Bank Havells India HDFC Limited Muthoot Finance Voltas Polycab V‐Guard Industries V‐Guard Finolex Cables Cables Finolex KEI Industries Bajaj Electricals Orient Electric Ltd Indo Count Industries Indo Count Valuation Summary PhillipCapital India Coverage Universe: Valuation
46 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 47 ------1.6 3.8 4.8 1.4 4.1 2.5 2.9 0.3 1.7 3.3 5.4 6.0 5.2 7.4 10.0 14.0 13.0 FY21E ------5.1 6.6 1.2 5.6 6.8 2.4 1.2 2.4 6.2 7.8 ROCE (%) -3.9 13.5 12.0 11.1 16.4 17.4 10.3 FY20E - - 1.4 3.9 6.9 0.3 9.3 6.4 4.1 3.2 4.7 -0.9 -2.7 -3.5 -2.3 11.4 13.9 15.6 10.1 23.8 22.1 11.2 10.8 21.6 15.4 16.6 FY21E - - 8.8 6.9 8.1 0.0 7.0 1.4 7.7 3.0 ROE (%) 19.6 14.8 15.3 13.9 13.4 28.8 19.0 14.7 16.9 20.5 14.3 13.1 10.7 18.1 16.9 12.9 FY20E - - - 5.8 3.8 8.2 3.6 7.0 5.4 7.9 5.6 1.4 3.1 3.9 7.9 2.2 9.7 11.0 10.3 15.1 15.2 18.2 55.6 10.7 12.1 109.9 FY21E - - - 9.6 4.0 6.6 3.8 4.5 5.8 7.7 6.1 7.0 1.6 3.1 9.9 3.6 3.7 2.0 8.9 8.1 3.8 11.4 17.4 29.0 39.8 11.4 EV/EBITDA (x) EV/EBITDA FY20E
0.9 1.2 3.1 0.8 0.8 1.0 1.3 0.8 2.0 0.4 0.4 0.9 0.7 0.8 0.4 2.1 5.3 6.3 0.4 2.4 3.1 2.1 0.8 FY21E
P/B (x) 0.8 1.2 3.5 0.8 0.9 1.0 0.9 0.8 2.4 0.4 0.4 1.0 0.7 0.8 0.4 2.4 5.5 6.5 0.4 2.6 2.3 2.2 0.8 FY20E 5.4 9.9 9.0 1.8 8.3 7.5 11.1 23.8 20.6 21.4 40.8 38.5 22.9 82.9 31.3 14.0 15.6 18.9 46.0 56.8 -98.8 -28.9 -12.6 -17.1 266.4 155.1 FY21E P/E (x) 9.6 8.8 6.8 7.7 9.2 6.2 2.3 7.0 5.4 5.1 3.9 26.3 12.0 21.6 49.3 51.5 40.9 16.6 42.0 43.1 60.6 15.1 14.4 13.6 17.2 FY20E 0.8 2.3 6.3 7.7 -7.6 10.4 26.4 29.3 26.2 37.9 -20.5 -41.9 -22.1 -15.9 -81.5 -27.7 -27.6 -49.3 -60.9 -27.9 -62.7 -93.1 FY21E -109.7 -148.8 -129.6 5.6 1.2 2.6 -2.4 -1.2 -6.6 58.8 19.5 13.8 36.0 41.4 64.6 59.0 -37.8 -11.9 -26.4 -20.2 -41.8 -19.5 -92.0 -27.0 -14.6 -73.5 -14.5 -37.2 FY20E -100.1 EPS Growth (%) EPS Growth 9 7 0 9 7 3 7 7 2 -5 -8 -3 -1 88 15 11 60 18 32 33 63 49 17 12 100 128 FY21E 7 0 7 1 4 7 3 7 57 13 18 48 12 18 77 45 26 59 68 33 18 16 20 29 EPS ( ` ) 110 152 FY20E 256 872 -156 9,133 8,418 2,026 6,008 5,734 1,466 7,409 FY21E -6,291 -8,556 22,199 12,105 23,508 30,356 28,814 15,148 42,560 15,061 13,416 69,296 16,582 49,095 17,612 -14,126 ` mn) 2 537 810 PAT ( 9,064 1,382 2,804 4,158 3,752 FY20E 25,018 64,716 10,960 40,430 24,018 36,988 14,803 28,924 32,925 10,005 11,937 12,624 95,490 11,859 17,938 68,050 47,240 1,07,220 877 3,280 3,829 8,145 7,814 1,911 5,642 FY21E 64,102 27,883 44,619 37,803 36,578 72,352 24,598 44,755 60,488 22,802 22,152 17,765 25,513 75,080 1,43,401 1,13,439 1,54,817 1,12,754 1,42,717 ` mn) 4,892 4,196 1,691 5,931 5,312 6,099 FY20E EBIDTA ( 62,336 25,267 42,217 60,019 33,982 78,539 22,449 51,633 22,387 20,241 17,034 15,510 27,301 88,470 1,74,631 1,43,060 1,02,157 1,63,290 1,18,730 2,06,870 4,608 FY21E 82,347 42,149 50,673 82,289 52,201 21,382 62,847 77,021 35,314 16,530 99,308 21,673 12,748 96,085 55,468 11,579 3,59,752 5,69,951 1,34,814 1,67,643 7,04,600 7,46,278 12,30,372 10,87,999 14,30,627 4,924 FY20E 79,972 38,202 48,215 51,130 18,322 51,891 84,718 36,079 21,066 94,035 21,434 11,932 73,151 12,398 Net Sales ( ` mn) 1,16,992 3,69,175 6,16,642 1,36,838 1,29,211 1,85,610 7,18,320 8,44,470 13,98,167 11,81,440 14,54,524 3 82 68 70 15 12 622 247 490 288 162 286 196 247 137 179 615 517 179 498 227 258 929 816 420 ` bn 1,581 Mkt Cap ` 94 43 37 19 45 543 975 218 352 322 159 242 162 178 241 293 106 220 338 113 CMP 1,064 1,353 2,428 1,126 1,399 1,073 Metals NBFC Sector Metals NBFC NBFC Metals NBFC Metals NBFC Metals NBFC Metals NBFC NBFC Metals NBFC NBFC Cap Goods Cap NBFC Cap Goods Cap Cap Goods Cap NBFC Cap Goods Cap Metals Metals Metals Tata Steel Tata Shriram Transport Fina Transport Shriram Name of company Hindalco Cholamandalam Inves LIC Housing Finance NMDC Mah & Finance Jindal Steel & power Jindal Steel Manappuram Finance Manappuram SAIL Indiabulls Housing Fin NALCO Shriram City Union Fin Shriram Repco Home Finance Home Finance Repco Pennar Inds. Pennar ICICI Lombard HDFC AMC Larsen & Toubro Larsen & Nippon Life AMC Siemens ABB India Magma Fincorp Bharat Electronics Bharat Hindustan Zinc JSW Steel JSW Vedanta Valuation Summary PhillipCapital India Coverage Universe: Valuation
48 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 49 7.8 2.3 7.5 5.9 9.2 2.3 1.4 7.3 6.9 3.6 6.4 9.4 6.0 -0.8 -0.2 11.9 11.2 10.6 10.1 17.9 10.3 13.2 13.2 31.4 25.0 17.4 FY21E 3.1 8.4 2.9 4.4 9.2 8.3 9.6 ROCE (%) -1.3 -6.8 12.0 13.1 10.4 15.2 15.1 11.4 14.7 21.3 14.0 19.4 16.7 10.7 34.3 25.5 20.6 11.8 12.1 FY20E 8.1 0.8 8.0 6.5 0.4 8.2 6.7 2.8 7.6 5.0 -2.1 -0.6 -4.6 13.5 14.3 13.0 10.0 10.2 15.4 11.4 13.9 13.3 32.9 24.2 18.2 10.1 FY21E 2.1 9.3 1.2 3.8 9.3 6.1 8.7 -2.9 ROE (%) 11.9 14.7 16.1 18.1 20.4 14.2 15.4 20.9 18.2 20.5 17.1 13.2 37.5 25.5 21.5 14.9 11.7 -13.1 FY20E 5.3 9.5 6.4 8.2 6.9 4.8 6.1 9.4 15.8 13.0 24.0 26.7 17.5 10.9 10.7 13.8 15.4 41.9 24.1 25.1 18.8 12.7 18.2 27.7 13.4 -38.1 FY21E 8.5 5.2 8.9 4.7 6.8 6.9 3.6 4.4 7.0 8.8 10.5 24.3 24.0 14.1 10.0 13.2 11.3 20.0 24.1 20.6 13.8 16.9 23.5 12.8 -14.3 -34.9 EV/EBITDA (x) EV/EBITDA FY20E 0.4 1.9 3.3 3.1 4.7 2.8 3.0 1.1 1.8 1.9 2.2 2.0 0.9 1.1 0.5 2.6 0.9 2.2 6.8 0.8 3.7 3.4 6.1 2.0 2.6 10.8 FY21E P/B (x) 0.4 1.9 3.4 3.3 5.0 3.2 3.5 1.4 2.0 2.0 2.4 2.2 0.9 1.3 0.5 2.5 1.0 2.2 7.3 0.9 4.4 3.6 6.7 2.1 2.8 11.8 FY20E 8.6 24.1 39.5 72.3 19.4 23.2 11.0 17.9 12.2 19.1 14.3 10.7 32.2 32.9 28.2 29.8 20.3 44.6 61.0 40.9 32.3 -17.8 -88.7 -56.9 248.3 255.4 FY21E P/E (x) 9.7 9.5 7.3 7.6 88.7 22.6 35.6 31.0 17.8 17.0 12.8 13.3 10.6 75.5 13.0 23.9 31.6 28.9 14.2 20.5 24.3 57.2 24.5 23.5 -12.9 -18.8 FY20E 2.3 1.3 -6.3 -9.8 -8.2 -4.1 -6.2 -27.5 -64.3 -57.1 -26.5 -12.4 -28.2 -22.0 -30.4 -26.0 -70.5 -15.3 -67.0 -28.8 -25.9 -52.2 -45.5 -40.2 -27.2 FY21E -114.6 7.4 2.7 9.3 -2.9 -9.4 83.4 36.2 21.4 30.6 26.7 32.5 24.3 13.0 11.5 46.9 -37.8 -12.9 -12.9 -22.2 -10.1 538.3 234.8 127.4 FY20E -177.3 -158.7 -879.5 EPS Growth (%) EPS Growth 4 9 5 6 1 3 6 6 -2 -0 -2 21 21 27 18 27 18 22 41 20 83 40 41 53 110 401 FY21E 7 8 2 3 4 -2 -5 12 23 63 24 20 12 31 26 29 48 28 86 39 13 41 11 73 EPS ( ` ) 201 428 FY20E -96 801 189 540 495 342 -454 5,896 2,074 2,547 4,644 1,969 3,992 2,051 3,815 2,132 3,958 5,402 FY21E -6,137 31,649 14,481 12,519 10,033 3,10,299 1,71,454 1,12,382 ` mn) 639 654 759 668 716 PAT ( 2,240 6,153 4,834 2,825 5,057 2,680 4,781 2,855 4,892 3,064 5,349 6,377 FY20E -8,466 -1,375 58,105 15,441 20,950 13,775 3,23,400 1,67,640 1,10,940 684 646 5,833 9,751 3,541 3,991 3,692 3,097 6,524 4,981 5,864 6,114 1,445 1,505 1,164 FY21E -2,298 17,360 10,499 13,234 83,883 29,997 33,615 17,511 4,03,635 2,42,035 1,80,126 ` mn) 781 -863 5,863 4,062 5,157 3,951 4,044 7,980 7,276 5,948 7,093 1,929 1,994 1,906 FY20E -6,676 EBIDTA ( 21,060 12,134 11,190 15,630 92,836 37,591 45,970 20,983 4,21,100 2,22,680 1,66,930 8,799 FY21E 97,221 47,387 48,594 51,516 19,241 19,545 27,615 37,346 25,659 52,992 31,688 29,404 10,257 10,495 21,286 2,15,697 1,15,185 1,14,180 9,61,464 7,26,232 4,11,219 1,27,320 2,31,789 1,27,998 15,73,898 8,875 FY20E 96,740 51,577 57,313 58,016 21,576 18,439 31,064 43,641 30,952 51,864 34,225 31,587 12,283 11,024 25,572 Net Sales ( ` mn) 2,14,861 1,19,654 1,26,760 9,07,910 7,06,780 4,21,248 1,28,684 2,71,036 1,53,431 15,69,490 8 6 90 46 46 37 46 41 57 48 47 26 16 12 109 193 142 101 150 883 513 324 ` bn 4,855 2,277 1,411 10,222 Mkt Cap ` 31 89 73 34 87 512 843 350 202 299 347 309 156 355 101 216 186 839 258 CMP 1,031 1,939 2,724 1,140 4,890 1,726 24,465 Cement Cap Goods Cap Cap Goods Cap Sector Cement Cap Goods Cap Cap Goods Cap Cement Cap Goods Cap Cement Cap Goods Cap Cement Cap Goods Cap Cement Cap Goods Cap Cement Cap Goods Cap Cement Cap Goods Cap IT Services IT Cap Goods Cap IT Services IT IT Services IT Cement Cement Cement Cement Dalmia Bharat BHEL Cummins India Name of company JK Cement JK Thermax KEC International HeidelbergCement In HeidelbergCement Kalpataru power Kalpataru Star Cement Star Engineers India JK Lakshmi Cement Lakshmi JK Bharat Dynamics Bharat India Cement Cochin Shipyard Cochin Sanghi Cement GE T&D GE Mangalam Cement Praj Inds. Praj Tata Consultancy Tata VA Tech Wabag Tech VA Infosys Technologies HCL Technologies HCL Ultratech Cement Ultratech Shree Cement Shree Ambuja Cement ACC
Valuation Summary PhillipCapital India Coverage Universe: Valuation
48 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 49 - - - 8.8 9.8 9.4 8.4 8.9 2.6 15.0 11.1 10.9 18.1 22.9 21.0 10.9 19.7 22.7 18.9 13.7 18.2 13.0 17.4 13.2 10.2 13.1 FY21E - - - 9.8 6.5 8.6 9.2 7.7 5.1 ROCE (%) 16.0 12.7 17.5 25.8 30.4 18.5 14.8 19.3 13.3 12.3 18.8 19.7 20.4 10.1 14.4 16.6 14.6 FY20E 8.0 6.0 -1.6 15.1 13.1 15.1 17.0 24.9 19.8 16.9 20.5 23.7 21.4 13.8 11.1 10.3 15.3 19.5 12.3 18.4 10.5 13.7 13.5 20.8 12.5 12.5 FY21E 7.9 8.9 9.8 -3.2 ROE (%) 17.4 11.6 18.5 16.9 28.1 29.6 10.6 20.0 16.6 18.8 14.3 11.6 14.6 20.7 19.4 19.7 20.3 15.5 23.4 17.7 14.9 10.8 FY20E 9.4 8.2 9.8 6.8 4.6 8.3 4.5 7.5 16.0 15.8 25.4 15.3 24.6 19.0 14.4 18.0 18.2 17.8 14.2 12.8 12.1 13.2 14.5 18.6 35.3 15.1 FY21E 9.5 8.4 5.3 4.1 8.6 3.7 3.2 15.7 32.5 14.6 10.8 27.8 16.7 18.5 21.1 30.6 18.6 17.0 13.0 13.8 13.7 17.8 19.7 51.6 19.3 17.8 EV/EBITDA (x) EV/EBITDA FY20E 3.3 6.6 3.1 2.5 8.6 5.4 3.9 6.0 6.0 6.7 3.3 1.8 1.9 2.5 3.9 1.5 3.9 0.5 2.5 2.2 4.7 0.7 3.5 0.6 3.0 10.7 FY21E P/B (x) 3.6 7.5 3.5 2.9 6.4 4.3 7.2 7.7 6.3 3.7 2.0 2.1 3.0 4.3 1.7 4.2 0.5 2.7 2.5 5.3 0.8 3.8 0.6 3.2 10.5 12.9 FY20E 8.3 5.6 21.5 50.8 20.8 14.6 34.3 27.3 22.4 29.3 25.5 31.1 23.7 16.3 18.6 16.5 20.0 13.4 21.2 23.5 16.9 35.0 51.3 27.7 37.2 -40.0 FY21E P/E (x) 9.6 6.5 5.3 5.9 20.8 67.4 18.7 17.1 37.4 21.5 29.8 36.3 46.0 33.5 26.0 17.4 14.3 14.3 22.3 20.9 30.2 17.0 25.1 72.7 38.7 41.8 FY20E 8.9 7.6 9.7 7.0 0.8 -3.0 -1.5 -4.9 32.7 17.5 32.9 23.9 80.5 11.4 28.4 41.8 39.9 12.3 -10.0 -21.3 -23.4 -12.9 -27.9 -21.6 -28.2 FY21E -114.6 0.3 6.5 9.4 0.2 6.7 6.3 -4.6 -4.4 -2.1 14.0 16.2 31.0 18.3 20.5 41.7 13.6 74.3 19.2 22.8 -47.1 -17.0 -16.3 -23.2 -33.1 -11.2 -15.2 FY20E EPS Growth (%) EPS Growth 8 5 -3 17 42 58 95 62 19 48 86 78 49 29 26 23 23 13 62 22 17 69 13 27 24 138 FY21E 6 7 17 46 49 87 79 15 38 48 72 45 28 34 26 21 18 63 17 17 49 14 19 21 21 EPS ( ` ) 192 FY20E 9,930 6,471 7,818 4,718 3,732 8,303 2,864 7,022 3,321 3,175 2,380 3,683 FY21E -1,055 94,277 36,303 33,856 16,553 19,771 10,893 46,239 11,665 52,282 23,527 18,354 21,639 10,763 ` mn) PAT ( 7,482 8,224 6,309 6,036 4,509 3,403 7,760 3,740 6,302 4,603 4,049 2,360 3,871 7,209 9,586 FY20E 97,234 40,330 28,808 15,199 14,873 53,106 11,849 40,711 32,765 12,944 15,465 9,418 7,688 5,631 4,766 6,256 9,123 4,690 5,221 FY21E 20,685 54,086 55,727 22,909 34,691 12,471 15,160 19,440 82,630 11,115 16,863 82,666 43,383 26,571 41,033 22,707 26,051 1,27,490 ` mn) 9,218 7,198 4,930 5,959 9,991 7,643 4,871 5,856 FY20E EBIDTA ( 16,031 57,261 48,643 20,292 11,105 27,707 10,623 16,981 75,654 16,505 10,302 70,054 41,732 18,222 32,060 29,714 23,548 1,26,592 FY21E 77,961 53,784 76,887 55,155 45,994 39,515 39,301 68,859 46,340 92,608 76,024 24,687 68,305 40,162 50,361 5,87,287 3,64,030 2,56,805 1,17,947 1,54,290 1,16,210 1,26,711 3,50,583 1,92,812 1,93,554 1,61,648 FY20E 62,115 56,192 77,643 45,886 41,839 35,658 44,275 62,137 48,779 88,436 82,188 22,442 53,944 39,374 68,522 Net Sales ( ` mn) 6,10,232 3,68,677 2,30,985 1,08,786 1,38,121 1,03,972 1,18,731 3,23,252 1,74,600 1,71,320 1,51,428 88 53 44 27 40 21 42 504 837 497 570 443 177 230 279 147 135 762 141 246 803 941 602 401 ` bn 2,034 1,230 Mkt Cap ` 44 74 420 356 866 849 433 480 485 375 471 173 513 286 746 120 884 CMP 3,264 1,688 1,396 2,198 2,425 1,156 1,315 4,829 3,546 Pharma IT Services IT Sector IT Services IT Pharma IT Services IT Pharma IT Services IT IT Services IT Pharma IT Services IT Pharma IT Services IT IT Services IT Infrastructure IT Services IT Infrastructure IT Services IT Infrastructure Pharma Infrastructure Pharma Infrastructure Pharma Pharma Infrastructure Pharma Biocon Wipro Name of company Tech Mahindra Tech Aurobindo Pharma Aurobindo L&T Infotech L&T Cadila Healthcare Cadila L&T Technology Servi Technology L&T Mindtree Mindtree Ipca Laboratories NIIT Technologies NIIT Glenmark Pharma Persistent Systems Persistent Cyient Limited Cyient Adani Ports & SEZ Adani Ports Hexaware Technologies Hexaware PNC Infratech PNC Infratech Mphasis Ltd NCC Sun Pharma KNR Construction Dr Reddy's Labs. Dr Reddy's Ashoka Buildcon Ashoka Divi's Laboratories Cipla IRB Infrastructure Lupin Valuation Summary PhillipCapital India Coverage Universe: Valuation
50 GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 GROUND VIEW 51 - - - - - 9.0 2.7 3.3 6.3 5.6 7.8 4.8 8.5 8.7 1.9 8.2 4.2 17.4 14.5 13.1 34.4 23.5 11.2 13.0 17.2 FY21E - - - - - 6.9 4.2 8.0 3.8 7.2 9.1 9.0 3.3 8.4 7.7 ROCE (%) 22.4 17.3 10.4 39.0 24.0 11.9 12.4 11.3 10.9 18.8 FY20E 5.9 1.1 6.1 4.1 8.9 1.6 7.5 0.7 6.1 5.9 6.8 -3.0 12.6 11.5 11.2 23.2 24.9 15.2 16.4 17.8 19.9 19.0 22.0 16.0 10.3 FY21E 9.9 3.2 8.4 4.2 8.0 7.4 7.6 2.5 7.8 8.8 ROE (%) 12.6 17.4 27.5 33.4 18.6 10.0 18.4 21.1 14.4 25.9 14.0 20.5 10.3 15.0 13.4 FY20E Source: PhillipCapital India Research Estimates India Research PhillipCapital Source: 9.7 6.2 8.4 7.4 6.9 7.7 8.7 6.0 8.4 7.8 5.6 7.7 40.9 12.1 17.9 21.4 21.2 19.5 32.6 16.1 19.8 10.9 20.0 23.6 102.4 FY21E 7.7 7.0 9.4 3.8 8.7 6.8 8.0 6.5 9.3 9.7 5.7 8.4 51.0 13.3 23.6 13.9 22.1 21.1 30.3 12.6 15.6 18.3 16.2 15.7 EV/EBITDA (x) EV/EBITDA 185.3 FY20E 1.5 0.5 7.1 1.8 4.2 0.9 1.8 4.7 2.4 6.0 5.2 2.4 8.6 1.3 2.3 0.9 1.7 4.4 5.0 1.7 0.2 8.7 1.8 2.7 1.2 FY21E P/B (x) 1.7 0.4 2.0 5.3 0.9 2.2 6.1 2.5 6.6 6.0 2.5 9.8 1.4 2.9 0.9 2.1 4.8 5.3 1.9 0.2 9.3 1.9 2.7 1.2 12.8 FY20E 7.2 8.9 10.7 44.0 62.0 17.1 18.2 31.0 39.7 37.1 29.2 58.9 43.0 15.1 13.1 54.2 27.4 67.3 16.7 32.8 30.1 40.5 19.7 -29.8 143.0 FY21E P/E (x) 6.5 8.9 12.7 12.6 73.2 25.4 19.4 21.1 35.9 24.9 36.9 29.4 17.6 37.8 18.0 24.9 11.1 17.8 23.3 51.4 12.6 22.0 20.2 12.3 119.5 FY20E 6.5 0.9 -9.1 -0.7 18.2 18.1 48.1 15.6 19.1 90.4 99.5 -71.3 -37.3 -70.1 -12.2 -79.4 -14.9 -23.6 -24.6 -72.7 -16.4 -27.1 -50.2 -37.6 FY21E -170.6 4.7 -1.2 -2.0 -6.1 11.3 32.8 47.7 26.4 52.9 18.5 52.8 -22.1 -63.4 -45.1 -47.4 -17.0 -36.3 -30.4 -35.7 -14.5 -17.5 -19.5 -20.1 338.7 343.2 FY20E EPS Growth (%) EPS Growth 1 3 8 7 2 8 8 6 1 8 -2 40 39 14 43 26 10 31 29 15 15 16 16 166 219 FY21E 4 3 7 4 9 4 8 3 9 34 33 10 41 28 17 31 10 32 10 20 21 32 25 EPS ( ` ) 144 217 FY20E 1.0 237 954 270 908 237 421 123 -309 5,927 6,326 5,325 6,503 2,931 2,004 2,880 1,153 1,745 5,545 2,478 1,501 FY21E 30,385 12,646 10,762 10,024 ` mn) 0.5 681 644 438 901 477 551 452 PAT ( 4,566 8,414 5,361 6,445 3,373 1,683 1,004 3,384 1,531 2,088 7,608 4,974 2,405 FY20E 25,710 11,872 11,837 10,085 2.1 2,353 8,971 1,866 1,762 2,244 9,520 3,863 6,600 1,966 2,312 5,095 1,459 2,126 1,183 3,223 8,829 6,180 5,785 FY21E 81,094 19,905 20,104 18,732 10,800 10,427 ` mn) 1.3 2,795 7,178 1,530 2,956 9,773 2,983 9,020 4,139 5,035 1,307 3,134 5,153 1,582 2,405 1,663 1,671 9,672 6,771 FY20E EBIDTA ( 71,040 18,532 19,644 14,584 16,748 10,697 13.0 9,853 5,686 FY21E 21,391 41,732 16,964 25,174 74,930 58,879 51,621 16,408 37,929 97,118 12,288 10,667 38,745 30,645 24,299 11,665 19,323 10,241 32,249 3,89,874 1,42,634 1,21,431 10.2 5,671 FY20E 22,517 33,054 18,849 28,607 72,094 64,737 46,207 21,185 40,931 10,289 73,462 10,491 12,920 71,833 34,711 27,178 17,202 21,753 19,411 35,664 Net Sales ( ` mn) 3,57,560 1,31,367 1,22,060 9 9 9 4 16 77 16 30 12 13 77 29 19 29 326 367 231 306 251 198 190 126 274 167 112 ` bn Mkt Cap ` 50 54 98 71 27 426 244 786 186 412 176 123 103 223 398 251 460 655 307 CMP 2,422 5,159 1,136 6,395 1,227 1,088 Agri Input Infrastructure Sector Agri Input Infrastructure Agri Input Infrastructure Agri Input Logistics Sp Chemicals Sp Chemicals Logistics Sp Chemicals Sp Chemicals Logistics Sp Chemicals Logistics Sp Chemicals Logistics Logistics Logistics Logistics Real Estate Real Real Estate Real Real Estate Real Real Estate Real UPL Sadbhav Engineering Name of company PI Industries Ahluwalia Contracts Coromandel Inter Coromandel ITD Cementation ITD Cementation Chambal Fertiliser Container Corp Of Corp India Container SRF Aarti Industries VRL Logistics Logistics VRL Atul Vinati Organics Allcargo Logistics Allcargo Camlin Fine Sciences Fine Camlin Gateway Distriparks Camlin Fine Sciences Fine Camlin Aegis Logistics Aegis Logistics Mahindra Logistics Ltd Logistics Mahindra Transport Corp of Corp India Transport Navkar Godrej Properties Godrej Oberoi Realty Oberoi Phoenix Milla Shobha Valuation Summary PhillipCapital India Coverage Universe: Valuation
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