1

Note To Reader
Dear Reader,

Big Data and analytics are the in-demand sectors at the moment. Industry estimates suggests that in 2009 alone enough data was created to fill stack of DVDs to reach to the moon and back, and data is only expected to grow further. With the increasing volume, velocity and variety in the data, the ability of organizations to derive meaningful insights from this knowledge base is getting diminished. In a tough economic environment, the ability to make smart decisions will be the difference between being a leader versus being a laggard. This is where Data Analytics makes its mark.
Harnessing Big Data in conjunction with data analytics capabilities provides an opportunity for industry leaders to consolidate positions, and for the laggards to regain lost ground. The ability to model and predict business outcomes with a certain degree of confidence is a concept that has always fascinated decision makers, but the concept is seemingly becoming more accessible and meaningful. Especially in an environment where storage costs have diminished tremendously while data generation has witnessed explosive growth and businesses are connecting with their consumers in a new and increasingly digital world. However, our interactions with industry professionals and the analysis of available secondary data seems to suggest that the offshore data analytics services sector is still in a nascent stage of development - with significant headroom for growth. The absence of clear market leaders offers in its wake tremendous growth opportunities as well as hurdles that are inherent in any industry where the concept is still seeking broad-base acceptance. Keeping the above in mind, we thought a report on this segment would be timely and topical. In this report, we have tried to capture insights and trends in the data analytics services market. We hope that you will find this report useful and look forward to your feedback and continued patronage. Warm Regards, Amit Singh Executive Director Avendus Capital

Disclaimer
This note is distributed by Avendus on a strictly confidential basis. It has been prepared exclusively for benefit and internal use of recipient and does not carry any right of reproduction or disclosure. The information and projections contained herein can not be disclosed, reproduced or used in whole or in part without express prior written permission of Avendus

The information contained in this note has not been independently verified by Avendus. No representation or warranty is given by Avendus as to the achievement or reasonableness or completeness of any idea and/or assumptions presented here. None of the company or its respective affiliates shall have any liability (including liability to any person by reason of negligence or negligent misstatement) for any loss arising from use of this note and its contents (express or implied)

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Executive Summary

Global knowledge services outsourcing market is estimated to grow at a CAGR of 24% between 2010 to 2015 to reach USD 7.9 Bn. India will remain the largest provider of these services with ~70% market share during this period Global data analytics outsourcing, a subset of the global knowledge services outsourcing market, represented a USD ~500-5501 Mn market opportunity in 2010, out of which India delivered USD 375 Mn

High Growth Market

Though the market has been around since the early 2000s, the exponential growth in data generation, significant decrease in data storage cost and increased need for companies to make decisions based on actionable insights, has increased the demand for data analytics
One of the earliest adopters of knowledge services, the financial services industry accounts for the highest share of the analytics industry BFSI, retail, health and pharma sectors are the most penetrated verticals with ~75% of the vendors catering to these segments 1 Greater availability of transactional data in financial services, retail and CPG compared to other verticals is driving the analytics demand within these segments

BFSI, Retail And Health Driving Vertical Demand

Huge Talent Supply Gap Anticipated

Estimates suggests a talent shortage of 140,000-190,000 professionals with analytical capabilities in the US by 2018, representing ~40% of the total demand This talent supply gap expected to boost demand for analytics outsourcing services, and represents a USD 20 Bn offshore opportunity1 Highly fragmented market large number of vendors due to absence of critical mass and most vendors with revenues less than USD 10 Mn1 Large proportion of vendors with India presence talent shortage coupled with the cost advantage has made offshoring a requirement Lack of scaled up vendors indicates few inorganic growth opportunities with significant scale in this space Fragmented internal analytics practices at end clients are being mirrored by service providers as well Lack of established industry leaders, which should lead to consolidation as players attempt to establish such a position At an early stage of its industry life cycle, analytics vendors reflect strong growth opportunities and significant upside potential Multiple adjacent supplier categories and lack of scaled players will make pure-play providers more likely to emerge as market leaders Fragmented market and lack of industry leaders provide an opportunity for analytics services vendors to adopt an acquire a core and then grow strategy IT / BPO vendors are trying to reposition themselves as transformational partners to clients using analytics as a beachhead With increased demand for assets of reasonable scale, analytics services providers can command a valuation of 2.0x 4.0x EV / Revenue multiple, with scaled up players being on the higher end of the spectrum

Fragmented Business

No Established Leadership

Attractive Investment

Opportunity

Source: (1) Avendus Estimates

Knowledge Services Outsourcing | One Of The Fastest Growing BPO Segments

Knowledge Services Outsourcing Market
Global Market (USD Bn)1 7.9 CAGR: 22% Indian Knowledge Services Outsourcing Market1 (% of global market) India Others

Knowledge services refer to business services that are based on tacit as well as explicit knowledge of the provider and usually can not be quality checked at the point of delivery. Knowledge Services are typically judgment based as opposed to being rule based Global knowledge services industry grew at CAGR of over 41% between 2006-08 India contributed 70% of the global knowledge services outsourcing market in 2010, employing 70,000+ professionals1 While the North America remains dominant market for service providers (~65% share), growing demand from UK and continental Europe is expected to reduce the market share of North America from 65% to 55% by 20151 Highly fragmented industry with most players being subscale

CAGR: 10%
CAGR: 41% 1.2 2.4

31% 2.9 69%

29%

71%

2006

2008

2010

2015E

2010

2015E

Growth Drivers For Knowledge Services Outsourcing

Demand Side Growth Drivers

Supply Side Growth Drivers

Acceptance of outsourcing of core business activities like clinical trials, market segmentation etc.
-

Proliferation of vendors due to absence of critical mass and specialized nature of services
Increased availability of low cost employees with specialized skills in developing countries like India and China Availability of diverse talent pool including statisticians, lawyers etc. enables knowledge services outsourcing vendors to offer high quality services
-

Outsourcing demand shifting from the mature segments (IT, contact centers) to complex judgment based knowledge services

Increased and changing requirements for regulatory compliance

-

Evolving buyer needs are driving innovation and leading to a higher degree of alignment with vendors thus also fuelling competition

Complex nature of work and judgment based nature of services provides strong career path for employees. This attracts talent towards the pure-play service providers

Inability of even large end-user companies to attract and retain highly skilled talent especially in non core areas

Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry Creating Global Business Impact, 2011

Knowledge Services Outsourcing | Data Analytics To Lead The Market With 2x Average IT / Knowledge Services BPO Industry Growth Rate Outsourcing
Data Analytics To Lead The Market With 2x Average IT / BPO Industry Growth Rate
Data Analytics And LPO Services Are Expected To Drive Growth In Knowledge Services Market
Indian Offshore Knowledge Services Market1
21% 2010 = USD 2.0 Bn 17%

CAGR % (2010-15)

LPO
44% 23% 2015(E) = USD 5.6 Bn

29%

Business research accounts for the largest share of the knowledge services outsourcing market in India

39%

Data Analytics

18%

25%
20%

Despite its strong growth, business research is expected to lose market share due to growth in other segments
Data analytics and legal process outsourcing services expected to emerge as the fastest growing segments primarily driven by organisations seeking data driven decision making

19%

Business Research
21%

Business Research

Data Analytics

Legal Process Outsourcing

Others

Note: Others include data management services and market research

Knowledge Services Outsourcing Market Components Services1

Market Research

Business Research

Data Management And Reporting

Data Modeling And Analytics

Legal Process Outsourcing

Others

Research design and project planning Data collection and survey programming Data validation and processing Data analysis and report writing

Market assessment Competitive intelligence Business partner identification Financial research Newsletter and updating databases Best practices identification

Data entry Data processing Data conversion

CRM analytics Sales & marketing analytics Risk analytics Equity research and financial analytics HR analytics Supply chain analytics

Contract management Litigation support Compliance management Document management E-discovery

Social media research Marketing and sales support Procurement services

Data warehousing
Data cleansing Data reporting

Mature Segment High Growth Segment Nascent Segment

Segments Expected To Lead Growth

Source: (1) Nasscom, 2011

Overview Of Data Analytics Outsourcing Services

(1/2)

Strong 25% CAGR Till 2015 Led By Increased Analytics Adoption

India Data Analytics Services1 (USD Mn) 1,150 Data Analytics as % of Total Indian Knowledge Services Outsourcing Market (2015)

Data analytics is the science of examining raw data for the purpose of drawing business related conclusions about the information and for modeling and predicting business outcomes
Data analytics services market share of the total knowledge services outsourcing market is expected to increase from 18.5% in 2010 to 20.6% in 2015 Lack of inhouse talent, increased acceptance of outsourcing of core business activities, high margin pressures and explosion in data generation are primary drivers for increased demand Research and analytics as a segment has significant headroom for growth with current penetration at less than 10% of the total addressable market 2 North America is likely to remain the largest market for analytics offshoring contributing 65% of demand3, Demand from other nations in APAC is expected to increase with financial services leading the demand

21% 375 Data Analytics 2010 2015E

79%

Others

Analytics Services - High Billing Rate And Higher Margin Business

Requirement For Specialized Skills BPO4 Knowledge Services4 LPO4 Data Analytics4

Revenue Per FTE Per Annum (USD 000) 18-20 30 35 50-70

EBITDA Margins (%)

15-20%

Average revenue per FTE for analytics outsourcing services is amongst the highest within the BPO and KPO services at USD 50,000-70,000 per employee per annum EBITDA margins for reasonable sized assets in the analytics business are comparable to that of large established KPOs. As the vendors move higher up in the value chain, margins from analytics services is expected to increase further

30% 15-30% 25-35%

Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry Creating Global Business Impact, 2011 (2) Everest Research (3) HfS, 2011 (4) Avendus Estimates, Industry Research

High

Medium

Low

10

Overview Of Data Analytics Outsourcing Services

(2/2)

India To Continue As Major Analytics Services Supplier

India dominates the supplier landscape, catering to a large part of the total demand
Given its headstart, mature delivery models and domain expertise, India would maintain its dominance in the near to medium term Buyers of services are expected to mitigate concentration risk and leverage local expertise of other emerging centers like China, Philippines, Eastern Europe, Latin America As the industry matures, Indian analytics service providers will move towards providing more complex services like model development, services based on proprietary IP, consultative offerings and expand offerings beyond traditional verticals India was ranked 2nd (3.9 Mn graduates in 2010) after China (6.3 Mn graduates in 2010)1 in terms total annual graduates. However, India will retain its attractiveness as the outsourcing destination due to its large talent pool with process expertise and knowledge of English language India was ranked ahead of other offshoring destinations like China, Philippines, Sri Lanka on the security of intellectual property index by AT Kearney in its Global Services Location Index, 2011. Security is a key determinant for growth in such businesses

Poland

Romania China India Costa Rica Philippines Sri Lanka

Chile South Africa Argentina Mature

Competitors

Emerging

Clients concerns regarding data security could lead to setting up of onshore delivery teams along with offshore delivery

India Scores Above Competing Nations On Critical Parameters

Industry Maturity India China Philippines Eastern Europe Latin America Spectrum Of Services Talent Availability

Source: (1) Nasscom Strategic Review 2011

High

Medium

Low

11

Why Now ? | Increased Relevance Of Data Analytics

Exponential Increase In Data Generation

Exponential Increase In Digital Data Generated (Zettabytes)1

35.00

Amount of data generated has increased exponentially over the past few years and is expected to maintain strong growth momentum Adoption of ERP, CRM, SCM is allowing companies to capture trillions of bytes of information about customers, suppliers and operations Integration and analysis of this vast amount of data is boosting demand for analytics

0.02

0.80

2002

2009

2020

Increased Affordability Of Data Storage In The Last Decade

Decrease in data storage cost encourages companies to store more data, which in turn increases the desire to unlock the value of the data through technology platforms and usage of manpower With cloud computings demonstrated track record of cost savings and efficiencies, the cost of data storage is expected to further decrease

Significant Reduction In Data Storage Hardware Cost (USD / Gigabytes)2

10.00

Proliferation Of Smart Phones Coupled With Increase In Unstructured Data

0.10

IBM estimates that by 2015 there will be 20x more mobile data and content and 40x more mobile transaction spending as compared to year 2010 levels Increased data generation due to expansion in social media, smartphones adoption and increased multimedia content provides strong growth opportunity in the analytics market

2000

2010

Worldwide Mobile Subscriber Base5 (Bn) 94.0% 64.0%

7.50

Basis Of Competition And Growth For Individual Firms

Demonstrated benefits of predictive analytics has lead to wider adoption of analytics across organizational functions
Increased competition for same customer spend has led to greater need for companies to create differentiation by leveraging analytics and to make decisions based on customer insights According to IBMs survey, organizations agreed that the use of business information and analytics differentiates them within their industry making them twice as likely to outperforms peers

11.5%
0.70 2000

4.60

2009

2020

Shortage Of Skilled Analytics Professionals

By 2018, US is expected to face a shortage of 140-190K analytics professionals, representing ~40% of the total talent demand3 this shortage represents a USD 20 Bn offshore opportunity4
Source: (1) IDC, McKinsey Global Institute. 1 Zettabyte = 1012 Gigabytes (2) Estimate based on cost s of 30.0 Gigabytes Maxtor Hard Drive in August 2000 and 1.0 Terabyte Seagate Pipeline Hard Drive in August 2010 (3) McKinsey Global Institute May 2011 (4) Assuming a billing rate of USD 60 / hour

(5) Source: Marketresearch.com; percentage indicates worldwide mobile penetration

12

13

Data Analytics Value Chain

Phase 1 Data Collection

Phase 2 Data Integration, Validation And Storage

Phase 3 Data Analysis and Reporting

Phase 4 Advanced Analytics

Phase 5 Presentation and Action

Data collection from primary source CRM, customer feedback etc. Data collection from secondary sources through following steps: Problem Definition Research Design Formulation Data collection from primary and secondary sources Data verification

Integrating data from multiple sources Extraction, transformation and loading Data warehousing Data de-duplexing Data validation and cleansing

OLAP Ad-hoc query Statistical modeling MIS reporting Structured reports Customized dashboards Developing scorecards

Predictive analytics Behavioural analytics Risk analytics Sales & marketing analytics Social media analytics Web analytics

Analyzing and interpreting results Consulting services to clients Policy making based on insight

Operational or tactical decision making

Complexity Level Of Analytics Services Mix Consultative Solutions

Advanced Predictive Analytics Simple Analytics

Data Storage And Filtering

Advanced level of analytics Create predictive model to build advanced models to create actionable insights Requires application of highly specialized skills

Deliver value to clients through building partnership and providing consultative offerings High-end offerings to create client stickiness Typically involves decisions that might require long term commitment from the client

Research And Data Collection

Includes data cleaning, maintenance and actual entry Low-end service with limited revenues potential Constitutes a major proportion of KPO-centric analytics work Database Handling

Includes research services and collection of data from primary, internal and external sources

Includes running models generating insight based on simple statistical analysis, dashboards, alerts and ad-hoc reports

Communication Skills

Statistical Analysis

Advanced Mathematical Skills And Modeling

Deep Domain Knowledge And Business Understanding

Source: (1) HfS

14

Data Analytics Value Chain | Services Providers As Integral Part Of Value Chain
Big Data Generation Big Data Management Big Data Analytics

Internal Data Sources External Data Sources Market Research Data Market Research Data

Storage Processing

Mining Analytics

Filtering

Reporting

Big Data generation through internal and external data sources

Big Data management through storage, processing and filtering of data to turn data into actionable information
Data Warehouse Providers / Data Aggregators

Big data consumers including data scientists who creates predictive / statistical models by leveraging data analytics software and solutions
Data Analytics Services Providers (Onsite And Offshore)

Enterprise Data Sources

Social / Unstructured Data Sources

Data Integration, Data Discovery And Data Visualization Software Vendors

Data Analytics Software Solution Providers

Secondary / Market Research Data Sources

Note: Trademarks and logos are proprietary of the respective companies Representative list of vendors

15

Data Analytics Value Chain | Key Industry Verticals

Deep Domain Nature Of Services Require A Vertical Centric Approach To Analytics Services

Major Verticals
Financial Services
Claims And Renewal Analytics Sales Force Analytics Collection And Recovery Scorecards Portfolio Analytics

Retail, CPG

Healthcare, Pharma

Telecom

Manufacturing
Demand Forecasting And SKU Rationalization Media ROI Optimizations Assortment Planning Route And Distribution Optimization

Demand Forecasting

Evidence Based Medicine Drug Treatment Effectiveness Clinical Analytics

Collection Management

Marketing Mix Analytics

Subscriber Profiling

Performance Analysis

Churn Management

Category Management

Average Length of Stay

Revenue Assurance

Portfolio Management

Trade Promotion Optimization Customer Loyalty Analytics

Key Opinion Leader Analysis

Customized Offerings And Up-Selling

Vendor Performance Management

Pricing And Risk Analytics

Initial analytics demand was primarily driven by large financial services companies, which was catered to by in-house and offshore captives centers
Greater availability of transactional data in financial services, health, retail and CPG compared to other verticals have played a critical part in driving analytics demand in these segments BFSI, retail, health and pharma estimated to be the most penetrated verticals with ~75% of the vendors catering to these segments1 As the industry matures telecom, media and entertainment and travel will emerge as strong long term growth opportunities with large volume of data generation Emergence of Big Data and new channels of client connection like social media would further fuel growth in mature as well as emerging verticals

Source: (1) Avendus estimates HfS, 2011

Mature Verticals

Emerging Verticals

16

Data Analytics Value Chain | Key Horizontals In A Largely Vertical Centric Industry
Major Analytics Domains

Risk

Risk based pricing, fraud detection and prediction, recovery management, loss forecasting, risk profiling, portfolio stress testing

Horizontal Functions

Sales & Marketing

Segmentation, marketing mix optimization, competitor analysis, channel analysis, sales performance analysis, campaign analysis, sales pipeline reporting and, channel analysis
Supply and demand analysis, strategic sourcing, quality control, inventory analysis, order fulfilment analysis Loyalty analytics, customer life time value, propensity analytics, churn analytics, customer segmentation, up-sell / cross sell Click analytics, customer lifecycle analytics, social media analytics, sentiment analysis, online traffic analysis, conversion analysis

Supply Chain Customer Analytics Web Analytics

Human Resource

Recruitment analytics, compensation analytics, talent analytics, training analytics, retention analytics, workforce analytics

Risk And Sales & Marketing Are The Two Biggest Domains Driving Demand For Analytics

Analytics Domain Demand1 (%)

Others 10%

Risk and sales & marketing dominate the demand with ~90% of the total analytics application and are expected to drive the analytics demand going forward as well From traditional domains like risk and sales & marketing, scope of data analytics application has spread to other domains like supply chain management, logistics, operations, HR analytics and web analytics

Risk And Sales & Marketing 90%

Overlap of talent requirement, sharing of best practices and certain intrinsically similar business needs would lead to the emergence of a few horizontal specific players

Source: (1) Primary Research HfS, 2011

Mature Domains

Emerging Domains

17

Key Trends In Analytics Services Adoption

Business Analytics SaaS Market (USD Mn)1
1,692 1,344

(1/2)

Increased Adoption Of Analytics Due To Benefits Offered By Software-as-a-Service (SaaS) Models

Analytics Challenges
High upfront capital requirements Installation is complex and time consuming

SaaS Benefits
Reduces large initial CAPEX, shifting the lowered costs to OPEX

1,079
888 737 615

Onsite installations with infrequent updates of the software and processes

Requires large commitment to IT budgets and dedicated analytics manpower

No requirement to install applications due to SaaS delivery model

Hosted model allows for greater uptime and frequent updates Reduces dedicated IT and analytics manpower

2008

2009

2010E

2011E

2012E

2013E

Requirement to update software systems according to organizational change and changes in data sources

SaaS business analytics market is expected to grow at CAGR of 24% between 2010-131 Post deployment customization and concerns regarding data security and privacy have been major hurdles for SaaS adoption. Such concerns are progressively diminishing

Leveraging Unstructured Data Through Text Analytics

Shift Towards Text Analytics Due To Large Volumes Of Unstructured2 And Real Data

Unstructured data i.e. typically text heavy data which is not part of predefined data models or tables constitutes ~75-80% of the total data generated Text analytics uses analytical tools to annotate and extract information from unstructured data sources to identify and predict trends Deriving insights from unstructured data, generated through multiple sources like websites, customer contact, social media, blogs, claims etc. and which represent real time data. Going forward, data is expected to play a critical role in organizational decision making Gartner estimated text analytics software market at USD 835 Mn in 2010, representing only 8% of the USD 10.5 Bn BI, analytics and performance management software market. This presents a significant headroom for the future growth of the text analytics business

Structured Data 25% Unstructured Data 75%

Source: (1) Source: Accenture (2) SAS Whitepaper 2011

18

Key Trends In Analytics Services Adoption

(2/2)

Mobile Analytics Expected To Unlock Significant Value For Organizations

Mobile / Personal Data Could Provide USD 100 Bn Potential Revenue Opportunity Over The Next Decade1

30
37 39 5

100-120

Proliferation of mobile and smart phones provides significant business opportunity from mobile analytics and revenue generation based on mobile, personal and location based data According to IBM estimates, by 2015, there will be 20x more mobile data and content and 40x more mobile transaction spending as compared to 2010 levels Not restricted to a single vertical, mobile analytics is expected to create business value across industries leveraging mobile generated data to provide new, better and targeted offerings

GPS Navigation

People Tracking, Remote LBS, Personal Car entertainment Safety etc

Geo-targeted Mobile Advertising

Toll Collection

Total (USD Bn)

Other Key Trends

Increased Focus On Predictive Analytics

Real Time Analytics

Shift from simple reporting and statistical analysis to advanced analytics which predict future events, behaviors or outcomes Historical events are of less interest as companies focus on forecasting future trends Predictive analytics and data mining software market to reach USD 1.8 Bn size by 20142 Social Analytics - Utilizing Social Network Data For Decision Making With Analytics

Real time analytics refer to dynamic analysis and reporting, based on real time data

Real time analytics could facilitate better and quicker decision making by providing up-todate information in areas like CRM, pricing, risk etc.

Integration Of ERP And Analytics Software

Social analytics refer to analyzing insights trapped inside social networks data such as emoticons, tweets, text messages, call center notes, blogs, online posts etc. With increasing popularity of social networks, focus on deriving customer insights based on online behaviour is receiving significant attention from CXOs

Most G2000 organizations have some form of transactional system (ERP) and CRM systems in place The next growth of enterprise application expected from BI solution implementation Large amount of data generation necessitates integration of the two key sides of the business decision making data generation and data analysis

Estimates suggests that 60% BI implementations fails to realize the envisaged value due to inadequate integration with the business requirements
19

Source: (1) McKinsey Global Institute, Big Data 2011 (2) Forrester Research

20

Demand Drivers For Analytics

(1/2)

Demand Side Analytics Drivers Exponential Increase In Digital Data Generated (Zettabytes) 1

35.0

Exponential Increase In Data Generation

0.8
2009 2020

Explosion in data generation has highlighted the need for advanced analytics capabilities to leverage the same for business benefits Enterprise wide adoption of ERP, CRM, SCM tools leading to high data generation has laid the foundation for use of BI solutions Amount of digital data generated is expected to increase by more than 44 times in the next 10 years Integration and analysis of this vast quantum of data has been the key demand driver for analytics services including outsourced services

Insights To Drive Business Decsions2

Top Performers 45% Lower Performers

53%
27%

CXOs are keen to shift from intuition based decision making to datadriven actions

Demonstrated Advantage Of Analytics

20%

Profitable leveraging of data analytics by industry leaders such as Amazon and Google is a testimony to the power of analytics
A survey by IBM indicates that organizations that use analytics are twice as likely to outperform peers

Use insights to guide future strategies

Use insights to guide day-to-day operations

Survey Suggests Only 1/3rd Of Respondent Companies Are Prepared To Compete Based On Analytics3
Company Not Prepared 13%

Increased C-Suite Attention

Company Prepared 36%

Company Neither Prepared Nor Unprepared 51%

50% of respondents in an IBM survey accorded top priority to improvement of information and analysis Top-performing organizations show a 5x higher usage of analytics as opposed to low performers2 Despite C-Suite acknowledgement of importance of analytics, most of the organizations are still not equipped to completely realize benefits from data analytics

Source: (1) IDC (2) IBM (3) July 2010 Information Week Financial Services Analytics Survey of 220 financial industry professionals

21

Demand Drivers For Analytics

(2/2)

Demand Side Analytics Drivers

Top 3 Organisational Challenges (% Of Respondents) 1

61%

50%

46%

Competitive And Margin Pressures

Innovating To Achieve Competitive Differentiation Growth Reducing Costs And Increasing Efficiencies

Analytics is fast moving from a discretionary spend category to an integral tool for competitive differentiation Achieving competitive differentiation, growing revenue and cost reduction emerged as the top 3 challenges faced by organization in a recent IBM survey Organizations that proactively use data generated insight appear to identify and predict trends better and are quick to adopt industry practices thus giving them a competitive edge

Top 5 Drivers For BI And Analytics Implementation For Banks2

35% 32% 29%

28%

Increased pressure for regulatory compliance and greater transparency in sectors like banking, insurance and healthcare is expected to increase the demand for analytics Inadequacy of in-house and centers to adapt to complex risk compliance norms like Basel III and Solvency II, could led to greater demand for third party services An IDC survey suggests that reporting and regulatory compliance requirements is amongst the top drivers for BI and analytics

26%

Increased Regulatory Compliance Requirements

Reporting Cost Reduction Risk Better View Management Into Financial Data Regulation Compliace

Source: (1) IBM (2) IDC Financial Insights 2010. Based on survey of 6,000 IT and budget decision makers from 280 banking firms

22

Acute Talent Shortage Coupled With Cost Savings Driving Demand

Offshore Capabilities Are Becoming A Necessity Supply Gap For Talent With Deep Analytical Skills Expected In US1 (000s)
140-190 440-490

Knowledge Intensive

150

300

Analytics services require employees with advanced educational qualifications along with relevant domain knowledge

Talent Shortage

150

2008 Employment

Additional Supply

2018 Supply

Talent Gap

2018 Projected Demand

According to Mckinsey report, by 2018 US will face a shortage of 140,000-190,000 people with deep analytical skills representing ~40% of the total talent demand Offshore analytics service providers can bridge this talent gap to provide skilled employees across geographies.
-

Significant Cost Advantage Through Offshoring Analytics Services2

100% 30%

Employee costs account for 60%-70% of the total cost for analytics projects2 Off-shoring provides a significant cost arbitrage with respect to salary costs

70%

Typical Analytics Project Cost

Cost Savings 45%

Actual Cost 55%

Globalization Required

In order to bridge the talent gap providers will need to set up offshore centers where additional talent exists

Total Cost

Other Costs

Labor Cost

Shortage Of Analytics Professionals Represents A USD 20 Bn Offshore Opportunity 3

Source: (1) McKinsey (2) HfS (3) Assuming a billing rate of USD 60 / hour

23

24

Service Provider Landscape | Mix Of Services Providers

1
Salient Features

Pure Play Analytics Vendors

Domain and/or vertical expertise as go to market strategy Leverage expertise and technological platforms to provide specialized services and establish leadership position in niche Provide greater level of service, competitive pricing and service depth Fragmented segment with majority of players lacking scale Lack of funds hinders technological innovation

Challenges

Pure Play

2
Salient Features

KPOs
Integrated provider of a wide range of services Forward integration generate new business through selling services to new and existing clients Use analytics to improve margins Build capabilities and acquire scale to win new clients

Captives

Analytics Service Providers

KPOs

Challenges

3
Salient Features

IT / BPO Vendors
Attempt to leverage client base to cross sell analytics services
Reinforce positioning as end-to-end solution provider Create value-added differentiator through providing capabilities in high-value analytics services Enhance analytics capabilities to better serve clients and move up the value chain Ability to acquire and retain requisite expertise and build an internal culture of innovation needed in analytics

IT / BPO Vendors

Challenges

4
* Representative Vendor List

Captives

Shift from captives dominated market to proliferation of third party vendors

The market structure is a mix of service providers like captives, IT / BPO players and pure play analytics providers

Salient Features

Emerged as early providers of knowledge services Matured captive centers now operate as strategic partner providing higher value propositions to parent through services expansion Remain competitive with evolving technology and cost pressures Providing attractive career path to employees
25

Challenges

Source: (1) Tholons, Market Research And Analytics, 2008 (2) HfS Trademarks and logos are proprietary of the respective companies

Critical Success Factors For Analytics Services Providers

Vertical And Domain Expertise

Deep industry vertical expertise and client relationships at CXO levels are critical for market penetration
Strong focus on visualization techniques to make the presentation of analytics findings more intuitive

PRIMARY FACTORS

Strong Talent Pool

Analytics services require high degree of domain knowledge along with reasoning, interpretation and judgmental capabilities unlike the primarily rule driven and repetitive work of BPO services Attracting strong talent pool with specialized skills remains the critical success factor to meet client demand for analytics services

Technology Know-how

Non linearity of revenue by leveraging domain understanding and technology platforms also create entry barriers for new entrants Increasing trend towards automation of services for more routine type analysis Concerns around data security is one of the biggest hurdles in adoption of offshore analytics services. The data being seen as a source of competitive differentiation by most clients

Infrastructure And Data Security

Service providers are implementing strict data security standards and employee training programs and policies are geared to address these concerns

SECONDARY FACTORS

Client Partnership Model

Shift from project based engagements to outcome based delivery models ensures recurring stream of revenues and long term client relationships Focus on higher value add services, consultative approach and embedding of proprietary IP to deliver services lead to higher client stickiness

Process Maturity

Ability to maintain consistent service quality and high levels of client satisfaction are essential for success as the services are high impact in nature unlike normal back office operations

Scalability

Given its specialized nature of its service and talent requirement, scalability is a big hurdle and vendors are addressing it through a combination of long term engagement with premier educational institutes, automation and technological interventions and advanced inhouse training programs

Unlike typical services companies, this segment has greater capital requirements and hence access to capital is critical to scale as well

26

Future Trends

Long Term Horizon Critical Success Factors Increased demand for analytics services from Asian countries Short Term Horizon Emergence of 4-5 large pure play analytics vendors (>USD 500Mn) Time Market expansion and penetration into new domains and verticals Current Focus/Priority Increased focus on building onshore and near shore capabilities Existing suppliers to scale up the business Potential listing by few large analytics vendors

Off-shore delivery base with 1,000+ employee strength, along with onshore and nearshore presence Evolved large scale project management capabilities

Significant management expertise and relationships within the market

Critical Success Factors

Sizeable employee base (>500+) along with off-shore delivery base Scalability to execute large projects Management bandwidth to drive sales & marketing efforts

Consolidation in the fragmented industry

Build proprietary IP to gain sub segment leadership

Critical Success Factors

Build capabilities through hiring and training talented workforce Sales & marketing focus to acquire clients Strengthen data security and privacy policy to build client confidence

Entry of new players via Organic and inorganic route

Industry Maturity

27

28

Evolution Of Indian Offshore Analytics Industry

Shift From Captive Domination To Third Party Providers

2000-05 Captives Were Early Movers

2005-10 Growth Of Third Party Vendors

2010-15 Strife For Market Leadership

Growth in Indian analytics market triggered by setting up of captive centers Early movers included GE, Citibank, JP Morgan, UBS, American Express etc. Initial focus on verticals with large data generation and high growth like financial services, retail etc.

Strong demand growth for financial analytics services Emergence of specialized service providers Proliferation of third party vendors, mostly with small business size but strong growth trajectory like MarketRx, SMS, Marketics, PharmArc

Vendors were vertically aligned

Smaller size of market and hence fell below the radar of established IT / BPO players

Entry of large IT / BPO company into analytics space through organic and inorganic growth route (Cognizant acquired MarketRx, WNS acquired Marketics etc.)

Expected growth of data analytics (25% CAGR 2010-15) to outpace Indian knowledge service outsourcing demand (23% CAGR 2010-151) Few scaled suppliers like MuSigma and Fractal Analytics are expected to emerge as market leaders with strong base and services offerings Emergence of new areas like HR analytics, supply chain analytics etc. Service providers increasingly moving towards platform / SaaS based delivery models Wipros acquisition of Promax, IBMs acquisition of RedPill Focus on global delivery capabilities India is expected to remain preferred destination despite strong competition from Philippines, China etc

Market Maturity And Growth

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Year

Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry Creating Global Business Impact, 2011 HfS, 2011

29

Indian Offshore Analytics Industry | Following The Path Of Prior Outsourcing Segments
Mature Phase

Start-up Phase OFFSHORE IT SERVICES 1978-1995

1995-2000

Post 2000

Patni, TCS, HCL and Satyam, Infosys founded Driven by short-term revenues mainly on-site 1989: GE Medical Systems pilots a software development project located out of Bangalore

Inflection Point: Y2K resulting in the need for a large and skilled workforce coupled with lowered cost of connectivity Early adopters begin outsourcing a large portion of their IT spend OFFSHORE BPO SERVICES

Evolution of a more holistic view on global sourcing Market consolidation, importance of scale Multiple players over USD 1Bn in revenue

1985-2000

2000-2008

Post 2008

Captives set up by British Airways (BA), American Express (Amex), GE

Inflection Point: Liberalization of the telecom sector resulting in affordable bandwidth 3rd party BPOs emerge and captives are spun off Enhanced focus of corporations on efficiency/cost

Performed non-core / call center activities

Emergence of leaders in the space Genpact , EXL WNS, Firstsource, Sutherland, Intelenet Offer end-to-end services and become strategic partners with clients

Multiple players with USD 500 Mn in revenue

OFFSHORE ANALYTICS

2000-2010

Growth in Indian analytics market through setting up of captive centers Proliferation of third party vendors, predominately small and limited scale

Emergence of technology capabilities and frameworks that enable the processing of Big Data on low cost platforms Benefits realized by early adopters resulting in wider adoption and exponential growth

Potential for 5-7 large pure play vendors with over 250 Mn in revenue to emerge as leaders in the analytics space
Public market listings or strategic acquisitions by leading ITO/BPO companies

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Evolving Delivery Model | Shift From Ad-hoc Projects To Partnership Based Models

Benefits To Vendors

Delivery models are still evolving in the rapidly expanding analytics market Increased preference towards long-term / retained capacity (FTE) based models ensure recurring revenue streams Consultative approach, end-to-end service execution (analysis to execution), automation and gaining shares are increasingly becoming key differentiators for services vendors Highly specialized nature of services and requirement for close collaboration with the clients will lead to increase in the onsite presence of the service providers - Onsite requirement for analytics services providers expected to be at 20-25%, which is in line with onsite effort mix for leading outsourced IT services providers
FTE Based/Flexible Services Model

Analytics Center Of Excellence (ACE)

Outcome Based Model

Project Based Engagement

Ad-hoc project engagements without any ongoing commitment Initial capability assessment to evaluate fit for a deeper relationship Least attractive to vendors due to uncertain revenues and low returns

FTE based delivery constitutes the largest share of the total delivery contracts Cost-effective alternative to expanding internal team Allows effective employee career path due to larger size of vendor teams as opposed internal captives Vendors brings domain and vertical expertise

Compensation linked to achievement of specific objectives Partnership approach towards client engagement Gain-sharing increases vendors accountability and also encourages innovation Risk loaded against vendor

Create analytics centers for clients, staffed with consultants that work with clients on a dedicated basis Leverage vendors expertise, technology and platforms to benefit from industry best practices High client involvement and value addition through consultative approach Vendor as strategic partner instead of a pure low cost provider

Client Involvement

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Growth Capital Needs Of The Fragmented Analytics Industry

Presents An Attractive Investment Opportunity
CURRENT MARKET SITUATION Highly Fragmented Market, High Capital Requirement, Need For Increased Funding EXPECTED FUTURE TRENDS Emergence Of Market Leaders With Scale, Range Of Service Offerings And Technology And Platforms

High growth nature of the business has resulted in the emergence of many players in this space The offshore analytics industry is currently highly fragmented with most vendors with revenues lesser than USD 10Mn2 Realization among vendors for the need to expand portfolio of offerings through addition of new verticals and domains and to achieve scale to win and execute client projects and build technology and platforms need for additional funding

Few large vendors are expected to emerge as market leaders with a strong employee base, global delivery capabilities, a multitude of services offerings and technology and platforms
Demand from newer market segments due to greater competition and lowered cost of storing information for end clients Large players would acquire smaller companies as the Indian analytics vendors scale up and mature Potential listing by top 2-3 vendors

Translating Into An Attractive Investment Opportunity For PE Funds

ATTRACTIVENESS OF ANALYTICS TO PE INVESTORS

Opportunity to invest in an established but high growth sector with sub-scale vendors and no clear market leaders

RECENT PE INVESTMENTS IN THE ANALYTICS SPACE1

Target Investor Capital Invested

Ability to scale operations through productization of offering and expansion of global delivery capabilities Diversify operations to emerge as an end-to-end solutions provider for clients service portfolio expansion and adding new domains and / or verticals to the offerings portfolio Leverage fragmented market for inorganic growth

USD 108Mn December, 2011

USD 25Mn April, 2011 USD 84Mn September, 2011

Sale to a strategic or IPO provides typical exit routes

Source: (1) Mergermarket (2) Avendus Estimates Trademarks and logos are proprietary of the respective companies

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Focus On Inorganic Growth

Pure Play Vendors
Multi Vertical Vertical Focus

KPO Vendors

IT / BPO Players

High value Analytics Value Chain

High Analytics Offerings Low High Operations Scale Low Geographic Diversification Inorganic Growth Drivers

Acquisition Focus

Niche Niche Multi Domain Domain Focus

BPO / KPO Low

High

Inorganic Growth Drivers

Inorganic Growth Drivers

Inorganic Growth Drivers

Service portfolio expansion and adding new domains and / or verticals to the offerings portfolio Emerge as a niche leader through deeper domain expertise Scale-up through client addition and new delivery capabilities

Expand into analytics delivery services Build scale and compete with niche players Expand volume in the existing space (more coverage, newer markets), add more and complex processes Acquire technology and platforms

Offer high end services and move up the value chain to a fast growth and profitable market segment Diversify operations to emerge as endto-end solutions provider for the clients Acquire new clients Strengthen nearshore capabilities Acquire technology and platforms

Analytics services is an area of need for most large IT/BPO firms

Falling margins due to increasingly commoditized nature of core business is resulting in firms trying to build high margin analytics capabilities Firms are trying to reposition themselves as transformational partners to clients using analytics as a beachhead High end analytics services (predictive/behavioural analytics) are hard to replicate because of the specialized domain expertise required Pure play analytics vendors have an inherent advantage while recruiting talent due to targeted market positioning

IT / BPO Firms Facing Challenges In Analytics Market

In-house attempts have been largely unsuccessful in developing requisite capabilities with firms restricted to providing lower end services

Lack of scaled up vendors has resulted in an acquire a core and then grow strategy

Current Positioning

Expected Positioning

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Transactions In Data Analytics Outsourcing Services Segment

Date
Jun-12

Target
Coalition Development PharmARC

Description
UK based company that provides research analytics and business intelligence solutions for the financial services sector Life sciences focused company providing sales & marketing analytics solutions to global pharma and healthcare companies

Country
UK

Deal Type
M&A

Acquirer / Investor
CRISIL

Deal Value (USD Mn)

45

Jan-12

India

M&A

US

NA

Dec-11 Nov-11

Mu Sigma Copal Partners

Analytics outsourcing company that provides decision science and analytics US services Provider of consultative research and analytical service Provider of BI and predictive analytics services within BFSI, healthcare and government services US based integrated media and business research company with strong capabilities in social media research, media monitoring and measurement Provider of technology-enabled marketing services and solutions Provider of advanced customer analytics services to businesses in diverse industries Provider of analytics, web based solutions, market research and software services for pharma and biotechnology companies Provider of offshore analytics service to enhance marketing effectiveness UK

Funding M&A

General Atlantic Moody's Corporation SilverLake Sumeru, Accel-KKR

NA NA

Sep-11

Opera Solutions

US

Funding

NA

Sep-11

EmPower Research SMS Redpill Solutions

US

M&A

Genpact

NA

Feb-10 Sep-09

US Singapore

M&A M&A

Genpact IBM

43 12

Oct-07

MarketRx Marketics Technologies

US

M&A

Cognizant

135

Mar-07

India

M&A

WNS

65

Industry trends suggests that EV / Revenue multiples for analytics services providers have ranged between 2.0x 4.0x, with scaled-up players at the higher end of the spectrum PE funds have paid higher multiples for analytics services providers, demonstrating the confidence in the ability of scaled up asset to provide strong growth and higher returns

Source: Mergermarket Representative list

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35

In Conclusion

Given the projected benefits to user organizations, analytics has emerged as the dominant skill to invest in for services providers

Due to the current fragmented nature of the vendor landscape, we anticipate consolidation and emergence of 3-4 players with greater than USD 500 Mn revenue from high end analytics services within the next 5 years Development of proprietary IP tools and ability to attract and retain talent would be the two most critical growth factors
Valuation trends expected to remain high in the 2x-3x revenue range over the next 1-2 years

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Glossary
Particulars
APAC

Description
Asia - Pacific

BFSI
BI

Banking, Financial Services and Insurance

Business Intelligence

BPO
CAPEX CPG CRM EBITDA ERP EV FTE HR IP IPO KPO LBS LPO OLAP

Business Process Outsourcing

Capital Expenditure Consumer Packaged Goods Customer Relationship Management Earning Before Interest, Tax, Depreciation and Amortization Enterprise Resource Planning Enterprise Value Full-time Equivalent Human Resources Intellectual Property Initial Public Offering Knowledge Process Outsourcing Location Based Services Legal Process Outsourcing On Line Analytical Processing

OPEX
RDBMS

Operating Expenditure
Relational Database Management System

ROI
SCM

Return On Investment
Supply Chain Management

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About Avendus Capital

Avendus Overview
Avendus Capital is a leading financial services firm which together with its group companies provides customised solutions in the areas of financial advisory, equity capital markets, alternative asset management and wealth management. Avendus Securities through its Institut ional Equities practice is able to offer clients best-in-class research-driven advice to help them take investment decisions, while Avendus PE Investment Advisors manages funds raised from its investors by investing in public markets. The Group relies on its extensive track record, in-depth domain understanding and knowledge of the economic and regulatory environment, to offer research based solutions to its clients that include institutional investors, corporates and high net worth families. Avendus Capital has consistently been ranked among the top-five corporate finance advisors in India and has emerged as the advisor of choice for cross-border M&A deals and has closed 40 cross-border transactions in the past 4 years. Headquartered in Mumbai, the firm has offices in New Delhi and Bangalore. Avendus Capital, Inc (US) and Avendus Capital (UK) Pvt. Ltd. located in New York and London, respectively, are wholly owned subsidiaries offering M&A and Private Equity syndication services to clie nts in the respective regions. For more information, please visit www.avendus.com

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Contacts
AMIT SINGH
Executive Director Head - Technology Group, and Co-Head Business Process Outsourcing Group Email: amit.singh@avendus.com Cell: +91 98864 11118 Landline: +91 080 6648 3601

PUNEET SHIVAM
Executive Director Head of US Business and and Co-Head Business Process Outsourcing Group Email: puneet.shivam@avendus.com Cell: +1 917 554 7030 Landline: +1 646 707 0886

JEFF BAKER
Associate Vice President Email: jeff.baker@avendus.com Cell: +1 914 924 9382 Landline: +1 646 707 0886

DIPESH JAIN
Associate Email: dipesh.jain@avendus.com Cell: +91 77609 81787 Landline: +91 80 6648 3634

Avendus Capital Pvt. Ltd.

Mumbai IL& FS Financial Centre B Quad, 5th fl, Bandra Kurla Complex Bandra East, Mumbai, India 400051 Phone: +91-22-6648 0050 / 0950 Fax: +91-22-6648 0040 / 0940 Bangalore # 1 & 2, The Millenia Tower A, 10th Fl, Murphy Road, Ulsoor, Bangalore, India 560001 Phone: +91-80-4115 0000 Fax: +91-80-2555 0868 New Delhi Suite 22A/B, The Aman Lodhi Road New Delhi 110003 Phone: +91-11-4535 7500
www.avendus.com

Avendus Capital Inc.

New York 499 Park Avenue, 12th fl. New York NY 10022 Phone: +1-646-707 0789 Fax: +1-646-707 0899

Avendus Capital (UK) Pvt. Ltd.

London 33, St. Jamess Square, London SW1Y 4JS, UK Phone: +44 203 159 4353 Fax: +44 207 661 9400
Avendus Capital (UK) Private Limited is regulated and Authorized by the FSA
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