janney montgomery scott it report

8/14/2019 Janney Montgomery Scott IT report

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Joseph D. Foresi 617-557-2972

[email protected] IT Services

May 18, 2009

Equity Research

Industry Report

Global Services Notebook-May 2009

Are We Near Stability? Some Sources Think So...

INVESTMENT CONCLUSION:

The primary question on investors' minds after viewing March quarter results is,"Are we nearing stability in the demandenvironment for IT spending?" After reviewing the vendor commentary, it appears that the majority of the companymanagements believe that we are getting close. The optimism is not yet being reflected in quarterly results, metrics, andguidance, which continue to reflect a difficult demand environment. We note that stability does not imply growth, whichwill take time to return. However, stability is a good thing for the group, as customers shift their focus from protectingthe balance sheet to making business decision which include cost saving initiatives. Our global services notebook takes alook at the dominant themes that investors are focusing on in the offshore IT services space. This month we take a look at

the status of the demand environment, current political issues, and review the March quarter results focusing on pricing.Our favorite name in the space continues to be Cognizant, which matches up well on a comparative basis across all of themetrics that we track.

KEY POINTS:

Commentary on the demand environment improving. The commentary surrounding the demand environment forIT services appears to be improving. Accenture kicked off the earnings season reporting results below expectations,but the outsourcing portion of the business held up. IBM followed by reporting strong bookings in its outsourcingbusiness. Among the companies in our coverage list, vendors were cautiously optimistic, with most companiesbelieving we are nearing a bottom particularly in the financial services vertical. We take a look at the vendorcommentary on the demand environment on p. 10.

There are a number of political questions to be answered. The H-1B and L-1Visa Fraud & Prevention Act of

2009 expected to be proposed later this year would require employers to make a good faith effort to hire anAmerican worker first. We note the demand for H1-B's has fallen due to the economic decline. President Obamaproposed tax changes that would eliminate tax breaks for companies that outsource jobs offshore. The irony of thelegislation is that it it hurts domestic players having only a marginal affect on the Indian players. We are awaiting theoutcome of the Indian elections, which could have a positive or negative effect on the extension of the STPI taxholiday in India. We review the political issues regarding outsourcing on pp. 10-11.

The demand environment continued to be challenging in the March period. Revenue for the group deceleratedin the March quarter, decreasing 6% on average sequentially, due to lower volumes, pricing pressure, and a furtherreduction in discretionary spending. Financial services and Telecom continue to be areas of weakness, while retail,manufacturing, and healthcare have held up comparatively well. Margins were stable on the whole in the Marchperiod, decreasing sequentially due in part to the large positive impact the rupee had in the prior quarter. Themajority of the vendors reported earnings upside resulting from an increase in operational efficiencies. We provide acomprehensive review of the March quarter results on pp. 4-8.

Metrics adjusting to the environment; pricing remains a concern. Total headcount declined 1% on average on asequential basis. Attrition came down 2% sequentially to 13% (TTM). A number of the vendors reported that if anywage increases are given this year they will be lower than in the past, which should help keep margins stable. Pricingcontinues to come under pressure, down about 2% to 3% in the March quarter. We currently expect price declines tobe in the 5% to 6% range for 2009, noting that these are ongoing discussions. We take a look at the pricingenvironment on p. 10. We encourage investors to take a look at operating metrics in Appendix A (pp. 19-40).

Research Analyst Certifications and Important Disclosuresare on pages 50 - 51 of this report


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TABLE OF CONTENTS:SECTION 1-OUTSOURCING:Outsourcing Investment Thesis ......................................................................................................... 3March Quarter Review. ...................................................................................................... 4-8Pricing Environment ..................................................................................................... 9Demand Environment.. ....................................................................................................... 10Political Environment ................................................................................................. 10-11

Margin Levers ................................................................................................. 12-14In the News.. .................................................................................................. 14-15The Markets............................................................................. .................................................................................................. 15-17Currency... .................................................................................................. 17-18SECTION 2: APPENDIXOffshore Vendor Metrics .. ................................................................................................ 19-40Outsourcing Coverage Universe.. .................................................................................................. 41-49TABLES:Table 1: Sequential Revenue Growth.. ............................................................................................. .5Table 2: Annual Revenue Growth. ............................................................................................ 5Table 3: Sequential Headcount Growth............... ..................................................................................................... 5Table 4: Annual Headcount Growth ............. .................................................................................................. ..6Table 5: Sequential Attrition Rates (TTM) ....... ................................................................................................... 6Table 6: Earnings per Share Results (March Quarter) ............................................................................................... 7Table 7: Estimates and Guidance ... ...................................................................................................... 7

Table 8: Comparative Performance of Offshore Vendors (March Quarter) ...................................... 8Table 9: Revenue Shift Mix ..................................................................................................... 12Table 10: Impact of Offshore Work on Margins.. ....................................................................................................... 12Table 11: Increase/Decrease of Utilization....... ...................................................................................................... 13Table 12: Increase of Utilization on Margins.... .................................................................................................... ..13Table 13: SG&A as a % of Revenue. ...................................................................................................... 14Table 14: Offshore Vendor Exposure to Companies in the Headlines ............................................................................................ 15Table 15: Clients Potentially Leaving Satyam ........................................................................................... 16Table 16: YTD Outsourcers Stock Performance .. ...................................................................................................... 16Table 17: Short Interest Metrics.. ....................................................................................................... 17Table 18: Impact of Rupee Fluctuation on Margins.. ...................................................................................................... 17Table 19: Recent Company Notes... .................................................................................................... 18Table 20: Recent Industry Notes... ...................................................................................................... 18FIGURES:Figure 1: Sequential Change in Margins ......................................................................................................... 6

Figure 2: Onsite/Offshore Revenue Mix ................................................................................................ 12Figure 3: Offshore Utilization.. ................................................................................................... 13Figure 4: U.S. Dollar to Indian Rupee Graph.. ....................................................................................................... 17Figure 5: U.S. Dollar to Euro Graph ....................................................................................................... 18Figure 6: U.S. Dollar to British Pound Graph. ................................................................................................... 18

Valuation ComparisonPrice Market Cap --- EPS --- --- P/E --- Est. 2-Year CY 10E Target

Company Name Ticker 5/14/2009 Rating (Millions) CY 08A CY 09E CY 10E CY 08A CY 09E CY 10E EPS CAGR PEG Price

Offshore IT Services:

INFOSYS TECH ADR INFY $31.48 BUY $18,033 $2.22 $2.01 $2.07 14.2 x 15.7 x 15.2 x -3% -4.4x 15x $30

WIPRO ADR WIT $10.38 NEUTRAL $15,206 $0.53 $0.52 $0.54 19.6 x 20.0 x 19.1 x 1% 15.4x 15x $8

COGNIZANT TECH SOL CTSH $24.95 BUY $7,279 $1.44 $1.53 $1.69 17.3 x 16.3 x 14.7 x 8% 1.8x 20x $31

SYNTEL SYNT $28.19 NEUTRAL $1,170 $2.10 $2.17 $1.90 13.4 x 13.0 x 14.9 x -5% -3.1x 13x $28

PATNI CMPTR SYST ADR PTI $8.40 NEUTRAL $538 $1.49 $1.00 $1.05 5.6 x 8.4 x 8.0 x -16% -0.5x 8x $8

Offshore Peer Group Average 14.0 x 14.7 x 14.4 x -3% 1.8 x

BPO (FAO-Financial Accounting Outsourcing):

GENPACT G $9.50 NEUTRAL $2,041 $0.57 $0.60 $0.65 16.6 x 15.7 x 14.6 x 7% 2.2x 18x $11

WNS HOLDINGS ADS (a) WNS $8.22 BUY $350 $1.00 $1.22 $1.42 8.2 x 6.7 x 5.8 x 22% 0.3x 10x $12

EXLSERVICE HOLDINGS EXLS $8.87 NEUTRAL $257 $0.49 $0.30 $0.58 18.0 x 29.2 x 15.3 x 9% 1.8x 22x $10

BPO (FAO) Peer Group Average 14.3 x 17.2 x 11.9 x 12% 1.4 x

S&P 500 SPX $893 $69,896 $68.64 $58.78 $72.73 13.0 x 15.2 x 12.3 x

Offshore Peer Group Relative to S&P 500 (+Premium/-Discount) 8% -3% 17%

BPO (FAO) Relative to S&P 500 (+Premium/-Discount) 10% 13% -3%

(a) Adjusted EPS listed. GAAP EPS-CY08A: $0.27, CY09E: $0.16

Source: Company Reports, JMS Research

Target 09 P/E

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SECTION 1: OUTSOURCING:

2009 Investment Thesis: The offshore IT service group has a defensive element to its business, which is overshadowed by the challenges being faced by its customer base. The result is that the group is expected to be rangebound in the short term until the economy stabilizes or improves. We have gotten incremental data points in theMarch period that leads us to believe that some offshore vendors are of the opinion that we may be nearing abottom, at least in some verticals. It is too early to tell if this is true. What we do know is that IT spending will be

down in 2009. The economic slowdown translates into low volumes, pricing pressure, and decreases in headcount.Our level of conviction in the bottoming of the sector will come through the monitoring of these metrics. We hadbeen encouraging investors to take advantage of the market volatility in the names. Taking positions when the stocksare at the lower end of the range at about 10x to12x forward earnings, this implies little to no growth next year, andbacking off when they reach the upper end of valuation range at around 15x forward earnings, which implies animprovement in the economy. The market itself is attempting to decide whether or not there is stability, so it may nolonger be necessary to back off at the upper end of the valuation range. However, we do not recommend chasing thestocks or getting involved because of fear that you might miss a move. We would hold to good old fashionedfundamental investing. Picking a price that is a comfortable entry point. There still needs to be a catalyst in thenames to break this range, which could come in the form of economic stability, which would result in an increase inoffshoring as customers return their focus to cutting costs from protecting their balance sheets. We do not believethat the demise of Satyam or the acquisition of captives serve as significant catalyst, but rather helps replace aportion of the decelerating revenues. We encourage investors to look at the higher quality names in these tough

times preferably at the lower end of the range. Our favorite pick is Cognizant.

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MARCH QUARTER REVIEW:

March revenue results continue to decelerate. Revenue was down sequentially, roughly in line with estimates,continuing to decelerate due to currency, pricing deterioration, and reduced discretionary spending. The averagedecline for the Tier I vendors was 3.4%, down from a 0.7% decline in the December quarter and a 6.0% increase inthe same period a year ago. Among Tier I vendors, Cognizant posted the smallest decrease at 1.0%, followed byTCS (3.4%), Infosys (4.3%), and Wipro (4.9% for billed IT Services). (We note that Wipros revenue declined 7.0%on a GAAP reported basis). Cognizant reported revenue ahead of expectations, Wipro reported in-line revenueresults, and Infosys reported top line results below expectations. Over the last five quarters, Cognizant is the fastestgrowing company in the space, followed by Wipro and Infosys.

Middle market vendors results slow down faster than the Tier 1. The Tier II vendors (Syntel & Patni) averageda -9.6% sequential decrease, down from a -1.5% decrease last quarter and +3.1% growth in the same period a yearago. Syntel missed top line expectations, down 7.9%, while Patnis results were less impressive, although in linewith expectations, as the company reported an 11.4% sequential decline. Patnis growth rate continues to lag behindits competitors. Patni is considered a potential acquisition target, since the company faces growth challenges and hasa relatively attractive valuation. The group as a whole averaged a 6% sequential decrease for the Marchquarter, down from a 1% decline in the previous quarter and 5% growth in the same period last year.

Financial services decelerates. Decreased revenue from financial services clients was 5% for the group, down from

a 3% decrease in the December quarter. Financial services was down for all vendors: Infosys (10%), Syntel (7%),Patni (7%) and Wipro (5%) and Cognizant (2%). Cognizants management commented that it has seen some earlysigns of stabilization within the banking and financial services client base. Telecom was also an area of weaknessdeclining 8%-15% for TCS, Infosys, Wipro and Patni as most vendors appeared to be impacted by spendingdeceleration from British Telecom. (With the exception of Patni, revenue was weak from each vendors top client asthe group reported decreases in the 9%-12% range). Across the other verticals, retail held up well for Infosys,Cognizant, TCS, Wipro and Syntel. Manufacturing was a bright spot for Infosys and Wipro. Wipro providedpositive commentary on retail, manufacturing and healthcare. Cognizant reported flat revenue for healthcare. TCSnoted signs of recovery for financial services, but gave a stronger outlook for retail, healthcare and energy. Industryconsultant TPI noted financial services has been slow while healthcare (payor and life sciences) is beginning to seean upswing although it may take 6-8 months for deals to ramp.

Discretionary related services take hardest hit. The sectors core offering application development &

maintenance was down roughly in line with overall revenue. In the case of Infosys which delineates applicationdevelopment (-12%) and application maintenance (-4%), the greater decrease was in development which isassociated with some discretionary spending. Cognizant reported a -2.6% decrease for application development anda 0.4% increase for application management. BPO was stable for Infosys, Wipro and Patni with TCS almostdoubling its revenue through the Citi BPO acquisition. Wipro gave a positive outlook on package implementation,but the service did not perform as well for Infosys and TCS. Cost reduction services like application maintenanceand BPO are expected to increase as percentages of revenue until budgets are finalized and discretionaryspending picks up.

Europe continues to be adversely impacted by depreciation of the pound. Europe was flat to down 17% whileNorth America decreased 3% for the tier 1 vendors and Syntel. TCS was the only vendor to report a net increase inclients as Infosys and Wipro saw their overall client base decline slightly. Currency adversely impacted totalrevenue approximately 1% in the March quarter. The pound and euro appear to have stabilized against the dollar

thus far in the June period. Currency is not likely to continue to hamper revenue from Europe if exchange rates stayat current levels. Tables 1 & 2 contain sequential and annual revenue growth numbers for the offshorevendors. Table 10 on page 9 contains comments from each vendor in regards to the spending environment inNorth America, particularly the financial services vertical.

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Table 1: Sequential Revenue Growth

Offshore Vendors

Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Average

CTSH 7.2% 6.6% 7.2% 2.5% -1.0% 4.5%

WIT (a) 5.4% 3.5% 4.0% -0.9% -4.9% 1.4%

INFY 5.3% 1.1% 5.3% -3.7% -4.3% 0.8%

SYNT 4.8% 5.0% 0.3% 0.9% -7.9% 0.6%

PTI 1.3% 3.5% 0.5% -3.9% -11.4% -2.0%

Average 4.8% 3.9% 3.5% -1.0% -5.9%

(a) For billed (non-GAAP) revenue

Based on U.S. GAAP using convenience translation.


Table 2: Annual Revenue Growth

Offshore Vendors


CTSH 39.7% 32.7% 31.5% 25.5% 16.0% 29.1%

WIT (a) - 37.0% 29.4% 12.4% 1.4% 20.0%

SYNT 30.6% 28.7% 18.1% 11.4% -2.1% 17.3%

INFY 32.4% 24.4% 19.0% 8.1% -1.8% 16.4%

PTI 13.1% 11.8% 8.3% 1.3% -11.4% 4.6%

Average 28.9% 26.9% 21.2% 11.7% 0.4%

Based on U.S. GAAP using convenience translation.

(a) For billed (non-GAAP) revenue


Overall slight decrease in hiring reflecting environment. Hiring came in lighter than expected and attrition ratesdecreased. Headcount decreased 0.6% on average for the group in the March period, which was slower than therevenue decrease. Average headcount slowed from 1.6% growth in the December quarter and 3.4% growth in thesame period a year ago. Cognizant led the group with 3.2% sequential headcount growth. Infosys was the other

vendor to increase headcount while Wipro (-0.5%), Patni (-2.4%) and Syntel (-4.9%) reduced headcount.

Downward trend continued for attrition. Average attrition rates decreased 2.2% in the March quarter to 12.5% ona trailing twelve month (TTM) basis. Each vendor reported lower attrition with a biggest change from Wipro andPatni. Wages are expected to be flat for fiscal 2010. Tables 3 & 4 contain sequential and annual headcountgrowth numbers for the offshore vendors. Table 5 contains a breakdown of attrition rates.

Table 3: Sequential Total Headcount Growth

Offshore Vendors


INFY 2.9% 3.5% 6.3% 2.8% 1.7% 3.4%

CTSH 4.7% 2.2% 0.3% 3.7% 3.2% 2.8%

WIT (a) 4.8% -0.4% 1.2% -0.5% -0.5% 0.9%

SYNT 3.3% -0.4% 1.9% 0.7% -4.9% 0.1%

PTI 1.4% -0.7% -2.3% 1.3% -2.4% -0.5%

Average 3.4% 0.9% 1.5% 1.6% -0.6%

(a) IT Services headcount


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Table 4: Annual Total Headcount Growth

Offshore Vendors


CTSH 33.5% 30.2% 21.7% 11.4% 9.8% 21.3%

INFY 26.2% 24.2% 24.6% 16.3% 15.0% 21.3%

SYNT 39.4% 30.4% 15.1% 5.6% -2.8% 17.5%

WIT (a) - 17.9% 10.5% 5.2% -0.2% 8.4%

PTI 15.7% 9.6% 2.9% -0.3% -4.0% 4.8%Average 28.7% 22.5% 15.0% 7.6% 3.6%

(a) IT Services headcount.


Table 5: Trailing Twelve Month (TTM) Attrition Rates

Company Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Average

PTI 23.0% 21.2% 20.2% 18.6% 15.5% 19.7%

WIT 17.1% 16.7% 15.3% 14.6% 9.5% 14.6%

CTSH 14.7% 14.2% 14.4% 14.1% 13.1% 14.1%

SYNT 14.2% 14.4% 14.4% 14.3% 13.2% 14.1%

INFY 13.4% 13.6% 12.8% 11.8% 11.1% 12.5%Average 16.5% 16.0% 15.4% 14.7% 12.5%


Margins come down for most of the vendors. Operating margin contracted 226 bps for Infosys due to lowerutilization, pricing and investment in the business. Wipro expanded margins 20 bps on a pro forma basis for its ITServices business by increasing offshore and fixed price work. Cognizants operating margin was stable at 18.5%, asequential decline of -43 bps. Patni benefitted from cost control measures which helped operating margin expand181 bps sequentially. Rupee depreciation of 2% versus the dollar during the quarter gave a little boost (+50 bps forInfosys) to the vendors. The rupee continues to depreciate although to a lesser degree so far in the Junequarter which would provide a slight boost to margins next quarter.

Pricing (-2% to -3%) continues to deteriorate. Volume was down 6% for Wipro, 3% for TCS, 1% for Infosys and9% for Patni while pricing decreased 2%-3% for the Tier 1 vendors (TCS, Infosys and Wipro) with Syntel reportinga pricing decrease of 6% by our calculation and Patni reporting a 1% pricing decline. Overall, the offshore vendorscommented that the pricing environment could deteriorate an additional 0%-5%. We believe that pricingdiscussions are ongoing and pressure continues. Wipro, Patni and Syntel increased operational efficiencies bymoving 1%-2% of work offshore. Utilization including trainees increased for Syntel (+5%), but decreased for Patni(-3%) Infosys (-2%) and Wipro (-1%). Cognizant experienced no change in utilization. Figure 1 contains thesequential change in margins for the March quarter.

Figure 1: Annual Estimates-Change in Margins*

* WIT-IT Services segment.


Gross Margins

-158 -173 -115-53

-1250

-1000

-750

-500

-2500

250

500

750

1000

1250

INFY CTSH SYNT PTI

Basis

Points 42.0% 46.5% 32.9%43.7%

Operating Margins

-4379

-226 -176

181

-1250

-1000

-750

-500

-250

0

250

500

750

1000

1250

INFY WIT CTSH SYNT PTI

BasisP

oints

29.4%

10.2%

18.5%20.8% 27.1%

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Earnings upside was driven by operational efficiencies. Infosys and Cognizant beat earnings estimates by apenny and Wipro missed by a penny as the large variation from estimates was from the Tier 2 vendors. Syntels pro-forma beat (+$0.08 versus consensus) resulted largely from lowered headcount and increased utilization whilePatnis beat (+$0.05 versus consensus) was due mainly to cost control measures and reduced headcount. We believethe vendors will continue to shift to more offshore and fixed price work in order to boost margins and reducepressure on the bottom line from an overall lack of revenue acceleration. Table 6 provides March quarterresults versus guidance, our estimate, and consensus. Table 8 shows the annual earnings growth for theoffshore vendors.

Table 6: EPS Results (March 2009)

INFY WIT CTSH SYNT PTI

Actual (a) $0.56 $0.12 $0.38 $0.56 $0.23

Guidance (b) $0.55 - $0.37-$0.38 - -

Our Estimate $0.54 $0.13 $0.37 $0.48 $0.13

Consensus $0.54 $0.13 $0.37 $0.48 $0.18

Upside/Downside/In-Line (c) Upside $0.02 Downside -$0.01 Upside $0.01 Upside $0.08 Upside $0.10

(a) SYNT-GAAP EPS is $0.66.

(b) Infosys guidance based on basic share count. Our estimate, consensus, and actual based on diluted.

(c) Versus our estimate.


Offshore vendors give muted guidance for the June quarter. Guidance for the June quarter was given belowexpectations. Infosys guided to a 5.4% to 3.7% sequential decrease for the June quarter and provided fiscal 2010revenue guidance of a 6.7% to 3.1% annual decrease. Wipro gave billed IT Services revenue guidance of a 3.5% to2.0% sequential decrease. For 2009, Syntel maintained the low end of revenue guidance -6% and lowered the topend of revenue growth guidance to 1% from 3%. Syntel also pointed to flat revenue in the June quarter. Cognizantguided to at least 2% revenue growth in the June quarter and maintained annual guidance of at least 10% revenuegrowth. Patni guided to 1.0%-1.7% sequential growth in the June quarter. (Cognizant, Syntel, and Patni and are on acalendar year, while Infosys and Wipro use a March fiscal year end. Wipro and Patni do not provide annualguidance.) We expect an in-line performance out of the vendors in the June period. Table 7 contains the Junequarter and annual estimates, guidance, and consensus. Table 8 has an offshore vendors comparativeperformance table.

Table 7: Estimates and Guidancerevenue in $ millions INFY WIT CTSH SYNT PTI

June Quarter

Revenue Guidance (a) $1,060-$1,080 $1,009-$1,025 $760.0 - $158-$159

Q/Q Growth -5.4% to -3.7% -3.5% to -2.0% 1.9% - 1.0% to 1.7%

Our Revenue Estimate $1,071.7 $1,010.1 $760.0 $95.5 $157.8

Q/Q Growth -4.4% -3.4% 1.9% -1.0% 0.9%

Revenue Consensus $1,077.6 $1,286.4 $761.6 $96.8 $158.5

Earnings Guidance (b) $0.47 - $0.37 - -

Our Earnings Estimate $0.47 $0.13 $0.37 $0.50 $0.28

Earnings Consensus $0.48 $0.12 $0.37 $0.50 $0.26

Fiscal Year (c)

Revenue Guidance (a) (c) $4,350-$4,520 - $3,100 $385-$415 -

Y/Y Growth -6.7% to -3.1% - 10% -6.2% to 1.1% -

Our Revenue Estimate $4,401.7 $4,107.3 $3,098.2 $385.6 $634.5

Y/Y Growth -5.6% -5.0% 10.0% -6.1% -11.7%

Revenue Consensus $4,419.0 $5,321.0 $3,098.0 $394.0 $631.0

Earnings Guidance (b) $1.91 to $2.00 - $1.53 $2.12-$2.42 -

Our Earnings Estimate $1.96 $0.53 $1.53 $2.17 $1.00

Earnings Consensus $1.97 $0.50 $1.54 $2.15 $0.97

WIT IT Services revenue guidance is for billed (non-GAAP) revenue.


(a) WIT revenue guidance and our estimate for IT Services segment. Consensus revenue projections are for total company.

(b) INFY earnings guidance based on basic share count. Our estimate and consensus based on diluted.

(c ) CTSH, PTI and SYNT fiscal year ends in December-Estimates are for calendar 2009.INFY and WIT fiscal year ends in March-Estimates are for fiscal 2009.

FY2010 FY2009

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Table 8: Offshore Vendors Comparative Performance (March 2009)TCS INFY WIT CTSH PTI SYNT

Financials: (a)

Revenue (mn) $1,433.2 $1,121.0 $1,046.0 $745.9 $156.4 $96.4Q/Q Growth -3.4% -4.3% -4.9% -1.0% -11.4% -7.9%Y/Y Growth -4.9% -1.8% 1.4% 16.0% -11.4% -2.1%Annual Revenue Guidance N/A -6.7% to -3.1% N/A 10.0% N/A -6.2% to +1.1%

Revenue Breakdown

Volume -2.7% -1.4% -6.3% 0.0% -9.0% N/APricing -2% -3% -1.6% 0.0% -1.1% -6.3%Net FX Impact (bps) +31 +50 N/A N/A N/A N/A

Onsite 48% 51% 51% 60% 55% 47%Offshore 48% 49% 49% 40% 46% 53%Change +4% Offshore No Change +2% Offshore No Change +1% Offshore +2% Offshore

Utilization (Incl. Trainees) 69% 65% 68% 64% 70% 76%Change -2% -2% -1% No Change -3% 5%

Margins

Gross Margin 45.3% 42.0% N/A 43.7% 32.9% 46.5%Q/Q (bps) 70 -158 N/A -53 -115 -173

Operating Margin 23.7% 29.4% 20.8% 18.5% 10.2% 27.1%Q/Q (bps) -106 -226 79 -43 181 -176

Net Income (mn) $262.6 $321.0 $178.0 $113.1 $15.0 $27.3Net Margin 18% 29% 14% 15% 10% 28%Q/Q Growth -5% -3% 1% 1% -7% 2%

Earnings

Diluted EPS $0.27 $0.56 $0.12 $0.38 $0.23 $0.66

Q/Q Growth -5% -3% -4% 1% -7% 2%

Headcount Metrics: (b)

Total Headcount 126,150 104,850 97,810 63,700 14,540 11,760Gross Additions 3,522 4,935 N/A N/A N/A N/ANet Additions -463 1,772 845 2,000 -354 -603Q/Q Growth 0% 2% 1% 3% -2% -5%Attrition (TTM) 11.4% 11.1% 9.5% 13.1% 15.5% 13.2%Ann. Headcount Guidance

Gross Additions N/A 18,000 N/A N/A N/A N/ANet Additions N/A 8,000 N/A N/A N/A N/AHeadcount Est. (Incl. Attrition) N/A 8% N/A N/A N/A N/ACampus Quarterly Hires 2,227 N/A N/A N/A N/A N/ACampus Offers FY 2010 24,885 N/A N/A N/A N/A N/A

Sequential Growth: (c)

Services -

ADM -4% -8% -12% -1% -11% -6%Package Implementation -9% -3% 4% N/A -9% N/AInfrastructure Management -3% 3% 2% N/A -38% N/AEngineering/Testing -11% 18% -15% N/A -11% N/ABPO 85% 1% 2% N/A 0% -8%

Verticals -

Retail (d) -3% 3% -1% 0% N/A 2%Manufacturing (e) -11% 2% 1% 0% -10% N/AFinancial Services (f) -1% -10% -5% -2% -7% -7%Telecom -8% -15% -13% N/A -18% N/AHealthcare 6% N/A 1% 0% N/A -6%

Geographies-

North America -4% -4% -4% -1% -11% N/AEurope -5% -9% -7% 0% -15% N/A

Clients-

Top Account -11% -12% -9% N/A -1% -10%Top 5 4% -5% -9% N/A -14% -12%Top 10 -1% -6% -7% N/A -15% -8%

Client Metrics:

Active Clients 985 579 863 560 320 N/A

Gross New Clients 36 37 20 57 22 4Net New Clients 20 -4 -19 -7 -11 N/AAnnual Revenue/Client (mn) $5.8 $7.7 $4.8 $5.3 $2.0 N/A(a) TCS figures based on US GAAP after rupee to dollar conversion. Wipro revenue in billed (non-GAAP).

(b) Total headcount for TCS excludes subsidiaries.

(c) TCS growth rates found by converting US GAAP revenue per quarter and then multiplying by operating metrics.

(d) Retail includes Distribution vertical for TCS.

(e) Manufacturing and Healthcare combined for Wipro.

(f) Financial Services includes Insurance for all companies.

Source: JMS Research, Company Reports

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PRICING ENVIRONMENT:

Pricing environment continues to be challenging. On a blended basis, pricing was down 5% sequentially onaverage including currency fluctuation. By our calculations, the Tier 1 vendors (Infosys, TCS and Wipro)experienced a 2%-3% decline in pricing while Tier 2 vendors (Syntel and Patni) saw a more significant drop at 6%and 9% respectively. (We note that Patni reported a 1.1% decline in pricing and attributed 9% of its revenue declineto lower volumes while Syntel reported a 4% pricing decline). Infosys provided guidance assuming no furtherdeterioration from the March quarter. We believe that pricing is an ongoing discussion and will continue todeteriorate ending up down in the -5% to -7% range in 2009.

Contrary to vendor commentary, pricing concessions are not considered irrational according TPI. TPIcommented on April 21st that providers are looking at renegotiations earlier to save an RFP, but reductions are notconsidered to be irrational. Concessions include 5%-10% reductions on renegotiations (consistent with past years) inexchange for more work, while new deals are reflecting the reality of the environment. TPI also commented thatlowering pricing does not necessarily close new deals. Providers are not seeing cancellations, but are experiencingdelayed decision making. Most clients are currently looking for deals that deliver immediate impact and those thatdo are closing at a faster pace. The below pricing table includes onsite and offshore pricing changes comparedto last quarter and the same period a year ago.

March Quarter Pricing Decline

q/q y/y q/q y/y q/q y/y

Infosys -2% -7% -4% -8% -3% -9%

Wipro 1% 3% 0% 3% -2% 0%

Syntel -7% -4% -5% -8% -6% -7%

Patni -8% -10% -9% -6% -9% -7%

Avg. -4% -5% -5% -5% -5% -6%

Onsite Offshore Blended

Pricing Comments (March Quarter 2009)INFY WIT TCS

Management assumes pricing will remain at the

March quarter level for the rest of the yearresulting in a 6% annual decrease. The

assumption is based on the notion that most

renegotiations, which began in September, have

been completed. Management did not rule out

the possibility that further renegotiations will

occur.

Management noted that price renegotiations

continue and believes that concessions could be

down 0%-5% for the year.

Management commented that the pricing

environment remains challenging and expects to

experience continued pricing pressure short-

term. (Management does not provide guidance).

SYNT PTI CTSH

Pricing is expected to continue to be a challenge

and additional deterioration as well as increased

offshore work has been included in annual

guidance.

Management believes it has absorbed most of the

impact from pricing deterioration guiding to a

1% decline in the June quarter and 2.5%-3.0%

decline for the year.

Pricing was down a little in line with

management's expectations. The decline was

driven by currency and weakness in financial

services. Management expects pricing to be

down in the low single digits this year.


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DEMAND ENVIRONMENT:

The demand environment appears to be improving with overall commentary indicating stabilization in the Junequarter and acceleration in the back half of the year. Cognizant, Wipro, Syntel, and Patni have all given commentarythat would lead investors to believe that it is possible that we are moving toward a level of stability. Infosys,Cognizant and TCS indicated that things may be bottoming out in financial services. On a large scale, Accenturesand IBMs results both implied that outsourcing remains stable.

Demand Comments (March Quarter 2009)

Infosys Wipro TCS Accenture

Recovery is estimated to be about 12 to 1 8 months

away. The growth outlook for t he clients Infosys

surveyed is down 2%. Management reported a

strong pipeline but a longer sales cycle impacting

closed deals in the short-term.

Management expects stabilization after the summer.

The improved outlook is based on a stronger

pipeline than this time last year and increased

activity in deal conversations compared to 3 or 4

months ago. While technology and financial services

are current weaknesses, management expects most

of the impact from the economic slowdown to have

dissipated in these areas over the next couple

quarters. The determining factor will be the

conversion rate of pipeline d eals. Management

commented it has not seen a significant lengthening

of the sales cycle which is contrary to industry

commentary.

Management noted that the environment remains

challenging and uncertain as not all clients have

closed their budgets. Management expects a lack of

visibility going forward and will continue to drive

work offshore to i mprove margins.

Management noted the outsourcing segment is

seeing strong demand for application outsourcing as

clients look for near-term cost reductions. Demand

is also steady in BPO, especially within finance andaccounting. This demand for outsourcing is further

supported increased outsourcing bookings.

Syntel Patni Cognizant IBM

Management views its pipeline as healthy and is

confident clients will continue to look to outsourcing(about 70% of revenue) as a means to reduce costs.

The company has 80% visibility, above the typical

75% visibility rate at this time of year. Management

expects flat revenue sequentially in the second

quarter followed by revenue growth in the back half

of the year driven by project ramps.

Management guided to 1.0%-1.7% sequential

revenue growth believing that the worst is behind

them after reporting an 11.4% sequential revenue

decline.

Management expects demand for cost containment

services (application management, BOP, IT

infrastructure) to remain strong. Management also

anticipates demand for transformational services to

continue.

Management is seeing strong demand for

outsourcing and transformational services

particularly with healthcare customers. Long-term

outsourcing bookings were up 14% (up 27% in

constant currency).

POLITICAL ENVIRONMENT:

Potential H-1B Visas Legislation:

The H1-B and L-1 Visa Fraud & Prevention Act of 2009

Senators Dick Durbin (D-Ill.) and Charles Grassley (R-Iowa) have reintroduced The H-1B and L-1Visa Fraud &Prevention Act of 2009, aimed at changing the H-1B visa programs in the U.S. H-1B visas allow U.S. employers to

temporarily hire foreign workers in areas including engineering and math. L-1 visas are valid for a shorter periodand are available to employees of a company with offices in the U.S. and a foreign country. The Senators argue thatthe program replaces U.S. workers and note the reports of fraud under the program. (e.g. In April 2009, Cognizantagreed to pay $509,607 to 67 H-1B workers in back wages after an investigation by the U.S. Labor Dept.) The billcontains provisions to increase oversight and discourage outsourcing of H-1B visa holders but not reduce the 65,000H-1B visas available per year. It also requires employers to pledge they have made a good faith effort to hirean American worker first and that the H-1B visa will not replace a U.S. worker. The bill includes provisionsthat prohibit the discriminatory practice of H1-B only ads, prevents employers from hiring additional H-1B and L-1 guest-workers if more than 50% of their employees are H1-B and L-1 visa holders, and gives the governmentmore authority to conduct employer investigations into H-1B and L-1 fraud.

There are a number of things to keep in mind about the proposed bill. The bill does not change the number ofH1-B visa out there (65,000). Among Indian IT companies, Infosys uses the most H-1B visas (4,000) followed by

Wipro (3,000), TCS (2,000). Cognizant was the only other company in the top ten with about 400 applications. Thevendors did not indicate seeing any impact and noted that they have submitted fewer H-1B visas applicationsthis year based on weakened demand. Vendors also mentioned that there is a current shift to increase offshorework which reduced the need for onsite U.S. workers. We note that the same bill was introduced by the Senatorsduring the last congress but the Senators could not rally support. The Indian offshore vendors would not be theonly ones hurt by a reduction in H1-B visas. The last time the bill was introduced Bill Gates (Microsoft) spoke tocongress and argued that the protectionist policies of the U.S. have forced his company to move more work offshore.He said for every one H1-B visa holder here in the U.S. it created employment for four additional workers (NationalFoundation of American Policy). Gates also noted that one quarter of all start up US engineering and technology

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firms from 1995 to 2005 has at least one foreign born founder. On TPIs 1Q 09 call, TPI noted it views the newadministration in the White House as a potential negative for outsourcing, specifically from banking clients thathave accepted TARP. These companies are expected to be more sensitive than other clients due to additionalscrutiny and may look to domestic delivery options.

Types of Visas:

H-1B-person in a specialty occupation H-2B-temporary or seasonal nonagricultural workers H-3-trainees other than medical or academic; also applies to practical training in the education of handicapped

children. More commonly used by BPO companies.

H-4-Dependents of H visa holders L-1-Intracompany transferees-Last initially for 3 years and may be extended annually up to 7 years L-2-Dependents of L-1 visa holders O-1,O-2-Visas for Persons of Extraordinary Ability P-3-for Artist or Entertainers in a culturally Unique Program

Potential Tax Code Legislation:

In early May, President Obama proposed tax changes that would prevent companies from deferring paying

corporate tax on income earned overseas until they brought it back to the U.S. Instead, U.S. companies wouldhave to pay corporate taxes immediately. It may be tougher for these corporations to continue to get a credit forwhatever taxes they paid overseas. The tax changes would also deny these companies the ability to take deductionon expenses. Obama said his budget will change the current tax code that says, You should pay lower taxes if youcreate a job in Bangalore, India, than if you create one in Buffalo, New York. The inability to deduct these taxes isintended to make it more expensive to operate offshore and in turn will provide incentives for U.S. companies tocreate jobs domestically. A number of experts have come out against the tax saying that the real issue is thelabor arbitrage, which really drives offshore outsourcing, not the tax rate. Obamas plan addresses U.S.companies that operate captive subsidiary centers overseas such as IBM Global Services and Accenture. Theproposed tax plan is not expected to impact U.S. companies that hire India based IT vendors. Customers that hireU.S. based IT services companies like IBM which then deliver services from an offshore location could be adverselyimpacted. The irony in the Obama proposition is that it appears to hurt the U.S. domiciled companys abilityto outsource and potentially the incentive to conduct international business, but does not seem to have a large

impact on the India vendors or increase U.S. job employment.

STPI Tax Holiday:

Indias five week long election for its next national government concluded on May 13 th. The vote tally will beannounced on May 16th and the results will have implications for the Software Technology Parks of India (STPI) taxholiday which ends in March 2010. The tax holiday has allowed India IT vendors to operate with a tax rate at aroundthe mid-teens but expiration of the tax holiday could push the tax rate to the mid twenties. The National Associationof Software and Services Companies (Nasscom) has lobbied aggressively for the STPI extension and hascommented that removal of the holiday would have little impact on large vendors (Infosys, TCS, Cognizant andWipro) with a greater impact on the smaller players (Syntel and Patni) as it would be more difficult for thesecompanies to move to smaller Special Economic Zones (SEZ) providing tax relief.

Multiple partners are required to govern India and no single party is expected to occupy a majority of the 543member Parliament. The two largest parties are the ruling Indian National Congress and the opposition BharatiyaJanata Party. A coalition led by the leading party could take place quickly if there is a large enough gap between thetwo parties. It has been speculated that the ruling Indian National Congress would be more likely to extendthe tax holiday again.

The Bombay Stock Exchange and Indian IT vendors (Infosys, TCS and Wipro) have reacted favorably overthe course of the election period which could be considered a positive indicator for the IT vendors withrespect to the STPI situation. We note that if the tax holiday is not extended it would have a larger affect onthe smaller firms compared to the larger vendors.

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MARGIN LEVERS:

Onsite/Offshore Revenue Mix:

The offshore vendors have the ability to offset margin pressure by moving revenue (work) from higher cost onsitelocation to lower cost offshore destinations. Cognizant currently has the most leverage in its model, doing the largest

amount of onsite work, followed by HCL, Patni, TCS, Infosys, Wipro and Syntel. We note that different offeringslend themselves better to offshoring. For example: a large amount of BPO work can be done offshore, less so forapplication development & maintenance, and even less for package implementation. As a result, the type of work thata company performs dictates its ability to move work offshore. In the March quarter, TCS, Syntel and Wipro movedrevenue offshore, while Cognizant, Patni and Infosys had no change in their revenue mix. Wipro, Infosys, Patni,Syntel and TCS have seen an increase of 1%-6% in the amount of offshore work compared to the same period a yearago. Figure 2 below shows the onsite/offshore revenue mix for the Indian vendors. Table 9 breaks down themix by quarter and compared to the same period a year ago.

Figure 2: Onsite/Offshore Revenue Mix (March 2009)


60%

40%

59%

41%

54%

46%

52%48%

51%49%

51%49% 47%

53%

0%

10%

20%

30%

40%

50%

60%

70%

80%

CTSH HC

LPT

ITC

SINFY W

ITSYNT

Onsite

Offshore

Table 9: Revenue Mix Shift

CTSH HCL PTI TCS INFY WIT SYNTQ/Q 0% 12% 0% -4% 0% -2% -2%

Move To- No Change Onsite No Change Offshore No Change Offshore OffshoreY/Y 0% 10% -1% -6% -1% -3% -3%

Move To- No Change Onsite Offshore Offshore Offshore Offshore Offshore


Table 10 details the impact on operating margins for a select group of vendors of a 1% movement in theonsite/offshore revenue mix. A 1% movement offshore has a positive impact on margins, while a 1% movementonsite has the opposite effect. In general, a 1% movement of work offshore has a positive +25 to +40 basis pointimpact in on operating margins.

Table 10: Impact of an Increase in Offshore Work on Margins

Company Name Onsite/Offshore Mix

Infosys 1% movement in revenue offshore = 20-30 bps impact on operating margin

Wipro 1% movement in revenue offshore = 18-20 bps impact on operating margin

Syntel* 1% movement in revenue offshore = 20 bps impact on operating margin

* JMS estimate


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Utilization:

Utilization decreases for most vendors. Utilization for Infosys, TCS, and Wipro was down in the 1%-2% range,while Syntel increased utilization 5% due in part to decreasing headcount 5%. Patni decreased headcount 2% andutilization 3%. Infosys provided fiscal 2010 hiring guidance of 18,000 gross (8,000 net) while TCS noted it has made24,885 campus offers for fiscal 2010. The campus hirings will initially allow for a bench build up that can be utilized

should the demand environment improve. Cognizant, Infosys and Wipro currently run at the lowest utilization ratesand thus have the most leverage available to offset margin pressure, while Patni and HCL have the highest utilizationrates in the group. Figure 3 below shows the utilization rates for the offshore vendors. Table 11 displaysmovements in utilization rates sequentially and annually.

Figure 3: Offshore Utilization*

*Utilization includes trainees. INFY-JMS estimated Offshore Utilization.

CTSH-Offshore Utilization including trainees.Company wide utilization for TCS & PTI


64%67%

70% 72%73% 75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

CTSH INFY WIT TCS PTI HCL

Table 11: Increase/Decrease in UtilizationCTSH INFY WIT TCS PTI HCL SYNT

Q/Q 0% -2% -1% -2% -3% 0% 5%

Y/Y 11% -4% 1% -6% 0% 3% 10%


Table 12 details the impact on operating margins for a select group of vendors of a 1% movement in the utilizationrate. A 1% increase has a positive impact on margins, while a 1% decrease has the opposite affect.

Table 12: Impact of Increase in Utilization on Margins

Company Name UtilizationInfosys* 1% increase in utilization= 0.7%-1.0% increase in revenue (flows through)

Cognizant 1% increase in utilization = 40-50 bps impact on operating margin

Wipro 1% increase in utilization = 40-45 bps impact on operating margin

Patni 1% increase in utilization = 17 bps impact on operating margin

Syntel* 1% increase in utilization = 15-20 bps impact on operating margin

* JMS estimate

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SG&A Expense:

The offshore vendors have the ability to offset margin pressure by decreasing SG&A spending. Among companiesunder coverage, Cognizant spent the most on SG&A as a percentage of revenue in the March quarter and on averageover the last five quarters followed by Syntel. Cognizant has the most SG&A leverage in the group. Table 13displays SG&A costs as a percentage of revenue.

Table 13: SG&A as % of Revenue

Company Mar-08 Jun-08 Sep-09 Dec-08 Mar-09 AverageCTSH 23.1% 24.4% 22.7% 22.5% 22.4% 23.0%TCS 21.8% 19.8% 21.3% 19.7% 21.6% 20.8%SYNT 20.8% 19.1% 19.1% 19.4% 19.4% 19.6%PTI 17.6% 18.4% 18.7% 18.1% 18.6% 18.3%HCL 16.3% 17.0% 17.0% 17.6% 15.7% 16.7%INFY 12.9% 12.8% 13.5% 11.7% 12.6% 12.7%WIT 13.4% 12.9% 12.5% 13.4% 12.3% 12.9%


IN THE NEWS:

Offshore IT Services

May 5th-Nasscom and Infosys do not see any immediate impact from Obamas outsourcing tax proposal.Obamas has proposed to remove tax incentives for U.S. companies outsourcing jobs overseas. Under current law,U.S. multinational firms do not pay taxes on income earned abroad until they bring the money back to the U.S.Infosys CEO S Gopalakrishnan commented that he currently does not see any impact from the proposed legislationbut added that additional information is needed on the legislation. Nasscom believes that U.S. will be more impactedthat the Indian outsourcing industry.

May 5th-Wipro wins outsourcing deal with Unitech Wireless. Wipro will provide a range of IT services under thenine-year outsourcing contract.

May 8th-Wipro Chairman Azim Premji takes wait and see approach to Obamas proposed tax change.Commenting on the economy, Premji stated there are signs of stability and a recovery is expected at the beginningof the December 2009 quarter.

May 11th-HCL Chairman comments that Obamas tax proposal will not impact Indian outsourcing sector.Regarding President Obamas proposal to cut tax benefits for companies outsourcing to overseas firms, HCLChairman and CEO Ajai Chowdhry stated that only U.S. companies will be affected. Chowdhry also noted thatsigns of recovery are evident citing the positive performance of the Sensex and manufacturing vertical.

May 13th-Infocrossing, a Wipro company, and Sunoco announce four year $34 million contract extension.Infocrossing will assist in managing Sunocos mainframe, UNIX and Windows environments as well as provideshared infrastructure services.

May 13th-Accenture sets up separate unit to handle low priced contracts. The move is in response to newercontracts coming in at a lower price. The Economic Times reported Accenture normally charges approximately $28per hour but new contracts are estimated to be approximately 10% less. The report also notes that Accenture isbeginning to compete for projects at prices on par with Indian IT competitors.

May 13th-TCS wins 5 year IT contract with Volkswagen to provide onshore and offshore transformation andIT support. TCS will consolidate and standardize Volkswagens IT platform in an effort to optimize costs for theautomaker.Terms of the deal were not disclosed.

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May 14th-U.S. businesses stop cutting IT spend. The Wall Street Journal reported that interviews with more than adozen CIOs and corporate technology executives indicate that a range of U.S. businesses have completed techspending cuts. While budgets appear to be leveling off, executives do not intend to increase budgets again until theirbusinesses and the economy display stability for several quarters. For 2010, tech budgets are expected to be flat.

May 15th-More companies outsourcing to India. The Economic Times reported an increase in the number ofcompanies outsourcing tech requirements in the last few months in an effort to curb costs. Small U.S. and Europeanbased customers which previously preferred local IT vendors are shifting to Indian vendors including Wipro,Cognizant, Syntel and WNS as the Indian IT vendors offer a larger portfolio of services at attractive prices.

Sources for the In the News include: JMS Research, Economic Times, and Dow Jones Newswire, Inquirer.net, and

company press releases.

THE MARKETS:

U.S. Markets

Sector Implications-The fallout in the U.S. financial system has had a negative affect on the offshore group whoreceives a significant portion of their revenues (40% to 60%) from this industry. A combination of this and theglobal economic melt down has meant that IT budgets are expected to be down 8% to 10% and pricing is expected

to be down 3% to 5%. On the operating side, vendors are expected to increase utilization rates and move workoffshore to compensate for slow headcount growth and flat to decreasing pricing. Rupee depreciation is expected tobring relief to margins, which have expanded and contributed to earnings upside. We track the list of companysmaking headlines and their exposure to our coverage list. We have heard commentary from Infosys, Cognizant andTCS indicating that financial services may be reaching a bottom. A number of sources have mentioned that we theybelieve we are heading toward stability. Table 14 below is our evaluation of the offshore vendors exposure tothe companies that made headlines last year and continue to impact results.

Table 14: Offshore Vendor Exposure to Clients in the Headlines

Infosys (INFY) Cognizant (CTSH) Wipro (WIT) Syntel (SYNT) Patni (PTI) Satyam (SAY)

Bank of America (BAC)

Significant

(Top Ten Client) No Exposure No Exposure No Exposure No Exposure No Exposure

Lehman Brothers (LEH) Insignificant Insignificant Insignificant No Exposure No Exposure Insignificant

Merrill Lynch (MER) Insignificant No Exposure No Exposure No Exposure No Exposure SignificantAmerican Int. Group (AIG) No Exposure No Exposure Insignificant Insignificant Insignificant Insignificant

Goldman Sachs (GS) Significant No Exposure Insignificant No Exposure Insignificant No Exposure

Citigroup (C) Significant Insignificant Insignificant No Exposure Insignificant Significant

Washington Mutual (WM) Insigni ficant 1% of Revenue Reasonable Size No Exposure No Exposure No Exposure

Morgan Stanley (MS) No Exposure Insignificant Insignificant No Exposure No Exposure No Exposure

JP Morgan (JPM) Insignificant Significant Significant Insignificant No Exposure Insignificant

Wachovia (WB) Significant 1% of Revenue N/A No Exposure No Exposure No Exposure

Nortel 0.5% of Revenue Insignificant 1.5% of Revenue No Exposure No Exposure No Exposure


Satyam Fallout-State Farm and the United Nations are the only Satyam clients to confirm they have terminatedcontracts with Satyam. The Satyam board had acknowledged that two clients have provided a termination notice, butthe board did not discuss specifics. There has been speculation about several clients (Cigna, Citigroup, Merrill

Lynch, Novartis, GlaxoSmithKline and Coca-Cola) who might be leaving Satyam. We note that some of Satyamclients have been in discussion with the companys competitors about a transition, but a transition could take 3-6months. We believe the velocity at which clients are leaving Satyam has slowed given Satyams recent sale to TechMahindra. It is still uncertain what the retention rate will be with Tech Mahindra now involved. The involvement ofTech Mahindra opens the door for offshore vendors to openly go after clients. Table 15 below provides a list ofSatyam clients that there has been speculation that they could be leaving Satyam.

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Table 15: Clients Potentially Leaving Satyam

Clients Confirmed Defection Potential Beneficiaries Est. Contract Size

State Farm Yes Patni, TCS $50 million

United Nations Yes N/A N/A

Merrill Lynch No TCS $40 million

GlaxoSmithKline No Cognizant $35 million

Coca-Cola No HP $100 million

Citigroup No Wipro, TCS $60 million

Novartis No In house N/A

Assurant No Zensar $5 million

Visa No N/A N/A

Cigna No N/A 6-year

Nestle No N/A 3-year, $75 million

BP No N/A N/A

Tesco No Infosys, TCS Non Top Ten Client

National AUS Bank No N/A N/A

Quantas Suspended Future Work TCS N/A

GE No TCS N/A

Telstra No EDS, IBM, Infosys $100 mn ('04)

Nissan No TCS, Wipro, Cognizant $35 million

Pfizer No Cognizant N/A

SanDisk No N/A N/A

Source: Economic Times, JMS Research

Indian Market

Sector Implications-A number of the stocks that we cover are American Depository Receipts (ADRs). As a result,the stocks are listed on their local countries exchanges and tend to trade in tandem with the local shares. Our list ofADRs is-Infosys, Patni and Wipro.

On average, the stock price from the offshore IT vendors outperformed the market in the last month and YTD.Vendors commentary pointing to near term stabilization has overshadowed in line March quarter results. Amongthe BPO players, EXL is the lone company to be in the red in the past month as investors appear to take a wait to seeapproach regarding the impact of announced contract wins.

Table 16: Stock and Index Performance (YTD and 1 Month Ago)Company Ticker

Infosys INFY

Wipro WIT

Cognizant CTSH

Syntel SYNT

Patni PTI

WNS WNS

Genpact G

ExlService EXLS

Average -

Index Ticker

S&P 500 SPXNASDAQ 100 NDX

SENSEX BSESN 26.2% 7.9%

29.3% 13.1%

12.2% 2.8%

YTD 1 Month Ago

-1.1% 6.1%

8.0%

26.7%

3.5%

30.2%

16.6%

5.9%

-14.9%

42.6%

27.7%

38.2%

21.9%

56.6%

1 Month Ago

28.1%

Source: Baseline and JMS Research

YTD

9.5%

15.6%

23.0%

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Short Interest

Short interest has decreased for the group as short covering has helped increased stock performance. The shortinterest on Syntel remains highest for the group at 9.6% of float. Short interest for Cognizant decreased 21% to 2.8%of float. On the BPO side, short interest doubled for WNS but remains 0.0% of float. Short interest for EXL andGenpact saw double digit decreases to 1.5% and 0.6% of float respectively.

Table 17: Short Interest Metrics

Company Ticker 4/15/09 4/30/09 % Change % of Float Days to Cover

Infosys INFY 10,432,400 8,963,300 -14.1% N/A 2.8

Wipro WIT 6,030,300 5,827,300 -3.4% 0.4% 10.1

Cognizant CTSH 10,346,800 8,085,500 -21.9% 2.8% 1.5

Syntel SYNT 2,413,000 2,129,600 -11.7% 9.6% 8.4

Patni PTI 76,700 75,700 -1.3% 0.1% 1.1

WNS WNS 13,500 7,800 -42.2% 0.0% 0.2

Genpact G 739,700 586,800 -20.7% 0.6% 2.6

ExlService EXLS 434,600 372,300 -14.3% 1.5% 7.8

Short Interest (Shares Short)

Source: shortsqueeze.com and JMS Research

CURRENCY

Currency-We consistently track the exchange rate between U.S. dollar and the Indian Rupee and Philippine Peso.The outsourcing companies we cover take in U.S. dollars, but pay employees in local currency. As a result, amovement in the currency can have a positive or negative affect on margins. The rupee has continued todepreciate versus the dollar in 2009, which should help the margins of our Indian coverage list, but couldhurt other income as hedging gains decrease or turn into losses. The pound depreciated against the dollar inthe March quarter negatively impact revenue approximately 1% for the IT services group but has sinceappreciated.

U.S. Dollar to Indian Rupee-The Indian rupee depreciated 0.2% on an absolute basis last week versus the dollarclosing at 50.44. The rupee has depreciated 4.1% versus the dollar on an absolute basis YTD and 0.5% in the Junequarter vs. the March quarter using averages.

Figure 4: U.S. Dollar to Indian Rupee

Source: Federal Bank of New York (noon rate), JMS Research

37.0

39.0

41.0

43.0

45.0

47.0

49.0

51.0

53.0

Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09

Monthly Depreciation (+)/Appreciation (-) on an Absolute Basis

1.1%0.3% 0.7%

6.4%7.4%

1.8%1.9%

-1.1% -2.2%

4.2%

-1.3%

3.5%

1.2%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr

Table 18: Impact of Rupee Fluctuation on Margins

Company Name Rupee Exposure Gross Impact from 2% Rupee Depreciation (In Mar Qtr)

Infosys 1% chg in rupee = 40 bp impact on operating margin 50 bps impact on operating margins

Wipro 1% chg in rupee = 40 bp impact on operating margin 80 bps impact on operating margins

Patni 1% chg in rupee = 30 bp impact on operating margin 60 bps impact on operating margins

Cognizant 1% chg in rupee = 25 bp impact on operating margin 50 bps impact on operating margins

Syntel 1% chg in rupee = 20-25 bps impact on operating margin 40-50 bps impact on operating margins


U.S. Dollar to Euro-The euro appreciated 1.3% last week on an absolute basis versus the dollar closing at 0.76euros per dollar. The euro has depreciated 7.2% versus the dollar on an absolute basis YTD but has appreciated1.1% in the June quarter vs. the March quarter using averages.

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Figure 5: U.S. Dollar to Euro

Source: JMS Research

0.5

0.6

0.7

0.8

0.9

1.0


Monthly Depreciation (+)/ Appreciation (-) on an Absolute Basis

9.5%

1.4%0.4%0.5% -10.0%

1.3%-1.7%

6.2%

1.6%

10.7%

-6.5%

2.9%1.2%

-15.0%-13.0%-11.0%

-9.0%-7.0%

-5.0%-3.0%-1.0%1.0%3.0%5.0%7.0%9.0%

11.0%13.0%15.0%


U.S. Dollar to British Pound-The British pound depreciated 0.3% last week on an absolute basis versus the dollarclosing at 0.68 pounds per dollar. The pound has appreciated 1.0% versus the dollar on an absolute basis YTD and2.2% in the June quarter vs. the March quarter using averages.

Figure 6: U.S. Dollar to British Pound

Source: JMS Research

0.4

0.5

0.6

0.7

0.8


Monthly Depreciation (+)/Appreciation (-) on an Absolute Basis

1.2%0.3% -2.8%0.3%

6.2%

0.7%-0.9%

8.8%

0.2%

10.3%

-2.0%

7.2%

0.6%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


Table 19: Recent Company NotesCompany Ticker Date Published Title

Infosys INFY April 16th 4Q 09 Review

Wipro WIT April 23rd 4Q 09 Review

Syntel SYNT April 27th 1Q 09 Review

Patni PTI April 29th 1Q 09 Review

Genpact G May 6

th

1Q 09 ReviewCognizant CTSH May 6th 1Q 09 Review

ExlService EXLS May 7th 1Q 09 Review

WNS WNS May 8th 4Q 09 Review

Table 20: Recent Industry NotesIndustry Date Published Title

IT Services April 14th March Quarter 2009 IT Services Preview

IT Services April 21st 4Q 09 Comparison of Infosys and TCS Results

IT Services April 22nd 1Q 09 TPI Index Call

Please Contact JMS for Full Report-EARNINGS MODELS AVAILABLE ON REQUEST

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APPENDIX-OFFSHORE METRICS

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Offshore IT Services - Financial MetricsUS GAAP

Revenue ($ in millions)

Fiscal Year Ticker Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

TTM Rev./

TTM Avg. Growth

Mar TCS (1) 1,183.9 1,278.0 1,415.5 1,503.0 1,507.7 1,525.2 1,574.2 1,483.0 1,433.2 6,015.6

q/q growth 8% 8% 11% 6% 0% 1% 3% -6% -3% -1%

y/y growth 42% 42% 45% 37% 27% 19% 11% -1% -5% 6%

Mar INFY 862.7 928.1 1,021.6 1,084.0 1,141.9 1,154.9 1,215.9 1,171.4 1,121.0 4,663.2

q/q growth 5% 8% 10% 6% 5% 1% 5% -4% -4% 0%

y/y growth 45% 41% 37% 32% 32% 24% 19% 8% -2% 12%Mar WIT (2) 761.5 801.0 886.0 995.0 1,033.0 1,023.0 1,019.0 1,042.0 969.0 4,053.0

q/q growth 8% 5% 11% 12% 4% -1% 0% 2% -7% -2%

y/y growth 37% 41% 39% 41% 36% 28% 15% 5% -6% 10%

Dec CTSH 460.3 516.5 558.8 600.0 643.1 685.4 734.7 753.0 745.9 2,919.1

q/q growth 8% 12% 8% 7% 7% 7% 7% 2% -1% 4%

y/y growth 61% 53% 48% 41% 40% 33% 31% 26% 16% 26%

Jun HCL Tech 362.4 395.7 429.0 461.0 484.9 504.0 504.7 507.0 564.4 2,080.1

q/q growth 9% 9% 8% 7% 5% 4% 0% 0% 11% 4%

y/y growth 44% 45% 43% 39% 34% 27% 18% 10% 16% 18%

Dec PTI 156.0 163.3 169.5 174.1 176.4 182.6 183.5 176.4 156.4 698.8

q/q growth 1% 5% 4% 3% 1% 3% 1% -4% -11% -3%

y/y growth 20% 14% 12% 13% 13% 12% 8% 1% -11% 2%

Dec SYNT 75.4 80.4 87.9 94.0 98.5 103.4 103.8 104.7 96.4 408.3

q/q growth 3% 7% 9% 7% 5% 5% 0% 1% -8% 0%

y/y growth 19% 25% 27% 29% 31% 29% 18% 11% -2% 14%

Total 3,862.2 4,163.0 4,568.3 4,911.1 5,085.5 5,178.5 5,335.8 5,237.6 5,086.3 20,838.2

q/q growth 7% 8% 10% 8% 4% 2% 3% -2% -3% 0%

y/y growth 42% 41% 40% 36% 32% 24% 17% 7% 0% 12%

(1) Reported in rupees under US GAAP. Calculated by dividing revenue in rupees by the c losing exchange rate at the end of the period or by rate given by company.

(2) Reported revenue for IT Services

Unless otherwise noted, all figures according t o US GAAP

Sources: Company Reports

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Offshore IT Services - Financial Metrics

US GAAP

Gross Margins Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

Mar TCS (1) 42.6% 44.1% 44.8% 45.4% 44.3% 42.1% 45.7% 44.6% 45.3%

q/q bps -291 156 73 52 -102 -229 365 -109 70

y/y bps -123 99 -52 -10 179 -206 86 -76 97

Mar INFY 42.4% 38.7% 42.1% 41.9% 41.8% 39.7% 43.3% 43.6% 42.0%

q/q bps -56 -377 346 -21 -11 -213 358 34 -158

y/y bps 215 -240 -112 -108 -63 100 112 167 20 Mar WIT (2) - - - - - 34.0% 32.6% 32.8% N/A

q/q bps - - - - - - -139 24 N/A

y/y bps - - - - - - - - -

Dec CTSH 44.6% 43.4% 43.2% 43.1% 43.0% 44.4% 44.8% 44.3% 43.7%

q/q bps -58 -121 -18 -15 -3 139 32 -49 -53

y/y bps 17 -69 -157 -212 -157 103 153 118 68

Jun HCL Tech 38.2% 37.7% 37.0% 38.0% 38.6% 40.5% 39.4% 39.3% 37.1%

q/q bps 40 -51 -71 101 56 189 -111 -2 -228

y/y bps 44 111 13 18 34 275 235 132 -152

Dec PTI 35.8% 32.4% 30.9% 30.5% 28.7% 30.3% 33.5% 34.1% 32.9%

q/q bps 29 -340 -150 -42 -182 166 319 57 -115

y/y bps 32 -512 -474 -503 -714 -208 261 360 427

Dec SYNT 39.1% 38.2% 39.8% 39.4% 40.3% 41.1% 44.3% 48.3% 46.5%

q/q bps 31 -99 167 -39 85 83 317 398 -173

y/y bps 82 254 142 59 114 296 446 883 625

(1) Figures are reported in rupees under US GAAP.

Calculated by dividing revenue in rupees by the closing exchange rate at the end of the period or by rate given by company.

(2) IT Services

Sources: Company Reports, First Call, JMS Estimates

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US GAAP

Operating Margins


Mar TCS (1) 25.6% 22.9% 23.6% 24.2% 22.2% 22.1% 24.2% 24.8% 23.7%

q/q bps -48 -274 70 61 -197 -13 216 53 -106

y/y bps 286 50 -174 -191 -340 -79 67 60 151

Mar INFY 27.5% 24.7% 27.5% 28.7% 28.8% 26.7% 29.5% 31.7% 29.4%

q/q bps -104 -278 283 120 4 -209 285 216 -226

y/y bps 121 -106 -75 22 129 198 200 296 66

Mar WIT (2) - - - - - 20.0% 20.2% 20.1% 20.8%

q/q bps - - - - - - 18 -16 79

y/y bps - - - - - - - - -

Dec CTSH 18.2% 17.6% 18.1% 17.7% 17.4% 17.5% 19.4% 18.9% 18.5%

q/q bps 17 -61 54 -41 -32 9 195 -47 -43

y/y bps -46 -46 -12 -30 -80 -9 132 126 115

Jun HCL Tech 19.1% 17.3% 17.3% 17.4% 18.3% 19.5% 18.6% 17.9% 16.4%

q/q bps 119 -181 1 12 90 123 -94 -72 -150

y/y bps 153 -71 -37 -48 -77 226 131 47 -192

Dec PTI 19.4% 19.8% 17.1% 15.5% 9.8% 9.2% 15.1% 8.4% 10.2%

q/q bps 175 39 -272 -155 -572 -62 587 -666 181

y/y bps 1942 1982 56 -213 -960 -1062 -203 -714 39

Dec SYNT 22.0% 18.0% 19.0% 16.6% 19.4% 22.1% 25.2% 28.9% 27.1%

q/q bps 241 -395 92 -238 287 261 313 369 -176

y/y bps 36 51 -58 -301 -255 402 623 1230 767

(1) TCS figures are reported in rupees under US GAAP.

Calculated by dividing revenue in rupees by the closing exchange rate at the end of the period or by rate given by company.(2) IT Services

Unless otherwise noted, all figures are calculated according to US GAAP


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US GAAP

Earnings Per Share Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

Mar TCS (1) $0.30 $0.30 $0.30 $0.35 $0.34 $0.30 $0.29 $0.28 $0.27

y/y growth 71% 57% 37% 33% 13% 2% -3% -18% -20%

Mar INFY $0.45 $0.46 $0.48 $0.54 $0.54 $0.54 $0.56 $0.58 $0.56

y/y growth 66% 48% 37% 42% 20% 17% 16% 7% 4%

Mar WIT $0.14 $0.12 $0.14 $0.14 $0.15 $0.13 $0.12 $0.13 $0.12

y/y growth 47% 29% 33% 24% 9% 9% -13% -12% -19%

Dec CTSH $0.25 $0.27 $0.32 $0.32 $0.34 $0.35 $0.38 $0.38 $0.37

y/y growth 56% 48% 56% 39% 37% 28% 19% 18% 10%

Jun HCL Tech $0.11 $0.17 $0.11 $0.12 $0.13 $0.05 $0.11 $0.11 $0.06

y/y growth -14% 18% -30% -35% 13% -73% -2% -8% -49%

Dec PTI $0.40 $0.48 $0.39 $0.36 $0.26 $0.35 $0.63 $0.25 $0.23

y/y growth 93% - 23% -3% -35% -28% 61% -31% -10%

Dec SYNT $0.37 $0.32 $0.44 $0.39 $0.49 $0.42 $0.54 $0.64 $0.66

y/y growth 26% 20% 26% 20% 33% 31% 21% 67% 33%

(1) TCS figures are reported in rupees under US GAAP.



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INDIAN GAAP

Revenue (Rs. in Crore)


TTM Rev./

TTM Avg. Growth

Mar TCS (1) 5,146.4 5,202.8 5,549.7 5,924.1 6,046.5 6,410.7 6,953.4 7,277.0 7,171.8 27,812.9

q/q growth 6% 1% 7% 7% 2% 6% 8% 5% -1% 4%

y/y growth 32% 26% 24% 22% 17% 23% 25% 23% 19% 22%

Mar INFY 3,772.0 3,773.0 4,106.0 4,271.0 4,542.0 4,854.0 5,418.0 5,786.0 5,635.0 21,693.0

q/q growth 3% 0% 9% 4% 6% 7% 12% 7% -3% 6%

y/y growth 44% 25% 19% 17% 20% 29% 32% 35% 24% 30%

Mar WIT (2) - 3,159.7 3,491.9 3,890.4 4,120.6 4,404.5 4,750.0 5,079.2 4,932.3 19,166.0

q/q growth - - 11% 11% - - 8% 7% -3% 4%

y/y growth - - - - - 39% 36% 31% 20% 31%

Jun HCL Tech (1) 1,577.1 1,612.0 1,709.2 1,816.6 1,944.8 2,168.8 2,369.3 2,469.1 2,861.5 9,868.7

q/q growth 8% 2% 6% 6% 7% 12% 9% 4% 16% 10%

y/y growth 41% 29% 24% 24% 23% 35% 39% 36% 47% 39%

Dec PTI 716.1 734.9 709.0 701.3 711.4 816.6 852.8 874.4 667.4 3,211.2

q/q growth 2% 3% -4% -1% 1% 15% 4% 3% -24% 0%

y/y growth 21% 11% -1% 0% -1% 11% 20% 25% -6% 12%

Totals - 14,482.4 15,565.8 16,603.3 17,365.3 18,654.6 20,343.5 21,485.8 21,268.0 81,751.8

q/q growth - - 7% 7% 5% 7% 9% 6% -1% 5%

y/y growth - - - - - 29% 31% 29% 22% 28%

(1) TCS and HCL Tech figures are reported in rupees under US GAAP. Calculated by dividing revenue in rupees by the closing exchange rate at the end of the period or by rate given by company.

(2) IT Services



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INDIAN GAAP

Gross Margins Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

Mar TCS (1) 42.6% 44.1% 44.0% 45.4% 44.3% 42.1% 45.7% 44.6% 45.3%

q/q bps -291 156 -16 142 -102 -230 365 -109 70

y/y bps -123 99 -142 -10 179 -206 176 -76 97

Mar INFY 46.4% 42.5% 45.7% 45.6% 45.4% 43.3% 46.6% 46.9% 46.0%

q/q bps -56 -391 315 -10 -21 -209 338 21 -89

y/y bps 61 -223 -122 -141 -107 75 98 129 61

Jun HCL Tech (1) 38.3% 37.7% 37.0% 38.0% 38.6% 40.5% 39.4% 39.4% 37.1%

q/q bps 42 -53 -69 100 55 189 -110 -3 -228

y/y bps 43 110 15 19 33 275 235 132 -151

(1) TCS and HCL Tech figures are reported in rupees under US GAAP.




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INDIAN GAAP

Operating Margins


Mar TCS (1) 25.6% 23.1% 22.6% 24.2% 22.2% 22.1% 24.2% 24.8% 23.7%

q/q bps -48 -253 -47 157 -197 -12 216 53 -106

y/y bps 286 71 -270 -191 -340 -99 164 60 151

Mar INFY 27.9% 24.9% 27.8% 29.0% 29.1% 27.0% 29.8% 31.9% 29.5%

q/q bps -95 -298 285 125 7 -210 286 203 -236

y/y bps 163 -106 -84 17 119 207 208 286 43

Mar WIT (2) - 21.0% 21.9% 21.4% 21.0% 21.0% 21.0% 20.6% 21.8%

q/q bps - - 90 -50 - - 0 -40 120

y/y bps - - - - - - -90 -80 80

Jun HCL Tech (1) 19.1% 17.3% 17.3% 17.4% 18.3% 19.5% 18.6% 17.9% 16.4%

q/q bps 122 -183 3 13 89 123 -94 -71 -150

y/y bps 154 -72 -35 -46 -78 227 131 47 -192

Dec PTI 25.6% 23.9% 17.4% 17.9% 13.1% 15.3% 20.3% 10.0% 15.7%

q/q bps 223 -178 -651 57 -482 218 499 -1025 571

y/y bps 991 536 -293 -549 -1254 -858 292 -790 263

Earnings Per Share Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

Mar TCS (1) 11.98 12.11 11.82 13.60 13.47 12.71 12.89 13.82 13.43

y/y growth 47% 37% 17% 20% 12% 5% 9% 2% 0%

Mar INFY 19.97 18.82 19.19 21.47 21.78 22.70 24.97 28.63 28.13

y/y growth 68% 33% 17% 25% 9% 21% 30% 33% 29%

Mar WIT (3) 6.00 4.98 5.65 5.86 6.03 6.21 6.70 6.89 6.93

y/y growth 39% 16% 17% 10% 1% 25% 18% 18% 15% Jun HCL Tech (1) 4.83 7.13 4.53 4.88 4.95 2.07 5.25 5.58 3.28

y/y growth 70% 117% 22% 16% 2% -71% 16% 14% -34%

Dec PTI 11.26 10.54 7.09 7.32 5.75 8.55 13.26 4.54 7.03

y/y growth 123% -256% -17% -32% -49% -19% 87% -38% 22%

(1) TCS and HCL Tech figures are reported in rupees under US GAAP.


(2) IT Services

(3) For total company.



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Offshore IT Services - Operating Metrics (Total Headcount)

Total Headcount

FY End Ticker Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 TTM Average

Mar TCS (1) 85,582 91,094 100,362 104,399 107,698 112,593 117,921 126,613 126,150 120,819

# change q/q 5,827 5,512 9,268 4,037 3,299 4,895 5,328 8,692 -463 4,613

% change q/q 7% 6% 10% 4% 3% 5% 5% 7% 0% 4%

Mar INFY 72,241 75,971 80,501 88,601 91,187 94,379 100,306 103,078 104,850 100,653

# change q/q 2,809 3,730 4,530 8,100 2,586 3,192 5,927 2,772 1,772 3,416

% change q/q 4% 5% 6% 10% 3% 4% 6% 3% 2% 4%

Mar WIT - 82,565 88,661 91,756 95,567 95,675 97,552 96,965 97,810 97,001

# change q/q - - 6,096 3,095 3,811 108 1,877 (587) 845 561

% change q/q - - 7% 3% 4% 0% 2% -1% 1% 1%

Dec CTSH 43,450 45,550 48,900 55,400 58,000 59,300 59,500 61,700 63,700 61,050

# change q/q 4,585 2,100 3,350 6,500 2,600 1,300 200 2,200 2,000 1,425

% change q/q 12% 5% 7% 13% 5% 2% 0% 4% 3% 2%

Jun HCL Tech 40,149 42,017 45,642 47,954 49,802 50,741 52,714 55,018 54,026 53,125

# change q/q 1,832 1,868 3,625 2,312 1,848 939 1,973 2,304 (992) 1,056

% change q/q 5% 5% 9% 5% 4% 2% 4% 4% -2% 2%

Dec PTI 13,096 13,723 14,290 14,945 15,152 15,044 14,701 14,894 14,540 14,795

# change q/q 292 627 567 655 207 -108 -343 193 -354 -153

% change q/q 2% 5% 4% 5% 1% -1% -2% 1% -2% -1%

Dec SYNT 8,673 9,238 10,670 11,709 12,093 12,045 12,277 12,363 11,760 12,111

# change q/q 309 565 1,432 1,039 384 (48) 232 86 (603) -83

% change q/q 4% 7% 16% 10% 3% 0% 2% 1% -5% -1%

Total - 360,158 389,026 414,764 429,499 439,777 454,971 470,631 472,836 459,554

# change q/q - - 28,868 25,738 14,735 10,278 15,194 15,660 2,205 10,834% change q/q - - 8% 7% 4% 2% 3% 3% 0% 2%


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Offshore IT Services - Operating Metrics

Billable Headcount (End of Period)

FY End Ticker Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

Mar INFY (1) 55,440 57,244 60,928 66,366 67,516 69,405 75,220 77,607 78,870

# change q/q 1,757 1,804 3,684 5,438 1,150 1,889 5,815 2,387 1,263

% change q/q 3% 3% 6% 9% 2% 3% 8% 3% 2%

Mar WIT (2) - 48,072 52,162 54,374 56,318 55,585 55,979 54,706 55,209

# change q/q - - 4,090 2,212 1,944 (733) 394 (1,273) 503

% change q/q - - 9% 4% 4% -1% 1% -2% 1%

Dec CTSH 40,800 42,700 45,800 52,100 54,400 55,500 55,500 57,600 59,500

# change q/q 4,300 1,900 3,100 6,300 2,300 1,100 - 2,100 1,900

% change q/q 12% 5% 7% 14% 4% 2% 0% 4% 3%

Jun HCL Tech (3) 21,013 23,160 25,667 26,778 26,567 26,592 27,282 29,174 28,887

# change q/q 1,009 2,147 2,507 1,111 (211) 25 690 1,892 (287)

% change q/q 5% 10% 11% 4% -1% 0% 3% 7% -1%

Dec PTI 11,823 12,353 12,868 13,498 13,636 13,548 13,190 13,331 12,990

# change q/q 270 530 515 630 138 (88) (358) 141 (341)

% change q/q 2% 4% 4% 5% 1% -1% -3% 1% -3%

Dec SYNT 8,074 8,623 10,030 10,969 11,290 11,254 11,457 11,531 10,911

# change q/q 270 549 1,407 939 321 (36) 203 74 (620)

% change q/q 3% 7% 16% 9% 3% 0% 2% 1% -5%

(1) For INFY-Estimated Billable Headcount includes Trainees and excludes Progeon.

(2) IT services results(3) HCL Tech billable headcount for software services only



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Onsite Billable Headcount


Mar INFY 12,162 13,056 13,517 14,286 14,528 14,897 16,002 15,494 15,321

# change q/q 486 893 461 770 242 368 1,105 (508) (173)

% change q/q 4% 7% 4% 6% 2% 3% 7% -3% -1%

Mar WIT (1) - 11,185 11,712 12,401 13,161 13,275 13,491 13,653 12,034# change q/q - - 527 689 760 114 216 162 (1,619)

% change q/q - - 5% 6% 6% 1% 2% 1% -12%

Dec CTSH 10,200 10,675 11,450 13,025 13,600 13,875 13,875 14,400 14,875

# change q/q 1,075 475 775 1,575 575 275 - 525 475

% change q/q 12% 5% 7% 14% 4% 2% 0% 4% 3%

Dec PTI 2,777 2,741 2,817 2,784 2,786 2,902 2,889 2,816 2,697

# change q/q 147 (36) 76 (33) 2 116 (13) (73) (119)

% change q/q 6% -1% 3% -1% 0% 4% 0% -3% -4%

Dec SYNT 1,527 1,597 1,674 1,709 1,752 1,712 1,807 1,686 1,632

# change q/q (28) 70 77 35 43 (40) 95 (121) (54)

% change q/q -2% 5% 5% 2% 3% -2% 6% -7% -3%

Offshore Billable Headcount


Mar INFY 43,278 44,188 47,411 52,080 52,988 54,508 59,218 62,113 63,549

# change q/q 1,271 911 3,223 4,668 908 1,521 4,710 2,895 1,436% change q/q 3% 2% 7% 10% 2% 3% 9% 5% 2%

Mar WIT (1) - 37,961 41,316 42,795 43,266 42,092 41,928 39,924 41,419

# change q/q - - 3,355 1,479 471 (1,174) (164) (2,004) 1,495

% change q/q - - 9% 4% 1% -3% 0% -5% 4%

Dec CTSH 30,600 32,025 34,350 39,075 40,800 41,625 41,625 43,200 44,625

# change q/q 3,225 1,425 2,325 4,725 1,725 825 - 1,575 1,425

% change q/q 12% 5% 7% 14% 4% 2% 0% 4% 3%

Dec PTI 9,046 9,612 10,051 10,714 10,850 10,646 10,301 10,515 10,293

# change q/q 526 566 439 663 136 (204) (345) 214 (222)

% change q/q 6% 6% 5% 7% 1% -2% -3% 2% -2%

Dec SYNT 6,547 7,026 8,356 9,260 9,538 9,542 9,650 9,845 9,279

# change q/q 298 479 1,330 904 278 4 108 195 (566)

% change q/q 5% 7% 19% 11% 3% 0% 1% 2% -6%

(1) WIT Total Results are only from IT Services and exclude ITES

Sources: Company Reports, JMS Estimates

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Onsite/Offshore Headcount Split


Mar INFY

Onsite 22% 23% 22% 22% 22% 21% 21% 20% 19%

Offshore 78% 77% 78% 78% 78% 79% 79% 80% 81%

Mar WIT (1)Onsite 23% 25% 24% 24% 24% 24% 25% 24% 23%

Offshore 77% 75% 76% 76% 76% 76% 75% 76% 77%

Dec CTSH

Onsite 25% 25% 25% 25% 25% 25% 25% 25% 25%

Offshore 75% 75% 75% 75% 75% 75% 75% 75% 75%

Dec PTI

Onsite 22% 21% 21% 20% 19% 20% 21% 20% 20%

Offshore 78% 79% 79% 80% 81% 80% 79% 80% 80%

Dec SYNT

Onsite 19% 19% 17% 16% 16% 15% 16% 15% 15%

Offshore 81% 81% 83% 84% 84% 85% 84% 85% 85%

Onsite/Offshore Revenue Mix


Mar TCSOnsite 54% 55% 53% 54% 53% 55% 53% 51% 48%

Offshore 41% 41% 43% 41% 42% 41% 43% 44% 48%

Mar INFY

Onsite 54% 54% 53% 53% 52% 53% 52% 51% 51%

Offshore 46% 46% 47% 47% 48% 47% 48% 49% 49%

Mar WIT (1)

Onsite - 55% 54% 55% 54% 54% 54% 53% 51%

Offshore - 45% 46% 46% 46% 46% 46% 47% 49%

Dec CTSH

Onsite 60% 60% 60% 60% 60% 60% 60% 60% 60%

Offshore 40% 40% 40% 40% 40% 40% 40% 40% 40%

Dec HCL Tech

Onsite 52% 52% 51% 50% 49% 50% 48% 47% 59%

Offshore 48% 48% 49% 51% 51% 50% 52% 54% 41%

Dec SYNT

Onsite 52% 50% 49% 49% 50% 50% 51% 49% 47%

Offshore 48% 50% 51% 51% 50% 50% 49% 51% 53%

(1) WIT Total Results are only from IT Services


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Utilization - Onsite/Offshore


Mar TCS

Utilization 75% 76% 74% 73% 76% 75% 75% 72% 69%

Mar INFY

Onsite Utilization 100% 100% 100% 100% 100% 100% 100% 100% 100%

Offshore Utilization 58% 61% 61% 60% 60% 60% 61% 59% 57%

Company Utilization (a) 68% 71% 71% 70% 70% 70% 71% 69% 67%

Mar WIT (1)

Onsite Utilization - 95% 95% 95% 95% 95% 95% 95% 95%

Offshore Utilization - 68% 68% 67% 67% 68% 71% 71% 70%

Company Utilization - 67% 67% 67% 67% 68% 70% 70% 68%

Dec CTSH



Dec HCL Tech (2)



Dec PTI

Company Utilization 73% 72% 73% 73% 70% 72% 75% 73% 70%

Dec SYNT



Attrition, Annualized


Mar TCS 11.3% 11.5% 11.5% 12.2% 12.6% 12.8% 13.2% 11.9% 11.4%

Mar INFY 13.7% 13.7% 14.2% 13.7% 13.4% 13.6% 12.8% 11.8% 11.1%

Mar WIT (1) - 19.2% 16.9% 16.4% 15.9% 15.2% 13.5% 13.9% 10.5%

Dec CTSH 15.0% 17.0% 17.0% 12.4% 12.4% 15.0% 17.6% 11.5% 8.3%

Dec SYNT 14.5% 13.9% 14.1% 14.5% 14.3% 14.5% 14.3% 14.1% 10.1%

Dec PTI 29.1% 30.1% 27.6% 25.1% 23.0% 21.2% 20.2% 18.6% 15.5%

Jun HCL Tech 17.5% 17.3% 16.5% 15.5% 15.2% 14.8% 14.2% 13.4% 13.1%

(1) WIT Total Results are only from IT Services and exclude ITES. Company utilization excludes support.

(2) HCL Tech metric for software services only

All offshore utilization figures include trainees


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Offshore IT Services - Operating Metrics (Per Employee)

Avg Bill Rates (a)

Ticker Mix Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

INFY Onsite $69.91 $70.90 $72.99 $73.77 $73.73 $73.75 $74.22 $69.89 $68.52

Offshore $27.65 $27.94 $28.67 $29.05 $29.21 $29.19 $29.21 $27.86 $26.74

Blended $41.14 $41.57 $42.35 $42.67 $42.75 $42.83 $42.67 $40.06 $38.85

WIT (1) Onsite $66.99 $66.52 $68.03 $68.82 $67.51 $70.12 $71.42 $68.65 $69.24

Offshore $24.50 $24.48 $24.91 $24.88 $24.85 $25.59 $26.06 $25.63 $25.61

Blended $37.70 $37.60 $37.99 $38.15 $37.79 $38.91 $39.70 $38.45 $37.81

CTSH Onsite $72.52 $72.52 $72.52 $72.52 $72.52 $72.52 $72.52 $72.52 $72.52

Offshore $25.23 $25.23 $25.23 $25.23 $25.23 $25.23 $25.23 $25.23 $25.23

Blended $41.44 $41.44 $41.44 $41.44 $41.44 $41.44 $41.44 $41.44 $41.44

PTI Onsite $66.05 $68.69 $67.93 $70.62 $70.76 $70.28 $69.40 $69.23 $63.50

Offshore $21.32 $21.27 $21.37 $20.60 $20.74 $21.87 $23.01 $21.53 $19.60

Blended $31.83 $31.79 $31.56 $30.91 $30.96 $32.24 $33.17 $31.61 $28.71

SYNT Onsite $55.89 $56.79 $58.99 $61.71 $64.85 $68.05 $67.23 $67.24 $62.53

Offshore

janney montgomery scott it report

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