Private equity deals in the infrastructure (roads/highways) sector

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					    The India Infrastructure Sector
    Surface Transport Summit - 2010

    December 21, 2010


This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Agenda

• Infrastructure Sector Overview


• Development Roadblocks


• Need for Coordinated Development




20/05/2012
                                                                                                                                         NDL    CII conference Surface Transport-v1 2
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Infrastructure Investments are growing…

 (% of GDP)
   11

   10
                                                                                                                                       China is around 11%
     9
                                                                                                                                                                          8% Projected
     8

     7
                                                                                                                                                 6.5 %
     6
                                                                                                                        5%
     5                                                                                     4.6% Estimated

     4                                                      3.5%

     3
                                                      33 Year Low
     2

     1
             1999           2000           2001          2003         2004          2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
                                                                                                                 11th Plan Period

            Source: Morgan Stanley Research till F2003, GoI estimates post 2004
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  This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
India’s Infrastructure Deficit……

Roads                    • 66,790 km of National Highways & Expressways – 2% of the
                           total Road network carrying 40% of the Total traffic!
                         • Only 12% of the NH network is 4-laned or more; 35% 2-
                           lane and 53% is still single lane
Ports                    • India’s merchandise trade as % of GDP is 33%, while China
                           is way ahead at 66%
                                                                                                                                                     India’s Infrastructure
                         • India’s ports handle 7 million TEUs of containerized traffic,                                                              deficit is not just a
                           vis-à-vis China’s 110 million TEUs!                                                                                          macro GDP level
                                                                                                                                                      statistic; it is a real
                         • The Throughput capacity/km of coastline in India is 0.09 mn                                                                 issue faced by the
                           tonnes, compared with China’s 0.31 mn tonnes
                                                                                                                                                      country’s populace
Irrigation               • 54% of our total land area is arable; However only 34% of
                           this arable land is irrigated
Power                    • Per capita consumption* of Power in India is 631 KW hours,
                           way lower than countries such as US (13,338), UK (6,206),
                           France (7,689), Japan (8,076), Australia (11,126)



  *As per UN methodology :Per Capita Consumption equal to gross Electrical Energy Availability/Population
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   This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Projected investment of USD 492 billion in
infrastructure over the period 2007-12…
                                                                                                            XI Plan Period
                                            2006-07                                                                                                                                 Total
    In USD billion                                                    2007-08              2008-09                2009-10              2010-11              2011-12

 Projected GDP
                                              1025                      1117                  1217                  1327                  1447                 1577
 factoring 9% growth
Projected Gross
Capital Formation in
                                                                          6%                    7%                    7%                    8%                   8%
Infrastructure as % of
GDP
 Required Gross
 Capital Formation in                                                     67                    85                    93                   116                  126                  492
 Infrastructure




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    This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Projection vs Reality
                                                                                                                                 Expected to
                                Sector                         Target Investment               Expected Investment
                                                                                                                                 Target

                                Irrigation                                             53                                50             High
                                Road                                                   76                                55          Medium
                                Power                                                150                                 85              Low

                                Water                                                  50                                30          Medium
                                Telecom                                                65                                40          Medium
                                Railways (incl                                         62                                40          Medium
                                MRTS)
                                Ports                                                  18                                10              Low
                                Airports                                                 8                                 5             Low
                                Storage                                                  6                                 5            High
                                Gas                                                      5                                 5            High
                                Total                                                492                               325



     Most sectors will not be able to meet the targeted spends
                                                                                                                                         NDL    CII conference Surface Transport-v1 6
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Expected to increase to ~ US$ 700 bn in the
period 2012-2017…..

                              Sector-wise Investments
           Sector                                                                    $ Billion
           Electricity                                                                350-400
           Roads                                                                      180-220
           Telecom                                                                       50-75
                                                                                                                                      Given past performance,
           Railways                                                                     80-100
                                                                                                                                      about US$ 650 – 700 bn
           Irrigation                                                                 120-150                                            would be a realistic
                                                                                                                                              estimate
           Water Supply & Sanitation                                                     50-60
           Ports                                                                         30-40
           Airports                                                                      10-15
           Storage                                                                        5-10
           Gas                                                                          80-100
           TOTAL                                                                       ~1,000
            (INDICATIVE ESTIMATES, BASED ON ACTUALS TILL DATE IN
            11TH PLAN), Government Plans
                                                                                                                                         NDL    CII conference Surface Transport-v1 7
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Agenda

• Infrastructure Sector Overview


• Development Roadblocks


• Need for Coordinated Development




20/05/2012
                                                                                                                                         NDL    CII conference Surface Transport-v1 8
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Road block 1 – Financing Environment

        Longer terms concern on availability of relevant debt, and the
         creditworthiness of federal and state governments, specific
                elements of the model concession agreement


   •Tenure and cost issues on debt from financial institutions

   •Most States and Centre reaching/crossed FRBM norms

   •Concession agreement lacunae not addressed yet




                                                                                                                                         NDL    CII conference Surface Transport-v1 9
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Road block 2 : Multiple Authority
                                                                                                               UNION LIST
STATE LIST                                                                                                     • Railways, National Highways
• Public order & police                                                                                        • Foreign exchange and foreign loans
• Local government                                                                                             • Trade and commerce with foreign countries
• Public health & sanitation                                                                                   • Definition of customs frontiers
• Roads, bridges, etc.                                                                                         • Income taxes, excise duties, customs duties
• Water
• Land, incl. Colonization
• Industries
• Gas & gas works
• Taxes on:
    • Land & buildings
    • Entry of goods into a
      local area
    • Consumption / sale of
      electricity
    • Sale / purchase of goods
    • Professions, trades, etc.
    • Luxuries &
      entertainments
    • Stamp duties

                   CONCURRENT LIST
                   • Ports, other than major ports
                   • Major Airports
                   • Electricity


                                                                                                                                            NDL    CII conference Surface Transport-v1 10
    This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Road Block 3 : Land Availability

• All infrastructure projects require large land tracts

• With a highly agrarian and (rural) farmer dominated economy and
    polity, land acquisition even by the state has become a hugely emotive
    and difficult issue


• The immediate sector impacted have been
       -Roads
       -Power
       -Airports
       -Special Economic Zones




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 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Road Block 4 : Mindset – Lack of monitoring
mechanisms
• No capability to measure “plan” vs “”actual”


• No Single point responsibility for Infrastructure Creation –
   -on the sponsor or developer sides
   -On the federal/state/urban local body side




                                                                                                                                         NDL    CII conference Surface Transport-v1 12
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Agenda

• Infrastructure Sector Overview


• Development Roadblocks


• Need for Coordinated Development




20/05/2012
                                                                                                                                         NDL    CII conference Surface Transport-v1 13
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Large inefficiencies in the Indian Transport
Logistics Sector…
            Country               Logistics                                                              Logistics Cost Estimates in India
                                   Sector
                                                                                            Handling &
                                  % of GDP                                                  Warehousing
                                                                                                                           Others              Transportation
                                                                                                                            9%                     33%
       India / China                 13 - 15%                                                    9%
                                                                                       Packaging
       US                                9.9 %                                           11%
                                                                                                                                                                     Source : ETIG
       Europe                             10 %                                                    Losses                                                             analysis
                                                                                                   14%                                   Inventories
       Japan                           11. 4 %                                                                                              24%




  •   The Logistics costs incurred are significant - 13% of GDP
  •   Losses and waste estimated at about 14%
  •   Cost structure of bulk rail transport amongst the highest in the world
  •   Bulk of Losses due to intermodal transfer




                                                                                                                                         NDL    CII conference Surface Transport-v1 14
 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Example : Paradip Port…

                               Paradip port has mechanized berths for bulk materials…

•   Draft of 14.30 m and can handle Panamax vessels
•   Mechanized coal handling plant capacity of 20 MT
•   Ability to handle 2 vessels simultaneously
•   Multipurpose and dedicated berth for iron ore




                   … underutilizes capacity/high cost due to connectivity constraints

•   Loss of cargo to competing ports due to poor connectivity infrastructure
•   Underutilization of existing capacity - Thermal coal berth is being operated at
    60% capacity utilization
•   Iron ore moves by truck to the port – transport cost increase by >100%, Losses
    of 3%+
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     This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Coordinated Development the only answer

• In today’s context, transport is more system driven than
  single mode driven
• Heavy investment/capacity creation in one mode will
  create bottlenecks/inefficiencies in others
• Multiple authorities drive each mode – at central and state
  level
• Integrated transport and logistics policy as a precursor to
  integrated transport ministry is a possible answer
       -Road
       -Rail
       -Port
       -Inland waterways

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 This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
                                                                                             • QUESTIONS




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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent

				
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