Emerging India: Capturing Opportunities
Presentation to
Mr. James W Griffith, President & CEO, The Timken Company
by
Apoorv R Sharma, GM, Amity Innovation Incubator
Sumit Rambani, Consultant Ashraf Virk, Consultant
14th April 2008
AMITY
• Amity is currently a leading education provider in India with programs ranging from pre-nursery to post-doctoral levels in almost all areas including management, engineering, law, communication, insurance, behavioural science, fine arts etc
• Presently, more than 50,000 students study in 130 programs across 22 campuses spread over 700 acres of land with 4.1 million sq. ft. of built area. • One of the first to launch programs like Cyber Law, Bioinformatics and Nanotechnology among many others in India.
Source: http://www.amity.edu
AMITY INNOVATION INCUBATOR
• Amity Innovation Incubator (AII) which is a registered society supported by an advisory body consisting of industrialists, venture capitalists, technical specialists and managers established to help entrepreneurs realize their dreams.
• The core team of AII has decades of experience in assisting entrepreneurs through Incubation and Venture Capital Financing
• AII offers a range of incubation services to nourish entrepreneurial talent such as: -Investment Advisory -Business Advisory -IP Advisory -Mentoring -Soft landing of Overseas Companies in India
Source: www.amity.edu/aii
Why India ?
Why India?
• Broad based economic growth
• Accelerating reform process • Stable macroeconomic indicators • Changing consumer demographics and lifestyles
Acceleration of reforms…
Tight government controls: 1947-1991
• Public control of key sectors • Planning Commission created • Administered prices for commodities • Capacity controls • Nationalization of financial sector • Foreign exchange control • High taxation (a max. marginal rate of 90%)
Early Reforms: 1991-1996
• IMF program established • Reduction of budget deficit
• Tariffs lowered and simplified
• Currency made fully convertible for current account • Automatic approval for foreign stakes of up to 51% • Capacity controls abolished • Privatization program initiated
Corporate reforms: 1996-1998
• New takeover code
Reforms accelerate: 1998-present
• FDI encouraged
• 100% stakes allowed for foreign investors
• Deregulation of financial institutions • India signatory to WTO
• Share buybacks allowed
• Insurance system reformed • Patent law enacted • New trademark law enacted • New foreign exchange law enacted
• New telecom policy adopted
• Major privatization initiative implemented • Legal reforms undertaken
India will become…
…with the fastest growth rate
Projected GDP Growth Rate 10% 8% 6% 4% 2% 0%
India
China
Brazil
Russia
US
UK
France Germany
Italy
Japan
Source: Goldman Sachs BRIC Report, Merrill Lynch
Long Term Market Performance
Last 5 years
CAGR 40%
Source: BSE India
Improving country currency ratings
“India is now more than ever a focus for international investors, who are eager to take part in a new India.”
- Rodrigo de Rato, M.D., International Monetary Fund.
"India's external balance sheet has strengthened markedly, due to reserves accumulation and prudent debt management, which should lower the external liquidity risk from its fiscal vulnerability.” - Ping Chew, Director, Sovereign and International Public Finance Group, S&P.
Long-term Foreign Currency Rating Current Fitch BBB- (Nov. 2007) Previous BB (Nov. 2001)
Long-term Local Currency Rating Current BBB- (Nov. 2007) Previous BB+ (Nov. 2001)
Moody’s
S&P
Baa3 (Aug. 2007)
BBB- (Mar. 2008)
Ba1 (Mar. 2002)
BB (Sep. 2002)
N.A.
BBB- (Mar. 2008)
N.A.
BBB- (Aug. 2001)
Stable currency, favorable outlook
Exchange Ratio
49
Indian Rupee ($INRUSD) - Currency Spot Rate
47
45
43
41
39 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07
Average depreciation over Last 10 Years = 0.4 % “Over the long term, India's exchange rate will surely appreciate – and massively - as it catches up with the rest of the world in productivity.’’
- Kenneth Rogoff, Harvard University Economics Professor.
Source: Reserve Bank of India
India is a “red-hot” FDI Destination
AT Kearney FDI Confidence Index – 2007
Over USD 45 Bn FDI Inflow since FY01
Country Break-up : Centers of Action
Growth led by services & manufacturing..
Contribution to GDP (%) 100% 80 60 40 20 0
Agriculture Services
148 404 1,144 4,568 26,796 30,164 34,195 38,404 42,863
GDP in Rs. BN
Industry
1960
1970
1980
1990
2003
2004
2005
2006
2007
Source: India Infoline, CIA, World Bank Data
Highly diversified services growth
Financial Services
>$ 85 BN
Banking Sector: In banking, deposits saw a 19% CAGR over 2002-07, hitting US$650bn. Since the sector was opened up to private players in 1990s, banks such as ICICI Bank and HDFC Bank have acquired meaningful size. India has close to 71,000 bank branches. Mutual Funds & Insurance Sector: With the advent of private players in areas like mutual funds and insurance, penetration levels have started to inch upwards. The insurance sector was opened up in 2002, and foreign majors like Prudential, New York Life, Allianz, etc, have entered the market through joint ventures. Insurance premium rose 22% over 2002-07, reflecting the sector’s momentum and growing size. In recent years, nonbanking financial-services companies in broking, personal loans and financial-products distribution have been scaling up rapidly.
Retail
$ 202 BN
• A.T. Kearney has estimated India's total retail market at $202.6 billion which is expected to grow at a compounded 30 per cent over the next five years.
*Source: Indian Brand Equity Foundation (www.ibef.org)
$ 90 BN
Tourism and Hospitality
According to WTTC's exclusive TSA Research, by 2014, the travel and tourism economy is expected to generate $90.4 billion of total demand and nearly 28 million jobs.
Highly diversified industrial growth
Textiles
$ 85 BN
• Indian textile and apparel industry can achieve a potential size of US$ 85 billion by 2010, with a domestic market size of US$ 45 billion and nearly 60 per cent of exports comprising of garments.
Pharmaceuticals
$ 12 BN
• The pharma industry's turnover is expected to increase to US$ 12 billion by 2008 from US$ 6.3 billion in 2002. • The Indian pharma industry has the highest number of plants approved by the US Food and Drug Administration (FDA) outside the US.
• It also has the largest number of Drug Master Files (DMF’s) filed which gives it access to the high growth generic bulk drugs market.
$ 40 BN
Automobiles • Turnover exceeded USD 23 BN in 200304. Production exceeded 6 million units in 2004-05 and 10 million units in 2006-07.
*Source: Indian Brand Equity Foundation (www.ibef.org)
Highly diversified industrial growth
Telecommunications India’s telecom sector is the poster boy of Indian reforms and the country is among the fastestgrowing mobile markets in the . world. As of December 2007, there are 229 million mobile subscribers and monthly mobile net adds, at eight million, are the highest in the world Energy - Oil and Gas $ 9 BN Auto Components $ 6.7 BN • A robust component industry has developed around the auto clusters and exports have crossed US$1bn in 2006. The auto-component export opportunity is estimated at US$25bn by 2012.
$ 24 BN
“With more than a billion people, a structural demographic shift resulting in exploding consumption expenditure, full deregulation of a 100 m tonne market growing at twice world averages, India represents one of the most exciting oil markets in the world today” - CLSA Asia Pacific
According to a CII-McKinsey report, manufacturing exports from India are likely to grow to $300BN in 2015 from $48BN in 2003.
*Source: Indian Brand Equity Foundation (www.ibef.org), Business Monitor International: “India Oil and Gas Report” 2004.
Real Estate Revenue Pool
USD 300 – 600 BN over next 5 years
600
USD 537 BN USD 30 BN
USD 25 BN USD 592 BN
500 400
Revenue Pool
(USD BN)
300 200 100 0
USD 268 BN USD 9 BN USD 13 BN
USD 290 BN
Construction Area (M sft) High Low
Residential 21,340 6,700
Commercial 263 100
Retail 137 68.5
Total 21,740 6,869
USD 50 – 100BN FDI potential in next 5 years
Source: CBRE, FIRE Capital, Merrill Lynch.
Increasing housing shortage
Usable Housing Stock Number of households
Housing shortfall (MN homes) 30
300
200
20
100
10
0
1961
1971
1981
1991
2001
2005E
2011E
0
Urban 6.7M : Rural
Source: Merrill Lynch
12.7M
Service sector boom: BPO
USD BN 25 21.0 20 15 10 5 0
BPO Revenues
2.3 2003 2008E
Source: NASSCOM-McKinsey Study 2003, NASSCOM Indian Software and Services 2002-03, IDC, JMS Research
Service sector boom: IT
USD BN 40 35 30 25 20 15 10 5 0 1.8 1998 2003 2008E 7.2 Indian IT Services Revenues 36.0
Growth Rates Global IT Market CAGR Indian IT Exports CAGR
1998-2003 6% 32%
2003-2008E 7*% 38%
Source: NASSCOM-McKinsey Study 2003, NASSCOM Indian Software and Services 2002-03, IDC, JMS Research * For the period 2002-2007
Lack of infrastructure has been a major concern
“The issue that has to be dealt with in India, first and foremost, is infrastructure - ahead of everything else. It's important that folks outside India see an effort and willingness (from the Indian government) to invest in infrastructure.” - Brett White, President, CB Richard Ellis.
Rural backbone is being built…
• PMGSY (Pradhan Mantri Gram Sadak Yojna or Prime Minister rural roads program) would forge the “farm-tomarket” link that entails upgrading the entire rural network. • The budget outlay for the rural roads program has been more than doubled to USD 30 BN • Land prices along the roads have gone up significantly
Source: India Today (11th April, 2005)
…strong infrastructure development underway
Growing middle class
Number of households (population), millions
Household Income Class “Rich”: > Rs 0.5 Mn CAGR: 15%
1995 - 96
1.2 (7)
2001 - 02 2.6 (15)
FY2009(E) 7 (40)
“Upper Middle”: Rs 0.3 – 0.5 Mn CAGR: 10%
“Middle Income”: Rs 0.1 – 0.3 Mn CAGR: 2% “Lower Income”: < Rs 0.1 Mn CAGR (8%)
32.5 (186)
46.4 (265)
91 (525)
54.1 (312)
74.4 (429)
85 (490)
77.0 (444)
57.2 (332)
30 (177)
55 million families (320 million people) added in the middle income group
Source: ICICI Venture Fund
…that has more than ever to spend!
Mean Disposable Household Income (Rs. '000)
125 100 75 50 25 0
1990
1995
2000
2005
2010
Source: National statistical offices/UN/Euromonitor
India has the largest young population…
0-14
EU
15-34
35-59
>60
USA
China
India
0
25
50
% of Population (2003)
75
100
Highest proportion of population below 35 years (70%) in India…
Source: ICICI Venture Fund
…which means many more workers
Population (Million) 1,500
87
1,000
73
295
240 365 449
500
365
391
0
>60 35-59 working 15-34 population 0-14
2003
2009E
130 m plus people get added to working population by 2009!
Source: ICICI Venture Fund
Growing Urbanisation
50
Urban population as % of Total
40 30
%
20 10 0 1950
1960
1970
1980
1990
2000
2010
2020
2030
2005 Urban Population (in Mn) 332
2010E 380
2015E 435
2020E 499
2025E 566
2030E 633
Source: Geo Hive, Census data GOI
Changing Consumer
• New Age
Status Acquisition, Indulge, Consume, Credit
- Rapid advances witnessed by India in areas like education, communication, information technology and transportation have created a sense of freedom in the minds of consumers.
- Urbanization producing more and younger families with both the spending power and the desire to spend. - Growing media penetration is leading to a convergence of aspirations of various classes of consumers, bridging the rural-urban divide. - Younger population tends to have higher aspirations and spends more as it enters the earning phase. - Urban consumers today are relatively less price sensitive than a few years earlier - Urban households spending 2.5x more than rural families. - Decrease in the average size of the family.
• More is less
• Similar mindsets
• Indulgence
• Brand / Price sensitivity
• Growing number of double-income households • Credit no more a feared entity
Proof of spending power…
Million units
150
100
50
2007E 2003
0
1998
TV Cable TV 2-Wheelers Cars Tax Payers Cellular Basic Telephone Subscribers
CAGR*
7.7
13.5
16.4
18.9
18.2
8.8
63.8
The urban Indian is developing a wannabe attitude, matching the consumer thought process in developed markets
* CAGR calculated for the period 2003 – 2007. Source: CB Richard Ellis
Demographics
Literacy
• Government spend on education, at about 1% of GDP, remains low (10% in China) and the country intends to push this up to 6% with an enhanced focus on primary education and vocational training. • The private sector is increasingly involved in education and training, estimated to be a US$40bn opportunity. • An estimated 350,000 engineers and 60,000 MBA candidates graduate every year
The Steel Industry
• At 45 million tonnes per year, India is the world’s fifth-largest steel producer, and at 44kg, its per-capita steel consumption is sharply lower than the world average of 150kg. • India has vast iron-ore reserves (17-18bn tonnes), but coking-coal reserves are limited and is primarily imported. The country now exports around 90 million tonnes of iron ore (20% of China’s imports). • India’s steel industry is consolidated, with 67% of production from the six largest players (42% from the top two), and modernised. Apart from mild steel, India is a large producer of pig iron (mini blast furnace), sponge iron and alloy steel (electric arc furnace). • India now targets 100 million tonnes of steel production by 2012, and Arcelor Mittal, Posco, Tata Steel and other steel majors have proposed large investments.
Source: CMIE, CLSA
The Bearings Industry
India Overview
• The Indian bearing industry is $670 million in size, where the organised sector accounts for 53 per cent of the market. • Imports account for the next 23 per cent and the rest is smuggled into the country. • There are 12 large and medium units which together turn out over 100 million bearings every year.
• Since the bearing industry is technology intensive and brand conscious, most Indian players have so far worked in collaboration or as joint venture partners with other more established global players
• Leaders in this market are SKF in ball bearings (a 41 per cent marketshare); FAG in spherical roller bearing (60 per cent); NBC in taper roller bearings (23) and NRB in needle roller bearings (100).
Source: Emkay, IBEF
Foreign companies
Taking a keen interest in the Indian market
• Glacier Garlock Bearings, now part of the US-based EnPro group, opened up its firstoffice in India.
- GGB's focus in India will be to penetrate the OEM markets as a bearing supplier for automotive and industrial products.
• European Bearing Company plans to build a bearing manufacturing plant in Hyderabad at a cost of $27 million.
- Production in Hyderabad will cater to India's industrial manufacturing and mining sectors, and the rail industry.
• Germany's INA Bearings too has begun an expansion programme in Pune which will double its manufacturing capacity there by 2008.
- Although INA has had a direct presence in India since 1990, it begun manufacturing bearings since 2002. - INA will spend $34 million on the new facility.
• Magnum Engineers and Germany's Diamant MetalPlastic formed a consortium to develop and manufacture molded polymer air bearings last year.
- Their target is to reduce manufacturing costs for a line of specialtyengineered air bearings by as much as 50 per cent. - The consortium will receive the bulk of its funding from INTEC.
Source: Emkay, IBEF
Shift with Clients Overseas manufacturing
• While there continues to be a large domestic market to cater to, the need to go overseas has never been higher. "Our traditional Indian customers are setting up plants overseas. Bajaj Auto has plans to go to Nigeria and Argentina. It has already set up a manufacturing base in Indonesia. TVS Motors too is planning expansion there. Tata Motors has acquired facilities in Spain and South Korea for its large commercial vehicle segment. Earlier our customers were here, so we stuck to the market but now with Indian companies going abroad, we have to move with them."
Source: Emkay, IBEF
Harshbeena Zaveri, President, NRB Bearings.
Chinese Manufacturers Stiff Competition
• Dumping is a common offence, where Chinese bearings are sold in the local market under fake brand names.
"This is a technology-intensive industry and there is a significant difference in the quality of both products, which works in India's favour.“
-Umesh Karne, Analyst, Emkay Brokers & Research.
Source: Emkay, IBEF
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