India Overview.ppt

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iTech 2004

   ITES-BPO:
 Infrastructure Challenges




        January 13th 2004
 CB Richard Ellis - Global
2002 HIGHLIGHTS *
• Sale and lease       Worlds Largest
  assignments,
                       Real Estate Consulting Firm
  valuing over $ 80
  billion               Annual revenues exceeded US$
                         1.75 Billion in year 2002
• $ 9 billion in        Global     firm    with  14,000
  commercial             employees       in  250   offices
  financings through     spanning 48 countries across six
  L.J.Melody &
  Company                continents
                        Ability to translate strategy into
                         transaction and more
• 940 million square
  feet of property
  and corporate
  facilities under
  management
                                                                                             $ 1.75 Billion
                                             $ 1.2 Billion

                                                             $ 1.3 Billion

                                                                             $ 1.2 Billion
                               $ 1 Billion




• $ 14 billion in
  assets under
  management
                              1998 1999 2000 2001 2002*
  through CB
  Richard Ellis             * Combined figures
  investors

2
CB Richard Ellis - India
HIGHLIGHTS
                         India’s Largest
• Over 400
  dedicated              Real Estate Consulting Firm
  professional staff.     First global real estate consulting firm to
                           establish operations in India in 1995.
• Over 450                Full-fledged offices in major cities including
  Consulting               New Delhi, Mumbai, Bangalore and Chennai
  Assignments              .
  undertaken in 67
  cities in Indian sub    Project Offices in Chandigarh, Hyderabad,
  continent.               Calcutta, Saharanpur and Kanpur.
                          Experience with the Public and Private
                           sector spanning industrial and residential
• Transacted more
  than 5 mn. sq. ft.       township developments, IT parks, office
                           buildings, retail and entertainment formats,
                           resorts and hotels.
• More than 20 mn.        Assisted Government        in   Infrastructure
  sq. ft. under FM         Development projects.

• Project
  Management for
  over 2.3 mn. sq. ft.



3
Integrated Service Delivery Platform


                                                                              Over 450 assignments
     Over 20 mn sft under                                                      executed across 67
        management                           Strategic                            cities in India
    Certified for quality and               Consulting
    excellence ~ ISO 9001

                                   Prominent Clients
                                         Tidel Park
                            Project management of Prominent Clients
                                       Integrated
                                over 2.3mn sftStadiumService
                                        HiTech City
       Asset                       Mohali Cricket     ITDC - Disinvestment      Transaction
      Services                          Delivery Platform
                                        MGF Mall    AAI - Disinvestment
                                                       Extensive Market
                                                         Kinfra – IT Park
                                                                                Management
                             Specialize in Project
                            Management for „BPO”
                                    Sun Microsystems       Coverage
                                                        Hyderabad Airport
                                                       HP-Compaq Pre Merger
                                 companies
                                                         Over 5 mn sft
                                                          transacted             Prominent Clients
       Prominent Clients
                                                                                         Intel
         The World Bank
                                                                                   American Express
          Kinfra IT Park
                                             Project                                    Cisco
            ABN Amro
                                                                                   Hughes Software
         Daksh E Services                  Management                              TATA Teleservices
              Aviva




4
Agenda

     Redefining the Economic Paradigm
     India Economy
     Indian Real Estate Industry
     Infrastructure (Real Estate!!)
     The Way Forward…




5
Redefining the Economic Paradigm..

    “A nation should specialize in exporting those goods/services for which its opportunity
      cost of production is lower than other countries' opportunity costs”
                                                               - Alfred Marshall



                                                                             Location
                                                                         India‟s emerging
                                                                         Emerging Trade
                                                                          Alternatives ~
                                                                             Production
                                                                        Paradigm ~ From
                                                                           comparative
                                                                         Guns and Butter
                                                                        Possibility Curve ~
                                                                        advantage within
                                                                             principal of
                                                                          (Production) to
                                                                                India
                                                                            comparative
                                                                          Processes and
                                                                            advantage
                                                                        Solutions (Services)




6
    Strategic Importance - Location




      Location decisions are essentially capital investment decisions that
     impact shareholder wealth through their expected effect upon future
                      corporate expenses and revenues




      Location choice should relate to the broader context of company's
           efforts to increase its sources of competitive advantage




        A formal committed location search process guided by strategic
                        business drivers is imperative

7
Is India the right location -

                                INDIA IS SHINING

                                            Some positive indicators…
                                            • GDP Growth – 7-8%
                                            • Sensex crosses 6000
                No more a                   • India's foreign exchange
               STATEMENT                      reserves are over US$100
                  But a                       billion
                 FACT ??                    • Brand ‘India’
                                            • Emerging an R&D hub




                                    Challenges…
                                     Well YES!


8
                              9




Indian Real Estate Industry
 How important is Real Estate

                              Barriers To Achieving 10%GDP Growth (2000 – 2010)

                                                                                       This represents
                             0.20% 0.10%
                                                                                         almost 25%
                     0.70%                                                            additional growth,
                                                                                      hence Real Estate
           1.30%
                                                                                        key for Higher
                                                            Status Quo Growth         Economic Growth
                                                            Product Market Barriers
                                                            Land Market Barriers
                                                            Privatization                   It becomes
                                                5.50%
                                                            Labour Market Barriers      pertinent for the
                                                            Lack Of Infrastructure     Govt. under such
            2.30%
                                                                                       circumstances to
                                                                                          focus on real
                                                                                      estate reforms, that
                                                                                         would further
     *Source: Mckinsey Report On India 2000                                                improve the
                                                                                      industry prospects




10
 Indian Real Estate Industry

     Historically….
      High Real Estate cost
      Minimal Financial Institution participation
      High borrowing cost
      Limited supply
      Majority – Average & low quality construction
      Strata Ownership
      Restrictive legislative framework like ULCRA
      High Transaction costs and Property tax
      Rent control legislation
      Ownership / Title / Legal issues
      Real Estate not seen as regular income generating asset – primarily capital gain
       expectation.


11
 Real Estate Affordability

                                                       GDP p er Head at PPP Vs Re al Estate Co st in USD p er sft pe r mo nt h




                                                                                                                                                                                                                                        GDP per head in USD at PPPP
                             12.00                                                                                                                                                                                             30,000
     USD per sft per month




                             10.00                                                                                                                                                                                             25,000

                              8.00                                                                                                                                                                                             20,000

                              6.00                                                                                                                                                                                             15,000

                              4.00                                                                                                                                                                                             10,000

                              2.00                                                                                                                                                                                             5,000

                              0.00                                                                                                                                                                                             0




                                                                                                                                                                            Kuala Lumpur / Malaysia
                                                                                                                                      Bangkok/ T hailand
                                                                           Jakar ta/ Indonesia
                                                          M umbai/ India




                                                                                                                Manila/ Philippines
                                                                                                 Tokyo/ Japan
                                     Shanghai/ China




                                                                                                                                                                                                      H ong Kong
                                                                                                                                                           Seoul/ S Korea




                                                                                                                                                                                                                   Singapore
                                                                                                                                                                                                                   GDP p er h ead
                                                                                                                                                                                                                   Re al es tate co st



                                       High Real estate costs show the inefficiency in the market.




12
 Indian Real Estate Industry

     Current View…
     • Rationalization of Real Estate prices
     • Increased funding avenues at lower cost
     • Increased supply of quality Real Estate
     • Better quality construction
     • Increased awareness for a quality product – across sectors
     • Slowly Real Estate is being seen as an investment opportunity with regular
       income
     • Reforms pacing up




13
Stamp Duty rates – Asian Markets
 Country          Stamp Duty+ Registration Tax (%)
 Malaysia         1% upto RM 4,00,000; 3% for remaining
 Hong Kong        3.75%
 Thailand         2.5% (+ specific business tax @ 0.5 % if applicable)
 Philippines      2.25%
 Singapore        1.5% on first S$ 1,80,000 + 1.5% on next S$ 1,80,000 + 3% thereafter

 Korea            5.8%


 State            Stamp Duty+Registration Tax (%)
 Haryana          12.5 - 15.5%
 Kerela           15.50
 UP               14.50                                                      The Way Forward:
 HP               14.00
                                                                             Stamp Duty rates
                                                                                 In line with
 Rajasthan        12.00
                                                                                Other Asian
 Uttaranchal      12.00
                                                                                   Markets
 Karnataka        9.65
 Delhi            8.00
 Maharashtra      8.00
 Noida            8.00
 Andhra Pradesh   6 - 8%
 Punjab           6.00

14
                                 15




Infrastructure (Real Estate!!)
Infrastructure Issues - Manpower Issues overriding all other shortcomings

 • Convoluted licensing process
     • Excessive investment – time and
       money associated with multiple
       meetings
 • Lead time for commissioning of
   Telecom Services
                                                                             MANPOWER
                                           +ve for other locations –ve for
 • Real Estate                                         India
     • Standardized good quality Real
       Estate not available except in
       pockets
     • Difficulty in obtaining land for
       development
 • Power Supply problems
     • Additional investment in terms of
       captive power and UPS system




16
Impact of BPO on the Real Estate Industry

• Advent of BPO has lead to new concepts and dimensions evolving in the
     Real Estate sector…
      • Location strategy based on critical organizational parameters
      • Scalability
      • 24X7 Operations
      • Sudden ramp-ups
      • Redundancies in all aspects of operations
      • Criticality of Project Management – “Crashed Timelines”
      • Broadened scope of Facilities Management
      • Time Scheduling
      • Optimal utilization of space – “Production Area Maximization”
      • Mushrooming of ancillary industries – Fleet Management, Catering etc.




17
  Unprecedented Commercial Demand – The Ripple Effect


              ITES Demand




                                                        Over100 million
                                                        sq. ft. by 2008


                                                      Steel & Cement – Rs. 28.5 billion @

                                                      Employment – 0.5 million people @
                                                      Generate revenue for Govt. – Rs. 23 billion @




 @ Estimate   figures based on in-house calculation


18
Country Selection Criteria for Offshore Sourcing

           Relevant skill sets

               Cost of Labour

             Language Skills

 Security/Business Continuity

                IP Protection

        Country Infrastructure

                  Cultural Fit                 We expect infrastructure to
                                             become even more important and
          Proximity to the US                   A key differentiator in the
                                                          future
                                 0   1   2          3         4             5           6


                                                                  Source: Gartner Research




19
 If we get things right….


                            CHINA
                                               MEXICO
          INDIA                      RUSSIA
     Manpower Skills        BRAZIL

        and Cost                        PHILLIPINES
                            HUNGARY
                +                    IRELAND

       Infrastructure                      PAKISTAN
                            SOUTH AFRICA
                                           ROMANIA




20
                   21




The Way Forward…
                                       Average rentals being paid in the sector




                                                        Rentals (in Rs./sq ft) - BPO Space

                                       60
     Rentals (In Rs./Sq. Ft./Month )




                                       50
                                               50
                                       40
                                                            40
                                       30                                     35
                                                                                                        27
                                                                                                30
                                       20

                                       10

                                        0
                                             1999        2000              2001              2002    2003




22
 Real Estate As An Investment Opportunity – A Comparison


                                        Comparison Real Estate Yields

              15
              14
              13
              12
              11                                                                                     The
     Points




              10                                                                                 difference
               9                                                                                 in realized
                                                                                                   returns
              8
              7
              6
              5
                        1998          1999          2000             2001            2002
                                                    Year

               T-Bill     10-Year Govt Bond    3-year Bank Deposit      Yield on Commercial RE




23
 Real Estate As An Investment Opportunity

                                                            Comparison Real Estate Yields


                                       4.5%       1.5%       1.6%         0.5%        1.1%           2.3%     4.5%     4.5%         1%         2.5%     2.05% - Inflation Rate
                             14.00%

                             12.00%

                             10.00%
                Yield Rate




                             8.00%

                             6.00%

                             4.00%

                             2.00%

                             0.00%




                                                                                                              Mumbai
                                                  Bangkok




                                                                          Hong Kong




                                                                                                                                                        Copenhagen
                                                              Frankfurt




                                                                                      Kuala Lumpur




                                                                                                                       New Delhi
                                                                                                     London
                                      Bangalore




                                                                                                                                   Singapore


                                                                                                                                               Sydney
     * Grade A office space; 3-year lock-in; high quality tenants



24
 The Way Forward……

 In Summary…
 • The fist wave of BPO players : low cost high quality manpower
 • The next phase of the Outsourcing Wave–
      • World economy wants to emulate the success of the first wave BPO players….
      • BPO players have to cope with rapid expansion
      • Pressure on infrastructure in various cities due to sustained growth
 We have to…
 • Simplify – acquisition & disposition process
 • Land Reforms
 • Legal & Legislative reforms
 • Reduce Real Estate Transactional costs
 • Real estate funding
      • Foreign, Domestic, Banking, FI’s, Insurance, etc.
      • Financial Instruments – REITS, Securitization, etc.
 • Spend in Infrastructure

25
 BPO Players – They are here but we need to take care of them

     Exult             Reuters            3G
     EDS               Convergys          Verizon
     IBM Global        DELL               Progeon
     Accenture         Hewlett Packard    Hughes Software BPO
     Sitel             GE Capital         WirpoSpectramind
     Sykes             HSBC – EDP         Churchill
     Prudential        SCOPE              Fidelity
     Vertex            Barclays           Teletech
     JP Morgan         Lloyds TSB         Logica CMG
     ICT Group         American Express TESCO
     Goldman Sachs     Bank Of America    Daksh e Services
     Morgan Stanley    Qualcomm           The list is endless…

26
               Thank You



                Manish Kashyap

                CB Richard Ellis

     Head – Transaction Management, South Asia

            manish.kashyap@cbre.com


27
Nature of work carried out
 S.no.   Location    Nature of work carried out                                                           No. of
                                                                                                         shifts/day
 1       Chennai     Financial Analysis, Transaction Processing, Electronic Data Interchange, Customer       1
                     Analysis, Data mining
 2       Chennai     Financial Analysis, Transaction Processing, Electronic Data Interchange, Customer       1
                     Analysis, Data mining
 3       Chennai     Customer care, technical support, Document Management, Customer Analysis,               2
                     Records Management, Billing Services
 4       Bangalore   Database Management, Data Mining, Software Development, Financial Analysis             1.5
 5       Bangalore   Claims Processing, Asset Management, Document Management, Customer Care,                3
                     Animation, Financial Reporting, Telemarketing, GIS, Transcription
 6        Noida      Tax Processing, Claims Processing, Billing Services, Accounting Transactions,           3
                     Customer Care, Payroll Services, Telemarketing, Credit Card Services, Web Sales,
                     General Accounting,
 7         Delhi     Claims Processing, Document Management, Animation, Customer Care, Biotech               3
                     Research, Credit/Debit Cards, Telesales, Payroll Services, Records Management,
                     Accounting Transactions, Risk Management, Billing Services
 8       Gurgaon     Claims Processing, Document Management, Billing Services, Credit Card, Database         3
                     Marketing, Telesales, Customer Care, Web Sales, Transaction Processing

 9       Gurgaon     Billing Services, Accounting Transactions, Credit/Debit Card, Database Marketing,       3
                     Telesales, Customer Care, Web Sales, Benefits Administration, HR Services

 10      Gurgaon     Claims Processing, Asset Management, Customer Care, Financial Analysis,                 2
                     Financial Management, Document Management, Billing Services, Telemarketing



28
 Age, style and standard of building being used
     S.n   Location     Area              Age            Land Zoning    Landlord     Standard           Rent
     o.                (sq. ft.)                                       Provisions                 (INR/sqft/month)

     1     Chennai     27,000        3 years, multi-     Commercial        A/C       Grade A           Rs.38
                                        tenanted

     2     Chennai     44,000        3 years, multi-     Commercial        A/C       Grade A           Rs.40
                                        tenanted

     3     Chennai     22,000        3 years, multi-       IT Park     A/C, Power    Grade A           Rs.47
                                        tenanted                        back-up

     4     Bangalore   63,000       9 months, multi-     Commercial    A/C, Power    Grade A      Rs.62 (including
                                       tenanted                         back-up                       fit outs)

     5     Bangalore   110,000      8 months, multi-     Commercial    Power back-   Grade A           Rs.41
                                       tenanted                           up
     6      Noida      140,000          2 years,          Industrial    Shell only   Industrial        Rs.11
                                      independent                                      Grade
     7       Delhi     40,000           3 years,          Industrial    Shell only   Industrial        Rs.30
                                      independent                                      Grade
     8     Gurgaon     100,000          4 years,          Industrial    Shell only   Industrial        Rs.19
                                      independent                                      Grade
     9     Gurgaon     200,000          1.5 years,       Commercial    A/C, Power    Grade A           Rs.35
                                      independent                       back-up
     10    Gurgaon     40,000      1 year, independent    Industrial    Shell only   Industrial        Rs.18
                                                                                       Grade



29
 Workspace density standards & cost per workspace


     S.no.   Location    Workspace Density   Workspace Density   Cost per workspace – Capital
                         Standards (Gross)    Standards (Net)        Expenditure (Gross)
                                                                            (INR)
      1      Chennai         145 sq ft           108 sq ft                 212,000

      2      Chennai         100 sq ft            75 sq ft                 155,000

      3      Chennai         100 sq ft            77 sq ft                 150,000

      4      Bangalore        95 sq ft            78 sq ft                 114,000

      5      Bangalore       120 sq ft            96 sq ft                 140,000

      6       Noida           75 sq ft            70 sq ft                 130,000

      7        Delhi          95 sq ft            78 sq ft                 175,000


      8      Gurgaon          84 sq ft            63 sq ft                 143,000

      9      Gurgaon         100 sq ft            75 sq ft                 150,000

      10     Gurgaon          80 sq ft            60 sq ft                 144,000




30
     Facility Management - Facility Management - manpower and operation cost per
     Facility Management - manpower and operation cost per workspace and operation
     cost per workspace
     S.no.     Location   Running cost per sq ft/month


       1       Chennai    Rs.3.6 (All FM - HK, Security, M&E, Misc. Maintenance)   Note: The variance in FM
                                                                                   costs are attributable to the
       2       Chennai    Rs.4.3 (All FM - HK, Security, M&E, Misc. Maintenance)
                                                                                   following:

       3       Chennai    Rs.3.5(All FM - HK, Security, M&E, Misc. Maintenance)
                                                                                   •Building systems
                                                                                   configuration and design

       4      Bangalore   Rs.5(All FM - HK, Security, M&E, Misc. Maintenance)      •Client specific requirements
                                                                                   • Differential operating
       5      Bangalore   Rs.4.8(All FM - HK, Security, M&E, Misc. Maintenance)    manpower rates across India
                                                                                   • City specific costs variance
       6        Noida     Rs.10.5(All FM - HK, Security, M&E, Misc. Maintenance)
                                                                                   The exclusions to the costs
                                                                                   provided are:
       7        Delhi     Rs.6.5(All FM - HK, Security, M&E, Misc. Maintenance)
                                                                                   • Annual equipment
                                                                                   maintenance contracts
       8      Gurgaon     Rs. 14(All FM - HK, Security, M&E, Misc. Maintenance)
                                                                                   •Spares/ replacements
       9      Gurgaon     Rs.12(All FM - HK, Security, M&E, Misc. Maintenance)     • Electricity consumption

      10      Gurgaon     Rs.7.2(All FM - HK, Security, M&E, Misc. Maintenance)



31
               Thank You



                Manish Kashyap

                CB Richard Ellis

     Head – Transaction Management, South Asia

            manish.kashyap@cbre.com


32
Infrastructure Issues – Strengthen India’s Position
                                          • Increasing Govt. patronage
                                             • SOP’s & tax concession regime
                                             • Allow easy foreign exchange handling
       MANPOWER                              • Simplified investment in BPO ventures &
                                               infrastructure industries
      India’s population would/could
     continue to churn cheap labour for   • Highly efficient telecom services
               the BPO sector
                                             • Better connectivity, lower rates
                                          • Real Estate
                                             • Abundant supply of good quality real estate
                                               development & rational prices
                                          • Power Sector Improvements
                                             • Efficient supply& distribution system
                                          • Other reforms
                                             • Law and order
                                             • Public transportation
                                             • Change in school/college curriculum




33
 Real Estate – TRENDS In India – The Good News

                                                                      Past 5 Year Trend Of Rentals
             Rentals (In Rs./Sq. Ft./Month )
                                               120
                                                        110
                                                                               105                                       100
                                               100
                                                                                                   90
                                                                                                                                               90
                                               80
                                                        60
                                               60                              52
                                                       60                                          46                   45                     51
                                               40
                                                                               45                                                              33
                                                                                                   38                    35
                                               20

                                                0
                                                     1998                 1999                 2000                  2001                   2002

                                                            Rentals - New Delhi CBD - Commercial        Rentals - Super Prime Residential
                                                            Rentals - Gurgaon A Grade Commercial



     •   Rentals & Capital values have fallen across all major markets.
     •   Improving real estate options for the IT / ITES sector
     •   Timelines for Construction and Interior Fit-outs have reduced drastically
     •   Developers increasingly adapting to the needs of this industry
     •   Better quality of construction and interior fit-outs
     •   Scientific approach in managing of facilities and allied activities


34
     ITES Industry ~ Fast Changing Dynamics




          Shorter Forecasting horizons

          Shortening lead times for evaluating new location, acquiring space
           and commencing operations

          High opportunity loss due to lack of capacity

          Lack of organized data ~ difficulty in comparative analysis on common
           platform




          Adhoc capital investment, delays resulting in higher costs


35

				
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