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kkiyer

VIEWS: 11 PAGES: 14

									      Thematic Investing in the Indian
      Logistics Sector
      KK Iyer, India Equity Partners




IEP
                           India’s Port Sector

  India has 12 major
  ports and ~200
  minor and
  intermediate ports

  Major ports handle
  approximately
  70% of total traffic
  – this ratio is set to
  come down with
  faster capacity
  addition in private
  and captive ports




IEP                                              2
                         India’s Port Sector

                                                            Capacity Utilization at Major Ports
  Ports handle
                          600                                                                                                                        120%
  ~95% of volume                                                                                                                            102%
                                                                                     97%
  and 70% of value        500
                                                    86%         89%
                                                                                                          93%
                                                                                                                            92%
                                                                                                                                                     100%
                                       84%
  of India’s cargo        400                                                                                                                        80%


  Port infrastructure     300                                                                                                                        60%

  is really strained –    200                                                                                                                        40%
  utilizations have
                          100                                                                                                                        20%
  been over 85% for
  the past 5 years         -                                                                                                                         0%
                                  2001-02        2002-03      2003-04           2004-05              2005-06           2006-07             2007-08


  Meanwhile, port                                                   Capacity          Traffic         Utilization

  traffic is projected
                                                               Traffic Projections at Ports
  to grow at 8%
                                                                                                          Growth over FY12-13
  CAGR over FY                                                                                              Major Ports : 21%
                                                                        Growth over FY08-12                 Minor Ports : 21%
  2008 – FY 2012                1400
                                                                           Major Ports : 8%                                 1225
                                1200          Growth over FY06-08          Minor Ports : 8%
                                                Major Ports : 11%                                  1009                           365
                                1000
                                                Minor Ports : 20%
                                                                                                     301
                                 800

                                 600                                  220
                                              152
                                 400                                                                                              860
                                                                                                     708
                                                                      519
                                 200          424

                                  0
                                             2005-06                2007-08                        2011-12E                     2012-13E

                                                                        Major Port    Minor Port
IEP                                                                                                                                                         3
                      India’s Port Sector

                                                 Projected Capacity Addition at Major Ports
  Capacity addition                                Capacity needs to grow at ~20% CAGR to reach 1,002 MMTPA
  has to be of the    1200
                                         15%
                                                                                                                             16%


  order of 20%        1000
                                                                                                                             14%


  CAGR to meet                                                                                                               12%
                                                                   11%
  future              800
                                                                                                                             10%

  requirements        600                                                                                                    8%
                                                                                                                     1002
                                                                                                                             6%
                      400
                                                                                                                             4%
                                                             505                             508
                                   456
                      200
                                                                                                                             2%
                                                                                                   1%
                        0                                                                                                    0%
                                   FY06                     FY07                            FY08                     FY12E

                                                                     Capacity      Growth % YoY



                                                  Projected Capacity Addition at Minor Ports
                             700
                                               Capacity at Minor ports needs to be added at 20% CAGR over FY07-12E
                                                                        to reach 573 MMTPA
                             600


                             500


                             400


                             300                                                                              573

                             200


                             100                   228


                              0

IEP                                              2006-07                                                 2011-12E
                                                                                                                                   4
                           Port Outsourcing

            Increasing trend in outsourcing capital and labor intensive port activities to private
                                            specialized players



                                                             Areas for Private Sector Participation in Minor Ports
      Areas of Private Sector Participation in Major Ports
                                                                            and Energy Terminals


       -  Leasing out existing assets                         -   Leasing out existing assets
       -  Supply, maintenance and operation of                -   Supply, maintenance, and operating of
          handling equipment                                      handling equipment
        - Dry docking and ship repairing facilities           -   Capital and Maintenance dredging
       - Construction and operation of liquid bulk,           -   Port O&M Services
          break bulk, multi-purpose and specialized
          cargo berths                                        -   Cargo Lighter-age and STS Operations
       - Construction and operation of container              -   Construction and operation of liquid bulk,
          terminals                                               break bulk, multi-purpose, and specialized
                                                                  cargo berths
       - Construction and operation of warehouses,
          CFS, storage facilities, tank farms, etc            -   Construction and operation of container
                                                                  terminals
       - Maintenance dredging
                                                              -   Construction and operation of warehouses,
       - Leasing of floating craft etc.                           CAF, storage facilities, tank farms, etc.




IEP                                                                                                             5
                    IEP’s Investment in Ocean Sparkle Limited


                      Increasing private sector participation in the major ports
      Port sector
                      Increasing port and terminal capacities, increased outsourcing of non-
      to witness
                      core activities to port services companies
        strong
                      Increased spending towards port infrastructure development by
        growth
                      Government



   Dominant
                      70% market share in minor ports and 35% in major ports
  player in the
                                                      vessels,
                      Owns and operates more than 66 vessels the maximum in the industry
   d
   domesticti
                      Comprehensive service provider to ports, providing entire gamut of
   Port O&M
                      services
     sector



    Excellent         Promoters have considerable experience in operations and
  track record        management
       and            High revenue visibility (annuity driven business) with strong track record
    execution         of renewing contracts
  capabilities        Strong strategic alliances with world class operators like PSA Marine




IEP                                                                                                6
                          Company Overview

                              Incorporated in 1995 by experienced technocrats with marine engineering
                              background
                              –   Mr. P Jairaj Kumar
                              –   Mr. Sanjeev Dhawan
                              –   Mr. A K Sawhney
                              –   Mr. R Virender Prasad


     Comprehensive Port                    Ship-to-Ship Operations
                                                                                     Dredging
  Operations and Maintenance                  Cargo Lighter-age
      Harbor towage and Mooring            Lightening of cargo in the mid-   Capital and maintenance
      Pilotage                             sea from Mother Vessel to         dredging
      Maintenance of Marine Crafts         Daughter Vessel
      Ship Traffic Communication
      Fire Fighting
      Safety &Environmental Patrols
      Maintenance of Navigational
      Aids



IEP                                                                                                     7
                       Geographical Presence

  Very strong                  Dominant presence across East and West Coast of India
  market opportunity

  High demand-
  supply gap,
  currently being
  met by the Big 4
  foreign players

  Attractive
  paybacks and
  return on assets




IEP                                                                                    8
                         Industry Perspective


                                            Market Dynamics

      Major Ports                                      Minor Ports
         – Tug based outsourcing model                  – Complete services based outsourcing
         – Competition with domestic players              model
         – Tender based contracts for specific          – Competition with foreign players
           number of tugs for specific tenure           – Comprehensive service contracts for
         – OSL has 35% market share                       tenure of 5 years or more
                                                        – OSL has 70% market share



                                 Existing Players and Main Competitors

      Domestic competitors making foray:               Major Foreign Players
        – Great Eastern Shipping/ KEI RSOS              – Wijsmuller (AP Moeller)
        – Tag Sea Logistics                             – Lamnalco
        – Karnik Maritime                               – PSA Marine
        – Samson Maritime Services                      – Adsteam Marine
                                                        – SMIT International



IEP                                                                                             9
                       Other Themes in Logistics – Dredging Services

  Very strong             We think that dredging is an interesting niche to focus on:
  market opportunity
                          –            Continued market opportunity in capital dredging projects
  -- $2.5 billion of
  capital dredging        –            High revenue visibility annuity-type contracts in maintenance dredging,
  projects and $275                    allowing for high fleet utilization and attractive paybacks
  million annual
  maintenance             –            Competitive intensity is still not that high, though heating up – however,
  dredging matket                      experience is a key differentiator

                                                    MAJOR PORTS                    MINOR & PRIVATE PORTS
  High demand-
  supply gap,                                                   NEW                                  NEW
                                             EXISTING                             EXISTING
  currently being                                             ENTRANTS                             ENTRANTS
  met by the Big 4
                                          Jan De Nul        Reliance           Jan De Nul        Reliance
  foreign players                         Boskalis          SCI                Boskalis          Essar
                         Capital




                                          Dredging Intl     Essar              Dredging Intl     SCI
  Attractive                              Van Oord                             Van Oord          DCG
  paybacks and                            Charti                               Dharti            L&T
  return on assets                        Amma Lines                           Amma Lines
                         Maintenance




                                          DCI               SCI                Jan De Nul        L&T
                                          Jaisu             Essar              Boskalis          DCG
                                          Captive                              Dredging Intl     Essar
                                                                               Van Oord
                                                                               Dharti


IEP                                                                                                                 10
                        Other Themes in Logistics – Reverse Logistics

  Globally, reverse       Reverse Logistics encompasses services and solutions for goods after the
  logistics accounts      point of sale for the purpose of capturing/ adding value
  for 3-5% of the
  cost for a              –   The value chain comprises processing, recovering, or scrapping returned
  company                     goods/ products to optimize post-sales service for sellers as well as to
                              enhance customer satisfaction
  Emerging markets
  like Asia are                     • Technical                             • Walk-in
  growing at a faster                 call                                    centers
                                      centers                               • Outside
  pace on account
                                    • Remote                                  repair
  of increasing                                     Tech
                                      help desks
  penetration of IT                                Support        Repair
  and telecom                                       Help         Services
                                                    desk
  The market
  opportunity in                                                 Recover
  India alone is                                                   and
                                                   E-Waste
  estimated to be $4                                             Refurbis
  billion, and is                                                 hment
  expected to grow                  • Waste                                 • Re-
  at 15% CAGR                         Processing                              utilization
                                                                            • Asset
                                                                              Recovery

IEP                                                                                                  11
      Introducing IEP

        India Equity Partners (“IEP”) is an India-focused growth-oriented private equity
        fund with offices in New York, Mumbai, and Mauritius


        The fund closed in 2006 with aggregate commitments of over $ 360 million
        –   Hitherto, the fund has made more than half a dozen investments across
            sectors and life cycles of companies, supporting our core investment thesis
            of infrastructure development, and domestic consumption and rising per
            capita living standards


        The five IEP principals have deep financial and operating experience , both in
        India and overseas, and along with providing long-term patient capital, seek to
        ‘value-add’ our portfolio with
        –   Assisting with recruiting of senior management/ advisors
        –   Customer introductions
        –   Expansion strategies
        –   Incorporating global best practices, and
        –   Capital structuring and positioning in the capital markets

IEP                                                                                  12
      Selected Portfolio Investments


      Ocean Sparkle             India’s leading port operations and
      Limited                   maintenance services provider


      Bharti Infratel Limited   India’s largest telecom tower company



      Manappuram                Leading South India based NBFC



      Ikya Global               Full-suite HR services firm



      Jai Balaji Industries     Integrated steel and coal producer




IEP                                                                     13
      Thank You




IEP               14

								
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