1 Larsen &Toubro LtdLarsen &Toubro (L&T) remains the undisputed number one infrastructure company in India. Nobody could have summarised its role in nation building better than P Chidambaram, who called it India's only national sector company (on the company’s 70th anniversary when he was the Union Finance Minister). That was in 2007. Today, L&T continues to build on its reputation by maintaining an all round growth across the infrastructure segments where it operates. The recently concluded fiscal has been quite good for the company.As a company statement said, 'various cost optimisation initiatives launched by the Company, aided by lower input costs, led to an improvement in the profitability of both project and product businesses'.The Profit after Tax for L&T as a group for the year at Rs5451 crore grew by a whopping 44% as compared to the previous year. Subsidiaries and associate companies together contributed Rs613 crore to the Group's profits, posting a rise of more than 100% over the similar amount for the previous year. The Group’s consolidated total income registered Rs 43970 crore vis-a-vis Rs40511 crore for the previous year.The operating margin at 13.1% improved by 140 basis points over last year, while the order book crossed the Rs100,000 crore mark as of March 31, 2010. (The Engineering & Construction Segment’s contribution to this is Rs 63899 crore). The huge order book gives ample visibility to the company’s continued leadership position. L&T is well poised to take advantage of the opportunities presented by India's amazing infrastructure development. Moreover, L&T has considerable presence and capabilities in the international markets.
Indian infrastructure growth at its pinnacle
Indian infrastructure growth has reached massive heights. All the same, constraints persist threatening to slow down growth. Ankineedu Maganti,Director, Soma Enterprise Ltd, examines issues that are impeding the momentum and offers suggestions that could expedite the process.
India has witnessed an absolute metamorphosis over the last decade. Sprawling cities, flourishing businesses, higher standard of living are all indicators of unprecedented growth, globalisation, urbanisation, expansion and diversification. Infrastructure modernisation and development is said to be the key driver of all the growth and economic activity. The Indian infrastructure sector is at an inflection point and there are immense opportunities for the private sector. Although the sector is booming, there are hindrances in the smooth development of world-class infrastructure.The highways sector received much required fillip when the government announced National Highway Development Programme and its first two phases-Golden Quadrilateral and North South-East West Corridor. These projects were funded by National Highways Authority of India. For the subsequent phases, i.e. III, IV & V, the government decided to involve the private sector by promulgating the BOT model. Under this model risks would be allocated to those parties that were best equipped to manage them. The private sector had to its credit the capability of delivering quality services to the public. Here, the private sector stood to benefit, as the PPP model would generate reasonable long-term revenue and profits for them. This model also allowed the government to allocate and use its funds in other focus areas of development.One of the key factors acting as a deterrent to growth is paucity of funds. This holds true especially in the case of large scale, complex projects, as in case of hydro power projects, which have long gestation periods. The Government needs to consider introducing mechanisms/ instruments that allow efficient long-term funding of projects. In addition, limits on external commercial borrowings for such infrastructure projects should be removed.
Construction equipmentWith the rapid growth in the industry, there is still a mismatch of supply and demand in terms of construction equipment. Delays in deliveries of equipment result in delayed mobilisation and completion of projects. Further, prices of construction equipment have steadily increased over the past few years, partly due to the high demand, and partly due to increase in input costs. A large portion of construction machinery deployed in projects is imported. The import duties levied on construction equipment are increasing the cost of construction. Exemptions are available in some projects funded by external agencies such as the Asian Development Bank and World Bank. However, this exemption is not available in other projects including PPP projects. To sustain the growth in the construction sector, import duty on construction equipment and material such as bitumen, steel and cement should be removed especially in PPP projects. One of the pressing needs is adequate compensation for increased prices of certain materials such as steel, cement, bitumen and diesel. Most construction contracts rely on indices for price escalation in these materials, and the indices are not fully reflective of the price rise, especially in cases of extraordinary increases in short periods of time. Further, in BOT projects it is left to the entrepreneur to estimate the price escalation during the implementation period of the project. However, it is not possible to factor in
such extraordinary increase in prices at the time of tendering for the projects. There should be a mechanism to ensure planned and expeditious implementation of infrastructure projects. Currently, there is a large gap between the time of announcement of projects and their award. Also, there are periods of furious activity in awarding a large number of projects followed by a long period without projects being awarded. It is essential to phase the projects in a continuous manner in order to optimise the scale up of resources in the infrastructure sector in India.As this is just the beginning of the infrastructure boom in the country, the industry needs to prepare for execution needs. With the ramp up in manpower and other resources, Indian companies will be in a position to cash in on opportunities both domestically and internationally. Unless adequately addressed, shortage of skilled manpower will be the single most important hindrance to aggressive infrastructure development.Newer trends in road projects such as six-eight laning of highways, large-scale and more complex projects in power sector, metro rails, monorails and high capacity bus systems mark the eagerness of our country to take its infrastructure to another level. A concerted effort is required from the government to make world-class infrastructure a reality in India. Alternative funding for projects, favorable policies and increased incentives for PPP projects would encourage the private sector to work in tandem with the government.
© Grant Thornton India. All rights reserved.
1
25 May 2011
INDIA
Opportunities in
Infrastructure
Vishesh C Chandiok
National Managing Partner
Grant Thornton, India © Grant Thornton India. All rights reserved.
2
• Road, including toll road, a bridge or a rail
system and Highway Projects;
• Ports, airport, inland waterway or inland
port;
• Water supply projects, irrigation projects,
water treatment system, sanitation and
sewerage system or solid waste
management system;
• telecommunication services whether basic
or cellular.
• an industrial park or special economic
zone;
• Construction of educational institutions
and hospitals;
• Generation or generation and distribution
and transmission of power;
• Construction relating to projects involving
agro-processing and supply of inputs to
agriculture;
• Construction for preservation and storage
of processed agro-products, perishable
goods such as fruits, vegetables and
flowers including testing facilities for
quality;
• Any other infrastructure facility of similar
nature.
RBI
‘Infrastructure’ in India has several connotations© Grant Thornton India. All rights reserved.
3
Infrastructure
Sector Deficit Targets
Roads and
Highways
65,590 km of NH comprise only 2% of network;
carry 40% of traffic; 12% 4-laned; 50% 2-laned;
and 38% single-laned
6-lane 6,500 km in GQ; 4-lane 6,736 km km NSEW 4-lane 20000 km; 2-lane 20000 km; 1000 km
Expressway
Ports Inadequate berths and rail/road connectivity New capacity: 485 m MT in major ports; 345 m
MT in minor ports
Airports Inadequate runways, aircraft handling capacity,
parking space and terminal buildings
Modernize 4 metro and 35 non-metro airports; 3
green-field in NER; 7 other green-field airports
Railways Old technology; saturated routes; slow speeds
(freight: 22 kmph; passengers: 50 kmph); low
payload to tare ratio (2.5)
8.132 km new rail; 7,148 km gauge conversion;
modernize 22 stations; dedicated freight
corridors
Power 13.8% peaking deficit; 9.6% energy shortage;
40% transmission and distribution losses;
absence of competition
Add 78,577 MW; access to all rural households
Telecom/IT Only 18% of market accessed; obsolete
hardware; acute human resources’ shortages
Reach 600 m subscribers 200 m in rural areas;
20 m broadband; 40 m Internet
Infrastructure Performance in 11
th Five Year Plan
Deficit & Target for FY08-FY12© Grant Thornton India. All rights reserved.
4
5.15%
5.68%
6.45%
2.16%
2.51% 2.89%
7.25%
8.19%
9.34%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
2009-10 2010-11 2011-12
Investment as % of GDP
Public Private Total
Trends in Infrastructure Investment
Actual Spends on Infrastructure rising yoy – Public & Private© Grant Thornton India. All rights reserved.
5
• investment in sector during the Twelfth Plan would over US$ 1 trillion
• >50 per cent of this investment envisaged from private sector
• public sector investment to increase from $300 bn in 11
th
plan to $450 bn
ie. annual increase of 9.34% in real terms.
Source : Planning Commission
Forecast of Infrastructure Needs in 12
th Five Year Plan
The Planning Commission has articulated India’s vision© Grant Thornton India. All rights reserved.
6
Year Base Year 2012–13 2013–14 2014–15 2015–16 2016–17 Total
(2011–12) 12th Plan
GDP at market prices
(Rs crore)
63,14,265 68,82,549 75,01,978 81,77,156 89,13,100 97,15,280 4,11,90,064
GDP at market prices
($ trillion) 1.4 1.5 1.7 1.8 2.0 2.2 9.2
Rate of growth of
GDP (%)
9.00 9.00 9.00 9.00 9.00 9.00 9.00
Infrastructure
investment as % of
GDP
8.37 9.00 9.50 9.90 10.30 10.70 9.95
Infrastructure
investment (Rs crore) 5,28,316 6,19,429 7,12,688 8,09,538 9,18,049 10,39,535 40,99,240
Infrastructure
investment
(US$ billion) @ Rs
40/$
132 155 178 202 230 260 1,025
Source : Planning Commission
Forecast of Infrastructure Needs in 12
th Five Year Plan© Grant Thornton India. All rights reserved.
7
Forecast of Infrastructure Needs in 12
th Five Year Plan
Sector-wise Investments Envisaged© Grant Thornton India. All rights reserved.
8
S. No Sector
Completed
Projects
Projects under
Implementation
Projects in
Pipeline
Total
No. of
Projects
Project Cost
No. of
Projects
Project
Cost
No. of
Projects
Project Cost No. of
Projects
Project
Cost
(A) Central Sector (Rs.Cr) (Rs.Cr)
(Rs.Cr) (Rs.Cr)
1
National
highways
39 13,698 64 41,911 81 76,341 184 1,31,950
2 Major ports 23 5,762 13 10,509 29 18,466 65 34,737
3 Airports 3 5,883 2 18,777 5 24,660
4 Railways 4 4,717 50 90,000 54 94,291
Total (A) 65 25,343 83 75,914 160 1,84,807 308 2,86,064
Source : Planning Commission
Forecast of Infrastructure Needs in 12
th Five Year Plan
Status of Projects© Grant Thornton India. All rights reserved.
9
S. No Sector
Completed
Projects
Projects under
Implementation
Projects in Pipeline Total
No. of
Projects
Project Cost
No. of
Projects
Project Cost
No. of
Projects
Project Cost
No. of
Projects
Project Cost
(B) State Sector (Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr)
1 Roads 96 6,382 69 60,864 86 39,481 251 1,06,727
2 Ports 20 19,704 37 51,549 18 17,436 75 88,689
3 Airports 1 500 7 4,120 8 4,620
4 Railways 1 500 3 312 4 812
5 Power 7 8,971 15 29,448 34 62,032 56 1,02,847
6
Urban
infrastructure
51 5,992 69 18,690 65 45,708 185 1,00,451
7 Other sectors 2 120 17 3,575 31 22,534 50 26,229
Total (B) 176 41,169 209 1,64,126 244 1,91,622 629 4,30,375
(C) Grand Total
(A+B)
241 66,512 292 2,40,040 404 3,76,429 937 7,16,439
Source : Planning Commission
Forecast of Infrastructure Needs in 12
th Five Year Plan
Status of Projects© Grant Thornton India. All rights reserved.
10
• Department of Economic Affairs and Planning Commission provide
guidelines and formulate policies for Infrastructure Sectors at Central
Government level
• Tax Incentives - Central
– Tax Holiday available for Infrastructure projects under Section 80 IA wherein Income Tax
rebate is provided for 10 consecutive years over a 15 year time period.
• Tax Incentives - States
– Vary from state to state; Examples include Baddi in Himachal Pradesh and the Union
Territories of Silvassa and Pondicherry
– May also be project specific in a particular state.
Regulatory Framework© Grant Thornton India. All rights reserved.
11
FDI Policy
Sr. No Sector/ Activity % of FDI Cap/
Equity
Entry Route
1 Mining – metal and non-metal ores and Lignite 100 % Automatic
2 Mining – titanium bearing minerals & ores 100% Government
3 Power - Electric Generation, Transmission, Distribution and
Trading
100 % Automatic
4 Civil Aviation Sector – Airport Greenfield projects 100 % Automatic
5 Civil Aviation Sector – Airport Existing projects Automatic up to 74%
Approval route beyond 74%
6 Industrial Parks - both setting up and already established
Industrial Parks
100% Automatic
7
Telecommunication- Telecom services 74%
Automatic up
to 49%
Approval route
beyond 49%
and up to 74%
FDI Policy
Most sectors provide for 100% foreign ownership© Grant Thornton India. All rights reserved.
12
Sr. No Sector/ Activity % of FDI Cap/
Equity
Entry Route
8 Air Transport Services Scheduled Air Transport Service/
Domestic Scheduled Passenger Airline
49% FDI
(100% for NRIs)
Automatic
9 Air Transport Services Non-Scheduled Air Transport
Service 74% FDI
(100% for NRIs)
Automatic up to 49%
Government route
beyond 49% and up to
74%
10 Air Transport Services -Helicopter services/seaplane
services requiring DGCA approval
100% Automatic
11 Ground Handling Services subject to sectoral regulations
and security clearance 74% FDI
(100% for NRIs)
Automatic up
to 49% Government
route beyond 49% and
up to 74%
12 Maintenance and Repair organizations; flying training
institutes; and technical training Institutions
100% Automatic
13 Railway Transport (other than Mass Rapid Transport
Systems).
Prohibited
FDI Policy
Most sectors provide for 100% foreign ownership© Grant Thornton India. All rights reserved.
13
Sr. No Sector/ Activity % of FDI
Cap/
Equity
Entry Route
14
Petroleum & Natural Gas Sector Exploration
activities of oil and natural gas fields, infrastructure
related to marketing of petroleum products and
natural gas, marketing of natural gas and
petroleum products, petroleum product pipelines,
natural gas /pipelines, LNG reclassification
infrastructure, market study and formulation and
Petroleum refining in the private sector
100% Automatic
15
Petroleum refining by the Public Sector
Undertakings (PSU)
49% Government
16 Roads 100% Automatic
17 Ports 100% Automatic
FDI Policy
Most sectors provide for 100% foreign ownership© Grant Thornton India. All rights reserved.
14
• Funding requirements from private sector are mammoth
– equity markets are beginning to see value in infra projects with increasing clarity on PPP
policies and some initial success stories, particularly in roads and power
– several companies already listed across private sector and PSUs
– opportunity to develop bond markets which are practically non-existent
– domestic and global infra funds are raising several billion dollars for Indian infra play
• US$ 500 billion projected fund requirement in 12
th Plan. At the end of the
11
th Plan, share of private investment in total already up from 17% to
30% by 2012
Financing Infrastructure© Grant Thornton India. All rights reserved.
15
• Roads (USD 20b in each of next 2 yrs)
– Total opportunity of USD 42.2 bn over next 2 yrs
– Expressways additional opportunity of USD 11 bn
• Power (USD 200 bn in next 4 yrs)
– 12th Plan capacity addition of 100GW (vs. 78GW)
– Private energy developers dominant share (64%)
– Investment of USD102b investment in power plants and an additional USD102b in T&D
• Railways(INR800-900b spending over the next 1-2 yrs)
– Dedicated freight corridor (USD15b) and associated feeder route upgrades (USD5b)
comprise 30% of total spending. Approximately 26% (USD15.6b) allocated for asset
modernization
Financing Infrastructure
Key Sectors requiring funding© Grant Thornton India. All rights reserved.
16
Infrastructure Project Finance
Conventional
Bank Financing
Take out
Financing
Special
Funding
Vehicles
International
Funding
Infra-Funding
NBFC
• Public Sector
Banks
• Private Banks
• Structured
Products
• IIFCL
• PFC
• REC
• NABARD
• ECB
• FII
• Bonds
• IDFC
• IL&FS
• SREI
• Structured
Products
Short Term- (5-8 years)
Medium Term (5-10 years
Long Term (5-25 years)
Financing Infrastructure
Existing Landscape© Grant Thornton India. All rights reserved.
17
Real Estate Sector© Grant Thornton India. All rights reserved.
18
Indian real estate sector: an overview
Past
• unorganised, fragemente
d industry
• characterised as local
industry without any
regional and national
level players
• unaccounted sources of
finance
• no access to public
finance
• no transparency, weak
systems and processes
Present
• phase of consolidation
• institutionalisation on
pace
• corporatisation – national
and regional level
players
• listed real estate
companies
• global investments
• improving transparency
Future
• well-organised industry
• marriage of infrastructure
with real estate
• support by growthoriented policies
• predominant use of
technology, including
cleantech
• transparency, open
availability of data
Current size of the Industry:
US$57 billion
Percentage of GDP: 6.2%
Size of the Industry:
US$105 billion
Percentage of GDP: 7.1%
Next 5 years
Data source: iSEC Research© Grant Thornton India. All rights reserved.
19
FDI norms
Conditions for development Conditions for investment Miscellaneous conditions
Minimum 10 hectares for serviced
housing plots
Minimum capitalisation of U$10
million for wholly owned subsidiaries
and US$5 million for Joint Ventures
with Indian partners
Investor not permitted to sell
undeveloped plots
For construction, development
projects, minimum built up area of
50,000 sqmt
Infusion of funds within six months of
commencement of business
Project to conform to norms and
standards laid down by respective
state authorities
In case of a combination project, any
one of above two should suffice
Original investment cannot be
repatriated before a period of three
years from completion of minimum
capitalisation
Investor responsible for obtaining
necessary approvals as prescribed
under applicable rules/bye
laws/regulation of the State
At least 50% of the project to be
developed within five years from the
date of statutory clearances
Investor may be permitted to exit
earlier with prior Government
approval
Concerned authority to monitor
compliance of above conditions by
developer© Grant Thornton India. All rights reserved.
20
Issues and challenges
• Lack of infrastructure to support real estate development
• Transparency and governance
• Institutionalization
• Sources of finance
• Corruption
• Affordability of residential real estate © Grant Thornton India. All rights reserved.
21
Power Sector© Grant Thornton India. All rights reserved.
22
Power Sector- Overview
Installed Capacity
Source : CEA
Sector MW %age
State Sector 82,452.58 47.49
Central Sector 54,412.63 31.34
Private Sector 36,761.19 21.17
Total 1,73,626.40© Grant Thornton India. All rights reserved.
23
Power Sector- Overview
Installed Capacity
Source : CEA
Fuel
MW %age
Total Thermal
112824.48 64.98
Co
al
93,918.38 54.09
G
as
17,706.35 10.20
Oil 1,199.75 0.69
Hydro (Renewable)
37,567.40 21.64
Nuclear
4,780.00 2.75
RES** (MNRE)
18,454.52 10.63
Total
1,73,626.40 100.00© Grant Thornton India. All rights reserved.
24
Power Sector
Opportunity
• 1,00,000 MW to be added in Twelfth Plan
• 5,900 MW to be added in Twelfth Plan based on domestic manufacturing
capability and 10,000 MW with the support of international players.
• Major shortage of equipment. Supply for power sector
– L&T and Mitsubishi JV, Toshiba and JSW JV, and ALSTOM and Bharat Forge setting up
new plants© Grant Thornton India. All rights reserved.
25
Power Sector
Opportunity
• Generation
– Private sector share in power sector increased from 10 per cent in the Tenth Plan to 32
per cent during the Eleventh Plan
– Government encouraging investments by private players
• Transmission
– Six Transmission Projects being undertaken on PPP modes
– States like Haryana are in the process of inviting private sector in transmission
• Distribution
– Distribution in many cities has been privatized Kolkata, Mumbai, Delhi, Greater Noida
(Uttar Pradesh), Ahmedabad, Surat, and Orissa.
– Many other cities are considering privatizing the distribution system© Grant Thornton India. All rights reserved.
26
Road and Highways© Grant Thornton India. All rights reserved.
27
Education Sector
Global Perspective© Grant Thornton India. All rights reserved.
28
Opportunities – Roads & Highways
Overview
• 20 km/ day target for road construction set by the Ministry
• 2,873 km of BOT projects awarded in FY11 YTD (vs. 3,361 km in FY 10
and 644 km in FY09)
• Model concession agreements put in place, allowing private investors to
levy user charges© Grant Thornton India. All rights reserved.
29
Opportunities – Roads & Highways
Policy Framework
• Two development models in vogue
– Toll Based (mainly for financially viable roads)
– Annuity (for others)
• Grants/ viability gap funding for marginal projects by NHAI
• Indexed user charges to recover building / maintenance costs
• Expected initiatives in the near future
– Policy on land acquisition to expedite rehabilitation
– Arbitrator for Rehabilitation & Resettlement (R&R)© Grant Thornton India. All rights reserved.
30
Opportunities – Roads & Highways
Policy Framework
• 100% FDI under automatic route for all road projects
• 100% income tax exemption for a period of 10 years
• Overseas borrowing amount under ECB Policy increased to USD 500
million© Grant Thornton India. All rights reserved.
31
Opportunities – Roads & Highways
Market Size
• 170+ NHAI Projects having a project cost of Rs. 1.21lac crore at various
stages of bidding
• Multiple State Road Projects are on anvil (Bihar, Uttar Pradesh, Punjab,
Madhya Pradesh)
• Highways: opportunity of Rs. 1.90 Lac crore in the next 2 years
• Expressways: additional opportunity of Rs. 50k crore© Grant Thornton India. All rights reserved.
32
Opportunities – Roads & Highways
Market Size – Specific Programmes
Project Timing Length Remarks
NHDP – Phase - II Dec 2009 GQ and EW-NS
Corridors
Nearing completion
NHDP – III Dec 2013 10,000 km 4-laning, all PPP
NHDP – IV 20,000 km 2-laning
NHDP – V Dec 2012 6,500 km 6-laning, all PPP
NHDP – VI Dec 2015 1,000 km Expressways, all PPP© Grant Thornton India. All rights reserved.
33
Urban Infrastructure© Grant Thornton India. All rights reserved.
34
Opportunities – Urban Infrastructure
Overview – Key Sectors
• New drinking water projects (24X7)
• Solid waste management and sewerage
• New mass rapid transport systems
• Bus terminals© Grant Thornton India. All rights reserved.
35
Opportunities – Water Supply
Overview
• New drinking water projects (24X7) – mulitiple opportunities with urban
local bodies (Jaipur, Kota, Gwalior, Bangalore, Delhi, Aurangabad,
Mysore etc.);
• Deal size – in Aurangabad, Rs. 400 crore private investment (another
Rs. 400 crore from the Govt.)
• Key players: Jindal Water, IVRCL, JUSCO, Global Players (such as
Vivendi)© Grant Thornton India. All rights reserved.
36
Opportunities – Water Supply
Examples
Models Example of cities
Augmentation / development of new
system by tapping identified sources:
BOOT / Concession
• Nagpur: construction of 115 MLD WTP
(Rs. 90 crore)
• Kolkata: development and management
of water supply in parts of Salk Lake City
Management of existing water distribution
system:
• Performance-based management &
service contracts
• EPC contracts along with performance
based O&M Contracts
• Ahmedabad: O&M of 3 years for 200 MLD
WTP
• Nagpur: water audit (Rs. 27 crore) /
energy audit (Rs. 28 crore) for water supply
• Nagpur: rehabilitation plan to implement
24X7 water supply (Rs. 387 crore)© Grant Thornton India. All rights reserved.
37
Opportunities – Solid Waste Management
Overview
• Solid waste management – collection and disposal, including projects for
conversion of waste to energy
• Opportunities with most municipalities
• Key players – Ramky, Subhash Projects© Grant Thornton India. All rights reserved.
38
Opportunities – Solid Waste Management
Examples
Models Example of cities
For new system:
Covering composting, recycling, bricks /
blocks manufacturing, RDF & energy
generation and developing and maintaining
a scientific landfill site
• Guwahati (Rs. 102 crore)
• Chennai (Rs. 147 crore)
• Puducherry (Rs. 108 crore)
• Lucknow (Rs. 74 crore)
• Kanpur (Rs. 92 crore)
• Varanasi (Rs. 68 crore)
• Agra (Rs. 31 crore)
For existing system:
• Service contracts
• Management contracts
• Community participation for collection
• Ahmedabad (Rs. 136 crore)
• Faridabad (Rs. 76 crore)
• Jaipur (Rs. 13 crore)
• Vadodara© Grant Thornton India. All rights reserved.
39
Opportunities – Sewerage
Examples
Models Example of cities
New system:
• Plain vanilla EPC contracts
• Design Build Finance Operate
• BOT for STPs
• Nagpur: re-use and recycle of waste water
by Mahagenco (Rs. 130 crore)
• Kolkata: development and management of
sewer system in parts of Salk Lake City
Existing system:
• Performance based contracts for
construction and O&M
• Surat: Anjana STP (Rs. 11 cr), Bhesan STP
(Rs. 15 cr) Bamroli STP ( 13 cr)₹
• Ahmedabad: O&M for 180 MLD STP, 60
MLD STP and 35 MLD STP© Grant Thornton India. All rights reserved.
40
Opportunities – Urban Infrastructure
Overview
MRTS
– New mass rapid transport systems coming up in most large cities (Mumbai, Bangalore,
Hyderabad, Jaipur)
– Deal sizes: Rs. 7,500 crore in Jaipur, Rs. 12,000 crore in Hyderabad
– Key players: L&T, Reliance ADAG
Bus terminals
– MP, Haryana, Gujarat, Punjab
– Deal size Rs. 30 cr -150 cr
– Key players C&C, Subhash Projects© Grant Thornton India. All rights reserved.
41
Education Sector© Grant Thornton India. All rights reserved.
42
Education Sector- Overview
• Children and young persons in the 6-24 years
– 410 million
– 38% of the country's population
• Free and compulsory education to all children of India in the six to 14 age group
Number of Educational Institutions
Schools 1.29 million
Colleges (2005-
06)
20,769
Universities
(as on 31.03.07)
350
(236 Universities
+ 101 Deemed Universities
+13 Institutions of National Importance)© Grant Thornton India. All rights reserved.
43
Education Sector- Overview
• Indian Education Sector (IES) is by far the largest capitalized space in
India with $30bn of government spend - 3.7% of GDP
– 1 million schools
– 18,000 higher education institutes.
• Public education system is ‘insufficient’ and ‘inefficient’, leading
education-hungry and affluent Indians to spend $50bn on private
education (14% CAGR over FY08-12).
• India spends 5.2% of global spends on education on 20% of world
population© Grant Thornton India. All rights reserved.
44
Education Sector- Overview
IES – The Largest Inefficiencies – The Highest
Investability Quotient (IQ) –
The Lowest
Largest Capitalized space
• Public spend of $30bn (3.7% of
GDP)
• Private spend of $50bn (14%
CAGR over FY08-12E)
‘Insufficient’ funds
• Free product (public schools)
loses market share – 40% of the
student base enrolled in private
schools (7% of the total school
network)
$40bn:‘overregulated & under
governed’
• For 80% of the private spends
(formal IES), regulations (notfor –profit mandate) a big
deterrent
• Low political will to bring about
the much required structural
change
Largest Supply
• A network of ~1m schools and
18,000 HEIs
• First Indian satellite – EDUSAT
(launch Sep-04) to serve the
education sector
‘Inefficient’ supply
• 66% of the school network only
till primary level
• Only 0.85% of USD 30bn spent
on capital expenditure
Largest Demand
• Globally the largest population
of 572m within the 0-24 years
age group
Lowest enrollments, highest
dropouts
• 61% of target population
enrolled, 40% dropout at school
level (a mere 37% net enrolled)
• Lowest GER* globally of 9.97 at
higher education level
$10bn: Scores low on
scalability
• For remaining 20% (non-formal
IES), scalability remains a big
issue© Grant Thornton India. All rights reserved.
45
Education Sector - Overview
($ m) Revenues (2009) Revenues (2012E) CAGR (%)
Formal IES 45,200 65,250 13
K12 22,800 33,779 14
Higher Education* 22,400 31,470 12
Non-formal IES 11,930 19,608 18
Preschool 408 1,026 36
Multimedia -private
sch.
112 459 60
ICT in govt. schools 153 752 70
Coaching classes 7,360 11,194 15
Vocational training 1,875 3,662 25
Books 1,925 2,516 10
Historic Growth© Grant Thornton India. All rights reserved.
46
Education Sector- Demand
Segments Key recent government initiatives announced/planned
K-12 •Right to Education Act
•Rapid Upgradation of 15000 Upper Primary Schools to Secondary Schools, and
expansion of intake
•capacity in 44000 existing Secondary Schools
•Establishment of 6000 high quality model schools at the block level to serve as
benchmarks for excellence in secondary schooling. About 3500 of these would be
public-funded schools while 2500 would be through PPP
Higher
Education
•Foreign Education Bill that would allow foreign universities to establish campus
in India
•Setting up of 30 Central Establishment, one in each of the 16 States which do
not have a Central university at present, and 14 other Central universities in
different parts of the country
•Establishment of eight IITs, seven IIMs and five Indian Institutes of Science
Education and Research© Grant Thornton India. All rights reserved.
47
Education Sector- Demand
Segments Key recent government initiatives announced/planned
Vocational
Education
•Established National Skill Development Center (NSDC) , a unique PublicPrivate Partnership (PPP)
•Enterprise, with a mandate to develop the skill of 30 percent of the overall target
of 500 million people by the year 2022
•Complete Upgradation of 500 ITIs by investing INR 2.0-3.5 crore in each into
institutions of excellence. Upgrade remaining 1396 ITIs in PPP mode
•Upgrade 400 government polytechnics. Set up 125 new polytechnics in PPP
mode
•Expand Vocational Education from 9500 senior secondary schools to 20000
schools.© Grant Thornton India. All rights reserved.
48
Education Sector
Global Perspective© Grant Thornton India. All rights reserved.
49
Forms of PPP in Education
Service Delivery Initiatives
Private management of public college/universities
Contracting with private college for education delivery
Before and after college care
Private information/testing services
Private sector review
Outsourcing of non-core functions
Outsourcing of delivery by public tertiary institutions
Infrastructure PPPs
Private Finance Initiatives - finance, construction and
maintenance of core and non-core educational assets
Private leasing of public college/ tertiary institution
facilities
Equipment and maintenance of IT laboratories
Strategic Partnerships
Private involvement in curriculum development
Private sector involvement in quality assurance
Adopt-a-college initiatives
Research PPPs
On-job-training
Public/private tertiary institution affiliations
Social marketing
Demand Side Finance Initiatives
Publicly financed vouchers and scholarships
Privately financed vouchers and scholarships
Publicly provided student loans
Subsidies for private schools© Grant Thornton India. All rights reserved.
50
PPP in Education
Indian Perspective
ICT and labs in
schools ICT and
labs in schools
Model Schools
Vocational
training
•Allocated Rs130bn under SSA. Plans to implement ICT in 90,000 schools in
the current 5-year plan
Allocated Rs11.43bn under RMSA to create science and math labs in
government schools
•Government-PPP initiatives – extending the spectrum from $100m to $1bn
•2500 schools out of the 6,000 model schools are declared under PPP (a
Rs36bn opportunity; private investment of ~Rs100bn is expected to flow in)
•National Skill Development Corporation allocated Rs10bn in 2009-10 interim
budget; plans to raise Rs150bn going forward© Grant Thornton India. All rights reserved.
51
Sample of PPP Arrangements in Higher Education
• Public-Private financing of higher education
– Funding to Private Colleges through University Grants Commission (UGC) funding
reform, innovation and other programs in public and private higher education institutions.
– Another model is providing funds, through government grants or loans, directly students,
who may attend any academic institution.
Indian Perspective© Grant Thornton India. All rights reserved.
52
Sample of PPP Arrangements in Higher Education
• Public-Private Funding of Research
– Private funds for research and produce research products that may be useful to, or even
owned by private firms Private universities. In some cases, the private sector provides
funds to public or private institutions for basic research
Indian Perspective© Grant Thornton India. All rights reserved.
53
Sample of PPP Arrangements in Higher Education
• Science parks
– Related to public-private support for research is the emergence of science parks in many
countries. Often, these research and development (R&D) facilities are a combination of
public and private initiative One of the most successful models in Asia is the Science
Based Industrial Park at Hsinchu, Taipei, China.
– This science park was built with a combination of private and government funds adjacent
to several major universities near Taipei. It has attracted many of Taipei, China’s major
high-tech firms and some multinational corporations as well.
International Models© Grant Thornton India. All rights reserved.
54
Sample of PPP Arrangements in Higher Education
• University-based Companies Focusing on High-tech
Production for the Private Sector
– There are a growing number of university-owned companies, sometimes partly funded
by private sources, generally in the high-tech area that produce products for the
marketplace. One of the most successful examples of this is Peking University’s Founder
Software Company, which produces software for Chinese language newspapers
worldwide and has a turnover of more than US$ 1 billion.
– In some cases, these university-based initiatives have participation from the private
sector in terms of financing, marketing, or other inputs.
International Models© Grant Thornton India. All rights reserved.
55
Sample of PPP Arrangements in Higher Education
• Publishing and knowledge networks
– There are examples of universities linking with private sector publishers or other
knowledge distribution companies to produce and distribute knowledge products,
including books, scientific journals, Web based publications, and others.
• University services
– There are many examples of private sector enterprises such as bookstores, retails
shops, food services, and many others linking up with universities and operating on
campuses. In some cases, academic institutions franchise private sector companies for
campus operations and earn a royalty on sales. In other examples, universities may
directly link with firms to provide products or services. These enterprises can be
financially advantageous to the academic institutions.
International Models© Grant Thornton India. All rights reserved.
56
Sample of PPP Arrangements in Higher Education
• The delivery of academic programs
– There are examples of academic institutions in one country delivering academic
programs, sometimes leading to academic degrees, in another country in collaboration
with private sector firms. This is a recent development in Malaysia, for example, where
Australian and British universities have partnered with Malaysian business firms to
sponsor local academic institutions that provide degrees from the sponsoring institutions
for Malaysians. The initial investment is from Malaysia, and the overseas universities
provide the educational programs and eventually award the degrees.
International Models© Grant Thornton India. All rights reserved.
57
Health Sector© Grant Thornton India. All rights reserved.
58
Health Sector – An Overview
National Level- Union Ministry of Health and Family Welfare.
Sub-divisional/Taluk level - At the Taluk level, healthcare services are rendered through the office
of Assistant District Health and Family Welfare Officer (ADHO).
District Level - The district level structure of health services is a middle level management
organisation and it is a link between the State as well as regional structure on one side and the
peripheral level structures such as PHC as well as sub-centre on the other side.
Regional level - Each regional/zonal set-up covers three to five districts and acts under authority
delegated by the State Directorate of Health Services
State Level - State Department of Health and Family Welfare in each State headed by Minister
and with a Secretariat
Community level - one Community Health Centre (CHC) has been established for every 80,000
to 1, 20,000 population, and this centre provides the basic specialty services in general
medicine, pediatrics, surgery, obstetrics and gynecology
Administrative Structure © Grant Thornton India. All rights reserved.
59
Health Care Sector - Overview
• The Indian healthcare sector is expected reach US$ 280 billion by 2020
• GDP spend of 8 per cent by 2012 from 5.5 per cent in 2009.
• India would require another 1.75 million beds by the end of 2025.
• The public sector however is likely to contribute only around 15-20 per
cent of the required US$ 86 billion investment.© Grant Thornton India. All rights reserved.
60
Health Care Sector - Overview
• The rural healthcare sector is also on an upsurge. The Rural Health
Survey Report 2009 states
– 15000 Health Sub-centers and 28,000 nurses and mid-wives added in last years
– Number of primary health centres have increased by 84 per cent, taking the number to
20,107.
• FDI between April 2000-January 2010
– Drugs and pharmaceuticals sector : US$ 1.87 billion between April 2000 and January
2010
– Hospitals and diagnostic centres : US$ 980.38 million in April 2000 and January 2010© Grant Thornton India. All rights reserved.
61
Health Care Sector - Overview
• Medical Tourism
– At a nascent stage expected to grow exponentially on account of high quality of service,
good infrastructure and low cost
– Expected to have 3% share by end of 2013. USD 3 Billion, growing at a CAGR of 26%
yoy.
– Medical tourists is anticipated to grow at a CAGR of over 19 per cent during the forecast
period to reach 1.3 million by 2013.
– The growth in India’s medical tourism market will be a boon for several associated
industries, including hospital industry, medical equipments industry and pharmaceutical
industry. © Grant Thornton India. All rights reserved.
62
Health Care Sector - Overview
• Vast majority of the country suffers from a poor standard of healthcare
infrastructure which has not kept up with the growing economy.
• Centers of excellence in healthcare delivery exist, but are limited and
inadequate
• Nearly one million Indians die every year due to inadequate healthcare
facilities
• 700 million people have no access to specialist care
• 80% of specialists live in urban areas© Grant Thornton India. All rights reserved.
63
Health Sector – An Overview
• Forty percent of the primary health centers in India are understaffed.
• 250 medical colleges in the modern system of medicine and
• 400 in the Indian system of medicine and homeopathy (ISM&H).© Grant Thornton India. All rights reserved.
64
Health Sector – An Overview
• India produces over 25,000 doctors annually in the modern system of
medicine and a similar number of ISM&H practitioners, nurses and para
professionals
• India has approximately 600,000 allopathic doctors© Grant Thornton India. All rights reserved.
65
Health Care Sector - Overview
• Government Initiatives
– Launched the National Rural Health Mission (NRHM) in 2005. It aims to provide quality healthcare
for all and increase the expenditure on healthcare from 0.9 per cent of GDP to 2-3 per cent of GDP
by 2012.
• Union Budget 2011-2012
– Plan allocation for health by 20 per cent to US$ 5.8 billion.
– Rashtriya Swasthaya Bima Yojana will be extended to the unorganized sector workers in hazardous
mining and associated industries
– Government allocated an additional US$ 1.23 billion for six upcoming AIIMS-like institutes and
upgradation of 13 existing Government Medical Colleges.© Grant Thornton India. All rights reserved.
66
Health Sector – An Overview
• Private Sector Initiatives
– Sahara Group planning multiple health projects
• 200-bed multi-specialty tertiary care hospital at Gorakhpur, Uttar Pradesh
• 1,500-bed multi super-specialty, tertiary care hospital at Aamby Valley City
• 30-bed multi-speciality secondary care hospitals across all the 217 Sahara City
Homes Townships.
– Artemis Health Sciences (AHS) : Health care venture of the Apollo Tyres Group
establishing four to eight multi-specialty hospitals in Punjab, Uttar Pradesh, Madhya
Pradesh, Rajasthan and Haryana
– Frontier Mediville, setting up first healthcare special economic zone (SEZ) near
Chennai with an investment of around US$ 44.4 million.
– GE Healthcare plans to invest US$ 50 million to set up more facilities for developing
diagnostic services
– MSD Pharmaceuticals Pvt Ltd investing US $ 130 Mn on research and developments
(R&D) centre with UK-based Wellcome Laboratories© Grant Thornton India. All rights reserved.
67
Health Sector
Health Sector
Primary Secondary Tertiary Allied
•Primary Health
Care Centers
•First Referral
Units (FRUs)
•Community
Health Care
Centers
•General
Hospitals
•Multi Specialty
Hospitals
•Emergency
Medical Services
•Mobile
Diagnostics© Grant Thornton India. All rights reserved.
68
Possible PPP models – Health Care
Model Key Issues
Primary Healthcare
Center Adoption,
Management
Contracts, and Mobile
Clinics
• Addresses the need for improving primary health care access in rural
areas.
• Focuses on taking over existing infrastructure and introducing private
sector management techniques.
• Limited by the overall scarcity of health care professionals in the country.
Build, Own, and
Operate
Diagnostic Centers
•Addresses the need for creating additional diagnostics services.
• Requires the private sector to install, maintain, and operate diagnostics
services.
• Has potential for user charging based on political appetite.
• Needs a referral system with network of doctors and health centers.
Hospital Private
Finance Initiative
(PFI) Scheme
• Addresses the need for improving and developing hospital infrastructure.
• Focuses on hard infrastructure and facilities management of the hospital
(no health provision seen).
• Affordability is a key consideration.
• Requires wider stakeholder consultation.
• Needs to develop public sector capability on procurement of a large private
finance initiative project.© Grant Thornton India. All rights reserved.
69
PPP projects in Health In India
• Multiple State Government are trying to develop Health Infrastructure on
PPP Basis
– Delhi
• Superspecialty hospitals in Tahirpur and Janakpuri in Delhi
• Radio-diagnostic machines and dialysis units in government hospitals on PPP
projects in Delhi\
– MP
• Medical Hub at vill Tigaria Badshah on 194.727 hectares
– Maharashtra, Rajasthan and Kerela
• Emergency Medical Services on PPP© Grant Thornton India. All rights reserved.
70
PPP in Health - International
• PFI hospitals in United Kingdom
• National Health Service (NHS) in UK
• Local improvement finance trust (LIFT) in UK
• Independent sector treatment centers (ISTCs) in UK
• Chile's PPP Hospitals - Santiago, Chile
• Kayseri Health Campus and Ankara Etlik Health Complex in Turkey
• Loures Hospital, Cascais Hospital and Braga Hospital n Portugal© Grant Thornton India. All rights reserved.
71
India US Partnerships© Grant Thornton India. All rights reserved.
72
India – US strategic Partnerships
• Bilateral trade amounts to over US$ 45 billion
• Indian Companies made green field investments amounting to US$5.5
billion between 2004-2009
• Major investments in the US included
– JSW Steel’s investment of US$1 billion
– TCS’ US$273.4 million investment,
– Welspun Group’s investment of US$246 million
– Reliance Adlabs’ US$161-million investment
– Indage Group’s investment of US$160.5 million
– HCL Group’s US$148.7 million investment
– Tata Communications’ US$102.7 million investment and
– PSL’s US$100-million investment
Indian Investments in US© Grant Thornton India. All rights reserved.
73
India – US strategic Partnerships
Indian Investments in US- Key deals
Acquirer Target Sector Date Deal value (US$
million)
Reliance
Industries Ltd.
Atlas Energy, Inc.-
Marcellus Shale assets
(40% stake)
Manufacturing April 2010
1,700
Reliance
Industries Ltd.
Pioneer Natural
Resources-Eagle Ford
Shale assets (45% stake)
Manufacturing June 2010
1,355
Reliance Anil
Dhirubhai Ambani
Dreamworks SKG Media and
entertainment
September
2008 325
Religare
Enterprises Ltd.
Northgate Capital LLC Financial
services
February
2010
200
Inox India Ltd. Cryogenic Vessel
Alternatives
Manufacturing December
2009
140© Grant Thornton India. All rights reserved.
74
India – US strategic Partnerships
• US accounted for about 7% of total FDI Inflow in India amounting to
1,170 US$ million in FY 2011
• Some recent investments are as under:
– Walmart raises IT sourcing from India. Awards contracts for over $200 million for multiyear periods
– General Motors (GM) is looking to invest $ 500 mn in India in next 2 years© Grant Thornton India. All rights reserved.
75
India – US strategic Partnerships
• American Express
• Amway
• Avaya
• Caltex
• Caterpillar
• Cisco
• Citigroup
• Coca Cola
• Cognizant
• Colgate Palmolive
• Cummins
• Discovery
• Dupont
• Eli Lilly
• Federal Express
• Ford
• Franklin Templeton
• GE
• General Motors
• Gillette
• Honeywell India
• Intel
• Johnson & Johnson
• JPMorgan
• Kellogg India
• Kimberly Clark
• Kodak
• McDonalds
• Metlife India
• Microsoft
• Morgan Stanley
• New York Life
• Ogilvy and Mather
• Oracle
• Pepsico
• Pfizer
• Pizza Hut
• Sun Microsystems
• Texas
• Tecumseh
• Timex
• Tyco
• UPS India
• Visteon
• Whirlpool
• Xerox Modicorp
Major US Companies in India
All Major US Companies have India Operations© Grant Thornton India. All rights reserved.
76
India – US strategic Partnerships
US Investments in India
Acquirer Target Sector Date Deal value
(US$ million)
FedEx Express AFL Logistics Dec 2010 Not Known
Avantor
Performance
Materials
Holdings’s
RFCL Pharma Dec 2010 100
International
Paper (IP)
Andhra Pradesh Paper
Mill (APPM)
Paper
March
2011
257