4wed210pminternational terraceanu building a global power ...€¦ · the indian vc/pe was $3.5...

Fast facts

Source: CLSA Asia-Pacific Markets.

Indicators India

Population (billions) 1.1

2006 GDP (US$ billions) 912.5

GDP per capita (US$) 811.6

10–year GDP growth

(1996–2006 percent)

55.5

5–year GDP Growth

(2003–2007 percent)

17.8

Fertility rate

(child per woman)

3.1

Marginal propensity to save 0.1

India’s nominal GDP is on the rise

Source: International Monetary Fund.

08070605040302010099989796959493929190

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

US$ trillions

India’s GDP growth


08070605040302010099989796959493929190

25

20

15

10

5

0

-5

-10

-15

Percent change, year ago

070605040302010099989796959493929190

250

200

150

100

50

0

India’s trade balance

Sources: IFS, International Monetary Fund.

US$ billions

Exports

Imports

India’s net foreign directinvestment


05040302010099989796959493929190

7

6

5

4

3

2

1

0

US$ billions

0302010099989796959493929190

1.2

1.0

0.8

0.6

0.4

0.2

0.0

India’s FDI net inflows vs. netoutflows


Percent of GDP

Net inflows

Net outflows

India’s FDI equity inflows 2006-2007

Source: Ministry of Commerce and Industry, Government of India.

Sectors US$ billions

Electrical equipment 2.7

Services sector 4.7T elecommunications 0.5

T ransportation industry 0.5

Fuels (power and oil refinery) 0.3

Chemicals 0.2

Construction activities

(including roads and highways)1.0

Drugs and pharmaceuticals 0.2Food processing industries 9.1

Cement and gypsum products 0.2

0

10

20

30

40

50

China India Korea Japan United States

Fixed investments 1995–2006

Sources: IFS, NBS, The World Bank.

Percent of GDP

India’s financial market 2006

Sources: IFS, S&P, BIS.

Stock market

cap

45.7%

Public bonds

17.0%

Private bonds

2.3%

Bank assets

34.9%

Total: $1.8 trillion

India’s non-performing loansare declining

Source: Bankscope.

Year

Non –performing loans

(percent of total loans)

2001 10.0

2002 8.9

2003 6.6

2004 4.9

2005 3.3

2006 2.6

• Total value of funds disbursed in India was$1.3 billion

• Total value of capital under management inthe Indian VC/PE was $3.5 billion

• Indian VC/PE firms have invested around$4.8 billion, 5% of total invested in Asia

• There were 83 firms in India

• The IT sector accounted for nearly 34percent of the investments

India’s venture capital scenario As of December 2004

Source: NASSCOM.

India’s urban population

Source: The World Bank. * 2004 data.

1990 2005

Urban population

(percent of total population) 26 29

Urban agglomerations over 1 million

(percent of total population) 10 12

Population in the largest city

(percent of urban population) 6 6

Access to improved sanitation facilities

(percent of urban population) 45 59*

Average annual growth of urban

population (1990 –2005) 2.5

Exporting partners of India 2004-2005


Country

Amount

(US$ billions)

Share of

total exports

(percent)

United States 13.3 16.7

United Arab Emirates 7.1 9.0

Hong Kong 3.7 4.6

United Kingdom 3.5 4.5

Germany 2.6 3.3

Belgium 2.4 3.1

Italy 2.2 2.7

Japan 2.0 2.5

Netherlands 1.5 1.9

Russia 0.6 0.8

Others 40.3 50.9

Total 79.2 100.0

India’s importing countries 2004-2005


Country

Amount

(US$ billions)

Share of

total imports

(percent)

United States 6.3 5.9

Switzerland 5.8 5.4

United Arab Emirates 4.6 4.3

Belgium 4.6 4.3

Germany 3.9 3.6

Australia 3.6 3.3

United Kingdom 3.4 3.2

Japan 3.0 2.8

Singapore 2.6 2.4

Italy 1.3 1.2

Others 68.1 63.5

T otal 107.1 100.0

India’s increasing integrationwith the world economy


Indicator 2001 2006

Trade

(percent of GDP) 21.2 34.9

Export share

(percent of world's export) 0.7 1.0

Trends in energy consumptionand electricity generation in India

Source: BP.

Indicators 1990 2000 2006

Primary energy consumption

(million tons oil equivalent) 193.4 320.4 423.2

Oil consumption

(thousands barrels per day) 1,211.2 2,253.9 2,575.0

Electricity generation

(terawatt-hours) 284.7 555.1 726.7

India’s primary energyconsumption by fuel type

Source: BP.

Fuel type 2005 2006

Oil 119.6 120.3

Natural gas 34.3 35.8

Coal 222.0 237.7

Nuclear energy 4.0 4.0

Hydro electric 21.7 25.4

Total 401.6 423.2

Million tons oil

equivalent

0

20

40

60

80

100

2005 2025

Share of poor householdsin India will decline by 2025

Source: McKinsey Global Institute.

Percent

Rich ( > $21,890 )

Middle class( $4,380 - $21,890 )

Poor ( < $4,380 )

Share of disposable income forIndian income groups


Percent

0

20

40

60

80

100

2005 2025

Rich ( > $21,890 )

Middle class( $4,380 - $21,890 )

Poor ( < $4,380 )

20302025202020152010200520001995199019851980

45

40

35

30

25

20

15

Age in years

Median age


China

India

Inputs

2005 2020

Steel 35 41

Aluminium 24 41

Nickel 16 25

Copper 25 37

Oil 12 18

Cement 55 52

Coal 51 64

Iron ore 40 52

Percent

of world's

consumption

China and India’s combinedconsumption of industrial inputs

Source: CLSA Asia-Pacific Markets.

*

* Projected.

Indicators

2005 2020 2005 2020

Capacity (GW) 516 1,687 127 326

Generation (Twh) 2,398 7,592 617 1,747

Capacity utilization (percent) 53 51 55 61

China India

Power generation by Chinaand India

Sources: CLSA Asia-Pacific Markets, CEIC, CEA, Ministry of Power.

**

* Projected.

Five of the ten densest cities in2007 were in China and India

Source: Forbes.

Rank City Country

2007

Population

(millions)

Density

(person per

square km)

1 Mumbai India 18.2 29,650

2 Calcutta India 14.7 23,900

5 Shenzen China 8.0 17,150

8 Chennai India 6.0 14,350

10 Shanghai China 14.5 13,400

Pollution in Indian cities Residential areas, micrograms per cubic meter*

Source: Central pollution Control Board, India.

* National Ambient Air Quality Standards are 60 forSO2 and NO2 and 140 for SPM.

City

2000 2005 2000 2005 2000 2005

Bangalore 24 9 56 44 218 138

Mumbai 8 7 34 19 260 223

Calcutta 15 11 33 40 295 270

Delhi 18 10 34 45 279 268

Hyderabad 11 6 19 22 174 113

Madras 7 7 15 11 113 121

Sulphur

dioxide

(SO 2)

Oxides

of nitrogen

(NO 2)

Suspended

particulate

matter

(SPM)

Percent of surveyed managersciting to business constraints

Source: The World Bank.

Indicators China India

Corruption 27.3 25.0

Courts 24.9 2.7

Crime 20.0 11.8

Procedures for business start-up

(percent of GNI per capita)9.3 73.7

Labor regulations 20.7 8.6

Labor skills 30.7 7.9

T ax rates 36.8 27.9

Policy uncertainty 32.9 9.2

Rigidity of employment index

(0=less rigid to 100=more rigid) 24.0 41.0

Sales of automobiles rising inIndia

Source: Society of Indian Automobile Manufacturers.

Year

Passenger

cars

(millions)

Two

wheelers

(millions)

Others

(millions)

Total

(millions)

2001-02 0.5 4.2 0.5 5.2

2002-03 0.5 4.8 0.6 5.9

2003-04 0.7 5.4 0.8 6.8

2004-05 0.8 6.2 0.9 7.9

2005-06 0.9 7.1 1.0 8.9

2006-07 1.1 7.9 1.2 10.1

Quality of life 2005

Source: The World Bank. * 2004 estimates. ** 2003 estimates.

Indicators India

Access to improved water source

(percent of population) 86*

Access to improved water source

(percent of urban population) 95

Access to improved sanitation facilities

(percent of urban population) 59*

Carbon dioxide emissions

(per capita metric tons) 1.2**

HIV prevalence

(percent of ages 15-49) 0.9

Incidence of tuberculosis

(per 100,000 people) 168

India in theGlobal Services Economy

April 30, 2008

CONFIDENTIAL AND PROPRIETARY

Value Chain: Insight or Fallacy?


Profits$ Millions

ROEPercent

Employment

Thousands

16

1,800

88

32

22

11,200

4.5%

22.7%

-861

548

n/a

11.1%

Lessons From Other Industries


Indian Performance vs.“Competitors”

Philippines

India

Canada

US

Cost$/hour

18.3

11.7

8.3

5.9

QualityScore

10

12

17

8

Attrition Percent

130%

120%

163%

49%


The Canadian Cameo

.022

.025

200

400

India

2004

2007

Jobs (iQor)

1,200

(300)

Canada

2004

2007

ExchangeRate

.67

1.01


Building a Global Power – TheRise of India

Shantanu Prakash

CEOEducomp Solutions Limited

34

INDIA’S EDUCATION SECTORIS DRIVEN BY ROBUST 20-YEARTRENDS IN CONSUMPTIONGROWTH

• India’s education sector is driven bypredictable and sustainable consumptiondrivers based on robust 20+ year trends

• Education consumption in India has grownat 11% CAGR for the last 20 years(compared to 4.7% CAGR consumptiongrowth)

• Education consumption is likely to reachUS$150 billion by 2025 – making India oneof the world’s largest educationeconomies

• Key consumption drivers – demographics,rising discretionary income and sustainedgovernment spending

Wageinflation

Demographics &

Employability

Governmentspend

Outsourcing

Sustainability

Pre

dic

tab

ilit

y

Education: consumption drivers

35

…MAKING INDIA ONE OF THELARGEST AND FASTEST GROWINGEDUCATIONAL ECONOMIES OFTHE WORLD

Source: EIU, World Bank, UNESCO, Merrill Lynch research

36

DEMOGRAPHICS CIRCUMVENTSDEMAND

India has over 218 million students studying in over 1 million schools andinstitutions. With over 100 million students out of school and high birth rates inthe region, enrollment numbers have been increasing at close to 6% a year.

India has the world’s largest population of people under the age of29.

0

100

200

300

400

500

600

700

800

India China US UK

687

597

12522

25 – 29

20 – 24

5 – 19

0 – 4 Birth to Pre-school

KG to Class XII

College Degree / first job

Higher Education / earlycareer

Age SegmentPopulation in Million (source: UN)

-

50

100

150

200

250

India China UK US

2000

2001

2002

Total enrollment in Million (source: UN)

37

Large Numbers Educated , largerstill left behind

630

Illiterate

Up to Std. IV

Population(million) No. of schools

Workforce*

Up to Std. V-IX

SSC/HSC

CollegePG

297

154

22

1 m

illio

n (

150,0

00 p

rivate

)~

11,0

00

13

mil

lio

n ad

ded

ev

ery

y

ear

Demographic dividend

Access to basiceducation

Unemployability Training – last mile repair

203m60m13m

Urban population

Mid

dle

Cla

ss

38

INDIA’S MIDDLE CLASS – GROWING AFFLUENCE, CHILDREN’S EDUCATION TOP PRIORITY HIGH WILLINGNESS TO PAY

Indian Middle class: 13 millionhouseholds*

*Source: Report by CLSA “Mr. & Mrs. India”, September 2007

70m 106m

Households earning US$2-44k to hit 106m by 2010FY2006-2010 CAGR of 11%

Earning US$2-44k p.a.

EDUCATION IS A KEY PRIORITY FOR INDIA’S MIDDLE CLASS*

Biggest worry? Rising prices (34% of survey respondents), Education fees (18%)and medical costs (10%)What would they do if given 10 million rupees? 49% would buy property, 44%would save and invest for children’s future and 32% would start a businessMain reasons for savings? Emergency (62%), Children’s education (55%),healthcare (35%)Education spend is the highest non-food expense category in India’s middle classconsumption basket (9%)

0

5

10

15

20

25

IND

ON

ES

IA

IND

IA

CH

INA

IRE

LA

ND

MA

LA

YS

IA

PH

ILIP

PIN

ES

TH

AIL

AN

D

39

PUBLIC EXPENDITURE IS ON THE RISE BUTTHERE IS ROOM FOR GROWTH

• Public expenditure on education on the rise

– Public expenditure: 4+% of GDP

– Govt. allocation increased 2x to $1 billion per

year

• However, among lowest in the region

– Education’s share of the government-wallet is

among the lowest in the region (11.6%)

• National goal: eradication of illiteracy by 2020

Initiative Description Ownership Outlay

ICT@Schools • Introduce information andcommunication technologyin schools

Central Government

(CCEA)

• $15,000 per school

“Sarva Shiksha Abhiyan”

(Literacy for all)

• Main vehicle to provideelementary education to allchildren

• $1 billion allocation

Central Government • Additional cess of 2% imposed onall direct and indirect taxes

• Allocation: $2 million per year perdistrict ($150k for ICT)

Global e-schools andcommunities initiative

• India has 800k schools ofwhich govt. aided schools(85% are in rural areas)

• Provide basic ICTinfrastructure

Public/Private • Basic ICT infrastructure costs$30,000 per school

• $25 billion required to cover 800kschools + $3 billion annualmaintenance costs

Education as a percentage ofgovernment expenditure

40

SUMMARY: INDIAN EDUCATIONSECTOR POISED FOR EXPLOSIVEMULTI YEAR GROWTH

Demand Drivers Supply Side Constraints

• Government spend –currently 4% of GDP,likely to increase

• Middle class householdspend – education is 2nd

fastest growing andhighest non-foodcategory of householdwallet

• Unmet demand forknowledge workers – 13million workers addedeach year, but majorityunemployable

• Aspirational demand –consumers are looking fora skill upgrade so theycan get better paying jobs

• Severe shortage ofeducation infrastructure –India needs 200,000 newschools in the next 5 years*

• Very few players of nationalscale – largely fragmented,run like a cottage industry

• Little or no innovation –huge variance in teachingeffectiveness, employmentopportunities andinfrastructure betweenlocations

• Lack of private capital –banks are not geared towardsthe needs of educationalinstitutions and there is apaucity of private capital

Education/

Trainingin India

is poisedfor

explosive growth

* Central Board of Secondary Education, India

Yet Education Challenges couldimpede growth

• Substantial and urgent investments in core capacity creation• India needs 200,000 new schools in the next 5 years• Capital requirements are large – US$140 billion

• Youth unemployability crisis bigger than unemployment• 57% of India’s youth suffer from some degree of unemployability• Estimated investment required for skill training – US$120 billion over the next

2 years

• India’s rapidly growing services sector cannot find enoughpeople to employ

• India’s services sector, growing at 14 % needs 5 million each year• Demand-supply gap is creating hyperinflation in wages

• Widening digital divide• 31% of all government schools in India (of a total of 850,000) do not have

electricity• Less than 2% of government schools have any kind of IT infrastructure

• Less than 40% of Indian engineers are“employable”

• Only 3.5% of high school graduates enroll for acollege degree

• Due to shortage of capacity , India has becomethe largest exporter of students in the world –exporting 1,25,000 students in FY07 who spendover $ 4 billion each year

• High levels of absolute poverty

• Growing rural-urban disparity

• Building core capacities

•Health

•Education

•Infrastructure

• Sustainable growth can be driven by the 600million Indians not integrated into economicmainstream

Challenges

•Create complementary infrastructure toaddress basic health and education needs

•Providing access to finance for rural India

•Creating sustained economic activity bypromoting rural enterprises

•Sourcing capital and developing access tocapital markets for sectors critical todevelopment

Strategy

IFMR Trust

• For Profit Trust

– Identify and Invest in CommercialEnterprises

– Focus: Low income Households in India

– Largest Partner of ICICI Foundation

• Engaging low income households as bothProducers and Consumers

Three Parts

• Regional Rural Financial Services (RRFS)– National Network of 300 RRFS

– Rural Market, last mile solutions

• Network Enterprises Fund– Private Equity Fund

• Guarantee Company

– NBFC to access financial markets

Introduction – FinancialServices Channel

• Focused on the creation of 300 regional financial institutions acrossthe country with following defining characteristics:

• Tight geographical focus and serving all households within thatgeography

• Leveraging economies of scope through offering multiple financialservices including savings, remittance, insurance, small-ticket loansand investments

• Hybrid, low-cost and “thin” front-ends

• High degree of automation via centralized technology back-ends

• Process standardization

• A comprehensive methodology of staff training

5/7/08

Financial Services Channel

Regional Rural Financial

Services Co. 1 (per 5 mn. Population)


Services Co. 2


Services Co. 300

Rural Business HUB

Mini Branch –Thin front end

1 per 10K population

One per block

Touch point Touch point Touch point

Network Enterprises Fund

Interface to markets appears weakened by remoteness and resultant transaction costs

Rural producers have spare capacity even when markets are experiencing severeshortages of products and skills (Ex: furnishing, skills)

Rural consumers pay more in absolute terms for services (healthcare, drinkingwater, credit) relative to urban consumers

These companies will create an architecture for large markets to profitably interactwith remote rural India

Commercial opportunity for dedicated companies that fix supply chain failures

Interface to markets appears weakened by remoteness and resultant transaction costs

Workings (Private Equity Fund)

IFMR Trust GuaranteeCompany

Network

Enterprise FundITGC

Origination

CapitalProvision

ITGC

Balance

Sheet

Arranger/

Structurer

Principal capital

Repackaging/distribution

• ITGC will be a registered non-banking financialinstitution regulated by RBI

• ITGC will bring access to capital for critical sectorsat a lower cost by using tools such as diversification,credit enhancement and driving secondary markets

Thank You…

Sucharita Mukherjee

[email protected]

Share of oil as an energysource (2006)

(%)

0

20

40

60

Mex

ico

Thaila

ndBra

zil

Indones

ia

Chile

Ven

ezuel

aColo

mbia

Mal

aysi

aPak

ista

nTurk

eyArg

entin

a

India

Polan

dChi

na

South A

fric

aRuss

ia

Source: BP Statistical Review of World Energy June 2007, Morgan Stanley Research

Share in world oilconsumption (2006)

(%)

0

3

6

9

12

25

USA

EU 2

5Chi

naJa

pan

Russ

iaIn

diaBra

zil

Mex

ico

Indones

iaThai

land

Turkey

Ven

ezuel

aPol

and

South A

fric

aM

alay

sia

Arg

entin

aPak

ista

nChile

Colo

mbia

Source: BP Statistical Review of World Energy June 2007, Morgan Stanley Research

25

18

China and India: infrastructureinvestment

Source: CSO, CEIC, Morgan Stanley Research

9.4246.04.238.0Total

0.410.30.10.9Urban Infrastructure

3.490.71.211.2Electricity

0.922.41.312.1Communication

0.25.80.21.6Airports

0.512.50.21.4Ports

3.078.80.65.8Roads

1.025.60.65.1Railways

4.7122.61.513.9Transport

% of GDPUS$Bn% of GDPUS$Bn

ChinaIndia

F2007 / 2006

Infrastructure investment as a% of GDP

(%)

2.0

3.5

5.0

6.5

F1990

F1992

F1994

F1996

F1998

F2000

F2002

F2004

F2006

F2008E

F2010E

Source: CSO, CEIC, Morgan Stanley Research, E = Morgan Stanley Research estimates

(15)

(7)

14

32

49

55

58

145

151

564

India the largest contributor to growthin the working population over the next 10 years

(Millions)

World

Africa

India

South East Asia

Latin America

China

Western Asia

USA

Japan

Europe

4,323

537

734

377

369

947

139

205

84

499

Stock Position 2007 Addition to working age population by 2017

Source: UN, Morgan Stanley Research

Demographic comparison

13254541122004Personal Computers (per 1,000 people)

989391372004Household with Television (%)

517761258442004Mobile Phones (per 1,000 people)

256542241412004Telephone Mainlines (per 1,000 people)

6,6496,5451,8875202006Electricity (Consumption per capita kwh)

Penetration Comparison

6,85618,3922,0017972006Per Capita Nominal Income, US$

RussiaS KoreaChinaIndiaAs of:

Note: (1) Has increased to 132 mobile phones per 1,000 people as of 2006 for India and 350 per 1,000 people as of 2006for China.

Source: NCAER, IMF, CIA World Factbook, World Development Indicators

(1)(1)

Indian infrastructure sector

Indian Infrastructure Industry SWOT

Opportunity

Strengths Threats

Weaknesses

• Construction sector contributes 6.8% ofIndia’s GDP

• Strong development policies to promote growth in

infrastructure projects

• Lack of strong competitive industry

• Best opportunities in new house, road building andenergy sector

• Opportunity for domestic industry to becomemore organized

• High cost of construction

• Increasing population in India

• Failure to achieve targeted growth in the

construction industry

• Lack of structured regulatory andpolicy framework

• Large number of unorganized / unofficialplayers and lack of professional approach

• Lack of technological awareness

SWOT Analysis

Highly attractive infrastructuresector

1242.250.050.056.851.029.036.834.6Vietnam

1142.650.050.058.145.040.235.144.4Pakistan

1044.950.050.056.153.347.735.358.8Philippines

950.350.055.070.358.344.556.766.5Thailand

852.280.065.061.353.320.135.044.7Indonesia

753.740.065.074.870.764.872.144.9Taiwan

654.560.055.076.160.060.370.254.5Malaysia

555.020.070.080.073.383.688.261.5Singapore

456.450.075.063.255.074.486.966.7Hong Kong

357.950.075.080.663.361.069.357.6South Korea

260.080.085.075.546.736.455.952.6China

163.0100.075.064.568.344.442.247.4India

Rank

InfrastructureBusiness

Environment

AnticipatedSector

Growth

CompetitiveEnviron-

ment

StructuralEconomic

Risk

Long-TermPolitical

Risk

LegalFrame-

Work

FinancialInfra-

structure

LabourMarket

Infrastructure

Sector PotentialCountry RiskBusiness Environment

Asia Business Attractiveness Ranking

Source: Morgan Stanley Research

Drivers of private investment inIndian infrastructure

Political WillLack of political will to developinfrastructure

Political will to develop infrastructureto support economic growth

Funding Limited funding by governmentInnovative government fundingthrough cess and multi-lateralborrowings

PrivateInvestments

Disincentivised due to governmentregulations

Government regulations encourageprivate investments

User ChargesHigh resistance to pay forinfrastructure facilities

Lower resistance to pay forinfrastructure facilities

Interest RatesHigh interest rates led to higherbenchmark IRR’s

Lower interest rates led to lowerbenchmark IRR’s

What was wrong? What has changed?

Source: SSKI India, December 2006

Private investments toprincipally fund infrastructure projects

Area of infrastructure spending Mode of funding

4%3%

8%

12%

20%

44%

6%

Pipelines

Airports3%

Ports

Irrigation

Urban Infra

Railways

Roads

Power

Source: SSKI India, December 2006

14%

7%

35%

44%

Others

Debt

Budgetary

Grants

Public Private Partnership

The Govt. of India has announced ambitious plans of spending upto $475 billion in infrastructure development over the next 5 years

4wed210pminternational terraceanu building a global power ...€¦ · the indian vc/pe was $3.5...

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