pg 19. the patriot nris pg 22. interview: goutam das pg 25....

1GROUND ZERO 16th - 30th April 2014

A PhillipCapital India Publication

16th April 2014 – 30th April 2014. Vol 1 Issue 2. For Private Circulation Only

pg 19. The Patriot NRIs

pg 22. INTERVIEW: Goutam Das

pg 25. Indian Economy – Trend indicators

GROUND ZERO 16th - 30th April 2014 2

Vineet Bhatnagar- Managing Director and CEO

EDITORIAL BOARD:Naveen Kulkarni Manish AgarwallaKinshuk Bharti Tiwari Dhawal Doshi

COVER & MAGAZINE DESIGN Chaitanya Modak, www.inhousedesign.co.in

FOR EDITORIAL QUERIES:PhillipCapital (India) Private LimitedNo. 1, 2nd Floor, Modern Centre, 101 K.K. Marg, Jacob Circle, Mahalaxmi, Mumbai 400 011

RESEARCH Automobiles Deepak Jain, Priya Ranjan

Banking, NBFCs Manish Agarwalla, Sachit Motwani

Consumer, Media, Telecom Naveen Kulkarni, Vivekanand Subbaraman, Manish Pushkar

Cement Vaibhav Agarwal

Economics Anjali Verma

Engineering, Capital Goods Ankur Sharma, Aditya Bahety

Infrastructure & IT Services Vibhor Singhal, Varun Vijayan

Metals Dhawal Doshi, Dharmesh Shah

Oil & Gas, Agri Inputs Gauri Anand, Deepak Pareek

Pharmaceuticals Surya Patra

Retail, Real Estate Abhishek Ranganathan, Neha Garg

Technicals Subodh Gupta

Database Manager Vishal Randive

Sr. Manager – Equities Support Rosie Ferns

SALES & DISTRIBUTION Kinshuk Tiwari, Ashvin Patil, Shubhangi Agrawal Kishor Binwal, Sidharth Agrawal, Dipesh Sohani, Varun Kumar

ISSUE 2. 16TH TO 30TH APRIL 2014

GROUND ZERO - PREVIOUS ISSUE


LETTER FROM THE MANAGING DIRECTORSteel sector in India is a reasonable barometer of

the economic activity but has lost sheen given the

flagging investment cycle in the last few years. The

sector which is characterized by a highly concen-

trated primary producers market on one hand and

a highly fragmented market of secondary producers

on the other, is facing an adverse impact on its

market structure. The secondary producers account

for around 50% of the market volumes and they

play a critical role in driving market efficiencies by

developing new markets and consequently act as

price catalysts.

A tug-of-war like situation prevails as secondary

producers are losing ground at an alarming rate to

the primary producers. The secondary producers

are increasingly getting marginalized and their

hopes rest on the new government and revival in

economic activity.

Our cover story on secondary steel producers

written by our metal analysts Dhawal Doshi and

Dharmesh Shah tries to assess the damage inflicted

on this high employment generating sector. Prob-

ably, the only solution is to evolve and adapt to

the changing paradigms but in the interim the heat

of economic change will smelter some who will

emerge leaner-stronger while charring others.

Also, in this issue, as a part of our series on polit-

ical expositions we have delved into what resides

in the minds of the Indian Diaspora overseas (our

NRI friends). There is a tete-a-tete that provides an

insight on the evolving trends in the Global Pharma

outsourcing space.

We sincerely hope you have a good time reading

this issue.

Take good care, enjoy the long weekend and wher-

ever you are, do not forget to vote!

Best Wishes

Vineet

4. COVER STORY : Adapt or Perish

Ground Zero tracks the changing market structure of the steel industry in India.

19. The Patriot NRIs

22. INTERVIEW: Goutam Das

CDMO to drive value growth for Indian CRAMS

25. Indian Economy – Trend indicators

27. PhillipCapital Coverage Universe: Valuation Summary

CONTENTS


An evening with Jio: Picture of a live Ground Based Mast at Kankaria lake, Ahmedabad’

Billets at a TMT mill, in Raipur, waiting to be processed


COVER STORY

Why is it important to look at what is happening to small steel players? Because

the Indian steel industry is undergoing a tremendous systemic change and is

becoming increasingly institutionalized. What happens to these players (good

or bad) will affect the fortunes of the larger listed entities. Today, not only do

larger players command a huge market share and are price leaders, but they are

also looking at penetrating the retail market (a traditional forte of the smaller

enterprises) and are using their enormous financial muscle to edge out small

and medium sized units and even traders and middlemen. While this is good for

the large players in the long term, going by India’s demand and supply scenario

(enormous capacity creation), eventually, only the highly efficient, innovative, and

lean SME steel units will survive in India. Here is a Ground Zero look at what is

happening in this part of the steel industry…

BY DHAWAL DOSHI & DHARMESH SHAH

pg. 6 Primary v/s Secondary producers Primary producers are seriously arm-twisting the Secondary ones___________________________________________pg.9 New Government: The Hope Can the new government change the fortunes of the ailing secondary sector? ___________________________________________pg.12 Real Estate & Automobile: The saviours Real Estate and automobile sectors to the rescue (somewhat)___________________________________________pg.15 Secondary Producers: Evolution the only option What will secondary producers have to do to survive? Evolve___________________________________________


Demand = Nil,” says Mr Vijay Deriwal,

a small-sized flat steel trader who has

seen his business contracting signifi-

cantly due to low steel demand and

stiff competition from larger companies for higher

volumes. The reactions of some of his counter-

parts dealing in various steel products in North

India are similar. Slowing steel consumption and

significantly higher competition from primary

steel producers have seen the businesses of

most smaller steel producers and traders in India

contracting.

Primary producers are arm-twisting secondary producers

“90% of the structural mills have shut down in

Mandi Gobindgarh,” – says Mr S K Gupta from

Delhi who trades in structural steel (steel con-

struction material).

He has shifted his procurement from these small-

er mills to JSPL because of the various facilities

provided by the larger player. “I don’t need to

carry any inventory for structurals as the material

Primary producers are seriously arm-twisting the secondary ones

P R I M A R Y V / S S E C O N D A R Y P R O D U C E R S

is directly dispatched from their factory.” With

their financial clout, larger primary producers

such as JSPL are systematically edging out small-

er producers and traders out of the system. The

same scenario is seen repeated across various

parts of the country — smaller producers have

shut operations or altered their product profile

to survive. “40% of structural mills are shut and

this has helped primary producers gain market

share,” says Mr Chetan Agrawal from Raipur

whose structural steel production has come down

to zero due to low demand. “Lack of demand

from industrial projects has impacted our produc-

tion which has forced us to shift to other product

segments like TMT bars,” he adds.

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The Indian steel industry is divided into primary and secondary sectors — the primary sector consists of a few large integrated steel producers that make a range of products across various flat and long products. The secondary sector consists of small and medium enterprises that generally focus on less capital inten-sive and smaller capacities with each intermediate product (Sponge iron, billets, etc) as their end products. The five biggest Indian steel producers have a large almost 45% share of the domestic market. This has given tremendous pricing power in the hands of the large players in India. Secondary steel production constitutes approximately 57% of the total steel production in India. It mainly takes place in steel re-rolling mills that usually are family-run small and medium enterprises (SMEs) with 75% of units in the small scale. (October 2013, SRMA).

“90% of the structural mills have shut down in Mandi Gobindgarh,”

– Mr S K Gupta from Delhi who trades in structural steel.

Mandi Gobindgarh is a town in Punjab, sometimes referred to as Steel Town or simply Loha Mandi or Iron Market, because of a large number of steel mills and factories.


The fact that primary producers are gaining

volumes at the cost of the smaller players is re-

flected in the larger players’ sales volume growth

numbers vs. industry consumption growth —

these producers’ overall market share has risen

from 40% in FY12 to 41% in FY13 and ~48% in

9MFY14.

Primary producers: Branding/direct marketing is the trick

“Direct company sales is impacting volumes,”

says Mr. Vijay Deriwal who trades in flat steel and

caters to the NCR region. “Our volumes have

shrunk and come down to 25-30% of our earlier

volumes,” he laments. Lately, primary producers

have captured a larger chunk of the retail market

because of aggressive marketing — JSW Steel

has increased its retail outlets and Tata Steel and

JSPL are focusing on branding to gain a foothold

in the retail markets, which were once the core

forte of secondary producers. In addition to in-

creasing their penetration in retail markets, large

companies have also increased their direct mar-

keting efforts in the SME sector to cut out mid-

dlemen and improve margins. As Mr. S K Gupta

points out, “Companies like JSPL have started

directly entering MOUs for industrial projects and

this has helped them ensure volumes”.

Liquidity: An equally important factor impact-ing volumes for the secondary sector

According to the President of Faridabad Iron &

Steel Traders Association (in a recent media re-

port) 80% of the steel trading happening in Farid-

abad is facing payment delays of 2-3 months.

This has seen volumes falling due to reducing

asset turns. Limited availability of capital and

an increasing working capital cycle has started

adversely affecting volumes for the entire steel

industry. While capital availability has played an

important role, there is a sense of unease among

the trading community. They would rather not sell

than extend credit that may not come back. “We

prefer selling less than blocking our money in

debtors which could go bad,” says Mr Chandresh

Mehta who mostly operates in Maharashtra.

JPC,

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FY11 FY12 FY13 Q1FY14 Q2F Y14 Q3FY14

Sales Growth (%) 13.6 12.8 4.2 -9.7 -7.9 0.4

Operating Profit growth (%) 5.6 -19.4 10.5 -7.1 -27.5 -4.4

OPM (%) 12.5 9.0 9.4 9.0 7.7 9.2

PAT growth (%) -2.8 -52.7 -54.7 -203.1 -534.8 -374.4

Interest coverage (x) 2.7 1.4 1.1 0.8 0.6 0.8

Net D/E ratio (x) 1.4 1.6 1.8

Note: The above data does not include the larger producers

Sector financials: Sample Size: 154 companies

Sales Volume growth

The liquidity factor has driven industry volumes (of secondary

producers and the trading community) down materially over the

past year. The table below aggregates the financial performance

of 154 companies in the sector (excluding the larger players).

Declining volumes and increasing leverage (net debt to equity

increased from 1.4x in FY11 to 1.8x in FY13) has made the debt

servicing (interest coverage reduced from 2.7x in FY11 to 0.8x in

Q3FY14) difficult for players over the past year.

Banks averse to increasing their lending to secondary producers

Mr Chetan Agarwal, a TMT producer from Raipur, believes that he

has lower working capital at his disposal because of the overall

poor performance of smaller steel manufacturers in the past cou-

ple of years. Declining revenues, poor profitability, and increasing

strain on the balance sheet has made Indian banks averse to

increasing their lending to this sector. This reflects in the growth

in outstanding credit to the sector, which has started coming off

sharply over the past few months. As per RBI’s data, outstanding


Primary steel producers – Key performance metrics

Sponge Iron capacity in India

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Primary producers: Volume growth is the savior

Volume growth helped primary producers sail through

tough market conditions (falling prices and flat do-

mestic demand). Large players’ volumes were not only

at the cost the small producers but also some major

producers like Essar Steel whose liquidity issues saw

its production fall by 24% in 11MFY14. Its steel pro-

duction in this period was 2.8mn tonnes vs. its capac-

ity of 10mn tonnes. Falling profitability and leveraged

balance sheets affected Essar Steel’s production.

As seen in the table below, the profitability of primary

players would have been under severe pressure but

for volume growth. The operating profit growth for all

players (except JSW Steel) has been lagging volume

growth due to subdued pricing.

Bank credit growth (yoy) to iron & steel sector

State No of Units Capacity (mn tn) Utilizations

Chhattisgarh 90 9 75%

Jharkhand / West Bengal 65 6 65%

Orissa 90 8.5 65%

Karnataka / AP / Tamil Nadu 85 6 50%

Gujarat / Maharashtra 30 11 50%

9MFY14 growth

Volume Price Sales Operating profit

Net profit

Tata Steel 17.4% -7.3% 7.8% 11.3% 18.1%

JSW Steel 12.5% -9.1% 23.5% 36.3% 29.0%

JSPL 12.1% -8.8% 1.3% -15.0% 49.0%

SAIL 9.4% -5.5% 3.4% -20.9% -36.9%

Note: JSW Steel growth not comparable due to the impact of merger with JSW

Ispat. Volume growth has been adjusted for the merger however growth financial

parameters do not reflect the same

credit to the iron & steel sector grew by 21% yoy in

September 2013 vs. a 23.3% yoy increase in the gross

debt (as on September 2013) of the primary steel

producers. This implies a decline in the debt outstand-

ing for the rest of the sector (other than large players)

following a tight stance adopted by the Indian banking

sector.

Industry utilizations significantly lower

Tight liquidity and declining profitability has led to

volumes falling for the sector except for large players,

as can be seen from the capacity utilizations of sponge

iron plants across various states, which range from 50-

65%. Chhattisgarh is the only exception to this. How-

ever, excluding JSPL’s sponge iron production, average

utilizations for Chhattisgarh would also be around

65%. This has benefitted primary producers the most

because they could capture a larger pie of the volumes

due to their stronger balance sheets.


India Steel Consumption Pattern

N E W G O V E R N M E N T: T H E H O P E

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Can the new government change the fortunes of the ailing secondary sector? Not immediately!Mr S K Gupta who trades in long and flat steel is

optimistic about the new government driving in-

dustrial demand, but is savvy enough to realize

that business will revive only if a stable govern-

ment comes with a clean majority. Chetan Agar-

wal from Raipur shares his sentiment and says,

“I expect demand to improve after 6 months

with the new government taking initiatives for

growth.”

The fortunes of many small- and mid-sized play-

ers hinges on a new progressive government at

the center. It is clear that most of these players

expect demand to pick up after elections —

they believe a stable government will fast-track

work on investments in the infrastructure sector,

thereby boosting steel consumption in India. As

seen from the charts alongside, more than 50%

of India’s steel consumption depends on the

infrastructure- and construction-related sectors.

While expectations continue to stay high, steel

consumption in FY15 will not see any material

movement and any positive impact of possible

policy initiatives by the new government will

largely be felt from FY16.

Flat Steel Consumption Pattern

Long Steel Consumption Pattern

Construction 19%

Infrastructure 21%

Capital Goods 5%

Pipes & Tubes 8%

Automobiles 12%

Others 35%

100%

“I expect demand to improve after 6 months with the new government taking initiatives for growth.” - Chetan Agarwal, Raipur


Sector-wise break up of projects referred to CCI

Concerned Ministry Rs bn % share

Power 9,206 45%

Steel 4,653 23%

Petroleum and Natural Gas 3,561 17%

Road Transport and Highways 524 3%

Commerce and Industry - Commerce 523 3%

Railways 451 2%

Mines 414 2%

Coal 344 2%

Shipping 323 2%

Commerce and Industry-DIPP 276 1%

Fertilizers 192 1%

Civil Aviation 120 1%

Chemicals and Petrochemicals 50 0%

Textiles 13 0%

Total 20,651 100%

The current UPA government formed a Cabinet Com-

mittee on Investments (CCI) to fast track implementa-

tion of various stalled projects — 427 projects worth Rs

20tn were referred to the committee, of which projects

in the power, steel, and oil & gas sectors accounted for

~83%.

Out of the 427 projects, the CCI has cleared only 146

projects worth Rs 5.4tn (26% of the projects by value)

until February 2014. Our review of around 100 projects

out of these 146, representing 91% of value of projects

cleared, reveals a spending potential of only Rs 0.7tn.

Out of the Rs 5.4tn worth of projects cleared, 70% are

from the power sector (as seen from the chart) where

the plants have been built but are stranded due to no

fuel availability. The power sector projects were cleared

on fast track primarily to save the Indian Banking sector

from a significant jump in the NPAs. Mr Sameer Mehta,

who operates a steel service centre in Maharashtra,

acknowledges this fact saying he does not expect any

increase in demand before CY15 as the projects are

only on paper and there is no major execution happen-

ing on these.

If it wants to, the new government can play a major

role to free up many tied-up projects, which could

trigger further spending and revive steel consumption.

Out of the pending projects, the central government

can have a direct role in untangling around 50%, while

the other 50% are stalled due to issues at the state

government level, local issues, and legal problems.

About 30% of the projects are delayed for want of

environment and forest clearances and 17% are stuck

due to no fuel availability. The government’s approach

to these issues will determine the pace at which these

projects come online and thereby improve steel de-

mand.

Infrastructure and Industrial construction – a lot needs to be done for the consumption uptick

Sectoral break up of projects cleared by CCI

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Projects are only on paper and there is no major execution happening on these.

Mr Sameer Mehta, who operates a steel service centre in Maharashtra,


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Factors for projects being stalled

Order book and book to bill of 16 major companies

A PhillipCapital India study across 80% of the

projects yet to be cleared amounting to Rs 12tn

shows that projects worth Rs 5.5tn are not likely to

start in the near term. Projects worth Rs 1.9tn are

currently on track and can see a total spending of

roughly Rs 283bn over the next 2-5 years. Projects

worth Rs 3.1tn would need government interven-

tions from both the state and the center, which

could lead to a total spending of about Rs 2.2tn

over the next 2-5.

The order book and the potential spending reflect a weak demand scenario in FY15, which has the po-

tential to decline further in the near term before any material growth starts only from FY16 onwards. This

does not augur well for overall steel demand in India, which derives ~50% volumes from the industrial

and infrastructure sectors. Overall demand growth is likely to stay subdued in FY15 vs. 8.2% CAGR over

the past decade and 5.6% CAGR FY10 till date.

Projects cleared 712.5

Projects yet to be cleared

- On track projects 283.4

- requiring government intervention 2,191.0

Potential capital spending 3,186.9

Potential cap. spend over next 2-5 yrs. (Rs bn)

PhillipCapital estimates a total capex of around Rs

3.2tn over the next 2-5 years commencing majorly

from FY16 onwards. This amounts to only 15% of the

value of total projects referred to the CCI. While the

spending looks huge in absolute terms, it looks quite

miniscule when you juxtapose it with the orderbook

position of major companies from the capital goods

and construction sector — the potential capital spend-

ing accounts for only 75% of the orderbook of the top-

16 companies in the sectors. The total orderbook of

these companies (Rs 4.1tn) has seen a CQGR of -0.3%

since the start of FY12. Book-to-bill ratio has declined

from 2.38x at the end of FY12 to 2.28x in Q3FY14.


“Activity in construction and automobiles

determines the steel consumption scenar-

io in India,” says Mr Vinesh Mehta, who

expects rising activity in these sectors to

translate into improved steel demand. Mr

Sandeep Goyal, Director, Bajrang Ispat ap-

preciates the efforts of the National Housing

Board, which increased real estate activity

and led to a good uptick in steel demand in

Raipur.

Real Estate: FY14 – negatively impacted; FY15 expected to improveRising real estate prices and weak senti-

ment had led to a slowdown in the overall

construction activity in FY14. This can be

seen from sales volumes of major real

R E A L E S T A T E & A U T O M O B I L E : T H E S A V I O U R S

Real estate and Automobile sectors to the rescue (somewhat)?

“Activity in construction and automobiles determines the steel consumption scenario in India,” - Mr Vinesh Mehta, Flat steel trader based in Mumbai

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Real Estate: Revenues vs. volume growth (yoy)

estate companies across India as well as

the nationwide completion progress of

units committed during CY13. All India

volume growth for 25 major real estate

companies, as compiled by Knight Frank,

has been declining over the past year.

However, corresponding revenue growth

has been positive, implying higher prices

impacted volumes.

The slowdown in FY14 is also visible from

the fact that total units completed in CY13

stood at 290,926 vs. a committed supply

of 406,537. Increasing inventory in various

cities was one of the factors that lowered

execution.


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Real Estate Inventory (000 units) Dec-13 Dec-12 % chg

Mumbai 134.71 119.1 13.1%

Pune 53.68 41.54 29.2%

Bangalore 61.95 34.15 81.4%

Chennai 47.86 47.61 0.5%

NCR 195.85 179.8 8.9%

NHB Residex Index

Committed real estate supply (units)

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Cities 2007 Index Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Hyderabad 100 85 84 90 88 84 88 93

Faridabad 100 217 216 205 207 202 204 209

Patna 100 140 138 151 152 147 150 159

Ahmedabad 100 174 180 191 192 186 191 197

Chennai 100 309 312 314 310 303 318 330

Jaipur 100 78 85 87 112 110 108 105

Lucknow 100 171 175 189 183 187 191 185

Pune 100 200 201 205 221 219 219 235

Surat 100 145 138 150 140 142 145 154

Kochi 100 73 80 87 89 86 86 85

Bhopal 100 207 206 216 230 227 220 223

Kolkata 100 196 191 209 197 189 199 196

Mumbai 100 197 198 217 222 221 222 222

Bengaluru 100 100 98 106 109 108 107 111

Delhi 100 172 178 195 202 199 190 196

Bhubaneshwar 100 164 168 172 197 195 193 202

Guwahati 100 159 158 166 153 147 149 160

Ludhiana 100 171 168 179 167 157 150 150

Vijayawada 100 186 181 185 184 174 167 161

Indore 100 203 196 194 195 184 180 184

Chandigarh 100 194 191 192 188

Coimbatore 100 184 178 178 173

Dehradun 100 183 184 184 186

Meerut 100 191 189 176 171

Nagpur 100 163 168 162 175

Raipur 100 156 155 157 159

CY2014 CY2013 % chg

Bangalore 78261 31122 151.5%

Chennai 50193 27851 80.2%

Pune 75358 44894 67.9%

Mumbai 29295 14140 107.2%

Navi Mumbai 41744 18791 122.1%

Thane 115384 38575 199.1%

Gurgaon 36001 15196 136.9%

Noida 68724 18016 281.5%

Price hikes coupled with weak sentiments impacted volumesIncreasing prices coupled with slowing growth impacted sen-

timents, which affected real estate volumes. National Housing

Board’s Residex Index (index for real estate prices) shows the

price increases over a period — 16 of the 26 cities reported

price rises over the past year. Price hikes were prominent in the

last 6 months with 18 cities reporting higher prices.

Activity to pickup from FY15FY15 is likely to see an uptick in activity based on

the committed supply for CY14 — note that the

CY14 target is much higher than CY13 and taking

into account backlog completion in addition to

the fresh target, even if there is a slip up, overall

construction would be higher than CY13. This bodes

well for steel consumption, which can see growth

in FY15. Committed supply for CY14 across India

has seen a growth of 62% (659,789 units in CY14 vs.

406,539 units in CY13). This coupled with the back-

log of the past year will see good pickup in steel

demand in FY15.

A pick up in the industrial capex and improving sen-

timents towards growth in income will ensure further

demand growth from FY16. Higher affordability as

seen from the chart below will see the residential

demand improve with improving sentiments. The

demand improvement is expected despite the rising

prices (see NHB Residex Index below) because of

perception of better growth prospects.

The table below highlights the inventory buildup across various cities

Affordability Index: Improved Affordability


Automobiles – a mixed bag

Steel consumption per vehicle (Kgs)

The automobile sector accounts for around 12% of the overall steel con-sumed in India. A slowing economy has taken its toll on the sector with both passenger and commercial vehicle sales dwindling for more than a year. The two-wheeler segment has shown resilience with strong sales defying the slowing economy. However, two wheelers have been growing at the cost of passenger vehicle sales and this does not augur well for overall steel consumption, as the amount of steel consumed in a two-wheeler is a fraction of that in the PVs and CVs.

Can the auto segment be a saving grace for steel demand in FY15?

The sector performance is likely to be mixed going ahead and two-wheelers are likely to continue strong volume growth. Recent excise duty cuts and replacement demand will help the PV segment buck its current declining trend and show some revival. However, overcapacity and low economic activity is expected to impact the already ailing CV segment in FY15. Steel demand is expected to see some uptick in FY15 (pinning hopes on the PV segment), but healthy growth will happen only in FY16 with an expected recovery in the PV and CV segments.

Passenger Vehicles volume growth

CV volume vs. GDP growth

PV segment Excise duty cuts and replacement de-mand to help boost volumes: After see-ing strong growth in the last five years, PV volumes (domestic as well as exports) have softened in FY14 with 11MFY14 registering 4.3% fall. The slowdown in the domestic market was partly offset by strong exports. Domestic volumes declined by 6.7% yoy in 11MFY14 where-as exports grew 7% helped by rupee depreciation. The recent excise duty cut (in Feb 2014 to 8% from 12% earlier) and replacement demand for cars will help volumes grow in FY15 and FY16. Strong volume growth in FY10 and FY11 is expected to drive replacement demand, assuming a 5-year replacement cycle.

CV segment - still a while away:

Slowing domestic demand and sig-nificant capacity created in FY10 and FY11 impacted CV volumes in FY13 and majorly in FY14. Overcapacity was accentuated by the iron ore mining bans in Karnataka and Goa. CV volumes fell 3% in FY13 and have seen an almost 19% yoy fall in 11MFY14. These volumes are not expected to pick up materially except for significant ramp up in the overall economic activity in India. Easing of the iron ore mining restrictions and increasing output will also play a major role in industry utilizations and hence the volume growth.


Can steel consumption growth address woes of the ailing secondary sector? – Yes, but it could be short lived

A pick up in the overall steel consumption in India (due

to the growth in auto and real estate) will improve the fi-

nancial state of the secondary sector in the coming 6-12

months. However, it will be short lived with steel capac-

ity expansions coming up — capacity is expected to

grow from the current 104mn tonnes to 121mn tonnes

in the coming three years with a bulk of the expansions

coming from the primary producers.

New capacities along with already low utilizations

across the industry will lead to fierce competition.

Surplus steel capacity will continue to limit spreads

earned at lower levels. This can be seen from the wid-

ening price spreads between primary and secondary

producers.

What will secondary producers have to do to survive? Evolve!

S E C O N D A R Y P R O D U C E R S : E V O L U T I O N T H E O N L Y O P T I O N

FY14 FY15 FY16 FY17

JSW Steel 14.3 - 3.2 -

Tata Steel 9.7 - 3.0 -

SAIL 15.4 2.4 3.0 -

JSPL 3.0 3.0 - -

RINL 6.3 - - -

Essar 10.0 - - -

Bhushan Steel 4.7 - - -

NMDC - - - 3.0

Monnet Ispat 1.8 - - -

Bhushan Power & Steel 2.8 - - -

Adhunik Metaliks 0.5 - - -

Usha Martin 1.0 - - -

Jai Balaji 0.9 - - -

Kalyani Steel 0.7 - - -

MSP Steel & Power 0.1 - - -

Visa Steel 0.5 - - -

Godawari Power 0.4 - - -

Electrosteel Steels Limited 2.5 - - -

Lloyd Steel 1.0 - - -

Others 28.0 - - -

Total 103.6 5.4 9.2 3.0

Cumulative capacity 103.6 109.0 118.2 121.2

Steel Capacity in India (mn tonnes)

TMT Bars stacked up for delivery


The chart above highlights the primary producer pric-

es for TMT Bars and the spread they earned over the

secondary producer. The pricing differential between

the primary producers and the secondary producers

has not corrected materially despite a 7.5% move up

in the primary producer prices since August 2013.

Secondary producers are keeping the differential

high to at least ensure volume growth.

Fresh investments required to sustain current volumes and margins

The secondary sector, which mainly supplies

long-steel products will need fresh investment for

reducing the cost (increasing integration levels)

and improving the product profile (through value

additions). This will help them sustain margins, given

the expansion plans of the primary producers. Long-

steel capacity is expected to rise by ~9mn tonnes

by FY16 and is entirely being expanded by primary

producers. This can significantly dent the volumes of

the secondary producers, but for them getting their

costs leaner to sustain competition.

Pricing differential: Primary producer vs. secondary producer

Sou

rce:

Phi

llipC

apita

l Ind

ia R

esea

rch

Mn tonnes FY14 FY15 FY16

JSW Steel 2.5 - 3.2

Tata Steel 3.3 - -

SAIL (including Semis)

6.0 2.4 2.2

JSPL 2.0 1.5 -

RINL 6.3 - -

Monnet Ispat 1.1 - -

Adhunik Metaliks 0.5 - -

Usha Martin 1.0 - -

Jai Balaji 0.9 - -

Kalyani Steel 0.7 - -

MSP Steel & Power 0.1 - -

Visa Steel 0.5 - -

Godawari Power 0.4 - -

Electrosteel Steels Limited

2.5 - -

Others 24.0 -

Total 51.7 3.9 5.4

Cumulative capacity 51.7 55.6 61.0

Long Steel Capacities

“The key to survival is reducing costs by increasing the integration levels. Our integration level is what has helped us earn profits and retire majority of our debt,” - Mr Sandeep Goyal from Bajrang Ispat

Sou

rce:

Ste

elm

int,

Phill

ipCa

pita

l Ind

ia R

esea

rch


Mn tonnes FY14 FY15 FY16

JSW Steel 2.5 - 3.2

Tata Steel 3.3 - -

SAIL (including Semis)

6.0 2.4 2.2

JSPL 2.0 1.5 -

RINL 6.3 - -

Monnet Ispat 1.1 - -

Adhunik Metaliks 0.5 - -

Usha Martin 1.0 - -

Jai Balaji 0.9 - -

Kalyani Steel 0.7 - -

MSP Steel & Power 0.1 - -

Visa Steel 0.5 - -

Godawari Power 0.4 - -

Electrosteel Steels Limited

2.5 - -

Others 24.0 -

Total 51.7 3.9 5.4

Cumulative capacity 51.7 55.6 61.0

Heat Treatment to Billets in the process of manufacturing TMT

“The key to survival is reducing costs by increasing

the integration levels,” says Mr Sandeep Goyal

from Bajrang Ispat who operates an integrated TMT

mill with operations spanning from making pellets

to long-steel products such as TMT and wire rods.

“Our integration level is what has helped us earn

profits and retire majority of our debt,” he says.

Secondary sector will need higher investments to

reduce end-product costs, which will help sustain

their margins. This trend is seen from the increasing

number of secondary producers currently producing

billets (semi-finished product) that are looking at

setting up TMT facilities. Secondary producers are

adding around 1mn tonne of new capacity in the

TMT segment. This forward integration will help

them utilize their already existing semi-finished steel

capacity and enhance margins.

Increasing integration levels is the key to sustain margins

Sou

rce:

Ste

elm

int,

Phill

ipCa

pita

l Ind

ia R

esea

rch

Tonnes per day

Kalika TMT 600

Vandanaa Energy & Steels 500

Rajuri TMT 450

Swadeshi 500 TMT 300

Kore TMT 250

Sarda Energy 250

Kamdhenu Ispat 240

Avon Steel Rollings 200

Total 2790

TMT capacity expansions by a few players

Secondary producers are adding around 1mn tonne of new capacity in the TMT segment.


Higher value addition – boon for some and curse for the others?

Improving the share of value-added products is beneficial for the

secondary long-product players. However, the story is different for the

flat-steel producers. Primary producers are specifically expanding CRC

capacity — they have plans to commission 4.1mn tonnes of new CRC

capacity, which will account for around 55% of the existing capacity of

7.5mn tonnes. While the capacity addition is targeted at import substi-

tution (11MFY14 net imports of 0.7mn tonnes), standalone re-rollers will

see further compression in business once the capacity expansions start

kicking in. “SAIL has started trial runs for its new CRM and the material

was really good. The volumes from these new capacities will not only

replace the imports but also impact the small re-rollers given the quality

edge and lower cost for the primary producers,” says Mr S K Gupta who

trades in flat products in the Northern markets.

CRC: Demand vs. supply

As seen from the chart below, FY15 and FY16

will continue to see over capacity for the CRC

products despite a 10% annual growth in ex-

pected demand. This will see players with weak

balance sheets and the ones who do not have

a technological edge move out of the system

making way for the primary producers capturing

the market.

To conclude, the prospects of the larger players

look far better than the smaller players. A

significant rise in demand due to government

initiatives may ease the problems of secondary

players for a while. However, to survive the

onslaught of the larger players who are focused

on capturing the traditional bastions of the

smaller ones, these companies are going to

have to shape up both in terms of finance and

technology. Over the next decade or so, we

could see a scenario where primary steel pro-

ducers have captured a majority of the market

and only highly efficient value-adding smaller

players dominate the rest.

Sou

rce:

Phi

llipC

apita

l Ind

ia R

esea

rch

“SAIL has started trial runs for its new CRM and the material was really good. The volumes from these new capacities will not only replace the imports but also impact the small re-rollers given the quality edge and lower cost for the primary producers,” - Mr S K Gupta who trades in flat products in the Northern markets.


Ground Zero caught up with some Indians residing abroad – the NRI diaspora.

BY VARUN KUMAR

"India needs a better leader," says a Fund Manager of Indian origin working with one of largest US based hedge fund. "Rahul is not going to make much of a differ-ence and Kejriwal prefers protest over power," said another leading investor who works in Singapore. We figured that if we were to put our NRI-based friends into baskets based on their political allegiance, they would roughly fall equally into two baskets

a) Kejriwal fans:

They do like Modi for his develop-ment agenda but they prefer Kejri-wal as the underdog outsider who can shake the system and eliminate corruption making life better for cit-izens. They like his handle on data, his ideas, and zeal to reform things at a lightning pace. They have fond memories of his 49-day rule in Delhi. We get the feeling that they like the sheer courage Kejriwal showed in terms of launching a political party, taking on Delhi CM and finally winning the elections. They like the bravado quite a bit.

b) Modi Fans: They are absolute fans of Modi. He has generously showered his atten-tion on the NRI diaspora as is evi-dent from his cheerful demeanour on the Pravasi Bhartiya Divas, 2014.

Facebook: the aggregator of sentiments

Besides conversations on weekend get-togethers, Facebook is definite-ly the biggest compiler of public sentiment in one's friend circle. At least for us, Facebook has become a political portal instead of a social network. Most of the items that land

THE PATRIOT N R I s


in our feed these days are on poli-tics, though last few days were ruled by Yuvraj Singh's dismal perfor-mance as well! As they say, Indians love their Bollywood and Cricket, but we think we love our elections even more. At least this time. Possi-bly, one of the catalysts for this deep political involvement and awareness over last 1-2 years has been the rise of India Against Corruption move-ment and the consequent meteoric rise of AAP. However, as we noted above, sentiment about AAP has changed from universal adulation to a polarizing binary -- people either love them or hate them.

Kejriwal's loss is modi's gain

Kejriwal's loss has been Modi's gain as far our interactions suggest. While Kejriwal seems to have lost support post resignation, Modi’s star has been steadily rising. A friend of ours in Singapore who hails from Gujarat had animated dis-

cussions with Ground Zero regard-ing the development that has been done in Gujarat and expressed hope that Modi can do that at the national level given an opportunity. Another close friend takes pride in discussing that he has lived in Gu-jarat (though only for three months) and that we should go and visit the state to understand how the government machinery functions in Gujarat and how that is the way it should work across the country.

How investors are taking it

While the market’s rapid ascent has taken many participants by surprise, as far as Ground Zero gathers , in-vestors seem to quite like Modi. The discussion about Modi always veers towards how for the past few years India has seen a gigantic scale of economic mismanagement, mas-sive corruption and policy pause that hurt economic growth, jobs, corpo-rate profits and hence investors as

well. One of Ground Zero’s friends, who is also an institutional investor, highlights the track record in Gujarat in terms of development and growth and puts forth an argument that this is what we need at the central level as well. Another client of us was all praises for e-governance initiatives highlighted in BJP's manifesto.

How about investing?

In terms of portfolio positioning, we think there are a few investors who are cautious on election results due to prior unreliability of polls. These investors are little careful about adding beta to their portfolio. It also seems to Ground Zero that quite a few participants missed the rapid ral-ly as they were caught overweight on export-oriented defensives or were underweight India in general. These investors are are now torn between whether to enter at this time when early entrants might be looking to sell their positions.

Both Modi and Kejriwal are passionately using social media to promote their ideas among young voters:


They are concerned that they would just be providing an exit to such early entrants and would be getting in at a price where incremental returns would become difficult. The bullish in-vestor believes that a stable government verdict isn’t yet priced in because retail and domestic mutual funds do not seem positioned for a positive election outcome. If outcome is indeed positive, this inflow could keep markets propped up.

All investors want a government that moves fast on investment related decisions and controls the fiscal situation with a rein on various subsidies. We also noticed something interesting about investors who like Modi — when we pointed out that in terms of election manifesto, BJP is more vague and Congress is more specific, we got a response that BJP has done this deliberately so as not to get caught off guard on some specific promises. That definitely is a pragmatic political approach and as has been widely argued, Modi does have a strong following outside India as well.

Not to mention...

While a Modi wave in India has been well cov-ered by media, here is our off-the-beaten-path take on it — the following picture was in the house of one of Ground Zero’s friends in a village in UP - the battleground state. The village is 15-20 km away from a major road and the nearest town, Deoband, has a population of just 80,000. In that remote village, a picture of Modi on the wall of a farmer's home says quite a lot.


CDMO to drive value growth for Indian CRAMS

Q: What is your growth outlook for the global pharma outsourcing industry and what do you foresee for the Indian CRAMS industry?

The global pharmaceutical outsourcing industry has

certainly been impacted by the global economic

slowdown in the last couple of years. Increased reg-

ulatory scrutiny has also delayed approvals of clinical

development projects and this has caused ear-

ly-stage discovery projects to be postponed. There

has also been a steady decline in the R&D produc-

tivity impacting the pharma outsourcing. Howev-

er, of late I see this trend of more new NCE(new

chemical entity)/NBE(new biological entity) approv-

als on the one hand and on the other hand there is

this continued loss of blockbuster patents — this will

definitely trigger more contract research (CRO) from

innovative pharma players.

Similarly, the rising need for life-cycle management

of drugs after patent expiry and increasing activity

of small biotech companies — those usually funded

by private equity and venture funds in advanced

markets, specifically in the US — leads to an uptrend

in outsourcing of pharma manufacturing (CMO).

Currently, the size of the global pharma outsourcing

market is about US$ 75bn. I think that the segment

should maintain double-digit growth in the near to

medium term. The ~US$ 4bn Indian CRAMS market

is well poised to deliver a healthy annual growth of

In an interaction with Ground Zero, Mr. Goutam Das - the COO of the Association Biotech Led Enterprises (ABLE) and Ex-COO of Syngene International (Biocon’s research services arm) talks about emerging trends in the global pharma outsourcingspace and how the Indian Contract Research And Manufacturing Services industry will benefit from them.

BY SURYA NARAYAN PATRA


20-30%. Its strong execution track record in con-

tract manufacturing and more importantly its focus

on better margin contract development and manu-

facturing services (CDMO) will drive value growth .

Q: What are the key opportunities in the val-ue-chain of pharma outsourcing? And where do Indian companies figure in this?

There are three broad categories of pharma out-

sourcing — contract research (CRO), contract de-

velopment & manufacturing service (CDMO), and

contract manufacturing (CMO). Contract research

covers both pre-clinical and clinical development.

Contract manufacturing covers generic intermedi-

ates, APIs, and formulations.

As far as CRO opportunity is concerned, Indians are

way behind and their position in the global CRO

space is insignificant. Within that, the most prom-

inent Indian names are Siro ClinPharm, Manipal

Acunova, GVK Biosciences, and Lamda Therapeu-

tics. But the leading player is the Indian arm of

US-based Quintiles.

On contract manufacturing, Indian CRAMS have

gained a significant foothold in the global outsourc-

ing market mainly led by cost advantages

— but mostly for the manufacturing of generic

intermediates, APIs, and formulations.

As far as CDMO is concerned, India is yet to

achieve meaningful progress. Global CDMO

companies focus on development and manufac-

turing of new molecule intermediates, APIs, and

formulations. Divi’s Laboratories leads in the Indian

CDMO space, followed by Dr Reddy’s Laboratories,

Syngene — the CRAMS arm of Biocon, and Shasun

Pharma.

Q: Why has India lagged behind in the pharma outsourcing opportunity and what are the key challenges before Indian CRAMS?

Within global pharma outsourcing, the share of

contract research (CRO) is highest. Indian compa-

nies are almost not present in this segment due to

lack of investment in the field of new drug develop-

ment and lack of quality infrastructure for under-

taking discovery research services. This is the main

reason for India’s lower share in the global CRO pie,

despite the advantages of a large genetically varied

population and diverse treatment naïve patient

population.

There are two other key reasons India has not being

able to attract global innovators in the area of new

drug development — one is our country’s pharma

industry’s pro-generic approach and the second is

lax patent protection for drug innovation. This has

restricted India’s progress in the CDMO segment.

On the other hand, thanks to cost advantages and

process-development skills of Indians, we have

earned a strong foothold in contract manufacturing

of generics, which is the relatively low-value seg-

ment and a smaller part of overall global pharma

outsourcing.

So the key challenges for Indian CRAMS as I see

are — a need for large investments in building

quality research infrastructure, empowering the pat-

ent system to offer strong protection for new drug

innovations, and lastly creating a good business

environment for global clinical trials in India.

The reason CRAMS has taken a back seat in India

are the current clinical trial restrictions of Phase I

trials in the country for molecules innovated outside

India, then there are restrictions about clinical trials

on monkeys, and there are delays in clinical project

approvals. All these issues need to be sorted.

Q: Quality and reliability are important in out-sourcing of pharma research and manufacturing. Will the recent USFDA warning letters to some Indian units, affect the Indian CRAMS industry badly?

No. If you go by the statistics, India owns about

40% share in the overall fillings of ANDAs/DMFs in

the US and it is the largest supplier of generics into

the US. So, the US would definitely like to ensure

quality and safety of the drugs procured from

India. Yes, we have seen about 19-20 violations in

the manufacturing practices by Indian producers

recently and while they may seem high, considering

the fact that there are over 170 USFDA-approved

plants in India, the number of violations are not

really large. So I definitely don’t believe that the

recent warning letter or import alert would create

any dent in the potential CRAMS opportunity of the

Indian industry.


Q: Quintiles - one of the leading CRO in the world, in its recent IPO document mentioned that nearly 40% of US$ 51bn money spent on clinical development during 2013 was out-sourced and this business should see steady progress. How do you see this as an opportunity for Indian players?

So far, Indians have not really achieved great suc-

cess in the global CRO space. However, selective

Indian CROs like Manipal Acunova have moved

abroad to setup their base in various international

markets and that should help them grab a share in

the growing opportunity of global clinical develop-

ment space.

Q: What is your assessment of the competitive advantage offered by Indian CRAMS compared to other competing pharma outsourcing destina-tions like China, Korea, and Vietnam?

China is definitely a big competitor in the space

of global pharma outsourcing. Apart from cost

advantages, China has a conducive policy frame-

work including better fiscal measures, strong patent

system, and faster approval of clinical projects

and this has made it the preferred destination for

contract research. More importantly, the size of

its pharma market, which is expected to become

the 2nd largest in the world by 2020, makes it a

preferred play in contract research — this is where

the big money lies.

However on the contract manufacturing front, India

leads because of its strong execution track record

coupled with cost advantages — here it holds a su-

perior position compared to China. India’s focus on

execution and quality standards in manufacturing

should graduate Indians from generic manufactur-

ing to high-value CDMO.

I don’t believe South Korea is a key competitor in

the chemical-based pharma space or in the field

of generics for India. However, they have emerged

as a much bigger player in the field of biogener-

ics or biosimilars, where India is still progressing.

Although Indian peers like Biocon, Dr Reddy’s

Lab, Intas, and Reliance Life sciences, have moved

forward in the field of biologics, they are yet to find

success in the global biologic market.

Likewise, I don’t think Vietnam is anyway a compet-

itor in the global pharma outsourcing space. Rather

Malaysia is catching up faster and can become a

threat at some point.

Q: What are your thoughts about the merger and acquisition trend among leading global pharma peers in the world and its effect on pharma outsourcing?

The ongoing consolidation among global pharma

peers will certainly expand the scope of pharma

outsourcing. More importantly, such consolidation

enhances the scope of outsourcing business for the

already associated/partnered CRAMS player. I see

the trend as favourable.

Q: Do you see the growing presence of MNC CROs and CMOs in India as an increasing com-petitive threat for Indian CRAMS?

The MNC arms like Quintiles, Covance, and ICON

operate their contract research operation in India as

a cost centre and most of those contracts are as an

extension of their global clinical trial projects. On the

other hand, Indian CROs look for bases in India and

advanced markets as a need for conducting global

trials or to have exposure to the advanced regulated

markets. There is no direct competitive threat from

MNC CROs. Similarly, MNC CMOs like Lonza and

DSM don’t pose a threat for Indian CRAMS.

Q: A study by Chemical Pharmaceutical Generic Association of Italy suggests that Indian CRAMS should grow at a CAGR of 35% over 2012-2017 and its share of 8% in global pharma outsourc-ing in 2012 should grow to 21% in 2017. Do you believe the assessment?

What I believe is Indian CRAMS peers have already

started moving up the value chain of pharma out-

sourcing, particularly on the manufacturing front,

led by their increased focus on research services

and product development. With the rising share of

CDMO revenue in the overall CRAMS operation, In-

dian CRAMS industry should deliver healthy growth

of 20-30% with better value proposition in the me-

dium term. Specifically, industry leaders like Divi’s

Laboratories, Biocon, and Dr Reddy’s Laboratories

should be the larger beneficiaries of the anticipated

uptrend in the global pharma outsourcing space.


Indian Economy – Trend Indicators

Quarterly Economic Indicators

Monthly Economic Indicators

Growth Rates (%) Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-14 Feb-14

IIP 2.5 0.6 3.5 1.5 -2.5 -1.8 2.6 0.4 2.7 -1.2 -1.3 -0.2 0.1 -

PMI 53.2 54.2 52 51 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5

Core sector 8.3 -2.4 3.2 2.3 2.3 0.1 3.1 3.7 8 -0.6 1.7 2.1 1.6 -

WPI 7.3 7.3 5.7 4.8 4.6 5.2 5.9 7 7 7.2 7.5 6.4 5.0 4.7

CPI 10.8 10.9 10.4 9.4 9.3 9.9 9.6 9.5 9.8 10.2 11.2 9.9 8.8 8.1

Money Supply 12.7 12.8 13.6 12.4 12.1 12.8 12.5 12.2 12.5 13 14.5 14.9 14.5 14.5

Deposit 13.2 12.8 14.4 13.4 13.5 13.8 13.5 13.1 14.1 14.4 16.1 15.8 15.7 15.9

Credit 16.1 16.3 14.1 14.6 14.2 13.7 14.9 17.1 17.8 16.6 15.5 14.5 14.7 14.4

Exports 1.6 5.9 7 1.7 -1.1 -4.6 11.6 13 11.2 13.5 5.9 3.5 3.8 -3.7

Imports 4.8 1.7 -2.9 11 7 -0.4 -6.2 -0.7 -18.1 -14.5 -16.4 -15.2 -18.1 -17.1

Trade deficit (USD Bn) -19 -14.1 -10.3 -17.8 -20.1 -12.2 -12.3 -10.9 -6.8 -10.6 -9.2 -10.1 -9.9 -8.1

Net FDI (USD Bn) 2.7 2.6 1.3 2.8 1.9 1.8 1.7 1.7 3.3 1.8 2.4 1.9 0.8 -

FII (USD Bn) 6.1 4.2 1.2 1.6 6.7 -8.7 -4.7 -2 0.2 -0.4 0 2.9 2.6 -

ECB (USD Bn) 3.5 2.3 5.1 1.1 2.5 2 3.7 2.3 3.3 1.9 2.2 4.6 1.8 -

NRI Deposits (USD Bn) 0.7 0.7 0.7 1.3 1.7 2.5 1.3 1.2 5.9 4.5 14.6 2 0.7 -

Dollar-Rupee 54.3 53.8 54.4 54.4 55.1 58.4 60.6 63 63.8 61.6 62.6 61.9 62.1 62.2

FOREX Reserves (USD Bn) 295.8 291.9 293.4 296.4 287.9 284.6 280.2 275.5 276.3 283 291.3 295.7 292.2 291.1

Balance of Payment (USD Bn) Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Exports 71.1 80.2 75 72.6 74.2 84.8 73.9 81.2 79.8

Imports 118.8 131.7 118.9 120.4 132.6 130.4 124.4 114.5 112.9

Trade deficit -47.7 -51.5 -43.8 -47.8 -58.4 -45.6 -50.5 -33.3 -33.2

Net Invisibles 28.3 29.8 26.8 26.7 26.6 27.5 28.7 28.1 29.1

CAD -19.4 -21.8 -17.1 -21.1 -31.8 -18.2 -21.8 -5.2 -4.1

CAD (% of GDP) 4.2 4.4 4 5.1 6.5 3.6 4.9 1.2 0.8

Capital Account 8 16.6 16.5 20.7 31.5 20.5 20.6 -4.8 23.8

BoP -12.8 -5.7 0.5 -0.2 0.8 2.7 -0.3 -10.4 19.1

GDP and its Components (YoY, %) Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Agriculture & allied activities 6.7 2 1.8 1.8 0.8 1.4 2.7 4.6 3.6

Industry 4.4 3.9 -0.6 0.1 2 2 -0.9 1.5 -1.2

Mining & Quarrying -0.4 4.2 -1.1 -0.1 -2 -3.1 -2.8 -0.4 -1.6

Manufacturing 4.5 3.6 -1.1 0 2.5 2.6 -1.2 1 -1.9

Electricity, Gas & Water Supply 9.7 5.6 4.2 1.3 2.6 2.8 3.7 7.7 5

Services 6.4 7.5 6.7 6.5 6.1 6.3 6.3 5.8 6.7

Construction 7.6 6.9 2.8 -1.9 1 4.4 2.8 4.3 0.6

Trade, Hotel, Transport and Communications 3.9 6.1 4 5.6 5.9 6.2 3.9 4 4.3

Finance, Insurance, Real Estate & Business Services 11 11.3 11.7 10.6 10.2 9.1 8.9 10 12.5

Community, Social & Personal Services 4.7 6 7.6 7.4 4 4 9.4 4.2 7

GDP at FC 6.1 6 4.5 4.6 4.4 4.8 4.4 4.8 4.7


Annual Economic Indicators and Forecasts

Indicators Units FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14E FY15E

Real GDP growth % 9.5 9.6 9.3 6.7 8.6 8.9 6.7 4.5 4.6 5.2

Agriculture % 5.1 4.2 5.8 0.1 0.8 8.6 5 1.4 4.5 2.4

Industry % 8.5 12.9 9.2 4.1 10.2 8.3 6.7 0.9 0.5 2.4

Services % 11.1 10.1 10.3 9.4 10 9.2 7.1 6.2 5.7 6.7

Real GDP Rs Bn 32,531 35,644 38,966 41,587 45,161 49,185 52,475 54,821 57,486 60,475

Real GDP US$ Bn 733 787 967 908 953 1,079 1,096 1,008 958 1,008

Nominal GDP Rs Bn 36,925 42,937 49,864 56,301 64,778 77,841 90,097 1,01,133 1,13,205 1,26,723

Nominal GDP US$ Bn 832 948 1,237 1,229 1,367 1,707 1,881 1,859 1,887 2,112

Population Mn 1,106 1,122 1,138 1,154 1,170 1,186 1,202 1,219 1,236 1,254

Per Capita Income US$ 753 845 1,087 1,065 1,168 1,439 1,565 1,525 1,526 1,685

WPI (Average) % 4.5 6.6 4.7 8.1 3.8 9.6 8.7 7.4 6 6

CPI (Average) % 4.2 6.8 6.4 9 12.4 10.4 8.3 10.2 9.5 7.5-8

Money Supply % 15.5 20 22.1 20.5 19.2 16.2 15.8 13.6 13 14

CRR % 5 6 7.5 5 5.75 6 4.75 4 4 4

Repo rate % 6.5 7.5 7.75 5 5 6.75 8.5 7.5 8 8

Reverse repo rate % 5.5 6 6 3.5 3.5 5.75 7.5 6.5 7 7

Bank Deposit growth % 24 23.8 22.4 19.9 17.2 15.9 13.5 14.4 14 15

Bank Credit growth % 37 28.1 22.3 17.5 16.9 21.5 17 15 15 16

Centre Fiscal Deficit Rs Bn 1,464 1,426 1,437 3,370 4,140 3,736 5,160 5,209 5,425 5,855

Centre Fiscal Deficit % of GDP 4 3.3 2.9 6 6.4 4.8 5.7 5.2 4.8 4.7

Gross Central Govt Borrowings Rs Bn 1,310 1,460 1,681 2,730 4,510 4,370 5,098 5,580 6,290 6,450

Net Central Govt Borrowings Rs Bn 954 1,104 1,318 2,336 3,984 3,254 4,362 4,674 4,840 5,270

State Fiscal Deficit % of GDP 2.4 1.8 1.5 2.4 2.9 2.1 2.3 2.2 2.5 2.5

Consolidted Fiscal Deficit % of GDP 6.4 5.1 4.4 8.4 9.3 6.9 8.1 7.4 7.3 7.2

Exports US$ Bn 105.2 128.9 166.2 189 182.4 251.1 309.8 306.6 315.7 337.8

YoY Growth % 23.4 22.6 28.9 13.7 -3.5 37.6 23.4 -1 3 7

Imports US$ Bn 157.1 190.7 257.6 308.5 300.6 381.1 499.5 502.2 465.9 515.2

YoY Growth % 32.1 21.4 35.1 19.7 -2.5 26.7 31.1 0.5 -7.2 10.6

Trade Balance US$ Bn -51.9 -61.8 -91.5 -119.5 -118.2 -129.9 -189.8 -195.6 -150.2 -177.4

Net Invisibles US$ Bn 42 52.2 75.7 91.6 80 84.6 111.6 107.5 111.6 121

Current Account Deficit US$ Bn -9.9 -9.6 -15.7 -27.9 -38.2 -45.3 -78.2 -88.2 -38.6 -56.4

CAD (% of GDP) % -1.2 -1 -1.3 -2.3 -2.8 -2.6 -4.2 -4.7 -2.1 -2.7

Capital Account Balance US$ Bn 25.5 45.2 106.6 7.8 51.6 62 67.8 89.3 77.5 69.5

Dollar-Rupee (Average) 44.4 45.3 40.3 45.8 47.4 45.6 47.9 54.4 60 60

Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research


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pg 19. the patriot nris pg 22. interview: goutam das pg 25....

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