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transcript
8/14/2019 Doing Business in India - US-India Business Council
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New Delhi, 22nd October 2007
Doing Business In India
Opportunities And Challenges
US India Business Council
Presentation to Business and Trade delegation from Minnesota
by
Manish Mathur
Principal, A.T. Kearney
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2A.T. Kearney
Agenda
n Overview of the India opportunity
n Characteristics of the Indian business environment
n Key challenges
n Summary
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3A.T. Kearney
India is the second fastest growing economy in the world and thefourth largest in PPP terms
Italy
2002 2004 2006 2008 2010 2012 2014
United States
Japan
UK
France
India
Russia
Germany
15
5
0
China
Canada 8.8%
11%
2.8%
4,069
12,939
10,518
3,942
2,605
US China Japan India Germany
India’s economy would be larger than two of thecurrent G8 countries in 2014 – Canada and Russia
Nominal GDP Projection (US$ Trillion) GDP Adjusted For PPP (2006, US$ Billion)
India is already the fourth “largest” economy in“Purchasing power parity”
Source: Goldman Sachs BRICs report, World Market Research Centre; A.T. Kearney analysis
Overview of the India opportunity
GDP Projection And Adjusted For PPP
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As many as 500 million people will enter the middle class in next 15years
101m588m
391m
94m
17m
CAGR
628m
478m
123mUpper-Middle$10,000+ PPP(1)
Middle$5,000-10,000 PPP
Emerging$2,500-5,000 PPP
PoorUnder $2,500 PPP
14%
12%
3%
-11%
Note: (1) PPP denotes Purchasing Power Parity; (2) Population data US~ 300 mn, UK~60 mn and Germany~82 millionSources: U.N. Population Studies; A.T. Kearney analysis
2005 2020
Indian Population By Income Class, 2005-2020 (Millions)
The size of this new middle class is much more than the totalpopulation of countries like US, UK and Germany combined(2)
Overview of the India opportunity
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531 555 522 490
370461 573 612
139
404985 8171 87
65 65
174246
102
36332820
'00 '10 '00 '10 '00 '10 '00 '10
(MN People)
The opportunity is enhanced by young ‘working-age’ demographicsand a highly skilled manpower base
Population Trends And Projections (BRIC) Availability Of Graduates
§ India has large and widespread educational infrastructure – Over 380 universities (11,200 colleges)
– 1,500 research institutions and around 9,000 PhDs
– Over 200,000 engineering graduates
– Over 250,000 post graduates and 2,000,000 graduates
§ India’s working population (25-54 yrs) growth rate is 2.5%compared to 0.7% in China
§ Brazil and Russia have a smaller population base
§ Russia will experience a decline in population in the future
Brazil Russia India China
>55 years25-54 years0-24 years
CAGR = 1.2% CAGR = -0.5%
CAGR = 1.6%
CAGR = 0.7%
CAGR 2.5%
CAGR0.7%
9
258
1989
PhD’s
PostGraduates
Graduates
Source: ICICI-OneSource, Malaysia Ministry of Education — Department of Statistics: China Population Statistical yearbook; Statistical Abstract ofIndia; Bureau of Labor and Statistical Standards, Philippines; AICTE; Asiaweek; IMD World Competit iveness yearbook, StatistischesBundesamt 2001; A.T. Kearney analysis
Population Trends And College Graduates For India
Overview of the India opportunity
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6A.T. Kearney
The Indian government remains committed to market reforms
Reforms introduced post 2000
• Market-determinedunified exchange ratesystem
• Import licensing was
virtually abolished• Peak protective customs
duty rates were broughtdown
• Automatic FDI approval(upto 50%) in severalindustries
• The Foreign InvestmentPromotion Board wasconstituted
• Policy to promoteparticipation by FIIs in thesecondary market forIndian stocks
External SectorReforms
• Almost all industriallicensing wasabolished
• Restrictions under theMonopolies andRestrictive TradePractices Act werereduced
• Private entryrequirements for bothdomestic and foreignplayers eased
• Sectors reservedexclusively for the
public sector, wereopened up for privateparticipation
Industrial PolicyReforms
• Abolition of priceregulation of IPOs
• Setting up of theSecurities and
Exchange Board ofIndia (SEBI) and theNational StockExchange (NSE)
• Capital marketopened for FIIs
• Interest rates werederegulated
• Stringent capitaladequacy norms
Financial SectorReforms
• Agricultural reforms
— Ease of inter-state movement of foodgrains
— Reform of the Public Distribution
System• Fiscal reforms
— Rationalization of tax structure
— Introduction of VAT
• FDI policy reforms
— Opening up of sectors to FDI
— Raising equity cap for FDIparticipation in many sectors
Second Generation Reforms
Liberalization Reforms introduced in 1991
Source: A.T. Kearney analysis
Overview Of The Key Reforms Introduced Since 1991
The commitment to reforms has continued despite changesin the political regime over the years
Overview of the India opportunity
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15 years of reform have meant that investment norms are liberal today
Investmentnorms
Repatriation ofprofits
Other fiscalincentives (SEZs)
§ India permits FDI in almost all sectors§ except atomic energy, defense, railways, coal and lignite, mining of iron, manganese,
chrome, gypsum, gold, diamonds, copper and zinc.§Automatic approvals are granted by the Reserve Bank of India in sectors where
up to 100%, 74%, 51%, 40% or 26% foreign equity is allowed as a rule
§ India permits FDI in almost all sectors§ except atomic energy, defense, railways, coal and lignite, mining of iron, manganese,
chrome, gypsum, gold, diamonds, copper and zinc.§Automatic approvals are granted by the Reserve Bank of India in sectors where
up to 100%, 74%, 51%, 40% or 26% foreign equity is allowed as a rule
§ Dividends, capital gains, royalties and fees can be repatriated easily with thepermission of the Reserve Bank of India
§ In case of an exit decision, the overseas promoter can repatriate his share afterdischarging tax and other obligations
§ Dividends, capital gains, royalties and fees can be repatriated easily with thepermission of the Reserve Bank of India
§ In case of an exit decision, the overseas promoter can repatriate his share afterdischarging tax and other obligations
§ SEZ's are duty free enclaves where up to 100% FDI in manufacturing sector isallowed through automatic route barring a few sectors
§ Other benefits of SEZ's include exemption from customs duty on import ofcapital goods, raw materials, consumables & spares and exemption fromincome tax
§ SEZ's are duty free enclaves where up to 100% FDI in manufacturing sector isallowed through automatic route barring a few sectors§ Other benefits of SEZ's include exemption from customs duty on import of
capital goods, raw materials, consumables & spares and exemption fromincome tax
Overview Of The Key Investment Norms
Overview of the India opportunity
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Most attractive investment destinations for global investors
India’s performance in A.T. Kearney’s FDI Confidence Index hasconsistently improved since 2002
Source: A.T. Kearney analysis
China
United States
Mexico
Poland
GermanyIndia
United Kingdom
Russia
Brazil
Spain
France
ItalyCzech Republic
Canada
Japan
September 2003
1
2
3
4
56
7
8
9
10
11
1213
14
15
China
United States
India
United Kingdom
GermanyFrance
Australia
Hong Kong
Italy
Japan
Russia
PolandSpain
Czech Republic
Malaysia
September 2004
1
2
3
4
56
7
8
9
10
11
1213
14
15
December 2005
China
India
United States
United Kingdom
PolandRussia
Brazil
Australia
Germany
Hong Kong
Hungary
Czech RepublicTurkey
France
Japan
1
2
3
4
56
7
8
9
10
11
1213
14
15
India’s score = 1.04 India’s score = 1.95India’s score = 1.4
September 2002
China
United States
United Kingdom
Germany
FranceItaly
Spain
Canada
Mexico
Australia
Poland
JapanBrazil
Czech Republic
India
1
2
3
4
56
7
8
9
10
11
1213
14
15
India’s score = 1.05
Overview of the India opportunity
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India is ranked as the most attractive in A.T. Kearney’s Offshore locationattractiveness and Global retail development Indices
Source: A.T. Kearney analysis
C o u n t r y
R i s k ( E c o n o m i c A n
d P o l i t i c a l )
0 = H i g h R i s k ,
1 0 0 = L o w
R i s k
Market Potential
0 = Low Potential, 100 = High Potential
30
40
50
60
70
80
30 40 50
On the radar screenTo ConsiderLower priority
Size of the bubble indicates retailsales of food, drink and tobacco inUS$ billions, excluding taxes in 2005
India
Russia
Ukraine
Macedonia
China
Latvia
Croatia
Turkey
Bulgaria
Vietnam
Bosnia &Herzegovina
Brazil
PakistanIndonesia
Philippines
Morocco
SaudiArabia
Romania
Slovenia
SlovakiaSouth KoreaHungary
Malaysia
Lithuania
Taiwan
Chile
Thailand
Egypt
TunisiaMexico
A.T. Kearney’s Offshore Location Attractiveness Index
§ India outperformed its peers on the basis ofhigh availability of skilled manpower and itslow cost structure
3.72 3.32 3.092.64
1.47
1.31
0.931.77
2.02
2.63
2.09
1.36 0.73 0.92 1.36
Financial ScoreEnvironment Score
People Score
MalaysiaChinaIndia Czech Rep. Singapore
5.595.71
7.12
5.58 5.46
A.T. Kearney’s Global Retail Development Index
§ The large size and fragmented nature of the Indian retailmarket makes it attractive for large foreign players
Overview Of India’s Rank On Key Indices
Overview of the India opportunity
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The investment and consumption trends are encouraging
Increased domesticconsumer spending
Globalopportunities forIndian corporates
Increasedforeign
investment0.7
4.3
15
28
0
5
10
15
20
25
30
2000 2005 2006 2007 (Till
May)
§ FDI of US$15.7B in 2006-7 compared toUS$3.6 B in 2004-05
§ From Jan to Oct 2007, FIIs had pumped in ahefty US$ 16.3 billion in equities
Foreign investment
2.633.75
5.55
15.72
0
5
10
15
20
25
30
2003-04 2004-05 2005-06 2006-07
§ GDP projected to reach over US$ 1.5 trillion by2015
§ Services are ~ 55% of Indian GDP§ 64% of Indian GDP is consumption (Vs.
China’s 42%)§ Exports-GDP ratio for India is only ~10%
compared to ratio of ~30% for China
Increased consumer spending
§ Global deals by Indian corporates worthUS$28 B in first five months of2007compared to US$4.3 B in year 2004
§ Major deals in recent years include Tata’sacquisition of Corus for US$ 12 billion andof Tetley for US$ 2.5 billion; Hindalco-Novelis deal of US$ 6 billion
Outbound M&A Deals
FDI Investment (US$ Billion)Outbound M&A deals (US$ Billion)
Source: Government of India websites; A.T. Kearney analysis
Overview of the India opportunity
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Table Of Contents
n Overview of the Indian opportunity
n Characteristics of the Indian business environment
n Key challenges
n Summary
Table Of Contents
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The Indian political and judicial system are fundamental to the longterm sustainable growth of India
Judiciary
Legislature
Executive
§ There is a single hierarchy ofcourts, with the Supreme Court
of India at the top. Indian courtsprovide adequate safeguardsfor the enforcement of propertyand contractual rights
§ English is the main courtlanguage for the Supreme court
§ India is a common law countrywith a written constitution
which guarantees individualand property rights.
§ Democratically electedlegislature has the power toenact new laws and amendexisting ones
§ Successive governments havebeen upholding constitutional law
since independence andelections are regular andpeaceful
§ There is minimal intervention ofthe Executive with the Judiciaryand it is quite regular for centralor state governments to getreprimands from the legal courtson specific issues
Characteristics of the Indian business environment
Source: National Informatics Centre, India; Supreme Court website; A.T. Kearney analysis
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Being a secular democracy comes naturally to India; changeovers aresmooth and economic policy consistent
Note: (1) There were 3 governments in the interim between 1996 and 1998(2) BJP: Bharatiya Janata Party
Source: A.T. Kearney analysis
1991 - 1996 1998-2004 (1)
P.V. Narasimha RaoPrime Minister
Dr. ManmohanSingh
Finance Minister
P ChidambaramCommerce
Minister
AB VajpayeePrime Minister
Dr. JaswantSingh
Finance Minister
Arun JaitleyCommerce
Minister
Dr. Manmohan SinghPrime Minister
P ChidambaramFinance Minister
Kamal NathCommerce
Minister
Regime: Congress
• Initiated economic liberalizationprogram
• Comprehensive set of reformscovering the external sector, industrialpolicy & the financial reforms
Regime: BJP(2) led coalition
• Continued economic reforms
• Strengthened India’s status as agrowing economic world power
• Privatization of key PSUs, initiated theprocess of VAT
• Encouraged investments in IT, Telecom& BPO sectors
Regime: Congress-led coalition
• Impetus to economic reforms throughgreater focus on agriculture &infrastructure
• Continued liberalization of theeconomy by opening up new sectorsfor FDI
• Targeting a projected real GDP growthrate of 7– 8% per year
2004-present
Characteristics of the Indian business environment
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India portrays a landscape of diverse consumer base
Sheer scale of diversity makes India a seat for a major worldcivilization than a mere nation-state
RuralUrban
Rich
Poor
North
South
Liberal
Conservative
§Language and cultural diversity:
– There are 28 States and 22 nationallanguages. Other than these 22 languages,there are hundreds of dialects that add to themultilingual nature of the country
§Young India Vs Conservative India – While the young liberal India may be clamoring
for change and reform, there is a large sectionwhich is still fears any further reform in policy
§Highly educated Vs Illiterate: – On one side, there are established institutes of
higher learning, and on the other 28% of thepopulation is still illiterate
§Rich Vs Poor: – While the benefits of economic development
are percolating downwards, 26.1% of theentire population is still below poverty line
Dimensions of Diversity
Source: A.T. Kearney analysis
Characteristics of the Indian business environment
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Culturally, the themes which bind the country are uniquely Indian
Bollywood Cricket Value consciousness
More than 900 movies (characterizedas melodramatic musicals) madeevery year
India is truly a cricket crazy nationwith top cricketers seen as rolemodels
Indian consumer is fascinated withvalue and companies have enteredinto low unit packs (sometimes singleconsumption) to reach the masses
It is important to understand the popular symbols of the country and whatthey denote to be able to succeed in the Indian market
Source: A.T. Kearney analysis
Characteristics of the Indian business environment
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Table Of Contents
n Overview of the Indian opportunity
n Characteristics of the Indian business environment
n Key challenges
n Summary
Table Of Contents
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Indian markets pose a host of significant challenges
§ The Indian consumer market is aconglomeration of significantlydiverse markets and cannot be seenas one market environment
Heterogeneity of the market
• Given that there are entrenchedlocal players in all the segments, itis important for a new entrant toclearly decide the mode of entry
Entrenched Local Players
§Poor infrastructure and complexityof logistics coupled with nebulouspolicy environment in many sectorscan form roadblocks
Infrastructure constraints
• India is still significantly behind in“Ease of Doing Business”parameters and familiarity with theIndian context holds significantimportance
Complexity in “Doing Business”
Key Challenges
Overview Of Key Challenges In India
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The heterogeneity of the Indian market means that players need to beclear on the segments they need to target
§Low price points – In order to expand the addressable
market, players are constantlyintroducing low unit packs of verylow price points of INR 1,2 and 5.
– Due to better value equation andhigher packaging cost, most ofthese products are very low marginones but help build trials andexpand market
§Large packs for consumption – While there are low unit packs,
there is demand for largeconsumption packs as well. Arielsells skus from INR 2 to INR 145
§Range of price index – The value index varies significantly.
Ariel Front-O-Mat is three times thevalue of Tide for the same weight inthe same format
Story Of Many Indias
Tide 20 gms: 1.5
Tide 75 gms bar: 5
Tide 200 gms: 11
Tide 500 gms: 26
Tide 1 kg: 51
Ariel 500 g: 50
Ariel 1 kg: 99
Ariel Front-O-Mat 1 kg: 145
P r i c e s i n I N R
Key Challenges
Key Milestones In Evolution of India As A Multicultural SocietyConsumer Goods example
Source: A.T. Kearney analysis
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Players need to choose their mode of entry carefully
RepresentativeOffice
(Up to 6 months)
Alliance(6 to 18 months)
Majority-ownedJoint Venture
(12 to 24 months)
Wholly OwnedManufacturing
(18 to 36 months)
Low High Investment, Complexity and Business Risk
Low
High
P o t e n t i a l B e n e f i t
Key Success Factors
§ Basic understanding of doing business in India§ Strong and reliable partner
§ Good relationship with partner
§ Senior management attention
§ Strong and balanced team
§ Established link to and support from
headquarters
§ Deep understanding of doing business in India
§ Significant attention from senior management
§ Strong on-site management team
Key Challenges
Source: A.T. Kearney analysis
The mode of entry will also be different for different sectorsdepending on the reforms stage and strength of local competition
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There are significant constraints on infrastructure which increase thelogistics costs and inefficiencies for operations
Seaports Airports Roadways
The 12 major Indian ports, handle90 percent of the all-India portthroughput
§ Average ship turnaround time(ASTA) at Indian ports is ~7 daysASTA at Singapore port is six toeight hours
§ Container moves per hour rangesfrom (7-15) for Indian portscompared to range of (35-40) forSingapore and Hong Kong
There are significant issues ofcongestion in key international anddomestic airports
§ At many airports, passengeramenities need to be upgraded
§ There are also deficiencies inrespect of ground handling facilities,night landing systems, cargohandling, etc., at some airports
§ Reasons are limited terminalcapacity, bunching of flights, delayin passenger clearances, etc
India’s road network extends3.319mn km, of which 1.517mn km(45%) is paved
§ Average truck speeds=> 30-40kmper hour (km/h), in comparison todeveloped country standards of 60-70 km/hr
§ India also has a poor road safetyrecord, with an average of 75,000
deaths on the road every year
Source: National Informatics Centre, India; A.T. Kearney analysis
Key Challenges
Overview Of Transport Infrastructure Related Constraints
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India is still significantly behind on “Ease of Doing Business”parameters
§ Measures credit information sharing and the legalrights of borrowers and lenders46236Getting Credit
§ Better investor protection.43233ProtectingInvestors
§ costs and procedures involved in importing and
exporting a standardized shipment of goods314279
Trading Across
Borders§ The ease or difficulty of enforcing commercial
contracts2177177EnforcingContracts
Dealing withLicenses
Starting aBusiness
Doing Business
Ease of...
134
111
120
Doing
Business 2008 rank
133
93
..
Doing
Business 2007 rank
§ 20 procedures over 224 days are needed to build awarehouse, including obtaining necessary licensesand permits etc
§ An entrepreneur needs 13 permissions over aduration of 33 days on an average
§ US ranks 3rd and China ranks 83rd in the world
Comments
2
2
2
India advantage
Key Challenges
1 Low 5 High
Overview Of India’s Rank On Ease Of Doing Business Parameters (2008)
Entrenched local players have become more adept atmanaging the environment
Source: The Doing Business project-2008, World Bank; A.T. Kearney analysis
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Table Of Contents
n Overview of the Indian opportunity
n Characteristics of the Indian business environment
n Key challenges
n Summary
Table Of Contents
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Indian markets provide a significant opportunity for companies who canovercome the challenges
n A vibrant economy – expected togrow at a rapid clip
n Favorable demographics
n Growing consumer market
n Highly skilled manpower
n Economic and policy reforms
n Increased foreign investment
n Challenges with infrastructure
n Regulatory / bureaucratic barriers
n Large and diverse consumer market
n Complex distribution structures
n Pricing challenges
n Evolving markets
Opportunities Challenges
Summary
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Thank You
Manish Mathur
manish.mathur@atkearney.com
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Table Of Contents
n The India opportunity story
n Understanding the spirit and essence of India
n Key challenges
n Summary
n Appendix: Overview of key industry sectors
Table Of Contents
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Overview of key industry sectors
n Agro-industry and food processing
n
Textilen Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n
Aerospace and defensen Tourism
n Retail
n Petrochemical
n Cement
Appendix
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Rising consumption and evolving tastes are driving growth of foodprocessing sector
47 5471
33
68
30
2004 2005 2010
Primary processed food Value added food
India Processed Food Market Forecast(€ billions)
Level of processing in food processing Industry in India - 2005(Processed food as % of total food)
2%
21%
6%
11%
37%
F r u i t s &
V e g e t a b l e s
D a i r y
P r o d u c t s
M e a t
P o u l t r y
M a r i n e
F i s h e r i e s
• Market growth expectation of 10% per year up to 2010
• Today only 2% of India’s agriculture production isprocessed
• Rapid urbanization, and rising per capita income, haveled to rapid growth of food processing industry
• Diverse climate and land in India results in large rawmaterial base suitable for food processing industries
• Primary food processing is highly fragmented with asmall organized sector and unorganized sector that
includes hundreds of thousands of processing units• Indian food and beverage companies are exporting toregional overseas markets with similar tastes
• EU countries such as Netherlands, Germany, Italy andFrance account for 30 per cent of FDI in this sector
• Fiscal incentives by several governments have led tohigh investments in those regions
Key trends
• Indian Players: Amul, Britannia Industries, Dabur, GodrejBeverages Foods, Haldiram, Gits Food Products, MTR,Parle Agro
• Foreign Players: PepsiCo Inc, Cadbury's, Heinz , HLL ,ITC , Nestle
Key Players
78
139
15%
7%
1 0 %
Notes: (1) Packed fruits and vegetables, packed milk, unbranded edible oil, milled rice, flour, tea, coffee, sugar, pulses, species and salt(2) Processed fruits and vegetables, juices, jams, pickles, squashes, concentrate, processed dairy products etc
Source: Ministry of Food Processing, India, A.T. Kearney analysis
1 2
87
Appendix
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Clusters in food processing sector are emerging in areas offering taxand other fiscal incentives
Chennai
Mumbai
Kolkata
Siliguri
Baddi
Jammu
Silvassa
Jaipur
Nandur
Mandideep
Chittur
Nashik
MysoreHosur
Ghatkeshar
Coimbatore
Rudrapur
Gurgaon Noida
New Delhi
Nagpur
Chirala
Bangalore
Moga
Samalkha
Nanjangud
Pantnagar
SankrailMithapur
Channo
Nabha
Sonipat
Rajahmundry
Pune
Food Processing Industry
• Areas of Uttaranchal, Punjab andHimachal produce large varieties offruits and vegetables
• Fiscal incentives in the region areleading to strong growth in industry
• Silvassa is a key industrial areain this cluster
• Major players like ITC, Britanniaand MTR have presence in thisregion
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29A.T. Kearney
• Absence of quality cold storage facilities andtransportation leads to high wastage in sector
• Existing laws hamper growth of contract farming
• Multiple ministries and laws govern the food processingindustry increasing complexity for the industry players
• Agricultural Produce and Marketing Act leads to most of
the food products getting traded through regulatedmechanism rather than open market
• Essential commodity act restricts free inter-statemovement of certain food products
• Multiple tax rates and levies across states and locationscreate procedural complexity
• High cost of packaging affect the margins of the industry
• Execution of existing law for prevention of foodadulteration is time consuming
Challenges
• Setup large low cost production bases in India fordomestic and export markets by using low cost workforce
• Enter ready meal and health food segments as they seeburgeoning demand
• Customize Italian concepts to suit Indian flavors assuccessfully done by McDonalds and Pizza Hut
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges of Food Processing sector
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30A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n
Aerospace and defensen Tourism
n Retail
n Petrochemical
n Cement
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31A.T. Kearney
The textile sector is amongst the largest industries of the Indianeconomy
• Indian Players: Raymond, Bombay Dyeing, Arvind Mills,Vardhman Group, Aditya Birla Nuvo, Welspun, Century
Textiles, Alok Industries, Indo Rama Synthetics, CenturyEnka, SRF
• Global Players: Belgian UCO (JV with Raymond), VF (JVwith Arvind Mills)
Key Players
1996 2000 2006
27%
36%41%
CottonCloth
Blended1
Cloth
Man made fiberbased cloth
Cloth Production(Bn sq. mt.)
31.5
38.6
45.0CAGR: 4%
Textile and clothing products industry size(€ Bn)
1927
14
23
2006 2010
Domestic Market Exports
11%
33
49
14%
9%
CAGR
Notes: (1) Cloth woven with more than one fibersSource: Compendium of Textile Statistics
13% 15% 13%
60% 49% 46%
• Indian textile and clothing industry expected to grow at arate of 11% by 2010, driven mainly by exports
• Production recently driven by growth of man made fibersbased cloth
• Problem of market access for international players due tohigh trade barriers and regulatory burden
• Indian textile clusters and Italian company Carrera
Holdings have signed a formal agreement to form atextile cluster consortium under which Carrera willprovide technology, marketing assistance and financialassistance to various textile parks in India
Key trends
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32A.T. Kearney
The textile industry in India has clusters in various parts of the countryeach specializing in different fibers
Chennai
MaduraiCoimbatore
Bangalore
Surat
AhmedabadIndore
Nagpur
Calcutta
Kanpur
Delhi
Srinagar
Ludhiana
• Tamil Nadu is a majormanufacturer of cotton textilescontributing to 22% of India’s
cotton yarn and textile exports• Karnataka is major producer of
cotton and silk and is a apparelsourcing base for many globalfirms
• Gujarat mainly manufacturescotton based fabrics apart fromsome synthetic fibers
• Maharashtra is a manufacturer ofcotton textiles in India
• Punjab is a major export base forwoolen and cotton textiles
• Uttar Pradesh produces cottonand woolen textile
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33A.T. Kearney
Opportunities and challenges of Textile sector
• Market access in India is difficult due toregulatory/custom duty issues
• Industry not self reliant, around 75% of investment ischanneled through government aides in promoting theindustry
• Inefficiencies in customs procedures/bureaucracy
• Products less sophisticated with a focus on low tomedium priced goods
• Highly labor intensive manufacturing with many small andmedium size firms
• Lack of technological upgradation and economies ofscale
Challenges
• Leverage Italian capabilities and quality in machinery andequipment, fashion and design to transfer know how andcapacity to Indian industry
• Invest in setting up vertically integrated large scale units / retail chains (single brand)
• Enter into marketing joint ventures with Indian companiesor brand licensing to Indian players
• Partner with Indian vendors to import from India, bynominating large Indian companies having credibility interms of capacities and quality
• Export of lifestyle brands of garments and accessories toIndia
Opportunities
Source: A.T. Kearney analysis
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34A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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35A.T. Kearney
The leather manufacturing industry in India is valued at over € 3 billionand is the third largest in the world
1.41.7 1.8
2003 2004 2005
India Leather market value 2005(€ bn)
• Largest livestock population in the world
• In 2005, total production of leather industry was over € 3bn out of which exports accounted for € 1.8 bn (Leatherindustry 8th in the export trade of the country) growing ata CAGR of 13% (2003-05)
• Around 1600 tanneries in India concentrated in threestates Tamil Nadu (52%), West Bengal (23%) and U.P.
(12%)• Major leather products are footwear (776 ml pairs peryear), skins (170 ml units), leather shoe uppers (112 mlpairs), leather garments, leather goods such as handbags, belts, wallets, gloves, sports goods, harness andsaddles etc.
• Footwear production consumes about 60% of the totalleather production
Key trends
• Indian Players: Superhouse Leathers, MirzaInternational, Liberty Shoes, Bhartiya International,Lakhani India, Forward Group
• Italian Players: Conceria Virginia Italy (JV with ForwardGroup)
• Global Players: Bata, Fossil (stake in Crew B.O.SProducts)
Key Players
1.2
1.8
Total value ofproduction: 3 bn €
India Leather Export trend 2003-2005(€ bn)
Cagr:13 %
National consumption
Export
Source: IBEF, Exim Bank
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36A.T. Kearney
There are three primary leather goods manufacturing clusters in India
New Delhi Noida
Jallandhar
Haryana
Kanpur
Agra
Bangalore
Hyderabad
Chennai
Ambur
Ranipet
VaniyambadiTiruchchirappalli
Dindigul
• West Bengal is one of thecountry's top state for export offinished leather goods
• Bata which is the largest
manufacturer and marketer offootwear products in India islocated in Kolkata
• The Government of West Bengalhas setup a state-of-the-artintegrated Leather Complex on theeastern fringe of Kolkata
Kolkata
• Majority of the tanneries in Indiaare located in Tamil Nadu
• Govt. of Tamil Nadu offers aspecial capital subsidy to furtherencourage the leather industry
• TALCO-a state govt. organizationis setting common effluenttreatment plants in leather industryclusters
• Uttar Pradesh is an importantcenter for tanneries as it has alarge population of livestock
• Kanpur is a prominent centre forleather processing and specializesin processing hides into heavyleather
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37A.T. Kearney
• Limited production with respect to raw material: withabout 15% of the world livestock population, Indiaaccounted for only 8% of the leather production in 2002
• Fragmented sector: Indian leather industry consists of42,000 small-scale industry (SSI) units, which account for75% of the total production
• Environmental challenges as leather industry istraditionally considered polluting especially tanning andfinishing
• Many developed countries are implementing non-TariffBarriers to restrict leather exports from developingcountries like India
Challenges
• Focus on manufacture and export of value addedproducts as opposed to raw material
• Export machinery to India or to have technologyagreements with Indian firms, as technology used by mostplayers is outdated
• Economies of scale in setting up large scale units
• High growth of the local footwear market
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges of Textile sector
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38A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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39A.T. Kearney
Strong growth is expected in oil and gas consumption spurred bystrong economic growth
135172
368
101138
325
2007 2012 2025
Oil Consumption Oil Imports
• Oil: 36% of India’s primary energy consumption
• Expected growth of overall demand to 172 MMT in2011-12 and 368 MMT in 2024-25
• Natural Gas: India is a relatively new entrant into thenatural gas market but is expected to rival both Chinaand Japan in having the largest natural gas demandin Asia
• Natural gas volume in the country will partly bedriven as a substitute to petroleum products sinceit is cheaper and cleaner
• Reforms in the power sector will also encouragenatural gas to be used as a cleaner substitute to coalin the long term
Key trends
• Indian players: Oil and Natural Gas Corporation,Reliance Industries, Indian Oil Corporation, GAIL,Essar, Indraprastha Gas, Oil India Ltd, HPCL, BPCL
• Italian players: Saipem SpA
• Other global players: British Petroleum, CairnEnergy, Exxon Mobil, Gaz de France, Shell, Total,OAO Gazprom, British Gas
Key Players
Current and Forecasted Oil Demand in India(in MMT)
Current and Forecasted Gas Demand in Indiain MMTOE)
4358
120
1626
40
2007 2012 2025
Gas Consumption Gas Imports
CAGR 6%
CAGR 7%
Oil Consumption
Oil Imports
CAGR 6%
CAGR 5%
Gas Consumption
Gas Imports
Notes: (1) TOE:Tonnes of Oil EquivalentSource: Infraline, Crisinfac
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40A.T. Kearney
This industry is centered around crude oil sources or transportationhubs such as ports
Oil & Gas Industry
Vishakhapatnamor Vizag
Haldia
Digboi
Numaligarh
Bongaigaon
Guwahati
Barauni
Narimanam
Chennai
Mumbai
Koyali
Jamnagar
Panipat
Mathura
Manali
Mangalore
Tatipaka
Cochin
• Cauvery and KG basin have some
of the largest gas fields in India• Oil refining capacities in Cochin,
Chennai, Mangalore and Vizag
• Oil refining capacities in Digboiand Guwhati,
• Assam is one of the largest oilproducing states in the country
• Significant oil refining capacitiesexist in Panipat and Mathura
• Mumbai High is the key source ofoil production in India
• Jamnagar has the biggest oil
refinery in India
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41A.T. Kearney
The oil and gas sector has recently been deregulated and is stillevolving
• Government of India approved the New Exploration Licensing Policy (NELP) under whichnational oil companies are required to compete on an equal footing with Indian and foreigncompanies to secure oil and gas petroleum exploration licenses
• Under the NELP upto 100% foreign participation is allowed and a fast track approval
mechanism is in place through single window Empowered Committee of Secretaries• MoPNG has conceived a more coordinated approach to acquisition of overseas oil and
gas assets through :• joint foray (compared to the current fragmented approach)• bilateral engagements with other countries to benefit from each others strengths in
areas of technology transfers, R&D, safety and training• multilateral engagements such as the Asian Round Tables, International Energy Forum
etc
Trade/Investment Policies & Regulations
Source: A.T. Kearney analysis
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42A.T. Kearney
Opportunities and challenges of the Oil and Gas market
• Natural decline in ageing oil and gas producing fields
• Limited infrastructure available for gas transmission anddistribution
• Distortion in public tenders, subject to custom dutyapplication
• Absence of statutory framework in the upstream industry
• Lack of clarity in Open Access Policy
• Incidence of cross subsidy due to social obligations
• Long lead times for recent discoveries by pvt / JVcompanies
Challenges
Source: A.T. Kearney analysis
• Leverage on India’s key advantages as an export refininghub like cost competitiveness and location
• Alliances and partnerships to diversify the energy supplybase and improve long term supply security
• Exploring of new resources of hydrocarbons such asCBM and Gas Hydrates
• Cooperate in technology assistance programs to improvequantity and quality of power generation
Opportunities
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43A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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44A.T. Kearney
3.157
6.794469
1.347
2002 2005
The automotive industry is growing at a rapid pace spurred by bothdomestic demand as well as increased exports
• Indian Automotive industry growth of 19% since2002• Auto component exports growing at a rate of 30%
in the last three year• Increased demand for vehicles created by growing
economy and rising per capita income• Increased vehicle ownership due to increased and
affordable vehicle financing• Favorable demographic profile with 35% of the
population between 15-35 years• Entry of several players and launch of multiple
models at various price points• Changing consumer behavior – shorter ownership
lifecycles
Key trends
• Indian players: – Passenger Vehicles: Tata Motors, Mahindra &
Mahindra – Commercial Vehicles: Tata Motors, Ashok
Leyland, Eicher Motors – Two wheelers: Hero Honda, TVS, Bajaj Auto
• Italian players: Fiat, Piaggio• Other global players: Suzuki, GM, Ford, Honda,
Toyota, Hyundai, Daimler Chrysler, Audi, BMW,Renault-Nissan
Key Players
8,4
14,1
2002 2005
CA G R : 1
9 %
India Automobile market value 2002-2005(€, Billion)
C A G R
: 2 2 %
India Auto Components market value 2002-2005(€, Million)
3.626
8.141CAGR
Exports
Domestic
30%
21%
Source: ACMA, Global Insight, CrisInfac, AT Kearney Analysis
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45A.T. Kearney
2002 2004 2006
Europe is currently the largest and fastest growing export market forIndian auto components suppliers
Export of Autocomponents from India(€ Million)
Americas
Asia
Africa
Others
C a g r : 3 0 %
10%
16%
26%
Europe36%
12%
Total1.347
781
469
Small stampingsExteriors
Interior trims, Instrumentpanels, HVAC
Interiors
Ignition systems, startermotors and parts
Electrical
Brake linings, brake partsChassis
Fuel injection systems,
Pistons, transmissioncomponents, Cylinderblocks, engine blocks
Power
Train
SegmentsExamples of
Components Importedfrom India
Source: CRISINFAC, A.T. Kearney Analysis
30% 28%
31%
30%
19%
18% 11%
11%
11%
10%
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46A.T. Kearney
There are three regional automotive clusters in India
Halol
Gurgaon Surajpur
Lucknow
CalcuttaIndore(2)
Bidadi
Maraimalai Nagar
Noida
Pune
Chennai
Kurla
AurangabadMumbai
NagpurNasikIgatpuri
Kanhe
Irrungattukottai
• Gurgaon is the only manufacturinglocation of Maruti Suzuki, the IndianPV leader; and its ancillaries
• Gurgaon is also the hub for the leadingtwo wheeler manufacturer: HeroHonda and its component business
• Chennai is the export hub andcomponent sourcing hub for Ford andHyundai and the transmissionssourcing hub for Toyota
• Chennai is also the manufacturinghub for the TVS Group (two wheelersand components)
• Pune is the main manufacturinglocation for Tata Motors (largestIndian OEM) and its autocomponentdivision ; GM is setting up its secondfacility in Pune
• Also Bharat Forge, the world’ssecond largest forging company is
located in Pune
Hub: Pune
Hub: Chennai
Hub: Gurgaon
Source: ISI emerging market, Indiainfoline
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47A.T. Kearney
• Infrastructures and access points for car imports stilllimited
• Quality products difficult to be provide on a consistentbasis from Indian companies• Many Indian suppliers do not have the capability to
supply large scale orders required by global companies
• Focus on product development still non-existent in manycompanies
• Localization is essential for international players to enterthe Indian market
Challenges
• The Indian automotive industry has reached a critical sizeand is expected to show a healthy growth rate driving thedevelopment of the auto components industry
• India is emerging as a global small car manufacturing hubdriving the maturity of supplier capabilities across theentire value chain (product design to delivery)
– OEMs such as Maruti-Suzuki and Hyundai haveidentified India as small car export bases and areworking with Indian suppliers to develop theircapabilities
• The need for greater localization to achieve costleadership has also driven growth and development ofthe auto ancillary supplier base in India
• India is emerging as a global base for offshoring ofengineering design services for the automotive industry
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenge of the Automotive sector
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48A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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50A.T. Kearney
Six large domestic players dominate the market and their plants arelocated mostly in Maharashtra and Tamil Nadu
Pondicherry
Pune
Kankroli
Banmore
Vikrant
Mumbai
Cochin
Nasik
Kalamassery
Limda
Tiruvottiyur
Arakonam
Ponda
• Tyre manufacturerslocated close to theautomotive hubaround Pune • Tyre manufacturers located close
to the automotive hub aroundChennai
• Tyre manufacturerslocated close to theautomotive industry inKarnataka
• Kerala produces over 90% ofIndia's natural rubber and hasmany intermediate rubber unitsmaking it ideal for tyremanufacturing
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51A.T. Kearney
• Narrow product range, large operating overheads andhigh break-even levels
• High costs due to regulation on ISI mark (additionalmarking that requires additional investment for foreignproducers)
• Continuous increase in prices of raw materials suchas natural rubber, which accounts for nearly one thirdof total raw material costs
• Cheaper imports of tyres especially from China
• High capital requirements to set up tyre manufacturingplants
Challenges
• Set up facilities for manufacturing tyres for domesticsales as well as exports (notwithstanding the wellentrenched competition in the domestic market)
• Leverage on technology, as Indian tyre makers aretechnologically behind global competitors• While the PV segment has transitioned over near
completely to radial tyres, the penetration levels forradials is only at 5% for CV’s; Indian tyre companiesare however rapidly ramping up capacities in this frontto not only serve the expanding OE market, butpotentially an even larger aftermarket demand goingforward
• Newer technologies like run-flat tyres have notpenetrated the Indian market yet
• Sale of equipment / machinery to Indian tyre companies
• Other technology transfers
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenge of the Tyres sector
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53A.T. Kearney
Banking sector is characterized by high credit demand due to risingconsumption
Per Capita Deposit and Credit per branch
India Commercial Banks market value(€ billions)
Source: RBI, Crisinfac
(€)
• High GDP growth rate leading to high credit demandacross sectors
• Consumer credit in India witnessing a strongexpansion for credit led by the housing and the retailsectors
• Corporate credit offtake, agriculture and SME sectorsare the other major growth avenues for the bankingsector
• Banks liquidating their holdings of Government securitiesto meet high credit demand
• Stronger banking regulations have led to improvement inasset quality with declining NPAs
• Ratio of per capita deposit and credit per branch amongthe lowest in the world and expected to grow withincreasing GDP
Key trend
• State owned players: SBI, PNB, UTI Bank ltd., CanaraBank, Union bank of India, Bank of Baroda, AllahabadBank
• Private players: HDFC Bank, ICICI Bank
• Foreign Banks: HSBC Ltd., ABN-AMRO Bank N.V.,American Express, BNP Paribas, Citibank, StandardChartered bank
Key Players
299266
310363
125 146194
258
0
100
200
300
400
2003 2004 2005 2006
Deposits Advance
€ millions
CAGR7%
CAGR27%
165
207
275
2.6
1.8
1.3
0
50100
150200
250300
2001 2003 2005
0
0.51
1.52
2.53
Per Capita deposit Credit per branch
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54A.T. Kearney
Financial market reforms are paving way for global players to enter thesector
• License norms for foreign banks are different from that for Indian banks which makes ittougher for foreign banks to expand network in India
• There is a limit of 10% on voting rights for foreign investors which will be removed in year2009 under RBI plan
• Foreign banks operating in India required to migrate to Basel II1 with effect from March 31,2008
• Foreign banks are currently taxed ay 41,82% versus 35,7% for local banks• Foreign banks in India will have to lend 32% of their net banking credit to the priority sector
in the country
• FDI:
• Foreign bank can enter India through one of the 3 channels: branches, subsidiary orrepresentative office
• There is limit of 74% on FDI investments in private banks (of which Foreign InstitutionalInvestors cannot hold more than 49%) and a limit of 20% on investments in public banks
• Foreign banks can also operate through wholly owned subsidiary (WOS)
• Reserve banks plans to give national treatment to WOS after 2009 under which branchexpansion will be easier
Main Trade/Investment Policies & Regulations
Notes: (1) Guidelines for determining the minimum solvency requirements for banks with a new system for weighting the risks run by banksSource: A.T. Kearney analysis
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55A.T. Kearney
Opportunities and challenges for Banking sector
• With a strong outlook for credit and implementation ofBasel II norms, Indian Banks would require additionalcapital to support their growth plans
• Policy hurdles for foreign banks planning to invest in India
• Increased competition in the sector as foreign and privateplayers look to expand across businesses
• Weak recovery mechanisms and legal procedures
increase the cost of doing business in India• Small sizes of most Indian banks with weak balance
sheets hampering their growth in global financial market
Challenges
• Invest in existing Indian banks as they seek largeamount of capital to sustain credit demand by Indianeconomy
• Use NBFC route to start operations in India and launchfull scale banking operations after obtaining bankinglicense from RBI
• Partner with Indian banks to launch products whereItalian banks can bring in operational expertise andIndian banks can provide distribution network
Opportunities
Source: A.T. Kearney analysis
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56A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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57A.T. Kearney
2.4 2.7 3.1
9.4 11.214.0
0
5
10
15
20
2003 2004 2005
Non Life Insurance premium Life Insurance premium
Growing disposable income and awareness is driving growth inInsurance sector, especially in Life segment
Insurance Penetration(Year 2004, Premiums as a % of GDP)
India Insurance market value(€ billions)
Source: IRDA (Insurance Regulatory and Development Authority), Fitch
• High growing sector (cagr 20% in last two years)especially in life segment
• Insurance penetration similar to China but unbalancedtowards life premium
• 14 insurers companies, among which 1 governmentinsurer in life and 4 in non-life dominate the market
• Most private insurance companies are joint venturesbetween Indian & foreign partners
• Banking channels are the preferred distribution modes
for private insurance companies accounting for 20-25%of sales
• Unit linked insurance plans are popular in life insurancesegment
• Foreign players like Generali, Fortis, Paternoster, SwissRe are planning to enter Indian market
Key trends
• Life Insurance: LIC, ICICI Prudential, HDFC StandardLife, Birla Sun Life, SBI Life, Bajaj Allianz, Kotak OldMutual
• Non-life Insurance: National Insurance Company Ltd.,New India Assurance Company Ltd., Oriental InsuranceCompany Ltd., United India Insurance Company Ltd.,ICICI Lombard, Bajaj Allianz and Iffko-Tokio
• Reinsurance: General Insurance Corporation
Key Players
2.75.1
2.5 2.2
4.9
4.1
1.10.7
India China Italy USA
Non Life Insurance Penetration Life Insurance Penetration
CA G R: 2 0 %
22%
14%
3.2 3.3
7.6
9.4
11.813.9
17.1
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58A.T. Kearney
Insurance penetration is likely to increase with regulatory changes
• FDI: allowed under automatic route only up to 26% which is expected to be increased to49% in year 2007
• IRDA plans to keep a FII limit of 26% over and above the FDI limit of 49%
• Every insurer is required to write certain percentage of its policies in the rural sectorwhich varies from 5% to 15%
• IRDA plans to remove tariff regulations for non-life insurance premium from Year 2007which will allow companies to set rates
• Banks cannot hold more than 49% stake in an insurance company
• Separate licenses are required to enter into life and non-life segment
• Any entity can get insurance license in only one category
• Pension fund regulation still missing
• The minimum paid-up capital requirement presently stands at € 16.9 mn for both life andnon-life business and € 33.8 mn for the reinsurance business
Main Trade/Investment Policies & Regulations
Source: A.T. Kearney analysis
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59A.T. Kearney
• Weak distribution network in small towns and villages is akey barrier in growth of insurance in these areas
• Lack of trained manpower is hampering growth ofinsurance sector
• Tariffs in non-life insurance results in losses in segmentslike motor insurance leading to lower growth
Challenges
• India’s large rural and small town population largely underpenetrated but offering a huge market for all players
• Segments like health, life and disability plans have a largegrowing market in the Indian middle class
• Italian insurers can bring in product knowledge and better
risk management practices to Indian market
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges for Insurance sector
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60A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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61A.T. Kearney
The Indian IT and BPO industry has witnessed strong growth acrosssegments
Indian BPO Industry Market Size
(Euro Bn)
3.54.8
2.4
0.7
0.5
0.2
2004 2005 2006
Exports Domestic
7.410
13
2.7 3.2 4
2004 2005 2006
Exports Domestic
• Americas and Europe remain the key markets forexports accounting for over 90 per cent of IT-ITESexports
• India share of global offshore market in BPO industryexpected to stabilize at ~50-55%
– Companies to diversify presence across multiplelocations
– Other attractive destinations like Philippines,Malaysia, Czech Republic expected to startcompeting for offshore pie
• Cost advantages combined with emerging successstories expected to be primary drivers in near future
• Cross selling between IT services and BPO withinsame engagement boundaries expected to increase
Key Trends
CAGR = 46%
CAGR = 29%
1.6
10.7
15.5
Source: Nasscom, A.T. Kearney analysis and research
• Indian Players: Infosys, TCS, Wipro, Satyam, Cognizant,HCL Technologies
• International Players: IBM, Accenture, Microsoft,CSC,SAP, HP, American express, Convergys, Genpact
Key Players
Indian IT Industry Market Size(Euro Bn)
10.1
13.1
16.9
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62A.T. Kearney
India continues to be the preferred destination for offshore services
3.72 3.32 3.09 2.641.47
3.59 3.17
1.00
2.99 2.88
1.31
0.93 1.77 2.02
2.63
0.92 1.41
2.48
1.68 1.57
2.09
1.360.73 0.92
1.36 0.94 0.861.94
0.7 0.88
I n d i a
C h i n a
M a l a y s i a
C
z e c h
R e p .
S i n g a p o r e
P h i l i p
p i n e s
B r a z i l
C a n a d a
C h i l e
P
o l a n d
A.T. Kearney’s Offshore Location Attractiveness Index — 2004
5.33
7.12
5.71 5.59 5.58 5.46 5.45 5.44 5.42 5.37
People ScoreEnvironment ScoreFinancial Score
India outperformed its peers on the basis of high availability of skilledmanpower and its low cost structure
Source: A.T. Kearney analysis
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63A.T. Kearney
Government has provided various fiscal and non fiscal incentives tothe sector
• Duty-free imports of capital goods permitted for BPO companies
• Total income tax exemption on export of IT enabled outsourcing services
• Fiscal incentives for IT companies provided by Exim policy1 of India
• Many state governments have announced incentives and procedural waivers for the IT-
ITES sector focusing on issues like infrastructure and electronic governance• State governments have announced IT policies to create a manpower pool for IT and
ITES industry
• Information technology act 2001 enacted to provide legal recognition to all transactions bymeans of electronic data exchange
Trade/Investment Policies & Regulations
Notes: (1) Policy for exports and importsSource: A.T. Kearney analysis
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64A.T. Kearney
Opportunities and challenge in the IT/ITES industry
• Lack of infrastructure and data protection laws couldhamper growth of IT/ITES sector in India
• Availability of trained manpower for growing needs ofindustry could be a potential bottleneck
• China and other countries in the ITES sector areincreasingly challenge India’s dominance in the sector
• Rising labor costs are reducing India’s competitiveadvantage in the sector
Challenges
Source: A.T. Kearney analysis
• Leverage the Indian advantage for business processoutsourcing of services
• Use India as a outsourcing hub for content development,R&D services and software products
• Indian companies can use Italy as a hub to serve Italyand other European countries
• Indian companies can use Indian experience to helpdevelopment of IT clusters in Italy
Opportunities
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65A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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66A.T. Kearney
Indian pharmaceutical market is growing quickly, driven by export anddomestic market growth
4.93.0
4.9
1.6 2.1 3.5
3.6
5.9
2003 2005 2008E 2010E
Exports Domestic Market
Note: (1) Domestic market value is for western finished medicines only. India also imports drugs to meet its requirementsSource: IDMA, Espicom, IMS, Crisinfac, Secondary Research, A.T. Kearney analysis
India Pharmaceutical market trend 2003-2010(1)
(€ Billion)
• Indian players: Cipla, Ranbaxy, Nicholas
Piramal, Sun Pharma, Dr. Reddy Laboratories,• Other global players: Glaxo SmithKline, Zydus
Cadila, Pfizer, Aventis, Abbott India, Wockhardt
Key PlayersCAGR
17%
10% 4.6
8.4
10.7
4930
21 14 11 9 8 7 6 6 4 419
6
U S A
J
a p a n
G e r m
a n y
F r
a n c e
I t a l y
U K
C
h i n a
C a
n a d a
S
p a i n
S
o u t h
K
o r e a
M e x i c o
B
r a z i l
I n d i a
N e t h e r l
a n d s
A u s
t r a l i a
Total Pharmaceutical Market(€ Billion, Year 2003)
Low drug expenditure per capita driven by• Low pricing levels• Vast majority of drug spending concentrated with
middle class
187251535611441882889240331345368388614 P e r C a p i t a
S p e n d
( € )
233
cagr: 11 %
5,7
cagr: 1 3,5 %
• World’s 13th largest pharma market in valueterms and 4°in volume terms
• High growing market, currently still dominate bydomestic consumption but with exports expectedto reach 46% of production in 2010
• Exports growing due to the low manufacturingcosts and time to market advantages inresearch
• Domestic market growth driven by risingincome levels, expenditure on healthcare andintroduction of new patent regime
• Several 3rd party service providers, includinglocal & international players, are setting upbases in India
Key Trends
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67A.T. Kearney
The are four major forces driving the Indian Pharmaceutical industry
• High GDP growth leading to higherdisposable income
• Increasing private expenditure onhealthcare
• Growing consuming class creating a
larger target market Increasing ruralincomes are opening up new markets
Changing Demographic Profile
Drivers ofIndian
PharmaIndustry
• Complicated multi-level distributionsystem makes it hard for new players
• Alliance based strategy of smallercompanies for attaining wider reachcreate barriers to entry
Emerging Distribution System
• Recognition of product patents which isencouraging global players to enter themarket
• More favorable intellectual propertylaws are promoting India as a R&D hub
for the industry
Changing Regulatory Regime
• Rapid growth (8-10%)• Shift towards lifestyle diseases
• Increase penetration of healthinsurance
• Increasing role of private providers
Changing Healthcare Market
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68A.T. Kearney
The pharmaceutical industry is largely concentrated in west India
Baddi Barotiwala
Kandla
Kadi
Hlrapur
Vadodara
Maloda
Halol
IndoreValsad
Ankleshwar
Kalol
Dholka
Vatva
Bhimpore
Vapi
Piparia
Athal
ThaneMumbai
Ratlam
Patalganga
Bhandara
Nashik
Aurangabad
Waluj
Vikhroli
Chikalthana
KurkumbhSolapur
Pashamylaram
Kazipally
Hyderabad
JeedimetlaVernaMargao
Bangalore
MysorePoonoon
Chennai
Vishakhapatnam
Pharmaceutical Industry• Bangalore is the key
hub for biotechnologyindustry
• Favorable government policiesand access to ports for exportshas helped in making westernIndia the major cluster ofpharmaceutical industry
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69A.T. Kearney
• Intellectual Property Laws regarding patents in India stillnot stringent; many global companies are hesitant tointroduce products in this market
• Prices of key drugs still regulated by Drugs Price ControlOrder
Challenges
• India as a suitable alternative for R&D activities onaccount of cost advantage (30-50%), time to marketadvantage (cycle time reduction of 30-40%) and strongpeople skill availability
• Abilities of national companies in-licensing and out-licensing for drugs at different stage of development (pre-
clinical, clinical and manufacturing phase)
• Availabilities of new Biotech products which may belaunched in the regulated markets
• 30-40% manufacturing cost advantage in API1 againstwestern markets and also boasts of largest number of USFDA approved sites outside US
Opportunities
Opportunities and challenges for Pharmaceutical sector
Notes: (1) Active Pharmaceutical IngredientsSource: A.T. Kearney analysis
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70A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
pp
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71A.T. Kearney
Infrastructure development is driving demand for machinery &equipment in India
Indian Machinery & Equipment Industry Size
(1)
(€ bn)
Notes: (1) Capital goods as per CMIE classificationSource: CII
4.83.9
3.44.6
2003 2004
Domestic Market Exports
• Strong designing and engineering capabilities along withlow labor cost has made India one of the preferredoffshoring destinations
• Machine tools was one of the high growth segment inimports while machinery and instruments showed highgrowth rate in exports
• Machinery & equipment (Non electrical machinery)sector is concentrated, with the Top 5-7 companies
accounting for more than 70-80% of the market in mostindustries
• Electrical machinery sector as well is highly concentratedwith 3-6 players dominating industry
• Leading players in electrical machinery sector havecollaborations with foreign companies for technology
• Key industry bodies are Indian Machine ToolsManufacturer Association and Federation of EngineeringIndustries of India
• Indian companies are leveraging cost advantage in
production to increase exports
Key trends
• Indian Players: BHEL, L&T, Crompton Greaves,Cummins India, Elgi Equipments, HMT, Kirloskar OilEngines
• Foreign Players: Siemens, ABB, Thermax
Key Players
CAGR
CAGR 3%
8.2 8.5
35%
-20%
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72A.T. Kearney
Machinery & Equipment Manufacturers
Areas of western India and few northern states are major hubs ofmachinery and equipment production
Faridabad
Goa
Jamshedpur
Bangalore
Hyderabad
Pune
Hardwar
Kirloskarvadi
Bhopal
Jhansi
Jagdishpur
Varanasi
Coimbatore
Daman and Diu
Nashik
Mumbai
Vadodara
Ranipet
New Delhi
Ahmednagar
Kondhapuri
Dewas
Hazira
Mysore
Jamshedpur
Chennai
Gurgaon
Rudrapur
Tiruchchirappalli
Goindwal
Sitara
Pinjore
Ernakulam
Ajmer
Mandideep
Malanpur
Shirval
Kalwa
• Most of the big players like ABB,
L&T etc in machinery & equipmenthave plants in states ofMaharashtra & Gujarat
• The industrial cluster in northernregion is centered around Delhi andfew locations in Punjab & UP
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73A.T. Kearney
• Increase in raw material prices has resulted in low profitmargins for the heavy engineering industry
• Increased competition
• Indian capital goods manufacturers face costdisadvantages due to high cost of finance, power andpoor infrastructure
• Duty structure in India is distorted with lower duty onmachinery & equipment imports and high excise dutieswhich leads to disadvantage for local manufacturers
• Access to technology is a challenge for Indian companiesas technology absorption requires large amount of capital
Challenges
• Outsource engineering components from Indianmanufacturers to leverage cost advantage of Indianmanufacturers
• Invest in setting production facilities in India to takeadvantage of low production cost
• Export of machinery & equipment to India as demand of
capital goods surges with growing infrastructure needs ofthe country
• Bring in a lot of technical expertise to Indian electricalmachinery market as India is compliant with the Europeanstandards for electrical engineering
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges for Machinery and Equipment sector
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74A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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75A.T. Kearney
Infrastructure sector provides a strong opportunity for private players
• India lacks infrastructure to support its growing economy
• Ease of regulations and increasing private sectorparticipation has led to strong growth in infrastructuresector over the past few years
• Of the Euro 152 Bn plan for investment in infrastructurefrom 2006 to 2010, 39% is expected from privateinvestment
• Multilateral agencies such as the World Bank and the
Asian Development Bank (ADB) are funding variousinfrastructure projects on a large scale in India
• The Government is tapping alternative sources of fundsfor infrastructure development like fuel cess for roaddevelopment
Key trends
• Indian Players: RIL, ADAE, Mahindra & Mahindra, IOCand ONGC, NTPC, L&T , Gammon India Ltd , HCC
• Global Players: Nokia, P&O, PSA, Maersk, GammonIndia, CWC and the Dubai Port Authority
Key Players
Proposed Infrastructure Investment (2006-2010)(Euro Bn)
248
4
1523
4
2
86
5 7 5 2
38
14
44
52
14
Power Roads Railways Ports Others
Govt.
Debt
Private
Accruals
Euro 152 Bn
Cumulative Govt. Spend on Infrastructurevs. Industrial GDP
0
3
6
9
12
15
0 130 260 390 520 650Industrial GDP
C u m
u l a t i v e G o v e r n m e n t
S p e
n d o n I n f r a s t r u c t u r e
China
India
19951995
2003
2003
50%
(Euro Bn)
(Euro Bn)
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76A.T. Kearney
Government has made policy initiatives to attract private investment ininfrastructure sector
Source: Ministry of Commerce, India
• Government is offering several projects in the infrastructure sector on a Build Operate and Transfer basisthat provide net equity returns of 18 to 25% to construction companies
• Electricity Act 2003: promotes competition, privatization, project financing and incentivizes profit making
• National Maritime Policy: 228 projects open for public private partnerships
• National Highways Development Project financed through BOT route: permission to private parties to
invest in NH Development project, levy, collect and retain fees and also regulate traffic on BOT routes
• SEZ scheme under which developers of SEZs and SEZ units are provided various fiscal and non fiscalincentives
Main Trade/Investment Policies & Regulations
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77A.T. Kearney
• The massive investment programme for infrastructurehas to be funded at a time when government is trying toreduce its fiscal deficit
• Private investment in sectors like power was curtailed bythe lack of financial sustainability of projects due tosubsidy
• Government has limited focus on maintenance or roadinfrastructure
• Bulk of the infrastructure is still controlled by governmentleading to limited private participation
Challenges
• Investments in power generation and transmission as thepower demand increases with the growing economy
• Invest under Build Operate and Transfer basis in thenational highways segment as they carry more than 40per cent of the traffic
• Deregulation in the ports sector and multiple options forprivate participation provides opportunity for Italianplayers with strong expertise in the sector
• Growing demand for real estate makes it an attractiveprospect for Italian investors
• Italian companies can provide expertise in modernground-handling facilities and cargo-handling facilities toIndian airports
• Investments in SEZ as government is providing variousincentives to developers
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges for Infrastructure
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78A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurancen ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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79A.T. Kearney
Modernization of armed forces is leading to rising defense expenditurein India
3.54
5.65 5.80
2004 2005 2006E
911 12
2.82.9
2.6
0
4
8
12
16
2003 2004 2005
2.4
2.6
2.8
3
Defense expenditure per capitaDefense expenditure as % of GDP
(€)
India Defense Expenditure
India Defense Allocation for Purchase of Weapons(€ billions)
Source: BMI Research
• Indian armed forces are in midst of rapid modernizationwhich has led to increase in defense expenditure
• India looking to procure equipment from new supplierslike South Africa apart from its traditional suppliers inRussia, USA and Israel
• Focus on indigenization of defense equipment and lowreturns on local R&D has resulted in India looking fortechnology transfer, licensed production and jointdevelopment of equipment instead of off the shelfpurchase
• In Aero India 2005 air show, deals worth over €0.91bnwere signed between Indian and foreign aerospace firms
• Global players looking to collaborate with Indian firms inareas like software for defense purpose
Key trends
• Indian players: HAL, Mazagon Dock LTD, Ordnance
Factories, Bharat Electronics Ltd, Bharat Dynamics Ltd• Foreign companies: Honeywell International
• Private Indian players: Tata, L&T, Mahindra & Mahindra,Kirloskar Brothers, Ashok Leyland, Jindal, MaxAerospace & Aviation, and Ramoss India
Key Players
CA G R: 2 8 %
CAGR18%
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80A.T. Kearney
• Key aeronautical establishments ofHAL is located in Bangalore
• The defense electronics companyBEL has units in Bangalore andChennai
Aerospace and Defense industry is located across the country withmajor clusters in western and southern India
Aerospace and Defense Industry
Ambarnath
Ichapur
Kolkata
Bhandara
Bhadravati
Bhusaval
Bangalore
Nashik
Hyderabad
Chennai
Lucknow
Kanpur
KoraputPune
Aruvankadu
Jabalpur
Machilipatnam
Ghaziabad
Kotdwara
Kanchanbagh
Bhanpur
Gurgaon
Nagpur
• There are several Indian ordnancefactories in Maharashtra
• Leading defense shipyard Mazagondock ltd is located in Mumbai
• Missile manufacturing unitsof BDL are located in AndhraPradesh
• There is manufacturing locationof Hindustan aeronautical ltd.(HAL ) apart from several Indianordnance factories
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82A.T. Kearney
• Procurements in the sector heavily influenced by politicalclimate and strategic relationship between governments
• Strong international competition due to incumbent playersfrom Russia, Israel and USA
• Indirect offset not allowed
Challenges
• Direct equipment sales to armed forces as India planslarge expenditure on purchase of defense equipment inits effort towards modernization of armed forces
• Joint development of technology and equipment inpartnership with Indian private and public players
• Italian companies can potentially use India to outsource
components for their global manufacturing operations
• Outsource engineering and design to India as it offershigh quality and cost effective design capability
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges for Aerospace and Defense sector
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83A.T. Kearney
Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
nInsurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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84A.T. Kearney
Rising spending on recreation is leading to boom in tourism sector
510630 700
850
1997 2003 2004 2005
CA G R 3 %
Source: Indian Tourism Statistics 2004 ; International Passenger Survey in India 1996-97 and 2003; Euromonitor report on Indian Tourism 2005 ;Interviews; A.T. Kearney analysis
• Increased spending on non-essential items and easyavailability of credit for consumer purchase has led tohigh tourism expenditure
• Rapid growth of low cost carriers and Infrastructure up-gradation of airports have led to increase in air travel
• Indian travel industry highly fragmented with the small orlocal players constituting for 83% of the market whereastour operators account for only 16%
• Travel agencies dominated by mid-sized players, whichtypically offer tours of big tour operators
• Disintermediation in lower value services and highvolumes are expected to drive consolidation in the sectorwhich will result in closure of several small sized travelcompanies
• Several online players have entered the market over thelast year and many more expected to enter in the next 1year
Key trends
• Large Tour Operators: SOTC, Cox & Kings, TCI• Regional Players: Kesri tours, Rajarani travels• Direct Suppliers: Jet Airways, Indian, Air Deccan, Spice
Jet, Kingfisher• Hotels : Indian Hotels, EIH, Hotel Leela, Asian Hotels,
Taj GVK• Online Players: Makemytrip, Travelguru
Key Players
Leisure Traveler Volume(All figures in ‘000s)
3.9
4.2
4.5
2003 2004 2005
Leisure and Recreation Expenditure in India(€ billions)
CAGR: 7%
CA G R 1 8
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• Lack of infrastructure facilities like airports, quality roads,sanitation, water quality in the country hamperingdevelopment of many tourist destinations
• Lack of direct flies between Italy and India
• Health and personal safety concerns due to water quality
and hygiene among international tourists
• High Governments charges on road, passenger, toll,luxury and sales taxes on the proceeds of traveloperators
• Competition from the online players create pressure onoffline players to build scale and consolidate
• Scarcity of budget hotels and affordable rooms
• Difficulty in obtaining VISA
Challenges
• Investment in assets to develop own holiday destination/ hotels as they see increasing demand and limited supply
• Tour operators looking to enter India should customizeofferings to match the tastes and preferences of Indiantravelers
• Invest in existing tour operators and provide technologyand expertise to build large scale of operations
• Create offerings to make India as one of the preferredtourist destination for Italian tourists
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges for Tourism sector
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Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
nInsurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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Increasing income levels and changing consumption patterns have ledto rapid growth of organized retail sector
181
278 300343
393
2002 2004 2005 2007E 2009E
CAGR: 18 %
8575
32 22 206
USA Brazil South
Africa
Vietnam China India
India Total Retail Market Size1
(€ Bn)
Organized Retail Penetration(Organized retail as % of total retail, 2006l)
• Market value of 300 Bn € in 2005 growing by 7% in thenext four years
• Market largely fragmented and dominated by smallunorganized players• organized retail only 6% of total retail, but expected to
grow by 10% per year up 2010
• Continuous growth of population of urban areas, aspercentage of total population (currently 29%)
• Textile, food & grocery account for around 60% of
organized retail market• Global players who have developed or customized
products for Indian market have been successful inIndia. Coca Cola & Unilever (HLL) launched smallerSKUs to drive penetration in the mass market,Mcdonalds’ customized menu to Indian tastes
Key trends
• Food and Grocery: Food Bazaar, Food World,Subhiksha, Big Bazaar, Spencer’s
• Food and Beverage: Barista, Café Coffee Day, McDonald's, Pizza Hut, Haldirams
• Department Stores: Shoppers Stop, Lifestyle, Westside,Pharmacy: Health and Glow, CRS, 98.4
• Books, Music & Gifts: Landmark, Crossword,MusicWorld, Planet M
Key Players
Notes: (1) Estimated sales to the end consumer across all categoriesSource: Economist Intelligence Unit (EIU), Euromonitor, A.T. Kearney analysis
CAGR: 7 %
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Participation of international players is currently restricted by FDIpolicies
• FDI: foreign investments not allowed in multi-brand retailing
• FDI upto 51% is allowed for single band retailing
• Retail does not belong to the “granted industry status” which hinders creation of retail specific laws
• Many retail products are purchased from small scale industries (SSIs) as 506 items are reserved for
manufacturing by SSIs
• Urban Land Ceiling Act and Rent Control Acts have resulted in very high property prices
• VAT policy has been implemented in all states, except Tamil Nadu
Main Trade/Investment Policies & Regulations
Source: A.T. Kearney analysis
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• Lack of basic infrastructure creates difficulty in sustainingretail operations across the large geographical spread ofcountry
• FDI limitation
• Current regulations lead to some hindrances in thegrowth of real estate development
• The tax structure in India is still complex and evolving,creating challenges for retailers
• The supply base for the retail sector is fragmented due togovernment policies and legacy issues
• Lack of trained manpower is a bottleneck for growth inthe retail sector
• Limited knowledge about the consumer behavior of hugepopulation in towns and rural areas
Challenges
• Enter into a joint venture or agree on a fee basedmechanism with Indian retailers and provide in-storemanagement expertise to Indian retailers
• Manage supply chain for Indian retailers bringing ininternational experience and technology to increaseefficiency and reduce costs
• Invest in setting up a operations through formats that are
currently allowed under Indian law
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges for Retail sector
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Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
nInsurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
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The petrochemical industry is forecasted to grow at a CAGR of 10%over the coming years
5.4 6.37.6
2005 2007 2009
CAG R: ~ 9 %
Butadiene, 2%
Benzene, 9% Toluene, 3%
100% = 5.4 mtpa
India Domestic Basic Petrochemicals(1)
market production(Mtpa)
Basic Petrochemical Market in 2005100%=5.4 mtpa
Notes: (1) Includes Ethylene, Propylene, Butadiene, Benzene and Toluene(2) Annual growth in volume till 2011
Source: CrisInfac, Interviews, A.T. Kearney analysis
Ethylene50%Propy-
lene36%
• The current basic petrochemical demand is driven byethylene and propylene (~86% of total demand)
• Propylene and butadiene are expected to witness CAGRof ~ 16% and 17.5% respectively over next 5 years
• The market for propylene will grow on account ofdownstream capacity expansion by Reliance industries(RIL) at Jamnagar and new capacity set up by Indian Oil(IOCL) at Panipat
• Butadiene demand is expected to grow rapidly owing toa 100 mtpa SBR plant being set up by RIL and another40 mtpa plant by Bhansali Engineering
• The end plastic user industries like automotive, homeappliances and packaging are also expected to witnessrapid growth, in turn driving demand for petrochemicalindustry
Key trends
• Indian Players: Reliance India Ltd, IndianPetrochemicals Ltd, Gas Authority of India Ltd, Indian OilCorporation Ltd, Haldia Petrochemicals Ltd, KochiRefineries, Mangalore Refinery
Key Players
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Petrochemical plants are located in proximity to raw material sources
Vishakhapatnam
Haldia
Digboi
Numaligarh
Bongaigaon
Guwahati
Barauni
Narimanam
ChennaiKuthethoor
Patalganga
Rabale
Mumbai
Nagothane
Hazira
Dahej
KoyaliVadodara
Jamnagar
Panipat Mathura
Petrochemical Industry
• Large petrochemical plants inHazira, Jamnagar, Patalgangaetc. make the western India as thekey region for petrochemicalindustry
• Petrochemical units inAssam situated close to oilsources
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• Cyclicality of Industry’s profitability
• Significant capacity is being built in the Middle East whichhas a cost advantage due to the cheaper cost of naturalgas
Challenges• Tight demand - supply situation in the Indian
petrochemical market
• Large and growing domestic market for petrochemicals
• Cost advantages for exports
Opportunities
Source: A.T. Kearney analysis
Opportunities and challenges for Petrochemicals sector
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Overview of key industry sectors
n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n
Insurancen ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
Th i d i i i h d i b b i
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The industry is witnessing strong growth driven by a boom inconstruction and real estate
Source: IBEF, Crisinfac
• Market value of 6 Mn euros in 2005
• Second largest producer of cement in the world afterChina
• Per capita consumption of 102 kg still low if compared tothe world average of 260 kg
• Cement demand expected to grow steadily the next fiveyears driven by growth in the construction market(commercial as well as real estate)
• Exports grew by 20% in 2005 due to higher demand from
markets such as the Middle East, Sri Lanka and Nepal• The industry is in a stage of consolidation and internationalplayers are entering the market
Key Trends
• Indian players: Grasim, ACC, Gujarat Ambuja, IndiaCements, Ultratech Cement, Century Textiles, JaiprakashIndustries, Birla Corporation
• Italian players: Italcementi• Other global players: Holcim, Lafarge, Heidelberg, Cemex
Key Players
114.0121.0
3.4
4.1
2004 2005
Domestic Market Exports
Cement Production in India(Million Tonnes)
Cement industry turnover in India(€ Million)
5.93
6.34
2004 2005
C A G R
: 7 %
117.4
125.1
+6%
+21%
Higherdemand
from MiddleEast
CA G R: 7 %
C t l t i il l t d li t i th
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Cement plants are primarily located near limestone reserves in thecountry
Ultratech Cement
Grasim Cement
Gujarat Ambuja Cement
ACC
Durgapur
Jharsugdha
Hirmi
Chandrapur
Tadipatri
Arakonam
Ratnagiri
Jafrabad
Magdatta
Raipur
MalkhedHotgi
Reddipalayam
Sikka
ShambhupuraJawad Road
Bhatinda
Ropar
Darlaghat
Pali
Kodinar
Bhatapara
Sankrail
Gagal
Lakheri
kymore
Tikaria
Purulia
SindriChaibasa
Bargarh
Jamul
Chanda
WadiMacherla
Madukkarai
• Capacities in Jawad and otherplaces due to availability oflimestone
• Chandrapur is the key cementproduction hub in the area
• The western market is served byplants in Jafrabad and Magdatta
• Sindri, Chaibasa andother plants in WestBengal and Jharkhandmajor plants eastern India
• Plants in Darlaghat andBhatinda are key sourcesfor the northern market
O t iti d h ll f C t t
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• Highly fragmented market and regional in natureconsisting of over 54 players and more than 129manufacturing plants
• Risk of excess of supply due to large capacity additionsexpected to become operational in the coming years
• Transportation costs which account for 20% of overallcosts are expected to increase
• High energy cost, one of the most important componentof cement productive cycle
Challenges
• Huge and growing demand for cement due toinfrastructure spending (particularly on roads, ports andairports), a spurt in housing construction and expansionin corporate production facilities
• Efficiency of Indian cement companies due to low costtechnology and extensive restructuring
• Sector fragmentation favor purchasing of equity stakes byinternational firms: e.g. Italcementi has acquired a stakein the K.K. Birla promoted Zuari Industries' cement plantin Andhra Pradesh
Opportunities
Opportunities and challenges for Cement sector