Post on 03-Apr-2018
transcript
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
1/24
Opportunities In IndianInfrastructure
Vikram PantPartner InfrastructureIDFC Alternatives
January 2013
1
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
2/24
AGENDA
Status of Indian Infrastructure
Challenges
Opportunity in Indian Infrastructure
A Bit About Us
2
3
4
1
2
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
3/24
Infrastructure spending grown from ~4% of GDP in 2003 to ~7.3% in 2012 (China is @ 9%, USA @ 2%)
To sustain growth targets, this needs to increase to over 10% of GDP by 2017
Infrastructure investments during the past 5 years est. ~ INR 19.5 trillion
95% of target (INR 20.5 trillion or USD 500 bn) achieved
Impressive up tick, could have been higher but for GFC
Source: Planning Commission
0
200
400
600
800
1000
1200
FY03
07 FY
08
FY
12 FY
13
17
(projected)
Investment in Infrastructure (USD bn)
RISING TREND IN INFRASTRUCTURE SPENDING
3
% of GDP (Average over period)
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
4/24
Until 2003, relatively small portion ofinfrastructure spending was from private
sector
Last decade witnessed remarkable increase
in private sector share with the Govt. having
to rely increasingly on private sector
participation
The share of private investment in
infrastructure may have to rise to ~50% oftotal infrastructure spending (~USD 90 to
100 billion a year) from the current 37%.
%
%
Source: Planning Commission
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
FY03 FY
04 FY
05 FY
06 FY
07 FY
08 FY
09 FY
10 FY
11 FY
12
PrivateSectorInfraInvestmentas%ofGDP
PRIVATE PARTICIPATION IN INFRASTRUCTURE ENCOURAGING SIGNS
4
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
5/24
Power
32%
Highways
15%
Ports4%
Railways(inc.MRTS)
13%
Others
22%
Telecom
13%
OilandGasPipelines
1%
The Last Five years..FY 08 FY 12 (est)
Total investments~ INR 20 trillion
~ 55,000MW added(o/w about half wasfrom private sector)
17,600 km of PPProad bids awarded
No of mobileconnections rise from261 mn to ~915 mn
INFRASTRUCTURE AMBITIOUS PLANS & IMPRESSIVE INVESTMENTS
5
Share of Private Sector is 37%. In terms of PPP investments, India is the largestmarket in the world ahead of Brazil, Russia and China
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
6/24
THE IMPACT
Capacity miniscule (200 GW);
Freeing up of T&D to private sector
Small private sector participation e.g. ~30%
share of container volumesPorts
Significant private participation through minor
ports with 87% share of container volumes
4-laned divided carriageways rareRoads18K km already 4-laned, 13K underimplementation.
Transformed logistics in India.
Poor teledensity
Unable to generate a growth model.
Cellular service cost Rs. 16 per minute
Telecom
Became a success story with 74% teledensity.
Cellular service cost Rs. 0.5 (USD 0.01) per
minute
End of 20th Century India Todays India
6
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
7/24
AGENDA
Status of Indian Infrastructure
Challenges
Opportunity in Indian Infrastructure
A Bit About Us
2
3
4
1
7
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
8/24
INDIAN INFRASTRUCTURE OPPORTUNITY
Fundamental Drivers Make Private Investment Attractive
8
Infrastructure spend to rise to ~ 10% of GDP Soft infrastructure in place
Strong economic growthCase for investments in India
Third largest economy on PPP basis ~ US$ 4.7trillion. 2nd fastest growing economy
Massive infrastructure requirement which thegovernment will be unable to fund
Private sector role in capital formation a necessity
Attractive demographic profile:950% of India is under the age of 30
Domestic consumption driven economy, supportedby rising incomes offering a vast untapped market
Proven legal system based on English law
Established accounting standards
Independent regulators
Well regulated and deep capital markets
Supportive banking system
Big pool of qualified professionals Entrepreneurial spirit
5.71
7.187.94
99.9
10.7
35
39
44
56
30
35
40
45
50
55
60
4
6
8
10
12
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
%%
Infra spend as % of GDP (LHS) Private share in infra spend (RHS)
9.3%
6.7%
8.4% 8.4%
6.5%
0%
2%
4%
6%
8%
10%
12%
FY08 FY09 FY10 FY11 FY12
Agriculture Industry Services GDP
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
9/24
INDIAN INFRASTRUCTURE OPPORTUNITY
~$ 1 Tn of investment needed over next 5 Years (12th
5 Year Plan)
11th 5 Year Plan Achieved- ~INR 19.5trillion*
Presents an equity opportunity of ~$ 150 billion
Source : Planning CommissionSource: Planning CommissionFY: April 1 to March 31* Estimates
Huge opportunity and powerful rationale for private sector to invest in Indian infra
9
6,665
3,142
880
2,618
4,504
2,584
169
Power
Highways
Ports
Railways(inc.MRTS)
Others
Telecom
OilandGasPipelines
12th 5 Year Plan Target- ~INR 51.5 trillion*
17,473
9,201
1,606
5,576
7,565
8,842
1,201
Power
Highways
Ports
Railways(inc.MRTS)
Others
Telecom
OilandGasPipelines
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
10/24
KEY SECTORS IN INDIAN INFRASTRUCTURE
10
Sector Current Status Way Forward
Power Total generating capacity of >200 GW
9~55 GW added in 5 years
9Highest in any 5 Yr Plan since independence
9~27% of generation from private sector
Low per capita electricity consumption 100 GW in next 5
years
9~20 GW to be completed over
current fiscal year two-thirds of
which is private Renewable Energy incentives, RECs
fuel potential in Wind, Small Hydro,
Solar.
Attractive Sector
Roads >3mn kms - only 2% NH carrying 40% road
traffic
Out of a total NH development plan of 50,412
km, 34% complete, 25% is under
implementation
~20K km of NH projects, Expressways
9Private sector preferred mode of
development
78K kms of State Highways
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
11/24
STATUS OF INDIAN INFRASTRUCTURE
11
Sector Current Status Way Forward
Ports High capacity utilisation and inefficient
operations at major ports
9Market share of major ports shrunk to ~65%
Private sector share of 87% in containervolumes
Handling capacity of ~1250 MTPA targeted
to more than double over next 5 years
9Minor ports expected to be the key drivers
Captive customers, low revenue share toimprove returns
Rail 3rd largest network with 64K km track length.
But poor track coverage; 3K kms added in ~30yrs
Private container train industry not yet
profitable
PPP redevelopment of 26 stations
33K km targeted for development/modernization
Telecom 2nd largest telecom market, 915mn subs.
74% teledensity
350K telecom towers, 6 players hold 91%
tenancy
Compression of margins
Consolidation in tower industry
Size matters
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
12/24
STATUS OF INDIAN INFRASTRUCTURE
12
Sector Current Status Way Forward
UrbanInfra
Cities matter: pop from 350-600mn by 2030
Will generate 70% new jobs, 70% GDP
JNNURM: 67 cities, 552 projects
Increased outsourcing by ULBs: waste
management and water supply Schools and hospitals
Multimodal transportation (Metro Rail, BRTS)
JNNURM worth USD50bn
PPP in MSW and water supply projects
govt focus on urban healthcare
Airports Traffic grew @ 16% CAGR over last 10 years
Delhi, Mumbai airports successfully privatized
Greenfield airports in Hyderabad & Bangalore
136 airports; 8 handle 80% of traffic
11% CAGR growth expected over 5y
(~270 mn)
Up gradation of 24 non-major airports
underway
High capital costs; dependence on high
user fees/ real estate
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
13/24
AGENDA
Status of Indian Infrastructure
Challenges
Opportunity in Indian Infrastructure
A Bit About Us
2
3
4
1
13
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
14/24
14
9 Supportive
9 Complex regulations9 Pace of reforms slow
9 Public Sector not keeping pace withPrivate Sector Delivery (coal,offtake)
$
9 Extremely competitive9 Aggressive expectations of
returns from infra assets9 Execution capabilities
established9
Stretched balance sheets
9 Shattered infrastructure valuations inpublic markets
9 Valuation expectations of sponsorsand private capital providers yet toconverge
9 Asset sales the only way out?
9 Governance9 Transparency
INDIAN INFRA SPACE IS COMPLEX AND DEMANDING
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
15/24
CHALLENGES FOR PPP IN INDIAN INFRASTRUCTURE
15
Targets not translated into pipeline of projects; limited institutional capacity Multiple approvals and overlap of jurisdiction, Center vs. States
Example Coal India:
9Under prepared forpaceat which generating plants have come on-stream
9Reliance on expensive imported coal, cost is borne eventually by the taxpayer.
Admin. Capacity
Capital
Underdeveloped LT Debt Capital Markets
Pension/Insurance Sector to be opened up
Equity capacity of local sponsors
High savings rate (35% of GDP) not channelised enough from banks to infra: ALCO mismatch
Execution
Land acquisition
9Emotive issue acquiring land for public purpose perceived as being used to generate profits
9Fairness vs. efficiency from business point of view
Delayed permits & clearances
9Environmental clearances
9Water, shifting of utilities and other clearance delays due to administrative capacity
Dispute Resolution Lengthy
Sponsors capital stuck in litigation instead of churning for new projects
key challenge for success of PPPs is Implementation
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
16/24
SECTOR SPECIFIC CHALLENGES
16
Sector
Power Creditworthiness of off takers
9Net losses of Discoms at ~USD 8 billion (~0.5% of GDP)
9Without subsidy, power tariffs need to be hiked by 47% to break even
Availability of Fuel
9Demand for coal for power has grown 9% CAGR since 2007, supply has grown by 6%9Stranded capacity; fuel shortages over medium term will persist
9In FY 11, India imported 13% (75 mt) of its coal requirement; blending increases cost
by ~60%
Ports Major Ports stretched; capacity utilization ~90% , turnaround time, logistics costs forshipping
Delays in dredging & capacity expansion affecting competitiveness
Aggressive bidding for new projects has impacted viability
Roads Hyper aggressive bidding; high divergence in L1 / L2 / L3 bids; significant differences inestimates
EPC bidders prone to bid aggressively to grow order book
Project viability sensitive to interest rates recent bids at peak
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
17/24
ADDRESSING THE CHALLENGES THROUGH POLICY INITIATIVES
Recent Initiatives
9 Creation of special category PE/ VC infrastructure funds (AIF)
9 Relaxation of ECB guidelines for infrastructure projects
9 Infrastructure Debt Fund
9 Presidential directive to Coal India to ensure reliable coal supply
9 Bail out of State Electricity Boards with tariff increase
9 Up to 49% FDI allowed in aviation
9 Land Acquisition Bill
9 Proposal to increase FDI limit in insurance sector
17
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
18/24
18
Policy logjam might continue
Reform process might take a backseat on account of 2014 elections
Populist measures by the incoming Indian govt. in 2014
External shocks like the fiscal cliff leading to recession in United States
KEY RISKS: WHAT CAN GO WRONG
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
19/24
AGENDA
Status of Indian Infrastructure
And its Challenges
Opportunity in Indian Infrastructure
A bit about us
2
3
4
1
19
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
20/24
IDFC
- Specialized infrastructure financial institution from concept to commissioning
- Diversified shareholding : Foreign Investors 49 %, Government - 17%,Domestic 34%
IDFC FoundationCorporate &Investment
Banking
IDFC Alternatives
AUM ~ $ 2.2 bn
Public MarketsAsset Management
Project Finance
Investment Banking
Institutional Broking
Investment Research
AUM: $ 5.4 bn
Hybrid FundMutual Fund
Private Equity
Infrastructure
Real Estate
Public Private
Partnership Policy Advisory
Corporate SocialResponsibility
IDFC OVERVIEW
Market Capitalization* $ 4.6 bn
Balance Sheet Size $ 11.5 bn
Net Profit (FY 2012) $ 304 mn
A Financially Strong and Well Respected Institution
* As of Jan 24, 2013, calculated as USD = INR 55.00 20
575 employees: largest pool of human talent focused on infrastructure in India
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
21/24
IDFC Alternatives- Two Managing Partners (CEO and CIO)
- Shared Services (CFO, Investor Management, General Counsel)
Infrastructure16 investment professionals
IDFC ALTERNATIVES
Indias 2nd Largest Alternative AMC AUM USD 2.2 billion
CoreInfrastructureAssets
Established 2007
1 fund with total AUM of $ 927 mn
67% of fund committed across 14 assets
Regular distribution+ capital appreciation
Target gross IRR of 16% to 18% Asset focussed
Significant minority / partnership stake
Infra
Commodities
Infra EquipmentManufacturers
Consumption
Infra ServiceProviders
21
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
22/24
INVESTING IN A HIGH GROWTH BUT CHALLENGING ENVIRONMENT
Investment Strategy
GO LOCAL: market dynamics and demand drivers could vary across India
Relationships with all stakeholders
Make decisions independent of public market sentiment
9 Focus on cash flows from underlying asset(s) - not from capital markets
Deep diligence of promoter and understand regulatory risks
Desired partner characteristics
9 Long term basis
9 Commitment to environment and local communities
9 Alignment of interest
Exit / liquidity strategy for each investment
Take advantage of asset sale (churn) by developers
22
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
23/24
IMPACT
Helping create Indias Infrastructure..
IDFC has helped create more than half ( >30,000 MW) of Indias private sector thermal and largehydro generation capacity. We are one of the largest lenders in the renewable space
Our contribution has helped create more than half of Indias Telecom towers and two thirds of theWireless subscriber base
Financed a sixth of 32,000 kms of National Highways under PPP.
Financed half of the container cargo capacity at Indian Ports
Airports aided by us handle over a fourth of Indias passenger and air traffic
23
7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf
24/24
ThankYou
24