IA

1 Larsen &Toubro LtdLarsen &Toubro (L&T) remains the undisputed number one infrastructure company in India. Nobody could have summarised its role in nation building better than P Chidambaram, who called it India's only national sector company (on the company’s 70th anniversary when he was the Union Finance Minister). That was in 2007. Today, L&T continues to build on its reputation by maintaining an all round growth across the infrastructure segments where it operates. The recently concluded fiscal has been quite good for the company.As a company statement said, 'various cost optimisation initiatives launched by the Company, aided by lower input costs, led to an improvement in the profitability of both project and product businesses'.The Profit after Tax for L&T as a group for the year at Rs5451 crore grew by a whopping 44% as compared to the previous year. Subsidiaries and associate companies together contributed Rs613 crore to the Group's profits, posting a rise of more than 100% over the similar amount for the previous year. The Group’s consolidated total income registered Rs 43970 crore vis-a-vis Rs40511 crore for the previous year.The operating margin at 13.1% improved by 140 basis points over last year, while the order book crossed the Rs100,000 crore mark as of March 31, 2010. (The Engineering & Construction Segment’s contribution to this is Rs 63899 crore). The huge order book gives ample visibility to the company’s continued leadership position. L&T is well poised to take advantage of the opportunities presented by India's amazing infrastructure development. Moreover, L&T has considerable presence and capabilities in the international markets.

Indian infrastructure growth at its pinnacle

Indian infrastructure growth has reached massive heights. All the same, constraints persist threatening to slow down growth. Ankineedu Maganti,Director, Soma Enterprise Ltd, examines issues that are impeding the momentum and offers suggestions that could expedite the process.

India has witnessed an absolute metamorphosis over the last decade. Sprawling cities, flourishing businesses, higher standard of living are all indicators of unprecedented growth, globalisation, urbanisation, expansion and diversification. Infrastructure modernisation and development is said to be the key driver of all the growth and economic activity. The Indian infrastructure sector is at an inflection point and there are immense opportunities for the private sector. Although the sector is booming, there are hindrances in the smooth development of world-class infrastructure.The highways sector received much required fillip when the government announced National Highway Development Programme and its first two phases-Golden Quadrilateral and North South-East West Corridor. These projects were funded by National Highways Authority of India. For the subsequent phases, i.e. III, IV & V, the government decided to involve the private sector by promulgating the BOT model. Under this model risks would be allocated to those parties that were best equipped to manage them. The private sector had to its credit the capability of delivering quality services to the public. Here, the private sector stood to benefit, as the PPP model would generate reasonable long-term revenue and profits for them. This model also allowed the government to allocate and use its funds in other focus areas of development.One of the key factors acting as a deterrent to growth is paucity of funds. This holds true especially in the case of large scale, complex projects, as in case of hydro power projects, which have long gestation periods. The Government needs to consider introducing mechanisms/ instruments that allow efficient long-term funding of projects. In addition, limits on external commercial borrowings for such infrastructure projects should be removed.

Construction equipmentWith the rapid growth in the industry, there is still a mismatch of supply and demand in terms of construction equipment. Delays in deliveries of equipment result in delayed mobilisation and completion of projects. Further, prices of construction equipment have steadily increased over the past few years, partly due to the high demand, and partly due to increase in input costs. A large portion of construction machinery deployed in projects is imported. The import duties levied on construction equipment are increasing the cost of construction. Exemptions are available in some projects funded by external agencies such as the Asian Development Bank and World Bank. However, this exemption is not available in other projects including PPP projects. To sustain the growth in the construction sector, import duty on construction equipment and material such as bitumen, steel and cement should be removed especially in PPP projects. One of the pressing needs is adequate compensation for increased prices of certain materials such as steel, cement, bitumen and diesel. Most construction contracts rely on indices for price escalation in these materials, and the indices are not fully reflective of the price rise, especially in cases of extraordinary increases in short periods of time. Further, in BOT projects it is left to the entrepreneur to estimate the price escalation during the implementation period of the project. However, it is not possible to factor in

such extraordinary increase in prices at the time of tendering for the projects. There should be a mechanism to ensure planned and expeditious implementation of infrastructure projects. Currently, there is a large gap between the time of announcement of projects and their award. Also, there are periods of furious activity in awarding a large number of projects followed by a long period without projects being awarded. It is essential to phase the projects in a continuous manner in order to optimise the scale up of resources in the infrastructure sector in India.As this is just the beginning of the infrastructure boom in the country, the industry needs to prepare for execution needs. With the ramp up in manpower and other resources, Indian companies will be in a position to cash in on opportunities both domestically and internationally. Unless adequately addressed, shortage of skilled manpower will be the single most important hindrance to aggressive infrastructure development.Newer trends in road projects such as six-eight laning of highways, large-scale and more complex projects in power sector, metro rails, monorails and high capacity bus systems mark the eagerness of our country to take its infrastructure to another level. A concerted effort is required from the government to make world-class infrastructure a reality in India. Alternative funding for projects, favorable policies and increased incentives for PPP projects would encourage the private sector to work in tandem with the government.

© Grant Thornton India. All rights reserved.

1

25 May 2011

INDIA

Opportunities in

Infrastructure

Vishesh C Chandiok

National Managing Partner

Grant Thornton, India © Grant Thornton India. All rights reserved.

2

• Road, including toll road, a bridge or a rail

system and Highway Projects;

• Ports, airport, inland waterway or inland

port;

• Water supply projects, irrigation projects,

water treatment system, sanitation and

sewerage system or solid waste

management system;

• telecommunication services whether basic

or cellular.

• an industrial park or special economic

zone;

• Construction of educational institutions

and hospitals;

• Generation or generation and distribution

and transmission of power;

• Construction relating to projects involving

agro-processing and supply of inputs to

agriculture;

• Construction for preservation and storage

of processed agro-products, perishable

goods such as fruits, vegetables and

flowers including testing facilities for

quality;

• Any other infrastructure facility of similar

nature.

RBI

‘Infrastructure’ in India has several connotations© Grant Thornton India. All rights reserved.

3

Infrastructure

Sector Deficit Targets

Roads and

Highways

65,590 km of NH comprise only 2% of network;

carry 40% of traffic; 12% 4-laned; 50% 2-laned;

and 38% single-laned

6-lane 6,500 km in GQ; 4-lane 6,736 km km NSEW 4-lane 20000 km; 2-lane 20000 km; 1000 km

Expressway

Ports Inadequate berths and rail/road connectivity New capacity: 485 m MT in major ports; 345 m

MT in minor ports

Airports Inadequate runways, aircraft handling capacity,

parking space and terminal buildings

Modernize 4 metro and 35 non-metro airports; 3

green-field in NER; 7 other green-field airports

Railways Old technology; saturated routes; slow speeds

(freight: 22 kmph; passengers: 50 kmph); low

payload to tare ratio (2.5)

8.132 km new rail; 7,148 km gauge conversion;

modernize 22 stations; dedicated freight

corridors

Power 13.8% peaking deficit; 9.6% energy shortage;

40% transmission and distribution losses;

absence of competition

Add 78,577 MW; access to all rural households

Telecom/IT Only 18% of market accessed; obsolete

hardware; acute human resources’ shortages

Reach 600 m subscribers 200 m in rural areas;

20 m broadband; 40 m Internet

Infrastructure Performance in 11

th Five Year Plan

Deficit & Target for FY08-FY12© Grant Thornton India. All rights reserved.

4

5.15%

5.68%

6.45%

2.16%

2.51% 2.89%

7.25%

8.19%

9.34%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2009-10 2010-11 2011-12

Investment as % of GDP

Public Private Total

Trends in Infrastructure Investment

Actual Spends on Infrastructure rising yoy – Public & Private© Grant Thornton India. All rights reserved.

5

• investment in sector during the Twelfth Plan would over US$ 1 trillion

• >50 per cent of this investment envisaged from private sector

• public sector investment to increase from $300 bn in 11

th

plan to $450 bn

ie. annual increase of 9.34% in real terms.

Source : Planning Commission

Forecast of Infrastructure Needs in 12

th Five Year Plan

The Planning Commission has articulated India’s vision© Grant Thornton India. All rights reserved.

6

Year Base Year 2012–13 2013–14 2014–15 2015–16 2016–17 Total

(2011–12) 12th Plan

GDP at market prices

(Rs crore)

63,14,265 68,82,549 75,01,978 81,77,156 89,13,100 97,15,280 4,11,90,064

GDP at market prices

($ trillion) 1.4 1.5 1.7 1.8 2.0 2.2 9.2

Rate of growth of

GDP (%)

9.00 9.00 9.00 9.00 9.00 9.00 9.00

Infrastructure

investment as % of

GDP

8.37 9.00 9.50 9.90 10.30 10.70 9.95

Infrastructure

investment (Rs crore) 5,28,316 6,19,429 7,12,688 8,09,538 9,18,049 10,39,535 40,99,240

Infrastructure

investment

(US$ billion) @ Rs

40/$

132 155 178 202 230 260 1,025



th Five Year Plan© Grant Thornton India. All rights reserved.

7


th Five Year Plan

Sector-wise Investments Envisaged© Grant Thornton India. All rights reserved.

8

S. No Sector

Completed

Projects

Projects under

Implementation

Projects in

Pipeline

Total

No. of

Projects

Project Cost

No. of

Projects

Project

Cost

No. of

Projects

Project Cost No. of

Projects

Project

Cost

(A) Central Sector (Rs.Cr) (Rs.Cr)

(Rs.Cr) (Rs.Cr)

1

National

highways

39 13,698 64 41,911 81 76,341 184 1,31,950

2 Major ports 23 5,762 13 10,509 29 18,466 65 34,737

3 Airports 3 5,883 2 18,777 5 24,660

4 Railways 4 4,717 50 90,000 54 94,291

Total (A) 65 25,343 83 75,914 160 1,84,807 308 2,86,064



th Five Year Plan

Status of Projects© Grant Thornton India. All rights reserved.

9

S. No Sector

Completed

Projects

Projects under

Implementation

Projects in Pipeline Total

No. of

Projects

Project Cost

No. of

Projects

Project Cost

No. of

Projects

Project Cost

No. of

Projects

Project Cost

(B) State Sector (Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr)

1 Roads 96 6,382 69 60,864 86 39,481 251 1,06,727

2 Ports 20 19,704 37 51,549 18 17,436 75 88,689

3 Airports 1 500 7 4,120 8 4,620

4 Railways 1 500 3 312 4 812

5 Power 7 8,971 15 29,448 34 62,032 56 1,02,847

6

Urban

infrastructure

51 5,992 69 18,690 65 45,708 185 1,00,451

7 Other sectors 2 120 17 3,575 31 22,534 50 26,229

Total (B) 176 41,169 209 1,64,126 244 1,91,622 629 4,30,375

(C) Grand Total

(A+B)

241 66,512 292 2,40,040 404 3,76,429 937 7,16,439



th Five Year Plan

Status of Projects© Grant Thornton India. All rights reserved.

10

• Department of Economic Affairs and Planning Commission provide

guidelines and formulate policies for Infrastructure Sectors at Central

Government level

• Tax Incentives - Central

– Tax Holiday available for Infrastructure projects under Section 80 IA wherein Income Tax

rebate is provided for 10 consecutive years over a 15 year time period.

• Tax Incentives - States

– Vary from state to state; Examples include Baddi in Himachal Pradesh and the Union

Territories of Silvassa and Pondicherry

– May also be project specific in a particular state.

Regulatory Framework© Grant Thornton India. All rights reserved.

11

FDI Policy

Sr. No Sector/ Activity % of FDI Cap/

Equity

Entry Route

1 Mining – metal and non-metal ores and Lignite 100 % Automatic

2 Mining – titanium bearing minerals & ores 100% Government

3 Power - Electric Generation, Transmission, Distribution and

Trading

100 % Automatic

4 Civil Aviation Sector – Airport Greenfield projects 100 % Automatic

5 Civil Aviation Sector – Airport Existing projects Automatic up to 74%

Approval route beyond 74%

6 Industrial Parks - both setting up and already established

Industrial Parks

100% Automatic

7

Telecommunication- Telecom services 74%

Automatic up

to 49%

Approval route

beyond 49%

and up to 74%

FDI Policy

Most sectors provide for 100% foreign ownership© Grant Thornton India. All rights reserved.

12

Sr. No Sector/ Activity % of FDI Cap/

Equity

Entry Route

8 Air Transport Services Scheduled Air Transport Service/

Domestic Scheduled Passenger Airline

49% FDI

(100% for NRIs)

Automatic

9 Air Transport Services Non-Scheduled Air Transport

Service 74% FDI

(100% for NRIs)

Automatic up to 49%

Government route

beyond 49% and up to

74%

10 Air Transport Services -Helicopter services/seaplane

services requiring DGCA approval

100% Automatic

11 Ground Handling Services subject to sectoral regulations

and security clearance 74% FDI

(100% for NRIs)

Automatic up

to 49% Government

route beyond 49% and

up to 74%

12 Maintenance and Repair organizations; flying training

institutes; and technical training Institutions

100% Automatic

13 Railway Transport (other than Mass Rapid Transport

Systems).

Prohibited

FDI Policy


13

Sr. No Sector/ Activity % of FDI

Cap/

Equity

Entry Route

14

Petroleum & Natural Gas Sector Exploration

activities of oil and natural gas fields, infrastructure

related to marketing of petroleum products and

natural gas, marketing of natural gas and

petroleum products, petroleum product pipelines,

natural gas /pipelines, LNG reclassification

infrastructure, market study and formulation and

Petroleum refining in the private sector

100% Automatic

15

Petroleum refining by the Public Sector

Undertakings (PSU)

49% Government

16 Roads 100% Automatic

17 Ports 100% Automatic

FDI Policy


14

• Funding requirements from private sector are mammoth

– equity markets are beginning to see value in infra projects with increasing clarity on PPP

policies and some initial success stories, particularly in roads and power

– several companies already listed across private sector and PSUs

– opportunity to develop bond markets which are practically non-existent

– domestic and global infra funds are raising several billion dollars for Indian infra play

• US$ 500 billion projected fund requirement in 12

th Plan. At the end of the

11

th Plan, share of private investment in total already up from 17% to

30% by 2012

Financing Infrastructure© Grant Thornton India. All rights reserved.

15

• Roads (USD 20b in each of next 2 yrs)

– Total opportunity of USD 42.2 bn over next 2 yrs

– Expressways additional opportunity of USD 11 bn

• Power (USD 200 bn in next 4 yrs)

– 12th Plan capacity addition of 100GW (vs. 78GW)

– Private energy developers dominant share (64%)

– Investment of USD102b investment in power plants and an additional USD102b in T&D

• Railways(INR800-900b spending over the next 1-2 yrs)

– Dedicated freight corridor (USD15b) and associated feeder route upgrades (USD5b)

comprise 30% of total spending. Approximately 26% (USD15.6b) allocated for asset

modernization

Financing Infrastructure

Key Sectors requiring funding© Grant Thornton India. All rights reserved.

16

Infrastructure Project Finance

Conventional

Bank Financing

Take out

Financing

Special

Funding

Vehicles

International

Funding

Infra-Funding

NBFC

• Public Sector

Banks

• Private Banks

• Structured

Products

• IIFCL

• PFC

• REC

• NABARD

• ECB

• FII

• Bonds

• IDFC

• IL&FS

• SREI

• Structured

Products

Short Term- (5-8 years)

Medium Term (5-10 years

Long Term (5-25 years)

Financing Infrastructure

Existing Landscape© Grant Thornton India. All rights reserved.

17

Real Estate Sector© Grant Thornton India. All rights reserved.

18

Indian real estate sector: an overview

Past

• unorganised, fragemente

d industry

• characterised as local

industry without any

regional and national

level players

• unaccounted sources of

finance

• no access to public

finance

• no transparency, weak

systems and processes

Present

• phase of consolidation

• institutionalisation on

pace

• corporatisation – national

and regional level

players

• listed real estate

companies

• global investments

• improving transparency

Future

• well-organised industry

• marriage of infrastructure

with real estate

• support by growthoriented policies

• predominant use of

technology, including

cleantech

• transparency, open

availability of data

Current size of the Industry:

US$57 billion

Percentage of GDP: 6.2%

Size of the Industry:

US$105 billion

Percentage of GDP: 7.1%

Next 5 years

Data source: iSEC Research© Grant Thornton India. All rights reserved.

19

FDI norms

Conditions for development Conditions for investment Miscellaneous conditions

Minimum 10 hectares for serviced

housing plots

Minimum capitalisation of U$10

million for wholly owned subsidiaries

and US$5 million for Joint Ventures

with Indian partners

Investor not permitted to sell

undeveloped plots

For construction, development

projects, minimum built up area of

50,000 sqmt

Infusion of funds within six months of

commencement of business

Project to conform to norms and

standards laid down by respective

state authorities

In case of a combination project, any

one of above two should suffice

Original investment cannot be

repatriated before a period of three

years from completion of minimum

capitalisation

Investor responsible for obtaining

necessary approvals as prescribed

under applicable rules/bye

laws/regulation of the State

At least 50% of the project to be

developed within five years from the

date of statutory clearances

Investor may be permitted to exit

earlier with prior Government

approval

Concerned authority to monitor

compliance of above conditions by

developer© Grant Thornton India. All rights reserved.

20

Issues and challenges

• Lack of infrastructure to support real estate development

• Transparency and governance

• Institutionalization

• Sources of finance

• Corruption

• Affordability of residential real estate © Grant Thornton India. All rights reserved.

21

Power Sector© Grant Thornton India. All rights reserved.

22

Power Sector- Overview

Installed Capacity

Source : CEA

Sector MW %age

State Sector 82,452.58 47.49

Central Sector 54,412.63 31.34

Private Sector 36,761.19 21.17

Total 1,73,626.40© Grant Thornton India. All rights reserved.

23

Power Sector- Overview

Installed Capacity

Source : CEA

Fuel

MW %age

Total Thermal

112824.48 64.98

Co

al

93,918.38 54.09

G

as

17,706.35 10.20

Oil 1,199.75 0.69

Hydro (Renewable)

37,567.40 21.64

Nuclear

4,780.00 2.75

RES** (MNRE)

18,454.52 10.63

Total

1,73,626.40 100.00© Grant Thornton India. All rights reserved.

24

Power Sector

Opportunity

• 1,00,000 MW to be added in Twelfth Plan

• 5,900 MW to be added in Twelfth Plan based on domestic manufacturing

capability and 10,000 MW with the support of international players.

• Major shortage of equipment. Supply for power sector

– L&T and Mitsubishi JV, Toshiba and JSW JV, and ALSTOM and Bharat Forge setting up

new plants© Grant Thornton India. All rights reserved.

25

Power Sector

Opportunity

• Generation

– Private sector share in power sector increased from 10 per cent in the Tenth Plan to 32

per cent during the Eleventh Plan

– Government encouraging investments by private players

• Transmission

– Six Transmission Projects being undertaken on PPP modes

– States like Haryana are in the process of inviting private sector in transmission

• Distribution

– Distribution in many cities has been privatized Kolkata, Mumbai, Delhi, Greater Noida

(Uttar Pradesh), Ahmedabad, Surat, and Orissa.

– Many other cities are considering privatizing the distribution system© Grant Thornton India. All rights reserved.

26

Road and Highways© Grant Thornton India. All rights reserved.

27

Education Sector

Global Perspective© Grant Thornton India. All rights reserved.

28

Opportunities – Roads & Highways

Overview

• 20 km/ day target for road construction set by the Ministry

• 2,873 km of BOT projects awarded in FY11 YTD (vs. 3,361 km in FY 10

and 644 km in FY09)

• Model concession agreements put in place, allowing private investors to

levy user charges© Grant Thornton India. All rights reserved.

29


Policy Framework

• Two development models in vogue

– Toll Based (mainly for financially viable roads)

– Annuity (for others)

• Grants/ viability gap funding for marginal projects by NHAI

• Indexed user charges to recover building / maintenance costs

• Expected initiatives in the near future

– Policy on land acquisition to expedite rehabilitation

– Arbitrator for Rehabilitation & Resettlement (R&R)© Grant Thornton India. All rights reserved.

30


Policy Framework

• 100% FDI under automatic route for all road projects

• 100% income tax exemption for a period of 10 years

• Overseas borrowing amount under ECB Policy increased to USD 500

million© Grant Thornton India. All rights reserved.

31


Market Size

• 170+ NHAI Projects having a project cost of Rs. 1.21lac crore at various

stages of bidding

• Multiple State Road Projects are on anvil (Bihar, Uttar Pradesh, Punjab,

Madhya Pradesh)

• Highways: opportunity of Rs. 1.90 Lac crore in the next 2 years

• Expressways: additional opportunity of Rs. 50k crore© Grant Thornton India. All rights reserved.

32


Market Size – Specific Programmes

Project Timing Length Remarks

NHDP – Phase - II Dec 2009 GQ and EW-NS

Corridors

Nearing completion

NHDP – III Dec 2013 10,000 km 4-laning, all PPP

NHDP – IV 20,000 km 2-laning

NHDP – V Dec 2012 6,500 km 6-laning, all PPP

NHDP – VI Dec 2015 1,000 km Expressways, all PPP© Grant Thornton India. All rights reserved.

33

Urban Infrastructure© Grant Thornton India. All rights reserved.

34

Opportunities – Urban Infrastructure

Overview – Key Sectors

• New drinking water projects (24X7)

• Solid waste management and sewerage

• New mass rapid transport systems

• Bus terminals© Grant Thornton India. All rights reserved.

35

Opportunities – Water Supply

Overview

• New drinking water projects (24X7) – mulitiple opportunities with urban

local bodies (Jaipur, Kota, Gwalior, Bangalore, Delhi, Aurangabad,

Mysore etc.);

• Deal size – in Aurangabad, Rs. 400 crore private investment (another

Rs. 400 crore from the Govt.)

• Key players: Jindal Water, IVRCL, JUSCO, Global Players (such as

Vivendi)© Grant Thornton India. All rights reserved.

36

Opportunities – Water Supply

Examples

Models Example of cities

Augmentation / development of new

system by tapping identified sources:

BOOT / Concession

• Nagpur: construction of 115 MLD WTP

(Rs. 90 crore)

• Kolkata: development and management

of water supply in parts of Salk Lake City

Management of existing water distribution

system:

• Performance-based management &

service contracts

• EPC contracts along with performance

based O&M Contracts

• Ahmedabad: O&M of 3 years for 200 MLD

WTP

• Nagpur: water audit (Rs. 27 crore) /

energy audit (Rs. 28 crore) for water supply

• Nagpur: rehabilitation plan to implement

24X7 water supply (Rs. 387 crore)© Grant Thornton India. All rights reserved.

37

Opportunities – Solid Waste Management

Overview

• Solid waste management – collection and disposal, including projects for

conversion of waste to energy

• Opportunities with most municipalities

• Key players – Ramky, Subhash Projects© Grant Thornton India. All rights reserved.

38

Opportunities – Solid Waste Management

Examples


For new system:

Covering composting, recycling, bricks /

blocks manufacturing, RDF & energy

generation and developing and maintaining

a scientific landfill site

• Guwahati (Rs. 102 crore)

• Chennai (Rs. 147 crore)

• Puducherry (Rs. 108 crore)

• Lucknow (Rs. 74 crore)

• Kanpur (Rs. 92 crore)

• Varanasi (Rs. 68 crore)

• Agra (Rs. 31 crore)

For existing system:

• Service contracts

• Management contracts

• Community participation for collection

• Ahmedabad (Rs. 136 crore)

• Faridabad (Rs. 76 crore)

• Jaipur (Rs. 13 crore)

• Vadodara© Grant Thornton India. All rights reserved.

39

Opportunities – Sewerage

Examples


New system:

• Plain vanilla EPC contracts

• Design Build Finance Operate

• BOT for STPs

• Nagpur: re-use and recycle of waste water

by Mahagenco (Rs. 130 crore)

• Kolkata: development and management of

sewer system in parts of Salk Lake City

Existing system:

• Performance based contracts for

construction and O&M

• Surat: Anjana STP (Rs. 11 cr), Bhesan STP

(Rs. 15 cr) Bamroli STP ( 13 cr)₹

• Ahmedabad: O&M for 180 MLD STP, 60

MLD STP and 35 MLD STP© Grant Thornton India. All rights reserved.

40

Opportunities – Urban Infrastructure

Overview

MRTS

– New mass rapid transport systems coming up in most large cities (Mumbai, Bangalore,

Hyderabad, Jaipur)

– Deal sizes: Rs. 7,500 crore in Jaipur, Rs. 12,000 crore in Hyderabad

– Key players: L&T, Reliance ADAG

Bus terminals

– MP, Haryana, Gujarat, Punjab

– Deal size Rs. 30 cr -150 cr

– Key players C&C, Subhash Projects© Grant Thornton India. All rights reserved.

41

Education Sector© Grant Thornton India. All rights reserved.

42

Education Sector- Overview

• Children and young persons in the 6-24 years

– 410 million

– 38% of the country's population

• Free and compulsory education to all children of India in the six to 14 age group

Number of Educational Institutions

Schools 1.29 million

Colleges (2005-

06)

20,769

Universities

(as on 31.03.07)

350

(236 Universities

+ 101 Deemed Universities

+13 Institutions of National Importance)© Grant Thornton India. All rights reserved.

43


• Indian Education Sector (IES) is by far the largest capitalized space in

India with $30bn of government spend - 3.7% of GDP

– 1 million schools

– 18,000 higher education institutes.

• Public education system is ‘insufficient’ and ‘inefficient’, leading

education-hungry and affluent Indians to spend $50bn on private

education (14% CAGR over FY08-12).

• India spends 5.2% of global spends on education on 20% of world

population© Grant Thornton India. All rights reserved.

44


IES – The Largest Inefficiencies – The Highest

Investability Quotient (IQ) –

The Lowest

Largest Capitalized space

• Public spend of $30bn (3.7% of

GDP)

• Private spend of $50bn (14%

CAGR over FY08-12E)

‘Insufficient’ funds

• Free product (public schools)

loses market share – 40% of the

student base enrolled in private

schools (7% of the total school

network)

$40bn:‘overregulated & under

governed’

• For 80% of the private spends

(formal IES), regulations (notfor –profit mandate) a big

deterrent

• Low political will to bring about

the much required structural

change

Largest Supply

• A network of ~1m schools and

18,000 HEIs

• First Indian satellite – EDUSAT

(launch Sep-04) to serve the

education sector

‘Inefficient’ supply

• 66% of the school network only

till primary level

• Only 0.85% of USD 30bn spent

on capital expenditure

Largest Demand

• Globally the largest population

of 572m within the 0-24 years

age group

Lowest enrollments, highest

dropouts

• 61% of target population

enrolled, 40% dropout at school

level (a mere 37% net enrolled)

• Lowest GER* globally of 9.97 at

higher education level

$10bn: Scores low on

scalability

• For remaining 20% (non-formal

IES), scalability remains a big

issue© Grant Thornton India. All rights reserved.

45

Education Sector - Overview

($ m) Revenues (2009) Revenues (2012E) CAGR (%)

Formal IES 45,200 65,250 13

K12 22,800 33,779 14

Higher Education* 22,400 31,470 12

Non-formal IES 11,930 19,608 18

Preschool 408 1,026 36

Multimedia -private

sch.

112 459 60

ICT in govt. schools 153 752 70

Coaching classes 7,360 11,194 15

Vocational training 1,875 3,662 25

Books 1,925 2,516 10

Historic Growth© Grant Thornton India. All rights reserved.

46

Education Sector- Demand

Segments Key recent government initiatives announced/planned

K-12 •Right to Education Act

•Rapid Upgradation of 15000 Upper Primary Schools to Secondary Schools, and

expansion of intake

•capacity in 44000 existing Secondary Schools

•Establishment of 6000 high quality model schools at the block level to serve as

benchmarks for excellence in secondary schooling. About 3500 of these would be

public-funded schools while 2500 would be through PPP

Higher

Education

•Foreign Education Bill that would allow foreign universities to establish campus

in India

•Setting up of 30 Central Establishment, one in each of the 16 States which do

not have a Central university at present, and 14 other Central universities in

different parts of the country

•Establishment of eight IITs, seven IIMs and five Indian Institutes of Science

Education and Research© Grant Thornton India. All rights reserved.

47

Education Sector- Demand

Segments Key recent government initiatives announced/planned

Vocational

Education

•Established National Skill Development Center (NSDC) , a unique PublicPrivate Partnership (PPP)

•Enterprise, with a mandate to develop the skill of 30 percent of the overall target

of 500 million people by the year 2022

•Complete Upgradation of 500 ITIs by investing INR 2.0-3.5 crore in each into

institutions of excellence. Upgrade remaining 1396 ITIs in PPP mode

•Upgrade 400 government polytechnics. Set up 125 new polytechnics in PPP

mode

•Expand Vocational Education from 9500 senior secondary schools to 20000

schools.© Grant Thornton India. All rights reserved.

48

Education Sector

Global Perspective© Grant Thornton India. All rights reserved.

49

Forms of PPP in Education

Service Delivery Initiatives

Private management of public college/universities

Contracting with private college for education delivery

Before and after college care

Private information/testing services

Private sector review

Outsourcing of non-core functions

Outsourcing of delivery by public tertiary institutions

Infrastructure PPPs

Private Finance Initiatives - finance, construction and

maintenance of core and non-core educational assets

Private leasing of public college/ tertiary institution

facilities

Equipment and maintenance of IT laboratories

Strategic Partnerships

Private involvement in curriculum development

Private sector involvement in quality assurance

Adopt-a-college initiatives

Research PPPs

On-job-training

Public/private tertiary institution affiliations

Social marketing

Demand Side Finance Initiatives

Publicly financed vouchers and scholarships

Privately financed vouchers and scholarships

Publicly provided student loans

Subsidies for private schools© Grant Thornton India. All rights reserved.

50

PPP in Education

Indian Perspective

ICT and labs in

schools ICT and

labs in schools

Model Schools

Vocational

training

•Allocated Rs130bn under SSA. Plans to implement ICT in 90,000 schools in

the current 5-year plan

Allocated Rs11.43bn under RMSA to create science and math labs in

government schools

•Government-PPP initiatives – extending the spectrum from $100m to $1bn

•2500 schools out of the 6,000 model schools are declared under PPP (a

Rs36bn opportunity; private investment of ~Rs100bn is expected to flow in)

•National Skill Development Corporation allocated Rs10bn in 2009-10 interim

budget; plans to raise Rs150bn going forward© Grant Thornton India. All rights reserved.

51

Sample of PPP Arrangements in Higher Education

• Public-Private financing of higher education

– Funding to Private Colleges through University Grants Commission (UGC) funding

reform, innovation and other programs in public and private higher education institutions.

– Another model is providing funds, through government grants or loans, directly students,

who may attend any academic institution.

Indian Perspective© Grant Thornton India. All rights reserved.

52


• Public-Private Funding of Research

– Private funds for research and produce research products that may be useful to, or even

owned by private firms Private universities. In some cases, the private sector provides

funds to public or private institutions for basic research

Indian Perspective© Grant Thornton India. All rights reserved.

53


• Science parks

– Related to public-private support for research is the emergence of science parks in many

countries. Often, these research and development (R&D) facilities are a combination of

public and private initiative One of the most successful models in Asia is the Science

Based Industrial Park at Hsinchu, Taipei, China.

– This science park was built with a combination of private and government funds adjacent

to several major universities near Taipei. It has attracted many of Taipei, China’s major

high-tech firms and some multinational corporations as well.

International Models© Grant Thornton India. All rights reserved.

54


• University-based Companies Focusing on High-tech

Production for the Private Sector

– There are a growing number of university-owned companies, sometimes partly funded

by private sources, generally in the high-tech area that produce products for the

marketplace. One of the most successful examples of this is Peking University’s Founder

Software Company, which produces software for Chinese language newspapers

worldwide and has a turnover of more than US$ 1 billion.

– In some cases, these university-based initiatives have participation from the private

sector in terms of financing, marketing, or other inputs.


55


• Publishing and knowledge networks

– There are examples of universities linking with private sector publishers or other

knowledge distribution companies to produce and distribute knowledge products,

including books, scientific journals, Web based publications, and others.

• University services

– There are many examples of private sector enterprises such as bookstores, retails

shops, food services, and many others linking up with universities and operating on

campuses. In some cases, academic institutions franchise private sector companies for

campus operations and earn a royalty on sales. In other examples, universities may

directly link with firms to provide products or services. These enterprises can be

financially advantageous to the academic institutions.


56


• The delivery of academic programs

– There are examples of academic institutions in one country delivering academic

programs, sometimes leading to academic degrees, in another country in collaboration

with private sector firms. This is a recent development in Malaysia, for example, where

Australian and British universities have partnered with Malaysian business firms to

sponsor local academic institutions that provide degrees from the sponsoring institutions

for Malaysians. The initial investment is from Malaysia, and the overseas universities

provide the educational programs and eventually award the degrees.


57

Health Sector© Grant Thornton India. All rights reserved.

58

Health Sector – An Overview

National Level- Union Ministry of Health and Family Welfare.

Sub-divisional/Taluk level - At the Taluk level, healthcare services are rendered through the office

of Assistant District Health and Family Welfare Officer (ADHO).

District Level - The district level structure of health services is a middle level management

organisation and it is a link between the State as well as regional structure on one side and the

peripheral level structures such as PHC as well as sub-centre on the other side.

Regional level - Each regional/zonal set-up covers three to five districts and acts under authority

delegated by the State Directorate of Health Services

State Level - State Department of Health and Family Welfare in each State headed by Minister

and with a Secretariat

Community level - one Community Health Centre (CHC) has been established for every 80,000

to 1, 20,000 population, and this centre provides the basic specialty services in general

medicine, pediatrics, surgery, obstetrics and gynecology

Administrative Structure © Grant Thornton India. All rights reserved.

59

Health Care Sector - Overview

• The Indian healthcare sector is expected reach US$ 280 billion by 2020

• GDP spend of 8 per cent by 2012 from 5.5 per cent in 2009.

• India would require another 1.75 million beds by the end of 2025.

• The public sector however is likely to contribute only around 15-20 per

cent of the required US$ 86 billion investment.© Grant Thornton India. All rights reserved.

60


• The rural healthcare sector is also on an upsurge. The Rural Health

Survey Report 2009 states

– 15000 Health Sub-centers and 28,000 nurses and mid-wives added in last years

– Number of primary health centres have increased by 84 per cent, taking the number to

20,107.

• FDI between April 2000-January 2010

– Drugs and pharmaceuticals sector : US$ 1.87 billion between April 2000 and January

2010

– Hospitals and diagnostic centres : US$ 980.38 million in April 2000 and January 2010© Grant Thornton India. All rights reserved.

61


• Medical Tourism

– At a nascent stage expected to grow exponentially on account of high quality of service,

good infrastructure and low cost

– Expected to have 3% share by end of 2013. USD 3 Billion, growing at a CAGR of 26%

yoy.

– Medical tourists is anticipated to grow at a CAGR of over 19 per cent during the forecast

period to reach 1.3 million by 2013.

– The growth in India’s medical tourism market will be a boon for several associated

industries, including hospital industry, medical equipments industry and pharmaceutical

industry. © Grant Thornton India. All rights reserved.

62


• Vast majority of the country suffers from a poor standard of healthcare

infrastructure which has not kept up with the growing economy.

• Centers of excellence in healthcare delivery exist, but are limited and

inadequate

• Nearly one million Indians die every year due to inadequate healthcare

facilities

• 700 million people have no access to specialist care

• 80% of specialists live in urban areas© Grant Thornton India. All rights reserved.

63


• Forty percent of the primary health centers in India are understaffed.

• 250 medical colleges in the modern system of medicine and

• 400 in the Indian system of medicine and homeopathy (ISM&H).© Grant Thornton India. All rights reserved.

64


• India produces over 25,000 doctors annually in the modern system of

medicine and a similar number of ISM&H practitioners, nurses and para

professionals

• India has approximately 600,000 allopathic doctors© Grant Thornton India. All rights reserved.

65


• Government Initiatives

– Launched the National Rural Health Mission (NRHM) in 2005. It aims to provide quality healthcare

for all and increase the expenditure on healthcare from 0.9 per cent of GDP to 2-3 per cent of GDP

by 2012.

• Union Budget 2011-2012

– Plan allocation for health by 20 per cent to US$ 5.8 billion.

– Rashtriya Swasthaya Bima Yojana will be extended to the unorganized sector workers in hazardous

mining and associated industries

– Government allocated an additional US$ 1.23 billion for six upcoming AIIMS-like institutes and

upgradation of 13 existing Government Medical Colleges.© Grant Thornton India. All rights reserved.

66


• Private Sector Initiatives

– Sahara Group planning multiple health projects

• 200-bed multi-specialty tertiary care hospital at Gorakhpur, Uttar Pradesh

• 1,500-bed multi super-specialty, tertiary care hospital at Aamby Valley City

• 30-bed multi-speciality secondary care hospitals across all the 217 Sahara City

Homes Townships.

– Artemis Health Sciences (AHS) : Health care venture of the Apollo Tyres Group

establishing four to eight multi-specialty hospitals in Punjab, Uttar Pradesh, Madhya

Pradesh, Rajasthan and Haryana

– Frontier Mediville, setting up first healthcare special economic zone (SEZ) near

Chennai with an investment of around US$ 44.4 million.

– GE Healthcare plans to invest US$ 50 million to set up more facilities for developing

diagnostic services

– MSD Pharmaceuticals Pvt Ltd investing US $ 130 Mn on research and developments

(R&D) centre with UK-based Wellcome Laboratories© Grant Thornton India. All rights reserved.

67

Health Sector

Health Sector

Primary Secondary Tertiary Allied

•Primary Health

Care Centers

•First Referral

Units (FRUs)

•Community

Health Care

Centers

•General

Hospitals

•Multi Specialty

Hospitals

•Emergency

Medical Services

•Mobile

Diagnostics© Grant Thornton India. All rights reserved.

68

Possible PPP models – Health Care

Model Key Issues

Primary Healthcare

Center Adoption,

Management

Contracts, and Mobile

Clinics

• Addresses the need for improving primary health care access in rural

areas.

• Focuses on taking over existing infrastructure and introducing private

sector management techniques.

• Limited by the overall scarcity of health care professionals in the country.

Build, Own, and

Operate

Diagnostic Centers

•Addresses the need for creating additional diagnostics services.

• Requires the private sector to install, maintain, and operate diagnostics

services.

• Has potential for user charging based on political appetite.

• Needs a referral system with network of doctors and health centers.

Hospital Private

Finance Initiative

(PFI) Scheme

• Addresses the need for improving and developing hospital infrastructure.

• Focuses on hard infrastructure and facilities management of the hospital

(no health provision seen).

• Affordability is a key consideration.

• Requires wider stakeholder consultation.

• Needs to develop public sector capability on procurement of a large private

finance initiative project.© Grant Thornton India. All rights reserved.

69

PPP projects in Health In India

• Multiple State Government are trying to develop Health Infrastructure on

PPP Basis

– Delhi

• Superspecialty hospitals in Tahirpur and Janakpuri in Delhi

• Radio-diagnostic machines and dialysis units in government hospitals on PPP

projects in Delhi\

– MP

• Medical Hub at vill Tigaria Badshah on 194.727 hectares

– Maharashtra, Rajasthan and Kerela

• Emergency Medical Services on PPP© Grant Thornton India. All rights reserved.

70

PPP in Health - International

• PFI hospitals in United Kingdom

• National Health Service (NHS) in UK

• Local improvement finance trust (LIFT) in UK

• Independent sector treatment centers (ISTCs) in UK

• Chile's PPP Hospitals - Santiago, Chile

• Kayseri Health Campus and Ankara Etlik Health Complex in Turkey

• Loures Hospital, Cascais Hospital and Braga Hospital n Portugal© Grant Thornton India. All rights reserved.

71

India US Partnerships© Grant Thornton India. All rights reserved.

72

India – US strategic Partnerships

• Bilateral trade amounts to over US$ 45 billion

• Indian Companies made green field investments amounting to US$5.5

billion between 2004-2009

• Major investments in the US included

– JSW Steel’s investment of US$1 billion

– TCS’ US$273.4 million investment,

– Welspun Group’s investment of US$246 million

– Reliance Adlabs’ US$161-million investment

– Indage Group’s investment of US$160.5 million

– HCL Group’s US$148.7 million investment

– Tata Communications’ US$102.7 million investment and

– PSL’s US$100-million investment

Indian Investments in US© Grant Thornton India. All rights reserved.

73


Indian Investments in US- Key deals

Acquirer Target Sector Date Deal value (US$

million)

Reliance

Industries Ltd.

Atlas Energy, Inc.-

Marcellus Shale assets

(40% stake)

Manufacturing April 2010

1,700

Reliance

Industries Ltd.

Pioneer Natural

Resources-Eagle Ford

Shale assets (45% stake)

Manufacturing June 2010

1,355

Reliance Anil

Dhirubhai Ambani

Dreamworks SKG Media and

entertainment

September

2008 325

Religare

Enterprises Ltd.

Northgate Capital LLC Financial

services

February

2010

200

Inox India Ltd. Cryogenic Vessel

Alternatives

Manufacturing December

2009

140© Grant Thornton India. All rights reserved.

74


• US accounted for about 7% of total FDI Inflow in India amounting to

1,170 US$ million in FY 2011

• Some recent investments are as under:

– Walmart raises IT sourcing from India. Awards contracts for over $200 million for multiyear periods

– General Motors (GM) is looking to invest $ 500 mn in India in next 2 years© Grant Thornton India. All rights reserved.

75


• American Express

• Amway

• Avaya

• Caltex

• Caterpillar

• Cisco

• Citigroup

• Coca Cola

• Cognizant

• Colgate Palmolive

• Cummins

• Discovery

• Dupont

• Eli Lilly

• Federal Express

• Ford

• Franklin Templeton

• GE

• General Motors

• Gillette

• Honeywell India

• Intel

• Johnson & Johnson

• JPMorgan

• Kellogg India

• Kimberly Clark

• Kodak

• McDonalds

• Metlife India

• Microsoft

• Morgan Stanley

• New York Life

• Ogilvy and Mather

• Oracle

• Pepsico

• Pfizer

• Pizza Hut

• Sun Microsystems

• Texas

• Tecumseh

• Timex

• Tyco

• UPS India

• Visteon

• Whirlpool

• Xerox Modicorp

Major US Companies in India

All Major US Companies have India Operations© Grant Thornton India. All rights reserved.

76


US Investments in India

Acquirer Target Sector Date Deal value

(US$ million)

FedEx Express AFL Logistics Dec 2010 Not Known

Avantor

Performance

Materials

Holdings’s

RFCL Pharma Dec 2010 100

International

Paper (IP)

Andhra Pradesh Paper

Mill (APPM)

Paper

March

2011

257

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