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A Reliance Capital company Reliance Infrastructure Fund An Open-Ended Equity Scheme NFO Opens on: 25 th May 09 NFO Closes on: 23 rd June 09
A Reliance Capital company
Reliance Infrastructure Fund
An Open-Ended Equity Scheme
NFO Opens on: 25th May 09
NFO Closes on: 23rd June 09
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Equity Markets
India Infrastructure
Funding Options
Investment Opportunities
Reliance Infrastructure Fund
Table of Contents
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Indian Equity Markets – Visible Change
Now
Oct 2008 Now
- Looks remote
- Liquidity all around
- Risk appetite returning
- Equity raising easier, change in B/S
- Biggest Election verdict since 1984
- FIIs becoming big buyers
- Major global banks failed, more probable
- Liquidity evaporated
- Risk aversion
- Companies facing capital shortage
- Election uncertainty in India
- FIIs major sellers
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The Catapult
- Election - A big positive game changer
- Accompanied by improving monetary and economic conditions
- Governance, infrastructure and inclusive growth looks to be key goals of
incumbent Government
- FII/FDI inflows can be very strong
- Earnings upgrades may follow
- Sustainable attractive returns from Indian equities look possible
What can go wrong?
- Another global financial catastrophe
- Big disappointment in pace of Government actions over next 6 months
Equity Markets – Our View
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Youngest population in the world
Largest middle-class and consuming population
Domestic focused economy
Banking system proved to be amongst the healthiest
Global leader in services
Lowest cost producer in metals
Huge savings and investment rates
Source: Internal - RMF Research
Everything Going For India
However……
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World Bank’s “ Global Competitiveness Report 2007-08”
‘Inadequate supply of infrastructure’
- Most problematic factor for doing business in India
India ranked 48th out of 131 counties in the Global Competitive Index 2007
- Ranked 67th on the quality of infrastructure
India lags behind in infrastructure facility usage compared to US & China
Source: Published Media, Global Research 2007-08
Infrastructure – Miles To Go
Comparision of Infrastructure FacilitiesParticulars India US China
Electric consumption per capita (KwH) 618 14240 1684
Roads per mn people (km) 2983 21443 1471
Steel Consumption per capita (kg) 34 357 244
Rail route per mn people (km) 56 755 57
Cargo handled at ports per capita (kg) 572 7953 4265
No. of passengers handled at airports per 1,000 persons 71 4780 151
7 of 36 Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
Infrastructure Investment – China Vs India
8.5% Of 2008 GDP(USD 380 Bn) 6% Of 2008 GDP(Rs. 267,356 Cr)
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Infrastructure Investment – China Vs India
6% Of 2008 GDP(Rs. 267,356 Cr)8.5% Of 2008 GDP(USD 380 Bn)
Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
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Prime Minister Dr. Manmohan Singh
Our growth potential will be realized only if we can ensure that our infrastructure does not become a
severe handicap
Source: CLSA Research April 2008
Realisation – Very Evident
Dy. Chairman – India Planning Commission Montek Singh Ahluwalia
One of the critical constraints which holds back our growth rate is really the quality of infrastructure
Ex-CEO Infosys, Nandan Nilekani
India has achieved excellence in human capital, but the country’s shabby infrastructure is proving to be a major stumbling block for the country’s development
CEO, Bharti Airtel, Sunil Mittal
Indian industry would expect significant initiatives in the area of resource mobilization for infrastructure
projects
Chairman – Tata Sons – Ratan Tata
We have a large deficit in almost every infrastructure sector whether airports, power, roads, etc. This is an
area that needs large amounts of investment.
Ex – Finance Minister P. Chidambaram
Infrastructure development is essential to sustain high growth rates in future
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Economic Factors
Demographic Factors
Global Integration
Growing economy
Rising disposable incomes
Rising population
Increasing urbanization
Rising international
trade and travel
Inadequate road width,
poor riding quality,
low speeds
10-14% power
shortages, frequent
brown outs
Massive under capacity
in railways for freight
and passenger traffic
Poor WSS is major
contributor to diseases
Delays, congestion,
fuel wastage in
air travel
High turnaround time,
poor connectivity
at portsSource: CLSA research, April 2008WSS: Water Supply & Sanitation
Factors Driving Demand For Better Infrastructure
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Source: Election Commission 2009
States with focus on higher development expenditure has proved to be a boon for the Ruling Party
GSDP: Gross State Domestic Product
Now Also Political Pressure
Source: RBI: A study of budgets of 2008-09
12 of 36 Source: Media Reports, Election Manifesto of Respective Parties
Manifestos Unanimous On Infrastructure
Trinamool Congress
BJP
DMK
Left
- Commits to an agenda for change guided by three goals: Good Governance, Development & Security- Investing heavily in infrastructure projects are at the top of our agenda
- Implement the Sethu Samundaram project early- Super fast bullet train service between Chennai, Madurai & Coimbatore- Dedicated freight corridor is to be implemented between Chennai & New Delhi
The party aimed at forming a secular, progressive and stable government at the centre which would focus on economic reforms, industry, agricultural development and adopt pro-people policies
- Reviewing of privatisation of infrastructure through PPP - Emphasis on rural infrastructure - Increased outlay on rural roads, electrification etc
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Manifesto makes intentions clear
- Increase public investment in infrastructure
- Ensure that India adds at least 12000-15000 MW of power capacity every year
- Rural electrification & reduction in distribution losses
- Implement a scheme to supply energy to poor families at affordable prices
- Promises a very significant increase in the share of nuclear power
- Connect villages through broadband network within 3 years
Source: Congress Manifest 2009
Strongest Government platform in India over the last 2 decades..& the opportunities could be substantial
Congress Manifesto
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Government approval to 37 infrastructure projects worth Rs.70,000 Cr from August,
2008 to January, 2009 alone
Under PPP mode, 54 Central sector infrastructure projects, in-principal or final
approval and 23 projects approved for viability gap funding in 2008-09
IIFCL to refinance up to 60 % of commercial bank loans for PPP projects involving
investment of Rs.1,00,000 Cr in infrastructure over the next 18 months
Source: http://indiabudget.nic.in
Intentions Evident In Interim Budget 2009
IIFCL: India Infrastructure Finance Company Limited
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Source: India Infoline Research, Department of shipping India, National Bureau of statistics China
The Size Of Opportunity
ParticularsIndia
(2008)
Year when China
Achieved
China (2007)
Expressways (Km) 200 1989 53,000
Air Passenger Traffic (Mn) 120 2006 186 Cargo Traffic (Major Ports) (Mn Tons) 519 1991 3,882 Power Generation Capacity (GW) 143 1992 720 Finished Steel (Mn Tons) 58 1991 465 Cement (Mn Tons) 218 1989 1,500
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Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)
Source: Investment in Infrastructure during the Eleventh Plan published by The Secretariat for the Committee on Infrastructure
FYP : Five Year Plan
XIth FYP – Infrastructure Investment
Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Total XIth FYP
Power 74,205 92,829 116,541 146,914 186,038 616,527Roads 51,352 54,318 58,729 67,901 79,516 311,816Telecom 33,075 39,834 50,293 63,408 80,390 267,000Railway 33,207 39,964 48,626 59,738 76,466 258,001Irrigation 27,002 33,839 42,625 53,946 65,718 223,130Water Supply & Sanitation 25,840 31,110 37,868 46,555 57,754 199,127Ports 9,691 11,740 14,271 17,397 20,841 73,940Airports 6,223 6,459 6,814 7,296 7,956 34,748
Storage 3,777 4,098 4,446 4,824 5,234 22,379Gas 2,984 3,454 4,005 4,651 5,407 20,500
Total Investment 267,356 317,645 384,218 472,630 585,320 2,027,168Total (USD Billion) 65 77 94 115 143 494Investment as % of GDP 6.0 6.5 7.2 8.1 9.2 7.5
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The projected investment in infrastructure sector in the XIIth FYP would be USD
1,128 Billion
Source: Planning Commission of IndiaEstimates: GDP to grow at 9% per year, GCFI as % of GDP to increase from 9% in 2011-12 to 10.25% in 2016-17
FYP : Five Year Plan, GCFI: Gross Capital Formation In Infrastructure
Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)
Much Bigger Outlay In The XIIth FYP
Projected GCFI (XIIth Plan)
2011E-12E 2012E-13E 2013E-14E 2014E-15E 2015E-16E 2016E-17E
GDP at Market Prices 6,347,900 6,919,300 7,542,000 8,220,800 8,960,600 9,767,100
Rate of growth of GDP (%) 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
GCF in Infrastructure as a % of GDP 9.00% 9.25% 9.50% 9.75% 10.00% 10.25%
GCF in Infrastructure (Rs. Crore) 571,311 640,035 716,490 801,528 896,060 1,001,128
Total GCFI (Rs. Crore)
Total GCFI (USD Billion)
4,626,552
1,128
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Question marks on infrastructure spending
Huge budgetary and fiscal deficit
Past record on foreign flows so-so and not very robust
However, future looks brighter
Avenues to control deficit in sight
PPP
Foreign investments
Source: Internal - RMF Research
Plans Fine – Show Me The Money
PPP: Public Private Partnership
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Subsidies as a contributor to fiscal
deficit is expected to decrease
Expected revenue from 3G
spectrum auction
Source: Ministry of Finance, Kotak Institutional Equities Estimates
Source: Internal - RMF Research
Fiscal Deficit – Likely To Reduce Going Forward
3 G Auctions Rs CroreBids at reserve price 8,590
Bids at 2x reserve price 17,180 Bids at 3x reserve price 25,770
Subsidy and Fiscal Deficit 2007A-2010E (Rs bn) 2007A 2008A 2009RE 2010EFood 24,014 31,330 43,630 55,000 Fertilizer 12,977 27,060 47,500 31,700 Petroleum 2,699 14,080 78,820 28,100 Total 39,690 72,470 169,950 114,800
Subsidy/Fiscal deficit % 28 57 52 28
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Source: BloombergNote: The name of the companies mentioned above are for illustration purposes only
Divestment…
Sale of residual minority stake in privatised
PSUs like VSNL(26%), Balco(49%) &
Hindustan Zinc(29%)
Divestment of profitable unlisted PSUs like
BSNL, DVC etc
Divestment of minority stake in listed PSUs
to reduce fiscal burden
Name Mcap(Rs. Cr)
Oil & Natural Gas Corp Ltd 212,026 74NTPC Ltd 171,794 90MMTC Ltd 118,137 99NMDC Ltd 110,219 98Bharat Heavy Electricals Ltd 99,884 68Steel Authority Of India Ltd 68,276 86Indian Oil Corp Ltd 56,049 80Power Grid Corp of India Ltd 49,791 86GAIL India Ltd 38,955 57Power Finance Corp Ltd 24,591 90National Aluminium Co Ltd 23,517 87Neyveli Lignite Corp Ltd 19,923 94Rural Electrification Corp Ltd 12,446 82Container Corp Of India 12,016 63Mahanagar Telephone Nigam 5,572 56Shipping Corp Of India Ltd 5,164 80Engineers India Ltd 4,320 90Rashtriya Chemicals & Fert 3,603 93Total 1,036,282
Divestment can give
5% Divestment 51,81410% Divestment 103,628
Govt. Holding (%)
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Will be key infra-developers without needing resources from Government budget :
- NTPC: Cash on books as on FY08 is Rs15,360 Crs
It can develop 20GW of capacity without raising capital
- ONGC: Cash on books as on FY 08 is Rs 18,652 Crs
- Railways: Generating cash of over Rs20,000crs every year
- Others like BSNL, AAI, DVC also have enough cash to fund their projects
Source: Internal - RMF ResearchNote: The name of the companies mentioned above are for illustration purposes only
Cash – Rich PSUs
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Source: Company, DEA PPP Database and Citi Investment Research and Analysis
Growth Rate of PPP Projects by value in the last 3 years over
previous 8 years is 104%
More than 117 PPP deals closed in last 3 years when
compared to 104 in the previous 8 years
PPP Concept Gaining Credence
Sector % by Volume % by valueRoad 71% 37%Urban Development 12% 5%Airports 2% 14%Ports 14% 43%Railways 1% 1%
Total 100% 100%
PPP Projects Awarded – Sector Wise
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Government is targeting around 30% of the total funding to come from PPP Schemes
- As compared to 17% in Xth FYP
- 4x times the investment by private sector in the Tenth FYP
In XIth FYP, almost all sectors like power, roads, railways, airports etc, are going to
witness increased private participation
Source: Planning Commission of IndiaPPP : Public Private Partnership, FYP : Five Year Plan
Rs. Crore(At 2006-07 prices)
PPP & Privatisation
Power Road Telecom Railways Irrigation Sanitation Ports Airports Storage Gas TotalInvestment Target 616,527 311,816 267,000 258,001 223,130 199,127 73,940 34,748 22,379 20,500 2,027,168% of Sector Share 30 15 13 13 11 10 4 2 1 1 100PPP Oppourtunity 162,517 112,503 177,689 50,491 N.A 5,396 54,457 21,165 11,190 6,499 601,905% of Private Share 26 36 67 20 0 3 74 61 50 32 30
Funding by PPP 30% of total Infrastructure Investment in 11th FYP
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Source: Planning Commission of India
Private Funding Gains Importance
FYP : Five Year Plan
Rs. Crore(At 2006-07 prices)
Funding Pattern - XIth FYPFunding of XI FYP
Sectors Centre State Private Total Centre State Private Total
Electricity 102,463 97,553 91,834 291,850 255,316 225,697 185,512 666,525 Roads & Bridges 71,534 66,354 7,004 144,892 107,359 100,000 106,792 314,151 Telecommunication 49,013 - 54,352 103,365 80,753 - 177,686 258,439 Railways 108,950 10,402 307 119,659 201,453 10,000 50,354 261,807 Irrigation 13,617 97,886 - 111,503 24,759 228,543 - 253,302 WSS 42,316 21,465 1,022 64,803 42,003 96,306 5,421 143,730 Ports 2,185 1,530 10,356 14,071 29,889 3,627 54,479 87,995 Airports 3,823 12 2,936 6,771 9,288 50 21,630 30,968 Storage 577 866 3,377 4,820 4,476 6,713 11,189 22,378 Gas 8,713 - 1,000 9,713 10,327 - 6,528 16,855 Total 403,191 296,068 172,188 871,447 765,623 670,936 619,591 2,056,150
X Plan XI Plan
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New Hyderabad Airport
Success Stories Of Infrastructure Privatisation
Mumbai – Pune Expressway
Mundra Port
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Attractive returns - 16% in power (through PPA Arrangement), attractive double
digits in others over a 20-30 year period
Potential to invest huge sums of money given India’s need for infrastructure
Stable political environment with the current decisive mandate
Currency outlook - stable to appreciating Rupee
Liberal policies – FDI allowed 74% to 100% in most infrastructure sectors
Source: Internal - RMF Research, CERC
Case For Foreign Investments In Infrastructure
PPA: Power Purchase Agreement
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Source: Department of Industrial Policy & Promotion, Internal - RMF Research
China attracted 9X FDI as
compared to India
FDI – India Can Attract Much More
♂
Sector 2005-06 2006-07 2007-08 2008-09 Cumulative
Rs. Crore (Apr-Mar) (Apr-Mar) (Apr-Dec) (Apr-Feb) (Apr00-Feb 09)
Services Sector 2,399 21,047 26,589 24,074 79,771 22.00%
Telecommunications 2,776 2,155 5,103 11,155 27,902 8.00%
Construction Activities 667 4,424 6,989 8,287 21,672 6.00%
Housing & Real Estate 171 2,121 8,749 11,316 22,477 6.00%
Power 386 713 3875 4268 13,898 4.00%
Total FDI in India(2000-09)(Rs. Cr) 24,613 70,630 98,664 112,896 382,996 Total FDI in India(2000-09)(USD Billion) 5.5 15.7 24.6 25.4 87.9
% Of Total Inflows
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Source: Grant Thornton
Private Equity – An Important Source Of Funding
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Valuations very stretched
Political concerns at peak
Global scenario –very scary and
hazy
Raising debt and equity
impossible – a must for
infrastructure
Despite recent spurt, still attractive
Political stability for five years
Some stability. Investors will move
to higher growth economies
Interest rates plunge, debt
available, investors looking for
equity investments
Infrastructure Fund – Why Now ?
2008 Now
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Source: BloombergNote: The name of the companies mentioned above are for illustration purposes only We do not recommend any action based on the above illustration % Change in price from 2007-08 high is compared to prices as on 22nd May 09
Valuations: Reasonable given growth prospects
A Reliance Capital company
Introducing
Reliance Infrastructure Fund
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Investment in Equities of Infrastructure Companies : 65%-100%*
Investment in Debt & Money Market Securities : 0% - 35%*
Multi – Cap Strategy
Investment with a medium to longer term horizon
* Please refer detailed asset allocation on slide no 33
Investment Strategy
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** including securitised debt up to 30%#An overall limit of 100% of the portfolio value has been introduced for the purpose of equity derivatives in the scheme. The margin money requirement for the purpose of derivative exposure will be as per the SEBI Regulations. The derivate exposure will be restricted to such limit so that the scheme does not leverage upon margin requirements
Investment Objective
Scheme Features
Equity & Equity Related Securities including derivatives engaged in infrastructure sectors & infrastructure related sectors#
65%-100%
Debt & Money Market Securities **0% - 35%
Nature of Scheme An Open Ended Equity Scheme
Benchmark BSE 100
The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity & equity related instruments of companies engaged in infrastructure & infrastructure related sectors & which are incorporated or have their area of primary activity, in India & the secondary objective is to generate consistent returns by investing in debt & money market securities
Proposed Asset Allocation
Fund Manager Sunil Singhania
New Fund Offer Price: Rs.10/- per unit plus applicable load
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Load Structure : During New Fund Offer & Continuous Offer including SIP Installments
Waiver of Load for Direct Applications : As per SEBI Circular no. SEBI/MD/CIR no. 10/112153/07 dated December 31, 2007, no entry load shall be charged for direct applications received by the Asset Management Company (AMC) i.e. applications received through internet, submitted to AMC or collection centre/Investor Service Centre that are not routed through any distributor/agent/broker
For Retail Plan:
Entry Load:
• For subscription below Rs. 2 Crs – 2.25%• For subscription of Rs.2 Crs & above & below Rs.5 Crs – 1.25%• For subscription of Rs.5 Crs & above - Nil
Exit Load:
For subscriptions of less than Rs 5 Crs per purchase transactions• 1% If redeemed/ switched on or before completion of 1 year from the date of allotment• Nil If redeemed/ switched after completion of 1 year from the date of allotment For subscriptions of more than Rs. 5 Crs : Nil
For Institutional Plan:
Entry Load : NilExit Load : Nil
Choice of Plans/Options
Retail & Institutional PlanGrowth Plan:
Growth & Bonus Option Dividend Plan :
Dividend Payout OptionDividend Reinvestment Option
Minimum Application Amount
For Retail Plan : Rs.5000/-For Institutional Plan: Rs.5 Crs
SIP
Available : Retail PlanMode of Payment :Only through Direct Electronic Debit to the investor’s bank account. This facility is offered only to the investors having bank accounts in HDFC Bank, Axis Bank
Scheme Features
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The views expressed herein are the personal views of the Fund Managers. The views constitute only the opinions and do not constitute any guidelines or recommendation on the course of the action to be followed. Readers are strongly advised to verify the contents before taking any investment decision based on this opinion. The above is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. The readers should exercise due caution and/or seek independent professional advice before making any investment decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. These are not necessarily the views of Reliance Capital Asset Management Ltd. Neither the AMC, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility/liability for the accuracy, completeness, adequacy and reliability of information provided herein. The information contained herein has been obtained from sources published by third parties. While such publications are believed to be reliable and we have made best efforts to avoid any errors or omissions, however, neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy, completeness, adequacy and reliability of such information.
Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Co. Limited. Investment Manager: Reliance Capital Asset Management Limited. Statutory Details: The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956. Scheme Specific Risk Factors: Portfolio Turnover : Given the nature of the scheme, the portfolio turnover ratio may be very high and the AMC may change the portfolio according to the asset allocation commensurate with the investment objective of the scheme. The effect of high portfolio turnover could be higher brokerage and transaction costs. Due to these factors the NAV of scheme might be impacted. Terms of Issue: The Units are available at Rs. 10/- per unit plus applicable load during the New Fund Offer Period and thereafter at applicable NAV based prices. The AMC will calculate and disclose the first NAV not later than 30 days from the closure of the New Fund Offer Period. Subsequently, the NAV will be calculated and disclosed at the close of every working day which shall be published in at least in two daily newspapers and also uploaded on AMFI site i.e. www.amfiindia.com and Reliance Mutual Fund website i.e. www.reliancemutual.com. General Risk Factors: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. Reliance Infrastructure Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme; it's future prospects or returns. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the corpus. The Mutual Fund is not guaranteeing or assuring any dividend. The Mutual Fund is also not assuring that it will make periodical dividend distributions, though it has every intention of doing so. All dividend distributions are subject to the availability of the distributable surplus in the Scheme. For details of scheme features apart from those mentioned above and scheme specific risk factors, please refer to the provisions of the scheme information document. Scheme information document and KIM cum application form is available at all the DISCs/ Distributors of RMF/www.reliancemutual.com. Please read the scheme information document carefully before investing. The information contained herein has been obtained from sources published by third parties.
Risk Factors
A Reliance Capital company
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