vikram pant - ppt- overview of investment opportunities in indian infrastructure.pdf

7/29/2019 Vikram Pant - PPT- Overview of Investment Opportunities in Indian Infrastructure.pdf

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Opportunities In IndianInfrastructure

Vikram PantPartner InfrastructureIDFC Alternatives

January 2013

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AGENDA

Status of Indian Infrastructure

Challenges

Opportunity in Indian Infrastructure

A Bit About Us

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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)


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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

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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

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Share of Private Sector is 37%. In terms of PPP investments, India is the largestmarket in the world ahead of Brazil, Russia and China


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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

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AGENDA


Challenges


A Bit About Us

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INDIAN INFRASTRUCTURE OPPORTUNITY

Fundamental Drivers Make Private Investment Attractive

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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


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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

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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


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KEY SECTORS IN INDIAN INFRASTRUCTURE

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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


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STATUS OF INDIAN INFRASTRUCTURE

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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


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STATUS OF INDIAN INFRASTRUCTURE

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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


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AGENDA


Challenges


A Bit About Us

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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


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CHALLENGES FOR PPP IN INDIAN INFRASTRUCTURE

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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


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SECTOR SPECIFIC CHALLENGES

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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


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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

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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


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AGENDA


And its Challenges


A bit about us

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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


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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

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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

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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

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ThankYou

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vikram pant - ppt- overview of investment opportunities in indian infrastructure.pdf

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