Evaluation of impacts of the Development Capital Investment Intervention of the DFID ’s Private Sector Infrastructure Portfolio

Draft Final Baseline Report Aug 2019

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Author

This evaluation report is prepared by the Evaluation Team of IPE Global Limited, India.

The team members are: 1. Sanjay Sinha, Team Leader 2. Promila Bishnoi, Evaluation & VfM Expert 3. Gaurav Prateek, Research Manager 4. Manab Chakraborty, Institutional Expert 5. Achin Biyani, Finance Expert 6. Sheena Kapoor, Research Associate

Contact Person

Dr. Soumen Bagchi, Project Coordinator, [email protected]

Copy Right Department for International Development, UK will have the copy right of the field data and information collected, and the evaluation report.

Compliance with Ethics Principles

IPE Global Limited maintains compliance with the global standards and policies, such as the OECD Standards for Development Evaluation, DFID’s Ethics Principles for Research and Evaluation (2011), and DFID’s zero tolerance stance on corruption and fraud. The corporate values and ethics are safeguarded through a set of policies and codes of conduct including anti-fraud and anti-corruption, conflict of interest, equity, diversity and quality assurance. Disclaimer: The views expressed in this report are those of the evaluation team and do not necessarily represent the opinions of the Department for International Development, UK.

Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Acronyms bn Billion BPL Below poverty line CAGR Compound annual growth rate CEO Chief Executive Officer CGAP Consultative Group to Assist the Poorest CoI Conflicts of Interest CO2 Carbon dioxide Cr Crore CRISIL Credit Rating Information Services of India Limited CVs Curriculum vitae DAC Development Assistance Committee DCI Development Capital Investment DFID Department for International Development DFIs Development Financial Institutions DoC Duty of Care EA Enumeration Area EQ Evaluation Question ESG Environmental, social and governance (assessment) ET Evaluation Team FGD Focus Group Discussion GBP Pound Sterling GCI Global competitiveness index GIIN Global Impact Investing Network GoI Government of India HQ Headquarter IDFP Infrastructure Debt Fund Programme IEFP Infrastructure Equity Fund Programme IFC International Finance Corporation IIIC Indian Impact Investors Council IIPS International Institute for Population Sciences INR Indian Rupee IOF India Opportunities Fund IPE IPE Global Limited IRIS Impact reporting and investment standards IRR Internal rate of return ITT Invitation to Tender KII Key Informant Interview LIS Low income states M&E Monitoring and evaluation M-CRIL Micro Credit Rating International Ltd. Mn Million MIS Management information systems MP Madhya Pradesh MSMEs Micro small and medium enterprises MT Metric ton NGO Non-Government Organisation NSS National Sample Survey NSSO National Sample Survey Organisation

1 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

OBC Other backward classes Od Odisha OECD Organisation for Economic Co-operation and Development OER Operational Expense Ratio PAPI Pen and Paper Interviewing PEA Political economy analysis PPI Progress out of Poverty Index PPPs Public private partnerships PQQ Pre-Qualification Questionnaire PSD Private Sector Department PSIG Poorest States Inclusive Growth PSM Propensity Score Matching QA Quality Assurance RBI Reserve Bank of India RCT Randomised Control Trial RG Reference Group RoA Return on Assets RRB Regional Rural Bank SC Scheduled Castes SEAF Small Assistance Funds SEQAS Specialist Evaluation and Quality Assurance Service SGF SME Growth Fund ST Scheduled Tribes SVL SBICAP Ventures Ltd. TA Technical Assistance TOC Theory of Change TOR Terms of Reference UP Uttar Pradesh VC/PE Venture Capital/Private Equity VfM Value for Money WB West Bengal WIP Work in progress

2 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Executive Summary This report is an evaluation of DCI (Development Capital Investment: Debt and Equity Fund Programmes), DFID (Department for International Development, ) India’s private sector infrastructure portfolio, implemented in partnership with IDFC and SBICAPS in India’s low- Income States. IPE Global Limited (India) is carrying out this evaluation as commissioned by the DFID in partnership with M-CRIL. Purpose of this evaluation is focused on learning from an innovative1 market- led infrastructure financing mechanism in LISs besides ensuring accountability in terms of optimising development outcomes. Evaluation Objective This evaluation study of the DCI investment in infrastructure funds is expected to generate specific evidence on the impact of the programme on the participating households, particularly in terms of what works for poor households, and poor women; the delivery of appropriate products and services; and the overall policy environment in the poorest states in India while not neglecting and ensuring a decent commercial return from these investments. The study explores the reasonableness of the expectation that strengthening infrastructure investments in low income states is a good route for attracting additional investments targeted at providing services as well as employment for the poor, women and marginal groups. Since both data availability on infrastructure investments in the LIS and the attribution to the infrastructure funds of capital flows to these states is challenging, this part of the evaluation is indicative rather than definitive. The DFID Development Capital Investment Program implemented through its two partnerships- Infrastructure Debt Fund Program and Infrastructure Equity Fund Program are targeted to achieve the double bottom line objectives of commercial returns and development outcomes. The expected impact of this intervention is increased investor interest in pro-poor infrastructure sectors in the eight low- income states. The key outcome of the programme is the expansion of better-quality infrastructure services that deliver social benefits direct to households, such as electricity and clean water, and deliver economic benefits to businesses such as roads that give access to markets and electricity that help run storage or manufacturing facilities. Evaluation Methodology The purpose of the evaluation is twofold. For accountability purposes, the evaluation assessed the performance of the program with respect to its outcomes and outputs, and for learning purposes to identify key lessons. Both are expected to inform DFID’s future Development Capital Investment programs. The evaluation focused on the following five areas as specified in the ToR and agreed during the inception phase: (i) impact of the intervention on wider policy and regulatory climate for private investments in infrastructure in the targeted geographies; (ii) assess the impact on the community and household level; (iii) assess the feasibility of the instruments- debt and equity used to finance infrastructure projects in LIS; (iv) assessing impact of DFID intervention in building investors’ interest; and (v) examining the program’s approach to and achievements of Value for Money (VfM). Target audiences of the evaluation include DFID, FCO, and other UK Government departments, various Ministries of the Government of India, state governments, fund managers/ implementing partners and other development partners and DFIs who are potential investors in infrastructure sector and work with the national and state governments. The baseline evaluation was completed within a period of 1 year since inception, starting March 2018 through to March 2019. The evaluation has applied the OECD-DAC criteria, which include relevance, effectiveness, efficiency, impact, and sustainability. The VfM dimension has been added to the DAC criteria for a more comprehensive evaluation. Eleven Evaluation Questions (EQs) were developed and distributed between each OECD-DAC criterion including VfM based on the understanding of the DFID DCI Infrastructure loan and equity partnerships programs and the evaluation objectives. Additionally, the annual review reports of DFID have been used to assess progress and reconcile information from the field. Both qualitative and quantitative methods were used. The key methods included: (i) desk review of relevant literature; (ii) key informant interviews (KIIs) including interviews with the representatives of the investee company to understand their operational areas and clientele base; (iii) case studies- detailed

1 Infrastructure in LIS in India is largely public funded. These 8 low income states account for a meager less than 14% percent of the total number of PPPs in India. DCI is an innovative approach for these states.

3 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio case studies are provided in Annexure B; (iv) primary and secondary data analysis; and (v) VfM assessment. At this stage, we have worked out the benefit-cost ratio (B-C ratio) based on existing impact. A detailed VfM assessment based on DAC criteria will be undertaken at the mid- term stage when more information on impact is expected to be available. The Evaluation Team visited and engaged into detailed consultation and discussion with all the 6 investee companies, 3 each under the NEEV Partnership and Debt Fund Partnership. Crystal Logistics (Cool Chain) Limited; SunSource Energy Private Limited; Mahendra Educational Private Limited under the Neev and Clean Wind Power (Devgarh) Limited; Cholamandalam Investment and Finance; Darbhanga- Motihari Transmission Company Limited. Evaluation Challenges Overall, this was a highly challenging evaluation given the methodological complexity. A flexible model-based approach was adopted given the complex operational environment (geographical spread, sectoral/ enterprise diversity) and the available resources. The evaluation did face some limitations or challenges including lack of data availability, quality of data even if they are available, for attributing results to DFID. The Evaluation Team ensured that most of it did not affect the quality of the evaluation. Other key challenges were absence of project level financial information, short timeframe to be able to assess impact across locations and operationally diverse investee companies; simultaneous initiatives adopted in parallel by the Government resulting in less attribution of results to DFID investments. The Evaluation Team feels an ideal time frame to assess impact at the ground level could be 3-4 years. The evaluation team used secondary data where there were limitations from the interviews with counterparts in the investee company and depended heavily on insights provided by DFID and Fund Managers on the broad impact of the technical assistance that accompanies these partnerships. Summary of Evaluation Findings Portfolio (DCI investm Direct employment at Baseline report Physical infrastructure Capacity ent) investee facilities Investee Info’ name date Type Quantity Unit Quantity ₹ crore persons women

Equity: NEEV Fund Crystal Feb-19 Warehouses 6 mt 30,000 50 300 50% Logistic Portable cold stores 300 SunSource Nov-18 Solar energy 110 MW 200 42 132 25 Energy plants projects in Bhilwara clients: 18 states 39 technicians, 93 unskilled Mahendra Dec-18 Training 146 Trai 52,000 50 1,549 33% Education centres nee s Debt Fund Clean Wind Nov-18 Wind energy Turbines Hou 52,000 38 Company Power generation with total seh attributab employees: n.a. (Devgarh) capacity, olds le to 30 work as 20% 37.5 MW serv CWPD guards ed 62 person years in installation Cholamandal Nov-18 Loans 20,800 42,486 Overall None am vehicle assets employed on loans under vehicles, 42,095 overall in manage Employed on 2017-18; ment, DCI financed financed by DCI ₹100 vehicles, 1,012 DCI, 500 crore loans DMTCL Sep-18 Transmissio 50 km line Hou 30,600 60 35 full time at None n lines + + seh sub-stations, sub-stations 70 km line olds Construction: + 725 full time 20% 2 person years substations

4 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Impact of DFID Technical Assistance The impact of DFID technical assistance towards improving the policy and regulatory environment, ESG capacity building, building capacity in project design and appraisal in these states to attract private capital to infrastructure sector is significantly based on secondary sources of information including discussions with the DFID program people. While it is very difficult to assess the attribution (one-to-one) correlation of some of the performance pertaining to the sectors where DFID has invested to the DFID DCI programme, discussions with stakeholders revealed that DFID has been one of the 1st movers in the low- income states. There is preliminary evidence that points to the DFID infusion having a catalytic impact on SMEs in the low income states. DFID support under the infra loan fund has been instrumental in institutionalising the DFID Environment, Social and Governance (ESG) framework, that is based on international best practices, for project appraisal of small infrastructure projects in low-income states. The “Governance” aspect institutionalised an element of transparent and prudent financial management and corporate governance practices among the investee companies. DFID ESG framework has been contextualised in consultation with the partners, or for small infra projects or innovative pilots in a way that is practical to implement. The technical assistance under the equity fund has initiated multiple sector- specific knowledge products which has enabled in dissemination of the learnings from the investments into renewable sector and cold storage sectors. The project appraisal mechanism under the equity fund through the Investment Committee and the outcomes from it have helped gain experience from current performance of the Fund and have also provided a good understanding of the targeted sectors and market potential in India. DFID involvement has had significant impact on having right kind of oversight on the development outcomes of the engagement including on poor, marginalised and women. The loan and equity partnerships have helped achieve the double bottom line objectives of commercial and development returns. DFID investees have reached out to beneficiaries including women, first time borrowers, poor and marginalised people and helped such transitions as a number of poor persons becoming owners of vehicles; they have also provided basic services (such as electricity) to the poor at below current market prices. DFID DCI- Private Investment in Infrastructure Sectors Renewable energy including wind, hydro, waste to energy accounted for major share of DFID debt and equity investments from the NEEV Fund and Debt Fund. Over 50% of DFID debt and equity investments under DCI was in renewable and related sectors. Moreover, almost 64% of the total debt investment was in energy including renewable energy infrastructure. It is difficult to develop a one-to-one correlation between DFID investments through DCI and overall private investments in these sectors in the low- income states. However, during 2013 and 2018, the private investments in renewable energy in the low- income states registered an annual average growth of over 30% and the share of low- income states in the total investments have gone up from 25% to over 32%.

Agriculture market infrastructure, logistics and supply chain is another area where major investments were made from DCI, An analysis of private investments in logistic infrastructure in low income states from 2013-18 shows an increase in the share of low income states from 22% to almost 25%, registering an annual average growth rate of over 12%. Policies towards providing market infrastructure near the sites of production to promote enhanced returns to agri- investments in low income states have triggered the higher growth and investments in logistic infrastructure.

DFID DCI investment has coincided with some of the major policy reforms and has now become more relevant in the context of India’s overall focus on attracting private capital through PE and VC. Private Equity (PE) has brought approximately USD 125 billion of capital into India in the past 10 years, providing organizations with a vital new funding source. Several developments and initiatives have contributed to PE success story in last five years, including, support from Development Financial Institutions, such as Department for International Development (DFID). Some of the other factors that have contributed towards the success of PE investments in India are- (1) growing interest in the Indian market; (2) looking at PE as a dependable source of capital and not just as a last- resort source of capital; (3) further deepening of PE investors’ capital into their investee companies; and (4) a track record of strong “exits” track record. The period from 2013 to 2018 registered almost 3 times higher compound annual growth of private equity investments in India. Debt vis-a-vis Equity Fund

5 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

The Neev Fund has made significant contributions to investee equity and has made more potentially catalytic investments than the Debt Fund. The latter’s relatively small contributions to overall capital are temporarily useful (Clean Wind Power (Devgarh) Private Limited & Darbhanga Motihari Transmission Company Limited) and direct attention to low income states to some extent but are too small to make a difference in the long term.

The financial sustainability of investees and the Neev Fund’s contribution to it remains unclear at this stage. The Neev Fund invests in companies that are cash generating however, the financial sustainability remains unclear on account of any significant market changes which can have an impact on the business of the companies. Further evidence over the next couple of years will, hopefully, provide more useful results. Debt Fund investments are too small to be of much significance to sustainability. Evidence on leverage is presently too limited for the Evaluation Team to comment on. Insights on Development Effects Evidence so far shows that the Debt Fund has made small but significant contributions to stable employment and reasonable incomes earned by employees at investee facilities. Evidence from the Neev Fund remains incomplete at this stage as it is too early to evaluate the impact and will need to be followed up at the midline and end-line to determine the incremental employment and economic value as investees make increasing use of the investments in order to grow their operations. Debt Fund investees have so far enabled substantial benefits to be derived by local communities from their services but the relatively small investments by the Fund limit its contribution to those benefits. The benefit-cost ratio of 0.58 calculated at present for the Debt Fund is a tentative and temporary figure that will develop and grow as more evidence and time elapses over the midline and endline stages of the evaluation. At this stage there is insufficient evidence from Neev Fund investees to draw a conclusion on its contribution to community benefits. Investments in renewable energy and efficient power distribution projects are clearly beneficial to the community but with the current design of debt fund investments it has been a relatively small contribution to the capital available to the investee limiting the development impact of the invested capital. Other sectors selected by fund managers – agricultural support and skill development – are also potentially useful but the investments should be such as to make a significant contribution to the sustainability and direction of those initiatives. There is insufficient evidence so far, in most cases, to say positively that DCI has made such contributions. In analysing the impact of these investments, we have significantly depended on investee companies’ information available in the public domain. Most of the analysis is done based on published audited financial results of the companies. We have purposefully retrained ourselves from seeking sensitive financial information from the investee companies. Lessons Learnt

• DFID DCI has had much larger impact beyond just the targeted Investee companies. It has had impact in institutionalising the Governance aspect within the ESG Framework resulting in prudent corporate governance system. • Learnings from the DFID DCI investments has helped DFID initiate similar initiatives at the National level with the Government of India, through National Investment & Infrastructure Fund (NIIF) and Green Growth Equity Fund (GGEF). • Development capital investments can be useful in targeted sectors such as small renewable energy power projects and coaching for skill development but should be limited to early stage investments when the small sums of money available with the Funds can make a significant difference in terms of growing the amount of capital available to investee companies. With later stage investments, small relative increases in the quantum of capital can sometimes facilitate incremental development impact but evidence from the case studies shows that this increment is itself relatively small in the context of the overall operations of the investee company. • Small contributions by the Debt Fund to the total capital of investees do not so far appear to be sufficiently distinctive from commercial loans. There is little purpose in replacing a commercial loan with DCI after enough commercial funding has already been arranged (DMTCL). The small difference made by the slightly lower cost portion of such a loan is hardly noticeable. However, the development impact has been visible and has helped IDFC to free up capital for additional green field projects. • Evaluation has significantly looked at the aspects of contribution of DFID DCI towards the broader market and sector development as it was difficult to measure attribution of DFID DCI.

6 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• The mid- line is expected to generate more evidence towards the impact at the bottom of the pyramid. • Even if there is a data sharing clause in the investment agreement this does not serve the purpose in a situation where investee personnel regularly shift from one part of their organisations to another and institutional memory is limited as a result. It would be useful in future if cooperation in the evaluation process were to be a prominent condition of such investments.

7 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Contents Acronyms ...... 1 Executive Summary ...... 3 1 Context and Background ...... 10 1.1 Introduction ...... 10 1.2 Background ...... 10 1.3 Evaluation of DCI ...... 13 2 Methodology ...... 13 2.1 Key approaches ...... 13 2.2 Evaluation Design ...... 14 2.3 Evaluation framework...... 20 2.4 The establishment of the Evaluation questions ...... 21 2.5 Evaluation process ...... 21 2.6 Cross cutting issues ...... 22 2.7 Limitations ...... 23 2.8 Attribution/contribution issues ...... 24 2.9 Work Plan ...... 25 2.10 Governance and Management arrangements ...... 29 2.11 Risk management ...... 29 2.12 Instruments/Tools ...... 29 3 Analysis, Key Findings and Conclusions ...... 30 4 Lessons Learnt ...... 46 5 Conclusions ...... 47 6 Dissemination of results & links to later stages of the evaluation ...... 49 Bibliography ...... 51 Annex A Terms of reference ...... 52 Annex B Case Studies ...... 62 Case Study 1– Cholamandalam Investment and Finance Company Limited (Cholamandalam) ..... 62 Case Study 2- Darbhanga Motihari Transmission Company Limited (DMTCL) ...... 75 Case Study 3– Clean Wind Power (Devgarh) Private Limited – a subsidiary of Hero Future Energies Private Limited ...... 89 Case Study 4 – SunSource Energy Private Limited ...... 101 Case Study 5– Mahendra Educational Private Limited ...... 112 Case Study 6– Crystal Logistic Cool Chain Private Limited ...... 126 Annex C Lists of participants of KIIs in all case studies ...... 140 Annex D Stakeholder communication and management ...... 142 Annex E Evaluation criteria and questions ...... 144 Annex F Evaluation Team Composition ...... 146

8 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

9 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

1 Context and Background 1.1 Introduction India will need about USD 4.5 trillion (GBP 3.5 trillion) in the next 25 years for infrastructure development, of which it will be able to garner about USD 3.9 trillion (GBP 3.04 trillion) according to the Economic Survey tabled in the Parliament in January 2019. The Global Infrastructure Outlook reflects that rising income levels and economic prosperity is likely to further drive demand for infrastructure investment in India over the next 25 years till 2040.

The Survey stressed the need to fill the infrastructure investment gap by financing from private investment, institutions dedicated for infrastructure financing like National Infrastructure Investment Bank (NIIB) and global institutions like Asian Infrastructure Investment Bank (AIIB) and New Development Bank (erstwhile BRICS Bank). While the progressive states would have the bandwidth to attract private investment, they would need to boost the inflow of private capital through additional technical and financial support specifically looking at improving business environment and project design and development.

Of the many measures adopted to help low income states in India, HMG and GoI have agreed to test the use of returnable capital to promote private investment into infrastructure projects that will reduce poverty in the eight low income states of India, involving partnerships with GoI-sponsored intermediaries. Poor infrastructure, particularly power and transport, is cited by domestic and international firms as the single largest barrier to doing business in India2.

DFID India has contracted IPE Global and M-CRIL to evaluate the performance of the Development Capital Investment (DCI) in India and to recommend measures to improve the performance, replicability, sustainability and pro- poorness of the investments made through the debt and equity partnerships currently under implementation in partnership with the domestic financial intermediaries. 1.2 Background Infrastructure shortage an obstacle to growth

India's ambition of sustaining its relatively high growth depends on one important factor: infrastructure. The country, however, is plagued with a weak infrastructure incapable of meeting the needs of a growing economy and growing population. S&P Global Ratings projects India's GDP to grow around 8% for the next three fiscal years, among the fastest in large, growing economies3.

Shortage of infrastructure: Poor infrastructure is among the biggest hurdles facing the Indian government's ambitious program, called "Make in India," which aims to improve the nation's manufacturing capabilities and support higher growth for generating employment. We believe corporate growth and investments can be hampered if the government fails to close the infrastructure deficit. This impact could be as high as 4-5% of GDP due to inefficiencies4. Infrastructure development can not only help remove some of these inefficiencies contributing immediately to economic expansion but also support stronger long-term growth. India's physical infrastructure also lags behind other emerging countries, including access to electricity, per capita consumption and access to public transport5. Infrastructure deficiency in India has affected its growth, particularly the low- income states and pro- poor infrastructure sectors/sub-sectors. Infrastructure spending: The recent trend and pattern of Indian infrastructure sector is characterised by high budgetary allocation for the sector, rising infrastructure deals, increasing private sector investment, improvement in logistics and rising FDI in the sector. In the Union Budget 2017-18, the government allocated a massive amount of US$ 61.92 billion for the sector6. The cumulative growth in the index of

2 https://www.pwc.com/gx/en/capital-projects-infrastructure/assets/gridlines-india-article-2013.pd. 3https://www.spglobal.com/en/research-insights/articles/The-Missing-Piece-In--Economic-Growth-Story-Robust- Infrastructure 4https://www.spglobal.com/en/research-insights/articles/The-Missing-Piece-In-Indias-Economic-Growth-Story-Robust- Infrastructure 5 The role of physical infrastructure in promoting economic development has been well-documented in the available literature (Estache 2006; Sahoo and Dash 2008, 2009). 6 https://thewire.in/economy/budgeted-infrastructure-investment-job-growth

10 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio eight core industries was 4.7 per cent in 2017-18 and 5.1 per cent year-on-year in April-November 2018. As of April 2018, 56 new airports are expected to become functional in the country over the next few years. In the road’s sector, the government’s policy to increase private sector participation has proved to be a boon for the infrastructure industry with a large number of private players entering the business through the public-private partnership (PPP) model. India is expected to become the third largest construction market globally by 2022. Role of private sector: Increased impetus to develop infrastructure in the country is attracting both domestic and international players. Private sector is emerging as a key player across various infrastructure segments, ranging from roads and communications to power and airports. In order to boost the construction of buildings in the country, the Government of India has decided to come up with a single window clearance facility to accord speedy approval of construction projects. In 2018, India was ranked 44th out of 167 countries in World Bank's Logistics Performance Index (LPI) 2018. India was also ranked second in the 2018 Agility Emerging Markets Logistics Index. Infrastructure investment in India – present and potential7 India requires GBP 550 billion of investment in infrastructure by 2022 for sustainable development. In addition to the Government of India taking every possible step to boost the infrastructure sector, there is significant interest from international investors in infrastructure in India. The UK has remained in the forefront to promote private investment and help GoI mobilise foreign capital in various infrastructure and has been an integral part of the National Investment and Infrastructure Fund (NIIF) with a total investment of GBP 120 million into the Green Growth and Equity Fund (GGEF). GGEF aims to mobilise an additional GBP500 million from international institutional investors8. In order to boost investments in the infrastructure sector, GoI has initiated quite a few measures including an announcement of GBP 156 million investment into the National Investment & Infrastructure Fund (NIIF) by the AIIB9. Significant increase has been registered in investments by the Private equity and venture capital (PE/VC) in the infrastructure sector which GBP 2.58 billion with 25 deals10 . Indian infrastructure sector witnessed 91 M&A deals worth GBP 4.22 billion in 201711 and The Government of India signed a loan agreement worth GBP 269.53 million with the New Development Bank for the Rajasthan Water Sector Restructuring Project for desert areas12. National Investment and Infrastructure Fund (NIIF) partnered with UAE-based DP World to create a platform that will mobilise investments worth GBP 2.34 billion into ports, terminals, transportation, and logistics businesses in India13. DFID initiative in 2013 to support private investments in infrastructure was immediately followed by a change in Government in 2014. The new government was serious in pumping public resources for infrastructure development14 while improving the business environment in the country to attract long- term domestic and international private capital. For global pension funds, large private equity (PE) players and patient capital investors with buckets of cash and a willingness to stay for the long haul, the Indian infrastructure sector had then begun to look like a smart option. The key underlying strengths making India one of the most attractive investment destinations globally are (a) its strong growth prospects in the near and medium-term, (b) sustained productivity-enhancing reforms undertaken since 2014 and (c) a strong demand-side push to growth imparted by the FY19 Budget of the Central Government.

Since 2013, private equity investments have shown an increasing trend except for the year 2016. 2017 was a record year for PE/VC investments in India, recording an all-time high of US$26.5 billion. In value terms, investments rose by 63% in 2017 compared to 2016, while the number of deals remained at similar levels (595 deals in 2017 vs. 588 deals in 2016). Investments surpassed the previous record set in 2015 by 35%. This rise in value terms was despite a 22% drop in the number of deals compared to

7 https://www.ibef.org/industry/infrastructure-sector-india.aspx 8 https://niifindia.in/niif-announces-gbp-120-million-commitment-to-the-green-growth-equity-fund/ 9https://www.aiib.org/en/news-events/news/2018/20180625_001.html;https://niifindia.in/aiib-investment-to-attract-private- capital-help-indian-infrastructure-development/ 10https://www.ey.com/Publication/vwLUAssets/ey-pe-vc-agenda-india-trend-book-2018/$File/ey-pe-vc-agenda-india-trend-book- 2018.pdf 11 https://www.ibef.org/archives/industry/infrastructure-reports/indian-infrastructure-industry-analysis-december-2018 12 https://www.ndb.int/rajasthan-water-india/ 13https://www.dpworld.com/en/media/media-centre/DP-World-and-NIIF-win-concession-to-build-Free-Trade-Warehousing- Zone-at-JNPT-Mumbai-for-$78m 14 The share of private investments in infrastructure increased from 56% of total investments in 2014 to over 63% in 2016 and eventually to almost 66% by early 2018. Economic Surveys (various years)

11 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

2015 (595 deals in 2017 vs. 767 deals in 2015)15. The period from 2013 to 2018 registered almost 3 times higher compound annual growth of private equity investments in India. Some of the other factors that have contributed towards the success of PE investments in India are- (1) growing interest in Indian market; (2) looking at PE as a dependable source of capital and not just a last- resort source of capital; (3) further deepening of PE investors’ capital into their investee companies; and (4) strong “exits” track record. Innovative financing for infrastructure development In India, states like Tamil Nadu, Maharashtra, Gujarat, Andhra Pradesh, Telangana and Karnataka have succeeded in attracting private investments, whereas, the eight low-income states have lagged. Lack of capacity of institutions in designing of viable projects and perceived high level of risk of delays in administrative approvals due to the poor business environment have resulted in low level of private investments in infrastructure costing the economy of its growth. Due to lack of capacity of the government to enhance public investments in infrastructure, there is a need for innovative financing to support these high-risk areas. Off late, there have been international agencies, that have aimed to address the infrastructure gaps in these low-income states, though, the focus has been limited. In the context of the present and potential infrastructure related investments in India referenced above, while the progressive states have succeeded in attracting private investments in infrastructure, the eight poorest states have lagged far behind. Investments in these states have lagged, due to the lack of capacity to implement reforms to attract private investment and existing lacunae in governance, structural and institutional aspects. This has resulted in a downward with respect to social development and economic growth. Due to lack of traditional sources of infrastructure financing, there is a need for innovative approaches to support these high-risk areas. In recent years, some of the poorer states have begun showing higher growth rates driven by large scale public investments in infrastructure. The share of PPP projects in these lagging states has reached to 31% in 2018 in terms of number of projects and to almost 19% in terms of value of projects in the same period. There are international agencies such as the International Finance Corporation (IFC), the German banks (DEG, KfW) and UK’s CDC Group Plc (CDC), Japan International Cooperation Agency (JICA), the Private Infrastructure Development Group through its multiple arms- InfraCo , InfraCo , GurantCo DevCo and other Development Finance Institutions (DFIs) aiming to address infrastructure gaps through private investment. However, these investments have remained limited in the low- income states16, or particularly on pro-poor infrastructure sectors. DFID India’s approach of providing development capital investments through debt and equity instruments resemble DFID’s Global mechanism through PIDG to support infrastructure project development in low- income states which is, an innovative approach aimed at achieving both development and commercial impact. DFID’s Development Capital Investment (DCI) To address the need in India’s infrastructure, particularly in the low income states (LIS), DFID India’s Infrastructure Sector Programme, has a range of partners, using a mix of instruments (equity and loans) as returnable capital aimed at promoting private investment in infrastructure in the eight low income states (for which, the Business Case was approved by the UK Secretary of State for International Development in June 2012). The detailed consideration and deliberation of potential partnerships and available resources led to the designing of two separate initiatives for debt and equity instruments. The programme was planned to be implemented for over a decade starting from 2013, though all investments have been completed in 2018. The Infrastructure Debt Fund Programme (IDFP) was developed with IDFC Ltd (now IDFC Bank) using a £36 million returnable capital component via IDFC Bank Limited as a financial intermediary, and a £2 million technical assistance for improved systems of project appraisal, ESG assessment and monitoring.17 For the equity partnership, DFID India identified SBICAP Ventures Ltd. (SVL), a wholly owned subsidiary of a leading investment advisory firm, SBI Capital Markets Limited as the Fund Manager. The Infrastructure Equity Fund Programme (IEFP) is an intervention using £36 million of DFID

15 PE/ VC Agenda- India Trend Book 2018 (Ernst & Young) 16 Madhya Pradesh, Rajasthan, Bihar, West Bengal, Chhattisgarh, Uttar Pradesh, Jharkhand and Odisha 17 TA of £1.5 million to provide expertise that helps improve the design of infrastructure projects; improve the quality of environmental, social and governance standards on investments; conduct monitoring and evaluations that generate knowledge about what works best and attract other investors into the eight low income states

12 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio capital contribution to establish an equity fund of £55 million18 (including sponsor contribution) managed by SBICAP Ventures Ltd. as a financial intermediary, and a £1.5 million technical assistance fund attached for improved systems of project appraisal, ESG assessment and monitoring. DFID-India had proposed an Infrastructure Sector Programme, partnering with a range of partners, using a mix of instruments (returnable capital), i.e. equity and loans and technical assistance, to promote private investment in infrastructure in the eight low income states. The objective was three- fold- (i) to help states improve the business environment through policy, regulatory and institutional reforms, (ii) to help states build the capacity of institutions to design and develop viable infrastructure projects capable of attracting private investments and (iii) widely disseminate lessons learnt from individual projects in terms of the efficacy and efficiency of similar projects in LIS. The detailed consideration and deliberation of potential partnerships and available resources led to designing of two separate initiatives for debt and equity instruments. 1.3 Evaluation of DCI This evaluation of the DCI (Debt and Equity Fund Programmes) of the DFID India’s private sector infrastructure portfolio is being carried out with focus on how development capital investments in LIS are capable of ensuring the double bottom line objectives- commercial and developmental outcomes of the projects initiated in multiple sectors in these states. This evaluation study of the DCI investment in infrastructure funds is expected to generate specific evidence on the impact of the programme on the participating households, particularly in terms of what works for poor households, and poor women; the delivery of appropriate products and services; and the overall policy environment in the poorest states in India while not neglecting and ensuring a decent commercial return from these investments. The study will explore the reasonableness of the expectation that strengthening infrastructure investments in low income states is a good route to attract additional investments targeted at providing services as well as employment for the poor, women and marginal groups. Since both data availability on infrastructure investments in the LIS and the attribution to the infrastructure funds of capital flows to these states will be challenging, this part of the evaluation will necessarily be indicative rather than definitive. Purpose of this evaluation is focused on learning from an innovative19 market-led infrastructure financing mechanism in LISs besides ensuring accountability in terms of optimising development outcomes. Scope and Objective This baseline report captures the impact created, viz., assessment of commercial and development outcomes, on account of DFID India’s investment through equity and debt partnerships. The objective is to assess the impact of DCI investment in improvement of infrastructure services, accessibility and affordability to products, enhancement in income of pro-poor, marginalized and women, leveraging better access to capital, creating socio-economic value to the poor, influencing investor interest, etc. 2 Methodology 2.1 Key approaches Key considerations The ToR envisage an evaluation design that is rigorous and uses internationally recognised methods for ensuring statistical validity and reliability of the methodology whilst being practical, cost effective, realistic and doable within the given programme timeframe and resources. Since there has not so far been enough research on the impact of development capital investments for there to be an internationally recognised method of evaluation20, the evaluation was disproportionately using the mixed methods for this evaluation. Given expected data and attribution challenges, some of the findings, particularly on the state and fund level impacts, will necessarily be indicative rather than definitive and will be significantly dependent on secondary sources.

18 exchange rate of 1 GBP = INR 91 19 Infrastructure in LIS in India is largely public funded. These 8 low income states account for a meager less than 14% percent of the total number of PPPs in India. DCI is an innovative approach for these states. 20 DFID had earlier conducted evaluation of the Technical Assistance Facility (TAF) and Infrastructure Development Collaborative Partnership Fund (DevCo) of the Private Infrastructure Development Group (PIDG)

13 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

In November 2018, PIDG has developed some basic principles of impact measurement. When selecting projects and questions for evaluation, PIDG draws on the CART21 Principles put forward by the Innovations for Poverty Action (IPA) network. PIDG reviews the development impact case for all new projects during due diligence. Projects must have a clear impact case in line with PIDG objectives in order to receive investment. 2.2 Evaluation Design Our evaluation design is informed by a theory-based approach to evaluation. The evaluation started by identifying evaluable linkages (indicators and assumptions) in the causal chain between inputs and results, following which it looked to test the outputs, outcomes and impact of the programme. Though some of the indicators are at an early stage as far as a baseline is considered. The Evaluation Team will further substantiate those in the mid- line stage. As indicated in the ToR, the evaluation design mirrors the high-level evaluation questions which attempts to capture the working of the programme at various levels and then covers the issue of whether DFID’s funds were well spent (value for money). A preliminary attempt was made at the baseline stage to appropriately map the evaluation questions against the five DAC criteria- economy, efficiency, effectiveness, relevance and sustainability. These findings will be further substantiated and validated during the mid- term evaluation. All-encompassing, the contours of this complex evaluation exercise will be defined by the following:

Theory based Approach: As mentioned above. The aim is to go beyond a “black box” method which not just establishes the presence (and magnitude) of impact on outcome variables but also provide interpretation – “how” and “why” impacts are (or are not) observed. The entire gamut of stakeholders (fund managers, investees, other investors, policymakers) necessitated that the approach towards this assignment has remained participatory in nature.

Multi-level Evaluation: Broadly, the high-level questions have guided the design and implementation of the proposed evaluation. Evaluation tiers comprises of – (i) impact of the intervention on wider policy and regulatory climate for private investments in infrastructure in the targeted geographies; (ii) assess the impact on the community and household level; (iii) assess the feasibility of the instruments – debt and equity – used to finance infrastructure projects in LIS; (iv) assessing impact of DFID intervention in building investors’ interest; and (v) examining the program’s approach to and achievements of Value for Money (VfM). We set out to test the hypothesis that DFID DCI creates additional impact by (1) leveraging additional finance; (2) influencing project design and policy context so that development impacts are greater than they would otherwise have been; and (3) creating a positive demonstration effect so that the private investors undertake similar projects without the need for DFID DCI participation22.

Development Assistance Committee (DAC) criteria: We have adhered to the OECD-DAC Quality Standards for Development Evaluation in finalising the evaluation design. Though the evaluation design has been guided by high level questions or evaluation levels but simultaneously each of the evaluation questions were mapped under respective DAC criteria of relevance, effectiveness, efficiency, economy and sustainability.

Case study-based approach: We have adopted case study-based approach to this evaluation. Based on our experience and as evident from available documents, each of the project/investee is a unique case. As a result, each of the sample projects/investee companies have been approached differently though within the overall evaluation framework.

The case study-based approach has in effect provided us with several smaller studies, each based on the specific context and characteristics of the project in question. This approach has been advantageous to use different methodologies including qualitative ones depending on the nature of the project and answer the questions relevant for specific sectors. The potential drawback of these specific case studies would be that it makes it difficult to build a clear narrative on the impact of Development Capital Investment Interventions (or IEFP/IDFP) and answer the wider questions of what the programme resulted in as a whole- particularly linear attribution of the development capital

21 Credible, Actionable, Responsible, Transportable (CART): https://www.pidg.org/wp-content/uploads/2019/01/PIDG-2018- Impact-Learning-from-Evaluations_FINAL.pdf; 22 Development Finance Institutions & Infrastructure: A Systematic Review of Evidence for Development Additionality (2012): Stephens Spratt & Lily Ryan Collins; IDS & PIDG

14 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio investments towards improving the business environment or for that matter project design capacity in these states. The evaluation has to the extent possible, tried to overcome this by tracking a common set of core indicators in each project and using monetary outcomes as far as possible to measure impact, to ensure comparability and to help build a portfolio/fund level narrative. The Evaluation Team adopted inbuilt mechanisms (i.e. commonalities in the data collection methods/tools and stakeholders’ analysis) in order to draw common inferences.

Sampling approach: The evaluation has used convenient, purposive and random sampling, each of these techniques applied in different organisations under study, according to need, in the six case studies. o The respondents for the various focus group discussions (FGDs) – the main instrument through which the household level information was collected – were gathered using these techniques. o The study team started with purposive identification of the district or other geographical region where the collection of baseline data was to be undertaken. o For each of the case studies, the initial discussions at the respective head offices pointed the team in the direction of the key persons in the respective field operations of the companies being evaluated. o Further discussions with these key persons in the field helped the Evaluation Team get an idea of the overall sample set. From that sample set, depending on the organisation under study, groups of respondents were randomly gathered for FGDs. o In addition, in some places, snowball sampling was used where respondent identification was either difficult, or the respondents were sparsely located. In these cases, the initial key persons identified either through the organisation under study, or through other key informant interviews were requested for other groups of persons who were relevant to the study, one set of respondents leading to the other, hence the term snowball sampling. o Mostly purposive area identification followed by random sampling were used at different stages, but in some locations, where availability of respondents was a problem, or access to locations of respondents was difficult (such as in forest areas of Chhattisgarh state or coastal areas of West Bengal), convenient sampling was used to select, respondents for FGDs.

Mixed methods: A mixed methods approach is adopted to address the evaluation questions. At each level of the programme, the evaluation design incorporates a composite methodology that draws on both quantitative and qualitative tools. It is well established that evaluation of this nature must be addressed by method-mix approach as there is an entire gamut of stakeholders engaged with different roles and responsibilities that needs to be captured. In fact, the type of quantitative and qualitative methods (including household surveys, KIIs, FGDs, case study etc.) adopted may not remain the same for the baseline and mid-term evaluation. Evaluation questions as a source for survey instruments: The questions in the Evaluation Matrix, which can be seen in Annex E, were used as the basis for the survey instruments (KII questionnaires, FGD check lists) for each of the organisations under study in the project. Here, the evaluation questions under the criterion of effectiveness were used to put together the questions asked in KIIs and FGDs. These included: o To what extent have investments/projects resulted in improvement in quality of life - improved access to services, creation of jobs and increase in disposable income? Note: This aspect to be assessed under two broad criteria: ▪ Additionality - Number of additional employment opportunities created/additional income created as a result of DFID investment and leveraging ▪ Equity - Number of poor and marginalised women/people/households getting jobs/ services/increase in income as a result of DFID investments (gender and social exclusion lens) o Has access to services and reduction in cost resulted in addressing vulnerability?

No control/comparison groups: Since a case study approach has been taken, and more than 50% of investee/borrower organisations (7 out of 13 are being covered, there are no control or comparison groups in this study. If in the process of the survey, any comparison groups came across, information was recorded from them, to study the contrast. For instance, in the case of the DMTCL case study, the study team came across villages where electricity had either not reached, or was cut off for

15 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

significant periods of time, after those villages had been electrified. In such villages, information was collected about the issues and problems faced due to the lack of electricity. Coverage of such villages has enabled a contemporary comparison at the time of the baseline study and will also enable an inter-temporal comparison at the midline and endline stages whether or not electricity supply has improved there.

Adaptive approach: These long-term new generation DCI programmes are associated with its own set of challenges and risks. Due to its uniqueness there is not enough evidence available for guiding the design/methods of evaluation. The report thus follows the tiered evaluation structure comprising of institutional level analysis, financial analysis, and household level analysis among others. It is largely based on the case study approach as each of the investee is unique and different from the other.

Ensuring data integrity: The key informant interviews in the head offices were conducted jointly by the IPE Global and M-CRIL teams, and the interviewers comprised usually the senior-most persons from the two organisations in the Evaluation Team. For field data collection, the Research Manager either himself was part of the field data collection team, or was on monitoring calls with the field researchers on a daily basis, sometimes 2-3 times a day, based on the need, and the complexity of data collection in the field. This was done to maximise the quality of data collected. To give one instance, the field research team informed the Research Manager during one monitoring call on the data collection in Rajasthan for Clean Wind Power Devgarh, that the initial respondents they had met were giving a very negative picture of the effect of this sample investee’s operations giving the impression that there were serious issues with its community level impact. The field team was advised to widen the geographical coverage of the sample and get data from a larger set of respondents; the resulting feedback from a wider set of FGDs enabled a much more balanced picture to emerge.

Assumptions for generalisation: Care has been taken to ensure that conclusions can be drawn for the full population under study. Sampling was designed to ensure that all significant sub-categories of the target population were being covered. For instance, in the Mahendra Educational case study, in addition to speaking to general groups of students, the Evaluation Team ensured that the sample included disabled students, those coming from women headed households, as well as from families with other types of vulnerabilities. This attention to differences in types of respondents has contributed to the Evaluation Team’s confidence that the results of the study widened to cover the full population of the investees’ target groups.

Realist Evaluation Approach23- The realist evaluation approach was assessed and felt that data required would need to be more detailed and robust to meaningfully draw conclusions from this approach. It was difficult for each of the investment to develop the link: context- mechanism-outcome pattern- configuration (CMOCs). The sub- sectors are very diverse, and the investments have been done in specific context of business environment, regulation, policy framework and priorities. It was difficult to empirically test the -

✓ Null Hypothesis: DFID DCI has had no impact on the overall private infrastructure investments in low- income states; against the

✓ Alternative Hypothesis: DFID DCI has had significant impact on the overall private infrastructure investments in the low- income states. And conclude that the realist evaluation could have developed and test the CMOC empirically. Due to the very specific nature of each of the investments, the sub- sectors and the context in which they operate, particularly, the scale, it was difficult to conclude if the small investment could have triggered a larger configuration of factors that would have helped sustain such an initiative. The specific context of corporate governance of PE investments, state private investment regulation, state investment climate, demand for the product, market size etc. in which the investments have succeeded leaves less room to generalise the conclusion that similar investments in these sub- sectors in these states will be successful. Similarly, the specific cases would have led to indirect development impact (improved quality of life, better health care an education facilities etc) which would come with

23 Realist Evaluation (2004): Ray Pawson & Nick Tilley

16 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio the increase in job opportunities and hence level of disposable income. However, generalisation of this conclusion is difficult due to the small scale of these investments. The Infrastructure Debt Fund Program / Infrastructure Equity Fund Program has been designed in such a way that the DFID investments are routed through a GOI promoted private sector financial intermediary. It is therefore, challenging to evaluate the direct impact of DFID investments- more so to attribute the results/ impacts directly to the DFID component of investments, such as, impact on profitability, cash flows, operational management, expansion in user profile, and impact on household levels, etc. Similar challenges are faced to arrive at conclusions in terms of sustainability, replicability and scaling up of such initiatives in the context of the LISs. Though DFID contributes nearly 68% of Neev Fund capital, and the remaining 32% belongs to the SBI Group & SIDBI, attribution could still be a challenge, especially in the case of investee companies that also have other sources of funds. While attribution has been a challenge our methodology has specifically looked at contribution of DFID investments and technical assistance to improve the overall business environment of the LIS. Some of these were assessed through discussions with the management of investee companies and focused group discussions (FGDs’) at the household level. The conclusions pertaining to financial and institutional level impact have been derived at the company level instead of project level due to lack of detailed project level information. From the list of all the investees- a total of 12, details given below who have been supported through the DCI fund, a sample of six investees has been selected for the purpose of evaluation which is 50% of the sample size and a representative sample of the whole population of investments, 3 each from the debt and equity partnerships.24.

Investees / HQ location Sector Amount invested (₹ cr)

United Sustainable Energy India Private Limited Renewable power – Wind 50 [Second investment in Q3 2017/18] HQ Location: Bengaluru Renewable power – Solar 15 Project Location: Madhya Pradesh Milk Mantra Dairy Private Limited Agricultural supply chain – HQ Location: Bhubaneshwar 35 Dairy Project Location: Odisha Crystal Logistic (Cool Chain) Limited HQ Location: Kolkata Agricultural supply chain – 50 Project Location: West Bengal (pan-India logistics Cold Chain presence) SunSource Energy Private Ltd HQ Location: Noida Renewable power – Solar 42 Project Location: West Bengal, Madhya Pradesh, Uttar Pradesh, Rajasthan Mahendra Education Private Limited HQ Location: Lucknow Skill development and 50 Project Location: Uttar Pradesh, Madhya Pradesh, rest of education India Leap India Developing and operating HQ Location: Mumbai grain silos on FCI mandate Project Location: Coimbatore, Tamil Nadu 50 DEBT investments – undertaken by IDFC Bank Clean Wind Power (Devgarh) Private Limited (Sponsors: Hero Future Energies Pvt Limited) Renewable power – Wind 38 HQ Location: Project Location: Devgarh, Rajasthan Cholamandalam Investments and Finance Company Limited Agri implements & rural HQ Location: Chennai 100 vehicles Project Location: UP, MP, Bihar, Odisha, Rajasthan Chhattisgarh, West Bengal, Jharkhand Parag Milk Foods Ltd – Vendor Finance HQ Location: Pune Dairy 20 Project Location: Maharashtra

24 This Report- the draft final Baseline Report captures all the 6 case studies of the total of 12 investments undertaken as a part of the Debt and Equity partnerships.

17 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Investees / HQ location Sector Amount invested (₹ cr)

Industrial Energy Ltd Kalinganagar Project – SPV of Tata Power (74%), Tata Steel Waste to energy 65 HQ Location: Mumbai Project Location: Odisha Mytrah Vayu (Tungabhadra) Private Limited (Sponsors: Mytrah Energy (India) Pvt. Ltd) Renewable power – Wind 50 HQ Location: Hyderabad Project Location: AP, Telangana, Karnataka Darbhanga Motihari Transmission Company Ltd (“DMTCL”) Power transmission 60 HQ Location: New Delhi Project Location: Bihar

Our overall evaluation approach combines our overarching evaluation framework with the theory of change. A baseline evaluation which has provided early constructive feedback of how the programmes (sample projects) have worked to date and establish a baseline (initial progress) for each of the selected investee; some of these projects have reached advanced stage of financial closure and it was difficult to get appropriate project level information. A mid-term evaluation which will measure progress towards outcomes and results (outputs) achieved by selected projects and the programmes. The evaluation fully meets DFID’s Ethics Principles for Evaluation and Research particularly in relation to ensuring strict evaluation independence and safe data handling. The evaluation utilised the OECD DAC quality standards for reporting and engaged in a robust review and QA procedure incorporated into our quality checklists. The report was produced by independent evaluators who were not presented with any conflicts of interest during the production of the report. In addition, the report was produced with no interference or undue influence on the evaluators in the making of conclusions and recommendations. Prior to the finalisation of the report, DFID and implementing partners were given the opportunity to review an early draft and provided feedback and comments that resulted in revisions where the evaluators agreed with the points raised. In undertaking the baseline case studies, data protection for investees was ensured by not incorporating any information that is not already in the public domain (accessible from investees’ own or from the websites of regulatory agencies such as financial data from the Registrar of Companies). Information from vulnerable sections of the community was obtained exclusively in a collective mode through focus group discussions so that neither opinions nor earnings data is attributable to any individual. Participation in these focus group discussions was entirely voluntary and the reasons for requesting such discussions and the potential effects of information gathering and analysis of feedback from these discussions was fully explained to the participants before starting each discussion. The Consortium has signed a “non- disclosure” agreement with DFID to ensure that no information is shared beyond the direct stakeholders of this evaluation and the consortium adhered to this principle.

18 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Theory of Change

Input Activities Enablers/Facilitators Risks/Challenges Output Outcome

Undertaking literature review Policy reforms at the Evaluation Team: of program documents- Key findings from national level Context risks business cases, ARs, MYRs, the secondary level triggering PE (sector risks, Team Leader any other relevant document data on trend and investments in lndia business pattern of private M&E expert Undertake secondary level environment risk; investment in infra data collection on private Regulatory reforms at understanding Private Sector and PE investments in infra, PE the state level to language for data Investment Expert investments and its investments’ policy regulation attract private collection), Baseline Report Finance and Risk in India etc. investments in infra sectoral Analysis Expert Evaluation risks composition. Stakeholder (investee Initiatives towards (robustness of Baseline findings Research Manager companies, DFID, etc.) improving the analytical Mid-line report from investees’ Consultation through KIIs/ business environment framework; case studies Research Assistant FGDs in the states availability and consistency/quality Survey Team Investee Level Case Studies Sector specific policy Case Studies’ reforms to promote of monitoring data; specific findings on Program Coordinator including: investment in buy-in to evaluation; institutions, • Understand their OD/HR renewables, operational; primary development function/ institutional agriculture and dairy data quality; impacts and commercial returns structure logistics infrastructure Difficulty in the to investments in • Understand their sectoral generalisation of terms of scalability presence findings and sustainability • Understand their finances • Understand their business and operations • Understand their

Assumptions • Investments /lending process will have been completed before the start of the baseline evaluation. • DFID India's ESG Guidelines are ready and adopted by Partner and the investee(s). • Data pertaining to the evaluation will be available with Fund Managers and Investees. • Case Studies of Investees are specific and not a representative sample as they belong to different sectors, so the findings can’t be generalised.

19 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

2.3 Evaluation framework The evaluation questions are structured according to the OECD-DAC evaluation criteria of Relevance, Efficiency, Effectiveness, Impact and Sustainability. The evaluation team has made an attempt to answer the evaluation questions on the basis of these criteria as far as possible in the baseline assessment stage. These will be further substantiated during the midline evaluation.

Given the scope and objectives of the evaluation, a theory-based evaluation approach was used to assess whether the expected results have occurred, how they occurred and why they did not. The program Theory of Change as conceptualized was the key reference point for this evaluation. The evaluation mostly focused on contribution analysis and process tracing using mixed methods. We have attempted to use the theory-based approach to assess the specific steps or causal inference and the related outcome or output validated by empirical evidence. During the evaluation, we have also attempted to identify and assess any significant influencing factors or activities (i.e. contextual factors) that have played a role in the causal chain and thus affect the contribution claim.

The evaluation triangulated data from all sources and methods to enrich findings. Triangulation also helped in both internal and external validation of data and information and allowed capturing appropriate diversity of voices and opinions. The desk review was conducted based on the available program data and secondary data and literature. We have used systematic reviews for finding published and unpublished data and evidence which are unbiased, transparent and reproducible. For data analysis, based on the evaluation questions we identified thematic/ specific areas and the KII responses were coded according to the thematic areas. Meta- analysis of the data and information has been carried out for findings and recommendations.

A set of high-level evaluation questions were developed along with the OECD-DAC criteria including VfM. The below mentioned evaluation questions (EQs) emerge from the ToC. The questions here are slightly reinterpreted and re-phrased to create a logical flow for the evaluation. These questions have formed the basis for our evaluation and the data collection modalities are captured below-

EQ1: Investee level: What is the impact on the developers/investees, the fund managers and their institutions, co-financers and the overall sector markets (e.g. risk of crowding out, do no harm)?

Evaluation Questions (EQ1)

EQ1 (a): Did the Funds help the projects expand or deepen outreach to the poor, vulnerable groups and women?

EQ1(b): Did the investments help the projects/investee companies gain better access to capital, improve cash flows and become more profitable/ sustainable? (Commercial outcome of the DCI projects)

EQ1(c): What help did the investments bring to the developers (i.e. build scale, survive or sustain value of debt) in order to cope with issues in the low income states?

EQ1 (d): What was the value addition to the project (in terms of governance, management of operations & prudential financial management)?

EQ2: Household/community level (development impact): Has there been any impact in terms of access to services and infrastructure asset creation. What is the impact in terms of people, jobs and capital leveraged? In which sectors does investment lead to the greatest development impact?)

Evaluation Questions (EQ2)

EQ2: How are the facilities and services of the Fund’s investees creating socio-economic value for low income people, particularly women and socially excluded groups? a. Are the funded projects or services/jobs created by these resulting in increased disposable income or assets for low income people? b. Are the services leading to a reduction of costs and vulnerability faced by the targeted population?

20 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

c. Is there an improvement (direct or indirect) in the quality of lives of the poor – for example in terms of food security, sanitation, access to health care, reduction in drudgery – resulting from externalities/ public goods effects? d. Are there any unintended outcomes – positive or negative?

EQ3: Investment (fund) level (instruments and incentives): Does the choice of instrument – debt, structured or equity affect the level of partnership with developers/investees, the level of profit or the development impact?

Evaluation Questions (EQ3)

Does the choice of instrument – debt or equity – affect the level of partnership with developers/investees, the level of profit or the development impact?

EQ4: Investor (Outcome/impact) level: Do DFID’s Development Capital Investments influence investor interest? If yes, how? And if not, why not?

Evaluation Questions (EQ4)

Do DFID’s Development Capital Investments influence investor interest? If yes, how? And if not, why not? Note: This is an impact level question! But listed as outcome level in ToR. The assessment for this during mid-term will be done to the extent possible. Detailed list of evaluation questions along with criteria has been attached in Annex D. 2.4 The establishment of the Evaluation questions At the time of the Inception Report, a table of Evaluation Questions, based on the Terms of Reference had been created and shared. The evaluation questions in Section E were the ones framed at the time of the inception report. From that point, till the field survey, the methodology was further refined, which resulted in the questions on Page 16. All the questions in Section 2.3 above were not appropriate for every case study, as the situation from company to company varied. Accordingly, the list of questions used was revised according to the reality of each company, and the stakeholders there. The tools used for the FGDs and KIIs for each of the companies accordingly reflect the adapted set of questions from section 2.3. 2.5 Evaluation process An overview of evaluation is provided in Figure 1. The section on methodology is well aligned with the high-level evaluation questions given in the ToR. The methodology for doing the baseline and mid-term evaluation is detailed out for each of these evaluation questions/levels. Figure 1: Evaluation Overview

Overall, a brief description of evaluation methods is presented below:

21 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Desk review: The desk review of relevant documents has been undertaken during the initial period of the assignment as to provide crucial inputs mainly for refining ToC, revisiting approach and methodology including preparation of tools. Stakeholders’ discussions: This forms a key part of the evaluation as interaction with wide range of stakeholders is crucial for undertaking outcome level analysis besides feeding the relevant information into other evaluation tiers. The details pertaining to stakeholder communication have been mentioned in Annex C. Secondary data: Overall, for the different levels of evaluation, to ensure that there is no duplication and that the outputs are complementary, the evaluation has incorporated inputs and data from relevant sources; for example, inputs/data from the programme monitoring framework and annual reviews conducted by the DFID team, Environment, Social and Governance (ESG) assessments, metrics from the Impact Reporting and Investment Standards (IRIS), sectoral surveys including the India Impact Investment Report (IIIR) and Global Impact Investment Network (GIIN) Market Spotlight Report, report of the PRISM – Impact Fund Performance Measurement tool (if available), and any other reports. Primary data: The methods for conducting baseline and midterm includes qualitative (Focus Group Discussions, Key Informants’ Interviews) and quantitative (household survey). All primary data has been carefully triangulated through multiple FGDs as well as KIIs with well-informed local resource persons such as managers of similar operations, engineers engaged in construction, local shop keepers, employers of persons receiving training and village leaders around the locations of each of the investees covered in the sample.

2.6 Cross cutting issues The evaluation has also looked at cross-cutting issues of gender, poverty, environment, anti-corruption and capacity building. These have been addressed through appropriate questions asked at the time of focus group discussions and by close reading of the project documents of the investees/borrowers, to see if some or all of these are being addressed in the operational policies and their implementation. To illustrate, the following were included in the FGDs and KIIs for various investees/ borrowers: 1. Cholamandalam: Among your first-time borrowers, how many were from humble backgrounds? 2. DMTCL: How has the coming of electricity impacted the lives of women and those from weaker sections? 3. Hero: Percentage of women, persons from weaker sections among those benefitting from electricity supply. 4. SunSource: Number of women employed during the setting up of the project; Number of women employed in salaried jobs; 5. Mahendra Educational: Women headed, senior citizen headed; households with persons with disabilities, persons with serious ailments, war widows; 6. Crystal Logistic: Proportion of persons employed from poor and vulnerable backgrounds

Governance and institutional assessment of the investee companies has been useful in bringing about a new dimension towards project design and development in India in addition to assessing the social and environmental aspects. Discussions revealed that these have been useful in overall improvement of the corporate governance structure of the investee companies and improved mechanism towards due diligence of investments and reducing risks at the corporate level. DFID was the first mover in developing incorporating governance aspects in investment due diligence. In addition to the above, care was taken to respect the confidentiality of the information to be provided by stakeholders. Those participating in the FGDs and KIIs were informed that the information provided by them would be kept confidential. Only when they agreed to participate based on this information, did the FGDs and KIIs proceed. The fund managers have also been probed to understand how they address some/ most/ all of these issues in their commercial relationships with their clients. The contractual relationships between Fund Manager and DFID has also been looked at, without going into the commercial details, to understand how some of these issues have been addressed there. The evaluation team is aware that all the various cross-cutting issues do not, fully or even in part, apply in case of all the investees/borrowers, so the questions have been framed accordingly.

22 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

2.7 Limitations Overall, this is a highly challenging evaluation given the methodological complexity. A flexible model-based approach is seen to be the most feasible option given the complex operational environment (geographical spread, sectoral/ enterprise diversity) and the available resources. In addition, the evaluation has significantly been based on company level institutional and financial information in the absence of similar information at the project level. However, there are limitations and issues that the evaluation team has been dealing with and have been outlined in the table below: Table 1: Key evaluation limitations and mitigating actions

Issues How will issues be addressed? There are several confounding factors The evaluation focuses on outcomes which are directly including other programmes affecting linked to the enterprise service (increased income, outcomes. reduced costs) and can be directly compared with alternatives. The commercial approach needs to deal The self-selection of households in a commercially driven with the non-random allocation of intervention like this is inevitable. For this reason, the treatment(s) which creates evaluation team tried to understand the value, endogeneity25 through selection bias. households receive from the service. It is difficult to fully specify in a A mixed methods approach is being used to understand quantitative framework how the different local perspectives of different market segments and the interventions and products are viewed by way in which contextual factors impact on outcomes and the household, and what is driving the transmission mechanisms; feedback from non-users in impact. the same area/ cluster as early users as well as user drop-outs (attrition) provides valuable additional information on the value (or otherwise) of the service as seen by the community. The intensity, content and uniformity of This is one of the key drivers for using a flexible approach the implementation may well deviate which will be implemented in a phased manner over the from expected plans. intervention period, thereby exploiting the changing circumstances and success rates of businesses. The evaluation approach is hard to Importance of ensuring that short summary reports to key explain to non-specialists which could stakeholders focus on results; investment in the undermine the acceptance of the results evaluation literacy of key stakeholders. The approach is statistically valid, but the Holistic mixed methods approach to the evaluation interpretability can be limited. focuses on contextualization and interpretation. Relying on case studies results in the At the mid-line stage, an attempt will be made to obtain inability to identify under-performance of both sustainability performance and operational data those investees not covered by the across all investees to understand the incremental sample and incremental changes can be progress of the portfolio. This has been an onerous and missed. time-consuming task until now but with some persistence the challenge of convincing SBICaps and IDFC First about the confidentiality of investee/borrower data has been partly overcome. It should be less of a challenge as the evaluation progresses and the fund managers, develop confidence in the approach of the ET. Possible limits to availability of Continued engagement with both SBICaps and IDFC operational data due to position of fund First Bank, sharing of case studies and baseline reports manager SBICaps and/or borrower IDFC to demonstrate bona fide intent of the Evaluation Team, First Bank on confidentiality and to convince them that the Evaluation does not intend to breach confidentiality with respect to the performance of their investees/borrowers.

25 Despite all these are low-income states, the endogeneity arises due to the difference in the business environment to attract private investments as well as well as difference in the level of per capita income.

23 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Limitations of the method used: This evaluation makes use of a Case Study approach while assessing the investees in detail. This approach was chosen as the investees belonged to different sectors and were unique in nature. This has also turned out to be a key limitation as the dependency on a single case exploration makes it difficult to reach a generalised conclusion. The debt and equity fund investments have been made in sectors which are very diverse in nature like solar, dairy, education, cold storage etc. In this case, it becomes difficult to generalise the findings from one investee company to be applicable for the entire sector as this is not a representative sample. Other than this, the investments made also significantly vary in terms of their size of investments, geographic spread, physical infrastructure, capacity, following different state and sectoral regulations and policies etc. making it even more difficult to provide a generalised overview for the sector. Other Evaluability Concerns Data availability: The scope of this evaluation did not permit primary data collection of other impact investments/ social enterprises in the selected states. The analysis depends upon the quality and frequency of secondary data available and qualitative feedback from industry associations and other stakeholders. Attribution/Contribution: Even if the successful infrastructure funds’ investees inspire other enterprises in the same sector/state, the promoters of new enterprises may or may not acknowledge the contribution made by the DFID-funded enterprises.26 Due to this, we have significantly depended on secondary level proxy indicators to assess DFID’s contribution towards the success of private investments in infrastructure in LIS, which may or may not necessarily be a result of DFID’s DCI investments. The Evaluation Team directly assigns all results pertaining to the specific investments supported by DFID. However, it refrains from generalising these findings for other similar investments, in the same geography, sector or sub- sector. Also see Section 2.8 below for a discussion on contribution issues. Timeline: DFID recognises that social enterprise investments need time to identify, nurture and deliver on expected outcomes. Even though the programme has a longer time span and potential for further extension, inevitably there will be pressures to indicate (if not conclude) by mid-term whether indeed the approach is working and delivering greater development impact than would have been possible through traditional development funding. However, the Funds may have only some investments which have been working for 2 or more years by then and may not yet have reached their full potential. In any case, it is important to distinguish between timeline for the overall Funds as well as different timelines for each of the investments supported by the Funds. Resistance from Investees for data sharing: Financial information pertaining to the project under consideration was considered sensitive and there were apprehensions in sharing the information. Some of these issues were sorted out later during field visits. 2.8 Attribution/contribution issues Investments through this project, either in the form of equity or debt, have been in varied amounts for different companies. This sometimes presents challenges of attribution, especially in case of those companies where the investment through this project has been relatively low when compared to their own respective portfolio sizes, or when compared to the funds leveraged by the investee/borrower from elsewhere. Accordingly, one question that has been asked uniformly to all available leaders of the investee/borrower companies is: How crucial were the DFID funds for the organisation in its journey? The answers have ranged from an emphatic affirmation of the crucial importance of the investment or debt for the company, to a grudging acceptance. These responses have been mapped against the financial and operational growth of the organisation, to draw some conclusions about attribution of the outputs, outcomes and other growth to the inputs of the DCI Infra programme. In each of the case studies, a paragraph on attribution/contribution issues has been included, which can be revisited at the time of the midline study.

26 While attribution is not a problem for the equity investments, attribution is a challenge in the debt component as, DFID debt contribution is often a small proportion of the loans extended by the lender- IDFC as in the case of Cholamandalam Finance. Strict pro- rating of estimated benefits may not be logically sound.

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2.9 Work Plan Work Plan: Description of activities and deliverables The work plan for this three-year evaluation is divided into three phases: Phase I: Inception; Phase II: Baseline Evaluation; and Phase III: Mid-term Evaluation. Detailed explanation of the Gantt Chart (presented after this description) is provided in this section that comprises of a description of the phase- wise activities and deliverables for this three-year evaluation contract. Prior to this, we would like to highlight few areas/concerns which are relevant for understanding the proposed work plan. Concerns pertaining to evaluation timelines for two rounds: The timeline for Baseline and Mid- term has been estimated to be around 12 months or less.27 However, given the fact that the initiation and thereafter implementation of projects (or investments) has different timelines28, the baseline for each of the sample projects had to be planned accordingly. For instance, the preparatory activities and data collection for some of the projects (for which implementation were initiated in the second half of 2018 or towards end of 2018) and had spill over to last quarter of 2018 or in the first quarter of 2019. To conclude, the extended implementation due to nature of interventions has led to spread of data collection and related activities over a longer period than expected. In addition to this, the baseline aims to look at the market situation at the time of investment and not as on date. Hence, this will also lead some time lag between the baseline and midline. Pilot evaluation: Contrary to the requirement of the ToR, we felt that conducting a pilot evaluation for one project possibly may not prove beneficial due to the uniqueness of each of the project (or case studies). In lieu of this, the field testing of tools/rapid assessment was done for each of the sample projects. Our experience of implementing of ‘DFID’s Evaluation of Samridhi Fund’ and “Evaluation of DFID-TERI’s Clean Energy Programme’ had provided us with a solid understanding of ground level realities of evaluating different enterprise-based models. Baseline: Though this phase is termed as ‘baseline’ but it is important to note that this is not a typical baseline. The reason is that the data collection had taken place after implementation of interventions (or after investment is made). Phase I: Inception (1 month) Activities Kick-off meeting with DFID: After signing of the contract, the assignment was kicked off with meeting between core Evaluation Team (ET) and DFID, India. Broadly, the agenda for this meeting being to discuss the technical proposal with a focus on work plan and key methodological aspects. The ET took up with DFID team other areas where support is required, for instance: (i) Access to relevant documents, (ii) Introduction to Fund Managers and initiation of dialogue with them. DFID had provided introduction to the Fund Managers and subsequently to the investees through the Fund Managers. Initial discussion with Fund managers (IDFC and SBI CAP Ventures): The DFID, India introduced ET to Fund Managers. The initial discussion of ET with fund managers centred on the following: (i) Understanding of the overall fund, (ii) A brief about the on-going and planned projects along with their timelines, (iii) Feedback on the proposed implementation methodology, and (iv) Introduction of sample investees. Also, a checklist for relevant documents required was shared. Desk review: The desk review of relevant documents was a key task primarily undertaken during Inception Phase. The documents were categorised into following: (i) DFID, (ii) Fund managers, (iii) Investee company/Project specific, (iv) Similar programmes, and (v) Contextual understanding Mapping of stakeholders and institutional structure: This was one of the key tasks which was performed during the inception phase. Understanding of institutional structure at fund level and investee level was attempted, to enable its feeding into evaluation design (i.e. levels for data collection tools etc.). Besides, mapping of other stakeholders in the wider space were started, including i.e. government counterparts, other investors in selected investees, investors in development domain, donors/implementers managing similar interventions etc.

27 (i) The scope of the study is to complete baseline data analysis by end of year 1 (2018) followed by mid-term evaluation in year 3 (2020). Source: Page 4 of ToR. (ii) Indicative start date for Baseline Survey is early 2018 and for Mid-term Survey is early 2020. Source: Page 10 of ToR. 28 There is variation in the initiation of the projects which leads to some projects starting early and others taking-off late.

25 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Communication and dissemination strategy: To effectively communicate the learnings from this assignment, the communication and dissemination strategy was drafted as a part of the Inception Report. This was fine-tuned during the baseline stage as we progressed with our analysis. Deliverables Draft Inception Report: All the afore-mentioned activities culminated into Draft Inception Report comprising of - evaluation design and methodology (evaluation questions, data collection tools), work plan, risks and challenges with mitigation plan; quality assurance mechanism; feedback on funds’ monitoring plan; and communication and dissemination strategy. The draft Inception Report was submitted to DFID for review and quality assurance. Final Inception Report: The report was finalised in line with the feedback provided by the DFID.

Phase II: Baseline Evaluation (12-16 months) Activities Meeting with DFID and Fund Managers: At the commencement of Baseline Evaluation Phase, the meeting (or separate meetings) of ET with DFID and fund managers were held. The approved Inception Report provided the requisite basis for conducting baseline, yet this meeting was essential to the formal kick-off and exchange additional notes (if any) for value addition. Designing of tools: Based on documents’ review, stakeholders’ discussion and field visits (one or two locations), the data collection tools were prepared for each layer of the institutional structure at the Inception Phase. However, the tools for each of the sample projects (which have now been attached as a separate file) were finalized by conducting field testing or rapid assessment at this stage. As expected, the tools were not significantly different but were unique allowing to probe specific areas for each of the projects. Field based rapid assessment: Given the uniqueness of projects, we had not adopted pilot evaluation as we felt that it would not have add much value. Instead we had planned to conduct a rapid assessment or field testing of tools for understanding institutional structure and finalization of tools. The core ET had participated in this activity. The select members of ET had participated in this task as to ensure the appropriateness of data collection tools and methods. Primary data collection: The data collection phase was spread over longer period due to variation in the timeline for implementation of different sample projects. This task comprised of entire gamut of qualitative and quantitative data collection. Secondary data collection: This activity was conducted simultaneously with collection of primary data. The relevant documents/data that were identified at the inception phase were collected mainly from DFID, fund managers and investees. Besides, the state level information and relevant data from other investors will be gathered for conducting outcome level analysis. Compilation and analysis: Project-wise compilation and analysis was undertaken by the Evaluation Team and this task will be conducted in simultaneous manner. After completion of data collection exercise for each of the project, data compilation and analysis were conducted for each of the project. The programme level analysis will be conducted post completion of all the project case studies. Note: The timeline for preparatory activities, data collection, compilation and analysis are spread over longer period due to expected variation in the implementation timeline of the programme’s intervention (investments/projects). Deliverables Draft Baseline Report: After completing all 6 baseline case studies which was completed in early 2019, we drafted the overall baseline report summarising the findings of the sector/ institutional assessments (EQ1) and household surveys (EQ2) from the case studies and providing baseline/initial feedback on the investment and outcome levels (EQ3 & EQ4). The draft report will be submitted to DFID for QA. ▪ Learning: The focus of the baseline evaluation was to gather learning as to guide the future investments of similar genre. The learning from each of the projects was deduced and

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presented in the report. Where feasible, comparative assessment have been provided in order to cull out the barriers in private investment in high risk sectors and regions. Draft Final Baseline Evaluation Report: The draft final report will be revised as per feedback received from DFID. Phase III: Mid-term Evaluation (12-16 months) Activities Meeting with DFID and Fund managers: The Mid-term Evaluation Phase will commence with meeting with DFID. The objective of this meeting will be to revisit approach and methodology (if required) based on experience of baseline. Followed by this, meeting with fund managers is planned. The basic premise of these meetings will be to prepare a plan for mid-term evaluation in agreement with the fund managers. Rapid assessment of tools and data: A quick assessment of revised tools (in case of revisions are made) will be done for each layer of the sample projects. If not required, then this activity can be skipped as at this stage the ET is aware of the ground level scenario. Revisions in tools and submission to DFID for approval: Based on the feedback received from the field, the tools will be revised and submitted to DFID for feedback and approval. Data collection: Similar to baseline phase, it is expected that the data collection exercise will be spread over longer period as to bring consistency in the time period between baseline and mid- term for each of the project. Secondary data collection: Relevant data/documents for each of the projects/investees as well as fund level will be collected and compiled. Compilation and analysis: Like-wise in baseline, the project-wise compilation of data (primary and secondary) and analysis will be undertaken. After completion of data collection for all projects, the programme level analysis will be undertaken. Deliverables Draft Mid-term Evaluation Report: The draft Mid-term Evaluation report will comprise of all the areas/section as covered in the baseline. However, there will be more depth in findings with respect to outcomes and impact; sustainability and learning. The draft report will be submitted to DFID. Final Mid-term Evaluation Report: The report will be revised as per the feedback received after QA from DFID. The Final Mid-term Evaluation will be submitted to DFID to mark a closure of the evaluation. The Work plan is presented as a Gantt chart in the following page:

Deliverables

Activities

27 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio GANTT CHART

Phase-wise activities and deliverables 2017 2018 2019 2020 2021 M11 M12 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M1 M2 M3 M4 M5 M6 Phase I: Inception Kick-off meeting with DFID India (Economic Advisor; Representatives of Private 1 Sector Team) 2 Initial discussion with implementers - IDFC and SBICAPS 3 Desk review of relevant documents 4 Review of TOC 5 Political Economy Analysis 6 Communication and Dissemination Strategy 7 A&M; Tools 8 Field visit (1-2 project locations) for rapid assessment Deliverable: Draft Inception Report (comprising mainly A&M for pilot, baseline & 9 midline; Communication & dissemination strategy; risks a& challenges; workplan) 10 QA of Inception Report by DFID India 11 Deliverable: Final Inception Report Phase III: Baseline 1 Meeting with DFID for finalising contours of Baseline 2 Preparatory activity (i): Design tools 3 Preparatory activity (ii): Mobilisation of field team 4 Preparatory activity (iii): Field testing of tools 5 Preparatory activity (iv): Approval from DFID on revised tools 7 Data collection 8 Field visit to project locations by Core Evaluation Team 9 Secondary data collection and analysis 10 Data cleaning, compilation and tabulation/analytical tables 11 Project specific case studies (internal) 11 Deliverable: Draft Baseline Evaluation Report 12 QA of Baseline Evaluation Report by DFID India 13 Deliverable: Final Baseline Evaluation Report Phase IV: Mid-term Evaluation 1 Meeting with DFID for finalising contours of Mid-term 2 Preparatory activity (i): Design tools 3 Preparatory activity (ii): Mobilisation of field team 4 Preparatory activity (iii): Field testing of tools 5 Preparatory activity (iv): Approval from DFID on revised tools 7 Data collection 8 Field visit to project locations by Core Evaluation Team 9 Secondary data collection and analysis 10 Data cleaning, compilation and tabulation/analytical tables 11 Project specific case studies (internal) 11 Deliverable: Draft Mid-term Evaluation Report 12 QA of Mid-term Evaluation Report by DFID India 13 Deliverable: Final Mid-term Evaluation Report and Presentation

1 Deliverable: Six monthly Reports

28 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

2.10 Governance and Management arrangements IPE Global leads the evaluation and carries responsibility for successful delivery of the DCI evaluation. M-CRIL has been subcontracted by IPE. Oversight of the contract and overall corporate responsibility and accountability for its successful delivery rests with IPE Global (Director MEL acting as Project Director), working closely with the Managing Director of M-CRIL (also Team Leader for this assignment). The evaluation is being managed in a participatory and transparent manner, along with individual members of the evaluation team. Regular team meetings were held to ensure clear communication and shared objectives, and to enable any emerging issues to be addressed immediately.

IPE Global M-CRIL

Overall leadership and management of the DCIs' Lead on evaluation methodologies within the evaluation. Risk management and back stopping of DCI sector in particular and team leadership of the programme to ensure its smooth delivery. the evaluation as a whole. Lead on managing Responsible for managing the baseline and mid- and conducting field work, compilation and term evaluation strands within the team, drawing on analysis. technical expertise from across the team. Lead on international contexts and current literature on DCIs.

2.11 Risk management Risk management for the Evaluation contract We have developed a formal risk management strategy for the DCI evaluation which will be revisited every quarter throughout the programme. There are risks at the project and programme (fund) levels in implementing DCI, however our risk management strategy focuses on the evaluation of DCI. Our approach and methodology build on IPE Global’s existing risk management approach to all projects and programmes we are implementing and evaluating. Our system ensures risks are identified and managed at the right level and reported to the management team in a timely manner in accordance with a standardised procedure. Each risk is given a Red, Amber, Green (RAG) rating. We take steps to ensure that all risks have a clear risk response plan. The risk matrix at programme level will be reviewed regularly (we suggest every quarter). Where actions are needed earlier, discussions with relevant stakeholders (including DFID) will take place immediately to address any emerging risks and put mitigation plans in place. A preliminary register of risks and mitigation strategies has been prepared during Inception phase and will be revisited at regular intervals. 2.12 Instruments/Tools Comprehensive desk review of literature was undertaken to understand the wider sectoral implications of the private equity market development in Indian context and how has DFID DCI contributed to it. Discussions and consultation were organised with all the relevant stakeholders (list of stakeholders attached in the Annex C) to understand which sector has had the maximum potential to attract private capital while having significant impact at the bottom of the pyramid. The tools/instruments were developed at the inception stage to undertake primary level data collection for the baseline evaluation. The tools are comprised of checklists and questionnaires which were used to gather information for the investee and the household level analysis. Separate questionnaires were developed for each of the investee companies looking at various aspects of the projects including commercial, operational, from beneficiary perspective etc. The detailed questionnaires prepared for the purpose of focussed group discussions and key informants’ interviews have been attached in a separate file.

29 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

3 Analysis, Key Findings and Conclusions Impact of DFID investments on/ from the following four perspectives:

1. Impact of the intervention on wider policy and regulatory climate for private investments in infrastructure in the targeted geographies; 2. Assess the impact on the community and household level; 3. Assess the feasibility of the instruments- debt and equity used to finance infrastructure projects in list; 4. Assessing impact of DFID intervention in building investors’ interest; and (v) examining the program’s approach to and achievements of Value for Money (VfM).

EQ1: Sector / Macro Level Impact: What is the impact on the developers / investees, the fund managers and their institutions, co-financiers and the overall sector markets (e.g. risk of crowding out, do no harm)?

Private Equity Investments- Sectoral Assessment The overall performance of the private investments in infrastructure has been reasonably good over the period from 2013 to 2018. Renewable energy including wind, hydro, waste to energy accounted for major share of DFID debt and equity investments from the NEEV and Debt Fund. Over 50% of DFID debt and equity investments under DCI was in renewable and related sectors. Moreover, almost 64% of the total debt investment was in energy including renewable energy infrastructure. It is difficult to develop a 1-2-1 correlation between DFID investments through DCI and overall private investments in these sectors in the low- income states. However, during 2013 and 2018, the private investments in renewable energy in the low-income states registered an annual average growth of over 30% and the share of low- income states in the total investments have gone up from 25% to over 32%.

However, the relative performance across the 8 low-income states vary significantly though has shown similar trends over the period of analysis. In 2018-19, over 48% of the total investments in renewable and related sectors that had gone to the low-income states, was in Rajasthan. Madhya Pradesh and Uttar Pradesh were the two other states accounting for another 30% of the share of total investments in these states. The shares of other states were negligible. On the other hand, the share of the 8 low income states in the total investments in storage, supply chain etc. has shown low variation across states. Rajasthan, Odisha, Bihar and West Bengal accounted for almost 78% of the total investments in this sector. These states in recent years have given focus on this sector with the objective of enhancing returns on agriculture investments.

Agriculture market infrastructure, Investments (million USD) in LIS & Share of logistics and supply chain is another LIS in Total Investments in India area where major investments were made from DCI, An analysis of 60,000.00 60.00% private investments in logistic 40,000.00 40.00% infrastructure in low income states from 2013-18 shows an increase in 20,000.00 20.00% the share of low income states from 0.00 0.00% 22% to almost 25%, registering an 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 annual average growth rate of over 12%. Policies towards providing Investment in Storage, Logistics etc. market infrastructure near the sites of production to promote enhanced Investment in Renewable Energy returns to agri-investments in low Share of LIS (Storage, Logistics etc.) income states have triggered the higher growth and investments in Share of LIS (Renewable Energy) logistic infrastructure.

The two other sectors, Dairy and Education, where DFDI DCI has made investments; the share of low- income states in total investments between 2013-2018 went up from 10% to 21% for Dairy sector, while, it decreased marginally for Education sector (Break-up for skill related projects were not available), from 37% to 34%. The annual average growth rate during this period registered by these two sectors are

30 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

22% and 7%, respectively. In case of Dairy sector, Odisha registered the maximum gain, in terms of share among all low-income states, while, in case of education sector, Jharkhand followed by Chhattisgarh, registered the maximum gain, during this period.

While it is very difficult to assess the attribution (one-to-one) correlation of some of the performance pertaining to the sectors where DFID has invested to the DFID DCI programme, discussions with stakeholders revealed that DFID has been one of the 1st movers in the low-income states. This is due to the availability of low-hanging fruits in the Infrastructure has remained one of the better- off states where investment climate was focussed areas for the PE investments in more prone to such investments, attracted most India accounting for almost a quarter of such of it. investments. Infrastructure (24%), IT and ITeS (21%), and BFSI (14%) accounted for a Another 12-14% was accounted for by the total share of 60% of PE investments. Energy, Healthcare, Education, Agri & allied of the PE investments.29 During the initial years, i.e. till the year 2004, IT and ITES accounted for majority of investments and there by retaining its status as the favourite industry among PE investors, as it coincided with the internet boom in 2000. Though, India felt the ripple effects of the internet bust harder, that led to sudden slump in PE investments during the period 2001-2003, due to the behavioural change of the investors wherein they started focusing upon more mature companies in order to minimize their risk.

Post 2004, the Indian economy mounted an average annual growth rate of 9.5% for the next four years, which again propelled PE investments. Encouraged by the positive business sentiment leading into 2008, PE firms begun investing larger amounts, in aggregate and per deal, into sectors that would potentially benefit most from country’s efforts to improve its infrastructure. The proportion of non-IT investments both by activity and value had climbed gradually after 2004. The sectors like manufacturing, engineering, banking and finance have experienced intense PE activity. This may be since the growth in the Indian economy is no longer limited to the IT sector but was then spreading more evenly to sectors such as biotechnology and pharmaceuticals; healthcare and medical tourism; financial inclusion, and consumer focused industry, among others. The graph below provides a snapshot of PE investments and its diversification across sectors for the period 2008-13 and 2014-18.

IT/ITeS contributed to almost 25% share in 2008-13 and 44% in 2014-18 followed by BFSI sector that made a considerable jump for the period 2014-18 (16%), compared to its share in 2008-13 (11%), there are other sectors, such as Energy, Healthcare, which have showed improvement. For the year 2017, all the major sectors recorded a significant increase in the value of investments, compared to year 2016. Sectors like financial services, e-commerce, technology, retail and consumer products, healthcare recorded the highest ever investments by PE investors in India, together accounting for 74% of all investments made during the year.

29 Source: PE in India 2025, PwC Report and IPE Analysis

31 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• There has been significant increase in investments from 2013 to 2018 o Food and Agriculture from USD 364 mn to USD 1.8 billion, o Retail and Consumer Products from USD 678 million to USD 1.9 bn, and o Education from USD 253 million to 843 mn

• Renewable Power space saw 32 PE / M&A deals worth USD 1.29 bn in year 2013. In year 2015, the PE investors poured in over USD 1 bn, while, in year 2017, the RE sector garnered USD 1.50 bn invested across 21 deals.

• PE investments in India's wind and solar power increased by 47% in 2017 (January 1 to September 25) to USD 920 mn, across 9 deals, as compared to USD 630 mn coming from 10 deals during the corresponding period in 2016.

• Institutions, such as, IFC and ADB has put aside USD 1 billion, each, to renewable energy space in India.

• In terms of deal value, Consumer Technology, Real Estate, Telecom, and BFSI has shown strong growth in year 2017 compared to previous year. Some of the key sectors that could be focused upon are: Financial inclusion and services, Retail and Consumer, IT and ITeS, Healthcare, Infrastructure, among others.

• Since the success of the NEEV FUND, SBICAP Ventures Ltd (SVL) announced two funds that will focus on affordable housing and small and medium enterprises (SMEs). SVL, the alternative asset management arm of State Bank of India’s subsidiary SBI Capital Markets Ltd, had planned to raise ₹ 400 crore for the SME fund and ₹ 350 crore for the affordable housing fund. The two new funds follow SBI’s NEEV Fund, launched in 2015 to cater exclusively to small infrastructure projects in low income states, in sectors like water and sanitation, clean energy, and urban infrastructure. The NEEV Fund has raised capital commitments from SBI, SIDBI and the Department of International Development of the UK.

• In 2012, just $1.2 billion of the total of $24 billion of private equity investments were in the DFID targeted low-income states- just 5.8% of the total investments.

DFID DCI investment has coincided with some of the major policy reforms and has now become more relevant in the context of India’s overall focus on attracting private capital through PE and VC. Private Equity (PE) has brought approximately USD 125 billion of capital into India in the past 10 years, providing organizations with a vital new funding source. According to the Global Limited Partners (LPs) Survey 2017 conducted by EMPEA, India now ranks as the most attractive emerging market for General Partners (GPs) investment for the period 2019, climbing from 9th place in 2013. Several developments and initiatives have contributed to PE success story in last five years, including, support from Development Financial Institutions, such as Department for International Over the period, 2001-2014, approximately Development (DFID). 3,100 companies received infusions from PE investors, whereas, it was 3,200 companies during the period 2015-18, of which, roughly half were companies with Private Equity contribution to fund-raising annual revenue of less than USD 2 mn. This in India increased over the past 15 years, highlights its critical role in the viz., 20% of total capital raised in 2001-05 development of early-stage ventures and to 31% in 2006-10 to 46% in 2011-14. small and medium-size enterprises.

PE investments which triggered growth during the same year when DFID DCI was initiated, has had some long-lasting impact including ushering in an ‘equity’ culture within the country; nurturing and scaling firms; and contributing to numerous small and medium scale businesses and independent ventures, a big advantage that is not highlighted often, is the “governance reforms”. These investors have been able to influence the firms to enhance their corporate

32 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio governance standards through measures such as, appointment of independent directors, new auditors, including, better audit and control mechanisms, among others. Another interesting and important impact has been acceleration in job opportunities. In the five years following initial investment, companies backed by PE investors grew direct employment 6% faster than those not backed by the PE investors.30 This is better explained by impact investments, which, has become familiar and appropriate investment route being undertaken by many PE investors, as it focuses on double bottom objectives.

Macroeconomic factors like the aggregate fiscal and monetary policy stance are clearly critical for revival of the private investments. So are structural policy reforms such as the GST and the Insolvency and Bankruptcy Code (IBC), though the recent reversal of reforms in trade and tariff policy has been disappointing. Apart from strengthening indirect tax compliance, GST is unifying India into a vast common market. Similarly, the IBC should help break the banking sector gridlock, which is perhaps the most important macro-level roadblock to reviving the private investment. Apart from these macro or countrywide factors, investment conditions in individual states- policy initiatives, regulatory reforms etc. are also critical for private investment. These state-specific conditions on the ground ultimately determine the success or failure of investment projects and, therefore, affect aggregate trends. They also determine the geography of growth, whether growth is likely to converge or diverge across states going forward.

Impact investment can be considered as a movement as well as an industry, wherein, it not only reshapes the relationship between a broader society and market, but also, drives the flow of much needed capital towards solutions to most critical, social and environmental challenges facing the society today. It accelerates the wider movement by demonstrating its own viability and developing tools and opportunities that encourage new entrants to the market. Globally, the impact economy is now almost USD 23 trillion - USD 16 trillion in responsible investing (environmental, social and governance investments), USD 6 trillion in sustainable investing (renewable energy, etc.), and USD 0.25 trillion in impact investing (affordable education, affordable healthcare or financial inclusion). India is becoming a testbed for many of these activities.31 It is difficult to conclude a one-on-one correlation between the success shown by the following results and DFID DCI. However, there is a merit in saying that DFID engagement with the Government of India and the Government of UK’s agreement with the Government of India, to contribute towards attracting private international capital, has had some wider and long- lasting impact since 2013 as shown below- a. Private Equity provides stable source of equity capital despite slowdown in the GDP growth rate. b. PE investments between the year 2008-2018, grew at a CAGR of 10.71%. It registered a compounded growth of 3.11% between the years 2008-2013, and 30.63% between the years 2013- 2018. c. Average PE investments during the years 2008-2013 were USD 8169.50 mn, while, it increased to USD 1.85 bn during the years 2014-2017, registering 127% increment. d. After a slump in year 2016 by almost 17%, year 2017 recorded all-time high of USD 26.50 bn, rising almost 63% over the previous year. e. In 2018, investments increased by 35% in value terms to USD 35.10 bn compared to 2017, while, the deal value also increased by 28% over the previous year (761 deals compared to 594 deals).32 f. Revenue (by 28%) and Earnings (by 39%) grow faster at PE backed companies. g. Exports at PE backed companies grew about 60% faster. h. More than 80% of PE backed companies made their first cross-border merger or acquisition after receiving PE funding. This correlation holds at an overall level and by industry, suggesting that PE investors helped investee companies by bringing to bear their global experience, foreign-market access, deal-making expertise, and networks.33

30 Source: Indian Private Equity: route to Resurgence, Mckinsey & Company, June 2015 31 Source: Ibid 32 Data source for points (b) to (e), including graph: PE/VC Agenda, India Trend Book, 2018, EY 33 Source: Ibid

33 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Fig 2 (a) & Fig 2 (b)

Assessment of Impact investment funds having double bottom objectives (Ref. Fig. 2(b))

Between 2010 and 2016, India attracted over 50 active impact investors, who invested almost USD 5.2 bn, of which, about USD 1.1 bn was invested in 2016 alone. This showed the gradual maturity of the private equity market in India and the various infrastructure In many ways, 2015 was a turning point, sectors which accounted for the major share. Much of as investments crossed USD 1 bn, the the growth came from a doubling or more of average same year in which DFID also had its first deal size, which rose to USD 17.6 mn in 2016, from financial closure of the NEEV Fund. USD 7.6 mn in 2010. The volume of deals has remained almost stable, at about 60 to 80 a year, demonstrating the emphasis on scaling new models of impact. Some of the other factors that have contributed towards the success of PE investments in India are- (1) growing interest in Indian market; (2) looking at PE as a dependable source of capital and not just a last- resort source of capital; (3) further deepening of PE investors’ capital into their investee companies; and (4) strong “exits” track record. The country’s market for impact-driven finance could grow to USD 6 to USD 8 bn in 2025 as per Mckinsey (Source: McKinsey Insights, online article published at www.Mckinsey.com). Key trends reflect, impact investors are participating with traditional investors, thus, resulting in more investments; increase in the deal sizes; diverse sector spread, among others. In terms of returns, the Mckinsey study (Source: McKinsey Insights, online article published at www.Mckinsey.com) reveals that there is a clear relation between size, volatility, and performance. Investors injecting money in the range of USD 1-5 mn have bettered off (16% median IRR), followed by investors putting in money in the range of USD 0.1-1 mn (12% median IRR). Investors that have put in money greater than USD 5 mn have a median IRR of 8%. Years 2010-15 saw 48 exits which produced a median IRR of about 10%.

Household/ Community Level Impact Assessment

This section of the report addresses the following two evaluation questions:

EQ2: Household/community level (development impact): Has there been any impact in terms of access to services and infrastructure asset creation. What is the impact in terms of people, jobs, enhanced income and savings of beneficiaries and capital leveraged? In which sectors does investment lead to the greatest development impact?)

It is based on the study of a sample drawn from the full list of investees set out in Table 2. Sectoral investments by the two Funds (Table 3) are concentrated broadly in: • Renewable/alternative energy, • Agriculture supply chains/dairying, with one other investment • Supporting a skill development company enabling the placement of young people with moderate educational achievements in entry level jobs with public sector entities.

34 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

In accordance with the agreed methodology set out in our inception report, the evaluation team selected three each of the six investee enterprises funded by each of the Funds – NEEV and debt fund for undertaking detailed baseline case studies. The investee enterprises selected were:

NEEV Fund

i. Crystal Logistic (Cool Chain) Limited34 – a West Bengal based cold storage and logistics company engaged in support fisherfolk and farmers maximise the returns from their efforts. ii. SunSource Energy Private Limited – a solar power producer providing captive power to local industries through a build, operate and maintain model – operates in a number of states. iii. Mahendra Educational Private Limited – a UP based skill development and coaching centre operator preparing trainees for qualification tests of entry level jobs in government and large public sector enterprises.

Debt Fund iv. Clean Wind Power (Devgarh) Limited (subsidiary of Hero Future Energies Ltd) – a wind power producer based in Rajasthan providing power to the local grid v. Cholamandalam Investments and Finance Company Limited – a large NBFC providing finance to transport vehicles, tractors and farm equipment vi. Darbhanga Motihari Transmission Company Limited (DMTCL part of the Essel Group) – builder, owner and operator of high-tension transmission lines in north Bihar supporting the regular and stable supply of grid power. These detailed baseline case studies are contained in the Annexes to this report and the findings are summarised in our response to Evaluation Questions 2 & 3 on the following pages. The target population for employment in investees of both the NEEV and Debt Funds consists primarily of local semi-skilled and unskilled persons living within a 30 km radius of the facilities created or, in the case of Crystal Logistic, around the marketplaces served by the investee enterprise. In the case of Cholamandalam it is vehicle drivers and operators of small construction machines (also within a limited radius of the investee’s local branches) who are able to get employment resulting from the investee’s activities. Numbers employed are 30-130 in the case of renewable energy enterprises, up to tens of thousands in the case of Cholamandalam’s commercial vehicle loans. In all cases, the number of skilled technical staff from further locations required for operations is limited to 10-20. Development benefits have been evaluated in terms of i. Salaries and wages paid to those employed at investee facilities since these are all new or substantially expanded facilities and employment generated is incremental. ii. Increases in income or imputed levels of satisfaction derived by users of the facilities or those deriving benefits from them, such as through higher skill levels and employment resulting from Mahendra Education’s training activities. Table 2: List of investees provided by DFID Investees / HQ location Sector Amount Date of invested (₹ cr) investment EQUITY Investments – NEEV Fund managed by SBI Capital Markets Limited [SBI CAP Ventures] United Sustainable Energy India Private Renewable power 50 25-Feb-16 Limited – Wind [Second investment in Q3 2017/18] Renewable power HQ Location: Bengaluru 15 Nov-17 Project Location: Madhya Pradesh – Solar Milk Mantra Dairy Private Limited Agricultural supply HQ Location: Bhubaneshwar 35 03-Feb-16 chain - Dairy Project Location: Odisha

34 *supporting fishermen, small-scale fish traders by providing perennial supply of fish to Eastern India and for export purposes.

35 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Investees / HQ location Sector Amount Date of invested (₹ cr) investment Crystal Logistic (Cool Chain) Limited Agricultural supply HQ Location: Kolkata chain – Cold 50 01-Mar-17 Project Location: West Bengal (pan-India Chain logistics presence) SunSource Energy Private Ltd HQ Location: Noida Renewable power 42 22-Feb-18 Project Location: West Bengal, Madhya – Solar Pradesh, Uttar Pradesh, Rajasthan Mahendra Education Private Limited HQ Location: Lucknow Skill development 50 31-Mar-18 Project Location: Uttar Pradesh, Madhya and education Pradesh, rest of India Developing and Leap India operating grain HQ Location: Mumbai 04 Apr-18 silos on FCI Project Location: Coimbatore, Tamil Nadu mandate 50 [+ date of DEBT investments – undertaken by IDFC Bank35 maturity] Clean Wind Power (Devgarh) Private Limited 23-Dec-13 (Sponsors: Hero Future Energies Pvt Renewable power [15-May-23, Limited) 38 – Wind repaid HQ Location: New Delhi 2018] Project Location: Devgarh, Rajasthan Cholamandalam Investments and Finance Company Limited HQ Location: Chennai Agri implements & 27-Nov-15 100 Project Location: UP, MP, Bihar, Odisha, rural vehicles [27-Nov-19] Rajasthan Chhattisgarh, West Bengal, Jharkhand Parag Milk Foods Ltd – Vendor Finance Aug-15 HQ Location: Pune Dairy 20 [repaid, Project Location: Maharashtra 2018] Industrial Energy Ltd Kalinganagar Project – SPV of Tata Power (74%), Tata Steel 19-Feb-15 Waste to energy 65 HQ Location: Mumbai [31-Mar-30] Project Location: Odisha Mytrah Vayu (Tungabhadra) Private Limited 09-Nov-16 (Sponsors: Mytrah Energy (India) Pvt. Ltd) Renewable power 50 HQ Location: Hyderabad – Wind [09-Jan-26] Project Location: AP, Telangana, Karnataka Darbhanga Motihari Transmission Company 22-Dec-17 Ltd (“DMTCL”) Power 60 HQ Location: New Delhi transmission [31-Dec-38] Project Location: Bihar

35 WASH- this will be presented as a separate case study and is not included in this report.

36 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Additional employment and income SunSource provides services to industrial opportunities have been created in the units which in turn have also provided branch areas of Cholamandalam. A employment to both local persons and those significant proportion of Chola’s clients are from elsewhere. Most of the labourers, first time borrowers who were drivers of guards and solar panel cleaners, employed others’ vehicles, and then bought a vehicle during the project stage, and in the delivery through Chola. Most of the first-time of operations and maintenance services, borrowers of Chola have gone on to take come from socially disadvantaged groups repeat loans. A person interviewed in like scheduled castes and other backward Raipur, Chhattisgarh through vehicle communities. In the absence of SunSource, finance from Chola, was able to build, a these people would have been much more large fleet of 40 trucks, which means at vulnerable to possible indebtedness, which least 80 persons getting additional they have not only been avoided, but can now employment, each earning between look at a more secure future, as a result of ₹15,000-25,000/month. Some of this fleet SunSource projects. owner’s drivers are now becoming the next generation of first-time borrowers of vehicle loans from Cholamandalam.

Table 3: Sectoral distribution of investments Sector Type of investee Equity Debt Renewable energy - solar 2 - wind 1 2 Alternative energy 1 Power transmission 1 Agriculture - supply chain 2 - equipment 1 Dairy 1 Skill development 1 Total investments 7 6 investees 6 6

MSTDPL through its Kaamkazi initiative Crystal Logistic operations has improved has led to providing gainful employment access to services and led to reduction in to some of its women trainee graduates. cost for many resulting in addressing Nafisa* who was a polio and arthritis vulnerability of women workers in the patient had to give up her job earlier due industry and that of men working as to ill health. After having trained in contract workers with the fish traders. They tailoring at MSTDPL, she was selected by used their income for their children’s MSTDPL for the Kaamkazi initiative under education, medicines etc. They also which she now stitches uniforms for the reported that they are able to get financial UP-Skill Development Mission trainees. support from the company in times of She now works from the comfort of her emergency. Having earned regular incomes home, without the need to report early. in these units, the women workers look to MSTDPL has impacted several lives in a their futures with much greater assurance. similar way making the marginalised more independent and self-dependent.

Farming and wage labour are the main sources of income for the majority of the rural population in the area. The main crops grown here are Wheat, Chickpea, Mustard, Soyabean, Groundnut, Maize, vegetables, Fenugreek among others. Hence the incomes described and discussed in Table 7 below are additional to many households whose respondents participated in the FGDs. For many of these, in the case of SunSource, the income either from projects or operations, formed a significant part of the

37 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

family income, without which they would have struggled. In a number of cases, SunSource has provided income stability despite some serious challenges in the form of economic shocks that many of the households faced.

EQ3: Investment (fund) level (instruments and incentives): Does the choice of instrument – debt, structured or equity affect the level of partnership with developers/investees, the level of profit or the development impact? Was equity in itself, sufficient to start the venture or was additional debt leveraged to start the business?

a) Impact of the Debt Fund and Equity Fund on the Fund Managers: SBI CAP Ventures is the fund manager for the equity fund, and IDFC Bank is the fund manager for the debt fund. In case ofSBI CAP Ventures, NEEV Fund has played a pivotal role in moving SBI CAP Ventures into the private equity space. Thanks to NEEV Fund, having learnt the ropes, SBI CAP Ventures is now ready to expand its private equity portfolio, so in that sense, the goal of DFID to seed an institutional practice has already been achieved. On the other hand, while in case of IDFC Bank, the role of the debt fund has not been as fundamentally game-changing as in case of the equity fund, IDFC Bank has still benefitted from the presence of the DCI Infra debt fund in its portfolio, because the bank is always looking to improve its tally of multilateral funds. There, to have the DFID supported debt fund has helped to further improve the institutional profile of IDFC Bank.

b) The utility of investments by the two Funds can be categorised in a range including:

• Critical – essential to the establishment and viability of investee operations. • Catalytic – making a substantial contribution to the growth of the enterprise and greatly enhancing its viability but not essential to its existence. • Supplementary – making a contribution to the growth of the investee enterprise and enhancing its viability to an extent but mainly an additional source of funds along with other investors. • Inessential – making a marginal contribution to the investee’s sources of funds enabling a small experiment or taking additional risk with geographies or new services.

The investee companies are listed in Table 4 with the investments with greatest utility to the investee on the left and those with the least utility on the right. A broad indicator of this utility is the invested amount as a proportion of total net worth (in the case of the equity fund) and of total funds of the company in the case of debt at the time of investment. The logic of this calculation is that: i. An equity investment enhances the investee’s ability to raise debt and has an indirect impact on total funds in the year of investment (Y) and in subsequent years ii. A debt investment augments total funds directly and has a limited if any impact on its ability to raise funds in subsequent years.

As the table shows (and Figure 3 illustrates), all the equity investments by the NEEV Fund covered by the sample make significant catalytic contributions to the growth of the investee companies by enhancing their net worth by 59% to 129%. In the case of debt investments, the contribution is supplementary for CWPD and DMTCL, enhancing their funds by 14% and over 5% respectively. In the case of Cholamandalam the addition of 0.3% to total funds is marginal (0.3%) and the investment, therefore, appears not to be essential from the perspective of the investee.

c) Operational status: None of the sample investee companies is or was a start-up at the time of investment; they were all either well established or set up a few years earlier and, therefore, ongoing/functioning entities when the investment took place. The investment was not critical to the establishment of any of them.

d) Management type: All the equity investees are medium-sized companies with direct oversight by promoters; the debt investees are all run by professional managements with promoter oversight only at the governance level.

38 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Table 436: Key features of the Development Capital Investments (DCI) in infrastructure

Character- Crystal Sun Mahendra Clean Wind DMTCL Chola- istics Logistic Source Education Power mandalam [Hero Future [Essel Infra- Energies Ltd] projects Ltd] Investment type Equity Debt Operational Well Ongoing Well Ongoing Ongoing Well status at established established established investment Utility of Catalytic Supplementary Inessential investment Type of Promoter-driven Professional management Sector Cold stores/ Solar Skill Wind energy Power Transport & logistics energy development transmission farm equipment Activity Cold Storage Build/ Solving Wind power Build and Loans for of consumer operate nations generation for operate purchase of staples captive skilling gaps local grid transmission vehicles & solar units by providing lines equipment skill and employment in self-owned enterprises and industries. NEEV/ debt 50 42 50 38 60 100 investment, ₹ cr Net worth in Year of Investment (Y) Total Funds in Year of Investment (Y) Capital, ₹ cr 38.8 56.5 85.0 269 1,088 27,888 Investment as % of net worth 129% 74% 59% 14.1% 5.5% 0.4% or total funds

Figure 3: Contribution of DCI to net worth (equity) or total funds (debt)

80% 74.4% 70% 58.8% 60% 54.8% 50% 40% 30% 20% 10% 5.4% 5.7% 0.3% 0% Crystal SunSource Mahendra Clean Wind Chola DMTCL

Capital structure and leverage

The capital employed by investee enterprises is shown in Table 5. The information available is presented for the Year of Investment (Y), the year before investment (Y-1) and the year after investment

36 Those that have been functioning for 3 years and more at the time of the investment are well established. Those that had started operations before the investment took place are described as ongoing.

39 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

(Y+1). It would also be interesting to look at the effect of the DCI contribution two years after the initial investment, but that data will only be available at the midline stage. Indeed, data for year of investment is also not available in a couple of the sample cases and will also have to await the midline report as the evidence available from the investees builds up.

The table divides the six sample investees into two sections as before. An important point to note here is that the Year of Investment (Y) has been taken as the first year in which the investment could be productively deployed. Thus, for a March investment in year 2015-16, Y is 2016-17 since clearly an inflow of funds in the month of March can only be productively deployed in the following financial year.

It is apparent from the table that – i) Investee companies generally increase their overall capital after investment – Crystal Logistic is an exception since its capital has depleted due to substantial losses. This has happened due to PAT losses on account of capacity addition. ii) While in the case of all the sample equity/NEEV Fund investments, DCI is a major contributor to capital enhancement, for Debt Fund investees the contribution is relatively modest. The substantial increase in the capital of CWPD in the year after investment cannot be explained here as the Evaluation Team has no access to the management of the company that has already repaid its loan.37 iii) There is no systematic evidence so far of a significant increase in leverage for any of the investee companies (as indicated by the increase in the debt-equity ratio) except in the case of CWPD. Since the contribution of the Debt Fund in this case was limited to ₹30 crore and the increase in the company’s debt was of the order of ₹500 crore, the reasons for this increase bear determination (but, as indicated above, this is not possible). In this table the evidence for equity investees remains incomplete at the time of writing this draft baseline report and, since the investments were made very recently it may not become available until the midline stage.

Table 5: Capital structure resulting from development capital investments

NEEV/Debt Fund Investee Year of Invest- Total capital, ₹ crore Debt-equity ratio invest- ment, Prior to Year of After ment ₹ crore investment investment invest-

ment

Year relative to investment Y* Y–1 Y Y+1 Y Y+1 Equity: NEEV Fund

Crystal Logistic 2017-18 50 77 71 0.84 SunSource Energy 2018-19 42 47 Mahendra Education 2018-19 50 200

142 324

Debt Fund Clean Wind Power 2013-14 30 256 269 836 2.6 5.1 Cholamandalam 2015-16 100 24,143 27,888 30,595 6.5 6.1

DMTCL 2017-18 60 944 1,088 4.2

Total 190 25,343 29,245 6.3 * Year of investment is the year after the inflow if the disbursement was in the last quarter of the year.

Investee sustainability

The sustainability of investee enterprises is ultimately determined by their long-term profitability. In the short to medium term, however, it is also a factor of (i) the availability of and ability to hire and retain appropriately skilled persons to undertake operations and (ii) the capacity of the management to plan growth and supervise operations.

37 The fund manager, IDFC Bank, reports that the loan was pre-paid and interaction with the investee principal, Hero Future Energies Limited, after payment has not been constructive.

40 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

The trend in profitability of investee enterprises in Figure 4 does not so far show any consistent trend in the profitability of investee Figure 4 Trend in profitability (RoE) of investee enterprises enterprises. This is partly affected by the fact that 30.3% two of the sample investees – 16.5%18.0% SunSource and 15.1% 14.7% 14.7% Mahendra – do 12.5% not yet have 7.9% financial results for the year of investment -2.9% (2018-19) but also by the fact -9.6% that not all earlier -14.4% financial results are yet available Y-1 Y Y+1 at the draft baseline stage. For Debt Fund investees complete results are available for CWPD and Chola. For DMTCL results for Y-1 (2016-17) are not relevant as these are pre-operational and for Y+1 are not available as the financial year is not complete yet. For CWPD there is a decline in financial performance over the three relevant years (Y-1 to Y+1) up to 2015-16 (and more recent results are not available). For Cholamandalam there has been a significant increase in its profitability during this time but, as pointed out earlier, the Debt Fund has made a minuscule (0.3%) contribution to its total funds so this improvement cannot be attributed to this support.

This inconclusive discussion is, of course, the result of the limitations of information at this baseline stage. As the evaluation progresses, more information will become available and the Evaluation Team will be in a better position to collate and analyse the profitability of sample enterprises.

Investee characteristics with respect to the other aspects of enterprise sustainability listed above are summarized in Table 6. It shows that beyond the infrastructure construction stage there are limited challenges (mainly in retaining managers and a few maintenance engineers) since there is not much need for specialized staff. Mahendra Education also faces some challenges from competitors in retaining trainers at its coaching centres. The characterization of the retention challenge as low for relatively low skilled staff is not intended to minimize the importance of experienced staff but rather to indicate the ease of replacement relative to qualified engineers or managers with relevant skills that all the investees face from time to time. Finance companies like Cholamandalam also have this challenge and address it reasonably through professional management systems and long-term career

Table 6: Other aspects of enterprise sustainability DCI investees Management Employees Style Retention Skill requirements challenge

NEEV Fund investees Crystal Logistic Basic + prof’l* Low + medium Promoter-driven Run by 2 first generation SunSource Low tech + prof’l Low + medium entrepreneurs Mahendra Ed Trainers + prof’l Medium - as above -

Debt Fund investees CWPD Low tech + prof’l Low + medium Professional Cholamandalam Basic + prof’l Low + medium - as above - DMTCL Low tech + prof’l Low + medium - as above - * Prof’l = professional managers

41 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio opportunities. The efficacy of this strategy for Cholamandalam and the other professional company (Essel Infrastructure – parent company of DMTCL) is another aspect to be observed and assessed at the midline stage.

EQ2: Household/community level (development impact): Has there been any impact in terms of access to services and infrastructure asset creation. What is the impact in terms of people, jobs, enhanced income and savings of beneficiaries and capital leveraged? In which sectors does investment lead to the greatest development impact?)

It is apparent from EQ2 that one of the main objectives of the DCI initiative is to create impact in terms of access to services for the general population through infrastructure asset creation together with the creation of jobs, enhanced incomes and savings of the low-income populations affected by the investee projects. In order to determine and document this impact the methodology of an evidence-based evaluation is to:

• Determine the value created by the projects financed by DCI at this baseline stage, and to follow this by. • Similar exercises at the midline and end line stages, • To enable the documentation of benefits derived from the projects by local communities in the short to medium term • So that benefit-cost ratio and value for money calculations can be undertaken at each stage.

Table 7 sets out the operations and employment of each of the sample investees on the date of the baseline study of that investee (indicated in the table). The table provides a sense of the contribution of DCI investees to social impact activities in the economy including:

• Enabling augmentation of power supply through the harnessing of renewable (solar) energy (SunSource) and wind energy (CWPD) as well as supporting an efficient transmission system (DMTCL) • Provision of cold chain and warehousing facilities for fisherfolk and small farmers in a focused manner (Crystal) • Enabling the mechanization of production and transport of agricultural produce as well as supporting local construction activities through the provision of loans for agriculture and small construction equipment, and • Supporting the skill development and placement of young people in entry level jobs in public sector entities such as banks, insurance companies, railways, other public sector enterprises as well as the creation of basic vocational skills under the National Skills Development Programme. In compiling the baseline in Table 7, the numbers of power generation plants and transmission lines, cold stores and collection points, loans for farm/ construction vehicle owners and coaching/vocational training centres for young people served are relatively easily collated (though sometimes not entirely accurate). Employment in operational facilities is also relatively easy to determine. However, employment in the construction of plants, cold stores and on vehicles is not fully calibrated by investees so information is sketchy. Nevertheless, some parameters can be established, and the Evaluation Team has attempted to do this.

Essentially, the contribution of DCI to employment will be in terms of the increase in full time employees as operations of (sustainable) investees expand plus the temporary employment generated during the expansion phase of the infrastructure established by investees. The table provides the baseline; it will be compared with midline (and later with endline) numbers to establish the increase in services provided by investees and the growth in employment enabled by investee operations. By and large salaries of relatively low skilled full-time employees are in the range ₹15,000 to ₹50,000 and have been documented in the investee case studies. Increases in employment and wages and salaries paid can be computed at later stages of the evaluation to contribute to the overall calculation of benefits for the proposed value for money cost-benefit analysis. Preliminary indications from the table are that as a result of the operations of sample investees around: • 85,000 households are better served with power generated by alternative energy sources.

42 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• Employment for around 2,000 persons has been generated on a directly attributable basis and that another 1,500 full time person years of employment was generated in the establishment or expansion of investee operations, and • 3 large size industrial units in Rajasthan have made substantial savings from the availability of alternative energy at lower cost and on a more reliable basis than grid power. These findings are set out in more detail below along with the documentation some illustrative cases of benefits derived by various types of people who have derived benefit from investee operations.

Table 7: Operational information on development capital investees – at baseline

Portfolio (DCI investm Direct employment at Baseline report Physical infrastructure Capacity ent) investee facilities Investee Info’ name date Type Quantity Unit Quantity ₹ crore persons women

Equity: NEEV Fund Crystal Feb-19 Warehouses 6 mt 30,000 50 300 50% Logistic Portable cold stores 300 SunSource Nov-18 Solar energy 110 MW 200 42 132 25 Energy plants projects in Bhilwara clients: 18 states 39 technicians, 93 unskilled Mahendra Dec-18 Training 146 Trai 52,000 50 2,400 33% Education centres nee s Debt Fund Clean Wind Nov-18 Wind energy Turbines Hou 52,000 38 Company Power generation with total seh attributab employees: n.a. (Devgarh) capacity, olds le to 30 work as 20% 37.5 MW serv CWPD guards ed 62 person years in installation Cholamandal Nov-18 Loans 20,800 42,486 Overall None am vehicle assets employed on loans under vehicles, 42,095 overall in manage Employed on 2017-18; ment, DCI financed financed by DCI ₹100 vehicles, 1,012 DCI, 500 crore loans DMTCL Sep-18 Transmissio 50 km line Hou 30,600 60 35 full time at None n lines + + seh sub-stations, sub-stations 70 km line olds Construction: + 725 full time 20% 2 person years substations

Employment resulting from development capital investments

Table 8 sets out employment and incomes at investee facilities enabled by and/or contributed to by development capital – NEEV and Debt Fund – investments. Again, at this stage the information available is sketchy but a more complete picture is expected to be available during the midline evaluation. For now, a reasonable picture of incomes generated by employment at investee facilities is provided by the table. Debt Fund investments are older than those of the three NEEV Fund sample investees of which two (SunSource and Mahendra) are currently in their year of investment (Y=2018- 19) while the third (Crystal) received the investment on 31 March 2017 so its year of investment is also very recent, 2017-18.

Table 8: Employment and related incomes at investee facilities

Employ- Contribution to capital by Years Annual salary ment DCI since

43 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

investme Proportion of Cumulative Full time Salaries, nt ₹ crore GBP equity or employment employment at GBP total capital income, GBP investee enterprise NEEV Fund - equity

Crystal Logistic 300 7.92 860,870 55% 473,478 1 473,478 SunSource Energy 99 2.97 322,826 74% 238,891 0

Mahendra Education 1,629 63.39 6.89 mn 52% 3.58 mn 0 4.29 mn 473,478 Debt Fund Cholamandalam 42,095 995.88 108,247,826 0.30% 324,743 3 974,230 CWPD 110 0.94 102,174 14.1% 14,407 5 72,033 DMTCL 35 1.31 142,174 5.5% 7,820 1 7,820 Total 585,861 1,054,083

Construction Contribution, One-time income from Persons Wages, Wages, GBP in GBP employment % construction, GBP ₹ crore NEEV Fund - equity

Crystal Logistic 200 1.90 206,522 55% 113,587 1 113,587 SunSource Energy 39 + 93 0.60 65,217 74% 48,261 1 48,261 Mahendra Education Not applicable – mainly rented facilities Total 271,739 161,848 161,848 Debt Fund Cholamandalam Not applicable – mainly rented facilities

CWPD 77,714 2.72 295,708 14.1% 41,695 41,695 DMTCL 174,000* 6.09 661,957 5.5% 36,408 36,408 Total 8.81 957,665 Total 78,103 78,103 * person days

Sample investees from the Debt Fund have provided substantial employment both in construction – CWPD and DMTCL – and on a permanent basis in the operations and maintenance of facilities (the same two) as well as by enabling the purchase of vehicles for agriculture and local construction (as in (the case of Cholamandalam). As a well-established finance company with nation-wide operations, Cholamandalam already has a large network of lending and collection branches operating in small towns so no new facilities were created that could be specifically related to the Debt Fund investment. The two power companies, on the other hand, created substantial employment in the establishment or construction of their generation facilities providing a total of over 250,000 person days of work generating wages of the order of ₹8.8 crore (£960,000). However, since the Debt Fund’s contribution to the capital of these two companies was relatively limited – 14.1% in the case of CWPD and just 5.5% in the case of DMTCL – the pro-rata contribution of the Fund to construction employment amounts to 20,500 person days resulting in wages of ₹72 lakh (£78,000). In both of these cases, women are engaged in a limited way providing about 25% of the unskilled labour on construction sites.

The NEEV Fund having contributed 74% of SunSource’s equity enabled the generation of ₹60 lakh (£65,000) of wages for 39 technical staff (3 women) and 93 non-technical staff, of which ₹44 lakh (£48,000) can be said to be enabled by the investment. Similarly, Crystal Logistic has generated about ₹1.9 crore worth of wages in the building of one warehouse so there was ₹1.05 crore (£113,000) contributed by the investment. Additionally, in construction roles, on contractors pay-rolls, the company has generated 640 jobs.

In theory, employment enabled by the Debt Fund at the sample investees is substantial. Cholamandalam provides large numbers (more than 20,000) of vehicle loans generating employment for over 42,000 persons (details in the case study) with an annual income of ₹996 crore (£108 million). The power companies have generated permanent employment for 145 persons between them resulting in annual salaries of ₹2.25 crore (£244,000). As in the case of construction employment, these numbers

44 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio have to moderated by the contribution made by the Debt Fund to the capital of these companies resulting in regular employment of a total of around 143 people with annual salaries of the order of ₹5.4 crore (£586,000).

In a country with substantial leakages and inefficiencies in the power generation and distribution system, support to power generation companies like SunSource and CWPD as well as to an efficient power transmission company like DMTCL clearly has substantial benefits. The fact that SunSource and CWPD also provide renewable sources of power greatly enhances this benefit by using a limited amount of non-renewable resources in the process. By making more power available to their local grids and to local industrial producers (like textile mills and stone cutters in the case of SunSource) they also facilitate considerable additional value addition. This includes:

• A large number of small producers and service providers (grain and oil mills, household equipment fabricators and repairers, local dairy processors, electronic repair shops, coaching centres, tailoring shops) as well as • Enhanced household use of electricity resulting in improvements in children’s education and greater welfare in terms of safety (particularly women’s safety) and family entertainment by enabling the daily (and continuous) watching of TV programmes in the evening. • More specifically, in terms of facilitating the lives of low-income households, the reliable supply of power (subsidized by state governments to a limited extent) for household connections has brought benefits to large numbers of people.

Examples of such benefits are documented in the case studies and the benefits quantified and calculated. The monetary value of these benefits is summarised and collated in Table 9. As in the above analysis the full value of these benefits has been calculated and then moderated by the contribution made by DCI to the equity of NEEV Fund investments and the total capital of Debt Fund investments.

Table 9: Savings and value addition in the community enabled by the investments

Savings + Value Amount saved or value Contribution to Annua Years since Cumulative Addition enabled created by the investee capital by DCI l investment contribution

Rs crore £ mn £ mn £ mn Crystal Logistic 89.00 9.67 55% 5.32 1 5.32 SunSource Energy 7.62 0.83 74% 0.61 0 -

Mahendra Education 266.27 28.94 52% 15.05 0 Total: NEEV Fund sample 362.89 39.44 20.98 Not relevant Cholamandalam 1,992 216.50 0.30% 0.65 3 1.95 CWPD 60 6.52 14.1% 0.92 5 4.60 DMTCL 715 77.72 5.5% 4.27 1 4.27 Total: Debt Fund sample 2,767 300.74 6.46 10.82 Total benefit calculated including employment income from Table 8, only Debt Fund 11.95 Debt Fund investment (in 3 sample investees), ₹190 crore 20.65 Benefit-cost ratio (without discounting) 0.58

Since the benefits from these investments are recurring, the calculations take account of benefits as from the year (Y) of each investment and are multiplied by the number of years since that year (starting in year, Y). As the table shows, SunSource and Mahendra Education benefits (with Year Y=2018-19) cannot yet be added to the total but the three debt fund sample investees with a total investment cost of ₹190 crore (£20.65 million) have so far resulted in cumulative benefits of ₹110 crore (£11.95 million) resulting in a cost-benefit ratio of 0.58.

Due to the early stage of this evaluation and the limited nature of the evidence available we have kept this calculation static and not undertaken any discounting at this stage; it will become dynamic with discounted values of benefits being compared with the costs incurred as the volume of evidence grows through the various stages of the evaluation. We expect to be able to provide a dynamic calculation of

45 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio the B-C ratio even at the midline stage and to do it for both the NEEV and the Debt Fund. The issues of which: • Which sectors lead to the greatest development impact, and • Which instruments – equity or debt – are more effective from a growth and impact perspective will also be addressed as the evidence builds up. It is not possible to address these at this stage as neither is the sustainability of some of the investments established nor is the evidence on impact fully developed as some projects (DMTCL and SunSource) have come on stream very recently. And all the equity investments are too recent to reasonably incorporate at this stage the contribution made by these to investee operations.

Impact of DFID Technical Assistance The impact of DFID technical assistance towards improving the policy and regulatory environment, ESG capacity building, building capacity in project design and appraisal in these states to attract private capital to infrastructure sector is significantly based on secondary sources of information including discussions with the DFID program people. DFID’s DCI through the loan and the equity funds have had much larger impact than the impact on the investee companies or for that matter the beneficiaries at large of the projects supported through the loan and equity funds. • DFID’s experiment with the equity fund has had much larger and long-lasting impact and lessons learnt has enabled design and creation of more such funds- Green Growth Equity Fund and Green Growth Energy Fund.

• DFID support under the infra loan fund has been instrumental in institutionalising the DFID Environment, Social and Governance (ESG) framework, that is based on international best practices, for project appraisal of small infrastructure projects in low- income states.

• DFID ESG framework has been contextualised for the conduit option in consultation with the partners, or for small infra projects or innovative pilots in a way that is practical to implement.

• The technical assistance under the equity fund has initiated multiple sector- specific knowledge products which has enabled in dissemination of the learnings from the investments into renewable sector and cold storage sectors.

• The project appraisal mechanism under the equity fund through the Investment Committee and the outcomes from it have helped gain experience from current performance of the Fund and have also provided a good understanding of the targeted sectors and market potential in India.

• The Neev Fund has helped develop a mechanism of information sharing between the projects/ companies and the Fund/ Investment Committee. DFID technical assistance has been used to maximise sector wide opportunities as well as specific project work ensuring sustainability.

• The success and failure of the projects supported under the loan and the equity funds have helped derive the feasibility of the loan and equity instruments to support small infrastructure in the low- income states.

• DFID technical assistance has been useful in project design and development to enable investments into more such projects in the low- income states.

4 Lessons Learnt 1. Development capital investments can be useful in targeted sectors such as small renewable energy power projects and coaching for skill development but should be limited to early stage investments when the small sums of money available with the Funds can make a significant difference.

2. Small contributions by the Debt Fund to the total capital of investees do not so far appear to be sufficiently distinctive from commercial loans. In particular, there is little purpose in replacing a

46 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

commercial loan with DCI after sufficient commercial funding has already been arranged (DMTCL). The small difference made by the slightly lower cost portion of such a loan is hardly noticeable.

3. NEEV Fund investments are useful in facilitating substantial expansions of promoter-driven companies (Crystal and Mahendra) and could play an important role in turning them around (Crystal) though this is yet to be established. A judicious choice of investments is needed and there is some indication (at this early stage) that all the (sample) NEEV Fund investments could provide substantial social benefit.

4. Evaluations of programmes like DCI are an important feature of every DFID programme. Yet, investees are regularly surprised by requests for facilitation by evaluation teams – some are even reluctant to cooperate.

5. Even if there is a data sharing clause in the investment agreement this does not serve the purpose in a situation where investee personnel regularly shift from one part of their organisations to another and institutional memory is limited as a result. It would be useful in future if cooperation in the evaluation process were to be a prominent condition of such investments.

6. DFID DCI has had much larger impact beyond just the targeted Investee companies. It has had impact in institutionalising the Governance aspect within the ESG Framework resulting in prudent corporate governance system.

7. Learnings from the DFID DCI investments has helped DFID initiate similar initiatives at the National level with the Government of India. 5 Conclusions 1 The technical assistance under the equity fund has initiated multiple sector- specific knowledge products which has enabled in dissemination of the learnings from the investments into renewable sector and cold storage sectors.

2 The project appraisal mechanism under the equity fund through the Investment Committee and the outcomes from it have helped gain experience from current performance of the Fund and have also provided a good understanding of the targeted sectors and market potential in India

3 The NEEV Fund has made significant contributions to investee equity and has made more potentially catalytic investments than the Debt Fund. The latter’s relatively small contributions to overall capital are temporarily useful (CWPD & DMTCL) and direct attention to low income states to some extent but are too small to make a difference in the long term.

4 The sustainability of investees and the NEEV Fund’s contribution to sustainability remains unclear at this stage. Further evidence over the next couple of years will, hopefully, provide more useful results. Debt Fund investments are too small to be of much significance to sustainability. Evidence on leverage is presently too limited for the Evaluation Team to comment on.

5 Evidence so far shows that the Debt Fund has made small but significant contributions to stable employment and reasonable incomes earned by employees at investee facilities. Early evidence from the NEEV Fund also suggests that DCI is helping to support significant increases in employment and incomes.

6 Debt Fund investees have so far enabled substantial benefits to be derived by local communities from their services but the relatively small investments by the Fund limit its contribution to those benefits.

7 The benefit-cost ratio of 0.58 calculated at present for the Debt Fund is a tentative and temporary figure that will develop and grow as more evidence and time elapses over the midline and end-line stages of the evaluation. At this stage there is insufficient evidence from NEEV Fund investees to draw a conclusion on its contribution to community benefits.

47 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

8 Investments in renewable energy and efficient power distribution projects are clearly beneficial to the community but with the present design of Debt Fund investments cannot, be seen as significant contributions made by DCI.

9 Other sectors selected by fund managers – agricultural support and skill development – are also potentially useful but the investments should be such as to make a significant contribution to the sustainability and direction of those initiatives. There is insufficient evidence so far, in most cases, to say positively that DCI has made such contributions and that those contributions have enabled sustainability in addition to expansion of operations, employment and incomes.

10 Assessment of additionality of DFID DCI was observed in terms of leveraging of finance by both the equity and debt fund. DFID DCI through NEEV fund has succeeded in leveraging additional investments. Equity investment of Rs. 142 crore (GBP 15.78 million) has leveraged Rs.182 crore (GBP 20.22 million). 55%, 74% and 52% of the total investments in Crystal Logistics, SunSource Energy and Mahendra Education respectively has been from the NEEV Fund. It is difficult to convincingly conclude that the leveraging of the debt funds has been due to the DFID debt contribution. Though we can say that DFID has helped IDFC to reduce their cost of capital and has made more funds available to them for investing in similar projects

11 Additionality in terms of design support to the debt and equity investment projects by DFID or IDFC & SBI Capital is difficult to conclude. Demonstration effect, as additionality could be concluded with some reasonable amount of gestation lag. The evaluation also remains inconclusive in terms of causal linkage of DFID DCI in projects and its wider impact. It is difficult to attribute results except for the direct investments in equity funds and impact could be assessed only at a reasonable amount of gestation lag.

48 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

6 Dissemination of results & links to later stages of the evaluation Communicating the results and the preparation of a strategic dissemination plan is one of the requirements under this assignment from DFID perspective. This will help promote knowledge enhancement (external communication and internal learning) and contribute to the impact of the evaluation on the forward-looking plan for DFID DCI investments in India. The knowledge enhancement and engagement plan will be an integral part of the evaluation process as we go forward with the assignment and, where applicable, will facilitate interaction with the analysis and results through iterative processes, consultation and discussions with all relevant stakeholders. Equally, if not more important, is using the baseline results as the basis for tracking the outcomes of the NEEV and Debt Fund deployment over the life of each investment – through the midline and endline stages of this longitudinal evaluation.

There are a number of key stakeholders for the programme including DFID, other Government of the UK departments, and other donor DFIs who can learn from the baseline for their own current and future development infrastructure and investment programmes. Feedback from these stakeholders can also contribute to the DFID India and Evaluation Teams’ understanding of the results both to improve methodology and widen interpretation to provide enhanced learning for the future of such investment programmes. There are several other parties who are not directly and/or indirectly involved with the programme, but who may also be interested in the evaluation and its findings such as academics/technical experts. As DFID plans a larger DCI programme focused towards multiple sectors, it would be more appropriate to focus on disseminating results and obtaining feedback specific to sectors as the longitudinal stages of this evaluation are rolled out.

The stakeholders in this process can be categorized into four groups aligned with their manner of interaction with the evaluation and its findings. The present evaluation will be disseminated publicly, and feedback gathered using a mix of formats (e.g. briefs, case studies, sector reports, workshops, presentations etc.) and any other channels which will be decided in consultation with DFID. The Evaluation Team will extend the necessary technical support for holding dissemination and learning events for internal and external knowledge enhancement after the submission of the final baseline report or as required by DFID. A suggested list of knowledge enhancement activities with the stakeholder groups is illustrated in the table below:

Knowledge Key Stakeholders Purpose Knowledge Products platform DFID IGR Team ◼ Understanding sector 1. Presentation on the Round tables specific opportunities and findings, lessons and/or close challenges in attracting learnt and group workshops private debt and equity recommendations of capital the evaluation ◼ Help DFID garner 2. Summary of the information on future DCI baseline and mid- program design term report ◼ Advocacy across all levels (regional/national/sub- national) on policy recommendations Fund Managers- ◼ Incorporate SBICAPS and IDFC recommendations/ learnings for design of future programmes ◼ Adapt/adopt best practices into similar programmes or replication/scale up Key government officials ◼ Strengthen sector specific 1. Presentation on Knowledge at the national/ state policies and regulations on programme Workshop levels debt and equity capital. achievements, gaps ◼ Learn from the impacts of and way forward One-on-One investments made under the 2. Sector specific case meetings with debt and equity partnerships studies with lessons stakeholders from the programme learnt and interventions recommendations

49 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Knowledge Key Stakeholders Purpose Knowledge Products platform 3. Summary of the Panel discussion baseline report on thematic 4. Three to four thematic areas case studies on investment programme interventions ◼ DFIs ◼ Awareness generation 1. Articles/ blogs on Online ◼ Prospective Fund ◼ Cross-learnings evaluation findings dissemination & Managers ◼ Evidence building (sector specific) learning platform ◼ Development 2. Three to four sector- and/ or Partners specific partnership- based case studies DFID’s website (Devtracker)

50 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Bibliography http://acumen.org/blog/experimenting-with-leaner-ways-to-collect-poverty-data/. Berlin, I. 1953, ‘The Hedgehog and the Fox: An Essay on Tolstoy’s View of History’ London: Weidenfield and Nicolson. Quoted by Dani Rodrik, Professor of Social Science, Institute for Advanced Study, Princeton, US. DFID (2011). Ethical Principles for Evaluation and Research. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/67483/dfid-ethics- prcpls-rsrch-eval.pdf Intellecap (2014). India Impact Investment Report (IIIR); http://www.sankalpforum.com/resources/invest-catalyze-mainstream-the-indian-impact-investing- story/ IRIS (2014). ‘Focus on Beneficiaries’, Data Brief – March 2014, Issue 2. www.iris.thegiin.org [01/04/2014] IRIS (2014). ‘Focus on Employment, Data Brief – June 2013, Issue 1. www.iris.thegiin.org [01/04/2014] Morgan, JP, Global Impact Investment Network – GIIN (2014). Market Spotlight Report, http://www.jpmorganchase.com/corporate/socialfinance/document/140502-Spotlight_on_the_market- FINAL.pdf OECD DAC (2010). Quality Standards for Development Evaluation; http://www.oecd.org/development/evaluation/qualitystandards.pdf Progress out of Poverty Index (PPI), Schreiner, Mark, Microfinance Risk Management LLC, (http://www.progressoutofpoverty.org) Schreiner, M, NSSO (2009-10), quoted 2012. Stern, Elliot et al (2012). Broadening the Range of Designs and Methods for Impact Evaluations UNITUS (2013) “Impact Investing Reaches a Tipping Point in India” report. White, Howard (2009). Theory-Based Impact Evaluation: Principles and Practice, International Initiative for Impact Evaluation

51 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Annex A Terms of reference Evaluation of the development capital investment intervention of the DFID India’s private sector infrastructure portfolio 1. Background The Department of International Development (DFID) is a British Government Department and a part of the British High Commission in New Delhi. DFID India is responsible for the implementation and the administration of the UK’s development co-operation programme to India in partnership with the Government of India. These terms of reference (ToR) invite consultants to evaluate impact of Capital Intervention through Debt and Equity within DFID India’s private sector infrastructure portfolio. Unlike traditional grant aid programmes this is new generation of development capital investment (DCI) programmes which have been approved by DFID India. The enhanced focus is on value for money (VfM) of DFID’s intervention; particularly where new financial instruments are used which necessitates more rigorous independent evaluation of the interventions. This evaluation will focus on the balance between commercial and developmental outcomes of DCI projects in infrastructure in DFID India. The study will assess both directly attributable impacts of the programme and will also look into indirect and induced impact of the interventions. This is the first major study of its kind to look at the impact of DCI intervention of the DFID India’s private sector infrastructure portfolio. Context The shortage of infrastructure in the world’s poorest countries is a major and growing obstacle to economic growth and the elimination of poverty. According to the Planning Commission of India, GDP growth is held back by 1.5% - 2% every year because of a bottleneck in infrastructure expansion. Consequently, 12th Five year Plan proposes to spend a little over $1 trillion on infrastructure and aims to increase the share of the private sector in infrastructure investment substantially from 37% in the Eleventh Plan to 48%. Finance requirements at the aggregate level remain the single most challenge for the infrastructure sector. Though about 30% of all foreign direct investment into India is infrastructure-related but the global economic slowdown has reduced the overall size of all FDI from a high of $43.4 billion in 2008 to $33.9 billion in 2012 . New sources of non-bank capital, both domestic and international, would greatly aid the ability to meet the ambitious 12th plan targets. Overall, even if India was to achieve its 12th plan target, per capita investment will remain inadequate. The challenge is to demonstrate the viability of infrastructure projects in India’s low income states; identifying feasible projects in sectors with the greatest potential to directly or indirectly reduce poverty, e.g. transport; decentralised, clean energy; urban services; agricultural storage and logistics. Infrastructure development needs long term finance, in the form of debt, equity and guarantees. Substantial equity financing is often preferred for projects with higher levels of perceived risk. A limited amount of equity for private sector infrastructure is available from multilateral organizations, such as the International Finance Corporation and the private sector window of the Asian Development Bank. Although these funds can provide only a small amount of capital, their participation in a project provides a substantial degree of comfort to other investors, particularly domestic banks. DFID’s private sector infrastructure interventions therefore become valuable, particularly in India’s low income states and in the investment size below $50 million where currently there is a gap in available private equity funds.

The volume of capital available through existing investors remains modest relative to the total requirement of $1 trillion but the range of global investors (such as pension funds, sovereign wealth funds etc.) they can tap is very large and the flow of equity internationally into India could increase

52 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio substantially if bankable projects become available and the track record of implementation improves. Individual investor can reduce the risk by sharing the risk among a larger group of investors, which an equity fund structure allows. The main poverty reducing benefits from this programme are expected through improvements in infrastructure services in high impact sub-sectors e.g. agricultural storage and logistics infrastructure, urban infrastructure, district and rural roads and through demonstration of successful projects. The focus will be particularly on relatively smaller projects in the low income states and these sub-sectors which account for substantially reduced flows of patient risk-capital or investors who can take a long- term view of the sector. Challenges to flow of such capital in low income states in India are- 1. Lack of investors’ appetite to invest in risky regions due to availability of low hanging fruits in other matured states 2. Non- conducive business environment to attract private capital into infrastructure sectors 3. Lack of institutional capacity in project design and development. To address the shortage of patient risk- capital in the infrastructure sectors, with a focus in the low- income states, DFID India has partnered with IDFC Bank and SBI Capital Markets Limited (SBI Caps) to provide debt and equity funds respectively to a range of infrastructure sectors in India’s low- income states. IDFC Bank Limited has transitioned into a Bank now. SBI Caps is a subsidiary of the State Bank of India (SBI), the largest commercial bank in India.

The common impact of the Infrastructure Equity Fund and the Infrastructure Loan Fund Programmes is “increased investor interest in pro-poor infrastructure sectors in India’s low-income states” The outcome is “sustainable private sector supported pro-poor infrastructure projects delivered in the targeted sub-sectors in the low income states resulting in increased access to infrastructure services”. The Infrastructure Equity Fund Programme is an intervention using £36 million of DFID capital contribution to establish an equity fund of £48 million (including sponsor contribution) managed by the Fund Manager- SBICAP Ventures Ltd. (SVL) as the financial intermediary, and a £1.5 million technical assistance (TA) attached for improved systems of project appraisal, Environmental Social and Governance (ESG) assessment and monitoring through various partners selected from time to time. The Infrastructure loan Fund Programme is an intervention using a £36 million returnable capital component (debt) via IDFC Bank Ltd. as a financial intermediary, and a £2 million technical assistance for improved systems of project appraisal, ESG assessment and monitoring through various partners selected through DFID procurement processes. The programmes have the following three common outputs: • Increased number of private sector infrastructure projects in targeted (agricultural infrastructure; renewable energy services; district and rural roads and urban services) sub- sectors etc. in the eight Low Income States (LIS) • Build and strengthen development focus/ orientation of the project partner and portfolio companies. • Generate policy relevant knowledge on private sector approaches to pro-poor infrastructure sub-sectors. Headline results expected from the two programmes are: (See Annex 1 for Log frames) • At least 12 private sector-led projects (to build e.g. roads, grain storage warehouses, waste management facilities or solar power plants and sectors as agreed with fund managers); • At least £240m of private investment mobilised for pro-poor infrastructure services; • 280,000 women and men to gain access to new/improved infrastructure services such as electricity, sewerage, and transport (roads, bridges); • 1,500 long term jobs and 3,000 construction jobs generated; • 3 studies to collect and share evidence about the development impacts of selected projects

2. Objectives, purpose and scope The objective of DFID-India commissioning an independent evaluation of the returnable capital private sector infrastructure portfolio is to test the feasibility and effectiveness of debt and equity instruments

53 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio in promoting pro-poor private investments in infrastructure in India’s low- income states while achieving developmental (socio- economic) outcomes. This study will also assess the pre-conditions (policy, regulation and institutional capacity) necessary for replicating these instruments in India and beyond. The purpose is to learn lesson from an innovative market led infrastructure financing mechanism in low income states and to ensure accountability in terms of optimising development outcomes.

The Theory of Change (ToC) for both the infrastructure debt and equity programmes is attached as Annexure 2. The expected impact of both the interventions made under the portfolio is to “enhance investor interest in pro-poor infrastructure sectors in India’s low-income states”.

The scope of this study is to complete baseline data analysis by end of year 1 (2018) followed by mid- term evaluation in year 3 (2020). The evaluation agency is expected to work closely with the partners, project developers and support systematic forecasting and monitoring of investment and beneficiary data from investments based on reporting by fund managers, investees and through direct and secondary information sources.

3. Target audiences

This evaluation is primarily to inform the impact of future programmes in DFID-India and DFID more widely on providing long- term finance through returnable capital instruments like debt and equity. It is expected that the findings of this evaluation will inform and be used to design and deliver future returnable capital programmes in DFID with focus on low- income economies. The following will be the target audiences of this evaluation: DFID India, DFID global, the NIIF cross HMG team and a host of other agencies and partners including government departments in charge of implementing infrastructure programme, UK government / parliamentarians research networks, multilateral organisations engaged in infrastructure sector and other development agencies in India and globally. The findings will also have academic value as rigorous evidence of returnable capital as instruments to achieve development outcomes in the infrastructure sector. 4. Dissemination and communication

It is important that key findings, conclusions and recommendations from the evaluation are conveyed to the target audiences outlined above in a format that encourages them to engage and act on the information so that returnable capital instruments could be adequately analysed as instruments to finance long- term capital investments in infrastructure. The evaluators will be expected to develop a communication and dissemination strategy during the Inception Phase. As part of this work, the evaluators will be expected to identify other organisations that potentially have an interest in providing capital to the infrastructure sub- sectors in low- income states in future. The bid should include an outline of the dissemination and communication strategy.

5. Evaluation questions The evaluation will, reflecting the five DAC evaluation criteria of relevance, impact, effectiveness, efficiency and sustainability, aim to answer the following questions:

• Outcome level: Do DFID’s Development Capital Investments influence investor interest? If yes, how? And if not, why not?

• Development impact: Has there been any impact in terms of access to services and infrastructure asset creation. What is the impact in terms of people, jobs and capital leveraged? o Allocation efficiency – in which sectors does investment lead to the greatest impact?

54 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• Institutional impact: what is the impact on the developers/investees, the fund managers and their institutions, co-financers and the overall sector markets (e.g. risk of crowding out, do no harm)?

• Instrument and incentives e.g. profit, social impact, level of partnership: Does the choice of instrument – debt, structured or equity affect the impact?

• Value for money: What has been the overall value for money?

However, these are indicative questions. The bidders are expected to review and refine the theory of change and the set of evaluation questions during the inception phase in the light of the scope of the evaluation.

6. Evaluation design and methodology The consultants are expected to develop an evaluation design that is rigorous and based on internationally recognised methods. The design proposed should show how the chosen methodology including sampling, data collection and analysis techniques will lead to a robust and credible set of conclusions and recommendations around the overall impact and validity of the DFID India development capital infrastructure financing model. Bidders are free to propose the most appropriate design to allow generalisation from those investments selected for evaluation and identify key contextual factors expected to affect both effectiveness and sustainability and external validity. The design and methods will be judged on their utility under small to medium term scenarios and will be finalised during the evaluation process in agreement with DFID- India’ evaluation team constituted for this evaluation. The overall length of the bid proposal should not exceed more than 40 pages (excluding annexures and CVs) The consultants are expected to review and refine the theory of change in light of the expected outcomes and evidence to date and test the assumptions made and address any evidence gaps. The evaluation is expected to adopt a design which includes the gathering of baseline, midline project data. The bidders should explain how best these two portfolios (debt and equity) be evaluated given the fact that both will support a number of projects in different states. The projects will be dissimilar in nature as they will be chosen from a host of sub-sectors and the implementation period of individual projects will also vary within the broad time-frame of the infra programme. In the light of the purpose, scope and objectives, the bidders should incorporate the rationale of their choice of projects and if all the projects are considered for evaluation, the bidders should explain what should be the rigour and scope with which the projects will be evaluated. In developing the evaluation design and methods, the bidders should also consider the following issues:

• Each of the partnerships (debt and equity) is expected to make 8-9 investments into various projects either directly or supporting infrastructure, across sectors viz. agri-infrastructure, urban, renewable energy, waste processing, waste to energy etc. The evaluation should capture impacts disaggregated by gender, poverty level, minority groups etc. wherever applicable.

• The investment decisions will be taken by an expert Investment Committee constituted by representation from DFID and other contributors to the fund for the Equity Partnership while there will be a Board of Advisors for strategic guidance of the fund. On the other hand, Investment decisions will be at the sole discretion of the partner under the Debt Partnership.

• The extent of opportunities to enhance evaluation and potentially to learn, through either the selection of portfolio companies or how portfolio companies select or deliver services to primary beneficiaries will need to be verified with the project implementers. It is expected that all investments will be identified by December 2018.

55 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• Filling evidence gaps on the sustainability and effectiveness of the private equity and debt capital for infrastructure development in low- income states in identified sectors is one of the two main objectives for the evaluation. The design must therefore be methodologically rigorous and credible when judging both the internal and external validity of the results. Bidders will be expected to clearly set out the standards used for ensuring rigor/credibility. Assessing rigor/credibility will be a major focus of the future DFID quality assurance process.

• The expectation is that the detailed design will be completed and agreed by the end of the Inception Phase, with baseline data then collected and analysed by the end of year 1 (2018). A midterm evaluation should then be scheduled for year 3 (2020), and will be used by DFID in its own midterm review of the overall private sector infrastructure returnable capital portfolio.

• The bidders are expected to comment on the methodology adopted for capturing the impact of individual projects. As investments for these projects will happen overtime and across various sectors and states, the methodology should be robust enough to comprehensively evaluate the programme accordingly.

• The evaluators will also be expected to set out how they will address the implications for establishing baselines and identifying control groups (if required) when target beneficiaries will be identified on an on-going basis till 2018; as individual investments are identified. Note: A brief summary of the investment made till now is as under:

Sr Brief of the Investment/Loan State/Head Quarters

1. Wind Energy Project AP

2. Wind Energy Project Rajasthan

3. Waste to Energy Project Odisha

4. Milk Processing Maharashtra

5 Non-Banking Financial Corporation Low Income States

6 Wind Power Energy Project Madhya Pradesh

7 Dairy project Odisha

8 Cold Chain Logistics and Warehouses West Bengal

Most of the above projects are already constructed/final stages of completion. The future investments/loan are also expected to be on similar lines. 7. Skills and qualifications

The evaluation team should have a sound understanding of evaluation designs and research methods. The team should understand the strengths and limitations of different designs and how to accurately interpret and present findings to both researchers and non-researchers. The team will require a broad set of skills to be able to effectively design a complex evaluation and prior experience of evaluating private sector programmes. The team will also have a demonstrated ability to communicate complex studies and findings in an accessible way for non-technical readers, including presentation of data in visually appealing ways, highly structured and rigorous summaries of findings and robust and accessible syntheses of key lessons.

56 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

The evaluation team will need to have a mix of skills that covers: • Strong understanding of various quantitative and qualitative evaluation methodologies, surveys, and econometric/statistical analysis • Experience of undertaking large evaluation/impact assessments projects, using mixed methods approaches that meet recognised standards for credibility and rigor. • Experience of working on evaluations of private sector approaches • A good grounding in the literature of the ethnography in the target states; • Strong analytical and report writing skills and task management • Financial analysis, the private sector and economics; • Poverty and vulnerability assessments; • Political economy analysis; • Presentation of reports, data visualisation, and synthesising findings; Research communications and uptake; The evaluation supplier will need to be able to guarantee sufficient people to be able to implement and manage various studies simultaneously. The evaluation supplier will need to comply with DFID’s policies on fraud and anti-corruption, knowledge of latest UK Bribery Act and cooperate with any checks required from them for the duration of the evaluation e.g. annual audited statements, policies on management of funds, etc. The evaluation provider will be expected to supply their own logistic requirements including office space and transport. 8. Logistics and project management procedures The contractor will be selected by DFID India evaluation team with support from the Private Sector Team from a pre-qualified group. Economic Advisor, representatives of the Private Sector Team (DFID- India) will be the contact point for the study. An external sector expert may be appointed for this evaluation in consultation with the Evaluation Division, DFID. This external expert will be part of this pre-qualified group. The evaluation suppliers will provide recommendations to Results Advisor and Task Team Leader of both the Infrastructure Projects. Sr. Private Sector Advisor, DFID- India will be the overall lead for ensuring quality of the deliverables. Bi-annual reports on the progress of the evaluation, any obstacles to delivery and updated financial forecasts will be required. DFID India will sign off on the Inception Report and all other outputs specified in these ToR. All outputs will be subject to DFID quality assurance process, as will all final evaluation reports. The evaluation suppliers will be independent, but required to work closely with IDFC and SBICAPs Venture Ltd. and DFID India throughout the life of the programme, including agreeing the evaluation design, hypotheses for testing, outcomes of concern, appropriate indicators and a dissemination strategy. Whilst the evaluation must generate internationally credible evidence, the research and associated findings must have local stakeholders’ buy-in and acceptance to be useful for instigating reform and change. The programme will therefore create a reference group drawing from the partners, DFID programme team, DFID Evaluation Team and Investment Committee to facilitate this relationship. 9. Outputs and deliverables The major deliverables include inception report and a pilot report for the methodologies for design, baseline and midline evaluation. The evaluation agency is also expected to submit a six monthly progress report to DFID. All the evaluation reports will undergo mandatory quality assurance (QA) processes. Usually, the quality assurance of each evaluation product requires 15 days. The evaluation consultant should factor in the time requirement for QA while charting out the work-plan. All reports should be maximum 40 pages excluding annexures. 9.1 An Inception Report (within 3 months of commissioning the evaluation) The consultants will submit an inception report covering the followings: • The finalised evaluation design and methods • Elaboration of the ToC and discussion of implications for the evaluation design • Review the evaluation questions and proposals for how they might be amended or their range expanded

57 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• A communication and dissemination strategy, reflecting DFID’s Open Access Policy, and specifying the target audiences • A review of the main risks and challenges for the evaluation and how these will be managed • Proposal on collection of baseline and midline data • Assessment of the probable quality and credibility of the identified datasets and sources and implications for primary data collection • Review and validation of the monitoring data and develop a monitoring plan with the partners to measure results and to maximise the extent that monitoring can be used for evaluation purposes • Work plan

9.2 Pilot evaluation report Consultant should be ready to proceed with the pilot within a week of Inception Report being agreed. Within a week of concluding the pilot of the methodology, the consultant is expected to produce an evaluation report (not longer than 5 pages) of the pilot and whether the design methodology as set out in the Inception Report needs to be adjusted. 9.3 A baseline evaluation report (on timeline as agreed in the Inception Report) The evaluation agency will submit a report after the base-line work has been completed. The baseline- line report should state the findings of the survey, review of situation/context and analyse the results. It will include an executive summary, context, evaluation goals, purpose, objectives, scope, methodology and the process through which data and information have been collected and analysed. The report should include suitable graphs, charts, tables disaggregated and aggregated data for different relevant spatial and socio-economic categories based on the evaluation framework. The consultant should submit the draft baseline-line report within two weeks of completing the primary data collection (quantitative and qualitative) and review of the relevant documents, policies and practices and secondary data sources. The final baseline report should be submitted within two week after incorporating comments from DFID and reference group. The consultant should submit the draft and final reports to DFID in both electronic and print format for comments. 9.4 A midterm evaluation report (Year 3 i.e. 2020):

The evaluation agency will submit a report after the mid-line work/survey has been completed in the third year after commissioning the evaluation. The mid-line report should state the findings of the survey and analyse the results as against the baseline. This will be a status report of the programme and illustrate findings with respect to the evaluation questions and indicators. The report should include an assessment of the likely effectiveness and sustainability of the programme and efficiency of the delivery approach, particularly effectiveness of the returnable capital instruments used for infrastructure financing with suggestions on how the programme approach might be adjusted to enhance its overall impact in terms of leveraging private investments. There should be a specific high level report using the mid-term findings and conclusions to disseminate to senior DFID and other stakeholders outlining the potential for replication of the social venture capital model. At this stage it may not be possible to identify impact however the mid-term evaluation will identify the trajectory of change and allow revisions to the evaluation design and methodology to be implemented in preparation for the final evaluation.

The consultant should submit the draft mid-line report within two weeks of completing the data collection and the final midline report within two week after incorporating comments from DFID and reference group. The consultant should submit the draft and final reports to DFID in both electronic and print formats for comments. 9.5 Regular six-monthly up-dates to DFID and the reference group. This should include progress on the evaluation plan and monitoring updates of investment and beneficiary data.

10. Budget The proposed budget for the assignment is up to a maximum of £500,000. Bidding agencies are expected to provide a detailed costing to meet the objectives of this assignment. Bid evaluation will be based on both technical and financial considerations. The final selection will be made having determined which proposal offers the best and most cost-effective way to meet the objectives of the study, based on the quality of evaluation and the competitiveness of the financial bid.

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11. Timelines The contract will be let for 3 years with the possibility of extension for up to a further one year. Where circumstances require further extension beyond the original contract duration/agreed extensions, DFID will consider doing so by means of the negotiated procedure. Indicative start dates for the surveys are as follows: Start of Baseline Survey- early 2018 Start of Midline survey- early 2020 12. Existing information and data sources Apart from the primary data collected, the evaluator will have access to the following data sources:

• Financial Statements of the Fund (for the equity partnership) and the project developers • MIS maintained by the Fund Manager, which will have financial and operational reporting from the portfolio investees. • MIS of project developers • ESG report of projects funded out of the 2 partnerships • The business cases, log-frames and ToC of both the projects • Periodic progress reports including mid- year and Annual Reviews of the projects, as and when they are available. • Monitoring data in relation to all the above referred projects

13. Duty of Care The service provider is responsible for making their own travel arrangements for fulfilling the requirements of the assignment. This is likely to include travel to programme activities in Africa and South Asia in order to deliver the contract (subject to travel clearance being granted). Only economy travel will be supported, and the service provider should make all reasonable effort to ensure value for money in all travel arrangements. Duty of Care is a legal obligation and under DFID’s policy on Duty of Care, the lead supplier is responsible for the Duty of Care of all supplier personnel (including employees, subcontractors and agents) including making the appropriate security arrangements to protect their safety and wellbeing. Suppliers must comply with the general responsibilities and duties under relevant health and safety law including appropriate risk assessments, adequate information, instruction, training and supervision, and appropriate emergency procedures. These responsibilities must be applied in the context of the specific requirements of the contract. Proposals should demonstrate how suppliers are capable of taking responsibility for duty of care within the contract. The Supplier is responsible for the safety and well- being of their Personnel and Third Parties affected by their activities under this Terms of Reference. They will also be responsible for the provision of suitable security arrangements for their domestic and business property. DFID will share available information with the Supplier on security status and developments in-country where appropriate. The Supplier is responsible for ensuring appropriate safety and security briefings for all of their Personnel working under this Terms of Reference and ensuring that their Personnel register and receive briefing as outlined above. Travel advice is also available on the FCO website and the Supplier must ensure they (and their Personnel) are up to date with the latest position. This Procurement will require the Supplier to operate in a seismically active zone and is considered at high risk of earthquakes. Minor tremors are not uncommon. Earthquakes are impossible to predict and can result in major devastation and loss of life. There are several websites focusing on earthquakes, including http://geology.about.com/library/bl/maps/blworldindex.htm. The Supplier should be comfortable working in such an environment and should be capable of deploying to any areas required within the region in order to deliver the Contract (subject to travel clearance being granted). This Procurement will require the Supplier to operate in conflict-affected areas and parts of it are highly insecure. The security situation is volatile and subject to change at short notice. The Supplier should

59 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio be comfortable working in such an environment and should be capable of deploying to any areas required within the region in order to deliver the Contract (subject to travel clearance being granted). The Supplier is responsible for ensuring that appropriate arrangements, processes and procedures are in place for their Personnel, taking into account the environment they will be working in and the level of risk involved in delivery of the Contract (such as working in dangerous, fragile and hostile environments etc.). Bidders must develop their tender on the basis of being fully responsible for Duty of Care in line with the details provided above and the initial risk assessment matrix developed by DFID (see Annex 3 of this ToR). Suppliers should be aware that an assessment of Duty of Care will be undertaken at the full tender stage and must confirm in their response that they have the capability to work in INVENT’s partner countries as required. They must confirm in their Tender that: • they fully accept responsibility for Security and Duty of Care. • they understand the potential risks and have the knowledge and experience to develop an effective risk plan. • they have the capability to manage their Duty of Care responsibilities throughout the life of the contract. • Duty of Care for any field visits including all aspects of travel and accommodation will be fully assessed. Acceptance of responsibility must be supported with evidence of capability (no more than 2 A4 pages) and DFID reserves the right to clarify any aspect of this evidence. In providing evidence Tenderers should consider the following questions: a) Have you completed an initial assessment of potential risks that demonstrates your knowledge and understanding, and are you satisfied that you understand the risk management implications (not solely relying on information provided by DFID)? b) Have you prepared an outline plan that you consider appropriate to manage these risks at this stage (or will you do so if you are awarded the contract) and are you confident/comfortable that you can implement this effectively? c) Have you ensured or will you ensure that your staff are appropriately trained (including specialist training where required) before they are deployed and will you ensure that on-going training is provided where necessary? d) Have you an appropriate mechanism in place to monitor risk on a live / on-going basis (or will you put one in place if you are awarded the contract)? e) Have you ensured or will you ensure that your staff are provided with and have access to suitable equipment and will you ensure that this is reviewed and provided on an on-going basis? f) Have you appropriate systems in place to manage an emergency / incident if one arises?

For further details please see DFID’s policy on Duty of Care: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/137565/DFID-duty-of- care-suppliers-note.pdf and latest DFID Duty of Care risk assessment matrix in Annex 3. DFID will support by sharing available information with the service provider on security status and developments in-country as appropriate. Travel advice from the UK government is also available on our website (https://www.gov.uk/foreign-travel-advice). The service provider will be responsible for managing all arrangements regarding setting up appointments associated with the assignment. DFID’s global partnerships team in DFID India will provide reasonable support to the service provider with regard to supplying contact information and introductions to key stakeholders were necessary. 14. Risk Management DFID’s approach and format for characterising risk will be clearly communicated to the service provider. The service provider will be expected to identify the key risks they perceive in meeting the objectives of this TOR and proposed mitigation methods. These may include but are not limited to:

60 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• Lack of access to the data and information required for the evaluation is not expected to be a risk. The service provider will have access to partners and DFID programme information. Where specific data might be required, supplier will need to search and find them from public domain. • We do not expect internal programme risk to affect the delivery of the evaluation. Political risk has become lower since the programmes were approved. The new Indian government elected in June 2014 is pro-business.

61 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Annex B Case Studies Case Study 1– Cholamandalam Investment and Finance Company Limited (Cholamandalam) Cholamandalam – at the company level The section is structured around preliminary findings on sub-questions for Evaluation Question One (“Did the DCI investment affect the social enterprise?”). EQ 1.1 Did the DCI investment help Cholamandalam expand or deepen outreach, geographically and across disadvantaged groups? Indicators Achievements/findings Started operations March 2017 Financial services Vehicle finance, home loans, home equity loans, SME loans, investment offered advisory services, stock broking and a variety of other financial services People served Over 800,000 customers Customers profile Across economic classes, but focusing on first time borrowers in far flung, remote rural regions Midline focus TBD Cholamandalam Investment and Finance Company Limited (CIFCL or Chola), a non-bank finance company, was incorporated in 1978 as the financial services arm of the Murugappa Group. It commenced business as an equipment finance company and has today emerged as a comprehensive financial services provider offering vehicle finance (VF), home loans (HL), home equity (HE) loans, SME loans, investment advisory services, stock broking and a variety of other financial services to customers. It is focused in the rural and semi-urban sector with a market capitalisation of ₹227 bn.38 It operates from 873 branches across 27 states including the 8 low income states (LIS), north-eastern states, J&K and 79% presence across Tier III, IV, V, and VI towns. Figure 3 indicates the strong geographical presence of CIFCL across India. IDFC Ltd has lent INR 100 crore to Cholamandalam Finance from within the DFID- IDFC Debt partnership which partially utilised DFID DCI Debt Capital investments. The Company’s core business segments include vehicle finance (VF, 72%) and home equity loans (HE, 25%). The Company has a small SME loan, housing loan and agriculture loan portfolio which largely make up the rest of the portfolio. The subsidiaries of Chola are Cholamandalam Securities Limited (CSEC), Cholamandalam Distribution Services Limited (CDSL) and White Data Systems India Private Limited (WDSI). CIFCL’s pre-eminent position is for the following reasons a. Financing commercial vehicles since the 1970s, starting with leasing, moving on to hire- purchase and finally vehicle loans. b. The personnel in CIFCL are people who have spent 10-15 years in the Company, from the field upwards, rising from branch level positions to national level positions, who know commercial vehicle finance very closely. c. The company ensures that all the teams of sourcing, underwriting and collections work in an interlinked manner. The credit person understands that market share is important; The salesperson understands that if delinquency increases, sourcing is going to be impacted. The KRAs of the team members are made accordingly.

CIFCL is bigger than many banks today in terms of assets, disbursing almost ₹2,000 crore per month. The Company is among the top three in its line of business with robust credit checks, using technology.

38 Market data as on 28th Mar 2018. Source: BSE

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Figure 3 Strong geographical presence of CIFCL across India

• 873 branches across 27 States/Union Territories: 868 Vehicle Finance, 148 Home Equity (143 co- located with Vehicle Finance) and 127 Home Loans (co-located with Vehicle Finance) • 79% locations are in Tier-III, Tier-IV, Tier V and Tier-VI towns • Figures in brackets represent number of branches on 31 March 2018

The Asian Development Bank (ADB) has financed CIFCL for one and a half years, and IFC has financed for around 7 years. They take information in a social and environmental management (SEM) system from CIFCL. They typically finance in tranches of Rs.1,000 crore, for 3-4 years, with interest rate being 5 to 10 BPS lower than the market rate. This enables CIFCL to do business with less creditworthy borrowers. CIFCL has a growing clientele of over 8 lakh customers across the country. The Company has added trip loans and Chola Vishesh as new product extensions under VF, catering to funding requirements of the VF ecosystem. The trip loan is targeted at the trucking community by extending short-term credit for the freight/ transportation process, aimed at moving this lending product from the unorganized segment to the organised segment. This will help the truckers get comparatively lower cost credit transparently, improving their profitability. Chola Vishesh, a pre-approved loan leveraging technology, is extended to existing credit tested customers. Vehicle Finance The forte of CIFCL is commercial vehicle financing (small to heavy vehicles). The commercial assets include small/large trucks, tractors and construction equipment. The focus is on the first-time borrower, or the driver-cum-owner profile. Commercial vehicles also create employment for the users. More than 70% of first-time borrowers who were drivers are turning into owners. CIFCL’s specialisation is in this small road transport operator (SRTO) segment who typically owns one vehicle, or at most two. This is the biggest chunk of Chola’s business; the company has been working in this profile for over 20 years. In this profile, customers are certainly low income, and many are also from disadvantaged groups like backward castes. Around 50-60% of CIFCL customers who are first time borrowers purchase LCV or HCV as an economic asset. They need money (vehicle loan) both for their social and economic needs. CIFCL has clearly defined norms which classify such customers into asset-based lending where they do not have any other means of livelihood except the earning of this vehicle. In the SRTO profile, CIFCL

63 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio also finances customers who have one existing vehicle, and who would like to grow further. The first- time borrower profile has no prior history of borrowing. In such cases, a driving license and voter ID becomes important. The person could be living in his own property/ancestors’ property/ on rent. The documentation varies based on the situation. Strategic customers, large fleet owners, are not the focus set of customers of CIFCL. CIFCL does refinance as well. For the following two categories, refinancing is also done: a. There could be people who do not want to buy a new vehicle even the first time and would rather buy a used vehicle. b. Another category includes customers who have bought a vehicle, have possibly repaid the loan on it but now need a consumption loan for personal requirements like marriage, to buy a small plot of land for agriculture. CIFCL are leaders in Chhattisgarh state in the vehicle finance sector. The bulk of the funding is for trucks, tractors and backhoe loaders. Tractors do business of around ₹165-170 crore (£18.5 million). Backhoe loaders are the main profile that are buying these vehicles as first-time borrowers. Banks would rather fund an excavator, because it is a higher tonnage asset, for a higher load offer. On the other hand, CIFCL funds backhoe loaders, which aid not just individual socio-economic development but equally support economic development. CIFCL has balanced presence across all the four regions of India. The primary focus is on acquiring new customers in the rural market, to provide better reach for the customers to enable repeat business and to improve proximity for better collection. The challenge faced by the Company in the VF sector is to continue delivering strong growth and maintain superior asset quality. Some strategic interventions taken by the company to address the challenge are: ● One of the fastest turnaround times (TAT) in the industry (achieved through digitalization of sourcing new loans and customer on-boarding). ● Strong Original Equipment Manufacturer support and good dealer service. ● Sustained penetration in Tier II, III and IV towns. ● Experienced and stable in-house sales and collections teams. ● Effective underwriting and strong collection management leading to lower delinquencies. ● Right product mix focused on profitable growth. ● Diversified product portfolio and geographical presence preventing concentration risks. ● A committed top management team who have grown in the Company with 10+ years of experience. Home Equity Under home equity, the focus of the Company is on lending based on the value of property; self- occupied residential properties are Chola’s preferred asset class - a relatively safe asset class to lend against. Its target segment continues to be the self-employed, non-professional customers. Strategic interventions taken by the Company were: ● The Company has over the years built strong systems and processes focused on acquiring the right customers. It is focused on strengthening analytics and automation in the underwriting process, customer behaviour, efficiency of sourcing channels and collection analytics, thereby strengthening customer and channel partner relationships. With this digital focus, the business is confident of pushing boundaries in delivering growth and maintaining asset quality. ● The business has built deep expertise in understanding and assessing this customer segment. ● The business operates out of 148 branches and will continue to expand geographically, reaching out to customers in the Tier 3 and Tier 4 towns which offers low risk and high return market potential. Home Loans Under home loans the prime focus of the business is on the self-employed non-professional customers seeking to buy/construct a new home under affordable housing. During the FY2017-18, the board of directors of the Company approved setting up of a housing finance company (HFC) as a subsidiary.

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The subsidiary Company is in the process of making an application to the National Housing Bank for starting the HFC.

Tractor Loans Chola finances tractors used for both agricultural and commercial purposes. Currently, CIFCL is doing ₹65 crore or 4,000 tractors per month of business. The competitors of CIFCL include Shriram, Mahendra, Tata Motors. Cholamandalam is number two in the business after Shriram Transport.

Construction equipment business Construction equipment is much in demand due to the boost in infrastructure activities in India. Chola started construction equipment lending in 2015 in Rajasthan, Gujarat, Maharashtra and Tamil Nadu. It was scaled up all over the country in 2017. First time borrowers are supported for backhoe loaders, moving gradually to excavators, and thereafter, mobile cranes. Chola has tied up with a few equipment manufacturers. Chola finances both new and used products. Business started with ₹25 crore, and now has moved to ₹100 crore a month.

JCB Backhoe business Backhoes are used mostly in small tonnage, levelling, digging and small landscaping type of work, involved in low value transactions, especially in rural areas, like roads construction etc. Excavators are used in mining. Backhoe loaders cost ₹20-25 lakh (£27,000), and excavators are priced at ₹40-50 lakh (~£50,000). The person buying an excavator should have the contacts to get that much business. Often 2-3 persons get together and buy a backhoe.

School Bus Loans School bus loans are approved both in the name of schools and contractors. Some states insist that schools take buses. School bus is a competitive market, because repayments from there are always regular. CIFCL’s other value-added initiatives include: Chola Finance App; Gaadi Bazaar; Refinance for personal/ consumption purposes. While the borrowers are also sometimes being supported for consumption loans through refinance, these are exclusively for CIFCL customers, as they cannot say no to them. However, this is a small number, may be 2-3% of the VF portfolio. These are provided as top up loans to the borrowers. There is another aspect to it. As the borrower has been returning the loan, and the value of the commercial vehicle is more than the outstanding against the borrower, the financier is willing to allow top up loans to the extent of the difference between the value of the vehicle, and the outstanding. As shown by the discussion above, Chola has a very down-to-earth business model with systems that facilitate the engagement of relatively low-income buyers of vehicles and equipment. Though very few of its customers could be classified as below the national poverty line, most of those in the above product categories would certainly have incomes below the $3.10 per day threshold. EQ 1.2. Has Cholamandalam demonstrated a profitable business model?

Indicators Achievements/findings Capital raised The AUM of the Company as a whole, grew by 24% from FY2016-17 to FY2017-18 and the growth of on-balance sheet assets was 31%. The business AUM (including on book and assigned and net of provisions) in FY 2017-18 amounted to ₹42,879 crore (£4,661 million). Financial performance Cholamandalam is a highly profitable company; a balanced disbursement mix, robust collection of overdues and relatively low cost of funds, have resulted in the return on equity being in the 18-21% range. Midline focus Monitor the financial performance of Cholamandalam over the next couple of years – to midline – to confirm its ability to serve low income and/or deprived communities in the DCI target states.

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The Company’s assets have grown by 31% in the last two years. A summarised version of the Balance Sheet is given in Table 2. Table 2: Balance Sheet of CIFCL ₹ crore Particulars FY 2017 FY 2018 Growth % Assets Business Assets 28,414 37,201 31% Other Assets 2,181 2,304 6% Total 30,595 39,505 29% Liabilities & net worth Net worth 4,285 5,150 20% Borrowings 24,109 31,902 32% Other Liabilities 2,201 2,453 11% Total 30,595 39,505 29% Off-Balance Sheet Assets 6,263 6,233 0% Total Assets under Mgt. 36,858 45,738 24% The total AUM for the Company as a whole, grew by 24% (YoY) and the growth of on-balance sheet assets was 31%. The business AUM (including on book and assigned and net of provisions) in FY 2017-18 stood at ₹42,879 crore (£4,661 million). Cholamandalam is a highly profitable company; its Profit before Tax increased from ₹1,106 crore (£120 million) in FY2016-17 to ₹1,483 crore (£161 million) in FY 2017-18. A summary version of the profit and loss statement is presented in Table 3. New lending entities are looking to expand their loan against property (LAP) portfolio, which has led to aggressive acquisition of customers in the small ticket portfolio. Due to intense competition, yields have dropped by 200 bps in the past 18 months. The Company’s aggregate loan disbursements grew by 35% to ₹25,114 crores in FY 2017-18. This was primarily on account of a 42% growth in vehicle finance disbursements. Home equity disbursements grew by just 4% over the previous year. The net profit after tax for the year rose by 36% to ₹974 crore (£10.6 million). The Company achieved a PBT Return on Total Assets of 4.6% in FY 2017-18 as compared to 3.9% in the previous year. This was attained through a balanced disbursement mix, robust collection of overdues and lower cost of funds, resulting in better profitability with the return on equity increasing to 20.6% from around 18% in the previous year. Table 3: Statement of Profit & Loss of CIFCL ₹ crore

Particulars FY 2016-17 FY 2017-18 Growth % Disbursements 18,591.26 25,113.51 35% Income 4,660.35 5,425.77 16% Cost of Funds (2,230.80) (2,307.85) 3% Net Margin 2,429.55 3,117.92 28% Operating Expenses (1,013.34) (1,289.52) 27% Loan loss & other provisions (310.63) (345.09) 11% Profit before Tax (PBT) 1,105.58 1,483.31 34% Current and deferred Tax (386.84) (509.19) 32% Profit after Tax (PAT) 718.74 974.12 36% Return on equity 20.6%

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The company also maintains its profitability by managing its loan delinquency on a regular basis. Over an 18-month period, the early default signs are monitored. Non-starters are tracked over a six-month period. Instead of portfolio at risk, Chola has its own internal triggers, which are even discussed at the top level. The Head Office team has its own indicators in terms of monitoring repayments and defaults. The Head Office monitoring team has con-calls with every team, where they go agreement-wise to enquire on pending EMIs. They discuss improvements both from business and portfolio perspectives. The Company’s thumb rule is that they must remain connected with grassroots clients or they will suffer. Aggressive collection efforts helped in improving asset quality which resulted in GNPA dropping steeply to 2.9% and NNPA to 1.7% in FY 2017-18 from GNPA of 4.7% and NNPA of 3.2% in the previous year on a 3 months overdue basis. Table 4 provides the key asset quality ratios of CIFCL. Over 40% coverage of gross non-performing assets by provisions is a positive indication of the prudential approach of the company’s management. Table 4: Key Asset Quality ratios of CIFCL % of assets under management

Particulars FY 2017-18, % Non-Performing Assets (NPA) recognition timeline 3 months overdue Gross Non-Performing Assets (GNPA) 2.94 Provisions 1.28 Net Non-Performing Assets (NNPA) 1.66 Provision Coverage on GNPA 43.48

Table 5 indicates Assets Under Management (AUM) of Chola compared with its peers. While it is smaller than some of its competitors, Chola’s intensity on collections helped it maintain superior asset quality and low credit costs. Figure 4 shows that cautious lending by Chola has yielded better asset quality performance compared to its peers. Table 5: AUM of Chola versus peers

AUM (₹ ‘000 crore) Mar-17 Mar-18 STFC 78.8 95.3 SBI 57.6 66.4 HDFC BANK 37.9 45.9 Indusind Bank 32.4 38.7 Mahendra Finance 46.8 55.1 Cholamandalam 23.6 31.5 AXIS BANK 16.8 22.7 ICICI 40.6 15.2 Kotak Mahendra Bank 10.8 15.2 Sundaram 20.7 22.7

Source: Company, KR Choksey Research

67 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Figure 4: Gross NPA trend of Chola versus peers

10.0% 9.2% 8.8% 9.0% 8.1% 8.2% 8.0% 7.0% 7.0% 6.2% 6.0% 4.9% 5.0% 4.8% 4.2% 3.9% 3.8% 4.0% 3.6% 3.7%

3.0% 2.0% 2.1% 2.0% 2.0% 1.5% 1.5% 1.7% 1.2% 1.0%

0.0% FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

STFC Sundaram Magma Cholamandalam

EQ 1.3 Did the DCI investment add value to Cholamandalam (e.g. in terms of governance, operational management, financial management); ability to cope with issues in low income states?

Indicators Achievements/findings Capital augmentation The ₹100 crore (£10.9 mn) loan for CIFCL was in the form of Non- Convertible Debentures (NCDs) issued to IDFC Bank Ltd on 27 November 2015 – with a 9.1% annual coupon payment. Even at the time, the funds provided amounted to just 0.36% of assets under management. On 31 March 2018, it constituted 0.25% of total funds (0.27% of assets under management) and 0.33% of CIFCL’s borrowings. Management support There is no reported change in governance, operational management or financial management in Cholamandalam due to the DCI investment. As a highly profitable and well-managed company established 40 years ago (1978) the scope for making this type of contribution to the company was quite limited. Midline focus Follow the performance of the company to see how its portfolio is being deployed in the low-income states and document the extent to which the lives and livelihoods of deprived families are being affected by Cholamandalam’ s business activities. The DCI funds through IDFC Bank were deployed in the low-income states of India. Figure 5 presents the distribution of the ₹100 crore (£10.9 mn) of DFID funds in CIFCL’s portfolio on 31 December 2017 (by geography and business segment). More than 23% of the funds were deployed in Chhattisgarh, which indicates not just the priority given by Cholamandalam to this state, but the fact that DCI investment enabled them to build on their work in the state. As is apparent from the figure, the other big investment is in Rajasthan, with more than 28% of the DCI funds deployed. Contribution: As can be seen above, the loan received under the DCI Infra Fund was just 0.25% of the total funds of Cholamandalam. Yet, the ₹100 crore (£11 million) received by the company enabled it to invest in a backward and remote region like rural Chhattisgarh as well as in other low-income states. Given the risks associated with investments in such locations, since Chattisgarh in particular falls under the shadow of the Maoist insurgency, it is apparent that the DCI Infrastructure Funds encouraged the company to provide their services in some of the least developed areas of low income states where the benefits reached some of the most economically deprived communities.

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Figure 5: Distribution of CIFCL’s portfolio

45

40 3.55 ₹ crore ₹ 35 10.57 30 2.98 25 10.45 7.47 5.56 20 2.21 2.21 15 7.38 6.34 10 1.06 14.49 3.98 5 9.41 2.29 2.73 - Construction equipment Tractors Vehicles for agriculture

Bihar Chhattisgarh Jharkhand MP Odisha Rajasthan WB

There is an expectation in Cholamandalam senior management that DFID would consider providing additional funds to the company for further expansion in the low-income states. EQ 1.4 & EQ1.5 Were there other intended and unintended impacts of the DCI fund investments? What was the additionality of the investment?

Indicators Achievements/findings Economic Cholamandalam gives preference to first time borrowers, people who have been transformation driving others’ trucks, and who get the chance to become owners of trucks themselves. Chhattisgarh being a tribal dominated state, there is at least one location, where some remarkable unintended social and economic empowerment of tribal in a mining area took place. The case study is presented below as an additionality of the IDFC/DFID investment. Social In at least one location in the tribal dominated state of Chhattisgarh, thanks to empowerment some enlightened non-tribal villagers who worked with their tribal neighbours, an extraordinary story of social transformation took place due to the vehicle finance available from Cholamandalam and its enthusiastic workers on the ground. This transformation took place in Kachche, a small village in the heart of “Maoist” affected tribal areas. Here, the tribal and non-tribal families worked together to access Cholamandalam loans, to buy trucks which they deployed in the mines that came up next to their village. Midline focus To document more such cases of social transformation that contribute to the welfare of deprived communities.

Transformative results of a commercial intervention – in Kachche

Kachche is a village about 15 kilometres from the Bhanupratappur tehsil of Kanker district, Chhattisgarh, with a population of 1,190 (277 families, 2011 Census), mostly from the tribal community. The Kachche village community used to be totally dependent upon seasonal agriculture when an iron ore mine was opened next to the village in 2009. This is the time when Cholamandalam decided to expand its activities in the area around Bhanupratappur and started offering vehicle loans to people in the region. Jitendra Jaiswal and Govind Das, two educated non-tribal inhabitants of Kachche village with a progressive mindset saw the opportunity offered by Cholamandalam products. They were the first to pick up vehicle loans, starting with smaller commercial vehicles like the Commander SUV, and then moving on to trucks for mining.

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At that initial stage, there was complete domination of trade unions of neighbouring cities/locations for the share in mining related transport in Kachchhe. That is when Messrs Jaiswal and Das took an extraordinary step; they not only decided to encourage their tribal neighbours in Kachche to take Cholamandalam loans for trucks for mining, but also undertook to guarantee these initial loans. Since they had banking histories, their guarantees meant that their tribal neighbours, who often did not have any such histories, became bankable. The share of the recently created Kachche truck operators’ union was a meagre 16% of the trucks engaged by the mine at that time. The size of the union was limited to 6 members. After a small trickle, as the results of the Cholamandalam vehicle loans started showing, loans were taken up by many other tribal villagers, and the number of Kachche union members swelled. As the Kachche Union got stronger, it negotiated with the mining company, to increase the share of the Kachche union trucks in exclusive engagement by the mine. Today, the share of the Kachche union has increased to 52% in the mining activity and will likely increase further in the future. Each member of the Kachche Union now has at least five HCVs operating in the mining area. The constant flow of income during this period helped in socio-economic transformation of the whole community. With increased income, about 90% of the houses in the village are now brick-and-mortar structures. Each household has its own personal four-wheeler vehicle. The quality of education has also improved as most of the parents can afford to send their children to private schools in nearby towns. By providing client-centric vehicle financing services, Cholamandalam has created wealth and helped usher in an astonishing transformation for the tribal communities of a small village in a remote, backward region which was once a hotbed of Maoist activity. Another unintended positive effect of the Cholamandalam services has been the empowerment of the tribal villagers in Kachche through their union. There have been instances where the Kachche union members, including women, have fought pitched battles with unions from other regions, often of non- tribal operators, to continue their business with the Kachche mine. Such a transformation is unlikely to have happened without the Cholamandalam vehicle finance being available. Cholamandalam – at the household level The section is structured around preliminary findings on sub-questions for Evaluation Question Two (“Did the DCI borrowers provide the poor, particularly women and socially excluded groups, with access to high quality services?”). The evaluation team conducted focus group discussions and key informant interviews in select locations in Chhattisgarh state, which is the fastest growing as well as the largest market in the eastern region for Cholamandalam – details in Table 6. The visits included villages close to the core of the Maoist affected areas. Table 6: Details of FGDs and KIIs

Location Tool ST Muslim OBC General Women Men Dhamtari/Clients FGD1 1 1 2 4 Bhanupratappur/Clients FGD2 2 1 3 6

Bhanupratappur /Clients FGD3 4 2 6

Agri-vehicle/Clients FGD4 1 2 1 4 Raipur/Clients KII I 1 1

Raipur/Clients KII II 1 1 Raipur/Clients KII III 1 1 Raipur/Dealers KII IV 1 1 Raipur/Dealers KII V 1 1 Total 7 4 2 12 0 25

EQ 2.1 Are there any additional employment and income opportunities created in the branch areas of Cholamandalam? Additional employment and income opportunities have been created in the branch areas of Cholamandalam. A significant proportion of Cholamandalam’s clients are first time borrowers who were drivers of others’ vehicles, and then bought a vehicle through Chola. Most of the first-time borrowers of

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Cholamandalam have gone on to take repeat loans. Table 7 below shows the contribution of some of the vehicle categories to the annual turnover of Cholamandalam, and more importantly, the additional income earned for the buyer. This income is net of the interest paid on vehicle loans by the vehicle owners to Cholamandalam, the salaries paid to vehicle staff and other expenses. Table 7: Value generated for Cholamandalam and its customers

Number of Cholamandalam Annual income vehicles turnover generated for buyer (₹ crore) (₹ crore) LCV 8,802 411.59 423.92 HCV 7,617 355.47 400.65 Tractors 2,806 130.96 98.96 Construction equipment 1,604 74.83 123.54 Total, ₹ crore 972.85 1,047.08 Total, £ million 105.74 113.81

At least one person interviewed in Raipur, Chhattisgarh was able to build, through vehicle finance from Cholamandalam, a large fleet of about 40 trucks, which means at least 80 persons getting additional employment, each earning between ₹15,000-25,000 per month. Some of this fleet owner’s drivers are now becoming the next generation of first-time borrowers of vehicle loans from Cholamandalam. Adding the trucks of those who branched out, there would be at least 200 trucks in operation. Each of these trucks earn on an average ₹80,000 per month for 7 months, and ₹50,000 per month for 5 months. That makes it an annual income of ₹8,10,000 per truck, or ₹16.20 crore for 200 trucks. One old customer of Cholamandalam in Raipur took about 14 vehicle loans and became guarantor for another 27. Thus, he was responsible for business of 41 vehicles through Cholamandalam and as many jobs for drivers.

Table 8 shows the estimates Table 8: Employment generated and annual incomes of the employees for the employment created Number of persons Salaries provided to due to Cholamandalam employed for the vehicle staff (₹ vehicles crore) vehicle loans. Thus, due to LCV 17,640 30.87 Cholamandalam loans, at HCV 22,851 45.70 least 42,000 new, sustainable Construction equipment 1,604 6.41 jobs were created, which earn Total 42,095 82.99 for them estimated salaries of ₹83 crore (£9 million) per annum. One of the respondents used to be a driver in another transport company. When he wanted to become the owner of a truck himself, his employer referred him to Cholamandalam, and became guarantor for the loan. Two borrowers were previously working in a managerial role with different transport companies which had taken Cholamandalam loans. They decided to start their own venture and became owners of vehicles through Cholamandalam. At least one-person credits loans provided by Cholamandalam for the profits earned in the transport business with which he was able to set up a production unit of aluminium extrusion. EQ 2.2 Did any poor and marginalised persons get jobs/services/increase in income in the branch area where Cholamandalam products have been sold? There were many poor and marginalised persons who got jobs/ services/ increase in income in the branch area where Cholamandalam products have been sold. In Kachche village, about 500 vehicles have been bought by tribal community members. The farmers who have bought tractors have doubled their incomes from the tractors bought through Cholamandalam loans, by using the tractors on their fields, and through custom hire for others both for agricultural work as well as for transportation on roads using their trolleys, earning a net income of around ₹30,000 per month. Number of first-time borrowers who started with a very humble background, working for instance as clerks for transporters had become vehicle owners through the loans of Cholamandalam, and over the years, completely transforming their fortunes, in some cases becoming owners of small fleets.

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EQ 2.3 Has access to services and reduction in cost due to the Cholamandalam products resulted in addressing vulnerability? Access to services and reduction in cost due to the Cholamandalam products has resulted in addressing vulnerability. Almost all the nearly 300 houses in Kachche village are now pucca (brick and mortar) structures. The truck operators’ union in Kachche is one of the most powerful in the region, where its 3 women members and about 180 tribal members are extremely empowered people, who fight for their rights. They have been able to defend the trucking rights of the local vehicle owners against much more powerful external, non-tribal vehicle owners. Many other respondents spoke of their increasing their social and financial capital due to the vehicle loans provided by Cholamandalam. The farmers who are now able to diversify their incomes due to access to loans to buy tractors and trolleys have also become less vulnerable due to reduced dependence on agriculture. Financial Assessment Overall Financial performance During the Financial Year (FY) 2017-18, the Company grew its disbursements by 35%, while, the Assets Under Management (AUM) grew by 25%. Return on Equity improved to around 19%, while, Return on Capital Employed showed a minimal improvement from 2.77% to 2.85%. The Debt to Equity Ratio remained at 6.19 times, indicating, company has been aggressive in financing its growth with debt. One of the most significant actions was in reducing the Non-Performing Assets (NPAs), which came down to 2.9% from 4.7%, a year ago. With regards to vehicle finance, FY 2017-18 signalled the return of consumer spending and growth for commercial vehicles across the industry. The vehicle manufacturers across the segments reported double digit growth, such as, heavy commercial vehicles grew by 11%, light commercial vehicle grew by 17%, min LCV grew by 33%, which augured well for the company which led to the increase in market share across various segments. The liquidity and the interest rate were also within the control limits during the major part of the FY supporting growth. On the other hand, the home equity business witnessed margins pressure on account of stiff competition among the competitors. The table 9 below provides a snapshot of company’s performance across its key products. FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 CAGR VEHICLE FINANCE Disbursements (Rs. Cr.) 10128 9163 12383 14471 20540 19% Business AUM (Rs. Cr.) 17064 17639 20100 23631 31505 17% Revenues (Rs. Cr.) 2596 2909 3159 3609 4382 14% Net Interest Margin 7.1% 7.5% 8.5% 8.4% 8.9% NA Expense Ratio 3.5% 3.6% 3.8% 3.8% 4.1% NA HOME EQUITY Disbursements (Rs. Cr.) 2810 3043 3476 3056 3174 3% Business AUM (Rs. Cr.) 5860 7280 8852 9593 9997 14% Revenues (Rs. Cr.) 758 941 1124 1217 1205 12% Net Interest Margin 5.6% 5.4% 5.1% 4.4% 4.4% NA Expense Ratio 1.6% 1.3% 1.2% 1.2% 1.3% NA HOME LOANS Disbursements (Rs. Cr.) 39 89 175 325 606 98% Business AUM (Rs. Cr.) 41 121 264 518 984 121% Source: Company Annual Reports, Financial Advisory Websites

Financial analysis

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EQ 3.1: Did the investments help the project/ investee companies gain better access to capital improve cash flows and become more profitable /sustainable? Aggressive in funding its growth using debt… • The company debt to equity ratio is on a higher side in comparison to its competition. On an average the D/E ratio for CIFC is 6.63, viz., Shriram Transport (3.47), M&M Financials (3.60), Bajaj Finance (4.51), and Shriram City Union Finance (2.66). This indicates that the company has been aggressive in funding its growth using debt. Ability to control costs and earn profits on a sustainable basis… • The company has been able to sustain its operating ratio within a range of 69% to 71%, reflecting company’s ability to earn profits on a sustainable basis. • The company has improved upon its return on equity from 16.77 in FY 2016-17 to 18.91 n FY 2017-18 reflecting better utilization of equity towards earning profits. • The PBDIT (EBITDA) margin has been in the range of 71.40 which is better when compared to its competition, viz., Shriram Transport (68.36), M&M Financials (64.45), Bajaj Finance (67.02), and Shriram City Union Finance (59.57). This reflects company’s strength in earning profits. • The ROCE has averaged around 3.00 thus reflecting that the company has almost been persistent in utilizing its capital employed to their advantage. • The net profit margin has improved at a CAGR of almost 13% and has shown a year on year increment of 16% for FY 2017-18. This indicates company’s overall ability to control the expenses, increase revenues thereby providing good growth. • The company has been able to maintain its return on assets (RoA) in the range of 2, while, it has bettered its returns at a CAGR of 10% which indicates company’s strength in utilizing its assets to generate revenues. Strengthening its position to meet short-term obligations… • The company has improved upon its current ratio from 2.00 in FY 2016-17 to 2.26 in FY 2017- 18, and, which has grown at a CAGR of 30% over a five-year period, thus strengthening its ability to manage short-term obligations. The table 10 below provides a comparison of key ratios for five-year period.

Category Ratios FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Liquidity (times) Current Ratio 0.81 0.94 0.69 2.00 2.26 Operating Ratio 71.16 70.92 69.68 71.60 69.87 Return on Equity 15.86 16.28 15.54 16.77 18.91 RoCE 2.96 2.72 3.74 2.77 2.85 Profitability (%) PBDIT Margin 71.89 71.71 70.19 72.42 70.79 Net Profit Margin 11.15 11.79 13.55 15.42 17.95 Return on Assets 1.68 1.82 2.03 2.34 2.46 Turnover (%) Fixed Assets Turnover 15.13 15.45 15.03 15.22 13.73 Solvency (times) Debt to Equity 7.88 7.29 6.17 5.63 6.19

EQ 3.2: What help did the investments bring to the developers (build scale, survive or sustain value of debt) in order to cope with the issues in low- income states? The ₹100 crore (£10.9 mn) loan for CIFCL from DFID was in the form of Non-Convertible Debentures (NCDs) issued to IDFC Bank Ltd on 27 November 2015 – with a 9.1% annual coupon payment. Even at the time, the funds provided amounted to just 0.36% of assets under management. On 31 March 2018, it constituted 0.25% of total funds (0.27% of assets under management) and 0.33% of CIFCL’s borrowings.

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This enables CIFCL to do business with less creditworthy borrowers as bankers have stringent norms to be followed by these borrowers. The DCI fund through IDFC Bank has helped CIFCL to expand their business in backward areas, specifically, focusing the marginalized and poor section who face challenges with regards to taking loans from banks. Moreover, this has also reduced their overall cost of borrowing since the 9.1% debentures are at the lower end of the range of borrowing at 8-13% interest. Much of the impact was managed in FY2017-18 due to lower cost of funds, as the market rates were benign. As a result, slippages in net interest margins were contained and was maintained at 3.5-4%.

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Case Study 2- Darbhanga Motihari Transmission Company Limited (DMTCL) DMTCL – at the company level The section is structured around preliminary findings on sub-questions for Evaluation Question One (“Did the DCI investment affect the social enterprise?”). EQ1.1 Did DCI investment help DMTCL expand or deepen outreach, geographically and across disadvantaged groups?

Indicators Achievements/findings Started operations March 2017 Infrastructure Transmission lines, 50km from LILO of Barh-Gorakhpur (UP) to a new Created sub-station at Areraj (near Motihari) and 70km from Muzaffarpur to another new sub-station at Darbhanga. People served 30,600 households Customers profile All economic classes, but predominantly economically backward communities, due to the location of the grid sub-stations in an economically backward area; 2011-12 per capita SDP of Darbhanga was ₹15,870 and of Motihari was ₹18,141 compared to ₹22,582 for Bihar. Midline focus Determine the progress of the local economy and document the contribution made by the project to the overall process of economic growth and reduction in vulnerability.

Darbhanga Motihari Transmission Company Limited (DMTCL) is a wholly owned subsidiary of M/s Essel Infra projects Limited (EIL). EIL is promoted by Mr Subhash Chandra and is the infrastructure arm of Essel Group with interest in road projects, solar power, power transmission, solid waste management and water management. The flagship company of the group is Zee Entertainment Enterprises Limited (ZEEL).

DMTCL is a special purpose vehicle (SPV) that was incorporated on 18 December 2012 to establish a transmission system in Bihar on a build, own, operate and maintain (BOOM) basis and to provide transmission services to identified long-term transmission customers (LTTCs). The scheme comprises (i) a 70 km Muzaffarpur to Darbhanga 400 kV DC line with triple snowbird conductor transmission line, (ii) 50km line of Barh-Gorakhpur 400kV DC transmission line at Motihari, (iii) the creation of a 2x500 MVA, 400/220kV GIS sub-station at Table 11: DMTCL Transmission Lines at a glance Darbhanga with space for future extension (1x500 MVA), (iv) the creation of a 2x200 States Bihar UP MVA, 400/132kV GIS sub-station at Number of Transmission Lines 4 2 Motihari through the tariff-based Number of Sub-stations 2 competitive bidding process (1x200 MVA), Line reactors 2 (v) 2x80 MVAR Line reactors (Switchable) at Motihari end (with 600 ohm NGR) for the Barh-Motihari section, and 2x50 MVAR Line reactors (fixed) at Motihari end (with 400 ohm NGR) for the Motihari-Gorakhpur section. While the Darbhanga element (components (i) and (iii)) commenced commercial operations on 31 March 2017, the Motihari element (components (ii) and (iv) above) commenced commercial operations on 10 August 2017, with a delay of almost a year from the initially envisaged scheduled operation date. IDFC Ltd disbursed ₹60 crore (£6.7 mn) for the DMTCL project from the IIDF on 22 December 2017 along with ₹800 crore (£86.0 mn) from IDFC Limited. The commissioning of these lines has, for the first time, made power available on a relatively reliable 18-20 hours per day basis in two of the most backward districts of the country; the per capita NSDP in 2011-12 for India was ₹65,343 and for Bihar, ₹22,582 (35% of the national average). For Motihari (East Champaran district) and Darbhanga respectively it was lower still at ₹18,141 (28% of the national average) and ₹15,870 (24%).

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EQ1.2. Has DMTCL demonstrated a profitable business model?

Indicators Achievements/findings Capital raised The principal form of fund mobilisation by the company has been Non- Convertible Debentures in 2018, and in secured borrowings from banks and financial institutions in 2017. On 31 March 2018, the total cost incurred on the project was ₹1088 crore (£118 million) through debt of ₹833 crore (£90.5 million) and ₹211 crore (£23.0 million) equity with the balance having been funded through unsecured loans from the promoters. Financial performance As a standalone enterprise, DMTCL had income of ₹115.7 crore (£12.6 million) in FY2017-18, its first year of power transmission operations. It incurred an expense of ₹148.5 crore (£16.1) during the year leading to a loss of ₹32.8 crore (£3.6 million). The Debt/Equity ratio has increased from 2.5 in 2017 to 4.1 in 2018. DMTCL compares favourably with its peer, Adani Transmission which has a debt/equity ratio of 4.5. Midline focus Monitor the profitability of the project and determine its sustainability.

Based on its agreement with the Ministry of Power, DMTCL executed Transmission Service Agreements (TSA) in August 2013 with Long term Transmission Customers (LTTC), which includes a number of power plants. The Contract Period is for 35 years from the commissioning of the Project. The transmission charges are being shared proportionately by LTTCs and recovered based on the applicable CERC Regulation which is at present the Point of Connection (PoC) Mechanism under the Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2010. The Central Government under Section 38 of the Electricity Act, 2003 has designated Power-grid Corporation of India Limited (PGCIL) as the Central Transmission Utility (CTU) to carry out the coordinating function to collect the interstate transmission tariff, determined through the point of connection mechanism due from each LTTC. PGCIL passes the tariff on to the transmission utilities. Any shortfall in aggregate collection from distribution utilities is shared among all transmission utilities according to their respective share of transmission revenue in the aggregate transmission tariff.

IDFC Ltd disbursed ₹60 crore (£6.7 mn) for the DMTCL project from the IIDF on 22 December 2017 along with ₹800 crore (£86.0 mn) from IDFC Limited. It is to be repaid in 81 structured quarterly instalments commencing from 31 December 2018 and ending in December 2038 (maturity before the transmission licence expiry in May 2039). Interest coupons on all the Separately Transferable Redeemable Principal Parts (STRPPs) are payable on an annual basis. The IIDF contribution (as well as the IDFC loan) was by way of refinancing via 8.5% Non-Convertible Debentures replacing more expensive debt earlier obtained at 11.5% APR from a consortium led by IDBI Bank. The funds raised have been deployed to meet operation and maintenance expenses, finance costs, depreciation and amortisation. Table 12 shows that with the various transmission lines of the Table 12: Deployment of receipts (₹ crore) company coming on stream, the working Expense type 2016-17 2017-18 capital requirement is declining. However, employee expenses and operation and Operation & maintenance 1.95 maintenance costs are on the rise. In Employees 0.01 0.26 March 2018, trade receivables were ₹27.7 crore (£3.0 million) against trade Depreciation & amortisation 0.13 75.25 payables of ₹8.8 crore (£0.95 million). If Other Expenses 0.02 2.69 this continues, delays in collecting payment could become a factor in the Total Expenses 0.23 148.48 financial performance of the company Working Capital (Op Ex) 172.61 43.90 perhaps affecting loan servicing at some point in the future (as in the case of ILFS infrastructure investments). With more transmission lines and sub-stations being completed by March 2018, the fixed assets of the company have shown a healthy increase (Table 13).

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Table 13: DMTCL audited Balance Sheet information

31 March 2017 31 March 2018 Assets ₹ crore Non-Current Assets

a. Property, Plant and Equipment 396.8 1,024.1 b. Capital work in progress 496.7

c. Financial Assets 0.2

d. Non-Current tax assets 0.0 0.1 e. Other Non-Current assets 42.4

Current Assets

a. Financial Assets

i) Trade Receivables 0.2 28.4 ii) Cash and cash equivalents 7.5 27.7 iii) Other financial assets 0.2 0.1 b. Other current assets 0.1 7.7 Total Assets 944.1 1,088.0 Equity

a) Equity share capital 16.3 16.3 b) Other equity 227.4 194.7 Total Equity 243.7 211.0 Liabilities

Non-Current Liabilities

a) Financial Liabilities

i) Borrowings 527.4

ii) Non-Convertible Debentures 833.0

b) Provisions 0.2 0.0 527.6 833.0 Current Liabilities a) Financial Liabilities

i) Borrowing 120.0

ii) Trade payable 3.8 8.8 iii) Other financial liabilities 48.9 35.0 b) Other Current Liabilities 0.1 0.2 c) Provisions 0.0

d) Current Tax Liability (Net)

Total Liabilities 700.4 877.0 TOTAL Equity & Liabilities 944.1 1,088.0

Operations during 2017-18 were limited, since the Motihari transmission line and sub-station (around one-third of capacity) came on-stream in August 2017 only and use would have been in any case limited by delays in the process of establishing local distribution lines and providing connections to dedicated users. So financial year 2017-18 was really the start-up year of the project. The sustainability of the enterprise will become clearer at midline after two full years (2018-19 and 2019-20) of operation. ET

77 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio will monitor DMTCL’s performance during the next two years and comment on its sustainability in the midline report. EQ 1.3 Did the DCI investment add value to DMTCL (e.g. in terms of governance, operational management, financial management); ability to cope with issues in low income states?

Indicators Achievements/findings Capital augmentation The DFID contribution through IDFP via an IDFC Bank loan of ₹60 crore (£6.5 million) consists of the refinancing of an earlier loan from a consortium led by IDBI Bank – it constitutes 7.2% of debt finance and 5.5% of the total capital raised by the company. Management support DMTCL’s Board consists of six members. There is no representative of an institutional investor on the Board. The company has 6 directors and 2 reported key management personnel. In addition, there is a manager in charge of each of the sub-stations/sites in Darbhanga and Motihari. Midline focus To document the interaction between the lender and the borrower and determine whether further contributions have been made to the project.

Contribution: The biggest challenge for a transmission company like DMTCL is that of receivables since there are delays in payment by the distribution companies. The loan from IDFC Bank via the DFID funding has helped DMTCL meeting the resulting funding requirements. At 5.5% of the total capital raised by the company, the DCI Infra debt funds are a small proportion of the total capital. So, the DFID funds cannot be said to have contributed significantly to the final outputs and outcomes of DMTCL. EQ1.4 Were there other intended and unintended impacts of the DCI fund investments?

Indicators Achievements/findings

Employment In addition to management teams of 6-7 persons at each site, there are regular and skilling field teams of 10-12 persons each to carry out the civil and other transmission related works. DMTCL estimates regular employment for 35 persons at the two sub-station sites and semi-skilled and unskilled employment in the construction of towers and stringing of transmission lines of the order of one year’s employment for 100 persons on a full-time basis + another 625-person year for the construction of the sub-stations. Total income generated is ₹1.03 crore (£1.1 million) annually on regular employment and a total of ₹6.10 crore (£6.6 million) in construction.

Midline focus ET will document employment changes on the project and determine the effect of project performance on the local economy.

As reported by the leadership of the North Bihar Power Distribution Company Limited (NBPDCL) in Darbhanga and Motihari, the DMTCL super grid sub-stations have helped in the following ways: 1 Ensuring high voltage and assured power transmission, with lower and shorter power cuts. 2 Facilitating the potential of generation of revenue of ₹150 crore per year for the Darbhanga division from the Indian Railways from the upcoming Ayodhya-Janakpur railway line. 3 Leaving a number of transmission lines free for upgrading by the NBPDCL, helping save money by installing higher capacity cables with lower transmission losses. While the above are primarily due to the functioning of the two super grid sub stations of DMTCL, since the IIDF/IDFC money has also gone into the funding and setting up of the sub-stations, some of the above can be attributed to it as well while it is difficult to exactly estimate the attribution.

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Employment and income for local workers generated by the project is estimated as follows: a. Management of sub-stations – 6-7 persons employed per site = 13 persons on a full-time basis b. Ongoing civil and maintenance works – 10-12 persons per site = 22 persons on a full-time basis c. The total employment income generated for full time workers is 13 persons at an average of ₹22,000 per month and another 22 workers at ₹15,000 per month for a total of ₹1.03 crore (£1.1 million) annually on an ongoing basis. d. Construction of sub-stations – Darbhanga, 20 days per month over 24 months for an average team of 125 persons = 60,000-person days and Motihari, the same size of team over three years, 90,000- person days resulting in full time employment of 625-person years leading to wages paid amounting to ₹5.25 crore. e. Construction of transmission towers and stringing of transmission lines – semi-skilled and unskilled labour – 200-person days per kilometre over 120 km = total of 24,000-person days for the project = around 100 full time person years, spread over the construction period from 2013 to 2017 with wages amounting to ₹84 lakh. f. The total construction income generated is then ₹6.09 crore (£6.6 million) EQ 1.5. What was the additionality of IDFC/DFID investment?

Indicators Achievements/findings

Investment in DMTCL As mentioned above, the DFID contribution of ₹60 crore at 8.5% interest is approximately 7.2% of the total debt of the company. From the proportion, it is clear that it was not critically important to DMTCL, as the money for the project could have (and did) come from elsewhere, though at a higher interest cost of 11.5%. Nevertheless, it was a useful contribution to the long-term sustainability of the transmission company having reduced the average interest cost from 11.5% to 10.9% by itself while the overall cost reduced to 8.5% since the entire debt of the company was taken over by IDFC at the same rate.

Additional capacity There is no additional power generation capacity generated as a result of the DFID investment. The DMTCL project has, however, substantially improved the availability and reliability of power supply in one of the poorest parts of the country. Power supply has increased from 2-3 hours per day to 16-18 hours per day, greatly facilitating economic activities that need a reliable power supply.

Midline focus Feedback will be obtained on the performance of the transmission line and super grid facilitated by it. This will help determine the contribution of the line to economic activities in the region generally as well as to the employment and income generation opportunities of low-income households.

DMTCL - at the household level The section is structured around preliminary findings on sub-questions for: EQ 2 Did the DCI borrowers provide the poor, particularly women and socially excluded groups, with access to high quality services? To obtain feedback on customer perceptions of the services to people in the Darbhanga-Motihari area, the Evaluation Team organised ten focus group discussions (FGDs) with a total of 63 participants, of which 35 persons, or 56% were from Scheduled Castes and 24 (35%) were OBCs (see Table 14). Women’s participation amounted to 22 out of the 63 (35%). Another twelve key informant interviews (KIIs) were conducted with a range of entrepreneurs/enterprises from managers of large cold storage units to owners of small grain and oil mills to teachers working from tuition centres.

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Table 14: Focus group discussions disaggregated

FGD # SC OBC General Women Men 1 2 3 1 6 2 8 5 3 3 8 8 4 2 3 5 5 5 2 3 6 5 1 2 4 7 5 5 8 5 1 1 5 9 8 3 5 10 2 4 3 3 Total 35 24 4 22 41

A summary of the achievements of the project and ET’s findings from its interactions with users in the region is presented in the following box and is followed by more detailed discussion.

Indicators Achievements/findings Additional employment There is clear evidence of additional employment and income and income opportunities created in the service area due to the enhanced opportunities availability and greater reliability of power supply in the area since the DMTCL transmission line and super grid sub-stations were commissioned. The evaluation estimates additional benefits – savings or incremental value addition – of at least ₹715 crore (£77.8 million) per year in the region due to the enhanced availability and greater reliability of power supply enabled by the DMTCL super grid transmission line and sub-stations. Effect on the poor and The overall increase in employment so far (with a recently improved marginalised super grid) is about 700 persons on a full-time basis and another 500 Direct employment/ on a part time or seasonal basis. Due to the particularly conservative income effects on nature of society in this region the benefit to women is quite limited the poor with around 15% engagement of women, mainly on a part time/unskilled and often seasonal basis. Since the employment increase is largely in low skilled/unskilled tasks, the increased employment opportunities for vulnerable groups is estimated at 80% of the total. Midline focus ET will further quantify the benefits resulting from improved power supply in terms of employment, incomes and value addition in the economy of the region.

EQ 2.1 Are there any additional employment and income opportunities created in the service area of DMTCL super grid sub-stations? Almost all the FGD participants report that additional income generation activities are yet to be fully taken up by households in the more remote rural areas visited for the FGDs. On the other hand, a number of small production units have started springing up close to the highways, and in a few cases, even in the interior areas. While projects in power transmission lines have the capacity to generate additional employment and enhance earnings, it is very difficult to strictly attribute these results to DFID contribution of the debt capital. Among the developments related to additional employment and income, the most significant is the setting up of a 1 lakh litre per day capacity milk production plant of Mother Dairy in rural Motihari. Other SMEs visited include two units of cement mix fabrication, one unit of stainless-steel furniture fabrication, one unit of ash bricks and paver blocks production. Each of these units employs 10-15 persons. They have substantial savings due to DMTCL for these businesses, in addition to the assurance of uninterrupted power supply. In one of these smaller units, the expenses on diesel have come down from ₹20,000 per month to ₹8,000.

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The most significant industrial size unit which attributes its investment directly to the DMTCL sub station is Prasad Agrico in Satahan (Motihari). They have established a 14,000 metric tonne cold storage with a dedicated 132 kVA connection, and an energy bill of ₹6-7 lakh per month. The unit employs 90 persons full time, and another 150 persons seasonally during harvests. In at least one village electrified in the past year in Motihari, as many as 15 non-household electricity connections have been applied for. In one remote village, while the electricity arrived about a year ago, due to a major fault, the village is again without electricity, due to which additional employment and income opportunities are out of question at present. This appears to be an outlier. In most of the villages visited, the FGD participants reported setting up small flour mills (atta chakkis), poultry farms, mobile repair shops in the villages. In at least one village, 3 new atta chakkis and oil extraction units were set up. Grocery stores were seen to have installed printers and lamination machines, thus providing these services to the villagers at their doorstep, and further saving money for them, apart from generating additional revenue for the grocery shop. Local tuition centres, seen in a number of villages, were able to teach for longer hours, thus increasing income for those running them, and catering to a larger number of students. More electrical and electronic equipment was reported as being bought, including fans, coolers, and in some cases even air-conditioners, which would have brought additional income to the dealers of these items in the nearby urban centres like the district headquarters and the block headquarters. At least one large dealer of air-conditioners in Motihari town was reported to have sold two additional truckloads of air-conditioners in the summer of 2018. A fabrication unit in Darbhanga, making various items like gates, doors, windows, with the uninterrupted power supply, was able to expand its business, and has in fact set up another fabrication unit of similar size, next door. A major expense in villages was that on diesel for generators during social functions like religious festivals and marriages. This is reported to have come down from ₹15,000 per month by about 80%, to ₹3,000-3,500 per month. Even public institutions like primary health centres have gained from the regular supply of electricity. One such PHC, in Paharpur has a fully air-conditioned operation theatre, 17-18 rooms, electrically operated autoclave, and a generator only for emergency back-up, with a drastically reduced bill for diesel. The CS DAV School in Bankat outside Motihari town is another high value consumer, with a 100-kVA dedicated connection. The school has 2,400 students, and has smart classrooms, where having uninterrupted electricity is compulsory. A skill development centre under the Bihar Skill Development Mission, which imparts computer education is now able to run smoothly in the Hanuman Nagar block of Darbhanga. The centre reports that power failure and voltage fluctuation was a constant problem initially, and with no power backup support system, imparting computer practical training was a huge challenge. With electricity supply now for more than 10 hours during the day, conducting classes and practical sessions on computers is much easier. The centre has a total of 51 students currently on a three-month course. A producer company of milk farmers, the Bapudham Milk Producer Company is another high value customer, which has applied for a 500-kVA connection (which will be the largest in the whole district) for its chilling plant near the DMTCL sub-station in Areraj, Motihari. The milk producer company is working with 8,000 farmers in about 200 villages. The chilling plant has a capacity of 20,000 litres of milk per day. Currently, till it gets the electricity connection, the producer company is using a 100 kVA genset. Table 15 presents some figures on monetisation in the area served by the DMTCL super grid sub- stations. Some of these are actual figures, and others are estimations. The Evaluation Team estimates additional benefits – savings or incremental value addition – of at least ₹715 crore (£77.8 million) per year in the region due to the enhanced availability and greater reliability of power supply enabled by the DMTCL super grid transmission line and sub-stations.

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Table 15: Monetisation of the benefits and value added due to DMTCL super grid sub-stations

Sector/Area/Establishment Basic ₹ £ million, Explanatory notes metrics crore £=₹92 Dairy – Bapudham FPO 20,000 litres 8.64 0.94 Taking the difference between average price of ₹30 per litre received by farmers and the MRP of (Chilling plant in Areraj, of milk per ₹42 per litre on milk marketed by the dairy. Motihari) day Employment increase: 30 persons full time Dairy - Mother Dairy - coming 100,000 43.20 4.70 As above up litres of milk Employment increase: expected to be about 120 persons per day BPL households getting BPL 118.2 12.85 BPL households provided connections: Darbhanga (158,430) and Motihari (340,036). Though regular electric connection households 6 each BPL household is allowed 1 unit per day or 30 units per month, at a highly subsidized rate were of Rs2 per unit, the real value of the energy unit is the price charged to unsubsidized consumers provided about ₹6.50 per unit. Increase in household economic activity like tailoring units – 200 on a part electricity time basis. connections in Darbhanga and Motihari in the last one year under the DDU Gram Jyoti Yojana (DDUGJY) Agriculture 146,000 new 262.8 28.57 At an average of 6 farmers per transformer, ₹250 per connection per month payment. transformers 0 being set up Cold storage - Prasad Agrico 1.4 lakh 7.00 0.76 Value add on potatoes for farmers - Net margin of ₹5 per kg (Selling price immediately after quintals or harvest = ₹5 per kg) if kept in the cold storage and sold after 5-6 months: ₹10 per kg. Employment 14,000 MT increase: 90 full time, 150 persons (seasonal – 120 days per annum). potatoes Other cold storages 1,000 to 21.00 2.28 As above. For capacity, taking the average, (1,000+6,000)/2 for 12 stores; Employment 6,000 MT increase: 6 persons per cold store full time and another 20 on a part time basis. Total: 36 full time, capacity, 12 120 part time cold storages

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Sector/Area/Establishment Basic ₹ £ million, Explanatory notes metrics crore £=₹92 Cold storage - Prasad Agrico 29,000 12.13 1.32 This is the value add for storing fruit. Assuming that only mangoes are being kept (the main fruit quintals of the area); otherwise bananas, apples and oranges are kept in varying but not significant mangoes, 20 quantities. (Sale price of mango, if sold immediately after harvest = ₹45 per kg; Sale price if sold trucks eggs after six months: ₹90per kg). Eggs if sold in summer ₹50 per dozen, if stored, sold in winter, ₹70 per dozen. Assume 10% wastage for both. Other cold storages 7,250 2.94 0.32 Since the average capacity of these cold storages is 1/4 that of Prasad Agrico, for fruits also, quintals capacity is assumed in the same ratio. (Sale price of mango, if sold immediately after harvest = mangoes for Rs45 per kg; Sale price if sold after six months: Rs90 per kg). 12 cold stores Running expenses - Prasad ₹6.5 lakh 1.32 0.14 Revenue generated for state (energy charges) and for public (salaries) Agrico average electricity bill per month; 90 staff at Rs5,000 average salary per staff Running expenses - other cold ₹1.6 lakh 3.89 0.42 Revenue generated for state (energy charges) and for public (salaries) storages average electricity bill per month; 22 staff at Rs5,000 average salary per staff Revenue for NBPDCL - new 500 kVA 7.18 0.78 Taking ₹6.5 lakh as the monthly bill on a 132-kVA connection and using this (₹6.5 HT connections Mother lakh/132=₹4,924 per kVA) as a factor to calculate the energy bills for others. Dairy, 80 kVA Plywood factory, Kotva, 300 kVA IOCL gas bottling plant, 100

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Sector/Area/Establishment Basic ₹ £ million, Explanatory notes metrics crore £=₹92 kVA cement factory,135 kVA waste managemen t plant, 100 kVA school Revenue for small businesses 100 atta 18.00 1.96 Assuming 2 atta chakkis per village for 50 villages being considered in about 50 villages of - Atta chakkis (Flour mills) chakkis each Darbhanga block taken up for intensive electri-fication under DDUGVY, and another 50 villages in in East Champaran around Motihari. Daily turnover taken as ₹3,000, assuming commercial Darbhanga connection used for flour mills. Employment increase: 150 persons and Motihari blocks, with ₹3,000 turnover per day Revenue for small businesses Tuition 2.49 0.27 Assuming 1 tuition centre every 5 villages in each of the districts, and margin of ₹4,000 per tuition - Tuition centres centres in centre. This excludes energy bill of about ₹1,500 per tuition centre. Employment increase: 2 per whole of centre, 40 persons. Darbhanga (1,247 villages) and Motihari (1,344 villages) districts Savings made by Public Health 27 PHCs in 1.31 0.14 Assuming that each generator consumed 4 litres of diesel per hour, ran for ten hours, 365 days a Centres Motihari and year, and price of diesel is taken as ₹30/litre. Savings come from the generators running only for 13 PHCs in about two and a half hours daily today, as the power cuts have gone down drastically. Darbhanga which used to have 11 kVA diesel gensets Savings made by bigger 5 big schools 0.65 0.07 Saving of 50% of the earlier monthly diesel cost of ₹60,000, made on generators earlier. schools in Darbhanga, 4 big schools in Motihari

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Sector/Area/Establishment Basic ₹ £ million, Explanatory notes metrics crore £=₹92 Earning for NBPDCL This is for 156.0 16.96 ₹9 crore per month in Indian section, and ₹4 crore per month in section. Darbhanga division from the 0 Indian Railways electricity supply for Darbhanga part of Ayodhya- Janakpur railway line Saving made by the village in Expenses 37.31 4.06 Assuming that the monthly expense used to be ₹15,000, which has come down by 80% to about social functions saved on ₹3,000 per village per month and taking the same standard figure across each district. generators for social functions: marriages and religious ceremonies. Other micro-industrial units 30 new and 10.80 1.17 Assuming ₹3 lakh additional value addition per unit per month; Employment increase: 5 persons (see text) old units with per unit, 150 persons better utilisation Savings & value addition enabled 714.9 77.80 Total additional employment (persons/women): 700+ full time; another 500 part-time/seasonal; 1 15% women

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EQ 2.2 Did any poor and marginalised persons get jobs/services/increase in income in the service area of DMTCL super grid sub-stations? Women are now finding it possible to run small tailoring units on a casual/part time basis, often comprising just one sewing machine, which helps them augment family income. Subsequent to getting regular electric connections, a few small shops selling clothes, cold drinks, provisions have been set up in villages dominated by Dalit communities giving them opportunities for additional income, in some cases becoming the main source of income for the household. At the same time, ET noticed that the new enterprises coming up in the villages are mostly being set up by persons from general or OBC communities, with those from SC communities still predominantly engaged in manual/unskilled labour, on farms or going to urban locations. The enhanced power supply enabled by DMTCL is still relatively recent and the effects of the investment on marginalised communities will take a few years to become apparent. The midline study will provide a better indication of this effect of the investment. The overall increase in employment so far (with a recently improved super grid) is about 700 persons on a full-time basis and another 500 on a part time or seasonal basis. Due to the particularly conservative nature of society in this region the benefit to women is quite limited with around 15% engagement of women, mainly on a part time/unskilled and often seasonal basis. Since the employment increase is largely in low skilled/unskilled tasks, the increased employment opportunities for vulnerable groups is estimated at 80% of the total. EQ 2.3 Has access to services and reduction in cost due to the DMTCL super grid sub-stations resulted in addressing vulnerability? In terms of addressing economic vulnerability, there is still some distance to go even after the advent of electricity in these villages. While there are sporadic cases of micro-business units coming up in the villages, this movement still needs to catch up, especially in the remote rural areas, due to the fact that the majority of persons from SC communities, who are in significant numbers here, are still involved in manual/unskilled labour. There are significant savings that the most vulnerable households in the area are making after the advent of electricity. The most dramatic effect is the rapid rise in savings on Kerosene, used mostly by the below poverty line (BPL) households – expenses on Kerosene, used to light the households, has come down by 75%. That also corresponds with the reduced provision of Kerosene to BPL households, which has come down by 80%, from 5 litres per household per month to 1 litre. This has been replaced by the electric power consumption (quantified as a household benefit in Table 5). Non-monetisable benefits The biggest benefit for women is that cooking and daily chores have become less troublesome. The women FGD participants reported being able to cook in the evenings with the electricity now available, being able to watch television serials in the evenings and their husbands being able to watch news on TV. Another significant change reported is the saving of effort of lighting kerosene lamps in all corners of the house, which used to be a tedious, daily task. In addition, there are significant gains when it comes to social vulnerability. Women have reported that one huge benefit that electricity has brought is being able to venture out after dark in the village with reduced chances of being molested due to the lighting from household connections. Another outcome reported for all ages and genders was that they could venture out especially in the rainy season, with reduced chances of being bitten by insects and reptiles. Children from socially disadvantaged households report being able to study longer hours for their Class Ten Board examinations, a factor which will have important implications on social mobility in the years to come.

Conclusions It is still early in the life of this project. By mid-2018 (the cut-off for this baseline case study), the DMTCL transmission structures having been in operation for just over a year with the infrastructure not quite fully functional as significant numbers of electricity connections were still being processed by the distribution company. The Evaluation Team’s estimates of the annual monetary benefits at this early stage are of the order of ₹715 crore (£77.80) in terms of annual cost savings and/or additional value addition; the incremental employment so far amounts to an estimate 700+ full time jobs and around 500 part-time or seasonal opportunities in the 30,600 households estimated to be

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covered by the project. Of these, women account for just about 15% (mainly part-time and seasonal) jobs. Since the incremental work opportunities are mainly semi or unskilled roughly 80% are estimated to be filled by vulnerable groups. From the perspective of Development Capital Investment, the key concern about this project is that the loan funds provided made no contribution to the ₹1,088 crore initial capital required to set it up. The debt provided constitutes a latter-day replacement of higher cost debt provided by an incumbent consortium. ET calculates that this lower cost debt (amounting to just 5.5% of the total capital requirement) reduced the cost of debt from 11.5% to 10.9% though the provision (simultaneously) by IDFC of the remaining debt at 8.5% reduced the overall cost of the company’s debt to that level. To this extent, IIDF funding has contributed to the sustainability of the project. However, on the basis that the investment was: • Not incremental and therefore not critical to establishing the project, and • Its later contribution to the project’s sustainability is quite small, The extent to which the benefits from the project are attributable to this investment is quite limited.

Financial Assessment DMTCL as a standalone enterprise, had an income of ₹115.06 crores in FY2017-18, its first year of power transmission operations. The employee expenses and operation and maintenance costs are on the rise owing to the start of the operations and is expected to grow further as the operations takes pace. Similarly, the depreciation and finance cost has also increased and is expected to increase further. As at the end of March 2018, the trade receivables were ₹28.35 crores against trade payables of ₹8.76 crores. The biggest challenge for a transmission company like DMTCL is that of receivables since there are delays in payment by the Profit & Loss Account of DMTCL during the financial year 2017-18 distribution companies. This may Particulars Rs. In affect the financial performance of lacs the company perhaps even 1 REVENUE FROM OPERATIONS affecting loan servicing at some Revenues 11572.12 point. The loan from IDFC Bank 2 EXPENSES via the DFID funding has helped DMTCL meeting the resulting Expenses 14848.90 funding requirements, in a small Profit before exceptional and extraordinary items (3276.78) way. The table 16 below provides & tax a snapshot of DMTCL Profit & Source: DMTCL Loss Account for the year ended 31 March 2018. Financial analysis The company’s financials were analysed across four broad categories, viz., liquidity, profitability, turnover or managerial efficiency and solvency. It would be too early to comment on the performance of the company based on this analysis as it has only been 16 months since the start of operations. It is expected that the performance / sustainability of the company will become clearer after two full years (2018-19 and 2019-20) of operations. EQ 3.1: Did the investments help the project/ investee companies gain better access to capital improve cash flows and become more profitable /sustainable? Funding its growth using debt… • The company’s existing debt to equity ratio is 4.12. Ability to control costs and earn profits on a sustainable basis… • The existing operating ratio is 36.62%. The operating ratio needs to be sustained to earn profits on a sustainable basis. • The return on equity is negative on account of loss in the initial years.

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• The PBDIT (EBITDA) margin has been in the range of 71.40 which is better when compared to its competition, viz., Shriram Transport (68.36), M&M Financials (64.45), Bajaj Finance (67.02), and Shriram City Union Finance (59.57). This reflects company’s strength in earning profits. • The ROCE of the company which reflects how efficient the company is utilizing its capital employed to their advantage, needs to be sustained. • The existing PBDIT (EBITDA) margin is 95.71 reflecting company’s strength in earning profits. • The net profit margin is negative on account of losses in initial years. In future, the company will have to control the expenses, increase revenues thereby providing good margins. • The company has been able to maintain its return on assets (RoA) in the range of 2, while, it has bettered its returns at a CAGR of 10% which indicates company’s strength in utilizing its assets to generate revenues. • The company will have to put in efforts to ensure that it uses its fixed assets in an efficient manner to generate revenues. Strengthening its position to meet short-term obligations…

• The company existing current ratio is 1.45, better than previous year, which shows its ability to manage short-term obligations. Refer Table 17 below.

Category Ratios FY 2017 FY 2018 Liquidity (times) Current Ratio 0.05 1.45 Operating Ratio 44.18 36.62 Return on Equity -0.03 -15.50 Return on Capital 0.01 4.07 Profitability (%) Employed PBDIT Margin NA 95.71 Net Profit Margin -36.00 -28.26 Return on Assets 0.00 -0.03 Turnover (Managerial Efficiency) (%) Fixed Assets Turnover 0.00 0.11 Solvency (times) Debt to Equity 0.20 4.12

EQ 3.2: What help did the investments bring to the developers (build scale, survive or sustain value of debt) in order to cope with the issues in low- income states? As on 31st March 2018, the total investments towards fixed assets stood at Rs. 1024.05 Crores, funded through a mix of equity and debt, approximately, in the proportion of 20:80. The principal form of fund mobilization has been Non-convertible Debentures (NCD) in 2018, and, in secured borrowings from banks and financial institutions which happened in 2017. The total long-term debt of the company at the end of FY 2017-18 stood at Rs. 833.01 crores, of which, DFID contribution of Rs. 60 crores is approximately 7.20% of the total long-term debt of the company. DFID disbursed Rs. 60 crores through The funds raised by way of refinancing via 8.5% Non-Convertible Debentures replacing more expensive debt earlier obtained at 11.5% APR have been deployed to meet operation and maintenance expenses, finance costs, depreciation and amortisation. and 5.5% of the total capital raised by the company. The contribution has been able to reduce the average interest cost on debt from 11.5% to 10.9%. This will enable DMTCL to provide services to backward regions support in meeting operating and other expenses as delays in collecting payment could be a factor affecting the financial performance, including meeting of expenses, perhaps even affecting loan servicing at some point.

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Case Study 3– Clean Wind Power (Devgarh) Private Limited – a subsidiary of Hero Future Energies Private Limited Clean Wind Power Devgarh – at the company level The section is structured around preliminary findings on sub-questions for Evaluation Question One (“Did the DCI investment affect the social enterprise?”). The investee company is a 100% subsidiary of Hero Wind Energy Private Limited (HWEPL) which is the holding company for all the Wind energy projects of the Hero group. HWEPL is further held by Hero Future Energies Private Limited (HFEPL) which is a jointly owned subsidiary of Bahadur Chand Investment Private Ltd (BCIPL) and Brijmohan Lal Om Prakash (BMOP), the ultimate holding company of Hero Group.39 Hero was funded under the India Infrastructure Debt Partnership Programme managed by one of India's leading infrastructure debt specialists, the Infrastructure Development Finance Company (IDFC Ltd). Clean Wind Power (Devgarh) Private Limited (CWPD) was incorporated on 19 November 2012 as a private unlisted company and is classified as a 'company limited by shares'. The company's authorized capital is ₹110 crore and has 95.5% paid-up capital, ₹105.04 crore. CWPD has been in business for the past 6 years.40 There are 4 Directors of CWPD. They are: Rahul Munjal, Ujjwal Munjal, Sunil Jain and Amit Mehra. Tipu Sultan is the main Signatory on behalf of CWPD.41 CWPD operates three wind power plants in Rajasthan – a 37.5 MW wind power plant in Pratapgarh, which was commissioned in March 2013 and two 40.0 MW wind power plants, one each in Barmer and Jaisalmer, both commissioned in March 2015. The power produced has been contracted to Rajasthan- based distribution companies (discoms) for a period of 25 years from the date of commissioning of the three assets.42 EQ1.1 Did DCI investment help Clean Wind Power expand or deepen outreach, geographically and across disadvantaged groups?

Indicators Achievements/findings Started operations March 2013 with two additional wind farm projects commissioned in March 2016 Services offered Electricity generated from Wind Turbines with a total capacity of 111.5 MW and a capacity factor of 40-50%. People served Estimated at 48,000 households in Pratapgarh and about 50,000 households each in Barmer and Jaisalmer with power supply to another 16,000 households in Pratapgarh and about 20,000 households in each of the other two locations being improved by the establishment of these wind farms. Customers profile Across economic classes, in far flung, remote rural regions though apart from selected high-tension consumers in the SME sector, around 90% of households are poor (incomes below $1.25 per day). Midline focus Assessment of the numbers of households actually served by the wind farm projects and the economic profile of those households. DCI investment has helped CWPD expand and deepen outreach, geographically and across disadvantaged groups. From the infrastructure perspective, the project's expected development impact includes:

39 Clean Wind Power (Devgarh) Private Limited, ICRA, February 13, 2017. 40 Clean Wind Power (Devgarh) Private Limited, The Economic Times, December 08, 2018; https://economictimes.indiatimes.com/company/clean-wind-power-(devgarh)-private-limited/U40106DL2012PTC245031 41 https://www.indiancompany.info/company/clean-wind-power-devgarh-private-limited/ 42 Clean Wind Power (Devgarh) Private Limited, ICRA, March 05, 2018.

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i. Diversification of the energy fuel mix beyond thermal, hydro, nuclear and solar to wind power in an industry currently dominated by thermal (both coal and oil fired) power generation which accounts for 85.6% of total power generation in the country.43 ii. Energy security through the development of capacity to harness renewable energy to cover power shortages. In 2013, Hero Future Energies commissioned 25 wind turbines with PPA duration of 25 years. Each turbine unit has a generation capacity of 1.5 MW, which makes the total capacity of HFE installed plants 37.5MW. The total capacity of wind power that is generated from the 132 kV Grid Sub-station (GSS) at Odwara village in Devgarh, in Rajasthan’s Pratapgarh district is 102MW. The balance energy is produced from turbines of the other two companies as mentioned in Table 18 below. The average wind density in a year ranges between 4 to 5 metres/second, with the average power factor ranging between 0.55-0.83, which is defined as the ratio of the actual/real power to the apparent power generated by the wind turbines. Table 18: Developers with their power capacity of the installed wind turbines

Developer Name No. of Total Nominal Turbines Power 1 Hero Future Energies Private Limited 25 37.5 2 ReNew Power 34 51.0 3 Orange Renewable 09 22.5 The project in Devgarh has been implemented through a contractor, ReGen Power tech. The whole process from land settlement to commissioning was done in a period of six months. ReGen handled the assembly, turbine development, line development and other works within the timeline. The operations and maintenance (O&M) are done using online software SCADA. It was observed that representatives of all the three companies sit in the ReGen GSS office. While technical staff was brought in from Chennai for one-time installation, ReGen continues to provide employment to local people from Odwara, Rampuriya, Badilak, Ratanpur villages by hiring them as security guards, technicians, office driver and office assistant. The wind power generated is provided to Rajasthan Rajya Vidyut Utpadan Nigam Ltd. (RVUNL) in Pratapgarh from where it is distributed via Ajmer Vidyut Vitaran Nigam Ltd. (AVVNL) to different blocks including JSS Devgarh. Devgarh and the Wind Powergrid in Rajasthan The wind farms at Pratapgarh are part of the wind energy grid, that supplements the power requirement in Rajasthan. There are a number of generating substations at Devgarh, Dhanaut and other areas which are linked to a 400kV Grid Substation at Heerapura on the Jaipur-Ajmer Bypass, and which is part of the Rajasthan Rajya Vidyut Prasaran Nigam Limited (RRVPNL), and which aggregates all generated wind power. Downstream, the Rajasthan Power Procurement Cell (RPPC) deals with the sale and purchase of power on behalf of the distribution companies (discoms) which contract with generating companies through RRVPNL, in accordance with the respective shares allocated by the State Government. The total wind power generated by the state was 4,300 MW till April 2018 out of which 312MW was from Pratapgarh district. The performance of the generating stations was around 75% of capacity, with 8% transmission losses till the purchase point. Currently, in Pratapgarh district, aided by the setting up of the wind farms, electric connections to 48,000 households in semi-electrified zones of the district are in progress, with 16,000 connections in Dhariawad and Bibatpur requiring augmentation/improvement under Deen Dayal Upadhyaya Gramin Jyoti Yojna/Mukhya Mantri Vidyut Sudhar Abhiyan. There is no industrial belt in Pratapgarh district, in contrast with the nearby Banswara district, hence there are no significant high tension (HT) consumers in Pratapgarh yet. However, new HT consumers in Pratapgarh had been given connections respectively of 415 kV and 350 kV about five months ago which were expected to generate monthly revenue of about ₹2-2.5 lakh. Some of these MSME industries include Sawariya Construction, Chetna Industries,

43 BP Statistical Review, 2018, https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp- stats-review-2018-full-report.pdf

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Maruti Marbles and Granite. The Evaluation Team estimates that around 50,000 households each in Barmer and Jaisalmer districts are served by the 40 MW wind farms established there. Power supply to another 20,000 households in each of the other two locations is likely to be improved by the wind farm projects established there. Contribution/attribution: While DCI investment has helped CWPD expand and deepen outreach, geographically and across disadvantaged groups, the power generated by CWPD has added to the overall quantum of power being generated in its area of operation, without any direct attribution. At the same time, it can be argued that any augmentation of power supply in the region helps with overall economic development, stimulating the setting up of factories and creation of jobs. The fact that HT consumers have started setting up operations in Pratapgarh which does not have an industrial belt so far,is a good indication of the contribution being made by CWPD. EQ 1.2. Has Clean Wind Power Devgarh demonstrated a profitable business model?

Indicators Achievements/findings Capital augmentation The company took debt of ₹163.10 crore, of which IDFC Bank gave ₹125.10 crore from its own funds, and the DFID contribution was ₹38 crore. In 2013-14, when this debt was provided, this amount constituted over 60% of the ~₹270 crore of capital mobilised by the company. The loan of from IDFC and DFID would have enabled it to initiate the investments in its Barmer and Jaisalmer projects and then to leverage additional funds from other lenders taking its overall long term borrowing to ₹542 crore by the time these projects were commissioned in March 2016. Financial performance In the opinion of the Evaluation Team, this company’s financial performance bears monitoring. Its high level of receivables at 61.7% relative to revenue on 31 March 2016, its declining Return on Equity and its failure to upload its financial information on the RoC website over the past two financial years are indicators of concerns about its sustainability. Midline focus A substantial effort will be required to obtain up to date financial information to determine the company’s sustainability.

The contribution of ₹38 crore (£4.1 million) in debt by the DCI Programme Fund on 23 December 2013 was an important input into the establishment of the first wind farm of the company. The initial project was the green-field establishment of a 37.5 MW wind farm comprising 25 turbines of 1.5 MW at village Devgarh in Pratapgarh district of Rajasthan. Table 19 indicates the funding disbursed and interest rate on the disbursed portion. IDFC provided a loan of ₹125.10cr (£13.8m) from its own funds and the additional DFID contribution increased the total loan provided to ₹163.1cr (£17.7 million). The funds were provided by IDFC and Table 19: Funding disbursed and interest rate on disbursed from the DFID funds at portion different rates, resulting in a Disbursed portion (Initial) ₹ in Crore Interest Rate blended interest rate to the IDFC portion 125.10 9.60% client of 9.86%. This DFID portion 38.00 10.85% incorporates the higher Blended Interest Rate on DFID rate resulting from the disbursed portion 163.10 9.86% hedging cost of the loan. In Undisbursed 0 future it will involve resets on the IDFC portion on the risk premium (i.e. spread) on an agreed frequency with the client. The loan matures on 15 May 2023. The loan from IDFC/DFID allowed the company to refinance its establishment of the first wind farm in Pratapgarh and move on the establish wind farms in Barmer and Jaisalmer with additional loans from other financial institutions. As Figure 5 shows, the debt equity ratio of the company has increased from 3.3 in March 2013 to 4.8 in March 2016.

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Figure 5: CWPD: Debt-equity ratio after programme investment

900 6 800 5.1 4.8 5 700 600 4 3.3 500 698.7 701.6 2.6 3

400 ₹crore 300 2 200 197.3 194.9 1 100 137.3 146.7 59.0 74.3 0 0 Mar-13 Mar-14 Mar-15 Mar-16

Promoter Equity Debt Debt-Equity Ratio

Detailed information on the financial performance of Clean Wind Power (Devgarh) Private Limited is only available from the website of the Registrar of Companies until financial year 2015-16. Detailed financial statements for 2016-17 and 2017-18 have not been uploaded (in Form AOC-4) by the company though it has been provided in a private website(zaubacorp.com) which has been referred to carry out the analysis in the subsequent section. Only sketchy information is available for Financial Year 2016-17 and no information at all for Financial Year 2017-18.

Figure 6 shows the growth of the company over the past few years with a substantial increase in revenue from operations rising from ₹46.24 crore in 2013-14, to ₹124.15 crore in 2015-16. In 2016-17 the revenue levels, off at ₹121.90 crore. The profit over this period shows a declining trend from ₹10.22 crore in 2013-14 to ₹9.41 crore in 2015-16, a decrease of about 8%; in between also dipping to ₹8.40 in 2014-15. In the sketchy information available for 2016-17 is perhaps the reason for its reluctance to upload data for the past two financial years: profit after tax is down to just ₹2.11 crore, a return on equity of just 1.4%. With a stable revenue and rising financial and depreciation expenses, this decline in profitability is inevitable. The problem may well be in a combination of the following factors cited in the ICRA rating report on the company dated March 5, 2018:

Weaker generation in the Pratapgarh and Jaisalmer projects a key concern – Generation in both these assets has been subdued and remains below expected levels in the recent past. The reasons for the low generation range from low wind at the project site, possibility of improvement in O&M practices and grid curtailment-related challenges. Actual generation, thus, will be a key monitorable for the company. High operating risks, given the seasonal nature of generation and associated unpredictability of PLFs depending on wind availability - CWPDs projects remain exposed to risks arising from non-availability or reduced availability of wind resource. However, the same is mitigated to some extent as third-party site-specific wind resource assessment has been conducted on the site for a year.

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Figure 6: Financial performance of CWPD

140 124 16% 14.7% 122 120 14%

100 12% 7.9% 10% 80 8% 60 51 ₹crore 46.2 6.6% 6% 40 23.2 4% 20 2% 0.6 0.8 0.9 1.4% 0 0% 2013-14 2014-15 2015-16 2016-17 Revenue from operations Other Income Return on equity

Conversely, the rating report mentions 2 favourable factors and actually assigns the company with an upgrade from BBB+ (triple B plus) to A- (A minus).

Improvement in payment cycle of discoms mitigates any liquidity concerns and reduces working capital intensity – The payment cycle of the state discoms has seen a considerable improvement over the last six to eight months which has reduced the receivable days substantially. This timeliness in payments has thus improved the liquidity of the company, which is also supported by the presence of two quarter DSRAs and undrawn working capital lines. Despite these recent positive developments, ICRA notes that Rajasthan discoms are inherently weak counterparties and thus it will continue to monitor the payment cycle in future. No execution and off-take risks – The entire capacity of 111 MW is operational and has a vintage of almost five years in the case of Pratapgarh asset and almost three years in case of the Jaisalmer and Barmer asset. Long-term PPAs for all three projects have been signed which mitigates the demand risk to a large extent. Further, PPAs have been signed at an attractive tariff which ensures satisfactory IRRs and coverage indicators.

The rating upgrade stretches credulity a bit in that the company’s adverse factors cited above are compounded by the growing trade receivables – which were 61.7% of revenues on 31 March 2016 (up from 30.6% in the previous year). Figure 7 shows that all assets (other than fixed assets) were 5.4% of the total while trade receivables had climbed to 9% at the end of the financial year. This presages a dangerous situation where receivables could go out of hand. The recent ILFS debacle in similar circumstances has to be kept in mind in judging CWPD’s sustainability status. The company’s failure to upload its financial information after that date is an additional discomfiting factor leading to questions about its sustainability.

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Figure 7: Deployment of CWPD’s Capital

Cash and bank Loans and Other current balances advances assets 4.0% 1.3% Trade 0.1% receivables 9.0%

Fixed assets 85.6%

EQ 1.3 Did the DCI investment add value to Clean Wind Power Devgarh (e.g. in terms of governance, operational management, financial management); ability to cope with issues in low income states?

Indicators Achievements/findings Management support The Hero Group is a well-known and respected company with diverse interests in the automobile, bicycle and energy sectors. It is unlikely it would have needed either operational or financial management support for the implementation of its projects. Midline focus Progress of the energy investments of CWPD in terms of operational efficiency in order to maintain the growth and sustainability of the company.

EQ 1.4 Were there other intended and unintended impacts of the DCI fund investments?

Indicators Achievements/findings

Other impacts In the absence of an interaction with investee, it is difficult to comment on any significant unintended impacts. Employment and incomes generated in establishing the wind farms and sub-stations and the ongoing employment created in the operation and maintenance of the wind energy projects established is commented upon in the discussion of EQ2.2 below.

Midline focus To be followed up to see if there are any adverse effects of the wind farms resulting from the displacement of smallholder farmers from their land, albeit unproductive. Assessment of any additional employment resulting from the operations of the wind farms.

Clean Wind Power Devgarh - at the household level This section is structured around preliminary findings on sub-questions for Evaluation Question Two (“Did the DCI borrowers provide the poor, particularly women and socially excluded groups, with access to high quality services?”). The evaluation team has conducted focus group discussions and key informant interviews in select locations in Pratapgarh district in Rajasthan, in and around the wind farm site at Devgarh.

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Table 20: Details of FGDs and KIIs

Location Tool SC ST Muslim OBC General Women Men Generating substation, FGD1 1 2 1 3 0 0 7 Devgarh, Pratapgarh Odwara Village, FGD2 6 2 4 Pratapgarh District Dhamandoongri Village, FGD3 7 7 Pratapgarh Site Manager, Hero Future KII I 1 1 Energies (HFE) Junior Engineer, KII II 1 1 Devgarh,Pratapgarh Executive Engineer, KII III 1 1 Transmission, Pratapgarh Total 1 15 1 4 2 2 21

Two focus group discussions were held respectively at Odwara and Dhamandoongri villages in Pratapgarh district. Both the villages have predominantly scheduled tribe populations of the Meena community. The key informant interviews mainly included the project staff of Hero group, as well as an Executive Engineer (XEN) and Junior Engineer (JEN) of the electricity distribution company, the Ajmer Vidyut Vitaran Nigam Limited (AVVNL). A technological advancement in the Wind Powergrid is the Volume Circuit Breaker (VCB) which requires minimum maintenance compared to other circuit breaker technologies. The operation of switching on and closing of current carrying contacts and interrelated arc interruption takes place in a vacuum chamber in the breaker which is called vacuum interrupter. EQ 2.1 Are there any additional employment and income opportunities created in the catchment areas of Clean Wind Power Devgarh wind turbines? There is a limited amount of additional employment and income opportunities created in the catchment areas of the wind farms established by CWPD. This is a geographical area with very few sources of regular employment which can also provide significant remuneration. Most of the land is unirrigated and rainfall is comparatively low. The undulating land is not easy to farm. Except for flour mills, there are no units reported that do significant value addition to agricultural produce. There is no dairy procuring milk from the villages, and in any case no farmer reported keeping high milk yielding breeds. Migration to cities is the norm in this area. Some 111MW of electricity capacity (of three different wind energy providers here in Pratapgarh) produces about 50 MW of power. It is being distributed to domestic and farm feeders. Three phase power is supplied in agricultural farms to manage the base load (from domestic use) and extra load (irrigation). In the farms, power supply has increased from 6 hours to 8 hours in the last 3-4 years. In the FGD of ReGen employees, the respondents reported that due to wind power, there has been a boom in power supply for irrigation, and each well has a power connection. Most respondents in the FGDs suggested that electricity supply in this area has gone up due to the setting up of wind farms. The major improvement reported was that for the past two to three years they had been getting regular electricity, and had no major complaints, both for domestic and agricultural connections. The main occupation of the population in the region is agriculture and wage labour. Each household owns about 5-10 bighas of land and the main crops grown are wheat, chickpea, and soybean. These are sold at the local market in Pratapgarh. Wheat attracts a market price of around ₹19/kg, maize is sold at ₹14/kg, and chickpeas at ₹3,800/quintal. Chickpeas are cultivated due to a paucity of water. Onion, selling at ₹10-15 in retail markets, fetches ₹3 per kg for the local farmers. Greater availability of water from tube wells is resulting in a gradual shift in cropping from maize to wheat resulting in a higher generation of income but this is a gradual process and cannot be quantified at this time. This is a process that can be followed up at the midline stage to determine its impact on incomes and employment. Other than agriculture, there are not many employment opportunities available locally, hence young men migrate to the towns of Udaipur, Chittorgarh, Bhilwara, Jodhpur or Ahmedabad in search of jobs, and once they start working there, they send remittances to their families. Educated men are employed

95 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio in industries while less educated people with lower skill levels travel to Mazdoor Chauraha (Labour Crossroads) in Pratapgarh in search of daily wage jobs. The travel expenditure to and from Pratapgarh is ₹40. There are days when they do not find any work. Wage labour gets them ₹200-250 a day. Local small businesses include grocery shops, wheat flour chakkis (mills), cement shops, roadside vegetable carts and tea stalls. Milk is for self-consumption. Bullocks are used in the farmlands, as these work better in the undulating terrain. Owing to the largely unirrigated nature of farmland, the land holding size tends to be on the higher side in this area. EQ 2.2 Did any poor and marginalised persons get jobs/services/increase in income in the area where Clean Wind Power Devgarh wind turbines have been set up? Poor and marginalised persons have got jobs/services/increase in incomes in the area where Clean Wind Power Devgarh wind turbines were set up. In Odwara village where the grid substation for the wind farms was set up on 10 bighas of land, local people got employment for 45 days in the construction of the substation. In the villages where the wind turbines were set up, the respondents reported having worked for about two months on the project. Since the project site was in close proximity to their village, they did not need to spend on travel expenses (to Pratapgarh in search of casual labour) for two months when they also enjoyed full employment. Most of these respondents had worked in construction as labourers, so working on the project was a normal task for them. The men received ₹350 daily, in addition to ₹50 conveyance, and the women, who were also fewer in number, received ₹250 daily. Villagers from Dhamandoongri who sold their lands for establishing the wind turbines were involved mainly in the setting up of wind turbines, for which they received daily wages, albeit less (@₹150 per person/day) than that received for the more heavy-duty work in the civil construction at the grid sub- station site in Odwara. The lower wage was acceptable to them since they did not have to spend on travel in to Pratapgarh in search of daily casual labour, apart from the relative lightness of the work. The project also used a hired tractor for wiring from the wind turbines till the grid substation, for the work of digging earth, filling material, and erecting poles. The remuneration was ₹2,500 connection (turbine to sub-station) and the contractor could complete 5-6 connections in a day. For this work, the contractor used 8-10 persons from nearby villages, paying them ₹200-300 per day. Out of the ₹2,500 received per wind turbine, the respondent reported being able to save ₹1,000. One of the major benefits that respondents reported was that their land, which was semi-barren in nature was purchased by the company for installation of wind turbines resulting in revenue of approximately ₹1.5 lakh each (for two bighas of land). This money was utilized by them for building/expanding their houses, digging wells, or procuring household assets. The direct employment and income generated by the project is quantified in Table 21. More significantly, in every family in the 25 villages where land was purchased for setting up wind turbines, one member from one family was given the job of guard for the wind turbines, starting June 2013. Thus, for at least 25 families, jobs have been created at their doorstep. Each of these guards gets a salary of ₹4,500 per month. Table 21: Direct employment & income generated by the 37.5 MW Pratapgarh unit

Employment/ income avenue Number, Number of Rate per day Amount, ₹ Annual persons/ days or unit, ₹ (capital amount, ₹ area of expenses) (recurring land expenses) Construction of GSS at Odwara – 120 45 400 21,60,000 - daily labour: men Construction of GSS at Odwara – 30 45 300 4,05,000 daily labour: women Setting up of wind turbines – daily 125 60 150 11,25,000 - labour Wiring of wind turbines (contractor) 25 2,500 62,500 - Wiring of wind turbines (labour)* 10 60 300 1,80,000 - Land for GSS 10 bighas* 1,00,000 10,00,000 - Land for 25 wind turbines, @2 50 bighas 75,000/ bigha 37,50,000 - bighas per turbine Work as guards in grid substation 5 5,500/ month - 3,30,000 Work as guards of wind turbines 25 4,500/ month - 13,50,000

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Employment/ income avenue Number, Number of Rate per day Amount, ₹ Annual persons/ days or unit, ₹ (capital amount, ₹ area of expenses) (recurring land expenses) Office staff of ReGen 5 22,000/mth 13,20,000 Total, ₹ 86,82,500 30,00,000 £ 94,400 32,600 * This land belonged to two persons from the village; the proceeds were shared roughly equally between them As Table 21 shows, the 37.5 MW Pratapgarh project of CWPD has directly generated ₹86.82 lakh (£94,400) for the local community at the time of its setting up, in addition to annual income of ₹16.8 lakh for the last five years, which cumulatively adds up to ₹84 lakh. This is apart from the office staff, five in number, of ReGen at the grid sub-station, who between them have reported an average monthly salary of about ₹22,000, thus generating another set of incomes amounting to ₹13.2 lakh annually. The total recurring income from the project amounts to ₹30 lakh (£32,600) per annum. For the three projects of CWPD then with a total capacity of 117.5 MW, the total employment and income needs to be multiplied by a factor of 3.13 (117.5 divided by 37.5) resulting in • Income for local communities during the establishment of wind farms and sub-stations amounting to ₹2.63 crore (£296,000) • Recurring annual income of ₹94 lakh (£102,000) in the guarding of wind turbines, guarding of grid sub-stations and the management and operations of the three wind farm projects. EQ 2.3 Has access to services reduction in cost due to the Clean Wind Power Devgarh wind turbines resulted in addressing vulnerability? Access to services and reduction in cost due to the Clean Wind Power Devgarh wind turbines has resulted to some degree in addressing vulnerability. In Odwara village, there are a large number of poor households with 110 out of 215 having PDS ration cards. Only around 10% households have TV sets. All households have gas connections but do not use these, saying that they are unable to afford ₹900 for each cylinder, so gas is only used in times of great need. Most respondents had no idea if they were receiving subsidy on cylinders. Rural people with gas connections do not get kerosene. Those without gas connections receive 2.5 litres of kerosene per month, down from 3 litres. The kerosene is used mainly to light firewood. There is no dairy attached to the village. This is also because the cows they have are an inferior local breed, which give only enough milk for self-consumption. In case of excess production, curd or buttermilk made from cow’s milk are distributed in the village. According to the Junior Engineer of the local electricity distribution company, the setting up of the wind farm at Devgarh has given the energy required to cater to the predominantly tribal population of 2 lakh persons that he covers under his grid sub-station (GSS). The supply of electricity which used to be for 12 hours a day has now gone up to 20-22 hours. Pratapgarh was traditionally an electricity deficit area but there is now a surplus. Odwara village was connected to the electricity grid in 2009 with a single-phase connection. Before 2013, electricity was supplied for 3-4 hours during the day and was available through the night. However, after 2013, with the contribution from wind turbines, each house has continuous power supply, with relatively few cuts. Dhamandoongri is fully electrified and has been connected to the Devgarh feeder prior to formation of Pratapgarh district. There were some issues with regular supply till about two years ago, but since 2016, they have been enjoying continuous power supply, which enables small scale flour mills to charge ₹1.5/kg for wheat grinding. They receive subsidy on electricity. The first 100 units are free, post which units are chargeable. The Saubhagya Yojana of the Government of India (now merged with the Deen Dayal Upadhyay Gram Jyoti Yojana) now provides a domestic line (DL) connection for just ₹500. As a result, children in the villages are able to study at night. The women can cook by the light of electric bulbs, and they do not have to light kerosene lamps. As stated by one respondent, the wind farms have been beneficial to them in reducing the harm normally caused to environment by electricity generation since there is zero input cost of air, resulting in saving of fuel. Overall, local people feel that the wind farm (Pankha) had been setup for the good of all and produces low-cost energy for life.

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The socially disadvantaged group (ST category) were benefitted directly by daily work on the project as indicated by the response to EQ2.1. In addition, the incomes for a number of families from the sale of their lands have been used to buy assets, which reduce their vulnerability. Thus, a few people have bought land nearby, others have dug wells, and at least one person has used the proceeds to repay a bank loan. In the FGDs, the respondents indicated that their vulnerability could be further reduced by creating irrigation facilities for their semi-barren or mining land by building small dams so that they could practise self-sustainable farming. The setting up of wind farms has attracted many people to visit Devgarh and their village which was not the case earlier, and the local people feel more recognized, as a result, by the world in general. Financial Assessment The company had an income of Rs. 125.02 crores in FY2015-16 up from Rs. 51.53 crores in FY2014- 15, reflecting 143% increase over previous year. For the FY 2017, the company operating income was Rs. 142.10 crores. It incurred an expense of Rs. 111.22 crores in FY16 and Rs. 36.21 crores in FY2015 leading to a profit of Rs. 9.91 crores in FY2016 and Rs. 8.60 crores in FY2015, reflecting almost 15% jump in profits. Table 22 below captures CWPD Balance Sheet and Profit and Loss Statement for FY2015-16 and FY2014-15.

CWPD Balance Sheet (in Rs.) FY2015-16 FY2014-15 Equity and Liabilities Shareholder’s funds Share Capital 1050444560 1050444560 Reserves and Surplus 416563363 322487967 Non-current liabilities Long term borrowings 5698709925 5420018184 Deferred tax liability (Net) 123592708 84584358 Long term provisions 209651 145109 Current liabilities Short term borrowings 276612911 23241734 Sundry Creditors 48263228 2837968 Other current liabilities and provisions 868019454 1424469818 Short term provisions 93461 32073023 Total 8482509261 8360302721 Assets Non-current assets Tangible Assets 6917002794 7248699318 Intangible Assets 344721666 341227070 Long term loans and advances 103389201 83802456 Current assets Trade Receivables 766530848 155305536 Cash and Cash Equivalents 336747765 508694463 Short Term Loans and Advances 5885984 6180435 Other Current Assets 8231003 16393443 Total 8482509261 8360302721 Source: Zaubacorp

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CWPD Profit and Loss Statement (In Rs.)

FY2015-16 FY2016-17 Total Revenues 1250242112 515383070 Total Expenses 1112167072 362055828 Profit before Exception59al and Extraordinary Items and Tax 138075040 153327242 Exceptional Items 0 0 Profit before Extraordinary Items and Tax 138075040 153327242 Extraordinary Items 0 0 Profit Before Tax 138075040 153327242 Tax Expense 39008350 67364499 Profit (Loss) from the Period from Continuing Operations 99066690 85962743 Profit/(Loss) for the Period 99066690 85962743 Source: Zaubacorp

Financial analysis The company’s financials were analyzed across four broad categories, viz., liquidity, profitability, turnover or managerial efficiency and solvency. EQ 3.1: Did the investments help the project/ investee companies gain better access to capital improve cash flows and become more profitable /sustainable? Funding its growth using debt…

- The company’s Debt-Equity ratio decreased from 5.09 in 2015 to 4.78 in 2016, thus, limiting its usage of debt for funding growth. Over the last past four financial years, the average debt equity ratio has been 3.89, signifying, limited focus on debt component compared to equity. Ability to control costs and earn profits on a sustainable basis… • The operating ratio is almost 65% for the FY 2016, and for the past three years, have averaged around 70%. The company is maintaining a reasonable operating ratio, though, the overall expenses have increased by 207% from last year and hence the company can focus on curtailing the expenses that will lead to higher profits and better operating ratio. • The return on equity for the past three years, i.e. FY14, FY15, and FY16, has averaged around 9%, while, for FY16, it was 6.75%, reflecting company’s limited ability to utilize equity in earning profits. • The PBDIT (EBITDA) margin for the FY16 was almost 92%, while, in general, it has been in the range of 91% - 95%, indicating, company has reasonable cash flows and does not have much of issues with profitability. EBITDA for FY17 is 91%. • The ROCE of the company, for the FY 2016 is approximately 11%, which is almost near its average of last three years, viz., 10%. This indicates company’s efficiency in utilizing its capital employed to their advantage. The ROCE for the FY 2017 stands out as 7%. • The net profit margin has decreased from 30% to 11% reflecting company’s inadequate ability to earn profits. This is also reflected through high jump in expenses from Rs. 36.21 crores in FY15 to Rs. 111.21 crores in FY16. • The company’s return on assets (RoA) averages around only 2%, reflecting inadequate utilization of assets for generating revenues. Strengthening its position to meet short-term obligations…

99 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

• The company existing current ratio is 0.94, though, better than previous year (0.46), but still indicates company’s deficiency in managing short-term obligations, as shown in Table 23 below. Category Ratios FY 2015-16 FY 2014-15 Liquidity (times) Current Ratio 0.94 0.46 Operating Ratio 64.91 74.24 Return on Equity 6.75 6.26 Return on Capital 11.13 5.56 Profitability (%) Employed PBDIT Margin 91.56 96.69 Net Profit Margin 11.00 30.00 Return on Assets 1.00 1.00 Solvency (times) Debt to Equity 4.78 5.09

EQ 3.2: What help did the investments bring to the developers (build scale, survive or sustain value of debt) in order to cope with the issues in low- income states? As on 31st March 2016, the total investments towards fixed assets stood at Rs. 726 Crores, funded through a mix of equity and debt, approximately, in the proportion of 25:75. As per credit rating report by ICRA, the company had secured Rs. 45 crores to fund its working capital, and, Rs. 436 crores (Issued in November 2014, Rs. 392.40 crores amount outstanding as on March 2018), as term loan facility, to manage its operational expenses as well as expansion plans. ICRA had reaffirmed its long-term rating as mentioned above in the section4.1.2 to this loan, on account of following reasons: • Strong sponsor strength since HFEPL (holding company of CWPD) is promoted by Bahadur Chand Investment Private Limited (BCIPL; rated [ICRA] AA) and Brijmohan Lal Om Prakash (BMOP); • Equity infusion of up to USD 125mn by IFC, which is an arm of the World Bank and is Moody’s AAA rated; • Management team comprises of well experienced technocrats and investment/finance professionals; • No execution risks as 117.50 MW capacity already commissioned; • No off-take risk as PPA has been signed for entire 117.5 MW capacity at attractive preferential tariff with AVVNL and JVVNL and entire 117.50 MW has been registered for obtaining GBI; • Established track record of wind energy projects in India with a cumulative pan India installed capacity of over ~310 MW. The report further clarifies that though there are certain credit weakness, such as, vulnerability of cash flows due to adverse wind conditions, high operating risks etc., the rating action, considers the fact that payment collections have improved in the last few months. Despite the recent improvement in payment profile (from 10-11 months to 7 months), the rating accounts for the fact that all the three projects are exposed to Rajasthan-based discoms, which are inherently weak counter parties. As far as DFID investments are concerned, DFID had made an investment of about Rs. 38 crores, through IDFC Limited, in 37.5 MW wind farm comprising 25 turbines at village Devgarh, Pratapgarh District of the low-income state of Rajasthan. The funds have been utilized used for construction of Clean Energy Wind Farms for generation and distribution of electricity into Rajasthan. The Total Project Cost (TPC) at the time of investment was Rs. 253.9 crores with a debt of Rs. 191.2 crores. Of this, IDFC provided a loan of Rs. 154 crores and DFID contribution was Rs.38 crores. Promoters contributed Rs. 62.7 crore, i.e. 24% of cost.

100 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Case Study 4 – SunSource Energy Private Limited SunSource Energy – at the company level SunSource Energy is one of the key players in India's distributed solar space. In a short span of time, the company has grown from a two-person team into a 100-employee company. SunSource is an ISO 9001:2008 & ISO 14001:2004 Certified company. It has extensive experience, technology agnostic approach and hands on knowledge of global best practices in solar energy projects. Their team stands out with several decades and over 450 MW of experience in solar photovoltaic system design, engineering and/or installation, as well as project development. The company helps in minimizing the levelized cost of energy. India's Ministry of New and Renewable Energy (MNRE), with verification from CRISIL, India has recognized SunSource as a Channel Partner. It has also been accredited by Department of Small-Scale Industries (SSI) & SMERA, a collaborative credit rating agency, National Small Industries Corporation (NSIC), D&B and other leading banks, which enables Sunsource Energy Private Limited (SSEL) to raise bank loans at competitive rates. It has also designed and implemented projects related to water pumping and purification with solar energy for a non-profit, SANA and has received Google Global Impact Challenge Award. SunSource was founded by Adarsh Das and Kushagra Nandan in 2010. It has built more than 110 projects across 18 states, primarily for commercial and industrial clients. Besides India, it has offices in the US, Philippines and Singapore. Currently, the company has over 200 MW of solar projects in India and in overseas locations and it expects to reach an installed base of 300 MW by 2020 and aims to achieve 1.5 GW capacity by 2025. EQ1.1 Did DCI investment help SunSource Energy expand or deepen outreach, geographically and across disadvantaged groups?

Indicators Achievements/findings Started operations 2010 Services offered Sun Source Energy Private Limited (SSEL) is an Engineering, Procurement and Construction (EPC) as well as Operations and Maintenance (O&M) company in the solar energy sector. It has established more than 110 solar energy projects across 18 states of India and also in other countries. It has helped to create around 200 MW of solar energy capacity. People served Most of the larger solar energy projects are established in remote, rural regions so the people who benefit from SSEL’s are those in these regions who receive both greater power supply (in terms of number of hours per day) more reliable, predictable power performance enabling better planning of economic activities. Since the power is usually fed into the grid in the case of large projects, the benefit spreads across economic classes. Midline focus To determine the expansion of SSEL’s activities since the baseline and document the extent to which its outreach and geographical spread reaches disadvantaged groups of people. SunSource is an end-to-end solar project developer; an engineering, procurement and construction (EPC) as well as an operations and maintenance company (O&M) for solar energy projects. The company will use the capital from Neev fund’s fourth investment to develop solar project assets across Uttar Pradesh, Rajasthan, Madhya Pradesh (MP), Bihar, Odisha, Jharkhand (JK), West Bengal (WB) and Chhattisgarh (CG). The company’s focus on environmentally sustainable solar energy solutions is fully aligned with Neev’s focus on under-invested states. SunSource entered the market in year 2010 to meet the varying needs of customers. It is engaged in trading and supplying a large range solar energy panels and other equipment for solar power projects. The company is recognised in the market for providing engineering advisory and turnkey EPC services, project development, solar rooftop power projects, solar MW scale power projects and off-grid power projects. The company develops, engineers, procures, constructs and operates solar power plants and projects, to help customers in institutional, industrial, commercial and non-profit sectors use solar energy more intelligently and in an efficient manner.

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SunSource is committed to protecting the planet's natural resources. It works to minimize waste in day- to-day operations, along with using and offering a sustainable choice of products. SSEL’s core activities include: Engineering, Procurement and Construction SunSource core offering is execution of solar project on a on a ‘turnkey’ basis, taking complete responsibility for detailed engineering, supply, and start up and connection to loads and power system. Our understanding of solar technology, track record and extensive global network allow us to deliver projects with globally benchmarked solar design and execution, within stipulated timeframes and cost, creating lifelong assets for your benefit. Delivering solar power plant assets requires careful design, planning and execution, considering a large number of variables including site conditions, supply chain and market conditions, and the customers’ specific financial and institutional needs. During execution, SunSource trained personnel are on-site to ensure that the plant is built as designed, and that on-site mobilisation, equipment delivery, installation and commissioning go as planned. Operations and Maintenance After commissioning and testing, SunSource enters into agreement with clients for solar power plant operations and maintenance. The O&M services are at par with global standards and include: • Remote Monitoring • Preventive Maintenance • Corrective Maintenance • Performance Optimisation Project Finance SunSource supports its clients to overcome financing challenges similar to other infrastructure projects such as power plants and real estate developments requiring high up-front capital with multi-year project lifetimes and need to optimise the flow of government incentives. SunSource provides advisory and technical support to its clients for raising debt and equity funds. Debt & Equity For Off-Grid projects, SunSource helps its clients prepare technical and commercial documentation to raise commercial loans to help pay for its projects. For grid-connected projects, SunSource helps with sourcing low-cost international debt, as well as debt from Indian banks and Financial Institutions (FIs), both PSUs and Private. For large Grid-Connected projects, SunSource helps in raising the equity capital needed to develop the solar project. EQ1.2. Has SunSource Energy demonstrated a profitable business model?

Indicators Achievements/findings Capital raised Received ₹42.28 crore (£4.6 mn) of DFID funds invested by the Neev Fund established at SBI CAP VENTURES Financial performance The company has been strengthening its financial position over the past few years with a declining debt-equity ratio and substantially growing revenue resulting in a return on equity of 103% in 2016-17. The growth contracted in 2017-18. SunSource has obtained a further commitment of ₹20 crore of debt from the World Bank. Midline focus To review the financial performance of the company and to develop a better understanding of the parameters contributing to its sustainability.

Tables 22 & 23 below provide a summary of the audited financial statements of SEPL for financial years 2014-15 to 2017-18. SSEL’s turnover has grown sporadically over the 3 years (to 2016-17) but was stagnant in 2017-18. The company management attributes this to the varying availability of capital. SSEL has reduced its borrowings very substantially over the past couple of years by retiring its debt from individuals and NBFCs as well as entering into long term payment arrangements with its suppliers. This has resulted in its debt-equity ratio declining from 7.09 (2014-15) to just 0.58 (2017-18).

102 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio

Table 22: SSEL Audited Balance Sheet (₹ crore)

Account heads 2013-14 2014-15 2015-16 2016-17 2017-18 Equity and Liabilities Shareholder’s funds Share Capital 0.26 0.31 0.37 0.39 0.47 Reserves and Surplus 1.02 1.44 3.62 12.05 55.99 Non-current liabilities Long term borrowings 0.98 1.50 0.76 0.45 1.53 Deferred tax liability - - 0.03 0.01 0.02 Current liabilities Short term borrowings 1.81 1.64 3.82 - 3.52 Trade payables 1.16 8.39 4.64 14.90 21.10 Other current liabilities and provisions 0.18 0.92 1.92 6.48 6.64 Total equity & liabilities 5.42 14.19 15.15 34.28 89.30 Assets Fixed Assets 0.24 1.14 1.25 1.25 51.72 Current assets Inventories 0.20 4.71 0.50 5.40 0.34 Trade receivables 4.59 7.71 6.98 12.82 10.80 Cash and Cash Equivalents 0.18 0.18 4.92 7.93 1.01 Advances 0.21 0.45 1.49 6.89 25.40 Total assets 5.42 14.19 15.15 34.28 89.30 Debt-equity ratio 3.22 7.09 2.80 1.76 0.58

In 2016-17 SSEL’s turnover grew by over 140% enabling it to increase its reserves and surplus very substantially and adding to its pool of capital. In 2017-18, despite the levelling off of revenue, equity increased substantially with the Neev Fund investment. As Table 23 shows, its return on equity grew from 26% in 2014-15 to 103% in 2016-17 indicating that with a stable source of capital the company would become a highly sustainable entity. The addition of ₹42.3 crore (£4.6 mn) of DFID funds invested by the Neev Fund through SBI CAP VENTURES in February 2018 will have greatly strengthened its capacity to provide performance guarantees and sustain a higher level of receivables – a traditional feature of the financial management of all EPC companies. The full effect of this equity inflow will probably only be felt from financial year 2018-19. On account of its revenue stagnation and the substantial inflow of equity late in the year, the RoE of Sun Source declined to less than 5%; without the equity inflow (which will not have contributed to the current year’s income) it would be a reasonable 13%. Table 23: SSEL Profit and Loss Statement (₹ crore)

Account heads 2013-14 2014-15 2015-16 2016-17 2017-18 Services Receipts – Exports 0.32 0.81 10.53 38.01 8.32 Services Receipts – Local 0.23 1.53 1.54 1.35 0.01 Sales 5.08 23.00 24.23 49.70 76.43 Other Income 0.00 0.01 0.51 0.50 0.49 Total Revenue 5.62 25.36 36.80 89.56 85.27 Revenue growth 351% 45% 143% -5% Expenses Cost of Materials Consumed 3.33 22.41 23.86 64.66 70.21

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Account heads 2013-14 2014-15 2015-16 2016-17 2017-18 Payment & Provision to Staff 0.78 0.88 1.66 3.44 4.51 Managerial remuneration 0.24 0.36 0.36 0.90 1.34 Administrative Expenses 0.67 0.69 7.66 6.84 6.16 Financial Expenses 0.32 0.42 0.58 0.52 0.41 Depreciation 0.06 0.04 0.09 0.19 0.22 Total expenses 5.39 24.81 34.20 76.55 82.87

Profit before tax 0.23 0.55 2.60 13.01 2.40 Tax expense 0.08 0.15 0.87 4.58 0.73 Profit/(Loss) for the period 0.15 0.39 1.73 8.44 1.67 Return on equity 26.1% 60.5% 102.9% 4.85%

SEPL's main competitors are ReNew Power, Mytrah and Welspun Renewables. ReNew Power generates just 48% of the level of SEPL’s revenue.44 EQ1.3 Did the DCI investment add value to SunSource Energy (e.g. in terms of governance, operational management, financial management); ability to cope with issues in low income states?

Indicators Achievements/findings Governance & The DFID investment was reported by management in (November 2018) management to have facilitated the undertaking of larger projects; however, the support accounts of 2017-18 are not yet available to ET and those of 2018-19 will only become available after a few months. SBI CAP Ventures has joined the board of the company. NEEV Fund representative’s presence has helped SunSource strengthen their ties with local, regional government and semi-government bodies that has proven beneficial for SSE to engage with policy makers. NEEV investments are minority investments and therefore management / operational support is provided only as and when required by the Company. Neev representative role on the Board is more strategic in nature.

Board governance & sub-committees of the board have been instituted to put in place necessary checks and balances to make the company forwardly compliant and aware of the industry practices, e.g. Remuneration Committee, Audit Committee, POSH etc. Midline focus Study coverage of projects and capacities developed in LIS. According to the promoters, the DFID funds invested through the Neev Fund, are of critical importance to the company. The equity capital from DFID will have increased the net worth of the company by more than 200% by the end of 2017-18, greatly increasing its ability to raise further capital as debt and increase its ability to undertake larger projects. In addition, SunSource Energy has been accredited by Department of Small-Scale Industries (SSI) & SMERA, a credit rating agency, National Small Industries Corporation (NSIC), D&B and other leading banks, which enables it to raise bank loans at competitive rates. A representative of SBI CAP VENTURES has joined the board of the company but there is no indication of any direct management support having been provided in respect of the low-income states. Contribution: As indicated above, the equity capital from DFID helped the company increase its net worth by more than 200%. The other positive effect was the rating that the company received from rating agencies, making cheaper credit available to it. The resultant growth of the company helped

44 https://www.owler.com/company/sunsource-energy

104 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio expand its operations leading to an increase in direct and indirect employment. The employment impact of the company is discussed below in Section 2 of this case study. EQ1.4 & 1.5 Were there other intended and unintended impacts of the DCI fund investments? What was its additionality?

Indicators Achievements/findings

Employment According to the promoter of SunSource, this this investment has given them effects and greater visibility and respectability in the market. They are as a result now able additionality to attract the very best of talent in the field. They have also expanded their senior team for the next larger level of contracts and investments. The NEEV relationship helped bring in a World Bank line of credit for roof-top solar, SEPL will be the first generation of RE companies to access this line.

Midline focus Monitor the effect of the investment on growth in employment and performance of the company’s technical and management team in managing that growth from the perspective of sourcing and fulfilling projects in the low-income states.

According to the promoters of SunSource, they were known before the Neev Fund investment, but now have greater visibility and respectability in the market. They are as a result now able to attract the very best of talent in the field and pay the most competitive salaries. They have also expanded their senior team for the next larger level of contracts and investments. The current (baseline) HR structure of SunSource covers staff at Head Office and in project offices/with clients as set out in Table 24. Table 24: HR structure - SunSource Positions/departments Men Women Total Directors 2 0 2 Executive Director 1 0 1 Head office Vice President 6 0 6 Assistant Vice President 6 2 8 Manager 9 1 10 Projects Technical staff 62 0 62 Non-technical staff 10 0 10 Total 96 3 99

As part of the investment terms, SSEL changed its auditor and appointed one of the big four audit firms to create an internationally recognised audit environment. SunSource Energy – at the household level The section is structured around preliminary findings on sub-questions for Evaluation Question Two (“Did the DCI borrowers provide the poor, particularly women and socially excluded groups, with access to high quality services?”). The evaluation team has conducted focus group discussions and key informant interviews in select locations in Bhilwara and Kishangarh districts in Rajasthan, with the clients of SunSource Energy where the company has set up and is operating/maintaining solar panels. Table 25 provides details of participation in FGDs and KIIs. Currently, SunSource has three main clients in Rajasthan, namely Nitin Textiles, Kanchan Textiles, and RK Marbles, all of which were covered by the ET’s field visit. The fourth one, M/s Madhusudan was not available for interaction. Currently, SunSource has no other customers in Rajasthan. Table 25: Details of FGDs and KIIs

Location Activity SC OBC General Women Men

Kanchan Textiles, Nanakpura FGD1 3 3 6

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Location Activity SC OBC General Women Men

Nitin Textiles, Hamirgarh FGD2 1 2 1 4 Kanchan textiles – Guards FGD3 3 3 Nitin Textiles, Hamirgarh FGD 4 4 4 Nilesh Patidar; Vishal Sharma (SunSource Energy) KII 1 1 1 2 Amit ji, S.S. Shekhawat KII 2 2 2 Ankit Shringi KII 3 1 1 P. Maheshwari KII 4 1 1 Sunil Poonia KII 5 1 1 Shashank Agarwal KII 6 1 1 Yash Jain, Sanjay Sharma KII 7 1 1 2 Bharat Carpenter, Vishnu Prasad KII 8 2 2 KII - Smt. Geeta Devi, Smt. Draupadi Vashwani, Kishangarh KII 9 2

Total 7 11 7 6 31

EQ2.1 Are there any additional employment and income opportunities created in the catchment areas of SunSource Energy? Kanchan Textiles Kanchan Textiles started in 2009 on 36 bighas land with production capacity of 25,000 metric tonnes per annum; it now has 400 bighas or about 10 lakh square metres of land. The various segments of the company are melt spinning, cotton spinning, denim, textiles, looms, open-end spinning and dyeing. The company has around 6,000 employees with 60% locals and 40% employees from UP and Bihar. Their yarn is shipped to Mumbai, Kolkata and Delhi. They have opened 3 new segments each year and are due to start a new fibre unit in the coming 6-7 months. Currently, the group is an HT consumer from the grid with a 33kVA feeder line. Kanchan’s daily consumption of power is around 5.5 lakh units. The model adopted for Solar is the RESCO model which is one of the ownership models, wherein the user (Kanchan) is not required to pay the total cost of the system upfront to the system integrator (SunSource). Here, the user has to pay only the cost of energy on a per unit basis on agreed terms with the solar integrator; which, in this case, is ₹4.80 per unit. By comparison, the available grid energy supplied by the local public sector utility is charged at ₹7.80 per unit, resulting in a net saving of ₹3 per unit. To setup the solar plant, since Kanchan had not undertaken any capital investment, the initial cost incurred has a payback of just 3 years; and the plant has a life of 25 years. The invested share capital in the industrial unit is reported as ₹50 crore with an average daily profit of ₹80 lakh. The solar unit generates 18,500 units per day which is just 3.4% of its total consumption but, nevertheless, results in significant savings in the running expenses of the textile plant. The availability of cheaper energy from SunSource saves Kanchan ₹3 (per unit) x 4.2 MW x 1.45 million units (generated by each MW of capacity) = ₹1.83 crore a year. Nitin Textiles The solar plants for Nitin Textiles, another industrial unit in Bhilwara, were commissioned in 2 phases. The generating capacity of one is 2.3 MW and the other is 1.3MW. The 2.3 MW plant was commissioned in April 2017 by ReNew Power, a competitor. Sun Source commissioned a 1.3MW unit in March 2018. Nitin Textiles was established in 1993 and is involved in cotton spinning, knitting and processing, with 900 machines running continuously, 24 x 7. The area has expanded from 10-12 bighas to 100 bighas currently. Approximately 3,000 employees work at Nitin Spinners in three shifts. Transport is provided by the company to workers for distances of 20-25 km. Accommodation is provided for outside labour at a nominal cost, next to the plant. Two-thirds of the production is exported to around 50 countries. In India, the plant supplies its textile products to central, west and northern states. The annual turnover is ₹1,150 crore with a net profit of ₹50 crore.

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For its energy requirements, Nitin Textiles draws power from the grid, its in-house thermal plant of 10.5MW, and solar plants of 3.6 MW capacity. Earlier, DG sets and furnace oil were used these have now been phased out. Total energy consumption is now 21MW, with 5 lakh units/day. As part of its operating conditions, the company is obliged to produce green (solar) energy and contribute to reduction in carbon emissions. Besides this, solar energy contributes to cost savings via the 14,000-15,000 units of solar power produced each day. The electricity bill payable each month is around ₹10 crore. Only 3% of its total power is currently obtained from solar energy, 40% is from thermal plant and the remaining power is from the grid. The thermal plant is now only operational for 5-6 months in a year since the cost of coal is high. Assuming the saving of ₹3 per unit in the production of CAPEX based solar power, Nitin Textiles is able to save ₹3 X 1.3 MW X 1.45 million units (generated per MW of capacity) = ₹56.55 lakh annually. For O&M, of the solar plant of Nitin Textiles, SunSource employs cleaners who service 800-1,000 modules every day. There is a total of 10,353 PV modules that must be cleaned bi-monthly. Nitin Spinners has also started up a new composite textile plant in Begu on 50 acres land where a 6MW solar plant has been proposed. RK Marbles RK Marbles is one of the largest marble production units in the country, with 3,500 MT of marble processed every month. They have 560 employees, of whom about 17 are women. The average salary paid out is Rs10-11,000 per person per month. They also run a bus service for their employees. They have installed six arrays of solar panels through SunSource, under the CAPEX model of investment – under this model, the entire cost was borne by RK Marbles, and they pay only O&M service charges to SunSource. RK is an HT consumer with a 1,600-kVA connection from the grid. It uses 3 lakh units of electricity per month, of which 1.15 lakh units is solar energy per month. They had invested ₹6.50 crore for the solar arrays of which they paid ₹5.75 crore to SunSource alone. RK pays at the rate of ₹7.30 per unit for grid power while their own cost of solar energy, accounting for the investment made by them, is about ₹4 per unit. RK Marbles is making ₹3 X 1 MW X 1.45 million units (generated per MW of capacity) = ₹43.50 lakh of savings per year. See Table 26 below for a summary of plant level outcomes for all three clients of SunSource. Table 26: Summary of Client level outcomes post SunSource Parameter Solar capacity Solar New business Savings with (Current) capacity investment post solar power Client (Planned) SunSource annually (₹ crore)

Kanchan Textiles 4.2 MW 6 MW ₹50 crore 1.83 Nitin Textiles 3.6 MW 6 MW New plant on 50 0.57 (1.3 MW through acres land SunSource) RK Marbles 1 MW - - 0.43 6.5 MW by SSEL Total for 3 of the 4 customers 2.83 Madhusudan 11 MW pro-rata savings 4.79 Total estimated savings 7.62 Household level outcomes The survey instruments included FGDs with staff, both casual and regular, and some key informant interviews with contractors of human resources, equipment and materials who were instrumental in setting up the solar plants. The industrial units that are clients of SunSource have given employment to both local persons and those from elsewhere. The site of Kanchan India Ltd. was setup by two contractors having expertise in solar panel installation. They started work at Kanchan mills in June 2018 and completed it in 5 months. They were responsible for electrical and civil work – module connection and mounting of the PV panels.

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A contract of ₹26 lakh was signed with the first sub-contractor, who hired daily labourers, technicians, staff, supervisors, as well as spending money on food and lodging as reported by the company. The total expenditure the contractor incurred was ₹22.5 lakh. The second sub-contractor, who was contracted at ₹20 lakh had incurred an expense of ₹16 lakh, which included local labourers, a tractor driver who was hired by project contractor for bringing and dropping off daily wage laborers, as well as dropping off PV plates from the store to building site. One person was involved in material movement, a car driver involved picking and dropping off senior staff to and from Bhilwara and transferring materials. Another sub-contractor was hired for operating hydra and forklift for loading and unloading materials – inverters, cables, drums, PV panels using hydra and forklift. In all, the Hydra machine has been used to empty 150 containers which came in 200 trucks. Support to other local business Generally, workers on the Kanchan solar project site dined at a local restaurant, Dev Narayana Bhojanalaya, paying ₹60 for a meal. As a result of this deployment of employees, the sale of this mini- restaurant had gone up to ₹20,000 per month which is now around ₹12,000-15,000 per month.EQ2.2 Did any poor and marginalised persons get jobs/services/increase in income in the area where SunSource Energy solar panels have been set up? Employment in SunSource’s operations is of two kinds – during the project stage, and for operations and maintenance (O&M). Most of the labourers involved in the project stage by the sub-contractors come from economically disadvantaged groups. This includes the local labourers, women as well as men, hired by the sub- contractors of SunSource. Feedback from FGDs indicates that the women were usually paid ₹50 per day per person less than the men. Project stage: For setting up rooftop solar energy systems, the sub-contractors keep teams of 20-25 people, both technical and non-technical/unskilled for about 3 months, in addition to which there are SunSource staff. The unskilled workers sometimes include women. Total employment with 3 clients: 93 local unskilled persons, 39 technicians. O&M: Each team usually has 1 engineer, 1 technician, 2 unskilled people per megawatt. Total employment with 3 clients: 10 local persons, 8 technicians SunSource recruits and maintains a pool of project staff centrally, who move from project to project. With the acquisition of more clients, the number of project staff is also going up. On the other hand, the staff for operations and maintenance (O&M staff) are usually local persons, from the same district, or some nearby district, to ensure retention, and also because they are familiar with local conditions. The solar panel cleaners are also SunSource staff. The recruitment of most other workers and staff like guards, drivers and labourers is outsourced to some local sub-contractor. Table 27 below summarises incomes and employment created locally by SunSource among its three main clients at Bhilwara and Kishangarh so far. Table 27: Employment and income through SunSource at Bhilwara and Kishangarh

Project stage – plant establishment (non-recurring) SunSource No of skilled staff No of Payout to Payout Explanatory notes Client from outside local skilled and unskilled workers/sub- expenses workers contractors for local (₹ lakh) unskilled workers (₹ lakh) Kanchan 10-12 20-22 7 15.50 ₹7 lakh was paid to skilled Textiles workers (Contractor 20 workers hired @₹400 1) per day for 150 days, and ₹3.5 lakh was spent on workers’ board and lodging

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Kanchan 4 18-22 8.05 8.40 1 tractor driver who earned Textiles ₹2,000 per day for four and (Contractor a half months, 1 labour 2) hired for shifting material @₹400 per day for 4 months, a car driver hired @₹28,000 per month for 4 months, and a hydra machine contractor hired @₹75,000 per month for 5 months 20 local labourers were hired @₹350 per day for 120 days Nitin Textiles 8 10-12 2.56 3.24 8 skilled workers @₹8,000 (Phase 1, 2 per month for 4 months MW) 12 local labourers were hired @₹300 per day for 90 days Nitin 4 from sub-contractor 6-7 4.02 2.21 4 technicians were hired Spinners 3 ITI technicians @₹15,000 per month for 5 (Phase 2, months, 3 ITI technicians 1.3 MW) were hired @₹8,500 per month for 4 months 7 local labourers were hired @₹350 per day for 90 days RK Marbles 3-4 24-30 2.01 6.6 1 labour contractor (Sub- Engineers/Technicians provided 12-15 local contractor – from SunSource; labourers per shift in 2 Mr 4 ITI technicians shifts per day. 30 labourers Raghvendra) (15 in each shift) were paid @₹400 per day for 55 days 3 SunSource staff worked for 2 months with salary of ₹35,000 per month each; 4 ITI technicians worked for 2 months with salary of ₹12,000 each Total: 39 93 23.64 35.95 project stage Operations stage – annual (recurring) SunSource No of No of Salary of Annual Explanatory notes client technicians locals technical payout employed employed staff (₹ to as lakh) guards guards; and panel panel cleaners cleaners (₹ lakh) Kanchan 4 4 16.80 6.24 Average salary of technical staff is Textiles ₹35,000 per month for all clients, as these are from SunSource Each guard gets salary of ₹13,000 per month at Kanchan Nitin Textiles 2 4 8.40 4.26 There are 3 cleaners for solar panels employed @₹8,500 per month, and they have one supervisor getting salary of ₹10,000 per month

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RK Marbles 2 2 8.40 2.16 There are 2 cleaners employed at ₹9,000 per month at RK Marbles Total: 8 10 33.60 12.66 Operations stage

EQ2.3 Has access to services and reduction in cost due to SunSource Energy operations resulted in addressing vulnerability? Farming and wage labour are a source of income for a large part of the population in Bhilwara district. The main crops grown here are wheat, chana, mustard, soyabean, groundnut, maize, vegetables and fenugreek (methi). The average land holding size is 6-8 bighas (4-6 acres), and in the case of unirrigated lands the land holding size is at the upper end of the range. For the economically disadvantaged, the land holding size is smaller, at about 4 bighas (3 acres), of which half may be barren. Most of the labourers, guards and solar panel cleaners, employed during the project stage, and in the delivery of operations and maintenance services, come from socially disadvantaged groups like scheduled castes and other backward communities. The four guards hired by SunSource at Kanchan Textiles come from a village 120 kilometres from Bhilwara. They have rented rooms for which each guard pays rent of ₹1,000 per month. They try to spend a total of ₹3,000 per month, so they can save and send home ₹10,000 per month. That is a significant remittance for them, making a difference to their families in their village. Most of the persons employed at Nitin Textiles to clean solar panels have reported family income from agriculture of about ₹1-1.5 lakh, so the salaries of ₹8,500 per month, even though on the lower side, are a significant addition to the family income. The monies earned out of the SunSource projects have been used to buy assets, or to repay loans. For instance, one person is using the income from the SunSource projects to repay the mortgage on a car being used for commercial purposes in the local area. Another person who had borrowed to buy a tractor, got work on the SunSource projects, and was able to repay the tractor loan. He is currently using the tractor to transport items for Kanchan Textiles, charging ₹450 per trip. He has again been called by SunSource to work on the next phase of their projects. One person had tried setting up a vehicle repair garage business, which failed. He has been using the savings from his earnings on SunSource projects to repay his loans. In the absence of SunSource, these persons would have been much more vulnerable to possible indebtedness, which they have not only avoided, but can look at a more secure future, as a result of SunSource projects. One person is using the savings from SunSource to obtain treatment for his brother who is seriously ill. Another person is planning to use the savings from SunSource to set up a business for installation of solar lights. Yet another person is planning to expand the farming that his family is involved in, in order to further increase family income. The widowed mothers of two solar panel cleaners at RK Marbles in Kishangarh were amongst those interviewed. One lady mentioned that in addition to the job of solar panel cleaner at RK Marble, her son does another day job and earns ₹6,000, to supplement the family income. She herself does sewing and papad making to further add to the family income. The other lady too said that her son works at the shop of his uncle to supplement his income from solar panel cleaning. Both families are landless. In the FGD of the wives of the solar panel cleaners at Nitin Textiles, one family is incurring expenses in the treatment of the father, and another is saving for the daughter’s wedding. Their savings are between ₹3,000-5,000 per month. Financial Assessment The company had an income of₹. 89.56 crore in FY2016-17 up from ₹ 36.80 crores in FY2015-16, reflecting 143% increase over previous year. It incurred an expense of ₹76.54 crores in FY2016-17 and ₹ 34.19 crores in FY2015-16 leading to a profit of ₹ 13.02 crores in FY2016-17 and ₹ 2.61 crore in FY2015-16, reflecting an almost 400% jump in profits. Table 22 & 23 capture SEPL Balance Sheet and Profit and Loss Statement for FY2015-16 and FY2016-17. Financial analysis

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The company’s financials were analyzed across four broad categories, viz., liquidity, profitability, turnover or managerial efficiency and solvency. EQ 3.1: Did the investments help the project/ investee companies gain better access to capital improve cash flows and become more profitable /sustainable? Funding its growth using debt… The company’s Debt-Equity ratio has decreased from 2.8 in 2016 to 1.75 in 2017, With Neev Investment in SS, the D-E ratio has come down thereby giving it more headroom to take on more leverage. This is borne out by the fact that they have raised ₹20 crore under a World Bank credit line. Ability to control costs and earn profits on a sustainable basis… The existing operating ratio is 15.11%. The operating ratio needs to be increased to earn profits on a sustainable basis. The PBDIT (EBITDA) margin is in the range of 15.32%. Given that the industry average for an EPC company is 8-10%, SunSource margins look healthy. The ROCE of the company, which is 105% for the FY 2016-17, reflects how efficient the company is utilizing its capital employed to their advantage. The net profit margin has increased from 4.71% to 9.42% reflecting company’s ability to earn profits. The company’s return on assets (RoA) is 24.60%, which has increased by almost 100% from its previous year, reflecting better utilization of assets for generating revenues. Strengthening its position to meet short-term obligations… The company existing current ratio is 1.55, better than previous year (1.34), which shows its ability to manage short-term obligations.

Category Ratios FY 2015-16 FY 2016-17 Liquidity (times) Current Ratio 1.34 1.55 Operating Ratio 8.64 15.11 Return on Equity 43.56 67.96 Return on Capital 67 105 Profitability (%) Employed PBDIT Margin 8.88 15.32 Net Profit Margin 4.71 9.42 Return on Assets 11.43 24.60 Solvency (times) Debt to Equity 2.80 1.75

EQ 3.2: What help did the investments bring to the developers (build scale, survive or sustain value of debt) in order to cope with the issues in low- income states? As on 31st March 2017, the total investments towards fixed assets stood at ₹. 1.25 Crores, funded through a mix of equity and debt, approximately, in the proportion of 30:70. NEEV Fund disbursed ₹ 42.28 crore to SEPL on 22nd February 2018, as equity investment. The returns on equity has been quite impressive, reflecting company's ability towards utilizing equity (net assets) for earning profits. It reflects company’s stock growth in future. The investment will help SEPL to venture out into new geographies, specifically, low-income states as it provides a strong support base to the company as well as new investors to invest into the company.

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Case Study 5– Mahendra Educational Private Limited Mahendra Educational Private Limited – at the company level Mahendra Educational Private Limited (MEPL), Lucknow was promoted by Naveen Kumar Jain and his wife, Shikha Jain. MEPL operates close to 161 coaching units to prepare students for central and state government jobs. MEPL’s sister company, Mahendra Skills Training & Development Private Limited (MSTDPL) operates 19 skill development centres under the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), the flagship scheme of the Ministry of Skill Development & Entrepreneurship (MSDE), Government of India. The coaching institutes and MEPL vocational skills centres operate under the Mahendra brand. Mahendra Educational Private Limited is the holding company for the Mahendra group that is comprised of six companies that operate in the field of education, skill development, real estate and manufacturing. All the businesses feed the needs of MEPL and MSTDPL. Thus, the infrastructure company builds office space for the group, a furniture company supplies furniture for the group’s coaching units and skill development centres, the publication company publishes all the teaching and training material, as well as the magazine, ‘Current Affairs’, that is published in English and Hindi for the trainees. The two promoters are directors of all the six companies. As part of the NEEV Fund deal, Mr Manav Bansal, Chief Investment Officer, NEEV Fund has joined as the third director in both MEPL and MSTDPL from June 2018. The founders of MEPL began their journey with Mahendra’s Institute of Banking as far as back as 1994. The institute was to cater to the weaker sections of society, empowering them with quality training programmes. Mahendra’s Institute for Banking endeavoured to assist the students in all types of preparation, to provide the candidates with knowledge and skills required to achieve their goals. It provided an overall development package to its pupils covering initial level written examinations to final level interviews and training for employment with the banking sector. While the core offering of MEPL is courses for entry to the banking profession, over the years, MEPL has broadened its focus to cover other professions. The broad activities entail a focus on preparing students for government sector jobs, reaching out to students in non-metro cities where there is greater demand for government services and concentration on subordinate positions in public sector institutions/companies. The skill development scheme of the Government of India, Pradhan Mantri Kaushal Vikas Yojana (PMKVY) has played a very important role in the evolution of the company, especially in the equity investment through SBI CAP VENTURES. Skill development centres have been setup under PMKVY and state-skill-development missions, in collaboration with the training partner Mahendra Skills Training & development Private Limited (MSTDPL). The courses running at these centres include- self-employed tailor, retail sales associate, call center executive, solar panel installer, front office associate, life insurance agent, accounts associate. Targets for various skills are set by the government on a quarterly or annual basis. This programme had a billing under previous Congress government. Students at the PMKK centres come from villages located 50km away. Rail or road connectivity is a deciding factor. A training & development plan prepared at the head office is followed at each centre. according to the curriculum of the National Skill Development Corporation (NSDC). Training classes are held in two slots- morning 9 am to 1 pm, and afternoon 2-6 pm. In each session, two hours are allocated to theory and two hours to practical exercises. Personality development, digital literacy and English language classes are part of most courses. Funded by Muthoot CSR, MSTDPL also trains batches of potential field staff shortlisted by Muthoot Finance, an MFI. This training lasts about 1.5 months. After the training, out of the 24 trainees, Muthoot finally selects 10 candidates based on a written test. Selected candidates are appointed as field officers and loan processing officers. Services and infrastructure rollout status Mahendra’s growth is coming through the setting up of coaching centres, often at small towns, this is what has helped the company transform into a brand leader. Project management has meant covering a whole gamut of activities, from liaison with the government authorities, through setting up and managing often complex vendor relationships, to managing finances, logistics, inventories and people.

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Mahendra’s Innovations With the vision to digitalize every aspect of student learning, Mahendra has devised several tools to enhance the overall development of students but also make sure the effective implementation of the knowledge gained by them during the theoretical sessions. This is done through smart classes with the latest technology for training – smart boards and projectors and smart labs that simulate exam conditions and undertake smart assessments to guide the students to success. Criteria for Selection of Locations The SOP for site selection for the coaching centres and skill development centres include:

a. Assessment of size of job aspirants pool b. Demand for various courses c. Financial and institutional capacity of franchisee d. Proximity to major communication facilities e. Availability for rent of suitable physical facilities for conducting classes

MEPL's main competitors are Thinklink Learning Services Private Limited, International Foundation for Research and Education and Vibrant Academy (India) Private Limited.45 EQ1.1 Did DCI investment help Mahendra Education Private Limited expand or deepen outreach, geographically and across disadvantaged groups?

Indicators Achievements/findings Started operations 1995 (MEPL) and 2015 (MSTDPL) Services offered MEPL offers preparation for competitive exams of Banks, SSC, Railways, Insurance at the state and national levels. MSTDPL offers skill development vocational courses of short duration with aim to promote self-sustainability or sectoral employment. People served A total of more than 50,000 trainees (55,930 on 5 March 2019) are being trained annually in the Pradhan Mantri Kaushal Kendras. The trainee graduates include people from socially and economically weaker sections, people with disabilities, and vulnerable persons like widows among others. Midline focus To determine the expansion of skill division of MSTDPL activities since the baseline and document the extent to which its outreach and geographical spread reaches disadvantaged groups of people. The equity investment of ₹45 crore from NEEV Fund has mainly been used in the setting up of the 19 Pradhan Mantri Kaushal Kendras, of which the principal ones are two in Uttar Pradesh (Lucknow and Bareilly), and two in Madhya Pradesh (Satna and Bhopal). The skill centres have been established in the districts to give access to students residing in rural regions so the students across weaker economic classes or being specially-abled can either set up their own skill shops to cater to their own and nearby villages or can gain employment across the nation enhancing the outreach of the trained students. Mahendra has also collaborated with Asha Jyoti Kendra, a pilot project by the UP government for distressed women who have been victims of domestic violence, assault, rape, harassment, divorce. Mahendra is the training partner for AJK, for which batches started in July 2018 for courses like assistant hair stylist and sales staff for retail stores. As MSTDPL collaborates with state skill development schemes like UPSDM, the cost of space on lease, cost of development of the center around ₹50-70 lakh are borne by the scheme and the operational costs are borne by the company. MEPL operates in over 114 districts across 22 states, including the low-income states of Uttar Pradesh (UP), Rajasthan, Madhya Pradesh (MP), Bihar, Odisha, Jharkhand (JK), West Bengal (WB) and Chhattisgarh (CG). The geographical distribution of these centres in the low-income states is shown in Table 1. The concentration is on the Hindi speaking states. MEPL also has 30 centres in other states.

45 MEPL, Tofler, August 10, 2018; https://www.tofler.in/mahendra-educational-private-limited/company/U80902UP2008PTC034973

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Table 1: MEPL and MSTDPL – locations at a glance

States UP Rajasthan MP Bihar Odisha JK WB CG Total

No. of coaching centres 58 4 9 8 5 1 5 4 94

No. of skills centres 18 - 9 3 - - -- - 30

Total 76 4 18 11 5 1 5 4 124

EQ1.2. Has Mahendra Educational demonstrated a profitable business model?

Indicators Achievements/findings

Capital raised NEEV Fund agreed to invest ₹45 crore (£4.9 million) into M/s Mahendra Educational Private Limited on 31 March 2018 but the investment in three phases began after that date. Financial performance The company has maintained a steady return on equity of the order of 26-28% (slightly lower in 2014-15). Midline focus To determine the growth of revenues and monitor the company’s ability to maintain its good return on equity as it expands its operations.

Investments and funding accessed NEEV Fund agreed to invest ₹45 crore (£4.9 million) on 31 March 2018. The securities allotted are Compulsorily Convertible Debentures (CCDs) and is to be invested in three phases. The first investment of ₹20 crore after 31 March 2018 and is, therefore, not included in the balance sheet of that date. Shareholding Pattern of MEPL

Mahendra ownership is tightly held by Naveen Kumar Jain, his wife Shikha Jain, and brother Praveen Kumar Jain. Table 2 shows the Shareholding Pattern of MEPL. Table 2: Shareholding Pattern of MEPL

Shareholder name 31 March 2018

Equity shares No. of shares %

Promoters

Naveen Kumar Jain 109,789 48

Shikha Jain 10,000 44

Praveen Kumar Jain 17,390 8

Total 227,179 100

Source: MEPL The NEEV Fund is the only external investor in MEPL so far. Given the ₹111 crore total capital of the company with a net worth of ₹36 crore, the ₹45 crore investment of the NEEV Fund will make a substantial contribution to the expansion of the company. This has started to happen in 2018-19 and the results are expected show in the financial performance of the company for the year. Table 3 provides the Audited Balance Sheets of MEPL for 31 March 2016 to 31 March 2018 and Table 4 presents the Profit & Loss Statements for those years. The company had a revenue of ₹251.5 crore

114 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio in 2017-18 up from ₹209.3 crore during 2016-17 and a net profit of ₹12.5 crore in 2017-18 and ₹10.9 crore in 2016-17. Table 3: Audited Consolidated Balance Sheet, MEPL

(₹ crore) Particulars FY16 FY17 FY18 Equity and liabilities Share capital 0.23 0.23 0.23 Reserves and surplus 24.78 35.17 42.81 Total shareholders' funds 25.01 35.40 43.04 Minority interest 0.99 2.15 2.21 Long-term borrowings 26.37 31.20 56.60 Deferred tax liabilities (net) 2.79 4.22 5.33 Total non-current liabilities 29.16 35.42 61.93 Total current liabilities 95.82 115.55 93.41 Total equity and liabilities 150.99 188.52 200.59 Assets Tangible assets 77.67 90.89 119.96 Intangible assets 0.05 0.43 0.58 Tangible assets capital work-in- 10.67 12.91 0.02 progress Total fixed assets 88.40 104.23 120.56 Total non-current assets 96.35 112.78 128.86 Current investments 31.24 32.21 25.59 Inventories 10.20 21.26 21.08 Trade receivables 1.88 4.79 9.21 Cash and bank balances 4.11 1.87 2.11 Short-term loans and advances 7.21 15.59 13.75 Total current assets 54.65 75.73 71.73 Total assets 150.99 188.52 200.59 Table 4: Profit and Loss Statement, MEPL

(₹ crore) Particulars FY16 FY17 FY18 Revenue from operations 123.85 196.65 236.13 Other income 17.63 12.67 15.41 Total Revenue 141.47 209.33 251.54 Expenses (Increase)/Decrease in Inventories -3.14 -11.06 0.19 Purchases 18.50 67.00 57.67 Employee benefits expense 23.87 29.64 36.64 Finance costs 4.01 6.02 6.85 Depreciation expense 5.02 6.33 8.16 Other expenses 83.19 95.11 124.32 Total expenses 131.45 193.04 233.84

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(₹ crore) Particulars FY16 FY17 FY18 Profit before tax 10.04 16.30 17.71 Tax expense 3.38 5.44 5.17 Net profit 6.66 10.86 12.53

It is apparent from Figure 1 that MEPL’s revenues are increasing steadily, along with the increase in the number of centres established by it. There has been a substantial increase in revenue from operations rising from ₹57.1 crore in 2013-14, to ₹236.1 crore in 2017-18. The net profit in this period increased from ₹3.03 crore in 2013-14 to ₹12.18 crore in 2017-18, an increase of about 302%. Compared with the 313% increase in revenue over the four-year period from 2013-14 to 2017-18, this 302% increase in profit appears reasonable. The company has maintained a steady return on equity of the order of 26-28% (slightly lower in 2014-15).

Figure 1: Financial performance of MEPL

25,000 35% 28.8% 27.4% 30% 20,000 26.2% 26.9% 25% 23.5% 15,000 20%

₹ lakh ₹ 10,000 15% 10% 5,000 5% 0 0% 2013-14 2014-15 2015-16 2016-17 2017-18

Revenue from operations Other Income Return on equity

EQ1.3 Did the DCI investment add value to Mahendra Educational (e.g. in terms of governance, operational management, financial management); ability to cope with issues in low income states?

Indicators Achievements/findings

Governance & The investment has enabled the purchase of high-tech equipment for its management training centres resulting in more effective and user-friendly training. support The investment has also enabled opening of 19 new centres in Low Income states. Committees of the board have been constituted. ERP for accounts, procurement & invoicing has been introduced. Full spectrum HRMS portal was rolled out. CS and CFO have been hired in FY19/ FY20. Neev Fund has been actively involved in identifying the candidates for these positions. Organisation building is currently underway.

Midline focus The impact of the introduction of more high-tech training techniques on its ability to enroll and train more people; the impact of the resulting quality improvements on their employability

As Table 5 shows, the Mahendra Group has experienced a degree of stagnation in terms of enrolments in the past few years. While there has been modest growth in the number of coaching skills and other centres the number of students enrolled has not grown though its success rate in placing students in employment has improved significantly.

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Contribution: The NEEV Fund is the only external investor in the company. The NEEV Fund investment of ₹45 crore, out of a total capital of ₹111 crore, is a substantial one for Mahendra Educational. It has enabled the purchase of high-tech equipment for its training centres resulting in more effective and user-friendly training. While the company, with the goodwill of its existing business would have still carried on, the NEEV Fund investment has strengthened Mahendra’s operations in its Pradhan Mantri Kaushal Kendras (PMKKs), an ambitious initiative which is working for skill development and employment creation. The next section discusses, the outcomes of the PMKKs in supporting students from very vulnerable families. Table 5: Growth of MEPL and MSTDPL combined

Number of 2015-16 2016-17 2017-18 As of 31 Oct 2018

States where the Group works 22 22 22 22

Districts covered 109 109 114 114

Coaching skills & other centres 136 145 156 159

Students enrolled 3,05,583 2,73,836 3,09,160 1,75,391

Students placed in employment 3,264 5,798 35,643 12,209

The stagnation in enrolment at MEPL results from the following strategic issues: • Predominant dependence on government projects for skill development centres – Mahendra is addressing this by going for multiple states, and for CSR based funding. • Getting the right faculty at the right time in Tier II and Tier III cities which are not attractive locations even for trainers brought up in the same environment. • Ensuring quality across an ever-growing branch network serving more than 100,000 students every day. • Increasing competition from other locally rooted companies. • Availability of digitally enabled technologies is universalising the availability of reading material, thus somewhat reducing the dependence on classroom lessons offered by Mahendra’s. During 2018-19, the NEEV Fund investment has enabled the company to put up state-of-the-art equipment which trainees said they have not seen anywhere else. This appears to be the beginning of breaking the mould of stagnation that had set in till now. The company has been able to set up 19 new centres, which has vastly expanded its reach, and added to the company’s bottom-line. MEPL operational indicators In addition to mandatory financial and MIS reporting, MEPL plans to track the following operational indicators, in order to quantify and monitor socio-economic impact. These indicators (Table 6) are to be used to evaluate the socio-economic benefits of the project. Table 6: MEPL Operational Indicators Operational Indicator Rationale/Impact objective Total number of students selected for jobs Direct job creation at MEPL Number of female students selected for jobs Gender impact Number of students from SC/ST/OBC Outreach to socially marginalised communities. background Location of coaching and skill centres Outreach to low income states and districts.

EQ1.4 & 1.5 Were there other intended and unintended impacts of the DCI fund investments? What was its additionality?

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Indicators Achievements/findings

Employment effects The parent company MEPL employs a total of 1,346 staff (370, 27.5% and additionality women) and MSTDPL employs 203 persons (83, 41% women)

Midline focus To monitor the engagement of both women and deprived communities as employees of the Mahendra Group and the group’s ability to increase its salaries to more remunerative levels.

Employment Effect of MEPL work Every branch of MEPL creates direct employment of about 15 persons. Each branch has a manager, a cashier, a public executive, 2-3 career counsellors, and 8-10 faculty members. Around 300 full time HQ staff support the branch network. Besides, there are housekeeping staff and security guards in branches and HQ, often provided by outsourcing agencies. Given the mature structure of the organisation, the HR structure is elaborate as presented in Table 7. MEPL pays about ₹58 crore annually to 1,346 staff on its rolls at various levels. Table 7: Employment at MEPL Annual # of Salary Offered Monthly Centres Number Staff Type Salary (₹ Staff (₹) Salary (₹ lakh) crore) Directors 2 400,000-500,000 9.0 1.08 Executive 6 100,000-200,000 9.0 1.08 Directors General 1 100,000-200,000 1.5 0.18 Manager Vertical 2 90,000-150,000 2.4 0.29 heads National 1 80,000-125,000 1.0 0.12 Head MEPL 94 Zonal 4 55,000-85,000 2.8 0.34 Heads Cluster 31 40,000-75,000 17.8 2.14 Heads Branch 128 20,000-45,000 41.6 4.99 Managers Faculty 816 20,000-65,000 346.8 41.62 Counsellors 160 10,000-20,000 24.0 2.88 Office Staff 195 10,000-17,500 26.8 3.22 Total 1,346 482.8 57.93

MSTDPL trainers – Mahendra’s biggest assets As Table 8 shows, a total of 283 staff are working at 30 centres of MSTDPL, earning about ₹5.46 crore annually, working at MSTDPL, in addition to receiving other perks like provident fund and medical insurance – the same as for MEPL employees. These include the staff at Pradhan Mantri Kaushal Kendras, as well as the centres being run for UP Skill Development Mission.

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Table 8: Employment at Mahendra Skills

Annual Value add Salary Offered Centers Number Staff Type # of Staff Salary (₹ for (₹) crore) employees Cluster Senior 4 35,000 0.17 Manager Provident 6*27 = Fund, Medical PMKK 27 Trainers 15,000-23,000 3.69 162 Coverage (ESIC) for Counsellors 1*27 = 27 9,000-15,000 0.42 salary <=21k; rest coverage Office Staff 3*27 = 81 9,000-11,000 0.97 by Apollo Munich UPSDM, 3 Trainers 3 * 3 = 9 15,000-23,000 0.21 AJK

Total 30 283 5.46

Mahendra has given employment opportunities to a diverse range of trainers. Many trainers themselves come from disadvantaged backgrounds, so they treasure their work, and work hard to produce significant outputs, sometimes going beyond the call of duty. The trainees speak of the transformative effect many the trainers have had on them (see feedback from FGDs and KIIs in the next section). In certain cases, students in dire need of jobs have left training halfway and joined work, with the help of MSTDPL trainers. The trainers say that they get to meet people from diverse backgrounds, like political leaders, district officers, dignitaries, representatives of corporate companies; there is constant learning on the job which keeps them on their toes and pushes them to work for society. Operational challenges faced at MEPL and MSTDPL All verticals of business of MEPL are self-owned, and they do not run franchises. The core competitors in this unorganised sector of imparting training are often students who have done coaching from MEPL itself as they can start their own coaching business at low cost and with no entry barriers. Mahendra has tried to meet this challenge by pioneering the provision of coaching in the most organized manner with products like speed test cards, smart assessments and live videos telecast from their own recording studios. At MSTDPL, the major challenges faced are as follows 1. Student mobilization: Need for increased awareness and improved student mobilization for the various skill training programs was mentioned by the cluster senior manager at Bareilly, for which the trainers and a team of counsellors camped in the rural agrarian regions and spread the importance of vocational trainings to the families of candidates. 2. Course modules: The factual course material provided to the students (mostly bilingual) was difficult to comprehend hence the trainers’ delivery methods play an important role in improving understandability among the students. 3. Evaluation mechanism: The regular classroom evaluation was done by the trainers while the final evaluation test (theory and practical) was conducted by the team from NSDC. The students and the trainers felt that the online exam pattern was not the best way to evaluate the strengths of students who are not used to this mode of being tested. 4. Employment generation: The training regulations demand that 70% employment of the trainees is achieved. The trainees in general were all praises for the staff for organising job fairs as they were given opportunity to volunteer for it, plan and manage events. They gained immense exposure about work life and socialised with recruiters. However, competition from the mainstream students and convincing the companies to attend and select candidates in the job fair is difficult according to the trainers and management.

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5. Course duration: The duration of technical courses such as stitching needs to be increased for trainees to be able to master the art of stitching garments for both men and women and to keep up with latest demand in the market. 6. Trainees leaving jobs in between: This happens variously due to family restrictions, low paying jobs- job offers in cities where cost of living is high and cannot be afforded by them. 7. Trainees leaving course in between: Batch timing is one big reason – Clash in schedule of college and MSTDPL course. For students, college lectures are a priority and they do not want to compromise college studies for a vocational course. Certain sessions are conducted only in the first slot; hence they are unable to attend. Some trainees were preparing for competitive exams and did not want to miss coaching classes for vocational training. Again, no classes were being held in afternoon slot which would have been convenient for them. Distance from home is also crucial while taking decisions regarding joining a course. Mahendra Skill Development– at the household level This section is structured around preliminary findings on sub-questions for Evaluation Question Two (“Did the DCI borrowers provide the poor, particularly women and socially excluded groups, with access to high quality services?”). The evaluation team has conducted focus group discussions and key informant interviews in selected skill development centres and the head office locations in Lucknow and Bareilly districts in Uttar Pradesh, with the trainers, outsourced staff and trainees of MEPL. Table 9 provides details of participation in FGDs and KIIs. A total of 90 respondents participated in the FGDs and KIIs. Table 9: Details of FGDs and KIIs

Location Tool SC ST Muslim OBC Gen Women Men Total Trainees (Employed), PMKK FGD1 7 1 2 4 5 10 9 19 Lucknow Female Trainees –Course Self Employed Tailor, PMKK FGD2 - - 3 1 1 5 - 5 Lucknow-Kaamkazi Trainers at PMKK Lucknow FGD3 1 - 2 3 2 3 5 8 Trainers at PMKK Bareilly FGD4 2 - 1 2 4 5 4 9 Trainers at AJK Bareilly FGD5 1 - - 2 - 2 1 3 Trainees (Employed) at FGD6 3 1 2 3 1 4 6 10 PMKK Bareilly Trainees at PMKK Bareilly FGD7 2 - 2 2 4 5 5 10 Trainees at AJK Bareilly FGD8 4 3 4 1 - 12 - 12 Sponsored Trainees of FGD9 - - - 2 4 3 3 6 Muthoot at PMKK Bareilly Staff at PMKK Bareilly FGD - 2 1 - - - 3 3 10 Harsh Mehrotra, Head KII I - - - - 1 - 1 1 Trainings, MSTDPL Garima Srivastava and HO KII II - - - - 1 1 - 1 departments, Lucknow Sanskita, Counsellor, PMKK KII III - - - 1 - 1 - 1 Lucknow Meera Kumari, trainee with amputated limb, PMKK KII IV 1 - - - - 1 - 1 Lucknow Tanu, trainee with KII V - - - - 1 1 - 1 Leukaemia, PMKK Bareilly Total 21 7 17 21 24 53 37 90

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EQ2.1 Are there any additional employment and income opportunities created in the service areas of Mahendra Educational?

“No one has ever returned empty-handed from Mahendra. Either they have been placed or engaged in own business. Students have learnt to express themselves with confidence. They are able to convert interviews (into recruitment offers). Their 'standard' and 'style' has improved. The course imparts technical knowledge as well as skills.” - MSTDPL trainee, Lucknow

Mahendra Educational has created many employment and income opportunities, both through job placements and through avenues for self-employment for the trainees. There are many cases of dropouts among those who get recruited, hence Table 10 below assumes only 50% retention of those employed by companies after the completion of their training at Mahendra Educational (Skills). As can be seen below, Mahendra Skills can be said to have generated ₹23.5 crore worth of income post the trainings for its trainee graduates. Aggregated over 22 centres, the total annual income generated (after allowing for just 50% retention) amounts to ₹172 crore. Table 10: Employment and income through Mahendra Educational (Skills)

Center Training Students No. of placed Salary Average annual Name type enrolled candidates offered (₹) earnings** (₹ crore) PMKK Certified – 2,713; 3,396 5,600-18,000 7.79 Bareilly Placed – 1,180 AJK Bareilly Front Office Certified/placed Associate, 690 5,500 1.95 Assistant – 592 Hair Stylist PMKK Certified – 3,731; 4,547 7,500-14,000 13.76 Lucknow Placed – 2,183 Total 23.50 Certified - 2,345 Average per centre 9,900 7.83 Placed – 1,318 Certified – 79,700 Total for 34 centres 9,900 266.27 Placed – 44,800 * Placement Record of PMKK centres till 31-03-2018 (Approximation) ** Assuming 50% of those placed continue in their jobs, all of those who get certified (at AJK Bareilly) start their own businesses. EQ2.2 Did any poor and marginalised persons get jobs/services/increase in income in the service areas of Mahendra Educational?

Yes, the FGDs and KIIs indicate that poor and marginalised persons did get jobs/services/increase in income in the service areas of Mahendra Educational. Nafisa* is a polio and arthritis patient. She had to give up her job earlier due to ill health. After having trained in tailoring at MSTDPL, she was selected by MSTDPL for the Kaamkazi initiative (see below) under which she stitches uniforms for the UP-Skill Development Mission trainees. She now works from the comfort of her home, without the need to report early.

Ramesh* is disabled. He does not have hands and uses his elbows to type. He had shown immense interest in learning about retail. The MSTDPL trainers counselled him and he is now running a small stall in his village, where he sells toffee, chips, and other snacks.

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Sushila* suffers from Leukaemia. She was high spirited and actively contributed to events at the centre. However, being physically weak, she had to drop out, only to re-join after some time. Earlier, she had to leave a job due to her disease. With her trainer's support, she was able to get another job at a pizza outlet for ₹7,000 a month. She is now able to bear her medical expenses herself. * Names of trainee graduates changed

Table 11 shows the placement record of the MSTDPL centres. The placements take place mainly through job fairs in which potential recruiters are invited. The job fairs are conducted at all centres at intervals of 1-2 months, giving opportunity to trainees at the skill centres and across the city, to appear and showcase their potential to prospective employers. Most retail shops and supermarkets/malls have employed trainees from the PMKK centres of Mahendra. Interestingly, even the trainers and mobilisers at MSTDPL contribute to the recruitment process, visiting companies, hotels and shops, and talk to them about placement opportunities for their students. The trainers leverage their own respective networks with potential recruiters for the success of the post training placement drives. Table 11: Placement record at MSTDPL centres

Sno. Location of MSTDPL Placement Sno. Location of Placement centre (UP) Performance MSTDPL centre Performance (%) (MP) (%)

1 Bareilly 67.8 11 Rewa 72.1 2 Badaun 70.6 12 Satna 69.7 3 Shahjahanpur 70.1 13 Sidhi 68.5 4 Pilibhit 74.4 14 Shrawasti 58.6 5 Rampur 75.2 15 Singrauli 66.6 6 Lucknow 63.1 16 Guna 77.9 7 Hardoi 67.4 17 Datia 70.9 8 Lakhimpur 65.3 18 Rajgarh 64.0

9 Sitapur 70.8 19 Vidisha 73.8 10 Bahraich 73.2 While this has helped lessen migration, at the same time, to those who can afford it, it gives options to the trainee graduates to look for jobs outside their cities, with employers coming to their hometowns to offer employment. Table 12 below provides the overall picture with regard to employment generation at the centres that have been covered by the Evaluation Team. MSTDPL’s Kaamkazi initiative for gainful employment Mahendra has joined hands with the UP-Skill Development Mission (UPSDM) to provide gainful employment to at least some of its women trainee graduates, through an initiative that MSTDPL calls the ‘Kaamkazi’ initiative. A total of 10 women trainee graduates have been roped in by Mahendra to stitch uniforms for trainees of UPSDM under the Kaamkazi initiative. This has provided the trainee graduates with a regular income source. Satisfied with their classwork, skill set, regular attendance, active participation in events, the MSTDPL team chose them and gave them motor sewing machines of Usha brand which otherwise costs more than ₹7,500 per unit. They received their first order of 10 sets each of men and women's suits in December 2018. Each set consists of 2 pants and 2 shirts or 2 salwar and 2 kurtas. These women find stitching men's pants a bit difficult and are taking assistance from the trainer, after course completion. The trainer has been able to help them as the new batch is yet to start. They spend 2-3 hours a day on tailoring work. For some of the women trainee graduates, it takes about 15 minutes to stitch a shirt, and 30 minutes for a salwar. Rates offered under Kaamkaazi are fixed - 2 pants and 2 shirts make one set for which they are paid ₹110. For a set comprising of 2 salwar and 2 kurtas, they are paid ₹90. This is labour cost, as all raw materials are provided by Mahendra. They receive payment by online transfer into their bank accounts on completion of the order. These stitching charges compare with regular market rates, which are in the range of minimum ₹150 for a simple suit. Usually, rates increase, based on design, while these uniforms have a simple design, in addition to which they are being stitched by freshers, hence the lower labour rates for trainee graduates.

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Table 12: Employment generation at the sampled centres of MSTDPL

Center Name Training Type Batches Students Male: No. of Salary Offered Direct Indirect Completed Enrolled Female Placed Employment Employ Enrolment Candidates ment Ratio Retail 19 340 65:35 252 5000 – 17000 236 16 Front Office Associate 14 360 30:70 230 5500– 12000 180 50 PMKK Bareilly Solar PV Installer 18 320 80:20 240 6000– 14000 186 54 Self Employed Tailor 6 180 15:85 108 5000 – 10000 27 81 Callcenter Executive 6 170 60:40 110 6000 – 10000 95 15 AJK Bareilly Front Office Associate, Trainees of AHS would Assistant Hair Stylist 4 110 0:100 40 6000 – 9000 be self employed at their villages Assistant Electrician 17 260 88:12 214 7000-12000 180 34 CCTV Installation 18 220 85:15 180 7000-10000 90 90 Technician Customer Care Executive - (Telecom 14 245 40:60 212 7000-12000 180 32 Call Centre) Front Office Associate 17 310 50:50 250 8000-12000 220 30 GST Accounts Assistant 10 220 65:35 188 7000-10000 170 18 PMKK Lucknow Handset Repair 17 262 90 :10 230 7000-12000 110 120 Engineer LED Light Repair 8 210 80:20 119 8000-12000 80 39 Technician Mutual Fund Agent 9 125 60 :40 88 7000-17000 48 40 Retail Sales Associate 16 260 65: 35 213 7000-12000 170 43 Self Employed Tailor 19 360 15: 85 340 7000-14000 25 315 Solar PV Installer 17 310 80:20 241 7000-12000 190 51 (Suryamitra)

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Of the 10 women working under Kaamkaazi initiative, 5 have been selected from Aliganj branch and the other 5 from Alambagh. One trainee mentions that she had never thought of working and being independent. She is grateful to Mahendra for giving them a platform to climb the professional ladder. She appreciates her work and hard-earned money. Another trainee who was married for over 6 years, had not stepped out of her house alone until she joined Mahendra. She has become confident of herself now. One trainee talks about the skills she has picked up: "Aaj ki date mein bahut kuch aata, pehle zero!" (Translation: We know so much today – earlier we knew nothing!). Another trainee is happy that with regular employment here, she will be able to afford her children's school fee. The regular income Kaamkazi has enabled one trainee to repay a bank loan she received after her association with the project. She has used a part of the loan money to purchase a pico machine worth ₹8,500. The trainee exclaims: "Inshallah, Kaamkaazi bana rahe!" (Translation: God willing, Kaamkazi may continue!) Also, internal recruitments are a regular feature at Mahendra, where skilled trainees from MEPL or MSTDPL are offered jobs as trainers for their PMKK centres (salary ₹11,000 to ₹18,000 per month). EQ2.3 Has access to services and reduction in cost due to Mahendra Educational operations resulted in addressing vulnerability? Most of the district centres where MSTDPL has started its skill centres have a preponderance of wage labour and are in non-industrial areas. Here, people usually have limited sources of income. The average land holding size is 3-5 acres or even less, so people tend to migrate outside for job opportunities. Educational institutions have traditional establishments with old infrastructure. Roughly one-third of the trainees are women and a number of disabled persons have also been trained (see Table 13). Many of the women trainees are actually heads of household struggling to make ends meet. In fact, the Company is now trying to put together a program/ course for Persons with Disabilities (PwD). This includes creation and execution of a roadmap for conducting accessible test preparation for PwD across its centres. Table 13 Composition of MSTDPL trainees

Trainees in PMKK Number % of total Enrolled candidates during 2018-19 until 5 March 55,930 100 Female trainees 18,571 33 Male trainees 37,359 67 Persons with disabilities 63 0.11 The coming up of PMKK centres at such places have provided new avenues for the young population, between the ages of 18 and 40. In addition, trainings are being provided to the elderly population with permission from NSDC. There are trainees who come from women headed households, female trainees who are victims of domestic violence, young mothers, especially young widows with small children who are struggling financially, families with very low disposable incomes, that have difficulty in making ends meet, trainees who are physically challenged, or trainees who have been educationally very weak. One of the trainees of the solar course at Bareilly is disabled. He travelled everyday 40km each way to attend lectures.

Geeta* is attending a course at MSTDPL centre in Bareilly. She and her husband are involved in an ongoing divorce case, and she lives with her parents. Geeta's father is supporting her and her son but he himself is struggling to earn, which is why she wants to earn for her son and not depend on anyone else. Sushila’s* husband is a daily wage worker. His income is very low (₹400-500 per day). She is a victim of domestic violence. Such incidents have reduced since the time her mother helped her open a small shop. She has completed a beauticians’ course and intends to start a beauty parlour to replace the shop. Neera* is a widow. She was suffering from anxiety while dealing with strangers, and lack of confidence before joining the course. Thanks to the course design, demo sessions and events she has overcome her anxiety and become confident in social situations.

* Names of trainees changed

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Training is imparted uniformly across all segments, with special grooming and care for the socially disadvantaged groups like scheduled castes, minor community and other backward communities as well as economically poor trainees. This attention to and sensitivity for diversity has been brought out in every FGD and KII that was conducted by the Evaluation Team, with the trainees indicating how the trainers have sometimes gone out of their way to train and support them. As indicated by the trainees in FGDs, additional digital literacy classes hone their computer operational skills, and personality development classes build up their confidence level. There is another aspect of the participation of persons from vulnerable backgrounds in PMKK trainings. Certain students travel about 40km one way and depend on road and rail transport. As a result, the morning batch students reach late for class while the evening batch students request to be left early. Moreover, a biometric attendance system for all students is in place and 80% attendance is compulsory. Low footfall on a regular basis is questioned by auditors. Even if students with low attendance are allowed to appear for exams, they often fare poorly, which adversely affects the overall results of MSTDPL.

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Case Study 6– Crystal Logistic Cool Chain Private Limited Crystal Logistic Cool Chain Private Limited – at the company level Crystal Logistic (Cool Chain) Ltd. is a complete logistics and supply chain service provider. Crystal Logistic is one of the largest and fastest growing service providers in the integrated cold chain logistics solution space. Crystal Logistic provides services such as refrigerated warehousing (cold storages), refrigerated transportation on a pan-India network. Always on the cusp of innovation, Crystal Logistic also provides solutions such as express refrigerated transportation for LTL (less than truck load) consignments and portable cold storages. Crystal boasts of being the only company in the country to provide a complete range of services in the cold chain logistics industry. Figure 1 indicates the geographical presence of the company across India. Crystal Logistic traces its origin Figure 1 Geographical presence of CLCCL across India back to 1962: promoted by Mr Murari Lal Agarwal who began

operations under the name M/s Haryana Transport Company. The company, primarily a transport service provider achieved great success and built its reputation in the market. Backed by its impeccable service and quality norms the company was successful in dealing with the largest names in the industry such as Philips, Siemens, BPL, LG, Coal India, and ONGC among many others. The company has grown exponentially since then and began its cold chain operations in 2001. It has been one of the largest and fastest growing players ever since. The Company’s strong understanding of India’s weather driven inventory spoilage situation, led it to focus & invest heavily in cold-chain solutions.46 The company received the jury award for “India’s Most Promising Pharmaceutical Logistics & Cold Chain Company 2015” at the Source: Company website Pharma Leaders Super Brand 47 Awards held on 30 December 2015 in Mumbai.

Cold Chain Industry in India Total estimated cold storages in India in 2016-17 was 7,645 with a capacity of 34.95 million MT48. The top 5 states in terms of capacity are UP (13.6 MT), West Bengal (5.9 MT), Gujarat (2.0 MT), Punjab (2.0 MT), and Andhra Pradesh (1.8 MT). The market is highly fragmented; 95% of cold storages owned by private players, 3% by cooperatives, and 2% by Public Sector Undertakings. The major segments of the cold chain industry are comprised of cold storage, cold transport and cold supply chain. Organised players contribute ~8% to ~10% of the cold chain market. Around 75% of cold storages in

46 Maritime & Logistics Weekly, Crystal Group All Set To Enhance Cold-Chain Network In India, January 27, 2018; http://maritime-weekly.com/maritime-weekly/crystal-group-set-enhance-cold-chain-network-india/ 47 Crystal Logistic Cool Chain Wins the prestigious Super Brand Award at Pharma Leaders 2015 Annual Edition, Pharma Leaders, January 08, 2016; http://pharmaleaders.tv/crystal-logistic-cool-chain-wins-the-prestigious-super- brand-award-at-pharma-leaders-2015-annual-edition/ 48 HITEX Hyderabad, Cold Storage report 2018, Accessed on 14/2/2019 from http://www.hitex.co.in/images/Industry%20Reports/14.pdf

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India cater to a single commodity, and 25% to multi-commodity storages. The industry is in the early stage of evolution, dominated by unorganised players and operating at 75% capacity. Cold chains are essential in a tropical country like India. According to industry estimates, around 104 million metric tonnes of perishable produce are transported between cities each year. Of this figure, about 100 million metric tonnes move via non-reefer mode and only 4 million metric tonnes are transported by reefer. The Directors of Crystal Logistic see a huge opportunity in the cold storage and transport vertical. According to Akash Agarwal, CEO of Crystal Logistic, "Cold chain industry is poised to grow exponentially in the next decade, and we are poised to make a transformational impact ready to ride this growth. We see Crystal Logistic in the right space of growth with the huge potential of the cold chain industry”.

Of the 9 companies that are the main competitors in the cold chain logistics market, only M/s Rivigo and Crystal have been able to attract private equity investment during 2017-19. The investors have looked favourably at logistics solutions but have been less interested in investing in cold chain logistics. Services portfolio of CLCCL Transportation Primarily a transportation company, Crystal began its cold chain transportation segment with 1 refrigerated truck. Today, Crystal operates on a pan-India network geographical footprint with 12 branches and 150+ refrigerated trucks. Crystal has over the years built a reputation for providing quality service to its customers. By quality Crystal means, on time delivery, ability to provide service within 24 hours anywhere in India, strong back-up and contingency plans and very low spoilage rate. Below is a snapshot of Crystal's Fleet: 1. Trained drivers. 2. Modern fleet, with average age of ~2.5 years. 3. Large fleet, with over 150 refrigerated trucks. 4. Varied vehicle sizes, capable to carrying load of 700Kg to 22MT. 5. Multiple temperature capabilities (+25 to -25 degree Celsius). 6. Latest technology of GPS and data loggers, enabling 24/7 online vehicle and temperature tracking. 7. Imported refrigeration units (Carrier & Thermoking), thus assuring quality and international standards. 8. ISO approved PUF insulated body of 125mm, 38kg density. Aluminium rail channels inside the body for proper air circulation. Strip curtain provided at the rear to prevent air escape. 9. State of Art company owned maintenance hubs with qualified technicians. Warehousing Crystal’s warehousing facility at Sudha Ras Food Park, Howrah is built keeping in mind complete logistics solution for the customer. Crystal’s prime strength is using the latest technology. It uses sophisticated WMS system to ensure 100% visibility of stocks and report, and high efficiency in operations. Provision for 24/7 online temperature and stock tracking facility and customized automatic alerts, helps customers monitor data and quality at all times. Crystal is always on the forefront in exploration of ways to provide excellent service to its customers. With the same view Crystal has entered into a strategic partnership with Coldstore Urk BV, Netherlands for management and operations of its cold storage facility. Coldstore Urk is a pioneer in cold storage and warehousing business in Netherlands and brings with it, its expertise, operational and technical know-how. Portable Cold Storage Portable cold store is an innovative new solution by the company, which enables manufacturers, distributors and others to store temperature sensitive cargo in their premises. This solution helps customers avoid huge investments in creation of storage space, enabling them to focus their investments and energy into their core business. These portable cold stores are designed and built with user reliability, performance and running costs in focus. Arctic Stores bring a new dimension to the

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Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio temperature controlled, portable cold storage market. Portable cold stores are given on long term and short-term lease. Crystal is responsible to integrate, coordinate, and manage functions for the efficient sourcing, storing and distribution of agricultural produce. Figure 2 below illustrates how Crystal Logistic provides cold chain support to farmers, vendors, and small processing units in Howrah. Tenualosa Ilisha (better known as Hilsa fish) is one of the major traded items among the fisher community in West Bengal. The harvest of Ilisha takes place between June and August. The average price of Ilisha during the harvest season is ₹250/kg. The processors and large vendors store them at Crystal Logistic from September onwards. The cost of storage, packing, and handling is ₹20 per month. Stored Ilisha is sold by stockists January to May when the wholesale price increases to ₹450-₹500, and retail price is 1.5 to two times of the wholesale rate. Before the establishment of the cold chain, Ilisha was simply not available in the summer months. Crystal cold chain is the pivot for smoothening the flow of supply which results in better price realisation for suppliers and greater availability of this much sought-after fish.

Figure 2 Cold-chain Logistics for Ilisha Fish

EQ1.1 Did DCI investment help Crystal Logistic expand or deepen outreach, geographically and across disadvantaged groups?

Indicators Achievements/findings

Started operations As early as 1962 but as a pure transport company and shifted to Cold Chain logistics in 2001. Services offered Cold warehouses, refrigerated transport and related services for hundreds of businesses dealing in perishable commodities like fish and vegetables. People served Around 300 employed directly by the company and over 33,000 employed by the 60 or so businesses and the farmers and fishers they enable in realizing good returns and maximising value added to their fresh produce Midline focus The ability of the company to grow the business and serve increasing numbers of people to maximise incomes from farming and fishing in the poor states of West Bengal, Odisha, Jharkhand and Chhattisgarh. Investments and funding accessed The NEEV Fund invested in 2017 a total of ₹50 crore in the form of Equity Shares ₹23,40,43,888 (2,73,033 shares @₹857.20 each) and Compulsorily Convertible Debentures (CCDs) ₹26,59,56,110 (2,65,95,611 @₹10 each). The holder of CCD has a right to fully convert them into equity shares of ₹10

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Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio each at any time after 30 September 2021 at a price based on the future performance of the company. The CCDs carry interest @0.001% p.a. (non-cumulative).49 Crystal provided an opportunity to SBI CAP VENTURES to invest in West Bengal, one of the traditionally lower income States in India. Warehouse business generates employment and value for small businesses that store their products. The establishment of cold warehouses is capital intensive each costing ₹60-70 crore.50 The Neev Fund provided an excellent opportunity to access equity and debt for further expansion. The company is ramping up its network by enhancing both storage capacity & its transportation network. With Neev funding, the USP that Crystal Group wanted to create is to be a strong east and north-eastern region player in the country. During 2018 the Crystal Group started to build six more warehouses, one each at Bhubaneshwar, Indore, Ghaziabad, Siliguri, Ranchi, Raipur and doubling capacity at Kolkata warehouse. The first three will have 6,000 pallet capacities each and the last three will have 3,000 pallet capacities each. The Company has applied for land for setting up warehouses in Bihar and Odisha. Post investment, the Company’s reefer vans have decreased from 120 in 2016 to 47 in 2018, and the number of portable cold stores increased from zero in 2016 to 318 in 2018. The Company has replaced aging reefer vans with larger modern vans. EQ1.2. Has Crystal Logistic demonstrated a profitable business model?

Indicators Achievements/findings

Capital raised SBI Cap invested ₹50 crore (£5.4 million) in M/s Crystal Logistic Cool Chain Private Limited in the form of both equity shares, ₹23.4 crore worth and Compulsorily Convertible Debentures (CCDs) with very low yield.

Financial performance The financial performance of the company has remained flat over the past 2 years. This has largely been due to the fact that company has recognized the potential of being an integrated logistics player, and as a result is moving towards the high margin warehousing business, as opposed to the lower margin transportation business. This shift has been driven by an increase in occupancy levels that the company has observed at its warehouse in Kolkata, and also an increasing preference of customers for the storage of seafood and dairy products. It is expected that in the medium to long run, this shift in business strategy will improve its financial performance.

Midline focus The financial performance of the company and its ability to return to profitability while serving large numbers of small businesses in West Bengal and Odisha (in particular) that deal in perishable commodities, especially fish.

Shareholding Pattern of CLCCL Table 1 provides the Shareholding Pattern of CLCCL from FY16 till FY18. In FY17, 303,550 new shares were allocated – 273,033 to Neev Fund, and 30,517 to Rajesh Agarwal, Naresh Agarwal, and Akash Agarwal. The infusion of the NEEV Fund in 2017 resulted in dilution of ownership of the Agarwal family from 100% to 82.44%. The Neev Fund’s ₹23.4 crore worth of equity shares invested on 31 March 2017, gave it a 17.54% shareholding in the company, and a seat on the Board of Directors. Together, Murari Lal Agarwal, Rajesh Agarwal, Naresh Agarwal, Akash Agarwal, and NEEV Fund constitute the Promoter Group.

49 In 2017-18, the prevailing interest rate for term loans from the banks for the company in 2018 ranged from 10.73% to 12.19% p.a. Unsecured loans carried an interest rate of 15.24% p.a. Hence, CCD represented a cheap source of credit to CLCCL. 50 See United News India report dated 20 October 2018 retrieved on 9/2/2019 from http://www.uniindia.com/sbi- backed-neev-fund-to-invest-in-two-funds-targetting-sme-and-affordable-housing-sector/east/news/1384276.html

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Table 1: Shareholding pattern of Crystal Logistic

Shareholder name 2015-16 2016-17 2017-18

No. of No. of No. of Equity shares % % % shares shares shares

A. Promoters (Indian) a. Individual 1,252,736 100% 1,283,250 82.44% 1,283,250 82.44% Murari Lal Agarwal 457,736 36.54% 320,814 20.61% 320,814 20.61% Rajesh Agarwal 100 0.01% 320,810 20.60% 320,810 20.60% Naresh Agarwal 100 0.01% 320,813 20.61% 320,813 20.61% Akash Agarwal 100 0.01% 320,813 20.61% 320,813 20.61% Sushila Devi Agarwal 794,400 63.41% B. Public Shareholding a. Bodies Corp. 273,033 17.54% 273,033 17.54% i. Indian - NEEV Total 1,252,736 100% 1,556,286 100% 1,556,286 100%

Table 2 provides the Audited Balance Sheet of CLCCL from FY2014-15 to FY2017-18. There has been a build-up of long-term borrowings and tangible assets. The process has accelerated since the infusion of resources from SBI Cap/Neev Fund. Table 3 presents the CLCCL Profit and Loss Statement for the past four financial years. The company’s total revenue and expenses are both declining year after year. Revenue from transport operations fallen drastically to less than 40% of its level from 3 years ago. Except for 2014-15 when it made a small profit, the Company has incurred losses in the subsequent three years. Growing competition from new logistics companies and consequently falling revenue realisation from operations has resulted in these losses. Table 2 Audited Balance Sheets of Crystal Logistic (₹ crore)

Equity & Liabilities Mar-15 Mar-16 Mar-17 Mar-18 Share Capital 1.25 1.25 1.56 1.56 Reserves and Surplus 17.24 16.20 41.16 37.25 18.49 17.45 42.72 38.81 Non-current liabilities Long term borrowings 3.65 4.45 27.20 27.33 Deferred tax liabilities (net) 0.58 -0.05 4.23 4.39 27.20 27.33 Current liabilities Short term borrowings 2.16 1.73 2.67 3.63 Trade payables 4.33 1.53 0.63 0.16 Other current liabilities 2.40 3.96 2.59 1.40 Short term provisions 0.95 1.16 - 0.01 9.85 8.37 6.89 5.20 Total equity & liabilities 32.58 30.22 76.80 71.34 ASSETS Non-current assets Fixed assets 11.04 15.04 10.06 6.95

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Equity & Liabilities Mar-15 Mar-16 Mar-17 Mar-18 Long term investment 3.08 3.43 6.05 16.03 Long term loans and advances 0.42 0.49 0.34 1.03 Deferred tax assets (net) 0.26 0.14 14.55 18.96 16.70 24.16 Current assets Trade receivables 12.15 8.77 8.12 3.03 Cash and cash equivalents 0.25 0.90 51.16 40.76 Short term loans and advances 5.59 1.59 0.58 3.10 Other current assets 0.03 0.001 0.24 0.29 18.03 11.26 60.10 47.18 Total assets 32.58 30.22 76.80 71.34

Table 3 CLCCL Profit and Loss Statement (₹ crore)

2014-15 2015-16 2016-17 2017-18 Revenue Revenue from operations 33.72 32.88 22.77 10.08 Other income 2.07 0.65 0.37 4 Total revenue 35.78 33.52 23.14 14.08 Expenses Operating expenses 17.97 7.57 Employee benefit expenses 1.45 1.33 1.59 1.07 Finance cost 1.02 1.23 0.83 1.00 Depreciation and amortisation 1.97 2.26 2.62 1.63 Other expenses 30.34 27.63 1.20 2.51 Total expenses 34.77 32.44 24.21 13.42 Profit/ (Loss) before 1.01 1.08 -1.07 0.66 exceptional items and tax Exceptional items 0.004 4.14 Extraordinary items - 2.70 - 1 Profit/(Loss) before tax 1.01 -1.62 -1.08 -4.01 Tax Expense 0.31 -0.43 -0.20 0 Profit/(Loss) for the year 0.69 -1.19 -0.87 -3.91

The investment of the NEEV Fund is a major input into the expansion of the company. Figure 3 presents trends in the capital structure and the Debt-Equity ratio of the company. NEEV Fund contribution as CCDs has increased the debt-equity ratio of the company.

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Figure 5 Debt-Equity Ratio of CLCCL

90 0.86 0.84 80 0.84 70 0.82 0.80 60 0.80 32.5 0.78 50 0.76 34.1 0.76 40 0.73 ₹ ₹ crore 0.74 30 14.1 0.72 12.8 42.7 20 38.8 0.70 10 18.5 17.5 0.68 0 0.66 FY 15 FY 16 FY 17 FY 18

Promoter Equity Debt Debt-Equity Ratio

Challenges faced by the company

Crystal Logistic had early mover advantage in the cold chain market in Eastern India. India is short by 10 million tonnes of cold storage capacity and over 50,000 refrigerated trucks due to which over 30 per cent of agricultural produce goes waste every year apart from the fact that more than 20 per cent of produce from fields is lost due to poor harvesting and lack of a cold chain infrastructure51. Crystal occupies a sweet spot in an unorganised market, and distinguishes itself through its focus on marine products, dairy and fast-moving food items marketed by large companies. It had the lead in building operational capacity, management information system, and reliable market research and intelligence. With increasing exports of seafood and pharmaceutical products, there is a constant demand for refrigerated storage and transportation system which Crystal Logistic is in a position to respond to.

In India, cold chains and reefers suffer due to lack of first and last mile connectivity. Besides, stiff competition and low preference of end-user industries to transport via reefers (as it increases costs) restricts private players from investing in the segment across the chain.

Crystal Logistic had announced in October 2018, plans for major expansion over the next few years. 18 cities were shortlisted for setting up facilities.52 A 3000 pallet facility was planned to come up in late 2018 in Bhubaneswar, Odisha, and Ranchi, Jharkhand. The Company is yet to be allotted land in these two locations. It hopes to fund the new facility through debt from financial institutions. There is serious lack of road connectivity and precooling facilities in West Bengal where the Company operates. The integration of cold-chain does not exist due to a large gap in form of inadequate pack- houses along with associated capacity in transport53. Without the reconditioning centres, the produce cannot be readied for the cold-chain, and without transport, there are breaches in integrating the movement in the cold chain. Crystal Logistic lacks multi-temperature containers on trucks or vans. Currently, if one container is set up with a temperature it will remain the same throughout the container. Multi-temperature containers will be able to save fuel and enable transportation of 5 degrees as well as

51 Subhajit Roy, Out of the Cold Storage – A promising outlook for the Indian cold chain logistics industry. Cooling India, September 14, 2018. Accessed on 13/2/2019 from https://www.coolingindia.in/out-of-the-cold-storage-a-promising-outlook-for-the-indian-cold-chain-logistics- industry/ 52http://www.uniindia.com/sbi-backed-neev-fund-to-invest-in-two-funds-targetting-sme-and-affordable-housing- sector/east/news/1384276.html 53 Assocham, 2018. Cold Chain Logistics – Transforming Agri-Food Supply Chain, May 2018

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15 degrees or 20 degrees products in the same truck for a single customer. This will lead to bigger trucks replacing smaller and the midsized trucks.54 The Company has identified lack of trained labour in handling temperature-controlled products inside the warehouse and loading and unloading in container vehicles as a key limitation. The Company is planning to set up a Crystal Academy to impart training to youth in skills in demand in warehousing and food processing industry. The youth will be placed with companies associated with Crystal Logistic. The NEEV Fund investment is expected to enable it to overcome some of the shortcomings described above. This should enable it to return to profitability, a key feature to be monitored at the mid-line stage. EQ1.3 Did the DCI investment add value to Crystal Logistic (e.g. in terms of governance, operational management, financial management); ability to cope with issues in low income states?

Indicators Achievements/findings

Governance & NEEV Fund is reported to have made a significant contribution to management support improving the governance and management of the company. The company has hired a Big 5 statutory auditor, and its internal audit processes have been strengthened. The company reports significant modernisation of the attitudes of staff and managers after the advent of and encouraged by the NEEV Fund investment and input provided by the investor. It has consequently gained the ability to expand into other low-income states- Jharkhand, Odisha and other regions like Andhra & Telangana.

Midline focus Commitment of the management and progress of the company to modern systems of operation including MIS and HR to enhance the efficiency and profitability of the company, including its ability to the changing industry environment with the advent of new technologies in the provision of cold chain services. Micro-economic improvement of small fisher-folk and their ability to have perennial earnings, increase in affinity of these fisher-folk to conduct business with Crystal Reduction in cash transaction and move to account transfers

Relationship with Suppliers, and Customers: As CLCCL belongs to a Service Industry, customer satisfaction is one of the strong drivers of its success. Periodic customer feedback surveys are conducted. The Sales and Marketing Team arranges for mandatory personal visits to institutional clients to maintain relationships and address outstanding issues. The company also holds social get-together and activity sessions like Cricket Premier League for its customers. It prides itself on timely payment to its suppliers. Staff visits farmers and fishermen for regular interaction and work with them on how scientifically storing their products can reduce wastage and enhance income. Governance The Directors of the company are Akash Agarwal (CEO), Naresh Agarwal, Murari Lal Agarwal, Rajesh Agarwal, Sushila Devi Agarwal, and Akshay Kumar Panth. All the Agarwals in the Board are closely related, while Mr. Panth, is a nominee director of NEEV Fund . M/s Walker Chandiok & Company, LLP are statutory auditors and PwC are Internal Auditors of the Company. PwC have been engaged by the company after the NEEV Fund investment. For better compliance and timely statutory filing, company has appointed various external Consultants like GST, TDS, PF, ESI etc. Company is in total compliance and has filed all the statutory forms of Income Tax & Registrar of Companies within the time frame. Other Benefits of the Neev Investment

54 Rajesh Rajgor, Crystal Logistic Cool Chain plans for massive footprint expansion, October 17, 2017; http://www.motorindiaonline.in/corporate/crystal-logistic-cool-chain-plans-for-massive-footprint-expansion/

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The Company management recognises the positive impact that Neev Fund had on its business. The financial backing from NEEV Fund has propelled Crystal Logistic to think big on a pan-India scale. NEEV Fund managers have been a valuable source of guidance and consultation. This has helped young managers in Crystal Logistic in a variety of business decisions, including financial management and human resource management. A key area where NEEV Fund has impacted is adoption of ESG best practices. The company has shown substantial improvements in cold chain supply management through the introduction of processes for safety, handling, designing, operations for finishing of products and raw produce. It has tried to develop standards and protocols of the construction and operations facilities that are suitable for Indian conditions. There is a perceptible change in the mindset among the young managers in Crystal. There is a shift from plain warehousing and logistics to how the company can add value to the customers. With the ability to customize products, Crystal Logistic is able to stock fewer SKUs, thereby reduce the cost of carrying and managing inventory. With better information flows, and closer warehousing facilities to customers manufacturing operations, distribution centres, or end destinations, Crystal is providing cost effective alternatives to transport products. Crystal has developed a third-party logistics (3PL) network to respond to customers fast and send their merchandise without delay. Data analytics is used for managing information for forward planning. Contribution: The main effect of the NEEV Fund equity infusion on Crystal Logistic has been in the areas of governance and management. The equity infusion enabled (and in a way, ensured) the appointment of PwC as the auditors to the firm, signalling its movement towards more modern practices. The NEEV Fund has helped Crystal Logistic’s promoters and management to think big on a national scale. At an operational level, the NEEV Fund infusion has helped Crystal Logistic expand its cold storage facility in Howrah district. This has led to an increase in the amount of fish and other seafood that the company is able to store at its facility. That, in turn, presents a potential for small traders of fish and seafood to expand their businesses. As the company expands its market among such customers, a better sense of the outcome in this regard can be studied by the Evaluation Team at the midline stage. EQ1.4 & 1.5 Were there other intended and unintended impacts of the DCI fund investments? What was its additionality?

Indicators Achievements/findings

Employment effects The company employs some 300 persons of whom around 50% are and additionality women, including some at the level of senior managers responsible for HR and for regional operations. While the overall numbers have increased the number of drivers has decreased as its emphasis on transportation has reduced in favour of local facilities to enable cold chain management and post-harvest preservation of produce.

Midline focus Monitoring of the level of employment, engagement of women at various levels of the company.

The company has created substantial employment opportunities. In all, it employs 300 persons on its payroll, 50% of whom are women. Operations mostly have male employees, while the corporate offices have more women. Both at the head office and in the Howrah warehouse the Head of HR (Vibha Gupta), the two Company Secretaries (Honey Gupta and Debjani Das), and Head of West India Operations (Sanskriti Shah) are women. Some of the high-powered appointments in Operations, HR, and Warehouse took place after infusion of NEEV Funds. Since the commissioning of the Howrah warehouse in 2015, the number of staff on the payroll has risen from 30 in 2015 to 75 in 2018. The number of contract labour during the same period has risen from 25 to 50. Apart from the contract labour, the company engaged 200 drivers in 2015, which due to the reduction in fleet size, has declined to 84 in 2018. The indirect employment effect is realised through customers who employ steady workforce and the drivers that the company engages for inward transportation and outward distribution. During the construction phase of the warehouse, nearly 200 persons were employed for a year by contractors carrying out civil, cold room installation, and interior works. Relationship with Employees: The relationship between CLCCL employee and the management is based on mutual respect and trust. Company always maintains a strong bond between the two so that

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Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio the business goals are met. It always looks forward to his employee for the delivery of assignments on time and also to acknowledge good performance. All the employees are working together as a team & the company believes in growth of both employees & employer. Company is giving opportunity to the new talent & side by side it also appreciates the experience of older employees. Everyday all the employees and employer start the day with a small motivational prayer. Every occasion is celebrated in the office along with the participation of all the employees. Events like cricket match, get together, etc., are also conducted for the entertainment of employees. There are various trainings conducted for the benefit of employees at various levels of operation. Technical training is conducted related to their job & also behavioural training for self-development. For the safety and security of the employees, mock drill training in fire safety and evacuation is conducted. The warehouse supervisor staff receive warehouse operations, key performance measurement, ABC analysis, Min/Max Modelling, and maintenance and operations coordination. Crystal Logistic Cool Chain Private Limited – at the household level The section is structured around preliminary findings on sub-questions for Evaluation Question Two (“Did the DCI borrowers provide the poor, particularly women and socially excluded groups, with access to high quality services?”). The evaluation team has conducted focus group discussions and key informant interviews in select enterprises in Diamond Harbour and Kolkata, the warehouse of the company at Dhulagarh in Howrah district, and in the company head office in Kolkata in West Bengal, with the management of Crystal Logistic, and with workers/managers/suppliers of enterprises. Table 4 provides details of participation in FGDs and KIIs. A total of 35 respondents participated in the FGDs and KIIs. Table 7: Details of FGDs and KIIs

Location Tool SC ST Muslim OBC Gen Women Men Total

Contractual staff, Joy Ma Tara Fish Traders, Diamond FGD1 2 - - 3 9 - 14 14 Traders

Sorter Ladies, Joy Ma Tara Fish Traders, Diamond FGD2 5 - - 3 - 8 - 8 Traders

Sorter Ladies, Sreeragam FGD3 3 - 2 - - 5 - 5 Exporters, Kolkata

Yatish Agrawal, Head Business Process KII I - - - - 1 - 1 1 Improvement, Crystal Logistic Cool Chain

Vibha Gupta, HR Manager, Honey Gupta and Debjani KII II- - - - - 3 3 - 3 Das, Company Secretaries, IV Crystal Logistic Cool Chain

anagerPartha Das, Operations and Sales KII V - - - - 1 - 1 1 Manager

Dinesh Gain, Joy Ma Tara Fish Traders, Diamond KII V - - - 1 - - 1 1 Harbour

Sunil, Operations, KII VI - - - - 1 - 1 1 Sreeragam Traders

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Trader, Howrah Fish Market KII VII - - 1 - - - 1 1

Total 10 - 3 7 15 16 19 35

EQ2.1 Are there any additional employment and income opportunities created in the service areas of Crystal Logistic?

Additional employment and income opportunities were created in the service areas of Crystal Logistic in the construction and commissioning of the warehouse/cold storage at Sudha Ras Food Park in Dhulagarh, Howrah, the following numbers of jobs were created, for periods ranging from six months to eighteen months: a. Civil works: 100 b. Cold room commissioning: 50 c. Interior: 50 In the Sudha Ras cold storage of Crystal Logistic, employment has grown in the following manner, as Table 5 shows: Table 5: Employment at CLCCL warehouse, Dhulagarh

Year Payroll Contract 2015 30 35 2017 50 35 2019 75 40 More significantly, it is the customers at whose level the job creation can also be seen, some of which is directly attributable to Crystal Logistic, while other jobs are a function of the business that these customers are involved in. Table 6 shows the growth of customers over the last five years. Table 6: Active customers, CLCCL warehouse, Dhulagarh

Year Active Customers 2014-15 12-15 2016-17 20-21 2018-19 30

The total number of customers is double the number of active customers. Thus, currently, Crystal Logistic Cool Chain Limited has about 60 customers. To get an idea about how the work with the clients generates other employment, let us take the example of a typical exporter client of Crystal Logistic: An exporter typically works with 100 containers. There is about 27 MT of fish or seafood per container. On an average there are about 100 labourers in a factory (sometimes going up to 250 in peak season), in addition to 20-30 regular staff. There are about 10 suppliers for 1 exporter. These suppliers are agents who aggregate the fish for the exporter from various sources. Each supplier could be working with 5-6 farmers. Alternatively, suppliers also source fish from ‘aadhats’ or traders in local fish mandis like Diamond Harbour or Digha, both in West Bengal. In one year, these 100 containers come to the Crystal Logistic warehouse in 200 consignments. That means 200 vehicle trips, or 400 drivers. Later, this material goes from the Crystal Logistic warehouse in 100 containers, which means employment generation for 200 drivers. In addition, the Crystal Logistic warehouse also serves other significant FMCG customers like Dominos, IFB, Devyani (Pizza Hut, KFC), Amul, ITC, Britannia, Alena.

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In the case of Amul, the Crystal Logistic warehouse takes inward of 150,000 crates. One vehicle takes 550 crates; hence 272 vehicles are needed. That means 272*2 or 544 drivers. They have started a whole new vertical in the fish mandi. For this, they have targeted small traders who operate in fish mandis and buy from Aadhats. It is in the case of these small traders attached to fish mandis that Crystal Logistic is producing some really significant outcomes related to employment and income especially for the vulnerable communities, which is covered in detail in EQ2.2 below. Crystal currently has 3-4 fish mandi clients and expects to go up to 10 by the next season. The company has started using a mobile tracking system in the Crystal Logistic Warehouse, due to which it is able to use 70% more space resulting in increase in labour working at the Crystal Logistic Warehouse by 75%. Table 7 Employment generation through main clients, Crystal Logistic Warehouse operations

Client Number of Volume of Number of Number of Incomes (₹) containers fish/seafood drivers (inward) drivers (outward) 10 10*100 = 1,000 27*10*100 = 200*2 = 400 100*2 = 200 600*1000 = exporters 27,000 MT 6,00,000 x 12 = ₹72,00,000 Number of Number of Number of Number of Incomes (₹) crates crates per vehicles (inward) drivers vehicle Amul 1,50,000 550 272 544 544*1000 = 5,44,000 x 12 = ₹65,28,000

7 such customers ₹4.57 crore Number of Total number of Number of Number of Incomes* for labourers per labourers agents/suppliers farmers labourers (a), factory associated farmers (b) with suppliers 10 100 1,000 100 600 a. exporters 7000*12*1000 = ₹8.4 crore

b. 600*1500*150 = ₹13.5 crore

Total income for workers and drivers ₹27.2 crore * Assuming an average salary of ₹7,000 per month for the labourers at export units, and each farmer supplying 1.5 MT of fish to each supplier @₹150 per kg.

EQ2.2 Did any poor and marginalised persons get jobs/services/increase in income in the service areas of Crystal Logistic?

As discussed above significant numbers of poor and marginalised persons got jobs/services/increase in income in the service areas of Crystal Logistic.

The main outcome due to Crystal Logistic’s work in its new vertical, Fish Mandi is visible among poor and marginalised persons. One such client is Joy Ma Tara Fish Traders. Joy Ma Tara was started by Dinesh Gain who has been running this business since 2000 in partnership with a friend of his from the same area.

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He is a specialist in Hilsa and other sea fish – handling 100-200 varieties in Hilsa off season. He has a running market for 30 MT per day. He did not have facilities for storing and blasting and used to do 50 MT before associating with Crystal Logistic. Today he stores 200 MT fish with Crystal Logistic. His earlier engagement of 10 women workers for sorting and grading of fish has expanded to 20-25 women workers during the Hilsa season. He also uses 20 men from the Aadhats in the Diamond Harbour Mandi for weighing, icing and loading. These men (called Mudia) are paid Rs27 per jhuri (40 kg of fish basket).

He engages 17-18 men on contractual basis for ten months of the year. There has been no change in the number of these regular staff, as he needs them anyway for the regular/local fish trade.

In a three-month Hilsa season, there are 60 days’ worth of work. In this period, each of the 20-25 women gets paid Rs500 per day, and on some days, they even do double shifts, doubling their income for that particular day.

He sends out 150 MT of fish to Crystal Logistic on 12-13 MT trucks, which means additional work for at least 24-25 drivers.

Table 8: Incomes generated at Crystal Logistic Client’s operations

Client Number of Person days Amount of Number of Income for women of work for income for drivers drivers engaged women women engaged Joy Ma Tara 20-25 22*60 = 1,320 1,320*500 = 7*300 + 24 = 2124*500 = Fish Traders ₹6,60,000 per 2,124 ₹10,62,000 month per month ₹0.79 crore per ₹1.27 crore year per year

30 active clients ₹23.7 crore ₹38.1 crore Total annual income for workers & drivers ₹61.8 crore

EQ2.3 Has access to services and reduction in cost due to Crystal Logistic operations resulted in addressing vulnerability? Access to services and reduction in cost due to Crystal Logistic operations has resulted in addressing vulnerability as shown by the focus group discussions (FGDs) with women workers in the industry and with men working as contract workers with the fish trader. The FGDs with women sorting and grading at the local Fish trader in Diamond Harbour, as well as the women involved in grading at the exporter unit in Kolkata showed the huge amount of vulnerability among the women, which is gradually reducing due to their work in these units. Most of these women were from scheduled castes (60% respondents), OBC, and Muslim. They were all from families that are landless (do not own land). They said that were it not for the work at these units, they would be washing dishes and sweeping floors at others’ houses. They have used the earnings from these units (₹30,000 per annum in Diamond Harbour) for children’s education, medicine. They reported being able to buy clothes that they were not able to buy earlier.

Jashoda Mondal has a 14-year-old daughter with special needs: not able to read and write properly. Her husband was a rickshaw van driver (a rickshaw van is a tricycle cart very common in rural Bengal), but of late due to falling health, has not able to work well. Hence the entire household is now dependent on her. Her work at Joy Ma Tara Fish Traders is therefore a huge support. Munni is a 19-year-old Muslim girl who was forced to come to Kolkata to work in the export unit. With her earnings here, she has been able to support her family. Back home, her father weaves baskets. With the earnings here, Munni has helped her family build brick walls for their house. She reports being able to eat more food than they were able to earlier. Her aspirations are rising now, she wants to buy land in a better place for her family to live. She also wants to pay for the marriage of her elder sister.

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They have also bought gas cookers/cylinders and electric fans with their earnings. The women working in the export unit say that they been able to get more respect in society as a result of their earnings. Having learnt on the job, they say their confidence level is high. They also reported that they are able to get financial support from the company in times of emergency. At least one of them was able to pay for the marriage of her sister with the earnings from the export unit. Having earned regular incomes in these units, the women workers look to their futures with much greater assurance.

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Annex C Lists of participants of KIIs in all case studies

KII participants

Case Study 1– Cholamandalam Investment and Finance Company Limited (Cholamandalam)

Raipur 1. Mr. Praveen Sanghi, Regional Business Manager 2. Mr. Avinash Nigam, Regional Sales Manager (commercial vehicle) 3. Mr. Dushyant Goswami, Regional Sales Manager (construction equipment) 4. Mr. Akhilesh Joshi, Regional Sales Manager (passenger vehicle) 5. Mr. Sandeep Kamboj, Area Business Manager (Raipur) 6. Mr. Nitin Pataria, Area Credit Manager (Raipur)

Bhanupratappur 7. Mr. Satish Pandey, Regional Recovery Head 8. Mr. Amitabh Majumdar, Area Business Manager

Dhamtari 9. Mr. Satish Pandey, Regional Recovery Head 10. Mr. Somesh Chaturvedi, Area Business Manager 11. Mr. Prakash Gupta, Area Sales Manager (commercial vehicle) 12. Mr. Rohit Sahu, Area Sales Manager (tractor)

Case Study 2- Darbhanga Motihari Transmission Company Limited (DMTCL) 1. Mr. Nishant, Incharge DMTCL (Darbhanga and Motihari) 2. Mr. Parshuram (Transmission line), Darbhanga, DMTCL 3. Mr. Mithun(Transmission line), Darbhanga, DMTCL 4. Mr. Pintu Roy (Sub-station), Darbhanga, DMTCL 5. Mr. Pratap (O&M in charge), Darbhanga, DMTCL 6. Mr. S.K.Das, Supreintending Engineer (Distribution), North Bihar Power Distribution Company Limited (NBPDCL), Darbhanga 7. Mr. Pradeep Kumar, Executive Engineer, NBPDCL, Motihari 8. Shyam Sundar and Ganga Sundar, Bam Bam Kirana and General Store, Village Sinuara, Block : Hanumannagar ; Dist : Darbhanga 9. Pintu Singh, Manufacturer of Fly Ash Bricks - Interlocking Paving Blocks, Light Weight Concrete Blocks, Outskirts of Sinuara Village, Darbhanga 10. Santosh Kumar, Anamika Kumari, Instructors at Bihar Skill Development Mission (BSDM,GoB), Hanumannagar block; Dist : Darbhanga 11. Chhedi Sao, Oil extractor and Flour Mill, Village Sinuara, Hanumannagar; Dist: Darbhanga 12. Md. Aamir; Aamir Engineering Works Ltd., Taralahi Chowk, Laheriasarai, Dist: Darbhanga 13. Sahdev Mahto and Brahmdev Mahto, Cement Concrete Mixer fabrication units, Bankat, Motihari, East Champaran, Bihar 14. Shahid Mohamad, Green India Steel Furniture Udyog fabrication plant, Bankat, Motihari, East Champaran, Bihar 15. Bapudham Milk Producer Company Limited, Banwari Math, Pipra Kothi- Gorakhpur Road, Motihari 16. Mr Arvind Kumar, CEO, M/s.Prasad Agrico Industries (Pvt.) Ltd., Satahan(Mangurahan), P.S.- Satahan, Distt.- East Champaran, Bihar 17. Paharpur Block PHC (Dr. Omendra Prasad), Paharpur block, Motihari, Distt. East Champaran, Bihar 18. C.S. Dav Public School, Kotwa Road, Bankat, P.O. Motihari Court, Motihari, Dist. - East Champaran, Bihar Case Study 3– Clean Wind Power (Devgarh) Private Limited – a subsidiary of Hero Future Energies Private Limited 1. Arunesh K Mishra: Site Manager, Hero Future Energies (HFE), Village- Devagarh, District- Pratapgarh, Rajasthan

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2. Rahul Sharma: Junior Engineer (JEN), Devgarh, Pratapgarh District, 3. Mr. M. D Choudhary, Executive Engineer (XEN), RSEB, Pratapgarh now AVVNL Case Study 4– SunSource Energy Private Limited 1. Mr. Nilesh Patidar :- Site Incharge (Technical), SunSource Engergy, Bhilwara 2. Mr. Vishal Sharma :- Operations & Maintenance Engineer, SunSource Engergy, Bhilwara 3. Mr. Ankit Shringi Operations & Maintenance Engineer - Sunsource Energy 4. Bharat Carpenter, O&M head, SunSource Energy, Kishangarh, Rajasthan 5. Mr. Amit, Plant In charge, Kanchan India Private Ltd., Bhilwara, Rajasthan 6. Mr. S.S. Shekhawat, Deputy GM - Engg. Electrical Head, Kanchan India Private Ltd., Bhilwara, Rajasthan 7. Mr. P. Maheshwari, Accounts head, Nitin Spinners, Bhilwara, Rajasthan 8. Mr. Ravi Shankar, GoGreen renewable energies pvt. Ltd Contractor for SunSource Energy, Nitin Spinners, Bhilwara, Rajasthan 9. Mr. Sunil Poonia, M/S SPV energy (HO. Jaipur), Subcontractor of SSE for Kanchan, Bhilwara, Rajasthan 10. Mr. Shashank Agarwal, M/S Shagg, Subcontractor of SSE for Kanchan, Bhilwara, Rajasthan 11. Sanjay Sharma, AGM Production, RK Marbles; Kishangarh, Rajasthan 12. Yash Jain, Marketing and sales, RK Marbles, Kishangarh, Rajasthan 13. Vishnu Prasad, O&M manager, RK Marbles, Kishangarh, Rajasthan 14. Mr. Anup Singh Yadav, Site Incharge at RK Marbles, Kishangarh, Rajasthan

Case Study 5– Mahendra Educational Private Limited 1. Priti Kumari, Trainer, Solar Panel Installation, MSTDPL, Bareilly, Uttar Pradesh 2. Jasveen, Trainer, SET course, MSTDPL, Bareilly, Uttar Pradesh 3. Mohammad Imran, Trainer, CCE course, MSTDPL, Bareilly, Uttar Pradesh 4. Krishna Biswas, Trainee Mobiliser, MSTDPL, Bareilly, Uttar Pradesh 5. Aastha Saxena, Trainee Mobiliser, MSTDPL, Bareilly, Uttar Pradesh 6. Pankaj, Trainer, Front Office Assistant course, MSTDPL, Bareilly, Uttar Pradesh 7. Ved Prakash, Trainer, GST & LIA courses, MSTDPL, Bareilly, Uttar Pradesh 8. Shilpi Agarwal, Tainer, Retail course, MSTDPL, Bareilly, Uttar Pradesh 9. Rahul Singh, Bareilly Cluster Senior Manager for both MSTDPL and MEPL, Bareilly, Uttar Pradesh 10. Komal, Counseller, Asha Jyoti Kendra, MSTDPL, Bareilly, Uttar Pradesh 11. Babita, Beauty trainer / Assistant hair stylist at Asha Jyoti Kendra, MSTDPL, Bareilly, Uttar Pradesh 12. Ravi Singhal, Manager, Trainings, Asha Jyoti Kendra, MSTDPL, Bareilly, Uttar Pradesh 13. Shraddha, Chief Manager, MSTDPL, Lucknow 14. Sayed Ali, Mobile Repair Trainer, MSTDPL, Lucknow 15. Gaurav Mishra, HRE & Telecom Trainer 16. Gagan, Retail course trainer 17. Nazia Ahmed Khan, FOA Trainer, 18. Sanskita Singh, Cousellor, PMKK Lucknow

Case Study 6– Crystal Logistic Cool Chain Private Limited 1. Debjani Das, Senior Executive/CS, Crystal Logistic, Kolkata, West Bengal 2. Honey Gupta, CS, Crystal Logistic, Kolkata, West Bengal 3. Vibha Gupta, HR, Crystal Logistic, Kolkata, West Bengal 4. Yatish Agarwal, Head, Warehouse vertical, Crystal Logistic, Kolkata, West Bengal 5. Partha Das, Cold Storage Sales and Business Development, Crystal Logistic, Sudharas, Howrah, West Bengal 6. Rashmi Ranjan Mahapatra, GM Warehouse, Crystal Logistic, Sudharas, Howrah, West Bengal 7. Deepak Kumar, Manager, Warehouse, Crystal Logistic, Sudharas, Howrah, West Bengal 8. Dinesh Maity, Partner, Joy Ma Tara Fish Traders, Diamond Harbour, West Bengal 9. Shyama Prasad Barik, Partner, Joy Ma Tara Fish Traders, Diamond Harbour, West Bengal

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Annex D Stakeholder communication and management Table E.1: Stakeholder communication and management Note: As the use of international aid to the private sector is an emotive issue, no further dissemination will be done by the evaluation team (e.g. to the media, civil society) unless expressly requested by DFID. IPE Global and M-CRIL have signed confidentiality agreement and will carefully handle any specific Equity Fund and Debt Fund investee data which is not already in public domain. Key Evaluation Needs Key targets Dissemination and Stakeholder communication outputs DFID Internal accountability – DFID Evaluation reports has the project delivered Short summary paper on key expected results and findings and learnings for achieved targets? Has it dissemination to other offices delivered value for money? targeted at DFID staff Lesson learning – should DFID consider funding similar initiatives in the future in India and elsewhere? How could it deliver better VfM? Should it be extended or scaled up? What are the key learnings for the focus areas? NEEV Fund Lesson learning – which Implementation Feedback presentations after aspects of the intervention Team baseline and mid-line evaluation have worked and haven’t reports worked? What has been the impact of their interventions? How could they improve their effectiveness and sustainability next time and mainstream the approach of impact investing? Sectoral Lesson learning – which Investee Very short summary paper on key Stakeholders aspects of the business businesses, findings and commercial and worked and was able to Commercial sectoral implications to be given deliver impact? Possibility Banks, to key targets of mainstreaming? How Mainstream Offer of a presentation to key could they improve their investors, targets (at a national event) effectiveness next time? Regulators, etc. Government of Lesson learning Government of Very short summary paper on key India – central India – central findings and implications for State level level policy to be given to key targets Follow up support and advice as required Offer of a presentation to key targets Other national Lesson learning Other national More general summary paper on stakeholders stakeholders key findings and implications; one targeted at generalists and one targeted at specialists/practitioners

International Evidence sharing International Possible options include: research research community community

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Key Evaluation Needs Key targets Dissemination and Stakeholder communication outputs a paper on the evaluation results and methodology in a relevant journal with a wide readership; shorter policy notes that could be shared (by IPE Global, by the implementing partners or by DFID) at appropriate fora e.g. the Sankalp Forum; IPE Global Briefing Note/ Development Futures paper;

Note: IPE Global, which has strong links with leading universities, such as Oxford, York, Leeds and Bath Universities, and the Institute of development Studies, will also promote findings through its own series of Briefing Notes, Development Futures papers and its website (www.ipeglobal.com). We would expect articles to be generated both on the methodological approach, which is pioneering, as well as the results. Findings could also be disseminated through the EPS PEAKS website (https://partnerplatform.org/eps-peaks) – as IPE Global is a member of the consortium.

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Annex E Evaluation criteria and questions

Method of Source of Criteria Indicative Evaluation Questions data data collection Are DCI’s objectives aligned with DFID’s objectives and Relevance goals? DFID KIIs Are DCI’s objectives aligned with the overall context? Is Fund manager Relevant there a need for private sector investment for pro-poor documents infrastructure in LISs? To what extent funding support from Government DFID is justified/relevant in the overall context? counterparts Does DCI address the priorities of the respective state governments and national government?

Fund/Investee level DFID To what extent the selection of projects aligned with DCI’s (or IEFP and IDFPP) strategy? Fund To what extent projects are contextually (with respect to managers

states, sectoral policies and others) relevant? Government To what extent design of investments/projects are counterparts KIIs relevant? Is there any alteration in design of investment/projects during the course of implementation? Project Relevant If yes, to what extent the changes were made? Whether developers/ documents the changes are relevant and proper approval mechanism Investees was adhered? To what extent are targets for output indicators as set in Effectiveness the logframe achieved? Logframe, MIS Developmental: To what extent investments/projects have resulted in improvement in quality of life - improved access to MIS, KIIs, services, creation of jobs and increase in disposable Investees, Survey, income? Note: This aspect to be assessed under two Users FGDs broad criteria: (consumers ▪ Additionality - Number of additional employment and opportunities created/ additional income as a result of producers) DFID investment and leveraging and Non-users ▪ Equity - Number of poor and marginalised getting jobs/ services/ increase in income as a result of DFID

investments (gender and social exclusion lens) o Has access to services and reduction in cost resulted in addressing vulnerability?

Commercial: KIIs, FMs, What is the return on investment (equity and debt)? To Checklist Investees, what extent investments have resulted in increase in for Relevant revenue and profits of investee companies? capturing financial Which type of instrument have resulted in better returns? financial documents (Project and Fund level) data What is the value addition of DCI to the project in terms of improving its governance and management? Efficiency Efficiency MIS (LFA KIIs, indicators), Checklist To what extent DCI’s objectives/activities been achieved within expected costs? Financial Have DCI’s objectives/activities been achieved within statements at expected timelines? Fund and Does Funds (IEFP and IDFP) built a sound infrastructure Project level, to manage costs and monitor investment interventions (i.e. Relevant projects)? stakeholders

Impact Note: As mentioned in the ToR, full-fledged impact cannot be KIIs, Relevant documents assessed at mid-term stage of evaluation. However, trajectory

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Method of Source of Criteria Indicative Evaluation Questions data data collection of change will be assessed in this evaluation. Thus, the questions given below should be read in accordance. Has DFID’s DCI influenced the investors’ interest in the LISs? ▪ How many deals have been closed in the state/ sector since DFID’s investment came in? ▪ Number of investors who have shown interest in investing in the LISs since DFID’s DCI came in. ▪ Additional volume of investments that have flown into the sectors in which DFID’s DCI has come in. To what extent barriers reduced after DFID’s DCI in LISs? To what extent did DCI resulted in sustaining (building/ Sustainability scale up) businesses? KIIs, Relevant documents ▪ Has private sector investments scaled up in the sector that has received DFID’s DCI? ▪ Who are the other investors from where the funds have been leveraged for DFID DCI investees? ▪ Assess DFID’s capital and a particular sectoral demonstration effect. ▪ To what extent there is enhancement in DFID’s capacity to work in similar geographies (as a learning) due to these interventions? Note: (i) There may be overlap in case of select questions given under more than one criteria. (ii) Value for Money (Economy) related questions are not in this matrix. This is covered in detailed manner in the main section.

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Annex F Evaluation Team Composition

Team Composition

Team Leader

Project Coordinator

Evaluation Methods and VfM Expert

Private Sector Investment Expert Finance & Risk Analysis Expert

Research Manager

Research Associate

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