India Infrastructure
Abhinav Bhandari Ashish Kumar [email protected] [email protected] +91 22 3032 8507 +91 22 3032 8536
Pietro Perugino (1446-1523), The Delivery of the Keys to St. Peter, Fresco, 318 x 198 in, The Sistine Chapel, Vatican City. India Infrastructure Contents India Infrastructure: The Renaissance India’s infrastructure story is entering a phase of India Infrastructure: Vision 2025 ‘renaissance’, post the collapse of Nehruvian order of economic The Gujarat Model for Developing Infrastructure thinking. The Renaissance of the fifteenth century was, on Political Consensus on Infrastructure Reforms many counts, great by what it designed rather than what it USD 1.25 Trillion Opportunity achieved. India’s infrastructure vision is well designed (and conceived) by the current policy Financing USD 1.25 Trillion makers and now is the time to achieve these aspirations. The Company Evaluation Matrix – Biggest Beneficiaries designers in this space will be engraved as architects of India’s Annexure resurgence in the global economic order
Elara Capital | 2 India Infrastructure India Infrastructure: The Renaissance
New Vision and a New India Bridging funding barriers Riding on a thumping mandate for growth and governance, the new government Within weeks of its formation, the Modi government announced its keenness to has rolled out an ambitious vision for embrace several innovative infrastructure funding models to push India’s
Urban areas – 100 smart cities, 50 tourist circuits, “Housing for All” by 2022 development pace Dilution of up to 49% equity stake in listed PSUs Next generation infrastructure – Gas grids and National optical-fibre network Public offering of profit-making, unlisted, rail infrastructure companies National highway construction – 16,000 km by 2020 “Pooled Municipal Debt Obligation” facility to improve city infrastructure Railway – Agri rail network, tourist rail, high speed train network Introduction of tax-efficient REIT structure for infrastructure projects Water – Inter-linking of rivers, drinking water supply grid, piped water Flexible structuring to absorb contingencies for domestic lending institutions Port development – Sagar Mala project, modernization of existing ports (Refer Annexure I for details) Exemption to banks from min. regulatory pre-emption on long-term infra bonds
Foundations of optimism Biggest beneficiaries . Priority – Move up India’s ranking in the Global Competitive Index (GCI) from 85 out . Roads & Highways – IRB Infra, Ashoka Buildcon, J Kumar Infra, MBL Infra of 148 in infrastructure . Railways – L&T, IL&FS Transportation, IL&FS Engineering, ITD Cementation . Proof of concept – A successful Gujarat model to act as a blueprint for investment . Water Supply & Irrigation – HCC, Dredging Corp, Pratibha Ind, SPML Infra and a simplified recourse for getting approvals . Enviroment – Va Tech Wabag, Praj Industries, Supreme Infra, Unity Infra . Regulatory framework ready – India’s legal architecture has matured to handle issues pertaining to land acquisition, forest clearance and natural resource . Affordable housing – NBCC, Simplex Infrastructures allocation effectively . Power T&D – Techno Electric, Jyoti Structures . Consensus in a new Federal order – Devolve power to the states for . Industrial corridors – Container Corp, Gateway Distriparks commensurate regional growth . Ports – Adani Ports & SEZ, Gujarat Pipavav
Elara Capital | 3 India Infrastructure The Incredible Infrastructure Opportunity
Bottom-up methodology indicates an investment need of USD 1.25 trillion in India’s “Core Infrastructure” until 2025
54 23 1,248 63 116 148 235
261 (USD bn) 349
Roads Railways Water supply Environment Affordable Power Industrial Ports Total housing corridors
Source: Elara India Urbanization Model, Elara Securities Estimate
Elara Capital | 4 India Infrastructure India Infrastructure: Vision 2025
Core infrastructure investment beyond XII Plan
2002-2007A 2007-2012A 2012-2017E 2015-2025E
Sector (USD bn) (XII Plan (X Plan) (XI Plan) (XII Plan) & beyond)
Roads & highways 21 76 180 349 1.9x Roads will continue to be a key focus area, spend on urban roads to gain traction Railways (incl. MRTS) 17 40 127 261 2.1x Expenditure in Railways expected to be Water supply & sanitation 10 20 67 283 4.2x driven by the entry of private sector, Irrigation 20 41 99 100 especially in MRTS
Affordable housing - - - 116 Swelling urban development budget across States to facilitate a multi-fold jump in Electricity 57 121 295 63 investment Ports (incl. inland waterways) 4 7 39 23 Expect a major push for affordable housing Industrial corridors - - - 54
Grand total 129 306 807 1,248 1.5x
Source: Planning Commission, Elara India Urbanization Model, Elara Securities Estimate
Elara Capital | 5 India Infrastructure Viable to Fund USD 1.25 Trillion in 10 Years
Bottom-up funding methodology Contrary to planned private spending at 4.1-5.3% of GDP Elara Securities estimates Envisaged infra spend (USD bn) . An aggregate investment buildup points to the private sector spending Public Private Total Public Private Total bottoming out in FY15 FY10 4.9 2.6 7.5 44 23 67 . Over FY15-17 while estimates point to an acceleration in private sector spend FY11 5.0 2.9 7.9 48 28 77 (led by a stable government and repairing balance sheets), it is not FY12 5.1 3.3 8.4 53 35 88 expected to surpass 3% of GDP FY13 4.7 3.2 7.9 79 55 133 FY14 4.8 3.6 8.4 90 68 158 . Consequently, the onus of reviving India’s truncated capex cycle lies with the FY15E 3.7 2.3 6.0 78 47 126 central government – 60% overall in the XII plan. Over the course of FY16E 4.0 2.5 6.5 94 59 153 XIII plan, it is poised to decline by ~500bp FY17E 4.3 2.8 7.1 115 73 188
Assumptions on funding channelization (FY16-25E) Source: Planning Commission, Elara Securities Estimate Public sector – 56%
Internal generation – Growth in line with economic revival Sources of funds for envisaged infra spend (FY16-25E)
Borrowings – Emphasis on borrowing cost reduction Commercial Divestment of PSUs – Up to 49% in listed and potential listings banks 28% Private sector – 44%
Commercial banks – Build in average loan book growth of 15.5% NBFCs Budgetary 2% support Equity/FDI – Resurrection of balance sheets, broad-basing of FDI Insurance 56% Insurance – Led by the FDI hike, build in an average AUM growth of 18% 5% ECBs ECBs – In line with GDP growth assumption (14% CAGR) 4% Equity/FDI 5% NBFCs - Build in average loan book growth of 22% Source: CMIE, RBI, Elara Securities Research Elara Capital | 6 India Infrastructure The Gujarat Model for Developing Infrastructure
Gujarat Infrastructure Development Board (GIDB) Process framework – Project life cycle
. GIDB is a statutory organization headed by the Chief Minister, assisted by Identification & conceptualization senior ministers & secretaries. The Board has a CEO along with a number of of projects
in-house experts Through Whether to be GIDB Risk . GIDB was created via the Gujarat Infrastructure Development Act, 1999 Financing Bidding Contract implemented by allocation framework procedure supervision (GID). The Act provides a legal and regulatory framework for risk-free private private sector framework
sector participation, offering a level-playing field for domestic & international
investors and government agencies To be implemented by the respective govt. agency . GIDB looks into overall planning, implements framework studies for projects
and facilitates effective coordination between sectoral departments Source: GIDB Role of GIDB Progressive law for private sector participation (PSP)
Techno-commercial and financial feasibility studies . Gujarat Infrastructure Development Law – prepared in consultation with
Conceiving infrastructure projects, project development and preparation industry, investors and developers; lays a systematic procedure for PSP
Drafting of model concession agreements . Project identification – in sync with the planning framework (Vision 2020)
Framing and approving concession agreements . Project preparation – pre-feasibility studies before doling out projects to the
Selection of developers through transparent processes private sector; state supports expenditure through budgetary grants
Monitoring the progress of projects . Risk allocation – separate concession agreements ready for sectors; aims at upfront allocation of risk to enable investors in judging the project better Capacity building among government agencies and their staff
Advising government on policies on infrastructure . Selection of developer – provides a level-playing field and transparent bidding mechanisms (international competitive bidding and challenge route) Administering the viability gap funding on behalf of the government
Elara Capital | 7 India Infrastructure Political Consensus on Infrastructure Reforms
Evolution of a New Federal Order India’s federal structure given present Center-State relations Potential outcomes out of reworking Centre-State relations: Jammu Illustration of Center-State relations & . Phase I: States currently ruled by the NDA alliance and possible lateral Kashmir with the new NDA government and Jan 2015 the next State elections partners would be natural partners to the Union government’s maneuvers. Himachal Pradesh Dec 2017 . Transformation of fence-sitters, in key states that are not a part of the Punjab Mar 2017 Uttaranchal Mar 2017 government in New Delhi but may not be averse to responding to the Haryana Oct 2014 Delhi Arunachal overtures of the government. Once these states are on board, a large part of Sikkim Pradesh
India would be covered. Uttar Pradesh Assam Rajasthan May 2017 Apr 2016 Nagaland Jan 2019 Bihar Meghalaya Nov 2015 . Phase II: Transformation of detractors is the critical second phase. Their Manipur Jharkhand Tripura West return to mainstream discourse, irrespective of political affiliations, for want Madhya Pradesh Jan Gujarat 2015 Bengal Mizoram Jan 2018 Jan 2019 May 2016
of being part of the growth story, is the vital second-tier, and this is what will Chhattisgarh Jan 2019 Orissa redefine the way federal consensus evolves in India. May 2016
Maharashtra The new modus operandi Dec 2014 Telangana May 2016 Friendly In the framework of Constitution’s concurrent list, the more progressive states Favorable
Andhra Pradesh Goa Hostile could be allowed to move ahead on reforms process under Article 254 (2). May 2016
Karnataka The Constitution of India provides for exceptions under Article 254 (2) that allow May 2018 the state legislation to prevail on an item in the concurrent list provided the Tamil Nadu President of India gives his accent. May 2016 Pondicherry
Source: Election Commission, Elara Securities Estimate
The new regime at Center stands to devolve power to the States for commensurate regional growth Elara Capital | 8 India Infrastructure Political cycles and the New Growth Mandate
Jammu Jammu & & Kashmir Natural allies in quest of growth: Kashmir Jan 2015 Jan 2015 • Primary: Gujarat, Madhya Pradesh, Himachal Himachal Pradesh Rajasthan, Chhattisgarh, Punjab, Pradesh Dec 2017 Dec 2017 Punjab Punjab Mar 2017 Uttaranchal Andhra Pradesh and Goa Mar 2017 Uttaranchal Mar 2017 Mar 2017 Haryana • Lateral entries: Odisha, Tamil Haryana Oct 2014 Oct 2014 Delhi Arunachal Delhi Arunachal Sikkim Pradesh Nadu, Telangana and Kerala Sikkim Pradesh
Uttar Pradesh Assam Uttar Pradesh Assam Rajasthan May 2017 Apr 2016 Rajasthan May 2017 Apr 2016 Nagaland Nagaland Jan 2019 Bihar Jan 2019 Bihar Meghalaya Meghalaya Nov 2015 Nov 2015 Manipur Manipur Jharkhand Tripura Jharkhand Tripura West West Madhya Pradesh Jan Madhya Pradesh Jan Gujarat 2015 Bengal Mizoram Gujarat 2015 Bengal Mizoram Jan 2018 Jan 2019 May 2016 Jan 2018 Jan 2019 May 2016
Chhattisgarh Chhattisgarh Jan 2019 Jan 2019 Orissa Orissa May 2016 May 2016
Maharashtra Maharashtra Dec 2014 Dec 2014 Telangana Telangana May 2016 Friendly May 2016 Friendly Favorable States where assembly elections Favorable Andhra Pradesh Andhra Pradesh Goa Hostile Goa Hostile May 2016 holds trigger: May 2016 Karnataka Maharashtra, Uttar Pradesh, Bihar, Karnataka May 2018 May 2018 Jharkhand, Karnataka, Assam, Haryana and J&K Tamil Nadu Tamil Nadu May 2016 Pondicherry Detractors: May 2016 Pondicherry West Bengal
Source: Elara Securities Research
Going by LS trends, political cycles signal a massive churning to consolidate 78% of landscape in favor of growth by 2017 Elara Capital | 9 India Infrastructure
USD 1.25 Trillion Opportunity
Elara Capital | 10 India Infrastructure Roads and Highways: Getting the Right Push
Setting up of a Road Finance Setting up of ‘3P India’ for Corporation (INR 1trn) to fund faster dispute resolution EPC projects
An ARC for stressed assets Proposal to empower the where NHAI will subscribe to Ministry to award projects up seed money & push execution to INR 10bn on its own
Formation of a USD 100bn Initiation of 1,000 km New Development Bank (NDB) expressway development to fund infrastructure projects
Source: NHAI Elara Capital | 11 India Infrastructure National Highways: Award Pipeline for the Next Four Years
Opportunity NHAI’s scorecard – Year-wise awards vs construction 8,000 . NHAI’s cost estimate: USD 21bn for laying and widening the remaining (km) ~16,200 km of highways yet to be awarded 6,000 (refer to Annexure II for details) 4,000
Triggers 2,000 0 . Clearance to INR 1.8 trillion stalled road construction projects FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E Completed Awarded . Cleared INR 400bn highway projects in J&K, North East, Uttarakhand and Source: NHAI, Elara Securities Estimate Himachal Pradesh
. Allocation of a higher budgetary support worth INR 378bn for FY15 (Vs Distribution between BOT toll and cash & annuity models actual grant of INR 305bn in FY14, an increase of ~24%) 25,000 (km) Execution 20,000 15,000 13,352 . Award target for FY15: 5,500 km (2,300 km for EPC-based cash contracts 10,000 2,406 12,000 and 3,278 km via the BOT mode) 5,000 8,420 9,626 3,921 0 . Execution to witness a marked leap from 5.5 km/day in FY14 to 8 km/day Completed projects Under implementation To be awarded projects by March 2015 projects BOT Toll Cash and Annuity
Source: CRISIL Elara Capital | 12 India Infrastructure Urban Roads: Key Beneficiary of State Spending
Opportunity Registered motor vehicles - India
200
. USD 288bn in capex besides USD 40bn in operations & maintenance
(in mn) 159.5
141.9
expected across India’s cities leading to 2025
150 127.7
115.0
105.4
96.7
89.6
81.5 100
Triggers
72.7
67.0
58.9
55.0
50
. Motor vehicles in India increased ~200x between 1951 and 2011 while the 21.4
5.4
1.9
0.7
0.3
road network expanded only 12x 0 1951 1971 1991 2002 2004 2006 2008 2010 2012 . Cities are facing twin challenges of providing adequate roads for future use
and improving poor condition of existing roads due to neglect over the years Source: Offices of State Transport Commissioners/UT Administrations
Road length required until 2025 Expected rise in motor vehicles
450,148 315 (km) (mn)
160 106,598
Existing shortage Future needs 2012 2025E
Source: Elara India Urbanization Model Source: Elara India Urbanization Model Elara Capital | 13 India Infrastructure Indian Railways: The Long Awaited Facelift Begins
Focus on doubling and tripling Enhancing domestic to decongest the over-utilized investment and FDI in rail existing network infrastructure
Setting up of Diamond Bullet train proposed on Quadrilateral network of high identified Mumbai – speed rail on 9 sectors Ahmedabad sector
Substantial increase of 40% in Recent fare and tariff hike to FY15 budget allocation for add revenue worth INR 80bn cleanliness to the kitty
Source: www.mapsofindia.com Elara Capital | 14 India Infrastructure Indian Railways: Framework Ready for the PPP Drive
Opportunity Investments & resource mobilization (for the next 10 years)
. Pending projects backlog of Indian Railways stands at USD 32.2bn, Investment through PPPs (INR bn) comprising 10,000 km new line construction, safety & security projects 1 High speed corridor (Mumbai-Ahmedabad) 600 and doubling, gauge conversion & electrification jobs . USD 125.5bn cumulative investment estimate (includes modernization 2 Elevated Rail corridor in Mumbai suburbs 200 capex) (refer to Annexure III for details) 3 Redevelopment of stations 1,100 Triggers 4 Dedicated freight corridors 1,340 . Speeding up of private participation in projects like high speed rail, DFC, modernization of stations, rolling stock manufacturing 5 Logistics parks 170
. Implementation of projects on a 50:50 cost-sharing pattern with states 6 Wagon leasing and other freight schemes 50 (Jharkhand and Karnataka executing projects of INR 38bn & INR 50bn) 7 Loco and coach manufacturing units 60 Sources of funds for railways (actual vs. recommended)
INR bn 2012-13 2013-14RE 2014-15BE Elara est. % deviation 8 Captive power, renewable energy & other projects 60
Gross Budgetary Support 241 270 301 250 17 9 Port connectivity projects 50 Internal Generation 95 94 154 202 (31) Resource mobilization through PPPs Leasing/Borrowings 151 149 118 50 58 PPPs 0 60 60 229 (281) 10 Land and airspace 500
Others 17 21 22 22 - Total 4,130 Total 504 594 654 753 (15) Source: Indian Railways, Elara Securities Estimate Source: Indian Railways, Elara Securities Estimate Elara Capital | 15 India Infrastructure Mass Rapid Transit: Ideal Considering Radial Expansion of Cities
Opportunity 28 cities to have > 2 mn people by 2025 163 241 . Public transport accounts for only 22% of urban transit in India (vs 40- 49% globally) 9 11 >4 mn 95.6 149.3 . USD 98bn in capital expenditure and USD 37.5bn in O&M 2
Triggers 2-4 mn 15.5 6 16 43.1 . Currently, rapid transit systems operate in five Indian cities and are under <2 mn 51.9 12 43 31 48.4 construction or in planning in several other cities. 2010 Cities 2025E . In the next 10 years, MoUD aims to set up a metro rail in all cities having a population of 2mn (refer to Annexure IV for details) Source: UNWUP 2013, Elara India Urbanization Model
India public transportation needs City public transportation mix
55 (%) (km) 4,584 45 3,428
MRT BRT MRT BRT
Source: Elara India Urbanization Model Source: Elara India Urbanization Model Elara Capital | 16 India Infrastructure Water Supply and Irrigation
The national river-linking NPP aims at linking different project was conceptualized in rivers across India to divert 1980 as the National excess water from surplus to Perspective Plan (NPP) deficient regions
Poised to create additional Inter-state water disputes and 30mn hectares of irrigation uncongenial terms with China potential & power generation and Pakistan are capacity of 20-25 GW implementation challenges
Source: Ministry of Water Resources Elara Capital | 17 India Infrastructure NPP: Likely to Swell Backlogs, Brighten Prospects for EPC Firms
Opportunity Multi-fold push to the economy Value Labor Capital The National Perspective Plan (NPP) is estimated to cost ~USD 100bn Sectors Added Income Income Multiplier Multiplier Multiplier . Himalayan rivers development (USD 77bn) – construction of storage Food grain 2.2 1.5 0.7 reservoirs on principal tributaries of Ganges and Brahmaputra rivers in India, Non-food grain & other crops 2.2 1.6 0.7 Nepal and Bhutan along with interlinking of river systems to transfer surplus Cement 1.2 0.6 0.7 flows to the river mahanadi Construction 1.6 0.9 0.7 Electricity, gas and water supply 1.0 0.5 0.4 . Peninsular rivers development (USD 23bn) – divided into 1) interlinking Transport 1.5 0.8 0.8 of Mahanadi-Godavari-Krishna-Pennar-Cauvery, 2) interlinking of West- Trade 2.0 0.8 1.2 flowing rivers, north of Mumbai and South of Tapi, 3) interlinking of Ken with Banking 1.5 0.7 0.8 Chambal, and 4) diversion of west-flowing rivers Source: Task Force on Interlinking of Rivers Programme Triggers State-wise benefits from NPP Additional quantum of water Additional area which . For feeding its population by 2050 (1.6-1.7bn), India will require an State which can be utilized can be irrigated (mn acre feet) (‘000 hectare) irrigation potential of 160mn hectares Orissa 6.0 1,171 . Economic damage owing to recurring floods and droughts (UN estimates Andhra Pradesh 24.0 4,685 Maharashtra 6.5 1,269 ~USD 22bn since 1992) Karnataka 6.5 1,269 Tamil Nadu 12.0 2,342 . INR 100bn investment in the construction sector under NPP can generate an Kerala 5.0 976 incremental value of INR 174bn in the economy and facilitate 4% rise Madhya Pradesh 2.5 488 in total employment (Source: NCAER) Uttar Pradesh 2.5 488 Gujarat 3.5 683 (refer to Annexure V for details) Total 68.5 13,371 Source: National Water Development Agency Elara Capital | 18 India Infrastructure Water Supply: Entering an Era of Organized & Integrated Utilities
Opportunity Depending on the specific situations, various combinations of private sector participation in building, operating, leasing and transferring water resources . Only 64% of India’s urban population is covered by individual water connections facilities may be considered. and stand-posts, compared with 91% in China, 86% in South Africa and 80% in Brazil National Water Policy
. USD 84bn in capex and USD 50.6bn in O&M estimated for continuous and efficient Private sector participation will be encouraged in various aspects of planning, water supply investigation, design, construction, development and management of water resources projects for diverse uses, wherever feasible. Private sector participation Triggers will help introduce corporate management in improving service efficiency and accountability to users. Depending upon specific situation, various combinations of . Rising urban population and a below par water supply situation in cities with private sector participation in building, owning, operation, leasing and transferring intermittent supplies, inadequate coverage & low pressure of water resources facilities will be considered. Karnataka State Water Policy
Sectoral water demand situation and key drivers Risk analysis of various business models
Population growth Considering the current Domestic 34 66 Increased per capita water consumption situation O&M model seems Concessions to be most effective
Expansion of the water intensive industries Built operate Leases Industry 92 like power, iron & steel, chemical is leading own approach 41 to increase in water demand BOT Approach
Domestic food grain demand increasing O&M Contracts irreversibility with increase in population Agriculture 674 606 Demand for water intensive crops like wheat, rice are increasing substantially (bn cubic mtr.) 2010 2030E delegation, of risk, level Increasing Poor water management Service Contracts
Source: 'India’s Water Future to 2025 –2050: Business as Usual Scenario and Deviations', Ernst & Young Analysis Source: “Consulting Series for the Development of a Long-Term Water and Sewer Investment and Financing Strategy” Elara Capital | 19 India Infrastructure
Environment Affordable Housing
Power T&D Ports
Elara Capital | 20 India Infrastructure Environment: End of the “Cost vs Benefit Debate”
Opportunity Expected daily generation . Sewage & Solid Waste: USD 73bn in capital expenditure and USD 44.6bn in operations & maintenance (mn liters) 124,148 . Storm Water Drains: USD 25bn in capex and USD 5bn in O&M across 99,318 India’s cities up to 2025 Triggers . Acute sanitation challenge in India with 18% of urban households defecating in the open and 94% of cities having an inadequate sewerage network Water Supply Sewage water . Less than 50% waste collection coverage in smaller cities (70-90% in major metros) with a mere 30% solid waste segregation . Less than 20% of the road network in India covered by storm water drains Water drains expenditure
MoUD formulated benchmarks for SWM (USD bn) 20.5 Proposed indicator Benchmark Household level coverage of Solid Waste Management services 100% Efficiency of collection of municipal solid waste 100% Extent of segregation of municipal solid waste 100% Extent of municipal solid waste recovered/recycled 80% 4.4 Extent of scientific disposal of municipal solid waste 100% Extent of cost recovery in solid waste management services 100% Efficiency in redressal of customer complaints 80% Existing shortage Future needs Efficiency in collection of user charges 90% Extent of processing and treatment of MSW 100% Source: Elara India Urbanization Model
Elara Capital | 21 India Infrastructure Affordable Housing: Sheltering the Bottom of the Pyramid
Opportunity Definition of affordable housing – MHUPA (2011)
. Capital expenditure of USD 115.5bn required towards providing affordable Size EMI or Rent housing across India’s cities up to 2025 . minimum of 300 sq ft super built-up area EWS Triggers . minimum of 269 sq ft (25 sq m) carpet area not exceeding 30–40% . minimum of 500 sq ft super built-up area . About 25mn households in India (35% of overall stock, 2011 census) cannot LIG of gross monthly income . maximum of 517 sq ft (48 sq m) carpet area afford housing at market prices and ~17% of these households live in slums of buyer . 600–1,200 sq ft super built-up area . An additional 130mn people expected to join the ranks of India’s urbanites MIG . maximum of 861 sq ft (80 sq m) carpet area over the next 12 years, raising this number to 33mn households Source: Guidelines for Affordable housing in partnership (Amended), MHUPA, 2011 Housing shortage scenario in Urban India Financing of projects under JNNURM
Monthly Est. no of Housing Grant Central State / ULB / Category of Cities per capita households shortage % shortage Share Parastatal Share* expenditure in mn in mn
EWS 0 - 3,300 21.8 21.8 99.9 Cities with > 4mn population 50% 50%
LIG 3,301 - 7,300 27.6 2.9 10.5 Cities with 1-4mn population 50% 50% MIG 7,301 - 14,500 16.9 0.0 0.2 Cities/Towns in NE states and J&K 90% 10% HIG 14,501 and above Total shortage 66.3 24.7 37.3 Other Cities 80% 20%
Note: EWS - Economically Weaker Sections, LIG - Lower Income Group, MIG - Medium Income Group, HIG - Higher Note: The percentage figure is on total project cost. Income Group *Including Beneficiary Contribution Source: Report of the Technical Group on estimation of Urban housing shortage Source: Modified Guidelines for Submission on BSUP, Feb 2009, MHUPA
Elara Capital | 22 India Infrastructure Power Transmission: An Era of High Density Transmission Corridor
Opportunity Deregulation and globalization across sectors in India . Development of an integrated National Grid, including strengthening of five Level of Continued support is needed after regional grids; envisaged capital expenditure of USD 63bn up to 2025 Globalization deregulation to setup a level playing field (land approvals, infrastructure discounts, tax holidays) High Auto ITES Triggers Manufacturing Infrastructure Airlines Telecom (Road/Highways) Airports . Planned generation capacity additions of 88GW and 79GW in XII and XIII Power Generation Number of years of five-year plan, respectively Power government support / reforms are needed to drive Low Transmission maturity / stability . Expansion in industrial activity, growing population, rising penetration and per capita usage Regulated Market Open / Free Market Time from De-regulation
Changing asset profile of India’s transmission sector Source: FICCI, Booz&Co
ckm: 106,804 (82,355) Substations: 184 (135) incl. GIS: 10 (Nil) Mar-14 <400kV (Mar-11) 10% 765kV (13%) 15% 400kV & 400kV & HVDC Tr. Lines Sub-stations (1%) HVDC 82% 74% (86%) 765kV <400kV (84%) 8% 11% (1%) (15%)
Source: Power Grid Corporation of India Elara Capital | 23 India Infrastructure DMIC: Links Six States to Build Mega Industrial Hub
Opportunity DMIC project snapshot
. The Delhi-Mumbai Industrial Corridor (DMIC) aims at building 24 cities (11 investment regions and 13 industrial areas) along a 1,483-km railway line with investment aggregating USD 90bn
. The corridor eyes linking business and capitals of India, passing through six provincial states
. Project funding is envisaged to be sourced from several state & central government agencies, multilateral organizations like World Bank & ADB and private investors in domestic & foreign capital markets
Triggers
. The vision for DMIC is to build state-of-the-art industrial hubs to support manufacturing & services and provide base for sustainable development while creating opportunities for inflow of long-term foreign investment
. Five-year goals for DMIC: double employment potential (14.9% CAGR), triple industrial output (24.6% CAGR) and quadruple exports from the region (31.9% CAGR) Source: DMIC Concept Paper 2007 (Refer to annexures VI & VII for details)
Elara Capital | 24 India Infrastructure Ports: Focus Back on the National Maritime Agenda
Opportunity Continuing Private Equity interest in India’s port story
. Investment worth ~USD 28bn planned under the National Maritime Agenda Target Acquirer Value (USD mn) Krishnapatnam Port (2008) 3I Group 161.0 (2010-20) for development of new ports, augmentation & mechanization of JSW Infrastructure (2010) Eton Park Capital 125.0 existing facilities, purchase of modern cargo-handling equipments and Fourcee Infrastructure (2012) General Atlantic LLC 104.0 logistics improvement Mundra Port 3I Group, GIC Real Estate 100.0 Karaikal Port (Second round) Ascent Capital 41.7 Triggers Ocean Sparkle (2012) Standard Chartered PE 41.6 Gangavaram Port (2008) Warburg Pincus 34.0 . Severe fuel shortages on the domestic front faced by India’s power sector Karaikal Port (First Round) IDFC Project Equity 32.6 Gujarat Pipavav Port IDFC 28.5 . An ever-rising need to upgrade port infrastructure and related facilities to Karaikal Port (2012) Standard Chartered PE (Mauritius) II 27.1 handle increased quantities of imports 20Cube Logistics (2013) Zephyr Peacock India 17.0 Continental Warehousing Nhava Sheva Aureos India Fund, Eplanet Venture 16.4
Source: E&Y, Grant Thornton Details of proposed investment outlay (2010-20) Phase-wise outlay Outlay by port category Nature of outlay
Other works Channel Major Phase 3 Phase 1 17% deepening Ports (2017-20) (2010-12) 7% 21% 23% 39% Connectivity 5%
Phase 2 Non- Equipment Major Berth (2012-17) 5% construction 56% Ports 61% 65%
Source: Maritime Agenda 2010-20 Elara Capital | 25 India Infrastructure
Financing USD 1.25 Trillion
Elara Capital | 26 India Infrastructure USD 4.1 Trillion Infra Spend Up to 2025, 31% in “Core” Sectors
India’s Infrastructure pie (top-down methodology) Envisaged infra investment mix (FY16-25) Core Infra Non Core Infra Sectors . Nominal GDP forecast - Assumptions on India’s growth built on a base (USD 1,250bn) (USD 2,803bn) case outlook of 14.2% CAGR (13.2% and 15.2% in the first and second Agriculture & allied activities - Agriculture & allied activities part, respectively) for a 10-year period (starting FY16E) Communication - Communication Economic services - Economic services Energy Power T&D Power Generation . Investment forecast - In consensus with Planning Commission, India’s Petroleum gross infrastructure spend is modeled to touch 10% of GDP in the long run Coal & lignite from 6% currently Non-conventional energy General services - General services . Defining “Core” Infra - Four sectors namely power (T&D), transportation, Industry & minerals - Industry & minerals Irrigation and flood control Major & medium irrigation - social services (partially) and irrigation & flood control, constituting 35% of Minor irrigation gross Central outlay for infrastructure Flood control & drainage Rural development - Rural development India’s GDP – base case growth outlook of 14.2% CAGR Science & technology - Science & technology Social Services Water supply & sanitation General & technical education Housing Sports & youth services 600 18 (INR tn) (%) Urban development Art & culture 16.0 Medical & public health, family welfare 16 400 15.0 15.0 Information, broadcasting & publicity 14.0 14.0 14.0 16.0 13.0 14 Welfare of SC, ST & OBC 13.0 Lab our & employment 200 11.7 12.0 12 Social security & welfare North-eastern areas 0 10 Transportation Roads & bridges Shipping Railways Civil aviation FY15E FY17E FY19E FY21E FY23E FY25E Ports & lighthouses Other transport services India GDP (LHS) Implied gr (RHS) Inland water transport
Source: Ministry of Finance, Elara Securities Estimate Source: CMIE, Elara Securities Research Elara Capital | 27 India Infrastructure Private Sector Unlikely to Make a Big Comeback in XII Plan
Bottom-up funding methodology Contrary to planned private spending at 4.1-5.3% of GDP Elara Securities estimates Envisaged infra spend (USD bn) . An aggregate investment buildup points to the private sector spending Public Private Total Public Private Total bottoming out in FY15 FY10 4.9 2.6 7.5 44 23 67 . Over FY15-17 while estimates point to an acceleration in private sector spend FY11 5.0 2.9 7.9 48 28 77 (led by a stable government and repairing balance sheets), it is not FY12 5.1 3.3 8.4 53 35 88 expected to surpass 3% of GDP FY13 4.7 3.2 7.9 79 55 133 FY14 4.8 3.6 8.4 90 68 158 . Consequently, the onus of reviving India’s truncated capex cycle lies with the FY15E 3.7 2.3 6.0 78 47 126 central government – 60% overall in the XII plan. Over the course of FY16E 4.0 2.5 6.5 94 59 153 XIII plan, it is poised to decline by ~500bp FY17E 4.3 2.8 7.1 115 73 188
Assumptions on funding channelization (FY16-25E) Source: Planning Commission, Elara Securities Estimate Public sector – 56%
Internal generation – Growth in line with economic revival Sources of funds for envisaged infra spend (FY16-25E)
Borrowings – Emphasis on borrowing cost reduction Commercial Divestment of PSUs – Up to 49% in listed and potential listings banks 28% Private sector – 44%
Commercial banks – Build in average loan book growth of 15.5% NBFCs Budgetary 2% support Equity/FDI – Resurrection of balance sheets, broad-basing of FDI Insurance 56% Insurance – Led by the FDI hike, build in an average AUM growth of 18% 5% ECBs ECBs – In line with GDP growth assumption (14% CAGR) 4% Equity/FDI 5% NBFCs - Build in average loan book growth of 22% Source: CMIE, RBI, Elara Securities Research Elara Capital | 28 India Infrastructure Raising Public Finance: Asset Sales the Only Mantra
. An incremental public sector funding need of USD 110bn until FY20E for Details of top 20 unlisted, profit making public entities the infrastructure sector; as the state support is expected to be just USD Company Name Sector Profit (USD mn) 6bn, Government of India will have to shoulder the entire responsibility South East. Coal Mining & Mineral products 717 . Divestment of stake to 51% in case of listed entities and a public offering Mahanadi Coalfield Mining & Mineral products 702 of at least 20 unlisted, profit making entities over the next five years can ONGC Videsh Crude Oil & Natural Gas 653 comfortably enable the Centre to bridge this financing gap Hind. Aeronautics Capital Goods-Non Electrical Equipment 499 Northern Coalfield Mining & Mineral products 447 Fund raising prospects from listed public entities General Insurance Insurance 391
(USD bn) Nuclear Power Corp Power Generation & Distribution 350 Central Coalfield Mining & Mineral products 314 No. of listed companies (nos.) 102 N A B A R D Banks 304 Current market cap (as on 05 August 2014) 295 Eastern Coalfield Mining & Mineral products 276 Average stake (%) 70 Bharat Coking Mining & Mineral products 250 Room for further divestment (%) 19 St. Bank of Hyderabad Banks 208 Additional room to raise 56 Guj. State Petro. Crude Oil & Natural Gas 141 Fund raising prospects from unlisted public entities New India Assurance Insurance 141 E X I M Bank Banks 124 (USD bn) Airport Authority Miscellaneous 123 No. of unlisted companies (nos.) 20 IFFCO Fertilizers 121 Total profitability (FY13) 6 Natl. Insurance Insurance 116 Average multiple (x) 15 Oriental Insurance Insurance 89 Room to divest (%) 49 THDC India Power Generation & Distribution 89 Additional room to raise 45 Source: Capitaline, Elara Securities Estimate
Elara Capital | 29 India Infrastructure Private Finance: Banks Dominance to Continue
Commercial banks Private funding avenue (USD bn)
. Recently announced measures in the Union Budget (flexible structuring to Equity/FDI Banks NBFCs Insurance ECBs Total absorb adverse contingencies and minimum regulatory pre-emption while FY15E 5 20 3 6 9 43 raising long-term funds) to further accelerate infrastructure lending by FY16E 7 39 3 8 9 66 domestic banks FY17E 8 48 4 9 10 80 Equity/FDI FY18E 11 61 5 11 11 98 FY19E 13 73 6 13 12 117 . A large part of equity infusion relies on inflow of foreign money into domestic FY20E 17 88 7 15 13 139 investment institutions, which have not shown significant interest of late FY21E 20 113 9 23 14 179 in taking equity in infra projects FY22E 24 135 11 24 16 210 Insurance Envisaged private sector funding mix (FY16-25E) . Life insurance companies are required to invest at least 15% of their fund ECBs in infrastructure and housing Equity/FDI 8% 11% . With the hike in FDI to 49% in the insurance sector, AUM of life insurers (five-year CAGR of 16.3%) and the potential for infrastructure lending Insurance should get a boost 12% NBFCs NBFCs 5% Commercial . Historically, NBFC lending has primarily catered to demand from power, banks telecom and road sectors. The major IFCs which contribute ~90% lending 64% are PFC, REC, IDFC, IIFCL, L&T Infrastructure Finance and IFCI Source: CMIE, CEIC, RBI, Elara Securities Research
Elara Capital | 30 India Infrastructure
Company Evaluation Matrix
Elara Capital | 31 India Infrastructure The Biggest Beneficiaries
An investment need of USD 1.25 trillion in India’s “Core Infrastructure” until 2025
Segment Sub-segment Capex (USD bn) Key beneficiaries National highways 21 IRB Infra Developers, Ashoka Buildcon Roads Urban roads 328 J Kumar Infra, MBL Infra Total 349
Indian railways 126 IL&FS Engineering, ITD Cementation Railways Mass rapid transit 135 L&T, IL&FS Transportation Total 261
Urban water supply 135 Pratibha Industries, SPML Infra Water supply National river linking 100 HCC, Dredging Corp Total 235
Sewage & Solid waste 118 Va Tech Wabag, Praj Industries Environment Storm water drains 30 Supreme Infra, Unity Infra Total 148
Housing Affordable housing 116 NBCC, Simplex Infrastructures Power T&D 63 Techno Electric, Jyoti Structures Industrial corridors DMIC 54 Container Corp, Gateway Distriparks Ports Maritime Agenda 2010-20 23 Adani Ports & SEZ, Gujarat Pipavav Grand total 1,248
Source: Elara Securities Estimate Elara Capital | 32 India Infrastructure Construction & Infrastructure – Large and Mid Caps
Company Market cap (INR bn) Key parameters Consensus estimates (Consol FY16E) Bloomberg Current Peak Diff Segmental Consol PAT Revenue PAT FY16E Name Code M. cap* M. cap (%) entrenchment CAGR (%) (INR mn) (INR mn) P/E (x) Larsen & Toubro LT IN 1,380.5 1,625.0 (17.7) 8 22.6 1,139,696 64,852 21.3 JP Associates JPA IN 152.2 562.1 (269.3) 3 10.0 255,818 9,219 16.5 GMR Infra GMRI IN 124.9 459.9 (268.2) 4 3.1 131,535 (2,731) n. a. IRB Infra Developers IRB IN 88.5 102.5 (15.8) 3 71.4 53,258 6,075 14.6 IL&FS Transportation ILFT IN 56.7 70.3 (24.0) 3 47.0 80,087 5,597 10.1 NBCC NBCC IN 55.2 38.4 30.4 5 34.2 59,520 3,280 16.8 Jaypee Infratech JPIN IN 49.2 130.4 (165.2) 3 27.0 37,512 5,586 8.8 Va Tech Wabag VATW IN 39.1 36.8 5.9 3 62.0 32,378 1,790 21.8 Sadbhav Engineering SADE IN 30.6 31.6 (3.3) 5 (18.6) 43,899 1,481 20.7 Hindustan Construction HCC IN 25.7 67.9 (164.3) 6 n. a. 48,192 185 n. a. GVK Power Infra GVKP IN 23.4 120.1 (413.7) 4 n. a. 51,102 (2,664) n. a. Ashoka Buildcon ASBL IN 21.0 23.7 (13.0) 3 42.9 26,221 1,293 16.2 NCC NJCC IN 18.4 83.9 (356.9) 7 (9.3) 82,030 875 21.0 Simplex Infra SINF IN 14.8 34.0 (129.4) 7 (20.0) 68,908 1,063 14.0 Punj Lloyd PUNJ IN 13.6 174.4 (1,178.9) 7 (19.5) 110,018 500 27.3 J. Kumar Infra JKIL IN 10.2 8.8 13.4 5 56.8 17,370 1,248 8.2 Sector average (excl. L&T) 5 22.1 16.3
Recommend “Buy”; structurally positioned to benefit from the ensuing sectoral opportunity, attractive valuations Recommend “Sell”; Strong sectoral positioning, current valuations though expensive
Note: Market Cap as on 5 August 2014; Source: Elara Securities Estimate Elara Capital | 33 India Infrastructure
Construction & Infrastructure – Small & Micro Caps
Company Market cap (INR bn) Key parameters Consensus estimates (Consol FY16E) Bloomberg Current Peak Diff Segmental Consol PAT Revenue PAT FY16E Name Code M. cap* M. cap (%) entrenchment CAGR (%) (INR mn) (INR mn) P/E (x) Gammon Infra GISP IN 9.3 24.6 (164.2) 3 (0.1) n. a. n. a. n. a. Ahluwalia Contracts AHLU IN 9.0 22.4 (148.5) 4 n. a. 13,829 436 20.7 Patel Engineering PEC IN 8.4 60.8 (620.9) 6 9.7 31,247 408 20.7 Supreme Infra SPII IN 8.0 8.7 (8.4) 6 38.2 27,595 1,337 6.0 KNR Construction KNRC IN 6.9 6.5 5.4 4 23.9 9,170 498 13.8 IVRCL IVRC IN 6.5 75.6 (1,058.5) 7 n. a. 54,997 (2,618) n. a. Noida Toll Bridge NTB IN 6.0 15.1 (154.6) 2 50.7 1,382 662 9.0 Pratibha Industries PRIL IN 5.3 7.6 (43.8) 5 41.4 31,541 1,094 4.8 IL&FS Engineering IECC IN 5.3 63.2 (1,091.9) 8 n. a. n. a. n. a. n. a. MBL Infra MBL IN 5.3 5.1 4.1 4 30.9 21,940 946 5.6 Atlanta ATIF IN 5.1 10.5 (105.5) 3 n. a. n. a. n. a. n. a. Gayatri Projects GAYP IN 4.6 6.8 (46.6) 6 (12.2) 26,592 1,157 4.0 Gammon India GMON IN 4.4 67.3 (1,429.9) 7 n. a. 50,165 (1,251) n. a. ITD Cementation ITCE IN 4.1 8.6 (108.6) 5 2.4 16,360 310 13.3 JMC Projects JMCP IN 3.8 9.8 (156.9) 6 14.8 30,017 352 10.9 Ramky Infra RMKY IN 3.8 22.2 (489.1) 6 25.4 27,737 (521) n. a. Era Infra Engineering ERIE IN 3.6 43.9 (1,116.1) 6 23.7 n. a. n. a. n. a. Madhucon Projects MDHPJ IN 3.0 29.7 (880.3) 5 n. a. n. a. n. a. n. a. SPML Infra SPML IN 2.5 17.7 (611.5) 5 29.5 n. a. n. a. n. a. Unity Infra UIP IN 2.3 14.1 (506.4) 6 17.8 20,366 266 8.7 B L Kashyap KASH IN 2.0 45.1 (2,190.3) 2 (6.9) n. a. n. a. n. a. Sector Average 5 19.3 10.7 Recommend “Buy”; structurally positioned to benefit from the ensuing sectoral opportunity, attractive valuations Recommend “Sell”; Strong sectoral positioning, current valuations though expensive
Note: Market Cap as on 5 August 2014; Source: Elara Securities Estimate Elara Capital | 34 India Infrastructure Engineering
Company Market cap (INR bn) Key parameters Consensus estimates (Consol FY16E) Bloomberg Current Peak Diff Consol Rev Consol PAT Revenue PAT FY16E Name code M. cap* M. cap (%) CAGR (%) CAGR (%) (INR mn) (INR mn) P/E (x) AIA Engineering AIAE IN 71.9 77.4 (7.7) 25.0 29.3 28,686 4,314 16.7 Engineers India ENGR IN 27.8 166.9 (499.7) 7.8 23.9 24,768 6,505 4.3 KEC International KECI IN 27.7 47.4 (71.3) 18.2 (10.6) 97,081 2,543 10.9 Kalpataru Power Transmission KPP IN 26.4 62.6 (137.2) 25.0 (3.2) 88,269 2,137 12.3 ISGEC Heavy IGSEC IN 17.4 17.8 (2.6) 18.0 24.1 n. a. n. a. n. a. Texmaco Rail TXMRE IN 15.9 22.7 (42.6) (6.0) (13.7) 9,082 1,056 15.1 Techno Electric TEEC IN 15.8 25.4 (60.5) (0.8) (7.0) 8,831 1,487 10.6 Dredging Corp DCIL IN 12.5 37.3 (199.6) 2.2 (20.9) n. a. n. a. n. a. Praj Industries PRJ IN 10.4 49.3 (374.3) 26.2 25.9 11,726 867 12.0 Sanghvi Movers SGM IN 7.1 12.9 (80.6) 24.9 22.1 3,213 360 19.8 Elecon Engineering ELCN IN 5.9 31.0 (422.9) 15.2 17.4 17,236 786 7.5 Titagarh Wagons TWL IN 4.5 15.6 (246.9) 7.1 (17.1) 6,700 435 10.3 Jyoti Structures JYS IN 3.8 25.1 (563.3) 28.8 26.4 36,690 849 4.5 Walchandnagar Industries WI IN 3.7 34.5 (842.8) 15.1 n. a. n. a. n. a. n. a. Action Construction ACCE IN 2.9 11.1 (284.0) 13.5 (15.0) 9,687 266 10.9 TRF TRF IN 2.9 12.3 (331.8) 4.6 n. a. n. a. n. a. n. a. Mcnally Bharat MCNA IN 2.9 11.8 (314.3) 33.6 n. a. n. a. n. a. n. a. Kalindee Rail KRNE IN 1.5 6.1 (321.8) 24.0 23.4 n. a. n. a. n. a. Sector Average 15.7 7.0 11.2 Recommend “Buy”; structurally positioned to benefit from the ensuing sectoral opportunity, attractive valuations
Note: Market Cap as on 5 August 2014; Source: Elara Securities Estimate Elara Capital | 35 India Infrastructure Logistics
Company Market cap (INR bn) Key parameters Consensus estimates (Consol FY16E)
Bloomberg Current Peak Diff Consol Rev Consol PAT Revenue PAT FY16E Name code M. cap* M. cap (%) CAGR (%) CAGR (%) (INR mn) (INR mn) P/E (x)
Container Corp CCRI IN 250.2 233.7 6.6 6.4 4.8 66,279 12,758 19.6
Blue Dart BDE IN 88.1 101.9 (15.8) 19.3 21.9 25,555 1,956 45.0
Allcargo Logistics AGLL IN 31.8 27.9 12.3 46.5 19.4 53,390 2,033 15.6
Gateway Distriparks GDPL IN 25.6 26.7 (4.3) 33.4 17.6 13,955 1,853 13.8
Transport Corp TRPC IN 14.9 14.6 2.1 11.4 15.7 28,377 1,121 13.3
Gati GTIC IN 11.1 14.3 (28.6) 15.7 (6.9) n. a. n. a. n. a.
Sical Logistics SICL IN 5.9 16.6 (180.8) (4.1) (2.0) n. a. n. a. n. a.
Arshiya ARSL IN 2.0 22.2 (994.2) 35.2 n. a. n. a. n. a. n. a.
Sector Average 20.5 10.1 21.5
Recommend “Buy”; structurally positioned to benefit from the ensuing sectoral opportunity, attractive valuations
Elara Capital | 36 India Infrastructure Ports & Shipping
Company Market cap (INR bn) Key parameters Consensus estimates (Consol FY16E)
Bloomberg Current Peak Diff Consol Rev Consol PAT Revenue PAT FY16E Name code M. cap* M. cap (%) CAGR (%) CAGR (%) (INR mn) (INR mn) P/E (x)
Adani Ports & SEZ ADSEZ IN 552.1 581.1 (5.2) 35.4 42.8 68,205 28,338 19.5
Gujarat Pipavav GPPV IN 70.7 61.0 13.7 29.9 83.3 7,649 3,752 18.8
GE Shipping GESCO IN 54.9 85.6 (56.0) 9.0 (0.9) 34,046 6,797 8.1
Pipavav Defence PIPV IN 38.9 77.4 (98.7) 155.0 59.8 28,570 127 n. a.
Essar Ports ESRS IN 38.5 79.9 (107.8) 7.9 9.7 22,048 4,863 7.9
BEML Ltd BEML IN 27.8 75.0 (170.2) 5.9 n. a. 38,044 1,707 16.3
SCI SCI IN 26.9 91.3 (239.0) 4.1 n. a. 51,649 369 73.1
Global Offshore GWOS IN 13.5 9.2 31.9 27.1 18.8 n. a. n. a. n. a.
ABG Shipyard ABGS IN 12.8 50.9 (297.0) 21.2 1.9 n. a. n. a. n. a.
Mercator MRLN IN 8.4 39.8 (377.2) 24.0 n. a. n. a. n. a. n. a.
GOL Offshore GOFF IN 4.4 42.0 (846.6) 14.3 n. a. n. a. n. a. n. a.
Essar Shipping ESL IN 4.3 7.1 (62.9) 56.0 3.7 n. a. n. a. n. a.
Sector Average 32.5 27.4 23.9
Recommend “Buy”; structurally positioned to benefit from the ensuing sectoral opportunity, attractive valuations
Note: Market Cap as on 5 August 2014; Source: Elara Securities Estimate Elara Capital | 37 India Infrastructure
Annexure
Elara Capital | 38 India Infrastructure Annexure I Detailing New Government’s Infra Vision
Core Infrastructure Urbanization
. Hasten work on the DFC and other Freight corridors as well as the . Bring urban service delivery – roads, potable water, education, concurrent industrial corridors. In parallel, intensify work again on health, supply chain, electricity, broadband – to rural India, under the completing national highway projects idea of “Rurban”
. Creation of world class ports, well connected with roads and rail to the . Major thrust on urbanization centered around Transportation & hinterland. Air cargo facilities will be deepened. Focus on a National Housing. Initiate work on 100 new specialized cities – based on logistics network for streamlined movement of goods concept of new urbanism's sustainability and walk to work. Development of existing urban clusters providing best in class infrastructure & services . Rail networks to connect hinterland with ports to allow uninterrupted passage of goods as well as Agri-rail networks. Diamond quadrilateral . A massive housing program aimed at “Housing for All” by 2022 projects of HST (High Speed Trains) . Approach to integrated habitat development - building on concepts . Creation of a National Gas-Grid plan to make gas available for like Twin cities and Satellite towns households and industry Tourism . Set up a National Optical-Fibre network, right up to the villages . Creation of 50 tourist circuits on concepts of affordability and build on . Inter-linking of rivers on the basis of feasibility reports themes – cultural & spiritual, desert, heritage, archaeological, Himalayan
Elara Capital | 39 India Infrastructure Annexure II
Roads & Highways - NHDP and other NHAI projects (status: 31 March 2014) NHDP Port Total by Phase Phase Phase Phase NHDP Others GQ NS-EW Phase V Connectivity NHAI III IV VI VII Total Total Length (km) 5,846 7,142 12,109 14,799 6,500 1,000 700 48,096 380 2,142 50,618 Already four-laned (km) 5,846 6,282 6,098 483 1,819 - 22 20,550 377 1,438 22,365 % completed 100.0 88.0 50.4 3.3 28.0 - 3.1 42.7 99.2 67.1 44.2
Under implementation (km) - 443 4,326 4,575 2,262 - 19 11,625 3 427 12,055 Contracts under implementation (no) - 46 86 39 28 - 2 201 1 10 212 % under implementation - 6.2 35.7 30.9 34.8 - 2.7 24.2 0.8 19.9 23.8
Balance length for award (km) - 417 1,685 9,741 2,419 1,000 659 15,921 - 277 16,198 % balance for award - 5.8 13.9 65.8 37.2 100.0 94.1 33.1 - 12.9 32.0
NHAI’s project cost estimates for balance length for award – INR 1,255bn (~USD 21bn) NS-EW – INR 16.9bn Phase III – INR 112.2bn Phase IV – INR 648.6bn Phase V – INR 153.4bn Phase VI – INR 166.8bn Phase VII – INR 157bn
Source: NHAI, Elara Securities Research
Elara Capital | 40 India Infrastructure Annexure III
Indian Railways - Total investment requirement for modernization (until 2020)
6,000 5,600 (INR bn) 970 5,000 2,040 4,000
3,000 13 5 1,100 170 2,000
725 1,000 330 250 0 Tracks & Signaling Rolling Stock Station & Logistics ICT initiatives Indigenous Dedicated Other PPP Total for Bridges Systems Terminals Parks (PPP) Development Freight initiatives Modernization (PPP) Corridors (Part PPP)
Source: Indian Railways, Elara Securities Research
Elara Capital | 41 India Infrastructure Annexure IV
Indian Railways - Metro rail projects in India
City System Start of System Length (km) Notes operations In Planned In operation progress Kolkata Kolkata Metro 24-Oct-84 28.4 90.0 First mass rapid transit system in India and the 17th Zone of Indian Railways Chennai Chennai MRTS 1-Nov-95 19.3 It is planned for the MRTS to be taken over by the Chennai Metro Rail Limited once the Chennai Metro becomes operational Delhi Delhi Metro 24-Dec-02 192.7 India's first modern rapid transit system Bangalore Namma Metro 20-Oct-11 16.6 114.4 42.3 First metro in India to introduce Wi-Fi onboard trains Gurgaon Rapid Metro Rail Gurgaon 14-Nov-13 5.1 India's first fully privately financed metro. Also the first metro system in the country to auction naming rights for its stations Jaipur Jaipur Metro Sep-2014 32.5 Under construction Chennai Chennai Metro Oct-2014 45.1 Under construction Mumbai Mumbai Metro 8-Jun-14 11.4 146.5 India's first PPP metro project in which all the three phases were given to a private player Navi Mumbai Navi Mumbai Metro 2016 106.4 Under construction Kochi Kochi Metro 2016 25.6 Kochi is the first Tier-II city in India to be granted a metro under the Central Government's plan Lucknow Lucknow Metro 2017 36.0 Under construction Ahmedabad & Metro Link Express Gandhinagar and 2017 83.0 In planning stage Gandhinagar Ahmedabad (MEGA)
Source: Various Publication, Elara Securities Research Elara Capital | 42 India Infrastructure
Annexure IV (Continued…)
Indian Railways - Metro rail projects in India City System Start of System Length (km) Notes operations In Planned In operation progress Hyderabad Hyderabad Metro Mar-2015 71.6 Under construction Bhopal Bhopal Metro In planning stage Chandigarh Chandigarh Metro 2018 37.5 In planning stage Indore Indore Metro 2020 30.0 In planning stage Kanpur Kanpur Metro 2018 84.0 In planning stage Ludhiana Ludhiana Metro 2017–18 In planning stage Nagpur Nagpur Metro 39.8 In planning stage Nasik Greater Nasik Metro Proposed Metro line which will connect Igatpuri, Deolali, Nasik Road, Nasik Central and Ojhar Airport Patna Patna Metro 2016 60.0 In planning stage Pune Pune Metro 2018 82.0 In planning stage Surat Surat Metro 2018 In planning stage Vizag Vizag Metro In planning stage Mumbai Western railway elevated corridor 2020 63.3 In planning stage Guwahati Guwahati Metro 44.2 In planning stage National Capital National Capital Region Metro 2021 381.0 The National Capital Region Transport Corporation Limited (NCRTC) Region is proposed as the implementing agency for taking up the RRTS project in the NCR
Source: Various Publication, Elara Securities Research Elara Capital | 43 India Infrastructure Annexure V National Perspective Plan: Huge scope demands phase-wise implementation Benefit rollout plan Investment rollout plan
Irrigation benefit Net power generation With MSTG Link
(lac hectare) (MW) 1,000 911 (INR bn) 756 With With With With 750 697 599 MSTG Link JTF Link MSTG Link JTF Link 529 500 340 350 Year 1 - - - - 250 129 110 Year 2 - - - - 22 0 Year 3 7.3 7.3 - - Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 4 24.1 24.1 72 72
Year 5 36.5 36.5 72 72 With JTF Link
Year 6 48.5 53.1 42 42 1,000 892 (INR bn) 746 Year 7 81.7 90.9 1,944 2,000 750 677 566 542 Year 8 169.8 174.2 1,594 1,650 500 377 293 Year 9 266.8 266.3 20,850 15,619 250 119 110 22 Year 10 299.7 299.2 24,802 19,571 0 Note: MSTG link Manas – Sankosh – Tista - Ganga Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
JTF link Jogigopa-Tista-Farakka Note: At 2003-04 prices
Source: Task Force on Interlinking of Rivers Programme Source: Task Force on Interlinking of Rivers Programme
Elara Capital | 44 India Infrastructure Annexure VI Delhi Mumbai Industrial Corridor = 2x employment + 3x industrial output + 4x exports
Haryana, Rajasthan & Gujarat to be meaningfully affected Investment requirement
Area under Total area of Area of state Area DMIC states Category USD bn PIA (sq km) affected state (sq km) under PIA (%) (hectares) Delhi 1,483 1,483 100 Haryana 26,410 44,212 60 Manufacturing/ Industrial Processing Area/ SEZs 55,000 33.8 Rajasthan 198,849 342,236 58 Agro/Food Processing Area 5,000 2.8 Gujarat 120,706 196,024 62 Maharashtra 56,760 307,713 18 IT/ITES Hubs 2,000 8.8 UT of D&N Haveli 491 491 100 Knowledge Cities 5,000 7.5 UT of Diu & Daman 122 122 100 Uttar Pradesh 28,265 238,566 12 Logistics Infrastructure 8,500 3.8 Madhya Pradesh 2,866 308,144 1 Integrated Townships/ Real Estate Development 16,500 15.0 Uttaranchal 533 53,566 1 Total of states 436,486 1,492,557 29.2 Area and other Infrastructure 8,000 Sector-wise employment generation Length of Feeder Roads 4000 km 2.0 Employment Length of Feeder Rail Links 2500 km 1.9
Manufacturing/ Industrial Processing Area 2,000,000 Ports (3 Greenfield Ports & Augmentation of 2 Ports) 3.0 Employment in agro/food processing 200,000 Airports (Augmentation of Five Airports, 2 Airstrips) 1.6 IT/ITES/Biotech Hubs 600,000 Power Plants 10,000 MW 10.0 Knowledge Cities 100,000 Total 100,000 90.0 Logistics Infrastructure 100,000
Total 3,000,000 Source: DMIC Concept Paper 2007
Elara Capital | 45 India Infrastructure Annexure VII
Proposed 20 industrial nodes in Delhi Mumbai Industrial Corridor
State Proposed Location Category of Region State Proposed Location Category of Region
Uttar Pradesh Dadri-Noida-Ghaziabad Investment Region Rajasthan Pali-Marwar Industrial Area
Uttar Pradesh Meerut-Muzaffarnagar Industrial Area Gujarat Palanpur-Sidhpur-Mahesana Industrial Area
Haryana Faridabad-Palwal Industrial Area Gujarat Ahmedabad-Dholera Investment Region
Haryana Rewari-Hissar Industrial Area Gujarat Vadodara-Ankleshwar Industrial Area
Haryana Kundli-Sonepat Investment Region Gujarat Bharuch-Dahej Investment Region
Haryana Manesar-Bawal Investment Region Gujarat Surat-Navsari Industrial Area
Rajasthan Kushkhera-Bhiwadi-Neemrana Investment Region Gujarat Valsad-Umbergaon Industrial Area
Rajasthan Jaipur-Dausa Industrial Area Mahrashtra Nashik-Sinnar Investment Region
Rajasthan Ajmer-Kishangarh Industrial Area Mahrashtra Pune-Khed Industrial Area
Rajasthan Rajsamand-Bhilwara Industrial Area Mahrashtra Alewadi/ Dighi Port Industrial Area
Nodes for Phase-1 Implementation
Source: DMIC Concept Paper 2007
Elara Capital | 46 India Infrastructure Annexure VIII USD 4.1 trillion infra spend up to 2025, 31% in “Core” sectors
Infra spend mix as a % of GDP Planning Commission estimates Elara Securities estimates Envisaged infra spend (USD bn) Public Private Total Public Private Total Public Private Total FY10 4.9 2.6 7.5 4.9 2.6 7.5 44 23 67 FY11 5.0 2.9 7.9 5.0 2.9 7.9 48 28 77 FY12 5.1 3.3 8.4 5.1 3.3 8.4 53 35 88 FY13 4.7 3.2 7.9 4.7 3.2 7.9 79 55 133 FY14 4.8 3.6 8.4 4.8 3.6 8.4 90 68 158 FY15E 4.8 4.1 8.9 3.7 2.3 6.0 78 47 126 FY16E 5.0 4.6 9.6 4.0 2.5 6.5 94 59 153 FY17E 5.1 5.3 10.4 4.3 2.8 7.1 115 73 188 FY18E 4.5 3.0 7.5 136 90 226 FY19E 4.7 3.3 8.0 161 113 275 FY20E Contrary to planned private 4.8 3.5 8.3 188 137 325 FY21E spending, expect a central 5.0 3.8 8.8 223 170 393 FY22E government led revival of India’s 5.2 4.0 9.2 267 205 472 truncated capex cycle FY23E 5.3 4.2 9.5 313 248 561 FY24E 5.4 4.3 9.7 370 295 664 FY25E 5.5 4.5 10.0 437 358 795
Source: Planning Commission, Elara Securities Estimate
Elara Capital | 47 India Infrastructure Disclosures & Confidentiality for non U.S. Investors The Note is based on our estimates and is being provided to you (herein referred to as the “Recipient”) only for information purposes. The sole purpose of this Note is to provide preliminary information on the business activities of the company and the projected financial statements in order to assist the recipient in understanding / evaluating the Proposal. Nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved) and should consult its own advisors to determine the merits and risks of such an investment. 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Elara Capital | 48 India Infrastructure
Disclaimer for U.S. Investors
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Elara Capital | 49 India Infrastructure
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