AVENDUS INFRASIGHT DECEMBER 2011 Dear Reader, CONTENTS Page Summary 1 Indian infrastructure sector saw M&A transactions aggregate to Key Performance Indicators 2 USD1.2bn over the last quarter with the USD203.9mn investment in Editorial: Indian Ports ‐ Calling ReNew Wind Power by Goldman Sachs being the highlight. Outbound 3 International Players deal activity was mostly in the oil & gas and mining sectors including stake acquisition in Carrizo Oil & Gas by GAIL India and the takeover of Coal Market Snapshot 14 Mine Concession by Mercator Lines in Indonesia. Transactions Snapshot 17 Newsline 19 In this second edition of Avendus Infrasight, we present to you an in‐ Avendus Power Index 27 depth look at the participation of global players in Indian ports sector. Abbreviations 28 India has witnessed over 9% year‐on‐year traffic growth at its ports over the last decade. With capacity growth lagging the traffic growth, overcrowding is already occurring with vessels jostling for berths. Cargo traffic is set to explode further with significant volume drivers such as coal imports and containerized cargo to come into play. With 90% of India’s trade happening through ports, there exists a pent up demand for new and improved port infrastructure. Over 80% of the investment in ports is projected to come from the private sector over the next few years. Disclaimer: This report is not an advice/ offer/solicitation for an offer to buy and/or sell any securities in any Surprisingly, though private participation has picked up in ports over the jurisdiction. We are not soliciting any action based on this last decade, participation by international players has been limited mostly material. Recipients of this report should conduct their own investigation and analysis including that of the information to container terminal operations. However, even their limited provided. This report is intended to provide general participation has yielded better operating efficiencies. With large number information on a particular subject or subjects and is not of global port operators scouting for investment opportunities, their an exhaustive treatment of such subject(s). This report has been prepared on the basis of information obtained from participation in India could help transform Indian ports into world class publicly available, accessible resources. Company has not facilities, while India offers them an attractive investment opportunity. independently verified all the information given in this report. Accordingly, no representation or warranty, Given the dynamics influencing the sector, it is only a matter of time express, implied or statutory, is made as to accuracy, before this segment of Indian infrastructure sees increased participation completeness or fairness of the information and opinion contained in this report. 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AVENDUS INFRASIGHT Page 1 KEY PERFORMANCE INDICATORS AIRPORTS Air Passenger Traffic (Mn) Air Cargo Volume ('000 Ton) 8 35% 60 30% 28.2% 50 25.6 24.3 23.3 20% 6 1.2 20.0 21.1 1.3 25% 40 22.4 18.2 1.1 1.1 1.1 1.2 10% 4 1.1 18.8% 30 22.5% (1.7%) 21.2% 0% 3.2% 12.9% 17.7% 11.8% 15% 20 1.8% (12.2%) 2 15.1% (3.1%) (2.5%) 10 ‐10% 3.9 4.8 4.9 4.8 5.4 5.0 4.5 33.5 29.6 29.9 32.2 29.2 31.4 30.9 0 5% 0 ‐20% Sep‐10 Nov‐10 Jan‐11 Mar‐11 May‐11 Jul‐11 Sep‐11 Sep‐10 Nov‐10 Jan‐11 Mar‐11 May‐11 Jul‐11 Sep‐11 Domestic International YoY Growth% (RHS) Domestic International YoY Growth% (RHS) Source: DGCA Source: DGCA PORTS Major Ports Freight Traffic (MT) ‐ Monthly Major Ports Freight Traffic (MT) ‐ Annual 55 20% 650 630 14% 51 50 50 49 12% 600 10% 47 561 570 45 44 10.5% 45 42 4% 550 531 6% 7.0% 3.0% 5.4% 3.8% 4.5% 5.7% 40 ‐4% 500 2% (7.2%) (7.1%) 2.2% 1.6% 35 ‐12% 450 ‐2% Oct‐10 Dec‐10 Feb‐11 Apr‐11 Jun‐11 Aug‐11 Oct‐11 FY09 FY10 FY11 FY12E Cargo Traffic YoY Growth% (RHS) Cargo Traffic YoY Growth% (RHS) Source: Indian Ports Association Source: Indian Ports Association POWER BU Power Generation %p.a. MU Traded Volume and Price INR/Unit 100 15% 8,000 7,451 8 71 73 74 71 67 66 71 75 6,000 5,304 5,513 10% 4,622 4,526 6 3,776 4,063 50 4.8 9.4% 4,000 4.2 5.4 8.3% 4.0 4.0 3.8 3.9 7.2% 7.9% 5% 4 25 6.4% 2,000 4.0 4.2 4.8% 5.4% 2.8 2.5 3.5 2.8 2.9 0 0% 0 2 Oct‐10 Dec‐10 Feb‐11 Apr‐11 Jun‐11 Aug‐11 Oct‐11 Oct‐10 Dec‐10 Feb‐11 Apr‐11 Jun‐11 Aug‐11 Oct‐11 Power Generation YoY Growth% (RHS) Exchange Volume Bilateral Volume Bilateral Price (RHS) Exchange Price (RHS) Source: Central Electricity Authority Source: Central Electricity Regulatory Commission ROADS Project LOA Awarded by NHAI NHDP: Projects Awarded and Completed INR Bn Km Km 160 151 3,000 8,000 7,300 120 2,250 6,000 5,059 78 3,360 80 1,500 4,000 2,693 47 1,697 2,205 2,500 1,784 40 26 750 2,000 643 670 779 0 378 0 0 Q4‐FY11 Q1‐FY12 Q2‐FY12 Till Oct‐11 FY09 FY10 FY11 FY12E Project Cost Length (RHS) Length Awarded Length Completed Source: National Highway Authority of India Source: Ministry of Road Transport & Highways AVENDUS INFRASIGHT Page 2 INDIAN PORTS – CALLING INTERNATIONAL PLAYERS INTRODUCTION Trade in any commodity between regions is driven by the demand‐supply imbalance and is influenced by the policy framework governing the markets and the infrastructure supporting the trade process. While the current global economic conditions do pose the risk of a second round of economic downturn, the long term view on global trade remains positive, primarily driven by the emerging markets of India and China. Growth in international trade has forced the emerging markets to concentrate more on the improvement of supporting infrastructure ‐ seaports, roads and airports. Considering that over 80% (by volume) of world trade is carried out through the international shipping industry, corresponding figure for India being 90%, there is little doubt that development of road and airport infrastructure without adequate investments in seaports would not contribute significantly to the economy of a nation. Trade growth of 18.8% CAGR and port traffic growth of 9.7% CAGR in India over FY01‐10, coupled with under‐investment in seaport infrastructure, has led to high capacity constraint at Indian ports today. With port traffic projected to grow to more than 2,495MT by FY20E from 892MT in FY11, over INR 2,800Bn of investment is envisaged in the Indian seaport infrastructure over the next decade. Given the huge quantum of investment required in the sector and the constrained financing capability of Government, private players would need to play a major role in the development of the sector. Indian seaport infrastructure has witnessed increased private participation over the last few years but overall the ports continue to under‐perform when compared with the leading ports of the world. Global port operators, with the strong know‐how of port operations, could hold the key to bringing about efficiencies in Indian port operations. Given that there has been a limited participation of global players in India’s bulk cargo port operations till now, but even this limited participation has brought about improvements in operational efficiency, increased participation of Global Port Operators could act as a catalyst for transformation of Indian ports into world class facilities. India offers strong trade growth prospects to international players and in‐turn is presenting an opportunity to participate in developing a world class seaport infrastructure in India. INDIA AT THE FOREFRONT OF GLOBAL TRADE Weaknesses in major developed economies continue to prolong the global economic recovery from the 2008 financial crisis. However, in contrast with the continuing subdued GDP outlook of the developed economies, some of the developing economies have shown resilient GDP growth and have been contributing to more than half of the expansion of world economy since third quarter of 2009. The growth in developing economies has been led particularly by China, India, Russia and Brazil. Real GDP growth rate – Indian & China leading the pack 10% 6% 2% ‐2% World US Mexico Brazil UK Russia Germany China India Japan ‐6% 2008 2009 2010 2011E 2012E 2016E Source: World Economic Outlook, September 2011 AVENDUS INFRASIGHT Page 3 The growing GDP per capita of the world economies highlight the rising levels of wealth in the BRIC countries.