IIM BANGALORE

Industry Reports
2019-2020

ICON | IIMB Consulting Club

Table of Contents
Automobile Sector......................................................................................................2
E-Commerce Sector ....................................................................................................8
Construction & Infrastructure Sector ...................................................................... 13
FMCG Sector ............................................................................................................ 17
Hospitality & Tourism Sector ................................................................................... 21
Power Sector ........................................................................................................... 24
Oil & Gas Sector ....................................................................................................... 26
Petrochemicals Sector ............................................................................................. 28
Aviation Sector ........................................................................................................ 31
Telecom Sector ........................................................................................................ 35
BFSI Sector ............................................................................................................... 38
IT Sector ................................................................................................................... 42
NBFC Sector ............................................................................................................. 45
Pharma Sector ......................................................................................................... 50
Automobile Sector
Overview
India is world’s fourth largest manufacturer of cars (after China, Japan, and Germany) and 7th
largest manufacturer of commercial vehicles. Indian automotive industry (including component
manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.The
automotive manufacturing industry comprises the production of commercial vehicles, passenger
cars, three & two-wheelers.
In India the automobile industry constitutes 7.1% of the GDP, and 49 % of the manufacturing
GDP. Inclusive of its value chain, it supports almost 37 million jobs. [Economic Times]
Value Chain

Following chart explains the factors that will have impact on the entire industry and its value
chain.

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Porter’s 5 Force Analysis

SWOT Analysis
Strengths:

1. Large domestic market

2. Increase in the exports level
3. Sustainable labour cost
4. Competitive auto component vendor base
5. Government incentives to manufacturing plants
6. Upcoming bases for R&D
7. Growing IT capability in design, development and simulation.
8. Adoption of high quality and productive initiatives (TQM, TPM, Six sigma etc.)
9. Proximity to market.
Weaknesses:

1. Low labour productivity

2. High interests and high over heads make the production uncompetitive.
3. Various forms of taxes push up the cost of production and price of produced.
4. Inadequate and low investment in R&D
5. Supply chain infrastructural bottlenecks
6. Multiple tax components in the cost of the vehicle
7. Lack of economies of scale

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Opportunities:

1. Commercial vehicle: SC ban on overloading

2. Heavy thrust on mining and construction activity
3. Increase in income level
4. Cut in excise duties
5. Rising demand in rural areas
6. MNC focussing on low cost outsourcing opportunities.
7. Viewed as global hub for manufacturing of small cars
8. Export projected to grow at over 30% p.a.
9. India’s share in global auto components is expected to grow over 2.5% by 2015.
10. National Automotive Testing and R&D Infrastructure Projects (NATRIP), a US$ 400 million
initiative, aims to create the state-of-art dedicated testing, validation and R&D
infrastructure across the country.
11. Opportunity to R&D centres in India.
12. High level of sourcing of components from Low Cost Countries (LCC) to act as a growth
driver.
Threats

1. Rising input costs of raw materials

2. Rising interest rates
3. Cutthroat competition
4. Increase in fuel prices may lead to slow down in the sales
5. Import of components from ASEAN and China will have adverse effect on GDP.
Trends
Current Happenings

Deep-diving Sales
Passenger vehicle sales, both 2-wheelers and 4-wheelers, have dropped for nine straight months
through July, with some automakers suffering year-on-year declines of more than 30 percent in
recent months. [India Today] Giants such as Maruti Suzuki, Honda, Tata, and Mahindra have had
shutdowns at their major plants for weeks. [Business Today]

Following are the major reasons speculated by the industry experts:

1. Increasing fuel cost
2. Liquidity tightening (post the crash of IL&FS)
Job losses
Slumping sales of cars and motorcycles are triggering massive job cuts in India's auto sector, with
many companies forced to shut down factories for days and axe shifts. Besides, inventory pile-
up at dealership level and stock management of the unsold BS IV vehicles has become a problem

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for the sector. [Livemint] The cull has been so extensive that initial estimates suggest that
automakers, parts manufacturers and dealers have laid off about 350,000 workers between
April’19 and August’19. As per Society of Indian Automobile Manufacturers (SIAM), at least 7%
of temporary workers employed by 15 automakers in India have lost their jobs in recent months.
Demand for tax cuts
To revive the sector from the ongoing slump, auto executives plan to demand tax cuts and easier
access to financing for both dealers and consumers with officials from India's finance ministry.
They also asked the government to provide incentives to scrap old vehicles, which they said
would help boost sales, and urged officials to reconsider a proposal to hike registration fees for
automobiles as it would hurt demand. [Reuters]
Toyota-Maruti Joint venture
India’s largest carmaker Maruti Suzuki and the world’s largest carmaker, Toyota Motors, have
joined hands to get a firmer grip on Indian roads. Partnering with Maruti in India would be the
shortest route Toyota can take to get ahead on Indian roads. Maruti’s strengths in cost-efficient
small cars and its dealer-showroom network offer unparalleled advantage. The alliance will also
help the two expand their presence in other emerging markets.
Shift in Fuel Usage
As the country gears up to adopt strict BS-VI emission norms from April 2020, the industry is
witnessing a shift in demand from diesel to petrol vehicles. The decisions limiting use of diesel
vehicles in Delhi-NCR to 10 years over pollution concerns and narrowing price gap between petrol
and diesel fuel (Rs 26 in FY12 to Rs 8 in Apr’19) have triggered a shift towards petrol models. With
prices of diesel vehicles set to increase significantly post implementation of BS VI emission norms
come April 2020, industry veterans expect the shift to become more pronounced over the next
couple of years.
Electric Vehicles
1. Volvo plans to come out with hybrid version of its upcoming S60 sedan in India along with
a PHEV (Plug-in Hybrid Electric Vehicle) version of the S60.
2. A local arm of Finland based energy company Fortum India is planning to install about 720
charging facilities for electric vehicles by 2020 in seven cities in India.
3. EV Motors, in partnership with DLF, ABB India and Delta Electronics, is also planning to
invest US$ 200 million to set up 6,500 electric vehicles (EV) charging stations in the next
five years.
4. Electric policy finalised by the Government of Kerala has an aim to get 6,000 electric buses
for the state road transport corporation by 2025.
5. In May 2019, Nissan Motor Company received a patent for wireless charging of electric
vehicles in India.
6. In October 2018, the transport ministry granted exemption to battery-operated
commercial vehicles and those running on ethanol and methanol.

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Other Policies
1. There is an opportunity for government and industry to work together to invest in
manufacturing, R&D and the supply chain.
2. Clear vision of Indian government to make India an auto manufacturing hub.
3. Initiatives like ‘Make in India’, ‘Automotive Mission Plan 2026’, and NEMMP 2020 to give
a huge boost to the sector.
4. Introduction of a new National Auto Policy and Faster Adoption and manufacture of
Hybrid and Electric Vehicles (FAME) II for a clean future in mobility to be launched soon.
5. In February 2019, the Government of India approved the FAME-II scheme with a fund
requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22.
6. The Government of India has introduced a policy which allows organisations and
researchers to buy bulk data related to vehicle registrations on an annual basis.
Future Trends
Changing Consumer Mobility Habits: Consumer mobility habits are changing every day.
Consumers want vehicles endowed with the latest technologies, especially driver-assist
technologies to enhance their experience. In this era of digitalization, consumers desire
connectivity in cars. They want a vehicle to be a place where life continues, and they have access
to social media, music, Alexa, apps, and their business life. Nowadays, consumers are less
emotionally attached to vehicle ownership. This trend has led to the development of shared cars
and mobility- as-a-service solutions.
Digital Marketing: Advances in technology, changing consumer mobility behavior, and longer car
lifespan have changed the way the automobile industry markets its products and services.
Marketing initiatives in the automobile industry are shifting to online as consumers use digital
and mobile channels for research, shop, and purchase. Dealerships are increasingly relying on
digital marketing to reach customers and prospects. Customers are soliciting for personalized and
excellent experience from dealerships. Therefore, dealerships must up their game and offer
exceptional customer experiences as a marketing strategy.
Car Sharing: In the last couple of years, the way people relate to cars is changing. The notion of
shared cars is gaining prominence, as fuel prices escalate and persons’ awareness of climate
change increase. Also, the availability of low-cost and convenient ride-sharing services such as
Ola and Uber have intensified the trend. Car sharing will continue beyond 2019 and affect the
automobile industry significantly.
Mahindra has entered the ride-sharing business with electric car hailing service Glyd. It has
already invested a significant sum in the self-drive car rental startup Zoomcar that is growing
briskly in India.
Increased Electrification: Electric cars are on the increase since their introduction in the market,
a trend that will continue in 2019. More resources are allocated to the establishment of hybrid
infrastructures and refueling stations. Consumers’ preference for hybrid cars continues to rise

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mainly because of increased gas prices and strict environmental regulations. Famous firms like
Dyson have started investing in the manufacture of electric vehicles to meet consumer demands.
Over the past 12 months, Hyundai has invested in Ola, the ridesharing unicorn that has ambitious
electric vehicle run a car hiring and leasing service. Hyundai is developing vehicles and charging
stations specifically for the ride-sharing market. It is piggybacking on two trends here: a shift in
fuel from petrol or diesel to electricity and the fast-growing interest in hailing a cab rather than
owning and driving one’s own car. [Economic Times]
Self-Driving Cars: Self-driving cars have won the affection of consumers globally because of their
convenience, reliability, and safety. Tech giants such as Uber, Google are making remarkable
progress in making cars driverless. However, car manufacturers will need to convince consumers
that driverless vehicles are safe amidst various reported cases of collisions. This situation may
seem very farfetched from India’s point of view, but this is surely a part of the future automotive
landscape of India.

Key Performance Indicators

1. Average Production Downtime: It is calculated by taking the hours of downtime at a
production facility within a specified time period and dividing by total time available to
produce vehicles within that same time period.
2. Inventory turn Over: It is calculated by dividing total sales by number of cars in inventory
3. Manufacturing cycle time: It is the time taken by the vehicle to move through the production
line from start to end.
4. Utilization rate: Actual vehicle output/ Potential vehicle output.

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E-Commerce Sector
Overview
E Commerce stands for electronic commerce and caters to trading in goods and services through
the electronic medium such as internet, mobile or any other computer network. It involves the
use of Information and Communication Technology (ICT) and Electronic Funds Transfer (EFT) in
making commerce between consumers and organizations, organization and organization or
consumer and consumer.
The Indian e-commerce industry has been on an upward growth trajectory and is expected to
reach USD 200 billion by 2026 from US$ 38.5 billion as of 2017. Due to growing internet
penetration, internet users in India stood at 475 million, the second highest in the world after
China. Rising internet penetration is expected to lead to growth in ecommerce. Government
Initiatives of Digital India, Make in India, Start-up India, Skill India and Innovation Fund would go
a long way in creating a conducive business environment for the industry players. The
government has extended the FDI limit to 100% in the B2B marketplace model. In addition to
this, a Union Budget of USD 1.24 billion was allocated to BharatNet Project aimed at providing
broadband services to 150,000 gram panchayats in 2018-19. With the current pace of digitisation,
the industry revenue is expected to grow at an annual rate of 51%, the highest in the world.

Trends
• Performance Marketing to Boom – Performance based marketing efforts will likely grow
stronger due to the profitability offered. As brands look for better ROI, marketing that drives
measurable sales is the way forward.
• Wallet Usage to Rise – The use of online wallets and payment channels will grow as more
and more Indians adopt digital and cashless payments.
• New categories – The growth of companies from niche categories like fashion, food and
groceries has reached an unseen high. It is not difficult to anticipate that new entrepreneurs
will create, capture and dominate a sizeable chunk of one specific market like Nykaa and
BigBasket have done.
• Artificial Intelligence – It will play a key role in e-commerce as we rely more and more on our
mobile devices. As technology is being redefined, the trends like suggesting products based
on our purchase history, browsing history, likes etc. would lead the e-commerce industry to
thrive wholeheartedly
• Virtual Shopping Experiences – The key purpose of e-commerce sites is to bring the shopping
experience alive for customers. Virtual reality has made its mark strongly in the market and
this trend will likely grow as it helps users visualize how products will look on them without
physically going to the store.

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Key Statistics
• The e-commerce market in India is expected to increase at a CAGR of 20.09 per cent from
US$ 39 billion in the end of 2017 to US$ 200 billion by 2027.
• Online shoppers in India are expected to reach 120 million in 2018 and eventually 220
million by 2025. Average online retail spending in India was US$ 224 per user as of 2017.
• E-commerce and consumer internet companies in India received more than US$ 7 billion
in private equity and venture capital in 2018.
• Online retail sales in India are expected to grow by 31 per cent to touch US$ 32.70 billion
in 2018, led by Flipkart, Amazon India and Paytm Mall. Online retail is expected to
contribute 2.9 per cent of retail market in 2018.
• The number of internet users in India is expected to increase from 604.21 million as of
December 2018 to 829 million by 2021.
Latest Developments
• Several players took acquisition route to build integrated processes; Walmart-Flipkart;
Paytm – Nearbuy & Little.
• Pressure on profitability to slightly ease for the ticketing players due to consolidation –
the merger of MakeMyTrip with Ibibo Group.
• The number of internet subscribers in the country increased at a CAGR of 42.69 per cent
during FY06-FY18 to reach 493.96 million in 2017-18.
• Total wireless data usage in India grew 119.00 per cent year-on-year to 14,283,256
terabytes between September-December 2018.
• The number of mobile wallet transactions increased 5 per cent month-on-month to
325.28 million in July 2018.

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Value Chain

Following is the Porter’s Value Chain analysis for the E-commerce industry:

Key Performance Indicators

KPIs generally fall into one of the following four categories:

1. Sales KPIs
• Sales: Ecommerce retailers can monitor total sales by the hour, day, week, month, quarter,
or year.
• Average order size: Average order size tells you how much a customer typically spends on a
single order.
• Conversion rate: The conversion rate, also a percentage, is the rate at which users on our
ecommerce site are converting (or buying).
• Shopping cart abandonment rate: The shopping cart abandonment rate tells you how many
users are adding products to their shopping cart but not checking out. If your cart
abandonment rate is high, there may be too much friction in the checkout process.

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• New customer orders vs. returning customer orders: This metric shows a comparison
between new and repeat customers.
• Revenue per visitor (RPV): RPV gives you an average of how much a person spends during a
single visit to your site.
• Churn rate: For an online retailer, the churn rate tells you how quickly customers are leaving
your brand or cancelling/failing to renew a subscription with your brand

2. Marketing
• Time on site: This KPI tells you how much time visitors are spending on your website.
Generally, more time spent means they’ve had deeper engagements with your brand.
• Bounce rate: The bounce rate tells you how many users exit your site after viewing only one
page.
• Pageviews per visit: Pageviews per visit refers to the average number of pages a user will
view on your site during each visit.
• Average session duration: The average amount of time a person spends on your site during
a single visit is called the average session duration.
• Traffic source: The traffic source KPI tells you where visitors are coming from or how they
found your site. This will provide information about which channels are driving the most
traffic, such as organic search, paid ads, or social media.
• Mobile site traffic: Monitor the total number of users who use mobile devices to access your
store and make sure your site is optimized for mobile.
• Day part monitoring: Looking at which part of the day site visitors come, can tell you what
times are peak traffic times.
• Average CTR: The average click-through rate tells you the percentage of users on a page (or
asset) who click on a link.

3. Customer service
• Customer satisfaction (CSAT) score: The CSAT KPI is typically measured by customer
responses to a very common survey question: “How satisfied were you with your
experience?” This is usually answered with a numbered scale.
• Net promoter score (NPS): NPS provides insight into customer relationships and loyalty by
telling you how likely customers are to recommend your brand to someone in their network.
• Hit rate: Calculate your hit rate by taking the total number of sales of a single product and
dividing it by the number of customers who have contacted your customer service team
about said product.
• First response time: First response time is the average amount of time it takes a customer to
receive the first response to their query.

4. Project management

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• Budget: The budget indicates how much money you have allocated for the specific project.
Project managers and ecommerce business owners will want to make sure that the budget is
realistic; if you’re repeatedly over budget, some adjustments to your project planning need
to be made.
• Return on investment (ROI): The ROI KPI for project management tells you how much your
efforts earned your business. The higher this number, the better. The ROI accounts for all of
your expenses and earnings related to a project.
• Cost performance index (CPI): The CPI for project management, like ROI, tells you how much
your resource investment is worth. The CPI is calculated by dividing the earned value by the
actual costs.

Key Success Factors

• Wide and diversified product portfolio
• Customer Service & Responsiveness
• Multi-channel marketing
• Conversion Rate
• Efficient supply chain management
• Acquisition Cost

Cost Structure
Major cost heads for e-commerce firms include:
• Technology costs
• Software costs
• Management costs – Legal, administrative, banking etc.
• Marketing costs
• Logistics costs
• Office Expenses

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Construction & Infrastructure Sector
Overview
The Construction industry of India is an important indicator of the development as it creates
investment opportunities across various related sectors. Valued at USD 126 billion, it employs
around 44 million people. The Construction industry in value terms is expected to record a CAGR
of 15.7% to reach $ 738.5 bn by 2022. The industry is fragmented, with a handful of major
companies involved in the construction activities across all segments; medium-sized companies
specializing in niche activities; and small and medium contractors who work on the subcontractor
basis and carry out the field work. In 2016, with over 700 construction equipment manufacturing
companies, construction equipment market was valued around USD 8 billion in India.

The Construction industry in India consists of the Real estate as well as the Urban development
segment. The Real estate segment covers residential, office, retail, hotels and leisure parks,
among others. While Urban development segment broadly consists of sub-segments such as
Water supply, Sanitation, Urban transport, Schools, and Healthcare.

• By 2025, Construction market in India is expected to emerge as the third largest globally
• By 2025, Construction output is expected to grow on average by 7.1% each year
• By 2020, Construction equipment industry’s revenue is estimated to reach $ 5 bn
• 100% FDI under automatic route is permitted in completed projects for operations and
management of townships, malls/shopping complexes, and business constructions.
• 100% FDI is allowed under the automatic route for urban infrastructures such as urban
transport, water supply and sewerage and sewage treatment. For more information on
FDI policy please refer https://www.investindia.gov.in/foreign-direct-investment

Currently, construction industry has a share of around 9% of the GDP, with an Industrial growth
rate of 4.80% (2008-14) with investments over INR 1 trillion between 2012 and 2017.

The construction industry also contributes 55% share in the Steel industry, 15% in the Paint
industry and 30% in the Glass industry. Expected cement capacity addition of 80 – 100 MT per
annum will be required over between 2015-2020 to meet the rise in demand in the construction
industry.

Key growth drivers

1. Smart cities: 100 smart cities to be developed by 2020
2. Industrial corridors: 5 industrial corridors are currently planned
3. Mega ports: 6 mega port projects are planned by the government
4. Increasing demand for commercial space: Annual absorption of office space in India
crossed 42 mn sq ft in 2012

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Trends
1. FDI inflows in construction development during April 2000 to March 2019: $ 25.05 bn
2. India's construction industry regained growth momentum in 2018, with output expanding
by 8.8% in real terms - up from 1.9% in 2017. This was driven by positive developments
in economic conditions, improvement in investor confidence and investments in
transport infrastructure, energy and housing projects.
3. In the 2018-2019 budget, the government increased its expenditure towards
infrastructure development by 20.9%, going from INR4.9 trillion (US$75.9 billion) in the
Financial Year (FY) 2017-2018 to INR6.0 trillion (US$89.2 billion) in FY2018-2019
4. In January 2019, the government outlined the investments under the second phase of
Bharatmala scheme, which will drive the road infrastructure developments in the country.
Accordingly, the government aims to invest INR3.4 trillion (US$50.3 billion) through the
budgetary allocation between FY2019-2020 and FY2022-2023, while INR2.1 trillion
(US$30.7 billion) will be made through market borrowings in the Bharatmala scheme by
2023.
5. Accounting for 30.6% of the industry's total value in 2018, residential construction was
the largest market in the Indian construction industry during the review period. The
market is expected to remain the largest market over the forecast period, accounting for
30.1% of the industry's total value in 2023.
6. Energy and utilities construction accounted for 27.1% of the industry's total output in
2018, followed by infrastructure construction with 23.3%, industrial construction with
7.8%, commercial construction with 7.6% and institutional construction with 3.6%.
7. Over the forecast period, the market will be supported by the government's vision to
provide houses under the Housing for All by 2022. Under the Pradhan Mantri Awas Yojana
(PMAY), the government has proposed to build 2 crore houses for urban poor.

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Porters Five Force Analysis
Force Threat of Bargaining power of Rivalry among Bargaining Threat of new
substitutes suppliers existing power of buyers entrants’
competitors power
Power Strong Weak Strong Strong Weak
Factor • New and • Industry members • Fall in • Construction • Capital
s economical such as the principal demand for developers requirements
innovative contractors are construction have a high for property
methods & integrating projects quality of development
processes backwards into the resulting in information for high
coming up business of suppliers over capacity decision • Access to
• Low creating • Competitive making Few inputs like
switching concentrated bidding to developers and skilled labor
costs once oligopolies win contracts construction difficult
a project is • Readily available by clients
construction construction • Developers and
materials from companies clients can
various suppliers • Overcrowded postpone
• Greater market projects until a
collaboration dominated later stage
between by 5 big when they can
contractors, sub- construction secure lower
contractors and companies costs of
manufacturers • Construction building
required for projects are • Decline in
successful delivery of highly client’s
project standardized demand for
• Switching costs of construction
quantity surveying projects
firms is low

Key Performance Indicators

• Cost and Time: Project cost and completion time of a project. Estimated cost and time
are different from actual values
• Cost predictability: It is associated with design and construction of project
• Quality: It is a measure of number of defects associated with project at the end of
rectification period

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 • Safety: It is a measure of lost Time Incidents (LTI) and reportable accidents per 100K
employed
• Client Satisfaction: Client perception of product & service vs Contractor perception
• Profit margin: It is a measure of profit on turnover (%)
• Productivity: It is a measure of percentage of equipment downtime and labor downtime

Typical project cycle and different types of contracts

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FMCG Sector
Overview:
The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011 to
US$ 74 billion in 2018. Food products is the leading segment, accounting for 43 per cent of the
overall market. Growing awareness, easier access, and changing lifestyles have been the key
growth drivers for the sector. The Retail market in India is estimated to reach US$ 1.1 trillion by
2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20 per cent - 25 per
cent per annum, which is likely to boost revenues of FMCG companies. Revenues of FMCG sector
reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and are estimated to reach US$ 103.7 billion
in 2020.

Trends
1. India’s household and personal care is the leading segment, accounting for 50 per cent of the
overall market, healthcare (31 per cent) and food and beverages (19 per cent) comes next in
terms of market share.
2. Growing awareness, easier access and changing lifestyles have been the key growth drivers
for the sector.
3. The number of online users in India is likely to cross 850 million by 2025.
4. FMCG industry expected to grow 12-13 per cent in fourth quarter FY19.
5. In 2018, e-commerce segment contribution is projected to be around 1.3 per cent of the
overall branded packaged FMCG sales.
6. People are gracefully embracing Ayurveda products, which has resulted in Patanjali being
ranked as the most trusted FMCG brand in India.
7. India’s contribution to global consumption is expected to more than double to 5.8 per cent
by 2020.
8. Rural segment is growing at a rapid pace and accounted for a revenue share of 45 per cent in
the overall revenues recorded by FMCG sector in India. FMCG products account for 50 per
cent of total rural spending.
9. E-commerce segment is forecasted to contribute 11 per cent of the overall FMCG sales by
2030.
10. Growing awareness, easier access, and changing lifestyles are the key growth drivers for the
consumer market.
11. The focus on agriculture, MSMEs, education, healthcare, infrastructure and tax rebate under
the Union Budget 2019-20 is expected to directly impact the FMCG sector. This is expected
to increase the disposable income in the hands of the common people, especially in the rural
area, which will be beneficial for the sector.

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Value Chain

Inbound Operation Outbound Sales & Servicing

Logistics Logistics Marketing

Includes: Includes: Includes: Order Includes: Includes:

Inbound raw Finishing goods, handling, Customer Warranty,
materials, Manufacturing, Dispatch, Management, Maintenance,
Warehousing Packaging, Delivery, Order Education and
Supply Production Invoicing Management, training
Schedules Control, Quality Promotion, upgrades
Control, Sales Analysis,
Maintenance Market
Research

Issue Areas: Issue Areas: Issue Areas: Issue Areas: Issue Areas:
Processing cost Standardization, Inventory Disruptive Responsiveness,
of raw Demand Control, online reliability of
materials, forecast, faulty infrastructural marketplace, after sales
Turnaround packaging, etc. challenges like Pricing and service,
time at road conditions, promotions, preponderance
warehouse, number of check need for of defective
infrastructural posts, external customization, items, etc.
challenges, fuel environment, etc. etc.
costs, etc.

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Porter’s 5 Forces
Force Threat of Bargaining Competitive Bargaining Threat of
Substitutes Power of Rivalry Power of New Entrants
Suppliers Buyers
Power Strong Weak Strong Strong Moderate
Factors • Narrow • Big • Private • Low • Huge
product FMCG label brands switching investments
differentiation companies by retailers cost induces in setting up a
under many can dictate are priced at a the distribution
brands •Price the prices discount to customers’ network and
war through mainframe product promoting
local brands limits shift brands
sourcing competition • Influence • Spending on
from a for the weak of advertisement
fragmented brands marketing s is aggressive
group of key • Highly strategies
commodity fragmented •Availability
suppliers industry as of same or
more MNCs similar
are entering alternatives

Key Performance Indicators

1. Out of Stock Rate: Measure your ability to meet customer demand
2. Delivered On-Time & In-Full: Monitor the delivery performance
3. Average Time To Sell: Track how long you need to sell your products
4. Sold Products Within Freshness Date: Take care of expiration dates
5. Cash-to-Cash Cycle Time: Analyse your cash cycle time in detail
6. Supply Chain Costs: Understand supply chain costs by category
7. Supply Chain Costs vs Sales: Compare your supply chain costs against sales
8. Carrying Cost of Inventory: Assess the costs your inventory holds
9. On-Shelf Availability: Measure the impact on your sales
10. Margin by Product Category: Identify your most profitable products

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Key Success Factors
1. Brand Equity
2. Continuous innovation and product differentiation
3. Strong distribution network
4. Efficient supply chain management

Risks for the industry

The millennial effect: Millennials are generally willing to pay for special things, including daily
food. For everything else, they seek value. Millennials in the United States are 9 percent poorer
than Gen Xers were at the same age, so they have much less to spend and choose carefully what
to buy and where to buy it.
Digital intimacy (data, mobile, and the Internet of Things [IoT]): Some FMCG categories,
particularly homecare, will be revolutionized by the IoT. We will see the IoT convert some
product needs, like laundry, into service needs. And in many categories, the IoT will reshape the
consumer decision journey, especially by facilitating more automatic replenishment.
Explosion of Small Brands: Many small consumer-goods companies are capitalizing on millennial
preferences and digital marketing to grow very fast. These brands can be hard to spot because
they are often sold online or in channels not covered by the syndicated data that the industry has
historically relied on heavily.
E-commerce- E-commerce giants Amazon, Alibaba Group, and JD.com grew gross merchandise
value at an amazing rate of 34 percent a year from 2012 to 2017. As their offer attracts consumers
across categories, they are having a profound impact on consumer decision journeys. This change
requires FMCGs to rewrite their channel strategies and their channel-management approaches,
including how they assort, price, promote, and merchandise their products, not just in these
marketplaces but elsewhere.

Cost Structure - Major cost heads for FMCG firms include:

1. Research and Development

2. Raw Material Procurement and Processing
3. Manufacturing
4. Logistics
5. Marketing and Servicing

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Hospitality & Tourism Sector
Overview
The Indian tourism and hospitality industry has emerged as one of the key drivers of growth
among the services sector in India. Tourism in India has significant potential considering the rich
cultural and historical heritage, variety in ecology, terrains and places of natural beauty spread
across the country. Tourism is also a potentially large employment generator besides being a
significant source of foreign exchange for the country. During 2018, FEEs from tourism increased
4.70 per cent year-on-year to US$ 28.59 billion. FEEs during January 2019 was US$ 2.55 billion.

Market Size

• India is the most digitally-advanced traveller nation in terms of digital tools being used for
planning, booking and experiencing a journey, India’s rising middle class and increasing
disposable incomes has continued to support the growth of domestic and outbound tourism.
• During 2018, foreign tourist arrivals (FTAs) in India stood at 10.56 million, achieving a growth
rate of 5.20 per cent year-on-year. FTAs in January 2019 stood at 1.10 million, up 5.30 per
cent compared to 1.05 million year-on-year. During May 2019, arrivals through e-tourist visa
increased by 21.70 per cent year-on-year to 1.23 million.
• The travel & tourism sector in India accounted for 8 per cent of the total employment
opportunities generated in the country in 2017, providing employment to around 41.6 million
people during the same year. The number is expected to rise by 2 per cent annum to 52.3
million jobs by 2028.

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• International hotel chains are increasing their presence in the country, as it will account for
around 47 per cent share in the Tourism & Hospitality sector of India by 2020 & 50 per cent
by 2022.

Key Trends
• The sector has received a big boost after 100% FDI has been granted here
• Medical tourism, although seasonal, is also on the rise
• India has a growing population of English speakers which is beneficial in this sector.
• The growth rate in room demand (about 6%) has been consistently outpacing the supply
(about 3%) growth in India for the past few years.
• It witnessed the impact of two major government policy decisions - demonetisation and GST,
along with the Supreme Court ruling that banned the sale of liquor in all commercial
establishments located on or within 500 metres of any national and state highways, setting
back the hospitality industry’s hopes of improved performance after it garnered some tail
winds in 2016.
• The sector’s total contribution to GDP is expected to further grow to US$280.5B by 2026 and
capital investment in tourism is estimated to increase to US$160B which is a 7% YOY growth
• International hotel chains currently have a market share of 44% which is likely to increase to
50% by 2022.

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Porter’s Five Forces

Key Performance Indicators

• Online ratings (Customer satisfaction): Most visible metric that customers often rely
upon. Considerably influences consumer decision making process.
• Occupancy % = rooms occupied / rooms available: Determines how efficiently a hotel is
using the resources at its disposal. Indicates whether promotional activities pursued by
the hotel have attracted the crowd or not.
• Revenue per available room = Total room revenue/ Total rooms available: Tells whether
income is equally earned across all rooms. Indirectly indicates occupancy rate.
• Market penetration index = Hotel occupancy % / Market occupancy %: Benchmarks hotel
efficiency level with the industry standard

Road Ahead
India’s travel and tourism industry has huge growth potential. The tourism industry is also looking
forward to the expansion of E-visa scheme which is expected to double the tourist inflow to India.
India's travel and tourism industry has the potential to expand by 2.5 per cent on the back of
higher budgetary allocation and low cost healthcare facility, according to a joint study conducted
by Assocham and Yes Bank.

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Power Sector
Sector Overview
The Indian Power sector is an important contributor for the growth story of Indian Economy.
Growing at the CAGR of 5.69 % in period FY10-FY18, India’s Power sector has generated 1201.543
BU of electricity in FY18. Total installed capacity of power stations in India stood at 343.79
Gigawatt (GW) as on April, 2018. India’s per capita electricity consumption has been continuously
increasing over the years. The per capita electricity consumption has increased from 734 kW to
1075 kWh, an increase of 46% in 8 years. The per capita consumption has been increasing at an
average of 6% every year. This sector is highly dominated by public sector Companies and is
capital extensive. A total of 17,164 villages out of 18,452 un-electrified villages in India have been
electrified up to March 2018 as part of the target to electrify all villages by May 1, 2018.

Trends
• The industry attracted US$ 12.97 billion in Foreign Direct Investment (FDI), accounting for
3.52 per cent of total FDI inflows in India.
• The Govt. of India approved National Policy on Biofuels – 2018, the expected benefits of this
policy are health, cleaner environment, employment generation, reduced import
dependency, boost to infrastructure investment in rural areas & additional income to farmers
• The Union and state governments have agreed to implement the Direct Benefit Transfer
(DBT) scheme in the electricity sector for better targeting of subsidies
• Initiatives taken by the Energy Efficiency Services (EESL) have resulted in energy savings of 37
billion kWh and reduction in greenhouse gas (GHG) emissions by 30 million tonnes.
• The Government of India has released its roadmap to achieve 175 GW capacity in renewable
energy by 2022, which includes 100 GW of solar power and 60 GW of wind power.

Value Chain

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Porter’s Five Forces

Key Performance Indicators

• Guaranteed return: A power company is guaranteed a certain return on capital employed
on generation by the government. If input cost increases, a generation company passes
on the cost through increasing the capital employed to maintain margins. Affects
profitability of a power company.
• Net Asset Value: NAV is important from a retail investor perspective. Mentioned in
Balance sheet of the company.
• Maintenance Cost: Expense incurred in maintenance of plants; an indicator of efficiency
• NAV = ((Capacity * rate per MW depending whether it is pure generation company or a
combination of both) - Debt + Cash) / (number of shares outstanding)

Cost Structure
Value Chain Major Cost Heads
Power Generation Raw Material Cost (LNG fuel, Coal etc.) and Interest Cost, regulatory cost
Power Transmission Conductor Cost (ACSR – 38%; HPC: 66%); Tower (18%); Erection and
Foundation (10%), Using HPC increases material cost by 2X but reduces
overall per MW per km cost by 15%
Power Distribution Transmission losses, Infra cost

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Oil & Gas Sector
Sector Overview
The oil and gas sector is among the six core industries in India. The government allows 100 per
cent Foreign Direct Investment (FDI) in upstream and private sector refining projects. According
to the DIPP’s latest FDI Policy, the FDI limit for public sector refining projects has been raised to
49 per cent without any disinvestment/dilution of domestic equity in the existing PSUs. It is sub-
divided into 3 sectors
• Upstream – Includes exploration for crude oil and natural gas reserves, drilling wells and
subsequently operating wells to produce oil and gas.
• Midstream – Involves storage, transportation and marketing of oil and gas products. The
operation in midstream include some elements of upstream and downstream sectors.
• Downstream – Comprises refining of crude oil and processing of natural gas. It also
involves marketing and final distribution to end consumers.

O&G is a very capital-intensive industry with huge investments in exploration and setting up
processing facilities of crude oil and gas. Oil & gas is a non-fragmented sector with most of the
market being controlled by state owned enterprises – IOCL, BPCL, ONGC, OIL and GAIL. The major
domestic private player is Reliance while international players like Shell, BP and Cairn have a
minor presence. The industry is expected to attract around USD 25 billion in investments by 2022
for the purposes of exploration and production. Government has introduced various policies like
OALP and CBM to attract investment.

Trends
• Global crude oil prices is averaging $67-72 per barrel in 2019, will come down to $55-60
in 2022. This is because higher oil prices in recent years due to various disruptions to
supply (Venezuelan and Iran sanctions, partial shutdown of Saudi Arabia’s largest offshore
oil refinery, crisis in Nigeria) has increased investment in exploration and production
which will lead to increased supply in the future.
• As per CRISIL, India's crude oil demand is expected to slow down by calendar 2022, due
to slower capacity additions in refining in the next 5 years.
• Between 2017 and 2022, crude oil demand is projected to rise at a CAGR of ~2% to 5.2
million barrels per day (mbpd), vis-à-vis 5% CAGR in the previous 5 years.
• Despite a slower growth in oil demand, petroleum products demand is expected to grow
at a healthy pace of ~5-6% CAGR in the next 5 years, driven by high-speed diesel (HSD),
motor spirit (MS) and liquefied petroleum gas (LPG).
• Growth in the demand will be driven mainly by the transportation, aviation, road
construction industries, as well as government’s push to increase LPG penetration.

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 • While crude oil demand will increase only by 2% CAGR, gas demand will increase by 4%
CAGR.
• Gas demand will be driven mainly by city gas distribution (CGD) and fertilisers.

Value Chain

Porter’s Five Forces

Force Threat of Bargaining Rivalry among Bargaining Threat of
Substitutes power of existing power of new
suppliers competitors buyers entrants
Power Weak Moderate Weak Weak Weak
Factors Threat is low, as Bargaining Competitive Customers Threat of
renewable power is rivalry is low as have new
energy sources medium as just one-two low/nonexi entrants
are less despite few players operate in stent continues to
developed. players Upstream, bargaining be low, due
However the operating, Midstream and power. to the
pressure may government at Downstream They are capital
become times delays in segments. pricetakers intensive
significant in subsidy Although a few . nature of
the future. payment to oil private operators the industry
There will be a companies have entered the and
shift away from that can lead industry in the last economies
crude oil to to big losses. couple of years, of scale.
natural gas. they do not pose
any major threat
currently.

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Petrochemicals Sector
Overview
Petrochemical Industry in India Petrochemicals play a vital role in the functioning of virtually all
key sectors of economy which includes agriculture, infrastructure, healthcare, textiles and
consumer durables. Polymers provide critical inputs which enable other sector to grow.
Petrochemical products cover the entire spectrum of daily use items ranging from clothing,
housing, construction, furniture, automobiles, household items, toys, agriculture, horticulture,
irrigation, and packaging to medical appliances. Basic petrochemicals include olefins (ethylene,
propylene and butadiene) and aromatics (benzene and toluene). They are the building blocks for
a variety of products. Among the various polymers, polyethylene (PE), polypropylene (PP),
poly vinyl chloride (PVC) and poly styrene (PS) are the major ones which are derived from the
various basic petrochemicals. Among basic petrochemicals, ethylene is the most widely used
building block due to its various end uses applications. The size of the petrochemicals industry is
judged by its ethylene cracker capacity.

Global Economic Outlook for Petrochemicals

India has the advantage of high population and expected to maintain high economic growth. This
should propel India's polymer consumption to new levels in coming year. Risks to global economy
are rising, at the same time the outlook has become brighter. IHS Markit has revised up 2019
growth rate from 3.3% to 3.4% to reflect stronger growth in the US economy, induced by more
fiscal stimulus. Our view is that rapidly rising US crude oil production will contribute to global
supply exceeding global demand this year.

Crude oil is the key input in petrochemicals production. In recent past, there has been a strong
upswing and downswing in the Crude oil prices, because of Iran-US negotiations and the ongoing
trade war between US and China.The crude oil market would keep a watch on developments in
the Middle East between the UK and Iran, and the US Navy and Iran. However, it seems unlikely
to see an extended rally unless military action leads to a supply disruption. Iran–US tensions
signals that this standoff is going to continue over the summer but the problem for the oil market
is there are still these big concerns about demand.

Geopolitical tensions have been the only pillar supporting crude oil prices and If the WTI prices
breach the $54 level, we can expect prices to touch the lows we saw earlier this year.

Most of the countries have completed their planned renovation, which resulted in the fall of
effective plant utilization this year. In the future we can expect a steady supply and more effective
plant utilization especially in Asia and Middle East. Hurricanes in US and Mexico have not
disturbed the Oil operations much this time and this is also one of the reasons of sluggish Oil
prices.

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Indian Petrochemical Outlook
In terms of Outlook - Asian PVC market would likely remain firm, mainly due to Indian demand
and tighter supply amid lower operations of Chinese carbide-based PVC plants on stricter
environmental regulations. India's appetite would remain strong next year with PVC deficit
forecast at around 1.5 million mt./year. Globally India is being looked at as the bright spot in the
global economy. Consumer sentiments are high and growth expectations are reasonably well,
which augers well with the petrochemical industry whose growth has a direct relation with the
economic growth. For the Indian petrochemical industry in the key application industries like
packaging, construction, and automobiles helped pull up the demand and declining prices
resulted in higher offtake by downstream converters for virtually all polymers. Government of
India's initiatives like Digital India, Swachh Bharat, Start-up India and Skill development program
etc. have started and will eventually have a widespread multiplier effect. One can expect them
to fuel petrochemical demand in India in the years to come. Success of 'Make in India' programme
will be a game changer and a big boost to manufacturing in the country. Increased focus on
agriculture and irrigation will boost the demand for plastics.

Major Players in Indian Petrochemicals Market

At present, Reliance Industries dominate the industry. In the early 1990s, Reliance Industries
commissioned three downstream plants in the first phase of its cracker complex. It commissioned
its 750,000 tpa mother cracker and other downstream units in 1997 at Hazira, Gujarat. IPCL
started three cracker complexes - Baroda, Gujarat (set up in 1978, having an ethylene capacity of
130,000 tpa, subsequently increased to 175,000 tpa); Maharashtra Gas Cracker Complex (MGCC)
at Nagothane (set up in 1990, having an ethylene capacity of 300,000 tpa, subsequently increased
to 400,000 tpa); and Gandhar, Gujarat (set up in early 2000, having an ethylene capacity of
300,000 tpa, subsequently increased to 400,000 tpa). Competition has increased with the
commissioning of new capacities by Gas Authority of India Limited (GAIL) and Haldia
Petrochemicals. In April 1999, GAIL set up a 300,000 tpa cracker at Auriya, Uttar Pradesh, as a
part of its forward integration plan. The capacity has been subsequently increased to 440,000
tpa. In April 2000, Haldia Petrochemicals set up its 420,000 tpa cracker at Mednipur, West Bengal
(the capacity was subsequently increased to 520,000 tpa). In May 2010, Indian
Oil Corporation Limited (IOCL) commenced operations of its 800,000 tpa ethylene capacity, thus
further intensifying competition in the domestic market. Moreover, with entry of new players
like Indian Oil Corporation (IOC) (which has already entered in 2010) and Brahmaputra Cracker
and Polymer Limited (BCPL), competition is slated to increase further.

Key growth drivers for chemicals:

1. Growth in end-user market such as textiles, automobile, irrigation, construction and
consumer durables to name a few
2. Increasing availability of the raw materials

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3. Organic growth and consolidation of the industry
4. Shutdowns of plants globally such as China and EU have shifted the advantage to Indian
manufacturers to invest more heavily in chemicals

Top News in recent time:

1. RIL deal to make Saudi Arabia India’s top crude supplier. Saudi Aramco, world’s largest oil
producer, has acquired 20% stake in Reliance Industries Oil to Chemical business. This
acquisition in accompanied with a deal to supply of 5L barrels per day a year of Crude oil from
Aramco. This will result in SA becoming India’s top crude supplier replacing Iraq.
2. British Petroleum has aligned itself with RIL Petro-retail business in Rs.7000 Cr. deal. RIL is
operating with a network of 1400 retail stations in India, BP comes with a license of around
3500 stations.
3. ONGC is investing Rs.83000 cr. in 25 projects, cumulative oil and gas gains over 180 MT.
4. Government’s push for Electric Vehicle has oil industry worried. "Huge investments have
already been made by the oil refiners for BS VI stage. The public sector refiners alone are
executing projects worth more than Rs. 30,000 crore to move from BS IV to BS VI fuel quality
level," Direct-General FIPI
5. India is likely to set up gas trading hub by first quarter of 2020-21. The plan is to bifurcate the
GAIL business of gas transmission and marketing first and then to set up gas trading hub.
6. Ambitious Aramco-BPCL-HPCL-IOCL refinery which was supposed to be set up in Ratnagiri can
now be shifted to Raigad on the back of delayed land acquisition and strong resistance from
the localities which has already pushed the project deadlines from 2022 to 2025.

Value Chain for Petrochemicals

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Aviation Sector
Overview
The Indian Aviation Industry is one of the few high growth industries in India. It witnessed a
growth of approximately 18.6% in 2018 - the fastest full year domestic growth rate realized
globally.

Currently, the industry is witnessing massive new developments in the form of – Low-cost carriers
(LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced
information technology (IT) interventions and growing emphasis on regional connectivity.

However, what makes the industry unique is the high risk associated with operating in the
industry.

The 6 major stakeholders in the Aviation industry are:

1. Airlines
2. Airports- Infrastructure
3. Aircraft OEMs (Aircraft/Engine/Components manufacturers)
4. Service Providers (Handling, Catering & Cleaning)
5. Customers
6. Government

Trends
• India is poised to overtake UK and become the third largest aviation market in the world in
terms of passengers by 2024.
• After adjusting for inflation, average domestic fares have fallen by more than 70% since 2005,
expected to fall further till 2024.
• Air passengers to grow at a CAGR of 19%+ per cent (to reach 7.2 billion air passengers by
2035)
• Freight Traffic expected to grow at a CAGR of 10% per cent over FY19-20
• The Indian government is planning to invest US$ 1.83 billion for development of airport
infrastructure along with aviation navigation services by 2026.
• India's air cargo is estimated to grow at 9 per cent over the next few years.
• Low cost carriers to account for about 75% of domestic seats till 2020.
• India’s air passenger traffic is expected to grow six-fold to 1.1 billion and the number of
operational airports increase to around 200 in 2040
• The number of airplanes is expected to grow to 1,100 planes by 2027.

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Latest News
• Rakesh Gangwal, one of the promoters of IndiGo, on alleged serious governance lapses by its
co-founder Rahul.
• National Company Law Tribunal (NCLT) admitted Jet Airways for bankruptcy proceedings
under the Insolvency and Bankruptcy Code (IBC).
• The GST Council has lowered the tax rate for economy class flight tickets to 5%. However, the
business class tickets will attract a higher tax at 12%.
• Meanwhile, Air India is staring at debt repayments of Rs 9,000 crore in the current financial
year. Doesn’t have funds to pay salaries beyond October.
• Air India Corruption Scandal: Deepak Talwar, corporate lobbyist, had acted as a middleman
in negotiations to favour foreign private airlines, including Qatar Airways, Emirates and Air
Arabia, by making national carrier Air India give up profit making routes and timings. Former
civil aviation minister Praful Patel questioned in connection with the scandal dating back
2008-09. On domestic routes, Jet Airways, Kingfisher Airlines, Go Air, Indigo, Spicejet and
Paramount Airways started operating and made profits.

Value Chain

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Porter’s Five Forces
Forces Threat of Bargaining Bargaining Competitive Threat of Bargaining
Substitutes Power of Power of Rivalry New Power of
Suppliers Buyers Entrants Channels
Power Medium & High High High High High
Rising
Factor Increasing Powerful Buyers Rapid and Limited High
s spending labour fragmente volatile incumbenc concentrati
power unions d growth y on among
Improved OEMs, Air travel Limited advantages aggregator
technology concentrat perceived Product Low websites
Other modes ed as Differentiatio switching and agents
of transport oligopolies standardiz n cost Increased
like Railways Airports, ed product High sunk Easy access price
is improving local Low costs per to transparenc
Travel can be monopolie switching aircraft, low distributio y
delayed or s cost MC per n channels
limited Airport Discretiona passenger
Services, ry spend, High exit
small price barriers
number of sensitive Direct &
firms indirect rivals

Key Performance Indicators

Indicators Unit of Measurement Definition
Aircrafts Numbers Total number of planes in
(Fleet) operation including the ones
leased out
Employees Numbers Total full-time employees at
the carrier
Operating Cost Millions (INR) Total costs of operating all the
flights
Available tonnes kilometres Million No. of tonnes of capacity
available for the carriage of
revenue load (passenger &
cargo) x distance flown

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 Available seat Kilometres Million No. of seats available for sale
to passenger x distance flown
Revenue Passenger Million No. of revenue passengers
kilometres carried x by the distance
Total Operating Revenue Million Revenues received from total
airline operations
Total Cargo carried Tons Freight + Mail carried by an
aircraft

Some more KPIs to consider:

• Safety – fatality, reportable dangerous occurrence, reportable occupational illness

• Operations – No. of PAX, available flying time, environmental impact,
spills/releases/discharges to land.
• Financial – Operating Margin, revenue per available seat

Jet Airways Crisis

As a slew of budget carriers started flooding the market in the mid 2000s, offering no-frills, yet
on-time flights, Jet Airways began dropping fares, some to below cost. On top of that, provincial
taxes of as much as 30 per cent on jet fuel added to its expenses, while price-conscious Indian
travellers refused to pay a premium for on-board meals and entertainment. Unlike budget
operators, full-service airlines such as Jet Airways offer such amenities mostly for free. Jet
Airways lost money in all but two of the past 11 years and has Rs 72.99 billion ($1 billion) of net
debt. While it didn’t separately disclose cash and cash equivalents as of December 31, Bloomberg
calculations show the airline had about Rs 3.55 billion of cash at the end of last year. It defaulted
on loans that were due by December 31 and has delayed payments to staff and lessors.

In December 2018, the airline operated 123 aircraft. Not even a year later, the airline departed
for its last flight (for now) on April 18th, 2019. Riddled with massive debts and no emergency
funds, the airline is looking for a hero to save them. Question is, is it too late? The Indian
government already allocated the airlines‘ aircraft and slots to rival airlines, which means that
the airline has virtually no assets and it‘s value crumbles by the day.

Claims submitted by creditors against Jet Airways have shot up from Rs 24,000 crore a month
ago to Rs 30,558 crore now, making hopes of any revival of the defunct airline dimmer. This
comes after Etihad Airways, which holds 24 per cent in Jet, said on Monday (12th August) that it
did not submit an expression of interest (EoI) for the airline due to unresolved issues pertaining
to its liabilities.

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Telecom Sector
Overview
India has the second largest telecom network in the world with total subscriber base of 1.813bn
as of March 2019. India has the second highest number of internet subscribers globally. Total
number of internet subscribers stood at 604.21 million, at the end of December 2018. Availability
of affordable smartphones and lower rates of data are expected to drive growth in the Indian
telecom industry. National Digital Communications Policy unveiled by GOI policy in 2018, aims to
attract $100bn worth of investments and 4mn jobs by 2022

Value Chain

SWOT Analysis
Strength
• Strong demand: World’s second largest in terms of telecom network (a subscriber base of
119.1 crore), internet subscribers (internet users of 51.2 crore) as well as app downloads;
telecom sector likely to have economic value of $217 billion by 2020
• Increasing data usage: India is also one of the largest data consumers (an average 1 GB data
per day per user) globally
• Good telecom infrastructure: Large telcos have been investing on network infrastructure to
improve customer experience for last few years
• Fast-tracked reforms provide room for growth: National digital communications policy, 2018
aims to attract $100 billion worth of investments in the sector by 2022

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Weakness
• Intense competition: Cut-throat price war among telcos has led to consolidation in the
industry as well as declining overall profits for last couple of years
• Debt and finances: Incumbents are currently having unsustainable debt levels owing to
intense competition in the industry.
• Late adoption of 4G and advanced wireless technologies: Due to regulatory uncertainties
and delayed spectrum auctions, India were late to the 4G. Though world moves towards the
first commercial deployment of 5G in 2019-mid, India to be a late adopter of 5G services
Opportunities
• Mobile penetration: unique mobile subscribers to the total population is expected to reach
around 63% in 2025 from 58% in July 2018
• Increase in internet users: Rise in mobile-phone penetration along with decline in data costs
is expected to add 500 million new internet users in India
• Untapped rural market: Rural tele-density reached 58.8% and 44.6% of the total wireless
subscribers are from rural market
• Exploring adjacent businesses in an evolving environment: Moving beyond traditional
telecom business to wider digital consumer space like content and mobile banking solutions
Threats
• Interconnection charges: Interconnection charges will be zero effective Jan 1, 2020 from
current rate of 6 paise/min. This would impact the revenues of incumbents
• Spectrum auctions: Government of India has kept a high reserve price for spectrum auction.
Given ongoing pressure on ARPU and margins, purchasing the spectrum at a high price (in
circles like Mumbai) put further stress on the balance sheet.
Trends
• Subscribers: The number of internet subscribers in the country increased at a CAGR of 42.69
per cent during FY06-FY18 to reach 493.96 million in 2017-18.
• Data usage: Total wireless data usage in India grew 119.00 per cent year-on-year to
14,283,256 terabytes between September-December 2018.
• Mobile banking: The number of mobile wallet transaction increased 5 per cent month-on-
month to 325.28 million in July 2018.
• Optical fibre investments: Reliance Jio Infocomm is going to expand its optical fibre network
to over 1,100 cities under its JioGigaFiber brand. The network is undergoing beta trials as of
July 2018.

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Strategy of Network Carriers (Airtel, Jio & Vodafone)
Airtel and Vodafone focus on increasing their ARPU but JIO’s focus is still on customer acquisition.
However, increase in revenue did not translate to increase in EBITDA for Airtel while Vodafone’s
EBITDA grew on the back of merger synergies. Jio’s EBITDA grew for another quarter which is
now more than Airtel and Vodafone combined. Capital expenditure of all telecom operators
declined in the December-ended quarter which could possibly lead to delay in adoption of 5G
technology. Airtel was the only operator which saw its net debt fall on the back of fund infusion
in its African unit, which raised ~$1.25bn. Leverage ratios of all operators eased a bit over the
previous quarter.

src: Bloomberg

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BFSI Sector
Overview
Banking, Financial Services and Insurance (BFSI) is an industry term for companies that provide a
range of financial products/services such as universal banks, payments banks and digital banks.
BFSI comprises of commercial banks, insurance companies, non-banking financial companies,
cooperatives, pensions funds, mutual funds and other smaller financial entities.

Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks.

Types of Banks in India can be divided as follows:

1. Scheduled Banks are accounted for in the second schedule of RBI Act and are governed
by the general rules by RBI like CRR requirements, paid up capital etc
2. Non-Scheduled Banks do not have to comply with any RBI regulations. These are local
area banks usually required to maintain cash reserves with themselves.

The banking regulator has allowed new entities such as payments banks to be created thereby
adding to the types of entities operating in the sector. However, the financial sector in India is
predominantly a banking sector with commercial banks accounting for more than 64 per cent of
the total assets held by the financial system.

Two Essential components of Financial Sector:

1. Mutual Funds: The Mutual Fund (MF) industry in India has seen rapid growth in Assets
Under Management (AUM). Total AUM of the industry stood at Rs 23.80 trillion (US$
340.48 billion) between April 2018-February 2019.

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 2. Insurance: The total first year premium of life insurance companies reached Rs 214,673
crore (US$ 30.72 billion) during FY19. Furthermore, India’s leading bourse Bombay Stock
Exchange (BSE) will set up a joint venture with Ebix Inc to build a robust insurance
distribution network in the country through a new distribution exchange platform

Recent News and Key Trends to focus on:

• As of October 2018, the Financial Inclusion Lab has selected 11 fintech innovators with an
investment of US$ 9.5 million promoted by the IIM-Ahmedabad's Bharat Inclusion
Initiative (BII) along with JP Morgan, Michael and Susan Dell Foundation, and the Bill and
Melinda Gates Foundation.
• The private equity and venture capital (PE/VC) investments reached US$ 25.20 billion
between January to October 2018.

Government Initiatives
• In December, 2018, Securities and Exchange Board of India (SEBI) proposed direct
overseas listing of Indian companies and other regulatory changes.
• Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on Sensex
50 index from October 26, 2018.
• In September 2018, SEBI asked for recommendations to strengthen rules which will
enhance the overall governance standards for issuers, intermediaries or infrastructure
providers in the financial market.
• The Government of India launched India Post Payments Bank (IPPB), to provide every
district with one branch which will help increase rural penetration. As of August 2018,
two branches out of 650 branches are already operational.

Go-Forward Strategy
• India is today one of the most vibrant global economies, on the back of robust banking
and insurance sectors. The relaxation of foreign investment rules has received a positive
response from the insurance sector, with many companies announcing plans to increase
their stakes in joint ventures with Indian companies. Over the coming quarters there
could be a series of joint venture deals between global insurance giants and local players.
• The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in
assets under management (AUM) to Rs 95 lakh crore (US$ 1.47 trillion) and a more than
three times growth in investor accounts to 130 million by 2025.
• India's mobile wallet industry is estimated to grow at a Compound Annual Growth Rate
(CAGR) of 150 per cent to reach US$ 4.4 billion by 2022 while mobile wallet transactions
to touch Rs 32 trillion (USD $ 492.6 billion) by 2022.

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Value Chain for Banks:

Porter’s Five Forces

Force Threat of Bargaining Rivalry Bargaining Threat of
Substitutes Power of among Power of new entrants
Suppliers competitors buyers
Power Strong Strong Strong Weak Weak
Factors Non-banking Dependence • Intensive • Large • Stringent
financial on customer competition concentratio norms
companies deposits and • Threat of n • RBI
(NBFCs) and loans from mergers & of individual regulations
small other acquisitions customers • High Initial
cooperative financial • High Investments
banks. MFIs institutions switching to comply
also compete for cash costs with banking
for a large generating norms
proportion activities • Entry
of population barriers in
not under terms of
the formal banking
banking net license

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Key Performance Indicators
As banks have very different operating structures than regular industrial companies, it stands to
reason that investors have a different set of fundamental factors to consider, when evaluating
banks.

• Loan Growth: Above-average loan growth can mean that the bank has targeted attractive new
markets, or has a low-cost capital base that allows it to charge less for its loans.

• Deposit Growth: Deposit growth gives investors a sense of how much lending a bank can do.

• Loan/Deposit Ratio: Loan/deposit ratio helps assess a bank's liquidity, and by extension, the
aggressiveness of the bank's management.

• Efficiency Ratio: A bank's efficiency ratio is essentially equivalent to a regular company's

operating margin, in that it measures how much the bank pays on operating expenses, like
marketing and salaries. By and large, lower is better.

• CASA Ratio: CASA ratio of a bank is the ratio of deposits in current and saving accounts to total
deposits. A higher CASA ratio indicates a lower cost of funds, because banks do not usually give
any interests on current account deposits and the interest on saving accounts is usually very low
3-4%.

• Net interest spread: It refers to the difference in borrowing and lending rates of financial
institutions (such as banks) in nominal terms. It is considered analogous to the gross margin of
non-financial companies. Higher the better, it is for the health of banks.

• Capital Ratios: There are a host of ratios that bank regulators and investors use to assess how
risky a bank's balance sheet is, and the degree to which the bank is vulnerable to an unexpected
increase in bad loans, like EPS, Price to Book Value, etc.

• Return on Equity Return on Assets: Return on equity is especially useful in the valuation of
banks, as traditional cash flow models can be very difficult to construct for financial companies,
and return on-equity models can offer similar information.

• Credit Quality: If a bank's credit quality is in decline because of non-performing loans and assets
and/or charge-offs increases, the bank's earnings and capital may be at risk.

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IT Sector
Overview
The global IT spend for 2018 was $1.4 Trillion with a growth of 5%.
The IT sector can be divided into six categories: Software Products, IT services, Engineering and
R&D services, ITES/BPO (IT-enabled services/Business Process Outsourcing), Hardware, and
eCommerce. The IT-BPM sector in India expanded to US$ 177 billion in FY19E a 6.1% growth from
the previous year. 76% of the revenue was obtained from exports of $136 billion (8.3% growth).
Revenue from Ecommerce stood at $43 billion. Around 170,000 new employees were added in
the year 2018, leading to a total size of 4.14 million. About 200 Indian IT firms are present in
around 80 countries.

Some of the major developments in the Indian IT and ITeS sector are as follows:
• The government has identified Information Technology as one of 12 champion service sectors
for which an action plan is being developed. Also, the government has set up a Rs 5,000 crore
(US$ 745.82 million) fund for realising the potential of these champion service sectors.
• As a part of Union Budget 2018-19, NITI Aayog is going to set up a national-level programme
that will enable efforts in AI and will help in leveraging AI technology for development works
in the country.
• Tata Consultancy Services Ltd (TCS), the nation’s largest information technology (IT) services
firm crossed the $100-billion market capitalisation milestone.

Trends

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Value Chain

Key Performance Indicators

• KPIs for Software Product companies are Average Contract Value, Monthly Run Rate, Annual
Contract Value, Churn Rate, Leads per Month, Orders Booked per Quarter, Days of Sales
Outstanding, etc.
• KPIs for Software Services company are Revenue Per Employee, Utilization Rate, Bench
Strength, Leads per Month, Orders Booked per Quarter, Manpower Attrition Rate, Days of
Sales Outstanding, Defects per Thousand Lines of Code.

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Porter’s Five Forces
Force Threat of Bargaining Bargaining Power Threat of New Competition
Substitutes Power of of Buyers Entrants among rivalry
Suppliers
Power Weak Weak Strong Weak Strong
Factors No • Suppliers • For • In the • Intense
Substantial consist of IT conventional IT context of the competetion
substitutes Infrastructure services, highly for
to IT service providers bargaining commoditised conventional
apart from (Servers, power of the IT services, IT services
Internal IT Computers buyer is large there is little
departments etc.), and the threat of new • Opportunity
Recruitment possibility of entrants for
firms, Office pressure on differentiation
Space Suppliers rates exist • Newer through niche
technologies specialisation
• • High- • In the case of allow the occurs in non-
standardization nonconventional possibility of conventional
exists services i.e. new niche services, i.e.
those that players that the ones
cater to are not focused on
emergent dependent on emerging
technologies, size or technologies
there is potential experience and trends
for differentiation constraints such as
and higher Analytics,
margins Cloud
computing,
Social Media,
Enterprise
Mobility, IoT

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NBFC Sector
Overview
Non-banking financial companies (NBFCs) are financial institutions that offer various banking
services but do not have a banking license. NBFCs are also called shadow banks. As per RBI, “A
Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956
engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
but does not include any institution whose principal business is that of agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or providing any services
and sale/purchase/construction of immovable property. A non-banking institution which is a
company and has the principal business of receiving deposits under any scheme or arrangement
in one lump sum or in installments by way of contributions or in any other manner is also a non-
banking financial company.”

NBFCs lend and make investments, and hence, their activities are akin to that of banks; however,
there are a few differences as given below:
• NBFC cannot accept demand deposits;
• NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself;
• the deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is
not available to depositors of NBFCs, unlike in case of banks.

Indian financial system includes banks and non-financial institutions. Though banking system
dominates financial services, NBFCs have grown in importance by carving a niche for themselves
in under-penetrated regions and unbanked segments. All India financial institutions include
NABARD, SIDBI, NHB, and Exim bank.

The consolidated balance sheet size of the NBFC sector grew by 20.6 percent to ₹ 28.8 trillion
during 2018-19 as against an increase of 17.9 percent to ₹24.5 trillion during 2017-18 as per June
2019 financial stability report of RBI. The NBFC sector has been growing robustly in recent years,
providing an alternative source of funds to the commercial sector in the face of slowing bank
credit.

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 STRUCTURE OF NON-BANKING FINANCIAL INSTITUTIONS IN INDIA
Non-banking
Financial
Institutions

Non-banking All-India
Finance Financial
Companies Institutions

NBFC Deposit- NBFC Non- Housing Finance Insurance

Chit Funds
taking deposit taking Companies companies

Infrastructure
Loan Company Finance
Company

Investment Micro-finance
Company Company

Asset Finance
Factors
Company

Core
Investmenty
company

Infrastructure
Debt Fund

Classification
By the kind of activity NBFCs conduct, they may be broadly classified into the following
categories:

I. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on
as its principal business the financing of physical assets supporting productive/economic activity,
such as automobiles, tractors, lathe machines, generator sets, earthmoving and material

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handling equipment, moving on own power and general purpose industrial machines. Principal
business for this purpose is defined as aggregate of financing real/physical assets supporting
economic activity and income arising therefrom is not less than 60% of its total assets and total
income, respectively.

II. Investment Company (IC): IC means any company which is a financial institution carrying on
as its principal business the acquisition of securities,

III. Loan Company (LC): LC means any company which is a financial institution carrying on as its
principal business the providing of finance whether by making loans or advances or otherwise for
any activity other than its own but does not include an Asset Finance Company.

IV. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys
at least 75 percent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds
of ₹ 300 crores) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.

V. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying

on the business of acquisition of shares and securities which satisfies the following conditions:
• it holds not less than 90% of its Total Assets in the form of investment in equity shares,
preference shares, debt or loans in group companies;
• its investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding ten years from the date of issue) in group
companies constitutes not less than 60% of its Total Assets;
• it does not trade in its investments in shares, debt or loans in group companies except
through block sale for dilution or disinvestment;
• it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of
the RBI act, 1934 except investment in bank deposits, money market instruments,
government securities, loans to and investments in debt issuances of group companies or
guarantees issued on behalf of group companies.
• Its asset size is ₹ 100 crore or above and
• It accepts public funds

VI. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC): IDF-NBFC is a
company registered as NBFC to facilitate the flow of long term debt into infrastructure projects.
IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum five-
year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.

VII. Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less
than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:

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 • loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not
exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹
1,60,000;
• Loan amount does not exceed ₹ 50,000 in the first cycle and ₹ 1,00,000 in subsequent
cycles;
• Total indebtedness of the borrower does not exceed ₹ 1,00,000;
• Tenure of the loan not to be less than 24 months for loan amount over ₹ 15,000 with
prepayment without penalty;
• loan to be extended without collateral;
• aggregate amount of loans, given for income generation, is not less than 50 percent of
the total loans given by the MFIs;
• loan is repayable on weekly, fortnightly or monthly installments at the choice of the
borrower

VIII. Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking NBFC engaged in the principal
business of factoring. The financial assets in the factoring business should constitute at least 50
percent of its total assets and its income derived from factoring business should not be less than
50 percent of its gross income.

IX. Mortgage Guarantee Companies (MGC) - MGC are financial institutions for which at least 90%
of the business turnover is mortgage guarantee business or at least 90% of the gross income is
from mortgage guarantee business, and the net owned fund is ₹ 100 crore.

X. NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution through

which promoter / promoter groups will be permitted to set up a new bank .It’s a wholly-owned
Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other
financial services companies regulated by RBI or other financial sector regulators, to the extent
permissible under the applicable regulatory prescriptions.

Key Events
Even as their importance in credit intermediation is growing, recent developments in the
domestic financial markets have brought the focus on the NBFC sector (including housing finance
companies or HFCs) especially with regard to their exposures, quality of assets and asset-liability
mismatches (ALM). The liquidity stress in NBFCs reflected in the third quarter of the last financial
year (September - December 2018) was due to an increase in funding costs as also difficulties in
market access in some cases. Despite the dip in confidence, better performing NBFCs with strong
fundamentals were able to manage their liquidity even though their funding costs moved with
market sentiments and risk perceptions.

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In the CP market, the absolute issuance of CPs by NBFCs have declined sharply relative to its level
pre - IL&FS default. During the stress period, CP spread of all entities had increased, particularly
that of NBFCs, highlighting a reduced risk-appetite for them. Subsequently, the CP spread for
NBFCs has reduced and its gap vis-à-vis other issuers has narrowed. Thus, in a way, the IL&FS
stress episode brought the NBFC sector under greater market discipline as the better-performing
companies continued to raise funds while those with ALM and/or asset quality concerns were
subjected to higher borrowing costs. Post-crisis, while banks’ overall exposure to NBFCs
increased, their subscription to CPs of NBFCs continued to decline.

IL&FS Crisis
IL&FS refers to Infrastructure Leasing and Financial Services, a group of companies. They lend
money to infrastructure projects because the size and duration of those loans make them very
hard for regular lenders to be involved. As IL&FS cannot accept deposits from the public for
lending purposes, it gets its money by issued debt instruments, which are essentially a lending
contract that says that the lender will be repaid according to a contract. These contracts usually
specify the duration, interest rates, and when interest and capital are paid. Since 2016, it has
been relying mainly on short-term loans for its funding requirements. But, it extended long-term
loans to infrastructure projects. It led to an asset-liability mismatch. Short-term liabilities were
used to finance long-term assets. The company has over Rs.91000 crore in debt. There has also
been a slowdown in the infrastructure sector which has impacted the returns of IL&FS. IL&FS has
not been able to make the interest payments, which is the minimum requirement with most debt
instruments, on one kind of instrument it issues, which indicates that they are out of cash. The
IL&FS defaulted on several of its loans since 27th August 2018. Subsequently, the credit rating
agencies ICRA, CARE, and Brickwork abruptly downgraded IL&FS and its subsidiaries from high
investment grade to junk status. These large-scale defaults and credit downgrade led to a panic
in the Financial Markets.

Given that the loans they call in are longer-term, they are unlikely to get cash from those loans
being repaid, which means that all those investors who bought these debt instruments are
worried that they will not be repaid. The chain effect leads to panic and falling share prices of
companies that hold these instruments, and those to the next and so on. Several of the
companies here are insurance and mutual fund companies, which makes the situation even more
alarming.

Src: Investment Club, IIMB

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Pharma Sector
Overview
The pharmaceutical industry in India is valued at USD 36.7 billion (2018) and is the third largest
in terms of volume and 13th largest in terms of value globally. It is expected to reach USD 55
billion by 2020. India is the largest provider of generic drugs globally. Indian exports have a share
of 20% in global exports. The exports from India stood at USD 17.3 billion in 2018. Pharmaceutical
exports include bulk drugs, intermediates, drug formulations etc. Generic drugs with a market
share of 70% forms the largest segment of Indian pharma space. Over the Counter (OTC) drugs
constitute 21% and patented drugs comprise the remaining 9% of the Indian market share.

The Key Segments in the Indian Pharmaceutical Industry are as follows:

A. API Manufacturers / Traders (Bulk Drugs)

B. Formulation Manufacturers

C. Contract Research and Manufacturing Services Companies

D. Biotechnology Companies

The key drivers are majorly knowledge, skills, low production costs, and quality. Due to this there
is demand from both domestic as well as international markets.

India continues to rely on imports of key starting materials, intermediates and API’s from China
with the share of dependence increasing over time. This potentially exposes it to raw material
supply disruptions and pricing volatility.

The following are the factors which make India attractive to global pharma companies:

1. The cost of production (labour and raw material) in India is around one-third of that in
the US and almost half of that in Europe
2. Huge market for life-saving and lifestyle drugs
3. Potential for conducting R&D activities due to a large number of medical institutes and
ease & cost effectiveness of conducting clinical trails
4. Existing manufacturing capability to produce active pharmaceutical ingredients (APIs) as
well as intermediates at lower cost while maintaining quality
5. Product patent regime
6. India has maximum number of USFDA approved plants outside USA which are over 169
in number

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Value Chain

The pharma value chain involves three major components, in general:

1. Manufacturing of the medicine: In order in produce a medicine, a number of steps are involved,
from the initial research and development phase, to gaining regulatory approval which allows a
medicine to be sold in a market to the final commercialization phase. The specific steps and
requirements will differ between types of medicine, manufacturers and countries.

2. Distribution to the dispensing point: This step includes the transportation and handling of the
medicine from the manufacturer to the end user, whether this is a retail pharmacy (retailer),
hospital or dispensing doctor. The complexity of this journey will differ depending on
manufacturer location, the need for importation of the medicine, the nature of special handling
requirements, and the geographic location of the end user which will vary between large urban
centres and remote rural villages.

3. Dispensing to the end user: Providing the correct medicine dosage and form, to the right
patient, in a convenient and timely manner is the final step in the value chain. This step can also
involve a number of additional activities, including checking for potential interactions, providing
advice, and processing reimbursement claims, each of which is intended to ensure the patient
receives the full benefit and value from the medicines they receive.

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There are six key components which contribute to the price build-up of medicines:

1. Manufacturer selling price: the net acquisition cost of the medicine from the manufacturer,
reflecting all discounts, rebates or other reductions in price.

2. Cost, insurance, freight charges (CIF), import tariffs and charges: the cost of importing a
finished pharmaceutical product (FPP) or active pharmaceutical ingredient (API) into a country.

3. Importer margin: applied by the importer who is tasked with procuring and receiving delivery
of imported goods.

4. Distributor margin: applied by wholesalers and sub-wholesalers to perform the logistical role
of storing and subsequently transporting medicine to point of sale.

5. Retailer margin: applied by retailers in the final step of the distribution chain, the point at
which medicines are dispensed to patients.

6. Taxes: the final component of the price build-up which can include both national and regional
taxes.

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Porter’s Five Forces Analysis

Trends & Strategies

Some of the notable trends in the Indian pharma sector are as follows:

1. The percentage of turnover spend on R&D is likely to increase due to the introduction of
product patents and pressure to develop new drugs to boost sales. The Industry is
witnessing a paradigm shift as the focus is shifting from the manufacturing of generic
drugs to drug discovery and development (Sun Pharma, Cadilla Healthcare and Piramal
Life Sciences, had applied for conducting clinical trials on for numerous new drugs)
2. India’s export in the global markets is likely to increase as it will leverage its edge in the
generic space.
3. Indian pharma is witnessing healthy foreign direct investment, amalgamations and
collaborations (such as licensing, co- development, joint distribution and joint ventures)
for R&D, best practices, cost reduction, and to drive up efficiency.
4. Domestic manufacturers are looking to tap into international generic market with high
margins such as in Africa, NA etc.

The Indian pharma companies would look forward to the following to achieve its full potential:

1. Improve operational inefficiencies to reduce increasing costs and drive bottom-line

2. Strategic M&As to diversify portfolio and support top-line
3. Re-invent operating model to embrace specialty drug business model
4. Apply Advanced Analytics across Value Chain
5. Re-think organizational design for greater value

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Thus, cost leadership, differentiation, M&A and focus on new markets are the strategies adopted
by the pharma companies in general.

The following are the forces which could impact the industry:

1. Evolving regulatory landscape

2. Tech-enabled healthcare and engagement with doctors
3. Increased patient involvement in healthcare choices
4. Rise of the role of pharmacy

Key Performance Indicators

Return on research capital ratio: Since R&D is one of the major cost for Pharma companies it is
very useful metric to analyze the returns of the company from its research expenses. The return
on Research Capital (RORC) is a basic measure to show gross profit realized by the company for
each dollar of R&D expenditure.

RORC = (Gross Profit of current year) ÷ (R&D expense of previous year)

Profitability ratios: Operating Margin & Net Margin

Liquidity and Debt coverage ratios: Pharma companies do make huge capital expenditures on
R&D which are often debt financed. Hence, they should maintain adequate liquidity and manage
debt well.

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