ISI EMERGING MARKETS GROUP
Transcript of ISI EMERGING MARKETS GROUP
ISI EMERGING MARKETS GROUP
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Agenda
1. India’s USD 5tn Economy Dream
2. The National Infrastructure Pipeline
3. Roads
4. Renewables
INDIA’S USD 5TN
ECONOMY
DREAM
India’s Growth Trajectory
Motivation behind the National Infrastructure Pipeline
▪ Rapid urbanisation and changing demographic requirements
▪ Strengthening supply side reforms
▪ Increasing global competitiveness and attracting investments
▪ Boost employment and income generation
▪ Meeting the Sustainable Development Goals by 2030
Employment
Growth
Investments
-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%
0.0
50.0
100.0
150.0
200.0
250.0
Gross Domestic ProductConstant Prices, 2011-12
Source: CEIC, IMF, Central Statistics Office, Report of the Taskforce on National Infrastructure Pipeline
▪ Despite high growth projection, India’s USD 5tn
economy vision remains highly ambitious, especially
if the INR depreciates against the USD
▪ Government of India is intent on achieving the
target primarily through infrastructure development
due to the high multiplier effect
Fixed Capital and Economic Output across BRIC Nations
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Gross Fixed Capital Formation% of GDP
Brazil Russia India China
Note: For India, the year reflects the fiscal year (ending in March of following year) – for example 2020 means FY2021; adjustment made for comparisonSource: CEIC, World Bank
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
18,000.00
20,000.00
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Real GDPin USD bn
China India Brazil Russia
▪ China’s gross fixed capital formation as a percentage of GDP far exceeds its counterpart BRIC
nations, and even advanced economies such as the United States
▪ The Chinese economy, in 2020, was almost four times the size of the Indian or Brazilian economy
Pace of Capital Expenditure Requires Acceleration
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Gross Fixed Capital Formation
INR tn % y/y change
India would need to spend USD 4.5tn on
infrastructure development by 2030, to become
a USD 5tn economy by 2025 (and continue that
path until 2030). However, current yearly
spending is less than USD 100bn.
The budget for capital expenditure has registered an
increase of 34.5% y/y in comparison to budget
estimate for FY2021, and an increase of 26.2% y/y
when compared to the revised budget.
Source: CEIC, IMF, Central Statistics Office
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Capital ExpenditureYTD, % of Budget Estimate
Foreign Investments
Source: CEIC, Reserve Bank of India
In FY2021, India attracted total investments
inflows worth USD 80.1bn, the highest on record,
marking an increase of 80.3% y/y. Foreign direct
investments (FDI) to India, on the other hand,
declined 1.9% y/y in FY2021.
The share of foreign investment in construction
and infrastructure activities increased from 5% in
FY2020, to 15% in FY2021. As of Q1 FY2022, the
sector has received 5% of the total investments.
-100.0%
-50.0%
0.0%
50.0%
100.0%
150.0%
200.0%
0.010.020.030.040.050.060.070.080.090.0
FY
2014
FY
2015
FY
2016
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
Foreign Investment
Total Investment, USD bn
Direct Investment, USD bn
Total Investment, % y/y change, RHA
Direct, % y/y change, RHA
Top 10 Industries for Foreign Investments
Automobile Industry
Computer Software andHardware
Services Sector
Metallurgical Industries
Construction InfrastructureActivities
Trading
Glass
Hotel and Tourism
Chemicals, excl Fertilizers
FY2020
(Inner)
FY2021
(Middle)
Q1 FY2022
(Outer)
The Post-Lockdown Infrastructure Activity Scorecard
Source: CEIC, Info Edge, Department for Promotion of Industry and Internal Trade, Reserve Bank of India, Central Statistics Office, Ministry of Road Transport and Highways, Ministry of Commerce and Industry, Ministry of Railways
Jun-
17
Sep-
17
Dec-
17
Mar
-18
Jun-
18
Sep-
18
Dec-
18
Mar
-19
Jun-
19
Sep-
19
Dec-
19
Mar
-20
Jun-
20
Sep-
20
Dec-
20
Mar
-21
Jun-
21
THE NATIONAL
INFRASTRUCTURE
PIPELINE
National Infrastructure Pipeline – INR. 111tn Investments by FY2025
KEY HIGHLIGHTS
INR 111tnPlanned Capital
Expenditure
6 YearTime Period
12 MinistriesSpan
SECTOR WISE BREAK UP UNDER NIP
Energy, 24%
Roads, 18%
Urban, 17%
Railways, 12%
Irrigation, 8%
Rural Infra, 7%
Social Infra, 4%
Digital Infra, 3%
Industrial Infra, 3%
Agriculture & Food Processing , 2%
Ports, 1%Airports, 1%
FINANCING THE NIP
Budgetary
Sources
Private or Extra
Budgetary Sources
Innovative and
alternative
financing sources
Central Budget
(18-20%)
Financing by Banks (8-
10%)
Innovative and
alternative
financing (15-17%)
Bond Markets (6-8%)
State Budget
(24-26%)
Infrastructure NBFCs
(15-17%)
PSU Accruals, Equity and
Others (8-15%)
REFORMS:
➢ PPP
➢ Financial Reforms
➢ Sector Specific Reforms
Source: National Infrastructure Pipeline, National Monetization Pipeline, CARE Research
ROADS
The Road Ahead…
NIP SNAPSHOT
18%Share of total NIP value (INR 111tn)
1820+NH Projects identified
INR 20.34tnCapex over FY20-FY25
National highways
Private Sector
Innovative
Financing
Technology
CURRENT STATUS VISION 2025
132,000 km
15%
Limited asset
monetization
Limited
technology use
219,000 km
39%
INR 1.6tn
Increased use of
Fastag, RFID
devices
Strong Pace of National Highway Construction
National Highways – Projects Awarded and Completed
1594817055
5493
8948
1096510000
8231
982910855
10237
1332712000
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22(P)
Award (in km) Construction (in km)
Source: MoRTH, CARE Research
• Initiatives such as Bharatmala Pariyojana boost connectivity
• Government support was extended to contractors and concessionaires during the pandemic.
• Pace of construction to touch 15,000 km/year to achieve the NIP vision
Government Funded Modes Dominate
Mode of Projects Awarded Increasing Debt in NHAI
EPC and HAM are the more preferred mode of
project awards over the past few yearsResulting in increasing debt on NHAI’s balance
sheet
0.78
1.22
1.79
2.49
3.17
3.69
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 (Ex)
Trends in NHAI Debt, INR tnEPC
HAM
BOT
2017-18
2018-19
2019-20
(Inside to Outside)
Source: CARE Research
Asset Monetization – Key for fueling growth
NHAI to be the flag-bearer of the
government’s asset monetization programme
InvITs and TOTs to be preferred
monetization routes
• INR 1.6tn to be raised through the recently
announced National Monetization Plan (NMP)
over FY2022 to FY2025.
• Under NMP aggregate length considered for
Asset monetization is 26,700 km – Approximately
22% of the total national highways.
• NHAI has already raised Rs. 170 billion
through the TOT mode.
• NHAI is set to launch its maiden InvIT worth
Rs, 51 billion in 2021.
300 329440
5345,000 5,476
7,3308,894
0
100
200
300
400
500
600
0
2,000
4,000
6,000
8,000
10,000
FY2022 FY2023 FY2024 FY2025
Phasing under NMP
Monetization Value, INR bn (RHA) Length of Assets Monetized, Kms
Toll – Operate – Transfer (TOTs)
TOT Bundles Stretches Kms Amount Raised (INR bn) Year
TOT Bundle 1 9 682 97 2018
TOT Bundle 2 8 586 No takers 2018
TOT Bundle 3 9 566 50 2019
TOT Bundle 4 7 401 No takers 2019
TOT Bundle 5 2 160 22 2020
Total 35 2395 ~170
Source: National Monetization Pipeline, CARE Research
Steep uptick in private participation is vital
Private Sector Expenditure
continues to be weak
39% - expected share of private sector
Expenditure in NIP
489
832
9521,041
871
155 164216 219
108
2016-17 2017-18 2018-19 2019-20 2020-21 (upto Jan21)
Expenditure by NHAI, INR bn Expenditure by Private Sector, INR bn
24%
17%
19%17%
12%
Source: CARE Research
25%
36%
39%
Centre
State
Private
Evolution of regulatory framework to encourage private participation:• Changes in Model Concession Agreement (MCA) of BOT (Toll)
Project• Changes in MCA of TOT framework• Changes in MCA of HAM model• Greater transparency in operations
Return of participation in BOT mode
remains to be seen
RENEWABLE
ENERGY
Renewable to Lead Growth in Power Installations Through 2025 (NIP)
Current Snapshot Vision 2025
Hydro, 12%
Renewable, 25%
Thermal, 62%
Nuclear, 2%
Generation Category wise Installed Capacities (GW)-March'21
Hydro, 9%
Renewable, 39%
Thermal, 50%
Nuclear, 2%
Generation Category wise Installed Capacities (GW)-March'25
Requires Capital
Expenditure of ~USD 120
Billion / Rs. 8,730 Billion
Addition of
~171 GWSOLAR – 109 GW
WIND – 58 GW
OTHERS – 4 GW
94 GW 265 GW
Source: Central Electricity Authority, National Infrastructure Pipeline - Report of Task Force
*The original capital
expenditure for
renewables under NIP is
estimated at INR 9,295
billion. The revised capital
expenditure of INR 8,730
billion is capex estimated
from FY22 onwards
India’s Renewable Capacities More Than Doubled In Last 5 Years
All India RE Installed Capacity (GW)- Mar’2021 Driven by ……
2732 34 36 38 39
7
12
22
28
3540
8
8
9
9
10
10
4
4
4
5
5
5
0
10
20
30
40
50
60
70
80
90
100
Mar, 2016 Mar,2017 Mar, 2018 Mar,2019 Mar,2020 Mar,2021
Wind Solar Bio Small Hydro
Government Initiatives
▪ National Solar- Wind Hybrid Policy
▪ National Solar Mission
▪ Offshore Wind Policy
▪ Green Energy Corridor
Tariff Competitiveness
3.3 2.42.4 2.4 2.0
5.85.4
2.8 2.8 3.03.2 3.3 3.43.9
3.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2016-17 2017-18 2018-19 2019-20 2020-21
Trend in Tariffs (Rs./kWh)
Solar Power Wind Power Thermal PowerNote: RE - RenewableSource: Central Electricity Authority
46
56
69
78
88
98
Counterparty Risk is one of the biggest challenges for renewable generators
Discoms continue to be the weakest link, and payment delays by discoms continue to be
on an increasing trend for renewable generators
6.1 18.2
55.2
90.3
118.2
1.3
2.7
9.7
10.7
16.3
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Apr'17 Mar'18 Mar'19 Mar'20 Mar'21
Overdue Position to Discoms for REs (INR bn) & Monthly Billing Amount to Discoms for REs (INR bn)
Overdue Amount (RE) Amount Billed to discom (RE)
91%
9%
Conventional Renewable
51%34%
15%
CPSEs IPPs REs
Electricity Generation (BU), March'21
Summary of Overdue Amount, March'21
Note: CPSEs – Central Public Sector Enterprises, IPPs – Independent Power Producers, REs –Renewable GeneratorsSource: PRAAPTI
Financing of the Growth in Renewable Generation
Total Capital Requirement - ~ INR 8,730bn / USD 120bn
Debt ~ 70% i.e. INR 6,111bn (USD 84bn) Equity ~ 30% i.e. INR 2,619bn (USD 36bn)
• Tapping capital markets (both international &
domestic) through issuances of
• Green Bonds, Sustainable Bonds
• Innovative obligor/ co-obligor structure
which benefit from diversified
geography, counterparty and tariff with
structural features and protection
• Tapping long term institutional / endowment
and pension funds for equity financing (both
international and domestic)
• Ongoing asset recycling / monetization
including sale of stakes operation portfolios to
fund growth
3168
647
3014
450
35254312
913
4005
2330
4958
0
2000
4000
6000
2017 2018 2019 2020 2021 YTM
Bond Issuance Proceeds (USD million)
Green Bonds All Sustainable Bonds
784
1204
1446 1393
600
800
1000
1200
1400
1600
2017 2018 2019 2020
Foreign Direct Investments, in USD mn
High international investor interest - driven by ‘Green’ credentials / ESG readiness of the renewable sector
Source: ForbesIndia.com, Action Plan by Standing Committee on Energy (2020-21), MNRE
Other Measures that are critical to Achieve the Vision 2025 under NIP
1. Discoms –
➢ Sustainable improvement in balance sheet and fiscal position of utilities
➢ ‘Must Run’ Status for Renewable Generation
2. Boosting of Solar PV modules manufacturing in India
3. Regulatory Certainity
➢ Sanctity of PPA Contracts
➢ Unilateral Bid / Tender Cancelations
Operational Initiatives
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