Consulting Club Faculty of Management Studies, Delhi University
Edition # 1 October, 2013 Telecom 3 Automotive 10 Infrastructure 14 Energy 18 Information Technology 22 FMCG 29 Retail 42 BFSI 48 HealthCare 59 Contents 2 Telecom 3 Telecommunications Evolution 1947: Nationalization of all foreign telecommunication companies to constitute the posts and telegraph 1950: Telephone exchanges taken over from the princely states 1981: Contracts with a French company to merge with the state-owned ITI, to set up 5 million lines per year 1985: Establishment of DoT 1986: Establishment of VSNL and MTNL 1991: Telecom equipment manufacturing completely deregulated 1992: VAS opened to private sector participation 1994: NTP 1994 1997: Establishment of TRAI 1999: NTP 1999 2000: Establishment of TDSAT 2003: Unified Access Service License (UASL); Interconnect Usage Charges (IUC); and calling party pays (CPP) 2004: Broadband policy; universal licensing regime; and guidelines for intra- circle M&A 2006: DoT announces criteria for additional spectrum 2007: Cap on number of players in a circle removed 2008: New licenses granted by DoT 2010: 3G and BWA spectrum auction 2011: MNP launched Pan- India 1947-80 1980-90 1990-2000 2000-2005 2005-2011 4 Telecommunications Sector Composition Telecommunications Wireless Wireline Internet Others GSM CDMA Telecom Equipments Infrastructure DTH Players :
Wireless , Wireline, Internet: Airtel , Vodafone, RIM, Idea, Tata Teleservices, BSNL, MTNL etc Telecom Equipments : Ericsson, Huawei, Alcatel-Lucent , NSN, ZTE Infrastructure : Bharti Infratel, Juniper Networks, Cisco DTH : Dish TV, Sun Direct, Airtel, Tata , Reliance 5 Telecommunications Trends Shaping Future Digital and Mobile Technologies Hold Keys to Growth Digital and mobile-related markets are clearly an increasing priority for media and telecom companies. Industry leaders believe in the exploding potential of digital and mobile technologies and expect their companies to aggressively pursue these markets over the next year. However, as their sectors face dramatic transformational changes, they will need to shift focus and move quickly to adapt and capture resulting new opportunities. There is a significant increase in the importance of smart phone and tablet market Capital Spending and Investing Major companies are sitting with excess cash in their balance sheet and are looking to start spending and a lot of significant investments is already underway. The major areas where companies are looking to invest are new products and service, information technology and business acquisitions. A Challenging Market for Growth Challenging market conditions have hampered growth initiatives across many industries. Moving forward, media and telecommunications executives say they are most concerned about the economy (27 percent), their competitive position (24 percent), and keeping pace with changing technology (22 percent). Executives believe the most significant growth barriers for their companies over the next year will be lack of customer demand (37 percent), pricing pressures (35 percent), and staying on top of emerging technologies (29 percent). The rural opportunity will drive growth The draft NTP 2011 aims to increase rural teledensity from the current level of around 35 percent to 60 percent by the year 2017 and 100 percent by the year 2020. For the wireless segment, BWA technologies to be launched in 2012 will create additional voice as well as data opportunities.10 The Governments intention to minimize the cost per site in rural areas will mean affordable services for rural subscribers. For service and equipment providers, this means an opportunity to launch a host of new services and solutions customised for the rural market. Value-added services to drive growth Non-voice, value added services, will drive future growth in the Indian wireless market. The launch of 3G services by telecom players is expected to increase the demand for data services, especially in urban regions. While MVAS in urban areas will revolve around high- end applications enabling better information, entertainment and communication (for example instant messaging, social networking, high quality gaming, video sharing, streaming music, enterprise applications, etc.), in rural areas, empowerment of subscribers will come through basic, but more utilitarian services such as m-healthcare, m-governance, m-banking, m-education, etc. 6 Telecommunications Investment Opportunities Capital expenditure Telecom markets in the developed countries are highly saturated and fiercely competitive. Attracted by the favourable investment climate and encouraging market potential, many global telecom service providers forayed into the Indian telecom market in the last decade. The entry of new players stimulated investments in the sector, with capex by service providers growing at a CAGR of 20.6 percent during 2005-2010, to reach USD 7.3 billion.4 However, at a time when the country requires maximum capital infusion to expand networks and to meet roll-out challenges, capital expenditure has started to decline with service providers putting their expansion plans on the back burner. The sector has already witnessed service providers failing to meet roll-out obligations in many circles. Along with it, there has been a significant decline in FDI a 47 percent decline during April-December 2010 as compared to April- December 2009.5 One of the new entrants in Indias telecom sector has already lowered the investment outlook to INR 8.1 billion from its earlier guidance of INR 12.2 billion 21.6 51 117.3 123.4 75.5 0 20 40 60 80 100 120 140 2006-07 2007-08 2008-09 2009-10 2010-11 8.2 12.6 12.5 10 7.3 0 2 4 6 8 10 12 14 2006-07 2007-08 2008-09 2009-10 2010-11 FDI In Telecom Sector (In INR Billion) FDI In Telecom Sector (In USD Billion) Areas of investment opportunities Telecom equipment manufacturing The Indian telecom sector has witnessed a tremendous growth over the last decade, creating a huge demand for telecom equipments including towers, mobile handsets and Customer Premises Equipment (CPE). In 2009-10, the demand for telecom equipment in India stood at INR 547.7 billion, accounting for 5.5 percent of the global demand. Technology and R&D Strong R&D infrastructure, in addition to creating a large number of jobs, also increases competitiveness and creates intellectual property leading to self reliance in strategic sectors. The government, with the aim of promoting R&D in the country, has set up the Telecom Equipment and Services Export Promotion Council (TEPC) and the Telecom Testing and Security Certification Centre (TETC). A few major telecom equipment manufacturers have already set up their R&D centres in the country and a few others are also contemplating the idea. Green telecom An ever increasing demand for telecom services has led to a significant increase in energy consumption. Since demand for energy is largely met using non- renewable resources, posing the challenge of larger carbon emissions from the telecom sector. Also, the expenditure on energy accounts for a significant part of the operational cost of these networks.
7 Telecommunications Fact Sheet 8 Telecommunications Fact Sheet 9 Automotive 10 Auto Structure & Regulatory Environment Auto Automobile 2-Wheelers (1.54 cr units ann.) 3-Wheelers (9 lac units ann.) Passenger Vehicle (31 lac units ann.) Commercial Vehicle (9 lac units ann.) Component Engine Transmission Suspension Electrical Important Regulations Manufacturing of vehicles and imports are free from government licensing and approvals 100% FDI is permitted in the auto sector without any sort of approval from the government Removal of Quantitative Restrictions (QRs) from April 1, 2001 has allowed the import of vehicles, including in the passenger car segment where one can freely import subject to certain conditions notified by Directorate General of Foreign Trade (DGFT) To protect India from becoming a dumping ground for old and used vehicles produced abroad, the custom duty on the import of second hand vehicles including passenger cars has been raised to 111% Custom duty on Completely Built Units (CBU) has been increased to force foreign brands to set up manufacturing facilities in India
Facts Sixth largest market after China, US, Germany, Japan & Brazil; Expected to become #3 by 2015 A robust growth rate of 26% in FY 11 & FY 12 but the growth has slowed down significantly in FY 13 Auto component industry was US$ 43 bn in 2012 and is expected to grow at a CAGR of 11% to $66 bn in 2016 The Passenger vehicle segment has grown at a 7-year CAGR of 14% while commercial vehicle grew at 18% Penetration of luxury vehicles stands close to 1% compared to 4-5% in China and 14-15% in Germany
Automotive Parts Bharat Forge Motherson Sumi SKF Amtek Automotive Axle
23% 26% 18% 13% 20% MRF Apollo JK Tyres Ceat Others 12 Auto Drivers, Trends & Future outlook Growth Drivers Demographic Advantage: Huge working age population (target market)accounting for 60% of the total population Rapid urbanization: Urbanization leading to greater demand in all segments; 140m rural population to move to urban areas by 2020 Large set of skilled individuals: Highest number of engineers in the world, Large pool of skilled blue-collared labor Rising disposable incomes: Increasing disposable incomes mean greater share goes for major capital expenditure Untapped rural markets: Low penetration in rural markets but increasing incomes and rising awareness creates a lucrative segment Shrinking replacement cycle: Replacement cycles have declined due to enhanced and undesirable usage Growing road infrastructure: Greater and better access to roads encourages purchase of vehicles in remote areas Recent Trends Joint ventures with foreign collaborations-Volvo-Eicher, Toyota- Kirloskar and Ashok Leyland-Nissan (LCVs) Indian automobile companies have increasingly acquired businesses overseas to broaden revenue base, acquire technology and leverage distribution network India becoming part of the global strategy of foreign companies who are setting up manufacturing bases in India and exploring the option to use it as an export hub To adopt higher technical and quality standards, Indian companies are acquiring companies overseas to acquire skills, technology and customers Luxury car makers are lowering their entry price band to Rs.20- 25 lakh and lining up nearly half a dozen launches in the premium segments to draw in Indias rich and rev up volumes. Weakening freight rates have led to decline in volumes of M&HCVs but the sales of LCVs has picked up Surging raw material prices have put pressure on OEMs who have in turn tried to pass the cost to auto manufacturers
Future outlook By 2016, India will emerge as the destination of choice in Asia for the design & manufacturing of automobiles and automotive components. The output of the Indias automotive sector will be $145bn by 2016, (from $34bn in 2006) contributing to 10% of Indias Gross Domestic Product and providing employment to 25 mm people additionally. - According to Draft Automotive Mission Plan 2006-2016 by the Ministry of Heavy Industries & Public Enterprises. The niche luxury car segment, according to estimates of SIAM, saw sale of close to 23,000 units in India in 2011-12, which is slated to go up to 1,50,000 units by 2020 and growing at annual average growth rate of 40%. The Indian auto components industry is slated to grow to $66.3bn by 2015-2016 further growing at a compounded annual growth rate (CAGR) of~11% to reach at ~$115bn by 2021. Exports of auto components are slated to grow at a CAGR of ~18.8% to reach $29bn by 2021 Global majors will redefine brand positioning while domestic companies build R&D and optimize costs 13 Infrastructure 14 Infrastructure Sub-Segments Railways The growth in rail infrastructure has not matched the demand, with many projects running behind schedule, leading to time and cost overruns of more than 100%. Only 1,750 km of new lines was added from 2006 to 2011, as compared to 14,000 in China. The Indian Railways launched Vision 2020 in 2009, which outlined needs and targets to be achieved by 2020. Some of the major issues affecting the sector include insufficient funds, misplaced investment priorities, lack of timely reforms in organizations and inability to attract private investments. Ports Indias 13 major ports and 60 operational non-major ports handle 95% of the countrys external trade by volume and 70% by value. Port traffic has increased at CAGR of 8.1% to reach 884.6 million tones with an average utilization of ~90%, as compared to the international average of 70%. The main issues faced by ports include the level of containerization, custom procedures and insufficient connectivity to their hinterlands. The Maritime Agenda proposes an investment of INR1,280 billion in 424 projects in major ports and INR 1,680 billion in non-major ports by 2020. It is proposed that more than 80% of the investment in major ports will be made by the private sector. Roads and Highways Road infrastructure is of prime importance for the growth of the economy, since around 60% of freight and 85% of passenger traffic moves by road in India. The National Highways only constitute around 1.7% of the road network, but carry 40% of the total road traffic. Yet only 24% of the countrys national highways are four-lane and meet the required standards. The National Highway Development Programme (NHDP) is the largest and foremost infrastructure program being undertaken in country. The program envisages upgrading or strengthening of around 54,000 km of the highways in several phases with an investment of around INR3,000 billion. Airports Projects for upgradation, operation and maintenance for several major airports including the Delhi, Mumbai, Hyderabad and Bangalore airports are already in the process of being executed/ have been executed. It is estimated that the total investment requirement for expansion and modernization of the countrys airports to counter the aforementioned traffic increases is approximately US$ 10 billion. Domestic and international air traffic over the past three financial years has been increasing at over 35% per annum. Power Increased manufacturing activities and a growing population are also causing a surge in power usage. India has the fifth largest electricity grid in the world with 135 GW capacity, and the worlds third largest transmission and distribution (T&D) network. Large investments are needed to meet growing demand and provide universal access. An investment of US$167 billion is projected for electricity projects in the five year period from FY07-FY12. The massive number and scope of potential projects has attracted a number of new investors, lenders and operators. 15 Infrastructure Roadblocks & Overcoming them Roadblocks Land acquisition: The process needs to be streamlined, key policies and regulation reforms fast-tracked for enhanced implementation, a robust dispute resolution framework put in place, enhanced monitoring of projects implemented and funding facilitated. Regulatory approvals and environmental clearances : These are the major hindrance for successful delivery of projects. Multiple agencies are involved and various approvals required across the different stages of the project cycle. Project Planning and pre-tendering activities : The relevant authorities often side-step crucial project milestones such as land acquisition and prepare poorly planned projects in their rush to announce projects. Funding : Increased reliance on the private sector to develop and maintain infrastructure projects that are capital-intensive and have a long gestation period. Currently, developers and banks have exhausted their exposure limits to the infrastructure sector, respectively. Private Sector Capacity : The sector has financial and manpower constraints. Most large companies in India are now integrated players that execute projects as developers and EPC contractors. However, the total number of such players is low and they have already secured several projects, which limits their capacity to take up new projects. Lack of skilled manpower and shortage of construction equipment further compounds the problem. Overcoming Roadblocks The Government should also issue clear guidelines for sponsoring agencies on land acquisition, e.g. mandatory acquisition of 90% of the total land or 70% of the contiguous land, before offering projects for bidding. This will help agencies to be more rigorous in their project planning and diligence processes before initiating bidding, and thereby, avoiding delays at a later stage. The technical capabilities of consultants should be evaluated during the selection process and they should be selected on the basis of their experience and expertise. The dispute resolution process needs to be more effective and expeditious. The Government may consider setting up a single quasi- judicial authority for all infrastructure sectors, which would have statutory powers to resolve disputes between the authorities and private developers. An institutional mechanism to monitor and enforce provisions in PPP and/or EPC projects should be established to enable regulatory approvals to be speeded up. Government agencies often function independently and are minimally obligated to cooperate with sponsoring authorities to expedite the approval process. Setting up of Infrastructure Debt Funds (IDFs) and the reduction in Withholding Tax is expected to facilitate the flow of long-term debt into infrastructure projects. The Government can also infuse additional capital in major public sector banks to augment funding in short-term. 16 Infrastructure Fact Sheet 17 Energy 18 Energy Oil & Petroleum Products India was the fourth largest consumer of oil and petroleum products as well as the fourth largest importer of oil and petroleum products in 2011. Majority of imports continue to come from the Middle East Indian national oil companies (NOCs) are purchasing equity stakes in overseas oil and gas fields in South America, Africa, and the Caspian Sea region to acquire reserves and production capability. Major Players While state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL), control the majority of production and refining activity in India, other companies like Cairn India, a subsidiary of UK company Cairn Energy, controls 20 percent of India's crude oil reserves. Reliance Industries (RIL) and Essar Oil have also become major refiners. Downstream & Refining India became a net exporter of petroleum products in 2010. India had a refining capacity of 4.3 million bbl/d at the end of 2012. Jamnagar refinery owned by Reliance is the largest refinery in the world and accounts for nearly one-fourth of India's total refining capacity.
19 Energy Natural Gas, Coal & Electricity Natural Gas Natural Gas serves as a substitute for coal for electricity generation in India. It was the 6 th largest importer in 2011, accounting for 5% of the world market. Power and Fertilizer make up majority of demand at 45% and 28% respectively India had 43.8 Tcf of natural gas reserves in 2012. About 30% of these are onshore reserves, while 70 percent are offshore reserves. The two biggest state-owned companies, ONGC and Oil India Ltd. (OIL), dominate India's upstream gas sector Coal India has 5 th largest coal reserves in the world. Due to the gap between demand and supply, the imports have grown at 13% annually since 2001 The power sector is the largest consumer of coal, accounting for 73 percent of coal consumption in 2009 CIL remains the country's largest coal producer and produces about 80 percent of the country's coal Most coal reserves are located in the eastern parts of the country. Jharkhand, Chhattisgarh, and Orissa account for approximately 70 percent of the country's coal reserves
Electricity India had 211 gigawatts (GW) of installed electricity generating capacity Utilization rates in Indian power plants have fallen steadily since 2004 because of insufficient fuel supplies While 94 percent of urban households had electricity, only 60 percent of rural households had access The government established the Power Grid Corporation of India (POWERGRID) to operate five regional electricity grids, while state transmission utilities run most transmission and distribution segments
20 Energy Challenges, Opportunities & Facts Challenges Securing fuel Securing land and clearances Issues related to competitive bidding Worsening financial health of the distribution sector Project execution challenge Changes in regulation in transmission Competition from International OEM
Opportunities Strong growth in generation capacity led by per capita consumption, urbanization Alternative sources of energy Investment in clean technology Opportunity in power evacuation Gap in manufacturing capacity
21 Information Technology 22 Information Technology Evolution By early 90s, US-based companies began to outsource work on low- cost and skilled talent pool in India IT industry started to mature Increased investment in R&D and infrastructure started India increasingly seen as a product development destination The number of firms in India grew in size and started offering complex services such as product management and go-to market strategies Western firms set up a number of captives in India Firms in India became multinational companies with delivery centres across the globe (580 centres in 75 countries, as of 2012) Firms in India make global acquisitions The IT sector is expected to employ about 3.0 million people directly and around 9.5 million indirectly, as of FY13 Indias IT sector is at an inflection point, moving from enterprise servicing to enterprise solutions
Pre 1995 1995-2000 2000-05 2005-onwards 23 Information Technology Sector Composition Information Technology IT Services Business Process Management Software products and engineering services Hardware
Market Size: USD56.3 billion during FY13 Over 78 per cent of revenue comes from the export market BFSI continued as the major vertical of the IT sector Initially known as the BPO sector Rebranding as BPM: Moving to a full- service value provider Market size: USD20.9 billion during FY13 Around 85 per cent of revenue comes from the export market Market size: USD17.9 billion during FY13 Over 79 per cent of revenue comes from exports Market size: USD13.3 billion during FY12 The domestic market accounts for a significant share The domestic market is experiencing growth as the penetration of personal computers is rising in India 24 Information Technology Facts about the sector FY12 Market size: ~USD100 Billion Growth Rate: ~7% Exports (excluding hardware): ~USD 76 Billion Contributes 8% to Indias GDP (1.2% in FY98) Market Share Company Market Share TCS 10.7% Wipro 7.2% Cognizant 6.8% Infosys 6.3% HCL Tech 4.2% The top six firms contribute around 36 per cent to the total industry revenue, indicating the market is fairly competitive IT Services largest contributor to revenue. Hardware the smallest Revenue Contribution Export Revenue Contribution Domestic Revenue Contribution IT Services+ BPO largest contributor. Hardware is negligible Hardware is a major contributor domestically 25 Information Technology Facts about the sector Key observations BFSI followed by Telecom is the largest vertical contributor to revenues This is a trend both in exports and domestically Highly dependent on US-UK for export revenues Most exports come from the US (~60%) and UK Non US-UK countries provide just 21% India is emerging as the global delivery hub of IT Services The number of global delivery centres of IT firms in India reached 580, spreading out across 75 countries, as of 2012 Global delivery model Increased focus on R&D by IT firms in India resulted in rising number of patents filed by them The number of patents filed by the top three IT companies increased to 858 in 2012 from 150 in 2009 Increased R&D focus Large players with a wide range of capabilities are gaining ground as they move from being simple maintenance providers to full service players, offering infrastructure, system integration and consulting services Large players advantage Increased emphasis on beyond cost benefits IT firms in the current phase have moved up the value chain, providing innovation-led growth to clients from SLA satisfaction and RoI calculations Cost to value play Tier II and III cities are increasingly gaining traction among IT companies Cheap labour, affordable real estate, favourable government regulations, tax breaks Giving rise to the domestic hub and spoke model, with Tier I cities acting as hubs and Tier II, III and IV as network of spokes (Jaipur, Trivandrum are doing well) Emergence of Tier II cities Emerging trends in the IT & ITeS sector New technologies Cloud computing Reduced capital footprint. Increased flexibility, efficiency, scalability, ease of maintenance Slow movement. Apprehensions, high risk Platform BPO Packaging a technology platform with a domain application Reduced Total Cost of Ownership(TCO), pay-by-volume pricing 26 Information Technology Growth Drivers and insights Overshadowed by services. Small contributor to overall sector revenues The last decade has seen the number of Indian product companies - not including captive R&D centres grow in number The software product segment is undergoing a rapid change and is approaching a new phase of accelerated growth This sector has seen significant venture capital and incubation to go with a growing market Challenges Entry barriers due to MNC presence Lack of sufficient talent Attractiveness of IT services
Banking sector has seen high quality products (Finacle, FlexCube). New products in education and training, logistics, healthcare, cleantech, talent management and mobile applications are showing a lot of promise Software Product Industry : Something to look at IT Sector : Growth Drivers 4.7 million graduates are estimated to have been added to Indias talent pool in FY13 Strong mix of young and experienced professionals Talent Pool Global IT offshore spending is expected to rise at a CAGR of 8.0 per cent during FY1113 Global BPM spending is estimated to expand at a CAGR of around 7.0 per cent during FY1113 Global Demand Tax holidays for STPI and SEZs Procedural ease and single window clearance for setting up facilities Policy Support Computer penetration expected to increase Government likely to become a major contributor to domestic demand by 201314 Domestic Growth Robust IT infrastructure across various cities in India such as Bengaluru Delivery centres spread across various countries Infrastructure 27 Information Technology Conclusion After the economic reforms of 1991-92, major fiscal incentives provided by the Government of India and the State Governments, like, liberalization of external trade elimination of duties on imports of information technology products relaxation of controls on both inward and outward investments and foreign exchange setting up of Export Oriented Units (EOU), Software Technology Parks (STP), and Special Economic Zones (SEZ)
For Start ups focussed on technology and innovation, Tax breaks on inhouse R&D expenditure Various R&D projects have been funded through new schemes like Support International Patent Protection in Electronics & IT (SIP-EIT), Multiplier Grants Scheme (MGS). Government initiatives Key factors that explain success of Indias software industry Favourable conversion rates. Significant cost savings. Software requires more of human capital. Limited infrastructure and capital investment. Has good cash flows and highly profitable India had an early mover advantage; repeated positive experience built trust in outsourcing and validated the Indian brand Early investments in engineering education and its privatization Positive government policies Large population created competition for engineering seats and jobs. Software industry faced no internal competition for talent 28 FMCG 29 FMCG Household care Personal care Food & Beverages Health care Fabric wash, household cleaners Oral care, hair care, skin care, cosmetics/deodorant s, perfumes, feminine hygiene and paper products Health beverages, staples/cereals, bakery products, snacks, chocolates, ice cream, tea/coffee/soft drinks, processed fruits & vegetables, dairy products, and branded flour OTC products and ethicals 30 FMCG Composition 31 FMCG Evolution Indian FMCG companies are consolidating their existing business portfolios Consolidation Several companies have started innovating or customising their existing product portfolios for new consumer segments Product innovation Consumers are becoming more brand conscious and prefer lifestyle and premium range products given their increasing disposable income Brand consciousness A number of companies are exploring the business potential of overseas markets and several regional markets Expanding horizons Backward integration is becoming the preferred strategy for increasing profit margins Backward integration Companies are now focusing on the rural market segment which is growing at a rapid pace and contributes about 33 per cent to the total FMCG market Focus on rural market Companies are now focused on improving their distribution networks to expand their reach in rural India Expanding distribution networks 32 FMCG Trends (1/2) This approach has helped FMCG companies focus on front-end marketing Reservation of several items for SSI as well as additional tax incentives have made third party manufacturing a popular route for many big players Third-party manufacturing Companies are increasingly introducing smaller stock keeping units at reduced prices. This helps them to sustain margins, maintain volumes from price-conscious customers and expand their consumer base Rising importance of smaller-sized packs Small towns are emerging as significant hiring zones. FMCG companies are hiring field staff from areas such as Kalpa (Himachal Pradesh), Mangaliya (Madhya Pradesh), Kota (Rajasthan), and Shirdi (Maharashtra) to sell diverse products Increased hiring from tier II/III cities FMCG companies entering Africa as it helps to be close to consumption markets within Africa Such foreign investments are encouraged by local governments, as they offer incentives to enter the markets Focus on enhancing presence in Africa FMCG players in India are increasingly focussing on reducing their carbon footprint by creating eco-friendly products. They generate the required energy from renewable sources and earn CER credits for the same Reducing carbon footprint and eco- friendly products 33 FMCG Trends(2/2) 15.7 17.8 21.3 24.2 30.2 34.8 0 10 20 30 40 2006 2007 2008 2009 2010 2011 Trends in revenue (USD billion) CAGR 17.3% Source: Dabur, AC Nielsen, Aranca Research 43% 22% 12% 8% 4% 4% 2% 5% Market break-up by revenues (2009) Food products Personal care Fabric care Hair care Households OTC products Baby care Others Source: Dabur, Aranca Research INSIGHTS: Food products is the leading segment, accounting for 43.0 per cent of the overall market Personal care (22.0 per cent) and fabric care (12.0 per cent) are the other leading segments 34 FMCG Revenue Trends Increasing per capita income of rural & urban consumers Growing popularity of organized retail Rise of rural consumers Governments pro-industry policies FDI support Per-capita income in the country expanded at a CAGR of 12.5% over 2001-11 Strong income growth is set to continue in future as well; IMF forecasts point to a CAGR of 8.8% over 2012-17 to USD 2,428.5 An important consequence of rising incomes is growing appetite for premium products, primarily in the urban segment The Indian government has been supporting the rural population with higher MSPs, loan waivers, and disbursements through the NREGA programme These measures have helped in reducing poverty in rural India and have thus propped up rural purchasing power Growing awareness, easier access, and changing lifestyles has meant growing consumer spending in modern retail stores Spending at modern retail stores in India shot up by 31% in 2011 compared to the previous year Modern retail spending is expected to shoot up to USD5 billion in 2015 from USD1.8 billion in 2011 The sector has been witnessing healthy FDI inflows over the years; in fact, during FY01-13, FMCG accounted for 1.9% of total inflows Within FMCG, food processing was the largest recipient; its share was 46.8% 35 FMCG Growth drivers GST for the purpose of integrating multiple indirect taxes under a unified tax system is likely to be implemented in 2013 The rate of GST on services is likely to be 16% and on goods is proposed to be 20% Goods and service tax (GST) The current excise duty is 12% However, for consumers, it is expected that there will be more money to spend on FMCG products as income tax exemptions limits have been hiked to INR 200,000 Excise duty Industrial license is not required for almost all food and agro- processing industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive manufacture in the small-scale sector Relaxation of license rules In October 2009, the government amended the Sugarcane Control Order, 1966, and replaced the Statutory Minimum Price (SMP) of sugarcane with Fair and Remunerative Price (FRP) and the State-Advised Price (SAP) Statutory Minimum Price The government recently approved 51% FDI in multi-brand retail, which will boost the nascent organised retail market It also allowed 100% FDI in the cash &carry segment and in single-brand retail FDI in organized retail 36 FMCG Regulatory environment Market Share of major players in few FMCG categories 37 FMCG Major players (1/3) It is Indias largest consumer goods company based in Mumbai, Maharashtra. It is owned by the British-Dutch company Unilever which controls 52% majority stake in HUL. HUL was formed in 1933. Its products include foods, beverages, cleaning agents and personal care products. Revenue 22,116 crore (US$4.03 billion)(2011- 2012) Hindustan Unilevers distribution covers over 2 million retail outlets across India directly and its products are available in over 6.4 million outlets in the country. As per Nielsen market research data, two out of three Indians use HUL products. In 2012, HUL was recognised as one of the worlds most innovative companies by Forbes. With a ranking of number 6, it was the highest ranked FMCG company. It was formed in 1970 by Henry Overton Wills and Yogesh Chander Deveshwar, (Chairman). Headquarters in Kolkata, West Bengal, India. In FMCG, ITC has a strong presence in : Cigarettes: W.D. & H.O. Wills, Gold Flake Kings, Gold Flake Premium, Navy Cut, Insignia, India Kings, Classic (Verve, Menthol, Menthol Rush, Regular,Citric Twist, Mild & Ultra Mild), 555,Benson & Hedges, Silk Cut, Scissors, Capstan, Berkeley, Bristol, Lucky Strike, Players and Flake. Foods: (Kitchens of India; Aashirvaad, Minto, Sunfeast, Candyman, Bingo, Yippee, Sunfeast Pasta brands in Ready to Eat, Staples, Biscuits, Confectionery, Noodles and Snack Foods). Apparel: (Wills Lifestyle and John Players brands) Personal care: (Fiama di Wills; Vivel; Essenza di Wills; Superia; Vivel di Wills brands of products in perfumes, haircare and skincare) Stationery: (Classmate and PaperKraft brands) Safety Matches and Agarbattis: [Ship ; Mangaldeep; Aim brands] Hindustan Unilever Limited ITC Limited 38 FMCG Major players(2/3) P&G is one of the largest and amongst the fastest growing consumer goods companies in India. Established in 1964, P&G India now serves over 650 million consumers across India. Its presence pans across the Beauty & Grooming segment, the Household Care segment as well as the Health & Well Being segment. These include Vicks, Ariel, Tide, Olay, Gillette, Ambipur, Pampers, Pantene, Oral- B, Head & Shoulders, Wella and Duracell. P&G operates under three entities in India - two listed entities Procter & Gamble Hygiene and Health Care Limited and Gillette India Limited, as well as one 100% subsidiary of the parent company in the U.S. called Procter & Gamble Home Products. Dabur India Limited is the fourth largest FMCG Company in India with interests in Health Care, Personal Care and Food Products. It is public company listed in NSC and BSC. It has 17 ultra-modern manufacturing units spread around the globe and its products are marketed in over 60 countries. Products-Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola & Real. It is most famous for Dabur Chyawanprash and Hajmola. Founded in 1884 and the Founder is Dr. S K Burman, in Kolkata (West Bengal) and the company headquarters are in Ghaziabad, Uttar Pradesh. Net income(INR) 1475 Crore (2008-09). Total assets(INR) 1559 crore (2008- 09) Employees3000 (Approx.)
Proctor & Gamble Dabur 39 FMCG Major players(3/3) 40 FMCG Key mergers and acquisitions Leading players of consumer products have a strong distribution network in rural India; they also stand to gain from the contribution of technological advances such as internet and e-commerce to better logistics Rural FMCG market size is expected to touch USD 100 billion by 2025 Rural market Indian consumers are highly adaptable to new and innovative products. For instance there has been an easy acceptance of mens fairness creams, flavoured yoghurt, and cuppa mania noodles Innovative products With rise disposable incomes mid- and high-income consumers in urban areas have shifted their purchase trend from essential to premium products In response, firms have started enhancing their premium products portfolio Premium products Indian and multinational FMCG players can leverage India as a strategic sourcing hub for cost-competitive product development and manufacturing to cater to international markets Sourcing base Low penetration levels offer room for growth across consumption categories Majors players are focusing on rural markets to increase their penetration in those areas Penetration 41 FMCG Growth opportunities Retail 42 Pre 1990s Manufacturers opened their own outlets 199005 Pure play retailers realised the potential of the market Most of them in apparel segment 200510 Substantial investment commitments by large Indian corporate Entry in food and general merchandise category Pan-India expansion to top 100 cities Repositioning by existing player 2010 Onwards Movement to smaller cities and rural areas More than 56 players with revenues more than USD700 million Large scale entry of international brands FDI in single-brand retail up to 100 per cent from 51 per cent Approval of FDI limit in multi-brand retail up to 51 per cent Rise in private label brands by retail players Increasing investments in retail infrastructure Initiation Expansion Conceptualization Consolidation 43 Retail Evolution Departmental stores Cash & Carry stores Specialty stores Hypermarkets Supermarkets Retail Pantaloon has 65 stores
Trent operates 59 stores
Shoppers Stop has 51 stores
Reliance Retail has launched Trends in this format Pantaloon Retail is the leader in this format with 160 Big Bazaar stores
HyperCITY (4 stores), Trent, Spencers (Spencer Hyper), Aditya Birla Retail (additional 14 stores) and Reliance are other players Aditya Birla Retail (additional 509 stores)
Spencers (Daily, 220 stores)
Reliance Fresh (458 stores)
REI 6Ten (350 stores) are the major players in this format Titan Industries is a large player, with 320 World of Titan, 130 Tanishq and 177 Titan Eye+ shops
Vijay Sales, Croma and E-Zone are into consumer electronics
Landmark, and Crossword focus on books and gifts Metro started the cash-and-carry model in India; the company operates five stores across Mumbai, Kolkata, Hyderabad and Bangalore
Bharti Walmart started its cash-and- carry outlets in 2011 44 Retail Composition (by store-type) Market Share (2012) In 2012, Food and Grocery accounted for nearly 60.0 per cent of total revenues in the retail sector followed by Apparel (8.0 per cent) In 2011, 48 per cent of total household income in India was spent on food and groceries Demand for Western outfits and readymade garments has been growing at 40-45 per cent annually; apparel penetration is expected to increase to 30-35 per cent by 2015
45 Retail Composition (by product) In 2006, FDI in Single brand retail was first allowed, upto 51%, with prior approval FDI in multi-brand retail was first proposed in 2008 In 2012, Government approved 51 per cent FDI in multi-brand retail and increased FDI limit to 100 per cent (from 51 per cent) in single brand retail For Single brand retail, The requirements are Products to be sold under the same brand internationally, and sale of multi brand goods is not allowed, even if produced by the same manufacturer For FDI above 51 per cent, 30 per cent sourcing must be from SMEs Any additional product categories to be sold under single brand retail must first receive additional government approval For Multibrand Retail, the requirements are Minimum investment cap is USD100 million 30 per cent procurement of manufactured or processed products must be from SMEs Minimum 50 per cent of total FDI must be invested in back-end infrastructure FDI in Retail Regulations Benefits Removes the middlemen and provides a better price to farmers Development in the retail supply chain system Multi brand retail would keep food and commodity prices under control Will cut agricultural waste as mega retailers would develop backend infrastructure Consumers will receive higher quality products at lower prices and better service
46 Retail Regulatory environment(1/2) Goods and Services Tax 47 Retail Regulatory environment(2/2) BFSI 48 BFSI Overview Sector at a glance Broadly, the BFSI sector can be broken down into the following main divisions as shown in Figure 1. The Indian financial sector (including banks, non-banking financial companies, or NBFCs, and housing finance companies, or HFCs) reported a compounded annual growth rate (CAGR) of 19% over the last three years and their credit portfolio stood at close to Rs. 49 trillion (around 62% of 2011-12 GDP) as on March 31, 2012.
Composition Banks accounted for nearly 86% of the total credit, NBFCs for around 10%, and HFCs (Housing Finance Corporations) for around 4%. Within banks, public sector banks (PSBs), on the strength of their country-wide presence, continued to be the leader, accounting for around 76% of the total credit portfolio, while within the NBFC sector, large infrastructure financing institutions accounted for more than half the total NBFC credit portfolio; NBFCs that are into retail financing took up the rest.
Banking Banks accounted for nearly 86% of the total credit, NBFCs for around 10%, and HFCs (Housing Finance Corporations) for around 4%. Within banks, public sector banks (PSBs), on the strength of their country-wide presence, continued to be the leader, accounting for around 76% of the total credit portfolio, while within the NBFC sector, large infrastructure financing institutions accounted for more than half the total NBFC credit portfolio; NBFCs that are into retail financing took up the rest.
49 Banking Sector Evolution and growth The Indian banking industry has its foundations in the 18th century, and has had a bumpy evolutionary growth path since then. The industry in recent times has recognized the importance of private and foreign players in a competitive scenario and has moved towards greater liberalization Prior to 1950: Evolutionary Phase I. The Three Presidency Banks: The Bank of Calcutta was the first part of the golden triangle- established in June 1806, it which was renamed as Bank of Bengal in January 1809. This was followed by the establishment of the Bank of Madras in July 1843. The last presidency bank- Bank of Bombay which was also last bank to be set up under the British Raj was established in 1868. The three banks with their 70 branches were merged in 1921 to form the Imperial Bank of India which took on a triple role of a commercial bank, bankers bank and government bank. II. Establishment of RBI (1935): Established as the central bank under the Reserve Bank of India act 1934, this ended the Imperial Banks role as the quasi central bank. III. Banking Regulation Act (1949): The Act vested in the Reserve Bank of India the responsibility relating to licensing of banks, branch expansion, and liquidity of their assets, management and methods of working, amalgamation, reconstruction and liquidation. Thus giving RBI authority along with responsibility & igniting the first part of banking transformation in India.
1968-1980: Expansion phase I. Nationalisation (1969 and 1980): 14 banks in 1969 and 6 banks in 1980 were nationalized bringing 90% of bank deposits under government control. This was termed as First Banking Revolution in India. II. Rapid branch expansion III. Retail lending to risk prone areas at concessional rates
1950-1968: Foundation phase I. Establishment of State Bank of India: In 1951, when the First Five Year Plan was launched, the development of rural India was given the highest priority. In order to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank by taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955 II. Complex interest rates III. Government adopted the system of planned economic development
50 Banking Sector Evolution and growth 1985-1990: Consolidation phase I. Lack of professionalism and transparency: Average return on assets in the second half of the 1980s was only about 0.15%, while capital and reserves averaged about 1.5 per cent of assets. Given that global accounting standards were not applied, even these II. indicators are likely to have exaggerated the banks true performance. Further, in 1992/93, non-performing assets (NPAs) of 27 public-sector banks amounted to 24 per cent of total credit, only 15 public- sector banks achieved a net profit, and half of the public-sector banks faced negative net worth. III. Series of policy initiatives taken with objectives of consolidation of banks: Understanding the fact that a sound banking system is a must for development of every economy, the then government thus initiated the 'Banking Sector Reforms'. The first step towards these reforms was taken in 1989 by setting up of Narasimham Committee.
1991 onwards: Reformatory phase The year 1991 which is also called as the year of 'Banking Sector Reforms' opened the gates to the private sector & to foreign banks which in turn significantly increased the level of competition . Seven new private banks entered the market between 1994 and 2000. In addition, over 20 foreign banks started operations in India since 1994. By March 2004, the new private sector banks and the foreign banks had a combined share of almost 20% of total assets. In addition to above recommendation the other major contributors to the revamping of the banking sector was the progressive lowering of SLR & CRR, introduction of Basel Norms, , deregulation of interest rate, redefining of priority sectors, Golden Handshake Scheme & merger of the week banks with the stronger banks.
51 Banking Sector Structure today 52 Banking Sector The Rising Sun of Indian growth story Current standing and Key features I. The Indian banking industry has its foundations in the 18th century, and has had a bumpy evolutionary growth path since then. The industry in recent times has recognized the importance of private and foreign players in a competitive scenario and has moved towards greater liberalization II. In todays scenario, Current and saving accounts (CASA) are the banks lifeline for profitable growth, but during FY2012 high interest rate choked them of such deposits, slowing expansion to a five-year low of 7% III. Credit growth of the Scheduled Commercial Banks (SCBs) slowed down to 18.10%1 on FY2012, which was 22.90% in FY2011 on account of the slowdown of the general economy. It is expected that the credit growth in FY2014 will be in the range of 16-18%2 as there is increasing demand for working capital loans and refinancing of FOREX loans by Indian corporates IV. The growth of total deposits of the (SCBs) stood at 14.92% on FY2012, Vs 18.31% in FY2011. The deposit growth is expected to moderate to 14-17% over FY 2013-15 with stable Net Interest Margins (NIM). NIM of SCBs in FY2012 was 2.90% on average V. In the present competitive scenario, Private banks are targeting the faster growing retail loans and also improving the growth rate in fee income by increasing transaction fees, where as Public Sector Banks are targeting to push for higher recoveries and upgrades in Non Performing Loans (NPL) and also improving their deposits mix by reducing the share of bulk deposits Current players I. Indian banks consist mostly of Scheduled commercial bank (SCBs), which includes both Public Sector Banks, and the Private Sector Banks. In Public Sector Banks, the government must retain a 51% stake II. Old Private sector banks are those banks which were not nationalized at the time of bank nationalization that took place during 1969 and 1980. Most of the old private-sector banks are closely held by certain communities and their operations are mostly restricted to the areas in and around their place of origin. e.g Federal Bank, Dhanalaxmi Bank, ING Vysya Bank III. New private sector banks include those that were established in the past twenty years such as Yes Bank, Axis bank and existing institutions that were converted into commercial banks, such as the former development institution ICICI and specialized lenders such as HDFC IV. Cooperative banks are small-sized units registered under the Co-operative Societies Act., that essentially lend to small borrowers and businesses. Eg. Punjab & Maharashtra Co-op. Bank Ltd., New India Co-op. Bank Ltd V. Regional Rural Banks are mainly focused on the agro sector. These banks are in every corner of the country and extend a helping hand in the growth of the country. Eg. National Bank for Agriculture and Rural Development (NABARD), Haryana State Cooperative Apex Bank Limited 53 Banking Sector Financial Products
54 Banking Sector Financial Products
Retail Banking I. Typical mass-market banking in which individual customers use local branches of larger commercial banks. Services offered include savings and checking accounts, mortgages, personal loans, debit/credit cards and certificates of deposit (CDs) II. Retail banking is a buzzword in India that focuses strictly on the consumer market. Most bank have retail portfolios as part of their total lending portfolio (18.4% on average). This sector has been growing at a high rate of 30 to 35% per annum III. As per a survey conducted by CLSA, Consumer credit penetration is only 8% of the GDP in India, which is expected to rise further quickly IV. The growth is mainly led by growth in credit card receivables and other personal loans V. Housing loans continued to constitute almost half of the total retail portfolio of banks Wholesale Banking I. Wholesale banking provides services to large corporate bodies, mid-sized companies, international trade, other banks and financial Institutions. This service contributes 30% to India's total banking revenues, with ROE in the range of 15% to 30% II. From $16 billion in FY 2010, wholesale banking revenues are expected to rise to a whopping $35 billion to $40 billion by FY 2015 III. To sustain Indias economic growth, the Planning Commission therefore envisages that $1 trillion (about 10% of GDP) will be spent on infrastructure during the 12th plan from 2012 to 2017 IV. Infrastructure development, simplified FDI and globalization in Indian Companies are key drivers of wholesale banking 55 Banking Sector Financial Products
Treasury Banking I. The core function of a treasury is the measuring, monitoring, and controlling of interest rate risk (IRR). Typically the department would employ a variety of standard and proprietary models to measure this risk II. Traditionally, the treasury function in banks was limited to funds management i.e., maintaining adequate cash balances to meet the day-to-day requirements and deploying surplus funds from operations III. The scope of treasury has now expanded beyond liquidity management and it has now evolved as a profit centre with its own trading and investment activity IV. Treasury activity in a bank depends on its size, complexity of operations, and risk profile 56 Banking Sector Looking ahead
Opportunities I. High growth of Indian economy: The growth of the banking industry is closely linked with the growth of the overall economy. India is one of the fastest growing economies in the world and is set to remain on that path for many years to come. This will be backed by the stellar growth in infrastructure, industry, services and agriculture. This is expected to boost the corporate credit growth in the economy and provide opportunities to banks to lend to fulfil these requirements in the future II. Rising per capita income: The rising per capita income will drive the growth of retail credit. Indians have a conservative outlook towards credit except for housing and other necessities. However, with an increase in disposable income and increased exposure to a range of products, consumers have shown a higher willingness to take credit, particularly, young customers III. New channels: Mobile banking is expected to become the second largest channel after ATMs. After ATMs, mobile banking is expected to give another push to this industry growth in a big way; with the help of new 3G and smart phone technology. This can be looked at as branchless banking and so will also reduce costs. This will help in acquiring new customers, mainly in rural areas IV. Financial inclusion: Currently, in India, 41% of the adult population doesnt have bank accounts, which indicates a large untapped market for banking players. Under the Financial Inclusion Program, RBI is trying to tap this untapped market and the growth potential in rural markets by volume growth for banks. Financial inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. Challenges I. Basel III: As per the norms, banks will have to augment the minimum core capital after a stringent deduction. In this scenario, the bank would not be supposed to use its earnings to make discretionary payouts such as dividends, shares buyback, etc. The counter cyclical buffer, achieved through a pro-cyclical build up of the buffer in good times, is expected to protect from system-wide risks arising out of excessive aggregate credit growth. II. Increasing non-performing and restructured assets: Due to a slowdown in economic activity in past couple of years and aggressive lending by banks many loans have turned non-performing. Restructuring of assets means loans whose duration has been increased or the interest rate has been decreased. The key challenge going forward for banks is to increase loans and effectively manage NPAs while maintaining profitability. III. Intensifying competition: Due to homogenous kind of services offered by banks, large number of players in the banking industry and other players such as NBFCs, competition is already high. Recently, the RBI released the new Banking License Guidelines for NBFCs. So, the number of players in the Indian banking industry is going to increase in the coming years IV. Managing Human Resources and Development: Banks have to incur a substantial employee training cost as the attrition rate is very high. Hence, banks find it difficult manage the human resources and development initiatives. 57 Banking Sector Exhibits
58 Healthcare 59 The Healthcare Industry in India functions through 5 segments Hospitals
This sector includes Government Hospitals PHCs, District Hospitals , General Hospitals and Private Hospitals nursing homes, mid tier and top tier private hospitals.
Hospitals account for 71% of the Healthcare industry by revenues.
Private sectors share in hospitals and hospital beds is estimated at 74% and 40%, respectively. Pharmaceutical
It includes manufacture, extraction, processing, purification and packaging of chemical materials for use as medications. Also includes Bio-pharma
The countrys pharma industry accounts for about 1.4 % of the global pharma industry in value terms and 10 % in volume terms
Generic Drugs form the largest segment of this sector with 72% share Diagnostics
It comprises businesses and laboratories that offer analytical or diagnostic services, including body fluid analysis.
This market is valued at roughly $800 million and is growing at a CAGR of around 20%.
The key growth products include haematology, reagents, molecular diagnostics (40% of the market), and speciality diagnostics. Medical Equipment and Devices
It includes establishments primarily manufacturing medical equipment and supplies
Indias medical devices market was worth $3 billion in 2011 and grew at roughly 15 per cent annually in that year.
It is expected to grow at a 16 per cent compounded annual clip during the 2010- 2015 period. Medical Insurance
It includes health insurance and medical reimbursement facility, covering an individuals hospitalisation expenses incurred due to sickness.
The health insurance market is expected to grow 32.5% in the next few years till 2015. The share of population having medical insurance is likely to rise to 20 % by 2015 from the present 2% 60 Healthcare Composition Shift from Communicable to Lifestyle Diseases
Emergence of Telemedicine
Increasing penetration of health insurance
Export Revenue Expansion by Indian players abroad
Historically communicable diseases have formed a major portion of the overall Indian disease profile. However, with shift in lifestyles, non-communicable diseases are likely to overtake as the major cause of ailments. In 2006, cardiac, oncology and diabetes collectively accounted for 13% of the hospitalization cases. In terms of value these three ailments accounted for 36% of the inpatient revenues. Telemedicine is a fast-emerging sector in India; many major hospitals (Apollo, AIIMS, Narayana Hrudayalaya) have adopted telemedicine services and entered into a number of PPPs. In 2012, the telemedicine market in India was valued at USD7.5 million, and is expected to rise at a CAGR of 20 per cent, to USD18.7 million by 2017. Telemedicine can bridge the rural-urban divide in terms of medical facilities. With less than 15% of the Indian population covered by some form of health insurance, which includes Government-sponsored schemes, the majority of BPL families are unable to access healthcare facilities. In such cases, health insurance can ensure the poor have better access to healthcare. From under 2% of the total population in 2005 to more than 20% (expected) in 2015-16, Healthcare insurance has grown a long way. The pharmaceutical export market in India is thriving due to strong presence in the generics space. Pharmaceuticals Exports Promotion Council expects pharma exports to reach USD25 billion in 2016 from the present level of US $14.6 billion. The Government has also planned a Pharma India brand promotion action plan spanning over a three-year period to give an impetus to generic exports. Drug manufacturers are currently the most aggressive overseas investors of all Indian industries. They are pursuing foreign acquisitions due to their need to: - Improve global competitiveness - Move up the value chain - Create and enter new markets - Increase their product offering - Acquire assets and new products - Consolidate their market shares - Compensate for continued sluggishness in their home market. 61 Healthcare Emerging trends Increasing Spend on Healthcare: The government should step up its spend on healthcare from a current low of 1% of total GDP, to 3%.
Health Insurance: The focus of the government should be on the increase in penetration and access of health insurance.
Improvement in infrastructure: All forms of infrastructure, medical, educational and physical, need improvement through PPP programmes.
Innovation: Work towards the launch of made in India novel drugs.
Creating enabling policies and regulatory framework for the launch of innovator products: Focus on price monitoring rather than price control, along with resolution of data exclusivity laws will help in increasing confidence among foreign companies.
Out of the box thinking: Expansion into the high potential rural and peri-urban markets will require an out of the box thinking to tailor strategies to fit these markets. Companies will be required to build a networked operational model with various stakeholders in order to squeeze
Using technology to increase efficiency: Technology capabilities can be used to increase efficiency across the value chain, and increase medical services accessibility. An example of this is the Telemedicindia project that has been set up by the School of Telemedicine and Biomedical Informatics, SGPGIMS, Lucknow, India, and Sony. 62 Healthcare Critical success factors Sector is growing at a rapid pace with a CAGR of 15% Hospitals form a huge chunk of this sector Government Hospitals spending on Healthcare has come down considerably, Top Tier hospital shares by comparison have seen a significant improvement 63 Healthcare Additional insights Per Capita expenditure on healthcare to rise up 35% from current levels Trend points towards an increase in the cases of lifestyle diseases Supportive Government Policies have resulted in a large volume of FDI coming in Private Hospitals have shown a growth rate of 26.9% CAGR fuelled by growth in Tier II and III towns 64 Healthcare Additional insights Presence of world-class hospitals and skilled medical professionals has strengthened Indias position as a preferred destination for medical tourism (For e.g. Wockhardt, a major Hospital Chain has a performed in excess of 20000 surgical procedures with a 98% success rate (surpassing US and EU standards)
Medical tourism market is expected to expand at a CAGR of 27 per cent to reach USD3.9 billion in 2014 from USD1.9 billion in 2011
Inflow of medical tourists is expected to cross 320 million by 2015 compared to 85 million in 2012
Yoga, meditation, ayurveda, allopathy and other traditional methods of treatment are major service offerings that attract medical tourists from European nations and the Middle East to India The growth in the sector is underscored by the cost advantage that India provides to patients from developed countries. Notably, India also attracts medical tourists from developing nations due to lack of advanced medical facilities in many of these countries 65 Healthcare India an emerging destination for Medical Tourism Growing at a CAGR of 17.4%, the industry is expected to reach 36 billion USD by 2016 Net exports have grown more than 4 fold over the last 7 years (CAGR = 22.6%) Pharma sales to constitute 27% of sales up from 18.9% in 2008 With 72% of the pharma sales being driven by Generics, it is clearly the single largest segment in the pharma industry 66 Healthcare Pharmaceuticals a major growth story Healthcare Infrastructure: Number of hospitals, including primary health centres, dispensaries in India is estimated at over 200,00046 with total bed capacity of around 900,000. The bed capacity in terms of population is lower at 89 per 100,000 persons, as compared to many other developing countries. India needs to increase its bed capacity by at least 100,000 in the next 5 years to catch up with China.
Low Spending on Healthcare: India spends roughly 4.8% of its GDP on healthcare, far less than advanced countries. Government accounts for roughly 1/4 th of this infrastructure.
Accreditation: Although, India has established a national accreditation system for healthcare establishments, very few hospitals have applied for accreditation. There are only few hospitals that have been accredited by international agencies such as Joint Commission International.
Low Level of Medical Insurance Coverage: Major reasons for low penetration of commercial health insurance include low level of innovation in health insurance products, exclusions and administrative procedures governing the policies, and chances of covariate risks, such as epidemics, which keep the premium high.
Negative Perceptions: The negative perceptions about India, with regard to public sanitation / hygiene standards, prevalence of contagious diseases in India, quality of healthcare services provided in public sector hospitals, and wastage management practices adopted in India, counter the positive vibes created by the cost competitiveness of Indian healthcare system
Shortage of Hotel Accommodation: The availability of hotel rooms is considered to be lower as compared to other countries. In addition, the cost of accommodation and dual tariff system are also hindrances to international travellers visiting India.
Shortage of Medical and Para-medical Staff: There is a shortage of qualified specialist nurses and paramedical professionals as also qualified hospital administrators. Number of nurses per doctor in India is estimated to be 1.33, as compared to 5.27 in UK and 4.67 in Canada. 67 Healthcare Major challenges Contributors Prajata Das Chowdhury FMS Delhi Batch 2014 prajata.c14@fms.edu