Project Udaan – Strategic roadmap for Projects Business

Market Attractiveness – Buildings, Factories, Infra (metro + airports),

Industrial EPC

December 2014 | Mumbai

Agenda

Market sub segmentation & attractiveness

• Buildings mechanical
– Hospitals
– Hotels
– Residential
– Commercial
• Infrastructure

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
• Factory Cooling
• Factory electrical
• Industrial EPC

Open questions

3
Multiple external experts engaged actively for industry
insights and competitive benchmarking (I/II)

S.No Name of Expert Current/ Previous Experience Additional Credentials

• VP, Business Development & Corporate

1 Mr. Anjan Deb • Ex-McNally Bharat
Strategy, McNally Bharat

2 Mr. Hanuman Mal Bengani • Ex-BoC • Vice President

3 Prof. N Ballal • IIT Bombay • Expert, Process development in Steel industry

4 Mr. Rajesh Oberoi • Mecon • Ex- Executive Director

5 Mr. CRS Baronia • Tata Steel • GM Projects –Water division

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
6 Mr. PS Paul • Tata Steel • GM Projects division – Utility division

7 Mr. PK Choudhary • Tata Steel • Head Projects-Utility division

8 Mr. Himadri Mukherjee • SAIL • Projects division, Water

9 Mr. J Gopikrishnan • SAIL • Dy. GM, Projects- Mills Zone

10 Mr. SK Pradhan • SAIL • Executive director, projects

11 Mr. Ranjan Ray • MN Dastur • Director Engg.

4
Multiple external experts engaged actively for industry
insights and competitive benchmarking (II/II)

S.No Name of Expert Current/ Previous Experience Additional Credentials

12 Mr. BN Ghosh • MN Dastur • Tech. Director Utility

13 Mr. Saurabh Chakraborty • MN Dastur • Consultant

14 Mr. Subrata Kapat • MN Dastur • Chief Engg. electrical,

15 Mr. Prabal Chaterjee • MN Dastur • Tech Director

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
16 Mr. Sanjib Mukhopadhyay • MN Dastur • Tech Director

17 Mr. PK Guha • CET, SAIL • Projects division, Environmental

18 Mr. Subrata Kapat • MN Dastur • Chief Engg, Electrical

• Executive director, Management and Engg

19 Mr. AP Singh • Mecon
services

20 Mr. Vijay Kumar • Mecon • Joint GM Projects, Utility division

21 Mr. MM Bakshi • Mecon • Joint GM, Power plant & energy engineering

22 Mr. CD Goswami • Mecon • Joing GM Manager, Environmental

5
 Market landscape

BSL could expand in adjacent gas/pressure-related steel EPC

jobs (new & refurbishment/modernization)
Low to Mid end
Inputs from Inputs from
gas/pressure-related
BSL IPD team competition EPC jobs
• Need technology tie-
ups and limited
fabrication. e.g
– Utility Piping
MICCO
– Gas mixing
Steel EPC – Air compressor
Jobs – etc.
Core capability
Mid-High end EPC Jobs
• Need fabrication/

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Know-how of Project adjacencies in Steel (>5 cr) manufacturing set-up
gas/pressure- – Blast furnace
related EPC jobs – Sintering Plant
in Steel – Pelletization plant

Replacement jobs due

Inputs from Discussion with to new technology. e.g.
Refurbishment
customers consultants • Top Pressure
&
Recovery Turbines
modernization
• ESP refurbishment
jobs
• etc.

Note: Expansion to other industries (metals, power generation, etc.) to be evaluated separately
6
 Market landscape

~25 Mn ton new steel capacity expected in next 4-5 years

Steel capacity to grow at 11% CAGR ~25 Mn tonne steel capacity expected in
over 2012-17 next 5 years
Optimistic estimates suggest
steel capacity to be ~300 mn Projects under execution already 25-30 Mln tpa
tpa by 2025
Installed capacity (in Mn tpa) Projects announced but improbable to start in
next 5 years
150 ~140 (TSL Seraikela, Jharkhand, TSL Lohandiguda, ~ 28 Mln tpa
Chattisgarh , TSL Kalinganagar (Ph II), TSL
+11% Jamshedpur, Arcelor Mittal Bellary, POSCO)

Capacity
Projects announced and expected

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100 77 Others1 (in Mln tpa)
84 JSPL, Angul 6
JSW, Vijaynagar 5
7 RINL Vizag RINL expansion Vizag Plant 3
48
50 8 JSPL SAIL, Bokaro Expansion 3
12
JSW SAIL, Rourkela expansion 3
3 3
9 16 Tata
ESSAR Steel, Gujarat 2.2
8
13 21 SAIL TOTAL ~22
0
FY12 FY17 Overall ~ 25 Mn ton new steel capacity expected
in steel in next 5 years
1.Others includes: ESSAR Steel ElectroSteel Steel Limited, Siyaljori Bokaro Jindal Stainless JSW ISPAT JSPL Pattratu Monnet Isapat, Raigarh Chhattisgarh Visa Steel Other medium scale projects
(Jay Balaji, Kalyani, Mukund, MSPL, Brahmini) and others
Source: 12th planning commission report, Projects Today, Web search:
7
 Market landscape

Mid-end gas related EPC jobs focus area for BSL

~ Focus area for
Jobs done by BSL BSL Tie-ups
evaluation for BSL ~
Low to mid end EPC Jobs Mid to high end EPC Jobs

• Typically < 100 cr jobs1 • Typically > Rs. 100 Cr. job
• Typically ESITC2 projects • Manufacturing/ fabrication set-up
Description • May need on-site fabrication facility required
• May require tech tie-up to clear PQs

Steel EPC • Utility Piping • Sintering plant

• Compressed air stations F S Elliot • Pelletization plant
Jobs • Gas Mixing &Boosting Howden • Lime Calcination
• PRS3 and Buffer Vessels BHPV • Vacuum Degasser

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Jobs • Turbo blowers in blast furnace • Coke oven battery
• Gas cleaning plant • ....
• De-sulphurization of steel
• Coal dust injection system
• Others
• Jobs due to modernization of
• Rare jobs recurring once in 15-
Refurbishm Description technology/ replacement of old
20 years
parts
ent/
Modernizati • ESP4 refurbishment • Sintering Plant replacement
on Jobs Jobs • Water pumps replacement • Coke Oven battery replacement
• Top Pressure Recovery Turbine • Pelletization plant replacement
• Exhausters

1. With the exception of piping which can be ~400 cr 2. ESITC: Engineering Supply Installation Testing Commissioning (3) Pressure reducing systems (4) Electro static precipitator
Source: Expert network
8

BSL has some experience in gas/pressure-related EPC jobs
(new and refurbishment)
Job
Utility Piping
Compressed Air Stations
Gas Mixing and Boosting
Steel EPC jobs
PRS and Buffer Vessel
Turbo blower in blast furnace
Gas cleaning plant
De-sulphurization of Steel
Coal dust injection system
Coke oven by product recovery
Many other EPC jobs
Water Pumping
Top pressure recovery turbine
Refurb. jobs
ESP refurbishment
Exhauster across steel plants
Argon rinsing of Steel
Coke dry quenching
Many other EPC jobs
Market landscape
Backup
Description BSL Tie-ups
• Supply and distribution of gases and fluids BSL
• Used for plant air and instrumentation air
• Production and distribution of compressed air F S Elliot BSL
• Mixing of gases to act as fuels for combustion in furnace/ stoves/ burners Howden BSL
• Reduces pressure of oxygen coming out from air separation unit
• Used during iron melting/ steel making outside furnaces BHPV BSL
• Increases pressure of cold blast during its supply into furnace/ LD Converter
• Removes dust particles from gases before releasing them to the atmosphere
• Removal of Sulphur from molten Steel to retain only required amount
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
• Reduces coke rate input into the Blast Furnace
• Recovery of useful by products like tar, naphthalene and Ammonia from coke oven gas
• Non-gas related EPC jobs like pig casting, re-heating furnace, bell annealing furnace etc.
• Used to pump water for cooling tower and in water treatment BSL
• Generating power from thermal energy of hot exhaust gases
• Erection of Air pollution Controller for exhaust gases BSL
• Suction mechanism and increase pressure for transportation; used at multiple locations
• To achieve homogenous temperature and composition of steel bath after production
• Coke is quenched in a chamber by gas for cooling and for better quality/strength of coke.
• Other refurbishment, replacement, maintenance, modernization (efficiency, regulations)
9
 Market landscape
Backup
High-end EPC jobs will need global tech tie-ups and
fabrication/machining shop back-end in India

Size1
Key international
Job (INR Description Indian players
OEMs
Cr)

Lime • Converts Calcium • Maerz Ofenbau,

Calcination 80-100 carbonate to Calcium Switzerland
plant oxide • Snamprogetti, Italy

• Vacuum Degassing plants • Siemens Vai Germany

Vacuum reduce Sulphur, Hydrogen, • Steel Plantech Japan
~150 cr

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degasser Nitrogen & Oxygen content • Voest Alpine
to produce pure steel Switzerland

• Converts Iron ore to pellets • Outotec,

Pelletization for feeding into the blast • Aker
200-250 •
plant furnace Uralmash Engineering
• Beijing Sino Steel

High capability stretch for BSL

1. Job value for a typical 3 mn tonne plant.
Source: Expert interviews
10

Pure project Cos, project Cos with product back-end and
OEMs project arms key steel EPC players
Project companies with no
product back-end
• Pure project companies with
no product back-end
• Typically clear PQs with
Description consortiums or are
specialized in specific jobs
• Capable to do low to mid end
EPC jobs
Companies
Source: Expert interviews, secondary research
Project companies with
fabrication set-up
• Project companies with their
own fabrication/
manufacturing set-up,
typically take up big contracts
• Capable to do any EPC jobs
Market landscape
OEM's project arms
• Project arms of OEMs are
highly cost competitive in
their segment of operation
due to product backing
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
11
 Opportunity size

Mid-sized EPC jobs market in steel plants ~ Rs 2,000 Cr + / yr

Job size for 3 mn ton capacity (Rs Cr) Size (Rs Cr/yr)
Utility Piping
400-450
(underground + overhead)
For expansion
Compressed Air Station 40-45 500-600 of ~50Mn Tonne 650-700
Existing BSL Cr
Steel EPC jobs

jobs Gas Mixing and Boosting 35-40 in 5 years2

PRS and Buffer Vessel 65-70

Turbo Blower in blast furnace 70-80 For expansion

Gas cleaning plant 70-80 500+ of ~50Mn Tonne 500-600
Cr in 5 years2
Other EPC De-sulphurization of steel  30-40

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
adjacencies Coal dust injection system 60-70
Coke oven by product recovery ~200
Other EPC jobs4 100+
Water pump house replacement 25-30
Refurb. jobs

Top pressure recovery turbine 25-30

ESP refurbishments 20-30 1505 + For one-time jobs on
Refurbishment Cr existing capacity3 800-1000
& Exhausters in steel plants 25-30
modernization Argon rinsing of steel 30-40
jobs Coke dry quenching 80-100
Other refurbishment / ~2000 Cr
modernization jobs
~ Total
1. Size of job for a 3mn capacity steel plant 2. Only 25% of the estimated cost used in market share calculation for players like JSW, JSPL and POSCO who procure supplies on their own and only give
erection contracts 3. Realization factor of 25% assumed for replacement / refurbishment jobs 4. Other EPC jobs include non-gas related jobs like pig casting machine, bell annealing furnace etc.
5. Not all refurbishment jobs come in the same year, so average size of refurbishment tjobs aken
Source: Expert interviews, BCG Analysis
12
 Backup How to win

Govt steel players and Tata Steel contract product-bundled

(ESITC)
Contracting – Contracting –
Companies D&B vs BOQ Bundling

• ESITC (Engineering,
• Typically BOQ Supply, Installation,
tenders floated for Testing,
most EPC jobs Commissioning)

Private players • Design by

Consultant and

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
capable in-house
Design & • Float tenders only
Engineering team for EITC

• Design and Build

• ESITC (Engineering,
contracts for most
Supply, Installation,
Public players tenders
Testing,
• Limited in-house
Commissioning)
design capability

1. EICT: Engineering Installation Testing Commissioning

Source: Expert interviews
13
 Attractiveness assessment

Average AGM of 27.5% in all projects started 2012 onwards

AGMs of 13%+ across all projects

Actual Gross Margin (%) ~ 2012 onwards projects ~

60
51
46

40

27.5 28
23 22
20
15 13 13 13

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0
TSL Cooling RSP CCAS  TSL ESP, Jsr SAIL Bhilai TSL Dam RSP Buffer TSL KPO BHPV Plate SAIL DSP
tower- water Buffer Pump Vessel PRS Job Portion for NCAS Job
pumping Vessel  House  Job RSP & BSP

Org. Value
(INR Cr) 2.1 17.7 7.1 27.1 6.9 5.0 11.1 9.4 17.4

Billing
(INR Cr) 2.1 14.5 6.8 13.1 2.4 1.2 1.6 9.4 5.5

Note: Taken projects that started from 2012 onwards

Source: BSL internal data
14
 Attractiveness assessment

Average AGM of 27.5% in all projects started 2012 onwards

AGMs of 13%+ across all projects

~ 2012 onwards projects ~

Start % Job Profitabilit

Job type Project name
year completion value (cr)
AGM (%) EGM (%) WC % DEE %
y

• RSP CCAS Job 2012 96% 17.7 46% 44% 3% 3% 40%

Compressed
Air Stations
• SAIL DSP NCAS Job 2013 32% 17.4 13% 15% 1% 3% 9%

• SAIL Bhilai Buffer Vessel Job 2013 81% 27.1 23% 29% 4% 3% 17%

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• BHPV Plate Portion for RSP
2012 90% 10.41 13% 32% 10% 4% 0%
PRS and & BSP
Buffer Vessel
• RSP Buffer Vessel Job 2013 24% 5.0 15% 15% 5% 4% 7%

• TSL KPO PRS Job 2013 15% 11.1 13% 14% 1% 3% 9%

• TSL Top Cone Cooling 2013 98% 2.1 51% 22% 2% 1% 48%
Water
Pumping • TSL Dam Pump House Job 2014 35% 6.9 22% 27% 4% 1% 17%

ESP • TSL ESP Job,Jamshedpur 2013 97% 7.1 28% 20% 3% 1% 24%

Note: All projects greater than 2 crore job value considered starting 2009
1. Revised PR value used as the original value was errorenous
15
 Attractiveness assessment
Backup
Strong positive AGMs across sub-segments in IPD (all
projects – including legacy projects)
~ All IPD projects (incl. legacy) ~

Avg size Avg. AGM Avg. EGM

Job type # projects Example BSL Capability
(Crs) (%) (%)
• TSL Diversion Job
Industrial • TSL Zone A & C Job • Fabrication as well as
8 10-12 23% 22%
Piping • Tata Blue Scope design capabilities exist
• Jindal Steel
• Capable to install
• SAIL DSP complete package
Compressed • IISCO
3 including design engg. 25-30 21% 26%
Air Stations • RSP CCAS • Tie-up with FS Eilot for
supply

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• Capable to install
complete package
Gas Mixing • IISCO AGBS Job
2 including design engg. 10-12 16% 21%
and Boosting • TSL GMBS Job
• Tie-up with Howden for
supply
• RINL VSP PRMS II Job
PRS and • TSL IBF PRS Job
• Design engg. capability
4 15-20 25% 26%
Buffer Vessel • RINL VSP PRS IJob
for PRS

• Capable to install
Water • TSL Dam Pump House replacement pumps in
2 5-7 35% 26%
Pumping • TSL Top cone cooling water pumphouse and
cooling tower

Note: All projects greater than 2 crore job value considered starting 2009
16
 Attractiveness assessment

Steel EPC players have positive PAT margins (5%+ )

Simplex engineering
TLT Engineering BEC and foundry works
PAT % Revenues(INR Cr.)

Revenues (INR cr) PAT % Revenues (INR cr) PAT % Revenues (INR cr) PAT %
10
80 10 1,000 9 10 400 8 10
8 7 8
60 6 300
Profitability 5 5
40 5 500 967 937 5 200 5
65 70 799 322 336
58 283

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20 100

0 0 0 0 0 0
FY 11 FY 12 FY 13 FY 11 FY 12 FY 13 FY 11 FY 12 FY 13

• Gas mixing and boosting • Coke dry quenching • Sinter plants

Jobs done
Source: ACE equity reports
• Exhauster Furnace Flame • Coke oven Machines • Blast furnace
Viewing Camera • Coke oven complex • Rolling mills
• Cooling Air Fans for Sinter • Slag granulation plants
Plant • Hot metal handling
• Water Gas Fan for Lime system
Kilns
17
 Attractiveness assessment

Strong relationships, robust bidding and risk estimation key

success factors

Strong Essential to have good relationships with "Good relationship with the customers
consultants and customers helps to understand and clear PQ" – Tata
relationship with
• Given the niche nature of jobs, strong support Steel
customers / needed from consultants and customers for
consultants understanding and clearing the PQs "Relationship most important" - BOC

Critical to recognize and incorporate risks

Robust bidding " Perceiving the risk and incorporating it in
associated with jobs
and risk • Robust bidding mechanism important to be the bid value, is the key to be profitable in
estimation profitable and competitive industrial projects " – BOC

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
Strong design & Strong design engineering team needed to clearly
understand customer requirements " Strong in-house design engineering
engineering
• Accurate BOQ creation very important in giving team prevents delays due to design re-
capabilities works" MN Dastur
exact bid values
needed • Delay in design finalization impacts project timelines

Need to manage Critical to contract and manage local labor and sub- " Contracting and managing local labour
contractors and sub-contractors in a timely manner
local sub-
• Loyal sub-contractors required to execute projects critical to avoid project delays " – SAIL
contractors reliably within fixed timelines

Source: Expert interviews, competitor interviews

18
 Segment prioritization

Target existing EPC jobs and repair/replacement jobs in steel

Selectively enter other EPC adjacencies with strong tie-ups

Execution Capability play, BSL/ Market

delays niche competition profitability BSL Fit

• Dependencies • Large Corporate • 18-22%

on other players like Tata AGMs
Existing High
processes of Projects, BOC • Strong BSL attractiveness • Product tie-ups
BSL Jobs
Steel EPC jobs

plant causes profitability and turnkey

delays • OEMs like track record execution
Kirloskar and capabilities exist
Ingersoll Rand
• Clearance from • 18-22%
also compete in

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
• Strong
Other consultants can some spaces
cause delays profitability in • Need to evaluate
EPC steel EPC High
• Select regional/ attractiveness & select jobs
Adjacenc jobs if risk • Tech tie-ups,
local players also
ies assessed clear PQs, asses
exist
carefully risks, execute

• Lesser delay • Lesser

Refurb. jobs

Refurbishm risk due to competition • 18-22%

ent/ urgency of re- due to one-off • Have some
High
Modernizati opening jobs • Higher attractiveness experience
profitability • Need to evaluate
on Jobs
& select jobs

19
 Thank you

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