Professional Documents
Culture Documents
13 April 2017
WHAT WE ARE READING Vol.127
Understanding e-NAM
A critical reform in attaining vision of Doubling Farmer Income
Future Hospitals
How technology can change the healthcare industry
When Shruti Malik drives past farmland being ploughed on the outskirts of Yamunanagar, Haryana, she
has reason to feel proud. She knows one of the men on the tractors at work was once her student at IRIS
Learning, the skilling institute she runs in the town, which has so far trained 2,400 young people in
sugarcane cultivation, polyhouse farming and the use of different kinds of agricultural implements. After a
month-long training stint at IRIS, Rakesh Sandhu bought a tractor with a loan from the Pradhan Mantri
Mudra Yojna - a scheme to facilitate micro business ventures begun in 2016 - which he hires out (with
himself as driver) for a fee to farmers around Yamunanagar who need their fields ploughed.
"After the training, my students command a premium," says Malik. "Many of them are in great demand in
neighbouring districts as well." Malik herself quit her job with Sapient Nitro in Gurgaon within six months of
joining to pursue her dream of becoming an entrepreneur. IRIS Learning, which she set up in 2015, is one
of the 4,526 skilling centres in the country which partner with the National Skill Development Corporation
(NSDC) - under the National Skills Qualification Framework - to combat India's gigantic skills shortage.
Apart from agriculture-related skills, IRIS also provides training for prospective electricians, fitters, mobile
phone repairers and more. "I don't regret my decision to give up my well-paying job at all," she says.
India's youthful demographic ensures it produces 10-12 million job seekers a year, but only 10 per cent of
them are trained in some employable skill. The education most receive does not equip them to land jobs.
In comparison, 96 per cent of similar job aspirants in South Korea, 80 per cent in Japan and 75 per cent in
Germany, are trained. Yet India needs skilled labour much more than these other countries - the late
management guru C.K. Prahalad had estimated in 2007 that the country would require a skilled workforce
of 400 million by 2022, including 130 million for newly-created jobs. It is lack of skills rather than absence
of employment opportunities that is responsible for the unemployment rate in the country being around five
per cent. Also, according to the Economic Survey 2014/15, 92 per cent of all employment is in the
unorganised sector. Economists have estimated that India's skills shortage constrains its gross domestic
product (GDP) by as much as two percentage points.
To reconcile the situation, the government has embarked on a massive exercise, setting up a separate
Ministry of Skill Development and Entrepreneurship (MSDE), with Rajiv Pratap Rudy in charge, and
allocating it a budget of `6,000 crore over three years. The ministry has its task cut out - to convince more
young people with limited means to attain specific skills rather than pursue graduation; to get companies to
pay skilled entrants better than their unskilled counterparts; to convince companies to employ skilled
aspirants rather than train their own; to combat lack of infrastructure, bureaucratic sloth and growing
automation. But most of all, it has to anticipate demand and provide the right courses which lead to prompt
employment.
PHOTOGRAPHS BY VIVAN
MEHRA & SHEKHAR GHOSH
Industrial Training Institutes (ITIs), run by the National Council for Vocational Training, now under the
MSDE's purview, have been around for decades. There are 13,106 of them, both government and
privately run, with a capacity to train 1.87 million aspirants a year in 127 different trades. But in practice,
the ITIs run only two courses - that of fitter and electrician - which have any demand: they attract 1.1
million students a year. The remaining courses struggle to attract candidates. Indeed, many employers
confided that most ITIs were in bad shape, with obsolete training equipment, outdated courses and
uninterested teachers.
SKILL DEFICIT
When Rajat Goel was setting up EyeQ in 2007 - a chain of eye-care centres in Tier-III/IV towns - he did
not have much of a problem enlisting ophthalmologists. The problem arose while trying to recruit his
support staff of operation managers, operation theatre technologists and hospital managers: employable
ones were few and far between. "The courses required to train such people are either not available or
obsolete," he says. Finally, in 2013, Goel decided to set up his own training institute for these particular
skills at his eye hospital in Rohtak, Haryana, even though, for a company like his with a modest turnover of
`45 crore, investing `2 crore in skilling alone was a risk. The step has proved unexpectedly successful, with
459 people having been trained by EyeQ so far, while the demand for such training has seen the
company's turnover rise close to Rs 100 crore.
"The availability of skilled labour determines the capacity of any business to take advantage of new
opportunities," says Anil Chaudhry, Country President and Managing Director, Schneider Electric India.
But it is precisely that which is lacking. To make up for it, like Goel, innumerable companies - from the
smallest to the widely known - run their own in-house training programmes. "We are investing around `55
crore to train certified carpenters, retail store staffers, managers and more," says Juvenico Maetzu, CEO,
IKEA India, which is set to open its first store in the country, in Hyderabad, later this year, and is investing
`1,000 crore in the project. Small enterprises, however, find it difficult to afford such investment, more so
because, as one industrialist, who prefers anonymity, says: "Within a year, people we train move out,
getting more lucrative opportunities."
Maetzu, IKEA India's head, notes many of those he interviews for blue collar jobs, lack aspiration. "They
ought to take pride in their work, which they don't," he says. "I began my career on the shop floor and
gradually rose in the organisation." Yet Indian youth remain obsessed with graduation and white collar
jobs. "My family wanted me to do a BA and get a good job," says Rajiv Kumar, a student at a Delhi ITI. "I
came to ITI only because my close friend joined it and I wanted to be with him." Ikram Hussain, learning
hairdressing at an upmarket Delhi salon, was already ambivalent about the profession. "I think I would
have earned more and led a more respectable life had I done my graduation and got an office job," he
says.
Those who know better, from Kanoria to Malik of IRIS, despair of this attitude. "The mindset needs to
change," says Kanoria. "The world is changing, job profiles are changing." Malik notes that IRIS holds
kaushal shivirs (skilling camps) every month to convince more young people to seek skills, but the
conversion rate - between those attend the camps and those taking up courses - is barely 30 per cent.
"Young people think only school dropouts should learn skills of the sort we teach," she adds. "We try hard
to convince them it is not so."
Why not include some of the skills employers seek in the school curriculum itself? "We are working with
governments in the states of Haryana, Himachal Pradesh and Kerala to make some vocational courses
compulsory, on a pilot basis, from Classes VIII to X," says a Human Resource Development Ministry
official. "The learning from this effort will be applied in other states." In Germany, for instance, basic
courses in carpentry, knitting and electrical work, were introduced in schools in the 1990s. Other countries,
including the US, the UK, China and South Korea, have followed suit. "It is the educational system we
have that is responsible for the obsession with graduation," says Anirban Roy, founder of SEED, which
works with corporate houses to impart skills.
Indeed, a Committee of Secretaries (CoS) is working on a plan to converge all these training efforts by
ministries other than the MSDE. It has already shifted the training institutes run by the ministry of small
and medium enterprises, the ministry of tourism and the ministry of north east region to the MSDE. "The
convergence of all skill development schemes is critical to ensure a holistic, outcome oriented approach,"
Minister Rudy told Business Today. "It will not only enable consolidated and well-thought programmes, but
also avoid overlap and minimise the chances of leakages." He wants a synergised skill implementation
effort, with the ITI network strengthened further and modernised, the NSDC's own training centres - called
Pradhan Mantri Kaushal Kendras - extended to every district headquarters. He is also keen that the sector
skill councils (SSCs) be made more flexible and industry oriented. He even wants the All India Council for
Technical Education (AICTE), which grants recognition to technical institutes - and is currently with the
HRD ministry - under his ministry's ambit.
There are three aspects to the MSDE's skilling programme: creating a pool of labour with the skills modern
industry needs, setting up finishing schools where white collar workers acquire the additional skills needed
to be competent at their jobs and involving states more actively in the effort. Finance Minister Arun Jaitley
has promised to provide funds to increase the number of Kaushal Kendras from 60 to 600, as well as to
set up another 100 Indian International Skill Centres, which will train Indians to take up overseas jobs.
Financial provision for these projects has been raised from `2,173 crore in the last financial year to `3,016
crore in 2017/18. Rudy is also working with the Central Board of Secondary Education (CBSE) to give ITI
students the equivalent of a Class X or XII school leaving certificate and offer a parallel academic pathway
after completing the ITI course.
HURDLES TO EMPLOYMENT
"Most job aspirants don't lack the hard skills required to do a
particular job, but the softer ones," says Agarwal of Upskill. "This includes self confidence, high standards
of personal hygiene, a sense of discipline, an ability to adapt to the new world." She has found that as
important as imparting knowledge related to a course is the job of teaching her students, for instance, how
to use a western-style toilet, prevent body odour, wear ironed clothes and speak confidently.
Relevant skill training could also put the brakes on migration to big urban centres which are already
overcrowded. "If you give people good working conditions in the place where they are based, opportunities
to grow and inspirational jobs, they will not feel the need to migrate," says former CEO of NSDC, Dilip
Chenoy. It is also important for industry to appreciate the skills aspirants bring with them, "There are still
companies that prefer to hire unskilled labour and train it themselves," says R.C. Bhargava, Chairman,
Maruti Suzuki India Ltd. "This allows them to get away with paying lower wages." There is also overall
industry reluctance to hire, mainly due to the complex web of labour laws. Skill does not get the
appreciation it deserves. "Leave aside industry, do we pay extra to an electrician for doing a job
efficiently," says R.C.M. Reddy, CEO and Managing Director, IL&FS Education.
But at the same time, the shift of certain industries such as retail or beauty and wellness from the informal
to the formal sector is helping skilled aspirants. "Mere skill development doesn't solve all problems. One
needs to put one's heart and soul into the job," says Ajay Shriram, Chairman, DCM Shriram Group. He
advocates more liberal labour laws and pins hope on the return of the investment cycle post the
implementation of the Goods and Services Tax and other key reforms for employment to pick up.
Again, increasing automation is another looming threat for job seekers. "Smart factories are the in thing,"
says an industrialist, preferring anonymity. "Automation makes operations management efficient and also
reduces the chances of defects in products." Many are looking at increasing their use of machines and
robots in areas such as packing, fitting, welding, painting, and more. "Technology is changing every day,"
says Manish Sabharwal, Chairman and co-founder of recruiting company TeamLease. "SSCs need to be
flexible in creating these job roles. New job seekers need to be ready to grab new opportunities."
In mid-2015, the National Democratic Alliance (NDA) government amended the Apprentices Act, 1961, to
allow employers to fix hours of work and leave as per their discretion and provide apprenticeship training
to non-engineering graduates and diploma holders as well. This has opened up employment for trainees in
new trades, including IT-enabled services.
It was followed by the National Apprenticeship Promotion Scheme in September, by which the government
promised to reimburse 25 per cent of the stipend paid to trainees to employers directly. "The idea was to
encourage more on-job training," says Nandan.
The NSDC has been asked to carry out a district-wise mapping of skills requirements and gaps. "We are
also trying to understand the requirement of skills elsewhere in the world. Our candidates should be
competent enough to seek a job anywhere," says Nandan.
On October 17 last year, the MSDE revamped the flagship PMKVY scheme, linking payments to training
partners with completion of training and achievement of a certain minimum placement (roughly 70 per
cent). The new plan made it mandatory for training partners to track placements of students. "Once you
start tracking your student for a year, you can understand where your course content may be going
wrong," says R.C.M. Reddy of IL&FS Education. "This pushes skill centres to offer those courses which
ensure job placement," says the head of another skill centre, preferring anonymity. According to official
data till April 25, 2016, only 81,978 of the 1.76 million trained candidates were placed, while only 577,000
candidates have been certified since the launch of the scheme in July 2015. "Placements will improve if
job creation improves," says Malik of IRIS. "The payment cycle from the MSDE has improved. We get 80
per cent of the payment by the time the student completes the course and the remaining only if we
manage 70 per cent placement."
Indeed, the ministry bears the entire training cost under PMKVY, which varies from a minimum of `7,600 to
a maximum of `20,000. Training of unarmed security guard, for instance, requiring 150-200 training hours,
costs around `7,600; while that of a technician for the auto sector, which takes about 500 training hours,
costs `20,000. Admission is open to youth from poor families with the minimum qualification of having
passed Class X. Aspirants have to take a basic aptitude test to determine the interests and abilities.
Course material and even practical training are all provided by the centre.
CHANGED STRATEGY
The ruling NDA is pursuing a skilling strategy which differs in some ways from that
of the erstwhile United Progressive Alliance (UPA) government's. Between 2008
and 2012, the UPA government formed three bodies to further skill development:
the Prime Minister's Office-led Council on Skill Development, the National Skill
Development Coordination Board and the NSDC. Former TCS CEO S. Ramadorai
was roped in with the rank of cabinet minister to assist the effort.
The NDA government has brought in the states too, with the MSDE given the
responsibility to coordinate all efforts. In December 2015, NITI Aayog's Sub-Group of Chief Ministers, led
by the then Punjab Chief Minister, Parkash Singh Badal, submitted its report asking for more knowledge
sharing with states on programmes and experiences of skill administration. Seven sub-missions were set
up which would work alongside the NSDC, the NSDA and Directorate of Training. "Every state has its own
priority and preferences," one of the chief ministers pointed out.
Madhya Pradesh Chief Minister Shivraj Singh Chouhan told BT that he is taking skill development as a
mission and has roped in Symbiosis Group of Institutes, Pune, to set up a skills university in the state.
Similarly, Chief Minister of Jharkhand, Raghubar Das, roped in Singapore-based Institute of Technical
Education to set up a skilling centre in the state. The two have very different plans. Chouhan is looking to
cater to the demands of local industry, while Das is looking at opportunities across the world. "India has
the potential to become a hub of skilled labour, and must leverage this demographic dividend," he told BT.
Meanwhile, Rudy has also got clearance to recruit a new cadre of officers for skill development alone.
These officers will man most of the skill development-related activities at state and district levels. Similarly,
states also have been asked to recruit dedicated provincial officers - a distinct step away from the UPA's
strategy of working through private players. "During the UPA's tenure, skilling was like a start-up, but now
it has transformed into a full-fledged scaled up project," Ramadorai told BT, a fortnight before he resigned
his position.
However, in the UPA's tenure, many states, including Gujarat, then led by Narendra Modi, refused to
follow the UPA model of skill development but devised their own. The Gujarat model included settings up
of Kaushal Kendras at block level, after mapping local aspirations and business needs. Madhya Pradesh
announced its own technical education and skill development policy in 2012, and other states like Tamil
Nadu, Uttar Pradesh, Karnataka and Punjab followed suit. But coordination with the Centre - despite the
National Skill Development Coordination Board, headed by the then Planning Commission Deputy
Chairman Montek Singh Ahluwalia - remained a challenge.
Earlier autonomous, the NSDC and NSDA now have to work under Rudy's MSDE.
There have been murmurs over the past year that government role in skill
development has been increasing to the detriment of private players. The murmurs
were especially loud when former NSDC CEO Dilip Chenoy and his COO Atul
Bhatnagar abruptly resigned in October 2015. A Comptroller and Auditor General
report was subsequently critical of NSDC's functioning under Chenoy and
Bhatnagar, maintaining that while almost all the capital in NSDC came from the
government's coffers, private parties held 49 per cent equity. "Rules were laid
down before I took over and private parties adhered to them," says Chenoy,
defending himself. Minister Rudy feels differently. "We can't let private players
make bounty on the government exchequer," he says. "I feel there was some
bungling somewhere."
Clearly, the Modi government is firing on all cylinders to skill India. If it succeeds in
its mission, it will not only provide employment opportunities to the youth but also
boost economic growth significantly.
@anileshmahajan
India - Strategy Portfolio change
Towards an upturn
DD MMM YYYY
The Indian economy seems to be recovering faster than expected RealGDPgrowthislikelytorecoverinFY18
from the demonetisation shock. This coupled with strong external RealGDPGrowth(YoY%)
growth ou tlook im plies a better than e xpected gr owth ou tlook. 10
The resilience of labour market will allow for faster normalisation
of co nsumption. Co rporate e arnings near-term however w ill 8
remain under-pressure p artly due t o re cent cu rrency 7.8
appreciation. The big picture however is that corporate profits are 6.9
7.4
6 6.6
depressed a nd w ill mean-revert i n t he next c ouple o f ye ars if 6.2
growth continues to remain strong. Market valuations are on the 5.4
higher side implying lim ited s cope fo r f urther r e-rating of t he 4
market. In vestors sh ould t hus focus on stocks an d sect ors with
strong earnings outlook. Overweight domestic consumption. 2
At the be ginning o f the y ear, our expectation was that it wo uld be a Figure2: Unemploymenthasfallendespitethedemonetisationledslowdown
difficult year for stocks, given uncertainty presented by de monetisation UnemploymentRate
(%)
and tr ansition to G ST later i n the ye ar. T he s harp r ally in t he mar ket
12
has thus surprised us. In par t, this reflects a c ombination of less-than-
expected adverse i mpact o n the economy due to d emonetisation an d 10
expectation of a quicker and stronger recovery in the next few months.
8
Figure1: PMIhasalmostrecoveredtopredemonetizationlevels 6
Manufacturing PMI ServicesPMI 4
55
2
53 0
Dec16
Aug16
Oct16
Apr16
Sep16
Nov16
Jan17
Feb17
Jan16
Feb16
May16
Jun16
Jul16
Mar17
Mar16
51
49
Source:CMIE,IIFLResearch
47
The other area where things have been better than expected is exports,
45 reflecting t he b uoyancy i n gl obal econ omy. Although in va lue t erms
export g rowth i s st ill an aemic, i n vol ume t erms exports ar e seeing a
Apr16
Sep16
Feb17
Feb16
Jun16
Jul16
Dec16
Mar17
Mar16
Aug16
Oct16
Nov16
Jan17
Jan16
May16
strong u ptick. Exp ort t raffic a t m ajor p orts, f or exa mple, i s g rowing a t
the fastest pace i n seven years. Whi le the recent appreciation in r upee
Source:MarkitEconomics,IIFLResearch will affe ct expor ts for a fe w quar ters down the line , at least the ne ar-
term outlook remains robust, especially if the global economy continues
GDP growth st ronger recovery likely: While the precise impact of to see strong growth.
demonetisation o n the r eal e conomy i s s till unclear, gi ven pauc ity of
data o n the unor ganised par t of the economy, i t do es appe ar that th e
overall impact has not been as severe as expected. The biggest surprise
for u s h as b een t he re silience of t he l abour market. D ata f rom C MIE
suggests a s harp f all in une mployment, c ompletely c ontrary to our
expectation. U nless, t his s harp f all is d ue t o a f all i n p articipation r ate
(for whi ch we do no t h ave data), thi s s uggests that the labour mar ket
has b een fa r m ore r esilient th an exp ected. Th is b odes w ell for
normalisation in consumption demand in the current quarter.
30 8
20 7.8
7.4
6 6.9 6.6
10 6.2
5.4
0 4
(10)
2
(20)
(30) 0
Jan10 Apr11 Jun12 Aug13 Oct14 Dec15 Feb17 FY13 FY14 FY15 FY16 FY17ii FY18ii
Source:CMIE,IIFLResearch Source:CMIE,IIFLResearch
Consequently, we are increasing our FY18 GDP growth forecast to 7.4% Figure5: RBIisunlikelytocutpolicyratesthroughthecourseofthecurrentyear
(GVA b asis) from 6 .8% b efore. Th is is b roadly i n line w ith con sensus (%) 3mTBill RepoRate
and the RB Is p rojection. Ho wever, es timate f or gro wth i n FY18 i s s till 12
lower than the projections just before demonetisation, suggesting there
could be upside to growth estimates if global growth remains strong and 10
monsoons are normal.
8
GST potent ial for s hort-term di sruption: The transition to GST is
6
now just a couple of months away. Although we do not have any doubts
on the long-term positive impact of GST on the economy, there remains 4
potential f or di sruption in t he s hort r un, gi ven the s cale o f c hange.
However, gi ven the recent e xperience wi th de monetisation, wh ich was 2
an e ven bi gger di sruption f or the economy, a nd i ts li mited i mpact, we
believe di sruption to th e e conomy f rom G ST i s li kely to be s mall a nd 0
short-lived a t b est. H owever, it is likely t hat t he m arkets a re o ver- Jan10 Mar11 May12 Jun13 Aug14 Sep15 Nov16 Dec17
estimating some of the benefits from GST in the short term. Most of the Source:CMIE,IIFLResearch
beneficial impact o f G ST i n terms of i mproved tax c ompliance, mor e
formalisation of the economy, and hi gher productivity are likely to play Interest rates t o remain st able, as i nflation re mains w ithin
out o ver 2-3 y ears r ather than i n the immediate 1-2 quar ters, i n o ur comfort zone: A consequence of faster-than-expected growth and shift
view. in the stance from MPC to neutral means that interest rates are likely to
remain st able for t he next f ew q uarters. While t here could b e s ome
monetary tr ansmission f rom bank s i n te rms o f l owering the MCL R, Figure7: Commoditypriceshaveincreasedsharplyinrecentweeksbutrupee
money market rates a re al ready l ow due to ple ntiful liquidity. Thus, b y appreciationhasprovidedcomfort
and large, we are at the bottom of the interest rate cycle, in our view. LMEMetalsIndex CRBCommodityIndex
INRTerms(YoY%)
40
Figure6: CPIinflationislikelytoremainbelow5%forthirdconsecutiveyearinFY18
30
(YoY%) CPIInflation
12 20
10 10
9.9 0
8 9.4
(10)
6
5.9 (20)
4 4.9 4.9 (30)
4.5
2 Jan12 Aug12 Apr13 Dec13 Aug14 Apr15 Dec15 Aug16 Apr17
Source:Bloomberg,IIFLResearch.
0
FY13 FY14 FY15 FY16 FY17ii FY18ii Earnings - d owngrade c ycle likely t o co ntinue in n ear-term:
Source:CMIE,IIFLResearch Despite economic g rowth l ikely t o su rprise our exp ectation at t he start
of the year, corporate earnings have c ontinued to s ee d owngrades, as
Our v iew on i nflation has no t c hanged muc h. W e continue to e xpect we expected. And thi s is despite the general perception that r esults for
another year of sub-5% inflation (the third consecutive year), although the De cember qua rter were by and l arge be tter than e xpected. T hus,
inflation will tick higher in FY18 relative to FY17. The uptick will largely consensus e xpectation of ag gregate BS E200 PA T h as seen a 3 %
be driven by normalisation in food inflation, which has fallen sharply in downgrade si nce t he st art of t he y ear. Th e d owngrades f or t he m ore
the l ast f ew mo nths due to a bump er crop and th e i mpact of widely tracked but narrow Nifty Index are 4.5%.
demonetisation o n p rices of p erishable agr i pr oducts. Al though
commodity pr ices have i ncreased, the r ecent s harp appr eciation in
rupee and low domestic capacity utilisation will keep hi gher commodity
prices fr om fe eding i nto g eneralised in flation. F urther, w age pr essures
are also muted. Monsoon is a wildcard at this point of time. However, as
FY15 a nd F Y16 showed, a lo wer monsoon d oes no t n ecessarily imply
higher food and overall inflation.
Figure10:INRhasappreciatedsharplyagainstmostmajorcurrenciesoverlastfew Figure11:CorporateprofitasashareofGDPislowestinmorethanadecade
months PAT(%ofGDP) Average
INRUSD INREUR INRGBP INRCNY 7
115 6
110
5
105
4
100
3
95
90 2
85 1
80 0
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
75
Jan16 Mar16 Jun16 Aug16 Nov16 Jan17 Apr17
Source:CMIE,IIFLResearch.Basedonastandalonefinancialsofmorethan15,000companiesfor
Source:Bloomberg,IIFLResearch.Rebasedto100ason01Jan2016 eachyear
Although o n o ne han d th is appr eciation w ill a lleviate s ome of the Valuations above average: Equity markets have been buoyant in the
pressure f rom rising c ommodity prices, that b enefit would be relatively first thr ee mo nths of 2 017 wi th do uble-digit r eturns f or the l arge-caps
modest and would be more than offset by likely downgrades to earnings and m ore t han 2 0% return for smaller-cap com panies. Wh ile t he
to c ommodity and e xporting s ectors. O ur bal lpark c alculations s uggest economy remains o n a we ak wi cket re lative to pr e-demonetisation
that 3-4% appr eciation in e xchange r ate (v s. USD) w ill r esult in 4 % levels, t he b uoyancy in m arkets r eflects a n exp ectation of st rong
downgrade to FY18 earnings f or c ompanies under o ur c overage recovery i n the economy f rom the demonetisation-led slowdown, ai ded
(excluding financials). Sectors such as metals, energy, and IT wi ll bear by G ST, the bi g s tructural r eform ki cking in l ater thi s ye ar. Thus,
the d isproportionate i mpact o f cu rrency ap preciation. Th us, consensus expectations are clearly running high and reflect in the sharp expansion
earnings estimates are likely to see further downgrades in the next few in valuation multiples.
weeks. W e b elieve that e ventually, corporate earnings growth for F Y18
is likely to settle at around 10% from the current mid-teens estimate. The Ni fty i s tr ading at mo re than 22x tr ailing PE or m ore than 1. 5
standard de viation abo ve i ts l ong-term ave rage. Si milarly, the br oader
Earnings dep ressed from a medium-term pers pective; catch u p BSE200 i ndex i s tr ading at 1. 8 standard d eviation abo ve i ts l ong-term
the ke y: Beyond the near-term, the bi gger picture i s that c orporate average. In a bsolute terms, t hese m ultiples lo ok ve ry egregious.
profits are highly depressed relative to long-term average, reflecting the However, one c omforting fact or i s t hat d omestic c ost of cap ital has
prolonged do wnturn i n the investment c ycle. Co rporate pr ofits ar e fallen si gnificantly in the p ast cou ple of y ears. Th e yield on the
currently just above 2 % of GDP as agai nst a long-term average of 4 % benchmark 10-y ear gover nment bo nd ha s f allen 200bps i n the pas t
of GDP and a peak in FY08 of almost 7% of GDP. Unless the profit cycle couple o f ye ars t o p ost g lobal f inancial c risis lo ws o f le ss t han 7 %.
starts reverting to the me an, s ustained o utperformance f rom s tocks Adjusting fo r th is fa ll in c ost o f c apital, a lthough va luations ar e s till
would be difficult in the medium term. above t he l ong-term a verage, p rima fa cie t hey d o n ot l ook q uite a s
(5)
FY13 FY14 FY15 FY16 FY17
Source:AMFI,IIFLResearch.EquityflowsincludesfundscollectedunderGrowth,ELSSand50%of
Balancedcategory.EPFOincludesfundsotherOtherETFcategory.AssumingexchangerateofRs.
65/US$
A s ignificant s ource f or i nflows wi th do mestic mutua l f unds i s the s o- overweight, g iven the mac ro re covery and thus i mproving e arnings
called sy stematic i nstalment p lans ( SIPs) wh ere m onthly i nflows n ow outlook. Ou r overweight st ance on en ergy w ith a p reference f or t he oi l
total ~US$700m on a gross basis. In addition, the decision by Employee marketing com panies con tinues. We change o ur st ance on fi nancials to
Provident Fund O rganization (EPFO) to i nvest 5% o f i ts incremental neutral, r eflecting a c ombination o f s tructural and c yclical ta ilwinds f or
inflows i nto e quity mar ket has bee n a major contributor to i nflows f or private financials offset by concerns over valuations.
domestic funds. A large part of this flow is sticky, and thus, this liquidity
support to the market is likely to continue in the near term. Figure15:Portfolioallocationtable
Sector Niftyweight IIFLrecommendedweight
On one hand, domestic flows in the equity market are robust and on the ConsumerDiscretionary 10.9 12.0
other hand, FP Is hav e tur ned ne t buy ers o f Indian s tocks i n the last
ConsumerStaples 8.7 10.0
quarter (f rom ne t sellers i n the p receding quar ter). Thus, thi s wal l of
liquidity c hasing d omestic s tocks is a f actor be hind t he s trong Energy 11.6 15.0
performance of Indian stocks. In a sense, there are n o major sellers in Financials 33.2 33.0
the market! HealthCare 5.5 5.0
Industrials 5.8 6.0
Portfolio strategy focus on earnings delivery
Despite ou r slightly op timistic m acro vi ew, we b elieve i nvestors should InformationTechnology 12.6 9.0
continue to buil d c onservative p ortfolios with a c lose atte ntion to Materials 6.2 5.0
earnings risk and valuations. That said, the changed macro outlook and RealEstate 0.0 0.0
especially t he ch anged cu rrency outlook w arrant a ch ange i n ou r
TelecommunicationServices 1.8 1.0
portfolio. Accordingly, we move the IT sector to neutral and H ealthcare
sector to unde rweight f rom over weight be fore, gi ven adde d h eadwinds Utilities 3.6 4.0
from currency and the consequent uncertain earnings outlook. Aggregate 100.0 100
Source: NSE, IIFL Research
Given ou r vi ew of a fa ster r ecovery i n d omestic ec onomy, e specially in
consumption, we change ou r st ance on st aples an d d iscretionary t o
eNAM electronic National Agriculture Market is creating a single national agricultural market for sale and
purchase of agri-produce by connecting fragmented agricultural markets (called mandis) on an online trading Date April 3, 2017
portal. After evaluating the nuts and bolts of how eNAM is beginning to change an inefficient legacy structure,
we conclude that this GoI initiative could dramatically overhaul the entire agri value chain. In fact, we think the Market data
Agri commodity market in India is at the same juncture where the Indian equity market was in the early 1990s,
when floor trading gave way to the electronic market place. BSE Sensex 29,737
Early winds of change are visible. Out of ~2400 mandis across India, ~400 mandis have already been integrated
with eNAM. Once integrated completely, India, with an Agri GDP size of US$ 325bn, would become the largest NSE Nifty 9,220
digital agri commodity spot exchange market in the world. We estimate that eNAM could deliver 20%-30% S
reduction in intermediation cost, leading to 10%-15% increase in farmers realization and 10%-15% reduction in 30%
prices paid by consumers. More importantly, like the hugely successful crop insurance scheme (see our note
Crop Insurance Scheme), eNAMs structural impact is in reducing the volatility in farmers income by replacing 20%
local region demand-supply vagaries with more stable pan-India demand-supply dynamics.
Why we need eNAM: India consists of various agricultural belts, viz., Maharashtra alone produces 30% of Indias total 10%
onion and Madhya Pradesh produces 27% of Indias total pulses. During harvest season, prices of agri-commodities vary
0%
widely across markets. Current regulations and lack of infrastructure force farmers to sell their produce only in the nearby
mandi to registered traders (called as Adatias). Adatias tend to form cartels affecting price discovery for farmers and
-10%
food-processors/retailers, alike, as these mandis operate independent of price movements outside their precincts.
Sep-16
Dec-16
Mar-16
Mar-17
Jun-16
How eNAM changes the equation: Once implemented fully, eNAM aims to 1) Eliminate traders cartels and therefore
price manipulation at mandi-level; 2) Provide a better and real-time price discovery based on actual demand and supply
of agri-commodities that should result in lower prices for processors / retailers / consumers and would also discourage Sensex BSE 200
hoarding as information on agri-commodities holding would be readily available; 3) A better price realisation for farmers
would lead to increased focus on optimisation of agri-inputs (seeds, fertilizers, agro-chemicals, mechanization, irrigation, Performance (%)
etc.), which in turn, would result in higher farm productivity and incomes; 4) Digitize agri commodities transactions,
leading to reduction in cash transactions that would benefit both Government and the banking system alike. 1m 3m 12m
Current progress and acceptability: While there are ~2400 mandis across India, ~400 mandis in 13 states Haryana,
BSE200 4% 13% 23%
Telangana, AP, Gujarat, Rajasthan, MP, UP, Jharkhand, Chattisgarh, Himachal Pradesh, Maharashtra, Orissa, and
Uttarakhand have joined the eNAM platform. 3.6mn farmers, 78,716 traders and 36,937 agents have been registered Sensex 3% 11% 17%
with eNAM. So far, eNAM has already handled a turnover of Rs. 140bn and a total quantum of 5.4mn MT.
Key issues need to be addressed: Our mandi-level interactions suggest that GoI needs to work on 3 important aspects
to make eNAM most effective: 1) Each mandi needs to have automated assaying facility which should be completely
reliable so that traders dont have to be physically present in the mandi, 2) Traders physically not present at a specific
mandi where a farmer is delivering his produce need adequate logistical support on managing the physical transfer,
storage and transportation of their purchases, and 3) Online infrastructure (kiosks for farmers, included) and internet
speed need to be sound enough to handle peak season arrivals smoothly.
GAUTAM SINGH gautam@sparkcapital.in +91 22 6176 6804 Find Spark Research on Bloomberg (SPAK <go>), Page 2
GAURAV NAGORI, CFA gaurav@sparkcapital.in +91 44 4344 0072 Thomson First Call, Reuters Knowledge and Factset
ARJUN N arjun@sparkcapital.in +91 44 4344 0081
#1. What is eNAM STRATEGY
eNAM in a nutshell
National Agriculture Market (NAM) is a pan-India online trading portal which connects the existing agri
What is eNAM mandis (APMC - agricultural produce market committee) to create a unified national market for agricultural
commodities.
Fragmented nature of agri markets and deterring APMC regulations restrict farmers to sell their produce
Why we need eNAM directly to the consumers and to access pan-India agri markets. It results in higher agri commodity prices
for the consumers without benefitting the farmers.
Farmer brings his produce to mandi. After assaying and fixing a price, the bid is loaded on to eNAM
How it works platform. Buyers across the country bid and make the payment through NEFT to eNAM, which transfers it
to the farmer.
13 states Haryana, Telangana, AP, Gujarat, Rajasthan, MP, UP, Jharkhand, Chattisgarh, HP,
Current Progress Maharashtra, Odisha, and Uttarakhand have amended their APMC acts and joined eNAM platform. So far,
400 mandis have been connected to the eNAM platform (India has 2,477 regulated agri markets)
Currently 69 agricultural and horticultural commodities including fruits and vegetables have been notified
Traded commodities for trading on eNAM platform.
As per the latest data, 3.6mn farmers, 78,716 traders and 36,937 commission agents have been
Acceptability registered on the eNAM at present. Total turnover done by eNAM is Rs. 140bn in the last five months.
Total quantum traded is 5.4mn MT.
Pre-requisites for enabling a eNAM: APMCs have to make the following three changes in their existing rules to implement eNAM
The State APMC Act must have a specific provision for electronic trading
The State APMC Act must provide for issue of licences to anyone in India to trade through the NAM in the local mandis.
There must be one single licence for each State to facilitate trading in all the mandis of that State and a single point levy of transaction fee.
Page 3
#2. Why eNAM STRATEGY
To understand this, lets first understand the APMC Act, its intended objectives versus reality
As per the APMC Act, states are geographically divided into markets (mandis). Farmers can sell their produce via an auction at the
mandi in their region to APMC agents, who require a license to operate within a mandi. The major objective of the act was to protect
the farmers from the wholesale and retail traders who were buying at a price far lower than the market price.
However, over the period, APMC agents formed local cartels, forcing farmers to sell at lower prices. Also, farmers can not move
the produce to another mandi within the state because each market requires separate license and transportation costs is too high.
Multiple charges levied within the mandis such as market fees, licensing fees and commission etc. pushed up agri commodity prices.
Thats why APMC act failed to deliver on its objectives.
Only registered traders can buy the A monopolistic market situation has led
Prevents notified products directly from the Exploitation
Exploitation by under the veil of to wide gap between the market price
farmers thereby ring-fencing farmers and the price paid to the farmers
Corporates from big retail houses. law
Page 4
#3: How things would change after eNAM implementation STRATEGY
A pre and post eNAM comparison
2. License Requirement Need for multiple licenses to trade within a state Single trading license valid across the State
4. Participants Limited number of traders due to strict licensing policy Large number of traders due to Liberal licensing policy
6. Fees Multiple level of fees, agent commission etc. Single point levy of market fee across the State
Lot of information asymmetry between buyers and Removes information asymmetry between buyers and
9. Information Gap sellers sellers
Lot of scope and incentive for hoarding given that no Hoarding would be curtailed as one can pinpoint who
10. Scope for Hoarding information about hoarding is hoarding
Page 5
#4: Key stakeholders and responsibilities STRATEGY
Four major stakeholders in implementing eNAM
Small Farmers
Agribusiness
Consortium (SFAC)
SFAC is the lead agency for
implementation of eNAM. It
carries out all administrative
and management functions
with respect to
implementation
National Informatics
Centre (NIC) Strategic Partner (SP)
NIC is the technical partner Nagarjuna Fertilizers and
responsible for providing all Chemicals Limited (NFCL)
the infrastructure (virtual eNAM
has been appointed as SP for
servers, base operating a period of 5 years to develop
systems, firewall, load and maintain eNAM Portal
balancers, SMS and email
services etc)
Directorate of
Marketing and
Inspection (DMI)
Provides assistance on
scrutiny of the detailed
project reports submitted by
States. Assists Project
Appraisal Committee (PAC)
with respect to regulatory and
reforms aspects
Page 6
#5. The system design of eNAM STRATEGY
How eNAM operates
3
F AR M E R
2 TRADE MATCH
Quality Certification
SELLER by Identified Labs BUYER
T R ADE R
5
4
1
APMC/ Channel Clearing Bank
Partners / Seller Settlement
(Deposit Money)
Facilitation
C OM M I S S I ON Goods Delivery
AG E NT
Payments Settlement
6 period: T+0
Source: GoI, Spark Capital Research
Page 7
#6. Progress and timeline for implementation STRATEGY
Implementation on a fast track
Pan India implementation status: 400 mandis in 13 states have been Total of 585 mandis to be connected via eNAM by Mar18
connected to eNAM platform of the 2,477 regulated agri markets
Himachal
Pradesh By Sep16 By Mar18
19 | 7 | 37% Trading 400
portal 250 Mandis Roll out
Uttarakhand creation Mandis in 585
5 | 0 | 0% Mandis
Haryana Apr16 By Mar17
54 | 37 | 69%
Page 8
#7. Key benefits of eNAM for individual stakeholders STRATEGY
Efficient and transparent price discovery across the agri supply chain
Farmer
Single market fee,
access to all agri
markets;
Expect 10-15%
better price
Hoarder realization Trader
eNAM would Single licence
discourage valid across state;
hoarding as
information on Access to all agri
holding would be markets with
available single license
eNAM
Consumer APMCs
To pay lower Continue to exist.
prices due to
efficient and eNAM to transfer
transparent price the mandi fees to
discovery Food respective APMC.
Processor/
Retailer
To pay lower
prices due to
better price
discovery and
direct access to
agri markets
Page 9
#8. How eNAM would increase farmers income STRATEGY
Farmers' realization to increase by 10-15%
Once eNAM is fully operational, we believe, eNAM would deliver ~20-30% reduction in intermediation cost depending on the
agri commodity, leading to ~10-15% increase in farmers realization and 10-15% reduction in prices paid by consumers.
Rs.25/kg Rs.22.4/kg
Rs.20/kg Rs.17.2/kg
Rs.15/kg
Rs.13.2/kg
Retailer Consumer Retailer Consumer
Rs.12/kg 30% Rs.11.5/kg 30%
Wholesaler Wholesaler
30% Final consumer 30% Final consumer
Rs.10/kg Commissioning pays Rs. 25/kg, Commissioning pays Rs. 22/kg,
Agent ~150% jump Agent ~94% jump
Cost: 25% Cost: 15%
Traders
Rs.8/kg Rs.8/kg
Farmers 20% Farmers
Farmer Farmer
produces onion produces onion
Grading laboratories: One of the most important factors for inter-state transactions to take place is the assurance of the quality of the selected
product. Therefore, Govt needs to put quality control laboratories for assaying and grading purpose so that traders across the country can bid
based on the grading provided by the quality officers. The concept of virtual reality should also be considered to add more credibility to the
#1 system.
Warehousing, logistics and quality assurance: Traders outside the mandi bidding in e-auctions need support on managing the physical
transfer, storage and transportation of their purchases. These issues need to be resolved to make eNAM workable for the traders who are not
physically present in the mandis. There is a need for a body which handles the settlements, ensuring that the high grade product is not replaced
#2 by low grade product during the delivery process.
Lot size: A big challenge for inter-state trade is the difference between the lot size demanded by the traders and the lot size supplied by the
farmers. Traders outside the mandis usually demand for larger lots to take the benefit of the economy of scale in handling the logistics
#3 (transportation etc.), whereas farmers supply smaller lots.
Internet speed & other technical glitches: There are incidents of poor internet speed, system down during the peak season arrivals. The
online infrastructure needs to be sound enough to handle such technical glitches like crashing of servers, failure of bidding etc.
#4
Awareness and training: To increase awareness and acceptability, the importance of eNAM has to be explained to the farmers and traders
through awareness campaigns. State govts also should promote eNAM proactively. There are 2477 regulated APMC markets in India. Even if
#5 the Govts target of connecting 585 markets is achieved, it is just 24% of the total of 2477 regulated agri markets (APMC) in India.
Smooth gate entry and registration: During peak harvest season, APMC markets receive a large number of farmers, creating a long queue at
mandis gate which in turn, creates traffic jams . Gate entry and registration process needs to be fast to avoid such issues.
#6
Page 11
#Appendix 1: Our conversations with the stakeholders STRATEGY
Supply chain constraints that limit farmer incomes to ease
Page 12
Strategy
Market outlook
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
For important disclosures please refer to page 6.
Govt spend not a tailwind Strategy
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17RE FY18BE
Source: Ministry of Finance, State budgets, RBI, CLSA; RE is revised estimates and BE is budgeted
estimates.
Source: RBI
Govt spend not a tailwind Strategy
States are building in Trend in tax revenue growth of states and Centre
higher tax revenue
growth vs the Centre in Central govt gross tax revenue States own tax revenue
FY18 30
2727
25 (% YoY)
21
20 18 17
17 17
15 15
15 13 12 12
11
10 9 9
10 8
5 3
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17RE FY18BE
Source: RBI, State budget documents, CLSA
States own tax revenue States own tax revenue growth for FY17RE
growth was 11% in FY17
50 46
vs 14% budgeted for the %YoY
45
year
40
35
30 24 25
25 22
20 14 15
15 10 10 10 11
8 8 9
10
3 3 3
5
0
All states
Rajasthan
Kerala
Gujarat
Bihar
Jharkhand
Odisha
Maharashtra
West Bengal
Tamil Nadu
Karnataka
Madhya Pradesh
Haryana
Andhra Pradesh
Telangana
Uttar Pradesh
Govt spend not a tailwind Strategy
States are building in own States own tax revenue growth for FY18BE
tax revenue growth of
30
15% YoY in FY18BE %YoY 25
25
19 20 20
20 17 18
15 16 16
14 14 14 15 15
15 12
9
10
Madhya Pradesh
Kerala
Telangana
Rajasthan
Bihar
All states
Jharkhand
Karnataka
Maharashtra
Haryana
Odisha
Tamil Nadu
Andhra Pradesh
West Bengal
Gujarat
Uttar Pradesh
Source: State budgets. Note: Uttar Pradesh numbers are based on the interim budget.
States fiscal deficit for Fiscal deficit revised estimates of states for FY17, as a per cent of GSDP
FY17RE was 50bps ahead 4.6
5.0 4.5 4.6
of budgeted estimates % of state's GDP 4.2
4.5
4.0 3.5
3.2 3.3 3.4
3.5 3.1
3.0 2.6 2.7
2.5 2.5
2.5 2.2 2.2
1.8
2.0
1.5
1.0
0.5
0.0
Andhra Pradesh
All states
Rajasthan
Kerala
Jharkhand
Gujarat
Karnataka
Maharashtra
Haryana
Odisha
Telangana
Bihar
Tamil Nadu
Madhya Pradesh
West Bengal
Uttar Pradesh
State bond yields gap vs Differential between state bond and G-Sec yields
G-Sec has widened to
9.0 10-year State Govt bond yield 10-year G-Sec yield
91bps %
8.5
8.0 91bps
7.5 69bps
7.0
6.5 38bps
6.0
Dec 15 Feb 16 Jul 16 Sep 16 Nov 16 Jan 17 Feb 17
Source: Bloomberg, RBI
Govt spend not a tailwind Strategy
All states
Rajasthan
Uttar Pradesh
Kerala
Gujarat
Bihar
Jharkhand
Maharashtra
Karnataka
Haryana
Tamil Nadu
Andhra Pradesh
Telangana
Madhya Pradesh
Odisha
Source: State budgets, CLSA
25
20
15
10
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17RE FY18BE
Source: CLSA, State budgets
12/04/2017 Electricvehiclesandtheautoindustry
Theprospectofelectricvehicles(EV)disruptingtheautomobileindustryhasledtoexcitement,fear
andnumerousresearchreports.Someexpertsfeelitisalldoomandgloomfortheincumbentautoorigi
nal equipment manufacturers (OEMs) as EVs replace internal combustion engine (ICE) cars and they
willsufferthesamefateasthehorsecarriagemanufacturerstheythemselvesreplacedmorethanahun
dredyearsago.Theautomobilemajorsareobviouslyfarlessbearish,andcontinuetobelievetheywill
thriveandleadthetransition.Theybelieveonlytheyhavethescale,distribution,brandandtechnologi
calresourcesneededtothriveinaworldofEVs.
This transition is of huge significance as globally the passenger vehicle industry has a turnover of
$1.8trillion,profitsof$150billionandvolumesof90million.Justforcontext,thesmartphoneindustry
hasrevenuesof$340billionandthepersonalcomputerindustryrevenuesare$170billion.Thetransi
tion from ICE vehicles to batterypowered EVs will cause disruption on a scale not seen before. The
sheersizeoftherevenuesandprofitsatrisk,andthemultitudeofplayersinthevaluechainaffectedare
nottrivial.Frompowersemiconductordesignerstocobaltminersandcathodemanufacturers,thebene
ficiariesarenumerousasarethelosers.
Lithiumion batteries will be one of the main building blocks for transportation, renewable energy
storage and backup power. These batteries will be one of the critical technologies of the next few
decades.
Whydoesthismatter?EspeciallytoanyonebasedinIndia?Howwillitimpactourcompanies?Why
shouldweworry?
TherealityisthatautomobilesisoneofthefewmanufacturingsectorswhereIndiahashadsuccess.
The country will export nearly 800,000 cars in 2017, a value of at least $4 billion, with nearly 90 per
centlocalisation.Insmallcars,wearenowaglobalmanufacturinghub.Tothis,wemustaddoursuccess
inautocomponents,another$45billionofexports.Thisisoneofthefewsectorswherewehaveglobal
scaleandcompetitiveness.MakeinIndiaworksforsmallcars.Indiaisprojectedtobethethirdlargest
carmarketintheworldby2020,withdomesticvolumesover4.5million.Currently,wehavecomponent
localisationofabove85percent,withthemajorityofthevalueadditioninIndia.Iftheindustryismov
ingtoEVs,willitundercutwhatevermanufacturingedgewehaveinthisspace?Willweremainacar
https://www.pressreader.com/india/businessstandard/20170411/282054801893315 1/3
12/04/2017 Electricvehiclesandtheautoindustry
manufacturinghubwithhighdomesticvalueadditionorbecomeacheapassemblerofimportedlithium
ion batteries and components? Will we become in cars, what we are today in smartphones: Cheap
assemblywithlimiteddomesticvalueaddition?
Firstsomebackground.ThemovetowardsEVsisinevitable.Theonlyquestionistiminganditisnot
onlydrivenbyglobalwarmingconcerns.Itisfundamentallyabetterproductjustlookatthewowfac
torassociatedwithTesla.Disruptionhasstartedatthehighendpremiumvehiclesbutwillcomedown
tothemassmarketeventually.Thebiggestissueiscost,asthepowertrainofanEV(basicallythebat
tery)isabout$1718,000,comparedtoanICEpowertrain(engine,transmissionandexhaustsystems)
of about $5,000. This gap will narrow as the costs of batteries fall by about 20 per cent annually and
morestringentemissionandfuelefficiencynormsraisethecostsofconventionalengines.Mostexperts
expectacrossoverincostsomewherebetween2025and2030.GiventhatEVsarefaster,morefueleffi
cientandwithzeroemission,oncecostsaresimilartheswitchovershouldhappenrapidly.StudiesIhave
seenshowEVpenetrationof25percentby2025risingto90percentby2035.Themorebearishstudies
indicate10percentpenetrationin2025and30percentby2035.Chinawillleadthistransitionfollowed
bytheEuropeanUnion.EmergingMarket(EM)countrieswilllag,giventhelackofadequatecharging
infrastructure.
Thishugeshiftwillshakeupthewholeindustry.Ifonelooksatthepatternoftechnologicaldisrup
tionseeninothersectors,thenvaluewillmoveawayfromthetraditionalautoOEMsandtheirsuppliers
to core components (batteries) and enablers of the new generation of automobiles. As the OEMs lose
controlofthecoretechnology,whichisbatteries,theirabilitytodifferentiateandearnreasonablemar
ginswillreduce.
EVs will be much simpler to manufacture with almost half the components of the classic internal
combustionenginevehicle.Thiswillseverelyimpactthecomponentsuppliers.Specialistsinengineand
transmission components, or companies focused on fuel injection and exhaust systems will lose out.
Thesearetodayshighestmarginareaswithmaximumcomplexityandwillbecompletelydisruptedand
renderedobsolete.
However,theindustryhasatleastadecadetoadjust.EvenunderthemostbullishassumptionsofEV
adoption,globalICEvehiclevolumes(includingmildhybrids)willdeclinebyonly0.75percentperan
numbetween2016to2026,asrisingICEsalesintheEMmarketsoffsettherapidswitchtoEVsinthe
developedworld.Thefalloffacceleratespost2026.
OurcomponentsuppliershaveadecadetopenetratethevaluechainsofEVsuppliers.Whethersup
plyingtonewcompanieslikeTeslaortheexistingOEMs,suppliersneedtoensuretheirrelevanceinthe
newdesigns.GiventhatallourcarexportsgointoEMs,weshouldhavetimetoadjustasEMvolumes
forICEcarswillcontinuetogrowforthecomingdecade.
TherealityisthatChinahastakenaleadingpositioninbatterytechnology.In2016,itledtheworld
in sales of EVs, driven by subsidies and forced government fleet purchases. It is going to create a na
tionalchampioninbatteriesandisdeterminedtoclosethegapwithKoreanandJapanesebatterymak
ersby2020.
Indiaunfortunatelyhasaverylimitedplayinthistechnologydisruption.Wehavenoscaleinbattery
manufacturingneitherdowehavethetechnology.IhaveheardofnoattemptbyanyIndiancompanyor
https://www.pressreader.com/india/businessstandard/20170411/282054801893315 2/3
12/04/2017 Electricvehiclesandtheautoindustry
thegovernmenttotryandcatchup.Wemissedthesemiconductor,thesmartphone,thepolysiliconand
the flatpanel technology waves. We have absolutely no technology or manufacturing capacity of any
substanceinanyoftheseareas.Itlookslikesomethingsimilarwillhappenagaininbatterytechnology
aswell.
Thegovernmentwillhavetohelp,butasacountryweneedastrategy.Wecannotaffordtomissan
othertransition,andremainjustanimporterofcriticalenablingtechnologiesofthefuture.
https://www.pressreader.com/india/businessstandard/20170411/282054801893315 3/3
Aprescriptionforthefuture
Howhospitalscouldberebuilt,betterthanbefore
Technologycouldrevolutionisethewaytheywork
Apr8th2017
INAnondescriptpartofCleveland,inaroomknownasthebunker,adoctor,nursesandmedicaltechniciansgatherto
keepwatchover150patientsinspecialcareunitsandintensivecarebeds.Theirpatientsarescatteredaroundtheregion,
inclinicsthathavenospecialistscoveringthenightshift.Onawallofbeepingscreensthebunkerteammemberstrack
their charges vital signs. They can zoom in on any patient via a camera at the foot of each bed. These here are PVCs
[prematureventricularcontractions];theyrebadthings,saysJimGoldstein,acardiactechnician,pointingtoagraphofa
patientsheartbeat.ThePVCsaregettingworse,warnsaflashinglight.Itstimetoalertanurseontheground.
HealthcareproviderssuchastheClevelandClinic,thebigAmericanhospitalgroupthatrunsthisremoteintensivecare
unit(ICU),arerethinkingthewayhospitalswork.Today,hospitalsarewherepatientsgoforconsultationswithspecialists,
and where specialists, with the help of medical technicians and pricey machinery, diagnose their ills. They are also the
mainsettingforsurgeryandmedicalinterventionssuchaschemotherapy;andwheresickpeoplegoformonitoringand
care. But highspeed internet, remotemonitoring technology and the crunching of vast amounts of data are about to
changeallthat.Inthecomingyearsabigchunkofthoseactivitiesandnearlyallthemonitoringandcarecouldmove
elsewhere.
Plenty of other institutions are trying to grab someof the workand profitsthat will be displaced, including primary
care groups, insurers and healthmanagement organisations. And technology firms are already playing a bigger part in
health care as phones become more powerful and patients take control of their own diagnosis and treatment. But the
morefarsightedhospitalsarehopingtoremainatthecentreofthehealthcareecosystem,evenastheirrolechanges.
WhenIthinkofthehospitalofthefuture,Ithinkofabunchofpeoplesittinginaroomfullofscreensandphones,says
TobyCosgrove,theClevelandClinicshead.Insuchavision,ahospitalwouldresembleanairtrafficcontroltower,from
which medical teams would monitor patients near and far to a standard until recently only possible in an ICU. The
institutionitselfwouldhouseonlyemergencycasesandthepriciestequipment.Theonlyinhospitalconsultationswould
bethoserequiringtheexpertiseofseveralspecialistsworkinginateam.Patientsinsidethebuildingwouldbecaredfor
better.Butfewerpeoplewouldbeadmitted,ashospitalscoordinatedcareremotelyandledpopulationwideeffortsto
keeppeoplewell.
Hospitalshavealreadybeenreinventedseveraltimes.DuringtheMiddleAgestheywererunbyreligiousinstitutionsand
offeredlittlemorethanshelterandpalliativecareforthepoor,andaplacetodie.Aftertheadventofmodernmedicine
during the Enlightenment, ambitious institutions such as Westminster and Guys, in London, developed into complex
organizationsthatcombinedcare,treatment,researchandeducation.Poorreliefmovedelsewhere;smallerinstitutions
closed or merged; doctors specialised and clustered in big cities; and nursing was professionalised under Florence
Nightingaleandhersuccessors.
Templestohealing
Thetransformationinthecomingdecadeswillbeaswrenchingasanyhospitalshaveyetseen.Andhealthcarereformis
alwaysdifficult,asisclearfromaglanceatBritainscreakingNationalHealthService,Francesnearbankruptsystemor
the interminable battles in America over the future of Obamacare. Fastageing populations and the rising cost of new
treatmentswillfurthercomplicatethetransition.Buttheneedforchangeispressing.Inthepasthalfcenturytheburden
ofdiseasein allbutthe poorestcountrieshasshifted.Communicable diseasesarenolongerthebigproblem; nowit is
chroniconesrelatedtounhealthylifestylesandlongerlifespans.Thegapbetweenpopulationshealthneedsandthecare
offeredbysystemsorganisedaroundhospitalshasgrowneverwider.
Picturingwhathospitalscouldbe,ifthevariousobstaclesareovercome,meansabandoninglongheldassumptionsabout
the delivery of care, the role of the patient and what makes a good doctor. The First is what should happen where. A
hospitalcanalsobeathome,saysLordAraDarzi,asurgeonandprofessoratImperialCollegeLondon,auniversitythat
runs teaching hospitals. Just as online banking made life more convenient for consumers and freed up branch staff for
complexqueries,onlinehealthcarecouldmeanfewerpeopleneedtocometohospitalstobecaredforbythem.Lastyear
half of consultations offered by Kaiser Permanente, an integrated American healthcare Trm that runs many hospitals,
werevirtual,withmedicalprofessionalscommunicatingwithpatientsbyphone,emailorvideoconference.
Themainlimitationstoday,saysKariGali,apaediatricnursepractitionerfortheClevelandClinicwhotakessuchvideo
calls,arethatshecannotlookintochildrensearsorlistentotheirchests.Astheseandmoresophisticateddiagnostics,
including blood tests and virtual imaging, become available remotely, more patients could receive hospitalquality care
withoutleavinghome.GuptaStrategists,aDutchresearchcompany,reckonsthataround45%ofcarenowgiveninDutch
hospitalscouldbedonebetterathome.Shiftingalmostalldialysisandchemotherapyoutofhospitalsisfurtheroff,butis
ontheway.Andwithbetterremotemonitoringsomechronicallyillpatientswhonowneedtobeinhospitalswillbeable
tostayathome,onlycominginwhentheirconditionsdeteriorate.Movingcareoutsideinstitutionswillbothsavemoney
andraisestandards,bymakingpatientsmorecomfortableandreducinginfectionrates.
Eachtotheirown
For all this to happen, primary care and home support will need to improve. Kaiser shows what such integrated care
mightlooklike.Itoffersahostofalternativestoahospitalvisit,fromitswebsitetokioskstourgentcarecentres,which
arecheaper,oftenmoreconvenientforminorailmentsandequippedtodealwithdiseasemanagementandprevention,
andthesocialissuesthatincreaseillhealth.Ifwegetahospitalisationofadiabeticpatientinacoma,thatsafailureof
oursystem,saysBernardTyson,Kaisersboss.Heblamesskewedfinancialincentivestohaveheadsinbedsformuch
overhospitalisation.
Banner Health, a large nonprofit American health system, runs 28 hospitals and several specialised facilities across six
states.ItsTeleICUprogramme,forwhichPhilips,aDutchhealthtechnologyfirm,providesequipment,programmingand
softwaresupport,hasitsheadquartersinPhoenix.Itmanagescareforcriticallyillpatientswhomaybethousandsofmiles
away. Under its intensive ambulatory care programme, patients are helped to leave hospital earlier than is usual for
theirconditions.Theyremainunderconstantmonitoringandcareintheirownhomes,andcanbeaminbyvideototalk
toadoctorornurseatanytimeofday.AfterapilotstudywithPhilips,BannerHealththinksthistelehealthprogramme
couldreduceadmissionsbynearlyhalf,andcutcostsbyathird.
For patients who must still be admitted to hospital, the experience could be much more convenient and pleasant.
Hospitalscouldoperatemorelikeacrossbetweenamodernairportandaswishhotel,withmobilecheckin,selfservice
kiosks for blood and urine tests and the like, and updates on patients and relatives phones. For preplanned visits an
algorithmcoulddecidewhichtestsareneededbeforeapatientleaveshome.Someofthesecouldbedoneinadvanceand
theresultsstreameddirectlytopatientselectronicrecords.
But the biggest upgrades to hospitals are needed behind the scenes. Johns
HopkinsHospital,inBaltimore,hasbuiltaNASAinspiredcommandcentre
tomanageitspatientflows.Surroundedby22beepingflatscreens,livevideostreamsandlotsofphones,staffmembers
wearing headsets orchestrate the 1,100bed institution around the clock. GE Healthcare, a medicaltechnology firm,
helpedmix,filterandpresentdatastreamsinnewwaysevenincludinginformationsuchastheweather.Bedplanning
hasgonefromanarttoasciencewiththehelpofprogramsthatpredictdemandwithgreatprecisionandwarnwhena
crunchisapproaching.Thecentrestaysintouchwithnearbyinstitutionswhosepatientsrequireitsspecialistsinput,but
nottobephysicallypresent.TheaimistomaximisethenumberofpatientswithaccesstoHopkinsexpertise,saysJim
Scheulen,thedirector.
Infuture,ratherthancheckingpatientsvitalsignsonlyatintervals,orparkingICUnursesnexttobeds,livedatastreams
frommedicalmachinesandwearabledevicescouldflowstraighttosuchcommandcentres,wheresupercomputerscould
screenthemforanythingworthbringingtotheattentionofmedicalstaff.Doctorsinthecommandcentre,orevenintheir
own homes, could be at patients bedsides virtually with a swipe of a touch screen. All this would not only make the
hospitalsaferandmoreefficient;itwouldalsogivemedicalstaffamorecompleterecordofpatientsprogress.
InKaisersOaklandMedicalCentre,thenursesintheneonatalunit,amongthemostsensitivedepartmentsinanyhospital,
donotneedtowatchthebabiesascloselyastheyusedto,becausealgorithmspinganalarmtotheirphoneswhenever
thereissomethingtoworryabout.Theunitautomaticallygoesintolockdownifanyonetakesaninfant,taggedwithabar
code, to the exit. Soon Karolinska hospital will equip every patient with a vitalsigns tracker. In the Cleveland Clinics
recently opened Avon Hospital, sensors track whether staff have washed their hands before entering a patient room:
lightsashontheirbadgesifnot
Clearedforlanding
A command centre could watch over patients not only in hospitals, but alsoat home. Wearable devices that track vital
signs, contact lenses that monitor bloodsugar levels and smartstitches that measure the pH level of fluid in wounds
wouldallmeanfewerpatientsinhospitalformonitoring.Whenhespeaksofhowsuchremotemonitoringcouldimprove
careforhisleukaemiapatients,theeyesofMatthewKalaycio,anoncologistattheClevelandClinic,lightup.Ifhisphone
warnedhim ofaworryingchangeina patientstemperature,he couldwakethepatientwithacallevenbeforehefelt
anythingandtellhimtocometohospitalor,ifcaughtearlyenough,totakemedicationtoresolvetheproblemathome.
All this monitoring would bring two new risks: mass hypochondria, as patients obsessed over their data and flooded
hospitals with requests for consultations; and alarm fatigue, in both patients and medics. The antidote would be an
intelligent monitoring system combining all the different datastreams, filtering out the least relevant and alerting staff
onlywhenneeded.Acomputertaughttorecognisedeviationsfromstandardrecoverywouldbeabletoalertmedicalstaff
to aberrations. For example, a pneumonia patient who does not shake off a fever after two days of antibiotics needs
attention.Mostotherssimplyneedtocompletethecourseofdrugs,andgetsomerest.
Physician,healthyself
Aswellasenablingdoctorstomonitorpatientsmoreeffectively,technologycouldalsoimprovetheirskills,increasetheir
reachand,sometimes,taketheirjobs.Althoughhospitalmanagersinsistthattechnologywouldnotreplacestaff,thisis
ofcoursenonsense.Basictasks,suchascartinglaundryaround,arealreadybeingtaken overbyrobots.Everydaycare,
suchaskeepingpatientsclean,couldbenext.Radiologistsandpathologists,whoseskillsareprimarilyvisual,areatriskof
beingelbowedasidebymachines.
EngineersatImperialCollegeLondonrecentlydevelopedDeepMedic,acomputerprogramthatassessesscansofpatients
with head injuries for signs of brain trauma. Today, these are diagnosed by a doctor who pores over MRI scans. Deep
Mediccandothejobinseconds.Braintumourscouldbenext.Suchdiagnoseswouldbecheaperandmoreaccuratethan
possiblewiththehumaneye.
But mostly such technological advances would make doctors better, not replace them. The Cleveland Clinic is putting
Watson, IBMs robot that learns to reason as it is fed data, through medical school. It could soon join doctors on their
rounds.UniversityHospitalMarburg,inGermany,recentlybeganusingWatsontoimprovethediagnosisandtreatmentof
rarediseases(oneearlysuccesswastohelptracemysteriousstomachsymptomstowatersnailsinapatientsaquarium,
leadingtoadiagnosisofbilharzia,atropicaldisease).Thesmartphonesindoctorspocketscouldreplacethestethoscopes
aroundtheirnecks.Machinesdonotgetemotionalortired,nordotheystruggletodistinguishwhetheranewbornbabyis
blue(andthusinneedofurgentintervention)orpink.
Thesurgeonsjob,too,couldbetransformed.Today,theuseofrobotsintheoperatingroomislimitedbecausetheymust
be steered manually with a joystick. In future robots might be able to carry out some standard procedures such as hip
replacements autonomously, with a surgeon getting things started and the robot doing the rest. With more complex
operations, a supercomputer linked to a realtime virtualreality (VR) machine could help walk surgeons through their
operations. It could, for example, highlight where a tumour sits in the liver and warn a surgeon about impinging on an
artery,justasasatnavwarnsoftrafficjamsahead.
Sricharan Chalikonda, a surgeon at the Cleveland Clinic, says he can imagine scrubbing up full Robocopstyle, with a
helmetwith builtinVRgogglesgivinghimfighterpilotsupervisionandglovesthatgivehimsuperhands.Histeam
has already worked with 3D prints of patients organs; the next big leap would be to project live images, showing the
blood owing through them. Microsoft HoloLens, clever virtualreality goggles, is already being used to teach students
aboutanatomy;cadaverscanbecutup,whichisuseful,buttoobservebiologicalprocessessuchascirculationinaction
onlyaliveorVRbodywilldo.Inthefuture,everybighospitalcouldhaveaStarTrekstyleholodeckwheresurgeonscould
planandrehearsecomplexoperationsona3Dprojectionofthepatient.Advancesinminusculerobotictoolscouldcorrect
fortheimperfectionsoftheshaky,toolargehumanhand,allowingfewerandsmallercutsthankeyholesurgeryasitis
currentlypracticed.
With quicker and less invasive treatments, recovery times would fall. Medical errors would become less frequent, as
wouldtheneedforrepeatoperations.Surgeonsinthecontroltowermight,eventually,operateonpatientsallroundthe
world. I can totally see myself sitting here at my desk, guiding three operations in three different locations, says Mr
Chalikonda,asheleansbackinhischair.
Astechnologyamplifiedthereachofeachhealthcareprofessional,oneusefulconsequencewouldbetoeasealooming
labourshortage.WithoutabigleapinproductivityAmericaalonewilllackupto90,000doctorsby2025.Andworldwide
demand for health care is growing as livesand that part of them lived in poor healthgrow longer. The World Bank
estimates that by 2030 the number of healthcare workers will need to double, compared with 2013an extra 40m
workersglobally.Highratesofstressandburnoutarealreadyaprobleminhealthcare;ifworkloadscontinuetoincrease
theywillonlyrisefurther.Butifmedicalstaffaremademoreproductivewiththehelpofcomputers,monitoringdevices
androbots,theycanbefreeduptodotheworkthatonlyhumanscando,andhelpedtodoitbetterandmorehappily.
Iffulladvantageistobetakenofnewmedicaltechnologies,notonlymedicalprofessionals,butpatients,too,willhaveto
take on a new role: more like copilot than passenger. Illegible charts at the end of the bedliterally out of patients
reachwouldbereplacedbyaconstantlyupdatedelectronichealthrecordaccessibleonanydevice,bydoctor,nurseor
patient.Clinicalreadystreamspatientrecords,includingtestresults,toMyChart,asiteandappthroughwhichpatients
canalsocontacttheirphysicians.
InmanyKaiserhospitals,aflatscreentelevisiononthewallgivespatientsinformationabouttheirrecoveryandwhatthey
mustdobeforetheycangohome.Itmaynotbelongbeforepatientscanbegivenaccesstothesamesightsandsoundsas
theirdoctors,forexamplebystreamingthesoundofastethoscopetoaheadsetortheviewfromanotoscopetoascreen.
MrTysonwantspeopletobecomeasinterestedandengagedintheirbodiesastheyare(or,atleast,asheis)intheircars.
He thinks that with the right technological and medical support they would be able to spot, and respond to, raised
cholesterolasquicklyastheywouldtolowtyrepressure.
Themodernhospitalisagreatachievement.And,insomeform,itissuretosurvive.Therewillalwaysbehospitalswhere
patientswithcomplexneedsgoformultidisciplinarydiagnosisandtreatmentbyteamsofspecialists,saysJohnDeverillof
GE.Hepredictsthatseparatefacilitieswillspringuptoprovidecommonsurgicalinterventions,suchasjointreplacements
orcataractremovals,tobenefitfromscale.Andhospitalswillalsocontinuetobeneededtotreatemergencycases.
Beammebetter,Scotty
The next iteration of the hospital, however, is tantalisingly within reachand it is more the coordinating node in a
network than a selfcontained institution. We have reached the peak of bringing patients to the healing centresour
hospitals,saysSamuelSmitsofGupta.Weareonthebrinkofbringingthehealingtopatients.Thisarticleappearedin
theInternationalsectionoftheprinteditionundertheheadline"Prescriptionforthefuture"
IndiaApril 7, 2017
Strategy Note
Figure 1: Prices of all battery types have fallen significantly and we expect the
downtrend to continue in coming years
800
Flow Batteries Advanced Lead-Acid Lithium-Ion Sodium Sulphur Sodium Metal Halide
Analyst(s) 700
600
500
US$/ kwhr
400
300
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Powered by the
IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
IndiaStrategy NoteApril 7, 2017
KEY CHARTS
The prices of storage batteries are falling Flow Batteries Advanced Lead-Acid
800
There has been continuous decline in the prices of Lithium-Ion Sodium Sulphur
Sodium Metal Halide
storage batteries in 2014-2016. Li-ion battery prices have 700
fallen by 70% in the last decade and we expect them to 600
fall further. With innovation, flow batteries could also 500
US$/ kwhr
become cheaper moving forward.
400
300
200
100
0
2014 2017 2020
Capacity in GW
100 20 GW by
Li-ion battery production capacity is slated to go up by BYD and
80
130% over the next three years, in our view. Li-ion 10 GW by
Boston
batteries are still the most versatile battery type, as it can 60
Power
be used in a wide range of applications, from mobile 40 Capacity
addition by
phones to electric cars and solar power plants. LG chem
20
0
2015 2016 2017 2018 2019 2020 Capacity
by 2020
end
Flow batteries, particularly VRFB, are ideal UET Advanced Vanadium Flow
Battery 20+ years life
for big storage applications
Big storage applications require batteries with long cycle
life and the batteries used are subject to multiple cycles
of complete discharge and recharge. As indicated in the
chart on the left, li-ion batteries can fail in such
Capacity
Cycles, Time
2
IndiaStrategy NoteApril 7, 2017
0
Solar power cost Battery cost Overall cost
Overall battery market size in India to Conversion Hotels Shopping Malls Grids anciliary
Transportation potential 1% 2% SEZs Services
expand to 27GW by 2020F sector 5% 4% 2% Townships
Rural Grid 8% 2%
Given the price decline, batteries are likely to become the connected Rural Micro Grid
3% 3%
energy source of choice for many off-grid applications Industrial
Hospitals
2%
such as data centres, in our view. Indian battery 5% Wind Integration
Agriculture 4%
manufacturers are falling behind the innovation curve and 3%
hence, we do not recommend any significant player in Data centre and
Cloud
India that is likely benefit from the recent developments. 3% Telecom towers
Military and 37%
defense Others
4% 4%
Solar Integration
8%
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3
IndiaStrategy NoteMarch 19, 2017
SOURCE: www.climatecouncil.org.au
4
IndiaStrategy NoteMarch 19, 2017
VRFB appears to have the highest potential, given its low cost of 5
UScts/kWh now
Vanadium redox flow batteries (VRFB) have long shelf lives and remain
charged for a long period of time. Because of their long cycle life, the cost of
electricity production by VRFB can be much lower than that of zinc-bromine
batteries.
5
IndiaStrategy NoteMarch 19, 2017
Figure 4: Flow batteries have intrinsic advantage over solid-state batteries (long
durability) and the latest batteries do not degrade even after 20 years
UET Advanced Vanadium Flow
Battery 20+ years life
Capacity
Solid Batteries (Lithium, Lead
Acid, Others)
Cycles, Time
SOURCES: CIMB, COMPANY REPORTS
The following features of VRFB make them highly suitable for back-up
power/telco tower usage:
1. VRFB are fully containerised, non-flammable, compact, reusable over semi-
infinite cycles, discharge 100% of the stored energy and do not degrade for
more than 20 years.
2. Most batteries use two chemicals that change valence (charge or redox
state) in response to electron flow, which converts chemical energy to
electrical energy, and vice versa. VRFB batteries use multiple valence
states purely in vanadium to store and release charges.
3. This type of battery offers almost unlimited energy capacity, as capacity can
be increased by simply using larger electrolyte storage tanks. VRFB can be
left completely discharged for long periods with no ill effects, making
maintenance simpler than for other batteries. Given these unique
properties, the new VRFB reduces the cost of storage to about 5
UScts/kWh.
Figure 5: VRFB can last for 20 years and lower the overall cost of power production
to 5 UScts/kWh
Pump
Pump
Discharging
6
IndiaStrategy NoteMarch 19, 2017
140
35 GW by Tesla
and 15 GW by
120 Foxconn
100
Caapcity in GW
80
20 GW by BYD
Capacity
and 10 GW by
addition by
Boston Power
LG chem
60
40
20
0
2015 2016 2017 2018 2019 2020 Capacity by
2020 end
SOURCES: CIMB, COMPANY REPORTS
120
100
Demand in GW
80
60
40
20
0
2011 2015 2020e
SOURCES: CIMB, COMPANY REPORTS
7
IndiaStrategy NoteMarch 19, 2017
Capital cost is coming down for all batteries but steepest decline is
for lithium-ion batteries
Figure 8: There has been a steep drop in storage battery prices Figure 9: Li-ion battery prices have come down by almost 70%
in last 6 years
Flow Batteries Advanced Lead-Acid Lithium-Ion Lithium-Ion Battery Pack Prices
800 1200 Title:
Sodium Sulphur Sodium Metal Halide
Source:
700
1000 Please fill in the values above to have them entered in your repo
600
800
500
US$/ Kwhr
US$/ Kwhr
400 600
300
400
200
200
100
0 0
2014 2017 2020 2010 2011 2012 2013 2014 2015 2016
SOURCES: CIMB, www.Irena.org SOURCES: CIMB, Bloomberg New Energy Finance
Figure 10: Battery life of li-ion batteries in test conditions Figure 11: Cycle life of most of flow batteries (VRFB and zinc-
extend well beyond 6,000 cycles bromine) is much higher than that of li-ion batteries
20,000 Please fill in the values above to have them entered in your repo
90%
Residual capacity
15,000
85%
80%
10,000
75%
65% 0
0 2000 4000 6000 Vanadium Zinc Bromide Lithium Ion Lead acid
Number of cycles
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
8
IndiaStrategy NoteMarch 19, 2017
25
Li- Ion
Cost of storage in UScts/ kWh
20
15
10
0
0 5000 10000 15000 20000 25000
Cycle life in number of cycles
SOURCES: CIMB, COMPANY REPORTS
9
IndiaStrategy NoteMarch 19, 2017
Figure 13: The significant off-grid telco power market could be Figure 14: High likelihood of off-grid telco tower conversion
captured by battery-based renewable energy power from fossil fuel-based to renewable energy, in our view
plants
West Africa SEA East Africa India RoW West Africa SEA East Africa India RoW
60,000 Title:
2019 Source:
50,000 Please fill in the values above to have them entered in your repo
2018
Requirement in MWs
40,000
2017
30,000
2016
20,000
2015
10,000
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- 1,000 2,000 3,000 4,000 5,000 6,000
2014 2015 2016 2017 2018 2019 Capacity in MWs
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
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IndiaStrategy NoteMarch 19, 2017
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IndiaStrategy NoteMarch 19, 2017
700
394.5
600
369.5
343
329
500
US$/ MWh
400
300
137.5
200
200
160.5 177.5
173.5
100 Dotted line indicates the cost
105.5 of a gas based peaker plant
0
Transmission Peaker Frequency Distribution PV Integration
System Replacement Regulation Services
12
IndiaStrategy NoteMarch 19, 2017
Figure 16: Assuming electricity generated per litre of diesel is 3.5kW and plant life
of 10 years, we estimate the overall cost of power from DG sets is close to 30
UScts/kWh
35
25
20
15
10
0
Equipment cost Fuel cost R&M cost Total
SOURCES: CIMB, COMPANY REPORTS
Figure 17: VRFB are ideal for off-grid applications, as they have long cycle life even
at high discharge rates
VRFB Lithium Deep Cycle Lead Acid GEL Lead Acid
12000
10000
8000
Cycle life
6000
4000
2000
0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% Discharge
SOURCES: CIMB, COMPANY REPORTS
13
IndiaStrategy NoteMarch 19, 2017
Figure 18: For off-grid applications with discharge rate of Figure 19: Despite higher capex, VRFB batteries can handle
higher than 75%, the lower cycle life of li-ion batteries will deep discharge and have long cycle life. Hence, they
translate into higher costs work out to be cheaper than li-ion batteries
16 12
off grid power cost with Li-Ion storage
14
batteries in UScts/Kwhr
batteries in US/Kwhr
8
10
8 6
6
4
4
2
2
0 0
Solar power cost Battery cost Overall cost Solar power cost Battery cost Overall cost
14
IndiaStrategy NoteMarch 19, 2017
Figure 20: Indian battery market present 27 GW opportunity over 2017-2020. The
market can be higher if technology adoption is faster
Conversion Hotels Shopping Malls Grids anciliary
potential 1% 2% Services
5% SEZs
4% 2%
Transportation Townships
sector 2%
Rural Grid
8% Rural Micro Grid
connected
3% 3%
Industrial Hospitals
5% 2%
Agriculture
3%
Data centre and Wind Integration
Cloud 4%
3%
Military and defense Telecom towers
4% 37%
Others
4%
Solar Integration
8%
SOURCES: CIMB, COMPANY REPORTS
Over the past few years, telecom companies were the biggest users of DG sets
(although the cost of power generated by these sets is high at Rs20/unit).
However, the changing power supply scenario and developments in battery
technology put this market at risk.
Cummins India share price is too high and the emerging headwinds
are likely to cause further de-rating, in our view
Figure 21: Cummins Indias off-grid power business will face significant growth
challenges and its current high valuation does not leave any room for
negative surprises. Hence, we keep our Reduce call on the stock
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15
The world of shared office spaces offers
convenience and cost benefits
Shared working spaces help firms cut corners on expenses as well as build sustainable networks
By Varsha Meghani
Classified ads portal OLX has a four-member sales team operating out of Mumbais business district of
Lower Parel. The company pays a rent of Rs 48,000 to Rs 50,000 per month for the work space, averaging
about Rs 12,000 per person. For the premium piece of real estate that Lower Parel is, OLX would typically
have had to pay anywhere between Rs 12,000 to Rs 18,000 per month for one workstation (of
approximately 100 square feet) plus a security deposit equivalent to six to 12 months rent. The expenses
would have further shot up in conventional leasing as landlords dont offer floor plates less than 1,000 to
1,200 square feet, no matter how small the team. So, how has OLX gotten off this easy? Because it is
merely one of the many companies that shares Awfis, a two-storied co-working space that allows offices to
enjoy a top location, and a range of amenities without having to pay through their noses.
Welcome to the world of shared office spaces in which a co-working company takes lease of a larger space,
re-designs it and then rents out smaller plates and single desks to members, as tenants are called. Says
Ramesh Nair, CEO and country head for property consultancy Jones Lang LaSalle (JLL) in India,
Companies can save as much as 15 to 20 percent by working in a co-working space.
But its not just the cost benefits that make co-working an attractive proposition. Theres the convenience
factor, where members neednt worry about fitting out the workplace, buying furniture or getting an
internet connection, as they would under a traditional lease. Desk space can easily be reserved through an
app, giving members all the perks of a top-class office facility, including Wi-Fi connectivity, conference
rooms, storage units, informal lounges and pantry facilities, as well as not-so-traditional offerings like beer
on tap, discounts on Microsoft Office products and even yoga classes.
The concept of shared office spaces is not new. Established players, like the London-listed Regus, which
provides fully serviced office spaces and posted revenues of about $1.3 billion in the half year ended June
2016, have been in the business for almost three decades now. So what do they do that is different from co-
working?
A key point of difference is that most co-working spaces appoint culture managers or hosts within each
space whose job is to create opportunities for collaborationboth formal, like talks by renowned speakers
and informal, like happy-hour Thursdays. It is through such active efforts that members are able to build
sustainable networks with one another. Ole Ruch, WeWorks managing director for the Asia Pacific region,
points out that because of their focus on creating a community, around 70 percent of their members
collaborate, while 50 percent actually end up doing business with each other.
Thats the real identity of a co-working space, feels Adam Neumann, the Israel-born co-founder of global
co-working giant WeWork. Despite the multiple hats it wears (of a real estate, tech and services firm), a co-
working venture, says Neumann, is actually a community company. For instance, WeWorks 90,000-
strong member network, spread across 158 workplaces in 15 countries, is encouraged to share ideas and
draw on each others strengths.
Last valued at $16 billion, WeWork tied up with Bengaluru-based property developer Jitendra Virwanis
Embassy group last February. Their first India centre is set to open in an Embassy-owned building in
Bengalurus prime Residency Road area, in the second quarter of this year. At 1.4 lakh square feet, the
space is expected to house 1,800 members. A second centre in Mumbais business district Bandra Kurla
Complex is to follow.
Typically, WeWork accommodates around 2,000 members in one space, so, say, your business needs a
graphic designer. The chances of you finding one from that pool are very high, says Karan, Virwanis son
and the driving force behind WeWorks foray into India.
The 25-year-old Karan Virwani spent two years understanding his fathers core real estate business, when
it struck him that the office space market dynamics were fast changing, as were the needs of tenants. No
one was providing space to meet the increasing demands of smaller companies. Everyone was offering
large floor plates (upwards of 5,000 sq ft), he says. Fuelling this demand is the rise of the gig economy,
characterised by freelance or contractual work, as well as the surge in startups.
Like Virwani, Sidharth Menda, a third-generation scion of the Bengaluru-based realtors RMZ Corp, set up
CoWrks last September to plug this gap. His logic: The nature of work has changed and so must
workplaces. While baby boomers valued privacy, Millennials value networks. Driven by a culture of
sharing on social media, they value meaningful connections with others, says Menda. As a real estate
player first, and now a co-working operator, the 27-year-old says he is able to draw on not just a solid
understanding of the real estate market, but also years of insights into workplace designs that enable
people to function most productively. CoWrks currently has two fully operational centres in Bengaluru,
and two more in the pipeline in Mumbai and Delhi-NCR respectively.
Like Menda and Virwani, a number of startups too have sniffed opportunity, so much so that there are
over a 100 co-working space providers in India today, according to JLL. While these spaces comprise a
fraction of the countrys total commercial real estate market, theyre fast growing in popularity. According
to Amit Ramani, founder and CEO of Awfis, a prominent player on the scene, of the total 500 million sq ft
of commercial Grade A and Grade B space in India, co-working and business centres comprise 0.4 to 0.5
percent. Over the next three years, he expects this to grow to about 2 percent.
However, Harsh Lambah, the country manager for Regus in India, believes that co-working has suddenly
become a buzzword.
Weve been at the forefront of the co-working and flexible working industry for the last 25 years. Its just
that over the last six to eight months co-working has become a big buzz. But were happy. It will grow the
category and there will be focus on who the big industry players are, he says.
Meanwhile, proponents of the co-working craze believe that this is a mega-trend, as Anand Lunia,
founder of early stage venture fund India Quotient, puts it. For startups in need of flexibility, the long
leases and large floor plates offered by traditional landlords are impractical. Startups or SMEs dont think
in square feet. They think in terms of desks. If they have five people, they need five desks. If they grow or
shrink their business, we can easily adapt to their requirements, says Ramani, who boasts of hosting over
220 companies in 20 Awfis centres spread across seven cities.
Larger companies looking for temporary space also see merit in co-working spaces. As do an increasing
number of multi-national companies like consulting firm Accenture, that Awfis counts as a client, or the
Boston Consulting Group, that works out of a CoWrks facility in Bengaluru. The desire to adopt a startup-
like culture and thereby foster innovation is a key driver, points out Nair.
The concept of co-working might have caught on, but its business model is inherently risky. While a co-
working company commits itself to a long-term lease with a landlord, of typically seven to eight years, its
members only commit to monthly contracts. You cant have fluctuating revenue at one end and fixed
rental at the other. Its not a sustainable model, says India Quotients Lunia.
Globally, WeWork has thus far taken this risk because when the times are good and demand is high, the
margins can be as high as a reported 45 percent.
Neumann claims business is good in bad times too as thats when laid off employees are looking for
alternate spaces to work out of. In fact, WeWork was set up in 2010, when the global economy was still
reeling from the after-effects of the US housing market crash in 2008 and the financial downturn that
followed. That wasnt the case with Regus though, which filed for Chapter 11 bankruptcy protection for its
US business in 2003 after the dotcom bubble burst. (The business has since recovered.)
In India, however, WeWork has struck an unusual deal. Virwani will lease out the office spacefrom
Embassy as well as other developersand invest in re-designing it, while WeWork will lend its brand,
ethos and expertise for a fixed management fee and a share of the profits. The upside of such a model is
lower, but so is the risk.
They [Embassy] come with incredible in-market experience, which is amazing to have as we enter a new
market, says Ruch of WeWork Asia Pacific. On Virwanis part, he says that even though capex is the
biggest spend for them, the Embassy groups deep understanding of the Indian real estate market and
their relationship with landlords will enable them to get the best deals.
CoWrks, aside from leveraging its own properties to build its co-working spaces, has also entered into
revenue sharing deals with third party landlords to mitigate the risks of the business. Awfis, too, has a
managed aggregation model wherein some properties are plain vanilla leases while others are revenue
share deals. Diversifying the client base is yet another way to offset risk. According to Menda, CoWrks
typically limits its exposure to startups whose churn tends to be higher. Instead, SMEs and MNCs together
account for about 80 percent of their members while early-stage startups comprise 10 to 15 percent. The
rest are freelancers.
Does co-working signal the end of the conventional office? Not just yet. While JLLs Nair is very bullish
about the co-working market, he points out that it is still very nascent. Landlords will take a while to warm
up to revenue sharing deals, he says, and until that happens its difficult for a standalone startupwithout
the financial muscle and wherewithal that real estate players like Virwani and Menda haveto survive.
Consolidation will occur and the industry will see four or five players emerge, says Nair. Eventually, only
the big boys will remain.