Doing Business in India

Doing Business In India
Opportunities And Challenges
US India Business Council
Presentation to Business and Trade delegation from Minnesota
by
Manish Mathur
Principal, A.T. Kearney
New Delhi, 22nd October 2007

Agenda
n Overview of the India opportunity
n Characteristics of the Indian business environment
n Key challenges
n Summary
A.T. Kearney 2
Overview of the India opportunity
India is the second fastest growing economy in the world and the
fourth largest in PPP terms
GDP Projection And Adjusted For PPP

Nominal GDP Projection (US$ Trillion) GDP Adjusted For PPP (2006, US$ Billion)
15 2.8% United States 12,939
10,518
Japan
5 11% China
France 4,069
Germany 3,942
UK Italy 2,605
Canada 8.8% India

Russia
0
2002 2004 2006 2008 2010 2012 2014 US China Japan India Germany
India’s economy would be larger than two of the India is already the fourth “largest” economy in
current G8 countries in 2014 – Canada and Russia “Purchasing power parity”
Source: Goldman Sachs BRICs report, World Market Research Centre; A.T. Kearney analysis A.T. Kearney 3
As many as 500 million people will enter the middle class in next 15
years
Indian Population By Income Class, 2005-2020 (Millions)
2005 CAGR 2020
Upper-Middle
$10,000+ PPP(1)
17m 14% 123m
Middle
$5,000-10,000 PPP
94m 12% 478m
Emerging
$2,500-5,000 PPP
391m 3% 628m
Poor
Under $2,500 PPP
588m -11% 101m
The size of this new middle class is much more than the total
population of countries like US, UK and Germany combined(2)
Note: (1) PPP denotes Purchasing Power Parity; (2) Population data US~ 300 mn, UK~60 mn and Germany~82 million
Sources: U.N. Population Studies; A.T. Kearney analysis A.T. Kearney 4
The opportunity is enhanced by young ‘working-age’ demographics

and a highly skilled manpower base
Population Trends And College Graduates For India

Population Trends And Projections (BRIC) Availability Of Graduates
(MN People)
>55 years CAGR = 0.7%
25-54 years
0-24 years CAGR = 1.6% 246
174 1989
139 Graduates
CAGR 2.5% 102
CAGR
461 573 612
370
0.7%
Post
258
Graduates
CAGR = 1.2% CAGR = -0.5%

531 555 522 490
20 28
71 87 33 36
85 81 65 65
49 40 PhD’s 9
'00 '10 '00 '10 '00 '10 '00 '10
Brazil Russia India China
§ India’s working population (25-54 yrs) growth rate is 2.5% § India has large and widespread educational infrastructure
compared to 0.7% in China – Over 380 universities (11,200 colleges)
§ Brazil and Russia have a smaller population base – 1,500 research institutions and around 9,000 PhDs
– Over 200,000 engineering graduates
§ Russia will experience a decline in population in the future
– Over 250,000 post graduates and 2,000,000 graduates
Source: ICICI-OneSource, Malaysia Ministry of Education — Department of Statistics: China Population Statistical yearbook; Statistical Abstract of
India; Bureau of Labor and Statistical Standards, Philippines; AICTE; Asiaweek; IMD World Competitiveness yearbook, Statistisches
Bundesamt 2001; A.T. Kearney analysis A.T. Kearney 5
The Indian government remains committed to market reforms
Overview Of The Key Reforms Introduced Since 1991

Liberalization Reforms introduced in 1991 Reforms introduced post 2000
External Sector Industrial Policy Financial Sector Second Generation Reforms
Reforms Reforms Reforms
• Agricultural reforms
• Market-determined • Almost all industrial • Abolition of price
— Ease of inter-state movement of food
unified exchange rate licensing was regulation of IPOs
grains
system abolished • Setting up of the — Reform of the Public Distribution
• Import licensing was • Restrictions under the Securities and System
virtually abolished Monopolies and Exchange Board of
India (SEBI) and the • Fiscal reforms
• Peak protective customs Restrictive Trade
duty rates were brought Practices Act were National Stock — Rationalization of tax structure
down reduced Exchange (NSE) — Introduction of VAT
• Automatic FDI approval • Private entry • Capital market • FDI policy reforms
(upto 50%) in several requirements for both opened for FIIs — Opening up of sectors to FDI
industries domestic and foreign • Interest rates were — Raising equity cap for FDI
• The Foreign Investment players eased deregulated participation in many sectors
Promotion Board was • Sectors reserved • Stringent capital
constituted exclusively for the adequacy norms
• Policy to promote public sector, were
participation by FIIs in the opened up for private
secondary market for participation
Indian stocks
The commitment to reforms has continued despite changes

in the political regime over the years
Source: A.T. Kearney analysis A.T. Kearney 6
15 years of reform have meant that investment norms are liberal today
Overview Of The Key Investment Norms
§§ India
India permits
permits FDI
FDI in
in almost
almost all
all sectors
sectors
§§ except
except atomic
atomic energy,
energy, defense,
defense, railways,
railways, coal
coal and
and lignite,
lignite, mining
mining of
of iron,
iron, manganese,
manganese,
Investment chrome,
chrome, gypsum,
gypsum, gold,
gold, diamonds,
diamonds, copper
copper and
and zinc.
zinc.
norms §§ Automatic
Automatic approvals
approvals are
are granted
granted by
by the
the Reserve
Reserve Bank
Bank ofof India
India in
in sectors
sectors where
where
up to 100%, 74%, 51%, 40% or 26% foreign equity is allowed as
up to 100%, 74%, 51%, 40% or 26% foreign equity is allowed as a rule a rule
§§ Dividends,
Dividends, capital
capital gains,
gains, royalties
royalties and
and fees
fees can
can be
be repatriated
repatriated easily
easily with
with the
the
Repatriation of permission of the Reserve Bank of India
permission of the Reserve Bank of India
profits §§ In
In case
case of
of an
an exit
exit decision,
decision, the
the overseas
overseas promoter
promoter can
can repatriate
repatriate his
his share
share after
after
discharging tax and other obligations
discharging tax and other obligations
§§ SEZ's
SEZ's are
are duty
duty free
free enclaves
enclaves where
where up
up to
to 100%
100% FDI
FDI in
in manufacturing
manufacturing sector
sector is
is
Other fiscal allowed through automatic route barring a few sectors
allowed through automatic route barring a few sectors
§§ Other
Other benefits
benefits of
of SEZ's
SEZ's include
include exemption
exemption from
from customs
customs duty
duty on
on import
import of
of
incentives (SEZs) capital
capital goods,
goods, raw
raw materials,
materials, consumables
consumables & & spares
spares and
and exemption
exemption from
from
income
income tax
tax
A.T. Kearney 7
India’s performance in A.T. Kearney’s FDI Confidence Index has

consistently improved since 2002
Most attractive investment destinations for global investors

September 2002 September 2003 September 2004 December 2005
1 China 1 China 1 China 1 China
2 United States 2 United States 2 United States 2 India
3 United Kingdom 3 Mexico 3 India 3 United States
4 Germany 4 Poland 4 United Kingdom 4 United Kingdom
5 France 5 Germany 5 Germany 5 Poland
6 Italy 6 India 6 France 6 Russia
7 Spain 7 United Kingdom 7 Australia 7 Brazil
8 Canada 8 Russia 8 Hong Kong 8 Australia
9 Mexico 9 Brazil 9 Italy 9 Germany
10 Australia 10 Spain 10 Japan 10 Hong Kong
11 Poland 11 France 11 Russia 11 Hungary
12 Japan 12 Italy 12 Poland 12 Czech Republic
13 Brazil 13 Czech Republic 13 Spain 13 Turkey
14 Czech Republic 14 Canada 14 Czech Republic 14 France
15 India 15 Japan 15 Malaysia 15 Japan
India’s score = 1.05 India’s score = 1.04 India’s score = 1.4 India’s score = 1.95
Source: A.T. Kearney analysis
A.T. Kearney 8
India is ranked as the most attractive in A.T. Kearney’s Offshore location

attractiveness and Global retail development Indices
Overview Of India’s Rank On Key Indices

A.T. Kearney’s Offshore Location Attractiveness Index A.T. Kearney’s Global Retail Development Index
Financial Score
Environment Score On the radar screen
People Score Taiwan To Consider
7.12 80 Slovenia
Lower priority
Hungary Chile Size of the bubble indicates retail
South Korea Slovakia
Country Risk (Economic And Political)

sales of food, drink and tobacco in
2.09 5.71 5.59 5.58 70 Malaysia China US$ billions, excluding taxes in 2005
5.46
0 = High Risk, 100 = Low Risk

Lithuania
0.73 0.92 Tunisia
1.36 1.36 Latvia
1.31 60 Mexico Saudi Croatia India
0.93 1.77 Arabia Thailand Bulgaria
2.02 Romania
Brazil Morocco
50 Russia
2.63 Egypt
Turkey
Vietnam Ukraine
3.72 3.32 3.09 40 Philippines
2.64 Pakistan Bosnia &
Indonesia Herzegovina
1.47
Macedonia
30
India China Malaysia Czech Rep. Singapore 30 40 Market Potential 50
0 = Low Potential, 100 = High Potential
§ India outperformed its peers on the basis of § The large size and fragmented nature of the Indian retail
high availability of skilled manpower and its market makes it attractive for large foreign players
low cost structure

The investment and consumption trends are encouraging
Outbound M&A Deals Foreign investment

30
Outbound M&A deals (US$ Billion) FDI Investment (US$ Billion)

30 28 25
25 20
15.72
20
15
15
15
Global Increased 10
5.55
10
4.3 opportunities for foreign 5

2.63
3.75
5
0.7 Indian corporates investment 0
2003-04 2004-05 2005-06 2006-07
0
2000 2005 2006 2007 (Till
May)
§ FDI of US$15.7B in 2006-7 compared to
§ Global deals by Indian corporates worth US$3.6 B in 2004-05
US$28 B in first five months of § From Jan to Oct 2007, FIIs had pumped in a
2007compared to US$4.3 B in year 2004 hefty US$ 16.3 billion in equities
§ Major deals in recent years include Tata’s
acquisition of Corus for US$ 12 billion and
of Tetley for US$ 2.5 billion; Hindalco-
Novelis deal of US$ 6 billion
Increased consumer spending

§ GDP projected to reach over US$ 1.5 trillion by
2015
Increased domestic § Services are ~ 55% of Indian GDP
§ 64% of Indian GDP is consumption (Vs.
consumer spending China’s 42%)
§ Exports-GDP ratio for India is only ~10%
compared to ratio of ~30% for China
Source: Government of India websites; A.T. Kearney analysis

A.T. Kearney 10
Table Of Contents
Table Of Contents
n Overview of the Indian opportunity
n Key challenges
n Summary
A.T. Kearney 11
Characteristics of the Indian business environment
The Indian political and judicial system are fundamental to the long
term sustainable growth of India
Judiciary Executive
§ There is a single hierarchy of § Successive governments have

courts, with the Supreme Court been upholding constitutional law
of India at the top. Indian courts since independence and
provide adequate safeguards elections are regular and
for the enforcement of property Legislature peaceful
and contractual rights § There is minimal intervention of
the Executive with the Judiciary
§ English is the main court and it is quite regular for central
language for the Supreme court or state governments to get
reprimands from the legal courts
on specific issues
§ India is a common law country
with a written constitution
which guarantees individual
and property rights.
§ Democratically elected
legislature has the power to
enact new laws and amend
existing ones
Source: National Informatics Centre, India; Supreme Court website; A.T. Kearney analysis A.T. Kearney 12
Being a secular democracy comes naturally to India; changeovers are

smooth and economic policy consistent
1991 - 1996 1998-2004 (1) 2004-present
P.V. Narasimha Rao AB Vajpayee Dr. Manmohan Singh

Prime Minister Prime Minister Prime Minister
Dr. Manmohan P Chidambaram Dr. Jaswant Arun Jaitley Kamal Nath

P Chidambaram
Singh Commerce Singh Commerce Commerce
Finance Minister
Finance Minister Minister Finance Minister Minister Minister
Regime: Congress Regime: BJP(2) led coalition Regime: Congress-led coalition

• Initiated economic liberalization • Continued economic reforms • Impetus to economic reforms through
program • Strengthened India’s status as a greater focus on agriculture &
• Comprehensive set of reforms growing economic world power infrastructure
covering the external sector, industrial • Privatization of key PSUs, initiated the • Continued liberalization of the
policy & the financial reforms process of VAT economy by opening up new sectors
for FDI
• Encouraged investments in IT, Telecom
& BPO sectors • Targeting a projected real GDP growth
rate of 7– 8% per year
Note: (1) There were 3 governments in the interim between 1996 and 1998
(2) BJP: Bharatiya Janata Party
India portrays a landscape of diverse consumer base
Dimensions of Diversity
Liberal
North § Language and cultural diversity:
Poor – There are 28 States and 22 national
languages. Other than these 22 languages,
there are hundreds of dialects that add to the
multilingual nature of the country
§ Young India Vs Conservative India
– While the young liberal India may be clamoring
for change and reform, there is a large section
which is still fears any further reform in policy
Rural
Urban § Highly educated Vs Illiterate:
– On one side, there are established institutes of
higher learning, and on the other 28% of the
population is still illiterate
Conservative § Rich Vs Poor:
Rich – While the benefits of economic development
are percolating downwards, 26.1% of the
entire population is still below poverty line
South
Sheer scale of diversity makes India a seat for a major world

civilization than a mere nation-state
Culturally, the themes which bind the country are uniquely Indian
Bollywood Cricket Value consciousness

More than 900 movies (characterized India is truly a cricket crazy nation Indian consumer is fascinated with
as melodramatic musicals) made with top cricketers seen as role value and companies have entered
every year models into low unit packs (sometimes single
consumption) to reach the masses
It is important to understand the popular symbols of the country and what

they denote to be able to succeed in the Indian market

Table Of Contents
Table Of Contents
n Key challenges
n Summary
A.T. Kearney 16
Key Challenges
Indian markets pose a host of significant challenges
Overview Of Key Challenges In India
Heterogeneity of the market Entrenched Local Players

§ The Indian consumer market is a • Given that there are entrenched
conglomeration of significantly local players in all the segments, it
diverse markets and cannot be seen is important for a new entrant to
as one market environment clearly decide the mode of entry
Infrastructure constraints Complexity in “Doing Business”

§ Poor infrastructure and complexity • India is still significantly behind in
of logistics coupled with nebulous “Ease of Doing Business”
policy environment in many sectors parameters and familiarity with the
can form roadblocks Indian context holds significant
importance
A.T. Kearney 17
Key Challenges
The heterogeneity of the Indian market means that players need to be

clear on the segments they need to target
Key Milestones In Evolution of India As A Multicultural Society

Consumer Goods example
Story Of Many Indias
§Low price points
–In order to expand the addressable
market, players are constantly
Ariel Front-O-Mat 1 kg: 145 introducing low unit packs of very
low price points of INR 1,2 and 5.
–Due to better value equation and
higher packaging cost, most of
Prices in INR
Ariel 1 kg: 99 these products are very low margin
ones but help build trials and
expand market
§Large packs for consumption
Tide 1 kg: 51 –While there are low unit packs,
Ariel 500 g: 50 there is demand for large
consumption packs as well. Ariel
Tide 500 gms: 26 sells skus from INR 2 to INR 145
§Range of price index
Tide 200 gms: 11
–The value index varies significantly.
Ariel Front-O-Mat is three times the
value of Tide for the same weight in
Tide 75 gms bar: 5 the same format
Tide 20 gms: 1.5

Key Challenges
Players need to choose their mode of entry carefully
Key Success Factors

High
Wholly Owned
Manufacturing § Deep understanding of doing business in India
(18 to 36 months)
§ Significant attention from senior management
§ Strong on-site management team
Potential Benefit
Majority-owned
Joint Venture
(12 to 24 months)
§ Basic understanding of doing business in India
§ Strong and reliable partner
§ Good relationship with partner
Alliance
(6 to 18 months) § Senior management attention
Representative
Office § Strong and balanced team
(Up to 6 months) § Established link to and support from
headquarters
Low
Low Investment, Complexity and Business Risk High
The mode of entry will also be different for different sectors

depending on the reforms stage and strength of local competition
Key Challenges
There are significant constraints on infrastructure which increase the

logistics costs and inefficiencies for operations
Overview Of Transport Infrastructure Related Constraints
Seaports Airports Roadways
The 12 major Indian ports, handle There are significant issues of India’s road network extends
90 percent of the all-India port congestion in key international and 3.319mn km, of which 1.517mn km
throughput domestic airports (45%) is paved
§ Average ship turnaround time § At many airports, passenger § Average truck speeds=> 30-40km
(ASTA) at Indian ports is ~7 days amenities need to be upgraded per hour (km/h), in comparison to
ASTA at Singapore port is six to developed country standards of 60-
eight hours 70 km/hr
§ There are also deficiencies in
respect of ground handling facilities,
§ Container moves per hour ranges night landing systems, cargo § India also has a poor road safety
from (7-15) for Indian ports handling, etc., at some airports record, with an average of 75,000
compared to range of (35-40) for deaths on the road every year
Singapore and Hong Kong
§ Reasons are limited terminal
capacity, bunching of flights, delay
in passenger clearances, etc
Source: National Informatics Centre, India; A.T. Kearney analysis A.T. Kearney 20
Key Challenges
India is still significantly behind on “Ease of Doing Business”

parameters
1 Low 5 High
Overview Of India’s Rank On Ease Of Doing Business Parameters (2008)

Doing Doing
India
Ease of... Business Business Comments
advantage
2008 rank 2007 rank
Doing Business 120 .. 2 § US ranks 3rd and China ranks 83rd in the world
§ An entrepreneur needs 13 permissions over a
Starting a
Business
111 93 2 duration of 33 days on an average
§ 20 procedures over 224 days are needed to build a
Dealing with
Licenses
134 133 2 warehouse, including obtaining necessary licenses
and permits etc
§ Measures credit information sharing and the legal
Getting Credit 36 62 4 rights of borrowers and lenders
Protecting
Investors
33 32 4 § Better investor protection.
§ costs and procedures involved in importing and

Trading Across
Borders
79 142 3 exporting a standardized shipment of goods
§ The ease or difficulty of enforcing commercial
Enforcing
Contracts
177 177 2 contracts
Entrenched local players have become more adept at

managing the environment
Source: The Doing Business project-2008, World Bank; A.T. Kearney analysis A.T. Kearney 21
Table Of Contents
Table Of Contents
n Key challenges
n Summary
A.T. Kearney 22
Summary
Indian markets provide a significant opportunity for companies who can

overcome the challenges
Opportunities Challenges
n A vibrant economy – expected to n Challenges with infrastructure

grow at a rapid clip
n Regulatory / bureaucratic barriers
n Favorable demographics
n Large and diverse consumer market
n Growing consumer market
n Complex distribution structures
n Highly skilled manpower
n Pricing challenges
n Economic and policy reforms
n Evolving markets
n Increased foreign investment
A.T. Kearney 23
Thank You
Manish Mathur
manish.mathur@atkearney.com
Table Of Contents
Table Of Contents
n The India opportunity story
n Understanding the spirit and essence of India
n Key challenges
n Summary
n Appendix: Overview of key industry sectors
A.T. Kearney 25
Appendix
Overview of key industry sectors

n Agro-industry and food processing
n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Pharmaceuticals and Healthcare
n Machinery and Equipment
n Infrastructure
n Aerospace and defense
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 26
Appendix
Rising consumption and evolving tastes are driving growth of food

processing sector
Key trends
India Processed Food Market Forecast
(€ billions) • Market growth expectation of 10% per year up to 2010
139 • Today only 2% of India’s agriculture production is
10% processed
15%
• Rapid urbanization, and rising per capita income, have
87 68
78 led to rapid growth of food processing industry
30
33 • Diverse climate and land in India results in large raw
material base suitable for food processing industries
71 7%
47 54 • Primary food processing is highly fragmented with a
small organized sector and unorganized sector that
2004 2005 2010
includes hundreds of thousands of processing units
2 • Indian food and beverage companies are exporting to
1
Primary processed food Value added food regional overseas markets with similar tastes
• EU countries such as Netherlands, Germany, Italy and
Level of processing in food processing Industry in India - 2005 France account for 30 per cent of FDI in this sector
(Processed food as % of total food) • Fiscal incentives by several governments have led to
high investments in those regions
37%
21%
Key Players
11%
6%
2% • Indian Players: Amul, Britannia Industries, Dabur, Godrej
Beverages Foods, Haldiram, Gits Food Products, MTR,
Parle Agro
Meat
Vegetables
Products
Poultry
Fisheries
Marine
Fruits &
Dairy
• Foreign Players: PepsiCo Inc, Cadbury's, Heinz , HLL ,

ITC , Nestle
Notes: (1) Packed fruits and vegetables, packed milk, unbranded edible oil, milled rice, flour, tea, coffee, sugar, pulses, species and salt
(2) Processed fruits and vegetables, juices, jams, pickles, squashes, concentrate, processed dairy products etc
Source: Ministry of Food Processing, India, A.T. Kearney analysis A.T. Kearney 27
Appendix
Clusters in food processing sector are emerging in areas offering tax

and other fiscal incentives
• Areas of Uttaranchal, Punjab and

Nabha Himachal produce large varieties of
Jammu Sonipat fruits and vegetables
• Fiscal incentives in the region are
leading to strong growth in industry
Channo
Moga Baddi
Samalkha Rudrapur
New Delhi Pantnagar
Gurgaon Noida
Jaipur
Siliguri
Mandideep
Mithapur Sankrail
Kolkata
Nashik Nagpur
Silvassa
Nandur
Pune
Mumbai
Ghatkeshar
Rajahmundry
• Silvassa is a key industrial area
in this cluster Chirala
Bangalore Hosur
Mysore Chennai
Nanjangud
Coimbatore
Chittur • Major players like ITC, Britannia
Food Processing Industry and MTR have presence in this
region
A.T. Kearney 28
Appendix
Opportunities and challenges of Food Processing sector
• Setup large low cost production bases in India for • Absence of quality cold storage facilities and
domestic and export markets by using low cost workforce transportation leads to high wastage in sector
• Existing laws hamper growth of contract farming
• Enter ready meal and health food segments as they see • Multiple ministries and laws govern the food processing
burgeoning demand industry increasing complexity for the industry players
• Agricultural Produce and Marketing Act leads to most of
• Customize Italian concepts to suit Indian flavors as the food products getting traded through regulated
successfully done by McDonalds and Pizza Hut mechanism rather than open market
• Essential commodity act restricts free inter-state
movement of certain food products
• Multiple tax rates and levies across states and locations
create procedural complexity
• High cost of packaging affect the margins of the industry
• Execution of existing law for prevention of food
adulteration is time consuming

A.T. Kearney 29
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 30
Appendix
The textile sector is amongst the largest industries of the Indian

economy
Textile and clothing products industry size

(€ Bn) CAGR Key trends
49 11% • Indian textile and clothing industry expected to grow at a
rate of 11% by 2010, driven mainly by exports
33 23 14% • Production recently driven by growth of man made fibers
based cloth
14
• Problem of market access for international players due to
27 9% high trade barriers and regulatory burden
19 • Indian textile clusters and Italian company Carrera
Holdings have signed a formal agreement to form a
2006 2010 textile cluster consortium under which Carrera will
provide technology, marketing assistance and financial
Domestic Market Exports assistance to various textile parks in India
Cloth Production
(Bn sq. mt.) CAGR
: 4% 45.0
38.6 Key Players
31.5 Man made fiber • Indian Players: Raymond, Bombay Dyeing, Arvind Mills,
41% based cloth
36% Vardhman Group, Aditya Birla Nuvo, Welspun, Century
27% Textiles, Alok Industries, Indo Rama Synthetics, Century
13% Blended1
13% 15% Cloth Enka, SRF
• Global Players: Belgian UCO (JV with Raymond), VF (JV
49% 46% Cotton
with Arvind Mills)
60% Cloth
1996 2000 2006

Notes: (1) Cloth woven with more than one fibers
Source: Compendium of Textile Statistics
A.T. Kearney 31
Appendix
The textile industry in India has clusters in various parts of the country
each specializing in different fibers
Srinagar
• Punjab is a major export base for

woolen and cotton textiles Ludhiana
• Uttar Pradesh produces cotton
and woolen textile
Delhi
Kanpur
Ahmedabad
Indore
Surat Calcutta
Nagpur
• Gujarat mainly manufactures

cotton based fabrics apart from • Tamil Nadu is a major
some synthetic fibers manufacturer of cotton textiles
• Maharashtra is a manufacturer of contributing to 22% of India’s
cotton textiles in India cotton yarn and textile exports
• Karnataka is major producer of
cotton and silk and is a apparel
sourcing base for many global
Bangalore firms
Chennai
Coimbatore
Madurai
A.T. Kearney 32
Appendix
Opportunities and challenges of Textile sector
• Leverage Italian capabilities and quality in machinery and • Market access in India is difficult due to
equipment, fashion and design to transfer know how and regulatory/custom duty issues
capacity to Indian industry
• Industry not self reliant, around 75% of investment is
• Invest in setting up vertically integrated large scale units / channeled through government aides in promoting the
retail chains (single brand) industry
• Enter into marketing joint ventures with Indian companies • Inefficiencies in customs procedures/bureaucracy
or brand licensing to Indian players
• Partner with Indian vendors to import from India, by • Products less sophisticated with a focus on low to
nominating large Indian companies having credibility in medium priced goods
terms of capacities and quality
• Highly labor intensive manufacturing with many small and
• Export of lifestyle brands of garments and accessories to medium size firms
India
• Lack of technological upgradation and economies of
scale

A.T. Kearney 33
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 34
Appendix
The leather manufacturing industry in India is valued at over € 3 billion

and is the third largest in the world
India Leather market value 2005

(€ bn)
Total value of Key trends
production: 3 bn € • Largest livestock population in the world
• In 2005, total production of leather industry was over € 3
1.2 bn out of which exports accounted for € 1.8 bn (Leather
industry 8th in the export trade of the country) growing at
National consumption a CAGR of 13% (2003-05)
1.8 • Around 1600 tanneries in India concentrated in three
states Tamil Nadu (52%), West Bengal (23%) and U.P.
Export (12%)
• Major leather products are footwear (776 ml pairs per
year), skins (170 ml units), leather shoe uppers (112 ml
pairs), leather garments, leather goods such as hand
bags, belts, wallets, gloves, sports goods, harness and
India Leather Export trend 2003-2005 saddles etc.
(€ bn) • Footwear production consumes about 60% of the total
leather production
Cagr:13%
Key Players
• Indian Players: Superhouse Leathers, Mirza
1.7 1.8 International, Liberty Shoes, Bhartiya International,
1.4
Lakhani India, Forward Group
• Italian Players: Conceria Virginia Italy (JV with Forward
Group)
• Global Players: Bata, Fossil (stake in Crew B.O.S
2003 2004 2005 Products)
Source: IBEF, Exim Bank
A.T. Kearney 35
Appendix
There are three primary leather goods manufacturing clusters in India
Jallandhar
Haryana
• West Bengal is one of the
New Delhi Noida country's top state for export of
Agra finished leather goods
Kanpur • Bata which is the largest
• Uttar Pradesh is an important manufacturer and marketer of
center for tanneries as it has a footwear products in India is
large population of livestock located in Kolkata
• Kanpur is a prominent centre for • The Government of West Bengal
leather processing and specializes has setup a state-of-the-art
in processing hides into heavy integrated Leather Complex on the
leather eastern fringe of Kolkata
Kolkata
Ranipet
Hyderabad
• Majority of the tanneries in India

are located in Tamil Nadu
• Govt. of Tamil Nadu offers a
special capital subsidy to further Bangalore
Chennai
encourage the leather industry
• TALCO-a state govt. organization Ambur
Vaniyambadi
is setting common effluent Tiruchchirappalli
treatment plants in leather industry
clusters Dindigul
A.T. Kearney 36
Appendix
Opportunities and challenges of Textile sector
• Focus on manufacture and export of value added • Limited production with respect to raw material: with
products as opposed to raw material about 15% of the world livestock population, India
accounted for only 8% of the leather production in 2002
• Export machinery to India or to have technology
agreements with Indian firms, as technology used by most • Fragmented sector: Indian leather industry consists of
players is outdated 42,000 small-scale industry (SSI) units, which account for
75% of the total production
• Economies of scale in setting up large scale units
• Environmental challenges as leather industry is
• High growth of the local footwear market traditionally considered polluting especially tanning and
finishing
• Many developed countries are implementing non-Tariff

Barriers to restrict leather exports from developing
countries like India

A.T. Kearney 37
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 38
Appendix
Strong growth is expected in oil and gas consumption spurred by

strong economic growth
Current and Forecasted Oil Demand in India

(in MMT) Key trends
CAGR 6% Oil Consumption 368
325 • Oil: 36% of India’s primary energy consumption
CAGR 7% Oil Imports • Expected growth of overall demand to 172 MMT in
2011-12 and 368 MMT in 2024-25
172 • Natural Gas: India is a relatively new entrant into the
135 138
101
natural gas market but is expected to rival both China
and Japan in having the largest natural gas demand
in Asia
• Natural gas volume in the country will partly be
2007 2012 2025 driven as a substitute to petroleum products since
it is cheaper and cleaner
Oil Consumption Oil Imports
• Reforms in the power sector will also encourage
natural gas to be used as a cleaner substitute to coal
Current and Forecasted Gas Demand in India in the long term
in MMTOE)
120
CAGR 6% Gas Consumption
CAGR 5% Gas Imports Key Players

58 • Indian players: Oil and Natural Gas Corporation,
43 40 Reliance Industries, Indian Oil Corporation, GAIL,
26 Essar, Indraprastha Gas, Oil India Ltd, HPCL, BPCL
16
• Italian players: Saipem SpA
• Other global players: British Petroleum, Cairn
2007 2012 2025 Energy, Exxon Mobil, Gaz de France, Shell, Total,
Gas Consumption Gas Imports OAO Gazprom, British Gas
Notes: (1) TOE:Tonnes of Oil Equivalent
Source: Infraline, Crisinfac A.T. Kearney 39
Appendix
This industry is centered around crude oil sources or transportation

hubs such as ports
• Oil refining capacities in Digboi

and Guwhati,
• Significant oil refining capacities • Assam is one of the largest oil
exist in Panipat and Mathura producing states in the country
Mathura
Barauni
Panipat
• Mumbai High is the key source of Bongaigaon
oil production in India
• Jamnagar has the biggest oil Digboi
refinery in India Numaligarh
Guwahati
Koyali
Jamnagar
Haldia
Mumbai
Vishakhapatnam
or Vizag
• Cauvery and KG basin have some
of the largest gas fields in India Tatipaka
• Oil refining capacities in Cochin,
Chennai, Mangalore and Vizag
Manali
Mangalore Chennai
Oil & Gas Industry Cochin Narimanam
A.T. Kearney 40
Appendix
The oil and gas sector has recently been deregulated and is still
evolving
Trade/Investment Policies & Regulations

• Government of India approved the New Exploration Licensing Policy (NELP) under which
national oil companies are required to compete on an equal footing with Indian and foreign
companies to secure oil and gas petroleum exploration licenses
• Under the NELP upto 100% foreign participation is allowed and a fast track approval
mechanism is in place through single window Empowered Committee of Secretaries
• MoPNG has conceived a more coordinated approach to acquisition of overseas oil and
gas assets through :
• joint foray (compared to the current fragmented approach)
• bilateral engagements with other countries to benefit from each others strengths in
areas of technology transfers, R&D, safety and training
• multilateral engagements such as the Asian Round Tables, International Energy Forum
etc

A.T. Kearney 41
Appendix
Opportunities and challenges of the Oil and Gas market
• Leverage on India’s key advantages as an export refining • Natural decline in ageing oil and gas producing fields
hub like cost competitiveness and location
• Limited infrastructure available for gas transmission and
• Alliances and partnerships to diversify the energy supply distribution
base and improve long term supply security
• Exploring of new resources of hydrocarbons such as • Distortion in public tenders, subject to custom duty
application
CBM and Gas Hydrates
• Cooperate in technology assistance programs to improve • Absence of statutory framework in the upstream industry
quantity and quality of power generation
• Lack of clarity in Open Access Policy
• Incidence of cross subsidy due to social obligations
• Long lead times for recent discoveries by pvt / JV

companies

A.T. Kearney 42
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 43
Appendix
The automotive industry is growing at a rapid pace spurred by both

domestic demand as well as increased exports
Key trends
India Automobile market value 2002-2005
(€, Billion) • Indian Automotive industry growth of 19% since
2002
• Auto component exports growing at a rate of 30%
9%
R: 1 in the last three year
CAG
• Increased demand for vehicles created by growing
economy and rising per capita income
• Increased vehicle ownership due to increased and
14,1 affordable vehicle financing
• Favorable demographic profile with 35% of the
8,4 population between 15-35 years
• Entry of several players and launch of multiple
models at various price points
2002 2005 • Changing consumer behavior – shorter ownership
lifecycles
India Auto Components market value 2002-2005
(€, Million) Key Players
CAGR • Indian players:

: 22%
GR 8.141 – Passenger Vehicles: Tata Motors, Mahindra &
CA
1.347 Exports 30% Mahindra
– Commercial Vehicles: Tata Motors, Ashok
3.626 Leyland, Eicher Motors
469 6.794 Domestic 21% – Two wheelers: Hero Honda, TVS, Bajaj Auto
3.157 • Italian players: Fiat, Piaggio
• Other global players: Suzuki, GM, Ford, Honda,
2002 2005 Toyota, Hyundai, Daimler Chrysler, Audi, BMW,
Renault-Nissan
Source: ACMA, Global Insight, CrisInfac, AT Kearney Analysis
A.T. Kearney 44
Appendix
Europe is currently the largest and fastest growing export market for
Indian auto components suppliers
Export of Autocomponents from India

(€ Million)
1.347 Total Examples of

Segments Components Imported
30% 12% Others from India
r :
ag 10% Africa Power Fuel injection systems,
C
Train Pistons, transmission
16% Asia components, Cylinder
781
blocks, engine blocks
10%
26% Americas Chassis Brake linings, brake parts
11%
469 19% Electrical Ignition systems, starter
11% motors and parts
11% 31%
18%
Europe Interiors Interior trims, Instrument
30% 36% panels, HVAC
30%
28% Exteriors Small stampings
2002 2004 2006
Source: CRISINFAC, A.T. Kearney Analysis

A.T. Kearney 45
Appendix
There are three regional automotive clusters in India
• Gurgaon is the only manufacturing

location of Maruti Suzuki, the Indian
PV leader; and its ancillaries
• Gurgaon is also the hub for the leading
two wheeler manufacturer: Hero
• Pune is the main manufacturing Honda and its component business
location for Tata Motors (largest
Indian OEM) and its autocomponent Hub: Gurgaon
division ; GM is setting up its second
facility in Pune
• Also Bharat Forge, the world’s Gurgaon Surajpur
second largest forging company is Noida
located in Pune Lucknow
Halol
Indore(2) • Chennai is the export hub and
Kurla Nagpur Calcutta component sourcing hub for Ford and
Hub: Pune Nasik Hyundai and the transmissions
Igatpuri Mumbai Aurangabad sourcing hub for Toyota
Kanhe
• Chennai is also the manufacturing
Pune hub for the TVS Group (two wheelers
and components)
Hub: Chennai
Irrungattukottai
Bidadi Chennai
Maraimalai Nagar
Source: ISI emerging market, Indiainfoline

A.T. Kearney 46
Appendix
Opportunities and challenge of the Automotive sector
• The Indian automotive industry has reached a critical size • Infrastructures and access points for car imports still
and is expected to show a healthy growth rate driving the limited
development of the auto components industry
• Quality products difficult to be provide on a consistent
• India is emerging as a global small car manufacturing hub basis from Indian companies
driving the maturity of supplier capabilities across the • Many Indian suppliers do not have the capability to
entire value chain (product design to delivery) supply large scale orders required by global companies
– OEMs such as Maruti-Suzuki and Hyundai have
identified India as small car export bases and are • Focus on product development still non-existent in many
working with Indian suppliers to develop their companies
capabilities
• Localization is essential for international players to enter
• The need for greater localization to achieve cost the Indian market
leadership has also driven growth and development of
the auto ancillary supplier base in India
• India is emerging as a global base for offshoring of

engineering design services for the automotive industry

A.T. Kearney 47
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 48
Appendix
Expansion of the automotive industry is driving growth in this sector
India Tyre Market trend 2003-2005

(€ Mn) Key trends
:6
% • Market growth driven by high growth in the automotive
R market
C AG
• National demand is expected to grow steadily, in
particular in the two wheelers sector
• two wheelers tyres 50% of total national demand in
2.408 2005; expected 54% in 2010)
2.282 • Industry growth driven by replacement market for a long
time but OEM market acquired importance over the last
2.163 three years
• Two tiered industry:
2003 2004 2005 – Tier-I players (top 5 tyre companies), account for over
80% of industry turnover and have a well diversified
India Tyre national demand forecast (2005-2010) product-mix
(Mn, Number of Tyres) – Tier-II companies are small in size, mainly
concentrating on production of small tyres (for two/
CAGR three-wheelers, etc.), tubes & flaps etc.
7 %
: 7,
GR LCV1 8%
CA 73
HCV2 7%
Key Players
58,7 Passenger
6% 5%
50.5 18% Vehicles • Indian Players: MRF, Ceat, Apollo, JK Industries, TVS
6%
6% 20% 22% Srichakra, Falcon, Dunlop
21%
22% Two • Global Players: Goodyear India, Bridgestone India
22% 9%
52% 54% Wheelers
50%
2005 2007 2010

Notes: (1) Light Commercial Vehicles (2) Heavy Commercial Vehicles
Source: ATMA A.T. Kearney 49
Appendix
Six large domestic players dominate the market and their plants are
located mostly in Maharashtra and Tamil Nadu
Banmore
Kankroli
Limda
Nasik
Mumbai
• Tyre manufacturers Pune
located close to the
automotive hub
around Pune • Tyre manufacturers located close
Ponda to the automotive hub around
Vikrant Chennai
• Tyre manufacturers
located close to the Tiruvottiyur
automotive industry in Pondicherry
Karnataka Kalamassery Arakonam
Cochin
• Kerala produces over 90% of
India's natural rubber and has
many intermediate rubber units
making it ideal for tyre
manufacturing
A.T. Kearney 50
Appendix
Opportunities and challenge of the Tyres sector
• Set up facilities for manufacturing tyres for domestic • Narrow product range, large operating overheads and
sales as well as exports (notwithstanding the well high break-even levels
entrenched competition in the domestic market)
• Leverage on technology, as Indian tyre makers are • High costs due to regulation on ISI mark (additional
marking that requires additional investment for foreign
technologically behind global competitors
producers)
• While the PV segment has transitioned over near
completely to radial tyres, the penetration levels for
radials is only at 5% for CV’s; Indian tyre companies • Continuous increase in prices of raw materials such
are however rapidly ramping up capacities in this front as natural rubber, which accounts for nearly one third
to not only serve the expanding OE market, but of total raw material costs
potentially an even larger aftermarket demand going
forward • Cheaper imports of tyres especially from China
• Newer technologies like run-flat tyres have not
penetrated the Indian market yet
• High capital requirements to set up tyre manufacturing
plants
• Sale of equipment / machinery to Indian tyre companies
• Other technology transfers

A.T. Kearney 51
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 52
Appendix
Banking sector is characterized by high credit demand due to rising

consumption
India Commercial Banks market value Key trend

(€ billions) • High GDP growth rate leading to high credit demand
across sectors
400 363 • Consumer credit in India witnessing a strong
299 310
266 258 expansion for credit led by the housing and the retail
300 sectors
194
200 146 CAGR
125 27% • Corporate credit offtake, agriculture and SME sectors
are the other major growth avenues for the banking
100
CAGR
sector
0 7%
• Banks liquidating their holdings of Government securities
2003 2004 2005 2006 to meet high credit demand
• Stronger banking regulations have led to improvement in
Deposits Advance
asset quality with declining NPAs
• Ratio of per capita deposit and credit per branch among
Per Capita Deposit and Credit per branch the lowest in the world and expected to grow with
increasing GDP
(€) € millions
300 275 3 Key Players
250 207 2.5
2.6 • State owned players: SBI, PNB, UTI Bank ltd., Canara
200 165 2 Bank, Union bank of India, Bank of Baroda, Allahabad
150 1.8 1.5 Bank
100 1.3 1 • Private players: HDFC Bank, ICICI Bank
50 0.5
• Foreign Banks: HSBC Ltd., ABN-AMRO Bank N.V.,
0 0 American Express, BNP Paribas, Citibank, Standard
2001 2003 2005 Chartered bank
Per Capita
Source: deposit
RBI, Crisinfac Credit per branch
A.T. Kearney 53
Appendix
Financial market reforms are paving way for global players to enter the
sector
Main Trade/Investment Policies & Regulations

• License norms for foreign banks are different from that for Indian banks which makes it
tougher for foreign banks to expand network in India
• There is a limit of 10% on voting rights for foreign investors which will be removed in year
2009 under RBI plan
• Foreign banks operating in India required to migrate to Basel II1 with effect from March 31,
2008
• Foreign banks are currently taxed ay 41,82% versus 35,7% for local banks
• Foreign banks in India will have to lend 32% of their net banking credit to the priority sector
in the country
• FDI:
• Foreign bank can enter India through one of the 3 channels: branches, subsidiary or
representative office
• There is limit of 74% on FDI investments in private banks (of which Foreign Institutional
Investors cannot hold more than 49%) and a limit of 20% on investments in public banks
• Foreign banks can also operate through wholly owned subsidiary (WOS)
• Reserve banks plans to give national treatment to WOS after 2009 under which branch
expansion will be easier
Notes: (1) Guidelines for determining the minimum solvency requirements for banks with a new system for weighting the risks run by banks
Appendix
Opportunities and challenges for Banking sector
• Invest in existing Indian banks as they seek large • With a strong outlook for credit and implementation of
amount of capital to sustain credit demand by Indian Basel II norms, Indian Banks would require additional
capital to support their growth plans
economy
• Policy hurdles for foreign banks planning to invest in India
• Use NBFC route to start operations in India and launch • Increased competition in the sector as foreign and private
full scale banking operations after obtaining banking players look to expand across businesses
license from RBI • Weak recovery mechanisms and legal procedures
increase the cost of doing business in India
• Partner with Indian banks to launch products where • Small sizes of most Indian banks with weak balance
Italian banks can bring in operational expertise and sheets hampering their growth in global financial market
Indian banks can provide distribution network

A.T. Kearney 55
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 56
Appendix
Growing disposable income and awareness is driving growth in

Insurance sector, especially in Life segment
Key trends
India Insurance market value
(€ billions) • High growing sector (cagr 20% in last two years)
20 % especially in life segment
C AG R :
17.1 • Insurance penetration similar to China but unbalanced
20 towards life premium
13.9
15 11.8 • 14 insurers companies, among which 1 government
22% insurer in life and 4 in non-life dominate the market
10 14.0
9.4 11.2 • Most private insurance companies are joint ventures
5 between Indian & foreign partners
2.7 3.1 14%
0 2.4 • Banking channels are the preferred distribution modes
for private insurance companies accounting for 20-25%
2003 2004 2005 of sales
Non Life Insurance premium Life Insurance premium • Unit linked insurance plans are popular in life insurance
segment
Insurance Penetration • Foreign players like Generali, Fortis, Paternoster, Swiss
(Year 2004, Premiums as a % of GDP) Re are planning to enter Indian market
9.4
7.6
4.1
4.9 Key Players

3.2 3.3
5.1
• Life Insurance: LIC, ICICI Prudential, HDFC Standard
2.5 2.2 Life, Birla Sun Life, SBI Life, Bajaj Allianz, Kotak Old
2.7
0.7 1.1 Mutual
India China Italy USA • Non-life Insurance: National Insurance Company Ltd.,
New India Assurance Company Ltd., Oriental Insurance
Non Life Insurance Penetration Life Insurance Penetration Company Ltd., United India Insurance Company Ltd.,
ICICI Lombard, Bajaj Allianz and Iffko-Tokio
Source: IRDA (Insurance Regulatory and Development Authority), Fitch • Reinsurance: General Insurance Corporation
A.T. Kearney 57
Appendix
Insurance penetration is likely to increase with regulatory changes

• FDI: allowed under automatic route only up to 26% which is expected to be increased to
49% in year 2007
• IRDA plans to keep a FII limit of 26% over and above the FDI limit of 49%
• Every insurer is required to write certain percentage of its policies in the rural sector
which varies from 5% to 15%
• IRDA plans to remove tariff regulations for non-life insurance premium from Year 2007
which will allow companies to set rates
• Banks cannot hold more than 49% stake in an insurance company
• Separate licenses are required to enter into life and non-life segment
• Any entity can get insurance license in only one category
• Pension fund regulation still missing
• The minimum paid-up capital requirement presently stands at € 16.9 mn for both life and
non-life business and € 33.8 mn for the reinsurance business

A.T. Kearney 58
Appendix
Opportunities and challenges for Insurance sector
• India’s large rural and small town population largely under • Weak distribution network in small towns and villages is a
penetrated but offering a huge market for all players key barrier in growth of insurance in these areas
• Segments like health, life and disability plans have a large • Lack of trained manpower is hampering growth of
growing market in the Indian middle class insurance sector
• Italian insurers can bring in product knowledge and better

• Tariffs in non-life insurance results in losses in segments
risk management practices to Indian market
like motor insurance leading to lower growth

A.T. Kearney 59
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 60
Appendix
The Indian IT and BPO industry has witnessed strong growth across
segments
Indian BPO Industry Market Size

Key Trends
(Euro Bn)
• Americas and Europe remain the key markets for
CAGR = 46% 15.5 exports accounting for over 90 per cent of IT-ITES
10.7 0.7 exports
0.5 • India share of global offshore market in BPO industry
1.6 expected to stabilize at ~50-55%
0.2 4.8
3.5 – Companies to diversify presence across multiple
2.4 locations
– Other attractive destinations like Philippines,
2004 2005 2006 Malaysia, Czech Republic expected to start
competing for offshore pie
Exports Domestic • Cost advantages combined with emerging success
Indian IT Industry Market Size stories expected to be primary drivers in near future
(Euro Bn) • Cross selling between IT services and BPO within
CAGR = 29% same engagement boundaries expected to increase
16.9
13.1
Key Players
10.1 13
10
7.4 • Indian Players: Infosys, TCS, Wipro, Satyam, Cognizant,
HCL Technologies
2.7 3.2 4
• International Players: IBM, Accenture, Microsoft,
2004 2005 2006 CSC,SAP, HP, American express, Convergys, Genpact
Exports Domestic
Source: Nasscom, A.T. Kearney analysis and research A.T. Kearney 61
Appendix
India continues to be the preferred destination for offshore services
A.T. Kearney’s Offshore Location Attractiveness Index — 2004

People Score
Environment Score
Financial Score
7.12
2.09 5.71 5.59 5.58 5.46 5.44

5.45 5.42 5.37 5.33
0.73 0.92 0.94 0.86 0.7
1.36 1.36 0.88
1.31 1.94
1.77 0.92 1.41 1.68
0.93 2.02 1.57
2.63
2.48
3.72 3.32 3.59
3.09 3.17 2.99 2.88
2.64
1.47
1.00
India
China
Malaysia
Singapore
Philippines
Canada
Chile
Poland
Brazil
Czech
Rep.
India outperformed its peers on the basis of high availability of skilled

manpower and its low cost structure
A.T. Kearney 62
Appendix
Government has provided various fiscal and non fiscal incentives to

the sector
Trade/Investment Policies & Regulations

• Duty-free imports of capital goods permitted for BPO companies
• Total income tax exemption on export of IT enabled outsourcing services
• Fiscal incentives for IT companies provided by Exim policy1 of India
• Many state governments have announced incentives and procedural waivers for the IT-
ITES sector focusing on issues like infrastructure and electronic governance
• State governments have announced IT policies to create a manpower pool for IT and
ITES industry
• Information technology act 2001 enacted to provide legal recognition to all transactions by
means of electronic data exchange
Notes: (1) Policy for exports and imports

Appendix
Opportunities and challenge in the IT/ITES industry
• Leverage the Indian advantage for business process • Lack of infrastructure and data protection laws could
outsourcing of services hamper growth of IT/ITES sector in India
• Use India as a outsourcing hub for content development, • Availability of trained manpower for growing needs of
R&D services and software products industry could be a potential bottleneck
• China and other countries in the ITES sector are
• Indian companies can use Italy as a hub to serve Italy increasingly challenge India’s dominance in the sector
and other European countries
• Rising labor costs are reducing India’s competitive
• Indian companies can use Indian experience to help advantage in the sector
development of IT clusters in Italy

A.T. Kearney 64
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 65
Appendix
Indian pharmaceutical market is growing quickly, driven by export and

domestic market growth
Total Pharmaceutical Market

(€ Billion, Year 2003) Key Trends
Low drug expenditure per capita driven by
233 • Low pricing levels • World’s 13th largest pharma market in value
• Vast majority of drug spending concentrated with terms and 4° in volume terms
middle class • High growing market, currently still dominate by
49
30 domestic consumption but with exports expected
21 19 14 11 9 8 7 6 6 6 4 4
to reach 46% of production in 2010
• Exports growing due to the low manufacturing
costs and time to market advantages in
USA
UK
South
Italy
China
India
Australia
Spain
Brazil
Germany
France
Korea
Netherlands
Japan
Mexico
Canada research
Per Capita
• Domestic market growth driven by rising

Spend (€)
income levels, expenditure on healthcare and

introduction of new patent regime
614 388 368 345 331 240 9 288 188 144 61 35 5 251 187 • Several 3rd party service providers, including
local & international players, are setting up
bases in India
India Pharmaceutical market trend 2003-2010(1)
(€ Billion)
cagr: 13,5% CAGR
10.7 Key Players
cagr: 11% 8.4
• Indian players: Cipla, Ranbaxy, Nicholas
5,7 5.9 10% Piramal, Sun Pharma, Dr. Reddy Laboratories,
4.6 4.9
3.6
• Other global players: Glaxo SmithKline, Zydus
3.0 4.9 17% Cadila, Pfizer, Aventis, Abbott India, Wockhardt
2.1 3.5
1.6
2003 2005 2008E 2010E
Exports Domestic Market
Note: (1) Domestic market value is for western finished medicines only. India also imports drugs to meet its requirements
Source: IDMA, Espicom, IMS, Crisinfac, Secondary Research, A.T. Kearney analysis
A.T. Kearney 66
Appendix
The are four major forces driving the Indian Pharmaceutical industry
Changing Demographic Profile Changing Regulatory Regime

• High GDP growth leading to higher • Recognition of product patents which is
disposable income encouraging global players to enter the
• Increasing private expenditure on market
healthcare • More favorable intellectual property
• Growing consuming class creating a laws are promoting India as a R&D hub
larger target market Increasing rural for the industry
incomes are opening up new markets
Drivers of
Indian
Pharma
Industry
Emerging Distribution System Changing Healthcare Market

• Complicated multi-level distribution • Rapid growth (8-10%)
system makes it hard for new players • Shift towards lifestyle diseases
• Alliance based strategy of smaller • Increase penetration of health
companies for attaining wider reach insurance
create barriers to entry
• Increasing role of private providers
A.T. Kearney 67
Appendix
The pharmaceutical industry is largely concentrated in west India
• Favorable government policies

and access to ports for exports
has helped in making western
India the major cluster of
pharmaceutical industry
Baddi Barotiwala
Maloda
Kadi
Kalol
Kandla Hlrapur Halol
Dholka Ratlam
Valsad Indore
Vatva Bhandara
Vadodara Athal Aurangabad
Vapi
Ankleshwar Chikalthana
Nashik
Bhimpore
Piparia Waluj
Thane Patalganga
Vishakhapatnam
Mumbai Vikhroli
Kurkumbh
Solapur
Jeedimetla Pashamylaram
Verna
Margao Kazipally
Hyderabad
Bangalore
Mysore Chennai
Poonoon
Pharmaceutical Industry
• Bangalore is the key
hub for biotechnology
industry
A.T. Kearney 68
Appendix
Opportunities and challenges for Pharmaceutical sector
• India as a suitable alternative for R&D activities on • Intellectual Property Laws regarding patents in India still
account of cost advantage (30-50%), time to market not stringent; many global companies are hesitant to
advantage (cycle time reduction of 30-40%) and strong introduce products in this market
people skill availability
• Prices of key drugs still regulated by Drugs Price Control
• Abilities of national companies in-licensing and out- Order
licensing for drugs at different stage of development (pre-
clinical, clinical and manufacturing phase)
• Availabilities of new Biotech products which may be

launched in the regulated markets
• 30-40% manufacturing cost advantage in API1 against

western markets and also boasts of largest number of US
FDA approved sites outside US
Notes: (1) Active Pharmaceutical Ingredients

Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 70
Appendix
Infrastructure development is driving demand for machinery &

equipment in India
Indian Machinery & Equipment Industry Size(1)

(€ bn)
Key trends
• Strong designing and engineering capabilities along with
low labor cost has made India one of the preferred
offshoring destinations
CAGR 3% • Machine tools was one of the high growth segment in
imports while machinery and instruments showed high
8.2 8.5 CAGR growth rate in exports
• Machinery & equipment (Non electrical machinery)
sector is concentrated, with the Top 5-7 companies
accounting for more than 70-80% of the market in most
3.4 industries
4.6 35% • Electrical machinery sector as well is highly concentrated
with 3-6 players dominating industry
• Leading players in electrical machinery sector have
collaborations with foreign companies for technology
• Key industry bodies are Indian Machine Tools
Manufacturer Association and Federation of Engineering
4.8 Industries of India
3.9 -20%
• Indian companies are leveraging cost advantage in
production to increase exports
Key Players
2003 2004 • Indian Players: BHEL, L&T, Crompton Greaves,
Cummins India, Elgi Equipments, HMT, Kirloskar Oil
Domestic Market Exports Engines
• Foreign Players: Siemens, ABB, Thermax
Notes: (1) Capital goods as per CMIE classification
Source: CII A.T. Kearney 71
Appendix
Areas of western India and few northern states are major hubs of
machinery and equipment production
• The industrial cluster in northern

region is centered around Delhi and
few locations in Punjab & UP
Goindwal
Hardwar
Pinjore
Rudrapur
New Delhi
Gurgaon
Faridabad Jagdishpur
Ajmer Varanasi
Malanpur Jhansi
Dewas
Vadodara
Mandideep
Hazira Bhopal
Daman and Diu
Jamshedpur
Nashik
Pune Jamshedpur
Ahmednagar
Mumbai Ranipet
Kalwa Sitara
Kirloskarvadi
Shirval Hyderabad
• Most of the big players like ABB,
L&T etc in machinery & equipment Goa
have plants in states of Kondhapuri
Maharashtra & Gujarat Bangalore
Mysore Chennai
Tiruchchirappalli
Coimbatore
Machinery & Equipment Manufacturers
Ernakulam
A.T. Kearney 72
Appendix
Opportunities and challenges for Machinery and Equipment sector
• Outsource engineering components from Indian • Increase in raw material prices has resulted in low profit
manufacturers to leverage cost advantage of Indian margins for the heavy engineering industry
manufacturers
• Increased competition
• Invest in setting production facilities in India to take
advantage of low production cost
• Indian capital goods manufacturers face cost
disadvantages due to high cost of finance, power and
• Export of machinery & equipment to India as demand of poor infrastructure
capital goods surges with growing infrastructure needs of
the country
• Duty structure in India is distorted with lower duty on
• Bring in a lot of technical expertise to Indian electrical machinery & equipment imports and high excise duties
machinery market as India is compliant with the European which leads to disadvantage for local manufacturers
standards for electrical engineering
• Access to technology is a challenge for Indian companies
as technology absorption requires large amount of capital

A.T. Kearney 73
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 74
Appendix
Infrastructure sector provides a strong opportunity for private players
Cumulative Govt. Spend on Infrastructure

vs. Industrial GDP
(Euro Bn) 2003
15 China Key trends
Cumulative Government
Spend on Infrastructure
• India lacks infrastructure to support its growing economy

12
50% • Ease of regulations and increasing private sector
9 2003 participation has led to strong growth in infrastructure
India sector over the past few years
6 • Of the Euro 152 Bn plan for investment in infrastructure
from 2006 to 2010, 39% is expected from private
3 investment
1995 1995 • Multilateral agencies such as the World Bank and the
0 Asian Development Bank (ADB) are funding various
0 130 260 390 520 650(Euro Bn) infrastructure projects on a large scale in India
Industrial GDP • The Government is tapping alternative sources of funds
Proposed Infrastructure Investment (2006-2010) for infrastructure development like fuel cess for road
(Euro Bn) development
Euro 152 Bn
52
Accruals 8 44
6 38
Private 15 Key Players
23 • Indian Players: RIL, ADAE, Mahindra & Mahindra, IOC
Debt 24 14 and ONGC, NTPC, L&T , Gammon India Ltd , HCC
8 4 1 • Global Players: Nokia, P&O, PSA, Maersk, Gammon
4 4
Govt. 5 7 5 2 2 India, CWC and the Dubai Port Authority
Power Roads Railways Ports Others

A.T. Kearney 75
Appendix
Government has made policy initiatives to attract private investment in

infrastructure sector

• Government is offering several projects in the infrastructure sector on a Build Operate and Transfer basis
that provide net equity returns of 18 to 25% to construction companies
• Electricity Act 2003: promotes competition, privatization, project financing and incentivizes profit making
• National Maritime Policy: 228 projects open for public private partnerships
• National Highways Development Project financed through BOT route: permission to private parties to
invest in NH Development project, levy, collect and retain fees and also regulate traffic on BOT routes
• SEZ scheme under which developers of SEZs and SEZ units are provided various fiscal and non fiscal
incentives
Source: Ministry of Commerce, India

A.T. Kearney 76
Appendix
Opportunities and challenges for Infrastructure
• Investments in power generation and transmission as the • The massive investment programme for infrastructure
power demand increases with the growing economy has to be funded at a time when government is trying to
• Invest under Build Operate and Transfer basis in the reduce its fiscal deficit
national highways segment as they carry more than 40 • Private investment in sectors like power was curtailed by
per cent of the traffic the lack of financial sustainability of projects due to
• Deregulation in the ports sector and multiple options for subsidy
private participation provides opportunity for Italian • Government has limited focus on maintenance or road
players with strong expertise in the sector infrastructure
• Growing demand for real estate makes it an attractive • Bulk of the infrastructure is still controlled by government
prospect for Italian investors leading to limited private participation
• Italian companies can provide expertise in modern
ground-handling facilities and cargo-handling facilities to
Indian airports
• Investments in SEZ as government is providing various
incentives to developers

A.T. Kearney 77
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 78
Appendix
Modernization of armed forces is leading to rising defense expenditure

in India
India Defense Allocation for Purchase of Weapons

(€ billions) Key trends
8%
C AG R : 2 • Indian armed forces are in midst of rapid modernization
5.65 5.80
which has led to increase in defense expenditure
• India looking to procure equipment from new suppliers
3.54 like South Africa apart from its traditional suppliers in
Russia, USA and Israel
• Focus on indigenization of defense equipment and low
returns on local R&D has resulted in India looking for
technology transfer, licensed production and joint
development of equipment instead of off the shelf
2004 2005 2006E purchase
• In Aero India 2005 air show, deals worth over €0.91bn
India Defense Expenditure were signed between Indian and foreign aerospace firms
• Global players looking to collaborate with Indian firms in
(€) areas like software for defense purpose
16 3
2.9
12 2.8 Key Players
2.8
CAGR
8 18% • Indian players: HAL, Mazagon Dock LTD, Ordnance
2.6
11 12 Factories, Bharat Electronics Ltd, Bharat Dynamics Ltd
9 2.6
4 • Foreign companies: Honeywell International
0 2.4 • Private Indian players: Tata, L&T, Mahindra & Mahindra,
2003 2004 2005 Kirloskar Brothers, Ashok Leyland, Jindal, Max
Defense expenditure per capita Aerospace & Aviation, and Ramoss India
Defense expenditure as % of GDP
Source: BMI Research

A.T. Kearney 79
Appendix
Aerospace and Defense industry is located across the country with

major clusters in western and southern India
Ghaziabad
• There is manufacturing location
Kotdwara of Hindustan aeronautical ltd.
(HAL ) apart from several Indian
Gurgaon Kanpur ordnance factories
Lucknow
• There are several Indian ordnance
factories in Maharashtra
• Leading defense shipyard Mazagon
dock ltd is located in Mumbai
Bhandara Ichapur
Nashik
Bhusaval Nagpur Kolkata
Bhadravati
Ambarnath Jabalpur
Pune • Missile manufacturing units
Koraput
of BDL are located in Andhra
Bhanpur
Machilipatnam Pradesh
Hyderabad
Kanchanbagh
Bangalore
• Key aeronautical establishments of
Chennai HAL is located in Bangalore
Aerospace and Defense Industry • The defense electronics company
Aruvankadu BEL has units in Bangalore and
Chennai
A.T. Kearney 80
Appendix
Partnership with local players is the key to enter the Indian market

• Government allows state-owned agencies to enter into joint co-development and co-production
ventures with foreign companies
• FDI: India opened for up to 100 % Indian private sector investments in the defense industry and
allowed FDI of up to 26% in select areas of the defense industry
• Offset mechanism announced by government under which foreign companies providing

equipment with a value of more than € 53.2 mn will have to reinvestment 30.0 percent of the
total purchase amount in terms of components and services from India
• Foreign defense vendors who are short listed for purchase are required to enter into technology
transfer agreement with Indian private players or state owned players

A.T. Kearney 81
Appendix
Opportunities and challenges for Aerospace and Defense sector
• Procurements in the sector heavily influenced by political
• Direct equipment sales to armed forces as India plans
climate and strategic relationship between governments
large expenditure on purchase of defense equipment in
its effort towards modernization of armed forces
• Strong international competition due to incumbent players
• Joint development of technology and equipment in from Russia, Israel and USA
partnership with Indian private and public players
• Indirect offset not allowed
• Italian companies can potentially use India to outsource
components for their global manufacturing operations
• Outsource engineering and design to India as it offers

high quality and cost effective design capability

A.T. Kearney 82
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 83
Appendix
Rising spending on recreation is leading to boom in tourism sector
Leisure and Recreation Expenditure in India Key trends

(€ billions)
CAGR: 7% 4.5 • Increased spending on non-essential items and easy
availability of credit for consumer purchase has led to
4.2 high tourism expenditure
• Rapid growth of low cost carriers and Infrastructure up-
gradation of airports have led to increase in air travel
3.9 • Indian travel industry highly fragmented with the small or
local players constituting for 83% of the market whereas
tour operators account for only 16%
• Travel agencies dominated by mid-sized players, which
typically offer tours of big tour operators
• Disintermediation in lower value services and high
2003 2004 2005
volumes are expected to drive consolidation in the sector
which will result in closure of several small sized travel
companies
Leisure Traveler Volume • Several online players have entered the market over the
(All figures in ‘000s) last year and many more expected to enter in the next 1
year
%
R 18 Key Players
CAG
3% • Large Tour Operators: SOTC, Cox & Kings, TCI
C AG R
• Regional Players: Kesri tours, Rajarani travels
• Direct Suppliers: Jet Airways, Indian, Air Deccan, Spice
850
630 700 Jet, Kingfisher
510 • Hotels : Indian Hotels, EIH, Hotel Leela, Asian Hotels,
Taj GVK
• Online Players: Makemytrip, Travelguru
1997 2003 2004 2005
Source: Indian Tourism Statistics 2004 ; International Passenger Survey in India 1996-97 and 2003; Euromonitor report on Indian Tourism 2005 ;
Interviews; A.T. Kearney analysis
A.T. Kearney 84
Appendix
Evolving market and regulation offer opportunities to Global players

• Domestic airlines are allowed to operate international flights
• Indian Ministry of Tourism has identified 31 villages across the country to be developed as tourism hubs
• Tourism ministry launched scheme for integrated development of tourist circuit where government will fund
capital costs for infrastructure development
• FDI: up to 100% is permitted on the automatic route in hotel and tourism sector
• Government provides a capital grant of 10% on loans for new approved hotel projects
• Financial assistance is provided to states for organizing tourism related events

A.T. Kearney 85
Appendix
Opportunities and challenges for Tourism sector
• Investment in assets to develop own holiday destination/ • Lack of infrastructure facilities like airports, quality roads,
hotels as they see increasing demand and limited supply sanitation, water quality in the country hampering
development of many tourist destinations
• Tour operators looking to enter India should customize
offerings to match the tastes and preferences of Indian • Lack of direct flies between Italy and India
travelers
• Health and personal safety concerns due to water quality
• Invest in existing tour operators and provide technology and hygiene among international tourists
and expertise to build large scale of operations
• Create offerings to make India as one of the preferred • High Governments charges on road, passenger, toll,
tourist destination for Italian tourists luxury and sales taxes on the proceeds of travel
operators
• Competition from the online players create pressure on

offline players to build scale and consolidate
• Scarcity of budget hotels and affordable rooms
• Difficulty in obtaining VISA

A.T. Kearney 86
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 87
Appendix
Increasing income levels and changing consumption patterns have led

to rapid growth of organized retail sector
India Total Retail Market Size1 Key trends

(€ Bn) • Market value of 300 Bn € in 2005 growing by 7% in the
CAGR: 7% next four years
CAGR: 18% • Market largely fragmented and dominated by small
393
343 unorganized players
278 300 • organized retail only 6% of total retail, but expected to
grow by 10% per year up 2010
181 • Continuous growth of population of urban areas, as
percentage of total population (currently 29%)
• Textile, food & grocery account for around 60% of
organized retail market
• Global players who have developed or customized
2002 2004 2005 2007E 2009E products for Indian market have been successful in
India. Coca Cola & Unilever (HLL) launched smaller
Organized Retail Penetration SKUs to drive penetration in the mass market,
(Organized retail as % of total retail, 2006l) Mcdonalds’ customized menu to Indian tastes
85
75
Key Players
• Food and Grocery: Food Bazaar, Food World,
Subhiksha, Big Bazaar, Spencer’s
32
22 20 • Food and Beverage: Barista, Café Coffee Day, Mc
6 Donald's, Pizza Hut, Haldirams
• Department Stores: Shoppers Stop, Lifestyle, Westside,
Pharmacy: Health and Glow, CRS, 98.4
USA Brazil South Vietnam China India • Books, Music & Gifts: Landmark, Crossword,Music
Africa World, Planet M
Notes: (1) Estimated sales to the end consumer across all categories
Source: Economist Intelligence Unit (EIU), Euromonitor, A.T. Kearney analysis A.T. Kearney 88
Appendix
Participation of international players is currently restricted by FDI

policies

• FDI: foreign investments not allowed in multi-brand retailing
• FDI upto 51% is allowed for single band retailing
• Retail does not belong to the “granted industry status” which hinders creation of retail specific laws
• Many retail products are purchased from small scale industries (SSIs) as 506 items are reserved for
manufacturing by SSIs
• Urban Land Ceiling Act and Rent Control Acts have resulted in very high property prices
• VAT policy has been implemented in all states, except Tamil Nadu

A.T. Kearney 89
Appendix
Opportunities and challenges for Retail sector
• Enter into a joint venture or agree on a fee based • Lack of basic infrastructure creates difficulty in sustaining
mechanism with Indian retailers and provide in-store retail operations across the large geographical spread of
management expertise to Indian retailers country
• Manage supply chain for Indian retailers bringing in • FDI limitation

international experience and technology to increase
efficiency and reduce costs
• Current regulations lead to some hindrances in the
growth of real estate development
• Invest in setting up a operations through formats that are
currently allowed under Indian law
• The tax structure in India is still complex and evolving,
creating challenges for retailers
• The supply base for the retail sector is fragmented due to

government policies and legacy issues
• Lack of trained manpower is a bottleneck for growth in

the retail sector
• Limited knowledge about the consumer behavior of huge

population in towns and rural areas

A.T. Kearney 90
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 91
Appendix
The petrochemical industry is forecasted to grow at a CAGR of 10%

over the coming years
India Domestic Basic Petrochemicals(1) market production

(Mtpa) Key trends
% • The current basic petrochemical demand is driven by
C AGR: ~9 ethylene and propylene (~86% of total demand)
• Propylene and butadiene are expected to witness CAGR
of ~ 16% and 17.5% respectively over next 5 years
• The market for propylene will grow on account of
7.6 downstream capacity expansion by Reliance industries
5.4 6.3
(RIL) at Jamnagar and new capacity set up by Indian Oil
(IOCL) at Panipat
• Butadiene demand is expected to grow rapidly owing to
2005 2007 2009 a 100 mtpa SBR plant being set up by RIL and another
40 mtpa plant by Bhansali Engineering
Basic Petrochemical Market in 2005 • The end plastic user industries like automotive, home
100%=5.4 mtpa appliances and packaging are also expected to witness
100% = 5.4 mtpa rapid growth, in turn driving demand for petrochemical
industry
Benzene, 9% Toluene, 3%
Butadiene, 2% Key Players
• Indian Players: Reliance India Ltd, Indian
Ethylene Petrochemicals Ltd, Gas Authority of India Ltd, Indian Oil
Propy- 50%
lene Corporation Ltd, Haldia Petrochemicals Ltd, Kochi
Refineries, Mangalore Refinery
36%
Notes: (1) Includes Ethylene, Propylene, Butadiene, Benzene and Toluene

(2) Annual growth in volume till 2011
Source: CrisInfac, Interviews, A.T. Kearney analysis
A.T. Kearney 92
Appendix
Petrochemical plants are located in proximity to raw material sources
• Large petrochemical plants in

Hazira, Jamnagar, Patalganga Panipat
etc. make the western India as the Mathura
key region for petrochemical Bongaigaon
industry Barauni Digboi
Numaligarh
Guwahati
Vadodara Koyali
Jamnagar
Dahej
Hazira • Petrochemical units in
Nagothane Haldia
Assam situated close to oil
Mumbai sources
Rabale
Vishakhapatnam
Patalganga
Kuthethoor
Chennai
Petrochemical Industry Narimanam
A.T. Kearney 93
Appendix
Opportunities and challenges for Petrochemicals sector
• Tight demand - supply situation in the Indian • Cyclicality of Industry’s profitability
petrochemical market
• Significant capacity is being built in the Middle East which
• Large and growing domestic market for petrochemicals has a cost advantage due to the cheaper cost of natural
gas
• Cost advantages for exports

A.T. Kearney 94
Appendix

n Textile
n Leather
n Oil and Gas
n Automotive
n Tyres
n Banking
n Insurance
n ICT
n Infrastructure
n Tourism
n Retail
n Petrochemical
n Cement
A.T. Kearney 95
Appendix
The industry is witnessing strong growth driven by a boom in

construction and real estate
Cement industry turnover in India Key Trends

(€ Million)
% 6.34 • Market value of 6 Mn euros in 2005
G R: 7 • Second largest producer of cement in the world after
CA
China
• Per capita consumption of 102 kg still low if compared to
the world average of 260 kg
5.93 • Cement demand expected to grow steadily the next five
years driven by growth in the construction market
(commercial as well as real estate)
• Exports grew by 20% in 2005 due to higher demand from
markets such as the Middle East, Sri Lanka and Nepal
2004 2005 • The industry is in a stage of consolidation and international
players are entering the market
Higher
demand
Cement Production in India from Middle
(Million Tonnes) East
: 7% Key Players
C AGR 125.1
4.1 +21% • Indian players: Grasim, ACC, Gujarat Ambuja, India
117.4 Cements, Ultratech Cement, Century Textiles, Jaiprakash
3.4 Industries, Birla Corporation
121.0 • Italian players: Italcementi
114.0 +6% • Other global players: Holcim, Lafarge, Heidelberg, Cemex
2004 2005
Domestic Market Exports
Source: IBEF, Crisinfac

A.T. Kearney 96
Appendix
Cement plants are primarily located near limestone reserves in the

country
Gagal • Plants in Darlaghat and

Bhatinda are key sources
for the northern market
Darlaghat
Ropar
• Capacities in Jawad and other Bhatinda Tikaria
places due to availability of kymore • Sindri, Chaibasa and
limestone Jamul other plants in West
Lakheri Hirmi Bengal and Jharkhand
Bhatapara major plants eastern India
Pali
Purulia
Shambhupura Durgapur
Jawad Road
Magdatta
Sankrail
Sikka
Jafrabad Sindri
Chaibasa
Kodinar Jharsugdha
Bargarh
Raipur
Chanda
• The western market is served by Chandrapur
plants in Jafrabad and Magdatta Hotgi Malkhed • Chandrapur is the key cement
Macherla production hub in the area
Wadi
Ratnagiri
Tadipatri
Arakonam
ACC
Madukkarai
Ultratech Cement Reddipalayam
Grasim Cement
Gujarat Ambuja Cement
A.T. Kearney 97
Appendix
Opportunities and challenges for Cement sector
• Huge and growing demand for cement due to • Highly fragmented market and regional in nature
infrastructure spending (particularly on roads, ports and consisting of over 54 players and more than 129
airports), a spurt in housing construction and expansion manufacturing plants
in corporate production facilities • Risk of excess of supply due to large capacity additions
expected to become operational in the coming years
• Efficiency of Indian cement companies due to low cost • Transportation costs which account for 20% of overall
technology and extensive restructuring costs are expected to increase
• High energy cost, one of the most important component
• Sector fragmentation favor purchasing of equity stakes by of cement productive cycle
international firms: e.g. Italcementi has acquired a stake
in the K.K. Birla promoted Zuari Industries' cement plant
in Andhra Pradesh

A.T. Kearney 98

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Opportunities And Challenges

US India Business Council

Presentation to Business and Trade delegation from Minnesota

New Delhi, 22nd October 2007

n Overview of the India opportunity

n Characteristics of the Indian business environment

GDP Projection And Adjusted For PPP

15 2.8% United States 12,939

Canada 8.8% India

Indian Population By Income Class, 2005-2020 (Millions)

2005 CAGR 2020

The opportunity is enhanced by young ‘working-age’ demographics

Population Trends And College Graduates For India

CAGR = 1.2% CAGR = -0.5%

The Indian government remains committed to market reforms

Overview Of The Key Reforms Introduced Since 1991

The commitment to reforms has continued despite changes

Overview Of The Key Investment Norms

India’s performance in A.T. Kearney’s FDI Confidence Index has

Most attractive investment destinations for global investors

India is ranked as the most attractive in A.T. Kearney’s Offshore location

Overview Of India’s Rank On Key Indices

Country Risk (Economic And Political)

0 = High Risk, 100 = Low Risk

Source: A.T. Kearney analysis A.T. Kearney 9

The investment and consumption trends are encouraging

Outbound M&A Deals Foreign investment

Outbound M&A deals (US$ Billion) FDI Investment (US$ Billion)

4.3 opportunities for foreign 5

Increased consumer spending

Source: Government of India websites; A.T. Kearney analysis

n Overview of the Indian opportunity

n Characteristics of the Indian business environment

§ There is a single hierarchy of § Successive governments have

Being a secular democracy comes naturally to India; changeovers are

1991 - 1996 1998-2004 (1) 2004-present

P.V. Narasimha Rao AB Vajpayee Dr. Manmohan Singh

Dr. Manmohan P Chidambaram Dr. Jaswant Arun Jaitley Kamal Nath

Regime: Congress Regime: BJP(2) led coalition Regime: Congress-led coalition

India portrays a landscape of diverse consumer base

Sheer scale of diversity makes India a seat for a major world

Bollywood Cricket Value consciousness

It is important to understand the popular symbols of the country and what

Source: A.T. Kearney analysis A.T. Kearney 15

n Overview of the Indian opportunity

n Characteristics of the Indian business environment

Indian markets pose a host of significant challenges

Overview Of Key Challenges In India

Heterogeneity of the market Entrenched Local Players

Infrastructure constraints Complexity in “Doing Business”

The heterogeneity of the Indian market means that players need to be

Key Milestones In Evolution of India As A Multicultural Society

Tide 20 gms: 1.5

Players need to choose their mode of entry carefully

Key Success Factors

Low Investment, Complexity and Business Risk High

The mode of entry will also be different for different sectors

There are significant constraints on infrastructure which increase the

Overview Of Transport Infrastructure Related Constraints

Seaports Airports Roadways

India is still significantly behind on “Ease of Doing Business”

Overview Of India’s Rank On Ease Of Doing Business Parameters (2008)