Mehta-Choudhary Feb 2604

India – Investment Opportunities

February, 2004

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Indian Economy

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Primary Sector (Agricultural) – Developing

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Secondary Sector (Manufacturing) – Under Developed

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Tertiary Sector (Services) – Developing

Opportunity to invest exists in all sectors of the Indian economy 31/01/13

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Case Studies (Primary Sector)

India is one of the largest agricultural economies in the world.

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Farming Technology – Monsanto (seed)

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Storage and Transportation Systems – Carrier

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Case Studies (Secondary Sector)

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Pharmaceutical

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Technology

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Engineering

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Auto & Auto-ancillary

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FMCG

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Manufacturing - Pharmaceutical 

India is home to the largest number (about 60) of pharma plants approved by US FDA outside US.

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At $ 6.5 bn, it has the fourth largest pharma industry in the world. Exports $ 2.0 billion worth per annum.

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India is one of the top 5 producers of bulk drugs.

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US pharma companies can make India as the manufacturing hub and cater to both the global and growing Indian market. E.g. – Pfizer, Wyeth, Bristol Meyers, Eli-Lilly

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Research and Development (R&D) of Pharma 

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The pharmaceutical industry has an unusual cost structure: 

Extremely high upfront investment (at least M$500 for a new product)

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Very high product failure rate

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High product liability

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Relatively low variable cost of production within capacity for most non-biotech products

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Require long payback period (dependent on patents)

R & D expenses are much higher for pharmaceuticals than for other industries

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13-20% of sales in USA.

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>30% of total cost of developing, producing, and marketing a drug in US.

Globally it costs approx $ 950 mn to develop a new drug including clinical trials. In India the same can be done for as low as approx $350 mn, a saving of 60%.

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9% Cost Saving: Total cost of Pharmaceuticals production in India.

100

+1 -13

+3 91

90

Total Cost in US

Labor Cost Savings

Higher Duty on Import raw Mtrl

Production Cost in India

Transp ortatio n Cost

India Cost

Source: Consultancy firm

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Advantage INDIA !!!

India has world class engineering, R&D capabilities at a scale and cost that cannot be replicated elsewhere in the world.

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Manufacturing – Engineering & Technology 

India has one of the largest pool of skilled manpower.

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Technology companies like Texas Instruments have

had

their

R&D

centres

and

manufacturing facility in India. Over 70 MNCs have R&D facilities in India 

100 of the Fortune 500 companies have presence in India.

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Defence companies from US can outsource from India.

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India is worlds largest diamond cutting and polishing centre. Nine out of every 10 stones sold anywhere in the world pass through India.

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Manufacturing – Auto & Auto-ancillary 

India serves an export base for automobile and autoancillary companies to export from India.

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Companies like General motors have long been sourcing products from India. (15 of the worlds leading automobile manufacturing source components from India)

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Rover has tied-up with Tata Motors to supply cars for the UK market.

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Aston Martin has contracted proto-typing it’s largest luxury sports car to Indian based designer.

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Manufacturing – Auto & Auto-ancillary – (contd.) 

According to AT Kearney the Indian auto ancillary exports could grow at a CAGR of 31% until 2010 to US$5 billion given the expected rise in outsourcing.

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Delphi has $ 140mn outsourcing plans from India in 2004, which would increase to $250 mn in the next 3 years.

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Gabriel (US), manufactures shock absorbers for both the Indian and international market.

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Federal Mogul manufactures piston rings and liners in JV with Indian Companies.

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22 to 23% Cost Saving: Total cost of producing a car in India & shipping it to the US. 100 -13 77 to 78 -16

- 1 to- 2

+5

+3

76

Total Cost in US

Labor Cost Savings

Lower Component Cost

Higher Duty Production on Import Cost in India Comp’

lower levels of automati on

Source: McKinsey

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Transp ortatio n Cost

India Cost

Manufacturing – FMCG 

Gillette – razor blades and male shaving preparations, Batteries and Oral care products

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Procter & Gamble – toiletries and skin care

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Avon Beauty Products – cosmetics

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Case Studies – (Tertiary Sector)

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Financial Services

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Hospitality Services

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Software Services

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Retail

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BPO

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Services 

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Financial 

Banking – Citibank, Bank of America

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Consulting – McKinsey, Ernst & Young, AT Kearney

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Financial Products – GE Capital

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Insurance – AIG, New York Life, MetLife

Hospitality 

Hotels – Hyatt, Sheraton, Marriott

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Fast-food – McDonalds, Subway, Pizza Hut

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Airlines – Delta Airlines

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Services – (contd.) 

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Software 

Solutions – Accenture, Microsoft, Siebel, SAS

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Security Management – Computer Associates

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Digital Asset Management - IBM

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Remote Infrastructure Management - Cisco

Retailing 

Product Sourcing - Wal-Mart sources $ 1.00 Bn woth of goods from India, plans to increase it to $ 4.0 Bn

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Supermarket – Metro AG (Germany)

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Services – (contd.)

Business Process Outsourcing (BPO) Service

Market size

US companies in India

Content Development

$ 650 million

Datamatics Technologies

Contact Management

$ 700 million

E-serve, Convergys, e-funds, Amex, Capital One

Finance & Accounting

$ 450 million

Datamatics Technologies

Administration & HR

$ 385 million

EXL Service, Accenture

Intelligent Services

N.A.

GE Capital

Emerging Opportunities •Logistics 31/01/13

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65 to 70% Cost Saving: Economics for a typical offshore Call Center in India 100

-60

45-55

to -65

+5

- 5 to -7

+ 5 to +10

Total Cost in US

-10 to -15

Management Cost base cost available

Savings from reengineeri ng

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Labor Telecom Cost Cost Savings

Source: Mckinsey

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Savings from process es

30 to 35

India Cost

Thank You

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