beta
The Finance & Investments Club
IIMA
Industry Primer
2023-24
1
Issue Details and Copyright
Industry Primer, Beta – The Finance & Investments Club of IIM-A, 1/e
© 2023, Beta – The Finance & Investments Club, IIM-A. All rights reserved.
Notice:
No part of this publication may be reproduced or transmitted in any form or by any means – electronic or mechanical,
including photocopy, recording or any information storage and retrieval system – without permission in writing from Beta - The
Finance & Investments Club of IIM Ahmedabad.
First edition:
© Beta, IIM Ahmedabad
September 2023
2
Disclaimer | Important Notice to Readers
Industry Primer, prepared by Beta – The Finance and Investments Club of IIMA (referred to as “Beta"), is intended for
educational and informational purposes only. The document aims to provide readers with an overview of various sectors,
including trends, growth drivers, benchmarking, recent deals, and valuation methods. It should be noted that the content is
purely for academic purposes and is a starting point for understanding various industries and should not be considered a
substitute for thorough analysis.
The information contained in this document is not meant to serve as investment or business advice. Beta assumes no
responsibility for any decisions or actions taken by readers based on the information presented in this primer. It is essential to
recognize that any financial or business decision should be made with careful consideration and professional guidance.
While Beta has used external references to compile this document, we have not independently cross-verified or recomputed
the data obtained from these sources. All external references have been cited to the best of our knowledge. Readers should be
aware that data accuracy and reliability may vary among sources. Beta cannot be held accountable or liable for any errors,
omissions, or inaccuracies found within this document. While we have made reasonable efforts to proofread and quality-check
the content, the possibility of errors cannot be entirely eliminated. Readers are encouraged to exercise caution and seek
additional information or professional assistance as needed.
© Beta, IIM Ahmedabad
3
Introduction to IIMA Industry Primer
Beta – The Finance & Investments Club of IIM Ahmedabad is delighted to introduce its inaugural Industry Primer, a
comprehensive resource designed to elevate your preparation for finance interviews. Within this primer, we have meticulously
curated industry trends, growth drivers, benchmarking techniques, recent deals, and valuation methods for 21 diverse sectors.
Our aim with this Industry Primer is to provide you with an expansive understanding of the industries that are crucial for
interviews with leading finance firms. We recognize that success in these interviews hinges on your ability to discuss industries
with confidence, comprehend their intricacies, and identify their key players. This primer equips you with the foundational
knowledge required to do just that.
Each industry boasts unique financial metrics, performance catalysts, and benchmarking/valuation methodologies, all of which
are comprehensively addressed within this primer. With the insights and knowledge gained from these pages, we hope you will
be better prepared to engage in meaningful discussions during your finance interviews.
We invite you to delve into this primer, which is the result of hours of research and dedication by the Beta Club. It is our hope
that this Industry Primer will serve as an indispensable tool in your journey towards a successful career in finance.
Saurav S
Coordinator, Beta - The Finance & Investments Club of IIM Ahmedabad, 2023-24
© Beta, IIM Ahmedabad
4
Acknowledgements
We extend our gratitude to all individuals who have contributed to the Industry Primer, which will serve as a comprehensive
preparation resource for both the present and upcoming cohorts.
We would like to acknowledge the efforts of Aditya Gadia, Anoop Kumar Gupta, Jitesh Agarwal, Kshitiz Upadhyaya, Kusum
Bhathar, Madhurima Nandamuri, Neelay Jain, Pancham Gupta, Pranav Parakh, Rahul Thakkar, Raghav Nath, Rithik Dhiman, and
Sumedha Srinivasan (PGP 2022-24) and Abhi Bansal, Akshat Harlalka, Harsh Toshniwal, Madhav Mantri, Rudraneel Roy, Yash
Mandana (PGP 2023-25) for helping the club put together this primer. Their analysis provides readers with a comprehensive
perspective, combining breadth and depth across various industries.
We would also like to acknowledge the efforts of Paras Bodke, and Yaswanth Maddali (PGP 2023-25) for helping the club put
this together. They have ensured that the analysis of all major industries relevant for preparation is presented in a thorough,
yet easy-to-understand manner.
Lastly, we would like to thank Karan Mehrotra, Cell Head of Learning & Development at Beta (PGP 2022-24) for leading the
Industry Primer initiative and successfully delivering this comprehensive document.
© Beta, IIM Ahmedabad
5
Table of Contents
Industry
Page No.
Industry
Page No.
Airlines
7
Hospitals
65
Asset Management
12
Hotels
71
Automobile
19
Insurance
76
Banking
25
IT & ITES
80
Cement
29
Oil & Gas
87
Consumer Durables
36
Pharmaceuticals
92
Diagnostics
41
Real Estate
97
E-Commerce
45
SaaS
105
Electric Vehicles
50
Steel
110
FMCG
55
Telecom
115
Food Delivery
60
© Beta, IIM Ahmedabad
6
Airlines
beta
7
Airlines | Sector overview
Industry size - Historical trends & Forecasts1
Growth drivers and Emerging trends
Domestic-Passenger
300
87%
ASKM
86%
250
67%
200
156
135
150
159
137
80
100
50
Bn-km
RPKM
83%
73%
263 87%
100%
225
80%
175
150
158
130
112
53
PLFs
85%
60%
40%
82
20%
0%
FY19
FY20
FY21
FY22
FY23P
FY24P
FY28P
Available seat km (ASKM) & revenue passenger km (RPKM) expected to grow at a
steady and strong pace next fiscal as utilisation nears pre-COVID levels
International Passenger
120
International traffic
103
69
3,500
3,000
100
80
Domestic and International Cargo
2,500
67
2,200
2,003
2,000
56
60
International Cargo
1,000
22
20
10
Bn-km
FY19 FY20 FY21 FY22 FY23P
Traffic still sub pre-COVID state;
Expect fast growth turnaround
2,900
Emerging Trends
• Passenger: Increasing
disposable income, lowcost carriers, government
policies, increasing
tourism, infrastructural
development
• Cargo: Rise in ecommerce, government
initiatives encouraging
manufacturing and export,
increasing congestion at
ports, aircraft passenger
capacity expansion leading
to more cargo belly, rising
trade with other nations
• Better regional connectivity2:
The government launched the
UDAN scheme six years ago for
the development of regional
air networks. 450+ routes
across 70 regional airports are
now operational
• A new competitive backdrop3:
Tata Group’s acquisition of Air
India & the subsequent merger
of 4 airlines under its control;
Several new regional &
national entrants; Revival of
Jet Airways
Key players1
1,850
1,100
761
733
500
FY28P
1,961
1,521
1,500
40
Domestic Cargo
Growth Drivers
'000 tonne FY19
475
646
735
Interglobe Aviation
Tata Airlines Group
Others
Brands
FY27P
Domestic and
International Share
55% | 27%
27% | 63%
18% | <10%
Relatively subdued impact of COVID; Close to
recovery, growth expected next quadrennial
Current fleet size and
fleet on order
279 | ~550
243 | ~500
134 | ~290
FY20
References: 1. CRISIL Reports 2. Deccan Herald 3. Press Information Bureau
FY21
FY22
FY23P
8
Airlines | Supply chain & Porter’s 5 forces analysis
Supply chain analysis1
Inbound Logistics
Operations
Outbound Logistics
Marketing
Service
• Buy/Lease Aircraft
• Crew/Staff Schedule
• Passenger service
• Yield management
• Fuel procurement
• Route selection
• Aircraft operations
• Gate operations
• Ticket counter ops
• Onboard services
• Baggage handling
• Baggage collection
• Connecting flights
• Reserving car/hotel
• Travel agents/sites
• Flying miles
• Lounge access
• Ad campaigns
• Discounts/vouchers
• Corporate benefits
• Customer support
• Web check-in
• Lost baggage claim
Threat of
substitute products
Rivalry among
existing competitors
• Ticket office/website
Porter’s 5 forces analysis2
Threat of
new entrants
•
•
Low risk generally due
to huge capital outlay,
stringent regulations,
oil price volatility &
high exit costs
High risk presently from
recent entrants Akasa
Air, Tata backed Vistara
& AirAsia India, regional
operators like FlyBig
and the revival of Jet
Airways
References: 1. ResearchGate 2. CRISIL; Edrawsoft
Bargaining power
of buyers
•
•
•
High as airline services
are increasingly
becoming commoditized
leading to low switching
costs
Indian demography is
price sensitive, thus
brand loyalty is low
Regulations on ticket
pricing in the past
further constrained the
margins
Bargaining power
of suppliers
•
•
High as there is little to
no control over fuel
price and also labor
costs due to
associations like ICPA
Moderate power of
aircraft manufacturers
as while the space is
extremely concentrated
it is also very
competitive
•
•
•
Low-moderate risk for
long distance travel as
limited quick
alternatives
Moderate risk for short
distance travel due to
transport via fast trains
High risk from the
advent of remote work
solutions eliminating
the need for travel
altogether
•
•
High competing
pressure owing to low
product differentiation
and high exit costs
Recently, losses from
COVID-19 have further
put pressure on airlines
to increase asset
utilization levels; pricewars in an expensive oil
market have led to slim
margins
9
Airlines | Financial snapshot
Benchmarking4
Ratios/Metrics
Interglobe Avi (FY22)
Air India (FY21)
SpiceJet (FY22)
Go Air (FY21)
Revenue/Cost per Av. Seat KM (RASK/CASK)
3.7 | 3.6
4.2 | 4.4
5.0 | 5.7
3.1 | 2.9
Operating/Net Profit Margin (%)
2.2 | -23.8
5.0 | -67.8
-1.2 | -23.4
7.5 | -40.1
Passenger Load Factor (PLF) [Dom. & Intl.]
73.5% | 73.6%
66.5% | 72.5%
80.3% | 74.5%
75.1% | 68.4%
Total passenger traffic (Mn)
49.8
15.0
9.2
4.4
Interest Coverage
0.5
0.3
0.1
0.3
Recent M&A deals
Valuation
Approach to valuation: Enterprise value-to-earnings before interest,
taxes, depreciation, amortization, and rent (EV/EBITDAR) is the most
common valuation multiple used to value airlines. One can also analyze
airlines' free cash flow (FCF) yield. Both metrics should be used in
conjunction and compared to prior periods and peers.
Nature
Interglobe5 (FY22)
EV / EBITDA
56.86
EV / Net Operating Revenue (NOR)
2.75
Market Capitalization / NOR
2.99
Total Debt / Equity
-0.65
References: 1. Mint 2. Moneycontrol 3. India Today 4. CRISIL Research Reports 5. Company Disclosures
Tata Group – Air India
Jalan-Kalrock – Jet Airways1
• In 2022, the Tata Group
acquired Air India, Air India
Express and Air India SATS
Airport Services for a combined
bid of INR 18,000 crores.
• Later in 2022, AirIndia3
announced plans of acquisition
of AirAsia to subsidiarize it.
• Finally, AirIndia in 2023 will
merge with Vistara2, another
Tata Group controlled airline.
• A consortium led by
businessperson Murari Lal Jalan
and London-based Kalrock
Capital won the bid for Jet
Airways in 2020 to acquire it
under the Corporate Insolvency
Resolution Process under the
proceedings of the Insolvency
and Bankruptcy Code 2016.
• The acquisition however is
hurdled by several legal battles
10
Airlines | Industry Unit Economics and Common Size
Unit Economics and Common Size for FY22
Industry Avg
(in INR)
Industry Avg
(in %)
Indigo
(in %)
SpiceJet
(in %)
GoAir
(in %)
Vistara
(in %)
Air India
(in %)
RASK
3.75
100%
100%
100%
100%
100%
100%
CASK
3.56
95%
95%
114%
94%
92%
102%
Fuel
1.58
42%
35%
46%
29%
39%
24%
Aircraft Rental
0.06
2%
0%
10%
3%
1%
2%
Employee Expenses
0.51
14%
14%
12%
13%
12%
12%
Landing Fees
0.22
6%
8%
12%
16%
0%
10%
Repairs & Maintenance
0.65
17%
24%
18%
29%
34%
17%
Commission
0.02
1%
0%
2%
0%
5%
5%
Others
0.52
14%
14%
14%
4%
2%
33%
Operating Margins
0.19
5%
5%
-14%
6%
8%
-2%
Particulars
References: CRISIL Research | Notes: 1. Lease rental accounting modified due to Ind AS 116; Subsumed under ‘Others’ / ‘Interest’ 2. Operating margins based on CASK & RASK different from reported results due to classification differences
11
Asset
Management
beta
12
Asset Management | Sector overview
Industry size - Historical trends
Industry AUM
Growth drivers and Emerging trends
SIP Contribution
AUM/GDP
AUM/GDP is growing rapidly (16% in 2022, 13% in 2019, 10% in
2016); Developed countries have AUM/GDP of 80%+
4500
3,838
4000
3500
3,211
3000
FY18
67
FY19
2,704
1,830
2000
2,305
1500
500
44
817
FY20
1,353
905
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
AUM (In INR '000 Cr)
AMCs are investing heavily in the digital infrastructure and making
the customer journey easier
100
FY21
1,189
Digitalization of AMC Industry
93
2,448
2500
1000
FY17
96
FY22
125
FY23
128
0
50
100
Passive Investing Culture
Discount brokers and influencers have made a culture of passive
investing that is driving AUM growth, but mgt. fees is falling.
150
Mutual Fund/ Fixed Deposits
SIP (In INR '000 Cr)
Mutual fund/ FD penetration (29% Currently in 2022, 19% in 2019,
10% in 2014); AUM base increasing faster than FD base
Industry AUM
❖ Average Assets Under Management (AAUM) of Indian Mutual Fund Industry
for the month of December 2022 stood at INR 38,38,000 crores.
❖ The AUM of the Indian MF Industry has grown from INR 8,17,000 crores as on
December 31, 2013, to INR 38,38,000 crores as on December 31, 2022;
around 5-fold increase in a span of 10 years
Key players
Market Share in AUM
17%
ICICI Prudential Mutual Fund
SIP Contribution
❖ Indian Mutual Funds have currently about 6.22 crore SIP accounts through
which investors regularly invest in Mutual Fund schemes.
References: AMFI Research, CRISIL
❖
SBI Mutual Fund
HDFC Mutual Fund
Kotak Mahindra Mutual Fund
Aditya Birla Sun Life Mutual Fund
Others
45%
13%
11%
7%
7%
❖
❖
SBI, ICICI & HDFC AMC are the
Industry leaders.
Kotak, ABSL, Nippon, AXIS, UTI
AMCs are catching up on AUM
Industry in concentrated as Top
10 companies have more than
80% of market share.
13
Asset Management | Supply chain & Porter’s 5 forces analysis
Distribution Chain analysis
Distribution Share
Direct
44%
49%
Associate
Non Associate
7%
Direct
Associate Distributors
Non-Associate Distributors
(Industry Average distribution~44%)
(Industry Average distribution ~7%)
(Industry Average distribution ~48%)
• This refers to the Direct Mutual
Funds sold via Coin (Zerodha) and
other discount brokers
• The share of Direct distribution
has been increasing rapidly.
• These refers to distributors which
are directly linked to the asset
management company like banks
or insurance subsidiaries.
• These are Mutual fund
distributors (MFDs) and National
Distributors
Porter’s 5 forces analysis
Threat of new entrants
Bargaining power of
buyers
Bargaining power of
suppliers
Threat of substitute
products
Rivalry among existing
competitors
LOW
MEDIUM
MEDIUM TO HIGH
MEDIUM
HIGH
❖ Industry highly regulated
by SEBI
❖ Well established
household brand names
like SBI, HDFC & ICICI
❖ Hard to build/ replicate
distribution network
❖ Availability of same
product from other AMC
pressures the
management fee charged
❖ Companies can create
competitive advantage
by overperforming index
and charging premium on
TER therein.
❖ Highly Dependent on
Non-Associate
distributors, need to
offer good commissions
to incentivize.
❖ Shift towards direct
schemes increasing
dependence on discount
brokers
❖ Smallcase by Zerodha is
rising substitute for
mutual funds
❖ PMS and RIAs who build
stock portfolios for
clients also pose a threat
of substitutes
❖ Highly competitive TER
pricing of Schemes
❖ Reductions in TERs are
followed by similar
reaction from
competitors
❖ Big brand names like SBI,
ICICI, HDFC in the market
References: Cafemutual, CRISIL Research, HDFC AMC Annual Report
14
Asset Management | Financial snapshot
Benchmarking
Ratios/Metrics
SBI AMC
ICICI Pru AMC
HDFC AMC
Nippon India AMC
Aditya Birla AMC
Market Capitalization (In INR Crores)
N/A
N/A
38,397
14,190
10,801
Total Revenue (In INR Crores, FY22)
1,995
2,634
2,433
1,536
1,409
Net Income (In INR Crores, FY22)
1,070
1,440
1,393
744
673
5Y Average EBITDA Margin (FY18-FY22)
73.40%1
75.66%1
72.63%
52.20%
54.57%
AUM (In INR Crores, March 31, 2022)
6,48,640.6
4,84,872.5
4,18,852.3
2,81,439.5
2,82,183.4
Valuation
Recent M&A deals
Approach to valuation: The Industry is cash rich and has huge
margins with predictable cashflows. Thus, a 2/3 stage discounted
cash flow model or dividend discount model is suitable for the
industry. BofA has used a 2-stage DDM for valuing HDFC & UTI AMC.
Nature
Multiple
PE Ratio
22.2x
EV/EBIT
15.8x
EV/Revenue
7.1x
EV/EBITDA
15.4x
References: BofA Research, Venture Intelligence, AMFI Research, Ticker Tape Screener, 11-year average
•
•
IIFL x 5Paisa Capital: The acquisition is also expected to create
significant synergies for both companies, with 5paisa's technology
and customer base complementing IIFL's existing business lines. The
combined entity will have a strong presence in the online
brokerage space, with a customer base of over 1 million users and a
total asset under management of over INR 30,000 crore ($4 billion
USD).
IDFC AMC x Bandhan Holdings: A consortium comprising Bandhan
Financial Holdings Limited (BFHL) and private equity investors GIC
(GIC) and ChrysCapital (CC) acquired IDFC Asset Management
Company Ltd (IDFC AMC) and IDFC AMC Trustee Company Ltd from
publicly listed IDFC Ltd. for INR 4,500 crore.
15
Asset Management | Unit Economics & Risk Assessment
Unit Economics
Key Business Risks
Particular
Asset Management Services
Investment Management Fees
Fees & Commissions on AUM
Other Operating Income
Total Revenue
FY2022 (INR)
86.9
86.4
0.5
13.1
100.0
Personnel Expenses
Other Expenses
EBITDA
Depreciation & Amortization
Finance Costs
Total Costs
12.9
8.1
79.0
2.2
0.4
23.6
Pre-Tax Income
76.4
Income Tax Expense
Net Income
19.0
57.4
•
The above unit economics are for HDFC AMC, please note that
here total revenue is scaled down to 100 and not the investment
management fees since it is not possible to drill down to 1 unit
of product or service
References: HDFC AMC Annual Report, S&P Capital IQ, Investor Presentations
Passive Investing
•
Ever since discount brokers entered the market, trend
has changed to passive investing i.e., funds replicating
the index. Management fees for these funds is very low at
around 0.2%
Underperformance of Funds
•❖ Owing to market corrections the funds performance may
fall below the benchmark which in turn effects the cash
flows until recovery of the market.
Personnel Risk
•
Key human resources have been seen changing or leaving
firms. Eg: HDFC’s CIO Prashant Jain left the firm after
15+ years of service.
Regulatory Risks | TER Limits
•
SEBI currently regulates the total expense ratio (TER) for
different categories of funds and AMCs cannot charge
more than the set TER. To make markets more accessible
SEBI might push these TERs lower
16
Asset Management | AUM Split (1/2)
Mutual Fund Portfolio
Liquid Funds AUM
GILT Funds AUM
800000
20,000
703,648
700000
591,614
600000
400000
192,145
8,000
277,428
326,880
6,000
244,737
Management Fee Range: 10-20bps
•
Liquid funds are funds with securities of
maturity less than 30 days. This category
also include arbitrage funds.
•
Growth in this segment is primarily
driven by Institutional and Corporate
Investors
References: AMFI Research
0
InINR
₹ crs
In
crs
339,828
188,099
9,501
177,616
200,000
84,526
6,864
16,364
100,000
2,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
340,716
8,022
7,652
4,000
100000
₹ crs
InInINR
crs0
400,000
15,547
300,000
10,000
456,241
300000
200000
11,890
12,000
394,048
492,421
17,145
14,000
500000
17,220
500,000
16,000
632,686
600,000
18,939
18,007
18,000
604,594
Hybrid Funds AUM
17,392
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Management Fee Range: 20-40bps
•
GILT funds are debt funds that invest
primarily in government securities across
maturities.
•
These funds carry high interest rate risk
that justifies the cyclical AUM
₹ crscrs0
In INR
40,906
26,044
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Management Fee Range: 60-90bps
•
Hybrid Funds invest in debt as well as
equity investments by specifying
maximum and minimum limits for both of
the instruments
•
Growth is driven by households as they
look to invest in a one stop solution.
17
Asset Management | AUM Split (2/2)
Mutual Fund Portfolio
Short/Medium Debt Funds AUM
1000000
Equity Funds AUM
1600000
920,860
797,896
600000
400000
1200000
1000000
800000
569,981
770,102
600000
442,958
300000
200000
100000
200000
0
In INR crs
₹ crs
InInINR
crs0
Management Fee Range: 20-40 bps
250000
802,970
150000
339,168
185,757
50000
180,616
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Management Fee Range: 10-80bps
Short and medium-term debt funds invest
in securities maturing after 6 months but
not later than 3-5 years.
•
Equity funds invest in stocks based on
market capitalization or theme-based
investing
•
They carry decent amount of interest
rate risk as well
•
The AUM is highly linked to return in the
market as that drives the AUM bigger
183,322
100000
377,352
•
References: AMFI Research
200000
508,178
400000
298,687
300000
843,422
398,108
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
350000
1,026,797
735,368
517,299
500000
400000
764,450
707,144
435,209
450000
1400000
780,192
700000
500000
1,425,046
900000
800000
ETFs & FoFs AUM
₹ crscrs0
In INR
21,179
13,581
15,603
120,620
44,633
16,862
77,327
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Management Fee Range: 5-20bps
•
ETFs & FoFs have started gaining traction
very recently owing to passive investing
culture and willingness of household to
get exposure to foreign markets
•
ETFs & FoFs yield very little management
fees
18
Automobile
beta
19
Automobile | Sector overview
Growth drivers and Emerging trends
India’s Automobile Sector will rank 3rd worldwide by 2030
31.0
4.1
PV
CV
1.1 26.3
1.3 3.4 0.8 22.8
1.1
24.5
20.9
3.1
18.4
3W
2W
23.1
0.6
0.6
3.6
17.9
7.8%
26.0
4.6
0.8
0.8
300
Vehicle penetration
per 1000 people
Growing demand for
premium variants
Government Policy
Support
UVs (amongst PVs)
1.0
0.9
33.9%
222
72
M&HCVs (amongst CVs)
30
28%
19.5
2022
2018-19 2019-20 2020-21 2021-22 2022-23
Number of automobiles sold (in million units)
2025
33%
39%
49%
FY21
FY22
•
•
•
•
•
•
NATRIP (R&D)
PLI Scheme
AMP,2026
Make in India
FAME (EVs)
Battery Swapping
2022
2026
Automobile Sector (in $ bn)
• In 2022, contributed to 7.1% of India's GDP & 49% of India’s Mfg. GDP
• EV sales will reach 10 Mn unit by 2030 (CAGR 49% between 2022-30)
Transitioning
towards Electric
Vehicles
• 4th largest car maker with highest ever sales in Nov’22 (2.5 Mn units)
• PV segment is expected to demonstrate growth of 8% in 2023-24
• World’s largest heavy truck maker & 2nd largest bus & tractor maker
• India’s trucking market (in volume) is expected to quadruple by 2050
Voluntary Vehicle
Fleet Modernization
Program
Bharat Stage VI
Emission norms
Phase II
Key players
Passenger
Vehicles
Commercial
Vehicles
Two
Wheelers
Three
Wheelers
• Largest two-wheeler and three-wheeler manufacturer worldwide
• Two-wheeler demand is forecasted to increase by 8-10% in FY 24
References: Society of Indian Automobile Manufacturers, Crisil Research, IBEF, InvestIndia: Automobile Sector, Business Standard
20
Automobile | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Auto Component
Suppliers
OEM Warehouse
Vehicle
Assembly Line
OEM Warehouse
Auto Dealer
Customer
Porter’s 5 forces analysis
Threat of new entrants
Buyer’s bargaining power
Supplier’s bargaining power
Threat of substitutes
Existing competitors’ rivalry
Extensive Capital
Investment
Large Number of
Buyers
Fragmented
Supplier Market
Availability of
Several Substitutes
Moderate Number
of Competitors
Superior Brand
Equity Value
Availability of
Several Substitutes
High Dependence on
Automobile Sector
Low Cost of
Switching
Excess Capacity
available
Established
dealership networks
Price Sensitive
Customers
Vital Role in the
Value Chain
Low Product
Differentiation
Low switching cost
for brand selection
Very Low
References: Automotive SCM
High
Low
Very High
High
21
Automobile | Financial snapshot (1/2)
Benchmarking (FY23)
Ratios/Metrics
Maruti Suzuki
Tata Motors
Bajaj Auto
Hero MotoCorp
Debt to Equity
0.02
2.77
0
0.02
Operating Margin (%)
8.8%
3.6%
20.2%
11.6%
Capacity Utilization
76%
89%
61%
57%
Inventory Days
16
66
19
25
16.0%
6.5%
24.6%
22.1%
Return on Capital Employed
Recent M&A deals
Valuation
Approach to valuation:
The median of the below mentioned multiples of:
Maruti Suzuki (Market Leader PV Segment)
Tata Motors (Market Leader CV Segment)
Bajaj Auto (Market Leader 3-wheeler Segment)
Hero MotoCorp (Market Leader 2-wheeler Segment)
Nature
Multiple (FY24E)
P/E
18.4x
EV/EBITDA
9.25x
P/BV
3.45x
References: MoneyControl, Venture Intelligence, Capital IQ, Screener, Analyst Reports
Date
Acquirer
Dec
2022
Eicher
Motors
Aug
2022
TPEML
(subsidiary
of Tata
Motors)
Target
Stark
Future
Ford India
Pvt Ltd
Deal Value
(in USD Mn)
Rationale
53.6
Acquisition of 10.35% stake
by all cash deal and a seat
on the Stark Future’s board
to collaborate in electric
motorcycles space.
91.38
Acquisition of Ford’s car
manufacturing plant in
Gujarat. Ford will continue
to operate its powertrain
manufacturing facility by
leasing back from TPEML
22
Automobile | Financial snapshot (2/2)
Common Size Income Statement (FY23)
Ratios/Metrics
Maruti Suzuki
Tata Motors
Bajaj Auto
Hero MotoCorp
Revenue from Operations
100.0%
100.0%
100.0%
100.0%
Cost of Material Consumed
73.4%
65.5%
71.7%
70.1%
Employee Expense
3.9%
9.7%
4.1%
6.6%
Depreciation & Amortization
2.4%
7.2%
0.8%
2.0%
Finance Cost
0.2%
3.0%
0.1%
0.3%
Other Expenses (Net)
11.5%
13.8%
3.3%
9.7%
Profit Before Tax
8.6%
0.9%
20.1%
11.3%
Tax Expense
1.8%
0.2%
4.9%
3.1%
Profit After Tax
6.8%
0.7%
15.2%
8.2%
References: Company Disclosures
23
Automobile | Appendix: Key Segments & Key Risks
Key Segments
Automobile Sector
Passenger Vehicles
Commercial Vehicles
Three-Wheeler
Two-Wheeler
Passenger Cars
Light Commercial
Vehicles
Passenger Carriers
Mopeds and Electric
Scooters
Utility Vehicles
Medium & Heavy
Commercial Vehicles
Goods Carrier
Scooters
Multi-Purpose Vehicles
Motorcycles
Key Risks
•
Adherence to Regulatory/Emission Norms
•
Increasing Pollution in the Indian States
•
Increase in Interest Rate and Inflation
•
Change in Tax Rules or Government
Policies
•
Dependence on Raw Material & Fuel
Prices
•
High Dependence on Macroeconomic Factors
that impact individual’s disposable income
References: IBEF India
24
Banking
beta
25
Banking | Sector overview
Industry size - Historical trends & Forecasts(1)
150,000
Credit Composition and Growth
60,000
30,000
-
9%
•
•
•
9%
8%
26%
27%
30%
28%
24%
24%
25%
26%
25%
25%
30%
28%
27%
27%
26%
25%
31%
12%
12%
11%
12%
12%
12%
11%
FY 18
FY 19
FY 20
FY 21
FY 22
FY 23P
FY 24P
Industry
Service
Retail
25%
25%
•
•
Other
With the increase in NBFC credit support driven by demand from
trade segment, service sector credit is likely to grow
The share of retail loans has increased owing to all-time low
housing rates. It is expected to rise further owing to government
policy of affordable housing and increased loan trends for buying
vehicles.
Although agri’s share in credit is estimated to fall, Government
focus on agri-allied sectors via schemes such as the agriinfrastructure fund and linking KCC to animal husbandry and
fisheries will support agri credit growth
Although Industry’s mix in credit is estimated to fall, owing to
government’s production linked incentive scheme, credits to
industry is expected to grow in absolute terms
References: CRISIL Industry Report
•
31%
7%
9%
24%
Agri
•
8%
7%
120,000
90,000
Growth drivers and Emerging trends
•
•
Banking has moved to digital platforms, transforming the
industry. Banks are investing in AI, machine learning, and
blockchain to streamline processes, decrease costs, and
improve customer experience
As customers demand more personalized and efficient banking
services, banks are focusing on improving their customer
experience including mobile banking apps, chatbots, and
robo-advisors.
Basel III and KYC laws have improved transparency and
accountability, requiring stricter compliance
Banks are able to expand in developing nations due to rising
disposable income and middle classes
Fintech startups have disrupted banking, increasing
competition and innovation
Key players
26
Banking | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Raw materials
Consist of financial
resources such as capital,
deposits, and loans to
fund its operations and
provide financial services
to its customers
Suppliers
Consists of investors who
provide capital,
depositors who provide
funds, and borrowers who
seek loans
Logistics
Includes the processes of
loan origination,
underwriting, and
servicing, as well as
managing deposits and
other sources of funding
Distribution
Includes activities such as
opening bank accounts,
processing transactions,
and providing investment
advice
Customers
The end customer of a
banking company is the
individual or business who
uses the bank's financial
products and services
Threat of substitute
products
• Peer-to-peer lending,
digital wallets and
cryptocurrency
• Non-bank financial
institutions such as
credit unions,
investment firms, and
insurance companies
provide comparable
financial services, the
threat of substitutes is
moderate
Rivalry among existing
competitors
• The banking industry
is highly competitive,
with various players
competing for market
share
• This high intensity of
rivalry comes from
the commoditization
of banking products &
services and minimal
customer switching
costs
Porter’s 5 forces analysis
Threat of new entrants
• Low threat since
highly regulated
market
• RBI’s license
requirements include
a minimum capital
requirement,
profitability, and
adherence to strict
regulatory guidelines
• Established players
have already captured
the market
References: CRISIL Industry Report
Bargaining power of
buyers
• Buyers for a banking
company means
borrowers
• Medium to high power
since large number of
competitors, so the
buyers have high
options for switching
• Buyers can compare
services & switch to
another bank if they
are unhappy
Bargaining power of
suppliers
• The banking industry's
suppliers, comprising
employees, vendors,
and technology
providers, possess a
meager bargaining
position due to the
copious alternatives
available to banks,
permitting them to
negotiate favorable
terms
27
Banking | Financial snapshot
Benchmarking(1)
Particulars – FY 22 data
SBI
PNB
UBI
HDFC
ICICI
Kotak
BOB
Advances (in INR Crs)
27,33,967
7,28,186
6,61,005
13,68,821
8,59,020
2,71,254
7,77,155
Deposits (in INR Crs)
40,51,534
11,46,218
10,32,393
15,59,217
10,64,572
3,11,684
10,45,939
CRAR
13.8%
14.5%
14.5%
18.9%
19.2%
22.7%
15.7%
Business/Emp. (in INR Lakh)
2,574
1,941
2,048
2,025
1,669
871
2,205
Credit /Deposit Ratio
67.5%
63.5%
64.0%
87.8%
80.7%
87.0%
74.3%
NIMs
2.5%
2.2%
2.5%
3.8%
3.6%
4.1%
2.7%
Cost of funds
3.6%
3.9%
3.9%
3.5%
3.5%
3.2%
3.4%
NNPA%
1.0%
4.8%
3.7%
0.3%
0.8%
0.6%
1.7%
Recent M&A deals(3)
Valuation(2)
Approach to valuation: Price/EPS, Price/Book and Price/Tangible Book
have been used as valuation multiples. Enterprise Value Multiples cannot be
used for a banking company since Income earned and spent is operating
income of bank, which gets ignored in EBITDA and there is no clear
demarcation between working capital and debt of a bank.
Acquirer
Target
Date
Value ($Mn)
State Bank of India
Commercial Indo Bank
Jan-23
14.67
Axis Bank
Citi's Consumer Business
Mar-22
1,625.00
PMC
Jul-21
7.15
Lakshmi Vilas Bank
Nov-20
-
Yes Bank
Mar-20
981.00
USFB
DBS India
Nature
Multiple
State Bank of India
Indian Bank
Allahabad Bank
Aug-19
1,848.00
Price/ LTM EPS (x)
16.44x
United Bank of India
Andhra Bank
Aug-19
827.00
Punjab National Bank
Oriental Bank of Commerce
Aug-19
1,418.00
Punjab National Bank
United Bank of India
Aug-19
1,081.00
Canara Bank
Syndicate Bank
Aug-19
1,219.00
United Bank of India
Corporation Bank
Aug-19
1,589.00
Price/ Book (x)
1.88x
Price/ Tangible Book (x)
1.89x
References: (1) RBI Database (2) Capital IQ (3) Venture Intelligence
28
Cement
beta
29
Cement | Sector Overview (1/2)
Indian Cement Industry Capacity (in mn ton)
500
Global Cement Industry
242
268
301
325
347
370
393
415
434
453
472
491
512
537
560
595
195
209
223
236
242
256
272
270
290
327
326
314
360
388
419
445
China
450
400
79
350
68
300
250
200
150
100
50
-
57
56
55
55
56
52
55
55
59
55
58
61
58
50
49
73
67
57
66
69
61
55
55
57
76
80
84
60
61
71
36
30
33
38
42
48
34
37
36
40
42
46
40
42
43
46
50
53
63
41
44
47
46
51
56
52
54
58
56
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Total Capacity
North
East
51
Central
West
62
US
73
76
67
81
72
Egypt
85
54%
Russia
75
Brazil
106
116
127
97
55
61
66
70
75
FY21
FY22
FY23
FY24
(E)
FY25
(E)
South
India
31%
83
RoW
8%
India is the second largest cement manufacturer, after China, with 8%
global production share.
Per Capita Consumption (kg)
Total Consumption
1800
• Indian Cement industry has witnessed a 7% CAGR from 242mn ton in FY10 to 537mn
ton in FY23. It is estimated reach close to 600 mn tons by FY25.
• East Region, being the most underpenetrated region, is expected to drive growth
due to high potential for housing and infrastructure development
• South Region has the highest capacity due to the concentration of limestone
reserves in southern pockets of the country.
• The cement industry in India is a regional play due to the bulky nature of the
commodity. The demand-supply and pricing factors of each region impacts the
operational dynamics of those regions respectively.
References: Company Annual Reports, Investor Presentations, Analyst Reports, Bloomberg
1600
1400
1200
1000
800
1675
600
500-550 kg
1050
400
875
745
200
485
405
385
310
290
290
245
Turkey
Japan
Russia
US
Indonesia
Brazil
India
0
China
Korea
Vietnam
Egypt
Despite being a major producer, India’s per capita consumption is well below
the world average of 500-550 kg, indicating scope for penetration.
30
Cement | Sector Overview (2/2)
Competitive Landscape
Growth drivers and Emerging trends
Underpenetrated market - India is the second largest cement
producer globally (after China), but per capita consumption (200250kg) well below world average of 500-550kg
Key Players
Current capacity utilization of the industry is ~65-70%. Further
headroom for growth even without additional capital expenditure
Now under the Adani Group
Government’s commitment towards infrastructure projects – PM
Gati Sakthi, National Infrastructure Pipeline, Smart Cities Mission as
announced in Budget
Pre-election expenditure on projects such as Pradhan Mantri Awaz
Yojana coupled with regional infra spending before state elections,
further drives near term demand.
Market Share
Sales Volume Market Share
100%
90%
80%
70%
58%
60%
57%
54%
51%
52%
50%
51%
50%
60%
50%
40%
5%
8%
8%
30%
6%
9%
20%
9%
9%
9%
18%
19%
10%
17%
8%
8%
8%
9%
21%
8%
7%
9%
25%
8%
7%
9%
8%
8%
7%
8%
8%
9%
8%
8%
9%
24%
26%
26%
26%
0%
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Ultratech
ACC
Ambuja
Shree
Other players
FY23
• The Indian cement
industry is highly
fragmented
(~50%
share of smaller
players).
• Top 3-4 players have
been gaining market
share over the last
7-8 years (shift of
share from smaller
regional players to
larger ones)
References: Company Annual Reports, Investor Presentations, Analyst Reports, Bloomberg
Consumption Mix & Growth
Segment-wise Growth Projections
(FY22-27E)
Consumption Mix
Urban Housing
9%
31%
23%
Rural Housing
Govt
Infrastructure
37%
Industrial &
Commercial
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
7.50%
7.50%
Rural
Housing
Urban
Housing
8.50%
5.50%
Industrial &
Commercial
Govt. Infra
31
Cement | Supply Chain & Porter’s 5 forces Analysis
Supply Chain Analysis
Raw Material
Production
Consumption
Retail/Household
Limestone
Mines
Fuel (Coal,
Petcoke)
Sales & Distribution
Logistics
Road
1. Clinker
2. Split Grinding Unit
(processed
(mixing additives)
limestone)
Ports
Large and small
cement dealers
& distributors
Government Infra
Industrial /
Commercial
Railways
Porter’s 5 forces Analysis
Threat of new entrants
Low
• Cement is a
capitalintensive sector. To reach a
sizeable
capacity
for
scalable operations, huge
investments are required
(mines, factory buildings,
plant
&
equipment,
grinding units, etc).
• There
are
also
legal
barriers in terms of mine
acquisition, which happens
through
Government
auctions.
Bargaining power of buyers
Low
• The industry has a highly
fragmented consumer base
• Consumption
is
widely
spread across segments like
housing (rural as well as
urban), commercial and
industrial
consumption
(factories, offices etc.) and
Government (roads, housing
projects, infrastructure).
• Industry players can usually
maintain pricing discipline
and pass on inflation
References: Company Annual Reports, Investor Presentations, Analyst Reports, Bloomberg
Bargaining power of
suppliers
Large Incumbents - Low
New Small Players - High
Indian cement companies are
backward integrated since
they own limestone mines.
However, with recent change
in mining laws, mines are now
acquired through a bidding
process. Large incumbents
have an inherent advantage
and bid for better mines by
virtue
of
having
more
resources, resulting in higher
chances of winning the bids.
Threat of substitute
products
Low
No known substitutes for
cement in the Indian market.
A few western countries have
begun to foray into lesscarbon-intensive substitutes
for limestone like redmud
sludge. However, it is yet to
see
commercial
success.
Further, it is currently only
used as an additive since
quality (of cement) is yet to
be proven if redmud sludge
completely replaces limestone
•
•
•
•
Rivalry among existing
competitors
High
Fragmented industry
Supply > Demand
Fight for market share,
especially in a demand
slump - players cut prices
and push their product
Despite cement being a
commodity, players try
differentiated offerings to
stand
out
from
competition (eg. Higher
quality
from
better
quality limestone, paired
with related products
such as RMC, etc.)
32
Cement | Financial Snapshot
Benchmarking
Ratios/Metrics (FY23)
Ultratech
Ambuja Standalone
ACC Ltd
Shree Cement
Capacity (in mn tons)
132.35
31.45
36.05
46.4
Utilization % (Production/Capacity)
80%
96%
86%
69%
EBITDA/ton (INR / ton)
1,005/ton
852/ton
497/ton
925/ton
EBITDA Margin %
17.0%
16.3%
9.6%
17.8%
Return on Equity % (RoE)
9.7%
8.1%
5.6%
7.9%
Valuation
Recent M&A deals and IPOs
Approach to valuation:
•
EV/EBITDA – Most commonly used in cement industry. It takes into
account the entire value of the business, including debt (enterprise
value). This metric is relevant for a capital intensive sector like cement.
•
EV/ton – Another popular metric in the cement industry. It signifies extent
of premium/discount to its replacement cost that a company trades at.
Holcim-Adani Deal (2022):
•
Adani Group fully acquired ACC Ltd and Ambuja Cement Ltd from their
parent entity, Holcim.
•
The total valuation of both entities amounted to $10.5bn
•
Total capacity taken over was ~66mn tons, indicating a valuation of close
to ~$160/ton (expensive valuation compared to standard replacement cost
of $100/ton)
Forward EV/EBITDA
FY24E
FY25E
Ultratech Cement Ltd
17.74x
15.19x
Ambuja Cement Ltd
13.8x
12.33x
ACC Ltd
17.99x
13.51x
Shree Cement Ltd
20.97x
17.44x
References: Company Annual Reports, Investor Presentations, Analyst Reports, Bloomberg
Nuvoco IPO (2021):
•
IPO Size of INR 5,000cr (OFS INR 3,500cr and fresh issue INR 1,500cr)
•
Issue Price of INR 570/share
•
Trading debut was at discount to issue price
•
Subscription 1.7x
•
QIB subscription 4.23x, retail investors undersubscribed
33
Cement | Risks
Key Risks
Risks
Mining
Regulation
Volatile input
costs
Limited raw
material
Economic
slowdown
Environmental
Risk
Overview
•
Post recent amendment to Mining Regulation Laws, limestone mines get auctioned on expiry of lease resulting in risk of
companies not getting same mine re-allocated
•
Profitability susceptible to volatility in input prices. The industry is heavily dependent on petcoke and coal as sources of
fuel. Power, fuel and freight costs constitute nearly 50% of total costs. Hence volatility in fuel prices directly impacts
the bottomline.
Imports – Most of the fuel needs are met through imports. Procurement issues during high demand periods, foreign
exchange fluctuation and resource depletion pose risks to operation.
•
•
•
Limestone is a natural resource. There is no proven substitute for limestone in the manufacturing of cement. As mines
deplete, it poses a threat to business continuation.
Further, it is not easy to transport/import limestone from other countries due to the heavy nature of the material
•
Cement industry prone to shocks induced by government consumption slowdown as it is fundamentally driven by and
directly linked to economic growth in the country
•
Cement being carbon intensive by nature (carbon content in the raw material limestone and input fuel such as petcoke
and coal). Hence it poses a risk of causing damage to the local ecology and environment due to carbon and GHG
emissions.
References: Company Annual Reports, Investor Presentations, Analyst Reports, Bloomberg
34
Cement | ESG
Environment, Social and Governance Practices
Blending Ratio
Alternative Fuel and Raw Material (AFR)
• Ordinary Portland Cement (OPC), is a traditional blend of 95% clinker
(processed limestone) with 5% gypsum additive.
• Companies have begun to shift towards blended cement. Portland
Pozzolana Cement (PPC) and Portland Slag Cement (PSC) are variants
available in the market, which is a blend of limestone, gypsum and
waste from power (PPC) and steel sectors (PSC). Blending these
additives reduces the limestone concentration to 60-65% and
encourages circular economy by using other industry waste without
compromising on product quality (BIS approved)
• With this technology, mine life gets elongated since the same quantity
of limestone can produce a higher quantity of cement
• Cement companies traditionally use coal for heating the kiln in the
clinkerization process.
• As an alternative to fossil fuels, companies have now begun to use
alternatives fuel sources such as biomass, industrial waste and other
waste material as fuel sources for heating the kiln
• This reduces the usage and reliance on fossil fuels, encourages circular
economy, helps in effective waste management and reduces emission
of green house gases.
• However, this technology is still in the nascent stages since it is not
possible to entirely phase out fossil fuels due to high heat requirements
which these alternatives cannot fully cater to.
Waste Heat Recovery System (WHRS)
Solar & Wind Power
• The process of crushing and burning limestone in cement
manufacturing is called clinkerization. This process yields an
intermediate product called clinker which is combined with additives
to produce cement.
• The process of clinkerization involves heating limestone at very high
temperatures in kilns.
• Cement companies have begun to setup waste heat recovery plants
which capture the excess heat generated during the clinkerization
process, and this heat is used to power steam turbines which is used to
power the plants (as an alternate to coal-based thermal power plants).
• Cement companies have begun to explore alternatives to carbon-based
thermal and grid power by moving towards renewable sources
• Larger companies with sufficient resources set up own solar and wind
power plants for meeting their captive power needs. While the
investments for solar and wind power plant is higher than that of a
captive thermal power plant, the payback is quicker considering the
fuel cost savings.
• Smaller companies enter into solar power purchase agreements and
contracts. They look for renewable alternatives with minimal capital
outlay.
References: Company Annual Reports, Investor Presentations, Analyst Reports, Bloomberg
35
Consumer
Durables
beta
36
Consumer Durables | Sector overview
Industry size - Historical trends & Forecasts
Sale of consumer durables by category (financial years, INR B)
Growth drivers and Emerging trends
•
•
•
•
•
•
•
•
•
Overall value CAGR was ~8% in FY17-22, and forecasted to
moderate to ~6% in FY22-27.
Large appliances have driven most of the growth, at ~10%
CAGR in FY17-22 and ~7% forecasted over FY22-27.
Small appliances lag at ~6% and ~5% historic and future
growth for the same period, primarily due to greater levels of
market penetration already being achieved
Note: ‘Large’ category includes Fridges, Freezers,
Microwaves, etc.; ‘Small’ category includes cooking
appliances, food preparation appliances, irons, etc.
References: Euromoniter, J.P. Morgan, Bloomberg, tickertape.in, Geojit BNP Paribas, ICICI Securities, HDFC Securities, Keynote Capital
Growth in disposable income
• To grow 10% annually over the next 5 years
• Shortens replacement cycle, leads to volume growth
• Leads to premiumization, price/margin growth
Government push for affordable housing
• 50k crore budgeted for affordable housing under PMAY
• Directly increases demand for pumps, fridges, etc.
Urbanization and lifestyle changes
• Urban users are far more likely to purchase white goods
given higher income, access to electricity, etc.
Shift to organized sector
• As premiumization and innovation become more
important, larger firms become more competitive
Cyclicity risk
• Highly
cyclical
sector,
susceptible
to
broader
macroeconomic trends such as economic downturns
Key players
37
Consumer Durables | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Integrated firms like Havells
Materials
firm
(Copper,
plastics, etc.)
Intermediate
supplier
(Wiring,
motors, etc.)
Manufacturing
firm
(durable
goods)
Distributor
Retailer
Exclusive/multi
-brands/online
Porter’s 5 forces analysis
•
•
Threat of
new entrants
Bargaining power
of buyers
Bargaining power
of suppliers
Threat of
substitute products
Rivalry among
existing competitors
LOW
HIGH
LOW
LOW
HIGH
Manufacturing is
capital-intensive
and requires scale
to be competitive
Retail distribution of
incumbents is hard
to replicate
•
•
Negligible switching
costs
Multiple options
available across
product categories
•
•
Major raw inputs are
commodities with
efficient markets
Many are reliant on
large consumer
durables firms
References: J.P. Morgan, Bloomberg, tickertape.in, Geojit BNP Paribas, ICICI Securities, HDFC Securities, Keynote Capital
•
•
No new categories
have been created
in last few decades
Wide scope of
industry means new
categories are
generally introduced
by incumbents
•
•
Large number of
players with deep
pockets
Competition visible
across variety,
innovation, pricing,
promotional
schemes, etc.
38
Consumer Durables | Financial snapshot
Benchmarking
Ratios/Metrics
Voltas
Whirlpool
V-Guard
Crompton Greaves
8.0%
2.5%
12.1%
11.0%
FY’18-23 NPAT CAGR
(25.1)%
(9.0)%
7.1%
7.4%
FY’23 EBITDA Margin
3.9%
6.8%
8.1%
12.2%
FY’23 Net Margin
1.4%
3.0%
4.6%
6.9%
FY’23 RoE
2.5%
17.8%
17.3%
14.6%
FY’18-23 Revenue CAGR
Recent M&A deals
Valuation
Approach to valuation:
Most Indian consumer durable companies are mature, profitable firms with
significant free cash flow, as a result, the DCF approach should be given
priority. Trading comparables to be used with caution given diversity of firms
falling under the industry, and precedents to be discarded given low deal flow.
In terms of multiples, revenue multiples to be avoided as different business
models have dramatically different margins
Multiple
Value
EV/TTM EBITDA
~ 40 X
EV/FY’24 EBITDA
~ 29 X
P/E
~ 68 X
References: Bloomberg, tickertape.in
•
Crompton Greaves (CG) acquires Butterfly Gandhimathi
Appliances Ltd. (BGAL)
• February 2022 | ~INR 2,000 crore for 80% stake
• Paid 45 EV/EBITDA (slight premium)
• Makes CG one of the top 5 players in kitchen appliances in
India
•
Whirlpool acquires additional stake in Elica PB India
• September 2021 | ~ INR 400 crore for 38% stake
• (Valuation private)
• Deepens Whirlpool’s presence in the premium kitchen
appliances segment
39
Consumer Durables | Sample Common Size
Whirlpool’s FY2023 Common Size
Particulars
Operating revenue
INR Cr
Crompton Greaves’ FY2023 Common Size
% of Op. Revenue
Particulars
Operating revenue
INR Cr
% of Op. Revenue
6,870
100.0%
Other revenue
67
1.0%
Total revenue
6,936
101.0%
60.2%
Material consumed
1,735
25.3%
729
11.7%
Purchases of stock in trade
3,011
43.8%
Changes in inventories
(137)
(2.2)%
Changes in inventories
(66)
(1.0)%
Employee expenses
606
9.8%
Employee expenses
541
7.9%
Other expenses
974
15.7%
Other expenses
878
12.8%
EBITDA
421
6.8%
EBITDA
837
12.2%
D&A
161
2.6%
D&A
116
1.7%
EBIT
259
4.2%
EBIT
721
10.5%
13
0.2%
Finance costs
109
1.6%
PBT
247
4.0%
PBT
612
8.9%
Tax
62
1.0%
Tax
136
2.0%
PAT
185
3.0%
PAT
476
6.9%
6,210
100.0%
Other revenue
122
2.0%
Total revenue
6,332
102.0%
Material consumed
3,741
Purchases of stock in trade
Finance costs
References: Company information
40
Diagnostics
beta
41
Healthcare – Diagnostics | Sector overview
Industry size - Historical trends & Forecasts
Growth drivers and Emerging trends
•
Market Size for Diagnostics ($B)
25
20
20
•
15
10
6
6
7
8
FY 16
FY 17
FY 18
FY 19
10
10
FY 20
FY 21
5
•
0
FY 26 (P)
Market for Diagnostics comprises of Pathology, and Radiology
services, with pathology expected to drive growth
Diagnostics
Pathology
57%
Radiology
43%
Biochemistry
Immunology
Low end
CAGR 10-11%
CAGR ~15%
CAGR 11-12%
Hematology
Specialised
High end
CAGR 13-14%
CAGR 16-17%
CAGR ~14%
References: Praxis reports, Krsnaa DRHP, Industry reports, Broker reports, Secondary search
•
Increasing adoption of preventative tests:
• Driven by an increase in disposable income and
better health awareness (in part due to COVID)
Prevalence and proliferation of online aggregators:
• Aggregators such as Healthians have grown on
the back of price competitiveness, faster
turnaround, and at-home convenience
Increasing Tier 2/ rural penetration:
• Key players have been increasing the number of
labs in tier 2 and rural areas. A historical white
space, rural diagnostics account for 20% of total
Technology adoption
• Driving better customer experience, and
operational efficiencies
Key players
42
Healthcare – Diagnostics | Value chain & Porter’s 5 forces analysis
Value chain analysis
Customer need
generation
Registration
• Through doctors
(prescribed)
• Online aggregators
(prescribed and
voluntary tests)
• Walk ins
• Tech stack of
diagnostic players
• Registration through
aggregator
Sample collection
• In the center (win
through presence)
• At-home collection
gaining prominence
(win through team)
Processing
• Hub and spoke model
• Large scale and
efficient logistics
required for margins
and turnaround time
Reporting
Customer service
• High focus on tech for
quick and accurate
reporting
• Same day results, high
priority for most tests
• Regular touch point for
feedback and offers
• Increased use of apps by
players, however,
generally poor interface
Porter’s 5 forces analysis
Threat of new entrants
Bargaining power of
buyers
Bargaining power of
suppliers
Threat of substitute
products
Rivalry among existing
competitors
Low-Moderate
Moderate-High
Moderate
Low
High
Pathology business
requires high scale for
processing, requiring
heavy capital investment.
Radiology business
relatively easier since
centre level investment
required
Customers becoming
increasingly powerful
with a greater number of
options (e.g., high
dominance of smaller
radiology centres), and
increasing presence of
online aggregators
Relevance of suppliers
higher for pathology
business which requires
regents and chemicals for
testing. Previously, rising
prices of regents had
significantly impacted
bottom line
Diagnostics is part of
country’s critical
infrastructure – as such
there are no substitutes.
A large part of the
market is unorganized
and comprised of smaller
regional players. Due to
this, generally high price
competition observed in
the market
References: Broker reports, industry reports, Krsnaa DRHP, Secondary research
43
Healthcare – Diagnostics | Financial snapshot
Benchmarking (FY 22)
Ratios/Metrics
Dr. Lal Pathlabs
Metropolis
Thyrocare
Patient touch points
15,000+
12,000+
10,500+
Clinical laboratories
170+
270+
400+
Revenue ($M)
280
165
79
EBITDA %
25%
25%
39%
PAT %
17%
17%
30%
Valuation
Recent M&A deals/ Transactions
Approach to valuation:
Diagnostics is a relatively stable industry with low-degree
of receivables (owing to cash nature of transactions)
supporting a DCF valuation using FCFF. For Multiples, EV/
EBITDA is a preferred metric
❖ Dr Lal Pathlabs acquired 10% of Aprl Pathlabs (2023) for
INR 7.5 mn, and 100% of Suburban Diagnostics (India)
(2021) for INR 11,500 mn
❖ Metropolis acquired 100% of Ganesan’s Hitech Diagnostic
Centre (2021) for INR 6,525 mn
❖ Docon Technologies acquired 71% of Thyrocare (2021) for
INR 47,517 mn; Thyrocare announced a 51% acquisition of
Pulse Hitech Health Services (2022) for INR 25.5M
❖ Krsnaa Diagnostics launched its IPO of INR 12,133 mn in
2021
Nature
Multiple (L12M)
EV/ EBITDA
25.5x
EV/ Sales
6.3x
P/E
50.6x
Note: Multiples based on median of Dr. Lal Pathlabs, Metropolis and Thyrocare
References: Company annual reports, Capital IQ
44
E-Commerce
beta
45
E-Commerce | Sector overview
Industry size - Historical trends & Forecasts(1)
Growth drivers and Emerging trends
$bn
350
188
•
•
•
14
20
39
22
30
2014
2015
2017
2018
2020
84
75
2021
2022
99
2024
2025
2030
Government initiatives such as Make in India, Digital India, and
Startup India has had a positive impact on the market
• In January 2022, driven by the Digital India program, the
number of internet users reached to 658 million
• As of January 2022, internet penetration in the country stood
at 47% compared to 45% in 2021
India is also one of the highest data consumers in the world
• The active number of internet users in the country is the
second-highest globally
• At an average of 10.40 GB per month, India also has the
highest data usage per smartphone
In addition to the significant growth drivers, the COVID-19
pandemic has led to the further development of the market
References: Ecommerce report of Netscribes and Ecommerce report of Statista
Growth Drivers
• Increasing smartphone and Internet penetration
• Burgeoning middle-class population and income
• Increasing foreign direct investment(FDI)
• Government and private initiatives
• Rise in demand from non-metro cities
• Web content in local languages
• Ease of transaction
Challenges
• Digital illiteracy
• High competition for small players and new entrants
• Legal barriers
• Operational challenges for e-commerce players
Emerging Trends
• Increased adoption of digital & automated supply chain
• B2B e-commerce companies are implementing AI, Big Data,
and Blockchain technologies to track orders in real time and
reduce overall operational costs
• Because of evolving remote working habits and consumption
patterns, SaaS solutions have seen increased adoption
• Improving online financing and credit options also contributes
to market growth
46
E-Commerce | Market Segments and Key Players
Ecommerce Market
Online Retail &
Financial Services
This segment
comprises sale of
electronics, apparel,
personal care
products, and books
through an online
portal
References: Ecommerce report of Netscribes
Online Travel
Online Food & Grocery
This segment covers
domestic air ticket
booking, rail booking,
international air ticket
booking, hotel
booking, bus/cab
booking, and tour
packages
This segment consists
of delivery of food
items from various
restaurants as also
home delivery of
grocery items
Online Matrimony &
Classified
Revenue generated
from online job
portals, real estate
services, matrimonial
websites, and
automotive eservices
fall under this
segment
Other Online Services
Other online services
include online ticket
bookings for
entertainment as well
as payment for DTH,
telephone bills,
electricity bills, etc.
47
E-Commerce | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Raw materials
Comprises of diverse
products like electronics,
fashion apparel, sourced
from suppliers and also by
own exclusive product
lines
Suppliers
Manufacturers,
wholesalers, and
distributors of these
inputs are the major
suppliers
Logistics
Transportation from
suppliers to fulfillment
centers and customers is
managed with third-party
logistics often handling
last-mile delivery
Distribution
Warehousing and
fulfillment centers are
essential for storing and
processing products
before dispatch to
customers
Customers
The diverse and large
customer base in India
drives the e-commerce
industry
Threat of substitute
products
Traditional brick-andmortar stores and local
markets still serve as
substitutes for certain
products
The convenience and
availability of ecommerce, along with
the expansion of internet
penetration, have
reduced the impact of
substitutes
Rivalry among existing
competitors
Porter’s 5 forces analysis
Threat of new entrants
Relatively low barriers to
entry, allowing new
players to enter the
market easily
However, established
companies benefit from
economies of scale, brand
recognition, and
customer loyalty, making
it challenging for new
entrants to gain traction
References: Ecommerce report of Netscribes
Bargaining power of
suppliers
Large e-commerce
players has more leverage
due to higher order
volumes, while smaller
players face challenges in
negotiating
Supplier concentration
and the availability of
other suppliers also
influence this force
Bargaining power of
buyers
Buyers can easily
compare prices, products,
and services across
various platforms, forcing
companies to offer
competitive pricing and
better value
Customer loyalty is
generally low, which
further empowers buyers
to switch
Several major players
compete for market
share, such as Flipkart,
Amazon, Snapdeal, and
others
Price competition,
aggressive marketing, and
constant innovation are
common strategies used
to gain a competitive
edge
48
E-Commerce | Financial snapshot
Benchmarking(1)
Amazon
Flipkart
BMS
MMT
Naukri
Swiggy
Goibibo
Zomato
Paytm
Quikr
Average Ratings
4.2
4.3
4.1
4.5
4.6
4.4
4.5
4
4.6
4.1
Downloads (In Mn)
100+
100+
50+
50+
10+
100+
50+
100+
100+
10+
Global rank
83
141
806
1055
1701
3206
3591
2639
6023
8436
India rank
8
15
64
85
118
206
235
262
388
565
Total Page Visits (In Mn)
337.5
2021
56.1
44.3
26.1
13.4
15.8
22.6
10.7
7.1
Daily page views per visitor
7.35
6.4
4.35
4.37
6.3
8.16
4
3.29
3.24
3.76
Average Visit Duration
05:15
04:54
04:48
04:36
06:52
08:11
03:34
03:30
03:24
03:43
Bounce rate
46.14%
48.42%
48.73%
42.59%
36.44%
35.05%
47.69%
51.11%
45.32%
48.80%
Particulars – FY 22 data
Recent M&A deals(1)
Valuation(2)
Approach to valuation: EV/EBITDA, EV/Revenue, P/E and P/B are the
multiples we can refer for ecommerce companies. In the cases where the
company has attained profitability, we can refer multiples such as EV/EBITDA
and P/E, otherwise we refer to EV/Revenue and P/B. Below are multiples for
the listed ecommerce companies in India.
Company
Multiple 1
Multiple 2
Zomato
~6.7x (EV/Rev FY23)
~3.1x (P/B FY23)
Nykaa
~139.7x (EV/EBITDA FY23)
~1451.5x (P/E FY23)
IndiaMart
~63.6x (EV/EBITDA FY23)
~87.3x (P/E FY23)
References: (1) Ecommerce report of Netscribes (2) Moneycontrol
Acquirer
Target
Date
Value
($Mn)
Zomato
Blinkit
Jun’22
~550Mn
Amazon
GlowRoad
Apr’22
~65Mn
Flipkart
ANS Commerce
Apr’22
NA
MakeMyTrip
MyGola.com
Dec’21
NA
49
Electric
Vehicles
beta
50
Electric vehicles | Sector overview
Industry size - Historical trends & Forecasts
Growth drivers and Emerging trends
•
Electric vehicles estimated sales
(#K, FY22-28E)
7,419
4%
11%
45%
446
39%
4%
34%
•
•
•
23%
62%
68%
73%
57%
FY22
FY23
FY24E
FY25E
4%
E-2 Wheelers
•
4%
4%
28%
4%
2,360
1,654
E-3 Wheelers
4%
14%
3,417
1,179
•
5,009
18%
85%
82%
78%
•
FY26E
FY27E
E-4 Wheelers
E-Buses
FY28E
Market structure:
• Near-to-medium term – Large number of players to co-exist
• Medium-to-long term – Market to consolidate with 4-5 players
as winners in each category
For e3W (Passenger): ICE incumbents expected to dominate due to
need of brand name, distribution and after sales network
For e3W (Cargo): Market expected to be split between ICE
incumbents and new age EV players with many EV players having
developed good product
Competitive differentiation: Most new age EV players have
introduced technologically advanced products at premium pricing as
compared to ICE incumbents
References: 1. Vahan Dashboard 2. SMEV 3. EV Reporter 4. SIAM data 5. Netscribes report 6. CareEdge report 7. BigBasket
•
Forward integration by EV OEMs: EV OEMs & operators like
BluSmart, Ola Electric, Euler, etc. are setting up & operating
EV charging/swapping stations or partnering with them
Government initiatives:
• Setting up of fast charging stations for commercial Evs,
waiving stamp & registration duties
• Purchase subsidies, road tax exemptions, etc have
been extended across all vehicle types
Demand generation in logistics: All major logistics & lastmile-delivery players have shown interest in replacing the
existing fleet with e4W for first & middle-mile deliveries and
e3w/e2w for last-mile deliveries (e.g: BigBasket has begun
pilots with multiple EV players across major metro hubs)
Reduced cost of ownership: Diesel/Petrol prices have
increased; further, battery prices of EV are expected to
reduce along with overall reduced total cost of ownership
Key players
•
•
•
•
•
•
•
Ola Electric (30% market share in e2W)
Hero Electric (28% market share in e2W)
Okinawa (20% market share in e2W)
Piaggio Vehicles (31% market share in cargo e3W)
Mahindra & Mahindra (43% market share in passenger e3W)
Tata Motors (85% market share in passenger e4W)
PMI Electro mobility solutions (33% market share in e-buses)
51
Electric vehicles | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Inbound logistics
• Raw material
sourcing
• Inventory
management
Manufacturing
• Battery
production
• Production of
ancillaries
• Quality control
Outbound logistics
• Inventory
management
• Distribution
• Dealership
network
•
•
•
•
Marketing
Advertising
Pricing
Financing
Customer
awareness
•
•
•
Services
Repair &
maintenance
Charging
infrastructure
Warranty
Porter’s 5 forces analysis
Threat of new
entrants
•
•
•
High
Increasing number of new
entrants in e2w, e3w &
e4w categories driven by
conducive govt policies
Several incumbent ICE
players with strong brands
are developing their EV
offerings to launch in the
market
However, capex
requirements could
discourage new entrants
Bargaining power of
buyers
•
•
•
Moderate
Logistics/cargo
companies, transport
agencies, fleet operators
& individuals are buyers
With reducing TCO, more
buyers are expected to
prefer EVs due to savings
Lack of charging
infrastructure and range
anxiety, buyers are not
fully convinced about the
practicality of Evs
Threat of substitute
products
Bargaining power of
suppliers
•
•
•
Moderate
Supplier concentration to
firm concentration ratio is
high due to the many
suppliers
With the current
dependency on foreign
suppliers for lithium-ion
batteries, these suppliers
have significant
bargaining power
Govt’s push for local
manufacturing can
decrease this dependency
References: 1. EV Reporter 2. Netscribes report 3. CareEdge report 4. MarketLine report 5. Mordor Intelligence
•
•
Moderate
Hybrid vehicles and those
running on CNG/LPG also
pose a significant threat
as they provide a balance
between eco-friendliness
and performance
Customers may also
choose shared mobility
services with
improvement in public
transport & increasing
popularity of ride-sharing
Rivalry among existing
competitors
•
•
High
Intense competition from
existing international &
domestic OEMs like Tesla,
BYD, M&M, & Tata Motors
Most new age EV players
have introduced
technologically advanced
products at premium
pricing as compared to
ICE incumbents
52
Electric vehicles | Financial snapshot
Benchmarking
Key Ratios
Tesla (FY23E)
BYD (FY23E)
Wuling (FY23E)
Stellantis (FY23E)
Lucid Grp (FY23E)
EV/Sales
8.1x
1.5x
0.1x
0.2x
16.2x
EV/EBITDA
46x
29.8x
5.5x
1x
-4.4x
P/S
8.4x
1.6x
0.2x
0.3x
17.4x
P/E
64.3x
38.4x
98.3x
3.6x
-3.7x
Price/OCF
56.6x
5.3x
-0.3x
2.4x
-4.8x
Recent deal activity
Valuation
Approach to valuation: Take the average multiple and set that as the
industry benchmark. Multiply this with the relevant denominator
(EBITDA, Sales) to get the target valuation of a firm and compare with
the existing valuation to conclude if the firm is over or under valued.
Nature
Multiple (FY23E)
EV/Sales
5.2x
EV/EBITDA
20.6x
P/E
51.2x
P/OCF
21.4x
References: 1.Mahindra Electric; 2. Euler; 3. Ather, 4. Ola Electric
•
•
•
•
GIC, the world’s 6th largest sovereign wealth fund invested $60mn
in Euler Motors, a e3W cargo OEM. The Series C round saw
participation from Moglix, Blume & Athera as well
Mahindra Electric raised $250mn from British International
Investment (BII) into a subsidiary called EV Co. at a valuation of
$9.1bn which gave them ownership of between 2.75-4.76%
Ather Energy, the e2W OEM, raised $178mn Series E in two
tranches ($128mn in Jan 2022 & $50mn in Oct 2022). NIIF & Hero
Motocorp led the investment in Jan 2022; Caladium Investment
led the investment in Oct 2022
Ola Electric, to raise $300-350mn, led by Temasek Holdings,
valuing the firm at $6bn; This deal comes after the last fundraise
of $200mn from Tekne, Alpine Opportunity Fund, and Edelweiss
53
Electric vehicles | Market segmentation & TCO Analysis
Electric vehicles market segmentation
TCO Analysis of Bajaj & Piaggio e3W passenger EV
Bajaj RE
CNG
Ape E-City
FX
Type
CNG
Electric
Purchase price (INR K)
227
351
55%
Total fuel costs (INR K)
407
53
-87%
Avg fuel costs (INR per kg
or KWh)
82
5
-94%
Mileage (km per kg or
KWh)
27
13
-52%
Insurance costs (INR K)
32
25
-22%
Maintenance costs (INR K)
102
90
-12%
Spare parts costs (INR K)
24
18
-25%
Battery replacement costs
(INR K)
-
144
NA
TCO
792
681
-14%
80
80
5; 335
5; 335
Model
Total EV sales
Personal
Commercial
2W
2W
Low speed
Low speed
High speed
High speed
3W
4W
E-auto
Mini, pickup
& LCV
Cargo
Passenger
3W
E-buses
E-rickshaw
4W
Cargo
Passenger
E-Taxis
Assumptions
Daily drives (km)
Period (yrs); days used
References: 1. Vahan Dashboard 2. State ERC 3. PolicyBazaar 4. Company websites
Electric
/ CNG
54
FMCG
beta
55
FMCG | Sector overview
Industry size - Historical trends & Forecasts
Growth drivers and Emerging trends
India FMCG Market Size
•
700
616
600
482
500
USD billion
•
•
•
377
400
294
300
•
230
180
200
100
68
83
2018
2019
110
•
141
•
0
•
•
•
2020
2021P
2022P
2023P
2024P
2025P
2026P
2027P
GDP per capita increased from $1,460 to $2,278 between FY12 to
FY22 and is estimated to reach $5,242 by FY32 at CAGR of 8.7%
Consumption share of GDP has increased from $ 1,026 bn in FY12 to
$1,883 bn in FY22 and is expected to grow at 9.2% CAGR and
account for 58% GDP
Retail consumption is currently at $781 bn accounting for 42% of
total consumption and is expected to be valued at $1,843 bn by
FY32
References: 1. Statista 2. Capital IQ 3. Morgan Stanley
Growing per capita income is expected to drive the overall
demand for goods and services in the country
Consumption to double to $4.5 Tn in the next decade in India
Inversion of consumer pyramid with higher concentration in
rich and higher middle-income households by next decade
Decrease in rural and urban income gap thus driving demand
even in rural India
Organized segment market share to increase in both retail
and food segment
Urbanization of population with about 40% of the population
expected to reside in urban India
General macro trends favoring Indian companies will also aid
FMCG sector like:
1. Technological Advancement
2. Increase in qualified manpower
Key players
•
•
•
•
•
Hindustan Unilever (INR 61,452 Cr Revenue, INR 13,951 Cr
EBITDA)
Nestle (INR 18,308 Cr Revenue, INR 4009 Cr EBITDA)
ITC (INR 47,329 Cr Revenue, INR 19,301 Cr EBITDA)
Britannia (INR 16,551 Cr Revenue, INR 2,996 Cr EBITDA)
Dabur (INR 11,838 Cr Revenue, INR 2,183 Cr EBITDA)
56
FMCG |Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Raw Materials are
either sourced
domestically or from
China with continued
focus on decreasing
dependence on China
Raw materials are
processed to finished
goods either in plants
owned by the company
or made through
contract manufacturers
Finished goods are
transported and stored
in warehouses and
wholesaler depots
across the country
Product reaches the
end user through
retailers who are
supplied through
wholesalers
Porter’s 5 forces analysis
Threat of new
entrants
Low
•
•
Most incumbent players
have strong sourcing and
distribution channels in
place thus deterring new
entrants into the already
populated and
competitive segment
Recent trend of new age
companies disrupting
market with innovative
products
References: 1. Marketline 2. EMIS
Bargaining power of
buyers
Moderate
•
Buyers are usually price
takers in this segment as
most companies have
competing products in
each sub segment and
hence have competitive
pricing
Threat of substitute
products
High
Bargaining power of
suppliers
Low to Moderate
•
•
Goods sourced
domestically have low
bargaining power as the
companies buy in huge
quantity and thus tender
market is competitive
Goods sourced from China
have moderate bargaining
power owing to higher
demand of these raw
materials
•
•
Buyers have easy
substitutes available for
most products
Companies have low
pricing power as there are
substitutes available to
most products from other
brands / companies
Rivalry among existing
competitors
Moderate to High
•
•
Highly competitive
market between various
players as most of them
are having multiple
products in each sub
segment.
No single company has
the power to change
prices
57
FMCG | Financial snapshot
Benchmarking
Key Ratios
HUL
Nestle
ITC
Britannia
Dabur
EV/Revenue (LTM)
9.6x
11.5x
7.6x
6.7x
8.6x
EV/EBITDA (LTM)
41.0x
51.6x
21.1x
36.7x
46.0x
P/E (LTM)
57.9x
77.9x
29.2x
39.7x
53.6x
EV/EBITDA (NTM)
36.0x
NA
19.2x
34.4x
38.9x
P/E (NTM)
51.2x
NA
26.3x
48.3x
50.2x
Recent deal activity
Valuation
Approach to valuation: Take the median multiple and set that as the
industry benchmark. Multiply this with the relevant denominator to get
the target valuation of a firm and compare with the existing valuation,
to conclude if the firm is over or under valued.
Nature
Multiple (FY23E)
EV/EBITDA (LTM)
41.0x
P/E (LTM)
53.6x
EV/EBITDA (NTM)
35.2x
P/E (NTM)
49.3x
References: 1. Capital IQ 2. MergersIndiaInfo
•
•
•
•
•
Bikaji Foods International Ltd. has acquired 49% stake and 396
Compulsorily Convertible Debentures (CCDs) in Bhujialalji Pvt. Ltd.
India's premium beauty and skincare brand VLCC on 9 June announced
the acquisition of Ustraa through a combination of secondary buy-out
and share swap
DS Group has acquired Good Stuff Pvt Ltd that owns chocolate and
confectionery brand LuvIt
Reliance Retail Ventures Limited has completed the acquisition 51 per
cent stake in Lotus Chocolate for an aggregate consideration of INR 74
crore
Bikaji Foods International Ltd. has acquired 49% stake and 396
Compulsorily Convertible Debentures (CCDs) in Bhujialalji Pvt. Ltd.
58
FMCG | Revenue Breakdown & Sample Common Size
HUL’s Revenue Streams
HUL’s FY2023 Common Size
Revenue
Beauty &
Personal Care
Skin Cleansing,
Care and
Cosmetics
Hair Care
Deodorant &
Male Toiletries
References: 1. HUL FY2023 Results
Home Care
Fabric care
Household Care
Water Purifier
Food &
Refreshments
Beverages
Ice Cream
Foods
Particulars
INR Cr
% of Revenue
Core Revenue
60,580
100%
Other Income
512
0.8%
Total Revenue
61,092
100.8%
Material Consumed
31,716
52.4%
Employee Benefits
2,854
4.7%
Selling & Admin
11,861
19.6%
EBITDA
14,661
24.2%
D&A
1,137
1.9%
EBIT
13,524
22.3%
114
0.2%
PBT
13,410
22.1%
Tax
3,266
5.4%
PAT
10,144
16.7%
Interest
59
Food
Delivery
beta
60
Food delivery | Sector overview
Industry size - Historical trends & Forecasts
Online as % of food service spend
Food delivery GOV (INR bn)
1400
1200
600
13%
9%
4%
400
2%
4%
Increased
cost of meal
prep
• Shadow cost of home-cooked meals have
increased with female labor-force
participation- incurs wage cost today
Smartphone
& internet
penetration
• Smartphone penetration to touch 80% by
2025
• Internet users will reach ~985mn by 2025
4%
China
USA
UK
Singapore
India
Indonesia
FY25
FY24
FY23
FY22
FY21
• 38% urban population by 2027 (32%- 2016)
• 1.2-2.3x avg. household consumption in
urban vs. rural
10%
0%
FY20
Urbanization
8%
800
700
16%
12%
1000
FY19
1600
1400
1200
1000
800
600
400
200
0
Growth drivers and Emerging trends
•
India’s online food delivery market is underpenetrated as
compared to developed economies, but fares well in the
SEA region
•
Gross order value saw a slump in FY21 due to Covid-19
pandemic, but recovery has been strong, and poised to
grow exponentially over the next 5 years
•
Possibility of TAM expansion in adjacent markets like quick
commerce and B2B restaurant supplies will propel the
growth outlook
References: Axis Capital, Emkay Research, Edelweiss Capital, Medium
Key players
Duopoly (>90% share)
61
Food delivery | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Restaurant procurement
(B2B supplies)
• Farm to restaurant direct
procurement services
• Players include Zomato’s
Hyperpure, Bigbasket HoReCa
Order Placement
Meal Preparation
Order Fulfillment
• Platform commission and
advertising revenue are key
revenue drivers
• Restaurants pay a penalty on
cancellations, delays, wrong
orders etc.
• Cloud kitchens on the rise
• Delivery charges both to
restaurants and customers
• Last mile delivery is key unit
cost for aggregators
Porter’s 5 forces analysis
Threat of new entrants
•
•
•
Low threat of new
entrants as the
market is a duopoly
Multi-sided platform
network effects
prevent replication of
business model
ONDC and direct
delivery facilitators
such as Dotpe are
disrupting
Bargaining power of
buyers
•
Medium-high
bargaining power of
buyers- heavily reliant
on offers and
discounts to keep
customers from
switching
References: Axis Capital, Emkay Research, Edelweiss Capital, Medium
Threat of substitute
products
Bargaining power of
suppliers
•
•
Low bargaining power
of suppliers
(restaurants) since
aggregators hold the
customer base
Large number of
restaurants fighting
for listing and adspace reduce
bargaining power
•
•
Medium threat of
substitutes
Dining out and homecooking are close
substitutes, but
require additional
economic costs- time
cost
Rivalry among existing
competitors
•
•
•
Fierce rivalry between
Zomato and Swiggy to
win the market
Both hold roughly
equal market share
and similar geographic
operations
Fight for unit
economics will lead to
the emergence of a
winner in the market
62
Food delivery | Financial snapshot
Benchmarking
Ratios/Metrics
Zomato
Swiggy
Gross Merchandise Value (GMV, INR mn)- FY23
263,050
~208,000
Revenue (INR mn)- FY23
61,460
~72,000
EBITDA margin (%)- FY23
-10%
-50%
Geographic presence (# of cities)
1,000+
600+
Monthly active users (mn)
53
35
Recent Deal Activity
Valuation
Approach to valuation: DCF valuation slightly challenging.
Analyze unit economics to project costs and rationalize
discounts/offers- find value per customer/order and use
overall contribution as proxy for valuation
Nature
Multiple (Period)
P/E (x) for Zomato
n/m
EV/EBITDA for Zomato
n/m
EV/Net sales for Zomato
7.5x (FY23)
EV/Net sales for Swiggy
6.1x (FY23)
References: Axis Capital, Emkay Research, Edelweiss Capital, Medium, Prosus
Target
Lead investor
Date
Amount (USD M)
Nov-22
74
Jan-22
700
Jul-21
450
Feb-21
576
63
Food delivery | Unit Economics
Increased delivery charges owing to
customers’ higher willingness to pay since
Covid has led to contribution turning
positive since FY21 (currently ~5%)
Collective resistance from restaurants
against commissions could adversely
impact take rate
Commission-led improvement is limited,
hence increasing take rate by passing on
to customer delivery costs will lead to
stronger unit economics
References: JP Morgan, Axis Capital, Emkay Research, Edelweiss Capital, Medium
64
Hospitals
beta
65
Healthcare – Hospitals | Sector overview
Growth drivers and Emerging trends
Industry size - Historical trends & Forecasts
•
India Healthcare Market size
140
•
120
•
USD billion
100
80
•
60
40
•
20
0
2018
•
•
•
•
2019
2020
2021
2022(P)
2023(P)
2024(P)
2025(P)
As of 2021, healthcare spending in India was 3.1% of GDP, or $64
per person (most of which was private spending), which is
considered low compared to other emerging nations.
Outpatient care is typically 40-45% of the sector’s value whereas it
is 25-30% for in-patient care
The COVID-19 pandemic's health expenditure caused the value of
the Indian healthcare providers sector to increase by 10% in 2021,
at a faster rate than it did in 2020
In the mid-term, healthcare expenses will rise due to a significant
inpatient and preventive care backlog. In the long-term, capital
investment in public healthcare is expected to crowd in private
investments along with rise in insurance coverage
References: 1. Marketline Industry Profile on Indian Healthcare; 2. IBEF; 3. Mint; 4. HT; 5. Apollo 24/7
•
•
Rise in qualified manpower i.e. number of allopathic doctors
increased by 60% from 0.8mn in 2010 to 1.3mn in 20202
Expansion of health insurance coverage; i.e. premiums
increased from USD 6.6 bn in FY19 to USD 9.2 bn in FY222
Government initiatives such as Ayushman Bharat and
National Health Policy increased demand for services2
Increase in disposable incomes; between FY12 to FY19 the
share of PFCE in healthcare grew at a CAGR of 16.4%3
Technical developments such as telemedicine, Electronic
Health Records, AI and ML for diagnostic data analysis,
wearable devices and 3D printing for implants2
Rise of medical tourism from African and SAARC countries
due to better quality to cost ratios for inbound tourists4
Efforts among leading players to build an omnichannel
network of medicine delivery, telemedicine and referrals to
physical clinics and diagnostic labs; i.e. Apollo 24/75
Key players
•
•
•
•
•
Apollo Hospitals (USD 2 bn revenue, 7800+ beds, 72 hospitals)
Fortis (USD 530 mn revenue, 3800+ beds,36 hospitals)
Max (USD 510 mn revenue, 3200+ beds,17 hospitals)
Narayana (USD 390 mn revenue, 5500+ beds, 21 hospitals)
Medanta (USD 270 mn revenue, 1250+ beds, 6 hospitals)
66
Healthcare – Hospitals | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Sourcing of
pharmaceuticals and
healthcare equipment
typically based on long
term contracts with large
companies (Pfizer,
Medtronic, J&J, etc.)2
Physicians are either full
time or on a fee for service
contract with the hospital.
Nurses and operations
management staff make up
the rest of the wage bill
Typical outpatient journey
is checkup, diagnostics and
pharmacy. Inpatients
utilize hospital bed
capacity and are higher
margin customers3
Noninsured customers pay
out of pocket, whereas
insurance companies use a
fixed fee per service or
global budget for member
hospitals in their network4
Porter’s 5 forces analysis
Threat of new entrants
•
•
•
Moderate
High for outpatient care
due to low capex for
setup and mushrooming of
private practices
High capex requirements
for inpatient care
(hospital land, building
and equipment) deter
entry
Strong market growth due
to a lackadaisical public
sector attracts entrants
•
•
•
Bargaining power of
buyers
Bargaining power of
suppliers
Moderate
Price sensitivity and scale
of insurance companies’
pressures hospitals’
margins and the opposite
for individual consumers
High switching costs for
insurers due to
contractual exit fees, but
low for individuals seeking
generic treatment
Lack of product
differentiation increases
buyer power
Moderate to High
Price ceilings on
pharmaceuticals by NPPA
limits drug companies’
supplier power
Healthcare equipment
suppliers have bargaining
power due to scale
Physicians have high
supplier power due to
option of forward
integration (private
practice) and low
availability
•
•
•
References: 1. Marketline Industry Profile on Indian Healthcare, 2. McKinsey Pharma study; 3. Lead squared patient journey; 4. Insurance schemes
Threat of substitute
products
•
•
•
Low
Competition from
traditional healthcare
providers, such as
Ayurveda, Unani and
Homeopathy remain niche
Technology disruptors
such as telemedicine have
already been co opted by
incumbents
Since healthcare still
relies on curative care, a
hospital’s ecosystem
cannot be easily replaced
Rivalry among existing
competitors
•
•
•
Moderate to High
Differentiation among
existing competitors
exists in specialty rather
than generic care
Hospitals edge out smaller
clinics due to the cost
advantage that scale
provides
High fixed costs and low
marginal costs in hospitals
have intensified rivalry
67
Healthcare – Hospitals | Financial snapshot
Benchmarking
Key Ratios
Apollo (FY23E)
Fortis (FY23E)
Max (FY23E)
Narayana (FY23E)
KIMS (FY23E)
EV/EBITDA
23.1x
18.9x
25.0x
22.3x
16.2x
EV/Bed
54.3x
38.7x
103.5x
17.1x
33.7x
EBITDA/Bed
2.4x
2.0x
4.1x
0.8x
2.1x
P/E
60.3x
35.8x
36.2x
31.1x
26.2x
Operational Beds
8,400
4,100
3,471
5,631
2,896
Recent deal activity
Valuation
Approach to valuation: Take the median multiple and set that as
the industry benchmark. Multiply this with the relevant
denominator (number of beds, EBITDA, EPS) to get the target
valuation of a firm and compare with the existing valuation, to
conclude if the firm is over or undervalued.
Nature
Multiple (FY23E)
EV/EBITDA
22.3x
EV/Bed
38.7x
EBITDA/Bed
2.1x
P/E
35.8x
References: 1. Kedaara, GA-ASG; 2. KKR-Max; 3. IIFL-Kauvery, 4. Prabhudas Lilladher Healthcare Sector Report
•
•
•
Kedaara and General Atlantic invested USD 188 mn in ASG Eye
Hospitals, which was the largest private equity funding round in
the Indian eye care industry. The round was a combination of
primary capital infusion and secondary: giving Investcorp an exit.1
KKR sold its 47% stake in Max Healthcare for USD 115 mn making it
the single largest block deal by an Indian PE firm. Max made a
strong rebound post KKR’s investment in 2018 and through
promoter Abhay Soi’s strong operational improvement initiatives.2
IIFL’s PE fund picked up a minority stake in Kauvery Hospitals for
USD 70 mn, with a mix of primary capital infusion and a secondary
exit for Lightrock. The deal valued the Tamil Nadu based multi
speciality hospital chain at USD 370 million.3
68
Healthcare – Hospitals | Sample Valuation and Key Drivers of Unit Economics
Sample Valuation using EV/Bed
Key Drivers of Unit Economics
•
500,000
456,130
450,000
400,000
INR Million
350,000
•
359,207
325,080
300,000
250,000
•
217,920
200,000
158,670 158,562
150,000
134,328
96,456
100,000
•
50,000
Apollo
Fortis
Target EV
•
•
•
•
Max
Narayana
Actual EV
Apollo appears to be overvalued due to a higher EV/Bed ratio than
the industry average. However, investors are willing to pay a
premium for Apollo’s leading scale, forays into omnichannel
healthcare and expansive chain of diagnostics and speciality care.
Fortis represents the industry average
Investors pay a premium for Max Healthcare’s positioning as a
super-speciality luxury hospital with dominance in North India.
Narayana trades at a discount as it is positioned on the lower end of
the pricing spectrum of beds and healthcare services
References: 1. Apollo Hospitals Investor Presentation, December 2022; 2. Prabhudas Lilladher Healthcare Sector Report
•
•
•
•
Number of hospitals: Pertains to geographical reach and
product diversity (ranging from generic to multi specialty
hospitals) of a healthcare firm
Number of operational beds: Gives an idea about the scale
of the hospital business, not necessarily a proxy for revenue
as beds can be low ARPOB like Narayana
ARPOB (Average Revenue per Operating Bed): Gives a good
idea about the price premium charged for services. Max
Healthcare occupies the upper end, Apollo at the middle and
KIMS at the lower end
Occupancy rate- Industry average hovers around 60% with
well managed hospitals such as Apollo posting 65%-70%.
Showcases capacity planning and level of demand for beds
EBITDA/Bed: Showcases the profitability per bed, wherein
Max Healthcare is the industry leader due to its premium
services and plethora of add-ons
% Private label Sales: Measures the proportion of pharmacy
products that are produced by the healthcare chain, which is
a proxy for backward integration in a bod to boost margins
Average Revenue per Outpatient- While beds are for in
patient, this metric measure the revenue from a typical outpatient customer journey (consultation, diagnosis, pharmacy)
ALOS (Average Length of Stay)- Optimal ratio is 3.5 to 4 as
the first 3-4 days deliver the most margins, post which it
decreases.
69
Healthcare – Hospitals | Revenue Breakdown & Sample Common Size
Standalone Hospital’s Revenue Streams
Apollo Hospital’s FY2023 Common Size
Revenue
In-patient
Out-patient
Consultation
No of
operational beds
Occupancy
rate
References: 1. Apollo Hospitals FY2023 Results
Diagnosis
Daily
ARPOB
Pharmacy
ALOS
Particulars
INR Cr
% of Revenue
Core Revenue
16,612
100%
Other Income
90
0.5%
Total Revenue
16,702
100.5%
Material Consumed
8,574
51.6%
Employee Benefits
2,143
12.9%
Selling & Admin
3,844
23.1%
EBITDA
2,139
12.9%
D&A
615
3.7%
EBIT
1,524
9.2%
Interest
380
2.3%
PBT
1,144
6.9%
Tax
256
1.5%
PAT
888
5.3%
70
Hotels
beta
71
Hotels | Sector overview
Industry size - Historical trends & Forecasts
Growth drivers and Emerging trends
With economic recovery
and growth, the demand
for hotel rooms went up
from 25,000 rooms/day
to 90,000 rooms/day.
• According to Invest India, by 2030, the contribution of India’s tourism sector
• Domestic travel is driving the recovery, and travel operators have enjoyed
significant RevPAR growth until now, wherein industry occupancy is in the 6365% range, almost touching the pre-COVID levels. As demand aligns with that of
the pre-pandemic level, FY23 and FY24 look promising.
• The growth in RevPAR is largely driven by Average Room Rates (ARRs), which
are currently higher than the pre-covid level. The new cycle has begun on a
promising note, with FY23 acting as a transition year and FY24 expected to
benefit from international arrivals picking up and stability in geopolitical events
and the global economy, which should support the hotel’s RevPAR growth.
• Across hotel categories, hotel operators have focused on achieving higher rates
even at the cost of sacrificing occupancy – a strategy which has reaped rich
dividends to date. The leisure segment has been the key driver of
outperformance, especially the Goa market, while business travel is gradually
playing catch up.
References: IHCL Annual Report, Annual reports
towards its GDP is expected to grow to USD250bn by FY30 vs USD178bn in
FY21. This will fuel the growth of the Indian hotel industry going forward.
• In FY22, tourism had reached 8.2% of its FY19’s revenue. With countries opening
and tourism bouncing back, India is expected to witness 13.3mn inbound tourists
in 2024 (+22% over 2019 level)
• G20 event is an excellent opportunity for Indian hospitality industry. This
coupled with the flourishing wedding season post pandemic, cricket world cup
and other cultural events is set to drive hotel demand in 2023.
Key players
• Lemon Tree Hotels Pvt Limited owns and operates a chain of mid-scale hotels
in India.
• The Indian Hotels Company Limited manages hotels, resorts, jungle excursions,
palaces, spas, and in-flight catering services.
• EIH Limited and its subsidiaries are engaged in the ownership, management, and
operation of luxury hotels across India, along with some properties abroad.
• Chalet Hotels is a hospitality chain that operates under the premium and midmarket segments.
72
Hotels | Supply chain analysis
Supply chain analysis
Chain-affiliated hotel expansion giving way to viable economics: In
India, the chain affiliated hotel business remains small. However, the
growth of chain-affiliated hotels has outpaced the pace of growth of
independent hotels relative to chain-affiliated hotels. Chain-affiliated
hotel rooms in India have increased from 23,751 in 2001 to about 160,000
in 2021.
Shift from luxury to balanced supply: While we can see spurts of
consolidation of independent hotels into chain-affiliated hotels, the phase
beginning from 2003 (Lemon Tree and IHCL - Ginger coming into the picture)
marks an era of exploration across the midscale-economy segment to
capture the huge market and sync with profitability.
Moving from luxury supply to a more balanced supply, the midscale-economy
segment has gained material supply share, almost trebling its supply
relevance between 2001 (when it had a fledgling share) and 2021. The
supply concentration has reduced in the luxury-upper upscale segment, from
56% in 2001.
India’s penetration of room supplies amongst the lowest in
the world
References: IHCL Annual Report, Annual reports
Region
India
USA
China
World
Room Supply (mn)
0.15
5.40
4.00
17.00
Population (mn)
1,418
338
1,426
7,836
Penetration (Rooms/1,000 people)
0.11
15.96
2.81
2.1
73
Hotels | Financial snapshot
Benchmarking
Ratios/Metrics
IHCL
EIH Ltd
Lemon Tree Hotels
Chalet Hotels
Oriental Hotels
RevPAR
INR 11137
INR 15028
INR 3877
INR 6640
INR 6747
Occupancy
72.1%
83%
67.6%
65%
56%
Operating Profit Margin
20.40%
0.59%
16.98%
22.48%
10.47%
Interest Coverage Ratio
1.45
0.15
0.2
1.03
0.8
RoCE
4%
-2.55%
1.50%
0.77%
0.25%
Recent M&A deals
Valuation
Replacement Cost – Deriving a hotel’s value by calculating the cost of
replacing it, deducting for cumulative depreciation.
Sales Comparable – Compares hotels currently for sale to existing properties
that have already been sold on the market. It’s a market-driven approach.
NPV of Future Cashflow – We can use a multiplier, say Average Daily Rate or
project cashflows, through the DCF approach to derive a valuation for a firm.
Nature
Multiple (FY22)
EBITDA growth
-5.5%
Gearing Ratio
0.5
RoCE
-1.7%
Net Profit Margins
-16.8%
References: IHCL Annual Report, Annual reports
•
Indian Hotels, and Chalet Hotels are among 26 entities that have
expressed interest in taking over the debt of the defunct hotel
business of real estate company Rajesh Lifespaces.
•
The listed Asian Hotels (West), which operates Hotel Hyatt
Regency, has received seven expressions of interest post the
initiation of insolvency proceeding last September.
•
Kotak Realty Fund invested over Rs 1,100 crore in Bharat Hotels,
the proprietor of The LaLiT brand and operator of luxury hotels,
resorts, and palaces in India.
74
Hotels |Revenue Breakdown and Sample Common Size
Revenue Streams: General Hotel Chain
Revenue
Room Revenue
Occ Ratio &
Type of Room
Room Service
References: IHCL Annual Report
Food &
Beverages
Ancillary
Income
Average Daily
Rate
LOS
Laundry
Services
Spa, Gym
services
Indian Hotels Company Ltd- FY 2023 Common Size
Particulars
INR Cr
% of Revenue
Core Revenue
5,810
100.00%
Other Income
139
2.39%
Total Revenue
5,949
102.39%
Material Consumed
473
8.14%
Employee Benefits
1,582
27.23%
Selling, Other Supplies & Admin
1,950
33.57%
EBITDA
1,943
33.45%
D&A
416
7.16%
EBIT
1,527
26.29%
Interest
236
4.06%
PBT
1,291
22.23%
Tax
324
5.58%
PAT
967
16.65%
75
Insurance
beta
76
Insurance | Sector overview
Industry size - Historical trends & Forecasts
Gross Written Premium (INR Tn)
General
Growth drivers and Emerging trends
39.0
16%
CAGR
7.1
Life
31.9
12% CAGR
4.1
4.6
0.8
3.3
1.0
3.7
FY15
FY16
7.7
8.3
9.2
5.5
6.1
6.8
1.3
4.2
1.9
2.2
1.7
2.0
1.5
4.6
5.1
5.7
6.3
6.9
0.0
FY17
FY18
FY19
FY20
FY21
FY22
FY30E
• India is a highly underpenetrated market with a mere penetration of 4.2% of the
GDP compared to a global average of ~7% leaving a huge headroom for growth for
the entire industry as a whole
• In contrast to global market where general insurance forms 55%, India is skewed
towards Life Insurance forming ~75% of the total premiums
Increasing Share of Private Players
Emergence of new business models
Private insurers have been rapidly gaining
market share, forming 50% of general and
36% of Life Insurance ending public
monopoly and boosting competition
Widespread Insurtech adoption seen
across distribution, product innovation,
claims management, analytics, ecosystem
plays, API providers & underwriting
solutions
Evolving Distribution
Increasing Internet Penetration
While Motor has been dominated by
direct sales, brokers and aggregators in
the past few years, complex products like
life and health remain largely with agents
Internet Penetration has aided the
insurance industry in difficult to crack
distribution to reach beyond Tier1 cities
Online brokers going omni-channel
Ecosystem Plays
While web aggregators largely focused on
price and product comparison, online
brokers are building their own offline
channel through agents/POSPs
Players like PhonePe, PayTM, Flipkart
entering embedded insurance will
capture market share of others wrt.
fewer complex products like Motor
insurance
Key players
• While historically the Insurance market has grown consistently at 12% CAGR, it is
expected to grow at 16% CAGR in future on the back of digital penetration,
growing awareness and evolving product lines
• Health Insurance has outperformed by growing at 15% CAGR, whereas Life and
Motor have grown at 12% CAGR since FY15
References: IRDAI Report, Broker Reports, Company sites
77
Insurance | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Pricing &
Underwriting
Product Design
•
Identification of the gap and
designing product based on data
analysis of past trends, claims
ratios and customer profiles along
with additional riders
Identifying the magnitude of risk
for each policy factoring in the
customer profile, product and
macro environment
Pricing each product offering
according to the risk undertaken
•
•
Marketing and
Distribution
•
Involves identification and
selection of appropriate channels
of distribution ranging from
individual and corporate agents,
aggregators, brokers and direct
sale along with promotion
Claims Management
•
Involves setting up a robust claims
management system to ensure
timely claims settlement,
inspection & litigation wherever
required and healthy claims
settlements ratio
Asset Management
•
Management of premiums earned
and investment of the same across
avenues to ensure appropriate
returns as well as liquidity to
ensure timely claims settlements
Porter’s 5 forces analysis
Bargaining power of
buyers
Threat of new entrants
•
Low for Insurers:
Given the highly regulated
environment, licenses and
capital requirement
•
Medium for
Distributors:
Barriers to entry based on
technology, trust and
capital wherein creating
moat can be a challenge
References: Broker reports
•
High:
Given customers have
multiple avenues to
access price quotes and
the facility of comparison
across products coupled
with insurance being a
push product, customers
have the upper hand
Threat of substitute
products
Bargaining power of
suppliers
•
High for Distributors:
Insurers are key suppliers
to distributors and with
the rapid consolidation
through key M&As
increases concentration
risks. Further, with top
insurers opting to build
own distribution channels
increases their bargaining
power
•
Low for Insurers:
Rivalry among existing
competitors
•
Insurance as such does not
have a substitute product
•
High for Distributors:
Whilst digital sales is
unlikely to be substituted
due to inherent
advantages, threat exists
from insurers being
unwilling to sell products
through distributors
High for Insurers:
Due to the nature of
product which lacks
differentiation,
competition is intense in
terms of price as well
claims settlements
•
Low for Distributors:
With few players forming
the majority in online
space, competition is on
the lower end
78
Insurance | Financial snapshot
Benchmarking
Metrics (INR Cr)
LIC (FY22)
HDFC Life (FY22)
United India (FY22)
HDFC ERGO (FY22)
No. of Policies sold (#)
2,17,55,000
9,15,102
1,71,00,000
8,60,000
Premium earned
1,50,796
45,963
15,722
13,707
Revenue
7,21,103
65,578
16,606
81,490
Embedded Value
5,41,492
30,048
NA
NA
PAT (%)
4,043 (0.56%)
1,208 (1.8%)
-2,135 (-13%)
500 (0.61%)
Recent M&A deals
Valuation
For Insurers, the Valuation is a multiple based on embedded value
to arrive at the enterprise value, whereas for distributors or
aggregator platforms, the valuation is based on Price/Gross written
premium ARR multiple
Multiple
Range
EV/Embedded Value
0.5-5x depending on nature of
business
Price/GWP (for Distributors)
0.8x-2x depending on composition
of health & Life
References: Company reports, News articles
Deal
Details
HDFC Life &
Exide
HDFC Life acquired 100% of Exide for INR 7,000 Cr
at ~2.5x of Embedded value of INR 2,700 Cr in
Sept ’21
HDFC Ergo &
Apollo Munich
HDFC acquired 51% in Apollo Munich in Nov ‘20 for
INR 1,500 Cr
Bharati AXA &
ICICI Lombard
Bharati AXA merged with ICICI Lombard at an
implied value of INR 4,600 Cr to form the third
largest General Insurer
HDFC Ergo and
L&T
HDFC acquired 49% in L&T Insurance for ~INR 550
Cr at 1.14 times of GWP
79
IT & ITES
beta
80
IT & ITES | Sector overview
Structure of Indian IT Industry
7.4%
Growth drivers
124
19.3% Indian IT
Industry
51.0%
~$245bn
Export:~79%
24
100
22.2%
47
5
Low Cost of
Operations and Tax
Advantage
Availability of
technically skilled
workforce
Strong growth in
export demand from
overseas market
Rising domestic
demand led by BFSI,
Healthcare, Retail & Ecommerce, etc..
Supportive
Government Policies
(STP scheme, SEZ,
100% FDI, etc..)
Robust IT Infra like
country-wide OFC
Network, IT Parks,
etc..
42
IT Services
IT Services
SW Products & ER&D
IT-enabled Services
HW
IT Enabled
Services
Domestic
Export
• The IT Industry contributed 7.4% of India's GDP, as of end of FY22
• By the end of 2025, it is expected to contribute 10% to India's GDP
• As of the end of FY22, the IT industry employed 5 million people
• In FY23, the IT industry is estimated to have 5.4 million employees
Emerging Trends
• The IT industry has a 53% share in the total export of Indian services
• The exports is expected to grow at 9.4% in reported currency terms
• India with 57% has the largest share in global services sourcing
• India is the third largest & fastest growing hub for tech startups
References: Crisil Research, Invest India, IBEF
E-Governance
E-health,
e-education &
e-ticketing
Cloud Computation
Offload data
management, backend
development & design
Emerging Tech
AI, Blockchain, IoT,
Robotics, 3D Printing
& Immersive Media
81
IT & ITES | Exports Overview
IT Services
Export
Project-Oriented
Services (~61%)
Custom
Application
Development
Customised
development of
software applications
and interfaces,
enhancements to
existing package
applications
References: Crisil Research
Software Testing
Black and white box
testing of all
applications, software,
network systems to
check all aspects of
desired intention
Outsourcing
Services (~32%)
IT Consulting
Information systems
strategy, IT and
network planning,
architectural
assessments, technical
systems and network
design, supplier
assessment and
maintenance planning
System
Integration
Planning, design,
implementation and
project management
of a solution that
addresses a customer’s
specific technical or
business needs
Infrastructure
Management
Services
Support &
Training (~7%)
Others
Administering and managing
technology, information and data
in a proactive way. Its scope
ranges from the desktop to
networking, storage, data,
security and cloud-based services
82
IT & ITES | Exports Overview
.
Service Lines
Customer relationship
management (~37%)
Transaction services
(~39%)
Knowledge process
outsourcing (~24%)
Technical assistance,
telemarketing,
scheduling, etc..
Finance administration
& accounting, payment
services, logistics
support, human
resource outsourcing,
other vertical specific
solutions
Financial research, legal
process, data analytics,
market research,
animation, healthcare
services, education and
publishing, data
analytics
Key Players
IT & ITES
Services Offered
ITeS Exports
References: Crisil Research
83
IT & ITES | Supply chain & Porter’s 5 forces analysis
IT services industry transitioning from traditional to digital mode
19801990
Cost Arbitrage
• Low-end support &
development
• Time & Material (TNM)
pricing
19902000
•
•
•
•
20002010
Collaboration
Standardisation
Non-critical functions
Project based
Fixed cost & TNM pricing
20102020
Value Addition
• End-to-end services
• Non-linear growth
Digital business era begins
• As-a-service offering
• Digital-based projects
• Automation focus
20202026
Scalability in Digital
• Focus on AI, advanced
analytics, etc..
Porter’s 5 forces analysis
Threat of new entrants
Low
• Not every company can
deal with multimillion- •
dollar deals
• Thus, Low threat due
to high entry barriers
such as scale,
•
capability, & reputation
• Startups play in niche
fields and do not pose a
significant threat to
large players
References: Crisil Research
Bargaining power of
suppliers
Low
Low to moderate power
depending on the type
of supplier software,
hardware, cloud)
Software vendors have
more power than
hardware vendors due
to licensing and
differentiation
•
•
Bargaining power of
Customers
High
High power due to
availability of many
options and high
competition among
service providers
Buyers can switch to
another provider or
negotiate for lower
prices and better
quality
•
•
•
Threat of substitute
Rivalry among existing
products
competitors
Low
High
Low to moderate threat • High rivalry due to
depending on the
intense competition for
economic conditions &
market share,
technological changes
customers, and talent
Other countries like
• Rivalry drives
Philippines can offer
innovation,
cheaper services but
differentiation, and
may lack quality and
cost efficiency among
expertise
service providers
Own IT solutions arm
leads to incurring high
costs and risks
84
IT & ITES | Financial snapshot (1)
Benchmarking(1)
TCS
Infosys
HCL Technologies
Wipro
LTIMindtree
Tech Mahindra
$153.48bn
$72.27bn
$37.53bn
$25.68bn
$17.67bn
$13.48bn
615,318
336,294
223,438
250,000
82,738
148,297
17.8%
17.3%
16.3%
17.3%
17.8%
12.8%
US$ 100mn+ Clients
60
38
20
21
2
NA
(3)
$27.9bn
$18.2bn
$12.6bn
$11.2bn
$4.1bn
$6.6bn
24.1%
21.1%
18.2%
16.3%
16.2%
11.4%
Particulars
Market Cap
(1)
Headcount / Employees
(2)
(2)
LTM Attrition
(2)
Revenue
(3)
Operating Margin %
Recent M&A deals
Valuation
Approach to valuation:
•
Discounted Cash Flow Model (FCFF basis)
•
Relative Valuation
o P/E Ratio
o EV/EBITDA
Company
EV/EBITDA
P/E
TCS
19.29x
28.70x
Infosys
14.14x
22.71x
HCL Technologies
12.15x
20.21x
Wipro
11.64x
18.91x
LTIMindtree
20.98x
32.43x
Tech Mahindra
13.18x
25.21x
Acquirer
Target
Closed
Date
Value
($Mn)
Infosys
Danske IT And
Support Services India
Jun-23(4)
2
Tech Mahindra
Tech Mahindra Arabia
May-23(4)
11
Larsen & Toubro
Infotech
Mindtree
Nov-22
7,543
Wipro
Rizing LLC
May-22
574
HCL Tech
Starschema
Apr-22
43
Notes: (1) As on Aug 2, 2023 (2) For Q1 FY24 (3) For FY23 (4) Date Announced | References: Screener, Capital IQ and Company filings
85
IT & ITES | Financial snapshot (2)
Common Size Income Statement (FY23)
TCS
Infosys
HCL
Technologies
Wipro
LTIMindtree
Tech Mahindra
Revenue
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Cost of Services
60.4%
69.7%
63.6%
71.3%
69.9%
71.5%
Employee Cost (incl. Subcontractor Cost)
53.1%
NA
NA
NA
NA
NA
Other Expenses
7.3%
NA
NA
NA
NA
NA
Gross Profit
39.6%
30.3%
36.4%
28.7%
30.1%
28.5%
Selling, General and Administrative Expenses
15.5%
9.2%
18.2%
13.7%
13.8%
17.1%
Employee Cost (incl. Subcontractor Cost)
12.9%
NA
NA
NA
NA
NA
Other Expenses
2.6%
NA
NA
NA
NA
NA
Operating Income
24.1%
21.1%
18.2%
14.9%
16.2%
11.4%
Other Income/(Expense)
1.2%
1.6%
1.0%
1.4%
1.3%
0.7%
Income before Income Tax
25.2%
22.7%
19.2%
16.3%
17.5%
12.1%
Income Tax
6.5%
6.3%
4.6%
3.8%
4.2%
3.0%
Net Profit after Tax
18.8%
16.4%
14.6%
12.6%
13.3%
9.1%
Particulars
References: Company filings
86
Oil & Gas
beta
87
Oil & Gas (CGD) | Industry Overview
Growth Drivers
Indian Natural Gas Consumption and Import Share
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Consumption
Fertilizers
15%
20%
CGD
Power Sector
Fertilizers is the largest consumer of Natural
Gas. However, Govt. plans to prioritize CGD
to boost Gas usage
References: Ventura1, Statista
India’s Gas demand has been
growing at a stable CAGR of 6%
19%
97%
Portion of the
country’s population
covered for CGD
development until ‘17
97% population to be
covered by the 11th
round to be
completed in FY23
Headwinds
Natural Gas is touted as a substitute to Petrol and
Diesel. Rise of EV is a threat as it can replace Gas.
However, it is still in the future.
Others
Rise in demand for power (growth rate of
7.2%) in the country may give a boost to
natural gas demand leading to 10% CAGR
CGD is a semi-regulated market
due to the restriction on gas
sourcing. However, there are no
regulations on pricing
Share of imported Natural Gas has increased in the
industry leading to increased COGS
30%
35%
There has been a steady rise in
LNG imports through the years
going up to 70% in FY22
Imports (%)
Divide of Natural Gas usage
Government has set a target of 15%
penetration of Natural Gas in household
use from the current 6% by FY30
96% of Indian population will be covered with the
next round of CGD GA allotment, leaving less room
for future growth
Global Consumption
Per Capita Gas Consumption (cu
mt)
8000
7000
6000
5000
4000
3000
2000
1000
0
7453
3298
2510 2307
171
41
India lags behind
the world on per
capita gas
consumption by a
huge margin.
Government plans
and domestic
demand can lead to
substantial growth
88
Oil & Gas (CGD) | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
LNG Producer
CGD Station
CNG Stations
PNG Industrial
PNG
Commercial
PNG Domestic
Gas Transportation: Laying of pipelines to transport natural gas is the
key component in ensuring uninterrupted supply. This is also one of the
major investment avenues for CGD companies.
• Gas Distribution: This part of the supply chain is about setting up of
stations that can act as the final step before the gas reaches the final
consumer. These include CNG stations, LNG storage etc.
To minimize price variance and uninterrupted supply, a lot of CGD
companies have established JVs with LNG producers. Ex: Adani Total Gas
Limited is an equal ownership JV between Adani Gas and Total Gas, a French
energy giant.
•
Porter’s 5 forces analysis
Threat of new entrants
(Low)
Due to the requirement of
government issues license to
run a CGD network, barriers
to entry are extremely high.
Moreover,
capital
requirements are very high in
setting up a new distribution
network.
References: Statista
Bargaining power of
buyers
(Medium)
Low because of the limited
number of distributors and
the lack of alternatives to
natural gas. Additionally,
the cost of switching
between different CGD
providers
for industrial
customers is relatively high
due to the infrastructure &
regulatory requirements.
Bargaining power of
suppliers
(Medium)
Relatively low due to the
existence
of
multiple
sources of natural gas. Also,
CGD companies can switch
between different suppliers
easily.
However,
the
availability and price of
natural gas can significantly
impact the profitability of
CGD companies.
Threat of substitute
products
(Medium)
Electric energy is the
biggest threat to CNG use in
cars. However, adoption is
still low.
While
there
are
alternatives
such
as
electricity,
LPG,
and
biomass, natural gas is still
a preferred choice due to
its affordability & reliability
Rivalry among existing
competitors
(Low/High)
The CGD license comes with
a 25-year exclusive period
where
there
is
no
competition. However, after
the completion of that time,
competition is intense due to
a commoditized product.
Major differentiators after
that are service quality and
pricing.
89
Oil & Gas (CGD) | Industry Analysis
SWOT Analysis
S
• High demand due to increasing use of natural gas
across domestic and commercial use
• Low operating costs due to economies of scale
• Environmentally friendly & appealing to customers
W
• High initial capital costs for infrastructure
• Infrastructure challenges due to regulatory approvals
and environmental concerns
• Price sensitivity due to natural gas price fluctuations
O
• Potential for expansion due to growing demand for
natural gas as an alternative fuel source
• Diversification by offering additional services such as
renewable energy sources and smart home
technologies
• Government support through incentives and
subsidies for natural gas infrastructure development
T
• Competition from other fuel sources such as
electricity and renewable energy
• Regulatory challenges and approvals from various
authorities
• Geopolitical risks that can impact the availability
and cost of natural gas.
References: Statista, Ventura1
Indian Natural Gas Imports
Import (%)
Qatar
United States
13
5
5
42
6
United Arab
Emirates
Nigeria
Oman
13
16
Angola
Most of our imports come from Middle
East and Africa region. Geopolitical
tensions can disrupt supply
Government Regulation
• The PNGRB is the regulatory body
that oversees the development of the
CGD network in India. It is responsible
for granting licenses, regulating
tariffs, and monitoring the safety and
quality standards of the CGD network.
• According to regulations, there is a
cap on the price of natural gas
extracted in India. This makes
importing less attractive for CGD
players.
Key Risks and Concerns
• A key driver for healthy margins in the CNG business is the cheaper sourcing of
domestic gas. Policy change and a decline in domestic gas allocation could
impact operating margins and cash flow.
• A delay in execution in network development and CGD infrastructure rollout
could extend the payback period for capex incurred and impact the operating
cash flow and balance sheet health
• Infrastructure bottlenecks for CNG stations due to legal issues related to land
acquisition could restrict CNG rollout and volumes. This could significantly affect
the operating performance as CNG has the highest profitability.
• Delay in infrastructure development, especially industrial corridors and highways
could restrict the volume growth in both PNG industrial gas and CNG.
• Faster EV rollout in India on the lines of China could significantly impact the long
term CNG story, on which most of the assumptions are based.
90
Oil & Gas (CGD) | Financial Snapshot
Benchmarking
Company (FY22)
Industry Average*
ATGL
Petronet LNG Ltd. Gujarat State Petronet Ltd.
GAIL Ltd.
Gujarat Gas Ltd.
IGL Ltd.
Mahanagar Gas Ltd.
RoE (%)
19.50%
20.80%
23.60%
17.30%
6.40%
21.50%
21.70%
25.20%
EBITDA Margin (%)
14.87%
20.2%
8.8%
20.6%
4.0%
14.2%
14.4%
21.9%
Net Margin %
9.49%
12.71%
5.97%
9.01%
2.96%
8.86%
11.70%
15.25%
RoIC (%)
13.20%
12.4%
14.7%
14.6%
2.6%
16.1%
13.4%
18.6%
P/E
31.0x
124.8x
9.6x
10.4x
19.2x
23.1x
19.5x
10.5x
P/B
5.7x
23.7x
2.2x
1.7x
1.2x
4.5x
4.1x
2.5x
EV/EBITDA
19.2x
77.8x
5.7x
5.2x
12.7x
14.2x
12.6x
6.2x
Valuation
Recent M&A deals
Most valuation in the industry is done through forward P/E ratios.
DCF is also widely used because of stable cash flows.
Mar ‘23: Mahanagar Gas Ltd. (MGL) acquired a 100% stake in private
CGD player Unison Enviro Pvt. Ltd. for a cash consideration of INR
531 cr. This gives MGL access to newer Gas such as Ratnagiri, Latur,
Chitradurga and others.
Nature
Multiple (FY22)
EV/EBITDA
19.2x
P/E
31x
EBITDA/scm1
9x
P/B
5.7x
Aug ‘21: I Squared Capital’s infrastructure fund invested $200 Mn in
AG&P Gas, a Singapore based gas distribution company. It plans to
build gas distribution networks in 12 Indian GAs.
Notes: *Industry average does not include ATGL due to its outlier-like values; (1) standard cubic meter | References: ICICI Direct, RealAssets
91
Pharmaceuticals
beta
92
Pharmaceuticals | Sector overview
Industry size - Historical trends & Forecasts
Indian Pharmaceuticals market size
Growth drivers and Emerging trends
•
$60B
USD billion
$50B
$40B
$30B
$28B
$21B
$23B
$21B
$24B
$25B
$25B
$27B
$28B
FY20
FY21
FY22
FY23 (E)
FY24 (P)
FY25 (P)
$20B
$20B
$17B
$19B
FY18
FY19
$18B
$26B
$24B
•
$20B
$10B
•
$0B
Pharma Exports
•
•
•
•
Domestic Market
India accounts for 60% of global vaccine production, contributing
up to 70% of WHO demand of DPT and BCG vaccines and 90% for
measles vaccine
20% share in global supply in the generic medicines (by volume)
and India has the highest number of US-FDA compliant plants
outside of USA
India has roughly 500 API (Active Pharmaceutical Ingredient)
manufacturers which command a global 8% market share
100% FDI is allowed under the automatic route in greenfield and
74% is allowed through automatic route in brownfield with the
remaining investment requiring government approval
References: 1. CareEdge Ratings: Indian Pharma Industry; 2. IBEF
•
Demographic factors such as ageing population, rising
lifestyle or chronic diseases and macro factors like
increasing insurance penetration positions pharma industry as
a growth industry in the medium to long term1
Globally, ~$188bn worth of drugs are set to go off-patent in
the next 3 years (2023-2026), thus providing opportunities in
the generics market1
Expanding operating margin by 100-150 bps due to
increased focus on specialty & complex products, stabilisation
of raw material prices1
Boost from the government with an outlay of INR 21,940 cr.
(INR 6,940 cr. in bulk drugs and INR 15,000 cr. in
pharmaceutical manufacturing) for PLI 1.0 and PLI 2.0. 3
bulk drug parks provide a consistent supply of bulk drug
active components2
Key players
•
•
•
•
•
Sun Pharma (USD 5.35bn revenue, USD 0.29bn R&D)
Cipla (USD 2.77bn revenue, USD 0.16bn R&D)
Dr Reddys Labs (USD 2.99bn revenue, USD 0.24bn R&D)
Aurobindo Pharma (USD 3.03bn revenue, USD 0.17bn R&D)
Lupin (USD 1.98bn revenue, USD 0.16bn R&D)
93
Pharmaceuticals | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Spending on R&D and
testing (Pre-clinical and
clinical) of new drugs to
get regulatory approval.
Companies obtain patents
for successful drug trials
Manufacturing of generic
and patented drugs using
APIs. This process is
conducted under strict
quality control measure to
ensure safe production
Packaging & distribution
of manufactured drugs to
clinics, pharmacies,
hospitals. Warehouse
management to ensure
adequate supply of
essential drugs1
End consumers can access
medicines through
pharmacies, hospitals via
prescriptions. In case of
any identified issue, there
might be cases of drug
recalls2
Porter’s 5 forces analysis
Threat of new
entrants
•
•
•
•
Moderate to High
High entry barrier due to
high capex requirements
and need to invest
extensively on R&D
There is also high
regulatory requirement to
get drug approvals
Existing players also hold
patents which makes it
difficult for new players
to enter specific TAs1
The threat is low for
generic drugs
•
•
•
Bargaining power of
buyers
Bargaining power of
suppliers
Threat of substitute
products
Moderate
Moderate pressure for
drugs for certain TAs
where the market for
generics medicine is low
For most drugs, doctors
have a choice to buy from
different brands offering
similar salt composition
drugs
End consumers have low
bargaining power as they
rely on prescribed drugs
Low
Pharma companies
require different bulk and
specialty chemicals to
develop drugs which is
supplied by many firms
The switching cost for
pharma companies is low
hence allowing them to
pick from various
suppliers
Moderate to High
There is increased
pressure from the market
of generics drug due to
their low cost
Companies producing
generic drugs have low
R&D and regulatory costs
There is threat from new
forms of treatments
owing to advancement in
technology
Notes: (1) Therapeutic Areas | References: 1. Supply Chain of Pharma; 2. Recalls
•
•
•
•
•
Rivalry among existing
competitors
•
•
Moderate to High
Several companies and
increasing share of
generic drugs increases
competitive rivalry for
the same type of drugs
Major characteristics that
define the industry
include patent battles,
inorganic growth (M&As)
94
Pharmaceuticals | Financial snapshot
Benchmarking
Key Ratios
Sun Pharma (FY23E)
Cipla (FY23E)
Dr Reddys Labs (FY23E)
Aurobindo Pharma (FY23E)
Lupin (FY23E)
P/E
32.6x
36.4x
21.6x
26.7x
116.07x
EV/EBITDA
20.9x
16.9x
12.8x
10.8x
17.1x
EV/EBIT
24.6x
20.1x
15.1x
14.3x
22.1x
EV/Revenue
5.4x
3.8x
3.3x
1.8x
2.7x
P/FCF
86.6x
41.5x
21.3x
2.8x
245.5x
Recent deal activity
Valuation
Approach to valuation: Take the median multiple and set that as
the industry benchmark. Multiply this with the relevant
denominator (number of beds, EBITDA, EPS) to get the target
valuation of a firm and compare with the existing valuation, to
conclude if the firm is over or under valued.
Nature
Multiple (FY23E)
P/E
32.6x
EV/EBITDA
16.9x
EV/EBIT
20.1x
EV/Revenue
3.3x
References: 1. Venture Intelligence; 2. Sun Pharma-Concert Pharma; 3. Mankind Pharma-Panacea Biotec; 4. ADIA-Intas
•
•
•
•
Advent International acquired stake in Suven Pharmaceuticals
taking its total stake at 50.1% in a deal valued at USD 762mn.
Advent intends to explore a merge opportunity of Suven with its
portfolio company Cohance Lifesciences1
Sun Pharmaceuticals acquires Concert Pharmaceuticals in a USD
576mn deal to advance the potential treatment of alopecia areata
(hair loss, baldness)2
Mankind Pharma to acquire Panacea Biotec’s formulation brands
for USD 234mn. Mankind Pharma aims to explore new therapeutic
areas in lifestyle, oncology and transplant business3
ADIA (Abu Dhabi Investment Authority) to invest USD 261mn in
Intas Pharmaceuticals via secondary purchase from Temasek for
3.08% stake valuing the firm at USD 8.5bn4
95
Pharmaceuticals - Sun Pharma | Sub-segments & Sample Common Size
Pharmaceutical company’s business segments
Types of products
Branded
Generics
Pure
Generics
Specialty
Products
APIs
Vaccines/
OTC & Others
Types of business models
Outsourced
(On contract)
In-house
CDMO
References: 1. Sun Pharma FY2023 Results
CMO
CRO
CSMO
Sun Pharma’s FY2023 Common Size
Particulars
INR Cr
% of Revenue
Core Revenue
43,885
100%
Other Income
634
1.4%
Total Revenue
44,520
101.4%
Material Consumed
10,662
24.3%
Employee Benefits
8,296
18.9%
Other expenses
13,452
30.7%
EBITDA
12,110
27.6%
D&A
2,529
5.8%
EBIT
1,524
21.8%
Interest
172
0.4%
PBT
9,408
21.4%
Tax
848
1.9%
PAT
8,561
19.5%
96
Real Estate
beta
97
Real Estate | Sector overview
Industry size - Historical trends & Forecasts
Key Growth drivers
$ bn
Urbanization
1000
Tourism coming back at normal
Urban Population in India (Mn)
650
483
429
Hospitality Space
References: IBEF Report, Research Reports, Economic Times, Trading Economics
2018
10%
9%
Policy
support
9%
8%
8%
8%
8%
2019
2022
Financing
Household Incomes in Indian Cities (2019)
Commercial Space
Retail Space
2017
20-Year Home Loan Rate
8.60%
7.60% 8.10%
6.70% 6.70% 7.10%
Housing for economically weaker section
Tax Relief
Green Building Movement
FDI
Amendments in Stamp Duty
RBI Policy
Land Acquisition Bill
Govt-backed Stress Fund
Oct-22
Key Segments in Real Estate Sector
2016
Increasing household Income
Kolkata
Real estate sector in India is expected to reach US$ 1 trillion by
2030. By 2025, it will contribute 13% to the country’s GDP.
According to India Ratings and Research (Ind-Ra), the Indian real
estate sector may stage a sharp K-shaped recovery in FY22. India
will contribute 37% of APAC demand in 2022
Residential Space
2020 2025E 2030E 2035E
2030E
Mumbai
2025E
Aug-22
2020
10.9
Jun-22
2019
May-22
2018
Apr-22
2017
Apr-19
2015
2015
2008
Delhi NCR
180
Bengaluru
162
10.6
10.2
6.17
Chennai
145
8.8
Hyderabad
120
675
607
Pune
50
104.5
543
Foreign Tourists Arrivals in India (million)
98
Real Estate - Residential Space | Segment overview
Cumulative Housing Demand-Supply in Top 8 Cities*
2016-20
‘000 units
Demand
Supply
Supply is less than 50% of
Demand in HIG and MIG;
also,
there
is
huge
whitespace in LIG segment.
1982
1457
717
647
351
25
High Income Group
Middle Income
Group
Low Income Group
*Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata,
Pune, Mumbai
55,907 new housing units
(59% YoY growth) sold in
Q2’22 across 8 cities*
New Housing supply in Q3’21
is ~65,211 units (228% YoY
growth) across 8 cities*
NHB India Housing Price Index
121.08
118.56
116.92
115.12
115.7
114.2
Dec'20
Growth drivers and Emerging trends
Mar'21
Jun'21
Sep'21
References: IBEF Report, Research Reports
Dec'21
Mar'22
NHB India Housing Index has
increased 6% from Dec’20 to
Mar’22.
YoY price growth FY22:
- Ahmedabad 8%
- Hyderabad 6%
- Delhi NCR 5%
- Pune and Bengaluru 4%
- Mumbai & Chennai 3%
- Kolkata at 2%.
Repatriation of NRIs and HNIs
Rapid urbanization
Growth in population
Rise in disposable income
Rise in the number of nuclear families
Easy availability of finance
Key players
99
Real Estate - Commercial Space | Segment overview
Demand for Commercial Space in Top 8 cities*
Growth drivers and Emerging trends
Mn sq. ft.
33
Demand for Commercial
Space has been rapidly
increasing over the years.
Highest increase in CY20 by
19%
2019
Major Sectors driving
demand- IT-BPO, Pharma,
Engineering and
Manufacturing
50
39.3
33.2
28
2015
29
28
2016
2017
2018
2020
2030E
*Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Pune, Mumbai
City-wise Commercial Space Demand-2020
Mn sq. ft.
12.3
6
5.9
4.5
1.4
References: IBEF Report, Research Reports
Bengaluru
Chennai
Hyderbad
Kolkata
Mumbai
NCR
Pune
0.9
Ahmedabad
3.7
4.6
Business activity is shifting
from Central Business
Districts to Special Business
Districts and tier I to tier II
cities.
Rapid growth in service sectors: IT/BPM, BFSI and Telecom
Rising demand from MNCs
Demand for office space in tier II cities
Key Emerging Trend:
Operating model has shifted from sales to lease and maintenance. Q1’22
Gross Leasing Volume was at 11.55 mn sq. ft. in Top 8 cities
Few large developers with a pan-India presence dominate the market
Key players
Foreign investments in the
commercial real estate
sector was at US$ 10.3
billion between 2017-21.
100
Real Estate - Hospitality Space | Segment overview
Branded Hotel Rooms Inventory in Major Indian Cities
Growth drivers and Emerging trends
‘000
FY18
13.7
5.2
4.3
3.9
3.4
2.32.6
1.5 2
NCR and Mumbai are by far the biggest hospitality markets in India, followed by
Bengaluru, Hyderabad and Chennai.
Besides hotels, the hospitality market comprises of service apartments and
convention centres.
Tax incentives for hotels and higher Floor Space Index
(FSI)
Noida
7.4
7.1
6.3
6.3
5.9
5.4
Agra
7.7
6.8
Ahmedabad
Goa
Chennai
Mumbai
New Delhi
Bengaluru
6.7
FY23E
The increasingly global nature of Indian businesses is
boosting business travel
Kolkata
8.5
Jaipur
10.1
9.2
Pune
12.7
A robust domestic tourism industry
15.9
Gurugram
16
14.7
Hyderabad
17.1
Government initiatives to promote tourism in tier II
and tier III cities is generating significant demand for
hotels in such cities, especially budget hotels
Key players
Service apartments appear particularly attractive within the hospitality space.
Hotel room supply in the country increased 5.4% y-o-y in FY19, totalling to
133,359 rooms at the end of FY19
References: IBEF Report, Research Reports, Modern Intelligence, GoI website
101
Real Estate - Retail Space | Segment overview
Malls are rapidly increasing in India
Growth drivers and Emerging trends
No of Malls in India
Booming consumerism in India
203
212
219
232
246
253
Organized retail sector is growing 25-30%
annually
188
Entry of MNC retailers
2012
2013
2014
2015
2016
2017
2018
Retail real estate and warehousing segment attracted private equity (PE)
investments
of US$ 220 million and US$ 971 million, respectively, in 2020.
India’s population below 30 years of age and
having exposure to global retail is expected to
drive demand for organized retail
Key players
Retail would add up more 39 million square feet of space by 2022.
According to Anarock, a property consultant, India is likely to have 100
new malls by 2022. Of this number, 69 malls will be built in the top seven
metropolis and the remaining 31 malls will be in Tier 2 & 3 cities.
References: IBEF Report, Research Reports, Modern Intelligence
102
Real Estate | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Procurement of Raw
Material
Transportation of materials
to construction site
Designing & Planning
Construction
- Coordination with
architects and engineers
- Selection of cost-effective
and sustainable materials
- Coordination of
contractors and suppliers
- Ensuring efficient and
effective work
Commissioning and
Delivery
Prompt Redressal
Addressing issue post
delivery
Delivery of finished product
to buyer or lessee
Porter’s 5 forces analysis
Threat of new entrants
Bargaining power of
buyers
Low
Low
-
-
High initial investment
required
Track record of the
developer is required, and
new players find it
difficult to win projects
Profitability
of
the
industry has decreased
over the period, to
survive, the developer
needs to minimise the
cost to the lowest
-
-
References: Research Reports, Simconblog, Kreyonsystems
Standardized Products
In 2013, and 2014, due to
high-interest rates, there
were fewer buyers and
had moderate bargaining
power.
But currently due to good
financing options and a
high demand-supply gap,
builders are in a better
position
Bargaining power of
suppliers
Low
-
-
Lower switching cost in
changing suppliers for raw
materials
(cement,
bricks, paint, etc..
Negligible
threat
of
forward integration by
suppliers
Large number of suppliers
of raw materials
Threat of substitute
products
No threat
-
No substitute for real
estate sector from the
point of view of real
estate construction and
development.
Rivalry among existing
competitors
High
-
-
Large number of real
estate firms operating in
India, and around 157
companies are listed on
BSE in Construction- Real
estate.
Product-Real estate space
cannot be differentiated
Minimal profit margin only
companies with high cash
reserves would survive
103
Real Estate | Financial snapshot
Benchmarking
Ratios/Metrics
DLF
Godrej Prop.
Oberoi Realty
Prestige Estates
Phoenix Mills
Macrotech Deve.
Mkt Cap (US$ Bn)
13.1
4.7
4.5
2.5
3.7
6
P/E-FY23E
47.8x
51.4x
26x
35.9x
36.3x
30.0x
P/E-FY24E
47x
41.8x
21.6x
28.1x
32.8x
22.2x
P/B-FY23E
2.6x
3.7x
2.9x
2.2x
3.7x
3.3x
P/B-FY24E
2.4x
3.4x
2.6x
2.1x
3.3x
2.9x
ROE-FY23E
5.3%
7.3%
11.2%
6.1%
10.1%
11.0%
EV/EBITDA
44.61x
47.96x
14.8x
10.24x
18.62x
22.3x
NAV/Share
463
1487
841
765
NA
1347
Valuation
Recent M&A deals
Approach to valuation: DCF and Relative Valuation (Multiples are
based on Segment- E.g, For Residential, we use multiple on Pre
Order/Backlog)
A real estate fund of Canada’s Brookfield Asset Management bought
51% stake in Bharti Enterprises’s four commercial properties Worldmark Aerocity (Delhi), Worldmark 65, Airtel Center (Gurugram)
and Pavillion Mall (Ludhiana) – for an enterprise value of ₹5000 crore
Nature
Industry Multiple
P/E – FY23E
36.1x
P/B – FY23E
3.1x
EV/EBITDA
20.46x
References: Research Reports, Economic Times, Mint
Private equity major Blackstone Group has sold its entire 9.2 per
cent stake in K Raheja-backed Mindspace Business Parks REIT to
sovereign wealth fund Abu Dhabi Investment Authority for $235
million.
104
SaaS
beta
105
SaaS | Sector Overview
Industry size - Historical trends & Forecasts
Worldwide end-user spending (SaaS, in $bn)
250
232
•
197
200
167
146
150
86
100
50
Growth drivers and Emerging trends
31
48
102
•
121
59
•
0
2015
•
•
•
2016
2017
2018
2019
2020
2021
2022
2023F 2024F
Software as a service (SaaS) is a software distribution model which
allows data to be accessible from any device with an internet
connection and a web browser. 2
The SaaS provider hosts and maintains the servers, databases,
and code that comprise the application under this web-based
approach.2 This contrasts with on-premise deployment, where both
the hardware and software are hosted within the organizations’
premises. 3
The market includes revenues earned by providing cloud-based
software services using pricing models such as subscription and
usage-based pricing. 3
References: 1. Statista; 2. Leanix; 3. Global Cloud Services Market Briefing 2023; 4. tl;dv; 5. SaaS Academy; 6. Open View
•
SaaS offers several advantages over on-premise solutions
leading to its meteoric rise in recent years. These include
easier implementation, lower upfront costs, easier
maintenance and higher scalability. 2
Generative AI has spawned a new wave of SaaS startups such
as SheetAI, tl;dv and Artflow. Existing SaaS vendors (such as
Grammarly) have also started integrating AI with their
existing solutions leading to more powerful offerings. 4
Pricing models are undergoing a change on a variety of
factors including plummeting valuations forcing companies to
balance profitability with growth. Usage-based pricing (UBP)
and hybrid pricing models (usage of UBP alongside
subscription mechanisms) are thus gaining traction. 5,6
Other emerging trends in SaaS include Web 3.0 (blockchain
based SaaS solutions) and low-code no-code platforms (coding
without technical skills).
Key players
•
•
•
•
•
•
Salesforce (Revenue: $31,352 mn; Market Cap: $206 bn)
Freshworks (Revenue: $498 mn; Market Cap: $6 bn)
Hubspot (Revenue: $1,730 mn; Market Cap: $24 bn)
Shopify (Revenue: $5,600 mn; Market Cap: $72 bn)
Zoom (Revenue: $4,392 mn; Market Cap: $20 bn)
Service Now (Revenue: $7,245 mn; Market Cap: $112 bn)
106
SaaS | Value chain & Porter’s 5 forces analysis
Value chain analysis
Customizing the core
product (depending on
the nature of the
product) to meet
customer needs
Identification of gaps
in the market to
develop core product
Sales & Marketing of
product to attract
customers (through
mediums such as online
advertising)
After-sales service to
customers to resolve any
technical issues,
identification of new
features required to be
included in core product
Porter’s 5 forces analysis
Threat of new
entrants
•
•
Moderate to High
Low capital requirement
coupled with availability
of talent leads to
naturally low barriers on
entry into software
However, new entrants
might find it difficult to
enter established
categories (such as CRM)
which are dominated by
heavyweights (such as
SalesForce)
•
•
•
Low to Moderate
Buyer bargaining power
typically depends on
associated switching
costs.
SaaS which are plug and
play generally require less
customization and
therefore are easy to
switch out of.
Some SaaS (such as CRM)
might require high degree
of customizability making
switching challenging.
References: 1. Global Cloud Services Market Briefing 2023, 2. Cobloom
Threat of substitute
products
Bargaining power of
suppliers
Bargaining power of
buyers
•
•
•
Low to Moderate
SaaS companies generally
rely on infrastructure
providers (such as AWS)
for hosting their
applications and data.
Intense competition
between cloud providers
lowers bargaining power
of suppliers.
However, switching
suppliers generally entails
switching costs, which
can make it difficult.
•
•
Low
SaaS is a software
delivery model which has
grown rapidly and is
expected to grow further
in the future, at the
expense of other models
such as on-prem
solutions.
As legacy companies (such
as SAP) continue to move
onto SaaS, there are no
substitutes to the delivery
model at this time.
Rivalry among existing
competitors
High
• Lower barriers to entry
have led to intense
competition in each subsegment of this sector.
• SaaS products have become
increasingly commoditized
leading to lesser
differentiation and more
competition.
107
SaaS | Financial snapshot
Benchmarking
Key Ratios
Salesforce
Freshworks
HubSpot
Shopify
Zoom
ServiceNow
EV/Revenue
5.47x
8.02x
9.89x
8.77x
3.11x
10.88x
EV/EBITDA
14.10x
95.48x
54.83x
80.39x
8.09x
34.08x
P/E
24.93x
93.59x
81.70x
83.03x
15.47x
48.41x
Recent deal activity
Valuation
Approach to valuation: Take the median multiple and set that as the
industry benchmark. Multiply this with the relevant denominator
(Revenue, EBITDA, EPS) to get the target valuation of a firm and
compare with the existing valuation, to conclude if the firm is over or
under valued. Appropriate metric might vary depending on factors such
as size of the SaaS firm & maturity of the sector. Hence, metrics should
be seen at a sub-segment level rather than at a broader SaaS level.
Nature
Median (of aforementioned firms)
EV/EBITDA
8.40x
EV/Bed
44.46x
EBITDA/Bed
65.05x
References: 1. Tracxn; 2. Crunchbase; 3. Bloomberg
•
•
•
•
•
Tractian, a cloud-based predictive maintenance software, raised
$45 mn in its Series B, led by General Catalyst. 1,2
One Model, a talent analytics software, raised $45 mn in its Series
A, led by Riverwood Capital. 1,2
Closer to home, Lentra, an AI-enabled loan lifecycle management
solution for banks and lenders raised $27 mn in its Series B led by
Dharana Capital, MUFG. 1,2
Spotdraft, a platform offering cloud and AI based contract
management software, raised $26 mn in its Series A led by Premji
Invest, Prosus, and other investors. 1,2
Tracxn, an online market intelligence platform offering private
market data, listed on the NSE & BSE in Oct 2022 offering an exit to
investors including Elevation Capital and Accel. 1,2
108
SaaS | Revenue Breakdown & Sample Common Size
Standalone SaaS’s Revenue Streams
Zoom’s FY2023 Common Size
Revenue
Non-Recurring
Recurring
Number of customers
No. of
customers
retained
No. of
customers
in previous
period
(onboarding, customizations,
certifications)
Revenue/customer
(Average revenue/account or
ARPA)
No. of new
customers
Retention
rate
(1-Churn
Rate)
No. of potential customers
(such as customers using trial
versions)
References: 1. Netsuite; 2. Zoom Financial Results
Conversion
Rate
P
R
I
C
I
N
G
M
O
D
E
L
S
Subscription
Usage Based
Tier Based
Hybrid
Particulars
USD in ‘000
% of Revenue
Revenue
4,392,860
100%
Cost of Revenue
1,100,451
25%
Gross Profit
3,292,509
75%
Operating Expenses
3,047,080
69%
Income from Operations
245,429
6%
Gain on strategic
investments
(37,571)
(1%)
Other (expense)
income
41,418
1%
PBT
249,276
6%
Tax
145,565
3%
PAT
103,711
2%
109
Steel
beta
110
Steel | Sector overview
Steel Dynamics in India
Growth drivers
Total crude steel (in Million Tonnes)
180
160
144
142
142
140
120
109
111
100
•
158
154
118
125
100
•
80
60
40
•
20
0
2018
2019
Capacity
•
•
•
2020
2021
2022
Production
During 2022, India was the 2nd largest producer of Crude Steel in
the world. Over the last five years, the Crude Steel production
expanded from 109.25 MT in 2018 to 124.72 MT in 2022.
•
•
Export sales are likely to remain a challenge in 2023-24 due to
subdued demand in key markets amid rising inflation and interest
rates as well as higher exports by China (back to 2016 levels).
Due to subdued domestic demand, China is exporting
8-10 MT/month of steel against average of 4-5 MT/month run rate.
At a time of fragile demand in rest of world, the sudden increase in
supply by China leading to price declines.
References: 1. MoS Annual Report (2022-23); 2. EMIS Insights; 3. Investor Presentations
Resilient Economic Recovery: Indian economy rebounded
well from COVID-19 impact, evident in FY2023's GDP growth
of 7.2%, supported by government policies and high demand
for steel.
Gross Fixed Capital Formation (GFCF) Surge: GFCF increased
by 15.8% to INR 47.8L crores in FY2022, signifying robust
capital expenditure and investment climate.
Infrastructure Focus: Infrastructure sector prioritized by the
government, with initiatives like National Infrastructure Plan
(NIP) and PM Gati Shakti Master Plan.
Specialty Steel PLI Scheme: The finalization of 57 MoUs has
garnered an investment of INR 29.3k crores, leading to a
substantial expansion of capacity by 25 MT.
Automotive Industry Expansion: Indian automotive sector's
growth projected at INR 18L crores by 2026, driving steel
demand, particularly from electric vehicle (EV) sales.
Key players
•
•
•
•
Tata Steel (INR 2.4L crores revenue, ~21 MT capacity)
JSW Steel (INR 1.67L crores revenue, ~28 MT capacity)
SAIL (INR 1.03L crores revenue, ~18 MT capacity)
Jindal Steel (INR 60k crores revenue, ~9.6 MT capacity)
111
Steel | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Steel suppliers comprise
vital raw material miners
(iron ore, coal, limestone),
recycled steel (scrap), and
natural
gas
providers
essential
for
steel
production.
GOI
allocates
railway
wagons to companies for
B
transportation
purposes.
Also, there are closed
circuit
rakes
running
between the mines and the
manufacturing locations.
Material handling forms a
fundamental pillar of the
supply chain, necessitating
specialized equipment for
efficient management of
bulk commodities (iron
ore, coking coal).
Changing
environmental
dynamics have restructured
steel
supply
chain,
prompting companies to
enhance
efficiency
and
recycling to adhere to strict
standards.
Porter’s 5 forces analysis
Threat of new entrants
•
•
•
Low
Steelmaking requires
large capital outlay
& heavy industrial
equipment are needed
to achieve sizeable
production.
Operating costs are high
due to the cost of critical
raw materials i.e. – iron
ore and coking coal.
High volatility in
commodity prices
•
•
Bargaining power of
buyers
Bargaining power of
suppliers
Moderate
High volume buyers like
vehicle and machinery
manufacturers have
greater negotiation power
due to their size and
scale.
Construction cos. account
for nearly half of the
demand on an avg.
allowing them to buy in
bulk relatively easy.
High
Due to the economies of
scale required in mining
activities, iron ore is
concentrated to a few
giant international
companies, namely BHP
Billiton, Vale, and Rio
Tinto.
Quality of the iron ore
depends on purity and
gives the suppliers an
edge in pricing.
References: 1. Marketline Industry Profile on Indian Steel Sector (January 2023)
•
•
Rivalry among existing
competitors
Threat of substitute
products
•
•
Low
The unique properties of
steel as a material,
namely the high tensile
and impact strength, its
fatigue strength, and its
good ductility and
weldability.
Since steel is 100%
recyclable, this lowers
the threat of substitutes,
with society’s special
focus on ESG.
•
•
Moderate to High
The biggest players
account for >50% of the
total volumes in 2022.
Players may not be very
different in terms of the
final product, but they
can be different in terms
of the steelmaking
processes followed, which
may alter the economic
fundamentals.
112
Steel | Financial snapshot
Benchmarking
Key Ratios
Tata Steel (FY23)
JSW Steel (FY23)
SAIL (FY23)
Jindal Steel (FY23)
EV/EBITDA
6.1x
12.7x
6.9x
6.1x
P/E
15.3x
60.7x
17.5x
14.6x
RoE(%)
8.3
4.2
3.6
9.9
P/B
1.3x
2.6x
0.6x
1.4x
Capacity (in Million Tonnes)
21
28
18
9.6
Recent deal activity
Valuation
Approach to valuation: Take the median multiple and set that as the
industry benchmark. Multiply this with the relevant denominator to get
the target valuation of a firm and compare with the existing valuation,
to conclude if the firm is over or under valued.
•
In September 2022, Tata Steel announced merger of its
six subsidiaries with itself for greater synergies, higher efficiency
and reduced costs. These subsidiaries include Tata Steel Long
Products, Tinplate Company of India, Tata Metaliks, Tata Steel
Mining , Angul Energy & TRF.
Nature
•
In December 2021, JSW Steel, through its wholly-owned subsidiary
Piombino Steel, acquired 2.5 MT of production capacity from
Bhushan Power and Steel at Jharsuguda in Odisha and downstream
facilities in Kolkata and Chandigarh. Through this acquisition, JSW
Steel intends to increase its foothold in the eastern states, which
are know as the hub for steel production in India.
Multiple (FY23)
EV/EBITDA
6.5x
P/E
16.4x
P/B
1.35x
References: 1. Motilal Oswal – Tata Steel (17-May-23); 2. The Economic Times (12-Feb-23)
113
Steel | Common Size of Industry Leaders
JSW Steel FY 2023 Vs FY 2022 (INR cr.)
Tata Steel FY 2023 Vs FY 2022 (INR cr.)
Particulars
FY 2023
FY 2022
Particulars
FY 2023
FY 2022
Core Revenue
2,43,353
2,43,959
Core Revenue
1,65,960
1,46,371
Other Income
1,037
785
Other Income
1,030
1,531
Total Revenue
2,44,390
2,44,744
Total Revenue
1,66,990
1,47,902
Raw Material Consumed
1,01,483
75,763
Raw Material Consumed
94,456
62,337
Power & Fuel
12,619
10,894
Power & Fuel
17,452
11,289
Other Expenses
96,951
93,813
Other Expenses
35,505
33,738
EBITDA
33,337
64,274
EBITDA
19,577
40,538
D&A
9,335
9,100
D&A
7,474
6,001
EBIT
24,002
55,174
EBIT
12,103
34,537
Interest
6,298
5,462
Interest
6,902
4,968
PBT
17,704
49,711
PBT
5,201
29,569
Tax
10,159
8,477
Tax
(1,516)
(8,807)
Exceptional Items
531
515
Exceptional Items
454
176
PAT
8,075
41,749
PAT
4,139
20,938
References: 1. Tata Steel FY 2023 Results; 2. JSW Steel FY 2023 Results
114
Telecom
beta
115
Telecom | Sector overview
Industry size - Historical trends & Forecasts
Growth drivers and Emerging trends
•
Revenue in INR Trillion
4
•
3
2
•
1
0
2.8
2.9
3
3.2
3.5
3.8
2020
2021
2022
2023*
2024*
2025*
• In 2022, India’s wireless telecom sector earned $27.4 billion.
Between 2017 and 2022, it saw a -1.3% CAGR. Conversely, South
Korea and China had CAGRs of 0.9% and 1%, respectively.
• India's tele-density is 84.86%. Rural areas, with untapped
potential, have 58.01% tele-density, while urban areas have
134.62%.
• Telecom ranks third in FDI inflows, forming 6.43% of total. It
directly employs 2.2 million and indirectly impacts 1.8 million jobs.
• GSMA predicts India as the world's second-largest smartphone
market by 2025, hosting 1 billion devices. By then, it's projected to
have 920 million mobile subscribers, including 88 million 5G users.
References: 1. Marketline Industry Profile on Indian Wireless Telecom; 2. IBEF; 3. Statista
•
•
Rise of Industry 4.0; Automation and data exchange with
technologies including IoT, VR, AR and cloud computing
provides opportunities to India's telecom sector.
The INR 12,195 Cr PLI Scheme supports telecom and
networking product manufacturing. Over INR 4,000 Cr is
allocated for the Design Led Manufacturing under the
existing PLI Scheme.
4G and 5G landscape brings high data rates, low latency,
reliability, and energy efficiency. 5G's launch offers speed,
low latency, and capacity for innovations like autonomous
vehicles, smart cities, and virtual reality.
Satcom to disrupt Indian telecom in 2023. Jio Satellite,
OneWeb licensed by DoT. Starlink eyes India's broadband
market. National Broadband Mission includes satellite tech.
In 2021, the telecom sector under TRAI underwent significant
structural and procedural reforms aimed at bolstering
liquidity and reducing financial strain.
Key players
•
•
•
•
•
Reliance Jio (Revenue USD 14 bn, ARPU Rs 178.8)
Bharti Airtel(Revenue USD 17.10 bn, ARPU Rs 200)
Vodafone Idea (Revenue USD 5.10 bn, ARPU Rs 135)
BSNL (Revenue USD 2.5 bn)
Indus Towers (Revenue USD 3.4 bn)
116
Telecom | Supply chain & Porter’s 5 forces analysis
Supply chain analysis
Distribution; The finished
products are distributed to
retailers, wholesalers, who
sell them to end-users. This
stage involves logistics,
inventory management
and order fulfilment.
Telecom equipment
production needs global
raw materials like metals,
plastics, electronics. Its
stages go through design,
prototyping, testing,
mass production.
Network infrastructure;
Development and
maintenance of network
infrastructure- Sub-stages
involve site selection,
construction, installation,
and maintenance.
Service delivery marks
the supply chain's end,
delivering voice, data,
and added features like
content streaming and
payments to end users.
Porter’s 5 forces analysis
Bargaining power of
buyers
Threat of new entrants
•
•
•
Low
Significant capital
investment required to
build and maintain
network infrastructure &
existing brands have high
economies of scale &
scope
Indian government has
imposed high entry
barriers; high license fees
and spectrum charges,
However, MVNOs lease
network capacity,
reducing entry barriers.
•
•
•
High
The buyers in the
telecommunications
industry include end
consumers, businesses, and
public services.
Bargaining power is high,
as they have options to
choose from and can easily
switch between operators.
Policies protect consumer
rights and foster
competition, boosting
buyer bargaining power
References: 1. Marketline Industry Profile on Indian Telecom Sector
Bargaining power of
suppliers
•
•
•
Moderate to Low
Suppliers: equipment
makers, network
infrastructure suppliers
in telecom industry.
There are many
suppliers in the market
and operators can
switch easily.
Key buyers wield power
from vast customer base
& alternate suppliers
enhancing their
bargaining position.
Threat of substitute
products
•
•
•
Low
The main substitutes for
wireless telecom in India
are fixed-line telephony,
data communication, and
VoIP telephony.
Growth & ubiquity of
mobile data services and
the increasing adoption of
smartphones have further
reduced substitute threat.
The alternate of Voice
Communication has not
been found yet.
Rivalry among existing
competitors
•
•
•
Moderate to High
The market is dominated
by three major players,
which are all vying for
market share.
Aggressive pricing
strategies, increased
investment in network
infrastructure, and
deployment of new
technologies like 5G.
Low level of
differentiation among
services increases rivalry.
117
Telecom | Financial snapshot
Benchmarking
Key Ratios
Airtel (FY23)
Vodafone(FY23)
Key Ratios
Airtel (FY23)
Vodafone(FY23)
EV (Rs Cr)/EBITDA
9.4x
5.16x
ROE
12%
NA
EV(Rs Cr)/ARPU
3600x
650x
ROCE
13.5%
NA
EBITDA/ARPU
383x
126.1x
DEBT/EQUITY
2.91
NA
P/E
46x
35.8x
INTEREST COVERAGE
1.93
-0.26
ARPU (Rs)
200
135
FCFF (Rs Cr)
38,875
13,332
Recent Deal Activity
Valuation
Approach to valuation: Take the median multiple and set that as
the industry benchmark. Multiply this with the relevant
denominator (ARPU, EBITDA, EPS) to get the target valuation of a
firm and compare with the existing valuation, to conclude if the
firm is over or under valued.
•
•
•
Nature
Multiple (FY23)
EV/EBITDA
23.52x
•
EV (Rs Cr)/ARPU
2125x
•
P/FCF
13.33x
P/E
46.01x
References: 1. Screener ; 2. IBEF; 3. The Economic Times, 4. Mint
•
In August 2023, Vodafone Idea approves allotment of shares to Govt
against interest of deferred AGR & spectrum dues. GOI now holds
33.44% of paid-up capital base.
In September 2022, Vodafone Idea joined hands with ICRIER's
InViCT to establish a Telecom Centre of Excellence.
In Q1 FY22, Indian technology, media and telecom (TMT) sector
lead the M&A market in India bagging deals worth US$ 11.5 billion.
In March 2022, Bharti Airtel bought 4.7% stake in Indus Towers from
Vodafone Group for Rs 2388 Crore in cash
In February 2022, Bharti Airtel acquired 10% strategic stake in a
Singapore-based start-up, Aqilliz.
In January 2022, Google made a US$ 1 billion investment in Airtel
through the India Digitization Fund.
118
Telecom | Revenue Breakdown & Sample Common Size
Bharti Airtel’s Revenue Streams
Bharti Airtel’s FY2023 Common Size
Revenue
Retail
Enterprise
Connectivity
Solutions
Mobile
Services
Data
Services
References: 1. Bharti Airtel FY2023 Results
Digital TV
services
Cloud
Services
IT Services
Payments Banks
& Financial
services
Particulars
INR Cr
% of Revenue
Revenue
139,145
100%
Manufacturing Cost
52,128
37.46%
Employee Benefits
4,828
3.47%
Selling, General & Admin
10,909
7.84%
EBITDA
71,274
51%
D&A
36,432
26.18%
Other Income
1,019
7.32%
EBIT
35,861
25.77%
Interest
19,300
13.8%
PBT
16,561
11.9%
Tax
4,274
26%
PAT
12,287
8.83%
EPS
14.97
119
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