Download Rajiv Batra

Rajiv Batra
29th June 2016
Public
Content
 India – macroeconomic trends and government initiatives
 Cummins initiatives for vendor partners
 Way forward…
2
Content
 India – macroeconomic trends and government initiatives
 Cummins initiatives for vendor partners
 Way forward…
3
India’s growth is expected to remain strong
GDP growth rate %
7.6
7.5
7.5
7.3
7.2
6.6
5.6
2.6
2012
2.5
2013
2.7
2014
3.1
2.6
2015
World
2017
India GDP growth to continue
at highest rate in world, even
higher than China…
•
World growth is slowly
recovering
3.2
2.5
2016
•
2018
India
Source: IMF April 2016, IHS May 2016
4
Globally economy is expected to recover
slowly
GDP growth %
2.4
USA
2.2
Brexit
2.5
UK GDP to contract by 0.8% in 2017,
exact impact to be seen
2015
2016
2017
• 2016 GDP growth expectation revised from 2.4% to 2.2%
• Energy sector has dropped following crude oil rate cash
• Strong $: Dollar is 10%-20% higher than natural value
and Brexit can further increase it
• UK no longer have access free market of EU and 56
negotiated countries and will have to restart negotiations
• Services (majorly Financial) which forms 80% of UK
GDP and has EU as its single largest market will be
impacted negatively
GDP growth %
China
• Re-balancing its economy
6.9
6.5
6.2
6.0
2015 2016 2017 2018
• Overcapacity and weaker exports
• High debts: From 2007-2015, China's debt grew from USD
7T to USD 25T. Debt to GDP is 237%
Grexit - If Greece exits EU
• Default by Greece, lower valued currency, lower
standard of living for
• Shake investor confidence on other PIGS countries
• European companies shares could fall sharply
Source: GDP: IMF, April 2016
5
Inflation and repo rate have eased over
last 2 years
%
15.0
%
Inflation, %
Repo Rate, %
8.5
CPI
WPI
8.0
8%
7.5
10.0
7.0
6.5
5.0
6.5%
6.0
0.0
5.5
-5.0
RBI target of CPI is 5% for March 2017
and 4% with +/- 2% beyond 2016-17
Market expects repo rate cut by 25 basis
points around August subjected to normal
monsoon and under control inflation
Source: RBI
6
Rupee predicted to be in range of 66.5 to
68.5 over this fiscal year
Forex Reserve, $B
INR/$
INR
70
$B
380
68.5
67
65
360
340
60
320
55
300
280
50
02-Feb-17
02-Dec-16
02-Oct-16
02-Jun-16
02-Aug-16
02-Apr-16
02-Feb-16
02-Dec-15
02-Oct-15
02-Aug-15
02-Jun-15
02-Apr-15
02-Feb-15
02-Dec-14
02-Oct-14
02-Aug-14
02-Jun-14
02-Apr-14
45
260
240
• Rupee predicted to be in range of 67.5 to 68.5 in next 2-3 months, moving to 66.5 to 67 by March 2017
• Forex reserve has grown consistently and is at 10 months import equivalent, giving RBI leverage to keep Rupee
in a band if needed
Source: RBI
7
International crude oil and commodity
prices seem to have stabilized
Crude Oil - WTI, $/barrel
$
120
($/dmtu)
Commodity prices
($/mt)
9000
106
180
Copper, $/mt
8000
100
80
60
49
40
7000
140
6000
120
5000
100
4000
80
3000
60
Iron ore, cfr spot, $/dmtu
2000
26
20
160
40
1000
20
Crude oil rate increased to 30% since February
2016, but seen as stabilizing at $45 - $50 in
next few months
Apr-16
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
0
Jan-14
2016
Oct-13
2015
Jul-13
2014
Apr-13
2013
Jan-13
0
-
In 2016 and beyond weak demand from China is
expected to keep prices down as these metals are used
extensively in infrastructure and manufacturing projects
Source: Nasdaq, World Bank, Economist Intelligence Unit, Mar 2016 & IMF Analysis
8
The current Government has taken
various steps in the positive direction
Improved Governance
NITI Aayog
Quicker
Decision making
Ease for doing Business
Inclusion of states
in policy making
Base Corporate
Tax
Clearing stalled projects &
predictable policy regime
Single Window
Clearances
25%
Actively pushing
GST
Strengthening
business and
strategic ties
Increased Transparency
E-Auctions:
Coal & Spectrum
30%
Creating revenue streams
for investment
Direct Fund
Transfers
Disinvestments
Easing FDI
limits
Relaxed limit up to 100% in
most sectors including defense 9
Planned increase in infrastructure investment is moving the
economy on the intended path
2014-151
($M)
2015-162
($M)
Roads
4,116
6,260
52%
 Build roads from India's west-to-east land border,
upgrade state to national highways
Railways
4,934
6,260
27%
 Electrification, improvement of speed of trains and safety
Shipping
74
146
97%
 Port connectivity and inland water ways
 National waterways development
Defense
36,766
38,607
5%
 Build indigenous combat vehicles, warships, etc.
Industry &
minerals
6,459
6,745
4%
 Permission to private companies to mine and sell coal in
the open market
Energy
25,393
26,182
3%
 5 ultra mega power projects (coal-based) planned (4000
MW each)
Smart cities
398
923
132%  Build 100 smart cities in India
Ports
41
61
49%
 Corporatization of public sector ports
Urban
development
1,266
1,570
24%
 Affordable housing, sanitation and development
% Growth
Key focus areas
Source: 1- Union budget 2014-15 revised estimates
2 – Union budget 2015-16 budgeted estimates
10
Few focus areas of the government are expected to drive positive
trends for the manufacturing industry
On-highway
Off-highway
 Migration to higher tonnage nodes expected
due to growth in infrastructure
 With nationwide implementation of BSIV,
ability to deliver an FFM product is critical
 Government’s intention to skip BSV and
jump to BSVI by 2020
 Upgrade and expand highways – build road from
India's west-to-east land border (target of 30
km/day for 2016-17 from current 20 km/day)
 Govt.’s push for affordable housing, sanitation,
urban and rural development
 Plans to create 100 smart cities by 2022
Mining
Power Generation
 Thrust on industry and infrastructure
development expected to increase power
demand
 Power deficit expected to continue at current
levels of 2-3%
 Modest growth in gross fixed capital
formation expected (may accelerate if
economy improves)
Railway
 Focus on electrification, increased speed,
improved safety, connectivity and
enhanced capacity
 Investment of $136 B planned over the
next five years
 Mines and minerals amendment bill 2015
allows private companies to mine and sell coal
in the open market ending state monopoly
Oil & Gas
 Increase in gas distribution stations
(IGL,MNGL etc.) – Gas compressor market;
consistent demand for offshore emergency DG
market
Marine
 Fleet expansion and modernization by Indian
Navy, Coast Guard
 Government push for inland waterways, port
connectivity projects to help generate demand 11
Some challenges, if addressed, could boost the
economic growth even further
Rajya Sabha support for GST
NPAs of Banks
Support for GST has grown in Upper House but still
shy of 2/3 mark
NPA of banks are at very high levels
Undecided
Supporting
Opposing Others
Others
Congress
NDA
Two-Third Majority at 164
Total seats - 247
Party / group
NDA + 7 nominated members
No. of Seats*
81
Supporting Others
60
Undecided (AIDMK – 13, YSR
congress, TRS, JD (Secular))
19
Opposing Others (Left, RJD)
20
Congress
60
141
*Excluding Vacant seats
• Banks have become reluctant to lend
• Asking for additional collateral
• Higher rate
Other Factors
• Weak infrastructure – Insufficient Rail and
Power access for inland factories
• Regulatory burden, particularly in labour markets
• Bills pending in Rajya Sabha e.g. Land
acquisition bill
• Time to start business still high
Source: NDTV India news, Scroll, thehindu
12
Content
 India – macroeconomic trends and government initiatives
 Cummins initiatives for vendor partners
 Way forward…
13
For GST implementation, Cummins is collaborating with
vendor partners to realize benefits for end customers
• Cost Benefit:
• Interstate transactions under GST will benefit
• Input credit for one type of tax against another
• Coverage of CENVAT will increase e.g. outward
transportation
• Tax Filing & Litigation: Less Complicated
• More Working Capital will be required
• Credit lock if a firms vendor has not paid and
registered under its GST no.
GST workshop conducted with vendor partners
• Cummins is happy to help and extent the support
to Tier 2 vendors
• To remain competitive after GST implementation,
we need to be transparent and collaborate
14
Cummins is launching ‘Vendor bill discounting
scheme’ to provide easy financing
Vendor Partners who chose to join, can avail financing at market competitive rates without providing any collateral
This will enable in supplying at cost effective rates
1
• Cummins’s Banker to pay immediately after receipt
of material
Submits invoice
• Disbursement at discounted rate as agreed
between Cummins and its vendor partner
• Current discount rate is 10.75%
PROGRAM
• Partners do not need to provide any collateral
3
2
• Agreement required to be executed with Cummins
but No agreement or KYC between vendor partner
and Bank
• No charges over and above discounting interest
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Content
 India – macroeconomic trends and government initiatives
 Cummins initiatives for vendor partners
 Way forward…
16
The way forward…
RFT
Customer expectations are
increasing on cost and quality
2015
2016
2017
2018
TCO
Product
Reliability
Dependa
bility
17
Lets reduce our Cost of Quality
► Loss of Customer / Goodwill
External ► Retro fit costs
Failures: ► Incurring penalties / claims
$100X
$10X
$1X
Cost of Quality increases
$1000X
Internal
Failure:
Appraisal
Costs:
Prevention
Costs:
► Scrap / Rework ► Re-test / Re-inspection
► Unplanned downtime ► Trouble shooting
► Incoming inspection ► Maintenance and calibration of equipment
► Setup inspection and tests ► Field testing ► Process audits
► Education and training ► Quality planning ► Product design qualification tests
► Vendor qualification ► Customer interface ► Controlling processes
Warranty cost based on ABO consolidated and TCL sales
18
In the long term, we continue to remain
optimistic
Growth
Prospects
Impact
 Global growth is picking up slowly
 Macroeconomic factors for India are trending in right direction
 Government initiatives and spending is expected to drive growth
Cummins is well-positioned to capitalize on growth
with enhanced support from its vendor partners
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