INDIA S ECONOMIC GROWTH & AVIATION SECTOR OPPORTUNITIES Atul Joshi Oct 12, 2018 Oyster Capital
Agenda India : Economic Growth Strong Base With Headwinds Aviation Sector: Growth & Opportunities
Fiscal Deficit..on consolidation path 8.0 7.0 6.0 5.0 4.0 7.6 1.9 6.8 7.0 2.0 2.5 Fiscal Deficit - India 6.7 6.3 6.4 2.6 2.4 2.9 Center State 5.8 2.3 3.0 2.0 5.7 4.8 4.5 4.1 3.9 3.5 3.5 1.0 0.0 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Center improves on fiscal deficit but states widen to some Deficit leads to constraint on ability to spend A boost for PPP may be expected
Debt to GDP...stabilising at high levels 80 60 Debt to GDP India 65.8 65.1 64.9 64.6 67 67 40 20 0 2010-14 avg 2013-14 2014-15 2015-16 2016-17 2017-18 250 200 150 100 50 0 2014 Debt to GDP - Others 229 86 95 105 67 83 Ind Can UK Fra US Jap Source: Fitch
Long Dated Borrowing & Lower Maturities A cushion 12 10 8 6 4 2 0 Average maturity of Govt. Debt (Years) 9.7 6.8 6.4 5.3 5.2 5.1 Fra Ger US Aus Can India 40 30 20 10 0 Debt maturities to GDP % 9 11 26 15 17 5 UK France Germany US Canada India
CAD deteriorates but supported by FDI inflow 6 India CAD CAD+Net FDI 5 4.8 4.2 4 3.6 3 3 2.5 2 1 0 1.7 1.4 1.5 1.6 1.1 0.6 0.5 0.5 0.2 0.3 0 2011 2012 2013 2014 2015 2016 2017 2018 E
Reserves A strong cushion Reserves (months of Import Cover) India 7.6 Indonesia 7.1 Italy 2.6 Australia 2.0 France 2.7 USA Germany UK 1.3 1.4 1.3 0 2 4 6 8
GDP Growth below potential above peers Real GDP growth (%), 2017 Real GDP Growth per head (%, 5-year avg.) 8.0 6.7 6.9 6.0 6.0 5.1 6.6 4.0 3.9 3.9 2.0-2.0 1.1 2.4 1.0 1.5-1.4-0.2 (2.0) (4.0) India Indonesia Mexico Thailand Brazil Russia China
Favourable Population Dynamics 2015 2050 Developed Countries India Developed Countries India 23.7 8.8 60+ 32.0 18.3 60+ 20.7 14.6 45-59 17.3 19.9 45-59 13.7 13.4 35-44 11.9 14.2 35-44 13.7 16.6 25-34 11.7 14.2 25-34 11.7 18.3 15-24 10.9 13.8 15-24 16.5 28.4 Upto 14 16.1 19.5 Upto 14 30 20 10 0 10 20 30 40 30 20 10 0 10 20 30 40 Source: India Ratings and Research 63.3% of India s Population Below 34 Years of age against China s 48.7% and advanced economy s 41.9% in 2015
2019-20 2014-15 2009-10 Growth of Middle Class in India Doubled in just 5 years Another 65% growth in next 5 years 20% 11% 33% Growth of Middle Class in India Source: NCAER < 2Lakh 2 to 4.9 Lakh 5 to 9.9 Lakh 10 Lakh>
Net Financial Savings of Household Sector % of Gross National Disposable Income 8.1 7.8 7.2 7.2 7.2 7.2 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Source: RBI Annual Report 2018
Agenda India : Economic Growth Strong Base With Headwinds Aviation Sector Growth & Opportunities
Passenger Traffic Growth Demone tisation GST GFC Source: DGCA
Passenger Traffic Growth Rapidity of Growth 5 Months of traffic takes over yearly traffic 160 140 141.76 135 Apr-Aug 2018 2015-16 120 113.44 100 80 85.2 60 40 20 28.32 49.8 0 Domestic International Total Source: DGCA
Cargo Traffic Domestic In 000 metric tonnes 800 700 600 592 624 638 697 500 400 368 342 394 465 453 452 509 CAGR of 6.6% 300 200 100 0 1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cargo Traffic International In 000 metric tonnes 2000 1800 1734 1600 1400 1200 1000 800 1025 1072 1139 1292 1220 1238 1262 1368 1404 1513 CAGR of 5.4% 600 400 200 0 1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Aircraft Movement Nos. in mn 1 0.8 0.81 0.92 13% 0.6 0.4 0.34 0.38 9% 2016-17 2017-18 0.2 0 Domestic International
Number of Aircrafts No. of Aircrafts Air Asia 18 Air India 136 Air India Express 23 Alliance Air 17 GO Air 37 Indigo 172 Jet Airways 113 Jet lite 7 Spice Jet 58 Vistara 21
Market Share of Airlines Domestic Departures 2017-18 GO AIR 9% AIR ASIA 4% VISTARA 4% OTHERS 0% AIR INDIA 12% ALLIANCE AIR 1% SPICEJET 13% INDIGO 40% JET AIRWAYS 17% Private Airlines command 88% of the market share for domestic departures
Market Share of Airports Domestic Departures Private Airports though just 6 in number, have a lion s share in traffic AAI operated Domestic airports are nibbling market share from private sector
Growth Opportunities Growth % Cargo Growth Domestic International 9% 15% 2018 over 2017 Passenger Growth Domestic International 19% 11% Market Share % Private Airports Market Share Domestic International 51% 67% March 31, 2018 Private Airlines Market Share Domestic Segment 88% March 31, 2018
Growth Opportunities Airport Density is measured as number of people per airport US Airport Density = 60,000 people China Airport Density = 3.20 mn people India Airport Density = 4.60 mn people India airport density very high Develop much large number of airports Upgrade existing airports Number of flights per capita US > 2 Australia > 2 China 0.3 Brazil 0.3 India 0.04 Source: APAO Presentation
Growth Opportunities MRO Opportunity MRO is the second highest cost contributor after fuel MRO opportunity in India is estimated at USD 30 bn Presently there are nearly 11 MROs at different stages of approval FDI permitted 100% auto route Smaller Aircraft & Helicopter Opportunity Poor air connectivity for most of its hill stations Poor air connectivity on last mile basis to most frequented tourist/religious places e.g. Dwarka Surge pricing strategy by railways a boon for air passengers Prudent pricing by air operators a must Carrying capacity still a long way to go Road network build up slowing down due to financial and operational issues
Challenges Last mile connectivity with airport and convenience to travel Revenue share lop sided risks not balanced out No single window for clearances Reserved activities on Cost Recovery basis Concession agreements need adherence CAG and RTI application to private operators remains a threat
Suggestions & Conclusion Suggestions: Ministry of Civil Aviation & Tourism work together Work on last mile connectivity through alternate routes such as dedicated trains and bus routes on BRTS from airport to city centers Ministry of Finance, state governments and RBI to work towards clearing path for securitising cash flows of operators Conclusion Despite challenges, the sector offers undeniable lucrative opportunity across a wide spectrum of services covering ground, passenger, cargo, MRO and allied services
Adi Shankaracharya says.
Thank You
Net External Debt (NXD) A strength UK FRA AUS US SPA ITA BRA SA IND 2014 NXD (% of GDP) NXD (% of Exports) (BBB median 5) (BBB median 16.4) 27 71.7 31.3 82.8 53 218.9 47.3 77.1 200.6 55.9 163.9 11.4 119 14.1 41.6 2.5 10.2 250.2 Source: Fitch 0 50 100 150 200 250 300 www.indiaratings.co.in 27
External Debt Servicing & ST Debt A Cushion 2014 2014 Ext Debt Ser (% of Exports) Ext Int Ser (% of Exports) ST Ext Debt (% of GXD) 90 (BBB median 13.3) (BBB median 5.0) (BBB median 24.9) 90 80 70 60 50 40 30 20 10 0 76.5 78.7 71.3 75.2 66.5 62.9 53.9 41.3 43.9 37.9 36.9 30.2 18.9 19.7 18.8 14.4 13.1 9.2 9.4 8.1 5.3 6.1 4.1 0.8 2.5 0.6 1.5 IND AUS CAN GER US FRA UK CHN JAP 80 70 60 50 40 30 20 10 0 Source: Fitch www.indiaratings.co.in 28
Theory 3 Consumption story developing strongly (%, CAGR) 18 Rural Urban 14 10 6 2 FY78 CY83 FY88 FY94 FY00 FY05 FY06 FY07 FY08 FY10 FY12 Source: NSSO, India Ratings and Research www.indiaratings.co.in 29
Rural Consumption in Favour of Discretionary Spending FY12 FY00 Consumer Durables 6% 3% Medical 7% Others 18% Food 49% Medical 6% Education 2% 2% Consumer Durables 3% 3% Others 14% Food 59% Education 2% 3% Clothing & 8% Footwear 8% Clothing 8% & Footwear 8% Fuel & Light 8% Fuel & Light 9% 9% Source: NSSO, India Ratings and Research Source: NSSO, India Ratings and Research www.indiaratings.co.in 30
Theory 4: India One Story Though Not Uniform 0.84 Chandigarh: 0.79 0.28 Delhi: 3. 1.17 3.73 03 3.71 0.12 4.94 8.24 3.28 1.52 0.21 0.14 0.17 7.31 14.42 4.15 1.77 1.65 2.61 6.75 0.26 0.10 State s Contribution to GDP (FY14) 3.74 Less than 2% 0.47 5.87 4.43 8.16 Puducherry: 0.20 0.06 More than 2% but less than 5% More than 5% but less than 8% More than 8% Source: India Ratings and Research www.indiaratings.co.in 31
But Some Laggard States are Catching up 4.17 Chandigarh: -1.28% 7.65 6.39 8.73 3.85 6.61 6.20 4.07 5.52 6.65 8.90 5.48 4.57 7.62 4.13 3.47 Delhi: 5.21% 7.77 1.66 8.53 Puducherry: 6.44% 5.39 18.7 4 2.38 4.33 5.06 5.65 2.88 8.31 5.18 5.25 Per Capita GSDP Growth (FY09-FY14) Less than 3% More than 3% but less than 5% More than 5% but less than 7% More than 7% Source: India Ratings and Research www.indiaratings.co.in 32
Fundamental Weaknesses - High Committed Expenditure INR trn 12 Interest Payments Committed Expenditure Revenue Receipts 11 11 10 10 9.4 9 8 6 4 2.9 6 3.2 8 3.8 8 4.4 4.5 4.9 4.8 2 2.1 2.3 2.7 3.1 3.7 4.1 4.6 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16e Source: India Ratings and Research
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Domestic Demand to Drive GDP Growth New Investment Announced has Increased (USD bn) New Investment Announced (INR Trn) (LHS) Growth (RHS) (%,yoy) 3,990 120 3,490 2,990 2,490 2,617 3,077 3,444 2,483 2,473 100 80 60 40 1,990 1,490 990 624 1,313 1,493 801 890 1,581 20 0-20 490-40 -10-60 Source: CMIE and Ind-Ra
Theory 4 Banking Sector Foundation Strong; Weakness Cyclical Macro Prudential Indicator (MPI) - Macro risks such as asset price bubble Least Risk MPI 1; India Moderate Risk 2 ; Singapore, Switzerland Highest Risk - 3 ; China, HK Bank system CAR at 11.9% SLR / CRR at 27% Bank Assets / GDP India 70%; Brazil 139%, China 213%, Germany 183%, UK 341%, US 111% Loan to Deposit India 77%, Brazil 106%, China 92%, Germany 85%, UK 102%, US 95% Dollarized ratio at 3.5% against BBB median of 17.3% Very low vulnerability to global credit meltdown
States Aggregate Capex Higher Than Centre (USD bn) Year Centre States Combined States as % of total FY11 24,093.08 23,374.15 47,467.23 49.24 FY12 24,396.92 26,345.38 50,742.31 51.92 FY13 25,670.46 29,720.15 55,390.62 53.66 FY14 28,873.08 40,811.38 69,684.46 58.57 FY15 (RE) 29,596.62 51,736.15 81,332.77 63.61 Source: Central government budget, RBI and Ind-Ra
CAD deteriorates but supported by FDI inflow 6 5 4 3 2 1 0 India CAD CAD+Net FDI 4.8 4.2 3.6 3 2.5 1.7 1.4 1.5 1.6 1.1 0.6 0.2 0 0.3 0.5 0.5 2011 2012 2013 2014 2015 2016 2017 2018 E 2014 1 0-1 -2-3 -4-5 -6-7 -8 0.6 CAD CAD+Net FDI 0.6 0.5 AUS CAN US UK Indonesia Mexico -1.3-1.6-2.4-2.4-3 -2.8-4.1-6.1-7.3 Source: Fitch