Is the Indian Automation and Process Control
Industry on the Verge of Rapid Growth?
Srivatsan Murali,
Research Analyst
Economics Research and Analytics
September 11, 2008

Focus Points
1. Industry Segmentation
2. Political Overview
3. Economic Overview
4. Manufacturing Overview
5. End User Analysis
Power, Oil and Gas
Metals and Mining
Automobiles
Chemicals, Pharmaceuticals and Food Processing
6. Growth Opportunities
2

IPC Industry: Segmentation
Industrial Automation and Process Control
Programmable Logic Controllers
Human Machine Interface
Safety Systems
Servo Systems
Distributed Control System
Supervisory Control and Data Acquisition
Manufacturing Execution System
3

Political Overview
Composition of the Parliament (2008)
Others
Current Situation
NDA Prospect of reforms being passed
because left not in government.
Political uncertainty and current
coalition holding up key reforms
essential for growth.
UPA Plus Government adopting socialist policy
Left Front with a view towards elections.
Allies
Interest groups pressurizing
•UPA: United Progressive Alliance
government.
•NDA: National Democratic Alliance
•Others: BSP, TDP and Independents Source: Frost & Sullivan
Elections 2009 Key Areas for Governance
Hung Assembly Currently infrastructure requires $ 300
Emergence of BSP on the national stage Billion
Coalition Government: Holding up reforms, Investment reforms
Slowdown in growth Reforming labor laws
Unlikely to see progress on key reform area of Pension reforms
labor laws. Banking reforms
Reign in inflation
4

Economic Overview
Economic Growth In BRIC Countries, 2001-2008
12
10
Economic growth in India is still
high.
Percent Change
8
6 Capital investment is approaching a
4 slowdown, but still sees robust
2
levels.
Fiscal deficits, especially oil
0
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 subsidies can destabilize the rupee.
Years
Source: Ministry of Finance India Russia Brazil China
Fiscal Deficits a Concern, 2001-2008 The government is bound by law to
12 reduce deficits.
10 Government does not want to roll
8 back socialist policies.
Percent (Of GDP)
6 The government is resorting to off-
4 balance sheet accounting to meet the
2
deficit requirements.
0
Off-balance sheet items, especially oil
-2
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 bonds totaling between 3-4 percent of
Years the GDP.
Revenue Deficit Primary Deficit Fiscal Deficit
Source: Ministry of Finance
5

Economic Overview: Inflation
WPI and The Policy Response, 2008
14
12
Inflation CRR Repo Rate
10
Percent
8
6
4
2
0
5/1/2008 2/2/2008 1/3/2008 29/03/2008 26/04/2008 24/05/2008 21/06/2008 19/07/2008
Source: Reserve Bank of India
Recent Changes Impact
Inflation rate close to 13 percent (August Slower growth in retail credit
2008) Companies going slow on capital
RBI is tightening money supply expenditures
Money supply growth at 20 percent Capital formation is robust
Inflation in core articles will rise before $ 130 Billion of capacity will go to stream
monsoons and impact investments planned in the near
Inflation target of 7 percent by March 2009 term
6

Manufacturing Overview
Favorable Economic
Conditions
Liberalization Free Trade
Policy Spurring Agreements, Stable
Manufacturing Currency
Robust
Manufacturing
Growth
Rapid Expansion in
Manufacturing. High
Growth anticipated Key Industries Have
Young Educated Work Achieved Global
Force Competitiveness
Manufacturing Output CAGR of 14 Percent for
USD 450 Billion (2007) Last 5 Years
7

Manufacturing Overview
Manufacturing Sector Wise Growth (Based on IIP), 2002-2006
16
Growth Percent 14
12
10
8
6
4
2
0
2002/03 2003/04 2004/05 2005/06 2006/07
Years
IIP Mining & Quarrying Manufacturing
Electricity Chemicals
Source: Central Statistical Organization
There is a slowdown in the growth of core industries like capital goods and
electricity.
Manufacturing activity still shows robust growth.
Consumer durables and automobile sales have slowed down.
Growth momentum set to continue, but at a slower pace.
Diverse manufacturing sector with numerous small and medium enterprises
8

Manufacturing Investment
Investment, 2000-2008
120 Gross Domestic Capital Formation Private Capital Formation
100
80
60
P e rce nt
40
20
0
-20
-40
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09
Source: Ministry of Finance
Investment has been volatile to interest rates.
Private investment has been the engine of capital formation in the country.
Capital expenditure by listed firms showed a 40 percent increase last year.
Capital expenditure is anticipated to drop by 30 percent in the year 2009.
This slowdown is on the account of increasing cost of capital and global liquidity conditions.
Liberalized mining law key stimulus for automation end-users.
9

Oil And Gas
Production and Refining of Petroleum Products, 2000-2007
500000
450000
400000
350000
Tonnes ('000)
300000
250000
200000
150000
100000
50000
0
2000/01 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
Years
Public Production Private Production Total Production Total Consumption
Source: Petroleum Ministry
Still a highly regulated industry
Capacity set to 235 MMT by 2012
Huge crude production & consumption gap
100% FDI in E&P and refining
Oil import dependency set to increase to 90 percent
10

Oil And Gas
Natural Gas Snapshot,2002-2007
1500
Quantity (Billion
Cubic Meters)
1000
500
0
2002 2003 2004 2005 2006 2007
Y ears
Onshore (Reserves) Offshore (reserves)
Total (Reserves) Total Production
Total Consumption
Source: Petroleum Ministry
Demand supply gap in gas set to rise to 154.9 MMSCMD in 2011 and to 221.0 & MMSCMD in 2025
100% FDI in exploration and production
Huge demand for gas from captive power plants
Pricing issue for gas still remains to be sorted out
The development of a national grid creates huge investment opportunity.
11

Oil and Gas: Ethanol
Production of Alcohol and Molasses In India (2002-2007)
12 2500
10 2000
Alcohol Production
Molasses Production
(Million Ltrs)
8
(Million Ltrs) 1500
6
1000
4
2 500
0 0
2002-03 2003-04 2004-05 2005-06 2006-07
Year
Molasses Prod. Production of Alcohol
Ethanol blending norms set to increase to 10 percent by October 2008.
Sugar companies increasingly using molasses and ethanol production as alternative revenue.
Numerous companies who have no idea of ethanol diversifying into this segment.
Investments in the regions of UP, Maharastra and Tamil Nadu
Automation companies need to provide consulting services regarding automation to capitalize on
this segment.
12

Power
Planned Expansion Vs Achievements
100000 60
78700
Capacity expansion much lower
80000 50
than planned expansion.
Target (MWs)
40
Percent
60000
30
40000 30538
40425 41110
Sector bogged down by
20
20000
16423 19119 21180
10832
significant regulatory
10
0 0
bottlenecks, especially with
8th Plan 9th Plan 10th Plan 11th Plan regards to power purchase
Period agreements.
Target Achieved Achievement Percent Signing of the nuclear deal
Source: Power Ministry
opens up a significant USD 100
Power Situation in India, 2000-2006 billion market for nuclear energy
120000 16
in India.
14
100000
12 With the peak shortage set to
Q uantity (M W s)
80000
Percentage
10
increase, investments in
60000 8
generation are expected to
6
40000
4 increase.
20000 2
Distribution provides scope for
0 0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 automation.
Years
Source: Power Ministry
Peak Demand Peak Met Peak Shortage
13

Power
Planned Capacity Expansion 2007-2012
20000 40000 60000 80000
Quantity Thermal Hydro Nuclear
0
Central State Private Total
Sponsored Sponsored
Source: Power Ministry
Energy demand to be 69.6 Mtoe by 2010
Huge shortfall between demand and supply
$43 billion worth capacity under expansion
Generation target of 200,000 MW 11th Plan
7 UMPPs with each requiring $3.26 billion each investment identified
Robust growth in alternative energy
14

Metals
Steel Production,2002-2007
O u tp u t ( '0 0 0 0 0 0 ) T o n n e s
60
50 Set to become second largest
40
producer of steel
30
20
Capacity expansion to 124 million
10
Tons by 2011-12
0 194 MOUs signed to establish new
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 (April- plants
December)
Total Investment USD 140 billion
Years
Crude Steel Production Finished Steel Including Alloys Production Finished Steel Including Alloys Consumption by 2012
Finished Steel Including Alloys Import Finished Steel Including Alloys Export
Source: Steel Ministry
Non Ferrous Metals Production, 2002-2006
3000000
Power sector attracting investments
Production (Tonnes)
2500000
leading to increased aluminum
2000000
demand
Copper demand boosted by 1500000
electronics industry 1000000
Consolidation and expansion in non- 500000
Ferrous Metals 0
Reduction in import duties 2002/03 2003/04 2004/05 2005/06 2006/07
Growth in steel production leading to Year
zinc demand Zinc Production Copper Production Aluminium Production
Source: Ministry of Mines & Minerals
15

Automobiles
Production, 2001-2007
1800000 35
1600000 30
Emerging hub for auto ancillaries.
1400000
25 Has between 350 and 400 export oriented
Output (Units)
1200000 auto ancillaries.
Percent
1000000 20 Engineering depth making India attractive
800000 15 destination for auto ancillaries.
600000 India emerging attractive destination for
10 global auto makers.
400000
200000 5
0 0
2001 2002 2003 2004 2005 2006 2007
Years
Source: SIAM Cars Commercial Vehicles Growth
Export Trends, 2001-2007
A Small Car Hub?
2500000
2000000
Small cars dominate market Output (Units)
Emerging small car hub 1500000
Launch of Tata Nano 1000000
Suzuki designing a star
Renault- Bajaj project 500000
Hyundai launching i10 in India first 0
Nissan mulls production of 9 small car
2001 2002 2003 2004 2005 2006 2007
models from India
Will lead to capacity expansion and Years
demand for automation solutions
Cars Commercial Vehicles Total
Source: SIAM
16

Chemicals and Pharmaceuticals
Pharmaceuticals, 2004-2008
12 10.8 Generics Hub
10.1
Largest number of FDA approved plants
Value (Billion USD)
10 9.4
8.7
8.2
8 Top 5 API manufacturers
6 Consolidation expected to boost
4 capacity
2
Hub for contract manufacturing
0
Increasing deployment of safety systems
2004 2005 2006 2007 2008(E) Key sector for machine building
Y ears
Source: IBEF
Chemicals, 2001-2005
7000 Large agricultural base
Output ('000) Tonnes
6000 100 percent FDI
5000
4000
Emerging hub for export of specialty
3000 chemicals
2000
1000
Robust demand for inorganic chemicals
0 from local industry
2001/02 2002/03 2003/04 2004/05 2005/06 Increasingly adopting safety systems
Years
Key sector for machine building
Production Exports Imports
Source: Ministry of Chemicals
17

Food Processing And Beverages
Food Processing, 2007
40
35 37
Penetration Percent
30
25
20
15 10
12
10 8
5 3
0
Dairy Products Fruits and Meat & Poultry Fisheries Packaged Foods
Vegetables
Sector Source: IBEF
Highly disorganized industry with numerous players
Low level of penetration of food processing
Shrinkage of grains worth USD 11 billion in 2008
Government aims to increase food processing to 25% by 2025
Niche market with scope for growth in DCS and safety systems
Beverages is a USD 155 million market in 2007
Key sector end user sector for machine building
18

Growth Opportunities
Key Sectors and Impact on Demand (Segment wise), 2008-2010
Safety
PLC DCS SCADA MES Servo Systems
Systems
Oil and Gas Low High High Moderate High No Impact
Metals Moderate High No Impact No Impact High No Impact
Power Low High High No Impact High No Impact
Automotive High Low Low Moderate High Moderate
Chemicals High High Moderate High High No Impact
Food
High No Impact No Impact Moderate Moderate No Impact
Processing
Pharma High Low No Impact High Moderate No Impact
OEMS High No Impact No Impact No Impact No Impact High
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