70 i chronicle

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Cover Story Big Blow …

Cover Story Big Blow
Outlook Silver
Stats Export Push
Emerging Country South Korea
In Focus Apple Tax issue: Time for some reform?

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  • 1. Investeurs Chronicle My 2013, Volume:70
  • 2. Guest Column With focus of private players shifting from K-12 to other forms of education such as skill and vocational training, Indian Education sector is expected to touch a value of USD 45 bn by 2015 rising from USD 30 bn in 2012 [main revenue streams being: K-12(USD 20 bn), technical education (USD 12 bn), coaching (USD 8 bn), and pre-school (USD 3 bn)]. Government spends on Indian Education sector is valued at USD 600 Bn every year and is expected to have a CAGR of 19% between 2011-15. The reasons for such high CAGR and valuations are the investable opportunities and recession proof nature of the industry. India is 9th in position in terms of education spending. Urban affluent (top 10% by spend) spending is around 10.4% per month of total consumer spend and that of rural poorest (bottom 10%) is just 1.4% of wallet on education. Another key driver for the increment in spend on education is the fact that with every 1% increment in per capita income there is a rise of 2% on private education. India: Amongst top-10 Markets By Education Spend Source: World Bank & Anand Rathi Research, 2013 Price of Education in India Source: World Bank & Anand Rathi Research, 2013 0 50 100 150 200 250 300 US Japan France UK Germany Italy Brazil Canada India 300 275 175 190 175 120 105 100 100 US $ Bn 0 50 100 150 India Russia Poland Brazil Spain 20 23 25 30 60 65 77 120 137Price Index Indian Education: Want a Slice? By: Sunny Garg
  • 3. Anatomy: Indian Education Sector Coaching Test Preparation Vocational Training Corporate Training ICT/ Multimedia & Online Content Teacher Training Books & Stationery Books & Stationery Indian Education Sector Core Parallel Ancillar Primary Secondary Higher Secondary Technical Professional Pre-schools Guest Column Leaders: Respective Segment Core Segment K-12 – The size of spend in this sector is around USD 75 bn per year, predominantly being public spend. Revenues from this segment are expected at USD 20 bn in 2015. It is the most regulated segment of India’s education sector. An opportunity for private players in this segment is valued at around USD 15 bn with a CAGR of 15%. Despite the non for profit clause, 24% of the primary, 21% of the middle and 24% of the secondary and higher secondary students attend private schools. The business model can run both on asset heavy business model as well as asset light business model also called dry management. Parallel Segment Tutorials/Coaching – Most unregulated and unorganized segment of the Indian Education Sector. The yearly revenue size of this segment was USD 4.5 bn in 2012 and is expected to touch USD 8 bn by 2015. The unregulated nature of this segment has attracted a lot of PE/VC investment in this area. Integrated classroom coaching, the dominant part of the industry accounts for over 80% of this segment. This segment has been showing a CAGR of 20% per annum. It is mainly an urban phenomenon and accounts for nearly 75% of the overall coaching market.
  • 4. Ancillary Segment Online Coaching – Four types of test preparation institutes in India. These comprise: a) Integrated classroom programs – Personalized coaching is the key driver. Key market players in this segment are FIITJEE, IMS, Career Point etc. This currently shares 80% of the overall segment contribution and is expected to fall to 70% over the coming years. b) Technology aided – virtual class – Virtual classes replicate a real classroom with the help of VSAT/VPN/broadband via tie-ups with technology partners. Audio and video conferencing is used for the students to interact with the professional tutors, thus helping in minimizing the costs and time for both. c) Portal-based learning – A social networking platform is used to bring alumni, teachers and students together. Services provided include discussion forums, ranking of schools and colleges, application forms of institutes, entrance test preparation material etc. d) Distance Learning – This mode helps reach geographies where full fledged classes are not present. It is one of the most profitable segments in Indian Education sector as it does not involve investment in infrastructure or teachers, content once ready does not involve much cost. Investment Rationale • Public spend in education accounts for over 60% of overall education spend • Seats available for post –higher-secondary (tertiary) education are sufficient for just 12% of the population • Lack of public funding, household’s willingness and ability to pay for quality education and public authorities’ pro-active stance on education reform are driving private investment in the sector • Technical and professional education receives only 4% of budgetary spend • Perceived quality gap in public education • Large number of unemployable people because of lack of skilled technicians Problems With Growth • RTE (Right To Education) Act requires that for elementary education private schools offer 25% of seats to weaker sections and disadvantaged groups leading top defocusing of private players from this segment • The Act also puts severe teaching and non-teaching infrastructure requirements on private schools, failing which a penalty will be imposed and hence this deters fresh private investment in this segment • Higher education majorly the one which requires heavy capex limits the entry of private players as the returns generated are giving breakeven in 5-6 years timeframe • In India, private schools, colleges or deemed universities can be set up only by a trust, society or a company under Section 25 of the Companies Act, 1956, this in turn hindrances the growth of the sector and also the entry of private players in the sector • Non-for Profit Tag in the elementary, secondary and higher secondary segment prohibits the entry of private funding which creates a lacuna for the growth of the segment in the sector Guest Column
  • 5. Australian Dollar The Australian dollar fell below parity with its U.S. counterpart for the first time in 10 months after the central bank lowered its inflation forecast following an interest-rate cut last week (May 7, 2013). Australia has finally bitten the bullet and joined the global currency war. The Board decided to act on its 'scope to ease', afforded by a subdued inflation outlook. Last week brought what appears to be a critical trend change in the Australian Dollar’s path against its US namesake. Meanwhile, the U.S. dollar was in demand amid mounting speculation over an earlier-than-expected end to the Federal Reserve's quantitative easing program, following the release of upbeat U.S. economic data in recent weeks. AUDUSD put in a critical break below the bottom of a range that had contained prices since September of last year, seemingly opening the door for meaningful decline in the days and weeks ahead. Prices will have a hard time sustaining aggressive near-term bearish momentum without a fundamental catalyst however, the absence of which may produce a corrective bounce for the battered currency before the larger decline resumes. The outlook for rates will have to continue to deteriorate. That may prove to be a tall order in the immediate term in the wake of April’s impressive employment figures and an absence of top-tier scheduled event risk in the coming days that might have represented an inflection point. In fact, there is a probability of another 25bps rate cut at June’s RBA meeting at just 22 percent at present (according to data from Credit Suisse). The Reserve Bank of Australia (RBA), in its monetary policy statement lowered its 2013 inflation forecast to 2%, compared to 3% forecasted earlier. The central bank also predicted that, the nation would grow about 2.5% in 2013. Consequently, the Aussie came under pressure ad AUD/USD hit 0.9960 on last Friday (May 10), the pair's lowest since June 14; the pair subsequently consolidated at 1.0021 by close of trade on May 10, 2013. The pair is expected to find support at 1.0003 in the near term. Reflation Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically price level) back up to the long-term trend, following a dip in the business cycle. India’s growth Forecast Stats Outlook- Australian Dollar Gloss
  • 6. Emerging Country- Thailand Thailand officially the Kingdom of Thailand, formerly known asSiam , is a country located at the centre of the Indochina peninsula in Southeast Asia. The country is a constitutional monarchy, currently headed by King Rama IX. Thailand is the world's 51st-largest country in terms of total area, and is the 20th-most-populous country, with around 64 million people. Thailand is the 2nd largest economy in Southeast Asia, after Indonesia. It functions as an anchor economy for the neighboring developing economies of Laos, Burma, and Cambodia. Thailand is an emerging economy and considered as a newly industrialized country. After enjoying the world's highest growth rate from 1985 to 1996 – averaging 12.4% annually –the economy contracted by 1.9% which led to a crisis that forced floating of the currency. The baht was pegged at 25 to the US dollar from 1978 to 1997; however, the baht reached its lowest point of 56 to the US dollar in January 1998 and the economy contracted by 10.8% that year. This collapse prompted the Asian financial crisis. Thailand's economy started to recover in 1999, expanding 4.2% and 4.4% in 2000, thanks largely to strong exports. The economy of Thailand is an emerging economy which is heavily export-dependent; with exports accounting for more than two thirds of GDP Thailand exports an increasing value of over $105 billion worth of goods and services annually. Major exports include Thai rice, textiles and footwear, rubber, cars, computers and electrical appliances. Thailand is the world's no.1 exporter of rice. Thailand also ranks high among the world's automotive export industries along with manufacturing of electronic goods. Diplomatic relations between India and Thailand were established in 1947, soon after India gained independence. In 2009-10, two- way commerce between India and Thailand stood at $4.5 billion. India’s Major Exports to Thailand includes Natural or Cultured Pearls, Precious and Semi Precious Stones, Organic Chemicals, Nuclear Reactor, Boiler, Machinery and Mechanical appliances, Fish and Crustaceans, Mineral fuels, mineral oils and Electrical Machinery & Equipment & Parts. India’s Major Imports from Thailand includes Machinery and Mechanical appliances, Electrical Machinery & Equipment & Parts, Plastics, Rubber, Pharmaceutical Products and sugar. Negotiations for FTA are underway between both the countries. Thai economy has grown at 6.4% in 2012 a rebound for the country which has faced massive floods in the previous year. Growth was supported by an upsurge in household consumption and much higher investment outlays by both government and private fixed capital spending as inflows of FDI capital resumed. Inflation remained low and stabilized at about 3%. Export growth fell to 3.6%, and is expected to recover only moderately (5.5%) in the course of 2013. Cheap capital is flooding into Asia, including Thailand. The baht has since gained about 2.5% this year against the US dollar. It remains one of Asia's strongest currencies and is helping to hold down inflation to complement the government's price control and subsidies efforts which as a whole cost the budget 3.5% of GDP. The World Bank forecasts the Thai economy will grow 5.3% this year, up from its 5% prediction in December, with a strong performance next year. The economy in 2013 is expected to continue to expand as manufacturing production fully recovers from floods and natural disasters, and as the global economy. However, the Thai economy remains vulnerable to weak growth among its major trading partners, especially China and Asean. Domestically, political tensions and capacity constraints in public spending on reconstruction, including adverse climate change could work against its growth outlook. Vital Economic Statistics of Thailand Economy Particulars Details GDP (nominal) $365.564 billion (2012 estimate) GDP growth rate 6.4% (2012) Currency Thai Baht Credit Rating BBB+ S&P and Fitch Fiscal Deficit 2.7% of GDP (2012 estimated) Current account deficit 2.4% of GDP (2012 estimated)
  • 7. In FocusForex India Outsourcing Industry Under Scanner A recent Incident that has been making the News Rounds these Days is the $45-million worldwide ATM heist apparently breaching computer systems of a payment processing firm in India. This is the fourth major instance in less than a year because of which Outsourcing of jobs by global financial institutions to Indian shores has come under scanner. It was found out last week that RAKBANK & Bank of Muscat Oman were hacked by a global cyber-crime ring that first breached the computers at an outsourced Indian credit card processor (Pune-based Electra Card Services )in December & then the computers of a similar American processor to gain access to critical data that made the crime possible. After hacking into the card processor's computer network, the hackers compromised the bank's prepaid card accounts, manipulated the balances and withdrawal limits, while casher cells across the globe operated a coordinated ATM withdrawal campaign. The incident has brought in limelight the ineffective controls against suspicious transactions. As per an advisory issued by the Financial Conduct Authority, UK , India does not have the electronic database infrastructure in place to allow fast, effective checking of the bona fides of individuals. So firms need to apply a wide range of strategies to fill this gap. Fraudsters have singled out the weak link in the payment system as banks are willing to pass on their entire database to the processing company as these are not linked to customer accounts in case of Pre Paid Cards. Bankers say that although RBI has guidelines on outsourcing of banking functions, evolving technology makes it difficult to draw clear lines. RBI has sought to address this issue by making it clear that even in outsourced transactions; it is the bank that will be held responsible. The heist, which was predicated on the breach of an Indian outsourcing company, comes at a time when the sector is facing immense scrutiny about its cyber-security. The European Union has been unwilling to give India the Data Secure Status ,which will enable India to attract more work ,given the lack of enforcement, accountability and penalty guidelines in the country's existing Information Technology rules. Sensex Nifty 19,387 .50 20,082 .62 5904. 10 6094. 75 Gold (10 gm) Silver (1 Kg) 27133 26810 45168 44970 Crude Oil ($/barrel) Dollar/INR 103.81 103.65 54.28 54.54
  • 8. About Investeurs Consulting Private Limited For a good business, finance is as crucial as vision, management and product. Intuitively then Business Finance plays a vital role in the business prosperity. We, at Investeurs Consulting Pvt. Ltd understand and appreciate the vitality of this discipline and the responsibility that comes with it. As Business Finance Consultants we realize that finance is an enabler that contributes significantly towards realizing your business goals. We bring to the table 18 years of vast and vivid exposure to different businesses, a profound understanding of business and financial dynamics and excellent relationship with banks/ financial institutions. Domestic Trade Finance: Negotiation of Inland Letter of Credit International Trade Finance: Buyers’ Credit and Suppliers’ Credit Capital Investment: Project Funding and Term Loan. *** Working Capital Management Factoring Private Equity Rating Assistance Team Chronicle Akanksha Srivastava akanksha@investeurs.com Nidhi Gogia nidhi@investeurs.com Shagun Khivsara shagun@investeurs.com Harpreet Kaur harpreet@investeurs.com Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided. Investeurs Consulting P. Limited S-26, 27, 28, 3rdFloor, Veera Tower, Green Park Ext. New Delhi-110016, www.investeurs.com