Bangladesh growth report brac epl strat sales - feb 27 2013


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Overview of historical and long-term growth of the Bangladesh economy. The report has a broad sweep covering monetary-fiscal-FX action, international trade, migration and remittance, demography, manufacturing, capital markets, infrastructure, energy, transportation, logistics and tourism.

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Bangladesh growth report brac epl strat sales - feb 27 2013

  1. 1. Bangladesh Growth Report 2013 Strategic Sales February
  2. 2. DisclaimerAll cross-country data are obtained from the databases of development agencies including the World Bank and AsianDevelopment Bank unless otherwise mentioned. Data for domestic and external sectors of Bangladesh are primarily obtainedfrom the Bangladesh Bank database.Estimates and projections herein are conducted by BRAC EPL Stock Brokerage Limited (hereafter “BESL”) officers and arebased on assumptions that we believe to be reasonable.Data on market size and growth rates have been obtained from sources we believe to be authoritative and almost in all cases,cross-checked with secondary sources and theoretical analysis. Nevertheless, with regard to all numerical estimates containedherein, we are not able to guarantee either to their accuracy or completeness.This presentation is intended for those this is sent to via electronic, air or hand-delivered mail. No part of this material may,without BESL’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to anyperson that is not an employee, officer, director, or authorized agent of the 2
  3. 3. Glossary ACU Asian Clearing Union mmcfd Million Cubic Feet per Day ASEAN Association of Southeast Asian MSCI Morgan Stanley Capital International Nations MT Million Tons BDT Bangladesh Taka MW Mega Watt BERC Bangladesh Energy Regulatory MWh Mega Watt-Hour Commission NAFTA North American Free Trade BPDB Bangladesh Power Development Agreement Board NBR National Board of Revenue BSEC Bangladesh Securities Exchange OIC Organisation of Islamic Cooperation Commission (Note: SEC is more OPEC Organization of the Petroleum frequently used) Exporting Countries DESCO Dhaka Electric Supply Company PPP Purchase Power Parity DGEN DSE General Index RMG Ready Made Garments DSE Dhaka Stock Exchange S&P Standard & Poors EU European Union SAARC South Asian Association for Regional FDI Foreign Direct Investments Cooperation FX Foreign Exchange SIPP Small Independent Power Producers GCC Gulf Cooperation Council USD United States Dollar GDP Gross Domestic Product YTD Year till Date GNI Gross National Income IPP Independent Power Producers JICA Japan International Cooperation Agnecy kWh Kilo
  4. 4. Note to InvestorsGreetings!It is with great pleasure that we share with you our inaugural Considering a middle-class base of ~60 million, a working-ageBangladesh Growth Report. population of ~100 million, and 30 million more below the age of 14, the growth dynamism that awaits us may catch a few byBangladesh’s sustained ~6.0% growth since 2004 appeared to surprise. Of course, demographic dividend in Bangladesh’shave caught worldwide media attention not too long ago. Of case is one of many growth engines.course, if you are reading this, you are likely to have beenahead of the curve. We believe, therefore, this is an opportune time to collate data, analysis and estimates on economic growth, monetary-fiscal- FX policies, trade, migration, demography, consumption,Growth, while not being an end in itself, has certainly manufacturing, and equity market trends while acknowledgingtransformed the lives of tens of millions, lifting them out of the challenges that lie ahead and opportunities lurkingpoverty, inspiring ambitions, empowering the middle-class,and setting the stage for what appears to be even higher underneath. Infrastructural development or lack thereofgrowth. Growth, we believe, is a necessary condition for over- constitutes a significant challenge to and an opportunity forarching development, if not sufficient. higher growth. Effective planning to orchestrate investment decisions and operations is essential. In lieu of it, the country’s economic potential will be unrealized.The story of ready-made garments is rather unique anddeserves the attention it has attracted. However, a less-toldstory that is increasingly significant is that of the Bangladeshi We hope that you will find this report useful and even insightful, and welcome you to share any feedback orconsumer. As per latest income per capita estimates,Bangladeshis earn US$1,940 per year. question, in relation to or independent of your investment priorities.Now, according to the S-curve of consumption (or productadoption), that is not an arbitrary number, but one that Thanking you,indicates an inflexion point after which, consumption increases Sajid Huq Amitat an increasing rate. Feb 27, 4
  5. 5. Meet 5
  6. 6. Growth Dimensions DSE Turnover Growth in ’02-’12 3.4 x Bangladesh GDP Growth in ’02-’12 29.9 x Remittances Growth in ’02-’12 5.1 x DSE MCAP Growth in ‘02-’12 33.5 x Garments Exports Growth in ’02-’12 6.4 x 83.7 x 22 x Motorcycle Sales Growth in ‘00-’10 Mobile Subscribers Growth in ‘02-’
  7. 7. Bangladesh : A Blurb Bangladesh is the eight largest country in the world population-wise: 150.49 million as of 2011. At 130,170 sq. km., it is about the size of Iowa. Despite a low GNI/capita (PPP, current) of $1,940 the growth fundamentals of the economy has received widespread international attention, e.g., Goldman Sachs’ inclusion in “the next eleven” or N-11 economies as well as JP Morgan’s “Frontier Five.” Guardian has enlisted Bangladesh among the economies that have the potential of overtaking the west by 2050. Located between China and India, two of the largest and fastest engines of global growth, not to mention nearness to South-east Asia, Bangladesh offers unique diplomatic and commercial opportunities. The Bay of Bengal and the planned deep sea port in the south-east; the extensive riverine network; a large and youthful population, fertile land, and a 99% mobile network coverage have set the stage for speedier flows of capital, people, tradable products and services, and 7
  8. 8. Growth Path : Beginnings Real GDP Growth (%) Low income Middle income World Bangladesh 9.0 7.0 5.0 3.0 1.0-1.0 1985 1988 1991 1994 1997 2000 2003 2006 2009-3.0 Bangladesh’s steady and in fact rising growth rate over a 25- For 2012, provisional estimates are in the 5.5-6.0% range, year horizon surpasses in various country clusters (as notwithstanding a methodological revision expected to defined by the World Bank). indicate ~6.0% GR. Despite concerns regarding connectedness to US and While exports have sustained, other pillars of growth have Eurozone markets via trade – the BD economy was resilient been inward remittances, consumption, SME growth and through the 2008-09 financial crisis and 2011 Eurozone debt development, and agricultural self-sufficiency. crisis. The outlook indicates more of the same plus increasing In 2010, GDP GR peaked at 6.7%, and in 2011, it was at manufacturing output, export diversification, and increased 6.5%. connectivity internally and regionally via air, road, rail, and maritime 8
  9. 9. Comparative : Frontier Markets15 Bangladesh Kenya Lao PDR Nigeria Pakistan10 6.6 6.7 5.9 5.9 6.3 6.2 4.9 5.4 5.3 5.7 5 4.6 4.2 3.7 4.4 3.2 3.3 2.2 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011-5 15 Looking at specific high-growth economies in Africa, South Asia and South East Asia that are grouped with Bangladesh on account of similar investment risk profiles and comparable 10 income levels - Bangladesh’s economic output has enjoyed a steadier and more resilient trajectory. Certain high-growth 5 countries have had higher “high’s” but also 300-500 bp variations in two years or less. 0 Bangladesh’s economic stability fares well even in 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 comparison with the “Emerging Asia,” i.e., more mature high- growth South East Asian countries such as Thailand, -5 Malaysia, and Indonesia, whose growth rates plunged 500-1000 bp in two years. -10 Bangladesh Indonesia Malaysia Thailand Vietnam -15 9
  10. 10. Monetary & Fiscal 10
  11. 11. Growth, Inflation & Monetary Aggregates After a slowdown in 2007-08 on political impasse, M2 M2 Growth 1995-2011 growth rate picked up in 2009. There was excess liquidity 109.0X in the money market, which eventually entered the stock market, leading to 2010’s rally. 61.9X In 2011, the Bangladesh Bank (BB) turned a corner and 39.8X put in place a contractionary monetary policy. Since 2011, repo and reverse repo rates have been hiked by 225bp. 12.4X 13.0X Meanwhile, M2 GR which had peaked at 21.7% in Dec’10 5.9X 7.7X 8.4X 9.6X 3.8X 4.7X fell to 13.7% in May’12, in line contractionary targets. Thailand Malaysia Philippines Kenya Pakistan Sri Lanka Bangladesh Indonesia Nigeria Vietnam Ghana Other than mopping up the excess liquidity and correction of asset prices consequently raised – BB’s monetary policy has also aligned closely with stipulations of a US$1.0bn Extended Credit Facility (ECF) loan that the IMF approved for BoP support.Central banks around the world try to keep M2 GR in line withnominal GDP GR and an optimal inflation level. In Bangladesh,Broad Money grew 12.4X in 1995-2011. In the same time period, 22.4 Broad MoneyGDP on PPP basis grew ~3X from US$90.7bn to US$267.4bn. 21.3 19.3 Growth 19.2 17.1 17.6The above growth multiples are line with other economies’ that 15.5 Nominal GDP 14.8have enjoyed sustained growth and those in which the banking 13.7 Growthsector growth had internal liquidity generation had a relatively 12.9 12.1 12.6slower start. 9.9 8.8 7.2 7.2 6.7 7.3In 2006-2012, bank deposits (excluding inter-bank) grew at anaverage 19.4% per year. During the same period, total advances Average Annual(excluding inter-bank) grew by 20.0% on an average. Inflation 2006 2007 2008 2009 2010 2011 11
  12. 12. Fiscal-Monetary Nexus Stipulations for disbursements of successive tranches of the loan, Subsidizing energy costs enabled lower pricing of included sustaining single-digit inflation and re-classification of electricity. However, given limited revenue and absence of asset quality measurement guidelines as per best practices. In a secondary market for treasuries – subsidy financing via line with inflation control, the ECF also stipulated curbing public treasury sales to primary-dealer banks and NBFI’s had the sector borrowing from banks to finance subsidies. The prevalent unintended consequence of raising bank rates. Increased fiscal policy of financing subsidies via bank borrowing was lending rates i.e., higher cost of capital economy-wide discouraged, and rightly so, given it’s crowding out effect on naturally pushed up consumer prices. private sector credit was quite evident. In 2012, lending and deposit rates were higher than five-70% year averages – peaking at 13.8% and 8.2%, respectively. Total Domestic Credit On time deposits, leading private commercial banks Growth (YoY) Pvt. Sector Credit Growth (PCB’s) double-digit rates. (YoY) Public Sector Credit Growth (YoY) 1550% 12.8 13.8 12.3 11.9 11.3 12.4 1030% 8.2 7.0 7.0 7.3 6.9 6.0 510% Commercial Lending Rate Bank Deposit Rate Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12-10% 12
  13. 13. External Sector 13
  14. 14. Trade & Exports Trade Balance in USD mn Export in USD mn (fob) In 2012, and 1H in particular. the ready-made garments (RMG) “export power-house,” as Bangladesh was referred to by a recent Import in USD mn (foB) New York Times article, experienced a lagged slowdown on reduced demand from the US and the EU. However, trade deficits3250 were lowered from 2011-levels thanks in part to the monetary austerity program in place, one of the consequences of which was2250 a curbing of non-essential imports.1250 Exports grew 8.0% in 2012, which is respectable and also higher than in countries with comparable export industries, e.g., Pakistan 250 and Vietnam. In fact, in 2012, Bangladesh became the second- largest exporter of garments and textiles products after China. -750 Diversification of export destinations sustained growth rates in 2012, especially in 2H, during which which the newer destinations-1750 contributed ~US$1.0bn of US$9.94bn exports. The US is, Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 however, likely to remain an attractive destination for Bangladesh exports. India is also expected to become a larger export Breakdown of Export by Commodity destination. 100% 27.2%! 28.4%! 25.4%! 25.1%! 27.8%! 24.4%! 27.7%! To be sure, Singapore, Malaysia, South Korea, Japan, China, 75% Turkey, Australia, Mexico, Russia as well as several countries in the MENA region are expected to become larger export markets 50% for Bangladesh. Another trend worth a mention is the steady 65.0%! 64.2%! 67.3%! 68.1%! 66.1%! 71.1%! 67.6%! growth of high-value products (HVPs). Their share in the 25% garments export basket rose from 7-8% to 15-16% in 2012. 0% 2005 2006 2007 2008 2009 2010 2011 RMG! Fish! Leather! Jute! Others! 14
  15. 15. Imports & Outlook Breakdown of Import by Commodity The largest category in imports comprises miscellaneous products including dairy, spices, oil and oil seeds, pulses, sugar, clinker, 2005 2006 2007 2008 2009 2010 2011 100% chemical and pharmaceutical products, fertilizers, dying and tanning materials, cotton, yarn, staple fibers, and iron and steel. 80% As for import markets - India, China, Vietnam, Turkey, Poland and 68.1% 66.6% 65.6% 65.6% 70.0% 71.0% 64.5% Egypt are expected to contribute significantly in the future., This is 60% in addition to the traditional raw material suppliers in the OIC (Singapore, Malaysia and Kuwait for minerals, fuels, and oils; 40% Indonesia for animal and vegetable fat oils; Pakistan, India, China and Uzbekistan for cotton (India also for vehicle and China for 11.5% 12.8% 12.2% 12.0% 11.9% machinery); Saudi Arabia for plastic articles and Korea for iron, 20% 10.9% 10.2% steel, and floating structures. 0% Textile and Articles Capital Machinery Petroleum and Products Food Grains Regional Import 2012 Q2 (USD) Others 299.3 182.3In FY 2012, Bangladesh spent US$6.17 billion on import of liquid fuels, 533.7 Other Asian Countriesmore than twice FY 2011 levels, primarily to run quick-rental power 748.2 OICplants set up to address interim electricity generation gaps. Asian Clearing Union (ACU) 2,894.5However, monetary austerity, weak demand for exports in the EU and SAARCUS, not to mention bumper harvest of food grains, saw liquid fuel 1,384.3 ASEANimports decline in 2H 2012. New L/C opening for petroleum imports fell OPEC22.4% in July-October 2012. 1,975.4 EU 1,250.8 1,270.4 NAFTAMonetary tightening also led to a decline in import of consumer goods,industrial raw materials and capital machinery. In July-November 2012, Other European Countriesimport GR was -6.9% compared to 21.6% in the same period in 2011. 15
  16. 16. Remittance & Other inflows1,200,000 12,843 FDI (US$mn) No. of persons left for abroad 961 995 11,650 9131,000,000 Remittances (Million US. $) 800 793 768 10,987 743 9,689 650 800,000 564 7,915 391 376 600,000 276 5,978 400,000 4,802 3,848 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 3,062 200,000 Foreign direct investment (FDI) picked up 2009- 1,882 1,475 1,706 onwards and in 2012, reached US$909mn. In 1,089 2005-08 and 2001-04, average FDI-levels were US 0 $747.0mn and US$402.0mn, respectively. 1993-94 1996-97 1999-00 2002-03 2005-06 2008-09 2011-12 Attracting FDI is particularly important for a growing The Bangladeshi expatriate population estimated at around eight economy like Bangladesh as it involves transfer of million remitted back US$14.2bn in 2012, marking a 16.5% YoY technical and managerial knowledge. GR. This was noteworthy given the high base remittance dollar volumes had achieved in 2011, and surpassed man-power However, other frontier economies like Vietnam and exporting countries that had higher volumes until 2011. Cambodia have still higher average FDI levels both in absolute dollar volume as well as share of GDP (~5% Estimated at ~US$405.0bn in 2012, remittance to developing for the two countries). countries are expected to grow ~7.9%, 10.1% and 10.7% in 2013, ‘14, and ‘15, respectively, reaching US$534.0bn. Even if The year 2012 also saw foreign-currency term loans Bangladesh maintains average growth rates for developing of US$1.49bn, about 82% higher YoY and 393% countries, it could reach US$19.6bn in 2015. higher than in 2010. 16
  17. 17. FX Reserves & Exchange Rate15 90 Reserve (USD bn) BDT-USD (End of Period) In January 2013, the Bangladesh Bank’s foreign exchange reserve surpassed the US$13bn threshold for the first time. Strong remittance inflow, negative 75 import growth, quicker collection of export proceeds, FDI growth, and other foreign currency inflows were the primary drivers.10 60 As of January 08, foreign exchange reserves stood at US$13.1bn, up from US$9.6bn in December 2011. Current reserves are equivalent tofour-month import bill coverage. 45 On escalating FX reserves, the dollar rate, which had been stable in March-November 2012 around the BDT 81.0-82.0 range, dropped below the BDT 80.0 5 30 level in December. BDT appreciated thereafter. After the free fall of 2011, when BDT depreciated 12.8% against the dollar, the 2.6% appreciation since 15 December is commendable, and is presently at a level where it retains export competitiveness without importing inflation into the economy. 0 0 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 17
  18. 18. Consumerism & 18
  19. 19. Bangladesh : The Next Emerging Consumer Market 16,000Bangladesh’s per capita income, although higher than Kenya’sand closer to Nigeria’s, is still much lower than in Lao PDR, Bangladesh GhanaThailand and less than 20% of Malaysia’s per capita income.However, at US$1,940, Bangladesh’s per capita on the verge Indonesia Kenyaof the US$2,000-2,500 inflexion range on the S-curve of Lao P.D.R. Malaysiaconsumption. 12,000 Nigeria PakistanExperience from South Asian, South East Asian and African Philippines Sri Lankacountries with similar economic fundamentals indicates that Thailand VietnamGDP/GNI per capita accelerate around the time it reaches US$2,000. 8,000 Kenya 1,710 Ghana 1,810Bangladesh 1,940 GNI per Capita in 2011 4,000 Nigeria 2,290 (PPP Current USD) Lao PDR 2,580 US$2,000 income/capita line Pakistan 2,870 Vietnam 3,250Philippines 4,140 0 1980 1985 1990 1995 2000 2005 2010 Indonesia 4,500 Sri Lanka 5,520 Even modest assumptions on GR indicate Bangladesh is about the enter a high-growth threshold for consumption. Thailand 8,360 The consumer market in the offing is significant when one Malaysia 15,650 realizes that 57% if the population or about 92.0 million are under 25 years. 19
  20. 20. Discretionary Spend : Mobile Phones & Durables The market for discretionary consumer products in100 Mobile Phones, 2008-12 90 Bangladesh is approximately ~95.000 for air conditioners, 90 50,000 for microwaves, about 900,000-1.0mn for televisions, 80 and ~800,000 for refrigerators. Refrigerator sales are 70 increasing at ~25% a year, television sales at 10-12% a year, 62 while air conditioners and microwave consumption growth 60 rates are still in high single-digits. 50 45 40 Growth rates for refrigerators and televisions for India and 24 China were similar in the 1990s, ie the first decade of high 30 discretionary spending, following which consumer spend 20 increased further. The case for Bangladesh ought to be 10 similar in the coming decade. 0 Mobile Phone Subscribers (mn) Mobile Penetration (%) Electronic Goods Sales (Units) 2009 Microwaves 2010Mobile subscription doubled in the past five years. Drivers 2011 55,000for subscription growth have been increasing per capitaincome, migration to cities and overseas, delays in availingland line connections, and so on. Air Conditioners 100,000Bangladesh at present has ~62% mobile penetration, whichis certainly a larger market than its frontier market peers Televisionssuch as Ghana, Kenya, Lao PDR, Nigeria, Pakistan, Sri 1,000,000Lanka and Vietnam. However, penetration is higher for theother frontier markets, especially for Ghana at 85%, Sri RefrigeratorsLanka 87%, Lao PDR at 87% and Vietnam XYZ%. Only 798,571Nigeria and Pakistan have similar levels of penetration. - 400,000 800,000 1,200, 20
  21. 21. Bikes, Cars, and Internet PenetrationTo continue on consumer discretionary spend, there is a136 percent duty on refrigerators and 189 percent on Internet Users and Penetrationimported air-conditioners. It makes sense therefore to 6,000,000buy locally-manufactured refrigerators. This is borne out Internet Usersby growing sales of refrigerators assembled or 8%manufactured by local names. 4,000,000 Internet Penetration (% of Population) 4% Motorcycle Sales 2,000,000 2012 290,000 0 0% 2000 2011 2006 13,176 The travel and tourism sector raked in BDT182.5 billion, about 2.2. percent of the gross domestic product (GDP)Meanwhile, motor cycle sales increased ~8x in in 2011. The sectors contribution to overall GDP is2000-2013. As of 2012, motor cycle sales reached forecasted to rise by 7.3% in 2012 and on an average290,000. Local manufacturers are increasingly 6.1% annually until 2022, according to the WTCC study.competitive and gaining market share on their importer The Lonely Planet ranked Bangladesh number one incounterparts. Their quality continues to improve as well 2011 in its value-for-money tourist destination their capacity and are eventually expected toproduce sufficient surplus to enable export. Number of TouristsGrowth of the consumer sector is also evident from the 2010 303,000rise in internet users and penetration of the internetespecially, recent growth rates. Between 2010 and2011, internet penetration grew 8.7X, albeit from a low 2000 199,000base, according to the International Telecommunication Data: World Travel Tourism Council (WTTC)Union (ITU) 21
  22. 22. Manufacturing PathwaysAt current prices, Bangladesh’s annual imported car market is Agricultural yield will grow with dissemination among pooraround 30,000 units. Imported cars constitute ~80% of the farmers without access to information knowledge on optimal cropsmall and medium motor vehicle market of which Toyota has rotation, usage of higher-yield varieties and hybrids, limited69% share. experimentation with pesticides, increased urea-usage, and education on weather and soil-quality-dependent farming.The imported car market has altered however as duties have Increasing agricultural yield will accelerate the growth of theescalated to 250% for 1600-2000 cc vehicles, 350% for country’s industrial sector by freeing up workers for the factories.2750-4000 cc, and 821% for 4000 cc or larger. Meanwhile,equity-loan ratio on car loans have risen ~6-8 times. With a Bangladesh has the sixth largest work force in the world aftershrinking of the imported car market, opportunity is rife for low- Brazil, Indonesia, US, India and China. On top of gains inand medium-priced car manufacturers. employment generation for an estimated workforce of around ~80.0mn – Bangladesh also enjoys one of the most favorable demographic dividends globally (Vietnam comes close) withAutomobile manufacturers entering the Bangladesh market 65.3% population bin the 15-64 age group and another 30.0%estimate an annual demand six to seven times larger forlocally manufactured cars. South Korean Tagaz and Indian below.TATA are the other significant foreign players looking to enter Worldthe lower-priced automobile segment. Vietnam Population ages Sri Lanka 0-14 (% of total)Clearly, as borne by price differentials in refrigerator, Pakistantelevision, motor cycle and automobile markets between Nigeriaimports and local manufactured products - consumerism is Population ages Middle income 15-64 (% ofdriving an expansion of the manufacturing industry. Low income total) Least developedIn fact, in the previous 50 years, countries that have sustained Population ages Lao PDR above 64 (% ofperiods of consistent 7 percent or higher growth over a horizon Kenya total)of 25 years or longer, manufacturing and services weredominant contributors. Of course, the agriculture sector does Ghananot diminish in absolute policy importance given the scope for Bangladesh 30.0 65.3increasing yields and high global food 22
  23. 23. Emerging Manufacturing Sectors Shipbuilding Industry Sales (US$ million)Bangladesh minimum wages are the lowest in Asia,30-100% lower than in Vietnam, Sri Lanka and India,according to the ILO. While wages have recently and 2011 40justifiably increased, the existing (and significant)comparative differential has enabled development of labor-intensive sectors, e.g., apparel, textiles, leather, footwear, 2010 10and up-and-coming ones such as furniture, toys, bi-cycles,sports equipment, and ship building.An example of how domestic manufacturing to meet agrowing consumer segment − has begun to make small Labor-cost competitiveness is rather high for Bangladesh eveninroads in exports − is the furniture segment. The local in comparison other low-cost manufacturers, e.g., Pakistan. Asmarket is ~US$1.38bn with around 19% sales growth. of 2011, according to the World Bank, Bangladesh industry-Meanwhile, export volume, albeit from a low base, has wide net profit margins averaged ~16% compared to 3% inpicked up from US$27mn in FY 2012 to around US$40.0 in Pakistan.FY 2013. Since this sector is likely to incur future costs fromIn addition to demand from overseas buyers, significant environmental regulations, taxation, etc., Bangladesh’s cost-market growth is expected on forward-linkage potential with advantage is expected to enable market share growth in thethe domestic ship-building industry. A small ocean-going ~US$200bn global industry. Single-digit percentage share ofvessel made in Bangladesh typically requires furniture of the global industry entails sizeable economic benefits.~US$100,000, which are presently imported. SinceBangladeshi ship-builders are increasingly competitive in In the coming years and decades, other sectors are likely tothe global market for small- and medium-sized vessels, catch policy-makers’ attention for their labor-costlabor-cost arbitrage is expected to benefit both ship building competitiveness. It is important, however, that sectors are notand the furniture manufacture industries. identified only using a basic model of labor-cost arbitrage, but determined in consideration of other factors as well, e.g., access to raw materials, leadership talent, low-cost energy, reliable infrastructure, favorable regulation, trade policies, and of course diplomatic 23
  24. 24. Infrastructure Gaps 24
  25. 25. Energy PowerElectricity consumption in Bangladesh is one of the lowest In 2012, peak electricity demand was 7,518MW/day, up fromregionally and globally, as evident from the accompanying line 6,500MW/day in 2011, up by 16%. Meanwhile, peak supplychart. Scarcity of power is possibly the most significant was 6,350MW/day and total electricity generation grew byinfrastructural constraint inhibiting growth and development, 12% to stand at ~35,000GWh (CAGR ~9.0% in 2001-2011).and unlocking possible double-digit growth. The demand-supply gap came down to ~2,000MW to ~1,2000MW in 2012, reflecting reduced load-shedding.However electricity prices are among the least expensiveregionally at US¢ 4.16-14.75/kWh for retail and US¢ 5.88/kWhfor bulk users as of Sep ’12 (Sri Lanka has highest retail tariff Load-shedding (as % of peak generation)at US¢ 28.35/kWh). These are prices post-adjustment to lower 18.6subsidies on energy. The Bangladeshi Energy RegulatoryCommission (BERC) raised tariffs by 38.24% and 63.77%between 4Q 2011 and 3Q 2012. Further upward price 12.2 12.4 12.1 12.7 12 11.5 11.1 11.2revisions are expected: by 9% in 2013 and 30% in 2014. 9.5 9.4 8.6 6.9 6.62000 Per Capita Electricity Consumption (kWh) 5.4 Low income 0.2 0.1 0.9 Middle income1500 Bangladesh Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Ghana1000 However, the reduction in power generation has been driven by quick-rental power plants which require expensive 500 liquid fuels. A more cost-optimized energy mix, to take the example of JICA’s proposed roadmap for 2030, “The Power System Master Plan (2010).” recommends that 50% generation be coal-based. As of 2012, coal-generated 0 1980 1985 1990 1995 2000 2005 2010 power contributed ~2% of total power generated. 25
  26. 26. Sea Ports Maritime TransportationThe Bangladesh Power Development Board (BPDB) has begun With regard to maritime transport, Bangladesh’s sea ports arecoal and gas-fired base-load power plant projects, but risks of perhaps the most crucial to growth-impact. The mainimplementation time-overrun and bureaucratic delays are Chittagong port in the south handles about 80% of thesignificant. Existing gas reserves (~2,250 mmcfd against demand country’s imports and exports. It’s situated on the Karnaphuli,of ~2,700mmcfd) are under pressure for lack of new discoveries. is close to the Bay of Bengal, and last year, handled more than US$47mn tons of cargo and containers of 1.4 millionA possible silver lining may lie in gas exploration in the Bay of TEU’s and given growth outlook, requires urgent capacityBengal, which, following an ITLOS verdict, allowed Bangladesh expansion.access to four deep-water gas blocks and partial rights over threeblocks. Bidding and subsequent exploration by international oil The Chittagong port is particular commercial significance tocompanies (IOC’s) are expected this year. the garments industry. Positive changes thus far include allowing private berth operators to handle containers andAnother positive development is the approval by ECNEC, cargo. Turn-around-time for ships has lessened to two-and-a-Bangladesh’s highest policy-making institution, for a cross-border half days but still short of global benchmarks.US$196.0mn power transmission project. A US$252.5mn powergeneration project dedicated for greater Chittagong is alsoapproved, of which US$172.0mn will be provided by Saudi Arabia, The deep sea port in south Chittagong is however the biggestKuwait, the UAE, and OPEC. There are a few other power projects game-changer in the horizon which will enable manifoldin the pipeline. increase in connectivity between countries east and west of Bangladesh as well as trade routes to and from land-lockedEnergy issues notwithstanding, there is also considerable Nepal and Bhutan. China, India, Myanmar, the UAE, and ofinvestments to be made to develop Bangladesh’s roads, railways, course, Nepal and Bhutan have shown interest in developingbridge networks, airports, and waterways. The investment case for the Chittagong port. Down the road, there will be competitionroads, railways and bridges is of course quite patent for a in the maritime transit business for Bangladesh; hence timelydeveloping country, but in Bangladesh’s case, waterways and action is paramount.aviation present relatively compelling cases as well, especially theformer and in the near-term. 26
  27. 27. Aviation, Roads, Railways Bridges Another substantial market for aviation’s growth is the largeMongla is the second sea port in Bangladesh. It has three Bangladeshi expatriate population of mostly migrant workers, butcontainer years of 35,752 sq. meters, and can several NRB’s naturalized in countries such as the UK, US, Italy,accommodate 2,180 TUES containers in a single high; five and so on, in total estimated at ~8.5 mn. Even by global standards,transit sheds and two warehouses can store 33,258 m.t. this implies a a fairly large market for international passengercargo. To develop Mongla, projects worth US$70.0mn for flights. But the obvious bottle-necks to the sector’s growth areequipment procurement and easier navigation of sea-going technological know-how at various parts of the sector value chainvessels are in the pipeline. including policy design (e.g., pricing) as well as the scale of investments to generate meaningful returns. Aviation’s sustainedDredging will need to take place at a reasonably large scale growth may necessitate transfer of technical and operationalto deepen and widen riverine channels, which will knowledge at levels comparable to those witnessed in the early-significantly reduce transportation time of goods and stage Bangladesh telecommunications and reduce land traffic congestion. A developedriverine transportation system will also enable renewableenergy generation from hydroelectricity. For purposes of To return to most conventional infrastructure-growth priorities of developing nations, i.e., the building of roads, railways and bridges,policy formulation, sophisticated synergies are possible the larger projects in the pipeline are as follows (dates ofbetween policy programs aimed at sea port development completion inexact):and riverine transportation. - ~US$3.75bn multi-purpose bridge about 6.15 km-long to connect the south and south-east with the impoverished south-west (lowerTo continue on transportation modes relatively initial estimates; may increase further with time)unconventional to most frontier emerging economies at - US$2.75bn Dhaka Mass Rapid Transit Development (DMRTD)Bangladesh’s stage of growth – aviation also has project for a 2.0 km-long metro-rail, of which JICA has pledgedconsiderable potential for growth and hence rationale for 85% fundingpolicy prioritization. The most obvious driver istransportation of RMG exports and the market, several large - US$2.0bn second Padma bridge to connect Dhaka with the westRMG manufacturers. Given the scale, growth rate, and and south-west as well as the main land port with Mongla portambitions of Bangladesh’s garments industry, international - US$1.24bn elevated expressway about 26.0 km-long to connectcargo flights ought to be a logical next step to lowering the primary airport, Shah Jalal International Airport, to the Dhaka-costs for the industry and enhancing its competitiveness. Chittagong Highway - US$400mn four-lane highway for Dhaka-Chittagong traffic. 27
  28. 28. Regional Connectivity : Sharing Costs SpoilsHowever, building ports, river networks, expressways, an In fact, interest in developing Bangladesh’s transportationwidening roads into multiple-lanes are very expensive system and various modes thereof involve business casesinvestments. The size of total investment capital required for for countries outside South Asia, and other than China, UAE,the list of large projects is close to US$10.0bn, which does and Japan, all of whom have shown actionable interest.not include the many roads that need to be laid, unpaved There is also the “Emerging Asia,” as represented by Southpaths paved, smaller bridges to be built – to say nothing of East Asia, Indochina, Korea, and even the CIS.deep sea port development, investments in Chittagong andMongla ports, riverine network development, and aviation For instance, there is an organization known as BCIMindustry development. The railway system also requires a (Bangladesh, China, India and Myanmar) that aims tosizeable overhaul. The size of total investments required may increase connectivity across the four countries whichrun into ~US$40-60.0 bn. constitutes around 40% of the world’s population. Very recently, they organized the first four-nation joint-road surveyThis is clearly untenable without foreign direct investment to accurately map road connectivity.and other shared financing programs with regional anddistant sovereigns that have expressed interest. Since the There is yet another group called The Bay of Bengal Initiativecommercial gains from greater connectivity are inevitably for Multi-sectoral Technical and Economic Cooperationshared, investments ought to be. Large scale commercially- (BIMSTEC) formed in 1997 in Bangkok and includesdriven diplomacy is clearly the required ingredient to Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutanactualize Bangladesh’s requisite transportation network and Nepal. This consortium is intended to promote trade,development. investment and connectivity between South and South East Nations. Dhaka happens to be BIMSTEC’s head-quarters.A discernable benefits of the above is an inevitableemployment boom that results in construction and services The commercial and diplomatic opportunities for Bangladeshsectors from investing in infrastructure. The second and more as a result of its advantageous geographic location canlasting benefit is increased connectivity between South Asian facilitate growth of various Bangladeshi service sectors. Ascountries, since trade between the neighbors are on the rise demonstrated by Singapore, the growth-impact of investingand expected to accelerate. The travel time however in logistics and becoming a trading hub, can ensurebetween capital cities in South Asia are presently 100-200% continued prosperity, especially given Bangladesh’s otherhigher. Optimizing travel time entails considerably higher growth volumes for Bangladesh and its 28
  29. 29. The Internet of ThingsInternet penetration should also drive an increase in new However, 3G will not immediately translate to increasedbusiness activity. Particularly in a country like Bangladesh, the internet penetration because of licensing and CAPEX costsInternet can help make up for shortages in other forms of involved for mobile operators (latter due to significantinfrastructure, such as roads, by enabling people to transact network swap costs for 3G).across large distances. In the longer run, internet-based business are expected toFor starters, internet-based business can contribute to contribute significantly to the economy via sectors such asagriculture. With small household farms in rural areas agriculture, health, education, commerce, retail and a varietydominating production, there is great scope to increase value of service-oriented sectors.added using the internet. It can be a useful tool with which todisseminate information on planting times, methods, use offertilizers, etc.In Bangladesh, where urban centers are inhabited by 30% ofthe population - the bank sector’s physical penetration islimited by the country’s terrain, lack of road networks, energysupply gaps and infrastructure bottle-necks.Despite such challenges, banks have built up impressivebranch networks. The next mile for financial inclusion of theunbanked hinges on mobile banking, which in turn requires acheapening of internet access as well as affordable 3G-enabled mobile devices. The auction for 3G licenses isexpected to take place around 29
  30. 30. Capital 30
  31. 31. DSE : Upside despite Macro-Financial Stability After a brief impasse in economic and trading activities in The boldest policy initiative was setting in motion the de- 2007-8, pent-up liquidity entered the stock market via margin mutualization of the bourse. So far we understand, this involves an loans and re-purposed bank debt, fueling record retail and overhaul of the bourses’ ownership structure – towards greater domestic institutional investor participation. In 2010 alone, representation of independent owners than stock-brokers; revenue DGEN appreciated ~94%. In a densely-inhabited capital city model changes; and overall, improved accountability and with scarce investible asset classes and rather early-stage governance. Thereafter, surveillance software was launched to financial-literacy levels (among investors as well as licensed detect and deter fraud and manipulation. Regulators also pushed intermediaries), speculation became rife which ultimately drove through a new free-float adjusted market-capitalization-weighted DGEN’s relentless rally. index. The bull market turned a corner in Dec 2010 as BB raised bank In sum, the country’s primary bourse, the DSE has become a safer cash-reserve ratios. A multi-phase correction set in, initially market in which to invest. More importantly, it has become an quicker but slowing gradually, largely on investor panic, attractively valued market uncorrelated to macroeconomic results downsizing of bank portfolios and drying up of trade thereof. or outlook; which is a good thing because the market would not be what it is to value investors now, had it priced in economic Retail investor confidence waned, as did dollar values of performance past or expected. average daily turnover. Regulatory changes turned a corner for 500,000 the better in 2012 after a phase of policy trial-and-error in 2011. Dhaka Stock Exchange MCAP and Liquidity A series of policy initiatives were put in place aimed at curbing 400,000 manipulation and volatility risks; simultaneously strengthening market fundamentals; in part on prescriptions from International Total Volume (thousands) Financial Institutions. 300,000 Total Turnover in USD (thousands) Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-1210,000 200,000 Total Market Cap. in USD (mn) DSE General Index 100,000 5,000 0 0 Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 31
  32. 32. Market Fundamentals: MCAP Growth In 19 years, DGEN’s Market Capitalization to GDP ratio Total Market Capitalization (% of GDP) increased 15x – surpassing MCAP growth rates of comparable frontier markets. Although it is true that DGEN MCAP probably had a far lower base in 1993 than its frontier market counterparts, its MCAP GR is still indicative of the underlying 7.9 2011 Ghana domestic investor interest in the stock market even at a 2.0 relatively early stage of its history. 1993 In fact, the external drivers of the staggering rally of a hitherto 15.6 little-known market in 2009-10 are also reasons for DSE’s Pakistan 22.5 double-digit multiple growth rate in market cap. First, for the median retail investor, there is a dearth of 16.1 investable asset categories. Real estate is usually expensive. Nigeria In the more upscale parts of the capital city, real estate prices 4.8 are comparable to Mumbai, which is occasionally higher than those in developed market capital cities. Prohibitively 21.0 expensive real estate, an under-developed fixed-incomeBangladesh market, and until recently, single-digit returns on deposits – 1.4 have fueled retail investor interest in the stock market through time. 30.3 Kenya Dhaka’s high population density also lends to rapid 18.4 information flows. The dynamics are just right for high multiplier effects of both positive and negative feedback on investable securities. Lastly, high M2 growth rate also 32.8 Sri Lanka Indicates high return-potential and high liquidity. Overall 24.2 market size is positively correlated with the ability to mobilize capital and diversify risks across the economy. 32
  33. 33. Market Fundamentals: Liquidity Ratios Total Turnover to Market Cap Ratio (%) Liquid markets are naturally preferred because they are likelier Least developed countries to have lower bid-ask spreads, enable more efficient price Low income discovery and are less prone to long-term bubbles and corrections. Middle income World Liquidity also significantly predicts future returns. Moreover, a lack of liquidity causes asset markets to dry up or render trades Bangladesh difficult to execute when prices are falling, particularly when an 92.6 investor might want to exit. Total Turnover to GDP Ratio (%) Bangladesh Ghana 1993 2002 2011 Kenya NigeriaDespite Bangladesh’s equity markets’ relatively early stage of Sri Lankadevelopment, dollar volume of turnover levels (as evident fromthe adjacent pictorial) are generally higher than dollar volumetrends for the least developed, low-income and middle-incomecountry groups.Turnover to Market Cap and Turnover to GDP are both usefulindicators of liquidity as the first represents the liquidity of themarket and the second of both the market and wider economy.When liquidity risks of investing in markets are dispersedsystemically – it is easier to manage portfolio risks as long as aneconomy’s financial services sector is well-governed andregulated, as is turning out to be the case with Bangladesh’s 1993 1999 2005 2011banking sector in light of asset quality and risk capitaladjustments underway. 33
  34. 34. Indicators of an Under-valued Market? Market P/E Monthly Deposits Flow and Stock Turnover35x 60030x Change in Deposits (BDT bn) 50025x Stock Market Turnover (BDT 400 bn)20x 17.8x15x 30010x 200 5x 100 0x - 2003 2006 2009 2012 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 (100) Market P/E Market P/E (Avg. 2003-2012)Despite debates about its utility for valuation of an entire market –historical P/E is a more useful indicator of an undervalued market than Monthly Imports and Stock Turnoveran overvalued market. By this metric, DSE is under-valued givencurrent single-digit P/E ratios. 600 4,000 500The next chart (top right-hand side) indicates the inverse relationship 3,000between a high bank deposit rate and lower fund flows to the stock 400market, which was clearly the case in 2011-12 as monetary tightening, 300 2,000and provision growth led to higher deposit rates for fund mobilization. 200 1,000Imports are a proxy for industrial production index. Clearly a leading 100indicator for turnover, the widened gap in 2011-12 indicates the growthin fuel imports viz-a-viz non-fuel imports, since the former’s effect on - - Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12the market is not discernible yet. However, an uptick in overall importsin 2H 2012 bodes well for the market, as does the de-growth in Stock Market Turnover (BDT bn) Import (USD mn)deposits after June 2012. 34
  35. 35. Appendix: Sectors Stock 35
  36. 36. Tobacco FootwearThe Tobacco industry in Bangladesh has an annual market size Footwear industry generates annual sales of BDT 18.0bn or USof ~135 billion. Tobacco spend/capita is BDT844/US$10.55 and $225.0mn. Footwear consumption is 0.8 pairs per capita per year.consumption 2.5 sticks/person per year. Market penetration in Bata Shoe and Apex Adelchi are the only large players in anBangladesh is around 40%. Tobacco sales consist of 52% otherwise fragmented industry. Bata has the largest market sharefiltered cigarettes and 48% unfiltered varieties (local term: bidi). of ~20% and Apex ~5-7%. Bata has two manufacturing plants inBidi costs 1/6 the price of a low-end cigarette. Tongi and Dhamrai with production capacity of 110,000 pairs/day. Apex has a production capacity of 15,000 pairs/day for export and another 5000/day for domestic sales.British American Tobacco (BATBC) is the only listed tobaccomanufacturer with about 99% market share in the high-end. In Bata’s case, domestic sales contribute ~91% to revenue.BATBC’s shareholding structure is as follows: 73% by the BAT Meanwhile, Apex is export-oriented with ~80.0% revenue cominggroup; 11% by the Investment Corporation of Bangladesh(majority government-owned NBFI); and 16% free-float. Other from exports. Apex, however, plans to generate 40.0% fromplayers in the tobacco industry are domestic conglomerates of domestic sales by 2015.significant size: Dhaka Tobacco (under Akij Group) and Abul The footwear market is poised to surpass historical growth ratesKhair Tobacco. as churn increases with higher disposable income of the population. This bodes well for Apex’s re-purposing of export-BATBC’s low-segment market share increased from 20% in quality footwear for domestic consumption while Bata should2006 to 60% in 2010. Net profits grew at double-digit rates in continue to do well with sustained focus on design and brand2006-11. Excises are high and constitute 11% of the building.government’s tax revenue. Future profitability expected to bedriven by consumers upgrading to higher segments. Segments New entrants are also establishing operations encouraged byare classified as follows: high-end; medium end; low-medium; industry’s growth prospects. Pou Hung Industrial (Bangladesh)and low-end. BATBC has significant cash balance with minimal Limited owned by Pou Chen Group has set up a US$62.0mnleverage. factory in the Karnaphuli Export Processing Zone (EPZ). Korea- based giant Youngone group has also set up a US$110mn shoe factory in the same EPZ with plans to increase their investment in the coming years. 36
  37. 37. Personal Care PharmaceuticalsMarico Bangladesh Limited is the largest listed company in the Pharmaceuticals is one of the fastest growing and mostconsumer and household products space. They have a “basket of technologically-developed sectors in Bangladesh. The retail marketoils.” Parachute, their flagship hair oil brand, has 50% market grew at 17.2% annually in 2007-11, reaching US$1.0bn in 2011. Ofshare of a total annual sales of a 100 million. Per capita drugs sold, generic to branded ratio is 85 to 15. Increasing lifeconsumption of hair oil is 250 ml/year. expectancy, disposable income, information flow via mobile connectivity and hospital sector penetration are growth drivers for the pharmaceuticals industry. As of 2011, average pharmaceutical spendMarico has the ability to pass on a price increases, often bypacking lower volumes per unit of product sold. They are efficient was about 3.4% of GDP/capita. Pharmaceutical exports constitute aat building brands and developing distribution networks. Their small share of the sector’s business although it has increased from USniche is the grooming, health and wellness space within the $3.7mn in 2001 to US$50.4mn in 2011.consumer products space. Parachute, for example, is made of100% herbal extracts whereas most of their competitors’ oils are Square Pharmaceuticals is the largest pharmaceuticals company withblended. Parachute coconut oil is sold in India, Sri Lanka, and a total revenue of BDT17.0bn and market share of 19.2% in 2010-11.Indonesia. Their nearest competitors are Incepta Pharmaceuticals and Beximco Pharmaceuticals with market shares of 9.1% and 8.6% respectively. Leading players enjoy elastic demand and can pass throughKeya Cosmetics Limited is a key player in the cosmetics and incremental costs on FX and inflation to consumers. Beximco Pharmaconsumer products space. Its products include soap, shaving sells its drugs to Southeast Asian and African countries and hascream, toothpaste, with their flagship brand, Keya Beauty Soap, is recently entered the highly-regulated EU market to sell ophthalmicone of the market leaders domestically. Keya Beauty Soap is also products. Renata, erstwhile Pfizer Bangladesh, and another leadingexported to India, Bhutan and the Middle East. In 2007-2011, pharmaceutical player, exports to Sri Lanka.Keya’s sales doubled, reaching US$30.0mn with increasingoperating margins (CAGR 28% in the said horizon). The WTO’s agreement on trade-related aspects of intellectual property rights (TRIPS) expires in 2016. Consequently, the 150-odd drugsDespite backward linkage via acquisition of Keya Soap Chemicals presently sold in the market without paying royalties may becomein 2010, raw materials account for 30% of costs, while exports are expensive. The medical profession and health care industry is then7.0% of revenue. In April 2012, Keya raised US$18.5mn through a likely to resort to a rationalizing of prescription trends. Older off-patentrights issue, to lower debt service obligations, which, until 2011, drugs may be brought back, and in rare cases, large players willconstituted 46% of assets. Keya is a relatively liquid stock, among sustain presence in export markets by sourcing domestically-producedthe 20 most-traded of 2012 with an average daily turnover of US API. There is however, a possibility of TRIPS being extended, so as to$0.78mn. Keya has a market cap of US$60.0mn and 66% free enable low-income countries like Bangladesh export of affordablefloat. drugs to other low-income destinations in Africa. 37
  38. 38. TelecommunicationsThe Bangladesh telecom industry has six operators in a highly Bangladesh Submarine Cable Company (BSCCL), incorporated incompetitive environment. Mobile subscriber penetration is at present July 2008 and publicly listed in June 2012, operates the only~57-58%. Pre-paid customers are 90% of the market and sector international submarine cable connectivity in Bangladesh. BSCCLARPU is around US$2.0. New customers, outside of urban zones, is 74% government-owned and has 26% free-float.generate lower ARPUs. Drivers of industry growth will be increasingdispensable income, spread of wealth, availability of inexpensive The cable is 20,000km-long and crosses 17 landing points inmobile phones, and so forth. Singapore, Malaysia, Thailand, Bangladesh, India, Sri Lanka, Pakistan, UAE, Saudi Arabia, Egypt, Tunisia, Italy, Algeria andGrameenphone (GP) is the largest listed company on the Dhaka France. The Bangladesh landing station is at Cox’s Bazar. BSCCLStock Exchange and the only billion-dollar public company (Market is mandated to handle the submarine cable connectivity as aCapitalization of ~US$2.3bn). It has ~45% of market share counting member of the SEA-ME-WE-4 (SMW-4) international submarinedual SIMs and 38% on single SIMs. Their network covers 99% of the cable consortium. BSCCL has earned membership to the SEA-country. ME-WE-5 consortium as well which allow it to handle a second submarine cable connectivity through the country, scheduled toGP is also the largest internet service provider (ISP) in the country, go live in 2014.owing to its “Edge” internet services on mobile phones. The nextstage of growth for GP will come from 3G-based business. However, The company provides bandwidth access to all the telecomhaving paid market-share-determined 2G license renewal fees and operators (e.g. IIG, IGW, mobile operators, ISP etc.) and with non-undergone network swap for 3G, the business case for 3G is not cash depreciation being the major expense item, it is able toimminent. It will depend on a cheapening of the internet, recouping generate significant margins. In 2011, BSCCL’s EBITDA Margin,licensing fees over time and availability of low-cost of 3G-enabled Gross Margin, Operating Margin, and Profit Margin were 90%,phones. GP has completed a year-long network swap to make it 3G- 84%, 73%, and 36%, respectively. Their business will be volumeenabled. driven and with internet penetration growth rate increasing exponentially, BSCCL is well poised to grow sustains high margins.It’s primary competitors are gaining market share of late throughaggressive pricing, which is eroding the premium GP enjoyed onARPU. GP is presently focused on operational efficiency andproduct diversification after the headwinds of 2012 in the form of 2G-license-related payments, SIM-registration and 10-second pulse. 38