Investment outlook

Approach & Methodology for investment assessment

Approach and Methodology:
Assessment of the availability of equity from internal accruals, IPOs, FPOs, FDI, Private equity, etc.

Macro-economic view and reform orientation Demand-supply situation across sectors Companies/Government investment plans

Interaction with companies, banks and other stakeholders

In-house sector assessment

Project execution/ investment status Funding requirement across sectors Assessment of return on investment Expected policy changes

Government - budgetary allocations Company - Internal accruals and balance sheet analysis along with assessment of ability to raise equity

Assessment of credit availability from banks, NBFCs, forei gn borrowings, etc.

Assessment of financial situation

CRISIL Research's investment estimates

For forecasting infrastructure investments across sectors, CRISIL Research has had extensive discussions with various stakeholders including policy makers and the financial community, apart from drawing from our in-house expertise on various infrastructure sectors. Specifically, we assessed:
The stakeholders ability to execute projects in a timely manner: This would include obtaining all the necessary clearances, land acquisition, achieving financial closure and order placement with equipment vendors for the plant and machinery to be installed. Demand-supply dynamics of the sector: If the demand-supply situation was conducive, companies would fast track projects; on the other hand if the situation was adverse, companies would be wary of undertaking capacity expansions. In social sectors such as the railways, irrigation and water supply and sanitation, where the demand is currently in excess of supply, the governments role is critical as these sectors attract very little participation from the private sector.

Step-by-step assessment of infrastructure investments

1. Identification of projects: We listed the various projects under implementation across sectors, including those planned or announced by companies and the government. For this, we used the information available in the public domain that was supplemented by our discussions with players. We also interacted with CRISIL Researchs in-house teams covering these sectors.
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CRISIL RESEARCH, INFRASTRUCTURE INVESTMENTS: A REALISTIC ASSESSMENT, OCTOBER 2011

Investment outlook

2.

Aggregation of investments: The next step was to aggregate the planned investments for

each sector spread over the typical execution time frame of a project in the industry. For example, investments in power projects have been staggered over 4-5 years from the start of the construction of the project, whereas investments in roads projects have been staggered over 2-3 years time in line with the typical time frame for project execution in the industry. Weve aggregated the expected investments in the following sectors based on bottom-up analysis: Power Oil & Gas Roads Ports Airports For these sectors, we have done a trend analysis of past investments and our outlook on the same: Railways Irrigation Water supply and sanitation Telecom Warehousing For doing this, it was essential to gain an on-the-ground understanding of the pace of execution of the various projects to assess the likely investments across sectors. Moreover, it was imperative to do an assessment of the prevailing policy environment in the sectors and how the policies were likely to evolve in future. We therefore interacted with the companies (across sectors) that were undertaking capital investments to get their perspective on the same. 3. Availability of finance: The next step was to assess the availability of finance, which required analysis of the funding requirements that can be met by the government, corporates and financial institutions. On the basis of CRISIL Researchs economic outlook, we estimated the funds that the central and state governments will be able to provide as budgetary support towards infrastructure projects. Simultaneously, we assessed the ability of the private and PSU companies to generate funds through internal accruals taking into account their past profitability and our outlook on their future performance. We have also evaluated the potential of these companies to raise fresh equity in the domestic as well as international markets (IPOs, FPOs, Rights issue, Private equity, QIP, FDI, etc.) for funding their projects. Further, from the discussions we held with the bankers and NBFCs, we estimated the amount of debt that can be raised from both the domestic and international sources (banks, NBFCs, ECBs, FCCBs, FII debt, bonds, etc.) after taking into account government budgetary support, internal accruals and fresh equity infusions by corporates.
CRISIL RESEARCH, INFRASTRUCTURE INVESTMENTS: A REALISTIC ASSESSMENT, OCTOBER 2011

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