Thematic | July 2018

Imminent disruptions

Research Team (Gautam.Duggad@MotilalOswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

| Thematic

Contents: Imminent disruptions

Summary............................................................................................................................... 2

Technology | Indian IT’s Future Tense?................................................................................. 4

BLOCKCHAIN and the future of ENTERPRISE adoption .......................................................... 5

Internet of Things ............................................................................................................... 13

Why Digital is not a secular tailwind for service providers? ................................................ 16

Automobiles ....................................................................................................................... 24

Electrification inevitably the way forward .......................................................................... 25

India and electrification dream ........................................................................................... 29

Various estimates put EV penetration at 25-40% by 2030 ................................................... 32

What changes does electrification bring? ........................................................................... 36

Oil & Gas ............................................................................................................................. 40

Hydrocarbons – death by the electrons?............................................................................. 41

Conference takeaways ........................................................................................................ 45

12 July 2018

1

12

| Thematic

July 2018

Technology

Imminent disruptions

Electric Vehicles & Digitization

“In the long history of mankind (and animal kind, too), those who learned to

collaborate and improvise most effectively have prevailed.”

-



Charles Darwin

Disruption in any part of the value chain has the potential to send centuries-old firmly-

rooted companies/industries into oblivion. A classic example is that of Kodak. It

invented photographic film and retained its dominant position for nearly a century.

However, inability to correctly align with the winds of change brought about by digital

photography resulted in bankruptcy.



In this report, we look at two disruptive forces shaping up today – Electric Vehicles

(EVs) and Digitalization, which may have a profound impact on automobile, oil and

gas, and technology sectors – how soon or late, only time will tell.

Motilal Oswal values your

support in the Asiamoney

Brokers Poll 2018 for India

Research, Sales and Trading

team. We

request your ballot.

Digitalization - Indian IT’s future tense?

Labor arbitrage, efficient processes and quality delivery as recipe of success for

Indian IT companies are passé. There is a clear need to adopt agile methods of

development, greater productivity through automation and new-age digital

platforms.



Driven by a new focus on digital transformation, companies are investing more

in new technologies like Smart Analytics, Robotic Process Automation (RPA),

Artificial Intelligence (AI) and blockchain among others.



Blockchain itself is expected to offer USD10-50b of market for service providers

in next few years. Both Internet of Things (IoT) and AI intersect with blockchain.



Early adopters of these new-age technologies will have the ability to partner

with their clients in these fast changing times.



Electric vehicles and fossil fuels – the ultimate race!



Research Analyst

Swarnendu Bhushan

(Swarnendu.Bhushan@MotilalOswal.com);

+91 22 6129 1529



Jinesh Gandhi

(Jinesh.Gandi@MotilalOswal.com);

+91 22 6129 1524

Ashish Chopra



(Ashish.Chopra@MotilalOswal.com);

+91 22 6129 1530

Rising pollution drives necessity:

Transportation accounts for as much as ~30%

of greenhouse gases (GHGs) in developed economies. In developing economies

like India and China, the share is much lower at 6-7%. However, urban areas

share the same fate. In Delhi, transportation accounts for 83% of CO, 36% of

NOx, 20% of PM2.5, and 9% of PM10. Winter aggravates the problem.

Electrification inevitably the way forward:

Electric Vehicles (EVs) by virtue of

zero discharge offer immense potential. Although costlier than Internal

Combustion Engines (ICEs) now, regulatory push and government incentives are

likely to drive adoption till the time economics catches up.

Shifting lanes:

In India, component manufacturers are likely to witness highest

disruption. Largest opportunity lies for Li-ion based battery manufacturers,

potentially USD42b market by 2030!

12 July 2018

2

| Thematic





Growth of petrol/diesel consumption could be severely impacted in the longer

term:

In the near-medium term, with increase in road and vehicle density, we

expect ~10%/5% consumption growth in petrol and diesel. We do not envisage a

major impact in the near-medium term. In the longer term, if the market share

of EVs were to rise to 30% of new vehicle sales, this would bring down the

consumption growth to 7% and 3.5%, respectively. What happens to the older

existing stock of vehicles would determine further impact.

CNG could be threatened:

CNG has gained prominence in areas like Delhi and

Mumbai that have been facing severe pollution problems. Since EVs are zero-

emission vehicles (ZEVs), transport fleets – both private and public – may be the

first to adopt EVs. ~25% of IGL’s CNG volumes come from buses; these volumes

could be adversely impacted if public transport shifts to EVs.

Winds of change- the conference highlights









We also invited few interesting companies in IT, Auto and Oil and gas space to

interact with leading investors.

New age digital technologies have sprung several companies and are witnessing

adoption by bigger players.

EVs in India would be largely market driven rather than incentive driven. New

business models like battery swapping, vehicle leasing would emerge.

While EVs would eventually threaten oil companies, we still need to prepare for

the short-medium term. Gas companies would be the least affected.

12 July 2018

3

| Thematic

Thematic

|

Technology

Indian IT’s Future Tense?

New technologies have been fast emerging in recent years, and

their impact has unfolded on every small and big walk of life. As

the list of the ‘next-big-things’ gets longer, business models are

falling by the side and many industries are losing relevance. Not

least at risk has been Indian IT, whose labor arbitrage, efficient

processes and quality delivery have been already termed as relics

of the era past.

The new era of services hovers around agile method of

development, with an approach of greater productivity through

Automation. It is touted to be about leveraging technologies such

as Blockchain, IoT and Cognitive AI to build next-gen smart and secure Enterprises.

As the bread-and-butter pie for Indian IT gradually shrinks, there is an urgent need

to up-skill their employees and pivot their business models to new-age Digital.

Two schools of thoughts emerge in the context of the industry’s preparedness

when it comes to addressing the Digital opportunity –

[1] Next set of technologies means next wave of opportunities and

[2] Structural shift of business models, which only those most prepared, will

transition through, while many others will succumb.

This section not only deliberates briefly on the end-game from the Indian context,

but also elaborates two of the many buzz terms capturing the imagination of the

Technology landscape at large: [1] The more immediate Internet of Things, and [2]

The next-big-trend of Blockchain.

3 Emerging technologies for the future

Service providers

BPM providers

Ashish Chopra – Research analyst

(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424

12 July 2018

Sagar Lele – Research analyst

(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585

4

| Thematic

BLOCKCHAIN and the future of ENTERPRISE adoption

As the old technology models pave way for the new models driven by the agenda of

Digital Transformation, clients’ value focus is driving investments in the following

areas:

[1] Smart Analytics

[2] RPA

[3] AI

[4] Global Sourcing

[5] Blockchain

[6] Digital business models

We hereby have laid out one of the hottest and newest buzz in the fray –

Blockchain.

What is Blockchain?









A blockchain is a

peer-to-peer distributed ledger

that is

cryptographically

secure,

append-only, immutable, and updatable only via consensus or

agreement among peers.

It is an interlinked and continuously expanding list of records stored securely

across a number of interconnected systems. This makes blockchain technology

resilient since the network has no single point of vulnerability.

Additionally, each ‘block’ is uniquely connected to the previous blocks via a

digital signature, which means that making a change to a record without

disturbing the previous records in the chain is not possible, rendering the

information tamper-proof.

The key innovation in blockchain technology is that it allows its participants to

transfer assets across the internet without the need for a centralized third-

party.

12 July 2018

5

| Thematic

Six features that give it a disruptive potential

1.

It is a system of

distributed shared data

with no central administrator, no single

point of failure.

2.

Consensus-driven

trust that cuts out the middle-mam. Trust is driven by an

algorithm. No overpriced intermediaries.

3.

The

immutability

also builds trust. Each block contains a timestamp and link to

previous block, which makes it inherently resistant to modification.

4.

Integrity

and security

are generated by encrypting every record, creating strong

resilience to cyber security concerns.

5.

Smart contracts

allow contracts to auto-execute based on some preset rules

and conditions. It allows for much higher levels of straight through processing.

Millions of IoT devices will find this relevant. Hence, the linkage between IoT

and Blockchain.

6.

Permission and permission-less flavors

give enterprises the flexibility to choose

what their solution is, based on needs and references. Like public and private

clouds – each has its advantages and use case.

A hot-bed of activity: Courtesy HFS Research





The buzz around Blockchain is currently evidenced by ~1,000 investors and

~2,000 start-ups in the segment.

Current market size in blockchain ranges from USD400-800m. However, the

potential is to grow to USD10-50b in the next few years.

Exhibit 1:

Blockchain could grow to USD10-50b market from current size of <USD1b

Source: ISG

12 July 2018

6

| Thematic

Exhibit 2:

Cryptocurrencies have dominated the use of Blockchain thus far

Source: HFS Research

Blockchain adoption by enterprises today









Still early days, as 90-95% of usage of Blockchain technology is centered around

strategy formulation and POC. 5% or even lesser is beyond a pilot and into

production.

Once we get into production-ready blockchain solutions, there will be a huge

market for systems integration across blockchain and legacy ERP and IT

technology from the IT Services perspective.

As per HFS, Blockchain is going through the classic 90-9-1 challenge, where 90%

of enterprises lack understanding of what a distributed ledger technology is and

what its use cases are. 9% understand but don’t know where to start from – RoI

visibility, consortia-related challenges. 1% struggle with regulatory uncertainty,

talent availability.

There are real technical, latency and cross-version challenges. The community is

still working on addressing these. It will be a 5-to-7 year journey to deliver on

promise-land of disintermediating and creating new revenue streams.

Exhibit 3:

Global blockchain initiatives

Source: Company, MOSL

12 July 2018

7

| Thematic

The use cases are quickly expanding to more industries and governments, and a lot

of activity is seen across the board from different kinds of players. Yet, it’s still in an

early growth stage. However, organizations are finding more and more ways to

capture the business value in it. Creating new value is a prime focus for most

companies, so blockchain will be highly disruptive and the adoption pace will quickly

accelerate.

Exhibit 4:

Global blockchain initiatives in government and public sector space

12 July 2018

8

| Thematic

Source: Company, MOSL

Exhibit 5:

Some challenges remain for BFSI institutions seeking to implement blockchain

Source: Company, MOSL

Intersection with three current technology trends





IoT

is the emerging technology intersecting with blockchain – notably in the

area of smart contracts, where connected devices in a blockchain network may

trigger and execute transactions in a secure manner without human

intervention

Another emerging area witnessing blockchain intersection is

AI.

A lot of data

gets created with blockchain. AI and ML, NLP technologies are needed to

understand and make sense from this data.

The question of energy consumption

Bitcoin is an example of proof-of-work. If one wants to record any transaction on a

blockchain, he/she has to show a lot of work. In computational terms, it means lot

of computational power needed to create one block in bitcoin. Hence, bitcoin is not

one of the most popular use cases in enterprise adoption terms, despite all the

noise around it. It is not the best platform since it is so power hungry. However, the

technology does have the throughput needed by enterprises, and hence will find

deployment.

Market players (platform providers)

Two players dominate today (as per ISG): MS (public blockchain) and IBM (private).

Appended below are the anecdotes of work done

12 July 2018

9

| Thematic





IBM

– tied up with Nestle, Walmart to trace movement of food and reduce

contamination

Microsoft

– partnered with BofA to transform highly manual trade finance

structure

HFS, on the other hand, has identified 20+ solution provider leaders in the early

stage of blockchain



Ethereum and hyperledger

account for majority of the enterprise blockchain

adoption use cases, according to HfS.



Adoption of hyperledger fabric should pick up even more with new production-

ready solutions.

Exhibit 6:

The market of Blockchain players

Source: Company, MOSL

Players from a myriad of industries are trying to solve problems using the blockchain

ecosystem. The three layers of blockchain, according to HFS, are:

1.

At the bottom is the platform or rules of the game – bitcoin, ethereum, hyper-

ledger, etc.

2.

Above that are the technology players – Consensys, IBM and Oracle, which use

these rules of the game to create solutions.

3.

Right at the top are service providers, consortiums and start-ups, which are

using these technologies to help solve business problems. Legal firms,

academicians also play a crucial role.

12 July 2018

10

| Thematic

The play for service providers









For service providers, the opportunity is very similar to that in the cloud. This

will entail building applications on massive scale platforms and support new

operating models that these next gen apps create. Even the cloud native

environment required new type of thinking and managed services. The same

pattern will emerge with blockchain.

So, application builders on industry

specific-use cases will win it.

There are budding examples of the role played by service providers in the

ecosystem:



Virtusa

– Has worked on a blockchain platform for

media industry;

enabling

consortium companies to better share customer data.



Accenture

and

DHL

have developed a pharmaceutical prototype that tracks

drugs from seller to the consumer.



Walmart

is experimenting in the supply chain. Today, it is very hard to figure

out where the product lost its quality along the value chain. It is a

compliance issue. With blockchain, the product can be traced from the farm

to the consumer. That will be hugely impactful in the food safety context.

Primarily the market for SPs is all about SI projects right now. Most are pilots,

which is a relatively small opportunity today. Some pilots doing well, others

getting shuttered. Project-based work right now. But that's what cloud was

several years ago.

The consulting big-4 are becoming winners in this space, as this requires

consultancy through the 90-9-1 challenge.

What is in it for BPM providers?





The pure-play BPM providers bring process and domain expertise. They need to

partner with technology firms rather than focusing on building technology

themselves.

BPM providers can help clients understand how blockchain will or will not help.

Take that consultative approach to help customers through the hype.

How the market for blockchain services will shape up

HfS Research expects maturity to happen over three phases:

1.

Payment and transaction settlement. Financial services will find deployment in

use cases such as payment systems and transaction settlement are becoming

mature now.

2.

In the second phase are a plethora of pilots, and trials will take place in areas

outside FS. These include supply chains, point-of-sale cases for retail and

copyright access for media companies. Second phase will largely comprise of

these pilots.

3.

This will see realization beyond the pilot mode. Scam detection, smart contracts

and digital identity management are some examples of applications.

2018 is the year when blockchain is expected to move outside the FS industry into

any organization where recording and verification of information is required.

12 July 2018

11

| Thematic

The investors’ perspective

Blockchain is one of the biggest bubbles today. However, they are potentially as

significant as the internet, even though revenues from enterprise blockchain

adoption here are still small. Compare that to the other hype that is Robotic Process

Automation (RPA)!

Exhibit 7:

Blockchain and the investment community – bubble already?

Source: Company, MOSL

12 July 2018

12

| Thematic

Internet of Things

If we had computers that knew everything there was to know about things – using

data they gathered without any help from us – we would be able to track and

count everything, and greatly reduce waste, loss and cost. We would know when

things needed replacing, repairing or recalling, and whether they were fresh or

past their best.

Poised for exponential growth











IoT is poised for exponential growth globally, with the number of connected

devices expected to grow 5.5x to 20.8 billion.

The global IoT market will grow from USD157b in 2016 to USD457b by 2020,

attaining a CAGR of 28.5%, according to GrowthEnabler.

Discrete manufacturing, transportation and logistics, and utilities will lead all

industries in IoT spending by 2020, averaging USD40b each.

Bain predicts B2B IoT segments will generate more than USD300b annually by

2020, including ~USD85b in the industrial sector.

Internet Of Things market is likely to reach USD267b by 2020, according to

Boston Consulting Group.

Various technological, economic and behavioral factors are driving the uptake of IoT

globally:



Low-cost sensors, declining cost of connectivity, and reduced cost and time of

processing will play a key role in the rise and adoption of IoT.



Use of big data analytics and cloud computing will enable processing and

analysis of unstructured data to move from insights to foresights.



Consumer interest in IoT technologies is also rising due to increased reliance on

mobile devices.

Exhibit 8:loT

revenue* by category (USD billion), 2014-2020

Source: Company, MOSL

12 July 2018

13

| Thematic

Opportunities

Energy

Industrials

Safety and security

Consumer

Agriculture

Use management, smart meters, grid control

Discrete and process manufacturing, transportation

Video surveillance, access control, environmental monitoring

Payment solutions, in-store experience, smart devices and appliances

Input application, growth and health monitoring, and traceability assurance

IoT economic value-add of USD1.9t by 2022, 80% of supplier revenue will be derived

from services.

Taking the example of two companies:

HCLT’s IoT works – first comprehensive IoT framework among ISPs

Exhibit 9:

Relative potential of revenues from service segments over lifecycle of a typical loT project*

Source: Company, MOSL

Exhibit 10:

IoT @HCLT

Source: Company, MOSL

12 July 2018

14

| Thematic

Exhibit 11:

Zinnov predicts multi-year growth in IoT spending by Enterprises

Source: Company, MOSL

IOT – a key focus area for Persistent Systems











Even though there are numerous proprietary IoT platforms currently available,

with a wide variety in both functionality and implementation, there are common

basic elements in most.

Persistent believes in providing end-to-end IoT platform that is foundational,

scalable and extensible. It also emphasizes on security considerations, which are

paramount in the design of an IoT platform. This encompasses almost every

component of an IoT platform. It is absolutely necessary to design every

component and every interface in an IoT system with security considerations in

mind – everything from data security and privacy to data integrity and network

security.

In line with market demand and the need to focus on IoT, PSYS has brought

together market-facing IoT groups from its Alliance and Accelerite as one unit.

This will strengthen the IoT offering by leveraging the IP, solutions and device

and sensor partnerships across a wider set of platform partners.

PSYS had entered into an agreement with IBM in FY16 to support and extend

the IBM Continuous Lifecycle Management and Continuous Engineering product

suite. New sites were established in Gadalajara, Mexico- Rehovot,

Israel- Ottawa, Canada and Edinburgh, Scotland during the year.

In terms of market potential, IDC forecasts that the worldwide market for IoT

solutions will grow from USD1.9t in 2013 to USD7.1t in 2020. An IoT platform

implies the integration of a set of different functionalities provided by individual

components.

12 July 2018

15

| Thematic

Why Digital is not a secular tailwind for service providers?

Appended below is our learning from industry interactions as to why Digital looks

like a structural shift very capable of driving industry consolidation, as and when

many companies will fall prey to the complexities hurting growth in business along

with profitability.

Technology challenge – transient issues or structural erosion of relative

capabilities

Gradual slowdown of dollar revenue growth, pricing pressure in traditional services,

margin limitations in the newer services and concerns around transformation to

remain in clients’ relevant set have now been well documented concerns that have

dominated the IT industry landscape for over an year – driving material

underperformance to the index.

The acquisitive rush at the likes of Accenture and Cognizant, sizeable bets at Wipro,

and likewise intent (albeit little action) at INFO and others is another example of the

gaps that companies clearly feel the need to bridge – gaps that are at the heart of

industry’s gradually dipping performance. How surmountable are the challenges

from a medium-to-long term perspective? Digital will get industrialized at some

point and that is when India’s cost advantage will find its way back into the

equation. However, in our view, this is oversimplification of industry’s business

drivers.

Exhibit 12:

Acquisitions or not, direction of revenue growth is secular

Revenue YoY CC (%)

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

Acquisitions

Acquisitions

Acquisitions

TCS

INFO

WPRO

HCLT

TECHM

Source: Company, MOSL

12 July 2018

16

| Thematic

Exhibit 13:

The changing models are telling on the RoICs

Source: Company, MOSL

The right comparison set of the past

Digital is not an overnight phenomenon but will evolve over the next 5+ years. The

more important question is:

1)

Is this akin to the next new opportunity like IMS, e-commerce and ERP in the

past; or

2)

a more deep-rooted change like the shift toward low-cost destinations

witnessed amid the prime of labor arbitrage.

This is key because it will determine the secularity with which the industry embraces

the opportunity. Scenario-2 is obviously the more complex one, as it is one thing to

know the imperatives and completely another to master the change! As Everest CEO

Peter Bendor Samuel put it – years ago, most leaders of the IT Services industry such

as ACS, CSC and EDS understood the components that comprised the switch to the

labor arbitrage model, but the firm could not master the business model change.

Only Accenture and IBM succeeded in this effort because they were the only two

that actually managed to have sufficient will to execute on the new model, despite

the ostensible ‘cannibalization’ of their mainstream business.

Why we think the transformation is much more complex?

Below are some of the anecdotes around Digital business imperatives, and this is

not an exhaustive list:

1)

Digital is all about consultative proactive selling, and not about responding to

RFPs.

2)

The deal sizes are negligible to start with, and then they grow on to become

bigger. However, you don’t have USD50-100m deals here (on the other hand,

traditional large deals undergo some contraction with every renewal).

3)

The business models will depend upon the solution: fixed price, license (for own

IP), linked to client outcomes, subscription (usage) based etc.

4)

Buyer organization is different – CXO, marketing team, supply chain team,

product team, etc. and not just the CIO organization.

12 July 2018

17

| Thematic

5)

Onsite centricity is an imperative for the clients to gain comfort in the business.

6)

Automation is an absolute must – people-centric model will transform to people

+ software combine.

7)

Capability in agile development and iterative solution building is the approach–

fail-fast. Traditional methodology was longer-term contracts that were delivered

fail-proof.

Exhibit 14:

Digital v/s traditional – contrasting styles of working

Source: Company, MOSL

Almost everything, starting from targeted point of sale, type of selling, capabilities in

selling, delivery approach and the business model, is different.

Here, the natural challenge for the established habitat is to operate two business

models simultaneously. Achieving a balance is by no means a given, and thus, the

fear that some organizations may fall by the wayside is not dismissive to say the

least.

Everyone wants to have AI, be a pioneer

The potential corporate market for AI software, hardware and services is vast –

around USD58b by 2021, compared to USD12b last year, according to IDC, a

research firm. Given the novelty, buying AI takes time, can feel like hard work, and

the results are often imperfect. Yet, a number of vendors are scurrying to come to

would-be users’ aid:



The leaders are the West’s biggest providers of cloud storage:

Amazon, Google

and Microsoft.

All three firms offer pre-trained models that corporate clients

can use to build AI-enabled systems.

12 July 2018

18

| Thematic







The cloud providers will increasingly compete with

management consultancies,

which charge fat fees for helping clients navigate technological disruption.

McKinsey

has been investing heavily to beef up its expertise in data, for

example by buying QuantumBlack, an advanced-analytics firm, for an

undisclosed sum in 2015.

IBM

is trying to bridge the gap between the tech wizards and the conventional

consultants.

Startups,

too, are hoping to jump on the AI bandwagon. Many offer services like

helping clean up and label data, and take on specific tasks that large tech firms

are not yet offering, like helping firms recruit, scan job descriptions and improve

customer service.

Instances of corporates using the big three for AI needs



Uber, the ride-hailing firm, worked with Microsoft’s toolset to design a system that scans drivers’ faces to confirm their

identity when they start a shift.



C-Span, a television network, used Amazon’s vision system to compile a database of politicians so it can quickly name

them when they appear on screen.

As BPO transforms, challengers and leaders are a different set

A reasonable anecdote of the challenge facing the industry today is a snapshot of

the leaderboard in Robotic Process Automation (RPA) capabilities. RPA is the biggest

transformation that is currently underway in the BPO services industry. As long as

manual staff catered to this industry through voice and e-mails, India and

Philippines dominated the fray. Companies such as TCS, Accenture, INFO, CTSH,

Genpact and WNS were the leaders for years.

However, appended below is Everest’s PEAK matrix for RPA Products – determined

on the basis of market success, portfolio mix and value delivered. Interestingly,

EdgeVerve – an Infosys subsidiary, is the only entity among the above names that

qualifies as a major contender

Exhibit 15:

Everest’s peak matrix for RPA

Source: Company, MOSL

12 July 2018

19

| Thematic

Currently, legacy arbitrage companies have been focused on acquiring small new

digital companies – about as much consolidation as we have come to witness in the

industry. Accenture has already purchased over 37 companies to date this year, and

other mature service providers are looking for acquisition targets and trying to

match its rate of spend. There are many more acquisitions happening in the

disruptive digital space than in the legacy arbitrage space. This is understandable

because:

1. Providers are trying to buy their way into the new digital market

2. The companies for sale are small or affordable

3. Incumbent legacy service providers are very profitable, and facing growth issues

not cash flow issue.

The collapse of margins for the incumbent arbitrage-based providers could be a key

driver of consolidation among the traditional providers. To date, margins have

eroded but very gradually, and companies have had a reprieve because of the INR

depreciating. Margins, however, are increasingly coming under pressure from

multiple angles – operating model changes, clients looking for lower prices and

clients’ increased desire for providers’ resources to work onshore. All these things

will inevitably push margins down and consolidation up, perhaps.

Exhibit 16:

Currency depreciation or not, the margin slide is secular

1QCY14 (INR61.4/USD)

30.9

28.3 28.0

1QCY16 (INR67.7/USD)

2QCY17 (INR64.5/USD)

One should not rule out gradual consolidation

27.8

24.9

26.7

24.2

20.6 19.6

26.7

22.2 22.1

21.2

16.9

12.7

TCS

INFO

WPRO

HCLT

TECHM

Source: Company, MOSL

Exhibit 17:

Impact on IT companies

Company Disruption Threat on

TCS

INFO

WPRO

HCLT

TECHM

SMAC/AI

SMAC/AI

SMAC/AI

SMAC/AI

SMAC/AI

Existing revenue base

Existing revenue base

Existing revenue base

Existing revenue base

Existing revenue base

Threat to existing business

Next 3-5yrs

5-10yrs

>10yrs

Medium

High

High

Medium

High

High

Medium

High

High

Medium

High

High

Medium

High

High

Remarks

Risk would reduce as

companies adapt and

turn threats into

opportunities

Existing strengths which

may be used to adapt

Increasing revenue from

Digital (>20% of revenue),

Historic ability to adapt

to technology waves.

Source: Company, MOSL

12 July 2018

20

| Thematic

Exhibit 18:

Indian IT has put in its stride…

Source: Company, MOSL

12 July 2018

21

| Thematic

…as India remains the hotbed for investments

Companies are investing heavily in innovation, ranging from teams dedicated to

driving innovation and innovation labs like those they have in Bangalore. Accenture,

for example, is leveraging the strong and relatively low-cost digital talent available in

the Indian market to make its investment go further and has 4,000 people driving

innovation. Hence, India has emerged as its largest hub for digital investment and

quickly become the center of excellence for key technologies such as AI, machine

learning, analytics and cybersecurity.

Exhibit 19:

Digital service market share by FTEs

1

Source: Company, MOSL

Exhibit 20:

Partnering for technology/platform

Source: Company, MOSL

12 July 2018

22

| Thematic

Exhibit 21:

Incubation platforms for innovative start-ups

Source: Company, MOSL

Exhibit 22:

Acquisitions for technology and platforms

Source: Company, MOSL

12 July 2018

23

| Thematic

Thematic

|

Automobiles

Automobiles

Electrification inevitably the way forward



Automobiles





The future of electric vehicles (EVs) appears very promising with

governments across the world trying to create widespread

awareness about EVs for greater mass appeal. Moreover, internal

combustion engine (ICE)-powered vehicles are likely to lose

attractiveness on account of stringent government regulations.

We believe that EV penetration will not only be driven by

regulatory push to deal with environmental issues, but also

because of the attractiveness of EVs among customers – multiple

factors are likely to work in favor of EVs to lower the cost

differential between an EV and an ICE-powered vehicle. However,

this would play out only gradually.

In the interim, push mechanisms are essential to promote EV

usage.

India and electrification dream









Besides the Indian government’s supportive policy framework and provision of various incentives, the key

drivers for EVs would be availability of charging infrastructure, aftersales service, and battery price and

performance.

While there are several challenges in the adoption of e-mobility, we, in this report, have enlisted some possible

solutions to overcome those.

Charging infrastructure would be pivotal in promoting e-mobility.

While a collaborative action from all stakeholders is necessary for mass adoption of EVs, the government would

have to assume a central role.

Various estimates put EV penetration at 25-40% by 2030















ICE-powered vehicles are expected to continue accounting for a major chunk of overall vehicle sales over the

next several years. During this period, we should see EVs evolving both in terms of viability and preference.

Relevance of hybrids and plug-in hybrids would increase from 2020-2025, especially in less-developed countries.

2025-2030 would see exponential growth in battery electric vehicle (BEV) sales due to low battery prices and a

favourable EV ecosystem.

China would lead the EV transition, with various layers of municipal policies and its ‘New Energy Vehicle’ policy

providing momentum to EV adoption.

Strong hybrids are likely to play an important role in India to comply with the Corporate Average Fuel Economy

(CAFE) norms.

Pace of electrification will vary across segments in India – 2Ws and 3Ws to be early adopters.

Fleet PVs are likely to witness highest adoption of electrification by 2030.

What changes does electrification bring?









The shift toward EVs has the potential to disrupt competitive positioning for OEMs.

Component manufacturers are likely to witness highest disruption, with ICE and transmission parts witnessing

obsolescence in EVs.

New entrants in the value chain (such as lithium-ion battery manufacturers and producers of other EV

components like motors and controllers) would have a big opportunity to gain a large share of the EV value

chain.

Lithium-ion battery manufacturers would witness the largest opportunity. Based on our assumptions for

electrification level by 2030, we see ~USD42b opportunity being created for li-ion batteries in India.

12 July 2018

Jinesh Gandhi - Research Analyst

(Jinesh@MotilalOswal.com); +91 22 6129 1524

24

Deep A Shah - Research Analyst

(Deep.S@MotilalOswal.com);+912261291533/

Suneeta Kamath

(Suneeta.Kamath@MotilalOswal.com)

| Thematic

Electrification inevitably the way forward

Could it surprise positively?



The future of electric vehicles (EVs) appears very promising with governments across

the world trying to create widespread awareness about EVs for greater mass appeal.

Moreover, internal combustion engine (ICE)-powered vehicles are likely to lose

attractiveness on account of stringent government regulations.



We believe that EV penetration will not only be driven by regulatory push to deal with

environmental issues, but also because of the attractiveness of EVs among customers

– multiple factors are likely to work in favor of EVs to lower the cost differential

between an EV and an ICE-powered vehicle. However, this would play out only

gradually.





In the interim, push mechanisms are essential to promote EV usage.













Efforts are underway globally to make the move from traditional, ICE-powered

vehicles, to electric ones. Moreover, to deal with the long-standing issue of air

pollution, government regulations now favor substitution of oil with a wide

range of environment-friendly alternative fuels for vehicles.

Globally, the market share of EVs (new car sales) is expected to reach 25-40% by

2030 (according to various sources) from 1% currently.

EVs still largely remain a choice of the regulator rather than one of consumers.

However, we anticipate a gradual shift in consumer preference toward EVs due

to the following factors:

Increasing focus of regulators to improve air quality:

With governments across

the world focused on improving air quality (e.g. Germany recently banned sale

of diesel vehicles), the relevance of EVs is likely to increase as they offer a clean

alternative to ICE vehicles with zero tailpipe emissions.

Stricter emission norms to make ICE-powered vehicles costlier:

The price of

ICE-powered vehicles is expected to increase going forward as companies would

need to shell out more to comply with increasingly stringent regulatory norms.

For example, BS-VI implementation is expected to increase the price of ICE-

powered vehicles by 8-15%. Post BS-VI, we expect the price differential between

an EV (diesel) and an ICE-powered vehicle to narrow down to 16% (from 41%

currently), increasing attractiveness of EVs.

Falling battery prices drive down cost of EVs:

Currently, batteries account for

40-50% of the EV cost. Lithium-ion battery pack prices are falling rapidly and are

further expected to decline to USD100/kWh by 2030 for BEVs (USD73/kWh,

according to BNEF) from ~USD210/kWh currently.

Increasing range with higher density of battery:

Average battery energy density

is improving by 5-7% every year. It is expected to double by 2030 to more than

200Wh/kg on the back of continuous improvements in battery chemistries,

higher material efficiencies and better engineering. The battery range for BEVs

is also expected to increase to 350km, as against the current average range of

200km.

12 July 2018

25

| Thematic

Exhibit 23:

Forecast for 2025 EV penetration

BEV

PHEV/HEV

ICE

50

35

15

69

24

7

74

18

8

68

25

7

86

9

5

73

23

4

82

11

7

Source: Industry

Exhibit 24:

BNEF forecasts 28% market share of EVs by 2030

Source: BNEF

Exhibit 25:

Automakers’ plan for number of EV models (green) and share within their

portfolios (yellow)

Source: BNEF

12 July 2018

26

| Thematic

Exhibit 26:

Battery pack price is expected to fall to

USD73/kWh by 2030

Exhibit 27:

Battery density expected to improve with

technological advancements

Source: BNEF

Source: BNEF

Exhibit 28:

Inflection point for EV adoption likely to be 2022, based on 10-year TCO

analysis

Source: BCG

Exhibit 29:

Price differential between ICE and EV to narrow post BSVI implementation

Acquisition cost

2,000

1,600

1,200

800

400

0

INR '000

Petrol

Diesel

Electric

Petrol

Diesel

Electric

Source: Industry, MOSL

BSIV (current scenario)

BSVI (2020 and beyond)

Fuel cost

Maintenance cost

Insurance cost

Battery replacement cost

Push mechanisms needed to accelerate EV adoption

While the viability gap between EVs and ICE-powered vehicles is expected to narrow

due to a reduction in battery prices, we believe that push mechanisms are essential

in the interim to promote EV usage. Collective adoption of the following could play a

key role in mass adoption of EVs:



Charging infrastructure:

Enough and easily accessible charging stations for

longer journeys to be completed are crucial for mass adoption of EVs. Places

with higher EV penetration tend to have more publicly available charging

infrastructure.

12 July 2018

27

| Thematic





Wider range of products: Availability

of a wider range of EV products is crucial

in raising consumer awareness about EVs and faster growth of the EV market.

Incentives/subsidies, policies:

Short- to medium-term financial incentives

directed at EVs are essential for bridging the initial purchase cost gap between

EVs and ICE-powered vehicles. It is important to note that monetary incentives

alone do not drive EV penetration. Other measures like tax rebates, tax breaks,

special parking, driving privileges and discounted electricity can have a greater

impact and outreach.

Exhibit 30:

Incentives across countries to drive e-mobility

Source: BCG

Exhibit 31:

Countries with higher monetary subsidies witness higher EV penetration

Source: McKinsey

12 July 2018

28

| Thematic

India and electrification dream

Ambitious 2030 target, challenges abound



Besides the Indian government’s supportive policy framework and provision of various

incentives, the key drivers for EVs would be availability of charging infrastructure,

aftersales service, and battery price and performance.







While there are several challenges in the adoption of e-mobility, we, in this report,

have enlisted some possible solutions to overcome those.

Charging infrastructure would be pivotal in promoting e-mobility.

While a collaborative action from all stakeholders is necessary for mass adoption of

EVs, the government would have to assume a central role.

Decline in battery prices, fiscal incentives and charging infrastructure – key

drivers of EV adoption

While clarity is awaited on the government’s policy for electric cars for personal use,

we believe that much will unfold over the next 2-3 years on all the critical aspects

supporting electrification. There is a need for a long-term policy framework that

allows for continuity and attracts desired investments required for EV deployment.

Beside policy framework and incentives, we believe that charging infrastructure,

battery availability and recycling, cost reduction, after-sales service and resale value

will be the biggest factors that will influence EV adoption in India.

Exhibit 32:

Key EV demand enablers

Availability of sufficient

charging Infrastructre

Vehicle performance,

cost, aftersales service

EV demand

enablers

Battery price,

performance and

recycling

Fiscal incentives by the

goverment

Source: MOSL

Major challenges in EV adoption and possible solutions

India has an ambitious target of attaining 100% electrification in public mobility and

40% electrification in personal mobility by 2030. Achieving this target will need a

substantial push from the government and the private sector. We have outlined

below some of the main impediments in mass adoption of EVs and possible

solutions to overcome them:

12 July 2018

29

| Thematic

Exhibit 33:

While challenges remain aplenty, we enlist possible solutions to overcome these

Area

Affordability

Challenge



Considering the gap between the

upfront cost of an ICE and EV (30-40%)

and the lack of charging infrastructure,

EVs are not an attractive option for

consumers.



Lack of availability of charging

infrastructure

High charging time



Current EV options in India offer a very

limited range of 100-150kms

Lack of supply chain localization

weighing down on cost of EVs and

subsequently their viability

Possible solution



Generating a pull among customers by creating an economical cost

proposition via (i) building an EV ecosystem and (ii) fiscal and non-

fiscal incentives

Incentivizing the private sector for setting up charging infrastructure

Mandating new construction sites to provide for charging infra.

Significant investment by the government on charging infrastructure

Battery swapping Fast chargers

Range-extended EVs, PHEVs till the time BEV technology evolves to

accommodate higher range.

Incentivizing hybrids at par with BEVs over the medium term

Global technological collaborations

Favorable government policies to encourage investments in

manufacturing battery, semi-conductors, controllers and micro-

processors for EVs

Provide incentives on EV R&D investments, development of local

technologies

Mandatory local manufacturing JVs like in China

Defining regulations on emissions/fuel efficiency, clarifying

aspirations, strategic intent and direction can help (i) support

adoption of cleaner technologies and (ii) focus on developing a

supportive ecosystem

Source: MOSL

Charging

infrastructure













Range anxiety

Localization









Regulations



Lack of government direction/clear

technological roadmap leading to

unfruitful, scattered investments across

technologies

Government to assume central role in pushing e-mobility





The key observation while enlisting the aforementioned solutions is the

government’s pivotal role in ensuring and enabling mass adoption of EVs.

Challenges remain inter-dependent, demanding a collaborative action from all

stakeholders with the government assuming a central role in pushing the move

toward e-mobility.

It is worth noting that the Indian government has already taken strides toward

this direction – EESL orders, state tenders for procurement of e-buses, non-

requirement of separate license for setting up charging stations – which, in turn,

could provide a big boost to the ambitious EV plans.

12 July 2018

30

| Thematic

Exhibit 34:

Government’s role crucial in ensuring mass adoption of EVs

Viability gap

funding/subsidies

•Cash subsidies

•Lowering of GST rates on both EVs and batteries

•Exemption of road tax

•Favourable lending rates by financers

•Income tax deductions

Non-fiscal subsidies/

preferences for EVs

•Lower power tariffs for EV charging

•Free parking for EVs

•Government tenders for its fleet

•Exemption from toll charges, state entry taxes

Enabling charging

infra

•Subsidies/rebates for investment to set up charging infrastructure

•Encouraging public-private partnership

•Mandating provisioning of infrastructure for charging stations in all new constructions

•Leasing land at attractive rates for setting up charging infrastructure

•Subsidized electricity tariffs

•Accelerated depreciation on infrastructure investment

Localization

•Pool demand for different kind of cells and import in bulk (through global tenders) from a

globally competitive cell manufacturer

•Invite established battery manufacturers to set-up a cell manufacturing plant in India

•OEMs entering into technological collaboration with global battery manufacturers to

import battery technology

Creating public

awareness

•Creating awareness about technology, economic benefits, government subsidies related

to EVs

•Deployment of electric fleets in public or mass transportation

•OEMs expanding their product portfolio in favour of EVs, which would increase options

for customers

Mandating usage of

EVs

•Mandating usage of EVs in cities

•Higher taxes on ICEs

•Lower income tax deductions for ICEs

•Clear direction by government on policies

Source: MOSL

Stability in policy

12 July 2018

31

| Thematic

Various estimates put EV penetration at 25-40% by 2030

China to lead the EV transition



ICE-powered vehicles are expected to continue accounting for a major chunk of overall

vehicle sales over the next several years. During this period, we should see EVs

evolving both in terms of viability and preference.













Relevance of hybrids and plug-in hybrids is expected to increase from 2020-2025,

especially in less-developed countries.

2025-2030 would see exponential growth in battery electric vehicle (BEV) sales due to

low battery prices and a favourable EV ecosystem.

China would lead the EV transition, with various layers of municipal policies and its

‘New Energy Vehicle’ policy providing momentum to EV adoption.

Strong hybrids are likely to play an important role in India to comply with the

Corporate Average Fuel Economy (CAFE) norms.

Pace of electrification will vary across segments in India – 2Ws and 3Ws to be early

adopters.

Fleet PVs are likely to witness highest adoption of electrification by 2030.

Global roadmap to electrification

Electric mobility is set to become a reality with a gradual transition toward EVs. ICE-

powered vehicles are expected to continue accounting for a major chunk of overall

vehicle sales over the next several years. During this period, we should see EVs

evolving both in terms of viability and preference. We have charted a three-phase

roadmap to electrification:



Phase I (2018-2020):

During this phase, we will see limited adoption of EVs, with

the concept gaining more and more popularity. EV prices would remain high

despite incentives and subsidies, with a lengthy, unattractive payback period for

consumers. During this phase, OEMs’ focus would be on meeting emission

regulations, which would still be less challenging than electric mobility.



Phase II (2020-2025):

As the industry moves into the next phase, EV market

share will expand as OEMs are forced to meet tightening emission standards

and fleet-wide efficiencies. Incentivizing sales of non-ICE vehicles and significant

investments toward charging infrastructure would play a huge role in this

transition. Hybrids—mild/strong hybrids and plug-in hybrids (PHEVs) during

period are expected to gain popularity, especially in less developed countries,

due to their relatively high payback period.



Phase III (2025-2030):

During this phase, we expect consumer preference to

gradually shift toward BEVs. We believe that BEVs would be attractive on a total

cost of ownership (TCO) basis with a steep fall in battery prices and a favorable

EV ecosystem. BEVs would gain significant market share during this period.

12 July 2018

32

| Thematic

Exhibit 35:

EVs to constitute ~28% of global EV sales

Source: BNEF

China’s accelerated path to electrification

Various layers of municipal policies in China push EV sales







The Chinese government provides subsidies ranging from CNY15-50k

(USD2,370-7,900) per vehicle, depending on the vehicle range.

Most local governments provide additional subsidies of 15-50% on top of the

central government subsidies.

Further, most cities provide favorable non-fiscal policies like assured issuance of

vehicle license and increased access to high occupancy vehicle lanes. For

example, in Beijing, in any given month, as many as 3 million applications are

received for ~3k new licenses, with the remainder going in the lottery pool. EV

buyers, however, are exempt from this system and are assured of receiving a

license.

China’s ‘New Energy Vehicle’ policy to give push beyond 2020







National subsidies in China are being phased out by 2020.

Annual mandatory requirements are set for auto manufacturers on NEV credits,

which need to be achieved by producing or importing enough new energy

passenger cars. It also allows manufacturers to use surplus NEV credits to offset

corporate average fuel consumption (CAFC) credit deficits, adding compliance

flexibility to the existing fuel efficiency regulation for passenger cars.

It is estimated that the implementation of the NEV policy would take the market

share of NEVs in China to ~4% in 2020 (v/s 2.1% in 2017).

Strong hybrids play an important role in India’s EV transition

Across countries, the trend would be broadly similar, but the mix of ICE, hybrids and

EVs will vary according to the relative cost of fuel and electricity, the average

distance that consumers travel in each market (which would determine the TCO),

and local regulations and incentives.

We believe that, although the electrification trend would be broadly similar in India,

hybrids, especially strong hybrids, would gain more popularity and a higher market

12 July 2018

33

| Thematic

share. Strong hybrids would play an important role to comply with CAFE norms (cars

need to be 30% more fuel efficient from 2022), even so with economic viability of

EVs not being in sight till 2025.

Varied pace of electrification across vehicle segments

We believe that electrification would occur across segments in a scattered manner,

with 2Ws and 3Ws being the early adopters (due to the relatively low technology

barriers, ease of charging and lower range requirements), followed by buses and

commercial PVs. We believe that PV fleet would see highest level of electrification

by 2030 due to significantly higher economic viability and strong push by fleet

operators.



Two wheelers:

2Ws are expected to be one of the early adopters of e-mobility.

Within 2Ws, we expect scooters to lead the shift to e-mobility. Ease of charging,

lower initial price gap, lower range concerns, wider variety availability and

shorter development cycle are some of the factors that would drive mass

adoption in this segment. According to a report by ACMA and Roland Berger,

electric 2Ws would account for ~35% of 2W sales by 2025.



Three wheelers:

With e-rickshaws establishing a strong presence in India

(estimated fleet of 1m), electric 3Ws would help overcome the shortcomings of

e-rickshaws. Within 3Ws, we expect passenger 3Ws to lead the shift to e-

mobility. Economic viability, intra-city usage, lower initial price gap and ease of

charging are some of the factors that would drive mass adoption in this

segment.



Passenger vehicles:



Personal car segment:

Affordability is the key concern in the electric PV

segment, with electrification in PVs for personal usage not being

economically viable for consumers at present. Initial price gap for

comparable ICE and electric PVs is as high as 2-2.5x currently. According to

global estimates, parity on a TCO basis for electric PVs is expected to be

achieved by 2022. Our analysis suggests that TCO-based parity in India could

be reached as late as 2025 in the personal car segment. In the interim, we

believe hybrids and PHEV would prepare the segment for electrification.



PV Fleet:

Economic viability on a TCO basis for PV fleets could be achieved

by as early as 2020, given the relatively high distance travelled.



Buses:

Although economic viability of e-buses remains a concern, they are

clearly one of the focus areas for the government with the recent tenders

floated across states as part of the pilot program.

12 July 2018

34

| Thematic

Exhibit 36:

Pace of electrification to be faster in 2Ws, 3Ws and PV fleet due to favourable operating dynamics

Average

Average

Range

range kms driven anxiety

(kms)

p.a.

concern

Private

2W

PV

Commercial

3W

PV

Bus (intra-city)

85

140

250

30k-35k

30k-35k

70k-80k

Medium

High

High

High

High

High

Medium

High

High

Low

Low

Low

High

Low

Low

~20%

9-12%

30-35%

2020

2021-2022

2022-2023

Source: MOSL

80

140

5k-6k

9k-12k

Medium

High

Medium

Low

Medium

High

Medium

High

High

Low

14-19%

9-12%

2020-2021

2025

Vehicle

usage

Price Gap – Price gap -

initial cost

TCO

basis

basis

Ease of

charging

Subsidy as TCO based inflection

a % of

point (with

initial cost subsidies, 10 years)

Exhibit 37:

Fleet PVs to see highest adoption of EVs by 2030

Adoption rate (% of total sales)

Battery Cost (USD/Kw)

2W

BEV

ICE

3W

BEV

ICE

PVs - Personal

BEV

HEV

ICE (incl MHEV)

PVs – Fleet

BEV

HEV

ICE (incl MHEV)

Buses

BEV

HEV

ICE (incl MHEV)

-

-

2

98

10

25

65

50

40

10

Source: MOSL

-

1

5

94

20

40

40

100

-

-

-

-

1

99

2

15

83

30

30

40

-

10

90

30

70

50

50

-

3

97

20

80

40

60

2018

325

2020

262

2025

182

2030

156

12 July 2018

35

| Thematic

What changes does electrification bring?

Component manufacturers to witness highest disruption







The shift toward EVs has the potential to disrupt competitive positioning for OEMs.

Component manufacturers are likely to witness highest disruption, with ICE and

transmission parts witnessing obsolescence in EVs.

New entrants in the value chain (such as lithium-ion battery manufacturers and

producers of other EV components like motors and controllers) would have a big

opportunity to gain a large share of the EV value chain.



Lithium-ion battery manufacturers would witness the largest opportunity. Based on

our assumptions for electrification level by 2030, we see ~USD42b opportunity being

created for li-ion batteries in India.

Shift towards EV – potential to disrupt competitive positioning for OEMs









Almost all OEMs across segments in India are working on the EV segment, with

varied stage of preparedness.

While it is too early to comment on winners and losers on the OEM side, we

believe that the speed of the shift toward EV has potential to disrupt

competitive positioning for OEMs.

This could be the best chance for challengers (like MM, Tata Motors, Nissan,

Ford, etc.) to reduce gap vis-à-vis market leaders.

The 2W segment would see competition from several start-ups (Ather Energy,

Tork Motorcycles, Okinawa, Twenty Two Motors, etc.) as well.

Exhibit 38:

Global OEMs approach to electrification – increase in outsourcing and JV/partnerships implies value addition and

profit pool moving away from OEMs

Source: BNEF

Component manufacturers facing challenges





Under electrification, the conventional vehicle powertrain comprising engine,

transmission and drivetrain will shift to batteries, motors and electronic

components like control unit, battery management system and thermal

management system.

The biggest disruption is expected to happen in the components segment of the

value chain, with ICE and transmission component manufacturers witnessing

large-scale obsolescence of their products in EVs.

36

12 July 2018

| Thematic



Where does the opportunity lie?



New entrants in the value chain, such as lithium-ion battery manufacturers,

producers of other EV components like motors and controllers, now have a

significant opportunity to gain a large share of the EV value chain.

Li-ion batteries to present ~USD42b opportunity:



Assuming that the 2030 electrification targets set by the NITI Aayog (40% of

all private vehicle sales to be EV, 100% of all intra-city public vehicles to be

EV) are achieved, li-ion batteries would be ~USD42b opportunity (9x of

automotive LAB opportunity). This would open up ~USD15b opportunity for

cell manufacturing.



Exhibit 39:

Transition from ICE to EV to bring a shift in value addition in favor of battery and EV components

OEM

35%

Component

manufacturers

Raw material suppliers

35%

50%

15%

15%

OEM + Battery &

Components

50%

Component

manufacturers

Raw material suppliers

Source: NRI, MOSL

Exhibit 40:

Impact on major auto components

NEGATIVE

•Engine and

transmission parts

•Clutch

•Radiators

•Gears

NEUTRAL

•Steering systems

•Seats

•Tyres

•Suspension

•Lightings

•Brake lining

POSITIVE

•Electric motors

•Wiring harness

•Plastic components

•Controllers

•Sensors

•Batteries

Source: MOSL

Exhibit 41:

Component manufacturers: How to align interests toward e-mobility

Component manufacturing area

Casting and forging suppliers

Powertrain pump manufacturers

Precision powertrain component manufacturers

Electrical component makers

Cooling system manufacturers

After treatment system

Fuel tank suppliers

HVAC system suppliers

ICE and transmission component manufacturers

How can they tackle the shift towards electrification?



















Can align their portfolio toward suspension and brake systems; can venture into

motor housings, light-weighting components

Can venture into battery and motor cooling management systems

Can use their expertise for electric powertrain components

Huge opportunity for wiring harness, switch manufacturers

Can upgrade their thermal management portfolio for use in EVs

Can leverage their skills in sheet metal operations and electro plating

Can use their tank making skills to manufacture tanks for storing cooling fluids in

thermal management systems

Can introduce innovative, efficient heat management systems, and thus, increase the

range of EVs

To witness large-scale obsolescence; need to completely change the business model

Source: NRI, MOSL

12 July 2018

37

| Thematic

Exhibit 42:

OEMs’ current plans to electrify their product portfolios

Company

Maruti Suzuki

What are they doing?

1) JV with Denso and Toshiba to set up EV battery plant in India

* SMCL has entered into a JV with Denso (10%) and Toshiba (40%) to set up India’s

first Li-ion battery unit at SMG

* Joint investment of INR11.5b to set up production facilities

* The JV’s plant will roll out locally made batteries for use in hybrids and BEVs

2) Partnership with Toyota to co-develop EVs

* Suzuki and Toyota will be co-developing EVs for India, with their first car expected

to be rolled out by 2020

* Suzuki would produce EVs for the Indian market and will supply the same to Toyota,

while Toyota would provide technical support

* Collaboration with LG Chem for supply of Li-ion cells

* MoU with Ford to jointly develop EVs in India

* MM has already invested INR6b in EV technology; plans to further invest INR9b

* Already supplying e-Verito to EESL

* Launched NEMO, an e-mobility platform based on the cloud that enables electric,

connected and shared mobility services

Areas of focus

*Increasing localization in

EVs to bring down cost of

manufacturing and

improve product viability

*Initially focusing on hybrid

technology and then BEVs

M&M

Tata Motors

* Developed Tigor EV for Phase I of EESL initiative to procure 10k EVs

* Setting up of charging stations in association with Tata Power

* Would be supplying 190 e-buses to various state governments

* Already producing hybrid buses

* Partnering with Tata Power Ltd to facilitate setting up of EV charging stations in

Maharashtra

* Revealed I-Pace, JLR’s all electric SUV

Ashok Leyland

Eicher

Bajaj Auto

Hero MotoCorp

* Strategic alliance with Sun Mobility

* The strategic alliance would be developing electric mobility solutions in India

* SUN Mobility plans to deploy a unique open-architecture ecosystem built around its

proprietary smart batteries and a network of quick interchange battery stations

* Unveiled its first electric bus equipped with battery swapping technology

* Investing INR4-5b toward e-mobility in the next three to five years

* Signed LoI with Phinergy for electric CV solutions

* Awarded contract to supply 40 e-buses to Ahmedabad government

* Working on an electric motorcycle platform, development of which has started at

its technology center in the UK

* Launched e-bus Skyline Pro E based on KPIT Technology’s REVOLO

* VECV has started supplying e-buses; would be supplying 40 e-buses to Mumbai

* Working on electric motorcycles and 3Ws

* Invested INR2b in Ather Energy, which has recently launched its e-scooters

* Investing toward in-house R&D to develop electric vehicles

*Strengthening their first-

mover advantage by

betting big on EVs

*Partnering with fleet

aggregators to increase EV

penetration

*EVs across segments:

3Ws/PVs (hatchbacks,

minivans, sedans,

SUVs)/bus

*JLR has decided to launch

future products on a

flexible architecture,

accommodating ICE &

MHEV, PHEV and BEV

*JLR plans to migrate most

of its product platforms to

these new architectures by

2025

*In India, the focus would

be on hybrid and electric

CVs and BEV in PV

*Swappable technology

and long-range CVs

*Working on various

technologies to

manufacture batteries

indigenously

*RE - electric motorcycle

*VECV - Intra-city electric

bus

*Would launch e-3Ws first

before launching electric

motorcycle

*HMCL would be focusing

on both electric

motorcycles and scooters.

Ather would be focusing on

electric scooters

*With focus on cleaner

technologies, TVS has

already showcased

products based on hybrid,

EV and alternative fuels

like ethanol

TVS Motors

* Expected to launch an e-scooter and hybrid 2W in CY18

* Has showcased e-3W in the past

* Showcased an ethanol-based motorcycle in Auto Expo

* Investment of INR50m in Ultraviolette Automotive, which is in the business of

electric two-wheelers and energy infrastructure

Source: Companies, Industry, MOSL

12 July 2018

38

| Thematic

Exhibit 43:

Impact of electrification on auto ancillary companies within our coverage

Company

Bharat Forge

Components made

Crankshafts,

connecting rods, front

axles, steering

knuckles, transmission

parts

Components at risk

Powertrain

components like

crankshafts,

connecting rods,

gearbox components

% of business

at risk

25-35% of

revenue

How they are mitigating risk?

1) Setting up EV R&D center in UK

2) Developing variety of products for hybrid and

electric vehicles (current revenue from this

segment is EUR6m)

3) Invested INR300m for 45% stake in Tork, an

electric drivetrain company focused on e-2Ws.

4) Invested GBP10m for ~35% stake in Tevva, a

company providing EV solutions to the 7.5-14

tonne CVs

1) Looking for acquisitions in aluminum space

2) CIE Automotive is already working with key

players like Nissan, Tesla, Renault, M&M Reva for

developing products for its EV portfolio; also

working with OEMs, Tier 1 in electric motors and

other electronics. MACA would benefit from CIE

on this aspect

1) Running a project with a customer in European

operations for electric vehicle components

2) In the process of quoting for new business with

other customers in EV components

Mahindra CIE

Forgings, castings,

stampings,

composites, gears,

magnetics

Powertrain

components like

crankshafts,

connecting rods

~24% revenue

from powertrain

Endurance

Amara Raja

Batteries

Front forks, shock

absorbers, aluminum

die-casted products,

CVT, clutch

assemblies, friction

plates, disc brakes,

hydraulic drum brakes

Lead acid batteries

Transmission related

products like clutch

assemblies, CVT

5-6% of revenue

NA

NA

Exide

Lead acid batteries

NA

NA

CEAT Tyres

Bosch

Tyres

Fuel injection

equipment, injectors,

nozzles, SGI, power

tools

Wiring harness,

polymer products,

mirrors and others

NA

Engine and

transmission related

products

NA

~70% of

revenue related

to powertrain

segment at risk

NA

Motherson

Sumi

NA

AMRJ is currently scouting for opportunities, but

has made no public announcements of its foray in

the e-mobility space. However, AMRJ could

leverage on Johnson Control’s technology, which

manufactures a wide range of hybrid, PHEV and

BEV batteries

1) EXID has entered in a technology co-operation

agreement with Chaowei for design and

manufacture of li-ion batteries.

2) EXID will also source technology from the

Indian Institute of Technology.

3) Exide has also entered into a JV with

Lechlanche to set up a li-ion cell manufacturing

plant in Gujarat and a module and battery pack

assembly line as well.

CEAT has developed tyres for India’s first electric

bike ‘Tork T6X’

1) Has made significant investments toward EV

R&D.

2) Showcased electric drivetrain products

3) Focusing on hybrid technologies, which it

believes would be an interim solution to

electrification

1) EVs would have a higher value of wiring

harness per car due to the need of high voltage

wiring harness systems.

2) PKC already has wiring harness for e-buses.

Source: Companies, Industry, MOSL

12 July 2018

39

| Thematic

Thematic

|

Oil & Gas

Oil & Gas

Still some time before the bell rings





Oil & Gas



By virtue of EVs being zero discharge vehicles, it would eventually

have an impact on auto fuels globally. In absence of requisite

government incentives, India may experience the revolution a bit

late, but it is inevitable.

We import ~80% of our oil requirements. In absence of any major

domestic production, our dependence on oil imports is only

expected to grow. Even if EVs were to replace 30% of petrol and

diesel consumption by 2030, we would still require 6.1mnbopd of

oil against our current consumption of 4.3mnbopd.

Even if EVs were to replace 30% of petrol and diesel consumption

by 2030, we would still consume 287mmtpa of petroleum

products by 230, which results in additional requirement of

45mmtpa of refining capacity.

Not much impact on gas demand







Of our total consumption of 145mmscmd of gas, only 16% is consumed by City Gas Distribution Companies

(CGDs). Out of this, only 50% is for transportation. Moreover, the emphasis on increasing access to gas in newer

cities is much more than incentives on EVs.

However, fleet operators (be it government or aggregators) would be the first adopters of EVs. For IGL, ~25% of

the CNG sale is for buses and ~4% is for taxis, which could see first threat.

In the near-medium term, we do not expect much impact on CGDs. Gas transporters like GAIL & GSPL, and

importers like Petronet would not be challenged even in the longer term.

Refineries have no place to hide in the longer run









Auto fuels form ~50-60% of product slate for refineries. Eventually, EVs or even newer age fuels like hydrogen

would replace auto fuels. When battery technology improves substantially, EVs would pose a threat even for

diesel being consumed by heavy vehicles.

We expect a major slowdown in new refining projects globally due to the threat of EVs. This combined with

closure of smaller and older refineries globally would keep refining margins healthy. Demand of auto fuels would

also be there till the time significant proportion of all existing stock of ICEs is replaced by EVs.

However, eventually, refineries have to develop and adopt newer technologies to take care of this 50-60% of

their production.

Auto fuel retailers could find some use for their retail outlets by converting them into charging stations.

Swarnendu Bhushan – Research Analyst

(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529

12 July 2018

Abhinil Dahiwale – Research Analyst

(Abhinil.Dahiwale@motilaloswal.com); +91 22 6129 1566

40

| Thematic

Hydrocarbons – death by the electrons?

The endangered species!

Transportation accounts for largest usage of oil





Globally, transportation accounts for 54% of total liquid fuel consumption. Even

if we exclude aviation, transportation accounts for 45-50% of global liquids

consumption.

In India, petrol constitutes 12% of total consumption of refined products, almost

entirely by transportation. Diesel constitutes 39%; however, road transportation

accounts for 67% of diesel consumption. In fact, buses and HCVs/LCVs

constitute 7% and 28% of total diesel consumption. Diesel HCVs/LCVs would be

the last to be challenged by EVs. Excluding HCVs/LCVs, only 39% of total diesel

consumption and almost all of petrol consumption could be threatened by EVs,

both combined constituting 27% of total oil consumption in India.

Exhibit 45:

Breakdown of India’s consumption (FY17)

Exhibit 44:

Breakdown of global oil consumption (2015)

Transportation

Industrial

Buildings

Electricity

36

6 4

34

54

4

11

12

LPG

Petrol

Diesel

ATF

Others

39

Source: EIA, MOSL

Source: PPAC, MOSL

Exhibit 46:

Breakdown of diesel consumption (%)

Road transport

Agriculture

Power generation

Mining & Quarrying

Manufacturing

Others

12

1

0

67

29

Exhibit 47:

Transportation modes (% of total diesel

consumption)

3W/passenger goods

4

13

6

7

Buses

HCV/LCV

9

28

Cars/UVs commercial

Cars/UVs private

Others

Source: PPAC, MOSL

Source: PPAC, MOSL

12 July 2018

41

| Thematic

Refining sector still needs large investments







The oil and gas sector, as complex as it may seem at times, is fundamentally

composed of hydrocarbons – all products are different combinations of carbon

and hydrogen atoms. Technology exists to produce complex petrochemicals

from refinery off-gases/natural gas – the lightest of materials. Technology also

exists to convert solid petcoke, a byproduct of delayed coker into synthesis gas.

To a large extent, companies would adapt to take care of reduced petrol/diesel

demand. Our estimates suggest that if India does not add refining capacity apart

from the imminent 6mmtpa at Vizag, we may turn a net importer in FY22 itself,

without any impact of EVs.

If EVs do not become a reality, then by 2030, we would require incremental

capacity of 80mmtpa (in addition to the 6mmtpa expansion at Vizag) to meet

domestic demand. Even if we assume that we would be able to replace 30% of

petrol and diesel consumption by EVs, we would still consume a total of

287mmt in FY30, which requires additional capacity of 45mmtpa.

Exhibit 48:

India would still require refining capacity addition

350

300

250

200

150

100

Consumption

Consumption with 30% EV penetration by 2030

Production

Source: PPAC, MOSL

Sales of petrol and diesel may be affected in the longer term









India still has a poor density of cars per capita. As mentioned in our report,

The

Three Musketeers, January 2017,

with expansion in road infrastructure, we

would continue to see high growth of ~10%/5% in petrol/diesel in the near-

medium term.

In the longer term, when EVs make significant progress in terms of percentage

of total existing stock of vehicles, then it would have a significant impact on

sales of petrol and diesel.

However, the OMCs have been making conscious inroads in alternate forms of

energy. All OMCs have varying degrees of presence in city gas distribution.

While IOCL and BPCL have taken good strides, HPCL is yet to make significant

progress.

OMCs are also looking at installation of electric charging points. IOCL also seems

to be foraying into energy storage solutions.

12 July 2018

42

| Thematic

Exhibit 49:

Strong petrol and diesel consumption growth

Petrol consumption

90

70

50

30

10

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Source: PPAC, MOSL

Petrol consumption growth (%)

Diesel consumption

Diesel consumption growth (%)

20

15

10

5

0

-5

E&P would still continue to witness investments





If EVs were to replace 30% of petrol and diesel consumption by 2030, even then

we would require 6.1mnbopd of oil, almost 41% up from 4.3mnbopd currently.

Currently, we produce 0.7mnbopd of oil and import the rest. A demand of

6.1mnbopd by 2030 still means that huge investments would be required in E&P

assets if we are not to rely on imports.

Exhibit 50:

India requires 6.1mnbopd of oil by 2030 even if EVs replace 30% petrol/diesel

consumption

Oil import (mnbopd)

Oil production (mnbopd)

Oil consumption (mnbopd)

Assuming flat domestic oil production; we

6.0

are a net exporter of petroleum products, oil

import data excludes the net exports

4.0

2.0

0.0

0.7 0.7 0.7

0.7 0.7 0.7

0.7 0.7

0.7 0.7

0.7 0.7

0.7

0.7 0.7

0.7

0.8 0.8 0.8

4.8 5.0 5.3 5.4 5.5 5.4 5.4

4.0 4.2 4.4 4.6

3.2 3.4 3.6 3.8

2.4 2.6 2.6 2.8

Source: PPAC, MOSL

Not much impact on gas demand











Of the total gas consumption, 16% is by city gas distribution companies (CGDs).

Of this, hardly 50% is for CNG.

We understand that the genesis of CGDs was primarily to reduce vehicular

pollution. This also means that the government or judiciary may make a push for

EVs for fleets in major cities, as pollution still remains a burning issue.

However, that would also eat away 8% of total gas consumption in the country.

Going forward, gas consumption would increase in the refineries,

petrochemical, fertilizer and industrial segments more for power and feedstock

requirements.

A clear example is that of China – while EVs have been growing, gas

consumption has also been growing leaps and bounds as focus on pollution

increases.

12 July 2018

43

| Thematic

CNG, however, could be adversely impacted







We understand that ~25% of total CNG for IGL is consumed by buses. Another

~4% is consumed in taxis.

If the government or judiciary makes it compulsory for buses or all public

transportation to run on EVs, it would impact CNG sales drastically.

While China has been doling out subsidies of USD4-5bn annually for EV

adoption, India is not expected to give commensurate subsidies considering our

fiscal situation. We do not expect private ownership in India to change from ICEs

to EVs unless the economics works in favor.

Conclusion – long-term negative





We do not expect much impact on refining or E&P. However, CNG sales could be

adversely impacted if fleets get converted to EVs either because of economics or

because of government/judiciary initiatives.

We would continue to watch developments in the space. In the meantime, we

reiterate our positive stand on OMCs, Petronet LNG, as well as CGDs.

Threat to existing business

Next 3- 5-10

>10 Remarks

5yrs

yrs

yrs

non-refining businesses would

Low

Low Medium

grow

Sale of auto fuels would be

Low Medium High

eventually impacted

Sale of auto fuels would be

Low Medium High

eventually impacted

Sale of auto fuels would be

Low Medium High

eventually impacted

Sale of auto fuels would be

Low Medium High

eventually impacted

India still imports ~80% of its

Low

Low Medium

crude requirement

Low

Low

Low

Low

Low

Low

Low

Low

Low

Low

Low

Low

Low

Low

Medium

Low

Low

Low

India still imports ~80% of its

crude requirement

Only CNG might get impacted

Only CNG might get impacted

non-CNG segments would

continue to use gas

CNG outlets may be converted into

charging stations

CNG outlets may be converted into

charging stations

CNG outlets may be converted into

charging stations

CNG outlets may be converted into

charging stations

Exhibit 51:

Impact on Oil & Gas companies

Company Disruption Threat on

RIL

IOCL

BPCL

HPCL

MRPL

ONGC

Oil India

GAIL

GSPL

Petronet

LNG

IGL

EVs

EVs

EVs

EVs

EVs

EVs

EVs

EVs

EVs

EVs

EVs

Sales volume of

auto fuels

Sales volume of

auto fuels

Sales volume of

auto fuels

Sales volume of

auto fuels

Sales volume of

auto fuels

Sales volume/

realization of oil

Sales

volume/realization

of oil

Transmission

volume of gas

Transmission

volume of gas

Capacity utilization

of LNG terminals

Sales volume &

margin

Sales volume &

margin

Sales volume &

margin

Existing strengths which may be

used to adapt

Retail outlets may be converted into

charging stations

Huge number of retail outlets could be

advantageous

Huge number of retail outlets could be

advantageous

Huge number of retail outlets could be

advantageous

Medium Fleets may convert to EVs

Low

Less contribution of CNG

Gujarat

EVs

Gas

Mahanagar

EVs

Gas

Medium Fleets may convert to EVs

12 July 2018

44

| Thematic

Conference takeaways

Fluid AI















Fluid AI is an artificial intelligence platform provider that specialises in pattern

and gesture recognition.

It offers complete student management solutions, web presence management,

customer relationship management, short message service solutions and family

portals.

Fluid AI has done several projects with all the biggest private sector banks

including HDFC, ICICI and IndusInd Banks

The firm caters to the needs of finance, web, government, marketing,

automotive, realty, hotels, experience centres and retail

Fluid AI is seeing a lot of traction from BFSI sector in areas like cross selling and

interactive new age ATM development

Firms plan to further penetrate in BFSI for positing itself as a sole vendor for

buying and spending experience of bank account holders to further boost up

bank services

Current revenue of the company filed under MCA for 2017 is INR19.08m

Zinnov







Engineering Services has been the fastest growing sub-segment in the recent

years for India’s IT Services exports. This trend is likely to continue in the

foreseeable future, given the traction and opportunity in sub-segments such as

Automotives and Software Product Engineering.

Global R&D spending is in excess of USD1b. However Engineering Services

outsourced market is much smaller than IT Services, and is currently pegged at

USD60b.France accounts for USD20b, India is USD12b, and the US is ~USD8b.

Then there are smaller contributors such as Japan, among others.

Software Product Engineering should continue growing in low-to-mid teens. The

other sector showing significant traction is Automotives. India should continue

to grow 12-15%. Indian market is growing much faster than the overall market.

Cognizant









CTSH has its own AI Solutions platform “Big Decisions” and it also uses other

solution libraries to bring the best packaged solutions to its clients.

The limitation for services providers is not technological capabilities, but ability

to identify areas of applications. That requires a strong understanding of clients’

business and the way the underlying processes function.

There have been large number of use cases across streams already explored and

worked upon – Extent of damages for Insurance companies, Intelligence to bring

down animal accidents, gauging client satisfaction from tone and style of

speaking; among others.

CTSH has trained a large number of employees (15-20k) on various AI tools in

the market, and also hired from B-schools for functional understanding and

business case consulting.

12 July 2018

45

| Thematic

Drona HQ











Drona HQ enables Apps development for the Enterprises. It provides API

management, low code development, App containers and dev-op tools.

Currently, its revenues are under-USD5m.

It already has a rich list of clients across verticals such as Kotak, Colgate,

Mondelez, Wipro and LTI

The industry understandably is in the phase of high demand. Currently the

market is for 2.2m Apps development. This is expected to grow to 2.8m Apps in

the next 3-5 years.

Drona has built 1,800 Apps to date and targets to take the number to 20,000 by

2020

Realization per App in the developed Western markets is USD200-300k. In

countries such as India and China, it is ~USD100-150k.

22 Motors, Go Green EOT, Volta Motors, Grant Thornton, Electric Vehicle

Consultant















Electric Vehicles present a convincing value proposition in the commercial

segment (PV fleet, e-3Ws, e-buses), a trend that would further get endorsed in

the next 2-3 years.

Economic viability for EVs in the Passenger vehicle fleet segment are already in

sight, hence Government’s focus to divert incentives to this segment would lead

to faster adoption of EVs in India.

While other countries witness a Top-down driven approach to electrification

with focus on personal mobility first, India would be on a different trajectory

altogether as electrification would be driven through commercial vehicles (fleet

PVs and e-3Ws).

Based on forecasts of Li-ion prices, inflection point for the following segment

would be:



PVs (personal usage): 2022-23



E-3Ws: 2020



E-2Ws: 2019-20

Adoption of EVs in India would be more market-led than incentive-driven.

Battery swapping would address concerns of range anxiety in 2Ws/3Ws/buses.

However, it is not a feasible solution for other vehicle segments due to lack of

uniformity and difficulty in handling the battery.

One of the companies we hosted - Twenty Two Motors, offers a compelling

product in the form of ‘Flow’, a lithium-ion powered e-scooter:



Flow offers 60kms range in a single charge, with a top speed of 60kmph.

Priced at ~INR 75k (ex-showroom- Delhi), it has potential to disrupt ICE

scooters with a running cost of INR0.15/km (v/s INR1.5/km for a petrol

scooter). Our calculation suggests payback in 2.5-3 years. Further, the

battery is removable, and takes upto 4 hours to fully charge, addressing

concerns of range anxiety.



Twenty Two Motors has an initial capacity of 100k scooters p.a. and would

scale up further depending on the demand.

12 July 2018

46

| Thematic



Another interesting company we hosted - Go Green EOT is an e-scooter

manufacturing company catering to the needs of e-commerce/food delivery. It

has a fleet of ~940 vehicles that are given on a fixed subscription per month per

vehicle for a minimum period of 2 years to their clients (in Bangalore and

Gurgaon). Go Green EOT claims its customers are saving 25-40% on their per

vehicle delivery cost. This validates our belief that relevance of electric vehicles

is high in the commercial usage segment, with economic viability already in

sight.

Oil and gas





While EVs would eventually be a big threat, we also need to take care of short-

medium term requirements. We would need more refineries to cater to high

demand of auto fuels in the short term unless we want to increase our exposure

to imports.

Gas would continue to play an important role even after EVs.

Petroleum and Natural Gas Regulatory Board

























Government or regulatory body may not intervene in the pricing of CNG/PNG

Unified tariff is a complex issue and would take few more months to come

Pending tariff decisions are expected by September 2018 which will get effective

form April 2019. If it doesn’t come by September then things will move to next

year only.

Depreciated fixed assets will be taken into consideration while tariff decision

Industry and the board is of the view that there is no need to regulate LNG

terminals

Current priority for PNGRB – CGD bidding (top), Gas grid vision (new pipelines,

will take 8 months, in the meantime will look for urgent pipelines), Gas trading

hub (exchange), free access of pipeline to the consumers

CGD bidding – 86 GAs on offer – 174 districts – 29% of India’s population



Marketing exclusivity has extended from 5 years to 8 years



Plans to allocate all the blocks by October 2018



Weightages: 50% PNG customers + 20% CNG stations + 10% pipeline

network + 20% transmission tariff

Urgent pipelines – Kochi Mangalore (Dec-18), Kochi – Trivandrum, Mumbai –

Nagpur, AP to Odisha

Surat to Paradip pipeline was cancelled 4 months back, will try to replace that

with other pipelines

Will have a Gas grid vision by March 2019

Post Kochi- Mangalore pipeline, complete Mangalore demand will come to

Kochi

PNGRB plans to bring competition in CGDs, new players will improve the

infrastructure

Ratnagiri Refinery







60mmtpa (refinery) + 18mt (petchem) – Capex of USD45b – mechanical

completion by 2023 (4 years of construction)

Expect refining demand to grow despite disruption (EVs, Gas, solar, etc.)

Imports will be expensive hence domestic refining capacity is must for India

47

12 July 2018

| Thematic























This will be an integrated mega refinery, expect petchem to drive the long term

growth

India’s plastic consumption is ~10kg per capita v/s 33kg per capita globally, have

huge scope for petchem business

Don’t see any demand risk for refining and petchem

Scale is very large will play a multiplying effect, 150k employer generation,

expect 2% impact on India’s GDP (12% on Maharashtra)

FID will be done post land acquisition (total 15k acres)

Saudi Aramco and ADNOC are partners in the project

Financing in early stage, mostly funded by debt

Corporate structure – 50% residents (25% IOC, 12.5% BPCL and 12.5% HPCL) and

50% Non-residents ( Aramco and ADNOC)

Land acquisition is in process, total 800 families need to relocate – 1/5

th

of land

acquisition done

Private player (Aramco and ADNOC) can come for marketing of the product

Operating performance will be as good as RIL

H-Energy











































4mmtpa FSRU – INR15b capex – old 2010 FSRU – has gone for dry dock

Working on a 60kms pipeline which will connect it to Dabhol

Jetty is completed, expect commissioning by year end

Future interest in East coast – having discussion with Kolkata port trust, AP port

trust

Authorized for the construction of Jaigad to Mangalore pipeline

Have 3 different entities – trading arm at Dubai, marketing arm and

infrastructure arm (jetty + pipeline)

It’s an all-weather terminal present at 4

th

Jetty of JSW port

Don’t expect Dabhol to become all weather terminal anytime soon, as

breakwater facility will incur a capex of INR10-12b (expensive) – increase tariffs

(unattractive)

H Energy will target – Maharashtra market, and then Gujarat and Karnataka

Have already tied up 50% of the capacity for 5 year (mid-term) contract for

buying and selling volumes

All are take or pay (80%) – 0.5mt volume contract with PETRONAS for 5-7 years

It will offer tailored contracts for the customer

Timing was right for the lease of FSRU and contracts for volume, gives an edge

over the competition

Spot volumes will be used more opportunistically

By 4QFY19, 0.5mmt volume will come

Will break-even at 30% utilization

Infra cost is fixed – USD100k/day for operation and maintenance

Financial closure is done

No different regulation for FSRU, it’s a free market

Cost of debt -11%

Dabhol pipeline has a capacity of 3.5-4mmt, if the terminal operates fully will

limit H Energy ramp-up, hence working on Jaigad – Mangalore pipeline

12 July 2018

48

| Thematic

BPCL Gas division













INR15-20k cost for new PNG connections

Have incurred INR 1.5-2.5b for the new 5 GAs

Saharanpur – smart city – plan to have 5-6 CNG stations, 50k household

connection

Yamuna nagar – will focus on commercial demand

Roopnagar – focus on CNG

Convenience is the utmost priority

Unison Enviro









3 CNG stations to come up by Dec 2018- 2 own, one with IOCL

Opex is expected to be higher due to virtual pipeline concept, but capex is

expected to be much lower

Lotte/MIDC demand potential is 40,000scmd. Expect total peak demand of

0.15mmscmd.

If Ratnagiri refinery comes up, it could offer immense demand potential

12 July 2018

49

THEMATIC/STRATEGY RESEARCH GALLERY

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

> - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

| Thematic

*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services,

Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of

which are available on

www.motilaloswal.com.

MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited

(BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of

Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have actual/beneficial ownership of 1% or more securities in the subject

company at the end of the month immediately preceding the date of publication of the Research Report.

MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short

position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in

the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and

opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though

there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may

have received any compensation from the subject company in the past 12 months.

In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:

a)

managed or co-managed public offering of securities from subject company of this research report,

b)

received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,

c)

received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.

d)

Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.

MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has incorporated a Disclosure of Interest Statement in

this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result,

the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or

brokerage service transactions.

Terms & Conditions:

This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part

or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report

is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied,

is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to

buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by

virtue of their receiving this report.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the

specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement



Analyst ownership of the stock

Companies where there is interest

No

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOSL or

its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have

expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject

MOSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong:

This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities

and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong)

Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only

available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from

registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered

investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption

under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional

Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional

investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule

15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,

MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of

this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject

to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore

In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial adviser in Singapore,

as per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore.

Persons in Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of

whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such

Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.

Disclaimer:

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced

in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in

this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of

independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document

(including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including

those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy,

completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the

views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval.

MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform

investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this

into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and

the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or

published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such

distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all

jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall

be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

The person accessing this information specifically agrees

to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL

or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm

Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:

na@motilaloswal.com,

Contact No.:022-30801085.

Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100.

Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth

management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real

Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

12 July 2018

51