Rajiv Batra

Rajiv Batra

29th June 2016

Public

Content

India – macroeconomic trends and government initiatives

Cummins initiatives for vendor partners

Way forward…

2

Content



Way forward…

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India’s growth is expected to remain strong

2.6 2.52.7 2.6 2.5

3.1 3.2

5.6

6.6

7.2 7.3 7.5 7.5 7.6

2012 2013 2014 2015 2016 2017 2018

GDP growth rate %

World India

4Source: IMF April 2016, IHS May 2016

• India GDP growth to continue

at highest rate in world, even

higher than China…

• World growth is slowly

recovering

Globally economy is expected to recover slowly

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2.4 2.2 2.5

2015 2016 2017

GDP growth %

• 2016 GDP growth expectation revised from 2.4% to 2.2%

• Energy sector has dropped following crude oil rate cash

• Strong $: Dollar is 10%-20% higher than natural value

and Brexit can further increase it

6.9 6.5 6.2 6.0

2015 2016 2017 2018• Re-balancing its economy

• Overcapacity and weaker exports

• High debts: From 2007-2015, China's debt grew from USD

7T to USD 25T. Debt to GDP is 237%

Brexit

Grexit -

UK GDP to contract by 0.8% in 2017,

exact impact to be seen

• UK no longer have access free market of EU and 56

negotiated countries and will have to restart negotiations

• Services (majorly Financial) which forms 80% of UK

GDP and has EU as its single largest market will be

impacted negatively

If Greece exits EU

• Default by Greece, lower valued currency, lower

standard of living for

• Shake investor confidence on other PIGS countries

• European companies shares could fall sharply

GDP growth %

USA

China

Source: GDP: IMF, April 2016

-5.0

0.0

5.0

10.0

15.0

Inflation, %

CPI WPI

Inflation and repo rate have eased over last 2 years

6

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Repo Rate, %

8%

6.5%

Source: RBI

RBI target of CPI is 5% for March 2017

and 4% with +/- 2% beyond 2016-17

%%

Market expects repo rate cut by 25 basis

points around August subjected to normal

monsoon and under control inflation

Rupee predicted to be in range of 66.5 to 68.5 over this fiscal year

7

45

50

55

60

65

70

02-A

pr-

14

02-J

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4

02-A

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4

02-O

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02-D

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4

02-F

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5

02-A

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15

02-J

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5

02-A

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5

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15

02-D

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5

02-F

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6

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6

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INR/$

240

260

280

300

320

340

360

380

Forex Reserve, $B

• Rupee predicted to be in range of 67.5 to 68.5 in next 2-3 months, moving to 66.5 to 67 by March 2017

• Forex reserve has grown consistently and is at 10 months import equivalent, giving RBI leverage to keep Rupee

in a band if needed

Source: RBI

6768.5

INR $B

International crude oil and commodity prices seem to have stabilized

8

0

20

40

60

80

100

120

140

160

180

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Jan

-13

Ap

r-13

Jul-

13

Oct-

13

Jan

-14

Ap

r-14

Jul-

14

Oct-

14

Jan

-15

Ap

r-15

Jul-

15

Oct-

15

Jan

-16

Ap

r-16

Commodity prices

Copper, $/mt

Iron ore, cfr spot, $/dmtu

($/mt) ($/dmtu)

Source: Nasdaq, World Bank, Economist Intelligence Unit, Mar 2016 & IMF Analysis

In 2016 and beyond weak demand from China is

expected to keep prices down as these metals are used

extensively in infrastructure and manufacturing projects

-

20

40

60

80

100

120

Crude Oil - WTI, $/barrel

26

49

106

2014 2015 20162013

Crude oil rate increased to 30% since February

2016, but seen as stabilizing at $45 - $50 in

next few months

$

The current Government has taken various steps in the positive direction

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Improved Governance

Creating revenue streams

for investment

NITI Aayog

Quicker

Decision making

E-Auctions:

Coal & SpectrumDirect Fund

Transfers

30% 25%Base Corporate

Tax

Single Window Clearances

Inclusion of states

in policy making

Clearing stalled projects &

predictable policy regime

Actively pushing GST

Disinvestments

Ease for doing Business

Increased Transparency

Strengthening

business and

strategic ties

Easing FDI

limits

Relaxed limit up to 100% in

most sectors including defense

Planned increase in infrastructure investment is moving the economy on the intended path

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Roads 4,116 6,260 52% Build roads from India's west-to-east land border,

upgrade state to national highways

Railways 4,934 6,260 27% Electrification, improvement of speed of trains and safety

Shipping 74 146 97% Port connectivity and inland water ways

National waterways development

Defense 36,766 38,607 5% Build indigenous combat vehicles, warships, etc.

Industry &

minerals6,459 6,745 4%

Permission to private companies to mine and sell coal in

the open market

Energy 25,393 26,182 3% 5 ultra mega power projects (coal-based) planned (4000

MW each)

Smart cities 398 923 132% Build 100 smart cities in India

Ports 41 61 49% Corporatization of public sector ports

Urban

development1,266 1,570 24% Affordable housing, sanitation and development

% Growth2014-151

($M)

2015-162

($M)

Source: 1- Union budget 2014-15 revised estimates

2 – Union budget 2015-16 budgeted estimates

Key focus areas

Few focus areas of the government are expected to drive positive trends for the manufacturing industry

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Upgrade and expand highways – build road from

India's west-to-east land border (target of 30

km/day for 2016-17 from current 20 km/day)

Govt.’s push for affordable housing, sanitation,

urban and rural development

Plans to create 100 smart cities by 2022

Off-highway

Mines and minerals amendment bill 2015

allows private companies to mine and sell coal

in the open market ending state monopoly

Mining

Focus on electrification, increased speed,

improved safety, connectivity and

enhanced capacity

Investment of $136 B planned over the

next five years

Railway

Fleet expansion and modernization by Indian

Navy, Coast Guard

Government push for inland waterways, port

connectivity projects to help generate demand

Marine

Increase in gas distribution stations

(IGL,MNGL etc.) – Gas compressor market;

consistent demand for offshore emergency DG

market

Oil & Gas

Migration to higher tonnage nodes expected

due to growth in infrastructure

With nationwide implementation of BSIV,

ability to deliver an FFM product is critical

Government’s intention to skip BSV and

jump to BSVI by 2020

On-highway

Thrust on industry and infrastructure

development expected to increase power

demand

Power deficit expected to continue at current

levels of 2-3%

Modest growth in gross fixed capital

formation expected (may accelerate if

economy improves)

Power Generation

Rajya Sabha support for GST

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Some challenges, if addressed, could boost the economic growth even further

Two-Third Majority at 164

Total seats - 247

Party / group No. of Seats*

NDA + 7 nominated members 81

Supporting Others 60

Undecided (AIDMK – 13, YSR

congress, TRS, JD (Secular))

19

Opposing Others (Left, RJD) 20

Congress 60

Support for GST has grown in Upper House but still

shy of 2/3 mark

*Excluding Vacant seatsSource: NDTV India news, Scroll, thehindu

NDA

Supporting

Others

Congress

Opposing Others

NPA of banks are at very high levels

NPAs of Banks

• Weak infrastructure – Insufficient Rail and

Power access for inland factories

• Regulatory burden, particularly in labour markets

• Bills pending in Rajya Sabha e.g. Land

acquisition bill

• Time to start business still high

Other Factors

• Banks have become reluctant to lend

• Asking for additional collateral

• Higher rate

Undecided

141

Content



Way forward…

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For GST implementation, Cummins is collaborating with vendor partners to realize benefits for end customers

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• Cost Benefit:

• Interstate transactions under GST will benefit

• Input credit for one type of tax against another

• Coverage of CENVAT will increase e.g. outward

transportation

• Tax Filing & Litigation: Less Complicated

• More Working Capital will be required

• Credit lock if a firms vendor has not paid and

registered under its GST no.

GST workshop conducted with vendor partners

• Cummins is happy to help and extent the support

to Tier 2 vendors

• To remain competitive after GST implementation,

we need to be transparent and collaborate

Cummins is launching ‘Vendor bill discounting scheme’ to provide easy financing

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PROGRAM

• Cummins’s Banker to pay immediately after receipt

of material

• Disbursement at discounted rate as agreed

between Cummins and its vendor partner

• Current discount rate is 10.75%

• Partners do not need to provide any collateral

• Agreement required to be executed with Cummins

but No agreement or KYC between vendor partner

and Bank

• No charges over and above discounting interest

Submits invoice

1

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Vendor Partners who chose to join, can avail financing at market competitive rates without providing any collateral

This will enable in supplying at cost effective rates

Content



Way forward…

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The way forward…

17

Customer expectations are

increasing on cost and quality

2016 2017 20182015 Product

RFT

Reliability

Dependability

TCO

Lets reduce our Cost of Quality

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External

Failures:

Internal

Failure:

Appraisal

Costs:

Prevention

Costs:

► Loss of Customer / Goodwill

► Retro fit costs

► Incurring penalties / claims

► Scrap / Rework ► Re-test / Re-inspection

► Unplanned downtime ► Trouble shooting

► Incoming inspection ► Maintenance and calibration of equipment

► Setup inspection and tests ► Field testing ► Process audits

► Education and training ► Quality planning ► Product design qualification tests

► Vendor qualification ► Customer interface ► Controlling processes

Cost o

f Q

ua

lity incre

ase

s

$1000X

$100X

$10X

$1X

Warranty cost based on ABO consolidated and TCL sales

In the long term, we continue to remain optimistic

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Global growth is picking up slowly

Macroeconomic factors for India are trending in right direction

Government initiatives and spending is expected to drive growth

Growth

Prospects

ImpactCummins is well-positioned to capitalize on growth

with enhanced support from its vendor partners

Documents

Rajiv Batra