Thread by @SahilKapoor

A 🧵 thread on "Engineering A Better Tomorrow".

I did an interaction with Mr. MS Unnikrishnan (Ex MD & CEO Thermax) and @charanlearning. We spoke about the CAPEX cycle, engineering, automation and the future.

Link to the full interaction-


Read along

✅ By FY 23 India will have a Trillion $ Gross Fixed Capital Formation (GFCF).
✅ Only 17 countries have higher GDP than India's GFCF.

India's investments (GFCF) to GDP yoy growth
FY80 to FY01: +16%
FY05 to FY08: +22%
FY04 to FY12: +17% (Full cycle)
FY14 to FY21: +6.3%

FY22 to FY30: Opportunity

FY23 onwards: a TRILLION Dollar in fixed asset creation each year.

What if the growth rates goes back to 10%+?

What is a Capex Cycle?
✅ A Capex cycle is a combination of consumption going up, existing capacities getting utilized & new investment happens to create capacity.

Difference between last 2 capex cycles.
✅ 1st cycle between fy 04 to fy 12 was unscientific & more of a catch up as lot of spending was uncontrolled, created excess capacity & global crises added to it.

✅ Current cycle fy 18 & fy 21 is more scientific, thoughtful & we are at cusp of positive cycle. Capacity finalization has happened across sector & it will be a longer cycle.

Key Ingredient for the current upcycle
1. Investments as a % GDP bottomed out at 27% in FY20.

2. Corporate Tax rate is a game changer at 15% for new manufacturing.

3. Interest rates at 2 decade low.

4. Favorable Govt policies. (RERA, GST, PLI).

5. Land reforms & Land acquisition act is also one of the key reforms.
6. In last cycle predominantly investments were happening in 2 to 3 select developed states.
7. In current cycle it's more wide spread & state like UP, MP, AP & Telanga have also attracting lot of investments

8. It's like old china where every province was fighting for investments in their own regions.

9. It's centre policies, states competition & regional leaders all are working towards attracting investments in own states.

10. So 30 to 40 Crore more population will drive consumption & investments both & capacities will be multiplied.

11. Govt is aware what is needed to review economy.

What resources will be required for such a scale of capacity ?
1. IPO market is one of the indicators as even during covid none of the IPO's were undersubscribed which is one of indicator that equity is available.

2. The entire last cycle was driven by debt from bank which is currently not sufficient if we want to become 3 to 5 Trillion economy.

3. So reforms will be required & Bond markets seems to be a solution.

4. Funds will also flow from International markets.

On China +1 Strategy:
1. It all started with US -China trade war. So corporates were looking at China+1 to diversify.

2. Wanted a more reliable trade partner.

3. Govt saw that as a big opportunity to develop its eco system.

4. Govt has imposed import bans, tariff hike & PLI which is going to be a game changer.

5. PLI started with mobile segment & now has 14 sectors covered with total investments of close to 4 Lakh CR.

Sectors that could benefit-

1. Solar segment we need to create at least 150 GW capacity by 2030 we are just at 40 GW.
Large commitments by leading business houses in PV (Solar Photovoltaic) manufacturing is an indication that we may not depend on import for Solar panels.

2. Steel sector : Govt had planned for make in India & make for World. Steel companies will increase capacity. Balance sheets of many steel companies are very strong compared to last cycle.

3. Sponge Iron: more than 20 companies are increasing their capacity & everyone is competing with each other & most of it is happening through brown fields.

4. Chemical & Food processing, Ethanol etc are some of the sectors.

6. Real estate sector has been benefited by reforms like RERA, GST & its making a come back. We can participate through Building materials & consumer electrical. Inventory levels have also come down to 18 months which is a historical low.

Private Capex-

1. Digitization & Automation is a global trend & India will become factory for the world.

2. Data center will see investments of close to 75000 CR.

3. So in this cycles lot of new segment are emerging. Demand will pull capacity utilization and start pvt capex

Electrification of Railways:
1. With part privatization of Railways electrification has picked up.

2. Railways have also increased the speed of trains

3. Many Railways stations may be handed over to pvt firms just like Airports.

4. Modern technologies will come to India

Automation & Digitization:
1. Both these things are need of the hour. Automation helps in providing shorter time to market the products & improve energy efficiency.

2. Digitization helps in mass customization.

3. Lot of manufacturing setups are moving towards both.

4. Digitization is still to pick up as it will help mechanize more smarter, predictable maintenance & reduce downtime.

5. Consistency in quality can come with Automation. India may become leader in automating factories across the globe. It's going to be a driver for IT as well.

What are the most glaring opportunities from 3 to 5 years view?
1. Automation & Digitization
2. FMIG
3. Data Centre's
4. Construction
5. Consumer electrification
6. Building materials

What kind of Growth numbers can be expected if cycle goes right??
As the cycle picks up over 5 to 10 year period.

-Light & Medium size engineering company can grow with steady expectations of double digit.

-Capital Goods will see a chunky growth & can expect in higher teens.

What are the Risk to the hypothesis?
1. It is more a Geo political issue rather than economic. India being part of Political grouping globally.

2 India needs to be supporter & participant of Climate change & work towards Global goal.

3 Technology revolution which will be brought by China which we should be able to catch up & quickly so.

4.India needs lot more investors & large investors in core sector where huge ticket investments are required.

5. Banking system reforms need to be in placed.

Are there enough opportunities for investors?
1. Govt is resolving issues to attract more investors in core sector.
2. Change is seen on how we are funding our Infrastructure investments.
3. Long-term low cost financing is coming from World Bank & Asian development Bank.

4. Lot of global pension funds are also looking at investments.
5. INVITS are also getting more prominence among investment world.

ends

@dspmf