Pennar Industries Ltd Management Discussions.


The World Bank, in its June report on Global economic prospectus, indicated that the world economy could grow at 2.7% in 2017 and 2.9% in 2018. This forecast is based on improvement in global trade and investments which bottomed out in 2016 along with a gradual rise in commodity prices. Activity in advanced economies is expected to gain momentum in 2017, supported by an upturn in the United States, as previously anticipated. In the Euro Area and Japan, growth forecasts have been upgraded, reflecting strengthening domestic demand and exports.

The forecast is subject to moderate downside risks that include escalating trade restrictions because of protectionist policies by countries such as US and UK and a slowdown in Chinese economy.


Indian economy grew at a pace of 7.1% in 2016-17 registering lower growth compared to 2015-16. The growth slowed down from 7.6% in previous year 2015-16 due to a below-average monsoon coupled with a liquidity crunch curbing rural demand, a key growth engine of the Indian economy.

The Union budget 2017-18 is strictly in line with the fiscal consolidation path of the government and the reforms by the government are aimed at making India a more organized economy. The Governments conscious focus upon the improvement of Ease of Doing Business with reforms such as the Implementation of GST and the Make In India Campaign created a launch-pad for the Indian economy to scale greater heights.


The Government is aimed at fiscal consolidation along with continuous reforms that will reduce impediments to sustainable growth. The political stability of the country along with its macroeconomic prospectus is setting India on a robust growth path for the future.

The World Bank has estimated the growth for India to be 7.5% in 2018 and 7.7% in 2019. 2017 is expected to have an above normal monsoon that will activate the growth engines of the Indian economy such as rural consumption thus setting stage for robust growth.


The Indian Infrastructure sector is one of the key drivers of the Indian economy. The sector is largely responsible for propelling Indias overall development and enjoys intense focus from the Government policy making that would ensure time-bound creation of world class infrastructure in the country

The Road Transport & Highways Ministry has invested approximately Rs.32,000 crore (US$ 47.7 billion), while the Shipping Ministry has invested around Rs 80,000 crore (US$ 12.0 billion) in the past two and a half years towards building world class highways and shipping infrastructure in the country. The Government of India is expected to invest sizably in the infrastructure sector, mainly highways, renewable energy and urban transport, prior to the general elections in 2019.


In the Union Budget 2017-18, the Government of India has taken the following measures for the development of infrastructure.

• Increased total infrastructure outlay and defense capital expenditure by 10 per cent and 20.6 per cent to Rs.396,135 crore (US$ 59.18 billion) and Rs 86,488 crore (US$ 13.1 billion) respectively, over FY17 revised estimate

• Railway expenditure allocation has increased by 8 per cent to Rs.131,000 crore (US$ 19.58 billion) for laying down 3,500 km of railway lines in 2017-18

• Affordable housing has been given infrastructure status

• Lock-in period for long-term capital gains on land and buildings has been reduced from three to two years


Indian infrastructure sector is slowly reviving from the stagnation it experienced in the previous years with the help of capital impetus from the Government. Majority of the new infrastructure projects were related to roads and railways. Demand for affordable housing coupled with award of infrastructure status by the government will enable significant investments in this space However, lower capacity utilization levels by corporates and lack of private CAPEX is dampening the growth of infrastructure sector. Overall the growth outlook for infrastructure sector remains moderate.


Indian construction sector, second largest sector in terms of number of people employed contributes to around 8.5% of the Indian GDP and employs more than 35 Million people. The size of the Indian construction sector is estimated at 2,48,000 crore. Construction sector provides a growth impetus to many other sectors such as Cements, Iron & steel, Paints & tiles etc. Residential construction was the largest in the Indian construction industry. Urbanization has been key demand driver in India along with rising household incomes which lead to improvement to residential construction over a period of time.


In the Union Budget 2017-18, the Government of India has taken the following measures for the development of construction sector.

• Infrastructure status to affordable housing

• Pradhan Mantri Awas Yojana and housing for all by 2022 and increased allocation to PMAY by 45%

• Holding period for immovable assets reduced from 3 years to 2 years and indexation to be shifted from 1.4.1981 to 1.4.2001


Indian automobile market is one of the most competitive markets in the world. The market witnessed significant growth over the last two decades owing to investments from foreign players through FDI along with significant rise in Indian disposable incomes and this trend is expected to continue in future. Leading auto maker Maruti Suzuki expects Indian passenger car market to reach four million units by 2020, up from 1.97 million units in 2014-15.

The automobile industry sales grew significantly during the years 2016-17 on account of a gradual uptick in rural demand along with growth in exports. However, the sector saw mixed results on account of the impact of demonetization in the third and fourth quarters of 2016-17 along with this the ban on BS-3 vehicles from April 1st 2017.

In 2017-18 the industry is expected to witness gradual pickup in demand as the liquidity and cash situation in the market improves. Also, demand is expected to improve on back of various initiatives taken by the government in the Union Budget 2018. Higher allocation for infrastructure and transportation segment is likely to benefit the commercial vehicles demand during the year. Allocation to farm credit has been increased which is expected to fuel demand for the tractors segment. Also, reduction in tax burden for individuals with income below Rs 5 lakhs is likely to have positive impact on the two-wheelers and small cars demand. However issues related to upgrading emission standards with significant investments and uncertainty related to GST may impact the sector to some extent.


Manufacturing has emerged as one of the high growth sectors in India. The ‘Make in India program has ben launched with a vision to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of year 2020*.

Basing on the Gross Value Added (GVA) at constant (2011-12) prices, the manufacturing sector in India grew 7.9 per cent year-on-year in 2016-17, as per the 2nd provisional estimate of annual national income published by the Government of India. Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector in GDP to 25 per cent by 2022, from current share of 16 per cent, and to create 100 million new jobs by 2022. Thus the scenario of the Indian manufacturing sector continues to remain positive.


The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Some of the notable initiatives and developments are:

• Reduction of income tax rate to 25 per cent for MSME companies having turnover up to Rs 50 crore (US$ 7.5 million)

• MAT credit forward is extended to 15 years from 10 years

• Abolishment of Foreign Investment Promotion Board (FIPB) by 2017-18


The governments plan to promote India as a global manufacturing hub and create employment opportunities within the country is a welcome move.

However, with the growing protectionist policymeasures by advanced economies along with tightening US monetary policy may impact the manufacturing sector growth. Exports from the manufacturing sector may witness some decline on account of trade restrictions. Lack of demand in the domestic sector on account of lower capacity utilization levels may also impact the growth in manufacturing sector. However, increased government CAPEX push along with tax incentives can boost manufacturing in certain sectors such as Defense and Capital goods to some extent.


Power is one of the most critical components of infrastructure and is crucial for the economic growth and welfare of any nation.. Energy security through non conventional sources is of paramount importance to a country such as India which depends on exports for 80% of its energy needs. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.

India ranks third among 40 countries in EYs Renewable Energy Country Attractiveness Index, on back of strong focus by the government on promoting renewable energy and implementation of projects in a time bound manner.

Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of Indias focus on attaining ‘Power for all has accelerated capacity addition in the country . Total installed capacity of power stations in India stood at 315,426.32 Megawatt (MW) as of February 28, 2017. In order to meet the future demand mass additions in installed and generated capacity is needed for economic growth. However, a continued downward spiral of power tariffs fueled by price wars between existing players, and an uncertainty in module prices and tax regime pose significant threats to the viability of the market


10 years of tax exemption is given for all solar projects to promote investments into renewable energy sector The Government of India announced a massive renewable power production target of 175,000 MW by 2022; this comprises generation of 100,000 MW from solar power, 60,000 MW from wind energy, 10,000 MW from biomass, and 5,000 MW from small hydro power projects.

The Government of India plans to start as many as 10,000 solar, wind and biomass power projects in next five years, with an average capacity of 50 kilowatt per project, thereby adding 500 mega-watts to the total installed capacity.

The Ministry of New and Renewable Energy plans to introduce a fixed-cost component to the tariff for electricity generated from renewable energy sources like solar or wind, in a bid to promote a green economy. The Ministry of Power plans to set up two funds of US$ 1 billion each, which would give investment support for stressed power assets and renewable energy projects in the country.


The AMP (Automotive Mission Plan) 2016-26 is a collective vision of the Government of India and the Indian automotive industry where the vehicles, auto components, and tractor industries should reach over ten years in terms of size, contribution to Indias development, global footprint, technological maturity, competitiveness, and institutional structure and capabilities.

The vision is to make the Indian automotive industry among the top-three in the world by 2026 in engineering, manufacture and export of vehicles and auto components, encompassing safe, efficient and environment-friendly conditions for affordable mobility of people and transportation of goods in India comparable with global standards, growing in value to over 12% of Indias GDP and generating an additional 65 million jobs. AMP 2026 envisages that the Indian automotive industry will grow 3.5-4x in value from its current output of around Rs.464,000 crore in 2015 to about Rs.16,16,000-18,88,500 crore by 2026, based on base case of an average GDP growth of 5.8% and an optimistic case with an average GDP growth of 7.5% during the period.


India is slowly shifting its energy base from traditional energy to renewable energy model. So solar energy is going to play a lead role in conversion from conventional energy to renewable energy sources. The past few years witnessed several big-ticket investments in the solar power sector . However, downward-spiraling power tariffs brought about by price wars amongst the major players combined with prevailing GST-related ambiguities may reduce growth and capacity additions in this sector.


The Indian Railways is among the worlds largest rail networks. The Indian Railways network is spread over 115,000 km, with 12,617 passenger trains and 7,421 freight trains each day from 7,172 stations plying 23 million travelers and 3 million tonnes (MT) of freight daily.

During FY 2016-17, the passenger traffic of Indian Railways grew 0.8 per cent to 8,219.38 million, with passenger revenue growth of 4.6 per cent at Rs 47,449.75 crore (US$ 7.37 billion). The overall revenue of Indian Railways grew 8.7 per cent year-on-year to Rs 15,884.58 crore (US$ 2.47 billion) during March 2017. The passenger earnings grew 10.1 per cent to Rs 4,205.29 crore (US$ 652.90 million) and the freight earnings grew 4.1 per cent to Rs 10,273.20 crore (US$ 1.60 billion) during March 2017.

INR (bn) FY13 FY14 FY15 FY16 FY17(BE) Change over RE(%)
New lines (Construction) 59 58 90 135 156 15.6
Gauge Conversion 25 31 34 43 43 1.4
Doubling 27 30 40 90 251 178.9
Rolling Stock (Total) 181 175 174 191 273 42.9
Dedicated freight corridor 15 12 43 53 76 42.9
Track renewals 53 50 50 54 40 (26.3)
Bridge works 3 4 5 5 6 19.8
Sailing and Telecommunication 11 9 10 9 10 12.3
Electrification projects 9 13 14 23 34 49.9
Passenger amenities 10 9 10 12 18 51.6
Inv in govt. PSU 7 6 6 93 26 (71.5)
Inv in non-govt incl JVs/SPV 14 29 36 7 8 9.7
Metropolitan transport project 234 14 (94.0)
Others 97 97 115 52 214 25.3
Total 511 523 627 1,000 1,170 59.5

The revenue generated by the Railways is expected to grow at 10 per cent in the fiscal year 2017-18. The Union Budget 2017-18 has estimated that the overall earnings will rise to Rs 189,498.37 crore (US$ 28.42 billion) in 2017-18, compared to Rs 172,305 crore (US$ 25.84 billion) in the fiscal year 2016-17.


The Government allocated Rs 55,000 crore (US$ 8.25 billion) towards capital and development expenditure of Railways. A fund named Rashtriya Rail Sanraksha Kosh worth Rs 100,000 crore (US$ 15 billion) will be created, which will be directed towards passenger safety All the coaches of the Indian Railways will be fitted with bio toilets by the year 2019 Railway lines of 3,500 kms will be commissioned in 2017-18.


Indian railways is growing at a very good pace and is expected to grow at a 10 % growth rate in 2017-18. Indian railways is expected to be the third largest railway market in the coming five years. The governments initiatives towards proper utilization of railway assets for revenue generation along with increased capital expenditure into railway projects will push growth in railway sector moving forward. Improvement in FDI and development of cold storage chains along the railway networks will substantially increase the revenue generation in future. development of cold storage chains along the railway networks will substantially increase the revenue generation in future.