Formulating Joint Venture’s with International Majors of the EPC Business
With the Government’s approval of 100% FDI investment in infrastructure through automatic route there has been new fillip observed in the participation of foreign players in Indian EPC market. These players are mainly focused in finding a suitable local partner to initiate the business operations in India. The advantage of these global giants is that they are technologically very advanced and it is liable to benefit the local players immensely in execution of complex natured projects. The presence of the global economies would present following value additions to the Indian players if they are opting for JV’s with these players:
- Latest technology and equipments are available at ease: – The JV of a local player with Indian EPC major would enable the domestic player with best in class technology and equipments. This exposure would help them to achieve even the toughest project execution with ease.
- Accessibility to the globally tried and tested project management and risk management capabilities
- Eliminating outdated practices and migrating to best in class approach
- The domestic players planning to diversify would find participating in diversification as easy by leveraging into business expertise of foreign players
- With ensuring JV’s with foreign players the domestic players would ensure presence in entire value chain as foreign EPC players come along with extended capabilities like design capabilities, project development capabilities etc
- Also, with entering into strategic alliances the chances of running into project cost overruns reduces since better project scheduling is evolved with no added manpower cost
Similarly, for the foreign players it would also be advantageous to have formed JV’s with Indian firms to execute the infrastructure projects. The foreign players who are eyeing an entry into Indian EPC market would be better positioned to venture by striking strategic partnerships with Indian firms. The set of advantages for foreign players would be as below:-
- With strategic JV’s with Indian firms the opportunity to venture in Indian infrastructure segment becomes open as all the segments of the sector do not promote stand alone participation by foreign players
- The foreign players would get the first hand knowledge about the Indian markets and their functions by having strategic alliance with the domestic players, given the exposure these payers have
- The tune of investments would have better risk hedging as the foreign participants would be able to take informed decisions prior to investing in Indian markets basis the local experience of the domestic players
- The major problem of identification of projects which would ensure better profitability margins would be resolved as domestic players would help identify better profit margins offering projects
The level of advantages associated for the domestic players by landing up strategic alliances with foreign players and the associated advantages of foreign players by having a JV with domestic player is highlighted in Exhibit 01 & 02 respectively.
Growth Through Private Equity (PE)
Considering India’s growth and government focus on infrastructure development, all infrastructure sectors including power, roads, railways, ports and airports are also scheduled for massive capacity expansion. There are opportunities for all the stakeholders like developers, financial institutions and suppliers in this process. India needs to double its infrastructure spending to ~10% of its GDP to achieve 9%+ GDP growth which further requires new funding sources.
Banks in India alone cannot meet the huge funding requirements of the infrastructure segment of the country, and hence there arise need of innovative funding models. One such model envisaged is private equity (PE) funding and typically it would be done by foreign players in the country provided the economic growth is robust and consistent.
In the 12th FYP the level of PE funding is expected to go up from previous FYP’s levels which were at 21% for infrastructure investments.
Adding to the services offered portfolio holds the key to attract more business for EPC companies. The value addition would come in three parameters namely:-
The operational value addition would enable the EPC companies to increase their allied capabilities and would enhance their operational ability as depicted Exhibit 06.
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