Winds of Change SU 20180712 PG052

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 |July 2018
Thematic
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 Digitalization - Indian IT’s future tense?
Brokers Poll 2018 for India  Labor arbitrage, efficient processes and quality delivery as recipe of success for
Research, Sales and Trading
Indian IT companies are passé. There is a clear need to adopt agile methods of
team. We request your ballot.
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!

 Rising pollution drives necessity: Transportation accounts for as much as ~30%
of greenhouse gases (GHGs) in developed economies. In developing economies
Research Analyst
like India and China, the share is much lower at 6-7%. However, urban areas
Swarnendu Bhushan share the same fate. In Delhi, transportation accounts for 83% of CO, 36% of
(Swarnendu.Bhushan@MotilalOswal.com); NOx, 20% of PM2.5, and 9% of PM10. Winter aggravates the problem.
+91 22 6129 1529
 Electrification inevitably the way forward: Electric Vehicles (EVs) by virtue of
Jinesh Gandhi zero discharge offer immense potential. Although costlier than Internal
(Jinesh.Gandi@MotilalOswal.com); Combustion Engines (ICEs) now, regulatory push and government incentives are
+91 22 6129 1524 likely to drive adoption till the time economics catches up.
 Shifting lanes: In India, component manufacturers are likely to witness highest
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); disruption. Largest opportunity lies for Li-ion based battery manufacturers,
+91 22 6129 1530 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
Service providers falling by the side and many industries are losing relevance. Not
BPM providers
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
Ashish Chopra – Research analyst (Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424

12 July 2018 4
Sagar Lele – Research analyst (Sagar.Lele@MotilalOswal.com); +91 22 3982 5585
| 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
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| 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
Exhibit 5: Some challenges remain for BFSI institutions seeking to implement blockchain
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
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?
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
12 July 2018 13
| Thematic
Opportunities
Energy Use management, smart meters, grid control
Industrials Discrete and process manufacturing, transportation
Safety and security Video surveillance, access control, environmental monitoring
Consumer Payment solutions, in-store experience, smart devices and appliances
Agriculture 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*
Exhibit 10: IoT @HCLT
12 July 2018 14
| Thematic
Exhibit 11: Zinnov predicts multi-year growth in IoT spending by Enterprises
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.
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| 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
15.8
12.0
10.3
10.8
14.0
12.4
15.0
12.0
15.8
13.6
11.4
13.1
14.1
16.1
12.3
22.6
18.9
14.7
9.8
9.9
6.8
8.4
7.3
6.5
8.9
7.4
5.3
5.7
8.3
8.4
6.0
7.6
9.5
7.2
6.3
5.3
3.3
9.2
8.1
5.9
6.0
6.2
6.0
8.2
7.1
TCS INFO WPRO HCLT TECHM

12 July 2018 16
| Thematic
Exhibit 13: The changing models are telling on the RoICs
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
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
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| Thematic
One should not rule out gradual consolidation

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) 1QCY16 (INR67.7/USD) 2QCY17 (INR64.5/USD)
30.9
27.8 28.3 28.0
26.7 26.7
24.9 24.2
22.2 22.1 21.2
20.6 19.6
16.9
12.7
TCS INFO WPRO HCLT TECHM
Exhibit 17: Impact on IT companies

Threat to existing business Existing strengths which
Company Disruption Threat on Remarks
Next 3-5yrs 5-10yrs >10yrs may be used to adapt
TCS SMAC/AI Existing revenue base Medium High High
INFO SMAC/AI Existing revenue base Medium High High Risk would reduce as Increasing revenue from
companies adapt and Digital (>20% of revenue),
WPRO SMAC/AI Existing revenue base Medium High High
turn threats into Historic ability to adapt
HCLT SMAC/AI Existing revenue base Medium High High opportunities to technology waves.
TECHM SMAC/AI Existing revenue base Medium High High
12 July 2018 20
| Thematic
Exhibit 18: Indian IT has put in its stride…
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.
1
Exhibit 19: Digital service market share by FTEs
Exhibit 20: Partnering for technology/platform
12 July 2018 22
| Thematic
Exhibit 21: Incubation platforms for innovative start-ups
Exhibit 22: Acquisitions for technology and platforms
12 July 2018 23
Thematic
| Thematic
|Automobiles
Automobiles
Electrification inevitably the way forward
 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.
Automobiles  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.
Jinesh Gandhi - Research Analyst (Jinesh@MotilalOswal.com); +91 22 6129 1524

12 July 2018 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
69 74 68 73 82
86
35
24 18 25 9 23 11
7 8 7 5 4 7 15
IHS
Faurecia
Bosch
Schaeffler
Energies
Roland Berger
Continental
MCPI
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 Exhibit 27: Battery density expected to improve with
USD73/kWh by 2030 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 Fuel cost Maintenance cost Insurance cost Battery replacement cost
2,000
1,600
1,200
800
400
0
INR '000 Petrol Diesel Electric Petrol Diesel Electric
BSIV (current scenario) BSVI (2020 and beyond)
Source: Industry, MOSL
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 Vehicle performance,

charging Infrastructre cost, aftersales service
EV demand
enablers
Battery price,
Fiscal incentives by the
performance and
goverment
recycling
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 Challenge Possible solution
Affordability  Considering the gap between the  Generating a pull among customers by creating an economical cost
upfront cost of an ICE and EV (30-40%) proposition via (i) building an EV ecosystem and (ii) fiscal and non-
and the lack of charging infrastructure, fiscal incentives
EVs are not an attractive option for
consumers.
Charging  Lack of availability of charging  Incentivizing the private sector for setting up charging infrastructure
infrastructure infrastructure  Mandating new construction sites to provide for charging infra.
High charging time  Significant investment by the government on charging infrastructure
Battery swapping Fast chargers
Range anxiety  Current EV options in India offer a very  Range-extended EVs, PHEVs till the time BEV technology evolves to
limited range of 100-150kms accommodate higher range.
 Incentivizing hybrids at par with BEVs over the medium term
Localization  Lack of supply chain localization  Global technological collaborations
weighing down on cost of EVs and Favorable government policies to encourage investments in
subsequently their viability 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
Regulations  Lack of government direction/clear  Defining regulations on emissions/fuel efficiency, clarifying
technological roadmap leading to aspirations, strategic intent and direction can help (i) support
unfruitful, scattered investments across adoption of cleaner technologies and (ii) focus on developing a
technologies supportive ecosystem
Source: MOSL
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
•Cash subsidies
Viability gap •Lowering of GST rates on both EVs and batteries
funding/subsidies •Exemption of road tax
•Favourable lending rates by financers
•Income tax deductions
•Lower power tariffs for EV charging

Non-fiscal subsidies/ •Free parking for EVs
preferences for EVs •Government tenders for its fleet
•Exemption from toll charges, state entry taxes
•Subsidies/rebates for investment to set up charging infrastructure

•Encouraging public-private partnership
Enabling charging •Mandating provisioning of infrastructure for charging stations in all new constructions
infra •Leasing land at attractive rates for setting up charging infrastructure
•Subsidized electricity tariffs
•Accelerated depreciation on infrastructure investment
•Pool demand for different kind of cells and import in bulk (through global tenders) from a
globally competitive cell manufacturer
Localization •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 awareness about technology, economic benefits, government subsidies related

to EVs
Creating public
•Deployment of electric fleets in public or mass transportation
awareness
•OEMs expanding their product portfolio in favour of EVs, which would increase options
for customers
•Mandating usage of EVs in cities

Mandating usage of
EVs •Higher taxes on ICEs
•Lower income tax deductions for ICEs
Stability in policy •Clear direction by government on policies
Source: MOSL
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 Price Gap – Price gap - Subsidy as TCO based inflection
Vehicle Ease of
range kms driven anxiety initial cost TCO a % of point (with
usage charging
(kms) p.a. concern basis basis initial cost subsidies, 10 years)
Private
2W 80 5k-6k Medium Medium Medium Medium High 14-19% 2020-2021
PV 140 9k-12k High Low High High Low 9-12% 2025
Commercial
3W 85 30k-35k Medium High Medium Low High ~20% 2020
PV 140 30k-35k High High High Low Low 9-12% 2021-2022
Bus (intra-city) 250 70k-80k High High High Low Low 30-35% 2022-2023
Source: MOSL
Exhibit 37: Fleet PVs to see highest adoption of EVs by 2030

Adoption rate (% of total sales) 2018 2020 2025 2030
Battery Cost (USD/Kw) 325 262 182 156
2W
BEV - 3 20 40
ICE 97 80 60
3W
BEV - 10 30 50
ICE 90 70 50
PVs - Personal
BEV - - 2 30
HEV 1 15 30
ICE (incl MHEV) 99 83 40
PVs – Fleet
BEV - 1 20 100
HEV 5 40 -
ICE (incl MHEV) 94 40 -
Buses
BEV - - 10 50
HEV 2 25 40
ICE (incl MHEV) 98 65 10
Source: MOSL
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.
12 July 2018 36
| 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
15% 15% OEM + Battery &
Components
35% Component
manufacturers Component
50% manufacturers
Raw material suppliers
35% Raw material suppliers
50%
Source: NRI, MOSL
Exhibit 40: Impact on major auto components
NEGATIVE NEUTRAL POSITIVE

•Engine and •Steering systems •Electric motors
transmission parts •Seats •Wiring harness
•Clutch •Tyres •Plastic components
•Radiators •Suspension •Controllers
•Gears •Lightings •Sensors
•Brake lining •Batteries
Source: MOSL
Exhibit 41: Component manufacturers: How to align interests toward e-mobility

Component manufacturing area How can they tackle the shift towards electrification?
 Can align their portfolio toward suspension and brake systems; can venture into
Casting and forging suppliers
motor housings, light-weighting components
Powertrain pump manufacturers  Can venture into battery and motor cooling management systems
Precision powertrain component manufacturers  Can use their expertise for electric powertrain components
Electrical component makers  Huge opportunity for wiring harness, switch manufacturers
Cooling system manufacturers  Can upgrade their thermal management portfolio for use in EVs
After treatment system  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
Fuel tank suppliers
thermal management systems
 Can introduce innovative, efficient heat management systems, and thus, increase the
HVAC system suppliers
range of EVs
ICE and transmission component manufacturers  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 What are they doing? Areas of focus
Maruti Suzuki 1) JV with Denso and Toshiba to set up EV battery plant in India *Increasing localization in
* SMCL has entered into a JV with Denso (10%) and Toshiba (40%) to set up India’s EVs to bring down cost of
first Li-ion battery unit at SMG manufacturing and
* Joint investment of INR11.5b to set up production facilities improve product viability
* The JV’s plant will roll out locally made batteries for use in hybrids and BEVs *Initially focusing on hybrid
2) Partnership with Toyota to co-develop EVs technology and then BEVs
* 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
M&M * Collaboration with LG Chem for supply of Li-ion cells *Strengthening their first-
* MoU with Ford to jointly develop EVs in India mover advantage by
* MM has already invested INR6b in EV technology; plans to further invest INR9b betting big on EVs
* Already supplying e-Verito to EESL *Partnering with fleet
* Launched NEMO, an e-mobility platform based on the cloud that enables electric, aggregators to increase EV
connected and shared mobility services penetration
*EVs across segments:
3Ws/PVs (hatchbacks,
minivans, sedans,
SUVs)/bus
Tata Motors * Developed Tigor EV for Phase I of EESL initiative to procure 10k EVs *JLR has decided to launch
* Setting up of charging stations in association with Tata Power future products on a
* Would be supplying 190 e-buses to various state governments flexible architecture,
* Already producing hybrid buses accommodating ICE &
* Partnering with Tata Power Ltd to facilitate setting up of EV charging stations in MHEV, PHEV and BEV
Maharashtra *JLR plans to migrate most
* Revealed I-Pace, JLR’s all electric SUV 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
Ashok Leyland * Strategic alliance with Sun Mobility *Swappable technology
* The strategic alliance would be developing electric mobility solutions in India and long-range CVs
* SUN Mobility plans to deploy a unique open-architecture ecosystem built around its *Working on various
proprietary smart batteries and a network of quick interchange battery stations technologies to
* Unveiled its first electric bus equipped with battery swapping technology manufacture batteries
* Investing INR4-5b toward e-mobility in the next three to five years indigenously
* Signed LoI with Phinergy for electric CV solutions
* Awarded contract to supply 40 e-buses to Ahmedabad government
Eicher * Working on an electric motorcycle platform, development of which has started at *RE - electric motorcycle
its technology center in the UK *VECV - Intra-city electric
* Launched e-bus Skyline Pro E based on KPIT Technology’s REVOLO bus
* VECV has started supplying e-buses; would be supplying 40 e-buses to Mumbai
Bajaj Auto * Working on electric motorcycles and 3Ws *Would launch e-3Ws first
before launching electric
motorcycle
Hero MotoCorp * Invested INR2b in Ather Energy, which has recently launched its e-scooters *HMCL would be focusing
* Investing toward in-house R&D to develop electric vehicles on both electric
motorcycles and scooters.
Ather would be focusing on
electric scooters
TVS Motors * Expected to launch an e-scooter and hybrid 2W in CY18 *With focus on cleaner
* Has showcased e-3W in the past technologies, TVS has
* Showcased an ethanol-based motorcycle in Auto Expo already showcased
* Investment of INR50m in Ultraviolette Automotive, which is in the business of products based on hybrid,
electric two-wheelers and energy infrastructure EV and alternative fuels
like ethanol
Source: Companies, Industry, MOSL
12 July 2018 38
| Thematic
Exhibit 43: Impact of electrification on auto ancillary companies within our coverage
Company Components made Components at risk % of business How they are mitigating risk?
at risk
Bharat Forge Crankshafts, Powertrain 25-35% of 1) Setting up EV R&D center in UK
connecting rods, front components like revenue 2) Developing variety of products for hybrid and
axles, steering crankshafts, electric vehicles (current revenue from this
knuckles, transmission connecting rods, segment is EUR6m)
parts gearbox components 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
Mahindra CIE Forgings, castings, Powertrain ~24% revenue 1) Looking for acquisitions in aluminum space
stampings, components like from powertrain 2) CIE Automotive is already working with key
composites, gears, crankshafts, players like Nissan, Tesla, Renault, M&M Reva for
magnetics connecting rods 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
Endurance Front forks, shock Transmission related 5-6% of revenue 1) Running a project with a customer in European
absorbers, aluminum products like clutch operations for electric vehicle components
die-casted products, assemblies, CVT 2) In the process of quoting for new business with
CVT, clutch other customers in EV components
assemblies, friction
plates, disc brakes,
hydraulic drum brakes
Amara Raja Lead acid batteries NA NA AMRJ is currently scouting for opportunities, but
Batteries 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
Exide Lead acid batteries NA NA 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 Tyres Tyres NA NA CEAT has developed tyres for India’s first electric
bike ‘Tork T6X’
Bosch Fuel injection Engine and ~70% of 1) Has made significant investments toward EV
equipment, injectors, transmission related revenue related R&D.
nozzles, SGI, power products to powertrain 2) Showcased electric drivetrain products
tools segment at risk 3) Focusing on hybrid technologies, which it
believes would be an interim solution to
electrification
Motherson Wiring harness, NA NA 1) EVs would have a higher value of wiring
Sumi polymer products, harness per car due to the need of high voltage
mirrors and others 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
 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
Oil & Gas 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 40
Abhinil Dahiwale – Research Analyst (Abhinil.Dahiwale@motilaloswal.com); +91 22 6129 1566
| 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 44: Breakdown of global oil consumption (2015) Exhibit 45: Breakdown of India’s consumption (FY17)
6 4 11 LPG
Transportation
34 12 Petrol
Industrial
Diesel
Buildings 36 54
ATF
Electricity 4
39 Others
Source: EIA, MOSL Source: PPAC, MOSL
Exhibit 47: Transportation modes (% of total diesel

Exhibit 46: Breakdown of diesel consumption (%) consumption)
3W/passenger goods
Road transport 4 6
Buses
Agriculture 29 13 7
Power generation HCV/LCV
Mining & Quarrying Cars/UVs commercial

12 9
1 67
Manufacturing 0
28 Cars/UVs private
Others
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

Consumption Consumption with 30% EV penetration by 2030 Production
350
300
250
200
150
100
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY22E
FY23E
FY24E
FY25E
FY26E
FY27E
FY28E
FY29E
FY30E
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 Diesel consumption
90 Petrol consumption growth (%) Diesel consumption growth (%) 20
70 15
10
50
5
30 0
10 -5
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: PPAC, MOSL
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 0.7 0.7 0.7 0.7 0.7
0.7 0.7
0.7 0.7 0.7
0.7
4.0 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
2.0 3.4 3.6 3.8 4.0 4.2 4.4 4.6
3.2
2.4 2.6 2.6 2.8
0.0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY22E
FY23E
FY24E
FY25E
FY26E
FY27E
FY28E
FY29E
Source: PPAC, MOSL FY30E
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.
Exhibit 51: Impact on Oil & Gas companies

Threat to existing business
Existing strengths which may be
Company Disruption Threat on Next 3- 5-10 >10 Remarks used to adapt
5yrs yrs yrs
Sales volume of non-refining businesses would Retail outlets may be converted into
RIL EVs Low Low Medium
auto fuels grow charging stations
Sales volume of Sale of auto fuels would be Huge number of retail outlets could be
IOCL EVs Low Medium High
auto fuels eventually impacted advantageous
BPCL EVs Low Medium High
HPCL EVs Low Medium High
Sales volume of Sale of auto fuels would be
MRPL EVs Low Medium High
auto fuels eventually impacted
Sales volume/ India still imports ~80% of its
ONGC EVs Low Low Medium
realization of oil crude requirement
Sales
India still imports ~80% of its
Oil India EVs volume/realization Low Low Medium
crude requirement
of oil
Transmission CNG outlets may be converted into
GAIL EVs Low Low Low Only CNG might get impacted
volume of gas charging stations
Transmission
GSPL EVs Low Low Low Only CNG might get impacted
volume of gas
Petronet Capacity utilization non-CNG segments would
EVs Low Low Low
LNG of LNG terminals continue to use gas
Sales volume & CNG outlets may be converted into
IGL EVs Low Low Medium Fleets may convert to EVs
margin charging stations
Gujarat Sales volume & CNG outlets may be converted into
EVs Low Low Low Less contribution of CNG
Gas margin charging stations
Mahanagar Sales volume & CNG outlets may be converted into
EVs Low Low Medium Fleets may convert to EVs
Gas margin charging stations
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
12 July 2018 47
| 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 – 1/5th 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 4th 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
NOTES
12 July 2018 50
Explanation of Investment Rating
Investment Rating Expected return (over 12-month)
BUY >=15%
| Thematic
SELL < - 10%
NEUTRAL > - 10 % to 15%
UNDER REVIEW Rating may undergo a change
NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation
*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.
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Thematic | July 2018

Contents: Imminent disruptions

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

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

Electric vehicles and fossil fuels – the ultimate race!

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

Winds of change- the conference highlights

New technologies have been fast emerging in recent years, and

The new era of services hovers around agile method of

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

3 Emerging technologies for the future

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

BLOCKCHAIN and the future of ENTERPRISE adoption

Six features that give it a disruptive potential

A hot-bed of activity: Courtesy HFS Research

Exhibit 2: Cryptocurrencies have dominated the use of Blockchain thus far

Source: HFS Research

Blockchain adoption by enterprises today

Exhibit 3: Global blockchain initiatives

Source: Company, MOSL

Exhibit 4: Global blockchain initiatives in government and public sector space

Source: Company, MOSL

Source: Company, MOSL

Intersection with three current technology trends

The question of energy consumption

Market players (platform providers)

Exhibit 6: The market of Blockchain players

Source: Company, MOSL

The play for service providers

What is in it for BPM providers?

How the market for blockchain services will shape up

The investors’ perspective

Exhibit 7: Blockchain and the investment community – bubble already?

Source: Company, MOSL

Poised for exponential growth

Exhibit 8:loT revenue* by category (USD billion), 2014-2020

Source: Company, MOSL

Taking the example of two companies:

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

Source: Company, MOSL

Exhibit 10: IoT @HCLT

Source: Company, MOSL

Exhibit 11: Zinnov predicts multi-year growth in IoT spending by Enterprises

Source: Company, MOSL

IOT – a key focus area for Persistent Systems

Why Digital is not a secular tailwind for service providers?

Technology challenge – transient issues or structural erosion of relative

Exhibit 12: Acquisitions or not, direction of revenue growth is secular

TCS INFO WPRO HCLT TECHM

Exhibit 13: The changing models are telling on the RoICs

Source: Company, MOSL

The right comparison set of the past

Why we think the transformation is much more complex?

Exhibit 14: Digital v/s traditional – contrasting styles of working

Source: Company, MOSL