Ramya Lakshminarayanan Vikram Singh Thakur INDIAN SHIPPING COMPANY Feasibility Analysis of IWT in India Team Members Ramya Lakshminarayanan Vikram Singh Thakur

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Executive Summary : ISC should enter Inland Waterway Transport ISC is an established player in shipping in India Mainly transports solid, liquid and gas bulk products, esp. fuel and dry cargo Fleet of 29 ships – 8 Crude oil carriers, 12 Product Carriers and 8 dry bulk carriers and 1 LPG carrier at with avg. 81800 DWT Strong Clientele from Government to MNC’s About ISC Govt. has announced plans to develop inland waterways; feasibility analysis and DPRs underway Being a market leader in shipping, ISC wants to explore entering IWT Will it be a viable proposition? What will be the Profitability? What is the potential market size? The Case Study Comparison of India with global scenario to get big picture of IWT SWOT and Porter’s Five Forces analysis to examine industry competition Estimation of potential market size Close look at Govt. of India initiatives w.r.t IWT Profitability analysis Entry Strategy for ISC What will be the profitability? The way forward for ISC Our Approach Indian Shipping Company Convergence 11/8/2018

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition What is IWT? A stretch of water, not part of the sea, over which craft of a carrying capacity not less than 50 tonnes can navigate when normally loaded is called as Navigable Inland Waterways Inland Water Transport (IWT) is a fuel efficient and environment friendly mode of transportation Operating costs are lower than for corresponding volumes of movement by road, rail or air A major advantage is that the main infrastructure – the waterway – is often naturally available, which then has to be “trained”, maintained and upgraded Parameters IWT Rail Road Energy Efficiency 4000 500 150 Fuel Efficiency 105 85 24 Equivalent single unit carrying capacity 1 barge 15 rail wagons 60 trucks Air Pollution Low Medium High Land Acquisition Capital Required Environment Friendly High Volume Fuel Efficient Convergence Indian Shipping Company Convergence 11/8/2018 11/8/2018

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition IWT – Indian Scenario East India Steam Navigation Company’s steamer Stanley plying on Ganges in mid 19th century India has about 14,500 km of navigable and potentially navigable waterways comprising rivers, canals, backwaters, creeks, etc. It consists of the Ganga–Bhagirathi–Hooghly rivers, the Brahmaputra, the Barak river, the rivers in Goa, the backwaters in Kerala, inland waters in Mumbai and the deltaic regions of the Godavari - Krishna rivers About 70 million tones of cargo is moved annually through these waterways using mechanized vessels and country boats IWT was developed well in British India, however it suffered in 20th century when focus shifted to rail and road modes The Inland Waterways Authority of India Act, 1985 empowers the Government to declare waterways with potential for development of shipping and navigation as National Waterways and develop such waterways for efficient shipping and navigation Convergence Convergence Indian Shipping Company 11/8/2018 11/8/2018

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition India’s Positioning IWT contributes 0.5% of total cargo transportation in India In contrast, USA stands at 8.3%, and China at 8.7% Bangladesh tops the chart, at 24% Only three out of six National Waterways (NWs) fully operational Distribution of the Goods Transported on the Indian Inland Waterways in 2012 Source: UNESCAP Indian Shipping Company Convergence Convergence 11/8/2018 11/8/2018

Go-To-Market Framework Porter’s 5 Forces Analysis Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Threat of New Entrants Capital-intensive industry High asset specificity High exit cost Degree of Rivalry Low industry concentration ratio, implying fragmented market with keen competition High exit barriers Historically slow market growth Bargaining Power of Buyers High, as other modes of transport offer better connectivity Fewer buyers of IWT services, as Indian IWT is fragmented Porter’s 5 Forces Analysis Threat of Substitutes High, as IWT does not yet have seamless connectivity at entry and exit points with rail, road etc. Low switching costs Bargaining Power of Suppliers Not a supplier intensive industry, as most variable costs are covered under fuel and lubricants Convergence Indian Shipping Company Convergence 11/8/2018 11/8/2018

SWOT Analysis Go-To-Market Framework Value Proposition Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition HELPFUL To achieving the objectives HARMFUL To achieving the objectives Indian Challenges Maintenance of the targeted LAD of 2m as a number of shoals form simultaneously during lean season. Availability of adequate dredgers for talking the shoals. Availability of technology for channel stabilization/ rectification Remoteness of the area Sufficient resources STRENGTHS WEAKNESSES OPPORTUNITIES THREATS National Waterways come under the Purview of Central Government The focus is more on Road and Rail which are considered better IWT is a capital intensive industry with high initial investment National Waterways come under the purview of Central Government Like Motor Vehicles Act, operation of inland vessels is governed by Inland Vessels Act, 1917 Talway survey of entire river being carried out every fortnight INTERNAL FACTORS SWOT Analysis EXTERNAL FACTORS 3 National Waterways, 3 more under process Cargo movement by IWT showing increasing trend Day navigation aids available in entire waterway Reduction in the overall flow of water in downstream regions due to other uses Shallow water and narrow width of channel during dry weather Indian Shipping Company Convergence Convergence 11/8/2018 11/8/2018

Go-To-Market Framework River Inter-linking Project Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Government Initiatives To optimally develop and harness the potential of Inland Waterways in the country, the “Inland Waterways Authority of India (IWAI)” was set up under the Inland Waterways Authority of India Act in 1985 Development and regulation of inland waterways for shipping and navigation and for matters connected Vessel Building Subsidy of 30% Equity participation by Govt. in BOT Projects up to 40% Viability Gap Funding up to 30 % Tax exemption similar to National Highways Enhancement in depreciation rate for inland vessels Customs Duty concessions National River Linking Project (NRLP) is estimated to cost ₹5.6 lakh crores. It has already begun as Ken and Betwa are being linked through a 221-km canal Development of Allahabad – Haldia stretch of National Waterway 1 (River Ganga) to facilitate navigation by bigger vessels of 1200-1500 (DWT) with help of World Bank River Inter-linking Project Convergence Convergence Indian Shipping Company 11/8/2018 11/8/2018

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Market Projections Cargo transportation growth projected to undergo robust growth at 19 per cent CAGR from 2008-19 to 2024-25 Steady rise in Central Gross Budgetary Support, Rs. 2037 Crore in the 12th Five Year Plan Promising potential demonstrated in relatively lesser developed pockets like tidal river canal system in Goa (Mandovi – Zuari – Cumbarjua system) National Shipping Board has set a target to increase the modal share of IWT to 20 billion tonne km by 2025 Access to International trade with Bangladesh worth 5 bn$ annually as well as Myanmar Access to abundant raw material wealth of Chotanagpur plateau region and food grains of Ganga valley region Source: TRW Report, Ministry of Road Transport and Highway Indian Shipping Company Convergence 11/8/2018 11/8/2018

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Advantage ISC IWT business a promising avenue for ISC to explore, given that the company has a strong legacy and is a market leader in shipping We recommend entering the business with purchase of two vessels each of 350 and 600 DWT, as that is the maximum allowable DWT in inland water transport (Source: MOSPI) This will be in line with the core competency of the company, by leveraging its strength in product carriers and dry bulk carriers Focus on Raw materials such as Iron ore and Coal as well as Food grains Pilot project – Transportation of coal from Raniganj and Jharia coal fields through NW-1 Indian Shipping Company Convergence 11/8/2018

Go-To-Market Framework Indian Inland shipping company Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Land Power and Environmental Approvals Government Clearances Insurance Company State Government IWAI / Concessioning Authority Equipment & Ship Supplier Concession Agreement Insurance Policies Project SPV / Indian Inland shipping company EPC Contractor Fixed time EPC Contracts Equity Consultancy Sponsor / ISC Sponsor / IWAI Technical and Financial Consultants Shareholder’s Agreement This is us Ensuring promoter is resourceful and experienced Project Structure Indian Shipping Company Convergence 11/8/2018

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition For 600 DWT Ship Capital Cost ₹ 48,664,000.00 41% (-) Vessel Subsidy 30%   Actual Cost ₹ 34,064,800.00 29% Insurance ₹ 1,459,920.00 1% Repairs and Maintenance Crewing ₹ 43,797,600.00 37% Victuals ₹ 5,255,712.00 4% Fuel at Sea ₹ 32,118,240.00 27% Total ₹ 118,156,192.00 100% For 350 DWT Ship Capital Cost ₹ 30,415,000.00 41% (-) Vessel Subsidy 30%   Actual Cost ₹ 21,290,500.00 29% Insurance ₹ 912,450.00 1% Repairs and Maintenance Crewing ₹ 27,373,500.00 37% Victuals ₹ 3,284,820.00 4% Fuel at Sea ₹ 20,073,900.00 27% Total ₹ 73,847,620.00 100% Indian Shipping Company Convergence 11/8/2018

Go-To-Market Framework Transportation Network Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Coal fields Berth Loading 11.7 6 Mid stream grab loading IWT 5.2 Haldia Port Trust Farraka barrage loading points Road Malda Ghat Transhipper 2.9 Rail Raniganj and Jharia Coal fields Berth Loading Rail 6.1 Allahabad IWT Patna barrage loading points Indrapuri Barrage Mid stream grab loading Road IWT 26.4 7.8 Bokaro Steel and Coal Transportation Network Convergence Indian Shipping Company 11/8/2018

Go-To-Market Framework Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Maintaining Profitability and Sustainability Growth Ratios Mar '10 Mar '11 Mar '12 Mar '13 Mar '14 Net Sales  - -33% -28% 24% 1% Net Profit 48.80% 20.59% 25.26% 8.41% 8.29% ROE 28.09% 7.34% 6.31% 2.80% 2.87% D/E 0.62 0.68 0.66 0.63 ICR 9.46 3.70 5.25 2.79 3.48 Depreciation/Average Fixed Asset 3.26% 2.78% 2.34% 2.51% Total Asset Turnover 0.11 0.08 0.10 Decreasing trend in sales and net profit seen over last two to three years due to erosion in profitability of existing business IWT business a promising avenue for ISC to explore, given the company’s strong position of cash and bank balance Depreciation shield can be raised because of acquisition of new assets which is around 25% (WDV) Forming a Joint Venture with IWAI to leverage its knowledge in Inland Waterways Transportation by giving them an Equity Stake of 10% The new company formed as an SPV would be called as Indian Inland Shipping Company with ISC as holding company with equity of 90% To be Headquartered at Kolkata Hiring Competent Personnel from National Inland Navigation Institute (NINI) at Patna Vessel building Subsidy of 30% to lower the Initial Capital required Total cost incurred on procurement of ships would be Rs. 38,40,07,624 which can be easily funded from the Cash and Bank balance of ISC Hub & Spoke Model Convergence Indian Shipping Company 11/8/2018

Go-To-Market Framework Indian Shipping Company Existing Framework Benchmarking Go-To-Market Framework ISC Strategy Value Proposition Early Mover Advantage Use of alternative fuels like petro-diesel and EN-590 for greater fuel efficiency at lower emissions Optimization of IWT Operations through following means: E - Navigation Using water-level information for schedule calculations Tracking and tracing ships, estimating reqd. sailing speeds for better fuel consumption (not yet commonly used, except for container trade) Terminal planning and ship scheduling Voyage Planning Maximize benefits from tides and currents, esp. at narrow tidal passages Adjusting speed and departure time for J-I-T loading and unloading Promotion programs for improving operational efficiency (successful example: VoortVarend Besparen – ‘proactive fuel saving’ executed in the Netherlands) Indian Shipping Company Convergence 11/8/2018

Indian Shipping Company REFERENCES http://business.gov.in/infrastructure/inland_water.php http://business.gov.in/outerwin.php?id=http://iwai.gov.in/iwtpolicy.htm https://www.cia.gov/library/publications/the-world-factbook/fields/2093.html http://iwai.gov.in/wsoniwt/VivadaIWT-MUM.pdf UN ESCAP Report - Manual on Modernization of Inland Water Transport for Integration Within a Multimodal Transport System http://www.ieor.iitb.ac.in/files/faculty/narayan/transport/iwt-tec-rep-oct-05.pdf http://www.mospi.nic.in (Ministry of Statistics and Program Implementation) http://www.marad.dot.gov/documents/Comparison_of_US_and_Foreign_Flag_Operating_Costs.pdf Convergence Indian Shipping Company 11/8/2018

Convergence 11/8/2018