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India By State - Andhra Pradesh - Business Opportunities




Business Opportunities

 

Introduction

The state offers immense business opportunities across various segments such as information technology, biotechnology, pharmaceuticals and construction. Andhra Pradesh has 272 industrial estates and 71 out of 500 top global corporations have their presence in the state. A number of home grown groups such as Satyam Computers, GVK, Nagarjuna and Dr Reddy’s Laboratories have emerged as major players both domestically and internationally.

There are several factors that affect evolution of an industry in a particular region. The major factors impacting evolution are:

Policy pro activeness

The policy that a state government adopts towards a sector directly affects its attractiveness for further investment. For example, the Government of Andhra Pradesh has given many concessions to the IT sector. This has prompted many IT majors, both domestic as well as multinationals, to set up software development operations in the state.

Availability of natural resources

Certain industries like agro-based industries have a high dependence on availability of natural resources. The availability of natural resources like limestone spurred the growth of the cement industry in the state.

Capability

Availability of good quality manpower is a must for all industries to flourish. High literacy rates and presence of good education and vocational training institutions have ensured that the state has well qualified manpower. This has been a major factor enabling the success of Andhra Pradesh in sectors like engineering, IT and ITES. Given its strong base of technical workforce, knowledge intensive industries are gradually taking a lead position in the state.

Based on an assessment of the above factors, some of the industries with potential for investment and growth in the state of Andhra Pradesh are illustrated below:

 

This is the qualitative assessment to highlight relative interest of different sectors. A case by case analysis is necessary before investment is made.

Source: KPMG analysis

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Key Industries

Agriculture and allied industry

Fisheries

  • Ranks first in brackish water shrimp production and fresh water prawn production. It stands second in fresh water fish production and, in addition, is fifth in marine fish production
  • During 2005-2006, 0.89 million tonnes of fish and prawn production was recorded as against the achievement of 0.85 million tonnes during 2004-2005
  • Was targeted to produce 0.9 million tonnes of fish/prawn during 2006-2007 and to achieve 1 million tonnes per annum by 2009
  • The AP government has entered into an agreement with the US-based World Tuna Development International (WTDI) to develop the tuna fishery in the Bay of Bengal
  • The state government will invest some US$ 2 million towards 51 per cent of the equity in the proposed joint venture company named as Andhra Pradesh Marine Fisheries Development Ltd (APMFD) as WTDI invests the remainder—US$ 1.99 million towards 49 per cent
  • Remaining US$ 11.5 million provided as term loans
  • The project to be fully operational within 15 months after obtaining the Union government's clearance
  • Will feature acquisition of 12 tuna fishing vessels and other equipment

Animal Husbandry

  • The sector is rapidly expanding and is playing a significant role in improving the rural economy
  • Providing gainful employment to a large number of small/marginal farmers and agricultural labourers to enhance their economic status
  • Activities of the Animal Husbandry Department have been oriented towards health of livestock, and increased production of milk, eggs and meat

Forestry

  • AP has 63,814 sq. km. of forest area constituting 23.2 per cent of the total geographical area of the state Forestry
  • Income accrued from the forestry sector in the state, which was US$ 15.56 million in 2001-2002, grew to US$ 23.05 million in 2005-2006

Mineral-based

Andhra Pradesh has huge reserves of key minerals such as coal, limestone, granite, bauxite and barytes. In fact, the state is estimated to have one-third of the country's total mineral wealth. Andhra Pradesh is the only southern state with coal deposits and has 20 per cent of the country's limestone reserves and 27 per cent of its bauxite reserves. The world's best granite, Black Galaxy, is found only in Andhra Pradesh. Andhra Pradesh is the second largest producer of cement in the country. Larsen and Toubro's plant with a maximum capacity of 6 MTPA is the largest in Asia. Gujarat Ambuja Cements Ltd plans to invest US$ 160 million to set up a plant with a capacity of 2 MTPA.

Leather Industry

The State of Andhra Pradesh is one of the key producers of hides and skins, producing about 19 million pieces per year, contributing to 10 percent of the country’s total output. The State presently has 34 large and medium tanneries which produce approximately 40 million sq ft of processed hides and skins per annum. In addition there are 15 manufacturing units in total that produce leather goods and footwear. The State is now focusing on building capacity across all levels for the purpose of accommodating a comprehensive skill-base in the target artisan and worker groups.

The government of Andhra Pradesh further boosts the growth of this industry through financial assistance in the form of investment grants to the extent of US $ 0.12 million for technology up gradation and expansion.

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Apparel & Textiles

Andhra Pradesh is the country’s leading producer of cotton with an annual average production of approximately 227 million bales. It is the Medium grade, and superior long staple varieties of cotton which are predominant in the state.

There are over 80 Spinning Mills, including 100 export-oriented units with state of the art machinery, cotton producing synthetic and blended yarns. There are 1.079 weaving units with a production capacity of 789 million metres of fabric.

It is clear that the State has emerged as a large textile processing centre with 44,000 power looms employing around 1, 10, 000 workers. This sector has recorded growth of 22.30 percent in net sales during 2005-06, and the government identified the industry of Apparels, Fabrics and Furnishings as one for major growth within the State. The key objective for this State in regards to this sector is for Andhra Pradesh to emerge as a major player in the production of exports and textiles and so the State has set itself a target to achieve US $2.04 billion in exports in handloom and textiles per annum by 2010. Andhra Pradesh is expected to achieve US $8 billion by 2015 with a CAGR OF 7 percent.

Engineering

Andhra Pradesh has a well-performing engineering industry producing a range of intermediate and final goods such as foundry and forging items, machine tools, auto components, testing machines, material handling equipment and components for defence production. The exports from this sector stood at US $237 million in 2002-03. The state is the largest compressor manufacturing centre in the country. Many global players like Tecumseh, BPL, Electrolux, among others, have established their manufacturing facilities in the state.

Automobile sector is one of the emerging sectors in the state with more than 20 auto-component manufacturing companies. Mahindra & Mahindra has a modern facility at Zaheerabad, with a capacity of over 10,000 units per annum

Information Technology

In the year(s) 2006-07 there was a total investment of US $1.95 billion in Andhra Pradesh, made by approximately 1,400 ICT companies. The growth of the IT sector in this State of 48.4 percent had outnumbered the national average of 32 percent, in the year 2006-07, and has continued to outperform the national average for the past three years. The IT export turnover, US $ 4.53 billion, contributed to 14 percent of total IT exports made by the nation, ranking fourth in the country.

The total employment generated by IT sector up to 2007 in the State was 187,450. The State now aims to generate employment for 2,000,000 in the IT/ITES sector. Andhra Pradesh is the 4th largest in terms of revenues with the IT exports crossing US $ 4.65 billion, which makes up for 15 percent of India’s total IT/software exports.

Petroleum, Chemical and Petrochemicals

  • Several gas findings in the Krishna-Godavari (KG) basin by Reliance Cairn Energy, Gujarat State Petroleum Co. and Oil and Natural Gas Corporation (ONGC)
  • Anticipated gas production by 2008-2009 would be about 40 million cubic tones per day
  • Petroleum companies are in the process of setting up a gas grid across Andhra Pradesh
  • ONGC is setting up a 7.5 million tonnes refinery in the Kakinada SEZ with a capital outlay of US$ 1.82 billion
  • HPCL Visakhapatnam plant is expanding its existing project from 7.50 MMPTA* to 15 MMTPA at a project cost of US$ 1.95 billion
  • Ministry of Petroleum and Natural Gas, Government of India, has offered 1,151 sq. km. of shallow offshore and 1,689 sq. km. of onshore blocks in the Krishna-Godavari Basin in the New Exploration Licensing Policy-VI

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Key Players

Albany Molecular Research Centre

Established in 2005, AMRI research centre is located in Hyderabad in the ICICI Knowledge Park. The company offers custom synthesis of scaffolds and building blocks, as well as preparation of reference standards. A second laboratory for preparing larger amounts of pharmaceutical intermediates, starting materials and other compounds is now operational as well. Centre's operations are fully integrated with US-based resources

Computer Associates (CA)

Computer Associates is one of the leading providers of IT management solutions and services. Since its inception in 1997, CA in India has been involved in providing software products and services with offices in all the major cities, in 2003-04, the turnover of the company stood at US$ 64 million approximately. The development centre at Hyderabad supports CA products and technologies in collaboration with other global CA development centres.

Conagra

Conagra, a leader in the food business, (the third largest in the world and second largest in USA) has entered into a joint venture with ITC Agro. Agro Tech Foods Ltd is a US$ 240 million company with a dominant market position in the edible oils and branded foods sector under the flagship brand Sundrop. With an initial investment of US$ 23 million, the company established a R&D centre to adapt the Conagra technologies to Indian conditions. The company has brands like Sundrop, Healthy World, ACT II and Rath as part of its portfolio.

D.E. Shaw India Software

D.E. Shaw India Software Private Ltd is a member of D.E. Shaw & Co, LP's Global Information Technology Group. Established in Hyderabad in 1996, D. E. Shaw India is involved in the development of Internet-based services that include Juno Online Services Inc. (the world's first free e-mail service) and Far Sight Financial Services. D.E. Shaw India focuses on distributed object-oriented computing, quantitative analysis, advanced database programming, web-based computing and network administration.

Dell

Offering multiple services to various business segments including customer care and technical support, Dell India Pvt. Ltd was incorporated in 1996. The company is established on a 6.6-acre site in Hi-Tec City. Its second customer contact centre was set up in Hyderabad, India, in 2003. Dell Computer Corporation has set a target to achieve export revenue of US$ 53.6 million in the first five years of operations out of Hyderabad.

Dr Reddy's Laboratories

Established in 1984, Dr Reddy's Laboratories is a successful pharmaceutical organisation. The group's companies, Dr Reddy's Laboratories Ltd and Cheminor Drugs Ltd, have world class expertise in the development and manufacturing of organic intermediaries, bulk Pharmaceuticals, finished dosages, diagnostics and biotechnology. The company is the first Asia-Pacific pharmaceutical company outside Japan to be listed on the New York Stock Exchange. These companies have been the first to sponsor drug research in the Indian pharmaceutical industry under the aegis of Dr Reddy's Research Foundation. Ranking among the top 15 generics players in the world, the company generated revenues of US$ 1.5 billion in 2007.

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Electrolux

The Swedish white goods giant Electrolux has entered into a joint venture with Voltas to manufacture state-of-the art refrigerators at their factories in Hyderabad and Nandalur. The Electrolux Group in India is a market leader in the refrigerator segment with its three brands-Electrolux, Kelvinator and Allwyn. Electrolux has a capacity of 350,000 compressors per annum and operates with a workforce of over 3,800.

General Electric (GE)

GE Capital International Services, a wholly owned subsidiary of General Electric Company, launched IT-enabled services facilities ranging from data entry to transaction processing to high-end financial and software services in Hyderabad in 2003. GE India has 22,000 employees in total with about 5,000 present in Hyderabad. GE India Development Centre (GEIDC) in partnership with Satyam is the largest development centre outside the US which is involved in design and development of new products.

GVK Group

Set up in 1994; GVK is a US$ 700 million business conglomerate with a diversified and transnational presence. The group commenced its operations with involvement in the construction of the Nagarjuna Sagar Dam in the 1960s. The group has interests primarily in construction and power and has diversified into hospitality, petrochemicals, manufacturing, finance and infrastructure projects. It has now ventured into the field of life sciences, IT infrastructure and non-conventional energy. Operating with a team of 7,000 professionals, the first-quarter revenues of the group were US$ 24.2 million as on June 2007.

HSBC

HSBC Group, one of the world's largest banking and financial services organisation set up its global back-office operations in Hyderabad in 2000. It has two offices in Hyderabad with a workforce of 4,500 against a global strength of 8,000. The first centre at Hi-Tech City processes back-office work for HSBC Group subsidiaries in the UK. The group plans to invest US $1 million in the upcoming Visakhapatnam project.

IBM

IBM India Ltd, a subsidiary of IBM Inc., was set up in 1999. IBM is the only company in the world that offers end-to-end solutions to customers, from hardware to software, services and consulting. IBM's presence in Hyderabad includes 'IBM School of Enterprise Wide Computing', opened at Indian Institute of Information Technology (INT) in 1998. The company plans to set up a disaster recovery centre with a data bank at Hyderabad.

Kirby Building Systems

Kirby Building Systems, a company based in Kuwait, has set up a unit for the manufacture of pre-engineered steel near Hyderabad at a cost of US$ 12 million with an installed capacity of 40,000 million tonnes. The company has developed light weight steel structures that are capable of withstanding the severest combination of seismic and cyclonic forces.

Kraft’s Foods

Kraft’s Foods, a world leader in the manufacture of food products, has set up a unit for the manufacture of a sugar-based soft drink with an investment of US$ 18.4 million in 2001. The company has plans to take up an agronomy project with an investment of US$ 74 million.

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Lance Ingrates Limited

Established in 1989, Lance Ingrates Limited aims at achieving excellence in the sector of power generation, power trading, construction infrastructure and property development. The company's revenues were around US$ 400 million as of March 2007. Presently, it is generating 518 MW of power in six operational independent power projects. Lance’s plan is to have an installed capacity of more than 4,000 MW by 2010. Lance Hills Technology Park Put Ltd is developing an integrated park at Mankind in Hyderabad spread over 100 acres.

Microsoft India

Microsoft India, the 100 per cent subsidiary of the world's largest US based software firm Microsoft Corporation, was set up in 1998. Microsoft operates with 4,000 retailers selling their products across the country and 100 certified retailers as Microsoft Hardware Stores. Microsoft India has its development centre at Hyderabad oriented towards product development and also plans to set up its R&D facility in the city with an investment of US$ 35 million. The company has established centres of excellence for storage, networking, and mobility.

Motorola

Motorola in India had revenues of over US$ 350 million in 2003-04, with about 2,000 employees across its business units. Motorola India Electronics Ltd established its first software development facility devoted entirely to software development at Hyderabad, integrating its subsidiary, Advanced Platforms Organisation. The Indian Institute of Information Technology (MIT) at Hyderabad was founded with Motorola as one of the collaborators. Motorola School of Communication Technology has been established in the campus.

Nagarjuna Group

The Nagarjuna Group, founded in 1974, has grown to become one of the largest business houses in India with an asset base of US$ 1 billion and employee strength of over 10,000. It has a strong presence in sectors like agri-business, power generation, refineries, Information Technology and financial services. The group has three companies under its flagship, Nagarjuna Petroleum Corporation Ltd, Nagarjuna Fertilisers & Chemicals Ltd and Nagarjuna Electric Generation Ltd.

Novartis

Employing up to 97,000 people, Novartis has been established in over 140 countries. The company is about to set up its healthcare related IT/ITeS and R&D facility in Hyderabad. It has planned to employ over 1,000 IT professionals and scaling up to 3,000 to 5,000 professionals in future. Furthermore, the plan is to invest US$ 73 million in the facility spread across 150 acres of land.

Oracle

Oracle India Private Ltd, a subsidiary of Oracle Corporation, the world's largest enterprise software company, was established in 1993. In 1994, it became the first major US software company to establish development centres at Hyderabad and Bangalore, to support its product development strategy for global markets. The Hyderabad centre is involved in application design & development and application product support.

Singh Group

The Singh Group is a leading south Indian industrial group with its operations primarily based at Hyderabad. The group is a textile major with expansion plans in cement and captive power generation. The Singh Group has achieved an asset base of US$ 450 million. The group operations are based in Singh Nagar, a self contained industrial township, 28 km from Hyderabad.

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Spingarn Collieries Company Ltd (SCCL)

Spingarn Collieries Company Ltd, incorporated as a public limited company in 1920 became a government company in 1956. The company is engaged in coal mining operations in Andhra Pradesh. The reserves stretch over 350 sq km on the Parnaiba Godavari Valley with proven deposits of 7,944.4 million tonnes in 2004.

Tecumseh

Tecumseh, a compressor manufacturing company, entered India through acquisition of Spiel Compressors Ltd, Hyderabad. It has one of its plants in Hyderabad manufacturing 400,000 compressors per annum, the first and largest facility in the country. The unit caters to air-conditioning and commercial refrigeration applications and is ISO 9001 and 14001 certified.

Virtuosi

Virtuosi Corporation, formerly known as runway Inc., a leading provider of global technology innovation services, deploys mission critical enterprise-class products and solutions. The company started its operations in 1996 and has two advanced technology centres in Hyderabad. 45 per cent of the company's global revenues are generated from the Hyderabad centre. The company is a provider of outsourced software engineering services and has delivered over 500 product-class enterprise solutions. The company plans to invest US$ 1 million to expand its operations.

Visakhapatnam Steel Plant (VSP)

The Visakhapatnam Steel Plant is one of the foremost steel plants in India, producing high quality standards of steel and allied products. VSP enjoys the reputation of being one of the least cost producers of high quality steel in the country. The sales turnover of Visakhapatnam Steel Plant was US$ 1.3 billion in 2003-04, registering a rise of 22 per cent over the previous year. The labour productivity at 262 tonnes/man year has been the highest among Indian integrated steel plants.

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Export Profile of Andhra Pradesh

Exports

The exports from the state stood at US$ 2.8 billion during the year 2002-03. Over the years, the services sector has seen a significant growth in exports. The agro-based industry was the second largest contributor to exports in 2002-03 and the largest during 1996-97 to 2001-02.

Estimates of exports from Andhra Pradesh

Source: CM1E Prowess Database; size of the circle is indicative of the size of the exports

The exports from the pharmaceutical sector continue to increase and stand at US$ 50 million.

Investment*

Andhra Pradesh is an attractive destination for Foreign Direct Investment (FDI) in the country. The FDI inflow was over US$ 3.6 billion during 1991-2004. Petroleum refineries, thermal based power and irrigation are the industries that account for major proportion of the investment.

Estimates of exports from Andhra Pradesh

Major projects include, a US$ 2.61 billion petroleum products project being undertaken by Transworld Corporation, USA, at Visakhapatnam; Kakinada Indian Oil LNG Consortium** including Malaysian Petronas plans to invest about US$ 1.34 billion for LNG Storage & Distribution; Besicorp-Brooklyn Power International and Pennsylvania Power & Light plans to invest a total of US$ 483 million to set up a captive coal-handling jetty at Krishnapatnam port. In addition to industry, many projects have been initiated in the infrastructure sector like ports, roads, tourism and power. Two major projects with an investment of over US$ 200 million are in the pipeline in the tourism sector by International Management Group and Emaar Properties.

Foreign Direct Investment is an important driver of industrial performance. An autonomous body "AP Invest" has been created for needs assessment and road mapping of FDI and to give special care in providing timely clearances and assistance for such units and also to remove the administrative obstacles and managerial impediments.

 

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