The India Consumption Story Padmanabh (Paddy) Sinha Managing PartnerTata Opportunities Fund Disclaimer: While every reasonable effort is made to ensure that the information provided in this presentation is accurate, no guarantees for accuracy of information are made. This presentation was made at one of the events hosted by the Fund in end 2012 | 2 The India Consumption Story India a large economy with attractive long-term growth prospects Growing Consumer Discretionary Spend Consumer spending driven by macroeconomic and demographic factors Themes of Consumer Spending Premium v/s Value Spending Urban Centers v/s Rural India What has worked in India ? Inflection point in select industries Adaptation is key to success Both Local and MNCs have benefitted from consumer spending growth Global companies are leading the pack in many categories Consumer Discretionary sector has seen the highest number of PE deals | 3 The India Consumption Story India a large economy with attractive long-term growth prospects Growing Consumer Discretionary Spend Consumer spending driven by macroeconomic and demographic factors Themes of Consumer Spending Premium v/s Value Spending Urban Centers v/s Rural India What has worked in India ? Inflection point in select industries Adaptation is key to success Both Local and MNCs have benefitted from consumer spending growth Global companies are leading the pack in many categories Consumer Discretionary sector has seen the highest number of PE deals | 4 India, a large economy with attractive long-term growth prospects Source: The Economist, World Bank, CIA, Goldman Sachs estimates | 5 Indias annual GDP growth rate has been robust in past two decades 2342 2465469233542383547FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12India: FDI (USD bn) Source:Reserve Bank of India Report, Ministry of Commerce and Industry Report has seen sustained growth momentum over last two decades 6.1%1.4%5.7%7.3%4.3%6.4%4.4%5.8%3.8%8.5%7.5%9.5% 9.6%9.3%6.8%8.0%8.5%6.5%FY90 FY92 FY94 FY96 FY98 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12with rising FDI levels signaling a long-term Positive Outlook 8.3%6.0% 5.7% Avg. | 6 India showing characteristics of China with a decades lag Source: NSO, IMF, US Census Bureau, World Resource Institute, China Statistical Institute, Morgan Stanley Research, World Bank 3831%25.033.5%1,2653831%31.437.5%950FDI (USD bn)Urbanisation (%)Median Age (yrs)Savings Rate (%)GDP Per Capita(USD)China 2000 India 2010India: Approaching point of inflexion Point of Inflexion India Vs China | 7 The India Consumption Story India a large economy with attractive long-term growth prospects Growing Consumer Discretionary Spend Consumer spending driven by macroeconomic and demographic factors Themes of Consumer Spending Premium v/s Value Spending Urban Centers v/s Rural India What has worked in India ? Inflection point in select industries Adaptation is key to success Both Local and MNCs have benefitted from consumer spending growth Global companies are leading the pack in many categories Consumer Discretionary sector has seen the highest number of PE deals | 8 Source: NSSO, CLSA ASIA-PACIFIC MARKETSHigher growth in Consumer Discretionary Spend than in Essentials Consumer Spend Essentials v/s Discretionary 6 4 10 12 12 14 12 10 16 3 5 7 9 11 13 15 Total Consumer SpendEssential Consumer SpendDiscretionary Consumer Spend FY00-05FY05-10FY11-16CL (% CAGR) Increased Discretionary spend is driven by increasing disposable income Total personal loans have increased to ~USD150 bn in 2012, growing at a rate of 12% since 2009, but have remained constant at ~9% of GDP Household savings rate has moved up from 16% of GDP in FY97 to about 24% and has been steady for five years | 9 Source: Kotak Research Big Winners in India Consumption Story 344 47 21 37 24 74 23 43 100 26 31 742 107 52 100 66 206 65 126 295 80 96 0 50 100 150 200 250 300 350 400 450 Food & Beverages Clothing & Footwear Alcohol & Tobacco Household Goods Education Transport Communications Healthcare Housing Hotels Leisure 2011 2025 (in USD bn) CAGR (%)5.76.06.77.47.57.67.88.08.08.28.4 3X growth in key consumption categories ~2X~3X | 10 Source: IIFL Research Illustration of India Consumption Story Fast Food Category 32 50 60 27 22 32 0 10 20 30 40 50 60 70 FY09FY10FY11 % YoY Revenue Growth Fast Food chains are growing fast with growth coming from Same Store Sales 6 22 37 30 0 5 10 15 20 25 30 35 40 FY09FY10FY11FY12 (%) growth - Same StoreSales | 11 Source: HVS Research Illustration of India Consumption Story Leisure Category Both domestic and foreign tourist traffic have increased which helped the hospitality industry to grow as well 27 29 31 34 35 40 42 50 59 70 0 10 20 30 40 50 60 70 80 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 (in 000s) Number of hotel rooms available in major cities Domestic travel spending contributed to ~82% of direct Travel & Tourism GDP in 2011 On domestic touristfront, India registered a growth of ~14% in 2011 (y-o-y) Despite the economic slowdown, foreign tourist arrivals registered a growth of ~9% in2011 (y-o-y)THE TAJ MAHAL PALACE, MUMBAI | 12 The India Consumption Story India a large economy with attractive long-term growth prospects Growing Consumer Discretionary Spend Consumer spending driven by macroeconomic and demographic factors Themes of Consumer Spending Premium v/s Value Spending Urban Centers v/s Rural India What has worked in India ? Inflection point in select industries Adaptation is key to success Both Local and MNCs have benefitted from consumer spending growth Global companies are leading the pack in many categories Consumer Discretionary sector has seen the highest number of PE deals | 13 Source: World Bank, CLSA ASIA-PACIFIC MARKETS Consumer spending driven by Demographic and Macroeconomic Factors Larger working population base and favorable demographics 50 44 34 32 30 23 8 9 18 15 21 31 0 10 20 30 40 50 60 IndiaIndonesiaEuropeChinaUSAJapan Aged 24 and UnderAged 60+ % of Total Population Age dependency bottomedout for: Japan 1974 Singapore 1996 China 2012 India - expected in 2040 Age dependency (Prop. of non-working to working population)China India | 14 Source: Euromonitor, BCG AnalysisConsumer spending driven by Demographic and Macroeconomic Factors Large Middle class and growing Affluent class Number of Households by income category, 2010 (millions) Number of Households by income category, 2020 (millions) 110 48 15 7 3 36 6 Household annual income (constant 2000 dollars) > $45,000 $20,000 - $45,000 $12,000 - $20,000 $6,700 - $12,000 $2,500 - $6,700 $1,000 - $2,500 < $1,000 86 75 42 26 6 19 3 Affluent4% Middle 28% Lower 68% Middle 45% Lower 43% Total 225 mn Total 257 mn Affluent12% | 15 Source: Mckinsey Global Institute Consumer spending driven by Demographic and Macroeconomic Factors Indian Consumption will be dominated by Middle and Affluent Class 54 24 10 3 32 51 36 17 13 18 43 59 1 7 12 20 0% 20% 40% 60% 80% 100% 1995200520152025 >$20,000$4,000 - $20,000$1,800 - $4,000< $1,800 Middle Class Share of total consumption by income class Middle and Affluent class people together will contribute 80% of total consumption by 2025, up from 25% in 2005 Affluent Class | 16 33 56 39 57 0 10 20 30 40 50 60 70 20112015 RuralUrban Source: Kotak Institutional Equities Estimates Consumer spending driven by Demographic and Macroeconomic Factors On Reward/Effort basis, it is economically beneficial to focus on Urban centers Because of higher density of Middle and Affluent class in Urban India, most of the MNCs focus more on the Urban Centers Middle & Affluent class households (in mn) Both urban and rural contribute ~50% to the GDP However, Rural population lives in ~650,000 villages, while Urban population is in ~4400 towns/cities There are 42 cities with population >1mn today Top 5 cities contribute ~20% of GDP (Mumbai, Delhi, Kolkata, Bangalore and Chennai)
| 17 The India Consumption Story India a large economy with attractive long-term growth prospects Growing Consumer Discretionary Spend Consumer spending driven by macroeconomic and demographic factors Themes of Consumer Spending Premium v/s Value Spending Urban Centers v/s Rural India What has worked in India ? Inflection point in select industries Adaptation is key to success Both Local and MNCs have benefitted from consumer spending growth Global companies are leading the pack in many categories Consumer Discretionary sector has seen the highest number of PE deals | 18 Source: Credit Suisse, Bain & Company The Emergence of Super-rich Number of USD Millionaires in IndiaPresence of Luxury Brands 158 242 0 100 200 300 20122017 (in 000s) Luxury market is ~ USD 5.8 bn todayand spreading beyond the metros into the traditionally conservative cities like Surat, Chennai, Kolkata CII ATKearney Luxury market is going to grow to 2.5xfrom its current size in next 5 years Technopak | 19 Source: ATKearney, TATA Capital Analysis The Emergence of Super-rich (Luxury Cars) Luxury car market growing despite economic slowdown even when comparative price is 2X of that in the U.S. Model Price in India Price in U.S. Q7 3.0 TDI $120,000$52,000 760 Li (7 Series) $260,000$140,000 1 USD = INR 50 40,648 111,677 20,000 40,000 60,000 80,000 100,000 120,00020122017 Luxury cars include BMW, Mercedes, JLR and Audi Number of Cars Sold | 20 Source: Credit Suisse, Bain & Company The growing Affluent class Smartphone growth 2 48 178 0 100 200 300 200620112016 (in mn) 57% CAGR Increasing Eating out Spend 0.5 1.5 6.0 -1234567200620112016 (in USD bn) ~30% CAGR Smart phone users| 21 Source: Mckinsey Global Institute, ATKearney Analysis, MEGStrat Analysis, IRDA, WHO, Morgan Stanley Research, PUG Research Value Conscious Middle Class Indians are value conscious as seen in higher Compact Car Sales 42 0 2 10 6 19 46 10 60 8 8 22 1 12 35 32 32 87 18 51 0102030405060708090100 India Thailand Indonesia Brazil China Compact Mini Midsize Others Passenger Vehicle Sales, 2010-11 (% by segment) By 2030, highly value conscious middle class to Comprise ~45% of total population Contribute ~65% of total consumption Low Cost Business Model to meet Middle Class needs 100,000 ~4,500U.S.India Open heart Surgerytreatment Cost(in USD) ~10 ~1 U.S.India Telecom Avg. Rate per minute (in USD cents) Freeincoming calls| 22 Value Conscious Middle Class Suzuki Alto 308,000 Hyundai i10 130,000 Suzuki Swift 154,000 GM Cruze 221,000 VW Lavida 247,500 VW Jetta 218,000 VW Bora 207,000 GM Excelle 253,500 Top selling car models in China in 2011Top selling car models in India in 2011 Suzuki Dzire 110,000 Compact Car forms the largest selling car segment in India Source: SIAM, Annual Reports, MediaSuzuki Wagon R 145,000 | 23 Source: Mckinsey Global Institute Urban Centers India Urbanization by 2030 5X 590mn $1.2T the number by which GDP will have multiplied people in cities, nearly twice the population of the U.S. todaycapital investment is necessary to upgrade urban infrastructure 270mn people net increase in working-age population 70% contribution to India GDP | 24 56 60 69 81 4.5% 3.8% 4.1% 4.5% 0% 1% 2% 3% 4% 5% 0 10 20 30 40 50 60 70 80 90 Jan-09Jan-10Jan-11Jan-12 Source: RBI, IMF, Jones Lang Lasalle,European Mortgage Federation Urban Centers - Housing Sector Housing sector has grown 85% 77% 64% 4% 0% 20% 40% 60% 80% 100% UKU.S.SpainIndia but Outstanding loan to Housing sector (% of GDP) is minisculeValue (USD Bn) % of GDP Mortgage Debt to GDP ratio (2010) 88 130 247 209 50 100 150 200 2502008200920102011 Number of residential houses launched in top 7 cities (000s) | 25 Source: Technopac Analysis Changing landscape of retail delivery channels in Urban India but changing at rapid pace Current Retail Market 10 26 84 300 444 591 200620112016 Organized (Modern) Unorganized ('Mom n Pop Stores') (USD bn) 38% 20% 18% 17% 16%15% 10% 3% 0% 20% 40% CAGR (2011-16) 26% 6% 69% 7% 5% 5% 3% 10% Food & Grocery Apparel Jewellery & Watches Consumer Electronics & IT Pharmacy Others Others: Furnishing, Food Outlets, Footswear, Beauty, Fitness, Other with low organized penetration% of total segment sizeE-commerce is contributing less than 1%,but growing at over 23% 2011 | 26 Domestic BrandsCities Landscape13 cities 15 cities 16 cities 20 Cities 38 Cities 90 Cities 130 Cities Source: Tata Capital Research Organized Retail presence Largely focused on Metros and Tier I/II cities Global BrandsCities LandscapeTop 2 Metros only Top 2 Metros only 4 Metros only 4 Cities 18 Cities 8 Cities 8 Cities | 27 Source: Cesnsus India, Technopak Report, World Bank Report Rural India - still houses ~70% of Indias population and contributes ~50% to the GDP India still lives in its villages 71.9 71.5 71.0 70.5 69.9 68.8 40.0 50.0 60.0 70.0 80.0 Jan-02Jan-04Jan-06Jan-08Jan-10Jan-12 (% of total population) 48% 52% Urban Rural Rural India contributes half of Indias GDP (% of India GDP) Dependence on Agriculture has reduced from 59% of the Indias GDP in 1960 to 14% in 2011-12Industries finding growth from increase in rural penetration 44% 14% -15% IndiaU.S.A. China Indias newspaper circulation is largest in the world (110mn) and growing at the fastest rate Growth between2005-2010| 28 The India Consumption Story India a large economy with attractive long-term growth prospects Growing Consumer Discretionary Spend Consumer spending driven by macroeconomic and demographic factors Themes of Consumer Spending Premium v/s Value Spending Urban Centers v/s Rural India What has worked in India ? Inflection point in select industries Adaptation is key to success Both Local and MNCs have benefitted from consumer spending growth Global companies are leading the pack in many categories Consumer Discretionary sector has seen the highest number of PE deals | 29 Source: TRAI, Crisil Research, Cellular Operators Association of India (COAI), Technopak, Economic Times Inflection point in Telecom & Media Number of mobile connections 7 52 261 584 909 0 200 400 600 800 1000 20022005200820102012 (in mn) CAGR 63% India drives presence of 5 Telecom playersin Global Top 20 RankName (Connection in mn, Q2, 2012) VODAFONE (368), India - 152 Bharti Airtel (250), India - 186 Reliance Comm (154) Idea (117)BSNL (88) 2 4 8 14 New Wave of Growth (in mn)200620112016 Laptop/ Notebook 21261 Smart Phone Users 248178 Access to Internet 32101300 Access to Digital TV9182364 20 5X 4X 3X 2X | 30 Source: Equity Research Inflection point in Satellite Pay TV (DTH) Affordable Pricing, 5858 47 28 25 22.0 19.0 13.0 4.0 Avg. Revenue per User (in USD) has helpedDTH grow to ~35mn subscriber baseoffering of over 500 channels andmoving into Premium Serviceslike HDTV | 31 Source: Tata Capital Research Adaptation is the key to success in India Company/ Industry Adaptation Indianized Food Menu One-time use packs - Sachet | 32 Adaptation is the key to success in India Company/ Industry Adaptation Salty Snacks/ Namkeen Desi (Local) Flavors E-commerce Cash on Delivery Source: Tata Capital Research | 33 Adaptation is the key to success in India Company/ Industry Adaptation Tata Starbucks Competitive Pricing, local touch on the Menu & Ambience Local flavor like pudina, tomato & garam masala for oats Source: Tata Capital Research | 34 Adaptation is the key to success in India Company/ Industry Adaptation Launching Indian Sari to cater toIndian Women LaunchingBandhgala Source: Tata Capital Research | 35 Source: UBS Investment Research Both Local and MNCs have benefitted from Consumption Growth in India Revenue is expected to continue to grow at faster pace 16 18 1818 19 2222 2425 34 ITCColgateAsian PaintsHULDaburNestleMarico LtdUnited Breweries TitanGodrej Consumers 2012 Revenue Growth Forecast (%) and Projected ROE indicate healthy returns for investors 37 116 39 88 39 73 28 1744 26 ITCColgateAsian PaintsHULDaburNestleMarico LtdUnited Breweries TitanGodrej Consumers 2012 ROE Forecast (%) United Breweries Median 21% Median 39% | 36 Largest retailer and leading manufacturer of footwear in India(serves over 120,000 customers every day) # 1 Mobile handset brand in India (~45 mn handset sold in a year) # 1 Passenger car producer in India (~42% market share) Combined revenue in India ~USD 2 bn Source: Crisil Research, News articles, GfK-Nielsen Research Leader in several Household & Personal Care segments in India(market cap: USD 23 bn) #1 in dental care products in India (54% volume share in toothpaste) Global Companies are leading the pack in many categories # 1 Smartphone Mobile handset brand in India (~42% market share) | 37 Source: VCCedge Analysis Private Equity investments rising in Indian Consumer Discretionary SpendingTheme PE investment in Consumer Sector has been on a upward trend1163 2148 1551 681 1025 2312 94 124 122 76 79 119 0 20 40 60 80 100 120 140 0 500 1000 1500 2000 2500 200620072008200920102011 Value (USD mn) Number of Deals Consumer Sector includes Automobiles & Components, Consumer Durable & Apparel, Consumer Services, Media, Retailing | 38 Consumer Discretionary IT Industrials Financials Industrials Consumer Discretionary Financials Utilities IT Source: VCCedge Analysis Private Equity investments rising in Indian Consumer Discretionary SpendingTheme PE investment in Discretionary Consumer Sector is 2nd highest Top 5 Sectors in 2011 by Value (USD mn) while in deal volume, Discretionary Consumer Sector has surpassed all other sectors Top 5 Sectors in 2011 by Number of Deals Consumer Discretionary Sector has seen ~ USD 2.3 bn of PE investment, only 2nd to Industrials (~ USD 2.5 bn) Consumer Discretionary Sector has seen highest number of PE deals(119 deals) Thank You Padmanabh (Paddy) SinhaManaging PartnerTata Opportunities Fund email: [email protected]
