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Luca Ferro, Managing Partner,Value Partners India

Milan, 25th November 2008

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25%

62%

21%

17%

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Luxury market in India2007

Luxury Services(Spas, Luxury hotels,...)

Luxury Assets (Cars, luxury homes, Yatchs)

Luxury Retail

100% = Euro 3.5 bn

30%

18%

Luxury Retail Growth

0.60.8

2.4

2007 2008E 2013E

33%

Billion Euro

25%

• The luxury market in India is dominated by assets with retail commanding a small chunk of the total market

• However, Luxury retail is showing a strong growth momentum despite the financial crisis compared to the slowdown in developed markets

Source: ALTAGAMMA, Market reports, Value Partners Analysis

Expected CAGR (2008-13)

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2007 2008E 2013E

1,104

2.0

10.7

1.3%

1,115

1,203

13%

15%

1%

Luxuriented( > USD 100K) Future Potential(USD > 50K)

Others(< USD 50K)

CAGR 2007-12

Source: EIU, NCAER, Market reports, News clippings, Value Partners Estimates

1,117

1,178

3.7

21.5

•Primary consumers of luxury goods

•Exposed and aware of the world-class living

•Current focus on luxury assets and…

•…aspirational brands (Guess, Tommy Hilfiger)

•Moving towards ‘Bridge Segment’ in luxury retail

Population by Income class; Millions of people

1,104

1.8

9.3

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Luxury brands present in India

(end 2005)

New brands entering in 2006-08

Luxury brands present in India

(2008)

8*

17**

25

Brands present ONLY through franchising

agreements(NO FDI allowed)

Brands present MOSTLY through

joint ventures (51% FDI permitted)

Apparel and accessories brands onlyNOT EXHAUSTIVE

Includes LV, Boss, Salvatore Ferragamo, Zegna,Moschino, …Includes Giorgio Armani, Hermes, Brioni, Versace, Gucci, Armani Jeans, Bottega Veneta…

***

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• Two big fashionista gatherings- Wills Lifestyle India Fashion Week- Lakme India Fashion Week

• Aim to make India a global fashion destination

• Increasing visibility in the global fashion arena- Rina Dhaka’s creations appeared in Marie Claire

and Vanity Fair- Anamika Khanna,Manish Arora showcase their

work at the Paris Fashion Week

• Play an important role in generating awareness of luxury products from a global perspective

• Face association: ‘Bollywood Celebrity endorsments’ to create hype

Fashion Weeks

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Indian Designers

Fashion Magazines

Tarun TahilianiSabyasachiMukherjee

Rina DhakaManish Arora

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Consumer attitude

Product choice

Attitude towards luxury goods

• Increasingly becoming brand conscious

• Indian consumer is always a value seeker (discounts ! )

• Menswear in India is already westernised and therefore apparel is the primary luxury product choice among them- Within apparel executive wear dominates casual wear

• However in Womenswear, traditional outfits like ‘sarees’ still dominate and Accessories (shoes, handbags,perfumes) & Hard Luxury (watches, jewellery,pens) are in high demand

• “Old money” consumers with inherited wealth are already luxuriented and are increasingly showing a “European attitude” towards luxury- Subtle / ‘Brand Invisibility’ : luxury is about “knowing, not showing”- Exclusive designs and brands; afficionados of Prêt-à-Porter brands

• “Newly Affluent” consumers are quickly orienting to the world of luxe, and are looking to showcase their arrival- Flamboyant / ‘Brand Visibility’ : “Have it , flaunt it !” attitude- Progressing from aspirational to luxury brands but mostly in the bridge

and diffusion segments

• Indian luxury consumer is very demanding and likes to be pampered(house visits, personal calls, ...)

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New urban areasShopping areasProtected areas

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Getting off the walls

Breaking of architectural barriers

Depar

tmen

t sto

re

Shop

ping

Mal

ls

Hote

ls

Airp

orts

High-

stre

et

• Primary luxury retail destination in India: 80-90% of luxury retail POS

• Restrictive environmentwith limited footfalls and visual impact

• Currently non-existent but could be a future potential with better infrastructure

• New / modernised airports have dedicated retail areas

• Do not offer the ambienceand exclusivity desired by the luxury customer

• Some multi-brand stores (Thanks, Kimaya, …) present in Mumbai and Delhi

• No FDI allowed acting as a deterrent for foreign players

• Domestic players are evaluating the opportunity

• Accessories (perfumes, watches..) are retailed in mainstream dept stores

• Recent phenomenon with malls opening in Delhi (Emporio) and Bangalore (UB City)

• New malls planned in Mumbai and Delhi

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• 6 monobrand stores• 10,000 sq mt dedicated to retail• Rentals of € 50-80 per sq mt

Grand Hyatt Trident Taj Mahal

• 7 monobrand stores• 2,000 sq mt dedicated to retail• Rentals of € 250-300 per sq mt

• 7 monobrand stores• 3,000 sq mt dedicated to retail• Rentals of € 200-300 per sq mt

Brands Brands Brands

EXAMPLES IN MUMBAI

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Promiment “Luxury streets” globally Prominent High streets in India

• Destination for luxury customers: modernambience and atmosphere, good climate, “mixing with elite”

• Uninviting for the luxury customer: cluttered, overcrowded, “mixing with commoners”, unsuitable climate conditions (hot and humid !)

5th Avenue, New York

Monte Napoleone, Milan

ColabaCauseway, Mumbai

Connaught Place,New Delhi

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UB City, Bangalore DLF Emporio, DelhiBoss store in DLF Emporio

Tods store in DLF Emporio

• 23 luxury international monobrand stores• 12,500 sq mt dedicated to retail• Rentals of € 80-100 per sq mt per month

• 80 international luxury monobrand stores • 32,000 sq mt dedicated to retail• Rentals of € 120-150 per sq mt per month

‘Collection Mall’Exterior

Louis Vuittonstore at UB City

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Revenue per sq mt 15,000 – 54,000 5,000 – 14,000

COGS 35 – 40% 45 – 60%

Rent(per sq mt)

10 – 20%(1,500 – 4,000)

20 – 35%(1,000 – 3,000)

Personnel 15 – 25% 8 – 12%

Margin at store level 25 – 40% (-20) – 12%

• Low footfalls (10-15 per day) but a high conversion rate (50-70%)

• Strong growth : 25-40% annually

• High import duty which is absorbed by some retailers

• Comparable to Europe but coming down and revenue share model increasing

• Lower salaries of sales personnel

• High cost of setting up stores (~ € 3000/sq.m!)• Store margin much lower than in Europe

Europe India

MONO BRAND STORES IN

MUMBAI HOTELS

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Delhi

Bangalore

Kolkata

Hyderabad

Pune

Chandigarh

Ahmedabad

Cities Luxury ready cities

Luxury ready by 2010-11

CoimbatoreKochi

Jaipur

Surat

Mumbai• Currently only 2

luxury ready cities compared to 15 in China

• Opportunities in emerging cities

- 7 more in 2/3 years

- Another 4 in 7/10 years

Luxury ready by 2015-20

Chennai

•80-100 mono-brand stores

• ‘Political Capital’ of India

•Luxury consumers: politicians, beauraucrats, businessmen & senior executives

•35-40 mono-brand stores

• ‘Commercial Capital’ and home of the movie industry Bollywood

•Luxury consumers: Filmstars, CEO’s and executives, socialites

•25 – 30 mono-brand stores

• ‘IT Capital’ of India with an elite group of CEO’s and executives…

•…but, Luxury retail has not made an impact due to “prudent”spending attitude of consumers

•Currently untapped has huge potential with high incomeand spending of consumers

•Luxury consumers: filmstars, politicians, businessmen

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Key Success Factors

Have a long term -Commitment /

investment view

Find the right partner

Get the merchandising right (customisation !)

Description

• Treat the market as a long term opportunity and not as “the flavour of the month”- Be prepared to bear losses in the short-run and continue

investing

• Strong organizational commitment by assigning a senior manager to work with established local team

• Partner with a reputed player that has a strong competence in - Retail- Consumer Understanding- Real estate

• Track record of the partner in JVs with international players and a shared vision for the JV is critical

• Customise the merchandising mix according to local flavor, body structure, climate, customer behavior,…- “Single Season” collections in most cities- More bright colours for womens apparel compared to Europe- More accessories for women- More executive wear rather casual wear for mens apparel

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SydneyKing Street Wharf, Suite 30245 Lime StreetSydney NSW 2000AustraliaTel. +61 2 9279 0072Fax +61 2 9279 0551

Mumbai8°floor, C blockDevchand House, Shiv SagarEstateDr. Annie Besant RoadWorli, 400 018Tel. +91 22 6611 9700 Fax +91 22 6611 9988

luca.ferro @valuepartners.com

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DubaiBusiness Central towersSuite 1304ASheikh Zayed RoadDubai Media CityUAETel. +971 50 788 0187

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