The Indian Promise

Why it still holds

20th June, 2012
No Part of it may be quoted, circulated or reproduced for distribution without prior written approval from Zinnov

Zinnov Management Consulting

Skeptics question Indias potential

Standard & Poors Slowing GDP growth and political roadblocks to economic policymaking could put India at risk of losing its investment grade rating

Morgan Stanley

Misguided policy approach focused on consumption is to be blamed for the steep fall in the growth momentum

Fitch Ratings

The country faces an awkward combination of slow growth and elevated inflation and is a constant worry for foreign investors

Goldman Sachs

Indian stock market does not present attractive prospects for investors in the near term amid sluggish domestic & global economic outlook

enough reasons to counter!

1 2 3 4
Favorable demographic dividend will pay in the long run Indian technology consumption is exploding GST implementation will accelerate economic growth Indian MNCs and vast base of SMBs will be impossible to ignore

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6 7 8 9 10

Large states in India are already booming

Indian non-metro markets hold tremendous untapped potential Infrastructure improvements are on the rise Indian Media & Entertainment industry will outpace major global markets Rising education level is making large base of Indians employable Tremendous growth in philanthropy
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Favorable Demographic Dividend will pay in the long term

Potential for urbanization much greater than China, Japan, Russia and the US

Consumption of Food and Beverages To Increase by 250%

Urban Population

Additional 175 mn people

Spending on Housing and Appliance 4x increase expected

Labour Force

110 mn additions; 50% in the most productive age group of 30-40 years In contrast, china to add 15 mn people; Japan to go 3 mn short

Education and Healthcare Spending 5x increase expected

Our analysis suggests demographics alone may contribute about 4 percentage points of annual GDP growth for the next two decades, from increases in labour force, higher productivity due to urbanization and having the right age structure
Source: Goldman Sachs Report: Indias Rising Labour Force

Indian technology consumption is exploding (1/2)

Over 800 mn

Mobile Phone Users

Greater than France and the UK, combined Second largest in the world after China Second largest Facebook nation worldwide after the US

Internet Users

Over 123 mn

Facebook Users

Over 51 mn

People making online Transactions

Over 15 mn

To grow over 250% by 2015

Number of Debit Cards

Over 228 mn

Over 400% increase in the last 5 years

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Source: Comscore, Google, Edelweiss, Avendus, Zinnov Analysis; Press Articles

Indian technology consumption is exploding (2/2)

E-commerce market expected to surpass $23 bn within 4 years; second fastest growth worldwide Domestic IT market, currently greater than USD30 bn, is growing faster than exports

Multiple startups already approaching $B+ sizes

With almost 4 fold growth, online advertising market expected to reach $1.55 bn by 2015

Cloud computing expected to grow at more than 2X the worldwide rate; revenues to touch $5 bn by 2015

Online travel penetration (28%) higher than that in China, Japan, Italy, Spain, and Singapore

170 mn Aadhar (Unique ID Cards) already allocated

Source: Comscore, Google, Edelweiss, Avendus, Zinnov Analysis

GST implementation will accelerate economic growth

While export gains are expected to vary between 3.2% to 6.3%, imports are set to benefit by 2.4% to 4.7%

Indias GDP is expected to increase by 0.9% -1.7% post GSTs implementation

Combined effect of FDI in retail and implementation of proposed GST is expected to raise Indian FMCG industrys size to $47 bn by 2013

Gains from

GST
Source: NCAER, FICCI-Technopak report

Indian MNCs and vast base of SMBs will be impossible to ignore (1/2)
Number of Companies in Forbes Top 2,000 Indian Companies in Forbes Top 2,000

61

Potentially 175 Indian companies can make it to the list by 2020

33

28

India
Source: Forbes, Zinnov Analysis

Brazil

Russia
8

Indian MNCs and vast base of SMBs will be impossible to ignore (2/2)
Medium enterprises 100-1000 employeess ~1.3 Mn

8 Mn

Russia

14 Mn

Brazil

Small enterprises 11-100 employees

~16.0 Mn

26 Mn

US

Micro enterprises 1-10 Employees

in total GDP in all enterprises

~29.7 Mn

45 Mn

India
China

17% 99% 40% 45% 40%

9

50+ Mn

SMBs share

in total workforce in total manufacturing output in total exports of India

Source: Forbes, Zinnov Analysis

Large states in India are already booming

Indias top 5 states by population can jointly accommodate the combined population of Brazil, Mexico, Philippines, Vietnam and Egypt

Uttar Pradesh (UP) GDP: $70.4 bn Gujarat GDP: $65.2 bn Maharashtra GDP: $138.4 bn Andhra Pradesh (AP) GDP: $68.2 bn

Indian states viz. Delhi, Bihar, Chhattisgarh, and Goa, grew at more than 10% Y-o-Y in 2011
In Jan 2012, Gujarat, witnessed signing of 2,700 MoUs in a single day at the Global Investors summit Maharashtra, UP, AP, TN and Gujarat contributed over 48% to the countrys GDP in 2011; the states also have the highest number of factories in India
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Tamil Nadu (TN) GDP: $69.9 bn

Source: Business Standard, MOSPI

Indian non-metro markets hold tremendous untapped potential

IIT Joint Entrance Examination (JEE) topped by students from non-metros nine times in the last eleven years

Since 1990, five out of the total six Indian Olympic medalists have been from non-metros

Indian Non-metros Rising to Prominence

Nearly 60% Indian international cricketers in the last decade hailed from non-metro cities

Growth in rural FMCG markets (17.2%) outpaced urban markets (16.5%) in Q1-2012; the former to grow tenfold and reach $100 bn by 2025

Source: Cricinfo, Nielsen, Press Articles, Zinnov Analysis

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Infrastructure improvements are on the rise

Government Spending on Development Programs1 Eleventh Five Year Plan ($bn)

Projected infrastructure investments grew 2.5 times from 10th to 11th five year plan Growth in Infrastructure Employment to 41 mn households during 2010-11 under MGNREGA Delhi Metro supporting greater daily ridership than Taipei Metro; per km installation cost 1/4th of the latter 51.73% annual growth in FDI in construction since 2005 Projected investment in 11th five year plan; over $78 bn for road and $64 bn for railway infrastructure
Source: Ministry of Railways, DIFF, Planning Commission; CIA World Factbook, World Bank

100% = $ 124.5 bn

Others 26.0 IWY 7.4 AIBP and other water resources programme 8.3 RGDWM 8.3 JNNURM 8.7 PMGSY 11.6

MGNREGA 27.9

SSA 13.9 NRHM 12.4

Third largest road network, highway density more than thrice that of China and Brazil Fourth largest railways network, additional 20,000 km railway track to be laid by 2020
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Note: 1. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Sarva Siksha Abhiyan (SSA), National Rural Health Mission (NRHM), Pradhan Mantri Gram Sadak Yojana (PMGSY), Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Rajiv Gandhi Drinking Water Mission (RGDWM), Accelerated Irrigation Benefit Programme (AIBP), Indira Awas Yojana (IWY)

Rising education level is making large base of Indians employable

Rising Education Levels in India
Fresh Technical College Graduates
Literacy level increased by 9.21% in the past 10 years to reach 74.04% in 2011
Growth: 27% Number of Universities increased from 364 to 654 from 2004-05 to 2010-11 Government decided to set up 6,000 model schools at the block level to benchmark excellence Enrollments for higher education increased by 103% in the last decade 2010 2011

National Skill Development Policy framed by GOI to cater to needs of the industry for skilled workers

99% villages have primary schools within 1 km radius

India had 700,000 fresh technical graduates in 2011, compared with Chinas 600,000 and the USs 70,000

Source: Census 2011, World Bank and UGC Report, Finance Minister Speech (FY 2013)

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Indian Media & entertainment industry will outpace major global markets

Television and Newspapers More than 600 TV channels

Indian Cinema Largest movie making industry worldwide 1,100 movies produced per year compared with 700 in Hollywood 20 mn people go to movies everyday

Indian Premier League Brand value ~ 4 Bn

More than 82,000 newspapers

160 mn + viewers world over

7 times higher circulation than US newspapers

Source: FICCI, PWC, Ernst and Young, Sports Media SportsPro, RNI

Higher valuation than NBA

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10

Tremendous growth in philanthropy

Top 20 billionaires doubled their combined wealth since 2008

50% increase in private charitable spending since 2006

Having increased 5 times since 2006, corporate giving totals $1.5 bn

Fastest Growing HNI population in all of Asia

Philanthropy in India

Over 3.3 mn NGOs active in India as against 1.5 mn in the US; 700 opening every day on an average1

Source: Bain & Co

Note: 1) During last three years

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India promises a positive outlook

Indias Strong Economic Fundamentals Consumer spending contributes 60% to GDP shielded from external influence Declining debt to GDP ratio 67.6%1 in 2012 as opposed to 84% in 2004 $12.3 Bn FII investments from Jan to May 2012, as against $8.3 Bn in 2011

Total gross savings equivalent to 1/3rd of total GDP

Similar slowdown in peers such as China and Brazil, indicate external influence to be the cause of slow growth; raises questions on rating downgrade on account of latter

Low external Debt to GDP ratio of 20% (Dec 2011) renders default highly unlikely; it is 3/5th compared with Russia and less than 1/5th compared with the US

Source: RBI, IMF, Press Articles

Note: 1) IMF Estimates

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No Part of it may be quoted, circulated or reproduced for distribution without prior written approval from Zinnov

Zinnov Management Consulting