India's Growing Consumer Spending Driving Economic Growth

The India Consumption Story
Padmanabh (Paddy) Sinha

Managing Partner
Tata Opportunities Fund
This presentation was made at one of the events hosted by the Fund in end 2012
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.

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
|2


|3
India, a large economy with attractive long-term growth prospects
Source: The Economist, World Bank, CIA, Goldman Sachs estimates
|4
has seen sustained growth momentum over last two decades

Indias annual GDP growth rate has been robust in past two decades
Avg.
6.0%
5.7%
9.5% 9.6% 9.3%
8.5%
7.3%
6.1%
6.4%
5.7%
8.0%
7.5%
8.5%
6.8%
5.8%
4.4%
4.3%
8.3%
6.5%
3.8%
1.4%
FY90 FY92 FY94 FY96 FY98 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
with rising FDI levels signaling a long-term Positive Outlook

India: FDI
(USD bn)
35
42
47
38
35
23
2
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Source: Reserve Bank of India Report, Ministry of Commerce and Industry Report
|5
India showing characteristics of China with a decades lag

India Vs China
China 2000
India: Approaching point of inflexion
India 2010
GDP Per Capita

(USD)
Savings Rate (%)
950
1,265
37.5%
33.5%
Median Age (yrs)
31.4
25.0
Urbanisation (%)
31%
31%
FDI (USD bn)
Point of
Inflexion
38
38
Source: NSO, IMF, US Census Bureau, World Resource Institute, China Statistical Institute, Morgan Stanley Research, World Bank
|6


|7
Higher growth in Consumer Discretionary Spend than in Essentials

Consumer Spend Essentials v/s Discretionary
FY00-05
15
FY05-10
FY11-16CL
(% CAGR)
13
11
16
9
12
7
5
14
12
10
10
3
Total Consumer Spend
12
Essential Consumer Spend
Discretionary Consumer Spend
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
Source: NSSO, CLSA ASIA-PACIFIC MARKETS
|8
Big Winners in India Consumption Story

(in USD bn)
3X growth in key consumption categories
450
742
400
350
~2X
~3X
344
295
300
2011
250
2025
206
200
150
126
107
100
52
47
50
100
100
21
66
37
74
65
24
23
96
80
43
31
26
CAGR (%)
5.7
Source: Kotak Research
6.0
6.7
7.4
7.5
7.6
7.8
8.0
8.0
8.2
Leisure
Hotels
Housing
Healthcare
Communications
Transport
Education
Household Goods
Alcohol & Tobacco
Clothing & Footwear
Food & Beverages
8.4
|9
Illustration of India Consumption Story Fast Food Category

Fast Food chains are growing fast
70
60
% YoY Revenue Growth
50
40
30
60
50
20
32
10
27
32
22
0
FY09
FY10
FY11
with growth coming from Same Store Sales

40
35
30
25
20
15
10
5
0
(%) growth - Same Store Sales
37
22
30
6
FY09
Source: IIFL Research
FY10
FY11
FY12
| 10
Illustration of India Consumption Story Leisure Category

Both domestic and foreign tourist traffic
have increased
Domestic travel spending contributed to ~82%
of direct Travel & Tourism GDP in 2011
On domestic tourist front, India registered a
growth of ~14% in 2011 (y-o-y)
Despite the economic slowdown, foreign tourist
arrivals registered a growth of ~9% in
2011 (y-o-y)
THE TAJ MAHAL PALACE, MUMBAI
which helped the hospitality industry

to grow as well
80
70
60
50
40
30
20
10
0
(in 000s)
27
29
Number of hotel
rooms available in
major cities
31
34
35
40
42
70
59
50
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Source: HVS Research
| 11


| 12
Consumer spending driven by Demographic and Macroeconomic Factors

Larger working population base
Age dependency (Prop. of nonworking to working population)
Age dependency
bottomed out for:
Japan 1974
Singapore 1996
China 2012
India - expected in
2040
India
China
% of Total Population
and favorable demographics

60
50
50
Aged 24 and Under
44
40
34
32
20
10
31
30
30
18
Aged 60+
15
21
23
0
India
Indonesia
Source: World Bank, CLSA ASIA-PACIFIC MARKETS
Europe
China
USA
Japan
| 13

Large Middle class and growing Affluent class
Number of Households
by income category,
2010 (millions)
Total
225 mn
Affluent
4%
Middle
28%
Lower
68%
Household annual income

(constant 2000 dollars)
Number of Households
by income category,
2020 (millions)
> $45,000
$20,000 - $45,000
26
15
$12,000 - $20,000
42
48
$6,700 - $12,000
75
110
$2,500 - $6,700
86
36
$1,000 - $2,500
19
< $1,000
Source: Euromonitor, BCG Analysis
Total
257 mn
Affluent
12%
Middle
45%
Lower
43%
| 14

Indian Consumption will be dominated by Middle and Affluent Class
Share of total consumption by income class
>$20,000
100%
1
13
$4,000 - $20,000
$1,800 - $4,000
12
18
80%
32
< $1,800
20
Affluent
Class
59
Middle
Class
43
60%
51
40%
36
54
20%
24
17
10
0%
1995
2005
2015
3
2025
Middle and Affluent class people together will contribute 80% of total consumption
by 2025, up from 25% in 2005
Source: Mckinsey Global Institute
| 15

On Reward/Effort basis, it is economically beneficial to focus on Urban centers
Middle & Affluent class households
70
(in mn)
Rural
Urban
60
57
56
50
40
39
33
30
20
10
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)
2011
2015
Because of higher density of Middle and Affluent class in Urban India, most of the MNCs
focus more on the Urban Centers
Source: Kotak Institutional Equities Estimates
| 16


| 17
The Emergence of Super-rich

Number of USD Millionaires in India
300
200
(in 000s)
Presence of Luxury Brands
242
158
100
0
2012
2017
Luxury market is ~ USD 5.8 bn

today and spreading beyond the
metros into the traditionally
conservative cities like Surat,
Chennai, Kolkata CII ATKearney
Luxury market is going to grow to
2.5x from its current size in next 5
years Technopak
Source: Credit Suisse, Bain & Company
| 18
The Emergence of Super-rich (Luxury Cars)

Luxury car market growing despite
economic slowdown
120,000
Number of Cars Sold
100,000
80,000
111,677
60,000
40,000
20,000
40,648
2012
2017
even when comparative price is 2X of

that in the U.S.
Model
Price in
India
Price in U.S.
$120,000
$52,000
$260,000
$140,000
Q7 3.0 TDI
760 Li (7 Series)
Luxury cars include BMW, Mercedes, JLR and Audi
1 USD = INR 50
Source: ATKearney, TATA Capital Analysis
| 19
The growing Affluent class

Smartphone growth
300
Smart phone users
(in mn)
57% CAGR
200
100
0
178
48
2
2006
2011
2016
Increasing Eating out Spend

7
(in USD bn)

~30% CAGR
6
5
4
3
6.0
2
1
0.5
1.5
2006
2011
Source: Credit Suisse, Bain & Company
2016
| 20
Value Conscious Middle Class

Low Cost Business Model to meet
Middle Class needs
By 2030, highly value conscious

middle class to
Open heart Surgery

100,000
treatment Cost
(in USD)
Comprise ~45% of total
~10
Telecom Avg.
Rate per minute
(in USD cents)
population
Free
incoming calls
~1
Contribute ~65% of total

consumption
~4,500
U.S.
U.S.
India
India
Indians are value conscious as seen in higher Compact Car Sales

Passenger Vehicle Sales, 2010-11 (% by segment)
China
Brazil
Indonesia
35
10
2
51
60
10
1
46
India
Compact
Mini
22
42
10
18
87
Thailand 0
12
20
19
30
40
50
Midsize
32
8
60
Others
32
70
80
90
100
Source: Mckinsey Global Institute, ATKearney Analysis, MEGStrat Analysis, IRDA, WHO, Morgan Stanley Research, PUG Research
| 21
Value Conscious Middle Class

Compact Car forms the largest selling car segment in India
Top selling car models in China in 2011
Top selling car models in India in 2011
GM Excelle
253,500
Suzuki Alto
308,000
VW Lavida
247,500
Suzuki Swift
154,000
GM Cruze
221,000
Suzuki Wagon R
145,000
VW Jetta
218,000
Hyundai i10
130,000
VW Bora
207,000
Source: SIAM, Annual Reports, Media
Suzuki Dzire
110,000
| 22
Urban Centers
India Urbanization by 2030
5X
the number by which GDP will have multiplied
590mn
people in cities, nearly twice the population of the U.S. today
$1.2T
capital investment is necessary to upgrade urban infrastructure
270mn
70%
people net increase in working-age population
contribution to India GDP
Source: Mckinsey Global Institute
| 23
Urban Centers - Housing Sector

Housing sector has grown
250
200
Number of residential
houses launched in top
7 cities (000s)
150
247
100
130
88
50
209
2008
2009
2010
2011
but Outstanding loan to Housing sector (% of GDP) is miniscule

90
Value (USD Bn)
80
4.5%
3.8%
70
4.1%
% of GDP
4.5%
4%
85%
77%
80%
Mortgage Debt to
GDP ratio (2010)
64%
60
50
40
30
5% 100%
56
60
69
81
20
3%
60%
2%
40%
1%
20%
0%
0%
4%
10
0
Jan-09
Jan-10
Jan-11
Jan-12
Source: RBI, IMF, Jones Lang Lasalle, European Mortgage Federation
UK
U.S.
Spain
India
| 24
Changing landscape of retail delivery channels in Urban India

Current Retail Market
10%
2011
3%
5%
with low organized penetration

40%
Food & Grocery

Apparel
5%
7%
69%
20%
Jewellery &
Watches
Consumer
Electronics & IT
Pharmacy
38%
% of total segment size

20%
18%
17%
16%
15%
10%
3%
0%
Others
Others: Furnishing, Food Outlets, Footswear, Beauty, Fitness, Other
but changing at rapid pace

(USD bn)
CAGR (2011-16)
Organized (Modern)
26%
E-commerce is
Unorganized ('Mom n
Pop Stores')
6%
contributing
591
444
300
10
2006
Source: Technopac Analysis
but growing at
84
26
less than 1%,

over 23%
2011
2016
| 25
Organized Retail presence Largely focused on Metros and Tier I/II cities
Global Brands
Source: Tata Capital Research
Cities Landscape
Domestic Brands
Cities Landscape
Top 2 Metros only
13 cities
Top 2 Metros only
15 cities
4 Metros only
16 cities
4 Cities
20 Cities
18 Cities
38 Cities
8 Cities
90 Cities
8 Cities
130 Cities
| 26
Rural India - still houses ~70% of Indias population and contributes ~50% to
the GDP
India still lives in its villages
80.0
70.0
(% of total population)
71.9
71.5
71.0
70.5
69.9
68.8
60.0
50.0
40.0
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
Rural India contributes half of Indias GDP
Industries finding growth from increase in

rural penetration
Indias newspaper circulation is largest in the world
(110 mn) and growing at the fastest rate
44%
(% of India GDP)
Urban
Dependence on
Agriculture has
reduced from
59% of the
Indias GDP in
1960 to 14% in
2011-12
Rural
Growth between
2005-2010
14%
52%
48%
Source: Cesnsus India, Technopak Report, World Bank Report
India
China
U.S.A.
-15%
| 27


| 28
Inflection point in Telecom & Media

Number of mobile connections
1000
(in mn)
New Wave of Growth

909
CAGR 63%
800
400
200
0
(in mn)
584
600
261
52
2002
2005
2010
2016
5X
2
2008
2011
Laptop/ Notebook
12
61
2012
India drives presence of 5 Telecom

players in Global Top 20
Rank
2006
Smart Phone Users
4X
48
178
Name (Connection in mn, Q2, 2012)
VODAFONE (368), India - 152
Bharti Airtel (250), India - 186
Reliance Comm (154)
14
Idea (117)
20
BSNL (88)
Access to Internet
3X
32
101
Access to Digital TV
Source: TRAI, Crisil Research, Cellular Operators Association of India (COAI), Technopak, Economic Times
300
2X
182
364
| 29
Inflection point in Satellite Pay TV (DTH)

Affordable Pricing,
58
58
offering of over 500 channels
Avg. Revenue per User

(in USD)
47
28
25
22.0 19.0
13.0
4.0
and moving into Premium Services

like HDTV
Source: Equity Research
has helped DTH grow to ~35mn

subscriber base
| 30
Adaptation is the key to success in India

Company/
Industry
Adaptation
Indianized
Food Menu
One-time
use packs Sachet
| 31

Company/
Industry
Salty Snacks/
Namkeen
E-commerce
Adaptation
Desi (Local)
Flavors
Cash on
Delivery
| 32

Company/
Industry
Adaptation
Tata Starbucks
Competitive
Pricing, local
touch on the
Menu &
Ambience
Local flavor
like pudina,
tomato &
garam
masala for
oats
| 33

Company/
Industry
Adaptation
Launching
Indian Sari to
cater to
Indian Women
Launching
Bandhgala
| 34
Both Local and MNCs have benefitted from Consumption Growth in India
Revenue is expected to continue to grow at faster pace
2012 Revenue Growth Forecast (%)
34
Median 21%
16
18
18
18
19
ITC
Colgate
Asian Paints
HUL
Dabur
22
22
Nestle
Marico Ltd
24
25
United
Breweries
Titan
Godrej
Consumers
and Projected ROE indicate healthy returns for investors

2012 ROE Forecast (%)
Median 39%
116
88
ITC
39
39
37
Colgate
Asian Paints
73
HUL
Dabur
28
Nestle
Marico Ltd
17
44
United
Breweries
Titan
26
Godrej
Consumers
United
Breweries
Source: UBS Investment Research
| 35
Global Companies are leading the pack in many categories
# 1 Passenger car producer in India (~42% market share)
# 1 Mobile handset brand in India (~45 mn handset sold in a year)
# 1 Smartphone Mobile handset brand in India (~42% market share)
Combined revenue in India ~USD 2 bn
#1 in dental care products in India (54% volume share in toothpaste)
Leader in several Household & Personal Care segments in India

(market cap: USD 23 bn)
Largest retailer and leading manufacturer of footwear in India

(serves over 120,000 customers every day)
Source: Crisil Research, News articles, GfK-Nielsen Research
| 36
Private Equity investments rising in Indian Consumer Discretionary Spending

Theme
PE investment in Consumer Sector has been on a upward trend
2500
Value (USD mn)

124
Number of Deals
140
119
120
122
2000
100
94
1500
76
2312
2148
1000
80
79
1551
500
60
40
1163
1025
20
681
0
0
2006
2007
2008
2009
2010
2011
Consumer Sector includes Automobiles & Components, Consumer Durable &

Apparel, Consumer Services, Media, Retailing
Source: VCCedge Analysis
| 37
Private Equity investments rising in Indian Consumer Discretionary Spending

Theme
PE investment in Discretionary Consumer Sector is 2nd highest
Top 5 Sectors in
2011 by Value
(USD mn)
IT
Utilities
Consumer Discretionary
Industrials
Sector has seen ~ USD 2.3 bn

of PE investment, only 2nd to
Financials
Consumer
Discretionary
Industrials (~ USD 2.5 bn)
while in deal volume, Discretionary Consumer Sector has surpassed all other sectors
Top 5 Sectors in
2011 by Number
of Deals
Financials
Consumer
Discretionary
Consumer Discretionary
Sector has seen highest
number of PE deals
Industrials
(119 deals)
IT
Source: VCCedge Analysis
| 38
Thank You
Padmanabh (Paddy) Sinha

Managing Partner
Tata Opportunities Fund
email: paddy.sinha@tatacapital.com

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The India Consumption Story

Padmanabh (Paddy) Sinha

The India Consumption Story

Growing Consumer Discretionary Spend

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

Consumer Discretionary sector has seen the highest number of PE deals

The India Consumption Story

Growing Consumer Discretionary Spend

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

Consumer Discretionary sector has seen the highest number of PE deals

India, a large economy with attractive long-term growth prospects

Source: The Economist, World Bank, CIA, Goldman Sachs estimates

has seen sustained growth momentum over last two decades

9.5% 9.6% 9.3%

with rising FDI levels signaling a long-term Positive Outlook

India showing characteristics of China with a decades lag

India: Approaching point of inflexion

GDP Per Capita

Savings Rate (%)

Median Age (yrs)

FDI (USD bn)

The India Consumption Story

Growing Consumer Discretionary Spend

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

Consumer Discretionary sector has seen the highest number of PE deals

Higher growth in Consumer Discretionary Spend than in Essentials

Essential Consumer Spend

Discretionary Consumer Spend

Increased Discretionary spend is driven by increasing disposable income

Source: NSSO, CLSA ASIA-PACIFIC MARKETS

Big Winners in India Consumption Story

3X growth in key consumption categories

Source: Kotak Research

Alcohol & Tobacco

Clothing & Footwear

Food & Beverages

Illustration of India Consumption Story Fast Food Category

% YoY Revenue Growth

with growth coming from Same Store Sales

(%) growth - Same Store Sales

Source: IIFL Research

Illustration of India Consumption Story Leisure Category

THE TAJ MAHAL PALACE, MUMBAI

which helped the hospitality industry

The India Consumption Story

Growing Consumer Discretionary Spend

Premium v/s Value Spending

Urban Centers v/s Rural India

What has worked in India ?

Inflection point in select industries