India Consumer Thematic Report - 030610

AMBIT CAPITAL Thursday 03, June 2010
India Consumer
THEMATIC REPORT
Source : Illustration titled ‘Welcome to Bombay’ by Mario de Miranda
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its
research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to disclaimer section on the last page for further important disclaimer.
Ambit Capital Pvt Ltd. Consumer Sector
CONTENTS
Macro Trends .................................................................................................................. 6
Segment Trends ............................................................................................................ 15
Staples .......................................................................................................................... 16
Food & Beverages ..................................................................................................................................... 17
Personal care ............................................................................................................................................ 28
Home care ................................................................................................................................................ 33
Discretionary ................................................................................................................. 35
Automobiles ............................................................................................................................................. 36
White Goods ............................................................................................................................................. 38
Paints ....................................................................................................................................................... 39
Clothing and Footwear ............................................................................................................................. 41
Consumer Services ........................................................................................................ 44
Travel & Tourism ....................................................................................................................................... 45
Organized Retailing .................................................................................................................................. 48
Healthcare Services ................................................................................................................................... 50
Education ................................................................................................................................................. 52
Telecom .................................................................................................................................................... 54
Media ....................................................................................................................................................... 56
Corporate Analysis ........................................................................................................ 58
Historical performance .............................................................................................................................. 60
Recommended Consumer Portfolio ............................................................................... 63
Risks and Challenges .................................................................................................... 66
Annexures ..................................................................................................................... 69
CONSUMER SECTOR 03 JUNE 2010 2

AMBIT CAPITAL 03 June 2010
India Consumer
THEMATIC REPORT
About Cutting Chai, Costa Coffee

and everything in between
everything
The Indian consumer is much more confident today than he/she has been at
any time in the recent past. Amidst all the din and chaos (inflation, slowdown
and global concerns), nearly a billion individuals are out in the marketplace
shopping for soaps, TVs and luxury cars. Our exhaustive inquiry into consumption
behaviour and trends through extensive market visits, interaction with companies,
market experts and senior government officials, has revealed following insights:
 We expect aggregate Private Final Consumption Expenditure (PFCE) growth
of 14% supported by a very healthy underlying household savings rate of
23%. This is about 100bps higher than recent trends and will imply an
increase in contribution to global consumption from approximately 3% now
to more than 5% in the next decade.
 Mid and small towns are increasingly the markets of reckoning. Combined
sales in key mid-cities exceed by nearly 25% compared with metros. Despite
foreign investment hurdles in retail, we expect choice expansion to continue
across categories. We expect more than fourfold growth in choices led by
both domestic and global marketers. Global marketers’ presence in India is
low, with just 1% contribution to their topline from the country versus India’s
contribution of 3% to global consumption.
 Food and Housing spends are major divergent spend areas compared to
global averages. Consumption trends, in our opinion, will continue to show
a tilt towards services. Our expectation is that contribution of consumer services
will see an increase by 760bps to 41.8% in a decade. We expect out of home
(OOH) and processed foods, consumer durables, personal care goods &
services, travel & tourism, speciality and lifestyle retailing, organized
healthcare, and vocational education to report above-average growth.
 Based on macro and category trends, we recommend following investment
portfolio weights in consumer companies:
Exhibit 1: Consumer portfolio weights
Cons. segment Current weight Recommended weight
Staples 43% 33%
Discretionary 29% 32%
Consumer Services 28% 35%
Source: Ambit Capital research
Some of our key ideas within these segments are Dabur, Bajaj Auto, Titan, Indian
Analyst Hotels, Whirlpool and Apollo Hospitals.
Vijay Chugh
 High aggregate consumption growth, in our opinion, will also lend an
Tel.: +91-22-3043 3054
vijaychugh@ambitcapital.com upward bias to inflation (as per IMF, 130bps higher than other EMs) and will
be a key challenge for marketers in the country. Roadways have been a
Gaurav Jain revelation in the infrastructure segment, however challenges in power and
Tel.: +91-22-3043 3206
gauravjain@ambitcapital.com water still remain very high. Stagnating agricultural growth and its consequent
impact on food security is another area of concern.
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its
research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to disclaimer section on the last page for further important disclaimer.
Exhibit 2: Recommended consumer portfolio

Sector/ Top picks Current Current Recomm Macro/ Category trends
mkt cap weight weight
US$ bn
STAPLES
Food Packaged foods and processed dairy will witness faster
growth with rising awarness of health aspects
Nestle India Ltd. 6.1 4.8% 5.0%
GSK Consumer Healthcare Ltd. 1.6 1.2% 1.5%
Tobacco & Liquor In tobacco, steady volume growth and uptrading where
as in liquor, increased per capita consumption and
higher penetration should be key drivers for growth
ITC Ltd. 24.0 18.9% 19.0%
Others 3.7 2.9% 3.0%
Home & Personal Care Personal care will grow ahead of the category led by
skin care with signs of consumer uptrading
Dabur India Ltd. 3.5 2.8% 3.0%
Emami Ltd. 1.1 0.9% 1.0%
Zydus Wellness Ltd 0.4 0.3% 0.5%
Restaurants It will outpace the growth of packaged foods, QSRs will
remain the fastest growing segment
Jubilant Foodworks Ltd 0.4 0.3% 0.5%
Others 13.6 10.7% 0.0%

Staples Total 54.5 42.9% 33.5%
Staples PFCE share 2010 - 50.3% 2015 - 45.5% Share of staples will decline with slower growth in
F&B. Although share of personal goods will
increase on account of high growth rates
Discretionary
Auto Rising per capita incomes, particularly in rural markets
will drive future growth
Bajaj Auto Ltd 7.0 5.5% 6.0%
Hero Honda Ltd 8.5 6.7% 7.0%
Maruti Suzuki India Ltd 8.1 6.4% 6.5%
Consumer Durables Several segments at tipping points, innovation remains
the key
Whirlpool Of India Ltd 0.7 0.6% 0.5%
Hitachi Home & Life Solution 0.1 0.1% 0.5%
TTK Prestige Ltd 0.1 0.1% 0.5%
Paints Better industrial demand scenario and premiumisation
to drive growth
Asian Paints Ltd 4.4 3.5% 3.5%
Kansai Nerolac Paints Ltd 0.9 0.7% 1.0%
Retail Lifestyle and speciality retail are likely to be amongst
the fastest growing segments
Titan Industries Ltd 2.2 1.7% 2.0%
Pantaloon Retail India Ltd 1.6 1.3% 1.5%
Other Retailers 0.4 0.3% 0.0%
Others Rising per capita consumption and auxillary demand
will be key growth drivers
Castrol India Ltd 1.0 0.8% 1.0%
Pidilite Industries Ltd 1.2 1.0% 1.5%
Discretionary Total 36.5 28.7% 31.5%
Discretionay PFCE share 2010 - 15.5% 2015 - 16.5% Share of discretionary spend will rise with fast
growth in consumer durables and automobiles

Exhibit 2: Recommended consumer portfolio (contd.)

Sector/ Top picks Current Current Recom. Macro/ Category trends
US$ bn
Consumer Services
Education Its a key spend priority amongst all SECs
Educomp Solutions Ltd 1.1 0.9% 2.0%
Everonn Education Ltd 0.1 0.1% 0.5%
Healthcare Higher penetration, lifespan, lifestyle will drive rapid
growth
Fortis Healthcare Ltd 1.1 0.9% 2.0%
Apollo Hospitals Enterprise 1.0 0.8% 2.0%
Hospitality Better infrastructure and higher consumption priorities
will propel the category
Indian Hotels Co Ltd 1.7 1.3% 2.0%
EIH Ltd. 1.0 0.8% 1.0%
Hotel Leelaventure Ltd 0.4 0.3% 0.5%
Media Growth will be steady, but marred by fragmentation
Zee Entertainment 2.7 2.1% 2.5%
Sun TV Network Ltd 3.5 2.8% 4.0%
DB Corp 0.9 0.7% 1.5%
Jagran Prakashan 0.7 0.6% 1.0%
Telecom Acceptance of value added services remain key for
future growth potential.
Bharti Airtel Ltd 21.7 17.1% 16.0%
Consumer Services Total 36.0 28.3% 35.0%
Consumer Services 2010-34.2% 2015- 37.9% Share of services will increase rapidly with
PFCE share growth in education, healthcare, travel & tourism
and other personal services
TOTAL 127.0 100.0% 100.0%

For more information on these companies please refer annexure (page 69-84)

About Cutting Chai, Costa Coffee and everything

in between
The Indian consumer is clearly much more confident than he/she has been at
any time in the recent past. So amidst all the din and chaos (inflation, slowdown,
global concern) nearly a billion individuals are out in marketplace shopping for
soaps, television and luxury cars. Our endeavor was to capture the essence of
all these changes and identify the consumers’ fresh perspective.
Before compiling this report we have understood the thinking of individuals and
organizations operating in this value chain, be it consumers, producers, suppliers,
regulators or market experts. We have traveled across the country (to more than
15 cities and a similar number of small towns/villages) to gain closer understanding
of markets and have surveyed several consumers across SECs. We also met with
several companies across sectors including Dabur, Maruti, Fortis Healtcare,
Indian Hotels, Zydus Wellness and a host of unlisted companies to understand
their strategy in the changing consumption pattern in India. Importantly, we
understood the perspective of the government and allied institutions by meeting
senior government representatives.
MACRO TRENDS
Aggregate consumption has come a long way
Aggregate consumption (PFCE) has come a long way with collective spend in
excess of US$800bn. Over the last four decades, growth in consumption has
been in double digits and considering this growth pattern we expect aggregate
consumption to exceed one and a half trillion dollars in the next five years. As a
percentage of GDP, PFCE has seen a decline to 57% and is now broadly consistent
with that in other countries. Considering the significant increase in household
savings we expect consumption trends to be much more resilient to any increased
volatility arising out of globalization. This pace of consumption growth, in our
opinion, also lends an upward bias to inflation, which will continue to remain a
key challenge for marketers in the country.
Exhibit 3: Macro trends in growth, consumption and savings
1950-51 1960-61 1970-71 1980-81 1990-91 1995-96 2000-01 2005-06 2008-09
GDP (Rs billion) 101 174 462 1,454 5,696 11,918 21,023 35,867 55,744
PFCE (Rs billion) 90 152 368 1,120 3,769 7,517 13,393 20,554 32,182
HHold savings (Rs billion) 6 11 44 187 1,048 2,010 4,549 8,647 12,613
GDP per capita (US$) 84 112 267 374 382 453 740 1,017
% of GDP
PFCE 89.1% 87.4% 79.6% 77.0% 66.2% 63.1% 63.7% 57.3% 57.7%
Household savings 5.7% 6.5% 9.5% 12.9% 18.4% 16.9% 21.6% 24.1% 22.6%
Aggregate savings 8.6% 11.2% 14.2% 18.5% 22.8% 24.4% 23.7% 34.2% 32.5%
1950-60 1960-70 1970-80 1980-90 1990-95 1995-00 2000-05 2005-08
Inflation
WPI 9.9% 7.2% 10.5% 5.1% 4.7% 6.2%
CPI 8.9% 8.9% 10.2% 7.2% 4.1% 7.4%
CAGR
GDP 5.6% 10.3% 12.1% 14.6% 15.9% 12.0% 11.3% 16.2%
GDP per capita NA 2.9% 9.1% 3.4% 0.4% 3.5% 10.3% 11.3%
PFCE 5.4% 9.2% 11.8% 12.9% 14.8% 12.2% 8.9% 14.1%
Household savings 7.0% 14.4% 15.7% 18.8% 13.9% 17.7% 13.7% 13.5%
Aggregate savings 8.4% 12.9% 15.1% 17.1% 17.5% 11.4% 19.7% 13.8%
Source: RBI, Ambit Capital research
Comparatively, India’s aggregate and percentage of household consumption is

in line with those of advanced emerging markets. However, in terms of GDP per
capita and savings, this behaviour is at a significant deviation. Considering current
growth trends we expect household consumption contribution as a percentage
of global consumption to see a rise of 66% to more than 5% from 3% currently.
Exhibit 4: Comparative macro statistics

Countries GDP US$ GDP HH spend HH spend HH
US$ bln Per Capita US$ bln % GDP Savings
Average Median Average Median % GDP
Median
India 1,235 1,030 710 57 34
Advanced Emerging 1,124 8,457 659 60 23
Markets
Secondary Emerging 249 4,356 183 63 23
Markets
Developed Markets 3,188 38,480 2,097 56 25
Source: IMF, World Bank, Ambit Capital research
Hinglish Consumer
Indian consumer spending pattern, on account of various socio-economic
reasons, is still quite different from that of his counterparts in other countries in
Emerging and developed markets. Although he has made a significant crossover,
he still stands constrained by income levels to a large extent. Food and Housing
are the some of the areas which stand at significant divergence when compared
with spends in Emerging and developed markets. We expect consumer spend to
continue to move away from food to discretionary and services. The concept of
nuclear families has already gained significant acceptance in key metros and we
expect this to spread eventually to the smaller towns and rural markets over the
next decade. These trends augur well for spend in categories such as eating out,
durables and communication. Our expectation is that share of staples will see a
decline of 990bps and share of discretionary and consumer services will see
increase of 230bps and 760bps respectively.
Exhibit 5: Comparative consumer spends across various countries
Emerging Markets Developed Markets
India China Brazil Russia US UK Canada Australia S Korea

Staples 50.2% 39.5% 40.4% 37.3% 25.5% 24.9% 42.4% 28.6% 28.7%
Food 35.8% 33.9% 24.6% 29.1% 12.7% 9.3% 10.4% 17.1% 12.6%
Alcohol & Tobacco 3.1% 2.6% 1.9% 2.3% 1.3% 3.5% 1.7% 2.6% 2.6%
Miscellaneous goods 11.2% 3.0% 13.9% 5.9% 11.5% 12.1% 30.3% 8.9% 13.5%
Discretionary 8.2% 13.3% 8.4% 17.9% 10.3% 10.6% 6.8% 9.8% 8.5%
Clothing and Footwear 4.2% 8.6% 3.4% 10.4% 3.5% 5.4% 4.0% 4.0% 5.1%
Household goods 4.0% 4.7% 5.1% 7.5% 6.8% 5.2% 2.8% 5.8% 3.3%
Services 41.6% 47.2% 51.1% 44.8% 64.2% 64.5% 50.8% 61.6% 62.8%
Housing 12.1% 12.1% 15.0% 10.4% 32.3% 22.7% 22.5% 24.8% 17.0%
Health 4.2% 8.3% 4.4% 2.9% 6.1% 1.6% 4.6% 5.1% 6.1%
Transport 15.0% 3.1% 13.0% 15.5% 17.6% 14.8% 13.6% 15.6% 11.5%
Communication 3.1% 10.6% 5.4% 3.7% 0.2% 2.1% 2.1% 0.0% 4.5%
Leisure 1.9% 2.9% 3.4% 7.7% 5.8% 11.3% 5.7% 12.8% 8.1%
Education 2.5% 6.3% 7.2% 1.6% 2.2% 1.4% 1.7% 1.9% 7.5%
Hotels and Catering 2.7% 3.9% 2.7% 3.0% 10.6% 0.6% 1.4% 8.4%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: IMF, Ambit Capital research

Heterogenity of Indian Consumer

Unlike other markets, Indian market is significantly heterogeneous best epitomized
by the fact that there are nearly 122 languages and 234 mother tongues with
minimum speaker strength of 10,000 (Census 2001). Marketers often have to
segment it in several cluster groups based on varying socio-economic criteria.
Urban-Rural and SEC A-E are some of the most commonly used criteria by
marketers. Several marketers try to adopt a portfolio approach and its not
uncommon for them to reach both Mass (Often consumes half a cup of tea
available at starting price of Rs 3) and Affluent Consumers (engages in
consumption of coffee which sometimes start upwards of Rs 75 per cup). The
top 100 cities in India contribute to not more than 50-60% of overall consumption
spends so there are large cluster groups in rural markets which often has to be
factored in while planning launch and/or penetration s strategies. It is estimated
that more than 2/3rds of next generation youth will come from rural India.
These trends of heterogeneity in our opinion will continue to drive importance of

Customization and Reach as opposed to just superior product and attractive
pricing in several markets. Besides media (more than 150 regional channels)
several other product and service categories also demonstrate this need for
customization and micro-marketing. In our opinion therefore not just superior
products but supply chains and distribution reach will be extremely critical from
growth perspective. Organisations with robust supply chains and distribution
reach in our opinion can enjoy growth rates almost 50% higher the normal
growth rates.
Exhibit 6: Consumer India in terms of Income Quintiles

Population % of All India % of All India Surplus Income Rural-
Quintile Households Households Income Index Urban
Arranged by Income in Expenditure as % of total Split
Income Quintile in Quintile Income H
Q1 (lowest) 6 9 -12 100 52-48
Q2 9 12 11 161 44-56
Q3 14 17 20 225 23-77
Q4 21 22 31 335 17-83
Q5 51 40 55 841 9-91
Source: NCAER-CMCR

Mid and Small town India (Bharat) has made

rapid strides
Financial inclusion, improved Agri Markets, Industralisation and Media/Telecom
penetration have meant that satellite and other towns now exceed the overall
market size and growth compared to the top 6 metro towns in the country.
Several new towns in recent years, such as Kochi, Raipur, Bhubaneshwar and
Chandigarh would have got added to this list implying the widespread growth
of markets beyond the six metro towns. Assuming growth differentials of 2% at
current levels, these markets, on a combined basis, would be 25% higher versus
the top 6 metro towns.
Importance of the small town has also accelerated with significant intervention
by the government through NREGA , a progmamme for development of rural
India. Proximity to rural and key agri markets has only strengthened their growth.
Nearly all consumer brands have reached out to these mid and small towns,
and in terms of aspiration and lifestyle, most of these towns appear to be
converging fast with the likes of metro cities.
Exhibit 7: Income, Savings and Consumption of Top Indian cities (Rs bn)
Top 19 towns Annual Annual Annual Top 6 Annual Annual Annual
non-Metros HH Income HH Savings Consumption Metros HH Income HH Savings
Thane 408 108 294 Delhi 949 309 640
Pune 338 96 242 Mumbai 732 201 531
Ahmedabad 336 108 228 Bangalore 537 212 325
Surat 226 72 154 Chennai 283 51 233
Coimbatore 182 31 151 Hyderabad 260 101 159
Thiruvallur 136 25 110 Kolkatta 214 74 140
Lucknow 169 59 110
Jaipur 189 80 109
Vadodara 163 55 108
Nagpur 146 40 106
Kancheepuram 110 20 91
Kanyakumari 107 18 89
Jamshedpur 110 22 88
Ludhiana 124 37 87
Madurai 101 18 83
Faridabad 130 48 82
Salem 96 17 80
Indore 102 30 73
Bhopal 99 29 70
TOTAL 3,272 913 2,354 TOTAL 2,975 947 2,028
Source: Indicus

Exhibit 8: Middle class penetration

Categories Cities Boom towns Niche cities
Cars 57.5 43.5 46.8
Motorcycle 47.1 60.9 43.7
Mobile phone 76.8 79.1 76.2

Computer 16.8 20.1 16.8
Television 90.5 87.4 85.8

Refrigerator 90.2 89.5 91.3
Airconditioner 10.0 14.2 9.8
Washing machine 66.0 55.3 62.0
DVD player 63.1 63.2 59.2

Microwave oven 13.7 14.1 14.3
Source: NCAER
Choice Explosion in several categories

Led by media, the choice expansion that we have seen in several categories has
been substantial. We expect these trends to continue to remain an important
feature of Indian markets over at least the next 10 years before scale and
consolidation assume important features. Our estimates suggest that the average
consumer choice has seen expansion of at least 3-4 times in the last decade and
we expect this pace to sustain over the next decade. Currently, combined share
of turnover from India, of global marketers, is less than 1% compared to 3%
contribution to global consumption by India. Nearly 2/3rds the top 100 global
marketers are already present in the country and we expect increased investments
from them that will continue to drive further expansion. We expect digital marketing
to facilitate this to some extent in the absence of foreign retailers.
Exhibit 9: Increase in consumer choices

Categories 2000 2005 2010
Media
No. of TV Channels 161 251 395
Retail
No. of Malls 10 100 400
Nos. of franchisors 250 650 1300
Nos. of franchisees 400 32000 120000
Consumer Staples
Skin cream (No. of brands/products) 20 55 95
Beverages (No. of products) 10 20 >35
Consumer Durables (no. of models)

Cars 20 35 70
TV (standard type) 30 64 100
Refrigerators 48 96 160
Air conditioners 30 56 100
Source: Co. websites, Ambit Capital research

Exhibit 10: Top 100 global marketers (by media spend)

Media spend Global sales Media spend Global sales
US$mn US$mn US$mn US$mn
P&G 9,730 83,503 Fiat 770 86,914
Unilever 5,720 59,313 Nintendo 755 15,000
L'Oreal 4,040 25,676 Telefonica 742 81,200
GM 3,670 148,979 Aldi Group 719 58,000
Toyota 3,200 204,532 Mitsubishi 710 61,182
Coca-Cola 2,670 21,807 SAB Miller 686 25,302
J&J 2,600 63,747 Canon 668 39,611
Ford Motor 2,450 146,277 Campbell 644 7,586
Reckitt Benckiser 2,370 10,854 Kia 643 14,500
Nestle 2,310 101,565 Mazda 633 25,242
Volkswagen 2,310 166,579 LVMH 627 23,800
Honda 2,220 99,652 BMW 619 77,864
Mars 2,000 30,000 Suzuki 615 29,911
McDonalds 1,970 23,522 Carrefour 607 129,134
Sony 1,850 76,945 Microsoft 575 60,420
Glaxo Smithkline 1,830 44,654 Novartis 572 44,267
Deutsche Telekom 1,810 90,260 LG 553 82,082
Kraft 1,790 42,867 Dell 547 61,101
Nissan 1,720 83,982 Mattel 525 5,920
Walt Disney 1,590 37,843 Citigroup 518 112,372
Danone Groupe 1,580 22,277 Bristol Myers 517 18,808
GE 1,550 183,207 Sharp 504 28,341
Time Warner 1,530 46,984 Apple 503 32,479
PSA Peugeot 1,510 79,560 ING 494 226,577
Pfizer 1,510 48,296 Visa 484 6,900
Yum Brands 1,410 12,000 Clorox 476 5,000
PepsiCo 1,390 43,251 Burger King 465 2,537
Maxingvest 1,380 13,300 Ikea 447 31,794
Panasonic 1,290 77,298 Nokia 446 74,224
Ferrero 1,260 8,400 Doctors Associates 443 1,000
Metro 1,240 101,217 Boehringer 441 18,200
News Corp 1,240 30,000 Cadbury 439 9,600
Henkel 1,230 19,002 Fuji Heavy 439 14,457
Renault 1,220 55,314 Coty 432 4,000
Walmart 1,100 405,607 Eli Lilly 432 21,836
Colgate 1,050 15,327 Kimberly Clark 414 19,100
Kellog 1,040 13,000 HP 410 114,600
Hyundai 993 72,542 MasterCard 390 5,100
SC Johnson 985 9,000 American Express 388 24,500
Viacom 984 4,098 Heineken 367 20,580
Vodafone 975 69,138 Shiseido 367 6,900
Chrysler 960 30,000 Ahold 364 39,102
AB In Bev 935 23,568 Diageo 358 14,898
Merck & Co 933 23,850 Pernod Ricard 336 10,084
Samsung 928 110,350 Avon 333 10,000
Daimler 924 140,328 Hasbro 327 4,070
Vivendi 868 37,166 HSBC 320 142,049
Sears Holding 863 46,770 Sanofi Aventis 320 38,640
Bayer 849 48,182 Abbott Labs 316 29,528
General Mills 846 14,691
Kao 789 13,000 TOTAL 117,908 5,395,592
Source: Adage, Ambit Capital research (companies in bold are without any presence/ marginal presence in India)

Youth and Women likely to stay key influencers

Constituting nearly 25% of the population (10-24-year age) the youth segment
is of significant interest to all marketers in the country. It is well established now
that youth have a significant influence on discretionary consumption and being
tomorrow’s decision makers, most marketers work overtime to earn their trust
and respect. The Pepsi Youngistaan campaign (media reports place Season 2010
investment at US$10mn), symbolizes the importance attached to this segment.
Although geographical and income spread of this segment is huge there are
commonalities such as Sports (cricket) and Films (bollywood) etc. that can be
successfully leveraged. Based on this group’s consumption pattern, we estimate
that they influence nearly 75% of overall consumption directly and/or indirectly.
Exhibit 11: Monthly spend across key categories

Rs/month Boys Girls Avg
Clothing 294 268 281
Going out 183 184 184
Electronics 111 183 147
Cell / Mobile phone 125 106 116
Health and beauty 102 107 105
Entertainment 92 103 98
Transportation 79 89 84
Soft drinks 47 43 45
Snacks 45 42 44
Source: BW Marketing Whitebook
Education, Social Empowerment and rise of the Services sector have supported
improvement of the status of women significantly in India. With job creation in
services likely to remain a dominant feature of our economic growth, we expect
womens’ participation in the total workforce will only look up from current levels
of 30-35%. Women are expected to influence more than two-thirds of consumption
expenditure in India; and some areas that are likely to see significant growth
because of their changed social and economic status are — Apparel, Food and
Grocery, Consumer Electronics and a host of products and services addressing
Health, Beauty and Fitness. According to the Harvard Business Review, globally
women control about US$20 trillion in annual consumer spending and we expect
women in India to achieve a similar status of importance.
Influence of both these categories is also borne out by the media spend in
Television and the Press, where we estimate that collectively more than 50% of
the spend is exclusively targeted at these segments.
Exhibit 12: Top sectors contributing to advertisements in 2009 (%)
Television 14 Press 15
Food & Beverages 14 Education 15
Personal care 11 Services 12
Services 6 Banking/Finance/Investment 9
Telecom / ISPs 5 Auto 7
Hair care 5 Retail 6
Auto 4 Durables 4
Banking/Finance/Investment 4 Personal accessories 4
Personal acessories 4 Personal healthcare 3
Personal healthcare 3 Corporate/ Brand Image 2
Household products 3 Textiles/Clothing 2
Others 41 Others 36
Total 100 100
Source: FICCI KPMG Media & Entertainment report
Brand relevance is changing very fast

The fast-changing consumption pattern in our opinion is also having a significant
impact on brand equity and relevance. Some of the most trusted brands (ET
Brand Equity survey) about three years ago do not find any reckoning in the
buzziest brand survey (Agency FAQs) and even in a comparable survey; at least
one of three brands is new. Increasingly, we expect that service brands will lead
this space as is evident from the recent trends in consumption and the recent
buzziest brand surveys.
Exhibit 13: Brand survey ranking top 10

2007 2009 2010
Colgate Nokia Facebook
Vicks Colgate Vodafone
Lux Lux Twitter
Nokia Lifebuoy Idea
Britannia Dettol IPL
Dettol Horlicks Colors
Lifebuoy Tata Salt Tata
Pepsodent Pepsodent Pepsi
Ponds Britannia Nokia
Tata Tea Reliance Mobile Maggi
Source: 2007 & 2009 - Brand Equity survey, 2010 - Buzziest brand survey agency FAQs
Multiplier benefits from banking, mobile and

internet still in its early days
Although penetration of banking services has seen significant improvement, we
believe it is still early days and improvement of these services can have a wide-
reaching impact on consumption. Personal loans as a percentage of PFCE still
stands at a small number, to some extent reflecting the risk averse behaviour,
and high savings rate. There is significant scope of increase here.
Credit Card spend as a percentage of PFCE has seen improvement from 1.8% in
March 2006 to 2.6% in March 2009. We expect this number to double with
increased rollout of POS. In India, currently POS terminals are around 0.5
million and can easily increase to nearly 2 million in about five years. Similarly,
the ATM density per million population, which currently stands at less than 40
could see significant increase. Global benchmarks for ATMs are in excess of 500
with South Korea having nearly 1,600 and US having more than 1,300.
Exhibit 14: Banking penetration
In mln Mar’06 Mar’07 Mar’08 Mar’09 Mar’10
ATMs 0.02 0.03 0.04 0.04 0.06
Banking branches 0.071 0.074 0.078 0.082
Points of Sale terminals 0.39 0.42 0.51
Debit and Credit card users 67 98 130 162 196
Retail outlets 15,500
Rs bn
Debit and Credit card spend 398 495 705 839
Personal loans by banks 573 409 164
PFCE 21,583 24,772 28,156 32,181
Personal loans as% of PFCE 2.3% 1.5% 0.5%
Credit card spends as % of PFCE 1.8% 2.0% 2.5% 2.6%
Source: RBI
In line with PC usage growth of about 21%, internet usage in the country has
also seen significant increase by about 31% and currently stands at an estimated
base of 75 million users in urban markets. The usage is not restricted to merely
metros but has spread to remote corners with the smaller towns accounting for
higher numbers. This reach of internet, in our opinion, will have significant
influence on consumption of services sectors such as Education, Music, Travel,
Gaming, News and Banking over the next decade. With improved bandwidths
we expect that rural India will increasingly become extensive users of this service.
Exhibit 15: Purpose of accessing Internet in 2009 (%)

Non-commercial Commercial
Email 87 Education 65
General information 80 Music/video 45
Text chat 40 Online jobsites 33
Online gaming 33
Financial info 24
Book railway tickets 18
Online news 16
Internet telephony 14
Online banking 12
Source: IMRB
Mobile internet could well overtake the traditional internet if the current 3G auction
trends are to be considered. With wireless subscriber base well in excess of 585mn,
it has reached nearly 6 times that of internet. In our opinion, with technological
support, devices have transitioned to the small screen and now can support
experience that is available on big screen. Similar to internet this trend could
have a significant influence on consumption of Media and Entertainment, Banking
and M Commerce. India has opted for the bank-led M Commerce model with a
daily cap of Rs5,000 for funds transfer and Rs10,000 for transactions involving
purchase of goods and services. We expect this will gradually be raised as users
and providers become more comfortable with technology and security aspects.
Exhibit 16: Usage patterns of internet through mobile phone (2009)
Entertainment,
7% E-Commerce, 2%
Online Services,
8%
Info Search, 23% Communication,

60%
Source: IMRB

SEGMENT TRENDS
The share of wallet of the Indian consumer has witnessed a significant shift in
recent times and has started moving in the direction of the consumption pattern
of more developed economies. In the past five years, share of staples has fallen
by 4% to 50%, and significant share gain is observed in discretionary expenditure
and services. Finer detailing indicates that in staples, share of food consumption
has declined significantly while lifestyle changes have moved higher the share of
consumer durables and personal effects. A slightly worrying trend is the decline
in share of medical services and healthcare (however, recent government initiatives
in the Finance Bill, 2010 has helped revive confidence in the health sector).
We have estimated likely changes in wallet share in the forthcoming 10 years. It

indicates a further decline in the share of staples (a further 10% by 2020) while
we expect consumers to spend more on discretionary services including lifestyle
goods and services, education and recreation (combined increase of 10%).
Exhibit 17: Share of wallet based on PFCE data

Particulars (US$bn) 2005A 2010E 2015E 2020E
Staples 54.4% 50.3% 45.5% 40.4%
Discretionary 14.4% 15.5% 16.5% 17.8%
Services 31.2% 34.2% 37.9% 41.8%
Source: PFCE data CSO, Ambit Capital research
We expect healthy growth of 14% in household consumption expenditure for the

next 10 years with growth led by discretionary goods and services (15-16%).
More specifically, we expect certain segments such as personal care, consumer
durables and communication to continue its robust growth.
Exhibit 18: Growth in private final consumption expenditure (PFCE)

PFCE total 467.8 907.5 1,758.3 3,352.2
5-year CAGR 14.2% 14.1% 13.8%
Staples 254.7 456.5 800.8 1,353.8
5-year CAGR 12.4% 11.9% 11.1%
Discretionary 67.4 141.1 290.9 597.4
5-year CAGR 15.9% 15.6% 15.5%
Services 145.7 310.0 666.7 1,400.9
5-year CAGR 16.3% 16.6% 16.0%
Source: PFCE data CSO, Ambit Capital research
In the unfolding sections we have discussed each sector along with their growth
forecasts. We have highlighted relevant segments in each sector where we foresee
maximum growth potential along profitability trends.

STAPLES
 Share of staples in PFCE, currently at 50%, is expected to decline to
40% in the next decade. Decline will be largely due to slower growth of food
& beverages ( share decline -930bps)
 In the food and beverages segment, quick service restaurants

(QSRs),organized processed dairy, bottled water and packaged fruit juices
are expected to grow fastest due to increasing health consciousness and
fast-changing lifestyles. QSRs will need to ramp up their supply chain fast
and get their act right.
 Tobacco and Liquor will continue to grow at a steady pace despite several
impediments
 In personal care segment, skin care, colour cosmetics, deodorants and

pharma OTC products and personal care services will outpace growth of
other categories as impact media penetration and general awareness
spreads.
 Home care (except Laundry) segment growth will be led by surface cleaners
although intense competitive activity will impact the pricing power and profit
margins of the players.
Exhibit 19: Fastest growing categories in Staples

Organized OOH F&B 0.7 1.6 4.2 9.6
5-year CAGR 17.2% 21.0% 18.0%
Organized Processed dairy 5.2 10.5 21.5 40.7
5-year CAGR 15.0% 15.5% 13.7%
Juices 0.4 1.0 2.5 5.2
5-year CAGR 18.6% 19.1% 16.2%
Bottled Water 0.6 1.6 4.2 9.7
5-year CAGR 23.7% 20.3% 18.4%
Colour Cosmetics 0.1 0.4 0.8 2.0
5-year CAGR 23.2% 16.5% 20.0%
Skin Care 0.6 1.5 3.7 9.2
5-year CAGR 19.8% 19.4% 20.0%
OTC - Pharma Companies 0.0 0.1 0.5 2.2
5 year CAGR 32.6% 33.4% 35.7%
Deodorants 0.0 0.2 1.0 2.9
5 year CAGR 47.7% 40.0% 25.0%
Personal Care Services 0.4 1.4 4.6 9.2
5 year CAGR 29.9% 25.9% 15.0%
Hard Surface Cleaners 0.0 0.1 0.2 0.5
5-year CAGR 20.3% 19.4% 16.6%
Hand Dishwash 0.1 0.3 0.6 1.3
5-year CAGR 18.8% 15.8% 14.6%
Source: Various market studies, Ambit Capital research

FOOD & BEVERAGES

Food continues to be an important part of the Indian share of wallet with
expenditure of 39% monthly. The share food as seen in the exhibit below was
as high as 60% about 30 years ago. In fact, the bulk of this massive change has
occurred in the last 15 years after structural changes were made in the FDI
policy in 1991. These structural changes provided the Indian consumer with
more cash in hand for expenses along with more choices. At the same time, the
technology leaps in the last decade have resulted in a significant shift in share of
wallet.
Exhibit 20: Average value of expenditure per person per 30 days in

urban india (at 2006-07 prices)
Year Food Total Food share
1972-73 526 880 59.8%
1977-78 468 821 57.0%
1987-88 523 976 53.6%
1993-94 528 1,035 51.0%
2000-01 486 1,160 41.9%
2006-07 517 1,312 39.4%
Source: IFPRI Discussion Paper, 2009
The shift in share of wallet is not just occurring between different categories, it is
within categories as well. In case of Food & Beverages, we note a consistent shift
towards out-of-home (OOH) consumption from in-home consumption. Some of
the important observations about the F&B category are as below:
India still consumes most of the food 'Fresh'

India still is a large consumer of staples in the unprocessed/low processed form
with 59% food in rural and 52% food in urban areas consumed in this form.
Exhibit 21: Indian food consumption expenditure according to level of

processing (2004-05)
Urban Rural
Primary products 16.8 15.3
First processing (up to 5%) 34.8 43.9
First processing (5%-15%) 38.2 35.1
Second processing 10.2 5.7
Total 100 100
Source; IFPRI Discussion Paper, 2009
No inclination to change food habits

Indians are very sticky about their food preferences and are least willing to change
them. Our extensive on-ground survey revealed that people, particularly in tier 2
and tier 3 cities are hesitant to adopt foods which are not ‘fresh’. The belief
persists that food which is frozen/packed for a long time is not healthy. Moreover,
the 'value equation' for processed foods is still not acceptable.

Out-of-home (OOH) versus packaged F&B

As lifestyles are changing, 'convenience' will take over the 'value' proposition for
sure. But, a key question that remains is: Which segment will grow faster, OOH
or packaged F&B? Based on our consumer survey, the perception on various
parameters of F&B are as follows:
Exhibit 22: Food perception on various parameters

Criteria Fresh food Packaged food OOH food
Fresh & Natural High Low Medium
Healthy High Low Medium/Low
Easy to prepare Low Medium/High High (No preparation
required)
VFM High Low/Medium Medium
Storage convenience Low High High (on demand)
Taste High Medium/ High High
Hygienic High Medium/ High Medium
In nearly every parameter, out-of-home consumption scores over packaged food.

Since food preferences are slow to change, we believe that these perceptions will
also change only gradually.
We have discussed the stated perception with respect to the F&B category at
length in the following pages. In a nutshell, the F&B category will continue to
maintain a healthy growth rate of 11% for the next five years with growth of
OOH consumption outpacing that in In-home consumption. After 2015, we will
see some moderation in the growth rates of both the segments.
Exhibit 23: Projections - OOH and In Home F&B consumption

F&B Total 179.3 302.5 505.1 813.5
5-year CAGR 11.0% 10.8% 10.0%
OOH F&B 46.0 83.2 167.3 294.9
5-year CAGR 12.6% 15.0% 12.0%
In-home Total F&B 133.3 219.3 337.8 518.6
5-year CAGR 10.5% 9.0% 9.0%
*Includes alcoholic beverages
Source: CSO, Businessworld Marketing Whitebook, Technopak, Ambit Capital research
Projections
India currently consumes c. 28% of the food out of home. In 2005, this number
was 26%. This is still much lower compared to the more developed economies. In
countries such as the USA and China people consume 57% and 51% of their
food out of home respectively.
We project that out-of-home food consumption will increase at a rate of 15%

CAGR for the next five years while in-home food consumption will grow at 9%.
Within in-home, consumption of packaged foods will increase at 12% which, we
believe, will accelerate to 15% beyond 2015.

Exhibit 24: Projections - Food & Beverages

F&B TOTAL 179.3 302.5 505.1 813.5
5-year CAGR 11.0% 10.8% 10.0%
OOH F&B 46.0 83.2 167.3 294.9
5-year CAGR 12.6% 15.0% 12.0%
Organized 0.7 1.6 4.2 9.6
5-year CAGR 17.2% 21.0% 18.0%
Unorganized 45.3 81.6 163.2 285.3
5-year CAGR 12.5% 14.9% 11.8%
In-home total F&B 133.3 219.3 337.8 518.6
5-year CAGR 10.5% 9.0% 9.0%
In-home packaged F&B 19.5 35.3 62.2 125.0
5-year CAGR 12.6% 12.0% 15.0%
In-home ‘Fresh’ F&B 113.8 184.0 275.6 393.6
5-year CAGR 10.1% 8.4% 7.4%
Source: CSO, Businessworld Marketing Whitebook, Technopak, Jubiliant Foodworks RHP,
Ambit Capital research
Organized OOH Consumption

Exhibit 25: Popular QSR brands
Source: Company websites, Ambit Capital research
Exhibit 26: QSR outlet1 Exhibit 27: QSR outlet2
Penetration is still low

Share of organized OOH food consumption is extremely small, at less than 2%.
A key reason, apart from immaturity of markets, was insufficient presence of
chain restaurants. Data on the number of outlets of top 6 QSRs across India
indicates the same.

Exhibit 28: No. of outlets - popular QSRs

2000 2005 2010
No. of outlets 67 395 1887
Although these QSRs have expanded exponentially, the footprint continues to be

low. We note there is immense scope for penetration and consumption. Evolving
lifestyles, expansion of retail space, increase in travel and commuting, and other
factors indicate that organized segment of out-of-home consumption has much
more room for growth.
Localisation of cuisine
One chief reason which will aid growth is 'Indianisation' of the cuisine offered
and rationalization of price points by these international chains. During our
extensive consumer survey, this point was highlighted by a majority of consumers,
particularly in tier 2 and tier 3 cities, where the taste preference is still highly
local. But these chains have learnt fast and have adapted their cuisines well.
Projections
Considering these reasons, we expect the organized segment to grow at a CAGR
of 21% for next five years and it will be 2.5% of the total out of home consumption.
Beyond that, the growth will moderate marginally to 18%.
Investment phase is largely over for established companies

We analyzed the common-sized financials of select companies in the organized
restaurant segment. These companies have shown robust sales growth of 30%+
in the past 5 years. Moreover these companies have invested heavily in supply
chain capabilities during this period. Although their current EBITDA margins are
still below par, they have shown good growth in line with sales. These companies
have also witnessed some impact of the high food inflation. We believe these
companies are still in the investment phase and will likely invest more ahead. We
see a compelling case of topline and bottomline growth near term, however,
return on capital employed will take a few years to improve.
Exhibit 29: Common size financials of selected QSRs

(including CCD, Jubilant etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4 yr CAGR
Sales 32.6% 36.2% 40.0% 25.5% 33.5%
Total expenses 29.0% 36.8% 40.0% 26.0% 32.9%
EBITDA 108.2% 28.6% 40.1% 18.0% 45.0%
% of sales 2004-05 2005-06 2006-07 2007-08 2008-09

EBITDA 4.5% 7.1% 6.7% 6.7% 6.3%
EBIT -4.0% -0.5% -0.2% -0.2% -1.1%
PAT -7.8% -5.2% -3.5% -3.9% -5.3%
ROCE 4.6% 8.1% 7.2% 6.5% 6.2%

Source: Capitaline, Ambit Capital research

Processed Dairy
India's sizeable vegetarian population ensures a constant demand for dairy
products and milk that have been an integral part of the Indian diet for millennia.
Per capita dairy consumption in India has been increasing steadily for past few
years at a rate of c.2% (volume terms). However, in spite of being the highest milk
producing country in the world it still ranks 7th in per capita availability (even
lower than Pakistan).
Affordability has been the only issue

The Indian consumer has never been averse to dairy products. Only affordability
has been the issue. Fortunately, by the efforts of government and dairy co-
operatives, affordability has been improving.
For illustration, milk prices were equal in India and New Zealand (another large
milk producing nation) 10 years ago. (Indians earn just 1/9th that of New
Zealanders on per capita PPP income basis). Currently, milk prices in India are 2/
5th that of New Zealand. Further, in 2007 alone, milk prices across the world
increased by 46% on an average (FAO). But in India, prices increased by just 5%
that year. We therefore see a much better case of growth for dairy sector in India.
Exhibit 30: ITC initiative Exhibit 31: Dairy farm in Madhya Pradesh
Source: Ambit Capital research Source: Ambit Capital research
Projections
Currently 70% (65% in 2005) of the milk is consumed in processed format out of
which 56% is in the form of milk solids and 14% is in the form of packaged liquid
milk. The dairy market has grown at 8.4% in the past five years. We expect this
rate to accelerate to 9.8% (volume growth of c.3%) over next five years with
growth moderating by 1% after that. This growth will be driven by processed
dairy with increased contribution by organized players.

Exhibit 32: Projection — Dairy

Particulars (US$bn) 2005A 2010E 2015A 2020E
Dairy total 40.0 59.8 95.4 145.4
5-year CAGR 8.4% 9.8% 8.8%
Unprocessed Dairy 14.0 17.9 23.8 29.1
5-year CAGR 5.1% 5.9% 4.1%
Processed Dairy 26.0 41.8 71.5 116.3
5-year CAGR 10.0% 11.3% 10.2%
Organized 5.2 10.5 21.5 40.7
5-year CAGR 15.0% 15.5% 13.7%
Unorganized 20.8 29.8 38.0 48.6
5-year CAGR 7.4% 5.0% 5.0%
Source: CSO, Businessworld Marketing Whitebook, Ambit Capital research
What will drive Processed Dairy?

Innovation
Rate of innovation in processed dairy formats is quite high. As per FoodBev.com,

almost every alternate day a new dairy innovation is launched in global markets.
Some of the latest innovations in dairy are:
 Yoghurt cooking sauce (Unilever)
 Milk Caramel Shake (Yoplait)
 IttiBitz ice cream balls (Get Silly ice creams)
 Lactose free cheese (Heinrichsthaler)
In India the rate of innovation is slower but the past few years have seen launch
of several new products including fat free milk & ice-creams, packaged & flavoured
milk and yoghurt, new cheese formats etc.
At one end, innovation helps to keep the consumer excited, at the other end, it
provides an opportunity to the manufacturer/supplier to charge a more than
proportionate premium for the value addition. Price range in certain dairy products
illustrates the same.
Exhibit 33: Dairy product prices

Product type Lower band Medium band Upper band
Liquid milk (per litre) 24 35 45
Processed cheese 158 NA 235
(per ½ kg)
Butter (per ½ kg) 112 122 140
Health Consciousness
The world is suffering from obesity and this condition is catching up in India
rather quickly. More than 6% of the population in India is currently suffering from
obesity with a concentration in the urban areas owing to lifestyle issues,
particularly in the metros. At the same time, health awareness is growing in
parallel to curtail this phenomenon. The focus of most innovations in dairy products
in India and overseas has been to reduce the fat content. The trend is going to
continue and we will see more people switching to processed dairy formats.

Other minor factors

Disappearing culinary skills as consumers lose these skills due to changing
lifestyles and rub off effect of tetrapak technology which helps in preserving
dairy products for longer time
Organized sector
India's dairy industry is dominated by an unorganized, traditionally informal
sector, which involves traders handling raw milk and traditional milk products —
only 25% of the market is formalized. However the growth rate for organized
sector is quite strong with a 5-year CAGR of 15%. This trend is likely to be
maintained with entry of players such as Danone and Kraft into the Indian market.
We expect the organized segment to grow at 15.5% for the next five years.
Non Carbonated Beverages

Phenomenal opportunity
Approximately 120bn litres of beverages are consumed by Indians every year,
but only 5% represent store-bought packaged beverages. The majority of Indian
consumers (75%) still consume non-alcoholic store-bought beverages 'less than
once a day', highlighting a large untapped market opportunity, particularly in
juice or juice-based markets.
Per capita consumption in India is less than 7 litres per annum of non-alcoholic
beverages, which is just 1/11th the global average and 1/4th the regional average.
While consumption frequency decreases with age, it is found to increase with
income levels, except in the topmost economic strata of society. Although market
size for non-carbonated beverages is c. US$4bn, still, penetration of packaged
liquid refreshment and beverages in India is below 20%. The opportunity is huge
in the category and corporates are leaving no stone unturned to exploit the full
potential.
What is driving demand?

Increasing penetration
India has always spearheaded the packaging innovation in most FMCG products.
The same was witnessed in beverages with lowering of price points in every
beverage category. This was particularly relevant in the case of carbonated drinks
where price pointed packs of Rs5 and Rs10 drove the penetration in rural areas.
Even today penetration of carbonated drinks is as low as 35%. These penetration
levels are expected to increase but more importantly a lot of consumers are
switching to packaged non-carbonated beverages from home made beverages,
thereby surpassing the normal premiumisation curve.
Rising health consciousness

As discussed in the dairy section, India is becoming more health conscious. This
awareness is leading to higher consumption of fruit juices and functional drinks
particularly in urban areas where people are switching from carbonated
beverages to fruit juices and functional drinks. This cannibalization is leading to
premiumisation in the category.
Hygiene consciousness
Even today, 0.78 million deaths per annum (7.5% of total deaths) in India are
due to water borne diseases. As awareness, education and affordability improves,
more and more people are switching to water purifiers at home and bottled
water out of home.
Continuous innovation
Exhibit 34: Recent launches in beverages

Product Company
Tropicana Twister fruit drink Pepsico
Nimbooz lemon drink Pepsico
LMN lemon drink Parle Agro
Saint fruit Juices Parle Agro
Appy Fizz carbonated drink Parle Agro
Minute Maid orange drink Coca Cola
Sugarfree DLite Zydus Wellness
Burrst fruit drink Dabur India
Product innovation in the category has been high, particularly in the past few
years. Continuous innovation ensures that regular entry and engagement of
consumers in the category. Further, it is also helping premiumisation of the
category.
Projections
The category has shown healthy growth of 11.3% in the past five years. The
category shows strong signs of premiumisation with significantly higher growth
rates of fruit juices, bottled water and functional drinks versus carbonates. Growth
in carbonates was also impacted due to controversies over quality during this
period. Still, we believe that growth of bottled water, fruit juices and functional
drinks will drive the category growth ahead. The growth of cold beverages will
be 15.1% for the next five years.
Exhibit 35: Projections - Cold beverages

Particulars ($bn) 2005A 2010E 2015A 2020E
Cold beverages total 2.6 4.4 8.8 18.2
5-year CAGR 11.3% 15.1% 15.6%
Carbonates 1.5 1.6 1.8 2.1
5-year CAGR 1.0% 3.1% 3.0%
Juices 0.4 1.0 2.5 5.2
5-year CAGR 18.6% 19.1% 16.2%
Bottled water 0.6 1.6 4.2 9.7
5-year CAGR 23.7% 20.3% 18.4%
Functional drinks 0.0 0.0 0.3 1.0
5-year CAGR 74.1% 40.4% 31.7%
Concentrates 0.1 0.1 0.1 0.1
5-year CAGR 2.8% 4.3% 5.0%
Source: Company websites, Source: Businessworld Marketing Whitebook, Ambit Capital research
Ambit Capital research

Tobacco
India is the second largest producer of tobacco in the world after China. The
tobacco market in India continues to maintain its unique characterstics of low
share of cigarettes (15-20%) compared with overall tobacco consumption; this is
largely owing to taxation policies. Per capita consumption of cigarettes, which
got a boost after reduction in taxes on non-filter cigarettes in 1994, was reversed
in 2008 after the Government of India announced a more than 200% increase
in excise levies on non-filter cigarettes in its 2009 budget. The recent ban on FDI
in cigarette manufacturing is a major positive for domestic cigarette
manufacturers.
Despite regulatory measures, cigarette volume growth in India has remained

steady and there are no signs of moderation. Further, the conversion from bidis
to cigarettes is also taking place at moderate growth.
Internationally, several changes have taken place in the global tobacco industry
over the last 2-3 years. Consolidation has been a very important theme. In terms
of regulation, taxes have seen a significant increase across the globe. Smuggling
and taxation remain important issues for countries in Europe and North America.
In Canada, it is estimated that 20% of cigarettes consumed are illicit.
ITC Limited (ITC IN Equity)

Diversification has been a constant endeavor at ITC, which has a more than
80% market share in cigarettes. Agri business (leaf tobacco and other agri
commodities) which was contributing merely 1% to earnings at the beginning of
the decade has seen an increase of contribution to nearly 8%. The E-choupals
and Choupal Sagar initiative is integral part of this business and is one of the
key reasons supporting the significant improvement seen in profitability of this
business. It extensively supports the commodity trading business which also enjoys
an ISO 9001: 2000 certification.
E Choupal which started out as a pilot project in June 2000 now reaches out
through a network of 6,500 choupals to about 40,000 villages and nearly 4
million individuals in rural areas. Our field visit to Mogagram Choupal near
Sehore gave us the following insights:
 Availability of market information in terms of produce and price has improved

the farmers’ decision making capabilities for sowing and harvesting
 Several initiatives have been undertaken both in farming (soil testing, seeds)
and infrastructure (check dams) which have helped boost productivity. Wheat
productivity over last 10 years has seen improvement by nearly 40% to about
20 quintals per acre.
 Also, facilitated distribution of several FMCG products from both the company
(Superia and Vivel) and outsiders.
Choupal Sagar, which is an extension of the E-choupal model now has a strength
of 24. It has facilitated an alternate option for the local mandi to farmers who
also obtain a fair price for their produce based on scientific evaluation. Our key
takeaways from the Sehore Choupal Sagar visit were as follows:
Images from ITC E Choupal and Choupal
Sagar at Sehore Choupal Sagar reaches out to nearly 53 choupals. Prices and other payment
terms, were to some extent, better than that at the local mandi. It followed best
practices for quality checks, electronic weighing and cash payments.
Supports daily procurement of nearly 200mt of wheat and 500mt of soya and
had storage facilities in excess of 3,000 tonnes internal and 8,000 tonnes external.
Multi Department Store — a part of Choupal Sagar, had 200-250 footfalls every
day. It had approximate daily sales of Rs50-60,000 and fuel sales of Rs200,000.
Besides selling its own brands it also stocked brands of Colgate, Marico, Emami,
Eveready, TVS Motors, Mak Lubricants and M&M.
Liquor
The alcoholic beverage market in India is estimated around USD 15 billion. Nearly
75% of this market is made up of spirits and the balance is contributed by beer,
wines and other flavoured beverages. Whisky, brandy, rum, vodka and gin
manufactured in India are referred to as 'India-made foreign liquor'. The branded
spirits IMFL market is estimated to be nearly 190 million cases of nine bulk litres
each. Brown spirits (whisky, brandy and rum) account for 96% of the Indian
industry. Whisky is the largest selling liquor in the country with a 62% share of
the IMFL market. Brandy (18%) and Rum (14%) are the next big segments. White
spirits account for the remaining 6% of sales. The second largest segment next
to branded spirits is country liquor (home grown segment). Abut 175-200 million
cases are consumed during 2009.
Spirits industry growth is estimated to be around 10-12% p.a. High income growth,
rising aspirational levels and larger share of young population have resulted in
dramatic lifestyle changes. Liquor consumption which was earlier considered a
taboo is now becoming a fashion statement. Increasing on-premise liquor
availability reflects greater acceptance of 'open' liquor consumption culture in
the country. The number of retailers selling IMFL has increased significantly over
the past 4-5 years as government regulations eased on the distribution front.
Country liquor, which has double the market size of branded liquor, is facing
prohibition by the government in many states. Also, as income levels rise,
consumers will tend to trade up to branded products from cheap country liquor.
Beer market in India is estimated to be around only 20% of alcohol sales (with
spirits making up 75%) but this is fast changing. In case terms the size is about
195 million cases nearly the same size as that of IMFL. Global beer market size
is estimated upwards of 135 billion litres and India contributes to meagre 1.3%
of global sales. Though beer is much milder form of alcohol it is taxed at the
same rate as those of spirits. The beer market in India is duopolistic in nature
and is largely dominated by strong beer sales. Unlike other countries it is generally
understood that the distributor margins in India are very high in the region of
20-25% as against global norms of 5-15%

Round up - Profitability in Food sector

An analysis of common size financials of foods sector indicates that topline growth
has been robust, c.19.5% CAGR in past four years, with EBITDA margins
maintained at around 14.5%. This growth has been achieved despite recent
food inflationary pressures and increasing competitive intensity. As we see ahead,
topline growth will remain robust over the next 10 years. Further, we believe that
despite some short term volatility EBITDA margins will consistently show
improvement as the companies expand and more consumers enter the category.
Exhibit 36: Common size financials of selected food companies

(including Nestle, Parle etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4-yr CAGR
Sales growth 13.5% 23.0% 20.4% 21.1% 19.5%
Total expenses growth 13.7% 23.8% 19.5% 21.2% 19.5%
EBITDA growth 12.3% 18.2% 26.1% 20.5% 19.2%
As % of sales 2004-05 2005-06 2006-07 2007-08 2008-09

COGS 34.6% 36.8% 40.1% 39.1% 39.6%
A&P 7.3% 6.9% 5.3% 8.2% 9.4%
EBITDA 15.0% 14.8% 14.3% 14.9% 14.8%
EBIT 12.3% 12.2% 12.1% 13.2% 13.2%
PBT 14.7% 14.7% 14.9% 15.1% 14.8%
PAT 9.7% 9.6% 9.4% 10.4% 10.3%

PERSONAL CARE
Personal care (excluding Personal wash) has been growing at a rate of +15%
for the past few years. The growth has shown acceleration recently as the
awareness and importance of personal grooming has increased. Further the
growth has all important elements viz penetration, consumption and
premiumisation.
There has been entry of several MNCs in the segment particularly in last two
years. At the same time, several domestic companies (including certain
pharmaceutical companies) have launched several products in the category. We
do see higher competitive intensity in the sector but the growth and profitability
trends indicate a positive outlook.
Category structure seems to be changing with categories like skin care,

deodorants, colour cosmetics etc. outpacing growth of traditional categories
such as oral, shampoos and hair oils. This change in growth structure is
penetration led, particularly in urban areas. In rural areas, basic categories still
continue to grow well as the growth is consumption driven. Importantly, we see
the segment of 'personal care services' growing at a significantly faster pace.
These services are driven faster by increasing affluence in metros and select
urban towns. We will discuss these specific segments in the pages ahead.
Projections
We expect accelerated growth to continue in the personal care segment with

growth rates further increasing to 17% over the next five years. The share of
personal care services which is currently small at 21% of the total category is
expected to increase to 31% by 2015.
Exhibit 37: Projections - Personal care

Personal care total 3.2 6.6 14.8 30.7
5-year CAGR 15.7% 17.4% 15.8%
Cosmetics 2.8 5.0 9.2 18.5
5-year CAGR 13.0% 14.5% 16.1%
Services 0.4 1.4 4.6 9.2
5-year CAGR 29.9% 25.9% 15.0%
Source: Businessworld marketing whitebook, Ambit Capital research

Dabur India Ltd. (DABUR IN EQUITY)

We met the management of Dabur India to understand their perspective on
consumer behaviour in rural India where it enjoys strong brand equity. In Dabur's
view, the rural consumer is changing fast with emergence of new aspirations.
The company is focused on serving the consumer with relevant product innovations
at affordable prices. We are positive of Dabur's growth strategy and it is our top
pick in the Personal care segment. Highlights of our meeting with management:
 Income and consumption are growing well, led particularly by states such
as Rajasthan, UP, Chattisgarh etc. Income growth in rural areas is being
helped by NREGA, infrastructure investment and better visibility to crop prices.
Dabur is focusing on these high growth areas and has positioned itself well.
 Micromarketing in rural areas makes a better impact than TV and press

advertising. The company is leveraging micromarketing well. Dabur Lal Dant
Manjan and Dabur Amla Hair Oil recently ran successful micromarketing
campaigns.
 Products in this category at low price points are important in rural areas.
Dabur is positioned well with its economical range of shampoos, oral care
and cosmetics to canvass the opportunity in full.
 People in semi-urban/rural areas are looking for familiar brands even in

new categories and segments. Dabur has responded well with recent
innovations (variants) incl. Chyawan Junior, Babool Gel Toothpaste and
Hajmola.
 Dabur's marketing success stories include Oral Care (through Babool), Hair
Care (through LUPs), Gulabari, Fruit Juices and Health supplements.
 Dabur has developed a hybrid distribution model to serve its multiple

categories, markets and channels well. Further, the company has plenty of
initiatives to increase distribution strength both in terms of reach and efficiency.
Rama Agencies, Dabur stockist, Roorkee
 Dabur products which have done well in market include Fruit Juices, Vatika
shampoo, Dabur Lal paste, Dabur honey, health supplements etc.
 Dabur provides extensive support to dealers in marketing, product availability

and credit extension
 Categories (where Dabur is not present) like confectionary, dairy products,

hand wash soap and hand sanitizers are seeing fast growth
Images from Dabour’s micro marketing
campaign at Kumbh Mela, Haridwar

Personal Care - Pharmaceutical Companies

What is OTC?
Over-the-counter (OTC) drugs are medicines that may be sold directly to a
consumer without a prescription from a health care professional (Wikipedia).
However, the line of differentiation between OTC drugs and personal care
products is thinning fast as a number of pharma companies (or companies with
pharmaceutical heritage) are entering the personal care market with niche
offerings and specific benefits. In fact, for certain companies, personal care
portfolio is bigger than the core pharmaceutical portfolio. Some examples are:
Exhibit 38: OTC pharma companies
Company Current Product range
Zydus Wellness Skin Care, Niche Foods
Paras Pharma Hair Care, Skin Care, Deos, Sanitizers
Elder Pharma Hair Care, Antacids, Skin Care
Himalaya Healthcare Baby Care, Hair Care, Skin Care, Oral Care
Source: Company websites, Ambit Capital
Exhibit 39: OTC products — Himalaya Healthcare
Product marketing
These companies are not just launching products but also marketing them
aggressively. In fact, in the list of top 10 FMCG print advertisers, 8 out of 10
companies are pharmaceutical companies.
Exhibit 40: Top advertisers of FMCG sector in print during 2009
Rank Top 10 advertisers
1 Hindustan Unilever Ltd.
2 Ratan Ayurvedic Sansthan
3 Prince Pharma
4 Mankind Pharma Ltd.
5 Repl India
6 Makewell Pharmaceuticals
7 Ban Labs Ltd.
8 Shree Baidyanath Ayur Bhawan
9 L’Oreal India Pvt. Ltd.
10 Multani Pharmaceuticals Ltd.
Source: TAM Media research
Distinct advantages
 Products are relatively priced at premium because of their niche appeal
 Consumers perceive product claims of these companies as more reliable.
 Strong foothold in chemist channel.
Projections
We believe that market share of pharmaceutical companies will increase to 10%

of the cosmetics market by 2020, growing at more than 34% for next 10 years.
Exhibit 41: Projections — OTC pharma companies

Pharma companies - OTC products 0.0 0.1 0.5 2.2
5-year CAGR 32.6% 33.4% 35.7%
Source: Businessworld Marketing Whitebook, Ambit Capital research
Industry profitability
As in the case of other personal care companies, these companies have witnessed
good growth in topline and bottomline for the past few years with good operating
leverage. Further, these companies have shown a higher resilience to competitive
pressures due to their niche offerings. We believe that EBITDA margins will improve
and sustain +20% levels, as these companies gain size and share in the market.
Exhibit 42: Common Size financials - selected OTC pharma companies

(including Zydus, Elder etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4 yr CAGR
Sales growth 19.10% 29.20% 18.90% 28.80% 23.90%
COGS growth 22.10% 24.30% 16.50% 27.90% 22.60%
A&P growth 8.90% 8.50% 14.10% 53.10% 19.90%
EBITDA growth 67.00% 35.60% 33.30% 6.00% 33.70%
As % of sales 2004-05 2005-06 2006-07 2007-08 2008-09

COGS 43.30% 44.40% 42.70% 41.80% 41.50%
A&P 15.20% 13.90% 11.60% 11.20% 13.30%
EBITDA 12.40% 17.40% 18.20% 20.40% 16.80%
PAT 9.50% 11.90% 11.10% 12.80% 9.80%
Colour & Premium Cosmetics

Colour and Premium cosmetics category has been growing at more than 18%
p.a. CAGR for the past five years. The growth rate is expected to be around 15%
p.a. for next 5 years. This growth will be underpinned by:
Increasing participation of women in white collar jobs

Percentage of women employees in organized sector is c. 20% and is increasing
at 0.5%-1% p.a. In industries like IT etc. the number is more than 30%. Further,
the media has been instrumental in increasing the awareness of 'looking good'.

Higher brand consciousness and premiumisation

Rising income levels resulted in increasing the affordability of cosmetics and
toiletries for lower-income groups as well as those upgrading from unbranded
to branded products. Meanwhile, mid- and high-income consumers in urban
areas began to seek out value-added mass brands and premium products.
Projections
Exhibit 43: Projections — Cosmetics
Particulars (US$bn) 2005A 2010E 2005A 2010E
Colour cosmetics 0.1 0.4 0.8 2.0
5-year CAGR 23.2% 16.5% 20.0%
Premium cosmetics 0.2 0.4 0.8 1.5
5-year CAGR 13.7% 13.6% 14.4%
Source: Technopak,BW Marketing whitebook, Ambit Capital research
Deodorants
Body odour was not perceived as a problem traditionally. However with massive
media campaigns, flurry of launches by both domestic and MNC players and
significant lowering of prices, the segment has seen rapid growth of 48% in the
past five years. The trend is likely to continue because of significant potential in
the category, as per capita consumption is extremely low, just 11US$ cents less
than 1/10th that of developed markets. In our consumer survey we found that a
significant youth proportion, particularly in tier 2 and tier 3 cities, has never
used deodorants. But awareness is high and it remains a high aspiration product.
Exhibit 44: Projections - Deodorants

Deodorants 0.0 0.2 1.0 2.9
5-year CAGR 47.7% 40.0% 25.0%
Personal Care Services

Personal care includes a gamut of services such as beauty salons, gyms, spas
etc. Most of these services address both healthcare and wellness aspects. Our
discussion with market experts yielded the following insights:
Huge under-penetration in tier 2 and tier 3 towns

More than 50% of the market is currently concentrated in the six metros. Mumbai
alone contributes c.20% of the total market. Hereon, the metro markets will be
innovation driven and markets in tier 2 and tier 3 towns will be penetration and
customer experience driven.
Industry does not rely on direct marketing, A&P expenditure

will remain low
These services rely on 'word-of-mouth' marketing rather than any other form.
Direct marketing is helpful to create awareness but not customer acquisition.

'Salon Hair Care' growth will be faster than 'Salon Skin Care'
Since salon services are 'assistance' driven, 'Salon Hair Care' category will naturally
grow faster than 'Salon Skin Care'.
Projections
Currently the sector is small and largely unorganized but growing at c.30% p.a.
Further, presence of organized players is still marginal, that too largely
concentrated in metros. But recently, companies have started expanding their
geographical presence. We expect the sector to grow at 26% CAGR in next 5
years.
Exhibit 45: Projections - Personal care services

Services 0.4 1.4 4.6 9.2
5-year CAGR 29.9% 25.9% 15.0%
Source: Talwalkar's Fitness RHP, BW Marketing Whitebook, Ambit Capital research
HOME CARE
Because of a predominant rural background, traditionally, hygiene consciousness
remains low in India. The standards severely lack matching with WHO stipulations
for hygiene and sanitation. 67% of Indian population in 2004 was deprived of
minimum standards of sanitation. India ranks just above some 20 poorest African
nations. (Source: Global Statistical Online, Tata Services Ltd., 2009)
The growth of household care segment (except Laundry) was slow until 2005.
Further, most of the category was unbranded with low innovation. But in line
with other categories this too has seen a level improvement in growth in the past
few years. Some significant changes occurring at the level of the end-consumer
leading to faster category growth are:
Urbanisation
As a matter of common knowledge, India is getting urbanized fast and over the
next 10 years this rate is expected to be 38-40% from the current 30% level
(CSO). The consequent lifestyle change would introduce the importance of hygiene
and sanitation.
Hygiene consciousness
With years of government awareness initiatives and better education levels,

hygiene consciousness is spreading fast in both urban and rural areas. In fact,
our survey of rural areas indicated that the awareness is spreading much faster
there. This trend can provide further boost to the growth in forthcoming years.
Emerging consumer needs
As technology is helping to spread information, the consumer is demanding

newer and better innovations in the category. In fact, some large segments existing
in markets overseas have started making inroads into India. E.g. air care, liquid
detergents, different types of surface cleaners, perfumed scourers etc. In fact,
the past 3-4 years have witnessed several new differentiated launches.

Projections
Exhibit 46: Projections - Home care

Home Care FMCG 0.2 0.5 1.0 2.0
5-year CAGR 16.7% 15.5% 14.6%
Hard Surface Cleaners 0.0 0.1 0.2 0.5
5-year CAGR 20.3% 19.4% 16.6%
Hand Dishwash 0.1 0.3 0.6 1.3
5-year CAGR 18.8% 15.8% 14.6%
Polishes 0.0 0.1 0.1 0.1
5-year CAGR 5.8% 5.5% 6.8%
Air Care 0.0 0.0 0.0 0.1
5-year CAGR 12.3% 15.0% 15.6%
Source: BW marketing whitebook, Ambit Capital research
There are several listed and unlisted players operating in the category. Although
growth opportunities are huge, there are definite concerns about the level of
competitive activity. We believe that companies will need to relook their competitive
strategy to grow faster and increase operating leverage.
Exhibit 47: Common size financials - select Home care companies

(including Reckitt Benckiser, SC Johnson etc.)
Growth % 2005-06 2006-07 2007-08 3 yr CAGR
Sales growth 22.20% 17.10% 15.50% 18.20%
COGS growth 22.90% 14.20% 15.80% 17.60%
Total expenses growth 22.40% 16.40% 15.90% 18.20%
EBITDA growth 20.20% 22.70% 11.80% 18.10%
As % of sales 2004-05 2005-06 2006-07 2007-08
COGS 44.30% 44.50% 43.50% 43.60%
A&P 10.60% 11.00% 11.30% 12.10%
O/Hs 27.00% 26.20% 26.00% 25.90%
EBITDA 10.70% 10.50% 11.00% 10.70%
PAT 10.00% 9.10% 10.10% 11.20%

DISCRETIONARY
 Share of discretionary spends will increase by 230bps to 17.8% in a decade
driven by consumer durables, personal effects and other lifestyle products.
 Growth of automobiles will be healthy largely driven by volumes. Competitive

pressures will also increase at the same time.
 Consumer durables category is at a tipping point and is expected to grow

rapidly hereon.
 Clothing and footwear will continue to grow at a steady pace with organized
retail fuelling the growth.
 Paints and adhesives will remain important categories and will be driven by
changing lifestyles.
Exhibit 48: Fastest growing categories in Discretionary

Consumer Durables total 11.2 32.0 97.7 225.2
5-year CAGR 23.5% 25.0% 18.2%
Branded Paints 1.1 2.7 6.0 11.9
5-year CAGR 19.2% 17.2% 14.7%

Inputs from:
AUTOMOBILES
Analyst
India is emerging as one of the world’s fastest growing passenger car markets
Navin Matta
Tel.: +91-22-3043 3228 and second largest two-wheeler manufacturer. The key theme underpinning
navinmatta@ambitcapital.com growth in this segment — low penetration levels and rising affordability — augur
well for sustainable demand momentum. Buoyed by strong domestic demand,
India is likely to account for more than 15% of the global incremental demand in
the next five years. Consequently, almost all the big global players have plans to
expand their presence.
Exhibit 49: Passenger Vehicle industry sales Exhibit 50: Two-wheeler industry sales
2.1 30% 12 35%

30%
1.8 25%
9 25%
1.5 20% 20%
1.2 15% 15%
6
0.9 10% 10%
5%
0.6 5%
3 0%
0.3 0%
-5%
0 -5% 0 -10%
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Domestic PV (mn nos) -LHS % chg - RHS Domestic 2W (mn nos) - LHS % chg - RHS
Source: SIAM, Ambit Capital research Source: SIAM, Ambit Capital research
Passenger vehicle segment at inflexion point

Motorisation rates increase rapidly in the above US$3,000 per capita income
range in terms of PPP (purchasing power parity). Studies conducted by OECD
throw up interesting results, with elasticity increasing to over 2 at GDP per capita
of about US$5,000. Further, India's income pyramid is undergoing rapid changes,
with massive growth in middle and high-income households and a fall in low
income households. The resultant increase in the number of households that
could afford to buy a car augurs well for car demand. New launches in the
compact car segment provide the Indian consumer with several choices, which
was not the case a few years ago.
Rural demand to drive two-wheeler growth

Rural penetration is roughly one-fourths that in large cities (with population of
more than 1 mn) and offers the next growth area for two-wheelers. Consequently,
almost all players (including previously niche players like Yamaha) are now turning
their attention to the entry/executive segment. With clear signs of an economic
revival, urban consumer confidence is back. This could further support two-
wheeler growth with higher level of replacement demand. Two-wheeler financing
levels are set to improve, as liquidity in the system is at a comfortable level.
Projections
Exhibit 51: Projections - Personal vehicles

Personal vehicles 8.6 12.1 21.6 35.1
5-year CAGR 7.0% 12.4% 10.2%
Source: SIAM, PFCE, CRISIL, Ambit Capital research

Maruti Suzuki Ltd. (MSIL In EQUITY)

We met the management of Maruti Suzuki India Ltd. Key highlights shared by the
company are:
 Rural consumer is largely risk averse and only goes for tried and tested
brands/ models. Maruti enjoys high brand trust among rural consumers.
 He/ She is more inclined towards value-for-money buy with exact no. of
features. He is looking at his basic needs to be fulfilled at the basic cost.
'Brand premium' makes little sense to most rural consumers. Maruti serves
the consumers well across pyramid with strong brand recognition and
'value for money' proposition among lower and middle income consumers.
 Better road connectivity, higher no. of earning members in the family,

recent rise in agricultural incomes has led to faster growth in rural
markets versus urban markets.
 Credit sales form a substantial portion of car sales. In urban markets,

70- 75% of the car sales and in rural markets, 60% of the car sales is on
credit.
 Micromarketing works better in rural areas than media advertising.

Consumer is looking for a more personal touch.
 83% of the Indian consumers take advice (word of mouth) from friends,
relatives etc. before buying cars. 77% of the car buyers do not consider
any other brand than Maruti in their purchase decision.
 Average age of buyers has come down to 40 years but it is still much
higher than developed countries (in 20s) and 46% consumers are first
time buyers.
 At $3,000 per capita income (PPP basis) car markets across the world
have seen tipping points. India is currently at US$2,600 per capita income
(PPP basis).

WHITE GOODS
Incomes at tipping points
The market for white goods will be one of the fastest growing markets, as India
is reaching the tipping points for several consumer durable categories.
Importantly, top 22% of Indian households are earning incomes in the range of
2.5 times the national average (higher than per capita income of China). These
consumers have already crossed these tipping points and are driving the
consumption. Further, these consumers will drive the bulk of category growth
along with premiumisation.
Exhibit 52: Per Capita penetration of various consumer durables, 2007
60000 150 60000 1000 60000 1000
40000 100 40000 40000

500 500
20000 50 20000 20000
0 0 0 0 0 0
Malaysia
India
Indonesia
China
Korea
USA
Malaysia
Brazil
South
India
Indonesia
China
Korea
USA
Brazil
South
Malaysia
India
Indonesia
China
Korea
USA
Brazil
South
Per Capita Income PPP, 2007 Per Capita Income PPP, 2007 Per Capita Income PPP, 2007
TV penetration %, 2007 PC penetration (per 1000 users) Cell phones (per 1000 users)
Source: Global Statistical Outline - Tata Services Ltd., Ambit Capital research
Electricity infrastructure issues are being resolved or 'bypassed'

One of the major impediments for the sector was inadequate electricity
infrastructure. After conscious efforts by the government, electricity infrastructure
has improved substantially in the past decade (although still short of expectations).
Another important aspect is the enterprising spirit and innovation abilities of the
Indian companies. These companies have time and again introduced 'India
relevant' innovations to bypass infrastructure issues. Some of the latest examples
in the durables category are electricity free water purifiers (HUL and TCS), Battery
operated refrigerator (Godrej Appliances), and Battery operated LED night lamps
(Eveready Industries). These innovations have been an important factor in driving
penetration in the sector.
Global innovations
Some of the innovations in the category occurring globally can have a far reaching
impact on other sectors as well and can present great opportunities and serious
challenges. We have discussed in the macro section the power of Mobile money.
There are other examples as well. Haier's US$1,000 detergent-free washing
machine is already available in Europe. Live TV recording options in DTH cable
services is making TV advertisements futile.
Projections
The category has been growing at the rate of 23.5% CAGR for the last five years.
The growth is likely to accelerate to 25% CAGR as all required levers are in place.
Further, since penetration levels are still low, growth will be driven by rural areas.

Exhibit 53: Projections - Consumer durables

Consumer durables 11.2 32.0 97.7 225.2
5-year CAGR 23.5% 25.0% 18.2%
Source: Technopak, BW Marketing Whitebook, Ambit Capital research
Common size financials of durables manufacturers indicate healthy topline growth
with consistently improving operating leverage. In the past five years, these
companies have invested in creation of capacities. It is time to reap rewards, as
the revenue growth will remain robust and fixed costs will likely remain stable.
However, continuous investment in R&D will be the key for ensuring growth.
Exhibit 54: Common size financials - selected cons. durable companies

(including Whirlpool, Hitachi etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4 yr CAGR
Sales 17.00% 20.20% 16.20% 11.00% 16.10%
EBITDA 18.60% 89.40% 46.40% 18.40% 40.50%
As % of sales 2004-05 2005-06 2006-07 2007-08 2008-09

COGS 71.50% 71.30% 70.90% 68.10% 67.80%
EBITDA 4.20% 4.30% 6.70% 8.50% 9.00%
PAT -1.80% 0.30% 1.60% 3.20% 3.40%
PAINTS
The sector has seen decent double-digit growth rate for past few years. The
growth has been driven by penetration, consumption and premiumisation. Some
important trends to look for in the category are:
Real estate getting back in shape

RBI in its monetary policy recently mentioned that real estate prices are above the
previous peak levels indicating renewed buoyancy in demand. Other things being
equal, this is the single largest factor for the demand of paints category to sustain
for next few years.
Pull factor - Innovations leading to Premiumisation

Companies are launching new innovations on a regular basis. This is important
to keep the consumers excited and induce higher consumption. At the same
time, it leads to premiumisation of the category. Some recent launches:
 Asian Paints Royale Play
 Asian Paints Royale Shyne
 Asian Paints Apex Duracast
 Asian Paints Ultima
 Berger Breathe Easy
 Nerolac Impressions
Push factor - companies facilitating higher consumption through

Companies are constantly evolving new methods of marketing and customer
service for this relatively dull category. These companies are trying to engage
better with consumer through 'complete solutions' mechanism.
Conversion from unorganized to organized segment

The conversion from unorganized segment to organized segment is occurring
quite fast. Primary reasons are better distribution reach, distinct product quality
and removal of differential excise duties.
Industrial supplies for Automobiles, significant offtake

improvement
Current strong demand trend in automobile segment has provided further boost
to the growth.
Projections
We believe that category will continue to grow at 16% for next five years with the
organized segment growing at 17%. Organized segment will contribute 70% to
the total business in 2015.
Exhibit 55: Forecast - Paints

Paints 1.9 4.1 8.6 17.1
5 year CAGR 17.3% 15.9% 14.7%
Unorganized 0.7 1.4 2.5 4.1
5 year CAGR 14.1% 12.3% 10.4%
Organized 1.1 2.7 6.0 11.9
5 year CAGR 19.2% 17.2% 14.7%
Source: CRISIL, Ambit Capital research
Financials for the past five years indicate that paint companies have been able
to sustain good topline growth of 16% 4-year CAGR along with incremental
operating margins. We expect this trend to continue as these companies gain
market share from unorganized players. Organized segment margins will also
benefit from the premiumisation in the sector.
Exhibit 56: Common size financials- select paints companies

(including Asian Paints, Nerolac etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4 yr CAGR
Sales growth 16.90% 19.00% 13.00% 16.10% 16.20%
COGS growth 12.00% 25.80% 7.80% 17.50% 15.50%
EBITDA growth 25.90% 10.20% 40.20% 7.60% 20.30%
As % of sales 2004-05 2005-06 2006-07 2007-08 2008-09
COGS 58.10% 55.70% 58.90% 56.10% 56.80%
EBITDA 10.20% 10.90% 10.10% 12.60% 11.70%
PAT 7.30% 7.40% 13.70% 8.60% 10.00%

CLOTHING AND FOOTWEAR

Indian love to shop …
India loves to shop for attire more than any other country in the world. Without
doubt, India is therefore one of the biggest apparel market in the world (USD 63
bln). But the potential is much more.
Exhibit 57: Global consumers’ love of Apparel Shopping & average
Apparel Shopping Trips per year, 2006
105 25
90 20
75
60 15
45 10
30
5
15
0 0
UK
Brazil
Japan
Thailand
China
Colombia
India
Germany
Italy
US
Percent of consumers who like/ love to shop Average trips per year
Source Global Lifestyle and ‘Cotton Incorporated’s Lifestyle Monitor
… but they don't shop enough

In spite of their love for shopping, Indians make far less shopping trips versus
their global counterparts and buy even lesser.
One of the primary reasons is the low penetration of organized retail, which
leads low shopper satisfaction. Table below indicates the high share (more than
60%) of unorganized retail in Indian clothing market which is in stark contrast of
the rest of the world. We believe that as we see higher share of organized retail
in coming years, per capita consumption of footwear in India will increase
significantly. 51% FDI in single brand retailing has already provided a fillip to
several international apparel companies and we can see expansion of their retail
presence.
Another reason is change in share of tailored clothing. In 2006, industry estimates

suggested that as much as 85% of consumer demand was still being met by
tailored clothing. This indicates the latent available potential for ready-to-wear
clothing in the years to come.
Exhibit 58: Retail channels where consumers buy most of their clothes
60
%age of consumers
50
40
30
20
10
0
Global U.S. Latin Europe India Asia
Total America
Speciality Department Chain Independent Others Hypermarkets
Source:Global Lifestyle monitor and Cotton Incorporated ’Lifestyle MonitorTM’

Huge untapped market segments

There are huge untapped market segments where the branded/organized
presence is very low. In the women's wear segment, branded presence is as low
as 40%. There are other segments like Kids' wear, Innerwear, where the branded
presence is minimal or the markets are non-existent as of now.
In footwear, market is dominated by men's footwear, which accounts for nearly

58% of the total Indian footwear retail market. There exists a plethora of
opportunities in the exclusive ladies' and kids' footwear segments, as no organized
retail chain has a national presence in either of these categories. Further, casual
footwear makes up nearly two-thirds of the total footwear retail market. With an
increase in the population with white collar jobs, the formal footwear market is
expected to increase for both men and women.
Exhibit 59: Urban Womens’ Wear market

100%
50%
0%
Ethnic
Woven
Western
Sarees
Petticoats
Blouses
T-shirts
Trousers
Woolens
Jeans
Lingerie
Night
Wear
wear
shirts
suits
Rs '000
7 11 0.7 1 1.5 1 1.5 0.8 4 0.7 1.6 1.5
crores
Urban Branded Urban-Unbranded
Source: Technopack analysis
An important habit formation - usage consciousness

Rising consciousness is also on the clothing usage according to time of the day,
activity involved, occasion, events etc. Although the phenomenon is still largely
urban, some change can be perceived in rural areas as well. Importantly, the
phenomenon is seen across SECs C and above.
Projections
Apparel market in India currently stands at US$62bn and growing at 13.6%
CAGR. We expect the growth to be slightly lower at 12% for the next five years,
with clothing growing at 11% p.a. and footwear, at 19% p.a. Further, the growth
of organized segment will be much faster v/s the unorganized segment.
Exhibit 60: Projections - Clothing & Footwear

Clothing & Footwear 5-year CAGR 13.6% 12.1% 12.5%
Apparel 28.1 50.5 85.1 143.5
5-year CAGR 12.4% 11.0% 11.0%
Organized 14.3 28.3 51.9 94.7
5-year CAGR 14.5% 12.9% 12.8%
Unorganized 13.8 22.2 33.2 48.8
5-year CAGR 10.0% 8.4% 8.0%
Footwear 5.1 12.4 26.0 56.9

5-year CAGR 19.2% 16.0% 17.0%
Organized 2.6 6.9 15.8 37.6
5-year CAGR 21.5% 18.0% 18.9%
Unorganized 2.5 5.4 10.1 19.3
5-year CAGR 16.7% 13.2% 13.8%
Source: Technopak, Ambit Capital research

Although the topline growth has been good in the industry, bottomline has been
a problem as the industry has struggled with rising material costs and productivity
issues in past few years. Further, competition in the domestic market is getting
tougher as several international apparel companies are trying to make their
mark. The industry will need to address these issues fast to gain advantage of
this opportunity.
Exhibit 61: Common sized financials - select apparel companies

(including Arvind Mills, Vardhman Textiles etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4-yr CAGR
Sales growth 3.80% 17.50% 17.00% 15.00% 13.20%
Expenses growth 0.70% 22.00% 19.00% 14.10% 13.70%
EBITDA growth 17.00% 0.70% 7.50% 19.00% 10.80%
As % of sales 2004-05 2005-06 2006-07 2007-08 2008-09

COGS 48.20% 44.10% 44.20% 46.20% 46.90%
Manuf expenses 19.80% 21.00% 21.70% 21.20% 20.20%
EBITDA 18.60% 21.00% 18.00% 16.50% 17.10%
PAT 7.20% 8.90% 8.00% 5.20% 3.60%

SERVICES
 Share of services will increase rapidly from 34% to 42%, led by education,
travel & tourism, healthcare services, communication and entertainment.
 Organized retailing will continue to maintain its rapid growth with lifestyle
and speciality retailing growing at fastest pace.
 Travel & Tourism will be among the fastest growing categories, as its priority
for consumers shows a marked increase.
 In healthcare, the organized segment will grow at a phenomenal pace as

the lifestyles and lifespans undergo significant changes.
 Urbanization and awareness will drive growth of the education sector,

particularly vocational and pre-school education.
 Telecom and Media will continue to grow well, although high fragmentation
will be negative for sector returns.
Exhibit 62: Fastest growing categories in Services

Hotel chains 3.3 6.9 16.6 35.0
5-year CAGR 15.5% 19.3% 16.1%
Speciality Retail 2.3 7.1 23.9 64.4
5-year CAGR 25.6% 27.6% 22.0%
Lifestyle Retail 0.9 3.1 11.4 33.5
5-year CAGR 27.3% 29.9% 23.9%
Organized Healthcare 0.2 1.1 5.2 15.2
5-year CAGR 36.3% 37.0% 23.9%
Pre School Education 0.2 0.6 2.0 6.3
5-year CAGR 20.0% 28.7% 25.7%
Vocational Education 0.5 1.1 3.0 7.7
5-year CAGR 16.0% 23.0% 20.6%
Telecom total 3.7 13.2 31.4 59.4
5-year CAGR 28.7% 19.0% 13.6%

TRAVEL & TOURISM

Travel & Tourism (T&T) is one of the world's largest sectors and is expected to
contribute 9.2% to global GDP in 2010. Currently it employs over 235 million
people or roughly 8.1% of the total employed population. Comparing these
numbers with India, currently T&T contributes 6% to India's GDP and provides
employment to 10% of total jobs. There is scope for exponential growth in the
sector and we believe that the tipping point for this sector is right now. WTTC
predicts India's travel & tourism economy to grow at 8.5% p.a. (real growth) for
the next 10 years, fourth fastest among all nations.
What will drive the growth?
Fast improving travel infrastructure

During our recent all-India market visits, we found significant improvement in
travel infrastructure in all forms viz. roads, railways and airways. Road travel
time has been cut by 20%-50% across India. At the same time, there is an added
degree of comfort in travel.
Exhibit 63: Improving road conditions
Source: Ambit Capital research (location: Haridwar, Gandhidam)
Holiday travel is climbing up the priority ranking

During our discussion with Mr. Ashwini Kakkar [CEO, Mercury Travels], we gained
some useful insights into the domestic travel industry. As he explained to us,
holiday travel/ tourism is gaining a larger share of the wallet in India. In some
more developed economies it is the No.2 priority on the consumers’ expenditure
list after food (Technopak rates Travel & Leisure as No.9 priority on consumers'
list). Further, he expects huge growth opportunities in certain segments of tourism
like pilgrimage, honeymoon, health etc. In his view, an important advantage
which India has is low cost of travel, 10 times cheaper than that of most of the
developed economies.
Sector was underinvested, investments at tipping point

According to the tourism ministry, 5.1 million tourists visited India last year and
at the current rate, the demand will soar to 10 million by 2010 - to accommodate
350 million domestic travelers. The hotels of India have a shortage of 150,000
rooms. With the tremendous pull of opportunity, India has become a destination
for hotel chains looking for growth. Due to such a huge potential available in
this segment, several global hotel chains like the Hilton, Accor, Marriott
International, Berggruen Hotels, Cabana Hotels, Premier Travel Inn (PTI),

InterContinental Hotels group and Hampshire, among others, have all announced
major investment plans for the country. The government's move to declare hotel
and tourism industry as a high priority sector with provision for 100% FDI has
also provided further impetus in attracting investments to this industry.
Investments are happening in the right areas

More importantly, the investments are happening in the right areas. More than
75,000 rooms are expected to be added in next 2-3 years. Most of these rooms
will get added in the mid-market and upscale segments. This segment is important
for increasing the travel volumes, both in business and personal travel. Even
luxury hotel chains like IHCL and EIH are adding rooms in this segment.
Exhibit 64: Supply composition - 2009 Exhibit 65: Supply composition - 2013
Mid
Budget, Budget, Mid
Market,
24% 16% Market,
28%
33%
Luxury,
Luxury, 19%
18% Upscale, Upscale,
30% 32%

Projections
Currently, personal travel accounts for 87% of T&T sector, the balance being
business travel. We do not expect much change in this ratio. Both segments will
drive the category growth with slightly faster growth in business travel. We expect
the sector to grow at 15% CAGR over the next 10 years. The growth will be seen
in all segments viz. Hotels, Transportation and F&B. Importantly, the growth of
organized hotel sector will be much ahead of the unorganized segment. We
expect organized hotel segment to grow at the rate of 19% over the next 5 years.
Exhibit 66: Projections — Travel & Tourism

T&T total 62.9 108.1 220.5 450.3
5-year CAGR 11.4% 15.3% 15.3%
Personal travel 54.2 94.9 192.6 394.1

5-year CAGR 11.9% 15.2% 15.4%
Business travel 8.8 13.2 27.9 56.2
5-year CAGR 8.5% 16.2% 15.0%
Hotels 12.0 22.2 46.1 94.6

5-year CAGR 13.1% 15.8% 15.5%
Organized 3.3 6.9 16.6 35.0
5 year CAGR 15.5% 19.3% 16.1%
Unorganized 8.6 15.3 29.5 59.6
5-year CAGR 12.2% 14.0% 15.1%
Transportation 32.7 56.3 114.7 229.6

5-year CAGR 11.5% 15.3% 14.9%
F&B 18.3 29.6 59.8 126.1
5-year CAGR 10.2% 15.1% 16.1%
Source: WTTC, CSO, Ambit Capital research
As we said earlier, the sector is at the tipping point. Financials of selected
companies indicate robust sales growth in past few years. FY2008-09 was severely
impacted due to ongoing recession and terrorist attacks at end-2008. But recent
results of companies show significant improvement in sales. Further, except
FY2008-09, EBITDA margins in the sector have consistently improved. Although
the sector is highly leveraged, the returns generated by the sector indicate
comfortable interest covering ratios.
We believe the sector will continue to show robust topline growth along with
consistent improvement in operating margins.
Exhibit 67: Common size financials - selected hospitality companies

(including Indian Hotels, Leela etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4 yr CAGR
Sales growth 30.50% 36.30% 24.20% -9.70% 18.90%
Total Expenses growth 18.70% 26.30% 20.40% 5.20% 17.40%
EBITDA growth 63.60% 56.40% 30.30% -32.00% 22.70%
As % of sales 2004-05 2005-06 2006-07 2007-08 2008-09

EBITDA 26.40% 33.10% 38.00% 39.80% 30.00%
EBIT 19.00% 26.80% 32.40% 35.00% 23.60%
PBT 13.90% 24.70% 29.30% 34.80% 26.80%
PAT 9.90% 15.80% 18.60% 22.80% 17.80%
ROCE 8.80% 12.49% 17.10% 16.66% 8.23%
As % of EBITDA
Interest cost 39.80% 22.70% 20.10% 14.60% 23.60%

ORGANIZED RETAILING
Currently, only 4.8% of retail space is organized in India (Technopak) and is
expected to grow at 25% CAGR over next 5 years. Certain segments of organized
retail are expected to grow faster than others. These include consumer electronics,
jewellery and watches, apparel and music & entertainment. Reasons are:
Under-penetration and first-time consumers

Penetration numbers for white goods like TV, Refrigerator, Computer etc. is as
low as 44.2%, 15.3%, 3.0% respectively (Indicus Consumer Handbook). There are
several reasons including poor availability of electricity. However, things are
changing fast. As we see infrastructure and incomes improving, there is significant
growth expected across the non-FMCG segment. Most of these buyers will be
first-time buyers who will be looking for trustworthy sources like organized retail
stores. This is more important in high value goods like white goods and jewellery.
Brand consciousness
The Consumer survey indicates that people recognize 'Branding' as the second
most important factor after 'Pricing' in all their major purchase decisions. We
found that in categories like white goods and apparel, brand consciousness is
very high. Although 'brand differentiation' remains a grey area, as most consumers
are not able to segregate brand pitch of different companies.
After sales service

Consumer Durable companies point that 'post sales service and distribution' is
really important for most consumer categories. Organised retail, because of its
scale advantage, is best placed to provide that.
Variety, loyalty bonus, scale advantage

Another important scale advantage is the variety or 'one stop shop' provided to
the consumer. At the same time organized retail helps retaining the consumer
loyalty through the loyalty cards, membership benefits, etc.
Exhibit 68: Organised retail stores
Projections
Orgainsed retailing has grown at 21.5% from 2005. This rate is expected to
increase to 25% over next five years. All segments are expected to grow well with
faster growth in specialty and lifestyle retailing. By 2020, organized retailing will
become 16% of the total retailing sector.

Exhibit 69: Projections - Retailing

Retailing total 290.0 469.8 777.4 1,207.1
5-year CAGR 10.1% 10.6% 9.2%
Unorganised 280.0 443.3 697.0 1,007.0
5-year CAGR 9.6% 9.5% 7.6%
Orgainzed 10.0 26.5 80.4 200.1
5-year CAGR 21.5% 24.9% 20.0%
Mass Retail 5.4 12.9 36.5 85.8
5-year CAGR 18.9% 23.2% 18.6%
Food Retail 1.4 3.4 8.6 16.4
5-year CAGR 19.8% 20.1% 13.8%
Speciality 2.3 7.1 23.9 64.4
5-year CAGR 25.6% 27.6% 22.0%
Lifestyle 0.9 3.1 11.4 33.5
5-year CAGR 27.3% 29.9% 23.9%
Source: Technopak,BW Marketing Whitebook, Ambit Capital research
Financials of selected organized retailers indicate their inability to increase EBITDA
margins, despite good turnover growth. The past two years have remained
subdued for most retailers. We observe that margins tend to be better for single
category retailers. Although turnover growth is likely to remain robust, efficient
cost management is the key for most retailers to deliver bottomline.
Exhibit 70: Common size financials - selected retailers

(including Pantaloon, Vishal etc.)
Growth % 2005-06 2006-07 2007-08 2008-09 4 yr CAGR
Sales growth 68.50% 67.20% 53.40% 25.90% 52.70%
Total Expenses growth 68.20% 68.00% 51.10% 27.70% 52.80%
EBITDA growth 71.80% 57.10% 82.80% 6.80% 51.50%
As % of Sales 2004-05 2005-06 2006-07 2007-08 2008-09

COGS 54.50% 61.00% 63.20% 64.80% 65.10%
EBITDA 7.40% 7.60% 7.10% 8.50% 7.20%
PBT 4.50% 5.10% 5.50% 3.60% 0.10%
PAT 3.50% 3.50% 3.50% 2.30% -0.20%

Inputs from:
HEALTHCARE SERVICES
Analyst
Healthcare sector has long suffered from talent shortage, infrastructure issues
Anshuman Gupta
Tel.: +91-22-3043 3286 and lack of government attention. State of healthcare is worse than most of the
anshumangupta@ambitcapital.com emerging markets. Charts below highlight the problem.
Exhibit 71: Hospital beds per ‘000 population Exhibit 72: Doctors Per ‘000 population
Doctors Per '000 population

No. of Hospital Beds
140 129 3.5 3.13
120 3.0
100 2.5 1.98
80 2.0
60 39 42 1.5 1.06
26 33 0.74
40 19 22 1.0 0.6
20 7 7 0.5
0 0.0
Pakistan
USA
UK
Norway
India
Kenya
China
Japan
Brazil
Pakistan
Norway
India
China
Japan
No. of Hospital Beds Doctors Per '000 population
Source: Global Statistical Outline- Tata Services Limited Source: Global Statistical Outline- Tata Services Limited
Current status leaves vast scope in healthcare. Some leading pharmaceutical

companies have recognized this opportunity and are gearing up to expand their
presence in the sector. We see a strong growth ahead for organized healthcare
services. Key growth drivers are discussed ahead.
Education and urbanization

Awareness of healthcare is the natural advantage of education. Literacy rate in
India has improved substantially over past two decades (estimates indicate the
rate to be upward of 70%). Higher urbanization also leads to better access and
awareness.
Health insurance to increase affordability

Health insurance penetration in India is as low as <1% but growing at the rate
of +30%. In some developed markets the number is higher than 50%. Although
largely limited to urban geography currently, improved health insurance plans
are making healthcare more affordable.
Increase in no. of clinics and hospitals - better accessibility

Organized players are expanding geographical presence fast and are now
reaching tier 2 and tier 3 cities. With their scale advantages and access to capital,
they are providing better infrastructure and advanced treatment facilities versus
unorganized players. The conversion from unorganized to organized services is
happening fast along with better penetration of healthcare services.
Projections
Currently, only 3% of healthcare services are in organized sector. It is growing
rapidly at more than 37%. We expect the growth rate to continue, with the
organized segment reaching 7% of the total healthcare.

Exhibit 73: Projections - Healthcare services

Healthcare Services Total 22.8 38.3 73.7 141.9
5-year CAGR 10.9% 14.0% 14.0%
Unorganized 22.6 37.2 68.5 126.8
5-year CAGR 10.5% 13.0% 13.1%
Organized 0.2 1.1 5.2 15.2
5-year CAGR 36.3% 37.0% 23.9%
As most companies are in the investment stage currently, the EBITDA margin
trends do not indicate a positive picture. But we do see a case of strong topline
and bottomline growth after completion of this investment phase.
Exhibit 74: Common size financials - select healthcare companies

(Including, Apollo Hospitals, Wockhardt, Fortis etc.)
Growth Ratios 2005-06 2006-07 2007-08 2008-09 4 yr CAGR
Sales growth 23.60% 29.80% 31.30% 26.50% 27.80%
EBITDA growth 17.40% 27.10% 40.80% 15.50% 24.80%
As % of sales 2004-05 2005-06 2006-07 2007-08 2008-09

EBITDA 16.40% 15.60% 15.20% 16.30% 14.90%
PBT 8.80% 7.70% 8.30% 10.30% 6.20%
PAT 5.70% 4.80% 5.40% 6.90% 4.20%

Inputs from:
EDUCATION
Analyst
The Indian government currently spends ~3% on education, which is the lowest
Subhashini Gurumurthy
Tel.: +91-22-3043 3264 compared with most countries. Developed countries have a much larger GDP
subhashinig@ambitcapital.com spend, ~5-6% on education. The 11th Plan (2007-2012) targets to increase the
education spend to 6% of GDP. However, this has not been achieved until date
and it still remains at ~3%. We believe that the government will increasingly
focus on raising the education spend (as % of GDP) over the next few years.
although it might still be far from the target of 6.0% by 2012. Other important
growth drivers are:
Huge demand-supply gap

According to NCERT (2001), there are 78,290 schools in urban areas with an
average enrolment of 660 students per school. With over 14mn children expected
to be added to the academic system by 2015, this translates into a huge demand
of over 20,000 schools.
Rising affluence to spur education spending

Burgeoning middle/upper class population (which typically has greater aspirations
through education), is resulting in increased spending in private education.
According to McKinsey Global Institute (MGI) estimates, the Indian middle and
upper classes will touch 614mn people, representing 43% of India's population
by 2025. Further, share of urban middle and upper class households is expected
to increase from 13.0% in 2005 to 60% by 2015, moving up to a whopping 83%
by 2025. These households will also assume a significant proportion of spend
on education at 89% by 2015, up from 58% in 2005.
Private spending has tilted more in favour of education

Expenditure on education at <5% is low (US: 12%, China: 15%), but has grown
at a CAGR of 8.6% versus consumption growth of 3.2% over 1995-2005.
However, private spending in education has grown faster, at a CAGR of 15.8%
over the same period. Considering a longer period of the last 20 years, this has
grown at a CAGR of 16.4% versus disposable income growth of 5.9%.
Per child spending is set to increase sharply

According to the government's data, per child expenditure on education was
Rs609 per month in 2001. This is expected to be Rs1,547 per month by 2015,
increasing sharply to Rs4,606 by 2025. Over 2001 levels of Rs609, this marks a
rise of 6.9% CAGR by 2015, after which it is expected to grow faster at 11.5%
CAGR to 2025.
Challenges
 Regulatory structure in the K-12 segment continues to be vague and changes
on the existing regulations could pose a risk.
 Delay in acquiring land and construction schedule could result in lower-

than-expected scale up.
 Slowdown in economic growth could affect government spend on education

as well as impact the private spending power for K-12.

Projections
We expect private education spending to grow at 19% for the next five years
with the growth being driven by preschool and the vocational education segment
as we see maximum consumer entry here. Other segments like K-12 and test
preparation will also continue to grow well at 20% 5-year CAGR.
Exhibit 75: Projections - Education

Education total 6.1 11.7 28.4 64.4
5-year CAGR 14.0% 19.4% 17.8%
Pre-school 0.2 0.6 2.0 6.3
5-year CAGR 20.0% 28.7% 25.7%
K-12 2.0 4.0 10.0 23.3
5-year CAGR 15.0% 20.0% 18.4%
Professional education 2.1 4.1 9.0 17.8
5-year CAGR 14.0% 17.0% 14.6%
Vocation education 0.5 1.1 3.0 7.7
5-year CAGR 16.0% 23.0% 20.6%
Test preparation market 0.5 1.0 2.5 5.8
5-year CAGR 15.0% 20.0% 18.4%
Multimedia content 0.7 0.9 1.9 3.6
5-year CAGR 6.0% 15.0% 14.2%
Source: CSO, Ambit Capital research

Inputs from:
Telecom
Analyst
Telecom has been the sunshine industry in the past decade as it gained a
Amit K. Ahire
Tel.: +91-22-3043 3202 significant share of the consumers’ wallet. In the second phase of growth, there
amitahire@ambitcapital.com are several changes and trends emerging. Some of these are:
Demand for mobile services will continue to grow at a rapid

pace ...
Indian mobile industry is the fastest growing industry in the world with addition
of more than 15-16mn subscribers per month. At the end of February 2010, the
wireless subscriber base stood at 564mn compared with 392mn subscribers at
end-March 2009. During 9M2009, the industry added 172mn subscribers with
an average addition of 15.6mn subscriber per month. The mobile teledensity
stood at 48% at end-February 2010. The pace of subscriber net additions is
expected to continue in near future. The growth would be driven by: (1) lower
mobile penetration in rural areas; (2) continuously declining cost of mobile
ownership; and (3) increasing usage of multiple sim due to attractive pricing
propositions.
Exhibit 76: Wireless subscriber growth
600 564
500
392
400
300 261
200 166
96
100 55
0
Mar'05 Mar'06 Mar'07 Mar'08 Mar'09 Feb'10
Source: TRAI, Ambit Capital research
… with rural India fuelling the growth engine ...

According to data released by TRAI, penetration in rural areas is also picking up.
At end of December 2009, the rural mobile subscriber base reached 165mn
from 93mn a year ago. During the period, rural areas accounted for 40% of net
additions. At the end of December 2009, rural mobile penetration stood at 20%
compared with urban penetration of 100%. The relatively low penetration also
reflects the underlying growth potential available in rural markets.
…. but, drop in ARPUs to continue

Owing to stiff competition in the Indian telecom market and significant overcapacity,
the tariffs have seen a sharp drop in the recent past. The drop in tariff is expected
to continue until overcapacity persists in the industry. Lower tariffs coupled with
increasing proportion of multiple sim-users and growing rural subscriber base,
we expect the drop in ARPU to continue.

Companies’ view
Though the mobile industry has been adding more than 15-16mn subscribers
per month, our interaction with telecom operators suggests that proportion of
multiple sim-users is on an increasing trend. As a result of this, according to the
companies, subscriber-based criteria are increasingly becoming irrelevant. They
also expect revenue and profitability to remain under pressure in the interim.
3G and BWA services to result in higher cash outflow

The 3G spectrum auction has just been completed. 3G spectrum auction amount
reached Rs677bn, significantly higher than base of Rs350bn at the pan-India
level. BWA auction has already reached to Rs86bn.
MNP to happen by end-June; to impact postpaid subscriber base

MNP (mobile number portability) is expected to be launched by end-June 2010.
We believe MNP would impact only post paid subscribers where churn has been
at lower levels and also ARPU is higher. Operators' who manage to get 3G
spectrum would be less susceptible to the MNP impact. We, however, believe
MNP could pressure financials, as operators will need to spend more on QoS
and sales & marketing to attract new subscribers as well as retain existing ones.
Projections
We expect the telecom sector to grow at 19% for the next five years with slight
acceleration in demand. We see 3G and other value-added services to provide a
boost to dropping ARPUs.
Exhibit 77: Projections — Telecom

Telecom Total 3.7 13.2 31.4 59.4
5 year CAGR 28.7% 19.0% 13.6%

Inputs from:
MEDIA
Analyst
India continues to be one of the least penetrated media markets with per capita
Amit K. Ahire
Tel.: +91-22-3043 3202 media spends at just USD4. Despite this, Indian Media and Entertainment (M&E)
amitahire@ambitcapital.com industry stood at USD 13 bn in 2009 and is growing at a CAGR of c.10%.
Exhibit 78: Media spend as % of GDP - lowest in Exhibit 79: Media spend per capita (USD) - Lowest
India at 0.41% in India at USD 4
1.2% 2009P 2009P

1.08%
491
1.0% 0.90%
0.78% 0.80%
0.8% 0.75%
343
0.6% 251
0.41%
0.4%
0.2%
27
4
0.0%
India China UK World Japan USA India China UK Japan USA
Source: FICCI KPMG Media & Entertainment report Source: FICCI KPMG Media & Entertainment report
Some key trends to watch are:
Focus on Digitalization, Regionalization and Convergence

Digitalization, Regionalization and Convergence have emerged in the industry
and these are expected to continue going forward. New media is revolutionalising
and improving the manner in which media is consumed. As a result, consumers
are ready to pay more for the better quality (e. g. DTH, IPTV, rising ticket prices
for movies in multiplexes).
Innovation - newer platforms on the rise

In the increasing competitive market place innovation is bringing about a positive
change and newer platforms to reach the end consumer. The advent of social
networking sites like Facebook, Twitter and LinkedIn are innovations that enabled
brands and advertisers to attract attention.
Radio, Internet, Animation, Gaming to increase share by 2014P

(FICCI) Radio industry is expected to grow at a CAGR of 15% for next five years.
Other segments like internet, music, animation, outdoor and gaming constitute
nearly 10% of the M&E space and are expected to grow at a CAGR of 21%.
Television to grow at a faster pace while print will slow down

Television is expected to continue to grow in the coming years as well. By 2014,
Television is expected to increase its share in the M&E space to ~48% from the
current ~44%. Print is expected to grow at a sub industry rate as it is losing its
share in the overall M&E space to segments like Television, Radio, Internet,
Animation and Gaming.

Projections
We expect total media growth to accelerate to around 12.6% 5-year CAGR versus
10.5% in the previous five years. The projected growth rates are on the back of
factors such as favourable demographics, expectation of recovery in GDP growth
rate, rise in the advertising to GDP ratio, and increasing media penetration.
However increasing competitive pressures will remain a concern on profitability
unless we see some consolidation in industry.
Exhibit 80: Projections — Media

Media total 8.9 14.8 26.7 44.1
5-year CAGR 10.5% 12.6% 10.6%
Source: FICCI, KPMG, Ambit Capital research

CORPORATE ANALYSIS
Our extensive interaction with corporates, consumers, market experts and other
stakeholders suggest that some of these benchmarks would be key to successful
marketing in the decade ahead, which will continue to significantly expand in
choices and evolution of several new distribution models.
Qualitative Benchmarks
Adaptability - Average per capita income of consumers in India is likely to
see nearly two and half times increase from current levels. It will also see addition
of several new youth and households into the consuming class especially from
semi-urban and rural markets. Penetration by global marketers also remains
very minuscule implying that adaptability will remain a very key attribute for
corporates in the decade ahead.
Consumer Experience - Most business models in the past decade have

emphasized distribution significantly. We believe, in the decade ahead, the focus
would move away from merely increased penetration to consumer experience
and satisfaction. Branding, premiumisation and pricing will have to be managed
effectively to maintain margins and sustain the ability to invest in new opportunities.
Most consumers are also looking beyond traditional choices and the ability to
build customized elements in the product portfolio will be critical for growth.
Inflation will remain a big challenge - Considering that aggregate

consumption growth will remain in double digits, infrastructure challenges and
increased integration with global markets we expect inflation will continue to
remain high in the economy. Managing supply chain in this context will remain a
critical priority for most corporates.
Power of Word of Mouth - Considering the significant increase in choices,

consumers will continue to vote in favour of trust, simplicity and innovativeness.
The penetration of internet and mobile has now achieved critical scale and
consumer choices are no longer merely dictated by TV advertising. The ability to
create and sustain a viral campaign through informed disseminators and
persuadors will make huge differences to product fortunes.
Marketing with a new mindset - Most marketers will have to achieve

critical milestones in a significantly compressed time framework. To achieve this
most organizations will have to do the unexpected and sustain a viral campaign
besides a virtual campaign. The Chief Marketing Officer (CMO), besides CEOs,
will have to play the role of integrator and balance it with a somewhat disruptive
mindset. The ability to grow by connecting and developing with its ecosystem as
demonstrated successfully by Telecom companies will be a critical aspect for most
companies.

Quantitative
Sustain double-digit topline growth
Considering high single-digit per capita income growth and aggregate private
consumption growth of 12-15%, most companies will have to better these
benchmarks in order to maintain their relevance and generate adequate capital
for making investments into new brands and opportunities.
Defend and improve market shares

Considering that choice expansion will continue to remain high and product/
service parity will be achieved in short periods of time, ability to defend and
improve marketshare will remain a critical priority for most organizations.
Achieve gradual expansion in margins

Besides competitive dynamics and fast- changing consumption patterns our
opinion is that inflation will continue to remain a key challenge in high aggregate
growth market such as India. Along with topline, its ability to gradually improve
its margins, will be key to maintain competitiveness and invest in new growth
opportunities.
Seek synergistic inorganic opportunities

Biggest and most successful consumer companies are the ones which have
pursued both organic and inorganic growth strategy (e.g.- P&G, Unilever, Kraft
etc.). In India also, consumer companies have shown good aggression in the
recent past for expansion into new categories or new markets. This strategy will
continue to be important as the resources become scarce and markets become
more competitive.

HISTORICAL PERFORMANCE
We analyzed the performance of global and Indian companies for the past two
decades. Some important trends which we noted are:
Global companies
 Telecom companies have consistently outpaced revenue growth of all other
sectors. 'Vodafone' has remained at the forefront with significant proportion
of inorganic growth. Services segment as a whole has shown consistently
good growth although each of services sector has shown a 'dream run' for a
limited period except telecom. There are no specific sectors which have been
'laggards'.
 Consumer durables, autos and retail have shown best operating leverage
in 1990s. In the last decade telecom and 'indulgence' categories (tobacco
and liquor) took over from them. Japanese companies have been at particular
disadvantage in past 20 years marred by recession and competitive pressures.
 In terms of stock performance, consumer durables have been star stocks in

1990s. In 2000s services outpaced other segments. Auto companies have
clearly been underperformers during the period. Recently, consumer durable
companies have also started showing weakness.
 We have not seen any specific vulnerability to any particular sector. However,
market share battles have led to significant changes in certain sectors.
Indian Companies
 During the last decade, large home and personal care companies have been
underperformers in topline growth while small personal care companies and
services have shown strong revenue growth.
 Consumer durables (including lifestyle retail) stand out in profitability while

FMCG companies have shown decline in profitability
 Consumer durables stand out again as star performers in stock returns while
media companies have posted a poor show.
In a nutshell, globally, many sectors are through their lifecycle. More important
ones are consumer durables, automobiles and retail. In India, these sectors are
at their tipping points. We can expect strong domestic growth ahead in these
sectors. Further, services will continue to gain more prominence with retail,
education and healthcare leading the growth. A look at the following tables
corroborates the analysis.

Exhibit 81: Global Best and Worst Performers - CAGR for respective periods
Sector Company CAGR Sector Company CAGR
Sales Growth (Best) Sales Growth (Worst)
1989-94 1989-94
Consumer Durables Samsung Electronics Co Ltd 24% Paints Du Pont (E.i.) De Nemours -1%
Retail Wal-mart Stores Inc 17% Liquor Pernod-ricard Sa -1%
Telecom Vodafone Group Plc 13% Healthcare Tenet Healthcare Corp -3%
1994-99 1994-99
Telecom Vodafone Group Plc 42% Home & Personal Care Unilever Plc 1%
Restaurants Starbucks Corp 37% Food Kraft Foods Inc-class A -1%
Education Apollo Group Inc-cl A 25% Paints Du Pont (E.i.) De Nemours -4%
1999-04 1999-04
Telecom China Mobile Ltd 32% Healthcare Tenet Healthcare Corp -3%
Education Apollo Group Inc-cl A 21% Telecom At&T Inc -3%
Telecom Vodafone Group Plc 19% Liquor Diageo Plc -6%
2004-09 2004-09
Healthcare Community Healthsys 23% Hospitality Starwood Hotels & Resorts -2%
Liquor Anheuser-busch Inbev Nv 20% Consumer Durables Philips Electronics -4%
Telecom At&T Inc 15% Media Time Warner Inc -7%
Bottomline Growth (Best) Bottomline Growth (Worst)

1989-94 1989-94
Home & Personal Care Avon Products Inc 17% Healthcare Tenet Healthcare Corp -6%
Retail Wal-mart Stores Inc 8% Education Devry Inc -29%
Consumer Durables Samsung Electronics Co Ltd 5% Consumer Durables Sony Corp -37%
1994-99 1994-99
Consumer Durables Samsung Electronics Co Ltd 79% Tobacco Japan Tobacco -6%
Education Apollo Group Inc-cl A 62% Paints Akzo Nobel -10%
Auto Volkswagen Ag-rts 58% Consumer Durables Sony Corp -19%
1999-04 1999-04
Telecom Vodafone Group Plc 61% Hospitality Starwood Hotels & Resorts -20%
Telecom China Mobile Ltd 50% Home & Personal Care Shiseido Co Ltd -21%
Tobacco Bat 33% Media Time Warner Inc -28%
2004-09 2004-09
Education Devry Inc 52% Hospitality Accor Sa -26%
Media Viacom Inc-class A 35% Media News Corp-cdi Class B -29%
Liquor Anheuser-busch Inbev Nv 33% Home & Personal Care Shiseido Co Ltd -42%
Stock Performance (Best) Stock Performance (Worst)

1989-94 1989-94
Retail Swatch Group Ag/The-reg 49% Hospitality Accor Sa -1%
Media News Corp-cdi Class B 49% Home & Personal Care Shiseido Co Ltd -4%
Consumer Durables Samsung Electronics Co Ltd 36%
1994-99 1994-99
Consumer Durables Nokia Oyj 91% Tobacco Bat -3%
Media Time Warner Inc 69% Auto Ford Motor Co. -4%
Consumer Durables Koninklijke Philips Electron 36% Auto Hyundai Motor Co -8%
1999-04 1999-04
Auto Hyundai Motor Co 48% Auto Ford Motor Co. -11%
Hospitality Choice Hotels Intl Inc 39% Consumer Durables Nokia Oyj -11%
Education Itt Educational Services Inc 34% Healthcare Tenet Healthcare Corp -12%
2004-09 2004-09
Tobacco Japan Tobacco 30% Consumer Durables Nokia Oyj -7%
Education Devry Inc 13% Consumer Durables Sony Corp -8%
Telecom China Mobile Ltd 15% Retail Seven & I Holdings Co Ltd -10%

Exhibit 81: Indian Best and Worst Performers - CAGR for respective periods (contd.)
Sector Company CAGR Sector Company CAGR
Sales Growth (Best) Sales Growth (Worst)

1999-04 1999-04
Auto Hero Honda Motors Ltd 27% Consumer durables Whirlpool 2%
Hospitality Hotel Leelaventure Ltd 16% Home & Personal Care Hindustan Unilever Ltd 0%
Home & Personal Care Elder Pharmaceuticals Ltd 15% Home & Personal Care Colgate Palmolive (India) 0%
2004-09 2004-09
Retail VISHAL RETAIL LTD 62% Paints Kansai Nerolac 8%
Home & Personal Care ZYDUS WELLNESS LTD 76% Home & Personal Care Hindustan Unilever Ltd 8%
Healthcare FORTIS HEALTHCARE LTD 25% Paints Akzo Nobel India Ltd 1%
Stock Performance (Best) Stock Performance (Worst)

1999-04 1999-04
Retail Pantaloon Retail India Ltd 138% Home & Personal Care Hindustan Unilever Ltd -1%
Liquor United Spirits Ltd 72% Media Zee Entertainment -7%
Consumer Durables Blue Star Ltd 70% Education Niit Ltd -13%
2004-09 2004-09
Consumer Durables Bajaj Electricals Ltd 69% Liquor Radico Khaitan Ltd -4%
Consumer Durables Whirlpool Of India Ltd 59% Media New Delhi Television Ltd -5%
Consumer Durables Blue Star Ltd 31% Media Television Eighteen India -6%
Source: Bloomberg, Capitaline & Ambit Capital research

RECOMMENDED CONSUMER
PORTFOLIO
Based on the macro and category trends as discussed along with relevant
corporate analysis we have identified a model consumer portfolio wherein we
recommended following sectoral weights:
Exhibit 82: Consumer portfolio weights

Cons. segment Current weight Recommended weight
Staples 43% 33%
Discretionary 29% 32%
Consumer Services 28% 35%
Key stock ideas and their recommended weights are discussed in following pages.

Exhibit 83: Recommended consumer portfolio

Sector/ Top picks Current Current Recomm Macro/ Category trends
US$ bn
STAPLES
Food Packaged foods and processed dairy will witness faster
growth with rising awarness of health aspects
Nestle India Ltd. 6.1 4.8% 5.0%
GSK Consumer Healthcare Ltd. 1.6 1.2% 1.5%
Tobacco & Liquor In tobacco, steady volume growth and uptrading where
as in liquor, increased per capita consumption and
higher penetration should be key drivers for growth
ITC Ltd. 24.0 18.9% 19.0%
Others 3.7 2.9% 3.0%
Home & Personal Care Personal care will grow ahead of the category led by
skin care with signs of consumer uptrading
Dabur India Ltd. 3.5 2.8% 3.0%
Emami Ltd. 1.1 0.9% 1.0%
Zydus Wellness Ltd 0.4 0.3% 0.5%
Restaurants It will outpace the growth of packaged foods, QSRs will
remain the fastest growing segment
Jubilant Foodworks Ltd 0.4 0.3% 0.5%
Others 13.6 10.7% 0.0%

Staples Total 54.5 42.9% 33.5%
Staples PFCE share 2010 - 50.3% 2015 - 45.5% Share of staples will decline with slower growth in
F&B. Although share of personal goods will
increase on account of high growth rates
Discretionary
Auto Rising per capita incomes, particularly in rural markets
will drive future growth
Bajaj Auto Ltd 7.0 5.5% 6.0%
Hero Honda Ltd 8.5 6.7% 7.0%
Maruti Suzuki India Ltd 8.1 6.4% 6.5%
Consumer Durables Several segments at tipping points, innovation remains
the key
Whirlpool Of India Ltd 0.7 0.6% 0.5%
Hitachi Home & Life Solution 0.1 0.1% 0.5%
TTK Prestige Ltd 0.1 0.1% 0.5%
Paints Better industrial demand scenario and premiumisation
to drive growth
Asian Paints Ltd 4.4 3.5% 3.5%
Kansai Nerolac Paints Ltd 0.9 0.7% 1.0%
Retail Lifestyle and speciality retail are likely to be amongst
the fastest growing segments
Titan Industries Ltd 2.2 1.7% 2.0%
Pantaloon Retail India Ltd 1.6 1.3% 1.5%
Other Retailers 0.4 0.3% 0.0%
Others Rising per capita consumption and auxillary demand
will be key growth drivers
Castrol India Ltd 1.0 0.8% 1.0%
Pidilite Industries Ltd 1.2 1.0% 1.5%
Discretionary Total 36.5 28.7% 31.5%
Discretionay PFCE share 2010 - 15.5% 2015 - 16.5% Share of discretionary spend will rise with fast
growth in consumer durables and automobiles

Exhibit 2: Recommended consumer portfolio (contd.)

Sector/ Top picks Current Current Recom. Macro/ Category trends
US$ bn
Consumer Services
Education Its a key spend priority amongst all SECs
Educomp Solutions Ltd 1.1 0.9% 2.0%
Everonn Education Ltd 0.1 0.1% 0.5%
Healthcare Higher penetration, lifespan, lifestyle will drive rapid
growth
Fortis Healthcare Ltd 1.1 0.9% 2.0%
Apollo Hospitals Enterprise 1.0 0.8% 2.0%
Hospitality Better infrastructure and higher consumption priorities
will propel the category
Indian Hotels Co Ltd 1.7 1.3% 2.0%
EIH Ltd. 1.0 0.8% 1.0%
Hotel Leelaventure Ltd 0.4 0.3% 0.5%
Media Growth will be steady, but marred by fragmentation
Zee Entertainment 2.7 2.1% 2.5%
Sun TV Network Ltd 3.5 2.8% 4.0%
DB Corp 0.9 0.7% 1.5%
Jagran Prakashan 0.7 0.6% 1.0%
Telecom Acceptance of value added services remain key for
future growth potential.
Bharti Airtel Ltd 21.7 17.1% 16.0%
Consumer Services Total 36.0 28.3% 35.0%
Consumer Services 2010-34.2% 2015- 37.9% Share of services will increase rapidly with
PFCE share growth in education, healthcare, travel & tourism
and other personal services
TOTAL 127.0 100.0% 100.0%

For more information on these companies please refer annexure (page 69-84)

RISKS AND CHALLENGES

Despite having made significant progress on the economic front we still have
several nagging problems, which eventually could mitigate consumption growth
prospects. Consumption growth is facing the usual challenges of inflation,
governance, infra and agriculture.
Inflationary concerns
Demand pressures on limited resources have resulted in a record level inflation
for the past few years. We do not see any signs of this easing. Some pressure
can be witnessed in the household savings rate which shows signs of stagnation
at around 24% levels. Although, this augurs well for the total consumption but
our concern is around the real versus inflationary consumption growth.
Exhibit 84: Aggregate Household savings %

Year Household savings rate %
1980-81 12.9
1990-91 18.4
2001-02 22.1
2003-04 24.4
2005-06 24.2
2007-08 24.3
Source: CSO
Even among Emerging markets, IMF estimates inflation forecast for India to be
130bps higher than the median rate for Emerging markets and more than double
than that of developed markets.
Exhibit 85: India versus other markets

CAGR Growth in GDP Inflation
Period 00-05 05-10 10-15 00-05 05-10 10-15
India 11.20% 11.80% 9.80% 4.00% 9.00% 4.30%
Advanced Emerging markets
(Median) 12.70% 9.70% 7.90% 4.50% 4.60% 3.00%
Tier 2 Emerging markets
(Median) 8.30% 11.20% 7.10% 5.00% 5.30% 3.30%
Developed markets
(Median) 9.00% 3.60% 3.50% 2.30% 2.30% 1.90%
Source: IMF
Poverty and social ailments

Poverty, illiteracy, unemployment and unfriendly administration are some of the
commonly nagging problems faced by the society. Considering average population
growth of 18 million most public services appear inadequately equipped. Despite
making significant efforts on education illiteracy in the country is still in the region
of 25-30%. Poverty also continues to be a significant challenge to society; despite
high subsidies we still have nearly 50 million families living below poverty line.
Unemployment or under-employment is also widespread in the society. In some
ways it is an interdependent problem and to large extent reflects inadequate
governance so that these long standing issues can be systematically addressed.
Transparency and accountability need significant improvement across several
government institutions.
Exhibit 86: Percentage below Poverty Line

ears Rural Urban Combined
1973 56.4 49 54.9
1983 45.7 40.8 44.5
1993 37.3 32.3 36
2004 28.3 25.7 27.5
Source: Planning Commission of India
Indadequate Infrastructure
Indadequate Infrastructure (particularly electricity and water) pose several
challenges to long term growth assumptions. Our extensive survey across the
country suggests that availability of power is restricted to 18-20 hours in cities
and 6-10 hours in rural areas. This inadequacy, in our opinion, will have a
significant impact on consumption growth of products and services. Indiscriminate
use, non-economic tariffs and wastage are further compounding this problem.
Per capita consumption of energy stands at 445kgoe which is 26% of global
average and 50% below that of China and Brazil. Water shortages are also
extensively common across major towns and even in rural areas.
Exhibit 87: Energy Consumption (2004)

Country KGOE
India 445
China 1147
Brazil 1232
World average 1750
Note: * KGOE (Kilogram of Oil Equivalent)
*Source: Planning Commission
Exhibit 88: Access to drinking water

Cit/Town Access to Drinking Water
Class I cities 73
Class II cities 63
Class III cities 61
Other cities/towns 58
Source: Ministry of Water Resources, GoI
Stagnating Agricultural and Food Production

Continued stagnation in agriculture is consequently causing significant food
inflation; to some extent this is also compounded by the inadequate delivery
mechanisms.
Exhibit 89: Agricultural growth

Years GDP Agricultural
growth % growth%
Pre-green revolution 1951-52 - 1967-68 3.69 2.54
Green revolution 1968-69 - 1980-81 3.52 2.44
Wider technolgy dissemination 1981-82 - 1990-91 5.4 3.52
Early reform period 1991-92 - 1996-97 5.69 3.66
Ninth Plan 1997-98- 2000-01 5.52 2.5
Tenth Plan 2002-03 to 2006-07 7.77 2.47
Eleventh Plan 2007-2010 8
Source: Planning Commission

The crucial balancing act

Organizations today have several intertwined links with far reaching impact on
people and the planet. Globally, corporations are aligning themselves fast with
changing attitude towards environment and resources. Environmental pressures
from household consumption are significant and their impact is likely to intensify
over the coming years. At the same time, consumers are becoming more aware
on the issues of planet and ethics. The exhibit below shows the degree of concern
for environment in 15 leading cities in Emerging markets in a survey. On an
average, 85% people are reasonably concerned about it.
Exhibit 90: Environmental concerns across Emerging markets

(% respondents)
100
50
0
Ho Chi Minh City
Guangzhou
Hong Kong
Mumbai
Taipei
Moscow
Manila
Seoul
Delhi
Shanghai
15 city average
Jakarta
Beijing
Kuala Lumpur
Singapore
Bangkok
Extremely concerned Somewhat concerned Others
Source: hakuhodo.co.jp
In India, the problem becomes more severe with a crucial question of 'rapid
growth versus resource conservation'. At one end, companies are trying to exploit
the consumption opportunity in full. This, without doubt, puts a strain on limited
resources with some negative consequences on the environment. At the other
end, awareness of impact on consumption is spreading fast. In the table above,
Mumbai figures as the 2nd most concerned city with Delhi trailing it.
Time of 'Guzzlers' is past now. There are several examples of products and
companies which have lost the race due to ignorance of these issues. This challenge
is present across sectors. The problem bounds companies to produce best quality
products at affordable prices with minimum resources. It is time to see which
companies win this race.

ANNEXURE
ITC Ltd. (ITC IN EQUITY)

Stock Performance Financials
Face Value (Rs) 1
FY08 FY09 FY10 FY11E FY12E
CMP (Rs) 283
Revenue (Rs Mln) 146,591 163,323 191,358 208,112 241,798
52-week range (Rs) 184-283
Revenue growth (%) 13.9% 11.4% 17.2% 8.8% 16.2%
Market cap (Rs Mln) 1,081,314
Market cap (US$ Mln) 24,029
EBITDA (Rs Mln) 45,763 51,537 65,790 72,583 83,233
EV (Rs Mln) 1,051,300
EBITDA Margin (%) 31.2% 31.6% 34.4% 34.9% 34.4%
EV (US$ Mln) 23,362
EBITDA growth (%) 9.6% 12.6% 27.7% 10.3% 14.7%
BV (Rs Mln)* 141,922
BV (US$ Mln) 3,154
PBT(Rs Mln) 46,830 49,909 65,790 70,492 81,837
PBT Margin (%) 31.9% 30.6% 34.4% 33.9% 33.8%
Abs Rel
PBT growth (%) 15.5% 6.6% 31.8% 7.1% 16.1%
1 yr Performance 48.7% 37.0%
Net profit (Rs Mln) 31,577 33,246 41,681 47,211 54,676
Net profit growth (%) 15% 5% 25% 13% 16%
EPS (Rs) 8.4 8.8 11.0 12.5 14.3
Avg daily value (Rs '000) 135,861 EPS growth (%) 14% 5% 25% 13% 15%
Avg daily value (US$ '000) 3,019 DPS (Rs) 3.5 3.7 10.0 5.5 6.3
Avg dly volume (Mln sh) 5,472
Valuation
Shareholding Pattern P/E (X) 33.8 32.1 25.7 22.7 19.8
Shrs outsding (Mln) 3818 EV/EBITDA (X) 23.0 20.4 16.0 14.5 12.6
Promoter Holding (%) 0.0%
Free Float Capital (%) 67.0% Price/ Sales (X) 7.4 6.6 5.7 5.2 4.5
Source: Company, Bloomberg & Ambit Capital research; Estimates for FY11-12/CY10-11 are Bloomberg consensus estiamtes;
Note: * BV are based on FY09 annual accounts

Nestle India Ltd. (NEST IN EQUITY)

Face Value (Rs) 10
CY07 CY08 CY09 CY10E CY11E
CMP (Rs) 2,855
Revenue (Rs Mln) 146,591 163,323 191,358 208,112 241,798
52-week range (Rs) 1707-2949
Revenue growth (%) 13.9% 11.4% 17.2% 8.8% 16.2%
Market cap (Rs Mln) 275,279
EBITDA (Rs Mln) 45,763 51,537 65,790 72,583 83,233
EV (Rs Mln) 275,812
EBITDA Margin (%) 31.2% 31.6% 34.4% 34.9% 34.4%
EV (US$ Mln) 6,129
EBITDA growth (%) 9.6% 12.6% 27.7% 10.3% 14.7%
BV (Rs Mln) 5,813
BV (US$ Mln) 129
PBT(Rs Mln) 46,830 49,909 65,790 70,492 81,837
PBT Margin (%) 31.9% 30.6% 34.4% 33.9% 33.8%
Abs Rel
PBT growth (%) 15.5% 6.6% 31.8% 7.1% 16.1%
Net profit (Rs Mln) 31,577 33,246 41,681 47,211 54,676
EPS (Rs) 8.4 8.8 11.0 12.5 14.3
Avg dly volume ('000 shs) 36
Valuation
Shareholding Pattern P/E (X) 33.8 32.1 25.7 22.7 19.8
Shrs outsding (MM) 96 EV/EBITDA (X) 23.0 20.4 16.0 14.5 12.6
Glaxosmithkline Consumer (SKB IN EQUITY)

Face Value (Rs) 10
CY07 CY08 CY09 CY10E CY11E
CMP (Rs) 1,686
Revenue (Rs Mln) 12,784 15,417 19,215 22,751 26,547
Revenue growth (%) 15.0% 20.6% 24.6% 18.4% 16.7%
EBITDA (Rs Mln) 2,629 2,823 3,675 3,770 4,629
EV (Rs Mln) 60,516
EBITDA Margin (%) 20.6% 18.3% 19.1% 16.6% 17.4%
EV (US$ Mln) 1,345
EBITDA growth (%) 19.3% 7.4% 30.2% 2.6% 22.8%
BV (Rs Mln)* 9,048
BV (US$ Mln) 201
PBT(Rs Mln) 2,451 2,840 3,564 4,216 5,108
PBT Margin (%) 19.2% 18.4% 18.5% 18.5% 19.2%
Abs Rel
PBT growth (%) 28.7% 15.9% 25.5% 18.3% 21.2%
Net profit (Rs Mln) 1,626 1,883 2,327 2,795 3,346
EPS (Rs) 38.7 44.8 55.7 66.7 79.8
Avg daily value (US$ '000) 238 DPS (Rs) 12.0 15.0 18.0 22.0 27.0
Valuation
Shareholding Pattern P/E (x) 43.6 37.7 30.3 25.3 21.1

Dabur India Ltd (DABUR IN EQUITY)

Face Value (Rs) 1
CMP (Rs) 184
Revenue (Rs Mln) 23,610 28,054 33,656 39,626 45,747
Revenue growth (%) 5.7% 18.8% 20.0% 17.7% 15.4%
EBITDA (Rs Mln) 4,226 4,841 6,511 7,570 8,924
EV (Rs Mln) 160,933
EBITDA Margin (%) 17.9% 17.3% 19.3% 19.1% 19.5%
EV (US$ Mln) 3,576
EBITDA growth (%) 19.4% 14.6% 34.5% 16.3% 17.9%
BV (Rs Mln)* 8,216
BV (US$ Mln) 183
PBT(Rs Mln) 3,844 4,448 6,028 7,198 8,525
PBT Margin (%) 16.3% 15.9% 17.9% 18.2% 18.6%
Abs Rel
PBT growth (%) 20.4% 15.7% 35.5% 19.4% 18.4%
Net profit (Rs Mln) 3,328 3,900 5,043 5,892 6,957
EPS (Rs) 3.9 4.5 5.8 6.8 8.1
Valuation
Emami Ltd (HMN IN EQUITY)

Face Value (Rs) 2
CMP (Rs) 644
Revenue (Rs Mln) 5,788 7,490 10,379 12,296 14,503
Revenue growth (%) 11.7% 29.4% 38.6% 18.5% 17.9%
EBITDA (Rs Mln) 955 1,391 3,485 2,659 3,153
EV (Rs Mln) 51,389
EBITDA Margin (%) 16.5% 18.6% 33.6% 21.6% 21.7%
EV (US$ Mln) 1,142
EBITDA growth (%) 42.3% 45.7% 150.5% -23.7% 18.6%
BV (Rs Mln)* 6,254
BV (US$ Mln) 139
PBT(Rs Mln) 1,023 1,061 2,049 2,503 3,041
PBT Margin (%) 17.7% 14.2% 19.7% 20.4% 21.0%
Abs Rel
PBT growth (%) 36.9% 3.7% 93.1% 22.2% 21.5%
Net profit (Rs Mln) 901 918 1,697 2,055 2,499
EPS (Rs) 14.5 14.5 23.3 26.8 32.9
Valuation

Zydus Wellness Ltd (ZYWL IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 472
Revenue (Rs Mln) 563 1,947 2,675 3,414 4,250
Revenue growth (%) 31.9% 245.8% 37.4% 27.6% 24.5%
Market cap (US$ Mln) 410
EBITDA (Rs Mln) 63 387 666 748 890
EV (Rs Mln) 18,476
EBITDA Margin (%) 11.2% 19.9% 24.9% 21.9% 20.9%
EV (US$ Mln) 411
EBITDA growth (%) 57.5% 514.3% 72.1% 12.3% 19.0%
BV (Rs Mln)* 2,356
BV (US$ Mln) 52
PBT(Rs Mln) 70 365 693 NA NA
PBT Margin (%) 12.4% 18.7% 25.9%
Abs Rel
PBT growth (%) 6.1% 421.4% 89.9%
Net profit (Rs Mln) 46 238 453 605 815
EPS (Rs) 1.2 6.5 12.2 15.5 20.9
Avg daily value (Rs '000) 16,586 EPS growth (%) 458% 87% 28% 35%
Avg daily value (US$ '000) 369 DPS (Rs) 1.0 1.5 3.0 NA NA
Valuation
Jubilant Foodworks Ltd (JUBI IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 277
Revenue (Rs Mln) 2,111 2,806 4,239 5,713 7,518
Revenue growth (%) 52.3% 32.9% 51.1% 34.8% 31.6%
EBITDA (Rs Mln) 269 352 664 930 1,270
EV (Rs Mln) 19,039
EBITDA Margin (%) 12.7% 12.5% 15.7% 16.3% 16.9%
EV (US$ Mln) 423
EBITDA growth (%) 49.1% 30.9% 88.9% 40.1% 36.6%
BV (Rs Mln) 1,174
BV (US$ Mln) 26
PBT(Rs Mln) 84 75 330 613 912
PBT Margin (%) 4.0% 2.7% 7.8% 10.7% 12.1%
Abs Rel
PBT growth (%) 41.6% -10.5% 338.2% 85.3% 48.9%
1 yr Performance NA NA
Net profit (Rs Mln) 78 67 330 496 644
Net profit growth (%) 39% -13% 389% 50% 30%
EPS (Rs) 1.3 1.2 5.5 7.7 10.2
Avg daily value (Rs '000) 641,054 EPS growth (%) 39% -13% 378% 39% 32%
Avg dly volume ('000 shs) 5,985
Valuation

Bajaj Auto Ltd (BJAUT IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 2,163
Revenue (Rs Mln) 86,659 84,460 115,431 141,440 160,107
Revenue growth (%) -6.7% -2.5% 36.7% 22.5% 13.2%
EBITDA (Rs Mln) 9,107 10,213 25,872 28,027 31,079
EV (Rs Mln) 327,546
EBITDA Margin (%) 10.5% 12.1% 22.4% 19.8% 19.4%
EV (US$ Mln) 7,279
EBITDA growth (%) 12.1% 153.3% 8.3% 10.9%
BV (Rs Mln)* 18,127
BV (US$ Mln) 403
PBT(Rs Mln) 11,173 8,242 23,003 28,022 31,741
PBT Margin (%) 12.9% 9.8% 19.9% 19.8% 19.8%
Abs Rel
PBT growth (%) -37.1% -26.2% 179.1% 21.8% 13.3%
Net profit (Rs Mln) 7,495 5,357 15,946 20,133 22,977
Net profit growth (%) -40% -29% 198% 26% 14%
EPS (Rs) 53.7 37.0 121.6 137.9 157.1
Avg daily value (Rs '000) 73,225 EPS growth (%) -56% -31% 228% 13% 14%
Valuation
Hero Honda Ltd (HH IN EQUITY)

Face Value (Rs) 2
CMP (Rs) 1,924
Revenue (Rs Mln) 103,318 123,191 157,581 179,933 202,229
52-week range (Rs) 1307-2006
Revenue growth (%) 4.4% 19.2% 27.9% 14.2% 12.4%
EBITDA (Rs Mln) 13,546 17,362 27,669 29,785 33,387
EV (Rs Mln) 383,331
EBITDA Margin (%) 13.1% 14.1% 17.6% 16.6% 16.5%
EV (US$ Mln) 8,518
EBITDA growth (%) 13.9% 28.2% 59.4% 7.6% 12.1%
BV (Rs Mln)* 38,009
BV (US$ Mln) 845
PBT(Rs Mln) 14,102 17,814 28,317 30,360 34,185
PBT Margin (%) 13.6% 14.5% 18.0% 16.9% 16.9%
Abs Rel
PBT growth (%) 13.2% 26.3% 59.0% 7.2% 12.6%
Net profit (Rs Mln) 9,678 12,817 22,318 24,589 27,348
EPS (Rs) 48.5 64.2 111.8 123.2 137.2
Valuation

Maruti Suzuki India Ltd (MSIL IN EQUITY)

Face Value (Rs) 5
CMP (Rs) 1,257
Revenue (Rs Mln) 181,041 206,638 295,591 335,284 378,090
52-week range (Rs) 1026-1701
Revenue growth (%) 23.0% 14.1% 43.0% 13.4% 12.8%
EBITDA (Rs Mln) 26,009 19,304 40,432 42,933 47,750
EV (Rs Mln) 332,338
EBITDA Margin (%) 14.4% 9.3% 13.7% 12.8% 12.6%
EV (US$ Mln) 7,385
EBITDA growth (%) 24.5% -25.8% 109.4% 6.2% 11.2%
BV (Rs Mln)* 95,656
BV (US$ Mln) 2,126
PBT(Rs Mln) 25,777 17,011 37,465 39,985 43,282
PBT Margin (%) 14.2% 8.2% 12.7% 11.9% 11.4%
Abs Rel
PBT growth (%) 11.3% -34.0% 120.2% 6.7% 8.2%
Net profit (Rs Mln) 17,899 12,274 26,246 27,472 30,246
EPS (Rs) 62.0 42.5 90.9 96.5 105.8
Valuation
Whirlpool Of India Ltd (WHIRL IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 253
Revenue (Rs Mln) 15,645 17,192 21,374 NA NA
Revenue growth (%) 7.9% 9.9% 24.3%
EBITDA (Rs Mln) 854 1,352 2,455 NA NA
EV (Rs Mln) 36,336
EBITDA Margin (%) 5.5% 7.9% 11.5%
EV (US$ Mln) 807
EBITDA growth (%) 111.9% 58.3% 81.6%
BV (Rs Mln) 3,667
BV (US$ Mln) 81
PBT(Rs Mln) 288 861 2,072 NA NA
PBT Margin (%) 1.8% 5.0% 9.7%
Abs Rel
PBT growth (%) NA 199.0% 140.7%
Net profit (Rs Mln) 323 705 1,450 NA NA
Net profit growth (%) NA 118% 106%
EPS (Rs) 2.6 5.6 12.2 NA NA
Avg daily value (Rs '000) 18,422 EPS growth (%) NA 118% 119%
Valuation
Shareholding Pattern P/E (x) 99.2 45.5 20.8
Shrs outsding (MM) 127 EV/EBITDA (X) 42.5 26.9 14.8
Free Float Capital (%) 25.0% Price/ Sales (X) 2.1 1.9 1.5

Hitachi Home & Life Solution (HTHL IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 292
Revenue (Rs Mln) 4,466 4,698 6,361 NA NA
Revenue growth (%) 37.5% 5.2% 35.4%
EBITDA (Rs Mln) 494 454 605 NA NA
EV (Rs Mln) 7,452
EBITDA Margin (%) 11.1% 9.7% 9.5%
EV (US$ Mln) 166
EBITDA growth (%) 79.0% -8.1% 33.3%
BV (Rs Mln) 1,466
BV (US$ Mln) 33
PBT(Rs Mln) 469 267 570 NA NA
PBT Margin (%) 10.5% 5.7% 9.0%
Abs Rel
PBT growth (%) 111.3% -43.1% 113.5%
Net profit (Rs Mln) 422 210 461 NA NA
Net profit growth (%) 119% -50% 120%
EPS (Rs) 18.4 9.0 20.0 NA NA
Avg daily value (Rs '000) 5,408 EPS growth (%) -51% 122%
Valuation
Shareholding Pattern P/E (x) 15.9 32.4 14.6
Shrs outsding (MM) 23 EV/EBITDA (X) 15.1 16.4 12.3
Free Float Capital (%) 30.1% Price/ Sales (X) 1.5 1.4 1.1
TTK Prestige Ltd (TTKPT IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 582
Revenue (Rs Mln) 3,399 4,162 5,168 6,184 7,619
Revenue growth (%) 15.9% 22.5% 24.2% 19.7% 23.2%
EBITDA (Rs Mln) 375 398 825 952 1,122
EV (Rs Mln) 7,443
EBITDA Margin (%) 11.0% 9.6% 16.0% 15.4% 14.7%
EV (US$ Mln) 165
EBITDA growth (%) 39.8% 5.9% 107.4% 15.4% 17.9%
BV (Rs Mln)* 682
BV (US$ Mln) 15
PBT(Rs Mln) 245 290 754 852 1,008
PBT Margin (%) 7.2% 7.0% 14.6% 13.8% 13.2%
Abs Rel
PBT growth (%) 47.4% 18.5% 160.0% 13.0% 18.3%
Net profit (Rs Mln) 207 224 524 605 721
EPS (Rs) 17.6 18.9 44.6 53.5 63.8
Valuation

Asian Paints Ltd (APNT IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 2,077
Revenue (Rs Mln) 44,072 54,632 66,809 75,293 87,726
52-week range (Rs) 1087-2157
Revenue growth (%) 20.1% 24.0% 22.3% 12.7% 16.5%
EBITDA (Rs Mln) 6,714 7,039 12,276 12,899 15,172
EV (Rs Mln) 205,690
EBITDA Margin (%) 15.2% 12.9% 18.4% 17.1% 17.3%
EV (US$ Mln) 4,571
EBITDA growth (%) 36.9% 4.8% 74.4% 5.1% 17.6%
BV (Rs Mln)* 12,032
BV (US$ Mln) 267
PBT(Rs Mln) 6,314 6,168 12,570 12,515 14,580
PBT Margin (%) 14.3% 11.3% 18.8% 16.6% 16.6%
Abs Rel
PBT growth (%) 42.0% -2.3% 103.8% -0.4% 16.5%
Net profit (Rs Mln) 4,280 4,194 8,839 8,260 9,772
Net profit growth (%) 47% -2% 111% -7% 18%
EPS (Rs) 43.4 41.6 87.0 86.2 103.3
Avg daily value (Rs '000) 21,338 EPS growth (%) 44% -4% 109% -1% 20%
Valuation
Kansai Nerolac Paints Ltd (KNPL IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 1,529
Revenue (Rs Mln) 13,999 13,963 17,064 19,583 22,328
Revenue growth (%) 8.2% -0.3% 22.2% 14.8% 14.0%
EBITDA (Rs Mln) 1,870 1,581 2,647 3,040 3,497
EV (Rs Mln) 38,398
EBITDA Margin (%) 13.4% 11.3% 15.5% 15.5% 15.7%
EV (US$ Mln) 853
EBITDA growth (%) 5.5% -15.5% 67.4% 14.8% 15.0%
BV (Rs Mln)* 6,631
BV (US$ Mln) 147
PBT(Rs Mln) 1,689 1,440 2,395 2,533 3,116
PBT Margin (%) 12.1% 10.3% 14.0% 12.9% 14.0%
Abs Rel
PBT growth (%) 7.5% -14.7% 66.3% 5.7% 23.0%
Net profit (Rs Mln) 1,183 1,025 1,655 1,933 2,225
EPS (Rs) 42.4 37.9 61.4 71.7 82.5
Valuation

Titan Industries Ltd (TTAN IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 2,214
Revenue (Rs Mln) 29,968 38,326 46,771 56,750 68,502
52-week range (Rs) 1092-2306
Revenue growth (%) 43.3% 27.9% 22.0% 21.3% 20.7%
EBITDA (Rs Mln) 2,508 3,150 3,966 4,893 6,263
EV (Rs Mln) 99,521
EBITDA Margin (%) 8.4% 8.2% 8.5% 8.6% 9.1%
EV (US$ Mln) 2,212
EBITDA growth (%) 22.6% 25.6% 25.9% 23.4% 28.0%
BV (Rs Mln)* 5,579
BV (US$ Mln) 124
PBT(Rs Mln) 1,925 2,380 3,226 4,302 5,597
PBT Margin (%) 6.4% 6.2% 6.9% 7.6% 8.2%
Abs Rel
PBT growth (%) 39.8% 23.6% 35.5% 33.4% 30.1%
Net profit (Rs Mln) 1,399 1,639 2,513 3,235 4,250
EPS (Rs) 31.5 36.9 56.6 73.9 95.5
Valuation
Pantaloon Retail India Ltd (PF IN EQUITY)

Face Value (Rs) 2
CMP (Rs) 390
Revenue (Rs Mln) 53,428 70,036 80,115 102,510 126,768
Revenue growth (%) 54.0% 31.1% 14.4% 28.0% 23.7%
EBITDA (Rs Mln) 3,044 5,522 8,578 10,886 13,925
EV (Rs Mln) 120,371
EBITDA Margin (%) 5.7% 7.9% 10.7% 10.6% 11.0%
EV (US$ Mln) 2,675
EBITDA growth (%) 78.6% 81.4% 55.3% 26.9% 27.9%
BV (Rs Mln)* 24,328
BV (US$ Mln) 541
PBT(Rs Mln) 180 -243 3,368 5,418 7,491
PBT Margin (%) 0.3% -0.3% 4.2% 5.3% 5.9%
Abs Rel
PBT growth (%) -77.4% NA NA 60.9% 38.3%
3 yr Performance -13.4% -27.1%
Net profit (Rs Mln) -292 -143 2,186 3,296 3,960
5 yr Performance 77.8% -68.4%
Net profit growth (%) NA -51% NA 51% 20%
EPS (Rs) 1.5 0.6 11.0 15.7 20.0
Avg daily value (Rs '000) 50,453 EPS growth (%) -44% -61% 1830% 43% 28%
Valuation

Castrol India Ltd (CSTRL IN EQUITY)

Face Value (Rs) 10
CY08 CY09 CY10E CY11E CY12E
CMP (Rs) 372
Revenue (Rs Mln) 22,623 23,961 26,291 28,253 30,055
Revenue growth (%) 15.1% 5.9% 9.7% 7.5% 6.4%
EBITDA (Rs Mln) 3,996 5,752 7,157 7,701 8,197
EV (Rs Mln) 69,643
EBITDA Margin (%) 17.7% 24.0% 27.2% 27.3% 27.3%
EV (US$ Mln) 1,548
EBITDA growth (%) 21.7% 43.9% 24.4% 7.6% 6.4%
BV (Rs Mln)* 7,452
BV (US$ Mln) 166
PBT(Rs Mln) 4,121 5,806 6,984 7,568 8,340
PBT Margin (%) 18.2% 24.2% 26.6% 26.8% 27.7%
Abs Rel
PBT growth (%) 21.3% 40.9% 20.3% 8.4% 10.2%
Net profit (Rs Mln) 2,633 3,873 4,754 5,098 5,586
EPS (Rs) 21.3 31.3 38.5 41.2 45.2
Valuation
Pidilite Industries Ltd (PIDI IN EQUITY)

Face Value (Rs) 1
CMP (Rs) 110
Revenue (Rs Mln) 17,082 19,863 21,915 24,138 27,682
Revenue growth (%) 36.9% 16.3% 10.3% 10.1% 14.7%
EBITDA (Rs Mln) 2,379 2,448 4,086 4,676 5,501
EV (Rs Mln) 61,415
EBITDA Margin (%) 13.9% 12.3% 18.6% 19.4% 19.9%
EV (US$ Mln) 1,365
EBITDA growth (%) 31.1% 2.9% 66.9% 14.4% 17.6%
BV (Rs Mln)* 6,939
BV (US$ Mln) 154
PBT(Rs Mln) 2,086 1,278 3,178 4,151 4,958
PBT Margin (%) 12.2% 6.4% 14.5% 17.2% 17.9%
Abs Rel
PBT growth (%) 43.2% -38.7% 148.7% 30.6% 19.4%
Net profit (Rs Mln) 1,727 1,111 2,770 3,535 4,165
EPS (Rs) 3.4 2.2 5.4 6.9 8.1
Valuation

Educomp Solutions Ltd (EDSL IN EQUITY)

Face Value (Rs) 2
CMP (Rs) 541
Revenue (Rs Mln) 2,860 6,370 10,405 14,013 16,981
Revenue growth (%) 160.0% 122.7% 63.3% 34.7% 21.2%
EBITDA (Rs Mln) 1,285 3,078 4,858 6,628 8,348
EV (Rs Mln) 56,219
EBITDA Margin (%) 44.9% 48.3% 46.7% 47.3% 49.2%
EV (US$ Mln) 1,249
EBITDA growth (%) 148.1% 139.5% 57.8% 36.4% 26.0%
BV (Rs Mln)* 4,620
BV (US$ Mln) 103
PBT(Rs Mln) 1,059 2,170 4,392 5,341 6,574
PBT Margin (%) 37.0% 34.1% 42.2% 38.1% 38.7%
Abs Rel
PBT growth (%) 131.7% 104.9% 102.4% 21.6% 23.1%
Net profit (Rs Mln) 708 1,397 2,767 3,415 4,110
EPS (Rs) 8.3 15.4 28.6 35.9 43.5
Valuation
Everonn Education Ltd (EEDU IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 339
Revenue (Rs Mln) 916 1,446 2,934 3,913 4,831
Revenue growth (%) 112.8% 57.9% 102.9% 33.4% 23.5%
EBITDA (Rs Mln) 337 512 1,009 1,329 1,811
EV (Rs Mln) 5,056
EBITDA Margin (%) 36.8% 35.4% 34.4% 34.0% 37.5%
EV (US$ Mln) 112
EBITDA growth (%) 93.8% 51.9% 97.1% 31.7% 36.3%
BV (Rs Mln) 2,595
BV (US$ Mln) 58
PBT(Rs Mln) 217 340 658 902 1,184
PBT Margin (%) 23.7% 23.5% 22.4% 23.1% 24.5%
Abs Rel
PBT growth (%) 266.6% 56.7% 93.5% 37.1% 31.3%
Net profit (Rs Mln) 138 220 454 586 818
EPS (Rs) 10.8 14.9 30.0 38.7 54.0
Valuation

Fortis Healthcare Ltd (FORH IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 135
Revenue (Rs Mln) 4,978 6,208 9,267 15,254 18,609
Revenue growth (%) -3.0% 24.7% 49.3% 64.6% 22.0%
EBITDA (Rs Mln) 121 796 1,404 2,862 3,865
EV (Rs Mln) 50,045
EBITDA Margin (%) 2.4% 12.8% 15.2% 18.8% 20.8%
EV (US$ Mln) 1,112
EBITDA growth (%) -75.8% 557.9% 76.4% 103.8% 35.0%
BV (Rs Mln)* 17,621
BV (US$ Mln) 392
PBT(Rs Mln) -589 212 749 1,568 2,583
PBT Margin (%) -11.8% 3.4% 8.1% 10.3% 13.9%
Abs Rel
PBT growth (%) -36.9% NA 253.3% 109.3% 64.7%
Net profit (Rs Mln) -605 171 715 1,320 2,088
Net profit growth (%) -40% NA 318% 85% 58%
EPS (Rs) -2.5 0.6 2.6 4.0 6.0
Avg daily value (Rs '000) 64,552 EPS growth (%) -58% NA 309% 53% 50%
Valuation
Shareholding Pattern P/E (x) -54.2 210.9 51.5 33.8 22.5
Apollo Hospitals Enterprises (APHS IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 740
Revenue (Rs Mln) 12,163 16,142 20,264 23,977 27,294
Revenue growth (%) 28.1% 32.7% 25.5% 18.3% 13.8%
EBITDA (Rs Mln) 1,849 2,302 3,013 3,447 4,218
EV (Rs Mln) 49,579
EBITDA Margin (%) 15.2% 14.3% 14.9% 14.4% 15.5%
EV (US$ Mln) 1,102
EBITDA growth (%) 17.8% 24.5% 30.9% 14.4% 22.4%
BV (Rs Mln) 15,418
BV (US$ Mln) 343
PBT(Rs Mln) 1,106 1,458 2,016 2,016 2,319
PBT Margin (%) 9.1% 9.0% 9.9% 8.4% 8.5%
Abs Rel
PBT growth (%) -13.5% 31.8% 38.3% 0.0% 15.0%
Net profit (Rs Mln) 732 969 1,339 1,390 1,541
Net profit growth (%) -23% 32% 38% 4% 11%
EPS (Rs) 14.1 17.9 22.3 23.3 28.1
Valuation

Indian Hotels Co Ltd (IH IN EQUITY)

Face Value (Rs) 1
CMP (Rs) 103
Revenue (Rs Mln) 29,200 26,005 24,566 32,076 37,460
Revenue growth (%) 16.5% -10.9% -5.5% 30.6% 16.8%
EBITDA (Rs Mln) 8,933 5,586 3,981 8,280 9,736
EV (Rs Mln) 117,650
EBITDA Margin (%) 30.6% 21.5% 16.2% 25.8% 26.0%
EV (US$ Mln) 2,614
EBITDA growth (%) 25.2% -37.5% -28.7% 108.0% 17.6%
BV (Rs Mln)* 32,984
BV (US$ Mln) 733
PBT(Rs Mln) 6,247 1,840 -382 3,361 4,641
PBT Margin (%) 21.4% 7.1% -1.6% 10.5% 12.4%
Abs Rel
PBT growth (%) 6.4% -70.5% NA NA 38.1%
Net profit (Rs Mln) 3,777 282 -1,229 2,075 3,245
Net profit growth (%) -3% -93% NA NA 56%
EPS (Rs) 6.3 0.2 -2.6 3.3 4.6
Avg daily value (Rs '000) 42,965 EPS growth (%) 10% -96% NA NA 38%
Valuation
Shareholding Pattern P/E (x) 16.5 429.2 -39.6 31.2 22.6
East India Hotels (EIH IN EQUITY)

Face Value (Rs) 2
CMP (Rs) 115
Revenue (Rs Mln) 11,619 9,624 8,450 12,989 14,395
Revenue growth (%) 15.7% -17.2% -12.2% 53.7% 10.8%
EBITDA (Rs Mln) 4,003 2,045 2,944 3,838 4,338
EV (Rs Mln) 59,876
EBITDA Margin (%) 34.5% 21.2% 34.8% 29.5% 30.1%
EV (US$ Mln) 1,331
EBITDA growth (%) 21.0% -48.9% 44.0% 30.4% 13.0%
BV (Rs Mln) 13,946
BV (US$ Mln) 310
PBT(Rs Mln) 3,671 2,795 1,066 2,552 3,705
PBT Margin (%) 31.6% 29.0% 12.6% 19.6% 25.7%
Abs Rel
PBT growth (%) 42.3% -23.9% -61.9% 139.4% 45.2%
Net profit (Rs Mln) 2,271 1,721 718 1,631 2,314
Net profit growth (%) 43% -24% -58% 127% 42%
EPS (Rs) 5.7 4.3 1.7 4.4 6.2
Avg daily value (Rs '000) 11,538 EPS growth (%) 47% -24% -61% 160% 41%
Valuation

Hotel Leelaventure Ltd (LELA IN EQUITY)

Face Value (Rs) 2
CMP (Rs) 46
Revenue (Rs Mln) 5,145 4,522 4,333 6,223 8,081
Revenue growth (%) 23.8% -12.1% -4.2% 43.6% 29.9%
EBITDA (Rs Mln) 2,313 1,565 1,266 2,406 3,171
EV (Rs Mln) 41,383
EBITDA Margin (%) 45.0% 34.6% 29.2% 38.7% 39.2%
EV (US$ Mln) 920
EBITDA growth (%) 18.3% -32.3% -19.1% 90.0% 31.8%
BV (Rs Mln)* 19,396
BV (US$ Mln) 431
PBT(Rs Mln) 2,217 1,925 606 1,231 1,568
PBT Margin (%) 43.1% 42.6% 14.0% 19.8% 19.4%
Abs Rel
PBT growth (%) 18.1% -13.2% -68.5% 103.1% 27.4%
Net profit (Rs Mln) 1,485 1,449 410 641 1,326
Net profit growth (%) 18% -2% -72% 56% 107%
EPS (Rs) 3.9 3.8 1.1 1.6 2.7
Avg daily value (Rs '000) 20,888 EPS growth (%) 16% -2% -72% 50% 67%
Valuation
Zee Entertainment Enterprise (Z IN EQUITY)

Face Value (Rs) 1
CMP (Rs) 275
Revenue (Rs Mln) 18,353 21,773 21,966 28,293 32,293
Revenue growth (%) 21.1% 18.6% 0.9% 28.8% 14.1%
EBITDA (Rs Mln) 5,479 5,491 6,086 8,290 9,927
EV (Rs Mln) 134,711
EBITDA Margin (%) 29.9% 25.2% 27.7% 29.3% 30.7%
EV (US$ Mln) 2,994
EBITDA growth (%) 61.7% 0.2% 10.8% 36.2% 19.7%
BV (Rs Mln)* 33,995
BV (US$ Mln) 755
PBT(Rs Mln) 5,792 5,430 6,682 9,198 11,039
PBT Margin (%) 31.6% 24.9% 30.4% 32.5% 34.2%
Abs Rel
PBT growth (%) 68.3% -6.3% 23.1% 37.7% 20.0%
Net profit (Rs Mln) 4,165 5,222 4,775 6,177 7,429
Net profit growth (%) 70% 25% -9% 29% 20%
EPS (Rs) 8.8 11.8 11.5 12.8 15.2
Avg daily value (Rs '000) 59,112 EPS growth (%) 58% 33% -2% 11% 19%
Valuation

Sun Tv Network Ltd (SUNTV IN EQUITY)

Face Value (Rs) 5
CMP (Rs) 403
Revenue (Rs Mln) 8,699 10,393 14,528 17,264 20,030
Revenue growth (%) 28.3% 19.5% 39.8% 18.8% 16.0%
EBITDA (Rs Mln) 5,995 7,387 10,908 12,800 14,751
EV (Rs Mln) 156,546
EBITDA Margin (%) 68.9% 71.1% 75.1% 74.1% 73.6%
EV (US$ Mln) 3,479
EBITDA growth (%) 25.4% 23.2% 47.7% 17.3% 15.2%
BV (Rs Mln) 18,857
BV (US$ Mln) 419
PBT(Rs Mln) 5,144 5,694 8,007 9,933 12,119
PBT Margin (%) 59.1% 54.8% 55.1% 57.5% 60.5%
Abs Rel
PBT growth (%) 32.9% 10.7% 40.6% 24.1% 22.0%
Net profit (Rs Mln) 3,130 3,402 5,017 6,554 7,846
EPS (Rs) 8.3 9.4 13.2 16.6 19.8
Valuation
Promoter Holding (%) 77%
Free Float Capital (%) 23% Price/ Sales (X) 18.3 15.3 10.9 9.2 7.9
DB Corp (DBCL IN EQUITY)

Face Value (Rs) 10
CMP (Rs) 233
Revenue (Rs Mln) 1,958 2,158 10,505 12,097 14,001
Revenue growth (%) 12.5% 10.2% 386.8% 15.2% 15.7%
EBITDA (Rs Mln) 1,829 1,473 3,429 3,865 4,561
EV (Rs Mln) 48,931
EBITDA Margin (%) 93.4% 68.3% 32.6% 32.0% 32.6%
EV (US$ Mln) 1,087
EBITDA growth (%) 95.6% -19.5% 132.8% 12.7% 18.0%
BV (Rs Mln) 6,487
BV (US$ Mln) 144
PBT(Rs Mln) 1,328 781 2,805 3,391 3,982
PBT Margin (%) 67.8% 36.2% 26.7% 28.0% 28.4%
Abs Rel
PBT growth (%) 117.7% -41.2% 259.2% 20.9% 17.4%
Net profit (Rs Mln) 698 359 1,748 2,333 2,513
EPS (Rs) 5.9 2.0 10.1 12.9 14.4
Valuation

Jagran Prakashan (JAGP IN EQUITY)

Face Value (Rs) 2
CMP (Rs) 109
Revenue (Rs Mln) 7,496 7,549 9,273 10,825 12,195
Revenue growth (%) 25.3% 0.7% 22.8% 16.7% 12.7%
EBITDA (Rs Mln) 1,653 1,672 2,822 3,295 3,773
EV (Rs Mln) 32,604
EBITDA Margin (%) 22.1% 22.1% 30.4% 30.4% 30.9%
EV (US$ Mln) 725
EBITDA growth (%) 42.0% 1.1% 68.8% 16.8% 14.5%
BV (Rs Mln) 6,126
BV (US$ Mln) 136
PBT(Rs Mln) 1,457 1,352 2,592 3,019 3,520
PBT Margin (%) 19.4% 17.9% 28.0% 27.9% 28.9%
Abs Rel
PBT growth (%) 26.6% -7.2% 91.7% 16.5% 16.6%
Net profit (Rs Mln) 981 916 1,759 2,015 2,339
EPS (Rs) 3.3 3.0 5.8 6.7 7.8
Valuation
Bharti Airtel Ltd (BHARTI IN EQUITY)

Face Value (Rs) 5
CMP (Rs) 257
Revenue (Rs Mln) 270,122 373,520 418,294 422,286 472,588
Revenue growth (%) 46.6% 38.3% 12.0% 1.0% 11.9%
EBITDA (Rs Mln) 114,765 154,046 195,718 163,334 181,549
EV (Rs Mln) 1,062,820
EBITDA Margin (%) 42.5% 41.2% 46.8% 38.7% 38.4%
EV (US$ Mln) 23,618
EBITDA growth (%) 54.7% 34.2% 27.1% -16.5% 11.2%
BV (Rs Mln)* 291,347
BV (US$ Mln) 6,474
PBT(Rs Mln) 73,115 85,910 108,954 98,818 114,950
PBT Margin (%) 27.1% 23.0% 26.0% 23.4% 24.3%
Abs Rel
PBT growth (%) 56.3% 17.5% 26.8% -9.3% 16.3%
Net profit (Rs Mln) 64,954 80,441 93,615 82,517 92,850
Net profit growth (%) 58% 24% 16% -12% 13%
EPS (Rs) 16.9 20.7 24.4 21.6 24.3
Avg daily value (Rs '000) 514,056 EPS growth (%) 57% 23% 18% -12% 13%
Valuation

Explanation of Investment Rating
Investment Rating Expected return

(over 12-Month period from date of initial rating )
Buy >15%
Hold 5% to 15%
Sell <5%

Disclaimer
This report or any portion hereof may not be reprinted, sold or redistributed without the written consent ot Ambit Capital. AMBIT
Capital Research is disseminated and available primarily electronically, and, in some cases, in printed form.
Additional information on recommended securities is available on request.
Ambit Capital Pvt. Ltd. DISCLAIMER

Ambit House, 3rd Floor
1. If you are dissatisfied with the contents of this complimentary Report or with the terms of this Disclaimer,
449, Senapati Bapat Marg, Lower Parel, your sole and exclusive remedy is to stop using the Report and AMBIT Capital Private Limited ("AMBIT
Mumbai 400 013, India. Capital") shall not be responsible and/ or liable in any manner.
Phone : +91-22-3043 3000
Fax : +91-22-3043 3100 2. This Report has been issued by AMBIT Capital for the information of its clients/potential clients only.
3. If this Report is received by any client of an affiliate of AMBIT Capital, in addition to the provisions setout
in this Disclaimer, its provision to the recipient is subject to the terms of business in place between the
AMBIT Capital and such affiliate.
4. AMBIT Capital is a Stock Broker registered with Securities and Exchange Board of India Limited (SEBI) and
so it is regulated by SEBI.
5. This Report is not and should not be construed as an investment advice to any client to acquire, subscribe,
purchase, sell, dispose of, retain any securities or an offer to sell or the solicitation of an offer to purchase
or subscribe for any investment or as an official endorsement of any investment.
6. If 'Buy', 'Sell', or 'Hold' recommendation is made in this Report such recommendation or view or opinion
expressed on investments in this Report is not intended to constitute investment advice and should not be
intended or treated as a substitute for necessary review or validation or any professional advice. The views
expressed in this Report are those of the analyst which are subject to change and do not represent to be
an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed
herein.
7. AMBIT Capital makes best endeavour to ensure that the analyst(s) use current, reliable, comprehensive
information and obtain such information from sources which the analyst(s) believes to be reliable. How-
ever, such information has not been independently verified by AMBIT Capital or the analyst(s).
8. The information, opinions and views contained within this Report are based upon publicly available
information and rates of taxation at the time of publication which are subject to change from time to time
without any prior notice. Reports may be updated anytime without any prior notice to any and/ or all
client(s).
9. AMBIT Capital makes no guarantee, representation or warranty, express or implied; and accepts no
responsibility or liability as to the accuracy or completeness or currentness of the information in this Report.
10. Please note that past performance is not necessarily a guide to evaluate future performance.
11. AMBIT Capital and its affiliates and their respective officers directors and employees may hold positions in
any securities mentioned in this Report (or in any related investment) and may from time to time add to or
dispose of any such securities (or investment).
12. Affiliate(s) of AMBIT Capital may from time to time render advisory and other services to companies being
referred to in this Report and receive compensation for the same.
13. AMBIT Capital may act as a market maker or risk arbitrator or liquidity provider or may have assumed an
underwriting commitment in the securities of companies discussed in this Report (or in related investments)
or may sell them or buy them from clients on a principal to principal basis or may be involved in proprietary
trading and may also perform or seek to perform investment banking or underwriting services for or
relating to those companies and may also be represented in the supervisory board or on any other
committee of those companies.
14. AMBIT Capital may sell or buy any securities or make any investment which may be contrary to or
inconsistent with this Report.
15. This Report should be read and relied upon at the sole discretion and risk of the client.
16. The value of any investment made at your discretion based on this Report or income therefrom may be
affected by changes in economic, financial and/ or political factors and may go down as well as up and you
may not get back the full or the expected amount invested. Some securities and/ or investments involve
substantial risk and are not suitable for all investors.
17. This Report is being supplied to you solely for your information and may not be reproduced, redistributed
or passed on, directly or indirectly, to any other person or published, copied in whole or in part, for any
purpose. Neither this Report nor any copy of it may be taken or transmitted or distributed, directly or
indirectly within India or into any other country including United States (to US Persons), Canada or Japan
or to any resident thereof. The distribution of this Report in other jurisdictions may be strictly restricted and/
or prohibited by law, and persons into whose possession this Report comes should inform themselves about
such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition.
18. Neither AMBIT Capital nor its affiliates or their directors, employees, agents or representatives, shall be
responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this Report or
the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the
Report or inability to use or access our service or this Report or for any loss or damages whether direct or
indirect, incidental, special or consequential including without limitation loss of revenue or profits or any
loss or damage that may arise from or in connection with the use of or reliance on this Report or inability
to use or access our service or this Report.

India Consumer Thematic Report - 030610

Enviado por

Dados do documento

Descrição original:

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

India Consumer Thematic Report - 030610

Enviado por

Direitos autorais:

Formatos disponíveis

AMBIT CAPITAL Thursday 03, June 2010

Source : Illustration titled ‘Welcome to Bombay’ by Mario de Miranda

Macro Trends .................................................................................................................. 6

Segment Trends ............................................................................................................ 15

Food & Beverages ..................................................................................................................................... 17

Personal care ............................................................................................................................................ 28

Home care ................................................................................................................................................ 33

White Goods ............................................................................................................................................. 38

Clothing and Footwear ............................................................................................................................. 41

Consumer Services ........................................................................................................ 44

Travel & Tourism ....................................................................................................................................... 45

Organized Retailing .................................................................................................................................. 48

Healthcare Services ................................................................................................................................... 50

Corporate Analysis ........................................................................................................ 58

Historical performance .............................................................................................................................. 60

Recommended Consumer Portfolio ............................................................................... 63

Risks and Challenges .................................................................................................... 66

CONSUMER SECTOR 03 JUNE 2010 2

About Cutting Chai, Costa Coffee

Exhibit 2: Recommended consumer portfolio

Others 13.6 10.7% 0.0%

Discretionary Total 36.5 28.7% 31.5%

CONSUMER SECTOR 03 JUNE 2010 4

Exhibit 2: Recommended consumer portfolio (contd.)

Consumer Services Total 36.0 28.3% 35.0%

TOTAL 127.0 100.0% 100.0%

CONSUMER SECTOR 03 JUNE 2010 5

About Cutting Chai, Costa Coffee and everything

Comparatively, India’s aggregate and percentage of household consumption is

Exhibit 4: Comparative macro statistics

India China Brazil Russia US UK Canada Australia S Korea

CONSUMER SECTOR 03 JUNE 2010 7

Heterogenity of Indian Consumer

These trends of heterogeneity in our opinion will continue to drive importance of

Exhibit 6: Consumer India in terms of Income Quintiles

CONSUMER SECTOR 03 JUNE 2010 8

Mid and Small town India (Bharat) has made

CONSUMER SECTOR 03 JUNE 2010 9

Exhibit 8: Middle class penetration

Mobile phone 76.8 79.1 76.2

Television 90.5 87.4 85.8

DVD player 63.1 63.2 59.2

Choice Explosion in several categories

Exhibit 9: Increase in consumer choices

Consumer Durables (no. of models)

CONSUMER SECTOR 03 JUNE 2010 10

Exhibit 10: Top 100 global marketers (by media spend)

CONSUMER SECTOR 03 JUNE 2010 11

Youth and Women likely to stay key influencers

Exhibit 11: Monthly spend across key categories

Brand relevance is changing very fast

Exhibit 13: Brand survey ranking top 10

Multiplier benefits from banking, mobile and

Exhibit 15: Purpose of accessing Internet in 2009 (%)

Exhibit 16: Usage patterns of internet through mobile phone (2009)

Info Search, 23% Communication,

CONSUMER SECTOR 03 JUNE 2010 14

We have estimated likely changes in wallet share in the forthcoming 10 years. It

Exhibit 17: Share of wallet based on PFCE data

We expect healthy growth of 14% in household consumption expenditure for the

Exhibit 18: Growth in private final consumption expenditure (PFCE)

CONSUMER SECTOR 03 JUNE 2010 15

 In the food and beverages segment, quick service restaurants