FMCG - GS

14 March 2018 | 5:06PM IST
The Asian Consumer
The Indian rural consumer: Consumption re-boot?
India’s countryside comprises the majority of the population but consumption is less Aditya Soman
+91(22)6616-9345 |
than half that compared to cities. However, rural consumer spending is set to see a aditya.soman@gs.com
Goldman Sachs India SPL
significant boost as government initiatives focus on pushing up rural incomes.
Aditya Gupta
Already rural consumers are spending more on snacks and hair products, while +91(22)6616-9046 |
aditya.y.gupta@gs.com
increased access to the internet is boosting demand for aspirational goods. Goldman Sachs India SPL
To get an on-the-ground feel we interview retailers to understand the shifting

spending patterns and profile the “sachet revolution” in shampoo to see what
categories it can extend to. We also report on what surprised us in our visits -
including how premium products were commonly available and the increasing use of
local brands. We lay out our three key investment themes - 1) Rural aspirations
similar to urban, but at lower prices; 2) Packaged food and beverage is the largest
revenue pool; 3) Product differentiation and low cost are top attributes. Top picks:
n Britannia Industries (CL-Buy) - India’s market leader in biscuits focused on

premiumization by launching affordable individual packets for the rural population.
n Marico (Sell) - Marico’s Saffola (edible oil) faces intense competitive pressure
from products like rice bran oil while its Value Added Hair Oil operates in an
over-crowded market.
Exhibit 1: Currently rural spending is 38% of urban, but we see US$233bn extra income in the next
five years
233 646
Aggregate income (US$,bn)
$ $
91 413
$ $
210
$
112
$
2007 2007-12 2012-17 2017 2017-22E 2022E
Source: NSSO, Goldman Sachs Global Investment Research
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm 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. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
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analysts with FINRA in the U.S.
This document is being provided for the exclusive use of ANUROOP SREEKUMAR at LIONROCK CAPITAL PTE LTD
Goldman Sachs The Asian Consumer
Table of Contents
PM Summary 4
How does rural consumption differ from urban? 6
Who are the rural consumers? 9
Food retains the flavour, but Mobility & Connectivity and Well-being growing faster 14
Rural affordability: All about price points 22
What will lead to faster/slower growth than our estimates? 25
Appendix 27
Disclosure Appendix 32
14 March 2018 2
Exhibit 2: At a glance
696%0-2(-%ŭ7'32791)67in numbers
BIG POPULATION, LOW INCOME LARGE NUMBER OF DEPENDENTS
890mn, $464 518mn

per capita income which is ~58% of total rural population
GOVERNMENT SUPPORT GROWTH MARKETS NEXT 5 YEARS
$34bn Health &

Education
$8.5bn 49mn $31bn Food &

beverage
The amount spent by
Number of people
central government so far
on job scheme MGNREGA
in FY18 (YTD)
availing benefit under the
scheme in FY18 (YTD)
$30bn Telecom and
Transportation
AGRICULTURAL ECONOMY EATING SPEND
90mn $150bn Total size of the food &

beverage market
Of 168mn rural households depend on
agricultural income 70% of which is spent on fresh & dairy
NOW BANKED BUYS SMALL SKUs

Rural households have a bank account Size of Parachute
99%+ now with ~183mn accounts opened

under central government scheme over 2.3ml
Advansed sachet ,
one of the smallest
the last four years available in rural
markets.
SMALL LANDHOLDING SMALL IS BIG

of rural households Of shampoos sold
<2% own more than 4HA of

land
80% (by volume) are in
packs smaller than
8ml
DEPEND ON DAILY WAGES
53% Of rural workers earn daily wages
Source: Census, MGNREGA, Finance Ministry of India, NSSO, Euromonitor, PMJDY, Goldman Sachs Global Investment Research
14 March 2018 3
PM Summary
Why read this report?
1. Rural vs Urban - We detail the key differences that make up a key pillar of the economy.
2. A visit to the countryside - On-the-ground details and unique analysis of rural data.
3. Investment opportunities - Who will benefit from the rural theme? BRIT (Buy, on CL), MRCO (Sell)
While the rural population makes up the overwhelming majority of India’s workforce,
consumption growth there has been tepid over the past five years compared to the fast
rates seen in 2007-12, leaving rural spending currently making up less than half of urban
spending in 2017. However, with the government’s increased emphasis on boosting
incomes in the countryside, and following two years of healthy summer rains, we
believe rural spending will double to 8.5% per annum over the next five years and
contribute more meaningfully to the country’s economy. In this report we take a closer
look at the rural consumer and find three investment themes:
(1) Rural consumers want similar products to urban consumers, but lower prices
Improved internet connectivity, with mobile phones now ubiquitous in the countryside,
and regional television channels also covering most of the country mean consumer
companies can now educate consumers about products far better than 10 years ago.
Consequently, consumers in the rural and urban now demand similar products, which is
a change from before when rural products were usually basic and low quality.
Investment theme#1: Companies that can provide aspirational products like branded
cookies and hair conditioner at affordable price points are best placed to benefit from a
rural recovery.
Our top pick Britannia (Buy, on CL) has been launching an increasing selection of
aspirational products in rural India like premium cookies at the Rs5/Rs10 price-points. On
the other hand, a very small proportion of Marico (Sell) sales can be driven by price-point
packs, especially for Saffola (edible oil) and value-added hair oils.
(2) Packaged food & beverages offer biggest growth potential
With over half of household spending in the countryside going on food, we expect
packaged food and beverages to grow faster than other large staples categories like
personal care and home care. We see the outperformance to be driven by an
improvement in food packaging technology, better transport infrastructure and a focus
on cost reduction by consumer companies. We expect absolute spending towards food
and beverages to increase by US$31 bn over 2017-22, rising to US$182 bn.
14 March 2018 4
Investment theme#2: Companies with a large rural exposure to packaged food and
beverages are best placed.
BRIT (Buy, on CL) and NEST (Neutral) have the largest rural exposure to packaged food
and beverages in our coverage.
(3) Product differentiation and cost are more important than brand or distribution
Another surprising find in our rural study is that there is a significant increase in rural
competition as companies find it easier to reach even remote parts of the country
thanks to a better supply-chain. Retailers are then competing by offering products below
the maximum retail price to attract consumers, leading to a subtle shift in pricing power
away from the traditional consumer brands. Consequently, the value of differentiated
products or lower costs is even higher, to retain consumers.
Investment theme#3: Companies with more product differentiation and lower cost of
delivery will perform better than companies relying on strong brands to pull consumers
to their products.
MRCO (Sell) has relied on its strong brand-equity to charge a premium, which is more
likely to come under pressure with higher retail competition. On the other hand, BRIT
(Buy, on CL) has made bigger investment in more differentiated rural products and has
demonstrated lower distribution cost.
Exhibit 3: We prefer companies offering affordable premium products and focusing on lowering supply chain costs
Coverage rural overview
RURAL STRATEGY
Company Rural's contribution to India sales What we like? What can be better?
Ɣ Premium brands at affordable price points Ɣ Distribution network is improving
Britannia Industries Ltd. 20%
Ɣ Focus on reduction in cost of delivery Ɣ Increasing presence of other snack products
Ɣ Strong brand recall and distribution Ɣ Affordable SKUs of premium products
Colgate Palmolive (India) 50%
Ɣ More natural/Ayurvedic product variants
Ɣ High product availability across retail stores Ɣ Lower dependence on wholesale channel
Dabur India 55%
Ɣ Strong naturals brands Ɣ More price points beyond personal care
Ɣ Distribution reach Ɣ Lower dependence on wholesale channel
Emami Ltd. 60%
Ɣ Strong rural brands Ɣ Lower dependence on seasonal products
Ɣ Increased focus on price points in new categories
Godrej Consumer Products Ltd. 25% Ɣ Better rural distribution beyond soaps
Ɣ Strong brands and distribution Ɣ Rural SKUs for naturals products
Hindustan Unilever 55%
Ɣ Effective price point strategy Ɣ F&B under-represented in rural India
Ɣ Strong brands in coconut oil Ɣ Rural SKUs for Saffola edible oil
Marico 35%
Ɣ Better rural distribution beyond coconut oil
Ɣ Better distribution beyond prepared dishes & confectionery
Ɣ Strong brands in prepared dishes and confectionery
Nestle India 20% Ɣ More affordable milk products
Source: Company data, Goldman Sachs Global Investment Research
14 March 2018 5
How does rural consumption differ from urban?
We believe that rural consumption is increasingly converging with urban India as rural
consumers are better informed through better connectivity. However some key
differences remain:
(1) Size of the opportunity relative to cost of service
While the rural working population is over 2X that of the urban population, the aggregate
rural income pool is only 38% of the urban income pool. Consequently, urban India is a
much larger opportunity and due to its concentration in a few large cities, significantly
less expensive to serve than rural India where the population is spread over 640,000
thousand census villages.
(2) Affordability stretched even for basic products/services
Rural incomes are significantly lower than urban incomes and consequently rural
affordability is more stretched for the same product. In addition, a large proportion of the
rural population is dependent on daily wages leading to less disposable income at any
point of time, and thereby lower ticket purchases.
(3) Aspirations more local at present, but this can change over time
Urban aspirations have been influenced by global trends significantly faster than rural
ones due to greater interaction with global forces, better English literacy, and travel
opportunities. On the other hand, rural consumption was dominated by trends. While
this is changing with more media penetration, rural media is still dominated by regional
languages leading to slower adoption of global trends, at least for now.
(4) Food and beverage a significantly larger proportion of spending, but this is
more a function of lower income than an urban/rural difference
With rural income being 17% of urban income (on average, at present), we find that a
larger proportion (58%) of rural consumption is skewed towards food and beverage as
compared with other consumption in urban India, where food and beverage accounts for
33% of spending.
14 March 2018 6
Exhibit 4: Key data - Urban vs rural India (2017)
Population (mn) 833 6,402

Income per worker (US$)
377
1,109
Urban Rural Urban Rural
2.1 48.4%
Mobile broadband users as a %
Affordability - hours of work to of mobile users
afford US$1 spend
11.7%
0.4
87%
F&B spend - % of total 58% Television penetration
consumption
52%
33%
Source: BARC, NSSO, TRAI, Goldman Sachs Global Investment Research
14 March 2018 7
5 things that surprised us most in our rural visits?
1. Demand for and availability of premium products such as cookies, conditioners, and chocolates,
albeit at low price points.
2. Small size of the SKUs sold to make them available at Re1/Rs5/Rs10 price-points - Grammage can be
as low as 2g for a sachet of oil or 35g pack for instant noodles or 35g pack for cookies.
3. Size of store/village where the company salespeople visit - Company salespeople visit stores with
daily sales <Rs10,000 (US$160), across all products. The store owner would earn less than Rs1,000
(US$16) per day in gross revenue.
4. Increased penetration of local brands across consumer staples categories - We found local brands,
often cheaper than the national brands, across product categories competing with national brands. This is
especially true in large established categories such as soaps, detergents, and edible oil.
5. Illicit cigarettes are harder to find than we originally expected. While we did come across illicit
cigarettes, the areas we visited had a lower proportion than statistics suggest.
14 March 2018 8
Who are the rural consumers?
We broadly classify rural consumers into 3 cohorts by the source of their income: (1)
Land-owners who earn a majority of their income from agricultural profits, make up
about 32% of the rural working population but account for over 50% of the rural income
pool, (2) The Labour cohort constitutes rural wage earners employed for over 6 months
a year and this cohort is the largest, with 164 mn workers and accounts for 39% of the
aggregate rural income pool; and (3) The Emerging labour cohort is made up of rural
wage earners with total employment of less than 6 months a year.
Exhibit 5: Labour and Emerging Labour make up for over 2/3rds of the rural workforce
India - Rural consumer Cohorts, FY2017
Working population Average annual INDIA: RURAL COHORTS % of rural working Aggregate income.
(mn) income, 2017 (US$) population 2017 ($bn)
RURAL LAND-OWNERS
118 1,755 Depend on agriculture with land 32% 207
holdings > 0.4 hectares
RURAL LABOUR
164 971 Agricultural and non-agricultural 44% 159
labour with wages being primary
income source
EMERGING LABOUR
90 514 Dependent on wages 24% 46
but employed for less
than 6 months a year
Total/
372 1,109 413
Average:
Source: NSSO, Labour Bureau, Census, Goldman Sachs Global Investment Research
A little over three-fourths of the Land-owners income is a function of sales of farm

produce, with 18% of income from wages. The primary income drivers for this cohort
are increases in crop prices, better yields and wage inflation. Increase in land prices
have also been a significant driver of income growth, especially in rural areas on the
periphery of large cities.
On the other hand, Labour is largely dependent on wages, with the primary income
driver being wage inflation and to a smaller extent government driven employment
schemes. Income growth for this cohort saw significant acceleration between
2007-2012, led by an increase in the marginal demand for labour due to a spurt in
construction activity, higher government subsidies and high food inflation.
The Emerging labour cohort is largely dependent on wages from government

employment guarantee schemes and temporary jobs in sectors such as
construction, agricultural labour, mining, amongst others. Income growth for this cohort
is largely determined by government wage rate and the marginal demand for part-time
labour.
‘Land-owners’ to remain the main drivers of growth despite seeing highest

migration
Rural land-owners contributed to 50% of aggregate rural income in 2017, despite

forming only 32% of the rural workers. While we forecast the cohort to account for only
29% of rural workers in 2022E, we expect this cohort to see the highest income
14 March 2018 9
growth, benefitting from higher crop prices and better agricultural technology. We
forecast the income CAGR for this cohort to accelerate to 10.5% CAGR over the next 5
years as compared with 6% (in USD) over the past 5 years. However, we do not see a
significant increase in the overall income contribution as this cohort will see a decline in
overall number of workers as some workers will shift to urban India.
Exhibit 6: Rural India contributes nearly 68% to India’s working population
POPULATION
INDIA INDIA RURAL RURAL WORKING

WORKING WORKING EARNING > $1,OO0
1,300MN 544MN 372MN 118MN
Source: Census, Labor Bureau, Goldman Sachs Global Investment Research
Exhibit 7: We expect total rural income to rise to US$646 bn in 2022E from US$413 bn in 2017
Evolution of rural consumer cohorts
Rural cohorts 2007 2012 2017 2022E
Working Annual income Working population Annual income Working population Annual income Working population Annual income
population (mn) (US$) (mn) (US$) (mn) (US$) (mn) (US$)
Rural land owners 119 462 123 1,312 118 1,755 113 2,891
Rural labour 141 340 145 851 164 971 182 1,383
Emerging labour 73 133 81 464 90 514 92 728
Aggregate 333 338 349 924 372 1,109 387 1,668
Rural cohorts 2007-12 CAGR 2012-17 CAGR 2017-22E CAGR

Working Annual income Working population Annual income Working population Annual income
population (mn) (US$) (mn) (US$) (mn) (US$)
Rural land owners 0.7% 23.2% -0.8% 6.0% -0.8% 10.5%
Rural labour 0.6% 20.2% 2.5% 2.7% 2.0% 7.3%
Emerging labour 2.0% 28.4% 2.3% 2.1% 0.5% 7.2%
Aggregate 0.9% 22.3% 1.3% 3.7% 0.8% 8.5%
Rural cohorts 2007 2012 2017 2022E

Aggregate Aggregate Aggregate income Aggregate Aggregate income Aggregate Aggregate income Aggregate
income (US$ bn) consumption (US$ bn) consumption (US$ bn) consumption (US$ bn) consumption
expenditure (US$ expenditure (US$ expenditure (US$ expenditure (US$
bn) bn) bn) bn)
Rural land owners 55 33 161 86 207 110 327 164
Rural labour 48 38 124 93 159 118 251 181
Emerging labour 10 7 37 26 46 32 67 46
Aggregate 112 78 322 205 413 260 646 391

Aggregate Aggregate Aggregate income Aggregate Aggregate income Aggregate
income (US$ bn) consumption (US$ bn) consumption (US$ bn) consumption
expenditure (US$ expenditure (US$ expenditure (US$
bn) bn) bn)
Rural land owners 24.0% 21.2% 5.1% 4.9% 9.6% 8.3%
Rural labour 20.9% 19.5% 5.2% 5.0% 9.5% 9.0%
Emerging labour 31.0% 29.4% 4.4% 4.2% 7.7% 7.1%
Aggregate 23.4% 21.3% 5.1% 4.9% 9.4% 8.5%
Source: NSSO, Labour Bureau, Census, Goldman Sachs Global Investment Research
Macro factors, especially government policy, are big drivers of rural income
While agriculture is the primary source of rural income, other sectors, especially trade
and construction have been recently gaining importance. However, our analysis
suggests that while several macro factors (climatic conditions, land prices, labour
demand) play a significant role in determining rural income growth, the government’s
rural policy has had a disproportionate role in driving rural income. The government
exerts its influence through minimum support prices for agricultural produce,
14 March 2018 10
government employment guarantee schemes such as MGNREGA and large-scale

infrastructure projects. Importantly, the government influences income across consumer
cohorts and employment sectors.
Exhibit 8: Agriculture remains the main employment driver but Exhibit 9: Agriculture remains the predominant source of
construction/trade gaining more importance employment for females
Rural employment by sector (males) Rural employment by sector (females)
100% 100%
90% 4%
2% 4% 5% 6% 90%
2% 4% 7% 8% 8% 8%
3% 5%
80% 7% 11% Others 80% Others
13%
70% Logistics 70% Logistics
60% Trade 60% Trade
50% Construction 50% Construction
88%
88%
86%
85%
85%
83%
81%
79%
78%
40% 40%
75%
75%
75%
71%
Electricity, water etc Electricity, water etc

67%
63%
59%
30% Manufacturing 30% Manufacturing

20% Mining and quarrying 20%
Mining and quarrying
10% Agriculture 10%
Agriculture
0% 0%
1978
1983
1988
1994
2000
2005
2010
2012
2010
2012
1978
1983
1988
1994
2000
2005
Source: NSSO Source: NSSO
Exhibit 10: Rural wage growth has followed MSP increases and
MGNREGA expenditure growth
MGNREGA expenditure (Rs, bn), Minimum support price (MSP) for paddy
(yoy) and real rural wage inflation for male workers (non-agricultural)
35% 700
30% 600
25%
500
20%
Change YOY
15% 400
Rs, bn
10% 300
5%
200
0%
-5% 100
-10% 0
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
MGNREGA expenditure (RHS) Paddy MSP (LHS)

Males real rural wage inflation (LHS)
Source: RBI
Rural government spend to accelerate in FY19
In the Union Budget for FY19, the government’s priorities have shifted towards boosting
the rural economy (which has been lagging urban economic growth), ahead of the
general elections in April/May 2019. Specifically, allocations towards enhancing
agricultural productivity, building affordable homes, providing universal healthcare
facilities to lower-income households, and rural infrastructure have increased. We believe
this will lead to a pick-up in rural wages and income in FY19, assuming that climatic
conditions are not unfavorable.
By 2022, absolute US$ income for Labour to reach levels of Land-owners in 2012
We forecast per capita income level of full-time rural labour (employed for more than 6
months a year) to reach US$1,383 per annum by 2022E, similar to the average
14 March 2018 11
Land-owners income levels in 2012 of US$1,312. This would mean an additional 182 mn
workers would breach the US$1,000 per capita per annum income hurdle over the next
5 years.
5 questions to 3 retailers in rural West Bengal
We (GS) highlight responses from 3 different types of retailers in rural West Bengal - a medium sized store
(MS) along a highway, a small store in a village (VS) and a medium store in a village (VM). The responses
throw light on both the opportunity and challenges of selling products or services in rural India.
Q: What is the daily store turnover and can you break it up by category?
MS: Daily turnover is about Rs10,000, with a significant product skew towards packaged snacks and
personal care, given the store location on a highway.
VS: Daily turnover is about Rs3,000 (meaning store gross earnings of about Rs300-350 per day) with a
sales skew towards non-packaged food (60%), home and personal care (30%), and packaged food &
beverages (10%).
VM: Daily turnover of about Rs6,000, with a sales skew towards non-packaged food (50%), home and
personal care (30%), and packaged food & beverages (30%).
Q: Where do you get your supplies?
MS: The local distributor of most companies delivers once or twice a week with company sales person
making a weekly visit for orders. For products from smaller companies, need to make a bi-weekly trip to
the local wholesale market less than 5km away.
VS: Travel to the nearest wholesale market, about 20km away to pick up supplies for the week as the
turnover is too small for a distributor to supply.
VM: Some companies have distributor coverage, but need to make a weekly trip to the local wholesale
market for picking up supplies, especially for food items.
Q: Has improved infrastructure led to better supplies?
MS: The widening of the highway has led to easier access to Kolkata, and therefore visits by the company
salespeople and distributors have increased.
VS: Not much change in the supply scenario, but the local market has become much bigger and easier to
access. This has led to more competition with higher density of retailers in the village.
VM: Definitely see more competition among retailers, and as small retailers struggle to make ends meet
there are always discounts on offer.
Q: Any significant changes post demonetization and GST implementation?
MS: Demonetization led to weaker demand due to a shortage of cash for a couple of quarters but
normalized thereafter. GST has had a bigger impact as some distributors need to update their systems,
leading to supply shortage, especially the frequent rate revision at start has impacted inventory.
14 March 2018 12
VS: Not much impact from either as ticket sizes are very small. There was some supply disruption
following both events, but was temporary.
VM: Demand was more clustered due to cash availability post demonetization and in anticipation of price
changes following GST implementation. Not sure about exact modalities of GST compliance.
Q: Near-term outlook?
MS: Expect demand and supply to normalize as GST teething issues go away, but has not seen any
evidence of demand improvement.
VS: Demand has not seen a pick-up despite a better crop in 2017. Concerns remain over rising competition
leading to increased discounting, which makes smaller retailers more vulnerable.
VM: Concerns about rising competition and better mobility for consumers persist, which increases the risk
of consumers accessing the wholesale markets directly for higher value purchases.
14 March 2018 13
Food retains the flavour, but Mobility & Connectivity and Well-being
growing faster
We expect rural spending to continue being disproportionately skewed towards ‘Eating

Better’ — which currently accounts for 52%-63% of household spending —with total
rural consumption of US$182bn in 2022E out of the total consumption spend in rural
India of US$391bn. However, with rising income and improving connectivity, we see
increased spending toward desires such as ‘better Connectivity’ and ‘Well-being’,
especially among the ‘Land-owners’ and regularly employed ‘Labour’. We believe that
total rural spend on Well-being and Connectivity could increase by US$34bn and
US$30bn in 2022E, as compared with 2017, while the spend towards ‘Eating Better’
rises by US$31bn.
Exhibit 11: Eating Better is the most important consumption desire Exhibit 12: ... but Mobility and Well-being to gain more importance
across cohorts ... with rising income and better infrastructure
Spend by cohort across consumption desires (2017) Spending by cohort across consumption desires (2022E)
100% 100%
5% 7% Having more 6%
90% 5% 12% 12% Having more
7% fun/luxury 90% 5% fun/luxury
80% 20%
9% 80% 12%
Well being Well being
70% 70%
15%
60% Mobile & Connectivity 60% Mobile &
50% Connectivity
50%
40% Living better
40% Living better
30%
Looking better 30%
20% Looking better
20%
10%
Eating better 10%
0% Eating better
Rural Rural labor Rural land- 0%
Emerging owners Rural Rural labor Rural land-
Emerging owners
Source: NSSO, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
Exhibit 13: While we expect consumption spending towards Living Exhibit 14: Well being to see the biggest increase on absolute
Better to rise slower than overall spends, capital spending is likely spending, while discretionary spends to remain relatively small
to rise faster Incremental consumption spend by desire (US$, bn) between 2017 and
Absolute spends across consumption desires (2017 and 2022E) 2022E
100 40
90 35
80
30
70
60 25
50 20
40
15
30
10
20
10 5
0 0
Eating better Looking Living better Mobile & Well being Having more Well being Eating better Mobile & Looking Living better Having more
better Connectivity fun/luxury Connectivity better fun/luxury
2017 absolute spends (USD, bn) 2022 absolute spends (USD, bn) Incremental spends (US$, bn)
Source: NSSO, Goldman Sachs Global Investment Research Source: NSSO, Goldman Sachs Global Investment Research
14 March 2018 14
Eating Better - Significant room for packaged food growth
Based on analysis of spending patterns from the NSSO survey, we estimate rural India
spends about US$150bn on ‘Eating Better’ in 2017; however, the spend on branded
packaged food in rural India stood at about US$14.5bn or 10% of total spends on Eating
Better. For the Land-owners, spending on packaged food is 17% of total spend on foods
and beverages. Spending towards fresh food is highest at 53% of total or US$80 bn,
followed by dairy at 14%.
Exhibit 15: Over 50% of the spends on Eating Better are towards Exhibit 16: Spend on branded packaged foods rises with rising
fresh food income levels
Eating Better - 2017 Rural spends by category (US$, bn) Eating Better - 2017 spends by category (%) across rural consumer
cohorts
160 100%
6 90% 2% 7%
Eating better - spends by category
140 7 Tobacco Tobacco

10%
14 80% 14% 16%
120 Alcohol 70%
22 17% Alcohol
100 60%
(US$, bn)
Branded packaged food 50% 65%

80 and beverages 40% 59% Branded packaged
Unbranded packaged 42% food
60 80 30%
food 20% Unbranded packaged
40 Fresh Food 10% food
14% 15% 13%
0% Fresh Food
20
Dairy
21
- Dairy
Total
As we highlighted in our India Consumer Close-up we see a large opportunity for higher
spend on packaged food and beverages as rural income rises. Less than 20% of the
total branded packaged food consumption is in rural India. The three largest categories
which can shift towards branded spending included dairy, edible oil and snacks.
Other areas likely to see rapid growth include beverages, both alcoholic and
non-alcoholic. At present, majority of the rural beverage consumption is un-branded or
through local brands. We see a large opportunity for a shift, especially for categories like
tea, where we expect the branded market share to rise.
Stocks exposed to the desire: Britannia Industries (BRIT.BO), ITC (ITC.BO) and Nestle
India (NEST.BO).
Looking Better
Rural India spent US$26bn on ‘Looking Better’ in 2017, with 64% of spending on apparel
and footwear, followed by 23% on personal care and 9% on jewelry. With rising income,
spend on jewelry rose faster than spend on apparel or personal products. However, the
largest opportunity from an absolute spend perspective remains in apparel and
footwear, especially as the sector gets more organized. At present, almost the entire
rural apparel/footwear sector and jewelry sector is unorganized. Consequently, with
better retail penetration, we see a large opportunity for long-term sustainable growth, as
long as price-points remain reasonable.
14 March 2018 15
Stocks exposed to the desire: Titan Company (TITN.BO), Godrej Consumer (GOCP.BO),
Dabur (DABU.BO), Hindustan Unilever (HLL.BO), Marico (MRCO.BO), Emami
(EMAM.BO).
Exhibit 17: The rural apparel and footwear market stood at Exhibit 18: Spend on jewelry rose fastest with higher income levels
US$17bn in 2017 Looking Better - spend by category (%), 2017
Looking Better - 2017 spend by category (US$, bn)
30 100% 5% 4%
5%
1% 5%
Looking better - spends by category
90% 16%
25 1
2 80% 26%
25%
70% 19%
20 6
Others 60% Others
(US$, bn)
Jewelry 50% Jewelry

15
40% Personal care
Personal care
68% 65% Apparel and footwear
10 Apparel and footwear 30% 61%
17
20%
5 10%
0%
0 Emerging labor Labor Land-owners
Total
Living Better
Our infrastructure analysts We forecast consumption spends towards ‘Living Better’ to grow at a CAGR of 7%,
Pulkit Patni and Indrajit
rising to US$34 bn in 2022E. However, we expect a large part of the increase in rural
Agarwal have contributed
to this section.
savings to be spent towards better housing. We forecast rural savings to increase to
US$255bn in 2022E from US$153bn in 2017, growing at a CAGR of 11%. Consequently,
we see a smaller increase in household spends towards home care than on new home
construction or home repairs. Also, housing affordability for the top 2 rural cohorts is not
stretched and with income growth, could look even better. Consequently, our India
materials research team expects the momentum in new home construction in rural India
to continue (for details, refer to their report ‘Housing for All’ - mountain or molehill?
dated March 14, 2017).
Stocks exposed to the desire: Asian Paints (ASPN.BO), Havells, Crompton Consumer,
Dalmia Bharat, Shree Cement, Ultratech Cement, ACC and Ambuja Cement.
14 March 2018 16
Exhibit 19: We expect a large chunk of rural savings to be spent over

house construction or repair
Rural savings (US$, bn)
300
250 22
200 70
150 14
11 42
100
31 164
50 97
2 75
10
22
0
2007 2012 2017 2022
Land-owners Labor Emerging labor
Source: Goldman Sachs Global Investment Research, NSSO
Exhibit 20: Estimated cost of a rural house (2017)

Rural India - cost of housing Assumptions
Size of House (sq ft) - A 269 Average 25sq mt house
Land required (sqft) - B 414
Land cost per sqft (Rs) - C 9 Blended average rate Rs0.4mn per acre
Land cost (Rs) - D = B X C 3,802
Construction cost per sqft (Rs) - E 1,000 Industry average
Cost of construction (Rs) - F = A X C 269,098
Total cost of house (Rs) - G = D + F 272,899
Own contribution 40,935 Assumed 15%
Loan fund 231,964 Assumed 85%
Source: Goldman Sachs Global Investment Research
Exhibit 21: Housing affordability of various cohorts (2017)

Emerging
Landowners Labour Labour
Working population (mn) 118 164 90
Working population per household 2 2 2
Average annual income (US$) 1,755 971 514
Average annual income per household (Rs) 223,943 123,847 65,603
Tax 0% 0% 0%
Post tax income (Rs) 223,943 123,847 65,603
Less: Non-housing spends (% of gross) 70% 78% 75%
Residual income for housing (Rs) 67,277 27,642 16,441
Monthly spend on housing and home improvement 5,606 2,303 1,370
Interest rate 8.5% 8.5% 8.5%
Monthly payment (Rs) 2,284 2,284 2,284
Monthly payment / income per household 0.4x 1.0x 1.7x
Mobility & Connectivity
Our autos analyst Pramod We expect mobility and connectivity expenditure to increase to Rs49bn in 2022E from
Kumar has contributed to
Rs19bn currently at a 21% CAGR. We expect consumption on this desire to be driven
this section.
primarily by higher vehicle costs, fuel costs, and expenses towards using mobile
communication devices.
Our India auto research team believes that two-wheeler volumes can grow at 7%-8%
CAGR over the next three years (FY12-FY17 5.5% CAGR) due to: (1) improving road
infrastructure with the government planning to spend Rs690bn (average) over two next
14 March 2018 17
three years vs Rs307 bn (average) over the last three years. We already see evidence of
increasing pace of rural road construction with approximately 40,000kms being
constructed (average FY14-17) compared with 8,400kms (average FY11-FY14), (2)
improving affordability of two-wheelers as the entry level prices have remained flattish
over the last five years despite new features additions compared with rural income
growth of 3.7% CAGR, and (3) higher availability of financing to the rural consumer. Our
team’s interactions with auto dealers indicate that there has been an acceleration in
two- and four-wheelers being sold on banks/NBFC financing over the past five years. We
also believe increasing usage of tractors in agriculture production will also drive higher
spend on mobility as we had seen during the FY09-FY12 period when tractors grew by
21% on average due to higher increase in MSPs.
Exhibit 22: Significant increase in rural road construction over the Exhibit 23: Higher increase in MSPs has driven both passenger
past three years vehicle and tractor sales in the past
Rural road construction Paddy MSP and auto data
60,000 35%
30%
50,000 25%
20%
40,000
15%
Change YoY
Kms
30,000 10%
5%
20,000 0%
-5%
10,000
-10%
-15%
-
FY03
FY04
FY05
FY06
FY07
FY13
FY14
FY15
FY16
FY17
FY01
FY02
FY08
FY09
FY10
FY11
FY12
-20%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Rural roadworks under Pradhan Mantri Gram Sadak Yojana (PMGSY) Paddy MSP Tractor volume 2W volume Maruti volume
Source: PMGSY Source: RBI, Company data, SIAM
Our telecom analyst Mobile penetration in India has expanded from 23% in FY08 to >90% currently.
Manish Adukia has
However, rural penetration remains low at 56%, with rural consumers using data being
contributed to this section.
an even smaller subset of this population; TRAI (Telecom Regulatory Authority of India)
data shows only 15% rural consumers in India use internet as of Sept 2017, vs 74% in
urban.
However, we believe this is likely to change. Data prices have fallen by >80% in the
past 2 years; whereas in FY16, a rural labourer had to spend 2 hours worth of wages
just to buy about 150 mins of voice per month, they can now buy 1 GB of data and
unlimited voice for the same amount. At the same time, handset prices have
continued to see a declining trend.
In addition, elevated capex by telcos has resulted in wireless broadband coverage

more than doubling over the past 2-3 years, and is likely to cover the entire
population by end-CY2018. The fall in data and handset prices, coupled with increase in
coverage, is likely to bring more rural consumers into the telecom fold, in our view.
14 March 2018 18
Exhibit 24: Rural mobile teledensity low, and is even lower for broadband
India overall and internet teledensity by urban vs rural
Rural
Teledensity as of Sept 2017 Internet penetration (per 100 population)
168% 74%
Narrow
62%
band Urban
54% 36%
Broad
92% band
33% 64% Narrow
29% band
26% 19%
56%
13% 14% 15%

Broad
band
81%
Rural Urban Overall Sept 15 Sept 16 Sept 17
Source: Telecom Regulatory Authority of India
Exhibit 25: Data prices have come down significantly, while data coverage continues to expand
Hours worked for 1 GB data per month and voice usage for rural labourer, and 3G/4G population coverage
12.2 hours
3G/4G population coverage
100%
80%
60%
40%
20%
10.3 hours Data
0%
2014 2015 2016 2017 2018E
Voice + data
1.9 hours
1.8 hours Voice
FY16 Present day

Note: Assuming Rs50 paid for voice, and data prices as per Bharti in FY16. Current 1.9 hours calculated using Rs49 plan of Jio
Source: Company data, Goldman Sachs Global Investment Research
Stocks exposed to the desire: Connectivity - Bharti Airtel (BRTI.BO), Idea Cellular
(IDEA.BO), Reliance Industries (RELI.BO) and Zee Entertainment (ZEE.BO). Mobility -
TVS Motors (TVSM.BO), Maruti Suzuki (MRTI.BO), Hero MotoCorp (HROH.BO), Bajaj
Auto (BAJA.BO), Mahindra & Mahindra (MAHM.BO).
Well-being
Our healthcare analyst We forecast 20% CAGR in expenditure on Well-being driven by an increase in education
Shyam Srinivasan has
and medical spend between 2017-2022E.
contributed to this section.
While the education infrastructure has improved steadily (Exhibit 24), we believe that
better mobility and connectivity will be a big catalyst for an acceleration in spends
towards education. Both, government and private institutions are looking to use mobile
data connectivity to deliver better education outcomes in rural India at a lower cost.
14 March 2018 19
Exhibit 26: Core school infrastructure improving steadily but better mobility/connectivity can accelerate
delivery significantly
Key school statistics for rural India
Number of classrooms Number of teachers
>15
FY07 10 FY07
11-15 FY10
FY10
7-10 8
FY16 FY16
4-6 6
3
4
2
1 2
0 0
0% 10% 20% 30% 40% 0% 10% 20% 30% 40%
Student enrolment Key ratios
Missing
FY07
>300 Pupil-
FY10
teacher
221-300 FY16 ratio
141-220
101-140
51-100 Student- FY07
classroo
26-50 m ratio FY10
1-25 FY16
0% 10% 20% 30% 0 10 20 30 40
Source: DISE, Goldman Sachs Global Investment Research
Exhibit 27: Majority of villages with more than 1000 inhabitants have primary school facilities, but very few
smaller villages do
Villages with access to primary schooling by size of village (2016)
100%
90%
80%
70%
60%
50%
40%
30%
20%
20%
10%
2%
0%
5000 and Above 2000 - 4999 1000 - 1999 500 - 999 300 - 499 Below 300 Total
% of villages schools with primary Stage % of villages schools with upper primary Stage
Source: AISES, Goldman Sachs Global Investment Research
14 March 2018 20
National Health Protection Scheme to provide a fillip to discretionary consumer

spending
Due to the underpenetration of health insurance in rural India, an illness to an elderly

member in a poor/lower middle-class family typically results in dipping into savings,
borrowing or asset sales to pay for hospitalization and medical costs. The indirect effect
of this mode of financing healthcare can slow discretionary consumption. In this
context, the central government’s 2018 Budget proposal to expand health insurance
coverage to Rs500,000 per family from Rs30,000 earlier, for 100mn below the poverty
line families (roughly 500 mn people or 40% of India’s population), should serve as a big
vehicle for access to quality healthcare, in our view. The health insurance premium is
also likely to be funded by the government (Central and State). Given that the
government is now taking the burden of healthcare spending for a large part of the
population, it is likely that lower spend on healthcare from the patient’s pocket, should
serve to enhance discretionary spending in his/her family.
Present Urban-Rural healthcare context and outlook – Rural becoming a key focus
area
Most private hospitals and pharma companies at present earn a vast majority of their
revenues from urban areas. Rural health infrastructure is provided largely by the
government and characterized by basic medical supplies. The growth focus for the
Indian healthcare industry continues to be in urban and semi-urban areas. Companies
are fine-tuning their rural strategies to adjust SKU sizes and price points to make their
offerings more attractive to this segment. In the hospitals context, we note that rural
patients still travel to bigger towns for advanced care needs. That said, urban and rural
combined, the pharma, diagnostics and hospital industries in India continue to expect
topline growth in the high single-digit to low double-digit range, largely volume led.
14 March 2018 21
Rural affordability: All about price points
Rural consumption in India is severely constrained by low affordability, which is a

function of low income and dependence on daily wages or seasonal crop sales. This has
meant that most price-points common in urban India (or most of the developed world)
are relatively unaffordable. For example, a Rs10-12 (US$0.16-0.19) pack of instant
noodles, which is common in urban India, represents 0.2 hours worked for the rural
land-owners, 0.37 hours worked for rural labour and 0.7 hours worked for rural-emerging
consumers. From an affordability perspective, that’s the equivalent of an ‘Urban middle’
consumer paying Rs265 (US$4.15) for a single pack of instant noodles.
However, rural aspirations, especially among land-owners and labour are rising with
better connectivity and increased media access. Consequently, we see businesses
offering aspirational and premium products at affordable price-points. A good example is
detergents, where Hindustan Unilever (HLL.BO) has seen consumers trade up to its
premium brands by offering them in affordable packs and sachets for consumers to trial.
Another example is biscuits, where Britannia (BRIT.BO) has seen consumers trade up to
cookies by offering them at a Rs5 price-point.
Exhibit 28: Price point and volume of rural SKUs... Exhibit 29: ...are smaller than urban SKUs
Examples of urban and rural SKUs (March-2018) Examples of urban and rural SKUs (March-2018)
URBAN SKUs
URBAN SKUs
7M^IKQW`4VMGIƇ 7M^IKQW`4VMGIƇ
RURAL SKUs
RURAL SKUs
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
Low price points - here to stay
In order to make products more affordable, consumer companies have been selling a
wide range products at price points between Re1-Rs20 (US$0.02-US$0.31) in rural
areas. However, a significant issue with price points is that it has been difficult to move
to higher price-points to drive growth or offset inflation, with consumer companies
preferring to lower grammage at a particular price point than to increase pricing.
However, this strategy has its limitations, when packs become too small and leave
companies open to new competitive challenges.
14 March 2018 22
Exhibit 30: Rural SKUs are significantly smaller than urban in both pricing and grammage, as of March 2018
Difference between urban and rural SKUs
120
100 ~500 (87) 100 (36)
80
Gram/ML
70 (12)
60 60 (10)
50 (25)
40
35 (5)
25 (10)
20
2 (1)
0
Dove - cream Surf Excel - Parachute Maggi
bathing bar Quickwash
Urban Grammage Rural Grammage

Number in parenthesis indicate SKU price in Rs
Exhibit 31: Affordability for rural labor and rural emerging cohorts drops sharply for higher price points
products
Hours worked to afford a price-point (March 2018)
2.50
2.00
Hours worked to afford price point
1.50
1.00
0.50
0.00
1 2 5 10 15 20 30
Price point (Rs)
Urban middle Urban mass Rural land-owner Rural labour Rural emerging
How small is too small?
Low price points are easier to accomplish with products with low volume per use, such
as shampoos or detergents through the use of sachets. On the other hand, getting food
& beverage products and consumer services down to low price points is a bigger
challenge, especially keeping in mind serving sizes. As mentioned above, since breaking
out of price-points is hard, especially in competitive categories, companies tend to
reduce pack sizes to drive price growth and offset input inflation.
14 March 2018 23
The ‘Chik’ sachet revolution
In the early 1980s, the ‘Chik’ shampoo brand was launched selling 7 ml of shampoo for Rs0.75. This is
generally recognized as the start of the ‘sachet revolution’ in consumer staples in India, leading to a higher
focus on low price-point products with innovative packaging. Now, shampoo sachets account for over 90%
of the unit sales of shampoo in India and over 80% of the total volumes are sold in packs smaller than 8
ml.
However, it has been tougher for marketers to move away from price-points, without seeing a sharp
contraction in demand, especially in highly competitive categories. ‘Chik’ shampoo is now available at a
price of Re1 for a 6ml sachet, implying annual price inflation of less than 1.5%, as it faces intense
competition in the shampoo sachet market from companies like Hindustan Unilever, Proctor & Gamble,
L’Oreal and Dabur, among other players.
14 March 2018 24
What will lead to faster/slower growth than our estimates?
In our base case, we assume an acceleration in rural incomes driven by higher minimum
support price (MSP) increases and better crop yield improvements leading to faster
income growth for the land-owners. This is supported by the government increasing its
rural budget as we enter an important election period. We also believe the government
outlay towards infrastructure will be higher leading to higher rural wage inflation, leading
to better income growth for rural labour. In addition, we have seen several state
governments announce farm loan waivers, which are likely to lead to higher liquidity
with farmers and thereby potentially higher consumption.
Exhibit 32: We forecast acceleration in key income growth drivers from MSP, crop yields and wages in our base case
Key assumptions driving our income growth expectations
FY07-12 - annual FY12-17 - annual FY17-22 FY17-22 FY17-22
assumptions - assumptions - assumptions -
annual - BASE annual - BULL annual - BEAR
Agricultural CPI inflation 10.2% 5.5% 6.0% 7.5% 5.5%
MSP increases - paddy 13.2% 6.4% 7.5% 10.0% 6.4%
Crop yield improvement 3.4% 0.7% 1.0% 1.5% 0.7%
Agri wage increase 17.6% 4.6% 6.6% 8.6% 4.6%
Non-agri wage increase 18.4% 5.2% 7.2% 9.2% 5.2%
Source: RBI, NSSO, Goldman Sachs Global Investment Research
In our bull case scenario, we assume that MSP increase (we use paddy instead of
averages for our analysis as paddy is the widest grown crop by small farmers in India)
over 2017-2022E is 10% yoy, significantly higher than the 6.4% seen between
2012-2017. We also assume 50bp higher annual crop yield improvement and higher
wages. Consequently, we assume annual income growth of 11.1% per year between
2017-2022E as compared with 8.5% in our base case and 3.7% (USD denominated
growth rate, INR growth rate of 6.9%) between 2012-2017. While the growth in our bull
case assumption is still significantly lower than that seen between 2007-2012, the
absolute addition to the income pool at US$313bn is much larger than the US$210bn
increase in 2012 income over 2007 income. This is due to a significantly larger base for
the rural economy now.
If our bull case were to play out, we expect to see faster growth for categories exposed
to the more discretionary categories like well-being, mobility and leisure.
14 March 2018 25
Exhibit 33: In our bull case, we expect the aggregate rural income pool to rise to US$726bn in 2022E, increasing by US$313bn as compared
with 2017
Bull case scenario
Rural cohorts 2007 2012 2017 2022E
Rural labour 141 340 145 851 164 971 182 1,521
Emerging labour 73 133 81 464 90 514 92 798
Aggregate 333 338 349 924 372 1,109 387 1,874

Rural labour 0.6% 20.2% 2.5% 2.7% 2.0% 9.4%
Emerging labour 2.0% 28.4% 2.3% 2.1% 0.5% 9.2%
Aggregate 0.9% 22.3% 1.3% 3.7% 0.8% 11.1%
Rural cohorts 2007 2012 2017 2022E

bn) bn) bn) bn)
Rural labour 48 38 124 93 159 118 276 199
Emerging labour 10 7 37 26 46 32 74 50
Aggregate 112 78 322 205 413 260 726 437

bn) bn) bn)
Rural labour 20.9% 19.5% 5.2% 5.0% 11.6% 11.1%
Emerging labour 31.0% 29.4% 4.4% 4.2% 9.8% 9.1%
Aggregate 23.4% 21.3% 5.1% 4.9% 12.0% 11.0%
Source: NSSO, Census Bureau, RBI, Goldman Sachs Global Investment Research
In our bear case, we forecast MSP growth and crop yield improvement similar to the
level seen between 2012-17 and consequently we forecast income growth of 7.1% and
an aggregate increase of US$192 bn to the rural income pool, as compared with an
increase of US$313 bn in our bull case. In this scenario, we expect the increase in
growth of the categories catering to the core consumption desires such as Eating
Better, better homes and Looking Better remaining similar to that in our base case but
lower growth for categories exposed to mobility, well-being and leisure.
Exhibit 34: In our bear case scenario, we estimate rural income will grow by US$192bn to US$605bn
Bear case scenario
Rural cohorts 2007 2012 2017 2022E
Rural labour 141 340 145 851 164 971 182 1,290
Emerging labour 73 133 81 464 90 514 92 663
Aggregate 333 338 349 924 372 1,109 387 1,562

Rural labour 0.6% 20.2% 2.5% 2.7% 2.0% 5.8%
Emerging labour 2.0% 28.4% 2.3% 2.1% 0.5% 5.2%
Aggregate 0.9% 22.3% 1.3% 3.7% 0.8% 7.1%
Rural cohorts 2007 2012 2017 2022E

bn) bn) bn) bn)
Rural labour 48 38 124 93 159 118 234 169
Emerging labour 10 7 37 26 46 32 61 42
Aggregate 112 78 322 205 413 260 605 366

bn) bn) bn)
Rural labour 20.9% 19.5% 5.2% 5.0% 8.0% 7.5%
Emerging labour 31.0% 29.4% 4.4% 4.2% 5.8% 5.1%
Aggregate 23.4% 21.3% 5.1% 4.9% 7.9% 7.1%
Source: NSSO, RBI, Census Bureau, Goldman Sachs Global Investment Research
14 March 2018 26
Appendix
In the next three exhibits, we attempt to construct monthly consumption expenditure

for an average household of each of the three rural cohorts based on NSSO data and our
rural channel checks.
Exhibit 35: Rural emerging spends are dominated by spends towards fresh food (Feb-2018)
An example of typical monthly consumption spend for a rural emerging household (Rs)
An example of typical monthly consumption spends (Rs) for Rural emerging

Assuming HH is of 5 persons
Avg.
Eating Better Volume monthly use Price Unit Total
Dairy 2 Litres/week 8 42 per litre 336
Potato 2kgs/week 8 15 per kg 119
Onion 2kgs/week 8 20 per kg 162
Tomato 1kg/week 4 31 per kg 125
Atta 4kg/week 16 26 per kg 420
Rice 4kg/week 16 29 per kg 467
Cooking oil 250gm/week 1 105 per kg 105
Sugar 250gm/week 1 43 per kg 43
Salt 250gm/week 1 15 per kg 15
Tea 125gm/week 1 203 per kg 101
Pulses 500gm/week 2 94 per kg 188
Bread 1/week 4 10 40
Biscuits 5/week 8 5 40
Alcohol 2 50 100
Beedi 2pack/week 4 25 100
2,360
Looking Better
Hair Oil 5ml/week 0.1 356 28
Soap 0.5 bar/person/month 3 10 25
Toothpaste 100gm/month 1 43 43
Toothbrush 0.5/month 1 15 8
Apparel & Footwear 275
Miscellaneous 25
404
Living Better
Utility 250
Detergents 1bar/month 1 10 10
Kerosene 1litre/week 4 23 per/litre 90
Home repairs 200
550
Prepaid mobile 1 members in a HH 70
Handsets 1 new handset/year 58
Conveyance 50
178
Well being
Healthcare 100
Education 100
200
Having more fun & luxury
33
Others
0
Total 3,725
14 March 2018 27
Exhibit 36: Rural labour spend also dominated by fresh foods, but more spend towards packaged food,
mobility and well-being
An example of typical monthly consumption spend of a rural labour household (Rs), Feb 2018
An example of typical monthly consumption spends (Rs) for Rural labour

Eating Better Volume Avg. monthly use Price Unit Total

Potato 2.5kgs/week 10 15 per kg 148
Onion 2.5kgs/week 10 20 per kg 202
Tomato 2.5kg/week 10 31 per kg 313
Fruits/vegetables 700
Pulses 1 kg/week 4 94 per kg 376
Bread 2/week 8 12 96
Biscuits Parle G & entry level sandwich 8 12 96
Other packaged food Snacks 300
Alcohol 2 100 200
Beedi 2pack/week 4 25 100
4,579
Looking Better
Soap 1 bar/person/month 5 10 50
Toothbrush 1/month 1 15 15
Shampoo 1 sachet/person/2 week 10 2 20
Others 75
735
Living Better
Utility 450
Detergents 1.5bar/month 2 10 15
Kerosene 1litre/week 4 23 per/litre 90
Home repairs 400
955
Conveyance 200
483
Well being
Healthcare 200
Education 300
500
169
Others
0
Total 7,421
14 March 2018 28
Exhibit 37: Land-owners see significantly higher spend in non-fresh food consumption categories,
especially well being and mobility (Feb 2018)
An example of typical monthly consumption spend of a land-owner household (Rs)
An example of typical monthly consumption spends (Rs) for Rural land-owners

Avg. monthly
Eating Better Volume use Price Unit Total
Potato 2.5kgs/week 10 15 per kg 148
Onion 2.5kgs/week 10 20 per kg 202
Tomato 2kg/week 8 31 per kg 251
Other vegetables 500
Fruits 2 100 400
Pulses 1kg/week 4 94 per kg 376
Bread 2.5/week 10 12 120
Biscuits Parle G & entry level sandwich
10 15 150
Other packaged food Snacks 350
Alcohol 2 150 300
Cigarette 0.5 pack/week 2 150 300
5,019
Looking Better
Soap 1 bar/month 1 30 30
Toothbrush 1/month 1 15 15
Shampoo 1 sachet/person/week 20 2 40
Others 193
978
Living Better
Utility 500
Detergents 0.5kg/week 1 75 75
LPG cylinder 0.5 cylinder/month 1 491 246
Home repairs 400
1,221
Conveyance 400
890
Well being
Healthcare 700
Education 500
1,200
319
Others
0
Total 9,627
14 March 2018 29
Exhibit 38: India consumer cohorts

2017 Growth 2022E
Population Income Population Income
Cohorts (mn) ($s) Population Income (mn) ($s)
Movers and Shakers 0.48 289,543 6.0% 6.0% 0.64 387,474
Government/SOE employees 10 13,249 0.0% 6.0% 10 17,730
Urban white collar 19 13,401 5.0% 7.5% 24 19,238
Educated urban mass 36 6,504 6.0% 8.3% 48 9,667
Urban blue collar/migrant workers 107 3,020 5.0% 8.3% 136 4,488
Rural land owners 118 1,755 -0.8% 10.5% 113 2,891
Rural labour 164 971 2.0% 7.3% 182 1,383
Emerging labour 90 514 0.5% 7.2% 92 728
Source: Census, Labour Bureau, Ministry of Finance, Capitaline, Goldman Sachs Global Investment Research
Exhibit 39: Kerala (in southwest India) has the highest daily wage rates in India, over 2X the nation wide
average (Nov-2017)
Daily wage rate for non-agricultural labour across different states (Rs)
Source: Labour bureau, Goldman Sachs Global Investment Research
14 March 2018 30
Exhibit 40: Key rural statistics comparison: India vs China vs Indonesia
India China Indonesia

Key rural statistics (2016)
Rural population as % of total population 68% 43% 46%
Rural Population (mn) 890 593 120
Rural working Population (mn) 372 363 58
Rural land area (sq. km, mn) 2.98 8.87 1.84
Rural population density (person/sq. km) 298 67 65
Aggregate income pool ($bn) 413 901 64
Average rural income ($) 1,109 2,482 1,100
Average rural income growth expected (five year CAGR) 9% 7% 6%
Agricultural statistics (2015)

Agriculture, value added (2016, $bn) 354 958 125
Arable land (hectares, mn) 156 119 24
Arable land (% of land area) 52.6% 12.7% 13.0%
Fertilizer consumption (kg/arable hectare) 171 506 223
Cultivated land (sq. km, mn) 1.9 1.2 0.5
Key crop data (2016)

Production
Rice production (mn tonnes) 158.8 211.1 77.3
Wheat production (mn tonnes) 93.5 131.7 NA
Vegetable production (mn tonnes) 33.2 170.2 0.6
Tea production (mn tonnes) 1.3 2.4 0.1
Yield
Rice (kg/ha) 3,695 6,932 5,415
Wheat (kg/ha) 3,093 5,409 NA
Vegetables (kg/ha) 13,228 16,112 10,232
Tea (kg/ha) 2,137 1,078 1,228
Source: World Bank, Census, Euromonitor, FAO, Indonesia Statistics Agency, CEIC
Copyright disclosure
Third party brands used in this presentation are the property of their respective owners,
and are used here for informational purposes only. The use of such brands should not be
viewed as an endorsement, affiliation or sponsorship by or for Goldman Sachs or any of
its products/services.
14 March 2018 31
Disclosure Appendix
Reg AC
We, Aditya Soman and Aditya Gupta, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject
company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the
specific recommendations or views expressed in this report.
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Aditya Soman: India Consumer.
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14 March 2018 32
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14 March 2018 33
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14 March 2018 | 5:06PM IST

The Asian Consumer

The Indian rural consumer: Consumption re-boot?

To get an on-the-ground feel we interview retailers to understand the shifting

n Britannia Industries (CL-Buy) - India’s market leader in biscuits focused on

2007 2007-12 2012-17 2017 2017-22E 2022E

Source: NSSO, Goldman Sachs Global Investment Research

How does rural consumption differ from urban? 6

Who are the rural consumers? 9

Rural affordability: All about price points 22

What will lead to faster/slower growth than our estimates? 25

890mn, $464 518mn

GOVERNMENT SUPPORT GROWTH MARKETS NEXT 5 YEARS

$34bn Health &

$8.5bn 49mn $31bn Food &

AGRICULTURAL ECONOMY EATING SPEND

90mn $150bn Total size of the food &

NOW BANKED BUYS SMALL SKUs

99%+ now with ~183mn accounts opened

SMALL LANDHOLDING SMALL IS BIG

<2% own more than 4HA of

DEPEND ON DAILY WAGES

53% Of rural workers earn daily wages

Why read this report?

(2) Packaged food & beverages offer biggest growth potential

Source: Company data, Goldman Sachs Global Investment Research

How does rural consumption differ from urban?

(1) Size of the opportunity relative to cost of service

(2) Affordability stretched even for basic products/services

Exhibit 4: Key data - Urban vs rural India (2017)

Population (mn) 833 6,402

Urban Rural Urban Rural

Urban Rural Urban Rural

Urban Rural Urban Rural

Source: BARC, NSSO, TRAI, Goldman Sachs Global Investment Research

5 things that surprised us most in our rural visits?

Who are the rural consumers?

A little over three-fourths of the Land-owners income is a function of sales of farm

The Emerging labour cohort is largely dependent on wages from government

‘Land-owners’ to remain the main drivers of growth despite seeing highest

Rural land-owners contributed to 50% of aggregate rural income in 2017, despite

Exhibit 6: Rural India contributes nearly 68% to India’s working population

INDIA INDIA RURAL RURAL WORKING

Source: Census, Labor Bureau, Goldman Sachs Global Investment Research

Rural cohorts 2007-12 CAGR 2012-17 CAGR 2017-22E CAGR

Rural cohorts 2007 2012 2017 2022E

Rural cohorts 2007-12 CAGR 2012-17 CAGR 2017-22E CAGR

government employment guarantee schemes such as MGNREGA and large-scale

Electricity, water etc Electricity, water etc

30% Manufacturing 30% Manufacturing

MGNREGA expenditure (RHS) Paddy MSP (LHS)

Rural government spend to accelerate in FY19

5 questions to 3 retailers in rural West Bengal

Q: Where do you get your supplies?

Q: Has improved infrastructure led to better supplies?

Q: Any significant changes post demonetization and GST implementation?

We expect rural spending to continue being disproportionately skewed towards ‘Eating

Eating Better - Significant room for packaged food growth

140 7 Tobacco Tobacco

Branded packaged food 50% 65%

Jewelry 50% Jewelry

Exhibit 19: We expect a large chunk of rural savings to be spent over

Land-owners Labor Emerging labor

Source: Goldman Sachs Global Investment Research, NSSO