Overview of India’s

Consumer and Retail

Sectors

Raghav Gupta
President

18 February, 2010

1
 Contents

1 Overview of Consumption & Retail

2 Performance of Various Categories & Formats

3 Some Projections & Recommendations

2
 Slowdown has had significant impact on consumer
confidence, private consumption & organized retail

33%
31%
27%
Organized Retail

21%
16%

GDP Growth
9.30% 9.7% 9.1%
7.9% 7.2%
6.1% 6.1%
8.5%
7.10% 6.3% 2.9% 1.6%
5.6% 5.2% Private Consumption

FY 2006 2007 2008 2009 2010 2010 2010 2011P 2012P 2013P 2014P 2015P
Q1 Q2

Source: Ministry of Finance, Technopak Analysis and Estimates

Real Growth Rates
3
 From Q2 FY10, private (discretionary) consumption has
returned, providing growth fillip to organized retail

33%
31% 31%
29% Organized Retail
27% 27%
25% 25%

21%
16%

GDP Growth
9.30% 9.7% 9.1% 8.1% 8.5% 8.5% 9.0% 9.0%
7.9% 7.2%
6.1% 6.1%
8.5% 7.5% 7.5% 7.5%
7.10% 6.3% 2.9% 1.6% 7.0% 7.0%
5.6% 5.2% Private Consumption

FY 2006 2007 2008 2009 2010 2010 2010 2011P 2012P 2013P 2014P 2015P
Q1 Q2

Source: Ministry of Finance, Technopak Analysis and Estimates

Real Growth Rates
4
 Consumption is set to double in 5 years (nominal growth of
US$750 Bn). Traditional retail is likely to capture a larger share
All values in US$ Bn
2,000
1777
1,800
1,600
1,400
1175
1,200
1,000
800 639 587
600 435
400 266
200 67
7 21
0
2005 2010P 2015P
GDP Total retail Organized Retail
Source: Technopak Analysis and Estimates
Real Growth Rates & Values, Inflation assumed at average 7%
5
Organized retail’s evolution in India is not very different
from other sectors, though profitability is still elusive

Evolution Curve
IT

Size of
Industry Organized Retail
BPO
Telecom

T0 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 T13 T14

Source: NASSCOM, TRAI, Technopak Analysis

6
 Consumer product sectors are experiencing high
growth, and some have gained share of wallet

Sector Growth Rates

25%

20%

Growth 15%
Rates
10%

5%

0%
2005 2006 2007 2008 2009 2010P 2011P 2012P 2013P 2014P
FMCG CDIT Apparel

Source: Technopak Analysis and Estimates

7
 Consumer products companies have outperformed
organized retail on financial metrics

Financial Comparison of FMCG Companies and Retailers (FY09)

Vishal Retail 1%
-4%
Westside 8%
3%
Koutons 22%
20%
Shoppers Stop 12%
28%
Retailers
Pantaloon Retail 10%
11%

Britannia 8%
25%
ITC 23%
35%
GSK 19%
38% FMCG Companies
Marico 12%
39%
Dabur 19%
48%
P&G 32%
53%
HUL 15%
121%
EBITDA/Sales ROCE
Source: Annual Reports
8
 Contents

1 Overview of Consumption & Retail

2 Performance of Various Categories & Formats

3 Some Projections & Recommendations

9
 Categories offering price-performance value to consumers were
first to recover from slowdown (durables vs. semi-durables)

Refrigerators,
Heavy goods intended to
Durables washing machines,
last 3 or more years
Automobiles

Goods that are neither Clothing, Furnishing,

Semi-durables
perishable nor lasting Home Textiles, etc.

Goods that do not last a

FMCG, Food
Non-durables long time, so need be
Products, etc.
continually replaced

Healthcare,
Services that are
Services Education, Telecom,
becoming essential
etc.

10
Apparel, Home Furnishing, Value Retail, etc. have not matched
other categories in their price-performance value offer

Volume CAGR Per Unit

Last 4-5 years Price Change
Talk time 80% -24%

Laptops 76% -20%

LCDs 40% -20%

Premium Shirts
6% 15%
(Apparel)

Home 12% 25%

Textiles
Source: Technopak Analysis
11
 Dramatic changes are taking place in India’s
consumption basket of “Roti, Kapda, aur Makaan”
All values in US$ Bn
Rank Size Size Rank
Category
2009 2009 2014 2014
1 Food & Grocery 270 339 1
2 Healthcare 36 58 2
3 Apparel & Home Textiles 34 45 4
4 Housing 33 47 5
5 Education 30 47 3
6 Telecom 26 42 6
7 Jewelry & Watches 26 36 9
8 Personal Transport 25 39 7
9 Travel and Leisure 13 21 8
10 CDIT 12 18 10
11 Home – Furniture, Furnishing 11 15 11
12 Personal Care 10 15 12
13 Eating out 5 8 13
14 Footwear 4 6 14
15 Health & Beauty Services 1 2 15
Source: Technopak Analysis
12
 Leading to emergence of new categories and inter
category competition

US$ 26 Bn (Rs. 1,20,000 crores) on

mobile handset and calling charges US$ 25 Bn (Rs. 1,15,000
crores) on auto & transport

US$ 9 Bn (Rs. 40,000 crores) on

self-learning and coaching

US$ 13 Bn (Rs. 60,000 crores)

on travel and tourism
13
 Contents

1 Overview of Consumption & Retail

2 Performance of Various Categories & Formats

3 Some Projections & Recommendations

14
Large investment & infrastructure development will
create “new high growth centres” in India

Size of Investment
Color Coding
(Rs. crores)
0 – 10,000
10,000 – 20,000
20,000 – 30,000
30,000 +

15
 F&G and CDIT categories are expected to see
significant growth in organized retail

50 %
%age sales in organized retail

45 %

40 % Footwear Consumer Books, music

and
35 % electronics entertainment

30 %
Apparel
25 %

20 % Home
(Furniture, DIY)
15 %

10 % Food and
groceries Pharmacy Jewellery
5% and wellness and watches
0%
0% 2% 4% 6% 8% 10 % 12 % 14 % 16 %

Total category CAGR 2008 to 2014 Source: Technopak Analysis

Size of bubble represents market size of the category 16
Apparel is likely to be the most attractive category from a financial
standpoint, but price-performance value needs to improve

ROCE vs. EBITDA

35%
Jewellery &
30% Watches
25%
ROCE

20%
Pharma & Apparel
15% Food & Grocery
Wellness
Books & Music
10%
CDIT Home
5%
Footwear
0%
-2% -5% 0% 2% 4% 6% 8% 10% 12% 14%

EBITDA

Source: Technopak Analysis

Size of bubble represents sales per sq. ft. 17
 Though retail has gone through a steep learning curve,
operations still need to improve significantly

Indian Retailers International Retailers

400 67% 70%
63%
350 58%
60%
51% 49%
300 48%
44% 44% 45% 50%
250 40% 37% 48%
40%
200 40% 39%
Average 30%
150
Inventory 260
20%
100
133
160 3 times more inventory in India10%
Average
50 110 81 93
60 38 48 50 43 30 34 29 Inventory
0 0%

Days of Inventory/Sales - Indian Gross Margin - Indian

Source: Annual Reports, Technopak Analysis, for FY09
18
 Finally, as retailers look to raise fresh capital,
understanding what the markets reward is key

Performance – Value co-relation for US markets:

Performance Metric Correlation to Value

1. ROCE 0.65

2. Same store sales growth 0.40

3. “New” growth 0.20

Source: McKinsey & Co., Research for US markets

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 Summary of Key Messages

1. Consumption is likely to double in India in next 5 years, (nominal growth

of US$750 Bn). In the next 5-10 years, the scale of business opportunity
and pace of change are fundamentally different. This will require almost
every company to go back to the strategy drawing board

2. Dramatic changes are taking place in India’s consumption basket of

“Roti, Kapda, aur Makaan”, leading to emergence of new categories and
inter category competition. A price-performance value offer is key

3. Organized retail has and is experiencing a steep learning curve, and the
recent turbulence is not entirely unexpected or undesirable

4. Retail will witness expansion, consolidation, acquisition and further

entry of international chains between 2010-2015, giving further fillip to
the overall growth of organized retail

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 Thank You!

Raghav Gupta
raghav.gupta@technopak.com
+91 99585 22993