India Story

Birla Sun Life Asset Management Co Ltd

Birla Sun Life Asset Management Company Ltd.

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

India: The Opportunity

Strong GDP growth
• IMF projects Indian GDP growth at 9.7% & 8.4% for 2010 & 2011

Favorable demographics
• One of the youngest population bases (median age - 25 yrs)  Dependency
ratio set to fall over next 20 yrs

Thrust on Infrastructure
• India will spend 1378 bn US$ over the next decade only to build infrastructure

Rising rural demand to augment urban demand
• Reformist economic policies targeting inclusive growth is helping improve rural
incomes & create a huge consumption base

Under-penetration to drive growth
• Under-penetration in various financial service & other sectors opens up
immense opportunity for growth

Political stability with consensus on reforms
• Higher probability of pro-growth reforms with stable govt with experienced
hands at the helm

Copyright: Birla Sun Life Asset Management Company Ltd. 2008 2

GDP growth – Up, Up & away

India: Real GDP Growth BRIC: Average GDP Growth, 2006-2015E

GDP growth consistent and one of the fastest

Sources: CLSA; Morgan Stanley


Attractive Demographic Profile

INDIA Dependency ratio to fall Comparison with Regional countries

India’s falling dependency ratio will be one of the drivers for growth


India’s Infrastructure: Planned Investments

Infrastructure Investments Sector wise Breakup

1600 1378 350 317
1400 300 268 254 244 241
250
1200
899 200 168
1000
150
800
100 78 63
600 477 55 58
50
400 198 0
200
Power Road & Railways Irrigation WSS
0 Bridges
X Plan (FY XI Plan (FY XII Plan (FY FY 10-FY 20
03-FY 07) 08-FY 12) 13-FY 17) (P) XI Plan (FY 08-FY 12) FY 10-FY 20 (P)

All figures in US $ bn

Infrastructure investment to be 1378 bn US$ over the next decade
Sources: Planning Commission


Rural demand – A kicker to Consumption

Large rural market being more
stable helped India during period
of crisis in 2008-09

Various govt programs targeting
inclusive growth & employment
have helped scale consumption in
rural India

Rural area defined as place with max population of 5000 or population density of 400 / sq km


Consuming class in rural India is larger than urban India

Rural area defined as place with max population of 5000 or population density of 400 / sq km


Under Penetration:
Unfolding Huge Opportunity

Cement/steel per capita consumption Vehicle Penetration

1010

342

160
47

Source: Morgan Stanley


Under Penetration:
Unfolding Huge Opportunity

7516

6968
Per Capital Nominal India China S Korea Russia
Income (US$) 1056 3678 17062 8814

India China S Korea Russia

2179

1460
986
704
500 451 568
238 280 180 273
32 99 121 172 134 21 35

Electricity (Consumption per Telephone Mainlines (per Mobile Phone (per 1000 Televisions & Projectors Personal Computers (Retail
capita KwH) 1000 people) people) (Retail Volume - units per Volume - units per 1000
1000 Households) people)

Source: Morgan Stanley


Financial Services:
Under Leveraged & Less Penetrated
80%
70% Retail Loans / GDP Ratio65% 68%

60%
60% 56%

50%
38%
40%
30% 24%
19%
20%
11%
8%
10%
0%

Financial inclusion & improving income profile will significantly expand market for financial products

Copyright: Birla Sun Life Asset Management Company Ltd. 2008 Source: Kotak; Morgan Stanley 10

Reforms – Transforming the landscape

• FDI cap in insurance
Financials • New banking licenses

• Total decontrol of petro products pricing
Oil & Gas • Development of City Gas Distribution Networks

• Privatization of distribution network
Power • Thrust on UMPPs & UMTP (Mega projects)

• Gradual decontrol of fertilizer prices leading to
Fertilizers reduction in subsidies

• Accelerated implementation of programs like
Roads NHDP, Golden Quadrilateral

• Direct Tax Code (DTC)
Tax reforms • Goods & Services Tax (GST)


Indian Markets:
Valuations
27

22

15 Year Average is 14.5x
17 SENSEX P/E (x): 7% Premium to
Long Term Average
12

7
Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11
4.5

3.5

2.5
SENSEX P/E (x): 11% Premium to 15 Year Average 2.5x
Long Period Average 1.5

0.5
Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11
Copyright: Birla Sun Life Asset Management Company Ltd. 2008 Valuations as on 31 Aug 2010 ; Source: MOSL 12

Valuations – reasonable on FY12 numbers

Sensex Valuation Summary at Sensex: 19,445
Year to 31 March FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E
EPS 450 523 718 833 820 829 1053 1249
EPS growth (%) 29.1 16.4 37.3 16.0 -1.7 1.1 27.1 18.6
P/E (x) 14.4 21.6 18.2 18.8 11.8 21.2 18.5 15.6
Div. yield (%) 2.1 1.5 1.4 1.3 1.9 1.5 1.1 1.2
P/B (x) 3.3 4.7 4.2 4.1 3.6 3.4 3.3 2.8
ROAE (%) 23.4 24.2 24.0 22.8 18.8 15.8 17.8 18.5

As on 31 Mar 2011, Source: Brokers’ Estimates


Market Outlook

 Near term market movement will be sensitive to the outcome of the quarterly results season. The overall
expectations are mild and the results will be important indicator for the unfolding trend in many sectors. It’ll
be important to watch out on how companies have fared on the operating margin front

 Inflation and crude prices have the investors worried. Though most concerns seem to be priced in at
current level (macro risks, sovereign debt risks, geo-political unrest), any issues outgrowing in magnitude
beyond expectations or converting into structural problems could dampen investor sentiments.

 Despite a solid March month performance, India still is among the worst performers in 2011 YTD charts.
Given the strong growth outlook and accounted risks associated to it, long term prospects remain positive.

 We expect Sensex to report ~22% growth in EPS for FY11 and 16~18% in FY12. Earnings growth is
expected to be broad-based with some moderation in revenues, primarily because of high base of FY11.

 Focus for FY12 will shift to stock specific strategy as the overall market return may be modest from a
medium term perspective because of the various global and domestic headwinds.

 The liquidity driven rally in March now has Indian market valuations a tad above the long term
averages. Sensex is now trading at 18.5x FY11E earnings and 15.6x FY12E earnings.

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

India: Fact File

 Population (mn), 2010…….............................................................. 1,186.2
 GDP (US$ bn), FY 10……............................................................... 1,314.7 (422 in 2000)
 GDP per capita (US$), 2010............................................................ 1,123 (2,900 in PPP terms)
 GDP (PPP) as share of world total, 2010 …..……………………..... 5.4%
 Median age of population……………………………………………… 26 years
 Gross Domestic Savings Rate, FY 10………………………………… 32.9% (24% in FY 03)
 Gross Capital Formation Rate, FY 10………………………………… 34.9%
 Average GDP Growth Rate (%) in last 5 years……..……………….. 8.65% (6.6% since 1991)
 Companies with a bn US$ revenue, FY10…..……………………….. 124 (104 in FY08)
 Large cap companies (> INR 100 bn or 2.17 bn US$), FY11….…… 120 (11 in 2000)
 FDI Flows (USD bn), FY 10…………………………………………….. 32 (4 in FY 03)
 Export to GDP Ratio, 2010…......………………………………………. 21% (41% in China)
 Market cap to GDP, 2010 ……………………………………………….. 111.49%
 10 year G.Sec, 4th May 11..………………………………………......... 8.09%
 Stimulus required during the 2008 crisis (% to GDP)……………….. 2%
 Incremental Capital Output Ratio (%), 2008…………………………… 3.95% (4.2% in China)
 Promoter Holdings in Top 200 companies, 2010……………………… ~56%

Copyright: Birla Sun Life Asset Management Company Ltd. 2008 Sources: Edelweiss India 2020 report, Bloomberg, RBI, Morgan Stanley, Motilal Oswal , IMF 16

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