Columbia Presentation On India Virtus Global Partners

India’s Position in the Global Economy October 11th, 2008 Presented by Anil Kumar, Managing Director; email: akumar@virtusglobal.com 420 Lexington Avenue . Suite 300 . New York, NY 10170 . 212-297-6107 . www.virtusglobal.com

Key Messages While India’s growth will slow down in the short-term, it will emerge as one of the strongest economies in the world in the long-term. India’s favorable demographics and service-led economy creates long- term investment opportunities in several industry sectors. In order to realize its potential, India needs to continue improving its governance, control inflation, introduce credible fiscal policies, liberalize financial markets and increase trade with its neighbors. Page 1

1. India’s Growth Potential 2. Indian Economy and Role of Reforms 3. Analysis of Key Industry Segments 4. Globalization of Indian Companies 5. Doing Business in India – Strategic and Practical Considerations Page 2

The credit crisis is creating a global financial turmoil Liquidity drying up and frozen credit markets A massive “deleveraging effect” Re-pricing of risk Unwinding of structured credit instruments Crisis of confidence in banking and savings Reversion to more solid notions of collaterals Bailouts of institutions considered “too big to fail” and the associated moral hazard Serious potential deflationary cycle in the US that could become a global contagion Novel regulatory regimes and a new paradigm for financial institutions Page 3

There could be a strong negative impact on global markets Page 4

India has suffered as a result of the global turmoil Page 5

However, India will not suffer a systemic breakdown Lack of leverage in India Very small market for structured credit instruments in India Overly conservative regulators in India Page 6

Worst Case Scenario does not look bad for India Page 7

Last few years of structural growth creates a cushion High savings ratio and robust balance sheets Productivity improvements achieved last few years Evolution of a strong middle class Page 8

India has a relatively high national savings rate compared with other countries Page 9

India’s services share is relatively high for an emerging economy Page 10

India’s growth will moderate in the next 2 years Consumer spending has been affected by inflation Corporate spending has been slow to due lack of fund raising options Infrastructure spending might decrease due to foreign investors pulling back Page 11

Consumer spending and corporate spending has slowed down Page 12

Overall, the Indian economy seems to be holding on well Page 13

India will emerge much stronger in the long-run Risk-averse culture and strong regulatory framework will attract global capital post credit-crisis Demographic dividend will boost domestic markets and create long term growth Service led economy will create competitive edge. India will play a greater role in the future geopolitical economy India has relatively strong financial underpinnings and could become a strong investment destination for the new power brokers - middle-east, SWF, hedge funds. Page 14

India labor force is young http://www.mastercard-masterindex.com/asiapac/insights/1Q2006/images/chart_issue01_01.gif Page 15

Services will continue to be the main driver of GDP growth over the next two decades Page 16

India’s aggregate consumption will quadruple over the next 20 years Page 17

India has the potential to be the second largest economy by 2050 Page 18

India has evolved over the past few decades Page 20

India’s economic growth is being driven by favorable demographics and knowledge capital Page 21

India’s dependency ratio and employment is set to increase in the next few decades Page 22

The Demographic Dividend Page 23

India’s aggregate consumption will quadruple over the next 20 years Page 24

India’s share-of-wallet is shifting from basic necessities to discretionary items Page 25

It has become easier to invest into India More sectors opened ; Equity caps raised in many other sectors Procedures 2000 on simplified Up to 100% under Automatic Route in all sectors except 2000 a small negative list Up to 74/51/50% in 112 sectors under the 1997 Automatic Route 100% in some sectors FDI up to 51% allowed under the 1991 Automatic route in 35 Priority sectors Pre 1991 Allowed selectively up to 40% FDI Policy Liberalization Page 26

International trade has increased as tariffs have come down in India Page 27

India has consistently improved over the last 17 years •Opportunities to enter new sectors as the reforms process opens Progressive Reforms Process them up for foreign direct investment (FDI). For example, Single Brand Retail, Life and General Insurance •Growing GDP and FDI, falling rates of interest and maturing capital markets creates private equity investment opportunity in Strong Economic Environment infrastructure, telecom, cement, toll roads, bridges, manufacturing, technology, and pharmaceuticals •Growing consumer population expands markets across sectors •Opportunities to use India as a test market for clinical trials and Large Domestic Market developing products for the global market •Growing through acquisitions of strong Indian companies across sectors •Availability of raw material and highly skilled workforce •Opportunities to set up manufacturing bases in India, both for fulfilling local demand, as well as for developing a global sourcing hub Availability of Resources •Opportunities to set up R&D, software development and engineering centers that cater to their global operations •Opportunities to set up centers for business process outsourcing Leveraging India as a source of high quality managerial talent Page 28

India has good growth potential 2007 Global Services Location Index 2007 Global Retail Development Index (GRDI) 100 … India is the top India 3.2 2.3 1.4 destination in the 80 AT Kearney Global China 2.9 2.3 1.4 Retail Development GRDI Score 60 Index (2007) Malaysia 2.8 1.3 2 Thailand 3.2 1.2 1.6 40 Brazil 2.6 1.8 1.5 Services sector 20 Indonesia 3.3 1.5 1.1 attracted interest of major global players 0 Financial structure People and skill availablity and large India Russia Vietnam Ukraine China Chile Latvia Business environment investments are pumped in it Projected GDP Growth Rates for Select Upcoming Economies 8 AT Kearney has placed India as the most GDP Growth Rate (%) 6 preferable destination for Services sector 4 (2007)… India is expected to 2 outperform its rivals in the BRIC, in terms of GDP growth rate, from 2015 0 onwards… 2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 Brazil China India Russia Source: Goldman Sachs, “Dreaming with the BRICs” Page 29

Foreign Direct Investments have increased rapidly FDI Inflow - India: 2001-08 18,000 15,730 185 percent 12,699 Increase 13,500 India is ranked USD Million second in AT 9,000 Kearney’s FDI 5,546 confidence index 4,222 3,755 3,134 4,500 2,634 (2007) 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 (till December) Net FII into India: 2001-07 18 16.1 16 FDI inflow for the 14 149 percent Increase 12 USD Billion period 2006-07 10.2 10.0 9.4 10 witnessed a growth 8 6.7 of 185 percent over 6 the same period last 4 1.8 2 year 0.6 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 * FII growth momentum was restricted because of Sub Prime Crisis in 2007-08 Page 30

India’s standard of living has increased http://news.bbc.co.uk/nol/shared/spl/hi/guides/456900/456964/img/1148297950.gif Page 31

India is still at an early stage of urbanization Page 32

Infrastructure growth has taken place in the last 10 years Page 33

There is a lot of room for improvement Page 34

Big challenges remain in the path to development India could be 40 times bigger by 2050. To achieve this, India needs to implement many changes. India needs to improve its governance, control inflation, introduce credible fiscal policy, liberalize financial markets and increase trade with its neighbors. It also needs to significantly raise its basic educational standards and increase the quality and quantity of its universities. India needs to boost agricultural productivity, improve its infrastructure and environmental quality. Page 35

Investment Opportunities Power Generation Infrastructure Roads & Ports Supply Chain/ Logistics Information Technology/ Business Process Outsourcing Services Financial Services Entertainment, Media, Travel & Tourism Auto Components Manufacturing Power Distribution Equipments Metals and Mining Page 37

Growth of PE/ VC in India Page 38

Investments by Sector Page 39

Investments by Stage Page 40

Warburg Pincus - one the leading private equity investor in the US Leading private equity investor since 1971 • More than USD 35 billion of assets under management and has nine offices around • the world. Active portfolio of more than 125 companies. • Since inception, it has invested more than USD 31 billion in approximately 600 • companies in 30 countries Investments across a range of sectors, including financial services, healthcare, • industrial, technology, media and telecommunications, energy, consumer and retail and real estate. Offices in Beijing, Frankfurt, Hong Kong, London, Mumbai, New York, San • Francisco, Shanghai and Tokyo Page 41

Warburg Pincus investments in India Over a twelve-year period, funds sponsored by Warburg Pincus have invested • more than USD 2 billion in India in over 15 companies Industry Investment year size Telecom Bharti Tele-Ventures 1999 $300 mn BPO WNS 2002 $70 mn Manufacturing Amtek Auto 2006 $65 mn Housing Sintex 2005 NA Power Equipments Havells India 2007 $110 mn Hospitality Lemon Treee Hotels 2006 $70 mn Media Lakshya Media 2008 $65 mn Healthcare Max India 2005 $35 mn Ports Gangavaram Ports 2006 NA Energy Moser Baer 2000 $62 mn Financial Services ICICI Bank 2007 NA Page 42

Case- Study – Warburg’s investment in Bharti Telecom In early 1999, Warburg Pincus analyzed likely changes in India’s regulatory environment and tariff policies. After considerable due diligence conducted on three continents, Warburg Pincus identified significant opportunities in the Indian telecommunications sector and invested $300 million in Bharti. Warburg assisted Bharti with acquisitions of additional cellular properties and with securing a strategic partnership with Singapore Telecom, which subsequently committed $600 million in capital to Bharti. The company was listed on Indian stock exchanges in February 2002. Now known as Bharti Airtel, the company has a market capitalization in excess of $35 billion and is a dominant player in the Indian telecommunications market. Today, Bharti Airtel is structured into three individual strategic business units (SBU’s) - mobile services, telemedia services (ATS) & enterprise services. The mobile services group provides GSM mobile services across India in 23 telecom circles, while the ATS business group provides broadband & telephone services in 94 cities Page 43

Bharti Airtel – Current Profile In 1999, Bharti had only 100,000 subscribers Page 44

Investment timeline and exit Page 45

Bharti’s growth since 2000 has been spectacular Page 46

Growth of the telecom industry in India India is the fifth largest telecom services market in the world; US$23 billion revenues in FY 2007 290 million subscribers - 39 million fixed lines and 251 million wireless - (February 2008) The telecom subscriber base has grown at about 40% p.a. over the last four years Projected growth of 27% p.a. to reach 500 million subscribers by March 2010 Over 8 million new users are added every month – mostly in wireless Page 47

Growth of the telecom industry in India Page 48

India’s macro factors in play in 1999 to 2001 Real interest rates too high to sustain Large market – double edged sword Increasing GDP growth Democratic government Growing middle class consumers Majority of population between 18 – 25 years of age Strong education system IT boom Page 49

Indian telecom industry – positive macro factors in play in 1999 - 2001 National Telecom Policy encouraging Domestic Private Investment Foreign Direct Investment Competition to Fixed Line Service providers High Installation Fees Order Backlog Mobile telephone considered as a status symbol Markets were price elastic No company had national presence Telecommunication is a pre-requisite for growth Page 50

Indian telecom industry – negative macro factors in play in 1999 - 2001 Lack of regulatory clarity Economic viability of telecommunication projects Restriction on licenses Monthly fixed license fee to government No investor interest – No clarity on exit route Bharti had presence only in North India Page 51

Warburg’s initial strategy India growth story Long term investment Financial & operational efficiencies Working with management Seek strategic partner Accelerated growth & competitiveness Page 52

Due Diligence - The Bottom Line Page 53

Doing Due Diligence US vs. India Page 54

Ten Tips to Successful Due Diligence 1. Know the mindset of the target company Comprehensive information required for the due diligence process is not readily available with the Indian companies due to lack of detailed management information system. For example, detailed schedule of margins by product and by customer may not be easy to come by with these companies. The forecasting methodologies of such small and medium sized Indian companies are not very robust, often leading to simplistic projections. The forecasts tend to be aggressive, without a track record to boot. 2. Understand key differences in doing a due diligence in western countries and in India Going in for a due diligence process with the right expectations is a critical success factor for US investors. The quality of financial statements, financial infrastructure and business and business process will be lower and less explicit than western investors are accustomed to. This results in the need to explore more risk areas and take more time for the due diligence. Page 55

Ten Tips to Successful Due Diligence 3. Listen for the word “N0'”: Asian culture is less direct in some respects. Western investors rarely hear their Indian counterparts say “no” even though they do not mean “yes''. 4. Look out for Hidden Skeletons: Inadequate disclosures impede the ability to access critical information that might alter the investor's perception with regard to the value of the company, environment issues and aggressive tax positions among others. 5. Evaluate Corporate Governance: Companies are slowly realizing the importance of corporate governance and some of the leading organizations are benchmarking to global standards. Some others are moving towards improvement. 6. Keep an Eye on Related Party Transactions: As a hangover of the licensing raj, Indian businesses are generally structured as conglomerates or group businesses which create extensive related party transactions. Page 56

Ten Tips to Successful Due Diligence 7. Avoid Legal Minefields Weak corporate governance is compounded with tardy legal systems where dispute resolution often remains a distant goal. 8. Communicate with Care In any transaction, communication must be handled with utmost care. Sensitivity to Indian culture with regard to dealing with the owners who are also the entrepreneurs of the company will help to make the venture more rewarding. 9. Manage the Control Freaks It is often observed that founding members of a start-up will refuse to give up control and settle for a minority ownership stake (a common condition for many start-ups in exchange for Private Equity funding). 10. Think Global, Act Local Firms with a presence in India have a distinct edge due to their wide networks of contacts and experience of the Indian business environment. Page 57

Information gaps and challenges facing Warburg Betting on aggressive forecasts Loss making business Entering as a minority stakeholder Ambiguity in government policies Fragmented sector – cost efficiency Mobile telephony was still a luxury among Indians Business model based on cost-volume-pricing Page 58

India’s growth story Business Growth Opportunities High Interest Costs Confidence on Management India’s Demographic Pattern Open Economy Global Presence Page 59

Warburg’s growth strategy for Bharti Think Big BT- Initial Suboptimal Strategy – Bell North WP -Change in Plans – Pan India Presence Growth Plans BT - Management Approach to build business from scratch WP - Time sensitive: Growth by Acquisition Restructuring the Corporate Structure BT- Adhoc structure WP – Buy back stakes to reduce conflicts of interest Inclusion of Strategic Partners - SINGTEL Page 60

Warburg’s investment in Bharti was a landmark transaction for India The deal equaled one – third of total PE investments in India till date PE investments in India were only 0.2% of total GDP FDI was only about 1% of GDP First Investment done banking upon the “India Growth Story” Foreign exchange fluctuation was a matter of concern Investment in unorganized sector Investment in a privately owned company Page 61

Warburg’s investment in WNS, a leading BPO company Page 62

Information Technology led evolution in India Page 63

Information Technology led evolution in India Page 64

WNS’s growth with Warburg Page 65

Warburg’s investment in Sintex Page 66

Sintex profile Page 67

Sintex’s growth Page 68

Sintex’s global growth through acquisitions Page 69

Indian companies acquiring overseas Share of India in global market 10,000.0 4,520.0 3.0% 3,935.0 1,976.8 1,628.2 1,087.4 1,028.1 1,000.0 2.1% 2.0% USD billion 28.4 100.0 1.2% 38.4 16.8 1.2% 21.2 1.0% 10.7 4.4 10.0 0.7% 3.9 25.9 3.9 0.5% 0.5% 1.7 3.2 9.4 0.1 7.4 0.6 2.7 2.7 1.5 1.0 0.0% 2002 2003 2004 2005 2006 2007* Inbound Outbound Dom estic Total Value of Global Deals % Share of india 45 40 35 30 25 20 40 34 15 23 10 5 0 2006H1 2007H1 2008H1 US-bound Transactions 2006H1 – 2008H1 Industry Breakdown of US-bound Transactions in 2008H1 Page 71

Summary of US-bound acquisitions by Indian companies in 2008 In the first half of 2008, Indian companies accounted for a total of 34 US-bound acquisitions with a cumulative transaction value of over $5.1 billion. This represents a 15% decrease in terms of volume and a 30% drop in value compared to the first half of 2007. Deals less than $100 million accounted for over 90% of the total transaction volume but only 10% of the reported transaction value. Whereas, it was the opposite for deals greater than $1 billion in size, which comprised 10% of the total volume and 90% of the reported value. No transactions were reported in the $100 million to $1 billion range. This reflects the dichotomy facing Indian companies – well-capitalized large Indian companies are buying value assets for cheap while mid-size firms are adopting a cautious approach. Mega-size deals included Tata Chemicals acquisition of General Chemicals for $1 billion, GMR Energy’s purchase of 50% equity in Intergen for $1.1 billion and Sterlite Industries announced bid for Asarco valued at $2.6 billion. IT/ITES remains the most acquisitive industry capturing over 50% share of the total US- bound transactions by volume, followed by life sciences (10%), metals & mining (6%) and agriculture (6%). Other industries accounted for less than 3% each in terms of volume. Over 70% of the transactions involved acquisition of 100% stock for cash consideration. These transactions generally had an earn-out structure, where a portion of the deal value is paid on future milestones. Page 72

Cross border acquisition trends High debt-to-equity ratio and low earnings in the US is creating value-buying opportunities for Indian companies. Increasing competitive pressures, emerging global opportunities and the decline in overseas trade and investment barriers are encouraging Indian companies to seek acquisitions in the US. Need to gain scale in terms of size, product offerings and geography. Change from a cost-centric approach to a profit-margin focus. Need to climb up the value chain Page 73

US-bound acquisitions are propelled by several factors Large consumer markets, transparent business processes, robust legal environment, advanced technologies, skills and knowledge capital. As US markets tend to be mature and saturated, it often proves difficult for Indian companies to gain market share without acquisitions. Easy access to the world’s largest market and customer base through marketing and distribution channels of the acquired company. Increased competition within the domestic markets. The global slowdown has created opportunities to buy US-based companies at lower valuations. Acquisition of specific skills, knowledge and technology. Page 74

Case Study – Gitanjali’s acquisition of Samuels Gitanjali Gems Ltd., a DTC sightholder, is one of the largest integrated diamond and jewelry manufacturers and retailers in India. Its operations include sourcing of rough diamonds from primary and secondary source suppliers in the international market, cutting and polishing the rough diamonds for export to its international markets, and the sale of diamonds and other jewelry through Gitanjali's retail operations in India, as well as in international markets. Gitanjali’s objective of an acquisition in the US was: Global vertical integration to create higher margins Direct access to consumers in the US Find an ideal platform for future growth Samuels operates 97 retail jewelry stores in 18 states and also sells jewelry online. Measured by the number of retail locations, Samuels is the tenth largest specialty retailer of fine jewelry in the United States. Samuels’ acquisition was in line with Gitanjali's objective to conform to a vertically integrated model, one that benefits from all the efficiencies that are realized through control of the entire supply chain, inclusive of retail. Page 75

Samuel’s was a good fit based on potential synergies The quality of merchandise, the format of stores, the focus on branding Good Strategic Fit makes Samuel’s good strategic fit. 100 stores provides good geographic footprint Samuel’s could be good platform for future bolt-on acquisitions Gross margin improvement provide the ONLY opportunity for profitability Improve sales through focus on off-mall stores, branding, premium Potential Growth merchandising Opportunities Optimize SG&A through reducing per store employee count to 5 Replace/ improve ADS private label program to improve sale approvals. It might take significant time to implement gross margin improvements It will be operationally challenging to improve profitability at store Risks level and improve price points The management seems good with operations but has faced challenge creating profits Page 76

Transaction integration plan Increase Same Store Sales and Contribution Increased focus on designer jewelry collections Realize opportunity in bridal and loose diamonds Gross Merchandise Margin Expansion Renovation/ Relocation of Existing Stores to improve merchandise presentation Open more Samuel’s Diamond Stores (off-mall location, currently about 11 of these stores) Capitalize on more effective marketing efforts Optimize use of proprietary customer list Increase radio and billboard advertising Increase awareness through cable tv placements Page 77

Action plan post transaction Improve Sales: Target 1-3% price point increase through introduction of proprietary designer collections. Increase brand value through improved marketing, external PR agency, higher ad spends and refined message. Terminate ADS private label credit program to RCS credit card program to improve customer credit approval rates. Improve Gross Margins: Improve margins from current 47.2 % to 51% in 24 months through direct sourcing of diamonds as follows: — 0 – 6 months : 0% gross margin improvement — 6 – 12 months: 1.5 % gross margin improvement — 12 – 18 months: 1.5% gross margin improvement — 18 – 24 months: 1 % gross margin improvement Enhanced Sales Associate Productivity through more training programs. Page 78

Financials Optimize Selling, general, and administrative expenses Reduce average store employee count from 6 to 5. Close non-profitable stores Store profitability in 2006: — Stores that lost < $10,000 = five stores — Stores that lost between $10,000 and $50,000 = four stores — Stores that lost > $50,000 = seven stores Increase advertising spending by 15 -20% to focus on branding. Rationalize product and customer portfolio Discontinue unprofitable product lines Reduce number of skus Page 79

Strategic Framework • Sustainable Advantages Do I need to leverage India? • Changing Global Economy • Future Growth of India • Organization Design How can I create an India Entry • Finding Partners Strategy? • Implementation • Statutory Compliance • Due Diligence How do I manage risks in India? • Legal Aspects • Risk Management • Culture & Communication How do I grow my operations in India? • Creating Incentives • Monitoring Investment Page 81

Creating an India Entry Roadmap Stage 1: Create Stage 2: Design Stage 3: Strategy Phase Implement • Market Study/ • Operating Model • Business Setup Industry Assessment • Organization Design • Statutory and Legal • Competitive Requirements • Partner Selection Landscape Analysis • Risk Management • Preparing Key • Feasibility Stakeholders • People Assessment • Legal & Regulatory • Infrastructure • Market Positioning Setup • Employer Value • Investment • Investment Proposition Strategy Structuring • Funding • Location • Partner Due Assessment Diligence Page 82

About Virtus Global Partners One of the Leading US-India Cross Border Transaction Advisory Firms • We advise funds and corporations on US-India cross border transactions such as mergers & acquisitions, strategic alliances, due diligence and market feasibility research • Principals have several years of relevant industry experience in US and India, both transactional and operational • Strong capabilities in Global Strategic Consulting, Analytics, Knowledge Process Outsourcing and Information Technology Services • Headquartered in New York with offices in Mumbai, New Delhi, Chennai and Kolkatta. Key transactions Page 83

Our Approach to Cross Border Advisory Process Review Strategy Assess and Plan Monitor and Implementation Measure Future Business Key Business • • Sourcing • Requirements Strategies, Goals Current State • Arrangements Financial portfolio and Objectives • Assessment Supply Chain • goals Financial • Performance • Improvements Strategic Portfolio • Measurement Financial Portfolio • Acquisition and Improvements (baseline and Realignment Sourcing Goals Strategic • going-forward) Strategic • Organization and Acquisition • Reality Testing • Acquisition Operating Model Sourcing • Customer • Operational • Performance Arrangements • Feedback Improvements Management Key Issues & • Continuous • IT process/ E- • Outsourcing Opportunities • Improvement commerce Opportunities Model Implementation Strategic Acquisition and Sourcing Arrangement E-commerce and Infrastructure Business Process Improvements Financial Portfolio Optimization Organizational and Operating Model Page 84

Our Office Locations New York (Headquarters): The Graybar Building 420 Lexington Avenue Suite 300 New York, NY 10170 India Offices: Delhi, India Mumbai, India Building No. 8, 2nd Floor 4th floor, Electric Mansion Tower-A Appasaheb Marathe Marg, DLF Cyber City, Phase II Prabhadevi Gurgaon - 122002 Mumbai - 400 025 Chennai, India Kolkata, India V Floor, Karumuttu Centre FMC Fortuna, A-13 V Floor 634 Anna Salai 234/3A, AJC Bose Road Chennai - 600 035 Calcutta - 700 020 Page 85

Columbia Presentation On India Virtus Global Partners

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