India as an Investment Destination February 2010 © 2008 NEA  All rights reserved. Kittu Kolluri, General Partner Ben Mathi...
Evolution of the Indian PE/VC Industry Timeline 1988 - 1996 <ul><li>Combination of reforms, Y2K opportunities & internet b...
Investments peaked in 2007, dropped significantly in 2009 Period of Risk Aversion “ India Shining” Bubble Return to Ration...
Today: Realignment of Capital  with Opportunities No deals 1 deal 2 deals 2+ deals <ul><li>Blackstone (3) </li></ul><ul><l...
Key Macro Trends in India  <ul><li>Growing Urbanization </li></ul><ul><ul><li>325 million urban population, growing to 500...
Key Growth Sectors  Healthcare A Energy B Education C Waste Management D Financial Services E
Healthcare: Demand Continues To Increase … Rising Household Income <ul><li>The average real household disposable income of...
…  While Supply Continues to Lag Beds per ‘000 Shortage of Medical Professionals in India Global Average 1.5 Global Averag...
Energy: Another Demand-Supply Mismatch Energy consumption in will increase 5X over next 20 years Macro Trend Growth Opport...
Education: “Informal Sector” Driving Growth <ul><li>Huge market </li></ul><ul><ul><li>$80 billion spend in FY08 </li></ul>...
The “Informal” Education Sector Key players <ul><li>KidZee </li></ul><ul><li>Euro Kids </li></ul><ul><li>Mother’s Pride </...
Waste Management <ul><li>India generates 33,000 million liters a day (MLD) of waste water in the urban areas </li></ul><ul...
Financial Services: Banks Looking to Expand Their Reach Banks are aggressively driving adoption of credit/debit cards  Whi...
Financial Services: ATM expansion will further enable growth <ul><li>India has experienced rapid growth in ATMs in recent ...
Financial Services: While Financial Inclusion will continue to be a central theme of the current government <ul><li>Simila...
Investing In India: Risks & Challenges <ul><li>Political </li></ul><ul><ul><li>Okay for next 4 years but risk of future co...
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Investing in India - Feb 2010

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Investing in India - a historical perspective. A look at some macro trends making some sectors more interesting than others. Also covers risk factors.

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  • Points to be added: Mark Wanted: if 51% is in infra, then whats the relevant number for our deals. Sub bullet – relevant deal numbers are so and so. Relevant/target segment would be number of deals and value of deals. Kittu wanted: healthcare and cleantech In summation, India is an emerging market, opportunity set is wide rather than deep. Return on sector portfolio very challenged Even if large emerging opportunities such as healthcare and cleantech, need to be very selective, returns not proven yet.
  • SBI revenue growth over the last 3-4 years
  • Kittu wanted to add operating experience of India team to strength
  • Kittu wanted to add operating experience of India team to strength
  • Investing in India - Feb 2010

    1. India as an Investment Destination February 2010 © 2008 NEA All rights reserved. Kittu Kolluri, General Partner Ben Mathias, Vice President
    2. Evolution of the Indian PE/VC Industry Timeline 1988 - 1996 <ul><li>Combination of reforms, Y2K opportunities & internet boom drive foreign investment </li></ul><ul><li>Investments reach $1.16B in 2000 </li></ul><ul><li>Government driven venture funds like TDICI, CFC, APIDC, etc. </li></ul><ul><li>License Raj still not fully dismantled </li></ul><ul><li>Family driven venture funding </li></ul><ul><li>Internet bubble burst caused rapid flight of capital out of country </li></ul><ul><li>Some of the best investments (Naukri, Suzlon, Bharti, WNS, etc.) done at this time </li></ul><ul><li>200+investment firms setup direct or indirect operations in India </li></ul><ul><li>Capital available exceeds opportunities available </li></ul><ul><li>$14B invested in 2007 </li></ul>1996 - 2000 2004 - 2008 2001 - 2003 Early Days India Discovered Period of Risk Aversion India Shining Bubble <ul><li>Shrinking capital base causes rapid decrease in investments into India </li></ul><ul><li>However, growth story remains for India specific opportunities </li></ul>Return to Rationality 2009 - Today
    3. Investments peaked in 2007, dropped significantly in 2009 Period of Risk Aversion “ India Shining” Bubble Return to Rationality India Discovered 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
    4. Today: Realignment of Capital with Opportunities No deals 1 deal 2 deals 2+ deals <ul><li>Blackstone (3) </li></ul><ul><li>Morgan Stanley (4) </li></ul><ul><li>TPG Capital (1) </li></ul><ul><li>General Atlantic (0) </li></ul><ul><li>Apax Partners (1) </li></ul><ul><li>Bain Capital (0) </li></ul><ul><li>Temasek (0) </li></ul><ul><li>ICICI Ventures (10) </li></ul><ul><li>Carlyle (1) </li></ul><ul><li>Matrix Partners (4) </li></ul><ul><li>Helion (9) </li></ul><ul><li>StanChart PE (6) </li></ul><ul><li>Sequoia (19) </li></ul><ul><li>NEA (4) </li></ul>While 215 firms invested in 2008, only 149 were active in 2009 Figures in ( ) denote no. of deals in 2008 Deals in 2009
    5. Key Macro Trends in India <ul><li>Growing Urbanization </li></ul><ul><ul><li>325 million urban population, growing to 500 million by 2025 </li></ul></ul><ul><ul><li>Driving expansion in waste and water management, energy generation, and energy efficient products </li></ul></ul><ul><li>Emphasis on infrastructure creation </li></ul><ul><ul><li>Big thrust in the five year plans of the Central government </li></ul></ul><ul><ul><li>Driving demand for healthcare, energy, roads, ports, airports, etc. </li></ul></ul><ul><li>Growing Consumerism </li></ul><ul><ul><li>Driving growth in shopping malls, retail chains, apparel, restaurants, cars & jewelry </li></ul></ul><ul><li>Corporatization of Services </li></ul><ul><ul><li>“ Unorganized” Mom and Pop business moving to “Organized” Corporate chains </li></ul></ul><ul><ul><li>Driving expansion in education, healthcare, security services, repairs/refurbishment </li></ul></ul><ul><li>Inclusive financial growth </li></ul><ul><ul><li>“ Priority sector lending” by the Reserve Bank of India driving provision of financial services in rural India (e.g. through Microfinance) </li></ul></ul><ul><ul><li>Banks providing expanded Consumer financial products (home loans, education loans) </li></ul></ul>
    6. Key Growth Sectors Healthcare A Energy B Education C Waste Management D Financial Services E
    7. Healthcare: Demand Continues To Increase … Rising Household Income <ul><li>The average real household disposable income of Indians is expected to almost triple from 2005 to 2025, encouraging an increased expenditure on healthcare </li></ul>Increasing Proportion of Middle Class <ul><li>The changing lifestyle of the middle class is leading to higher prevalence of modern diseases and increasing the spend on healthcare </li></ul>Increase in real household income Increase in proportion of middle class Rising Prevalence of Lifestyle Diseases <ul><li>Lifestyle diseases require hospitalization and treatment is more expensive thereby increasing lucrative in-patient revenues at hospitals </li></ul>Percentage of population with lifestyle diseases A
    8. … While Supply Continues to Lag Beds per ‘000 Shortage of Medical Professionals in India Global Average 1.5 Global Average 3.0 Doctors per ‘000 Nurses per ‘000 Bed demand – supply in Mumbai Bed demand – supply in Delhi A
    9. Energy: Another Demand-Supply Mismatch Energy consumption in will increase 5X over next 20 years Macro Trend Growth Opportunity Expanded energy generation, both traditional and renewable Upgrading of existing transmission lines to reduce wastage (currently at 30%). Significant new transmission will also be required. EPC and manufacturing or energy equipment will continue to receive high margins and expanded growth Incentives from government for increased oil and natural gas exploration/production Biodiesel, if produced economically will increase in production Alternate, renewable sources of energy (small-hydro, biomass, wind & solar) will continue to be tapped Efficient lighting & metering will see rapid adoption Analytics & Remote Monitoring of energy consumption in order to drive efficiencies Fuel deficiency will only increase over time Environmental norms will get stricter Indian DNA of energy efficiency will continue B
    10. Education: “Informal Sector” Driving Growth <ul><li>Huge market </li></ul><ul><ul><li>$80 billion spend in FY08 </li></ul></ul><ul><ul><li>219 million children enrolled in 1 million schools in the country </li></ul></ul><ul><ul><li>11 million students in 18,000 higher educational institutes </li></ul></ul><ul><li>Poor quality of education </li></ul><ul><ul><li>Non-uniform quality of education across states and board formats </li></ul></ul><ul><ul><li>42 students for every teacher </li></ul></ul><ul><ul><li>Only 61% of target population enrolled – drop out rate 40% at school level </li></ul></ul><ul><li>Highly Regulated </li></ul><ul><ul><li>Formal education has to be non profit </li></ul></ul><ul><li>However, Demand Is strong </li></ul><ul><ul><li>Strong emphasis in Indian families on quality education (8.9% of spend basket of middle class Indians) </li></ul></ul><ul><ul><li>These factors are driving the growth of the “Informal” education sector </li></ul></ul>C
    11. The “Informal” Education Sector Key players <ul><li>KidZee </li></ul><ul><li>Euro Kids </li></ul><ul><li>Mother’s Pride </li></ul><ul><li>TreeHouse </li></ul><ul><li>Kangaroo Kids </li></ul><ul><li>Educomp </li></ul><ul><li>Everonn </li></ul><ul><li>NIIT </li></ul><ul><li>Core Projects </li></ul><ul><li>Mindlogicx </li></ul><ul><li>NIIT, Aptech, Jet King, CMS </li></ul><ul><li>VETA English </li></ul><ul><li>Gram Tarang </li></ul><ul><li>Manipal Education </li></ul><ul><li>Brilliant Tutorials </li></ul><ul><li>FIITJEE </li></ul><ul><li>TIME </li></ul><ul><li>Career Launcher </li></ul><ul><li>Bansal Classes </li></ul><ul><li>Navneet Publications </li></ul><ul><li>Tata McGraw Hill </li></ul><ul><li>Oxford </li></ul>Network of 1m schools (219m students) and 18,000 higher education institutes (11m students) 80% of this spend is on teacher’s salary; only 0.82% as capex Highly fragmented due to scalability challenges Only 7% schools are private, but cater to 40% of enrolled students 50:50 split between K12 and higher education Indian Education System $80 billion Private spend $50 billion Government spend $30 billion Formal education market $40 billion Informal education sector $10 billion Vocational training $1.5 billion Supplementary education* $6.4 billion Books $1.75 billion Multimedia and ICT $0.16 billion Preschool $0.3 billion C
    12. Waste Management <ul><li>India generates 33,000 million liters a day (MLD) of waste water in the urban areas </li></ul><ul><ul><li>Capacity exists to treat only 20% the urban waste generation, and the actual waste treated is less than 10%. </li></ul></ul><ul><ul><li>Additionally, there is a huge shortage of water in the country </li></ul></ul><ul><li>300,000-400,000 metric tons of MSW are produced per day and sent to landfills </li></ul><ul><ul><li>At the current rate of accumulation, the land requirement for landfills will exceed 1,400 square kilometers over the next 40 years. </li></ul></ul><ul><ul><li>Unlike the US, India does not have the land availability </li></ul></ul><ul><li>Jawaharlal Nehru Urban Renewal Mission (JNURM) has allocated $25B towards urban development </li></ul><ul><li>Municipalities are turning to private players to setup Solid Waste and Water Waste management plants </li></ul><ul><li>Through process innovation, companies are able to recycle >80% of the waste into revenue generating materials (or water) </li></ul>D
    13. Financial Services: Banks Looking to Expand Their Reach Banks are aggressively driving adoption of credit/debit cards Which is driving POS transactions While the UID project will create many applications that will drive adoption of Smart Cards E
    14. Financial Services: ATM expansion will further enable growth <ul><li>India has experienced rapid growth in ATMs in recent years </li></ul><ul><li>However, when compared with other developing countries, India has the capacity for significant expansion. </li></ul><ul><ul><li>China (96 ATMs per million people) and Brazil (790 ATMs per million people) significantly exceeds that of India (32 ATMs per million people). </li></ul></ul><ul><li>The Indian banking industry proposes to add 50,000 additional ATMs in the next 2-3 years </li></ul><ul><li>Tremendous growth potential in ATM transaction volumes </li></ul><ul><ul><li>average Indian does 2 transactions/ month compared with 10 transactions by an average American </li></ul></ul>E
    15. Financial Services: While Financial Inclusion will continue to be a central theme of the current government <ul><li>Similarly, the microfinance industry has seen tremendous growth in the last few years but has only penetrated 10% of the market. </li></ul><ul><li>The government has allocated substantial budget towards bringing banking to the unbanked </li></ul><ul><li>Banks are leveraging technology providers (hand-held devices, finger-print authentication, etc.) to help scale into rural areas </li></ul>1,300 14.01 ~750 March 08 2,500 22.5 ~800 March 09 440 7.4 NA March 06 770 Size of loan portfolio ($m) 10.5 Outreach (million) NA Number of MFIs March 07 E Categories of Financial Inclusion Market Size (in millions) Penetration Target in 5 Years Social Security Pensions 40 20% NREGS 100 20% SHGs (Government and Bank-Linked) 35 20% SHGs (MFIs) 25 10% Kisan Credit Cards 55 10% Farmer Co-operatives 20 20% Domestic Money Transfer / Foreign Inward Remittances 60 15% Scholarships to Students 5 15% Third Party Collections (MFI, Insurance, FMCG, Other Retail) 90 15% General Purpose No Frills Accounts (Savings/Withdrawals) 90 15% General Purpose Loan/Credit Accounts 75 10%
    16. Investing In India: Risks & Challenges <ul><li>Political </li></ul><ul><ul><li>Okay for next 4 years but risk of future coalition (ie unstable) governments </li></ul></ul><ul><li>Family Run Mindset </li></ul><ul><ul><li>Founders reluctant to go below 51%. Sacrifice growth for valuation. </li></ul></ul><ul><ul><li>Governance challenges – board meetings over the dining table </li></ul></ul><ul><li>Capital Adequacy & Liquidity </li></ul><ul><ul><li>Fund-raising often takes >6 months </li></ul></ul><ul><ul><li>Limited M&A options for exit </li></ul></ul>

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