Birla Sun Life Asset Management Co Ltd  Birla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Manage...
India: The Opportunity                         Strong GDP growth                          • IMF projects Indian GDP growth...
GDP growth – Up, Up & away                       India: Real GDP Growth                                    BRIC: Average G...
Attractive Demographic Profile                INDIA Dependency ratio to fall                          Comparison with Regi...
India’s Infrastructure: Planned Investments                    Infrastructure Investments                                 ...
Rural demand – A kicker to Consumption                                                                   Large rural marke...
Consuming class in rural India is larger than urban India            Rural area defined as place with max population of 50...
Under Penetration:Unfolding Huge OpportunityCement/steel per capita consumption                                       Vehi...
Under Penetration:Unfolding Huge Opportunity                     7516                             6968                    ...
Financial Services:Under Leveraged & Less Penetrated                                                               80%    ...
Reforms – Transforming the landscape                                                               • FDI cap in insurance ...
Indian Markets: Valuations2722                                                           15 Year Average is 14.5x17       ...
Valuations – reasonable on FY12 numbers                                                             Sensex Valuation Summa...
Market Outlook       Near term market movement will be sensitive to the outcome of the quarterly results season. The over...
Birla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008   15
India: Fact File         Population (mn), 2010……..............................................................           ...
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India Story

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India Story

  1. 1. Birla Sun Life Asset Management Co Ltd Birla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008
  2. 2. 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 helmBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 2
  3. 3. 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 StanleyBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 3
  4. 4. Attractive Demographic Profile INDIA Dependency ratio to fall Comparison with Regional countries India’s falling dependency ratio will be one of the drivers for growthBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 4
  5. 5. India’s Infrastructure: Planned Investments Infrastructure Investments Sector wise Breakup1600 1378 350 3171400 300 268 254 244 241 2501200 899 200 1681000 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 CommissionBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 5
  6. 6. 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 kmBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 6
  7. 7. 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 kmBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 7
  8. 8. Under Penetration:Unfolding Huge OpportunityCement/steel per capita consumption Vehicle Penetration 1010 342 160 47 Source: Morgan StanleyBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 8
  9. 9. 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 35Electricity (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 StanleyBirla Sun Life Asset Management Company Ltd. Copyright: Birla Sun Life Asset Management Company Ltd. 2008 9
  10. 10. 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 productsBirla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 Source: Kotak; Morgan Stanley 10
  11. 11. 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)Birla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 11
  12. 12. Indian Markets: Valuations2722 15 Year Average is 14.5x17 SENSEX P/E (x): 7% Premium to Long Term Average12 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 Birla Sun Life Asset Management Company Ltd. Copyright: Birla Sun Life Asset Management Company Ltd. 2008 Valuations as on 31 Aug 2010 ; Source: MOSL 12
  13. 13. Valuations – reasonable on FY12 numbers Sensex Valuation Summary at Sensex: 19,445Year to 31 March FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12EEPS 450 523 718 833 820 829 1053 1249EPS growth (%) 29.1 16.4 37.3 16.0 -1.7 1.1 27.1 18.6P/E (x) 14.4 21.6 18.2 18.8 11.8 21.2 18.5 15.6Div. yield (%) 2.1 1.5 1.4 1.3 1.9 1.5 1.1 1.2P/B (x) 3.3 4.7 4.2 4.1 3.6 3.4 3.3 2.8ROAE (%) 23.4 24.2 24.0 22.8 18.8 15.8 17.8 18.5 As on 31 Mar 2011, Source: Brokers’ Estimates Birla Sun Life Asset Management Company Ltd. Copyright: Birla Sun Life Asset Management Company Ltd. 2008 13
  14. 14. 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.Birla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008
  15. 15. Birla Sun Life Asset Management Company Ltd.Copyright: Birla Sun Life Asset Management Company Ltd. 2008 15
  16. 16. 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%Birla Sun Life Asset Management Company Ltd. 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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