© 2009 IBM Corporation

ICF (International Cablemakers Federation) CongressNew Delhi

October 2011

© 2011 IBM Corporation

India Market Overview– The Growth Story

– Corporate Leverage of India

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Agenda

© 2011 IBM Corporation

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India is the largest producer of movies in the world with over 950 movies a year, followed by USA

Indian Railways is the world's largest commercial or utility employer with more than 1.6 M employees

World’s largest consumer of Gold, Tea and Sugar

India is World’s largest producer of Milk, Spices, Pulses, Chillies and Lemon

Did You Know…

India produces 3M+ graduates, with 440K of technical graduates and 300K of post graduates

per annum

70% percent of India's population, 56% of income, 64% of expenditure and 33% of savings come from

rural India

India is the world’s fastest growing mobile market - added about 190M new mobile connections taking

the total to 545M (51% YoY growth) in 2009

With 150,000 post offices, India has the largest postal network in the world

© 2011 IBM Corporation

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India at a glance*Real GDP $1.1TPopulation 1.2 BFDI $18.2BServices as % GDP 55%GDP per capita $1,100

1 Booming Consumption & Demographic Dividend#

• Household income to rise 3x by 2025

• Middle class to increase from 50 M to 600 M by 2025

• Median age of 25.3 yrs

• 65% of working population

Vibrant corporate sector with global ambitions• Entrepreneur at the center of India

growth model

• 79 “Billion-$” companies as of ‘09

• 75 cross-border deals in ’09

• 47 Indian companies in Forbes 2000

2

3 Broad based growth across Industries and Geos• All major industries growing at

>10% (2010-13)

• $500B to be invested on building infrastructure

• 60 cities witnessing substantial growth

Strong political commitment & action• Despite 7 Prime Ministers and 6

governments since 1991, reform agenda continues

• Target of $200B from exports to 26 new markets in 2yrs

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India is on its way to become the second largest economy by 2050

* Data as of 2009. Source: EIU#Base data as of 2005

© 2011 IBM Corporation

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74% 72% 70% 69% 64%

26% 28% 30% 31% 36%

1990 2000 2009 2015E 2025E

Rural Urban

Robust consumption growth, favorable demographics, growth of household incomes and the changing shape of the income pyramid will drive future growth

Favorable demographics

Median age of population of major countries 2009

Rise of middle class

Increased urbanization

Percentage of rural vs. urban population in India

3x increase in consumption by 2025

44.240.2 38.4 36.7

34.1

28.625.3

Japan UK Russia USA China Brazil India

Source: The rise of India’s consumer market, McKinsey 2007, CIA World Factbook

93%80%

54%

35%22%

6%18%

41%

43%

36%

2% 4%

19%

32%

1%9%

1% 2%

1985 1995 2005 2015E 2025E

Share of population in each income bracket %, million of people

755 928 1,107 1,278 1,429 Annual household income

>$25K$10K-25K

$5K-10K

$2K-5K

<$2K

Mid

dle

Cla

ss

56%42%

34%25%

5%

6%5%

5%

12%

12%

10%3%11%

11%

17%19%

20%

1%2%

3%

6%

5% 6%9%

4% 7% 9% 13%3%

1995 2005 2015E 2025E

Share of average household consumption %,, US Dollars

$1K $2K $3K $6K

HealthcareEducation

Communication

Transportation

Personal PdctsHousehold Pdcts

ApparelHousing

Food & beverage

Discretionary spending

Ave. Household Income

1

© 2011 IBM Corporation

6 Source: McKinsey Report, Rediff India, “Largest M&A deals in India”, LiveMint, “Outbound deals to boost M&A in 2010”, Reserve bank of India, “Indian Investment Abroad”

Industry AcquirerTarget

CompanyYear

Deal Size ($B)

Deal Type

Steel Jan 2007 12.2 Outbound

Telecom Feb 2007 11.1 Inbound

Telecom March 2010 10.7 Outbound

Metals Feb 2007 6.0 Outbound

Pharma June 2008 4.5 Outbound

E&U Jan 2009 2.8 Outbound

Telecom Nov 2008 2.7 Inbound

Banking Feb 2008 2.4 Domestic

Automotive March 2008 2.3 Outbound

E&U May 2007 1.7 Outbound1998 2008-09

35

27

13

4

21

6

41

32

79

Number of billion dollar companies (by revenue)

147% increase

Number of cross border deals increased from 26 in 2002 to 75 in 2009

The growth will also be enabled by the rising private sector with world-class companies and global ambitions2

Flurry of M&A Deals since 2007

$1-2 B

$2-5 B

$5-10 B

>$10 B

© 2011 IBM Corporation

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Global Rank* Company Industry

Sales ($B)

Global Rank*

Company IndustrySales ($B)

1 121 Reliance Industries Oil & Gas Operations 34.03 21 987 ITC Food, Drink & Tobacco 3.65

2 150 State Bank of India Group Banking 22.63 22 989 Wipro Software & Services 4.98

3 152 Oil & Natural Gas Oil & Gas Operations 24.04 23 997 Bank of India Banking 3.62

4 207 Indian Oil Oil & Gas Operations 51.66 24 1002 Hindustan Petroleum Oil & Gas Operations 25.43

5 317 NTPC Utilities 9.63 25 1037 GAIL (India) Utilities 4.69

6 329 Icici Bank Banking 15.06 26 1057 NMDC Materials 1.42

7 463 Tata Steel Materials 32.77 27 1059 Canara Bank Banking 4.19

8 508 Bharti Airtel Telecom Services 6.73 28 1085 Power Grid of India Utilities 1.15

9 582 Steel Authority of India Materials 9.82 29 1157 Tata Motors Capital Goods 8.54

10 689 Reliance Communications Telecom Services 4.26 30 1184 Bank of Baroda Banking 3.56

11 773 Larsen & Toubro Capital Goods 7.3 31 1324 Power Finance Business Services 1.26

12 795 Bharat Petroleum Oil & Gas Operations 27.71 32 1332 Axis Bank Banking 2.2

13 796 Bharat Heavy Electricals Capital Goods 4.81 33 1350 Union Bank of India Banking 2.66

14 808 HDFC-Housing Devel Banking 2.21 34 1380 Grasim Industries Construction 4.23

15 834 Tata Consultancy Svcs Software & Services 5.7 35 1462 Indian Overseas Bank Banking 2.25

16 848 Hindalco Industries Materials 14.87 36 1522 Sun Pharma Industries Drugs & Biotechn 0.82

17 864 HDFC Bank Banking 3.09 37 1529 Mahindra & Mahindra Consumer Durables 5.92

18 883 DLF Diversified Financials 3.5 38 1629 Allahabad Bank Banking 1.81

19 891 Infosys Technologies Software & Services 4.16 39 1659 Indian Bank Banking 1.56

20 946 Punjab National Bank Banking 4.15 40 1663 Syndicate Bank Banking 2.2

*Source: Forbes- global 2000 Note: List is indicative and not exhaustive, March 2009

India has a healthy base of globally competitive companies across sectors2

© 2011 IBM Corporation

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Growth is well distributed across the country - 60 cities in India are witnessing substantial growth

Delhi MumbaiKolkata

Ahmedabad

Bangalore

Chandigarh

Coimbatore

Chennai

Ernakulam

Hyderabad

Jaipur

Ludhiana

Pune

Surat

Vadodara

Agra

Ahmednagar

Alwar

Ambala

Amritsar

Aurangabad

Bellary

Bhavnagar

Bhopal

Bhubhaneshwar

Bokaro

Cuttack

Dehradun

Durg & Raipur

Ghaziabad

Guwahati

Hisar

Hubli

Indore

Jalandhar

Jalgaon

Kanchepuram

Kanpur

Kolhapur

Madurai

Meerut

Moradabad

Muzafarnagar

Mysore

Nagpur

Nasik

Noida

Panipat

Patiala

Patna

Rajkot

Ranchi & JSR

Salem

Trivandrum

Trichy

Valsad

Varanasi

Vijaywada

Vishakhapatnam

Other smaller towns and Rural areas

Population > 10 M 80,000+ households with income > $11K 0.5-1 million SMBs per city

Tier 1 “Megacities” (3 cities)

Population > 1 M 10,000-80,000 households with income >$11K 0.1-0.5 M SMBs per city

Tier 2 “Climbers” (12 cities)

1,000-10,000 households with income >$11K

10K-50K SMBs per city

Tier 3 “Mainstream” (45 cities)

Source: McKinsey, 2009

3

*Note: Cities market in Blue have population more than a million

36 cities with population >1M

(in 2005)

© 2011 IBM Corporation

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Clusters of competency exists across these cities

Source: McKinsey, IBM Analysis 2009

Emerging Clusters Key Industries

1 Ahmedabad-Baroda-Surat Chemicals, Textile, Gems-SEZ, IT/ITeS

2 Mumbai-Pune-Nasik Banking, C&P, Iron & Steel, Power, Auto, Auto Components, Food Industry, IT/ITeS

3 Bangalore-Mysore IT/ ITeS, Electrical Machinery, Textile, Chemicals, Electronics

4 Chennai-Sriperambadur, Kancheepuram-Trichy

Chemicals, Auto-SEZ, Textiles, Iron & Steel, Power, IT/ ITeS, Industrial Products

5 Vishakapatnam Iron & Steel, Chemicals, Pharma SEZ, Power

6 Paradip-Bhubaneshwar Iron & Steel, Refinery, IT/ ITeS

7 Haldia-Kolkata Chemicals SEZ, IT/ITeS

8 Raipur-Bilaspur Iron & Steel, Power

9 Southern Jharkhand – Jamshedpur, Ranchi Iron & Steel, Auto & Ancilliaries, Power

10 Delhi, Noida, Gurgaon (NCR) Infrastructure, Power, C&P, Multipurpose SEZ, IT/ITeS

11 Kutch-Saurashtra (Jamnagar-Rajkot) Chemicals, Textiles, Petrochem, SEZ, Power, Food

12 Cochin-Trivandrum Chemicals SEZ, IT/ITeS, Smart City

13 Coimbatore-Tirupur Textiles, Iron & Steel, IT/ ITeS

14 Bhopal-Indore-Nagpur Industrial Products, Electrical Machinery, Thermal Power, IT-ITeS, Health, Manufacturing-SEZ, Education, Cargo Hub

15 Chandigarh-Ludhiana-Amritsar-Jalandhar Textiles, Industrial Products, Auto Ancilliaries, IT/ ITeS

16 Guwahati, Digboi, Numaligarh Oil & Gas

17 Kanpur, Lucknow, Agra, Allahabad Industrial Products, Leather, Tourism, Electrical, Auto

18 Mangalore-Kudremukh-Udupi Chemicals, Iron & Steel, Mining, Education, IT/ITeS

19 Hyderabad-Secundarabad IT/ITeS, Pharma

20 Jaipur –Ajmer-Bhilwara Tourism, Textiles, Banking, IT/ ITeS, Power, Industrial Products

21 Goa Tourism, Pharma & Biotech–SEZ

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1

2

3

4

5

6

7

8

9

10

11

12 13

14

Major clusters of manufacturing

activity are emerging in various Tier II cities

© 2011 IBM Corporation

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Liberalization IT/ITeS industry starts to take

shape Six-fold increase in Sensex* Focus on Privatization,

disinvestment and PPP Dominant political parties: INC,

Bharatiya Janta Party (BJP), Communist Party of India

Growth led by service sector and IT exports with policies aimed at reducing deficits and debts

The emergence of Indian MNCs Setting up of SEZs, telecom

infrastructure etc. Coalition governments with

emergence of regional parties

License Raj creates a closed economy

Focus on growth, technology adoption and macro stability

Monopoly of PSUs Dominant political parties: INC,

Janata dal

Birth of a democracy1950 - 1975

Socialist regime 1975 - 1990

Liberalization1990 - 2000

The Growth Years2000 - 2009

Starting of the Green Revolution Focus on 5 year plans and

social empowerment Focus on macro stability Dominant politiacl party: Indian

National Congress(INC)

Over the years, despite changing government, the economic reform process continues

Note: Average for the period used except for population, literacy & life expectancy which are at the end of the period; # Adult literacy rate (% of pop over 15); Life expectancy is in years Source: EIU, World Bank, * Estimates for lack of granular data

1952: First general elections

1965 - Green revolution started

1959-. India become the largest manufacturer of

2/3wheelers in the world.

1976: Compulsory birth control introduced.

1977: Coca-cola and IBM leave India

1991 - Economic liberalization

program initiated

2000 - Birth of its billionth citizen.

2009 – ISRO launches first moon probe

2001 - mobile telephone service FDI

norms revised

1995 : Internet in India

2008 - Indo-US civilian nuclear

agreement

2009* - India surpasses China as largest exporter of

carsKey Indices

3.5%* 4.3% 5.7% 7.2%GDP growth rate

Population (Growth)

Literacy#

Life Expectancy

838M (2.1%) 1,004M (1.8%) 1,166M (1.5%)

49.3% 57.2% 61.0%

60y 63y 65y

613M (2.2%*)

47.2%*

53y*

4

GDP Mix (%)(Agri.: Industry: Services)

31: 26 : 43 27: 26 : 47 19: 28 : 5347 : 20 : 33*

© 2011 IBM Corporation

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18

41 4448

46 45 44 43

The country has built strong economic fundamentals, that also helped it remain resilient to the financial crisis

Note:CPI – Consumer price Index; Year 2010-13 are forecasted values

Source: The Economist Intelligence Unit (EIU)

Decreasing debt as a % of GDPRecovering GDP Growth (%)

Appreciating Exchange Rate (USD/INR)Sufficient Foreign Exchange Reserves ($ B)

Increasing GDP per Capita ($) Reducing Consumer* Inflation (%)

322

1051 1100 1100 1270 14601670 1910

5.5

9.1

6.1 6.8 7.7 8.0 8.2 8.0

’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E

274 254 275317

350385

437

53

59

55

5961 61

5961

9.06.4

8.310.9 10.7

5.7 5.2 5.2

4

’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E

’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E ’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E

’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E ’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E

5

© 2011 IBM Corporation

12 Source: Reserve Bank of India, Live Mint- “To hell and Back” Sep 2009, Investing Contrarian

Strong Banking fundamentals

- The RBI (Reserve Bank of India) maintained a tight leash on treasury operations- Low exposure to overseas foreign assets- Banks not allowed to borrow >200% of NW

Measured liberalization of the economy

- PSUs (Public Sector Units) showed strong growth- Few sectors have 100% FDI- Banking and Insurance; 76% and 26% FDI allowed

Growth driven by domestic consumption with lower dependency on global trade

- Private consumption in India drives > 50% of India’s GDP- India relies on external trade for about 20% of its GDP

Government moves helped demand and fuel economic expansion- Monetary measures exercised by government which pushed for lower interest rates, expanded credit, and reduced excise duties, all of which have boosted growth

- Strong foreign exchange reserves maintained by the government; in excess of $250B throughout

India showed resilience during the current crisis, remaining largely unscathed4

© 2011 IBM Corporation

13 Source: Nasscom, McKinsey, Fitch, EAC, Govt. of India

Governance, delivery system & implementation

Illiteracy & Education Quality

Poor Infrastructure Fiscal Policy

Centralized provision of public services

Low transparency

Low adult literacy rates of 61%

Low public spending on education (3.2% of GDP)

Low number of universities (480 in 2009 -10) - bill has been passed allowing more foreign universities

Quality of education an issue

Historically, low investments on infrastructure (only3-4% of GDP till 2008)

Regulatory constraints regarding private-sector participation

Huge government deficit (5.5% of GDP)

Low govt. expenditures on health (1% of GDP) and education (3.2% of GDP)

Environmental Quality

Low public awareness about environmental sustainability

Regulatory framework needs overhaul

Some hard challenges remain and the government is taking actions to address majority of these

India’s Challenges

Challenges in executing to planned outlays

Power outages remains an issue

© 2011 IBM Corporation

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MNCs leverage India’s potential multi-dimensionally

India market driving revenue growth and innovation for Philips

Aiming for 50% revenue contribution from emerging markets (India and China) by 2015 The Philips Innovation Campus in Bangalore also delivers 20% of embedded software globally Philips has launched India specific products, from smokeless stoves for rural India to lighting and

kitchen appliances for the Indian consumer

India becomes a major production hub for Hyundai Small Cars

Hyundai re-engineered its supply chain for low cost small cars. Hyundai India a global manufacturing hub and base of small cars

Hyundai buys 90% of auto components locally from Indian suppliers. The company is among the top 3 car manufacturers in the country

Penetrating domestic markets and leveraging India for exporting to other countries

Tailored products to suit Indian consumers (almonds preferred in India as compared to peanuts) Innovative distribution strategy and advertisements that appeal to Indian consumers Exports finished goods and innovative concepts to its other branches around the world

Source: McKInsey Quarterly, “The Right Passage to India”, 2005, India Briefing

India to become a major export hub for LG worldwide

India is a key element of LG's global game plan - by 2015, India will be the 2nd largest contributor to LG’s revenue after the US

LG India is looking at exporting products to mature markets eventually growing its exports from 15% of turnover to 30% by 2012

© 2011 IBM Corporation

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Successful companies in India have tailored their business model and product offering to meet local requirements

Localizing the offerings Innovating on Supply chain Altering price-value equations

Menu customised to Indian taste – McAloo Tikki, Paneer Salsa Wrap, and Chicken Maharaja Mac

Menu customised to Indian taste – McAloo Tikki, Paneer Salsa Wrap, and Chicken Maharaja Mac

Advertisements with Indian flavor

Priced to suit Indian pockets with burger price as low as 50 cents

With more than 200 M units sold worldwide, Nokia 1100 is world’s best selling handset and went on to become a success in India and other developing countries as well

With more than 200 M units sold worldwide, Nokia 1100 is world’s best selling handset and went on to become a success in India and other developing countries as well

Nokia developed its first ‘made-in-India’ handset 1100 model - in India with India-specific features like torch & anti-slip exterior and at low cost ($50 in 2003)

Foray into retail segment challenged due to competition’s strong brand equity and wider distribution network

Foray into retail segment challenged due to competition’s strong brand equity and wider distribution network

Introduced e-choupal system - a two-way sourcing and distribution system for farmers in remote villages, as well as its cigarette and paan network

Tata Nano priced at $2,000 - equivalent to the price of a DVD player option in a luxury car. 200,000 vehicles booked in first year alone

Tata Nano priced at $2,000 - equivalent to the price of a DVD player option in a luxury car. 200,000 vehicles booked in first year alone

Targeted at two wheeler buyers (~7M) and second hand small car buyers

All major auto maker have now announced plans to enter the

Source: IBM Analysis, 2009

Responding to local competition, launched a new brand Wheel at 30% lower prices - accounts for 45% of its detergent business in India

Responding to local competition, launched a new brand Wheel at 30% lower prices - accounts for 45% of its detergent business in India

Through project Shakti, women (~45,000) in self-help groups across India became direct-to-consumer sales distributors for HUL products

First company to successfully introduce and run regional distribution model in India

First company to successfully introduce and run regional distribution model in India

Distributors worked directly with the company thus ensuring better market penetration and increased volume