Indiaforuminsights2020clsasaleswriteups17_201127_152426

India Forum insights 2020 Forum presentation writeups, from CLSA Sales

Forum insights is a compilation of informal notes written by our sales team that summarises all companies and expert speakers, as well as CLSA webinars.

Day 1: Tuesday, 17 Nov

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Day 2: Wednesday, 18 Nov

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Day 3: Thursday, 19 Nov

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Day 4: Friday, 20 Nov

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Warning: This document is a compilation of writeups by sales/trading person(s) and not research analysts. It does not constitute research, nor should it be interpreted as such, and is not intended to provide professional, investment or any other type of advice or recommendation. The views contained in this document are the sales/trading person’s personal views, or the sales/trading person’s understanding of the company’s view, which may or may not differ from the official views and interests of CLSA, including the views of the investment research department. See important notice on the final page of this document.      

Day 1: Tuesday, 17 Nov Forum presentation writeups, from CLSA Sales

Day 1 - Thematic webinars - India macro and ESG (17 Nov 2020) 12:30-13:25: Eric Fishwick, CLSA Chief Economist: Rhyme and reasoning, second verse [Alex Oldfield] 17:30-18:25: Gurdeep Singh, Chairman of NTPC; Santhosh Jayaram, Global Leader, Sustainable Supply Chain Services of KPMG; Mahendra Singhi, MD & CEO, Dalmia Cement: ESG panel: India in a warming world [Damian Dwerryhouse]

19:30-20:25: Natarajan Chandrasekaran, Chairman of Tata Sons: Digital India & employment issue [Shant Manoukian] 21:30-22:25: Sanjeev Sanyal, Principal Economic Advisor, Ministry of Finance, Government of India: Reinvigorating Indian economy [Swagatam Biswas]

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India Forum insights 2020 Eric Fishwick, CLSA Chief Economist: Rhyme and reasoning, second verse [Sales writeup produced by Alex Oldfield] Eric Fishwick reiterated his view that today’s economic outlook remains very similar to the period after the GFC at the 23rd CITIC CLSA India Forum. Although YoY growth will appear to be V-shaped in 2021, the post Covid rebound will leave a large output gap. He expects Asia ex-Japan’s 2021 GDP to remain 7% below the pre-Covid trajectory. In the short term, the current reflation trade is underway, reinforced by vaccine developments. Eric expects the Treasury curve to continue to steepen and US dollar to continue to weaken here, a positive for emerging markets (EMs). However, EMs have only recently exited Covid and are in a rebound period when data improves fastest. In developed markets, we are entering the second wave and there will be doubledip recessions as services are shut down again. Forecasts for 4Q20 growth will need to be cut. Importantly, these markets are the key drivers of global demand, with the Eurozone accounting for 25% and USA for 14% of import volumes. Eric is also seeing evidence of minimal pricing power, both in the service and manufacturing sectors, resulting in inflation undershooting current expectations. In the medium term, Eric sees potential for an inflation headfake (as commodity prices rise and oil rises towards 50) but these commodity price effects will reverse as the global growth rebound falters and downstream/core price inflation remains absent. He also believes any credit/monetary surge will be a oneoff as credit multipliers remain dysfunctional. The key implications of this outlook are: low facilities investment, which is already showing up in CRR’s future investment plans SME survey; credit cycles will be muted; loose monetary policy will persist, with inflation as a goal and yield curves remaining flat; and nominal growth will be weak. Eric’s Asia ex-Japan GDP forecasts are also a rhyme of the GFC and a V-shaped recovery in 2021 is inevitable (due to powerful base effects), but this peters out organically in mid-2021 and 2022 should slip below trend. Inflation will show a headfake hump and monetary easing will continue with tightening happening “sometime never”. The US dollar will be softer until mid-2021, but then the attraction of its safe-haven status will reassert itself, leading it to strengthen again. In India, the dip in growth was more extreme than any other country we have forecast, driven by the very severe lockdowns. This resulted in a fall of the Markit services PMI for April to just 5.4. However, the rebound is correspondingly vigorous and does not

depend on the credit cycle. Eric believes inflation will fall back towards the Reserve Bank of India (RBI) target and monetary policy will be eased further. The postCovid environment of low inflation, low global growth and loose global liquidity should favour India as it has high trend growth and is internally, rather than externally, driven.

Gurdeep Singh, Chairman of NTPC; Santhosh Jayaram, Global Leader, Sustainable Supply Chain Services of KPMG; Mahendra Singhi, MD & CEO, Dalmia Cement: ESG panel: India in a warming world [Sales writeup produced by Damian Dwerryhouse] ESG and, moreover, incoming EU disclosure regulations coming into force in 1Q21 have been keeping many fund managers awake in 2H20. These concern how they disclose sustainability risks as part of their investment decision-making process and how their investment decisions impact sustainability factors. It goes without saying that ESG and sustainable investing are moving to the top of investor priority lists. On Day 2 of our CITIC CLSA India Forum, our wellversed panel comprised corporate CEOs Gurdeep Singh, chairman of NTPC; Mahendra Singhi, CEO of Dalmia Cement; and Santhosh Jayaram, global leader in sustainable supply chains at KPMG. India, home to some of the most polluted cities and water systems globally, is no doubt starting from a low base, but is fully signed up to the Paris Climate Change Agreement, pledging by 2030 to reduce emissions intensity of GDP to 33-35% below 2005 levels and to raise the nonfossil fuel share of cumulative power generation capacity to 40%. It is on track to meet this commitment. With the power generation and cement sectors comprising 50% of emissions, who better to have on the panel than India’s largest power producer NTPC (62 GW) and Dalmia Cement, now renowned as a “climate defender” and pioneering the way globally toward net-zero emission cement production by 2040. NTPC provides reliable and affordable power to India, but also aims to be a clean and green utility pioneer via ambitious emissions reductions and a sustainable energy transition programme. By using cleaner fuel sources, Denox technology, and increasing renewable generation capacity (ie, solar, hydro, green hydrogen) to 30% of the mix by 2030, it will meet India’s growing power needs in a reliable, affordable, cleaner and sustainable manner. It has also committed to not acquire any new land for new coal-powered plants moving forward. As well, it will reduce water consumption using condenser technology. In addition, as part of the circular economy, it recently announced the development of a new aggregate from waste Fly-

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India Forum insights 2020 Ash that can be used for affordable housing. It is also redeveloping old plant sites into eco parks, such as the Badarpur Plant site in New Delhi by 2022 (larger than Central Park), with as many as 200,000 new trees to be planted and creating local employment opportunities. So NTPC is working at both ends of the net reduction spectrum to meet its goals. On Solar, NTPC targets 30GW by 2022 via construction of mega solar parks in conjunction with multiple state local governments across India, and it believes that green hydrogen will be a real game changer. Dalmia Cement is now internationally recognised as a global leader in green & energy-efficient cement manufacturing, with a carbon footprint of 465 CO2 /T versus global average of 900 CO2/T. It is targeting net negative emissions production by 2040 whilst reducing its costs by 40% over the same period – a win-win for both the environment and profitability. It aims to achieve this by using 100% renewables and doubling energy productivity by 2030 (via use of biomass waste to replace all fossil fuels/raw materials). Dalmia is also looking to improve water conservation by 20x by 2035. As well, it will sell CO 2 credits. All of this will lead to cleaner and greener production whilst being more profitable and sustainable. It is well on track to meet its goals, partnering with numerous international climate change agencies (to provide a focused approach and find solutions). Dalmia is also looking into planting government waste land with bamboo to offset emissions. KPMG’s Santhosh Jayaram has been active in ESG for over 25 years and helps corporates remodel their supply chains in a sustainable manner. He has seen the debate change from protecting the planet to protecting humanity. It is clear that the amount of global money invested in ESG/sustainability principles is growing rapidly in both the public (estimated US$100tn) and private markets. Green funding via loans and bond issuance is also rising in prominence and scale. Most importantly, however, there is clear evidence that ESG-based funds are outperforming benchmarks; this is getting increasing attention, with many FF-based or polluting sectors being dropped from coverage or no longer meeting investment criteria. Put succinctly, ESG issues are on a rising trend for both corporates and investors alike, and this will be an important driver of performance moving forward. There are significant market opportunities in building energy efficiency (US$12.5bn by 2025), water management (US$25bn by 2025), and energy and material efficiency (US$4bn by 2025) in India, which as a country has a strong incentive to clean up to attract global investment. The drive for a circular economy, creating maximum value from output, will also be an important part of the story. Of current emissions, 55% are from energy and 45% from products; whilst the former will be resolved by rising renewables, the latter

will be by the circular economy (45%) and carbon capture, storage and dietary shifts/consumer behaviour (55%). Waste-to-energy is a US$500m market in the next five years, recycling US$2bn, coprocessing US$120m, and bio-renewables US$25bn (5,000 bio-gas plants). So there are huge opportunities out there, and the early movers will benefit most. This thematic is only just beginning and will gain in prominence. We point toward some of the excellent work done on ESG by our Indian research team this year and on NTPC (by Bharat Parekh). However, it is of interest from the above panel discussion that many of the companies currently being shunned by the market are most pivotal to the problem. Surely, if they are affecting the change required, they deserve our help and support.

Natarajan Chandrasekaran, Chairman of Tata Sons: Digital India & employment issue [Sales writeup produced by Shant Manoukian] Prior to becoming chairman of the board of Tata Sons, Natarajan Chandrasekaran helped create TCS - one of India’s most innovative and successful companies - so he knows a thing or two about execution and success. His book, Bridgital India, is a well-timed discussion as the country is at risk of squandering its much-envied demographic dividend. He firmly believes that technology and policy must come together (and does so now) to forge a better future for all. India has a “missing middle”. Despite 1m people coming into the job market every month, India faces an acute shortage of capacity and resources to employ them. University graduates settle for menial jobs, while the poorly-educated remain trapped in the informal economy and struggle to rise to the challenge. The solution: Policy needs to change to allow technology to thrive. For example, why does the law still require doctors to be physically present to hand out prescriptions to patients? Add to the mix a more balanced educational system that moves away from tertiary and towards primary/secondary/vocational, and the right environment will be created to allow technology to bridge the missing-middle gap. Importantly, this pivot towards technology will not come at the cost of jobs. Natarajan argues that, in India, there are hundreds of millions of people who are not being serviced, so the use of technology will actually help create new markets and not necessarily displace old ones. He emphasises that it is technology that empowers low-skilled workers to become skilled. He cites examples across industries, but most notably in health and education. Specialised doctors can be

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India Forum insights 2020 sitting in Mumbai and with the help of low-skilled local individuals to offer medical advice to rural communities. Meanwhile, in schools, technology can give children access to compelling content never available before. And if there has been one saving grace from the pandemic, it is that it has demonstrated how adaptable people are to adopting technology. When 5G eventually arrives in India, it will serve to further accelerate the process. Technologies that were previously thought to be redundant will be brought back to life. And while India has struggled in the past to create an innovate platform, Natarajan firmly believes India’s time is nigh.

Sanjeev Sanyal, Principal Economic Advisor, Ministry of Finance, Government of India: Reinvigorating Indian economy [Sales writeup produced by Swagatam Biswas] A familiar face to investors, Sanjeev Sanyal is known for his candour and concise answers to difficult economic questions. On Day 2 of our India Forum, he outlined a barbell strategy to tackle Covid-19 and the resulting economic disruption. On one hand, India adopted an extreme lockdown approach, buying time to assimilate knowledge from other countries and to upgrade testing capability and medical assistance availability. On the other hand, calculated risks were taken with a phased economic reopening. In the interim, on-demand food was available for close to 800m people, moratoriums were provided on debt and additional protection was provided to the most vulnerable businesses. This approach helped keep death rates among the lowest in the world. The government had neither unlimited resources nor the intention to provide a big top-down stimulus - as Sanyal says, ‘We didn’t want to press on the accelerator while one foot was firmly on the brakes.’ As most of the economy started reopening in late August and early September, demand came back in full force. Forex reserves grew in the interim, with the rupee appreciating (actively controlled by the Reserve Bank of India). Macro stability is apparent. Some rates have been cut, but not in a runaway fashion, keeping ammunition for the future.

To stoke demand, authorities are open to fiscal stimulus in a targeted fashion. Sanyal gave examples of how there have been offers to pay pension contributions for businesses willing to rehire employees. Production-linked incentives announced a fortnight ago were designed to build resilience to enable Indian manufacturing to effectively target global supply chains. The government’s approach has been to target supplyside reforms – a contrast with most nations that opted to fuel the demand side. Sanyal highlighted reforms in business process outsourcing and information technology enabled service (ITES), where outdated telecom regulations were eliminated. He feels it is naive to try to reinflate the post-Covid economy to pre-Covid levels. Instead, we should look at permanent habit changes that can drive business behaviour. Front-office outsourcing is a clear opportunity for India, given the availability of skilled labour in all fields that can operate on the other side of a video call – accounting, legal and many more. ITES reforms are a supply-side push in that direction. As Sanyal summed up, ‘We are supply-siders. We will give demand stimulus; calibrated monetisation would be followed. I am not a believer in “helicopter money”.’ Sanyal led a lively Q&A, highlights include: Most of the country is seeing stabilisation of Covid-19 infections so a nationwide lockdown is unlikely anytime soon. India will likely bulk up, with mass production of vaccines likely (for example, Dr Reddys will likely manufacture vaccines for Russia). It is also preparing logistics for the mass distribution of vaccines. In terms of land reforms, land acquisition is not difficult for infrastructure projects. It gets tricky when it comes to acquiring land for manufacturing. Some states such as Uttar Pradesh are doing this well. Public-sector undertakings land is being opened up for businesses seeking land to set up manufacturing. Land records are being digitized: Farmers are getting land cards. On the Regional Comprehensive Economic Partnership, India has not signed up with China, but trade agreements have been signed with lot of other countries geopolitical concerns are important and should be considered. There have been efforts to be included in global bond indices while managing the rupee and Sanyal believes inflation spikes are not a concern; rather, they are typically a process of economic normalisation.

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Day 2: Wednesday, 18 Nov Forum presentation writeups, from CLSA Sales

Day 2 - Thematic webinars - Disruption (18 Nov 2020) 12:30-13:25: Naveen Munjal, Managing Director, Hero Electric Vehicles: Two-wheeler electric vehicles - are we finally at an inflection point? [Anosh Koppikar] 17:30-18:25: Dhruv Suyamprakasam, Founder & CEO of iCliniq.com; Rajiv Gulati, Independent Pharma Consultant: Healthcare panel: Evolution of the healthcare delivery ecosystem over the next five years [Nishant Kumar]

19:30-20:25: Lizzie Chapman, Co-Founder and CEO of ZestMoney: Emerging fintech disruption [Shant Manoukian] 20:30-21:25: Asian Paints - Company updates [Nishant Kumar] 21:30-22:25: Himanshu Bajaj, Senior Partner of AT Kearney; Rajat Tuli, Senior Principal of AT Kearney: Retail consolidation & FMCG moat [Carl Reading]

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India Forum insights 2020 Naveen Munjal, Managing Director, Hero Electric Vehicles: Two-wheeler electric vehicles - are we finally at an inflection point? [Sales writeup produced by Anosh Koppikar] On Day 2 of our virtual CITIC CLSA India Forum, we welcome electric-bike pioneer Naveen Munjal to share with us the latest updates in this exciting space. Munjal is the managing director of Hero Electric Vehicles, a dominant player, which is helping to drive the electrification of India’s two-wheelers. From humble beginnings, Hero now has 33% market share and is the largest pan-India brand with over 500 touchpoints. In exploring the industry overall, Munjal explained that EVs have superior economics to traditional internal combustion engine (ICE) in terms of the life of the vehicle, power/torque and experience of riding and maintenance costs. The upfront cost is the main consideration. He also stated that disruption has already begun and the industry is at an inflexion point. There are massive tailwinds for electric mobility such as the 85% fall in battery prices since 2010 and policymakers have been supporting the need for cleaner mobility in response to the targets set for 2030. The opportunity in India is due to its size. The country’s EV journey will ride on two-wheelers given its massive market, the ability to get electrified easily and the strong economic argument. Electric two-wheeler penetration could be 10-20% by FY25, which equates to 2-4m unit sales or Rs125-150bn. The breakdown by type is: city speed 40-50%; low-speed 25-35%; motorcycles 10-15%; and high-speed 10-15%. Lowspeed and city-speed e-2Ws offer 20-40% lower total cost of ownership (TCOs) versus ICE 2Ws - naturally that is where the opportunity lies. Government policies are driving a positive change. Potential headwinds include a lack of awareness, a lack of financing, price acceptance, poor product and service, and finally a mismatch between expectations versus performance.

Dhruv Suyamprakasam, Founder & CEO of iCliniq.com; Rajiv Gulati, Independent Pharma Consultant: Healthcare panel: Evolution of the healthcare delivery ecosystem over the next five years [Sales writeup produced by Nishant Kumar] This expert panel session at the 23rd CITIC CLSA India Forum provided eye-opening and refreshingly hopeful insights on the innovative and disruptive healthcaredelivery models that could help the country (where

healthcare spending is less than 4% of GDP) catch up with other nations. India’s healthcare lags World Health Organization metrics significantly. Rajiv Gulati, a pharma expert, believes the biggest challenge is that 50% of the population has no access to a doctor or pharmacy. India is an out-of-pocket payment country (ie, families must sell assets to treat a critically ill member, often falling below the poverty line in the process). Telemedicine and ePharmacy are solutions that have been working very well and the government is also onboard to adopt these methods for low-cost healthcare. The ePharmacy discounts have been a growth lever historically, and the lockdown provided a small boost as retail pharmacies stepped in to supply medicine via phone call. The biggest pharmacies were losing money, and this has become a fundraising game with consolidation now happening (eg, Reliance Industries bought NetMeds; 1mg sold to Tata; Pharmeasy merged with Medlife). Margins improved from 20% when they bought from retailers to 24% from wholesalers; there is potential to move to 28% when purchasing directly from a company. Ways to make ePharmacies profitable include: reducing discounts from 20-25% currently to 15% once a paradigm is established; moving from Rx Gx to Gx Gx (Rx = branded generics/Gx = unbranded generics), which could mean more money for both customers and pharmacies; creating private label brands; and data monetisation through millions of generated prescriptions (ie, predict brand/molecule or doctor switching, progression of diseases, educating pharma companies to understand drug sales by demographic). Dhruv Suyamprakasam, founder of iCliniq, spoke more on telemedicine with a greater focus on international markets. The focus on India came on 25 March when the government proactively brought in regulations. Suyamprakasam says accessibility, affordability and quality are the three tenets of any healthcare system that can be well-addressed using telemedicine. Many leading players are providing telemedicine for free and making money crossselling other services like diagnostics. However, this cannot be sustained. Two initiatives to improve the three tenets are: Swasth is an in-app doctor consultation initiative to progress telemedicine in India; Bharat Health Stack (BHS) – touted as Unified Payments Interface (UPI) for healthcare – would connect customers to a network of doctors, clinics, and hospitals to, lower the cost of insurance claims, move patient records online, and be interoperable between hospitals. It is even better in terms of compliance as customer cannot get medicine without a doctor’s prescription (a practice that is usual in physical pharmacies).

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India Forum insights 2020 The Q&A featured lots of discussion on telemedicine and ePharmacies. Major regulatory support was a highlight as the government now understands that doctors are not going to villages/small. Suyamprakasam thinks that is the way forward, and even hospitals may become telemedicine hotspots. A “futuristic” example: Binah.ai – a digital diagnostics company iCliniq is working with – can even measure stress levels using a camera (though it is expensive for now). Data privacy and security are areas in which India needs to learn from other countries when it comes to digitising health records. Meanwhile, generics need to be bioequivalent to the original drug for the first four years and can get an easy approval post that (without approving bioequivalence).

Lizzie Chapman, Co-Founder and CEO of ZestMoney: Emerging fintech disruption [Sales writeup produced by Shant Manoukian] Lizzie Chapman is a veteran in the emerging fintech arena, she is co-founder and CEO of ZestMoney, India’s largest and fastest-growing consumer online lending company. Drawing from her experience in building global fintech businesses around the world, she gives us four reasons why India offers the best opportunity at the 23rd Annual CITIC CLSA India Forum. Data consumption has been up four-fold in as many years and India is digitising at an exponential pace. By and large, the country has leapfrogged the PC straight to the smartphone, where content is being absorbed. Second, the government rolled out a unique infrastructure five years ago that introduced a Unified Payments Interface (UPI) across India, allowing digital transactions across all banks and consumers. Postdemonetisation, consumer payment behaviour has undergone a vast change: ie, more comfort with online payments for daily expenses. Covid-19 has accelerated this behaviour with US$2tn transacted in October. Unlike traditional rails (ie, Visa, MasterCard, Amex), these are free to access and therefore threaten incumbents’ very existence. But their demise is Zest’s opportunity as the cost of transactions falls and lending opportunity opens up. Chapman’s third reason is that there are over 300m households in India, yet 70% of all formal credit is going to just the top 24m. The next rung of c.200m middle-class households is their target market where they feel there is a US$610bn opportunity. Finally, the fourth reason is a favourable regulatory environment working closely with the banks to extend credit where it is needed.

As demonstrated by the explosive UPI growth, India’s digital payments market has already taken off, clearing a path for consumer credit. Zest’s technology platform has not been slow to capitalise. It allows the user to set up an account, upload details, agree to credit limits and automatic repayments, and then spend across thousands of Zest’s partners (eg, retailers, education, insurance, etc). Loans are then paid back in equal monthly instalments. Zest’s comparative advantage lies in technology and the lack of a physical branch network. Its operational costs are significantly lower than banks, yet by partnering with banks, it is able to source a cheaper cost of capital. Therefore, in the same way that Hindustan Lever opened up the rural economy with its 5ml sachets, Zest is opening up new markets with its loans as low as just Rs500. This approach does have risk, though where it lies (ie, with the banks or with Zest) was not discussed. Chapman was keen to stress that with data analysis, diversified loan books, and visible credit scoring, risks were being mitigated.

Asian Paints - Company updates: R J Jeyamurugan, Chief Financial Officer and Company Secretary; Parag Rane, GM, Finance; Arun Nair, Manager of Corporate Communication [Sales writeup produced by Nishant Kumar] Interest in Asian Paints is strong, which is why we converted from a small-group meeting to a webinar. In times when the building materials sector has been on a tear – not only in India but globally – there couldn’t have been a better company to get an understanding of the trends going ahead. The company has 50+ years of leadership in India with 150K+ retailers serviced directly and is 3x larger than the nearest competitor. We revisited the market conditions that prevailed in India during the lockdown. GDP fell by 24% YoY in Q1 but conditions improved in Q2 as the lockdown was lifted incrementally. The company saw 11% volume growth in 2Q for the decorative business. Demand recovery was centered around economy, premium & some luxury ranges with strong response to ‘Safe Painting’ services. Strategy to strengthen the Décor play with introduction of offerings in lightings, furnishings & furniture continues to play well. GMs were supported by stable input material prices as well as they continued to work on driving sourcing/formulation efficiency. On the international side, volume growth picked up across markets in 2Q (except Nepal where restrictions were still in place due to Covid).

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India Forum insights 2020 Management guidance over festive season sustainability was uncertain and would like to wait. However, global recovery could support the export sector in India. Expect rural to do some of the heavy lifting given the good monsoon. Although stable currently, currency & raw material prices need to be monitored continuously. Q&A was jam-packed. Highlights below: Strategic shift to home décor & services, was set in motion more than five years ago. Under AP homes – they train contractors, enable 3D previews for consumers & provide execution services – all under a single roof. Today 13-14 shops in the country & have seen tremendous response as customer gets everything in one place. q On market share & growth opportunities - capacity utilisation is at c.65%. Operating leverage will kickin as capacity ramps up. q Could be second-order beneficiary of manufacturing base shifting to India. Could provide boost to industrial segment but need to see how this plays out. q Upgrading the customer on repaint has been another central theme as they’ve tried to move customers from distemper to emulsion products. q On waterproofing segment, it has 70-80 products for various solutions. Sourcing the premium range but manufacturing others in own plants to explore synergies. q On ESG, US/EU as a benchmark. Many premium products already meet US/EU benchmarks. Actively try to work towards end-to-end ESG initiatives internally. q For rural-urban split, it sells premium & luxury segments in rural as well (company classifies tier 2/3 towns as rural too).

Himanshu Bajaj, Senior Partner of AT Kearney; Rajat Tuli, Senior Principal of AT Kearney: Retail consolidation & FMCG moat [Sales writeup produced by Carl Reading] Retail in India is growing fast and changing rapidly, in particular the groceries segment potential is vast, and everyone wants a slice of the pie. We hosted the AT Kearney team at the CITIC CLSA India Forum for a perspective on retail consolidation and FMCG moats. The sector is seeing significant disruption with digitisation of Kiranas (family-owned shops selling groceries and other sundries), the rapid rise of ecommerce (D2C and eB2B), and private-label

companies making market share gains. In addition, mega distributors such as JioMart are leveraging digital, which has impacted distributors, retailers, FMCG companies, and, ultimately, the consumer. Demographic and economic shifts in income (especially post Covid-19), along with this surge in ecommerce, has really impacted the sector. Retail has adopted technology much faster and on a larger scale than many other sectors. Ecommerce and D2C penetration is expected to rise significantly over the next five years from 0.4% (in 2020) to 3% by 2025, which is still far behind China (15%) and South Korea (20%) in terms of their current grocery ecommerce penetration rate. Traditional kiranas currently account for more than 80% of the retail market. Given the scale and diversity in India, there is potential for different formats and channels to coexist, and even collaborate into better serving customers, but digitalisation seems to be at the centre of everyone’s plans. Of the 13m Kirana stores in India, less than 4% have adopted some form of digitisation – through ordering platforms, payment, digital inventory, or collection. However, more than 50% of Kiranas are considering working with tech providers post-Covid, given the strong impact from direct online sourcing, efficiency gains, and customer interactions via WhatsApp-based ordering, digital kiosks, and online payment facilities. Even offline brands are now pushing D2C in a big way – though this does require scale, traditional offline heavyweights such as P&G, Hindustan Unilever, and Coca-Cola have launched their own D2C platforms. JioMart seems to be one of the biggest threats with its upstream integration of the supply chain, sourcing leverage and access to data, which gives it a large competitive moat. Operating in 200 cities and with 400m WhatsApp users, it is looking to capture all parts of the value chain from farm to fork. The direct sourcing from farmers has led to dual benefits of higher margins and fresher products. Similarly, bulk buying goods from manufacturers gives margin benefits that are partly reinvested into higher discounts for JioMart’s customers. Those customers generate more data, allowing the company to drive its private label push. Reliance Retail generates 14% of its revenues from private labels, whereby it leverages its robust supply chain network and faces fewer barriers compared to foreign competitors. However, many new-age brands are becoming a threat to traditional companies across categories. Look at Sugar in the personal care space or Pepperfry.com in furniture retail, which are more nimble in introducing new products as customer trends change. The omnichannel approach enables a focus on ecommerce and helps generate higher engagement with customers, especially via social media.

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India Forum insights 2020 The underlying macro factors that have generated India’s retail growth in the past 10 years are expected to continue to grow steadily for the next decade. Greater purchasing power, a steadying savings rate, and growing consumerism will continue to generate

strong sales; however, with product choices and customer engagement constantly evolving, it will be fascinating to see how FMCG companies cope with that threat as the ecommerce battle intensifies.

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Day 3: Thursday, 19 Nov Forum presentation writeups, from CLSA Sales

Day 3 - Thematic webinars - Post Covid India (19 Nov 2020) 17:30-18:25: Ajay Adlakha, Founder of ruralmarketing.in & CEO of Infinity Advertising Services; Puneet Vidyarthi, Director Sales & Product Marketing of CASE New Holland India; Sanjay Panigrahi, Independent Expert; Benjamin Mathew, Head of Strategy of Rural Marketing Consultancy (MART): Rural panel: Winning the rural heartland [Gary Hall]

20:30-21:25: HCL Technologies - Company updates [George Hansom] 21:30-22:25: Jagdish Chandra Sharma, Vice Chairman and MD of Sobha/Sobha Developers; Vinod Rohira, CEO of Mindspace REIT; Anuj Puri, Chairman and Founder of Anarock: India real estate: 2020 & beyond [Bruce Clayton]

19:30-20:25: Abhay Kelkar, Vice President, Research & Consulting of CIBIL India: Asset quality & credit growth [Sujay Kamath]

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India Forum insights 2020 Ajay Adlakha, Founder of ruralmarketing.in & CEO of Infinity Advertising Services; Puneet Vidyarthi, Director Sales & Product Marketing of CASE New Holland India; Sanjay Panigrahi, Independent Expert; Benjamin Mathew, Head of Strategy of Rural Marketing Consultancy (MART): Rural panel: Winning the rural heartland (Day 3) [Sales writeup produced by Gary Hall] The lockdown-induced weakness in urban demand has, to a certain extent, been offset by a rosier picture for rural consumption. This has been supported by good rainfall, higher government procurement of crops, and better rural spending. Obviously, no one can predict the weather, but how sustainable are the other factors? What role can technology play in driving rural consumption, and what areas have the best growth potential? Our rural panel sets out to answer these questions at our 23rd CITIC CLSA India Forum. Ajay Adlakha, of ruralmarketing.in, began with the rural marketing opportunity. After an extensive breakdown of India’s demographics and GDP, he highlighted that rural communities have experienced large changes in recent years when it comes to technology and infrastructure. Internet and smartphone penetration have increased significantly: there are now 277 million internet users and 200 million smartphones in rural India. Even AI is playing a part with automated intelligent crop monitoring and irrigation systems. More than 50% of the rural population now has a bank account. And this is all thanks to government policy support. That said, this must be put in a cultural context. India is a very diverse country, so there is a lot to consider (eg, different languages, dialects, food habits) when trying to penetrate the rural areas. Rural sales contribution is over 50% for FMCG, 43% for twowheelers, 6% for four-wheelers, 50% TVs and 35% consumer electronics. Sanjay Panigrahi highlighted the key reasons for growth, against all odds, in rural FMCG consumption this year. A good monsoon has definitely helped, with not as much flooding as last year. Further Covid-19 government support has also helped. He does not see demand relocation from urban areas as a major factor, and as these areas recover, people will move back. Wholesale demand shifted to rural areas. Rural FMCG channels remain 85% traditional, 10% modern, and just 3-4% ecommerce. The major categories that are performing well are health, nutrition, hygiene immunity boosting, and DIY. Non-essentials have not done well. Households are looking for greater product variety, so across the popular categories there have been 2,000 new product launches. Consumers continue to buy larger, trusted brands; where they need to down trade in the same brands, safety and hygiene are key drivers.

Benjamin Mathew was asked about new policy around agriculture and new opportunities. He points out that since 2018, horticulture has exceeded agricultural production and adds income to households. The biggest creator of livelihoods in rural areas is agriculture, followed by services and industries. Mathew points out that farmers are moving away from the traditional ownership model to custom hiring, which allows for higher-spec machinery and better utilisation. In terms of the impact of recent reforms on the agricultural sector, he said this is no easy answer given there is a lot of conflicting information. Price increases are likely, and land aggregation is needed. Puneet Vidyarthi’s comments centred on mechanisation and the deficit in the non-wheat and rice segments. He pointed out that the bulk of the funding currently comes from farmers. Small-land packages are an issue, with real income from agriculture not going up in the past 10 years. He believes now is the right time for mechanisation, starting with the rental model, and the government has already started to provide infrastructure to support this. Precision farming practice will increase as will agro-processing, which will mean export opportunities can be realised. During Q&A, the panel was asked: Do you believe rural India will adopt electric two-wheelers over the next five years? The response: Infrastructure in rural areas will still take a decade to be good enough so electricity and other infrastructure is going to take time. EVs may happen, but it will depend on how the ecosystem develops.

Abhay Kelkar, Vice President, Research & Consulting of CIBIL India: Asset quality & credit growth (Day 3) [Sales writeup produced by Sujay Kamath] Bank retail credit growth has soared over the past six to eight years, says TransUnion CIBIL’s Vice President of Research & Consulting, Abhay Kelkar, at the 23rd CITIC CLSA India Forum. However, this came to a standstill when Covid hit India in March. Surprisingly, momentum has picked back up to 80-90% of pre-Covid levels, and banks have surprised investors with reassuring commentary. Kelkar shared several data points on recent changes in retail and SME credit activity. Owing to limited credit activity during the lockdown, headline retail credit growth slipped to a low 3% by July, yet it picked up to low double-digits by September driven by a sharp rebound in credit activity/demand. A rebound in credit cards was helped by customer preference for digital transactions, while record-low interest rates (7%),

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India Forum insights 2020 pent-up demand, and attractive offers on finished residential inventory drove new house purchase loans and aggressive refinance. Interestingly, credit inquiry volumes was led by public sector (PSU) banks (120%), while NBFC/HFCs bore the brunt (58%) versus October 2019 levels. Fresh loan origination volumes witnessed a shift towards existing customers (vs NTC customers) with sharper recovery in asset finance products (mortgages, loan against property (LAP), and autos/two-wheeler loans) driven solely by PSU banks (140%). Private banks and NBFCs including HFCs remained sharply lower YoY, probably due to a higher concentration of private financiers in metro areas versus a greater presence of PSU in Tier 3 & 4 and semiurban where the impact of Covid-19 was far lower. Although Morat data is not available to CIBIL and data showed was up to July 2020, customer-level delinquency on retail loans has risen only marginally (from 3.41% to 3.66%). Two-wheeler loans surprisingly witnessed a fall (from 3% in Jully 2019 to 2.7% in July 2020), while LAP and credit card witnessed a spike. Deterioration in delinquency has been sharpest for the FinTechs (from 1.5% to 3.5%) as they cater to selfemployed and lower-income borrowers. In terms of collection efficiency, mortgages and PL witnessed sharper improvement in the early delinquency bucket (30-60 DPD), while two-wheelers and credit cards were at the other end of the spectrum. Private banks were already ahead in collections, while NBFCs and fintechs have picked up collections efforts. Overall, the delinquency outlook remains complicated and will take time to emerge due to the lagged effect of financial conditions, relief programs, and shifts in consumers’ payment priorities. The declining growth of MSME credit took a turn for the worse (-7% YoY), driven by medium enterprises (17% YoY), as lenders stay away. Micro SMEs (+2% YoY) continue to be preferred by lenders. Given the stark liquidity conditions, NBFC bore the brunt. Kelkar shared that in terms of statewise growth in SME credit, states with stringent containment measures (West & South) have experienced higher contraction (-8 to 10%) in balances. Thanks to the government’s Rs3tn ECLGS scheme, the volume of MSME loans sanctioned accelerated in June 2020 to 700k versus a monthly average of 200k as banks, especially the PSUs (85% share as of June) took advantage of the scheme while private banks preferred to await further details. Micro enterprises are the primary beneficiaries of the ECLGS scheme with the number of loans sanctioned up 4x. As per CIBIL’s

analysis, 81% of MSMEs eligible under the credit guarantee ECLGS scheme belong to higher-end cohorts (ie, super prime and prime) of credit, which gives CIBIL confidence on the use of ECLGS (Rs1.8tn sanction to date). In light of relief programmes and Morat, MSME NPA rates have increased only marginally (from11.4% to 11.9%) compared to the previous year, probably a factor the declining base of loans. It is interesting to note that, across sectors, 65-70% of MSMEs belong to super prime and prime.

HCL Technologies - Company updates: C Vijayakumar, CEO (Day 3) [Sales writeup produced by George Hansom] HCL Technologies is the third-largest India-listed IT services company and also one of the oldest. According to Forbes, HCL is the highest ranked multinational headquartered in India. It is also the fastest growing-increasing in size by 60% over the past four years. HCL is a global leader in its field with 150,000 ‘ideapreneurs’ operating in 50 countries worldwide with revenue of nearly US$10bn. Vijayakumar identified five broad trends and themes that are relevant to the IT world now and in a post pandemic world. 1) An acceleration towards digitalisation of customer interactions and business operations. 2) Artificial intelligence led services will grow and be norm across all industries. 3) Cloud “as a service” will see the strongest growth in the next few years. 4) Demand for tech talent and niche acquisitions will increase in automation, cloud, data & analytics, AI and cyber security sectors. 5) A fluid work place framework is needed to manage the increasing number of personnel working remotely with zero compromise on security and productivity. HCL’s key growth drivers are as follows: a) Hybrid cloud: This is the new computer. Both for business and personal. Cloud adoption will drive further demand for telecom infrastructure and 5G led solutions as well as virtual entertainment, eg, gaming and tourism. b) Digital transformation: Continued innovative use of digital channels and modernisation and automation. IOT will play a central role in disrupting traditional manufacturing. c) Digital workspace: The trend towards a ‘Work from Anywhere’ business model requires an intuitive personalised and on-demand solution for an intelligent workspace.

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India Forum insights 2020 Currently HCL has a balanced portfolio of industry leading services and products across three business segments namely: q IT and Business Services. The largest division with revenues of over US$7bn and growing at 13% YoY. Here, HCL delivers a comprehensive suite of endto-end digital offerings to address the traditional and transformational needs of large corporations. q Engineering and R&D services with revenue of US$1.7bn. q Products and Platforms with revenue of US$1.2bn. HCL’s strategy for the future and its journey further into the digital age was laid out by Vijayakumar as having three legs: 1) Existing core services (as laid out above). 2) Accelerating new services such as Data and Analytics, IOT, Cloud, Cybersecurity & GRC. This area has been growing at a 25% Cagr over the past four years. 3) Building new and reimaging mature products and platforms using partnerships, carve-outs and coinnovation programmes where necessary. Existing partners include Google, Microsoft, Dell, IBM Cisco and Intel, etc.

Jagdish Chandra Sharma, Vice Chairman and MD of Sobha/Sobha Developers; Vinod Rohira, CEO of Mindspace REIT; Anuj Puri, Chairman and Founder of Anarock: India real estate: 2020 & beyond (Day 3) [Sales writeup produced by Bruce Clayton] We hosted three experienced property leaders at this year’s virtual India Forum. With the industry already significantly consolidating over the past four years, the pandemic-induced slowdown will only accelerate this. Big listed players with access to capital are likely to emerge from the crisis even stronger. Commercial Offices: Absorption was about 45m square feet last year; India is on track to cross 20m square feet this year due to Covid-19 disruptions. 90% of demand comes from global tech companies with key drivers remaining increased digitisation of services and cost arbitrage (most office rents in India are below $1 per square foot). The panel members were confident that demand growth would return in a few quarters after a Covid-19 vaccine. However, the supply cycle has been postponed with 70% of supply impacted by lack of capital among the smaller developers. This is causing a move towards Grade-A occupancy. The work-from-home trend is unlikely to persist in post-

pandemic India, due to the challenges of innovating without collaboration, large household sizes (average 4.5 people/household) crammed into tight residential spaces, and poor internet connectivity at home. Residential: Work-from-home has led more people to focus on their homes and is driving upgrades. Affordability remains strong with 7% interest rates, while supply is shrinking as weaker developers lack the capital to complete their projects. Buyers are gravitating to organised developers like Sobha that are able to complete their projects. Unless the government provides access to cheaper long-term liquidity for smaller developers, the market will consolidate among the bigger players. Eventually we could see 4-5 players dominate 50-60% of demand. While the overall market will shrink, the listed players will see disproportionate growth that could exceed 2019 levels. Those who could afford it started buying in September, and residential demand has been strong in the period leading up to Diwali. The market should get a true test of this demand from now until January 2021. Retail: This has been a tough story with continued consolidation in retail stores and mall developers. Malls are seeing 25% of pre-Covid walk-in numbers, but sales conversions are 50-60% of pre-Covid levels. The people who are coming into the malls are serious buyers. India’s lack of parks and museums in major cities means that malls should remain popular destinations in a post-pandemic world. Reits: This is a strong and growing asset class in India. Reits are attracting huge demand from high-net-worth investors and international players seeking tax-free yields. The ability to list Reits on the stock market is giving these investors an exit and is driving fresh acquisitions. Data Centres: Demand is getting stronger, and the panellists are seeing serious inquiries. Mumbai is attractive for data centres due to its resilient power grid, availability of optical fibre connections, and deep customer bases. In 4-5 years, we could see 15-20 large data centres there. Developers have learned several lessons from the pandemic. These include: financial discipline – debt is not equity, meaning it is necessary to examine developers’ ability to take on so much debt and change debt provider behaviour; credibility is essential – developers must focus on delivery and the customer; professionalism – developers must run their businesses professionally and take away efficiencies; and technology – the application and use of technology has enabled survival with minimum interruption, allowing society to protect the maximum number of jobs at the least cost.

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Day 4: Friday, 20 Nov Forum presentation writeups, from CLSA Sales

Day 4 - Corporate webinars - Emerging leaders (20 Nov 2020) 12:30-13:25: Carwale and Cartrade - Company updates [John Agostini]

17:30-18:25: PolicyBazaar - Company updates [Eilish Smith]

13:30-14:25: Delhivery - Company updates [Nishant Kumar]

19:30-20:25: Nykaa - Company updates [Deeksha Chugh]

14:30-15:25: Deepak Bagla, MD & CEO of Invest India: Make in India [Stuart Thomson]

21:30-22:25: Zomato - Company updates [Sujay Kamath]

16:30-17:25: Care Health Insurance - Company updates [Anosh Koppikar]

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India Forum insights 2020 Carwale and Cartrade - Company updates: Vinay Sanghi, Founder [Sales writeup produced by John Agostini] It’s very difficult to work out where to start with what was both a fascinating and very exciting presentation from Vinay Sanghi today on India’s largest auto ecosystem company that has ambitions to become the next Mahindra or HDFC of the digital generation. Listening to him today, I don’t doubt he will pull it off. The company he has built has attracted shareholders like Tiger Global, Warburg Pincus and Temasek who can no doubt help with his ambitions - plus he has 22m MAUs, is profitable already (with 35% profit margins) and has a brand profile second to none in the auto world. He completely gets that it will takes 20 years to build a really large and successful company in India. He flags that they are already in year nine, and highlighted how he got to where they are and what their plans are over the next 10 years to see his ambitions play out. As he mentioned a couple of times, Cartrade is not just the No.1 auto marketplace company, but a significant (auto) software and data firm as well. Make sure to have a chat with Amyn Pirani (CLSA’s autos analyst who hosted today’s talk) and/or take Sanghi up on his offer to share his presentation pack, at the very least. The business was founded in 2009 initially as a B2B online exchange to enable C2B and B2B for used car dealers to buy and sell cars. Being a very fragmented market with 15,000+ dealers in India who run out of 200ft shops with just 6-10 cars on the lot who weren’t terribly IT savvy, it wasn’t easy to begin with. But being a new avenue for sales, it received solid support form sellers such that once supply was committed, dealers had to come. By 2012, Tiger Global entered the fray in Series A which enabled it to look more at the consumer and allow B2C to happen on Cartrade.com as well, which was a unique proposition as it allowed consumers and dealers to sell to each other and vice versa either C2B or B2C. With this, it began to realise that building out a dealer management solution/inventory/CRM software would help it build valuable data plus help customers become more profitable, which in turn forced dealers to start using PCs more. About 500 salesmen helped this rollout and helped train the dealers in turn to become better customers. The advent of smartphones in late 2013 changed everything for everyone - it made it easier for dealer customers to log in and buy from consumers and businesses (banks/insurance, etc) and manage their businesses, plus it forced the dealers to put all their inventory on the app and thus Cartrade ended up securing the best supply list available and the virtuous circle that then creates. If you want to buy a car of choice there can be 6-7k make/model variants so selection quality became a cornerstone. And when in

September 2014, Warburg Pincus took a stake, it enabled the firm to launch a certification product with engineers certifying all the cars on the platform for transparency. These car reports became very popular and was another key differentiator. A pricing tool was then added that used its data analytics, thereby creating its own price book for used cars and what you should pay as a consumer - another huge value proposition and proprietary. Having conquered the used car side of the business or on the verge of doing so it next took a look at new cars where Carwale.com dominated and as luck would have it, it was able to buyout Axel Springer who owned this business in late 2015 with some help this time from Temasek coming on board. US$120m was a big price to pay and the business was loss making, though had great metrics and engagement, so integrating its tech seamlessly and using one team across both sites helped lower the losses. Next on the agenda was offline Shiriam Transport Finance had created a physical business with 95x 20 acre parks (warehouses effectively) with lots of inventory and needed a strategic buyer fortuitously and combining both complimented each other given now both online and offline could also have warehousing capabilities. This deal was completed in mid-2018 leaving it as No.1 in online, offline and inspection (1m cars pa). So piece by piece, the business now has 22m buyers coming onto the No.1 platform with 15k used car dealers along with almost every OEMS (new & used) plus banks and insurance company used offerings, which today generates US$3bn GMV, c.US$60m net revenue (set to grow at 35% pa) and c.US$20m profits (set to keep doubling), which will see them among the most profitable digital companies in India. What about the next 10 years. There are massive opportunities for Cartrade to become the major Indian corporate that Sanghi has ambitions for. He cited numerous opportunities it is looking for to fund organically with the c.US$100m net cash on the balance sheet, where it has set aside c.US$50m for its ventures division. Think insurance; financing dealer and consumers; trade-ins for used cars and trucks so C2B2B opportunities for EG. Financing is a huge opportunity set given there are no organised forms available en masse in India, and knowing its customers/dealers intricately given the data sets it has built - it knows the right pricing; how many cars each dealers stocks/sells; and it can also verify the cars exist- this will become a major revenue/profit line in time. In retail financing it is building the rule engines for the banks to enable online processing/approvals, something that has also not yet happened and it will end up owning the data here also. It will also explore setting up its own finance business too. Less than 5% of customers use finance and when they do it’s too

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India Forum insights 2020 expensive anyways. The company will also use its venture funds to look at new age opportunities via acquisitions, partnerships or incubations - think EVs, connected, sharing etc as well - having created a leading digital company it intends to hold onto that mantle and be at the epicentre of all that is going on in the autos sector. Q&A: Capex vs Opex? It’s all about opex as don’t own many assets so it comes down to marketing and people. Digital marketing - complimentary or competition vs what the OEMS are doing? We provide the tools for the OEMs who are already our partners for GE when they launch a new car they use our data. Key entry barriers in Indian context? 20m MAUs for starters is a great moat given the network effects that brings. Very difficult to do organically now; our execution mind-set is huge and most competitors are across just one vertical not all. Impact of electrification? In India this will get addressed on 2wheelers first and then commercial vehicles before cars. The Government will mandate trucks / commercial vehicles first. We see EV’s helping boost online buying and getting deeper into their systems so it will be. We want to be involved also as see EVs as a major opportunity. What do you do for BMW in Asia? All its dealers in Asia use our dealer management systems and analytical tools. Our SaaS business is unique and we see global opportunities for this down the track.

Delhivery - Company updates: Sandeep Barasia, CBO [Sales writeup produced by Nishant Kumar] Delhivery has become India’s largest third-party logistics services provider in less than 10 years. All this with an asset-light model (don’t own trucks, but have a customised fleet of 42ft tractor trailers from Volvo, which are 30% more efficient than the usual 32ft ones). No wonder its marquee set of investors have poured millions into the company (Softbank, Tiger, Carlyle, Fosun and Nexus). With the vision to become the Operating System for Commerce in India, they walk the talk with a ‘full suite’ of supply chain services - transportation, warehousing & technology. Covering 2.3K cities & 17.5k+ postcodes with 3k+ delivery centres with lowest industry shipment cost @ US$0.7/shipment is no mean feat. How do they do it? Technology.

q Their technology/data sciences team is largest across EMs in the world. They own the technology solutions & therefore, the data q Automated sorting capacity of 2.2m parcels per day. Closest competitor has less than half of that q Exportable ‘as a service’ in itself (It’s a separate billion dollar company within Delhivery!) q Last mile centres are updated as new hotspots come up (say, a new college campus). No customer is more than 5km away from a last mile centre Impact: Cost of moving a 1kg parcel from Delhi to Mumbai was Rs100 in 2017 & is Rs50 now. Potential to go to Rs40! The growth runway In B2C express parcel (Ecommerce mainly) - expected to grow to US$6-7bn by FY23 (vs US$2bn today), now could be even bigger accelerated by Covid. 20-25% share of the overall market. In B2B space (more exciting space now), warehousing has been US$100bn market and highly fragmented with top 10 players accounting for 12% of total market. Expected to grow to c.US$150bn in next few years. Top supply chain companies in developed markets like US are 100x the size of largest such companies in India. In terms of financial health, FY20 ended with Rs27bn in revenues. Back to normal monthly run-rate & should end FY21 with a top-line of Rs38bn. Would’ve had a break-even year if not for complete washout in a couple of months this year. Expect to go back to 60% growth next year. Don’t need any capital for now. US$250m more than enough for Capex & WC requirements. Q&A highlights: q Competition: There’s not a direct comparison with the players in India as they straddle across multiple services. Four buckets: n Ecomm (captives of Amazon & Flipkart): Large customers but don’t make up more than 7-8% of its revenue n New age companies: focus on technology & lowest cost (not the lowest price) n Traditional (like BlueDart): Already significantly larger than them. In terms of tonnage & volumes, traditional players can’t compete. Large Indian players (like Mahindra Logistics): Usually do contract logistics n Smaller players: work more like partners rather than competition as they can work off of Delhivery’s platform

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India Forum insights 2020 q How easy is it for customers to sign up? A customer making 10 bottles of Jam can sign up as well without requiring any integration from their side. On the other side, they work with Amazon as well

Bagla portends that when India emerges, it will emerge quickly with much of the pre-Covid fat trimmed, and that if India was an opportunity prior to Covid, it is an even bigger one today.

q Handle entire supply chains: E.g. Voltas doesn’t have an in-house supply chain team. Has outsourced the thing to Delhivery.

Invest India has four verticals: investment promotion and facilitation; execution arm of Startup India; the government’s science and technology initiative (fasttracking innovation through to commercialisation); and national infrastructure pipeline. Thus Bagla has broad insight into various sectors and stages of investment across the entire economy. Things are growing rapidly.

q On operating leverage: Combining hardware & software automation. Industry does 25 packages per agent vs 50-60 done by Delhivery in last mile. Leveraging technology that decides the last mile cluster (vs traditional approach of having a centre each in North/South/East/West parts of the city). q Last mile logistics: Using local kirana shops, gig workers to deliver their products. They collect/drop shipments from Delhiver’s own distribution centres everyday Something that’ll be music to public investors’ ears: “We work like a public company & are ready to go public anytime!”

Deepak Bagla, MD & CEO of Invest India: Make in India (Day 4) [Sales writeup produced by Stuart Thomson] On Day 4 of our India Forum, we hear from Deepak Bagla, the managing director and CEO of Invest India, about India’s investment landscape. He began with some statistics on the outbound FDI projects from the USA and Asian countries over the past three years, putting India up there with China and highlighting the room for further growth. Foreign direct investment (FDI) into India was US$74bn for FY20, of which 40% was greenfield, and making the country one of the top-10 greenfield investments in the world. When we look at recent statistics and comments from leaders and politicians, Bagla believes it is apparent that India is now back to pre-covid levels. He believes that we likely over-estimated the negative impact the virus would have on the economy and sees the bottom of the U-shaped recovery getting shorter and beginning to look more like a V. On 25 March 2020, India went into the biggest lockdown in history. The most interesting element here was the impact to migration. Bagla says that for a population of 1.3bn people, over 8bn people travelled on trains last year. So the lockdown restrictions on movement had a huge effect. Demographically, the country has the youngest and most aspirational population in the world as well as the fastest-growing large economy.

The queries that are coming in today are not investors testing the water or looking for first-stage information, they are from companies wanting to know where and when they can get their land and when they can start their projects. Bagla mentioned a particular tech investment scheme, the applications for which closed in July, for which he claims every single major tech company on the planet has applied. Modi wants to make India the easiest place to do business in the world. In that respect both local and state governments are coordinating. There is now (or soon will be) a single portal through which all FDI can apply which will then take care of all applications and approvals coordinated across local and state levels. Already there is a portal where all land available can be viewed. The goal is that FDI applications will have a 30-day turnaround with fines for delays. The advantage and efficiency in India used to come from SMEs. Since the early 2000s, India emerged as a global IT hub, but the SME strength still exists and will drive future transformation. There are 750m “connected” people today, which will rise to more than 1bn by 2024. Small towns and villages are key to driving things towards this vision of new India, especially within the context of “work from anywhere” that has been brought to the fore during Covid-19. You can visit the Invest www.investindia.gov.in.

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Care Health Insurance - Company updates: Anuj Gulati, Founding MD & CEO; Nitin Katyal, HeadInvestments; Pankaj Gupta, Director Services & Chief Financial Officer [Sales writeup produced by Anosh Koppikar] Uncertainty is what insurance thrives. Higher hospitalisation, and high medical costs in private hospitals have driven more Indians to sign up for private health insurance. Key drivers of Standalone Health Insurance (SAHI): q India Healthcare 4% of GDP vs 5% for China and 6% for Russia; 65% is out of Pocket vs 32% for China and 41% for Mexico q Insurance Industry growth 21% since FY10

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India Forum insights 2020 Insurers m/s in FY20 Group @ US$3.6bn: PSU 55%, Private 33%, SAHI 12% Retail @ US$2.8bn: PSU 34%, Private 16% SAHI 50% Total @ US$7bn: PSU 48%, Private 26%, SAHI 27% q Retail health insurance is the key driver of SAHI in India. q Gulati sees Care Health Insurance mirroring the current growth trends of the health insurance industry, if not outperforming it, in the coming days.

About Care Insurance q Started operation July 2012, Religare is 72% stake. 8950 employees, 159 branches 25 products. All claims are in house q Group - annual contract, renewed every year +9% FY20 vs FY19, 15% of business. Group 50m lives covered q Retail - fastest growing segment +31% YoY , 70% of business ; First year contract comes with wait period with some diseases; Year 1 claims ratios lower and cost of acquisition is higher; Year 3 onward steady state claims ratio come up. Retail insurance covers 30m lives – CARE chooses not to go in lower income segment and sticks to mid to upper income segment q Not happy with Ayushman Bharat (16% of revenue) except State of Chattisgarh q Business Channel Mix: 28% Direct business, 23% brokers, 30% individuals q Leveraging technology to grow its business and has 500K customers using its mobile app. q Care has recently concluded a funding round in June including a primary infusion of Rs3bn from PE firm Kedaara Capital.

PolicyBazaar - Company updates: Alok Bansal, CFO [Sales writeup produced by Eilish Smith] PolicyBazaar was established in 2008 and has become India’s largest online insurance aggregator with more than 10 million customers. It provides a digital platform where customers are able to compare products from major insurance companies. During the first phase of evolution, PolicyBazaar took the opportunity to: 1) Get to know India’s insurance market: how the products work, distribution, who are key contacts at each insurer. 2) Educate the customer about the need for these products as part of their financial planning.

During this phase, the company began developing their IT pipeline and so initially they had to pass customer enquiries directly to the insurers. As their IT infrastructure evolved, customers were able to spend much longer on their platform and would only be passed to the insurer for the final stages of purchasing a policy (taking payment, for example). However, the third evolution phases allows for the entire process to be carried out on the PolicyBazaar platform which has provided the customer with a much smoother experience. PolicyBazaar’s focus remains on protection products, in particular on health and term insurance where they have a market share of 12-13% and 30% of India volume respectively. These two business lines represent 55-60% of Policy Bazaar’s premium. q Health insurance is typically sold 60% by agents, 20-25% by banks and 15% directly (of which, PolicyBazaar has 12% market share). It is inevitable that the volume of health insurance sold by agents will come down as online penetration increases. q Term, meanwhile, can be split into thirds across agents, banks and online. However, agents are less likely to sell term as a stand-alone product. q The India auto insurance market is a tough segment to break as it’s dominated by the auto manufacturers, although Policy Bazaar do have 810% market share. q PolicyBazaar has only 1% market share in savings insurance and do not see this segment as a major source of growth. The majority of PolicyBazaar’s business lines have passed the 10% market share hurdle, and expect the next 10% to be easier to achieve than the initial share. The India health insurance market is extremely under penetrated, and thus there’s plenty of scope to capture more market share of the ever growing pie. Similarly, coverage for term insurance is only just beginning in India and carries further opportunity to gain market share. In India, auto and savings have historically been the main insurance products with very little innovation on health and life. However, due to the vast amount of sales data, PolicyBazaar is able to work closely with insurers to jointly develop new products based on the customer wants and needs, without taking any balance sheet risk. The company have not seen an ok impact on overall growth from Covid measures, especially in the health segment where policy uptake has increased. Alok expects 30-35% growth this year in premiums, but sees it unlikely to grow past 40%.

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India Forum insights 2020 Nykaa - Company updates: Anchit Nayar, CEO-Retail and Chief Marketing office; Arvind Agarwal, Chief Financial Officer [Sales writeup produced by Deeksha Chugh] Nykaa was founded in 2013 by Falguni Nayar who started with online beauty business only to become an lifestyle omnichannel platform now. It is now India’s largest omnichannel beauty platflorm.

Content Beauty Book - 1m views Nykaa TV - YouTube Channel - 1m subs Nykaa Network - P2P platform - 2m subs Explore Feed - Shopping directly from Feed - 8% cart conversion

q Rs4,300 cr GMV annually

Delivery TAT 90% of metros : within 3 days

q Rs2,750 cr net revenue annualised run rate

75% of non metros : within 3 days

q 33m app downloads as at October 2020 - 90% business from app q 75m monthly visits - 17 m monthly unique visitors q Repeat customers 1m+ - 72% q 17,500+ pincodes served q Now above pre-Covid levels in beauty - 135%

Pillars of Nykaa q Brand partnership : 2,500 brands q Authenticity: To address cosmetics counterfeit issue => work with an inventory led platform - 14 warehouses q Ad platform: 75m customer monthly visit q Rich content: Educating customers through expert sessions + DIY videos q Private label: Done very well + developed later after selling various brands. Brought sheet masks to India q Retail stores: To touch & feel brands - 74 stores across India - experience centres ( 15 in FY 15 to 74 in October 2020) Market sizing Beauty FY21: US$15bn - 8% online penetration - 33% Nykaa share FY26: US$25bn - 15% online penetration Apparel FY21: 75bn - 8% penetration - Nykaa share 1.3% FY26: 105bn - 17% online penetration Nykaa customers - Beauty aficionado (27-45yr), Short on time(23-31yr), makeup newbie (19-24yr) Brands Luxury: 16% of revenue - 2.2x growth over 2 yrs (Differentiated here) Prestige: 30% of revenue - 1.8x growth over 2 yrs Masstige: 54% of revenue - 1.5x growth over 2 yrs

Nykaa Fashion Mid to high end - curation platform - Niche for premium fashion brand in India. Full range - Indian, western wear, accessories, footwear & Lingerie New initiatives 1-Imports - Beauty - brought 8 global brands to India 2-Nykaa Man - Nykaa.com for men 3-Fashion - Pvt label in fashion as well 4-B2b stores 5-International Distribution of Nykaa brand

Zomato - Company updates: Deepinder Goyal, Founder & CEO; Akshant Goyal, Head of Corporate Development [Sales writeup produced by Sujay Kamath] Until 2015, Zomato was a restaurant review and rating platform just like Yelp in the USA. It expanded to 24 countries and monetisation was only through ads visibility. It used to add content like photos, ratings and review and kick of the flywheel for more users to come on platform. In 2015, it changed gears and entered food delivery as it required layers of transaction to be added to its business and content business will take them so far. It started table reservation and 4-5 years and have seen these businesses evolve - effectively Zomato has become a Yelp+ Opentable + Doordash on a single platform. Zomato has multiple use cases from users and restaurants and this makes them much stickier. Food delivery accounts for 70% of revenue and key driver for growth for past three years. Dining out is the remaining 20-25%. Today, it executes 1m orders a day to 150,000 restaurants, delivered by 200,000 riders. By comparison, Meituan in China does 25 million orders a day and so the opportunity to grow is immense. Zomato is in the process of monetising the dining-out space by helping the customers look for food, book a table and then make payment.

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India Forum insights 2020 From severe competition, the market structure has changed dramatically from a four-player market to just two. So, theoretically it can change again as it is only scratching surface and the market is attractive for new players. But Hyperlocal delivery, high frequency and on-demand business would make it challenging for a new player to enter the business. Tier 1 average order value is 30% more than tier 2 and tier 3.

delivery there is positive contribution. Restaurants earn 60% gross margin on the incremental order so sharing 20% of that is not a challenge for the restaurant.

Tailwinds of Covid are helping it grow via acceleration of digital adoption, and increase basket size due to lesser dine-in. Post Covid given the hygiene conditions some users are more comfortable ordering the food and picking it up from restaurant which works well for Zomato with restaurants with lower volumes. To get higher restaurant participation, Zomato lowered take rates on orders.

Large portion of new restaurants in new cities are dark kitchens and cloud kitchen without physical fronts. This optimises on real estate costs and helps in building brands customised for food delivery. This improves food economics and availability of foods and lower delivery times.

On productivity, the service quality of driver doesn’t depend on his vintage. Despite the high rider churn continuous inflow of people who are moving out given the wage inflation - the rider on boarding platform is simple since they own their own motorcycles and training is done via digital means. Zomato earns 30-40% contribution margin on a per order basis in cities where they do 60% market share. The current economics of contribution margin net of all variable costs is 30%. Even before Covid, take rates, average order value, every revenue/cost line item has trended in direction that has benefited Zomato and the industry. With charging for delivery, net of cost of

On the delivery mix, 90% of restaurants are standalone restaurants while 95% of orders delivered by them and 5% by restaurants.

Risk of Amazon? Amazon has entered the space six months ago with deep pockets. Has not impacted the company. It does around 100 orders a day in five pin codes in India right now. Hyperpure is a nascent B2B business opportunity, where it supplies raw materials to restaurants. This ties in with Zomato’s vision of improving quality of food a restaurant produces. At the moment, the frequency of consumption from restaurants is very low. The procurement happens from unorganised suppliers and wet markets. It’s a fairly asset-light model requiring limited capital. It’s taken two years to fine-tune the business model and it believes it can expand very quickly.

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India Forum insights 2020

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