A Different India
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DECEMBER // 2019 A Different India: Opportunities from India’s Urbanization Dividend and Structural Reforms A DIFFERENT INDIA: OPPORTUNITIES FROM INDIA’S URBANIZATION DIVIDEND AND STRUCTURAL REFORMS 01 INDIA IN CONTEXT Bahamas Gaurav Sharma Girish Nadkarni Harsh Shethia Ritesh Vohra Co-head of Private Equity, Co-head of Private Equity, Partner, Head of Real Estate, Investcorp India Investcorp India Investcorp India Investcorp India Mauritius Guinea Tunisia Mozambique Gaurav Sharma joined IDFC Girish Nadkarni joined IDFC Alternatives Harsh Shethia is focused on business Ritesh Vohra joined IDFC Alternatives St. Lucia Alternatives in 2015 which became in 2011 which became part of development for Investcorp India. in 2011 which became part of Latvia part of Investcorp in February 2019. Investcorp in February 2019. He has Harsh Shethia joined Investcorp in Investcorp in February 2019. Ritesh Serbia St. Kitts He has more than 19 years of approximately 26 years of experience 2002 and has held numerous roles has been a financier, advisor and and Nevis experience in both the US and India across private equity, M&A, business and responsibilities, including: Product entrepreneur over the course of his Bolivia Zimbabwe across entrepreneurship, private strategy, corporate finance and Specialist for Real Estate and Credit real estate career and has been atar equity, M&A, corporate finance and treasury. Previously, Girish worked for Management, Country Head of Oman, associated with a number of property Dominican Republic investment banking. Gaurav was also several Tata Group Companies for 18 Chief of Staff for President of Gulf developments across India. Previously, Uzbekistan Belize Central African the co-founder of Prime Gourmet years in various capacities, including Business, Head of the Client Servicing Ritesh was a Managing Director at real Republic Private Limited. Prior to that, he held as Executive President & CFO and as team, and Head of Business Analysis estate fund manager Saffron Advisors. Liberia the role of Director and was part of the a part of the Executive Committees of and Reporting. Harsh joined Investcorp Preceding that, he worked with several Bosnia Hungary founding team of Providence Equity publicly listed companies, including: from Goldman Sachs in London where advisory firms including Jones Lang Somalia Guatemala Partners’ India office. Gaurav holds Rallis India and Tata Chemicals. he was an Executive Director. Prior to LaSalle and as an entrepreneur. Ritesh Angola an MBA degree from The Wharton Girish holds a Bachelor of Commerce that, Harsh worked as a Manager with completed his undergraduate studies Cote D’Ivoire School, University of Pennsylvania and & Economics degree from Mumbai Deloitte Consulting in New York. Harsh in hospitality management from the a Bachelor’s degree in Engineering from University, is an all India rank holder holds an MBA from Carnegie Mellon Institute of Hotel Management, New Uruguay Indian Institute of Technology, Delhi. Chartered Accountant and a Cost & University and has a BSc degree in Delhi and his post graduate program Management Accountant. Computer Science. in management from the Management Development Institute, Gurgaon. Singapore Slovakia Comoros Table of Contents Malawi Croatia 04 Synopsis 04 India Urbanization: Unprecedented in Human History 06 Ten Fastest Growing Cities in the World Somalia 07 A Different India: Reforms and Geopolitical Will Angola 15 Compelling Investment Themes Tunisia 16 Housing 18 Consumer Tech 20 Healthcare GDP (Latest, $ Bn) 0 < 25 25 < 50 50 < 75 75 < 100 100 22 Financial Services 24 Conclusion Source: IIFL, CEIC, The Economist, World Bank, Axis Capital 02 INVESTCORP INVESTMENT INSIGHTS A DIFFERENT INDIA: OPPORTUNITIES FROM INDIA’S URBANIZATION DIVIDEND AND STRUCTURAL REFORMS 03 BIG STRIDES LARGER ASPIRATIONS Economic Growth Business Friendly Moving from Top 10 to Third Largest Economy in <10 Years Consumer Base Equal to US and EU combined India has been one of the fastest growing economies in India became one of the few nations to be recognized as a India overtook France in 2018 as the sixth largest economy and Indian cities are expected to add 360 million consumers the world. “top improver” in the World Bank Group’s global ease of Doing is expected to overtake the UK in 2019 to enter the top five, and in 32 years. Business rankings for three consecutive years (2016-2019). Japan by 2025 to become the third largest economy in the world. GDP in US$BN 2019E GDP, $TN Ease of doing Business Global Ranking #3 by 2025 India Urban Population in millions 3,000 3,000 0 24.0 20 8% CAGR 21.0 US 21.4 2,290 40 2019 18.0 63 2,000 60 2018 2050 1,857 77 15.0 China 820 80 2017 2nd 15.5 100 Quartile 12.0 100 2015 2016 9.0 1,000 120 2014 130 130 142 6.0 140 Japan 2018 4th 3.0 5.4 Germany 460 160 4.0 India Quartile 3.0 0 0 2013 2016 2019E Source: World Bank Source: World Bank Source: World Bank, IHS Markit Source: World Bank and UNCTAD Infrastructure Catch-up Rapid adoption of digital technologies 77% millennials or Gen-Z 50%+ Upper Middle to High Income Households India has doubled the reach of its national highways to nearly half Indians have 1.2 billion mobile phone subscriptions and India’s population has a large proportion of younger generations A majority of Indian households are expected to be in the the length of highways in the US. In 2010, only two cities in India downloaded more than 12 billion apps in 2018. and its consumers are expected to be more tech savvy and upper middle (> US $8,500) to high (> US $40,000) income had metro railways, which is targeted to grow to 18 by 2024. willing to adopt new business models. categories by 2030, up from 8% of total households in 2005. National Highways (000s Kms) Online Data Consumed (GB/MO/User) 2030 Population by Age Cohorts High Upper mid Low High 1M (1%) 16M (7%) 57M (15%) 29M (7%) 140 8,320mb 131 120 8% CAGR 100 101 80 2005 2030 forecast 71 60 40% 40% 37% 37% 33% 33% 40 30% 27% 23% 20 86mb Low Lower mid Lower mid Upper mid 0 India China US 151M (69%) 51M (23%) 132M (34%) 168M (44%) 2011 2016 2018 2014 2018 Gen-Z Millenials 50+ Source: NHAI Source: McKinsey Global Institute report Source: Euromonitor Source: PRICE Projections, World Economic Forum 04 INVESTCORP INVESTMENT INSIGHTS A DIFFERENT INDIA: OPPORTUNITIES FROM INDIA’S URBANIZATION DIVIDEND AND STRUCTURAL REFORMS 05 SYNOPSIS Contrary to some opinions, urbanization is not a side-effect but rather an essential part of economic growth. Increasing population density produces more transactions, The purpose of this paper is to provide perspective on the scale and impact of information and interactions, leading to price discovery, efficiency of delivery, higher urbanization in India. We discuss that urbanization is an essential driver of economic productivity and lower costs. Markets open up and these interactions foster a feedback growth rather than an outcome. We also highlight why the Indian economy is poised Urbanization x loop that encourages entrepreneurship, innovation, attracts talent and capital, and US $2,000 per for significant growth over the next few decades, despite recent challenges. However, ultimately translates into economic growth. Political Reforms x investing in growth areas does not necessarily lead to good investment results, capita income is an New Business as hyper-competitiveness, for example, in the airline and telecom industries have inflection point, after revealed. The paper concludes with what we believe are some compelling investment Urbanized population (%) Per capita income (US$, 2018) Models = themes driven by urbanization. which exponential Japan 91% 49,500 Unprecedented Urbanization is a megatrend impacting the global economy as the United Nations U S 82% 62,606 growth has been estimates that 68% of the world’s population will live in an urban area by 2050. India France 80% 42,878 investment alone is projected to add 360 million people to its cities between 2018 and 2050. witnessed in other opportunities Based on urbanization levels, India is today where China was in 2000. Indian cities G 77% 48,264 economies already contribute 75% to the country’s GDP. According to Oxford Economics, over M 76% 10,942 2019-2035, all of the top 10 fastest growing cities in the world will be from India. C 60% 9,608 Each city in India will be equivalent in population and economy to the size of small developing countries today. I 55% 3,871 I 34% 2,036 In addition to the forces that will bring hundreds of millions of young workers and families to Indian cities, the incumbent government is changing the political and economic landscape with several transformative pro-growth initiatives. The government The scale of India’s past, present and future urbanization is unprecedented. At the time has taken multiple steps in the last five years, including structural reforms to the of economic liberalization in 1991, urban India was home to 220 million people. Since economic, tax, legal, healthcare, real estate and political frameworks. These large- then, the number has more than doubled to 460 million people at the end of 2018, or scale reforms have disrupted the normal flow of business, leading to a slowdown. about a third of its population. We believe that this is just the tip of the iceberg as we Additional changes are necessary in corporate governance, policy clarity and stability, estimate another 360 million Indians will live in urban areas over the next 30 years, tax reform for foreign investors (dividend and long-term capital gains), and investment comprising more than half its population. infrastructure (credit market development, regulatory, legal) before the true potential for The growth of India’s cities will require significant infrastructure investments.