Enam estimates private consumption will soar to $3.6 trillion by 2020 from the current $790 billion; median household income will rise to $8,000 per annum from the current $3,400; and 40% of Indian households will be in the middle and upper middle classes
In a detailed report released late November, Enam says that India is entering the hyper-growth phase. Three factors-the income effect, demographic dividend, and propensity to spend-will propel private final consumption to $3.6 trillion by 2020 from the current $790 billion. This forecast implies that the average household income will double and the number of people in the middle and upper-middle classes will also double to 110 million, with their propensity to spend rising exponentially, driven by a fall in the dependency ratio, rapid urbanisation, rising income levels and the ability to leverage.
Since it is the middle class that will drive higher consumption, Enam concludes that categories with low levels of penetration and high middle class appeal will have the highest growth; this means automobiles, consumer durables, processed foods, personal care, mortgage, decorative paints, media, organised retail, and real estate sectors will flourish.
Enam stresses that unless 'enablers' are present, the prospective consumerism may falter. These enablers include employment, development of education and skill sets, infrastructure (electricity, roads), and more importantly financial inclusion, which means more credit reach or loan availability to people.
Based on these arguments, Enam lists the following as its top picks over the next five years as Voltas, Bosch, Sobha Developers, Pantaloon, Dish TV, HDFC, Maruti, Shoppers Stop, Exide, Titan, Asian Paints and Nestle.
The report says that "brands that will capture the imagination of the middle class will be relative winners." It lists a chart where global brands such as Thomas Cook and Cox & Kings currently cater to the upper-middle class in travel and tourism, whereas Kesari caters to the middle class. Or where Kwality Walls caters to the upper-middle, Amul caters to the middle. It says that the size of the pie, both at the top and bottom of the pyramid, is large.
Enam believes that focusing on the middle class does not necessarily mean low EBITDA and RoE for companies; some examples are Maruti, Bajaj, Bajaj, Dabur, Jyothy Labs. It also gives a chart listing the top 10 wealth creators in the consumption space in the past five years that have a significant exposure to the middle class-these companies include UniTech, Shriram Transport, United Spirits, Asian Paints, HDFC, Nestle, Hero Honda, Maruti, ITC and Tata Motors.
The report draws comparisons between the US in the 1960s, China in the mid 1990s and India now. It says that a demographic shift (increase in the working population and a lower dependent population) led to a rise in per capita income and disposable surplus in the US in the late 1960s. Urbanisation and changing values (spending versus saving) fueled rapid discretionary spending. All this translated into high growth in companies with highest exposure to discretionary spending-such as personal care, housing, healthcare, food, tobacco, etc. In the case of China, while the size of the working age population remained the same, the dependent population fell dramatically leading to a huge acceleration from the mid 1990s. Enam believes that India has entered its 'window of opportunity' with the dependency ratio set to fall from 58% to 49% in the next 10 years. India's working class population today is as large as China's in 1995.
It gives some interesting statistics: Nearly half of India's population will be urban by 2025-today, India's 30% urban population produces 44% of its income; every job created in the IT-ITES sector creates four additional jobs in the rest of the economy; financial inclusion should create huge job opportunities in the BFSI space itself.
Enam talks about 'auxiliary enablers' which also lead to rapid growth. These include rising affordability-for example, the price of a car, Hyundai Santro has actually fallen from Rs3,00,000 in 2000 to Rs2,77,000 now; prices of other products such as motorcycles, TVs, cell phones, air-conditioners, have also fallen; availability has increased due to higher distribution reach, and awareness is rising because of rising literacy levels and penetration of the cable network.
The areas where Enam expects massive growth are also areas where penetration is the lowest in India currently. These include skin creams, fruit beverages, health supplements, deodorants, two-wheelers, DTH, DVD players, automobiles, PCs, air-conditioners, insurance, mortgage, organised retail, e-learning, and home internet access.
(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife)
Phone companies deduct heavy roaming charges for data services, even within the recently unified circles, and without any prior information or intimation, in an apparent violation of a recent DoT order
As telecom firms gear up to rollout 3G advanced services that would facilitate faster Internet browsing and premium services like video calling, it will be very interesting to see how these players price their services in a fast-growing but extremely sensitive Indian market.
For, today, the list of complaints about indirect charges being squeezed out of subscribers just gets longer. Whether it is a useless ringtone you never requested, but are being charged for, or some other similarly worthless, unwanted service. Companies seem to be constantly working out ways to generate more money.
One service that is bringing in more revenues is the Internet, and mobile phone operators are finding that Internet use is increasing. Up to now, one believed that the charges displayed for data services by the operators was what they billed customers. But last month, this writer discovered a hitherto unexplained payment being deducted on data usage for roaming while on a trip out of Mumbai. Very few operators (perhaps only the government operators) mention such roaming charges and certainly none has such charges in merged circles.
Through an order of the Department of Telecom (DoT) recently, Mumbai, Chennai and Kolkata circles were merged with their respective states. Mobile service providers were directed to treat the metros merged with the states as one circle of operation. So Kolkata along with West Bengal is one circle and even eastern and western Uttar Pradesh is now a unified circle.
But it appears that while service providers have implemented the order with regard to call rates (charges for incoming calls within a circle have been discontinued), they have not done so for data charges. When this writer travelled from Mumbai to another city in Maharashtra (but still in the Mumbai Circle) in the past 10 days, Idea Cellular deducted Rs75 from the prepaid account without any intimation even though the entire Maharashtra and Mumbai is now a unified circle. Unlimited GPRS data service is available in the Mumbai Circle for Rs98 only monthly.
It seems that this is not just a local issue. Last year, the European Union (EU) put a cap on roaming charges for voice calls and SMS, but did not touch data charges. However, news reports have quoted Paul Rubig, member of the European Parliament from Austria, as saying that lawmakers would consider imposing new retail price caps on data roaming charges. Austria was one of the sponsors of the regulations on roaming charges.
But again, these rules are applicable only to subscribers in EU countries. Indians visiting those countries would have to pay the rates prescribed by their service provider. That's also probably why Indians get pretty steep phone bills, and there's no one who can stand up to these companies. Here's a clue of what these charges are like. Tata DoCoMo charges Rs5.50 per 10 kilobytes (KB) for international roaming. To access yahoo.com (site load about 400KB) on your mobile, you would be charged Rs220-even if you did not actually click on the website!
According to information available, a customer of Bharti Airtel in Karnataka was asked to pay a hefty roaming charge for simply keeping the data service on while on a visit to Japan. The Bharti subscriber said in a post on clientcomplain.com, "I travelled on 19 December 2009 and reached Japan on 20 December 2009, when I received an SMS alert about an outstanding amount of Rs25,000. The next day I received another alert stating that my outstanding was Rs36,000, and I had not used the data service even for a minute!" I returned to India on 23 December 2009.
This problem is particularly severe for those working in Mumbai and residing some distance away from the city. They are billed roaming charges on data services even when they are in the same Mumbai-Maharashtra unified circle. In fact, while incoming voice calls are free in these circles, the outgoing call charges vary and are quite heavy as compared to costs on the home network. On data, some service providers charge 1 paise per 10KB on the home network, but 10 times this at 10 paise per 10KB for roaming.
Mahanagar Telephone Nigam (MTNL) might be an exception. Here is what MTNL says on the matter: "Subscribers can avail same data tariff charges while roaming in BSNL Maharashtra as on the MTNL Mumbai network, for all plans, and without any extra roaming charge for data."
One hopes that the launch of mobile number portability will force phone operators to be more attentive to the issues of subscribers and get rid of such absurdities.
Cash-starved, mismanaged Ispat Industries has four bidders; but will ‘Ispat-friendly’ institutions step in to force a change in control?
Ispat Industries, which has been in dire straits for many years and has merely stayed afloat thanks to the combined largesse of financial institutions IDBI, ICICI, IFCI and State Bank of India (SBI), has four suitors for its cash-starved businesses: ArcelorMittal, Welspun, Sterlite/Vedanta group controlled by Anil Agarwal, and Navin Jindal, who controls the highly-successful Jindal Steel & Power. Interestingly, the Tatas, who run one of the largest steel businesses in the world, are not interested in the company.
However, while these four bidders have expressed interest in the deal, Welspun, which is the smallest of the four, wants to take the company over with the entire debt of Rs7,000 crores. The others want to pay off the institutional debt substantially.
While there can be more potential bidders for Ispat, the fact is that no deal is possible unless the financial institutions stop mothering the company and its promoters. Far from stepping in to discipline the promoters, the bankers have benignly watched Vinod and Pramod Mittal's mission to ape their estranged brother Lakshmi Mittal, who has built the largest steel group, ArcelorMittal, by stitching together favoured deals with governments around the world. In trying to emulate Lakshmi Mittal, the two brothers floated Global Steel Holdings, based in the tax haven the Isle of Man, though it is not clear how they funded their foreign adventure.
While Ispat Industries is struggling to even pay its salaries, power charges and interest, Global Steel Holdings is reported to be partnering with steel companies in various trouble-spots around the world. It apparently has steel operations in Bulgaria (and even owns the top football team there!), Nigeria, and runs a 20-year management contract to operate Zimbabwe Iron & Steel and coal blocks in Mozambique.
The Mittal brothers have also been reported to be fishing in another controversial spot, Libya. Most interestingly, The Economic Times reported in April this year that Global Steel was trying to get a stake in North Korea's Musan Iron Ore mines, estimated to hold reserves of more than seven billion tonnes. It looked strange that the Chinese, who dominate the global steel industry and have a stranglehold in North Korea, would let the discredited Mittal brothers enter into a deal with Musan.
As Moneylife wrote yesterday, over the past five years, Ispat Industries has defied every threat by its lenders to force a change of management and it has continued to raise fresh funds. Ispat's promoter-managers Pramod and Vinod Mittal have never failed to extract fresh funds, even when the company was on the verge of closure. Moneylife reported yesterday how Ispat Industires was sanctioned Rs130 crores by SBI just before its plants at Nagpur and Dolvi in Maharashtra shut down for a month. (Read: http://www.moneylife.in/article/4/11832.html)
The debt of Ispat Industries has been restructured twice already (2003 and 2009) against all prudent lending norms. Yet, neither the Reserve Bank of India (RBI) nor the government has even questioned the lenders about their continued largesse to the company and its continuing foreign adventures. If Ispat has to be salvaged and the banks' loans secured, a new owner will have to step in. What is not clear is why the institutions are postponing the inevitable.