THE POWER OF PARTNERSHIP Everstone Research

Coping with the Consequences of Rapid Growth Coping with the Consequences of Rapid Growth
Growth will remain strong at 7.5%yoy in 2011, but policymakers will be walking an extremely narrow tightrope as supply-side pressures come to a head. Three challenges in particular: Sticky Ination. We expect ination to ease back towards 7% by mid-year as the strong winter crop enters the system, but this will be weighed against rising global commodity prices. Tight Liquidity. Despite slight easing in nancial conditions since the start of the year, the environment will remain constrictive. Weak Capex. Fixed investment has yet to recover from the global credit crisis. The factors cited above, coupled with corruption investigations and political challenges, have slowed the investment cycle and continue to hold back new orders. A respite in ination is the key lever that could give policymakers that much-needed room to address supply-side challenges. Given the RBI's hawkish stance, we will see a continuation of rate hikes this year to the tune of 75 basis points. On balance, INR is likely to experience a bias towards slight depreciation.

Economic Growth Scenarios Economic GrowthScenarios

GDP Growth, %yoy 11 10 9 8 7 6 5 4 FY07
Source: Morgan Stanley

Bull Base Bear 8.6 9.8 8.7

8.4 7.7

7.7 7.0

FY08

FY09

FY10

FY11

FY12

FY13

10

15

20

25

30

Source: CEIC, Company Data

Growth, %yoy

The The Consumer: Continuing the 2010 Upswing Consumer: Continuing the 2010 Upswing
Consumer Activity index (CAI)

Apr-Jun 04 Jul-Sep 04 Oct-Dec 04 Jan-Mar 05 Apr-Jun 05 Jul-Sep 05 Oct-Dec 05 Jan-Mar 06 Apr-Jun 06 Jul-Sep 06 Oct-Dec 06 Jan-Mar 07 Apr-Jun 07 Jul-Sep 07 Oct-Dec 07 Jan-Mar 08 Apr-Jun 08 Jul-Sep 08 Oct-Dec 08 Jan-Mar 09 Apr-Jun 09 Jul-Sep 09 Oct-Dec 09 Jan-Mar 10 Apr-Jun 10 Jul-Sep 10 Oct-Dec 10 Jan-Mar 11
3 5

10

Source: IMF

%yoy

India Russia Turkey Indonesia Brazil China Mexico Singapore Korea South Africa Poland Philippines Thailand Colombia Chile Peru Malaysia Taiwan
4 6

India Tops EM Inflation In 2010 India Tops EM Ination In 2010

Structural Drivers of Food Ination Structural Drivers of Food Inflation

Contribution to Primary Articles Ination (YTD, FY 2011)
Grains 5% Fruits & Vegetables 14%

Minerals 11%

Non food: others 15% Oil-seeds 2% Coee 0% Milk 21% Fibres 6% Tea -1% Egg, Meat & Fish 20%

Condiments & Spices 5%

Source: Ministry of Commerce and Industry

5 4 7

The The Hit Asian Growth from Rising Oil Oil Prices Hit to to Asian Growth from Rising Prices
ppt -0.4

GDP Impact of a 10% Rise in Oil Prices

-0.3

-0.27 -0.23 -0.21 -0.21 -0.17 -0.17

-0.2

-0.1

-0.06

-0.06 0.00

0.0

0.1

0.09

Korea

HK

Singapore

Indonesia

Source: IMF

Philippines

Malaysia

Taiwan

India

Thailand

China

0.2

6 8

How Much Demographics Contribute to Indias GDP Growth How Much Demographics Contribute to Indias GDP Growth
Demographics Contribution to GDP
% 5 Age Structure Education Labor Force Urbanisation

2001-10

2011-20

2021-30

2031-40

2041-50

Source: Working Projections

7 9

Indias MuchEconomy is the Size of the Size of Emerging Asia How Economy is Roughly Roughly Emerging Asia (ex China) Combined India's Demographics Contribute to Indias GDP Growth (ex China) Combined
GDP (USD bn) 7,000 % 5 6,000 4 5,000 4,000 3 3,000 2 2,000 1 1,000 0 0 8.4% $1,598 6.2% $777 4.0% $334 China 2001-10 India 2011-20 Indonesia Thailand 2021-30 9.6% $6,422

Demographics Contribution to GDP

Age Structure Education Labor Force Urbanisation

Real GDP Growth, %yoy

5.3% $237

4.5% $213

6.8% $114

Malaysia Vietnam 2031-40 Philippines 2041-50

Source: Working Projections IMF

8 10 9 3

India's Consumption Engine

Share of the Global Middle Class
China Latin America % 100 90 80 70 60 50 40 30 20 10 0 Middle East Africa Central and Eastern Europe Asia ex China and India India

New Entrants to the World Middle Class

Millions of people 80 Annual changes, 60 5-year moving average China 40 India 20 0 -20 People with Incomes between $6,000 and $30,000 -40

2008

India

China 2008 2030

-60 1960

1970 1980 1990 2000 2010 2020 2020 2040 2050

Regionally, India has a unique growth driver: at nearly 60%, it has one of the highest domestic consumption/GDP shares in the region (in comparison, Chinas consumption share is 38% of GDP). Added to this, over the next two decades the country will experience a sweet spot in the growth of incomes as new waves of households move into the middle class bracket. While Chinas middle class peak is about to pass, Indias sweet spot in middle class growth will likely be felt globally over the next two decades.

Source: GS

9 11

India at the Cusp of Broad-Based Consumer Durables Absorption

As growth in the lower middle and middle income brackets take place, consumption will make a significant leap from basic food and commodities into consumer durables. Indias Consumer Penetration Rates Are Lower than Japans in the 1960s and China's in the 1990s
Japan 1959 Urban Refrigerators Rural Urban Washing Machines Rural Urban Televisions Rural 23.5 101.4 22.7 106.0 4.7 16.9 54.0 99.2 2.3 6.4 9.9 15.7 24.4 42.9 76.5 110.5 97.0 27.0 102.9 107.2 9.1 59.0 16.8 89.9 30.0 121.0 49.1 132.9 0.5 19.5 1.3 35.0 2.0 48.1 3.1 66.0 3.4 44.2 57.7 85.9 91.2 99.9 108.2 101.8 1.2 78.4 5.2 89.0 14.0 93.0 30.2 94.7 2.0 10.9 4.1 22.1 5.0 30.6 7.2 42.5 11.1 1964 77.6 1969 97.5 1974 107.2 1990 42.3 1995 66.2 China 2001 83.0 2008 93.6 1996 25.2 2002 36.9 India 2006 42.2 2010 56.2

Source: MPHPT, China Statistical Yearbook, NCAER

10 12

The Four Demographic Shifts That Will Define India

Young Households: India is entering an extended sweet spot where working-age population swells
Share of working age population in total population, % 70 66 62 58 54 50 China India

Urbanization: 400mn people added to urban spaces over next three decades
Urban population (mn) 900 800 700 600 500 400 300 200 100 0 Urban annual growth rate (%) Urban population (mn) (lhs) Urban annual growth rate (%) (rhs) 2.9 2.7 2.5 2.3 2.1 1.9 1.7 1.5 2000 2005 2010 2015 2020 2025 2030 2035 2040

2010

2015

2020

2025

2030

2035

2040

2045

2050

Womens Employment: A continuation of recent trends in increased womens employment participation could add $110 bn to the economy in the next decade
Womens employment participation (% of working-age women) 80% Womens employment participation 70% 60% 50% 40% 30% 20% 10%
Vietnam China Thailand US Source: UN, NSSO

Migration Patterns: Divergent fertility rates will mean north-south and center-periphery migration
Jammu and Kashmir Himachal Pradesh Punjab Haryana Uttarakhand Sikkim Arunachal Pradesh Assam Nagaland Meghalaya Tripura West Bengal Manipur Mizoram

Sizeable scope for catch-up

Rajasthan

Uttar Pradesh Bihar

Gujarat

Madhya Pradesh

Jharkhand

Chattisgarh Maharashtra Orissa

Andhra Pradesh Goa Karnataka Tamil Nadu Kerala

0%

Phil IndonesiaSpore Russia Brazil Korea Japan Malaysia France Mexico India

Fertility rates less than 2 2.0-2.5 2.5-3.0 3.0-3.5 above 3.5 Fertility rate for INDIA 2.7

11 13

India's Female Participation Rate Noticeably Lags

Womens employment participation [% of working-age women]

Womens employment participation

80% 70% 60% 50% 40% 30% 20% 10% 0%

ilip pin es Ind on esi a Sin ga po re Ru ssi a Br azi l Ko rea Ja pa n Ma lay sia Fra nc e Me xic o Ch ina Th aila nd m tna US Vie Ph Ind ia

Source: International Labor Organization; US Census International

12 33 32

The Next Three Decades Provide a Positive Working-Age Window

Source: UN Population Estimates

13 35 34

Employment Rates Drag Down Real Dependency Ratios

Source: UN Population Division; NSSO; Everstone calculations

14 36 35

Age-Specific Work Participation Rates: Indias Gap with the G6

Source: UN Population Division; NSSO; Everstone calculations

15 43 42

Indias Workforce is Missing Out on its Educated Women

Source: UN Population Division; NSSO; Everstone calculations

16 44 15 43

India and China Comparison India and China Comparison

Real Income Per Capita in China and India
GDP per capita, PPP (constant 2005 int'l $) 6,000 India China

5,000

4,000

3,000

2,000

1,000

0 1980

1985

1990

1995

2000

2005

Source: World Bank World Development Indicators, 2009

17 14

India and China Comparison (cont.) India and China Comparison (cont.)
Changing Age Structure, 1950-2050
Ratio of Working age to Non-working age population 3.0 India China

2.5

2.0

1.5

1.0 1950
Source: United Nations (2009)

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

18 15

Population Pyramid Population Pyramid

Age 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 8
Source: United Nations (2009)

1990
Male Female

6 8 Population (%)

19a 28a

Population Pyramid Population Pyramid

Age 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 8
Source: United Nations (2009)

2010
Male Female

6 8 Population (%)

19b 28b

Population Pyramid Population Pyramid

Age 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 8
Source: United Nations (2009)

2030
Male Female

6 8 Population (%)

19c 28c

Population Pyramid Population Pyramid

Age 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 8
Source: United Nations (2009)

2050
Male Female

6 8 Population (%)

19d 28d

India India to Provide the Largest Increase to Global Labor Force to Provide the Largest Increase to Global Labor Force
Addition to Labor Force, 2011-2020, million 120 100 80 60 40 20 0 -20 India
Source: ILO

China

Brazil

US

Japan

20 17

Evolution Major Consumption Categories Evolution of of Major Consumption Categories

India: Private Consumption Breakdown
Recreation, Culture & Education Health Clothing and Footwear % 100 80 60 40 20 0 Food, Beverages and Tobacco Transportation & Communication Housing, Furniture & Power Hotels and Restaurants

1988

2010

2020

Source: CEIC

21 18

20202020 Projections of Growth in Consumption Spending Projections of Growth in Consumption Spending

Growth in Consumption Spending by 2020
Times 2010 Consumption Spending 6 5 4 3 2 1 0 Housing, Furniture & Power Hotels & Restaurants Recreation, Culture & Education Health Food, Beverages & Tobacco Transportation & Communication Clothing & Footwear Miscellaneous

Source: Working Projections

22 19

YouthYouth Devote Comparatively More of Their Spending Basket to Devote Comparatively More of Their Spending Basket to Food, Beverages, Personal Care, Transport Health Food, Beverages, Personal Care,Transport andand Health
Others Consumer Durables Footwear Clothing Health Housing Education Communication Transport Beverages Food 0
Source: NCAER, Everstone Research

>=65

35-64

<=35

Under-35 PFCE in 2010: $270bn

10

15

20

25

30

35

40 %

23 20

Economy Growing, Urbanization Slowing?

Real GDP (US$ bn)

600 500 400 300 200 100 0

Real GDP (USD bn) Urbanization Rate

Urbanization rate (%)

4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0

Source: Central Statistical Organization, UN Population Division

24 21

India's Change in Urban Share Lags Other Comparable Economies

Share of Total Population Living in Urban Areas, (%)

90 80 70 60 50 40 30 20 10 0 India China

1975 2005

Indonesia

Korea

Source: UN Population Division

25 22

Composition of Rural GDP 1970-71 & 1999-00

Agriculture, forestry & fishing, 72 % Financing, insurance, real estate & business services, 7% Community, social & personal services, 6% Manufacturing, 6% Trade, hotels & restaurants, 3% Construction, 3% Transport, storage & communication, 1% Mining & quarrying, 1% Elect. Gas & water supply, 0%

Agriculture, forestry & fishing, 52% Manufacturing, 11% Community, social & personal services, 9% Trade, hotels & restaurants, 9% Financing, insurance, real estate & business services, 6% Construction, 6% Transport, storage & communication, 4% Mining & quarrying, 2% Elect. Gas & water supply, 1%

Source: CSO

26 23

The Next Urban Frontier: Twenty Cities To Watch

Amritsar Ludhiana

Jalandhar Chandigarh Delhi Lucknow

Faridabad Jaipur

Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune

Megacities

Kanpur

Boomtowns
Kolkata

Ahmedabad Bhopal Surat Mumbai Pune Hyderabad Nagpur

Surat, Kanpur, Jaipur, Lucknow, Nagpur, Bhopal, Coimbatore

Niche cities

Faridabad, Amritsar, Ludhiana, Chandigarh, Jalandhar

Bangalore Coimbatore

Chennai

27 24

The Twenty Cities Make Up Less Than 10% of Indias Population, but Generate More Than 30% of Income
Share in all India (%)

Megacities

Boomtowns

Niche cities

35 30 25 20 15 10 5 0 Population Income Spending

Source: NCAER/Evertsone Research

28 25

10

12

14

16

18

0
Su Ah gpu me r da ba d Ja ipu Mu r mb Lu ai ckn o Lu w dh ia Ba na ng a All lore 20 cit ies Am rits ar Ch Delh an i dig arh Ch en n Ja ai lan dh ar IN D Fa IA rid ab ad Re st Hy Co of de Pu Ind rab Ko ne ia ad lka im ta ba tor e Ka np ur Bh op al Na rat

Source: NCAER/Evertsone Research

Household Income Growth (2004-8,%yoy)

Boomtowns Register the Fastest Economic Growth

Household Income Growth (2004-8,%yoy)

29 26

Surat and Chandigarh Stand Out Surat is a Standout

2007-8 Average Household Income, (Rs/household)
Chandigarh Mumbai Surat Delhi Chennai Ahmedabad Nagpur Bangalore Jaipur Jalandhar Kolkata Lucknow Hyderabad Ludhiana Amritsar Faridabad Coimbatore Pune Bhopal Kanpur 484,775 459,457 431,201 408,237 337,059 317,856 308,625 300,678 300,374 296,651 287,199 280,393 273,353 271,514 267,056 252,558 219,846 210,458 165,210 159,761

2007-8 Average Household Income (Rs/household), Adjusted for Cost of Living

Surat Chandigarh Mumbai Delhi Ahmedabad Jaipur Jalandhar Chennai Bangalore Nagpur Amritsar Lucknow Ludhiana Hyderabad Kolkata Faridabad Coimbatore Pune Kanpur Bhopal 457,671 422,503 403,059 337,678 328,267 325,254 323,181 319,759 302,371 298,598 290,939 289,020 288,753 275,408 262,247 246,129 231,963 191,520 164,677 157,847

Source: NCAER/Evertsone Research

30 27

More Than households in Chandigarh will be middle class by More than half of Half of Chandigarhs Households is Middle Class 2016

% of total population

Low Income Middle Class

Aspirants High Income

100 80 60 40 20 0

Source: NCAER/Evertsone Research

31 28

Spending Propensities Span a Dramatic Range

Household consumption expenditure as a share of income, %

90 80 70 60 50 40 30 20 10 0

Spending Propensities

Source: NCAER/Evertsone Research

op Ja al lan dh ar Ka Co npur im ba to Fa re rid ab a Am d rits ar Ko lka ta Pu ne Na gp ur Ja i Ba pur ng a Hy lore de rab a Lu d ckn ow De l Lu hi dh ian a Ch en na i Su Ch rat an dig arh Mu Ah mba me i da ba d
32 29

Bh

19% of Households Prefer to Keep Surplus Income at Home

Keep at home Deposit in co-operative society

% of households

Deposit in bank Purchase insurance policies

Deposit in post office Others

100 80 60 40 20 0

Megacities

Niche cities

Boomtowns

All 20 cities

Source: NCAER/Evertsone Research

33 30

Niche Cities Have the Highest Asset Penetration, but Lowest Financial Penetration
% of households

50 45 40 35 30 25 20 15 10 5 0
Life Insurance Loans

Boomtowns

Megacities

Niche cities

Credit Card

Source: NCAER/Evertsone Research

34 30 29

Asset Penetration in Chandigarh Asset Penetration in Chandigarh

% of total households 100 90 80 70 60 50 40 30 20 10 Refrigerator Bicycle DVD Player Car Computer AC Mobile Phone Washing Machine Microwave Television 0

Source: ILO

35 23

5 Long-Range Macro Predictions 5 Long-Range MacroPredictions

Within the decade, more than half of households in India's top twenty cities will be middle class. class

Overall consumption expenditure should grow 3.5 times over the next 10 years.

Ination will remain higher throughout the next decade, trending closer to 7.5% due to supply-side shortages and structural demand shifts.

More women in the workforce will add $110bn to the economy over the next decade.

The age group witnessing the fastest population growth over the period will be the 25-34 years old age group.

36 31

Disclaimer:
This presentation (the Presentation) is being furnished to you on a condential basis to provide summary information regarding Indivision India Partners, Everstone Capital Partners II, Kshitij Venture Capital Fund, Horizon Realty Fund, and Indospace Logistics Parks (the Funds) and may not be reproduced and may not be used for any other purpose. This Presentation does not constitute an oer to sell or a solicitation of an oer to buy interest in the Funds. This material is for general information purposes only and does not constitute a nancial promotion, investment or legal advice or an inducement or incitement to participate in any product, oering or investment. The Presentation has not received regulatory consent, approval or disapproval from the U.S. Securities and Exchange Commission or any other U.S. or non-U.S. regulatory body. It does not constitute or form part of any oer to issue or sell, or any solicitation of any oer to subscribe or purchase any investment nor shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract. No representation, warranty or undertaking, express or implied, contractual or legal is given as to the accuracy or completeness of the information or opinions contained in this document by the Funds, its members, employees or aliates, and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. Certain information contained in this Presentation constitutes forward-looking statements, opinions or beliefs. Due to various risks and uncertainties, actual events or results may dier materially from such forward-looking statements, opinions or beliefs. Certain information contained in this Presentation (including market data) has been obtained from third party sources. While such information is believed to be reliable for the purposes used herein, no representations are made as to accuracy or completeness thereof and the Funds do not take any responsibility for such information.

37 32