Excel India Fund

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Excel India Fund

• September 2006

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India A winner in the regional context
. . . even as global/regional growth slows in 2007
India should sustain c. 8 GDP growth . . .
Industry back on a high-growth trajectory
High domestic savings will support growth
Source CLSA
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The India Growth Story On Track, Despite Asset
Volatility

• Corporate capex recovery is aided by high
  capacity utilization levels and free cash flows
• Infrastructure Investments, supported by
  government policies and private-public initiatives

1. Investments

• Strong growth in urban areas due to services and
  outsourcing industries
• Retail lending still at a nascent stage
• Trickle-down impact is also coming into play

2. Consumption
KEY DRIVERS

• Business Process Outsourcing in IT-ITES and
  pharma is now well-established
• Further inroads to Knowledge Process Outsourcing,
  or outsourcing of skilled and high-ended
  functions in finance and biotechnology

3. Outsourcing
BOTTOM LINE GDP is poised to be strong going
ahead
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Investment Pick Up Likely to Continue
Capacity Utilization in Key Sectors()
Need and Ability of Indian Corporates to Invest

• The turbulence in asset markets could result in
  higher interest rates, which may impact
  investments
• However, looking at the rising capacity
  utilization levels, it is apparent that
  corporates need to invest
• At the same time, as net gearing is low and
  corporates still have free cash flows, their
  dependence on debt is considerably lower than
  before

Infrastructure- Capex Forecasts (Rs Bn)
Trends in Net Gearing (Citigroup Universe)
Spurce Cris Infac
Source Citigroup estimates, Companies, CRISIL
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Consumption Average Consumer is Still
Underleveraged
Positive Trends in Consumption Likely to Continue
Trends in Urbanization (Millions, )

• Favorable demographics imply that India is in a
  position to reap the benefits of both rising
  consumption as well as a growing labor supply
• Strong trends in retail lending have thus
  benefited sectors such as housing, automobiles
• Going forward, the interest rate environment may
  impact retail lending but given that the average
  consumer is still underleveraged, the impact
  will be marginal

Consumer Credit Penetration ()
Growing Middle Class- From Pyramid to Diamond
FY10 222Mn Hhlds
FY02 188Mn Hhlds
3
10
98
50
135
114
Middle Class US2000-10,000pa
Rich gtUS10,000pa
Low IncomeltUS2000pa
Source Citigroup estimates Registrar General
of India RBI, NCAER
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Outsourcing New Opportunities- From BPO to KPO
Knowledge Process Outsourcing- The Next Big Wave
Indian IT-ITES Aspired Targets for 2010 (USbn)

• After the BPO boom, Knowledge Process Outsourcing
  (KPO) is an emerging trend for 2006
• KPO involves the outsourcing of skilled or
  high-ended functions such as RD in pharma,
  biotechnology, finance and legal services
• With India likely to be one of the major future
  growth markets, global companies are hiring local
  researchers to tailor products for the market

Share of Manufacturing Exports to Manf GDP ()
Clinical Trials Research

• Following new patent regime, KPO segments likely
  to be key beneficiaries are clinical trials,
  contract research and laboratory testing
• Global players such as Quintiles, Pfizer,
  Novartis, Eli Lilly are already established in
  India.
• Key Factors fueling growth are Labour cost
  advantages a large patient pool, and a skilled
  workforce

Excludes Hardware. Source Nasscom RBI
Source Citigroup estimates, Companies, CRISIL
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Bharat joins the India growth story
Uptrend in rural consumption visible

• Cost advantage driving services as well as
  manufacturing business towards the hinterland
• Agriculture is seeing policy support, credit
  step-up, targeted investment
• Bharat Nirman - US40bn spend on roads,
  irrigation, rural electrification, rural housing,
  telephones, drinking water - underway
• Uptrend in rural consumption visible
• Economic census - faster job growth,
  entrepreneurship in rural India

Investment in agriculture picking up
Source CLSA
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Recent Developments

• In August 06 Sensex closed at 11669, up by 8.9
  (m-o-m)
• Central government reported 1QFY07 fiscal deficit
  of Rs777bn which was over 52 of the FY07 budget
  estimate
• FIIs bought US 923m (net) of Indian equities, up
  201 over Jul-06. Domestic mutual fund buying
  also picked up, with net buying of US80m in
  August, versus net selling of US19 in July.
• Average daily volume increased by 5.8 for the
  month of August to US 1.9bn.
• Inflation for the week ended 26th August was
  5.01
• Oil cooled off to below 70bbl from peak of
  79bbl
• Forex reserves as on July 21, 2006 stood at
  US163.3bn.

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Major Indices performance (August 06)
Sensex has outperformed other major indices
SourceBMF research
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Sectoral indices performance (August 06)
Markets have witnessed a broad based rally
SourceBMF research
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Economic Indicators
The Indian mobile market added 5.4mn subs in July
2006 (vs. 4.9mn subs in June 2006). This
reinforces the view that mobile penetration in
India is bound to accelerate in the coming months
driven by expansion in coverage, affordable
handsets and pricing.
Source ABN Amro
The auto sales numbers have shown improvement and
as a lead indicator to economic growth, it
indicates prima facie that economy is poised for
delivering the expected growth
Source Morgan Stanley Research
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Q1FY07 Quarterly update
Source Business Standard

• Corporates have witnessed a topline growth of 28
  and a bottomline growth of 23
• Earnings were mostly either in line or better
  than expectations

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Valuations reasonable
Valuations is justified on account of high ROE,
expected earnings growth, GDP growth and the
buoyancy in the manufacturing sector
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FIIs and MF flows
Source CLSA
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Factors that can affect the sentiment and
earnings

• Possible hardening of inflation expectations
• Potential escalation and volatility in crude oil
  prices
• Hardening of international interest rates along
  with withdrawal of monetary accommodation
• High Fiscal deficit.
• Changing financial market conditions that lead
  to a rise in risk premiums

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Excel India FundStrategy Performance
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Excel India Fund Top Five Sectors Portfolio
Valuation
Sectoral breakup () Top five as on 31st August
2006
Portfolio Valuation as on 7th September 2006
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Top Ten Holdings
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Two Favorite Stocks (apart from top 10)
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Motor Industries Co.(MICO)

• 61 owned subsidiary of Robert Bosch group
• Countrys largest manufacturer of Diesel Fuel
  Injection Equipment
• Common Rail System Technology is powering diesel
  engines today
• To be launched in India in 2007
• Exports contribute around 15 of sales
• Exports could have been higher but for capacity
  constraints
• 5 year CAGR in sales at 15 and Profits at 33
• Mkt Cap of about USD 2.1 Bn with 2005 Cash
  Profits of USD 118 mn
• Return on Invested Capital of 45
• Capex plan of more than USD 150-175 mn in next 2
  years, still FCF to be more than USD 100 mn in
  each of the next two years
• H1 2006 sales growth of 30, Cash Profits growth
  of 31

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UTI Bank

• Rapid growth in distribution (branches), 20-25
  p.a. for next 2-3 years
• Third largest ATM network in the country which
  accounts for 95 of cash withdrawals
• New Capital norms from RBI mean future capital
  issuances will slow down
• ROE expected to move up as a result from the
  already healthy 18 ( 5 yr avg at 25.86)
• One of the first acquisition targets when foreign
  banks are allowed to buy local banks (may happen
  in 2009), FIIs already hold 35
• 40 of its retail business is from outside top 10
  cities
• 5 year CAGRs Balance Sheet growth 36, Net
  Interest Income 61 and Net Profits 41
• For the June quarter, Net Interest Income growth
  of 45 and Pre Provsion Profits growth of 96,
  Loan growth of 65, Fee Income grew 61
• Impeccable asset quality with Net NPLs less than
  1
• 4 million customers

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Disclaimer
The information contained in this article is not
a complete presentation of every material fact
regarding any industry/security or the fund and
is neither an offer for units nor an invitation
to invest. This communication is meant for use by
the recipient and not for circulation/reproduction
without prior approval. Risk Factors Mutual
Fund investments are subject to market risks and
the NAVs of the schemes may go up or down
depending upon the factors and forces affecting
the securities market. Past performance of the
schemes managed by Birla Mutual Fund is not
necessarily indicative of future performance of
the schemes. Please refer to the offer document
before investing.  
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