Theme Note

DOLAT CAPITAL

India Demographics Playing The Enablers

The India story has taken quite a bit of whipping last quarter or two, and a fair bit of that may be perceived to be self-inflicted and rightly so. There are now doubts being expressed on the potential of the demographic dividend playing out next decade, given the structural challenges that the economy faces. While the jury is still out on that, we believe that there are opportunities that shall emerge next few years to play on some of the themes that may be classified as enablers to earn the so called demographic dividend. We stress our intent to look out for sectors that will help India move towards realizing its demographic dividend, not those that will benefit after the dividend is realized. We believe enablers for doing well in education shall be one of the worthwhile segment to watch our for. We have also seen quite a few of listed plays emerging over the last few years that offer meaningful opportunities for making portfolio allocation. However, given the high capex intensity, long gestation periods to generate sustainable returns and disappointment with the listed players, the investor interest has dwindled quite sharply. Yet given the scalable, multi year growth opportunity, and higher priority on the government social sector spending being a key driver, we expect a few of these models to sucessfully play out in coming years.

India Research

Education and Training

India is one of the youngest population pools, with over 250 mn students, nearly one fifth of its population. The size of Indias student population in some of the segments is as large as over ten million. However the challenge has been to improve the quality and delivery of education services across the country, and the concomitant resource pool.

Source: Exam Associations Amit Khurana - Head of Research Tel : +9122 4096 9745 E-mail: amit@dolatcapital.com

August 19, 2013

India Research

DOLAT CAPITAL

The extent of scale can also be gauged from the distinction that India has on producing the highest number of engineering graduates in the world. However, the employability of these professionals is extremely low our industry interaction indicates that more than three fourth of them are unemployable. Recognizing the need to elevate quality of basic education and improve the standards at the higher level, the government has been making significantly higher allocations on education through its various programs. Over the last decade, the allocation / spending on education has growt nearly five times from ` 125 bn to ` 645 bn (FY14 budget allocation) Central Government Expenditure on Education

Source: Budget Document

Source: Budget Document

August 19, 2013

India Research

DOLAT CAPITAL

RISING ASPIRATIONS: Education amongst top goals The last few years have witnessed a major rise in aspiration levels for India as a country. And education of children remains amongst the top priorities in majority of the population strata, given its perceived advantage over the long run. We believe that the next few years shall only accelerate this perception, and lead to demand for enabling platforms that can offer the students quality training to excel at the examinations, and then create skill sets to be readily employable. Inspite of rising government spending however, the challenge has remained on the quality of the education. Our industry interactions suggest that this evident especially at the mid-level - Class VIII-X, and these are the most critical in terms of setting the base for higher education. It is here that we believe opportunities for the private sector shall play out. The most significant of them we believe shall be in the form of organized private coaching, as it acts as the gap filler on quality and focus, as well as equalizer.

Why private coaching?

z

The school education is there, however woefully inadequate to meet the quality standard and give individual level focus Rising income levels are generating ability to afford better. Hence part of these are being allocated on discretionary spending, however a fair share is also going towards spending in childrens education. Thus is also driven by the realisation at the level of lower earning segment that better education will help their younger ones to compete better. Previously there was no affordability, now that it is there, hence the spending Also, the nationalisation of all higher education examinations (Engg, MBA, Medical, CA) has lead to increased competitiveness and thus the need of coaching From an investor perspective, this segment requires lower setting up cost per centre, leading to lower pay back period. Further the flexibility to review a centres performance and quick exits through shut down down or consolidation are also helpful to keep portfolio healthy The disadvantage is that the entry barriers are low. And hence the dominance of the tution centre run by local teachers. However given the increasing relevance of IT and better content delivery, the one man entities will face challenges to scale up and sustain. Hence the organised institutional level entities will gain market share.

August 19, 2013

India Research
SEGMENTING the OPPORTUNITY

DOLAT CAPITAL

August 19, 2013

India Research

DOLAT CAPITAL

TRAINING the WORKFORCE : UNTAPPED STILL BY PRIVATE SECTOR Every year, approximately 12 million people join our workforce, which roughly translates into a monthly addition of about a million people. Crucial to Indias ability to provide them with gainful employment is rapid growth in the manufacturing sector. However, the skill training received by Indias workforce is woefully inadequate. Percentage of workforce receiving skill training (2008)

Source: Planning Commission Report (2008)

Not surprisingly, a large chunk of Indias employers find it difficult to fill up the jobs. Unlike the developed nations where ageing population makes it difficult for the employers to find appropriately skilled people to for the relevant jobs, India (apart from Brazil) suffers from availability of appropriately skilled people within its large workforce. Percentage of employers having difficulty in filling jobs (2012)

Source: ILO

August 19, 2013

India Research

DOLAT CAPITAL

Indias new manufacturing policy aims at enhancing the share of the manufacturing sector to around 25% of the GDP by 2022 from the current contribution of around 16% of the GDP. For this, the aim is to create 100 million manufacturing jobs by 2022. Manufacturing jobs apart, significant employment opportunities will also come up in various non-manufacturing sectors. Projected employment opportunities by sector (vocationals skills)

Source: National Skill Development Corporation

Key skills likely to be in demand

Sector Textiles and Clothing Building and Construction Industry Auto and Auto Components Organized Retail Banking, Financial Services, and Insurance Gems and Jewelry IT and ITES Key Skills in Demand Power loom operators, Apparel Manufacturing, Fashion Design, QA, Knitwear Manufacturing, Sewing Machine Operators Crane Operators, Electricians, Welders, Masons, Plumbers, Carpenters, Painters, etc. Auto OEMs, Auto Component Manufacturers, Drivers, Sales, Servicing, Repair, Financial Services sales, Insurers/Valuers Shop floor executives, back-store operations, merchandising Financial Intermediaries (including Direct Selling Agents), Banking and Insurance (including agents), NBFC, Mutual Funds Jewellery Fabrication, Grading, Faceting, Polishing, Cutting IT Software Engineering, Maintenance and Application Development, Endto-End Solutions, Infrastructure Management, Testing, etc. ITES BPO, KPO Legal, Medical, STM, Analytics and Research Tanning, Cutting, Clicking, Stitching, Lasting, Finishing Carpenters, Operators engaged in Stitching, Sewing, Stuffing Computers, Telecom, and Consumer Electronics Manufacturing, Sales, Servicing/After Sales Support of electronics goods, HighTech Front office staff, F&B Services and Kitchen and Housekeeping staff, Ticketing and Sales, Tour Guides

Leather and Leather Goods Furniture and Furnishings Electronics and IT Hardware Tourism and Hospitality Services
Source: National Skill Development Corporation

August 19, 2013

India Research

DOLAT CAPITAL

This would require up-skilling of a significantly large number of poorly skilled Indians to make them ready for the opportunities that would be thrown up. With this in mind, the Budget for 2012-13 has doubled infusion into the National Skill Development Corporation (NSDF) to ` 1,000 crore and raised the corpus of the fund to ` 2,500 crore. It also launched a credit guarantee fund for skills development. There is, of course, every possibility of the number of job creation falling short of the target. Yet the thrust is unmistakable. Progress may well be slow but progress there will be, as any lack of progress will have ominous portents for the government of the day. This opens up significant opportunities for investment in sectors like education and training; and skill assessment and certification.

August 19, 2013

DOLAT CAPITAL
BUY ACCUMULATE REDUCE SELL Upside above 20% Upside above 5% and up to 20% Upside of upto 5% or downside of upto 15% Downside of more than 15%

Analyst Amit Khurana, CFA Amit Purohit Milind Bhangale Mayur Milak Nehal Shah Priyank Chandra Rahul Jain Rajiv Pathak Ram Modi Prachi Save

Sector/Industry/Coverage Co-Head Equities and Head of Research Consumer Pharma Auto & Auto Ancillary Midcaps & Agrochem Oil & Gas IT Services Financials Metals & Mining Derivatives

E-mail amit@dolatcapital.com amitp@dolatcapital.com milindb@dolatcapital.com mayurm@dolatcapital.com nehals@dolatcapital.com priyank@dolatcapital.com rahul@dolatcapital.com rajiv@dolatcapital.com ram@dolatcapital.com prachi@dolatcapital.com

Tel.+91-22-4096 9700 91-22-40969745 91-22-40969724 91-22-40969731 91-22-40969749 91-22-40969753 91-22-40969737 91-22-40969754 91-22-40969750 91-22-40969756 91-22-40969733

Associates Pranav Joshi Manish Raj

Sector/Industry/Coverage Financials Metals & Mining

E-mail pranavj@dolatcapital.com manishr@dolatcapital.com E-mail

Tel.+91-22-4096 9700 91-22-40969706 91-22-40969725 Tel.+91-22-4096 9797 91-22-40969747 91-22-40969746 91-22-40969735 91-22-40969705 91-22-40969748 91-22-40969728 91-22-40969702 91-22-40969707 91-22-40969734 91-22-40969708

Equity Sales/Trading Designation Purvag Shah Vikram Babulkar Kapil Yadav Parthiv Dalal Jatin Padharia P. Sridhar Chirag Makati Chandrakant Ware Jitendra Tolani Aadil R. Sethna Principal Co-Head Equities and Head of Sales AVP - Institutional Sales AVP - Institutional Sales Institutional Sales - FII Head Sales Trading AVP - Sales Trading Senior Sales Trader Sales Trader Head of Derivatives

purvag@dolatcapital.com vikram@dolatcapital.com kapil@dolatcapital.com parthiv@dolatcapital.com jatin@dolatcapital.com sridhar@dolatcapital.com chiragm@dolatcapital.com chandrakant@dolatcapital.com jitendrat@dolatcapital.com aadil@dolatcapital.com

Dolat Capital Market Pvt. Ltd.

20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 400 001
This report contains a compilation of publicly available information, internally developed data and other sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated are accurate and the opinion given are fair and reasonable, we do not take any responsibility for inaccuracy or omission of any information and will not be liable for any loss or damage of any kind suffered by use of or reliance placed upon this information. For Pvt. Circulation & Research Purpose only.

Our Research reports are also available on Reuters, Thomson Publishers and Bloomberg (DCML <GO>)