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Dynamics and Trends of the Indian Private Equity Market

September 2011

CON T ENTS Indian Economy Private Equity Market in India Beverage Industry

We are pleased to present Guggenheims monthly newsletter on the Indian economy and private equity market for the month ended August 31, 2011. This issue also includes a report on the Indian Beverage Industry. INDIAN ECONOMY During the month of August, the BSE Sensex ended down 8.36% Month-onMonth at 16,677. Also, the Indian Rupee was down 5.0% against the U.S. Dollar for the month. This created a favorable environment for trade as Indian exports rose by 44% Year on Year (Y-o-Y) despite uncertainty in the U.S. and debt problems in numerous European nations. This came after explosive FII numbers in August. The Securities Exchange Board of India ("SEBI") relaxed norms for investment by Foreign Institutional Investors (FIIs) in Infrastructure Finance Companies.(IFCs). IFCs have become eligible issuers for the purpose of FII investment under the corporate debt long-term infra category. This should boost FII investment in the infrastructure sector in India. The Reserve Bank of India (RBI) also laid out draft guidelines for new bank licenses, which may allow certain Non Banking Financial Companies (NBFCs) to convert themselves into banks. This is a positive step for NBFCs, who have been impacted by recent regulations that have reduced their advantage over banks by introducing liquidity ratios and increasing the Tier-I capital.

K.V. Dhillon
kdhillon@guggenheimpartners.com

+91 22 3021 4525

Major economic news and announcements during August include:

The RBI issued draft guidelines for bank licenses. The guidelines include criteria such as high capital requirements of $10 million, restrictions on intra-group activities and corporate governance requirements. Further, only private sector groups are eligible for the licenses, which rules out leading Infrastructure Finance Companies ("IFCs"), which have a significant government stake. Companies with an exposure of more than 10% to the real estate and broking sectors are not eligible for the license.

The Reserve Bank of India ("RBI") issued draft guidelines for bank licenses. The guidelines include criteria such as high capital requirements of $10 million, restrictions on intra-group activities and corporate governance requirements. Further, only private sector groups are eligible for the licenses, which rules out leading Infrastructure Finance Companies ("IFCs"), which have a significant government stake. Companies with an exposure of more than 10% to the real estate and broking sectors are not eligible for the license.1 The RBI released a report on Non-banking Financial Companies ("NBFCs") reducing regulatory advantage over banks. The report reccomended an increase in the Tier-I capital ratio to 12% and introduced liquidity ratios, which will require NBFCs to maintain liquid securities to cover cumulative outflows and inflows for the first 30 days. The asset classifications and provisioning norms have been tightened to bring them on par with banks. Further, the disclosures for NBFCs with assets of more than Rs 100 crore have been made stricter.2 The Securities Exchange Board of India ("SEBI") relaxed Foreign Institutional Investors' ("FII") bond investment norms for IFCs. IFCs have become eligible issuers for the purpose of FII investment under the corporate debt long-term infra category. Earlier, in circulars dated November 2010 and March 2011, SEBI had allowed FIIs to invest in unlisted bonds issued by companies in the infrastructure sector that are generally organized in the form of special purpose vehicles. RBI had allowed FIIs to invest up to $25 billion in infrastructure bonds, including those issued by private companies.3 1.6 million jobs are expected to be created in the country in 2011, with healthcare, manufacturing and hospitality segments accounting for the vast majority. 1.6 million jobs are estimated to be added to the employment base of the country during 2011, according to a statement issued by the Ministry of State for Parliamentary Affairs and Planning. Over 248,000 of the new jobs are expected to be in healthcare, followed by 223,000 in manufacturing non-machinery products and 218,000 in hospitality. Information Technology (IT) and IT enabled services (183,000), real estate and construction (144,000), media and entertainment (126,000) and education, training and consulting (107,000) are among other sectors expected to add new jobs this year. 4

The Securities Exchange Board of India ("SEBI") relaxed Foreign Institutional Investors' ("FII") bond investment norms for IFCs. IFCs have become eligible issuers for the purpose of FII investment under the corporate debt long-term infra category.

PRIVATE EQUITY MARKET IN INDIA A few major deals announced in August include:
Kitara Capital and Jacob Ballas Capital India invested $27.8 million in Hyderabad based Vivimed Labs for a 26.5% stake. Vivimed is a pharmaceutical company, engaged in the manufacturing of specialty chemicals and pharma products. The company also offers hydrogen and poly-carbonate actives for the home and personal care industry.

Kitara Capital and Jacob Ballas Capital India invested $27.8 million in Hyderabad based Vivimed Labs ("Vivimed") for a 26.5% stake. Vivimed is a pharmaceutical company, engaged in the manufacturing of specialty chemicals and pharmaceutical products. The company also offers hydrogen and polycarbonate actives for the home and personal care industry.5 TD Power Systems ("TD Power") raised $19.9 million in a pre-IPO deal. Sequoia Capital, India Value Fund and Barings India Private Equity invested $19.9 million in Bangalore based TD Power for a 10.53% stake. The company is engaged in the manufacturing of generators and provides thermal power plant solutions.6 General Atlantic acquired an additional 0.96% stake in Mumbai based IndusInd Bank for a total consideration of $26.9 million. Post acquisition, General Atlantic LLC holds 2.65% stake in the bank. IndusInd, a listed commercial bank in India. IndusInd Bank offers corporate banking, retail banking, treasury and foreign exchange, investment banking and capital market services.7 New Enterprise Associates, NEA-IndoUS Ventures and CFCL Overseas, a subsidiary of the KK Birla group, invested $30 million in Chennai based ISGN Technologies ("ISGN"). ISGN provides end to end mortgage solutions and advisory services.. The firm also provides fulfillment services, title services, loan servicing, loss mitigation and default services, construction lending solutions, human capital solutions and IT services.8 Bhartiya Samruddhi Finance Ltd. ("BSFL") raised $179.9 million from nine banks and other private institutional investors, including International Finance Corp, Lok Advisory Services Pvt. Ltd., Matrix Partners India. BSFL is an NBFC, offering consulting services in microfinance, human resources development, institutional development and information technology applications for microfinance.9

New Enterprise Associates, NEA-IndoUS Ventures and CFCL Overseas, a subsidiary of the KK Birla group, invested $30 million in Chennai based ISGN Technologies ("ISGN"). ISGN provides end to end mortgage solutions and advisory services.. The firm also provides fulfillment services, title services, loan servicing, loss mitigation and default services, construction lending solutions, human capital solutions and IT services.

Fundraising related news and announcements in August included:

Nexus to raise $250M for third venture fund: Nexus Venture Partners will be raising a $250 million fund, its third, by early next year. The Mumbai-based venture capital fund has over $300 million under management. The firm has already deployed 75% of its second fund, for which it raised $220 million in 2008. Over the past 12 months, Nexus has already exited four of its investee companies.
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Nexus Venture Partners will be raising a $250 million fund, its third, by early next year. The Mumbai-based venture capital fund has over $300 million under management. The firm has already deployed 75% of its second fund, for which it raised $220 million in 2008. Over the past 12 months, Nexus has already exited four of its investee companies

Aditya Birla Capital Advisors, private equity arm of the $35 billion diversified conglomerate Aditya Birla Group, is set to make the first close on its second fund. The Fund will target emerging sectors in the Indian economy, such as life skills and applied technologies. The Aditya Birla Private Equity Sunrise Fund is expected to make its first close before the end of September. The second fund comes after the private equity firm raised $196 million for its debut fund, Aditya Birla Private Equity Fund I, from domestic investors in March, 2010.11 SREI Infrastructure Finance (SREI) plans to raise $1 billion through an infrastructure equity fund that would invest in areas such as roads, power and ports. The firm plans to start overseas roadshows from September. SREI has already deployed $200 million in domestic infrastructure projects through two similar equity funds raised from Indian investors. The company may consider exiting investments made in certain road projects.12 Reliance Portfolio Management Services plans to raise $333 million from the domestic market to invest in real estate projects around the country. The Fund will be named the Reliance India Realty Opportunities. It will focus on investing in residential projects in the top ten metros.

THE INDIAN BEVERAGE INDUSTRY: Key Takeaways:

High levels of economic growth in India have created higher disposable incomes over numerous income brackets, empowering consumers and attracting investors to the Indian beverage industry. Alcoholic beverages make up the largest subsector of the beverage industry but the bottled water and juice drink segments are expected to grow most in the near future. A demographic shift which has introduced younger, more discerning consumers and the further development of distribution infrastructure in rural areas are the main growth factors for the industry going forward. The industry faces a number of challenges, the most prominent of which are the scarcity of clean water, resistance to change in consumption patterns and adapting to social and Government actions taken to counter the the social stigma associated with alcohol. Private equity investment has picked up in the last twelve months and the trend is expected to continue in the near future.

The Indian Beverage Industry was worth $21.3 billion in 2010 and it is projected to grow at a CAGR of 16% in the next five years. The size of the industry is mainly due to the alcoholic beverage subsector, which made up approximately 75% of the market in 2010.

Introduction The high levels of economic growth in India coupled with the presence of a relatively young population have helped to create a large market for the Indian beverage industry. The industry is broken up into two subsectors, alcoholic and non-alcoholic beverages which are further divided into smaller subsectors which are described in this report. As a whole the industry is expected to grow at a CAGR of 16% over the next five years.13 Industry Overview The Indian Beverage Industry was worth $21.3 billion in 201014 and it is projected to grow at a CAGR of 16% in the next five years. The size of the industry is mainly due to the alcoholic beverage subsector, which made up approximately 75% of the market in 2010. The industry is broken up as follows:

Figure 1: Industry Break-Down

The beer and spirits subsector was worth $16.1 billion in 2010, making up 99.4% of the alcoholic beverage sector. Recent financials from a number of beer and spirits companies indicate the resumption of a strong affinity for luxury goods amongst certain groups of consumers which had begun to lag after the global economic slowdown in 2008. This trend is supported by Indias economic growth and the growth of the middle class.

Source: Guggenheim Capital Management (Asia), BMI

Alcoholic Beverages The alcoholic beverage subsector is the largest within the beverage manufacturing industry making up 75.8% of the industry.

Beer and Spirits: This subsector was worth $16.1 billion in 2010, making up 99.4% of the alcoholic beverage sector15. Recent financials from a number of beer and spirits companies indicate the resumption of a strong affinity for luxury goods amongst certain groups of consumers which had begun to lag after the global economic slowdown in 2008. This trend is supported by Indias economic growth and the growth of the middle class. This is not to say, however, that alcoholic beverage consumption waned during the economic crisis. The grain based alcoholic beverage subsector managed to grow during the crisis, but consumers switched to less expensive brands which is illustrative of the low brand loyalty and pricesensitivity of the average Indian alcoholic beverage consumer16. Companies within this subsector have to keep balanced brand portfolio strategies which maintain quality levels and relatively lower price points than other markets in the world. This has not lowered the value of this subsector in the eyes of various multinational companies such as Guinness/UDV, Seagrams, Bacardi Martini and LVMH who are either setting up distilleries, distribution joint ventures or making their products readily available17. With the affinity for luxury goods trend establishing itself firmly amongst Indian consumers and economic growth creating a larger middle class, these companies are well positioned to capitalize on the potential of this particular subsector. The beer and spirits subsector is forecasted to grow at a CAGR of 17% between 2010 and 201518.

The domestic wine industry has been protected by high import tariffs and additional state taxes on consumption around India. These extra costs increase the cost of imported wine significantly making them less competitive from a price standpoint. Domestic wine production is still nascent relative to other wine producing parts of the world and the domestic market for wine is very small as well.

Wine: The domestic wine industry has been protected by high import tariffs and additional state taxes on consumption around India. These extra costs increase the cost of imported wine significantly making them less competitive from a price standpoint. Domestic wine production is still nascent relative to other wine producing parts of the world and the domestic market for wine is very small as well. The industry was severely hit by a decrease in consumer confidence and the economic slowdown in 2008 and 2009. Tourists also consume a significant amount of wine in the Indian market, given that the number of domestic consumers is low, and after the terrorist attacks in Mumbai in 2008, Foreign Tourist Arrivals (FTAs) were down as well. These factors combined to slow growth of wine sales to 10% in 2008 from 21% in 200719. The industry is now showing signs of a strong recovery with wine sales forecasted to increase by over 130% by 2015. Indias major urban centers already boast high existing consumption levels but its fast expanding secondary and tertiary towns and cities represent untapped growth. This potential growth will increase the prominence of this sector in the beverage industry as it only makes up 0.5% of it currently.

Non-Alcoholic Beverages The Indian non-alcoholic beverage subsector was worth $5.16 billion in 2010. It is split into carbonated and non-carbonated drinks, the latter of which contains hot drinks such as tea and coffee. This subsector grew 16% Y-o-Y in 201020. Figure 2: Composition of Non-Alcoholic Beverage Subsector
Carbonated Drinks Functional Drinks Fruit Juices

Bottled Water

Hot Drinks

Source: Guggenheim Capital Management (Asia), BMI

Hot Drinks: In 2007 India was the 2nd largest tea producer and the 6th largest coffee producer in the world. In 2010, the tea and coffee subsector was worth $2.76 billion having grown 13.8% Y-o-Y21.

The Indian coffee subsector has seen sustained high levels of investment as both local and foreign players get involved in the market. On the local side, Caf Coffee Day, is looking to raise its number of stores from 850 to 2000 over the next few years. From the foreign standpoint, Starbucks has announced its intent to enter the market by signing an agreement with Tata Coffee to source coffee beans from Tatas plant in southern India.

Tea: The Indian tea subsector has the characteristics of a fairly mature sector given the presence of very well established large producers such as Tata Tea and Apeejay. Growth prospects are not extremely high within this particular subsector given its maturity and current tea producers are looking abroad for future growth opportunities22. Coffee: The Indian coffee subsector is still nascent relative to the tea subsector and it does not have the same level of saturation. It has seen sustained high levels of investment as both local and foreign players get involved in the market. On the local side, Caf Coffee Day, which is the largest coffee chain in the country, has large expansion plans, looking to raise its number of stores from 850 to 2000 over the next few years. From the foreign standpoint, Starbucks has announced its intent to enter the market by signing an agreement with Tata Coffee to source coffee beans from Tatas plant in southern India. There looks to be a great deal of development and growth within this particular subsector.

Other Non-Carbonated Drinks:

With consumers becoming more health conscious and the promotional, product launch and marketing efforts of some of the beverage industrys larger players, the fruit juice and bottled water subsector is forecasted to be the largest driver of growth for the entire industry over the next five years.

Fruit Juices and Bottled Water: .Collectively, these can be categorized as non-carbonated healthy drinks, a subsector forecasted to grow at a CAGR of 22.1% between 2010 and 2015. With consumers becoming more health conscious and the promotional, product launch and marketing efforts of some of the beverage industrys larger players, this combined subsector is forecasted to be the largest driver of growth for the entire industry over the next five years. Indian FMCG company Dabur, whos juice product Real accounts for 80% of its food divisions total sales, has invested close to $2 million to shift marketing focus from taste to nutritional values. In addition, Coca-Cola India and PepsiCo have both added juice products to complement their Indian product portfolios.23 Functional Drinks: This includes energy drinks and a number of others which claim to have specific impacts on consumers such as meal replacement drinks. This subsector is also nascent in India and much smaller than any of the others that have been discussed. However, this subsector has been growing substantially in the last few years, most recently registering 39% growth Y-o-Y between 2009 and 2010. With consumption limited almost exclusively to large urban centers, this subsector still has significant potential for growth within the overall beverage industry.

Carbonated Drinks: The Coca-Cola Company (Coca-Cola) and PepsiCo dominate this sector, both having committed large sums towards expansion in India in recent years. The two companies are involved in the Indian beverage market through a number of subsectors but this particular one is where they have created a near duopolistic market environment. These companies are now focusing on rural India as part of their growth strategies and as of 2009, 30% of Coca-Colas sales volumes come from rural India24.

India has sustained high levels of economic growth over the last few years leading to larger disposable incomes. This has had a combined effect on the Indian beverage industry firstly it has increased the number of potential consumers for the industry while at the same time drawing the attention of investors and large companies, both domestically and internationally, interested in the huge potential of the industry. People in lower income brackets who, ten years ago, may not have been able to afford store bought beverages are now active consumers.

Prominent Companies in the Indian Beverage Industry Investee Name Subsectors (Brands) Carbonated Drinks (Coke, Diet Coke, Fanta, Thums Up, Sprite, Limca) Coca-Cola Fruit Juice Based Drinks (Maaza) Company Tea and Coffee (Georgia) Bottled Water (Kinley) Carbonated Drinks (Pepsi, Diet Pepsi, 7Up,Mountain Dew, Mirinda) Fruit Juice Based Drinks (Nimbooz, Slice, Tropicana) PepsiCo Functional Drinks (Gatorade) Bottled Water (Aquafina) Beer (Kingfisher) Wine (Kingfisher Bohemia) United Whisky (Bagpiper, McDowells, Royal Challenge, Black Dog and more) Breweries Brandy (McDowells, Honey Bee, John Ex-Shaw) Group Rum (Celebration, Old Cask, Old Adventurer) Vodka & Gin (White Mischief, Romanov, Blue Riband) Dabur India Fruit Juice Based Drinks (Real, Lemoneez) Tata Global Tea and Coffee (Tata Tea, Tetley, Kanan Devan, Chakra, Gemini, Coorg) Beverages Nestle India Tea and Coffee (Nescafe, Nestea) Red Bull India Functional Drinks Energy (Red Bull, Red Bull Sugarfree)

Source: Guggenheim Capital Management (Asia), BMI

Growth Factors

Economic Growth: India has sustained high levels of economic growth over the last few years leading to larger disposable incomes. This has had a combined effect on the Indian beverage industry firstly it has increased the number of potential consumers for the industry while at the same time drawing the attention of investors and large companies, both domestically and internationally, interested in the huge potential of the industry. People in lower income brackets who, ten years ago, may not have been able to afford store bought beverages are now active consumers. Geographically, this has meant that the rural market has opened up and most companies have begun to focus on it as a growth opportunity. In addition larger disposable incomes have allowed consumers to diversify their beverage consumption and as a result a shift in consumer tastes and preferences have emerged that are drivers of growth within the industry as well.25

Changing Consumer Tastes and Preferences: With a large number of consumers empowered by larger disposable incomes and having a much larger variety of products to choose from within the market, certain trends are emerging that companies within the industry are scrambling to meet the demand for26:

A shift towards health and wellness consciousness has been occurring over the last decade and it has maintained enough momentum that large companies within the beverage industry have taken note. This trend is mostly seen in large urban centers as this is where most healthy products are sold. These are mostly functional products but they are not necessarily limited to this product category. Examples include meal supplement drinks, natural juice drinks with no added sugar or preservatives and drinks with purported health benefits.

Luxury Products: As explained within the description of the alcoholic beverage subsector, there is a growing affinity for luxury goods within certain consumer demographics. This is a trend that sees consumers wanting to buy higher quality or more expensive products from a particular product category. This is being exhibited particularly in the alcoholic beverages subsector where it is easier to produce and market luxury goods. Healthy Products: A shift towards health and wellness consciousness has been occurring over the last decade and it has maintained enough momentum that large companies within the beverage industry have taken note. This trend is mostly seen in large urban centers as this is where most healthy products are sold. These are mostly functional products but they are not necessarily limited to this product category. Examples include meal supplement drinks, natural juice drinks with no added sugar or preservatives and drinks with purported health benefits. Coca-Cola introduced Maaza, a mango juice drink to meet this demand while Dabur India made a sugar and additive free version of their bestselling Real juice product.

Distribution and Penetration of Rural Retail: 72% of Indias population is in rural areas27. A large part of this population is well insulated from recession because of their lack of dependency on banks, credit cards and mortgages. With Government initiatives such as the increase in procurement prices for many farm products, the reliability of the monsoon, and the National Rural Employment Guarantee Scheme (NREGS) which guarantees employment to one member of every rural household, rural disposable incomes have been on the rise as well. Taking note of this companies have begun devising ways to create a solid distribution system in rural areas. Coca-Cola began such a campaign in the early 2000s, some of their strategies included28:

Creating a hub and spoke system where goods are distributed to a relatively large rural town and then using this as a platform from which to distribute to small retailers in rural areas. Using a variety of trucks, rickshaws, hand carts, camel carts and bicycles to transport goods in rural areas to cut down on transport costs.

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Creating smaller bottles of their products and cutting the price to appeal to more rural consumers. Ensuring Coca-Colas presence at 47,000 haats (weekly markets) and 25,000 melas (fairs) in rural India between 2001 and 2003. Providing solar powered coolers to retailers to overcome erratic power supply.

Essentially all beverage companies require access to clean, potable water in order to ensure the safety of their products. The Government has emphasized this through regulations but enforcement is lacking. Indian water is some of the worst in the world, according to the U.N. Poor sewage treatment, heavy pesticide use, and industrial pollution contaminate water while scarcity is exacerbarted by overpumping and poor management. In this setting, a foreign company that diverts scarce water to manufacture a sugary, discretionary product is already a ripe target for critics.

Other companies in the beverage industry have developed similar strategies in order to capture some of the immense potential for growth in rural India.

Challenges

Resistance to Change in Consumption Patterns: Within lower income communities and in a large number of rural areas, consumers are very price sensitive and they show little brand loyalty. Food safety and hygiene, which are big motivators for the purchase and consumption of bottled water are not as much of a concern for individuals who are in lower income brackets. Convincing them to purchase bottled water or any industrially produced beverages is a challenge because they lack the motivation to purchase such items. Coca-Cola found that their 30ml bottles sold in rural areas for $0.22 were usually shared by two people and were not consumed that often given the price. In response to this the company began distributing 15ml bottles for $0.11 which became a much better received product in these areas.29 Access to and Scarcity of Clean Water: Essentially all beverage companies require access to clean, potable water in order to ensure the safety of their products. The Government has emphasized this through regulations but enforcement is lacking. Indian water is some of the worst in the world, according to the U.N. Poor sewage treatment, heavy pesticide use, and industrial pollution contaminate water while scarcity is exacerbarted by overpumping and poor management. In this setting, a foreign company that diverts scarce water to manufacture a sugary, discretionary product is already a ripe target for critics. In 2004, it was discovered that some PepsiCo and Coca-Cola products actually contained pesticide residues. In addition, PepsiCo had been accused of over usage of water in already parched communities. The backlash was severe with public protests, Government investigations and some states in India banned or restricted soft drink sales. The companies had to respond quickly in order to save their reputations and that of the industry for which they were prominent ambassadors. The attitude towards water maintains a volatile environment around the Indian beverage industry and one that has to be carefully navigated by companies involved in it.30

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Approximately $156 million was invested in the Indian beverage industry over the last 6 years across 9 companies, 4 having been invested in over the last 12 months. Private equity interest in this industry is picking up considerably and the trend is expected to continue in the near future.

Social: For the alcoholic beverage industry the social concerns are numerous, ranging from associated disease as well as health and safety impacts from high levels of alcohol consumption, to under-age drinking, and in some parts of India the portion of spending on alcohol versus basic needs is an issue. Domestic violence and an exacerbation of poverty have made alcohol abuse the single most important problem for women in India. Alcoholic beverage distributors and producers alike have employed numerous drink responsibly campaigns but the stigma still remains, potentially hindering the expansion of the subsector by way of taxation and adverse marketing. Many companies are having to proactively approach and engage with regional governments in order to stay ahead of legislation on labeling and marketing of alcohol. Companies are also challenged to keep ahead of changing taxation levels and laws across a range of geographies, which sometimes create illegal markets.31

Investment in the Indian Beverage Industry Approximately $156 million was invested in the Indian beverage industry over the last 6 years across 9 companies, 4 having been invested in over the last 12 months. Private equity interest in this industry is picking up considerably and the trend is expected to continue in the near future.
Select Private Equity Investments Investee Name Amount ($mn) Manpasand 10 Beverages Varun Beverages 56 International Pearl 15 Beverages Nashik 28 Vintners Molson Coors Cobra Indian 8 Beer Isklar AS 22 Indage 5 Vintners Mount Everest 4 Mineral Water Imperial 10 Spirits Investment Date Aug 2011 Investor(s) SAIF Partners Standard Chartered PE Standard Chartered PE Verlinvest SA, Everstone Brahma Investments Siva Ventures New Vernon PE., Arisaig Partners India Tree Line Asia Lighthouse

Jul 2011 Dec 2010 Aug 2007, Nov 2010 May 2010 Mar 2010 Oct 2005, Nov 2008, Apr 2009 Oct 2008 May 2007, Jul 2008

Source: Guggenheim Capital Management (Asia) Research, VCC Edge

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Conclusion:
The Indian beverage industry has benefited from sustained economic growth over the last few years with increases in disposable income and a youthful population fueling much of it. Despite numerous challenges the industry has seen significant private equity investment over the last 6 years and this trend is expected to continue in the near future.

The Indian beverage industry has benefited from sustained economic growth over the last few years with increases in disposable income and a youthful population fueling much of it. Growth is forecasted to continue at a steady pace with a projected CAGR of 16% over the next five years. The industry is divided into many smaller subsectors with alcoholic beverages being the largest. Bottled water and juice drinks are expected to be largely involved in the growth of the industry. Many companies are looking to the rural market as a dependable source of growth, while others are taking advantage of trends that have recently become evident amongst urban consumers. Despite the challenges of fixed consumption patterns, scarcity of clean water and the social issues facing the alcohol industry, the industry has seen significant private equity investment over the last 6 years and this trend is expected to continue in the near future.

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Endnotes

1 2

Economic Times Economic Times 3 Mint 4 MSPAP 5 VCCircle 6 VCCircle 7 VCCircle 8 VCCircle 9 VCCircle 10 Economic Times 11 Economic Times 12 Economic Times 13 BMI India Food and Drink Report Q2 2011 14 BMI India Food and Drink Report Q2 2011 15 BMI India Food and Drink Report Q2 2011 16 Datamonitor India Food and Beverage Report Q2 2011 17 Economic Times 18 BMI India Food and Drink Report Q2 2011 19 Economic Times 20 BMI India Food and Drink Report Q2 2011 21 BMI India Food and Drink Report Q2 2011 22 Economic Times 23 Economic Times 24 India Knowledge @ Wharton 25 India Knowledge @ Wharton 26 BMI India Food and Drink Report Q2 2011 27 CIA World Factbook 28 India Knowledge @ Wharton 29 India Knowledge @ Wharton 30 Businessweek 31 BMI India Food and Drink Report Q2 2011

Disclaimer
This newsletter is being provided to you by Guggenheim Capital Management (Asia) (Guggenheim) for information purposes only, and represents the opinion, investment strategies and views of Guggenheim based upon current market conditions and is subject to change without notice. This report is neither an offer to sell nor a solicitation of an offer to buy limited partner interests in any private fund, which may only be made by means of the private placement memorandum, the limited partnership agreement, and subscription agreement of the fund. Past performance is not indicative of future results. Market and economic conditions may change in the future producing materially different results than those shown here. Although the information presented herein has been obtained from and is based upon sources Guggenheim believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, Guggenheim does not itself endorse or guarantee, and assumes no liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein. The information and views described herein is general in nature and is not intended as investment advice or recommendations. This material is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters.The companies referenced herein are for illustrative purposes only; Guggenheim is not recommending an investment in these companies. The opinions expressed may differ from those of other entities affiliated with Guggenheim Partners, LLC that use different investment philosophies. This material is confidential. The information and data contained herein may not be divulged to any person or entity or reproduced, disseminated or disclosed, in whole or in part without the express written consent of Guggenheim Capital Management (Asia). 2011 Guggenheim Partners, LLC

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