India : Building scale and leadership Pankaj Razdan Prudential Corporation Asia 1 December 2006
India : Economic Overview Rising affluence Wealth generation is driven by strong economic and market capitalisation growth Strong Economy and Rising Market GBP Bn 500 400 300 200 100 0 GBP Bn 500 CAGR = 12% 266 FY02 412 FY06 Strong Economic (GDP) Growth + 100% 80% 60% 40% 46 43 40 Rising Affluence 38 26 48 Income brackets Lower Middle Upper Middle 400 300 200 100 CAGR = 44% 87 375 Growing Market Capitalization 20% 0% 18 14 11 3 6 9 FY 02 FY 06E FY 10E Affluent 0 FY 02 FY 06 Source: Tata Statistical Online, ML Research, NCAER, Edelweiss Research 93
India : Household Financial Assets Opportunity for mutual funds Growth in personal financial assets coupled with low penetration of mutual funds offers significant opportunity to convert cash and deposits into MFs Incremental Household Financial Assets Distribution of Household Financial Assets YoY incremental flows As on 2004-2005 60 GBP Bn CAGR = 12% Others 17% 40 25 29 29 37 37 Life Insurance 12% Cash and Deposits 52% 20 0 23 24 14 17 19 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 PF and Pension 16% Retail MFs 3% Cash and Deposits Financial Assets Other than Cash and Deposits Total Household Financial Assets as of 2005 is GBP 408 bn Source: RBI, CMIE, Citibank and Cerulli 94
India : Mutual Fund Industry Overview We have seen rapid growth in the MF industry due to increasing MF awareness; private sector has grown significantly GBP (Bn) 40 30 20 10 0 MF Market FUM CAGR = 26% 2002 2003 2004 2005 Q3 2006 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% MF Market FUM Mix 52 76 79 78 83 48 24 21 22 17 2002 2003 2004 2005 Sep-06 Public Private Private sector has grown at 42% as against negative growth of 4% for public sector Source: AMFI, Cerulli 95
India : Mutual Fund Industry Overview Product trends Equity assets have grown as a result of increasing participation by retail investors Equity Market Product Trends BSE Sensex The index has grown to almost 4 times its level since Dec 02 100% 80% 24 40 60% 40% 67 26 20% 0% 9 35 2002 Sep-06 Money Market Bond Equity & Balanced Source: AMFI, Cerulli and Internal Estimates 96
India : Mutual Fund Industry Overview Distribution trends Bank and IFA channels will remain dominant given their geographic reach and the widespread distribution of personal financial assets Geographic Spread Distribution Trends Household deposits GBP 144 Bn Non Metro* - GBP 91 Bn (63% share) 100% 80% 7 8 18 10 9 23 Banks likely to be dominant Geographic reach Increasing focus on fee-based income Untapped government owned banks 60% 40% 20% 37 30 34 24 * - Non-metro comprises of 750+ towns and 600,000+ villages 0% 2004 2005 Nat Dist Banks IFAs Direct Others Source: RBI Report as on FY 04, Cerulli 97
India : Mutual Fund Industry Overview Regulatory trends Regulatory reforms are providing significant growth opportunities Regulatory Reforms Opportunity Dismantling of benefits to traditional (govt. backed guaranteed) products leading to migration towards MFs GBP 380 Bn of existing and incremental financial savings New asset classes for investments GBP 300 Bn of existing physical savings Offshore money to be invested into local funds GBP 17.5 Bn from NRI investors + Foreign institutional mandates Investment opportunities in offshore funds GBP 53.5 Mn 98
India : High Net Worth Individuals Opportunity for portfolio management services growing Growing wealth amongst HNWIs is leading to increasing demand for alternate investment opportunities and wealth management services HNWI Growth HNWI Wealth Distribution 25% 20% 15% 21% 19% 2 nd fastest growing market in region 15% 14% 13% Alternate Investments* 20% Equities 31% 10% 7% 7% Real Estate 17% 5% 0% Cash/Deposits 13% Fixed Income 19% South Korea India Indonesia Hong Kong Singapore China Taiwan HNWI Wealth : GBP 155 Bn * - includes Structured Products, Hedge Funds, Managed Futures, foreign currency, commodities, private equity and investments of passion Source: ML-Cap Gemini Asia Pacific Wealth Report 2006 99
Prudential ICICI AMC : Customers Growth and demographics Aggressive growth in retail customers; Equity, Non Metro and Agency key drivers Retail Customer Growth (in 000) Growth in Focus Areas 900 800 700 600 CAGR = 38% 802 Asset (FuM) Contribution (%) 3 yr CAGR* (%) Equity 32 97 Non Equity 68 18 500 400 300 200 331 Geography (Customers) Metro 47 32 Non Metro 53 64 100 0 2003 Sep-06 FuM (GBP Bn) 1.88 3.53 Retail 24% Institutional 76% 32% 68% Channel (Customers) Agency 37 59 Non Agency 63 37 * - CAGR calculated for last 3 years i.e. Sep 03 Sep 06 100
Prudential ICICI AMC : Products Strong customer proposition Product launches capture market trends and opportunities Capture buoyancy in equity markets through growth in equity assets Launch funds to capture market trends and opportunities 100% 80% PMS Equity & Balanced Non equity GBP Mn 1,000 800 Equity funds capturing the market trend 60% 40% 84 65 600 400 Blended Plan targeted at deposit investor 20% 200 0% 13 31 3 4 2003 Sep-06 CAGR 0 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 FuM GBP 1.93 Bn GBP 3.69 Bn 27% Blended Discovery Dynamic Emerging STAR Fusion Infrastructure Services 101
Prudential ICICI AMC : Performance Superior fund performance across asset classes We have a high quality team, disciplined investment processes, stringent risk controls and superior technology Fund Performance % of Funds in Top 2 Quartiles by FuM 100% 100 95 99 98 98 94 96 96 91 90 80% 60% 40% 20% 0% 3-Month 6-Month 9-Month 1-Year 2-Year Equity Overall Source: MFIE, Data as on Sep 06 102
Prudential ICICI AMC : Distribution Widespread geographic footprint We have multiple channels; our focus is on growing banking and agency channels to drive retail penetration Distribution structure Branches Securities Cos. Banks Agency Others Over 30,000 points of sale to access Retail, Institutional and HNWI customers 103
Prudential ICICI AMC : Distribution Multiple channel focus Leveraging existing relationships with banks and securities companies and expanding our own infrastructure and retail channels to capture the retail opportunity Deepening existing material distribution relationships Enhancing reach to increase retail penetration Capturing retail opportunity Banks and Securities Cos. + Direct Presence - 220 locations Expand PoS to 200,000 Geography coverage through hub and spoke distribution Agency > 1.2 Mn Agents Govt. owned Banks Direct GBP 380 Bn of existing and incremental financial savings >40,000 branch network GBP 964 Bn deposit base Source: Internal Estimates 104
Prudential ICICI AMC : ICICI Bank parentage Significant benefits ICICI Bank offers unique advantage of local knowledge, relationships, customer base and retail infrastructure 1 2 3 Potential Customer Base More than 15 Mn + retail customers Access to other Financial Services Business (Group Cos.) Bank, Insurance, Investment Bank, Broking, Private Equity and Venture Funds Local Distribution Advantage 625 branches, 2275 ATMs, 3000+ Kiosks, Franchisees and DSAs Local advantage and unique position in local market 105
Prudential ICICI AMC : Brand Creating value Strong brand equity is vital and we maintain a consistent focus on branding Brands are a critical factor for customers selection of mutual funds Spontaneous Brand Awareness What we hear from the customers: 80% "The key criterion is company reputation, preferably with a track record." 60% 40% Key drivers for selecting a mutual fund company is its reputation 20% We are fed up with cheaters, so we are looking for and wanting a trustworthy company. 0% Mar/05 May/05 Jun/05 Aug/05 Oct/05 Nov/05 Jan/06 Feb/06 Apr/06 Jun/06 Pru ICICI UTI HDFC Franklin Templeton Reliance No.1 Brand Awareness and Preference amongst MFs (TNS Brand Tracker) Source: TNS Brand Tracker for the period Feb 05-May 06 and TNS Brand Tracker Attribute Preference study for Nov 05 Jan 06 106
Prudential ICICI AMC : Customer engagement Improving wallet share We are seeing significant success through directed programmes post acquisition Customer Management Achievement in 05 Number of multi-product customers (in 000) Retention Customer Win Back Programme 23% Win Back rate holding GBP 173 Mn in FuM 200 150 CAGR = 52% Growth Cross Sell / Up Sell 50% gross sales from existing customers GBP 375 Mn 100 50 90 185 Value Add Pru Tracker 21,774 Customers registered for Pru Tracker Service 0 2004 Sep-06 Customer retention scores improved from 72% (2004) TO 85% (Sep 06) 107
Prudential ICICI AMC : PMS Unique offerings We have developed innovative products and services to capture the growth potential of PMS for HNWI Constantly innovate products and services to capture HNWI wealth Fund/ Services Objective FuM (GBP Mn) Advisory Business As per mandate 646 Pru-ICICI is the only PMS to offer fixed income advisory Equity Funds* Capital Appreciation 116 Real Estate Fund Principal Protected Fund Invest in real estate Capital Guarantee Structure 9 74 Pru-ICICI is the only PMS to launch products for capturing alternate investments and real estate Personalized Website Transparency and Service NA * - Deep Value, Focused Fund and Absolute Return Fund 108
Prudential ICICI AMC : Offshore business Becoming significant Leveraging on Prudential infrastructure and relationships to tap institutional mandates and offshore investors Leverage on Prudential Operations Example: India Infrastructure fund Exploiting PRU Group Synergies India Offshore Business: Managed Funds and Advisory PRU Offshore Companies Prudential ICICI PRU Total FUM > GBP 200bn Support from PCA countries to 1. Tap offshore investors for local funds 2. Create offshore funds for local investors Track record Local market knowledge Capability to capture market trends Leverage existing brand and relationships Better utilisation of resources Ability to launch quickly Launch of India Infrastructure Fund in Japan raised over GBP 130 Mn in FUM 109
Prudential ICICI AMC : Awards and recognition Awards from multiple agencies for all round performance CNBC TV-18 Crisil Mutual Fund Of The Year Award 2006 Readers Digest Platinum Award for Trusted Brand 2006 Voted by the consumers Asia Asset Management Award for The Most Improved Fund House Of The Year 2005 by Asia Investment Management Ranked second Most trusted Mutual Fund brand as per Brand Equity Survey for 2005 Marketing campaign won the Bronze Effie 2003 for advertising effectiveness in the services category 110
Prudential ICICI AMC : Financials FUM and Earnings Significant growth in FUM and profits year on year FUM (GBP Bn) PBT (GBP Mn) 5 8 4 CAGR = 22% 0.7 0.2 6 CAGR = 33% 6.8 3 2 0.6 0.1 0.6 0.1 0.6 0.1 4 3.1 4.3 4.7 1 1.9 2.0 2.6 3.5 2 0 2003 2004 2005 Sep-06 0 2003 2004 2005 Sep-06 MF FuM PMS FuM PMS Advisory Source: Internal 111
Prudential ICICI AMC : Market Ranking Leadership position We are ranked 1st in the private sector in India, 2nd overall Mar 98 Oct 06 Fund Rank Mkt Share Fund Rank Mkt Share UTI SBI Canbank LIC BOI GIC Morgan Stanley Birla JM IDBI DSP ML Kothari Templeton Pru ICICI Alliance 6710 211 208 160 115 100 86 76 70 40 35 32 22 19 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 83.43% 2.62% 2.58% 1.99% 1.43% 1.24% 1.06% 0.95% 0.87% 0.49% 0.43% 0.40% 0.28% 0.24% 0.22% UTI Pru ICICI Reliance HDFC Templeton Birla SBI DSP ML Kotak Tata HSBC Stanchart Principal LIC Deutsche 4406 3813 3681 3212 2829 1964 1807 1366 1365 1454 1130 1464 1172 1452 601 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 11.69% 10.68% 10.26% 8.75% 7.63% 6.75% 5.63% 5.13% 4.27% 4.14% 3.91% 3.62% 3.47% 2.38% 1.63% Source: AMFI 112 112
Focus going forward Initiatives to strengthen our market leadership Our Customer Focus Retail MF SEC A&B (35-64) in urban India and non-urban India Institutional SMEs, Trusts, PSUs, Pensions and FIIs PMS HNWIs, Ultra HNWIs and institutions International Business Foreign investors, NRIs and institutional mandates Provide differentiated service offerings based on customer profitability Customer Service Product MF : Life stage funds and alternate asset class products PMS : Structured products, Managed A/cs, Private Equity and Real Estate Multiple channels of communication to improve brand relevance Brand Distribution Increase geographic coverage and grow POS to tap retail opportunity Focus and grow agency and government owned Banks for retail penetration 113