Titan And Zomato To Eicher: Goldman Picks Winners As It Projects 10 Crore ‘Affluent' Consumers By 2027

Leisure, jewellery, out-of-home food and healthcare, and premium brands will be biggest beneficiaries of growing incomes in India, according to Goldman Sachs, as the number of “affluent” Indians is expected to surge by more than half to 100 million (10 crore) by 2027.

The research firm’s top picks that stand to gain from rising affluence in India are Titan Co., Apollo Hospitals Ltd., Phoenix Mills Ltd., Makemytrip, Zomato Ltd., Devyani International Ltd., Sapphire Foods Ltd. and Eicher Motors Ltd., according to its Jan. 12 note.

Only about 4% of India’s working age population has a per capita income of over $10,000 a year, compared with India’s average per capita income of about $2,100, according to the report.  ‘Affluent India’ comprises about 44 million of the working age population in 2023, which can be projected to around 60 million of the total population, the note said, compared with 24 million in 2015.

This cohort covers about 40 million consumers who travel by air in India every year, 30 million monthly transacting users for online food aggregators, 30 million broadband connections and 26 million international travellers from India, Goldman Sachs said.

Citing growth in tax filings, bank deposits, credit cards and broadband connections, it estimates 'Affluent India' to have grown at an annualised rate of more than 12% in 2019-23, compared 1% CAGR of India’s population. At the current trajectory, the cohort will expand to about 100 million consumers by 2027, the note said.

To be sure, this cohort is still only 7% of 1.4 billion Indians. The country's average GDP per capita of $2,100 is much lower than that of developing peers like China (over $12,500) and Brazil ($8,900), according to World Bank data.

According to Goldman Sachs, a significant increase in the value of financial and physical assets in India in the past three years is driving wealth creation in India. The three key asset classes that have seen a “large increase in value” over FY19-23 are equities, gold and property. The surge, according to the report, has been the largest for equities and gold, while property prices have seen a higher rate of appreciation in the past three to four years.

The market capitalisation of the Indian stock market has surged 80% since pre-Covid period, aided by a growth in new retail investors. The report cited a nearly threefold increase in number of Demat accounts since January 2020 to 114 million, besides direct and indirect investments by retail investors. The total ownership of BSE 200 by direct retail investors increased from 8.5% in December 2019 to 9.8% in September 2023, while the ownership of domestic mutual rose from 8.1% to 9.2% during the period.

Besides, gold price also rose 65% over 2020-23. As a result, according to Goldman Sachs, the total value of Indian holdings of equities and gold has increased from $1.8 trillion to $2.7 trillion.

Similarly, it said, property prices rose about 30% over FY19-23, compared to an increase of around 13% over FY15-19.

Companies exclusively addressing premium consumers are growing rapidly, according to the report.

Goldman Sachs prefers businesses with a moat, citing ‘higher for longer’ growth for top-end consumption. The largest beneficiary of rising ‘Affluent India’ are categories such as leisure, jewellery, out-of-home food and healthcare, and premium brands within all categories, it said. “…We expect mid-teens growth in these categories over the medium term. This ‘higher for longer’ growth will imply sustenance of rich valuations.”

‘Affluent India’ list of stocks have seen 7% upgrade in FY24 consensus revenue estimates against 3% downgrade for the broad-based consumption names.

Goldman Sachs top ideas are Titan, Apollo, Phoenix, Makemytrip, Zomato, Devyani, Sapphire and Eicher. They derive their moat from strong brand (Titan, Eicher), entry barriers from high cost and gestation of creating new business (Apollo, Phoenix), and network effect (Zomato).

Key risks include rising competitive intensity and a sharp correction in asset prices, that impairs the wealth effect.

Here is what Goldman Sachs has to say about these stocks

• Goldman Sachs has a 'buy' rating on the stock.

• Increased target 12-month price of Rs 4,125, implying an upside potential of 11.1%.

• Titan, with a market share of 7-8%, plays on rising consumption of 'Affluent India'.

• Titan is gaining market share from mom-and-pop jewellery stores that account for about 65% of the market.

• Caratlane, with an estimated 7% contribution to sales in FY24, new growth engine.

• Has a 'buy' rating on the stock, with a target price of Rs 4,700, implying an upside potential of 20.9%.

• Usually the second or third motorcycle in customers’ ownership journey, representing aspirational positioning.

• Premium pricing, superior scale setup, profitable growth journey.

• Resilience to competitive challenges built on merit of product design and portfolio evolution.

• Moat in premium two-wheeler segment and unique position in EV transition.

• Mid scale helps in better supplier terms, and higher ability to invest in customer acquisition.

• Goldman has a 'buy' rating on both Devyani and Sapphire.

• It has a target price of Rs 210 for Devyani, indicating an upside of 12.4%. While Sapphire's target price is at Rs 1,850, implying a 28.4% upside.

• Quick-service restaurant players will continue to benefit as number of ‘Affluent Indians’ grow at double-digits.

• The research firm expects KFC to be the fastest growing QSR player because of its under-penetration.

• Cyclical demand slowdown in QSR has likely bottomed out, as there has been price stability for up to 12 months and demand is expected to revive.

• Has maintained a 'buy' on the stock with a price target of Rs 6,675, indicating a 15.1% upside potential.

• Geared for growth from tertiary/quaternary care, as Apollo is India’s largest hospital chain with 9,155 beds spread across the country, 60% in large metros.

• Shifting disease burden towards lifestyle from communicable will help the chain lead the industry on a combination of performing the largest number of tertiary/quaternary care procedures.

• Goldman has a 'buy' rating on the stock. It has set a price target of Rs 2,740, implying a 12.1% upside.

• Phoenix’s mall portfolio is poised for 25% Ebitda growth CAGR (FY23-FY27), driven by rising cohort of ‘Affluent India’, in-mall tenant premiumisation and densification, and new mall additions.

• Consumer discretionary spends are increasing, with rising ‘affluent’ class.

• Customers and brands gravitate towards Phoenix's best-in-class premium malls, leading to lower vacancy and higher trade density.

• The research firm has a 'buy' rating on Zomato, with a price target of Rs 160, implying an upside potential of 18.8%.

• Zomato is fastest growing company within Goldman's global food delivery and India internet coverage.

• Improving economics in quick commerce to aid overall profitability.

• Catalysts for Zomato include continued strong growth in food delivery, further reduction in Blinkit loss and subsequent adjusted Ebitda profit breakeven and potential consolidation in the quick commerce industry.

• Has a 'buy' rating with a price target of $59, implying an upside potential of 29.9%,

• Travel sector to benefit from India's travel industry's estimated 13% growth in FY24-27.

• MMYT is India’s largest online travel platform with 50% market share.

• Continued online shift to aid MMYT’s revenue growth, making it grow faster than the underlying market.

• Benign competitive environment in India’s online travel should help MMYT improve profitability.

• On a growth-adjusted basis, the stock screens attractively on EV/EBITDA, compared to India internet and global travel peers.