India's premium economy outpacing mass-market businesses

In a phenomenon indicating rising affluence, the growth of premium products has outpaced that of products targeted at the masses.

In its recent report, ‘The Rise of Affluent India', Goldman Sachs, a prominent global investment banking firm, states that companies which address consumption from the top end of India’s income pyramid have been growing much faster compared to companies in the same category which address broad-based consumption.

The report emphasises that premium category players in various sectors are growing faster than their non-premium peers. For instance, as compared to the pre-Covid-19 era, the two-wheeler industry is experiencing 20% lesser volume sales but Royal Enfield, a premium motorcycle brand volume has grown by 2.5% in the same duration.

From 2019 till January 2024, the volume of passenger vehicle sales has grown by about 20% while sales volume of SUVs grew by about 140%.

Comparing the data of FY19 and FY23, the report illustrates that the premium segment player Nestle India’s sales have grown by about 53% while sales of mass market player, HUL, have grown by 39%. Similarly, the premium retail brand Trent has grown by about 130% while the mid-segment brand D-Mart has grown by about 70%.

Even within the same company, the premium categories have delivered faster growth. For instance, the premium brands of Hindustan Unilever Limited are growing faster than the company’s mass brands, the report says.

Sectors and companies that are likely to benefit:

The changing consumption pattern backed by the growth of top-end consumers in India is likely to have the most positive impact on sectors catering to leisure, jewellery, out-of-home food, and healthcare. Players catering to the upper end of the market in consumer-oriented sectors like passenger vehicles, two-wheelers, travel, packaged foods, retail, hotels, consumer durables, education, etc., are also likely to perform better than their mass-market counterparts.

Based on their findings, Goldman Sachs has given a bullish call on stocks that are targeted at premium consumers in sectors ranging from travel & leisure to jewellery to healthcare, packaged foods, and more. Stocks like Titan, Zomato, Apollo Hospitals, MakeMyTrip, Indian Hotels, Phoenix, Tata Consumers, Nestle, Nykaa, Trent, DLF, Prestige, Mahindra & Mahindra, Eicher etc., feature prominently in the report.

Companies addressing the top-end of the consumer segment have been delivering a strong CAGR from FY19 to date. For instance, the revenues of Apollo Hospitals & Titan have a CAGR of 15% and 18%, respectively. Phoenix Mills is growing at a CAGR of 12%; the and gross bookings of MakeMyTrip are growing at a CAGR of 12%.

The growth of premium consumers:

As per the RBI data quoted in the report, there were 6.7 crore income tax filers in India in the assessment tear 2022, of which 80 lakh filers declared their income to be more than Rs 10 lakh per annum. Between 2017 and 2022, the number of income tax filers grew by a CAGR of 8% while the number of filers who declared their annual income to be more than Rs 10 lakh grew by a CAGR of 19%.

From FY19 to FY23, the number of term deposits of over Rs1,50,000/- value has grown by a CAGR of 44%, and the number of credit cards in India has more than doubled, from 4.7 crore to 9.5 crore. At the same time, the amount spent on credit cards in the last 12 months has also jumped by 2.5 times from FY19 levels.

The report points out that the rise of consumers preferring to buy premium brands has created the following effects in the market. First, the players operating in the premium segment are growing more rapidly than their peers in the same sector. Second, the premium categories are outpacing the growth of mass categories within the same company. And lastly, the companies that are operating exclusively in the premium segment of any sector are on a fast-track growth trajectory.

Titan, Apollo Hospitals, Makemytrip, Eicher Motors, Zomato, Devyani, Sapphire and Phoenix Mills are the top picks that Goldman Sachs India is bullish on, says the report.