Nowadays, most of the companies in Auto and Consumer segment are counting on UP as their growth engine given the low penetration levels across categories in the state.
A wonderful note by Spark Capital below on the topic:
Why Uttar Pradesh matters? If UP were a separate country, it would be the 5th most populous country in the world after China, India, USA and Indonesia. With 224mn population, UP is comparable with Brazil (208mn) and in terms of GDP, UP ($219bn) is comparable with Bangladesh ($221bn). With 27% y-o-y growth in motorcycle sales and 23% y-o-y growth in Passenger Vehicles (PVs) during in 9MFY18, UP has emerged the fastest growing market for Auto companies. Moreover, UP’s share in total motorcycle sales in India has jumped from 15% in FY17 to 17% in 9MFY18 and share of PVs has increased from 7.3% in FY17 to 8.4% in 3QFY18. Britannia has posted 15.2% y-o-y growth in biscuit sales in UP in FY18, making it one of the fastest growing markets for the company.
What is changing in UP? There are five major changes which, we think, are pivotal in putting UP on higher growth trajectory:
#1: Law and order: The state has launched a massive crackdown on criminals in the last 12 months. As per UP Police, 50 most wanted criminals have died in various encounters in the last 12 months, ~4,881 criminals have been arrested and ~5,500 criminals have applied for bail cancellation as they fear police encounter outside jail.
#2: Improving road infrastructure. After our 1000Km+ road trip in UP, we are convinced that UP today has the best road infrastructure in the country. Total state govt. spends on roads & bridges at Rs 708bn in the last four years (FY14-FY17) is 1.4x the combined spend in the previous ten years (Rs. 505bn).
#3: Improvement in electricity supply: Electricity availability in rural areas has seen three-fold jump from 5hrs of availability in 2012 to 18hrs of availability in 2018, while it is up 2x in urban areas from 12hrs in 2012 to 22hrs in 2018. Despite electricity demand going up, the power deficit has fallen down to 2% in FY17 down from 22% in FY10.
#4: Demographic dividend: UP has the youngest population among major states with median age of 20 years which is quite low as compared to the matured states like Kerala (31 years), Tamil Nadu (29 years), Andhra (27 years) and Karnataka (26 years). Notably, adult population (age 10-19 years) comprises of ~25% of total population of Uttar Pradesh, which is the highest among major States.
#5: Increase in per capita income: At $1000 per capita income, UP has reached an important threshold where Gujarat, Maharashtra, TN and Karnataka were a decade ago. Further, in a state where 23% of the GDP is constituted by agriculture, Govt. focus on doubling farmers’ income would lead to improvement in rural cash flows. We expect UP’s per capita income to grow at a CAGR of 11.2% from $1006 in FY19 to $1900 by FY25E, resulting in disproportionate growth for durable goods, clothing & footwear, entertainment, medical products & services categories.