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Indian Retail Industry
Dinodia Capital Advisors
July 2012
I. Executive Summary
II. Market Overview
– Industry Overview
– Evolution of Indian Retail
– Corporate Initiatives in Rural Retailing
– Porter‟s Five Forces Model
– SWOT Analysis
III. Industry Analysis
– Formats of Organized Retail
– Key Challenges
– Government Initiatives and Policies
– Recent Investments
– Trends in the Industry
– Major Segments
– Emerging Retail Formats
IV. Investments in the Sector
– Recent M&A Deals
– Recent Private Equity Deals
1
Index
V. Major Players
– Major Players
– Common Stock Comparable Analysis
VI. Profile of the Major Players
– Pantaloon Retail India Ltd.
– Shopper‟s Stop Ltd.
– Trent Ltd
– Reliance Retail
– Titan Group
– Jubliant Foodworks Limited
VII. Corporate Profile (Dinodia Capital Advisors)
2
Index
3
Executive Summary (1/2)
The Indian retail industry is one of the fastest growing industries in
India. Over the last few years it has grown at a Compounded Annual
Growth Rate (CAGR) of 13.3%
Though initially, the retail industry in India was mostly unorganized,
with the change of tastes and preferences of consumers, it is getting
more organized today
Retail is mainly a volume game (especially value retailing). Going
forward, with competition intensifying and costs scaling up, those
players who are able to cater to the needs of consumers and grow
volume by ensuring footfalls, are able to reduce costs, withstand
downturns, and face competition will have a competitive advantage
The next phase of growth in the retail sector will emerge from the rural
markets, but that sector too has several challenges such as low ability
to pay of consumers, poor financing facilities, strong local
relationships with Kirana stores (familiarity and credit) and full
benefits of the government schemes such as the NREGA not reaching
all target markets
4
Executive Summary (2/2)
The industry is eagerly awaiting the approval of FDI in multi brand
retail. The incumbent players feel that FDI will help them in funding
their operations and expansion plans. The expertise brought in by
foreign retailers will also improve the way Indian retailers operate
(systems, technology and processes). Also, FDI is expected to bring in
more efficiency in the supply chain functions of retailers as well
The retail market in India offers significant opportunities for retailers &
brands across categories. This is driven by factors such as a large
consumer base, rising incomes & job opportunities, increasing
consumer awareness, etc
The luxury and E-commerce markets are also at a nascent stage in
India, but are looking to explode as brand awareness, size of the
aspiring youth population, shopping from the comfort of home and
paying on delivery, credit card penetration and internet usage are
increasing all over India
5
Market Overview
MARKET OVERVIEW Industry Overview
Evolution of Indian Retail
Corporate Initiatives in Rural Retailing
Porter’s Five Forces Model
SWOT Analysis
# The Indian retail sector is one of the most exciting and underpenetrated markets in the world
The Indian retail market is currently estimated at around $450 billion1
As per the BMI India Retail Report for the fourth-quarter of 2011, total retail
sales will grow to US$ 804.06 billion by 2015
The sector is the second largest employer after agriculture, employing more
than 35 million people with wholesale trade generating an additional
employment to an additional 5.5 million people
The sector has evolved dramatically from traditional village fairs, street
hawkers to resplendent malls and plush outlets, growing from strength to
strength
The Indian retail market has witnessed consistent growth over the last few
years, maintaining its share of around 30% of the GDP at current prices
According to the Indian Council for Research on International Economic
Relations (ICRIER), India is the seventh-largest retail market in the world
India's retail market is expected to grow at 7% over the next 10 years2
6
Retail IndustryOverview
Source: 1 As per business standard article “India Retail Outlook in 2012 stable”2 Sector Profile by FICCI
7
Retail IndustryEvolution of Indian Retail
Source: Indian Retail Sector by Resurgent India March’11
# The penetration of organized retail will happen much faster in the coming decade because of the changing demographics of the population and a healthy rate of economic growth
8
Retail IndustryOverview
The retail industry is divided into two sectors
More than 90% of the Indian Retail market is dominated by the Unorganized
sector
In developed countries, the organized retail industry accounts for almost 80% of
the total retail trade. In contrast, in India organized retail trade accounts for
merely 5% of the total retail trade
Unorganized retail is expected to grow at 5% and reach a size of US$ 650 billion
(76%), while organized retail is expected to grow at 25% and reach a size of US$
200 billion by 2020 as per the sector profile by Federation of Indian Chambers of
Commerce and Industry (FICCI)
The organized retail segment in India is projected to be 9% of total retail market
by 2015 and ~20% by 2020
Organized Retail
Corporate backed Hyper markets
Retail ChainsPrivately owned large retail businesses
Modern Retailing Format Stores
Unorganized Retail
Kirana Shops
Owner manned General Stores Mom and
Pop Stores
Paan/beedi shops
9
Retail IndustryOverview
India‟s twin growth engines of economic development and demographic profile
set it apart from other nations and present a compelling business case for
global retailers looking to enter the market
The Retail industry has been on a growth trajectory over the past few years.
With the economy back on track, retailers are executing their expansion plans.
The industry is expected to grow at a rate of 12% per annum for the next 5
years1
Retailing companies are back to their expansion plans with the focus on Tier II
and Tier III cities and towns. Most of the retailers have opened up new stores
in places like Pune, Indore, Kochi, etc in their wake to tap the unsaturated
potential in these markets
Rural retailing is now the focus for many retailers. It is observed that the rural
regions saw consumption even during the economic slowdown. Rural India
accounts for 2/5th of the total consumption in India. Thus, most industry players
do not want to be left out of the rural growth story and are devising strategies
suited especially to the rural consumer
# The Indian retail sector accounts for 22% of the country's gross domesticproduct (GDP) and contributes to 8% of the total employment
Source: 3as per www.equitymaster.com
10
Retail IndustryCorporate Initiatives in Rural Retailing
ITC (e-chaupal andChaupal sagar): ITC
procures all materialsdirectly from the producersthereby cutting down themiddlemen all together
HUL (Shakti): Sells its
products through women self-help groups who operate like adirect to home team of saleswomen in inaccessible areaswhere HUL’s conventional salessystem do not reach
Godrej Agrovet (Aadhar):Complete solutions provided to thefarmers rendering farm advisoryservices, credit facility to thefarmers, providing up to dateinformation on weather, price, soil& water testing facility to farmers
TATA (TATA Kisan Sansar):Provides end to end solutions, rightfrom what crops to grow, how to sell
them etc to gain maximum returns
M&M (Shubhlabh): Shubhlabh interfaces
with banks for the financing with respect to thefertilizer and seeds firm, as well as for thedelivery of produce to end buyer and paymentto farmers
11
Retail IndustryPorter‟s 5 Forces Model
Rivalry
Threat of New
Entrants
Threat of Substitutes
Bargaining Power of
Customers
Bargaining Power of Suppliers
Major barriers such as regulatory issues, supply chain complexities, inefficient infrastructure, and automatic approval not being allowed for foreign investment in retail
•The unorganized sector has a dominantposition•Established players have a slight edgeover others and enjoy brand distinction•Access to capital plays an importantpart for expansion in the space
High due to wide availability of choice.With FDI coming in, this will increasefurther
Healthy economic growth, changing demographic profile, increasing disposable incomes, changing consumer tastes and preferences are driving and will continue to drive growth in the organized retail market in India
New entrants likeInternational playersare expected tofurther intensify thecompetition
12
Retail IndustrySWOT Analysis
• Major contributor to GDP
• High Growth Rate
• Indian consumers have high disposable incomes, which translates into high consumption level
Strengths
• Highly unorganized
• Shortage of talented professionals
• Low productivity compared to international playersWeaknesses
• Increasing awareness of consumers about products and services
• Innovation for new product development
• Retail sector in rural India is almost untouched, presenting tremendous opportunity
• Global retail giants see India as a key market
Opportunities
• Rigid government policies and regulations restrict the entry of new players
• Price competition among retailers puts downward pressure on margins
• Economic slowdown is having an adverse effect on consumer spending
Threats
13
Industry Analysis
INDUSTRY ANALYSIS Formats of Organized Retail
Key Challenges
Government Initiatives and Policies
Recent Investments
Trends in the Industry
Major Segments
Emerging Retail Formats
14
Retail IndustryFormats/Channels of Organized Retail
Channel/Formats
Type of Merchandise
Pricing Size(sq ft) Location Example
Supercenter All types of
merchandise
Discount
Pricing
200,000-
300,000
Outskirts Walmart
supercenter
Hypermarket Mostly food &
grocery and
apparels
Discount
Pricing
60,000-
120,000
Malls Hypercity, Big
Bazaar
Supermarket Food & Grocery Discount
Pricing
10,000-
30,000
Malls Food Bazar
Cash and
Carry
Mostly food &
grocery
Bulk buying,
heavy
discounts
100,000-
300,000
Outskirts Metro cash
and carry
Department
Stores
Apparel and
Accessories
Competitive 20,000-
100,000
Malls Shopper‟s
Stop,
Pantaloons
Specialty
Store
Any one type of
merchandise
Competitive 500-5,000 Main
markets,
Malls
Mobile Store
15
Retail IndustryKey Challenges
• Lack of sophisticated real estate planning
• It is difficult to find suitable properties in central locations for retail atreasonable price points
• With real estate prices escalating due to increase in demand from theIndian organized retail sector, it is posing a challenge to its growth
Real Estate
• The retail sector does not have a industry status yet making it difficult forretailers to raise financing from banks to fund their expansion plans
Industry Status
• Improving supply chain and logistics will enable retailers in India tosignificantly enhance overall competitiveness and successfully deploygrowth initiatives. It will also help in significant margin pick-up &reduction in time and wastage
Inefficient Supply Chain
• There are very few courses specific to the retail sector offered atcolleges & universities in India
• Retail training-opportunities such as niche courses for areas likemerchandising, supply chain and so on are limited
• In the unorganized sector manpower is not equipped with even basiclevel of retail specific and customer service skills
Shortage of Skilled
Manpower
• Retail shrinkage is the difference in the value of stock as per the booksand the actual stock available in the shop. The causes of retailshrinkage are mainly employee theft, shoplifting, administrative errorsand vendor fraud. Effective online monitoring system need to beimplemented
Shrinkages
16
Retail IndustryGovernment Initiatives and Policies
100% FDI is permitted under the automatic route for trading companies for
cash & carry trading and wholesale trading
The Cabinet also gave the nod for raising the FDI limit in single-brand retail
ventures to 100%
Reduction in incidence of the excise duty on branded apparels from 4.5% to
3.6% is likely to boost the demand for branded apparels, and benefit
companies like Provogue and Raymonds
The Government is planning to remove the old tax systems to simplify the tax
calculation and avoid double taxation in Indian retail. New Goods and Service
Tax (GST) will simplify the tax structure
The government is in talks to allow foreign direct investment up to 51% in
multi-brand retailing
US Secretary of State Hillary Clinton on her recent visit to India, pitched for
the opening up of the Indian retail market for foreign direct investment (FDI).
The FDI in retail would allow US multi-brand retail chains like Wal-Mart to open
stores in India
# Industry Experts feel allowing multi brand retailing will assist in keepingfood and commodity prices under control and also help to narrow down thecurrent account deficit
17
Retail IndustryRecent Investments till July 2012
Illinois-based firm, Kitchen Holding Company LLC, which markets and
distributes high-end kitchenware brands like Corelle, Corningware and Pyrex
cutlery, has recently announced the setting up a wholly-owned subsidiary in
India to be called World Kitchen (India)
Italian luxury major Canali has entered into a 51:49 joint venture (JV) with
Genesis Luxury Fashion, which currently has distribution rights of Canali-
branded products in India. The company also plans to invest Rs.7.65 crore
(US$ 1.53 million) in India. The JVcompany will now sell Canali branded
products in India exclusively
Germany-based Metro AG will invest an additional Rs 560 crore (US$ 112.12
million) in 2012 to set up eight wholesale stores in India to take advantage of
the growth in consumption in Asia's third-largest economy
Mukesh Ambani-controlled Reliance Brands will bring British shirt brand
Thomas Pink to India, as it looks to rapidly increase its presence in the fast-
growing domestic premium-to-luxury fashion retail market
World leader in furniture, IKEA , also recently announced a spending of~$2bn
in India over the next few years
Source: IBEF
18
Retail IndustryRecent Investments till July 2012
Australian bakery cafe chain Muffin Break is planning to enter into India in
next two or three months and plans to open up to 40 outlets in the next two
years
International cash and carry chains in the retail sector plans to expand in
India. Walmart, the US$ 446 billion American retail giant, which operates cash
and carry outlets in India in a 50-50 per cent joint venture (JV) with the Bharti
Group, expects to open 12 to 15 wholesale outlets in 2012
According to a recent trend, retail companies such as Carrefour, IKEA, Tesco
and Walmart are regularly sourcing well-priced, high-quality products for
customers in Western markets from India. Analysts estimate that these four
retail majors together source around US$ 3.5 billion-US$ 4 billion from India
every year. "India continues to be an important sourcing market," as per
Walmart
The next generation of India's retail environment is favourable for the rise of
luxury goods. Watches are growing faster than the broader luxury market. "In
watches, there is perhaps a higher level of innovation than other luxury
categories," as per Jean Christophe Babin, CEO, Tag Heuer
Mahindra Retail, which houses Mom & Me – the specialty retail venture of the
diversified Mahindra Group is expected to raise Rs 100 crores in funding from
private equity investors
Source: IBEF
19
Retail IndustryTrends
There is high brand consciousness among the youth; 60% of India„s
population is below the age of 30 leading to popularization of brandsand products
Emergence of organized retail
Spending
capacity of youth of India
Raising
incomes and
purchasing power
Changing
mindset of customers
Easy customer
credit
Higher brand consciousness
Real estate development in the country, for example, the
construction of mega malls and shopping malls, is augmentingthe growth of the organized retail business
India has a large growth population, which is a conduciveenvironment to the growth of this sector
The per capita income in India has doubled between 2000-01 and2009-10 resulting in improved purchasing power
The customer mindset is gradually shifting from low price to betterconvenience, high value and a better shopping experience
Emergence of concepts such as quick and easy loans, EMIs, loan
through credit cards, has made purchasing possible for Indianconsumers, for products such as consumer durables
Market Segments
20
Retail IndustrySegments
59.50%
9.90%
4.00%
6.40%
3.40%
16.90%Food andGrocery
Clothing and Fashion
Beauty and Wellness
Electronics
Furniture and Furnishings
Others
The food and grocery segment
is the highest contributor to the
retail sector with maximum
contribution coming from
traditional retailing, while
penetration of modern retail is
highest in the clothing and
fashion segment, at 23% of the
growth
Source: India Retail Market Report by Deloitte-Sept’11
21
Retail IndustryMajor Segments Analysis - Food and Grocery
Food and
Grocery
Business Monitor International (BMI) forecast that sales
through Mass Grocery Retail outlets to reach to USD 27.67
billion by 2015
According to industry estimates, lack of supply chain
infrastructure results in 40% loss of farm produce;
investment in back-end infrastructure should help reduce
this
Sourcing of processed food from SMEs could result in
higher margins
Political support for FDI in food and grocery may face
challenges and many states may not allow FDI or else
allow with more restriction
Hypermarkets and supermarkets are the best suited retail
structure for this segment
BMI predicts
that sales
through Mass
Grocery Retail
(MGR) outlets
will increase by
145 per cent to
reach US$
21.35 billion
by 2014
OpportunitiesIndian household spending on food is one of the highest in the world with 48% of
income spent on food and grocery
With growing urbanization and consumerism and acceptance to modern retail this
sector exhibits huge untapped potential
22
Apparel
(Clothing and
Fashion)
Readymade and western outfits sales are growing at 40-
45% annually
Opening of multi-brand apparel retail for FDI is not
expected to face major political deliberations
For apparel retail, investment in back-end infrastructure lies
in creation of warehouses
Manufacturing facilities (for private label brands) and
logistics is most likely to be outsourced
International retailers could have private label brands
sourced from the SME segment
Departmental stores is the best suited retail structure for
this segment
OpportunitiesDemand for readymade and western outfits is growing at 40-45% annually
Critical success factors are to deliver affordable and accessible fashion, provide
value added services to sustain consumers
Even opportunity for high end clothing/accessories companies like “Rent the
Runway” from the US is possible in India
The Indian
domestic
apparel market
size is expected
to grow at 11%
CAGR to reach
$140 billion by
2020*
Retail IndustryMajor Segments Analysis - Apparel
*As per the India Retail Apparel Report by Northbridge Capital Jan’11
Furniture and
Furnishings
This category faces stiff competition from small time
traditional retailers as well as individual carpenters (India
highly customization focused)
For furniture retail, options for investment in back-end
infrastructure lies in creation of manufacturing
facilities/warehouses
Some of the furniture products could be sourced from the
SME segment
FDI in furniture retail is not expected to face major political
deliberations
Specialty retail outlet is best suited structure for this
segment
OpportunitiesThis category has recently witnessed modern retailers setting up home furnishing
sections in hypermarkets or start-up specialty stores
This category faces stiff competition from small traditional retailers as well as
individual carpenters/furnishers
The concept of showcasing what an actual bedroom or living room would look like
becoming popular too23
The size of Indian
furniture and
furnishings sector
was at about Rs
66,500 crore in
2010. It is
estimated that the
market size to
reach Rs
1,12,000 crore
by 2015
Retail IndustryMajor Segments Analysis - Furniture & Furnishings
24
Beauty and Wellness Penetration level of modern retail is just 4% and
there is a huge untapped potential in this segment
Private label brands in some of the product
categories can be sourced from the SME segment
From Dhoni announcing 200 gyms to staggering
sales of Shehnaz Hussain/Biotique type local
brands to foreign brands like MAC, Clinique etc.,
this segment is all set to explode for the health &
beauty conscious Indian youth
OpportunitiesPharmacy retailing in India is largely dominated by traditional/local chemists
with online buying to pick up
Modern retailer is increasingly moving from pure-play pharma to health and
beauty care led by product designing desire and customer demands
Strong growth in Ayurvedas and natural products as well (e.g. Himalaya stores
are popping up all over the metros and Kama Ayurveda and Forest essentials
products are almost at every hotel in India)
Owing to growing
disposable income of
the middle class
households and
changing lifestyle, it is
expected that the
cosmetics industry will
grow at a CAGR of
around 17% during
2010-2013
Retail IndustryMajor Segments Analysis - Beauty and Wellness
25
Retail IndustryEmerging Retail Formats - Luxury Retailing
A decade ago luxury retail in India
was only meant for the consumption
of elites. The spending habits of a
consumer have redefined the meaning
of luxury - luxurious goods have
become necessities, not just for the
rich but also for the middle class
population. For a common buyer, the
outlook for luxury has changed from
an “aspirer” to an “acquirer”
The Indian luxury market stood at
around USD 5.8 billion and expected
to grow to make India the twelfth-
largest luxury retail market in the
world by 2015
The Indian luxury Industry is
growing at a rapid pace with a CAGR
~20% and shall grow to nearly double
of its current size over the next 5
years
# The optimistic Indian economyreflective of the GDP growthrates coupled with the increasein the consumption byhouseholds will impact anddefine the Indian luxury sectorover the coming years
26
Retail IndustryEmerging Retail Formats - Luxury Retailing
Growth Drivers
An increase in the young working
population especially women and
growing opportunities in the service
sector
Growing incomes coupled with
optimism about the future
Easier consumer credit & loans
Increase in credit card spending
Real estate development in the country
On-going liberalization of retail sector
# With the inexorable pursuit forluxury, the affluent class withtremendous purchasing power areon the fast lane endorsing leadingluxury brands which have allchosen India as the ‘happeningluxury retail destination’
27
Retail IndustryEmerging Retail Formats - Luxury Retailing
Over the last few years, India‟s luxury industry has witnessed significant
transformation and advancement. A short visit to Delhi‟s Emporio mall or Mumbai
Palladium‟s will be proof enough for this as you see people queuing up to go inside
in the middle of an afternoon and thousands of people walking out with red, green,
yellow bags with Gucci, Ferragamo, Tods, Harry Winston, Hermes all over them
India used to be a production outsourcing destination for a long time, but now due to
a steadily growing economy and globalized business environment, India has rapidly
transformed into a large market for Luxury goods
In view of the growing importance of the country in the global luxury industry, Mint,
India‟s leading business daily every year conducts a conference which brings
together the stakeholders to a common platform
The following are the views of the Industry Experts from the recent Indian Luxury
conference organized by Mint:
Glenn Tutssel, Global creative director, The
Brand Union
As per Glenn, International luxury brands need to adapt to
the local Indian culture. Local is becoming much more
fascinating and intrinsic part of luxury than it used to be. He
also advises to the Indian brands to retain their roots while
venturing abroad
Gianluca Brozzetti, chief executive of Roberto
Cavalli Group
As per Brozetti, Italian fashion house Roberto Cavalli
SPA will open its first flagship store in India later this year.
The 400 sq. ft boutique, which will open in the DLF Emporio
Mall in New Delhi, will be at par with the brand‟s stores in
cities such as London, Paris, Tokyo and New York
Pamela Harper
Pamela Harper, among the most experienced operators in
the luxury market who has spent 30 years in the
business, working with brands such as Burberry, Alfred
Dunhill, etc. is currently working with iconic British luxury
brands such as Halcyon Days and Myla. These are the two
brands she would look to bring to India in the near future
Hamilton South
Hamilton South, founding partner of marketing and
communications firm HL Group thinks that in the Indian
market a lot of the younger, affluent people are very keen to
figure out how value is part of a luxury product28
Retail IndustryEmerging Retail Formats - Luxury Retailing
Christian Louboutin
o Celebrated shoe designer Christian Louboutin known for his
five-inch heels and trademark red shoes entered the Indian
market by opening his first store in New Delhi, on February
9, this year
o The decision to open his first store in India was born out of
repeated requests from clients. “From a business point of view it
makes sense to open a store in a country where you have lots of
customers. You can ignore one or two requests but it came to a
point that I couldn‟t ignore requests from Indian clients (at my
London store) anymore.” says Louboutin
o The entry of super High end brands such as Christian
Louboutin in addition to brands such as LVMH, Gucci and
Hermes which have been in the market for a long time are a
testament to India becoming a high-end Luxury market
29
Retail IndustryEmerging Retail Formats - Luxury Retailing
# Close to 20 luxury brands have entered India in the past four years. Yet, theIndian luxury market is in its infancy when compared with China. This givesthe chance to the luxury brands to enter into the Indian market as it willgive them first mover advantage and as per the experts early entrants arelikely to dominate luxury retail
30
Retail IndustryEmerging Retail Formats-E-Retailing
The Online retail business is another format which has high potential for growth in the
near future (every teenager wants to be a Dot com entrepreneur in India today and sell his
or her company to Google, Groupon or Facebook and retire by 25, but there are several
positives to this story)
According to a report from Internet and Mobile Association of India (IAMAI), total Indian
market for e-com is around Rs 50,000 crore, of which 80% or Rs 40,000 crore is captured
by travel e-commerce (online train, bus and airline tickets) while non-travel or retail e-com
is only 20% or Rs 10,000 crore1
The online retail segment in India is growing at an annual rate of 35%
Experts hope that by the year 2025, the total e-com market will reach at least Rs 4,00,000
crore and the share of retail will be half at Rs 2,00,000 crore
Around 60% of online buying right now comes from the top 10 cities and 40% from smaller
towns
Source: 1 as per the artticle in Deccan Herald June 15, 2012
31
Retail IndustryEmerging Retail Formats-E-Retailing
It has been a fantastic phase for e-commerce growth in the last 12-15 months.
This phase can be viewed from 2 lenses: Supply, i.e. start-ups, investors &
ecosystem enablers; and Demand, i.e. consumers
The demand side has consistently grown since, and still continues to expand,
backed by a very robust and strong growth thrust that gave everyone the
confidence that the fundamentals were in place and e-commerce is here to
thrive
The last 12 months have seen a string of large investments in the Internet
space (all top five Internet funding deals in India have been inked during this
time frame)
The list of most active investors in the field of Internet and Internet-based
services is given below:
32
Retail IndustryEmerging Retail Formats-E-Retailing
Internet and PC penetration- India‟s middle-class is mushrooming, with
growing purchasing power and limited personal time. As per the data available
from IAMAI, internet users have grown by 38% in 2011 and touched a
subscriber base of 121 million
Increasing usage of credit and debit cards coupled with a growing young
population who spend significant time online. Convenience of online product
research, comparison shopping and competitive pricing
Mounting prices of merchandises– escalating fuel prices and at the same
time online retailers are offering merchandises on discounted rate and extreme
climatic condition especially unbearable summer heat across the India
encourage people to shop online
Increasing demand from tier two and three cities
Social networking sites are very much influencing and driving online retail in
India. Many retailers are using it as a potent tool to get marketing and sales
leverage
Cash On delivery- New payment systems like cash on delivery has helped a
lot to this industry. Cash on delivery is being very well accepted by e shoppers
as it safeguards their interest also. It has created a new business opportunity
of cash collection for the e-commerce industry
Growth Drivers
33
Retail IndustryEmerging Retail Formats-E-Retailing
Although online retail in India has covered many verticals but still there are
verticals which are untouched. The following are the segments for
growth/opportunities which can prove to be growth engine for online
retailers:
Grocery: Grocery is the prominent contributor in the overall business of Indian
retail and if online retailers will add this to their offering list, it could be a
tremendous sales boost (US example is Fresh Direct)
Drugs & Medicine: Online retailers have so far not touched this vertical. Given
the fact that consumption of medicine in India is great, online retailers can grab
this opportunity. 24*7 delivery facility of medicines can really boost retailer‟s
business and image as well
Opportunities to Grab
# The culmination of the e-commerce era in India is only at its alpha stageright now. The future of the ecommerce industry in India is quitepromising and growing internet users have fueled its growth especiallyamongst the middle class. Online business has added a new salesdimension in selling structure of our country in online retail (e-tailing) aswell as online travel
34
Investments in the Sector
INVESTMENTS IN THE RETAIL SECTOR
Recent M&A Deals
Recent Private Equity Deals
Announced
DateTarget Acquirer Details
April 14,
2010
Lilliput Bain Capital and
TPG Growth
Bain Capital and TPG have
invested USD 86mn in Lilliput
June 30,
2010
Hypercity
City Retail
Pvt. Ltd.
Shoppers Stop
Ltd.
Shoppers Stop raised its interest
to 51% by acquiring 32% stake
for USD 28.23mn
August 24,
2010
Home
Solutions
Pantaloon Retail
Ltd.
Pantaloon Retail merged Home
solution business with itself at
valuation of USD 29.8mn, 1.3
times sales multiple
September 3,
2010
Trent Ltd. Reliance Capital Reliance Capital bought 8.68% in
Trent Ltd. for USD 4.55mn
December
29, 2010
Giantti Italia
S.R.L.
Gitanjali Gems Gitanjali Gems acquired 90%
stake in 'Giantti Italia S.R.L.', a
Company based in Milan, Italy,
through its Dubai-based wholly
owned subsidiary 'Gitanjali
Ventures DMCC‟ 35
Retail IndustryM&A Deals in the Sector
Announced
DateTarget Acquirer Details
February 7,
2011
Madhusudan
Securities Ltd
Madhusan Securities acquired
Weekender brand from Primus
Retail Pvt Ltd at USD 21.74mn
March 14,
2011
Shriram Group
and Texas
Pacific Group
(TPG)
TPG and Chennai-based Shriram
Group acquired the wholesale and
franchise undertaking and the retail
undertaking of Vishal Retail Limited
for Rs. 70 crs
April 15, 2011 Deccan Chronicle
Holdings Ltd
Deccan Chronicle Holdings Ltd
merged Odyssey India Ltd business
with itself
November 11,
2011
VEMB Lifestyle
Pvt Ltd, Apple
Group of
Companies
Provogue India sold it's retail chain
business - Promart Retail India
Limited to VEMB Lifestyle Pvt. Ltd.
and Apple Group of Companies for
USD 0.20mn
November 15,
2011
Shoppers Stop
Ltd
Shoppers Stop Ltd acquired 49% of
Share Capital of Gateway
Multichannel Retail (India) Limited
(Gateway) from Hypercity Retail
(India) Limited36
Retail IndustryM&A Deals in the Sector
Announced
DateTarget Acquirer Details
May 3, 2012 Pantaloon
Retail
Bennett Coleman &
Company
Ltd(BCCL)
BCCL is investing Rs. 200 crs for a
3.68% stake in Pantaloon Retail.
After the transaction, Bennett's stake
in the company will go up from
2.12% to 5.8%
April 30, 2012 Future
Group's
"Pantaloon
Format"
business
Aditya Birla Nuvo Aditya Birla Nuvo is acquiring a
controlling stake in Future Group's
"Pantaloon Format" business post its
demerger from Pantaloons Retail
India Ltd for Rs. 1,600 crs
37
Retail IndustryM&A Deals in the Sector
Announced
DateInvestee Investor Details
August14,
2010
SAIF Partners Hongkong based SAIF partners
acquired minority stake for USD
21.46mn
January 13,
2011
REI Six Ten
Retail Ltd
Bennett
Coleman &
Company
Ltd(BCCL)
Brand Equity Treaties Ltd., an arm
of BCCL has invested USD
4.35mn in REI Six Retail Ltd. by
buying a 2% stake through a
preferential allotment
July 15, 2011 Future Ventures
India Ltd
Future Ventures India Ltd.,
Kishore Biyani‟s investment and
business management firm,
increased its stake in Indus-
League Clothing Ltd. to over 90%
by acquiring another. 5.14% stake
at undisclosed amount
July 27, 2011 Franklin
Templeton
Franklin Templeton Private Equity
Strategy bought 20% stake in
Mumbai-based Kimaya
Fashions Pvt. Ltd., for about USD
13.04mn38
Retail IndustryPrivate Equity Deals
Announced
DateInvestee Investor Details
October 24,
2011
TCNS Clothing
Company Pvt.
Ltd.
Matrix Partners Matrix Partners India has invested
USD 13.04mn TCNS Clothing
Company Pvt. Ltd., which
manufactures and markets
contemporary women‟s wear brand
W in India
November 24,
2011
Macquarie Bank
Ltd.
Macquarie Bank picked 3.14% stake
(to add to its existing 3 per cent
holding) in the company. It bought
6.52 mn shares of the company at Rs
200 a share amounting to Rs 1,304
mn
November 25,
2011
Future Venture Future Ventures India Limited has
made additional investments of USD
0.43mn in Clarks Future
Footwear Ltd. and Holii
Accessories Private Ltd.
February 15,
2012
L Capital Private
Equity arm of
LVMH
L Capital, the private equity arm of
LVMH, has bought the 8% stake held
by Wolfensohn Capital Partners in
Fabindia 39
Retail IndustryPrivate Equity Deals
Announced
DateInvestee Investor Details
March 5, 2012 Raymonds
Apparel Ltd.
L Capital L Capital invested Rs.750crs in
Raymonds for a minority stake (not
confined)
May 7, 2012 Pantaloon Retail
India Ltd.
Arisaig Partners Arisaig Partners acquired additional
2.11% stake in Pantaloon Retail
India Ltd. through open market
transaction
June 3, 2012 Future Capital
Holdings
Warburg Pincus Warburg Pincus LLC is set to buy a
majority holding in Indian financial
services firm Future Capital Holdings
for $100-125mn
40
Retail IndustryPrivate Equity Deals
41
Major Players
MAJOR PLAYERS Major Players
Common Stock Comparable
Analysis
42
Retail IndustrySome Major Players
43
Retail IndustryCommon Stock Comparison (Rs. in Crs.)
Source: As per research reports available by leading brokers like Goldman Sachs, Citi Group etc.
* Financials are on estimated basis due to the unavailability of results for the year FY12
S no. Company Name
1 Titan Industries (consolidated) 31-Mar-12 228.60 88.80 Rs. 20,299.68 (Rs. 961.20) Rs. 19,338.48
2 Pantaloons Retail (Standalone)* 30-Jun-11 306.65 20.75 6,362.69 2,334.70 8,697.39
3 Bata (Consolidated)* 31-Dec-11 530.45 6.43 3,408.87 (190.00) 3,218.87
4 Shopper's Stop (Consolidated) 31-Mar-12 389.15 8.26 3,212.91 367.69 3,580.59
5 Gitanjali Gems (Consolidated) 31-Mar-12 325.00 9.11 2,960.75 3,291.08 6,251.83
6 Trent (Standalone) 31-Mar-12 949.20 2.72 2,586.52 (29.61) 2,556.91
7 Jubiliant Foodworks (consolidated) 31-Mar-12 1,168.15 6.51 7,602.08 (12.94) 7,589.14
8 Provogue India(Standalone) 31-Mar-12 14.55 11.44 166.39 273.27 439.65
Financials
as on ….Share Price
Shares
Outstand
ing as on
Mar'12
Market Cap Net Debt 2012 EV
S no. Company Name 2012 2013E 2012 2013E 2012 2013E
1 Titan Industries (consolidated) Rs. 8,848.43 Rs. 10,295.50 Rs. 834.02 Rs. 906.00 Rs. 600.15 Rs. 675.80
2 Pantaloons Retail (Standalone)* 4,778.90 5,504.40 505.30 572.90 55.80 75.40
3 Bata (Consolidated)* 1,812.00 2,132.70 300.20 390.60 185.40 246.60
4 Shopper's Stop (Consolidated) 2,737.41 3,444.00 104.80 178.40 19.01 65.00
5 Gitanjali Gems (Consolidated) 12,498.27 14,050.50 807.59 970.80 487.25 531.00
6 Trent (Standalone) 821.79 923.27 NA 99.34 47.26 55.06
7 Jubiliant Foodworks (consolidated) 1,018.64 1,430.20 187.69 270.40 103.29 155.50
8 Provogue India(Standalone) 609.59 696.55 59.69 103.03 25.03 47.85
Sales EBITDA Net Income
44
Retail IndustryCommon Stock Comparison
Source: As per research reports available by leading brokers like Goldman Sachs, Citi Group etc.
* Financials are on estimated basis due to the unavailability of results for the year FY12
S no. Company NameEBITDA
Margin
PAT
Margin2012 2013E 2012 2013E 2012 2013E
1 Titan Industries (consolidated) 9.43% 6.78% 2.19x 1.88x 23.19x 21.34x 33.82x 30.04x
2 Pantaloons Retail (Standalone)* 10.57% 1.17% 1.82 1.58 17.21 15.18 114.03 84.39
3 Bata (Consolidated)* 16.57% 10.23% 1.78 1.51 10.72 8.24 18.39 13.82
4 Shopper's Stop (Consolidated) 3.83% 0.69% 1.31 1.04 34.17 20.07 169.01 49.43
5 Gitanjali Gems (Consolidated) 6.46% 3.90% 0.50 0.44 7.74 6.44 6.08 5.58
6 Trent (Standalone) 0.00% 5.75% 3.11 2.77 - 25.74 54.73 46.98
7 Jubiliant Foodworks (consolidated) 18.43% 10.14% 7.45 5.31 40.43 28.07 73.60 48.89
8 Provogue India(Standalone) 9.79% 4.11% 0.72 0.63 7.37 4.27 6.65 3.48
Mean 9.38% 5.35% 2.36x 1.89x 17.60x 16.17x 59.54x 35.32x
P/E EV/Sales EV/EBITDA
45
Profiles of Major Players
PROFILES OF MAJOR PLAYERS
46
Retail IndustryPantaloon Retail India Ltd. (PRIL)
Structure
Pantaloon Retail is India‟s leading retailer, operating through multiple store formats in both
the value (Big Bazaar, Food Bazaar) and lifestyle (Pantaloon, Central) segments
The group has ~500 stores across formats, occupies a total retail space of 15 million square
feet in India and has plans to add around 2m sq. ft each year over the next 2-3 years
The company is planning to take its hypermarket chain Big Bazaar to smaller cities of
Andhra Pradesh, with an investment of around US $1.54 million to US $4.41 million
depending on the size and format
The Future Group has sorted out its debt crisis after its back-to-back deals in the past few
month by managing to reduce its debt by Rs 6,000 crore
47
Incorporation Year 1987
Industry Group Retail Trading
Main Product Retail Trade
Board of Directors
MD Kishor Biyani
Director Gopi Kishan Biyani
Exec. Director Rakesh Biyani
Chairman Shailesh Haribhakti
Director Darlie Koshy
Company Overview
Retail IndustryPantaloon Retail India Ltd. (PRIL)
Company Overview
48
Financial Highlights (Rs. In Crs.)
Source: Annual Report
Retail IndustryPantaloon Retail India Ltd. (PRIL)
Financial Summary
The Company‟s
standalone net sales for
the 9 months ending
31st March 2012 (FY
ends in June) was Rs.
3327.72crs with a net
profit of Rs. ~24crs
49
Retail IndustryPantaloon Retail India Ltd. (PRIL)
Financial Summary
50
Retail IndustryShopper‟s Stop Ltd. (SSL)
Structure
51
Company Overview
Incorporation Year 1991
Industry Group Retail Trading
Main Product Departmental
Store
Board of Directors
Chairman C L Raheja
Director Ravi C Raheja
Director Neel C Raheja
Vice Chairman B S Nagesh
Director G L Mirchandani
Shoppers Stop (SSL) is one of the largest retailers in India. It primarily caters to the lifestyle
segment and offers customers both domestic and international brands
It has a presence in high opportunity segments like home improvement through Home Stop;
infant and mothers care through Mothercare (a franchise with Mothercare PLC); cosmetics
and beauty care through M.A.C. and Clinique (a retail agreement with Estee Lauder); the books
and music space through Crossword; and in airport retailing through a JV with Nuance from
Switzerland
Shopper’s Stop Ltd along with its associate companies Hypercity Retail (India) Ltd and
Timezone Entertainment Pvt. Ltd operates in more than 3.9 mn sq ft in the country
SSL plans to venture into smaller cities with smaller store size (~40,000 sq ft). The merchandise
mix in these stores will be to suit the local needs
With its steadfast focus on systems and processes and its ability to attract global brands as
venture partners, SSL is well placed to emerge as a leading departmental store player in the
long run
Company Overview
Retail IndustryShoppers Stop Ltd. (SSL)
52
Financial Summary
Financial Highlights (Rs. In Crs.)
Source: Annual Report
* Debt includes Long term and short term borrowings
Retail IndustryShoppers Stop Ltd. (SSL)
53
Financial Summary
Retail IndustryShoppers Stop Ltd. (SSL)
54
Retail IndustryTATA Ltd. (Trent Ltd.)
Structure
LandmarkStar India BazarWestside
TATA LTD.
Trent Ltd. Infiniti Retail Ltd.
Croma
The company has initiated a new venture called ‘Infiniti Retail Ltd’ by entering into a
technical-cum-sourcing agreement with Woolworths, an Australian retailer. Under this
venture the company retails multi-brand consumer electronics through its stores
Croma. These stores span across 15,000-20,000sq.ft. with an investment of about INR
150 million per store 55
Incorporation Year 1998
Industry Group Retail Trading
Main Product Departmental
Store
Board of Directors of Trent Ltd.
Chairman Farrokh K Kavarana
Vice Chairman N N Tata
Director B S Bhesania
Director A D Cooper
Director K N Suntook
Company Overview
Westside Star India Bazaar Landmark
Business
Description
A departmental store format primarily retailing apparel
Hypermarket format of the company aimed at offering products at discounted prices
Specialty stores retailing books, music, etc.
Product Offering
Apparel, home accessories, artifacts, furnishings
Fresh fruits and vegetables, staples, FMCG, health and beauty products, home products, footwear, jewellery, consumer durables
Books, stationery, greeting cards, gift items, toys, music
Retail IndustryTATA Ltd. (Trent Ltd.)
56
Financial Summary
Financial Highlights (Rs. In Crs.)
Retail IndustryTATA Ltd. (Trent Ltd.)
The Company‟s
sales for the period
ending 31st March
2012 increased to
Rs. 822crs
registering a YOY
growth of 15%
Source: Annual Report
* Debt includes Long term and short term borrowings
57
Financial Summary
Retail IndustryTATA Ltd. (Trent Ltd.)
58
Retail IndustryReliance Retail
Company Overview
Incorporation Year 2006
Industry Group Retail Trading
Main Product Hyper market,
specialty store
etc.
Board of Directors
Chairman Mukesh D Ambani
Director Manoj Modi
Director Dipak C Jain
Reliance Fresh
Reliance Digital
Reliance MartReliance Mini Mart
Reliance Trendz
VerticalFood and Grocery
Specialty –Consumer durables
Hypermarket Supermarket Specialty-Apparel
Product offering
Fresh fruits, vegetables and dairy products
Electronic goods and household appliances
Food and grocery, apparel, consumer durables, footwear
Food and grocery, apparel, footwear
Apparels and accessories
Area (sq.ft.)
3,000–5,00015,000 –30,000
50,000 –2,50,000 10,000 –50,000 30,000
59
Company Overview
Reliance Wellness Reliance HomeReliance Footprint
Reliance Jewels
Vertical Specialty wellness products Specialty –HomeSpecialty -Footwear
Specialty –Jewellery
Product offering
Pharmaceuticals and medical services
Furniture and furnishings
Footwear Jewellery
Area (sq.ft.) 1,500–3,500 40,000 –60,000 8,000 –10,000 2,000 –20,000
Reliance Retail a unit of Reliance Industries, started its operations in 2006 with „Reliance
Fresh‟, grocery store
Since its inception in 2006, Reliance Retail Limited (RRL) has grown into an organization that
caters to millions of customers, thousands of farmers and vendors
Reliance Retail, currently operates around 1,000 stores in the country across value retail, or food
and groceries segment, and specialty formats
The company has an aggressive plan to expand its retail network across India. It is buying real
estate in 20 towns and cities to build big-box hypermarkets, moving beyond its earlier model of
leased properties and small formats
The company has entered into exclusive agreements with textile companies such as Arvind Mills
etc. to develop exclusive brands for its retrial outlets
Retail IndustryReliance Retail
60
Financial Highlights (Rs. In Crs.)
The company owns less than
half-a-dozen hypermarkets, but
under the leadership of two retail
veterans Cissell and Gray, have
been buying real estate for
bigbox departmental formats
expansion
Source: Annual Report of RIL
Financial Summary
Retail IndustryReliance Retail
61
Financial Summary
Retail IndustryReliance Retail
62
Retail IndustryTitan Group
Company Overview
Incorporation Year 2006
Industry Group Retail Trading
Main Product Hyper market,
specialty store
etc.
Board of Directors
Chairman Debendranath Sarangi
MD Bhaskar Bhat
Director Rajeev Ranjan
Director N N Tata
Director Ishaat Hussain
Titan Industries
Watches
Eyewear
Precision Engineering
Jewellery
Titan Brands in various segments
Segment Jewellery Watches Eyewear
Luxury Zoya
Premium Tanishq Xylus
Mid Market Tanishq Titan, Zoop, Fastrack
Titan, Fastrack
Mass Market Gold Plus SonataEye+
63
Titan is among India‟s few organized specialty retailers with leadership in its key categories –
jewelry, watches and eyewear retail
The company commenced operations as a quartz watch manufacturer and marketer in 1987
with Tamil Nadu Industrial Development Corporation (TIDCO)
Today it is India‟s largest (and the world‟s fifth largest) integrated watch manufacturer with
~25% volume market share and 45% value share in the domestic watch market
Titan-Timeline of new brand introduction
Retail IndustryTitan Group
Company Overview
64
Financial Highlights (Rs. In Crs.)
Retail IndustryTitan Group
Source: Annual Report
* Debt includes Long term and short term borrowings
Financial Summary
65
Retail IndustryTitan Group
Financial Summary
66
Jubliant FoodworksCompany Profile
Company Snapshot
Incorporation Year 1995
Industry Group Bakery products
Main Product Pizzas
Board of Directors
Chairman S S Bhartia
Co-Chairman Hari S Bhartia
CEO Ajay Kaul
Director Vishal Marwaha
Director Phiroz VandrevalaCompany Overview
Jubilant Foodworks (JFL) is the largest pizza chain in India and is also one of the
fastest growing multi‐national fast food chains
The company opened its first store in January 1996, and since then it has expanded to
gain a leadership position with 392 stores across 93 cities located in 25 states and more
than 10,000 employees. The Company got listed on the Indian bourses in February 2010
JFL commands 50% market share in the Indian pizza market and 65% in the home
delivery segment
It has expanded its portfolio by entering into an alliance with Dunkin' Donuts to develop
Dunkin' Donuts operations in India, and by operating restaurants in India. The flagship
store of Dunkin Donuts was opened on May 7, 2012 in New Delhi
67
Jubliant FoodworksExpansion Plans
Jubilant Foodworks Limited (JFL) plans to open 100 outlets of Dunkin‟ Donuts in India
over the next five years
Currently, the company has three Dunkin' Donuts restaurants in the country, and plans to
launch ten restaurants by the end of the current financial year 2012-13
JFL also plans to open five to six Domino's Pizza stores in Sri Lanka in the ongoing
financial year and increase the number to 30 in the next five years. The company is also
contemplating entry into emerging countries
In recent update company has reported increase in after-tax profit for the first quarter that
rose 40% to Rs.32.4 crores and net income jumped 45% to Rs.314.5 crores
Jubilant Foodworks plans to fund all its expansion from internal accruals and said it
has Rs. 50 crore of cash reserves currently as reported on May, 2012
Jubliant Foodworks opened 24 Domino‟s Pizza stores between April 2012 to June 2012
and as of 30th June, it had total of 489 Domino‟s stores across 110 cities. The company is
targeting an additional 100 Domino‟s stores in this financial year
68
Financial Highlights (Rs. In Crs.)
Financial Summary
Source: Annual Report
* Debt includes Long term and short term borrowings
Jubliant FoodworksFinancial Performance
69
Financial Summary
Jubliant FoodworksFinancial Performance
70
Dinodia Capital Advisors
CORPORATE PROFILE
71
Dinodia Capital Advisors
Dinodia Capital Advisors
Corporate Profile
Dinodia Capital Advisors is a Financial Consulting firm
based in New Delhi, India. It assists clients across all
industries grow, both organically and inorganically. The
firm helps clients Raise Capital. Execute Mergers &
Acquisitions opportunities. Restructure, Transform and
Turnaround businesses. Resolve challenging problems.
Take advantage of financial and strategic opportunities.
Balance investor expectations. DELIVER VALUE
72
Dinodia Capital Advisors Service Offerings
Dinodia Capital Advisors Advice Clients on :
Mergers and AcquisitionsWe help in conducting a robust scan
of the market and selecting the most
suitable buyer or seller
Capital RaisingWe advice clients on their capital
needs and find them the right
partner who brings more than just
capital
RestructuringWe advise on business
restructurings to help achieve
financial, strategic and operational
efficiency
India Entry StrategyWe help set up and incubate
businesses in India, acting as a
trusted advisor to facilitate the India
entry strategy
Organizational
TransformationWe work with companies to put
systems, processes and
people in place to help take
advantage of both organic and
inorganic synergies
TurnaroundsWe work closely with companies to
help devise and implement a
turnaround strategy by plugging the
deficiencies of
management, technology, capital or
partnerships
Dinodia Capital Advisors Private Limited C-37, Connaught Place , New-Delhi 110001, Website - www.dinodiacapital.com
Tel No: +91 11 2341 7692, 2341 5272, Fax No: +91 11 4151 3666
Email: [email protected]
For Further Details, Contact :
Pankaj DinodiaChief Executive Officer
Email: [email protected]