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Retail Market – India
October 2014
2
Executive Summary
Market
Drivers & Challenges
Government
Competitive Landscape
Indian services sector contributes to ‘p1’% of the country’s GDP
Retail, a segment of services sector, is growing at a CAGR of ‘p2’% and is expected to touch INR ‘m1’ by 2018
It has seen the entry of several high profile international players and phenomenal rise of domestic retailers
Food products constitutes ‘p3’% of the total retail market and is expected to dominate over the next ‘n1’ years
FDI in Retail
Goods and Services Tax (GST)
Drivers Rise in organized retail
Increase in disposable income
Boom in real estate sector
Growth in rural segment
Increase in awareness
Growing consciousness on health and beauty
Changing lifestyle of consumers
Increasing availability of credit
Major Players
Company 1 Company 2 Company 3
Company 4 Company 5 Company 6
Trends
Higher discounts and extended seasonal sales
Online retailing
Integration of various business strategies
Rise of private labels
RETAIL MARKET IN INDIA 2014.PPT
Challenges Tough competition from unorganized
players
Inefficiencies in supply chain
Depreciation of Rupee and rise in energy costs
High chemical content
3 RETAIL MARKET IN INDIA 2014.PPT
•Macro-Economic Indicators
•Introduction
•Market Overview
•Market Entry Strategies
•Organized Formats
•Drivers & Challenges
•Government Initiatives
FDI in Retail
Goods and Services Tax (GST)
•Trends
•Competitive Landscape
•Strategic Recommendations
•Appendix
4
Economic Indicators (1/3)
11
12
13
14
15
b2
a2
Q1
d1 c1
b1
a1
Q4
c4
b4
a4
Q3
c3
b3
a3
Q2
d2 c2
INR tn
2013-14 2012-13 2011-12 2010-11
GDP at Factor Cost: Quarterly
Inflation Rate: Monthly
-2
-1
0
1
2
q
Jul 2013 - Aug 2013
p
%
Nov 2013 - Dec 2013
t
Oct 2013 - Nov 2013
s
Sep 2013 - Oct 2013
r
Aug 2013 - Sep 2013
RETAIL MARKET IN INDIA 2014.PPT
5
Indian economy is showing significant shift from agriculture and manufacturing to services
• Services sector is also known as the tertiary sector of
an economy
• It consists of sub-sectors such as retail trade,
telecommunication and information technology,
tourism and hospitality, healthcare, mass media,
banking and financial services and education
• Traditionally, as country’s economy progresses from
developing to developed, the contribution of services
sector to the GDP overwhelmingly outpaces the
contributions from the primary sector of agriculture
and the secondary sector of manufacturing
• Currently, services sector contributes about ‘p1’% to
the GDP of India, compared to ‘p2’% in the US, ‘p3’%
in the UK, ‘p4’% in Singapore, ‘p5’% in Japan and
‘p6’% in France
• Indian services sector is dominated by banking and
financial services, healthcare, information
technology, and retail trade
Services Sector – Overview GDP of India – Sectoral Contribution (2013)
Retail contributes to ‘p10’% of the
total services sector, or ‘p12’%
of the GDP of India
RETAIL MARKET IN INDIA 2014.PPT
p10%
p11%
Retail Others
p8%
p9%
p7% Services
Agriculture
Manufacturing
6 RETAIL MARKET IN INDIA 2014.PPT
Retail market in India is among the fastest growing components of the Indian services sector
Retail Market – Overview Market Size and Growth
• Indian retail market is among the largest and fastest growing components of the economy, contributing ~’p1’% to the country’s GDP
• Over the last decade, retailing has shifted towards modern formats such as supermarkets and hypermarkets
• Retail market in India is poised for strong growth in the coming years owing to rising income of consumers, demand for quality products and investor-friendly policies by the government
fed
cb
a
0
10
20
30
40
50
INR tn p2%
2018e 2017e 2016e 2015e 2014e 2013
p8%
p7%
Retail Market – Structure (2013)
Unorganized Retail
Organized Retail
Note: Figures are for the respective calendar years
p6%
p4%
p5%
p3%
Segment 4
Segment 2
Segment 1
Segment 3
Retail Market – Segmentation (2013)
7 RETAIL MARKET IN INDIA 2014.PPT
Various entry routes are available for foreign retailers...
Retail Market – Entry Strategies (1/2)
Entry Routes Description Companies
• Government has been undertaking reforms to liberalize the retail sector and attract significant foreign investments
• FDI regulations are undergoing gradual reforms and are expected to fall in place over the next ‘n1’-’n2’ years
• Various entry routes are available for foreign retailers to invest and enter the Indian retail market
8 RETAIL MARKET IN INDIA 2014.PPT
Retail Market – Organized Formats (1/3)
Retail Formats Companies
Traditional retail formats such as kirana stores...
Description
9 RETAIL MARKET IN INDIA 2014.PPT
Drivers & Challenges – Summary
Drivers
Rise in organized retail
Increase in disposable income
Boom in real estate sector
Growth in rural segment
Increase in awareness
Growing consciousness on health and beauty
Changing lifestyle of consumers
Increasing availability of credit
Challenges
Tough competition from unorganized players
Inefficiencies in supply chain
Depreciation of Rupee and rise in energy costs
High chemical content
10 RETAIL MARKET IN INDIA 2014.PPT
Retail market in India has been slowly opened up to FDI due to government initiatives over a period of time
Evolution of retail FDI policy
• Government of India has gradually opened up the retail sector to FDI amidst reservations concerning fear of job losses, procurement from international market, competition and loss of entrepreneurial opportunities
• Discussions are still being carried out by the government to open up and allow ‘p1’% FDI in multi brand retailing
‘y6’: Government allows ‘p6’% FDI in single brand retailing
‘y4’: Government mulled over the idea of allowing ‘p4’% FDI in single-brand retail and ‘p5’% in multibrand retail
‘y5’: Government proposed to allow FDI in multibrand retailing
‘y3’: FDI up to ‘p3’% allowed in single brand retail with prior government approval
1991: Indian economy opened FDI up to 51% allowed under the automatic route in select priority sectors
‘y2’: FDI up to ‘p2’% allowed under the automatic route in cash & carry wholesale
‘y1’: Indian economy opened FDI up to ‘p1’% allowed under the automatic route in select priority sectors
11 RETAIL MARKET IN INDIA 2014.PPT
India is expected to implement Goods and Services Tax (GST) in the year 2015
Goods and Services Tax (GST)
• Goods and Services Tax (GST) is a comprehensive tax imposed on the supply of goods or services
• India is in the process of implementing a dual GST system, namely a ‘t1’ and a ‘t2’
• GST will replace a variety of taxes such as ‘t3’, ‘t4’, ‘t5’, ‘t6’, ‘t7’, ‘t8’, ‘t9’ and ‘t10’
• The combined tax rate (‘t1’+’t2’) on an item is expected to be between ‘p1’% and ‘p2’%, although
the rates for the component taxes are yet to be decided
• With the implementation of GST, prices of goods are expected to fall, provided the benefit of
reduced taxation is passed on to consumers
• In case there are revenue losses to a state government due to implementation of GST, the
Government of India would provide compensation to the state government for the same
• Overall, GST would bring about a number of benefits for all stakeholders involved
Reduction in the total number of taxes paid to just two, namely ‘t1’ and ‘t2’
Net decrease in the tax rate on goods, thereby reducing unit cost of goods and lowering prices of final products
Elimination of cascading tax, thereby making the taxation process more efficient
Net decrease in transaction costs of taxpayers through a simple tax structure
Overall increase in government revenues, as lower prices would boost consumption of goods
12 RETAIL MARKET IN INDIA 2014.PPT
Trends – Summary
Higher discounts and extended seasonal sales Online retailing
Rise of private labels Integration of various business
strategies
Key Trends
13
Competitive Rivalry
• x
Bargaining Power of Suppliers
• x
Bargaining Power of Buyers • x
Threat of Substitutes • x
Threat of New Entrants
• x
Impact i4
Impact i2
Impact i1
Impact i3
Impact i5
Porter’s Five Forces Analysis
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Competition – Summary
Players Food Products Soft Goods or Consumables
Hard Goods or Durables
Retail Services Arts and
Entertainment
Public Players
Company 1
Company 2
Company 3
Company 4
Company 5
Company 6
Private Players
Company 7
Company 8
Company 9
Company 10
Company 11
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15
Competitive Benchmarking (1/5)
Public Trading Comparables
Company 1 Company 2 Company 3 Company 4
Market Capitalization (INR bn)
Share Price (INR)
EV/EBITDA (x)
EV/Revenue (x)
PE Ratio
Note: Top 3 Public companies based on the Market Capitalization; Market Capitalization, Share Price and PE ratio is as of 22/07/2014
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Key Ratios of Top 3 Companies – Operational Basis (FY 2014) (1/3)
Competitive Benchmarking (2/5)
a3a2a1
b3
b2
b1
c3
c2
c1
-5
0
5
10
%
Company 3 Company 2 Company 1
• Company 1 recorded gross margin of ‘a1’%, higher than both Company 2 and Company 3 which recorded gross margin of ‘a2’% and ‘a3’% respectively
• Company 2 recorded operating margin of ‘b2’%, higher than both Company 1 and Company 3 which recorded operating margin of ‘b1’% and ‘b3’% respectively
• Company 1 recorded net margin of ‘c1’%, higher than that of Company 3 which recorded net margin of ‘c3’% but lower than that of Company 2 which recorded net margin of ‘c2’%
RETAIL MARKET IN INDIA 2014.PPT
Operating Margin Net Margin Gross Margin
17 RETAIL MARKET IN INDIA 2014.PPT
Key People
Products and Services
Company Information Offices and Centres – India
Corporate Address
Tel No.
Fax No.
Website
Year of Incorporation
Ticker Symbol
Stock Exchange
Brands Products/Services
Name Designation
Chairman and MD
Director
CFO
COO
Head Office
H1
Public: Company 1 (1/4)
18 RETAIL MARKET IN INDIA 2014.PPT
Financial Snapshot Key Ratios
Financial Summary
• The company incurred a net loss of INR ‘m1’ in FY 2013, as compared to net profit of INR ‘m2’ in FY 2012
• The company reported total income of INR ‘m3’ in FY 2013, registering an increase of ‘p1’% over FY 2012
• The company earned an operating margin of ‘p2’% in FY 2013, a decrease of ‘p3’ percentage points over FY 2012
• The company reported debt to equity ratio of ‘r1’ in FY 2013, an increase of ‘p4’% over FY 2012
Particulars y-o-y change
(2013-12) 2013 2012 2011 2010
Profitability Ratios Operating Margin
Net Margin
Profit Before Tax Margin
Return on Equity
Return on Capital Employed
Return on Working Capital
Return on Assets
Return on Fixed Assets
Cost Ratios Operating costs (% of Sales)
Administration costs (% of Sales)
Interest costs (% of Sales)
Liquidity Ratios Current Ratio
Cash Ratio
Leverage Ratios Debt to Equity Ratio
Debt to Capital Ratio
Interest Coverage Ratio
Efficiency Ratios Fixed Asset Turnover
Asset Turnover
Current Asset Turnover
Working Capital Turnover
Capital Employed Turnover
Improved Decline
Key Financial Performance Indicators
Indicators Value (22/07/2014) Market Capitalization (INR mn)
Total Enterprise Value (INR mn)
EPS (INR)
PE Ratio (Absolute)
Profit / Loss Total Income
srqp
d
0
10,000
-1,000
-500
0
500
Profit INR mn
Total Income INR mn
2013 2012
c
2011
b
2010
a
Public: Company 1 (2/4)
19 RETAIL MARKET IN INDIA 2014.PPT
Key Business Segments Key Geographic Segments
Business Highlights
Description News
Overview
• Company 1 is a subsidiary of ‘c1’, a leading textiles and apparel company
• Through its parent company, Company 1 holds exclusive retail rights in India for notable international brands ‘b1’, ‘b2’, ‘b3’ and ‘b4’
• The company also retails its home brand ‘b5’, a range of suits and fabrics
Business Operations • It operates in high streets, malls, luxury shopping arcades, 5 star hotel properties with store sizes ranging
approximately from ‘a1’ sq ft to ‘a2’ sq ft
Business Network • It’s retail network is spread across all major metros, mini-metros, state capitals with presence across Tier
II and Tier III cities, making it the only retail company in India to cater to all socio-economic segments
• Has a network of ‘n1’ company-operated and franchise stores across ‘n2’ cities covering over ‘a3’ sq ft
India is the only geographic segment in which the company has been operating for the last
four years
Company 1 has been operating solely in the retail segment
over the last four years
Note: Business Segments and Geographic Segments are based on total revenues
100%
0%
50%
2013
100%
Retail
100%
0%
50%
2013
100%
India
Public: Company 1 (3/4)
20
T O
W S
RETAIL MARKET IN INDIA 2014.PPT
Public: Company 1 – SWOT Analysis (4/4)
21 RETAIL MARKET IN INDIA 2014.PPT
Key People
Products and Services
Company Information Offices and Centres – India
Category Retail Formats
Name Designation
Chairman, MD
Director
Director
Director
Corporate Address
Tel No.
Fax No.
Website
Year of Incorporation
Head Office
H1
Private: Company 2 (1/5)
22
Shareholders of the Company Ownership Structure
Name No. of Shares held
p1%
p2%
p3% p4%
Segment 1
Segment 2
Segment 3
Segment 4
Note: AGM as of 8th Aug 2013
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Private: Company 2 (2/5)
23 RETAIL MARKET IN INDIA 2014.PPT
Financial Snapshot Key Ratios
Financial Summary
Particulars y-o-y
change (2012-11)
2012 2011 2010 2009
Profitability Ratios Operating Margin
Net Margin Profit Before Tax Margin
Return on Equity
Return on Capital Employed Return on Working Capital Return on Assets Return on Fixed Assets
Cost Ratios Operating costs (% of Sales) Administration costs (% of
Sales) Interest costs (% of Sales)
Liquidity Ratios Current Ratio Cash Ratio
Leverage Ratios Debt to Equity Ratio Debt to Capital Ratio Interest Coverage Ratio
Efficiency Ratios Fixed Asset Turnover Asset Turnover Current Asset Turnover Working Capital Turnover Capital Employed Turnover
Improved Decline
Net Profit/Loss Total Income
a
qp
a0
5000
10000
15000
-100
-50
0
50
100
150
INR mn INR mn
2013
c
2012
r
2011
d
2010
b
• The company incurred a net loss of INR ‘m1’ mn in FY 2013, as
compared to net loss of INR ‘m2’ in FY 2012
• The company reported total income of INR ‘m3’ in FY 2013,
registering an increase of ‘p1’% over FY 2012
• The company earned an operating margin of ‘p2’% in FY 2013,
an increase of ‘p3’ percentage points over FY 2012
• The company reported debt to equity ratio of ‘r1’ in FY 2013, a
decrease of ‘p4’% over FY 2012
Private: Company 2 (3/5)
24 RETAIL MARKET IN INDIA 2014.PPT
Business Highlights
Description News
Overview
• Company 2 is Asia’s second largest company in terms of coffee estate ownership
• Besides its own coffee estates, it also sources coffee from ‘n1’ private coffee growers
• It was the first company to bring the concept of ‘café’ to India
• The most visible arm of the company is the hugely popular coffee chain ‘b1’
The first outlet opened in ‘y1’ in ‘p1’
Today, it has spawned other formats such as ‘b2’, ‘b3’ and ‘b4’
Retail Network
• ‘b1’ operates more than ‘n2’ cafes across ‘n3’ cities and towns in India and serves more
than ‘n4’ customers everyday
It also runs international outlets in ‘p2’ and ‘p3’
• ‘b2’ operates ‘n5’ outlets across major metros in India
• ‘b3’, a premium coffee chain, operates ‘n6’ outlets in India, namely ‘n7’ in ‘p4’ and ‘n8’
each in ‘p5’ and ‘p6’
• ‘b4’, a small format coffee kiosk, operates over ‘n9’ outlets all across India
Private: Company 2 (4/5)
25
T O
W S
RETAIL MARKET IN INDIA 2014.PPT
Private: Company 2 – SWOT Analysis (5/5)
26
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RETAIL MARKET IN INDIA 2014.PPT