Retail Market – India October 2014
Executive Summary Market
Drivers & Challenges
Trends
Government
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
Drivers
Challenges
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
Tough competition from unorganized players Inefficiencies in supply chain Depreciation of Rupee and rise in energy costs High chemical content
Higher discounts and extended seasonal sales Online retailing Integration of various business strategies Rise of private labels FDI in Retail Goods and Services Tax (GST) Major Players
Competitive Landscape
Company 1
Company 2
Company 3
Company 4
Company 5
Company 6
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•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 RETAIL MARKET IN INDIA 2014.PPT
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Economic Indicators (1/3) GDP at Factor Cost: Quarterly INR tn 15
13
d1 c1 b1
12
a1
14
c4 b4 a4
c3 b3 a3
d2 c2 b2 a2
11
Q1
Q2 2010-11
2011-12
2012-13
Q3 2013-14
Q4
Inflation Rate: Monthly % 2 1
p
r q
s
0 -1
t
-2
Jul 2013 - Aug 2013
Aug 2013 - Sep 2013
Sep 2013 - Oct 2013
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Oct 2013 - Nov 2013
Nov 2013 - Dec 2013 4
Indian economy is showing significant shift from agriculture and manufacturing to services Services Sector – Overview
GDP of India – Sectoral Contribution (2013)
• 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
p8% p7%
• 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
Manufacturing Services
p9%
• 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
Agriculture
Retail p10%
p11%
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Others
Retail contributes to ‘p10’% of the total services sector, or ‘p12’% of the GDP of India
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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
INR tn
p2%
50 40
b
a
30
c
d
e
f
2017e
2018e
20 10 0
2013
2014e
2015e
2016e
Note: Figures are for the respective calendar years
Retail Market – Segmentation (2013)
Retail Market – Structure (2013)
Segment 1
p6%
p7%
Organized Retail Unorganized Retail
Segment 2 Segment 3
p5%
Segment 4 p3%
p4% p8%
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Various entry routes are available for foreign retailers... Retail Market – Entry Strategies (1/2) • 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
Entry Routes
Description
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Companies
7
Traditional retail formats such as kirana stores... Retail Market – Organized Formats (1/3) Retail Formats
Description
RETAIL MARKET IN INDIA 2014.PPT
Companies
8
Drivers & Challenges – Summary Drivers Rise in organized retail Increase in disposable income
Challenges Tough competition from unorganized players
Boom in real estate sector Inefficiencies in supply chain Growth in rural segment Increase in awareness Growing consciousness on health and beauty
Depreciation of Rupee and rise in energy costs High chemical content
Changing lifestyle of consumers Increasing availability of credit
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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
1991: Indianeconomy economyopened opened ‘y1’: Indian FDI up to 51% ‘p1’%allowed allowedunder under the automatic route in select priority sectors
‘y2’: FDI up to ‘p2’% allowed under the automatic route in cash & carry wholesale
‘y3’: FDI up to ‘p3’% allowed in single brand retail with prior government approval
‘y4’: Government mulled over the idea of allowing ‘p4’% FDI in single-brand retail and ‘p5’% in multibrand retail
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‘y5’: Government proposed to allow FDI in multibrand retailing
‘y6’: Government allows ‘p6’% FDI in single brand retailing
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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
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Trends – Summary
Higher discounts and extended seasonal sales
Online retailing
Key Trends Rise of private labels
Integration of various business strategies
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Porter’s Five Forces Analysis Threat of New Entrants •x
Impact i4 Bargaining Power of Suppliers •x
Impact i1
Impact i5 Competitive Rivalry
Bargaining Power of Buyers •x
•x
Threat of Substitutes
Impact i2
Impact i3
•x
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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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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 RETAIL MARKET IN INDIA 2014.PPT
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Competitive Benchmarking (2/5) Key Ratios of Top 3 Companies – Operational Basis (FY 2014) (1/3) Gross Margin
%
Operating Margin
Net Margin
b2
10
c2 5 0
b1 a1
a2
a3
c1
b3
c3
-5 Company 1
Company 2
Company 3
• 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’%
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Public: Company 1 (1/4) Company Information
Offices and Centres – India
Corporate Address Tel No. Fax No. Website
Year of Incorporation
H1
Ticker Symbol Head Office
Stock Exchange
Products and Services Brands
Products/Services
Key People Name
Designation Chairman and MD Director CFO COO
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Public: Company 1 (2/4) Financial Snapshot Total Income INR mn
10,000
p
Total Income
q a
Key Ratios Profit / Loss
500
s
r b
Profit INR mn
c
0
d
-500
0
-1,000 2010
2011
2012
2013
Financial Summary
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 Operating costs (% of Sales) Administration costs (% of Sales) Interest costs (% of Sales)
• 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
Key Financial Performance Indicators Market Capitalization (INR mn) Total Enterprise Value (INR mn) EPS (INR) PE Ratio (Absolute)
y-o-y change (2013-12)
Cost Ratios
• The company incurred a net loss of INR ‘m1’ in FY 2013, as compared to net profit of INR ‘m2’ in FY 2012
Indicators
Particulars
Value (22/07/2014)
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
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Decline
18
Public: Company 1 (3/4) Key Business Segments
Key Geographic Segments India
Retail 100%
100% 50%
100%
Company 1 has been operating solely in the retail segment over the last four years
50%
100%
India is the only geographic segment in which the company has been operating for the last four years
0%
0%
2013
2013
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 Note: Business Segments and Geographic Segments are based on total revenues RETAIL MARKET IN INDIA 2014.PPT
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Public: Company 1 – SWOT Analysis (4/4)
S
W
O
T
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Private: Company 2 (1/5) Company Information
Offices and Centres – India
Corporate Address
Tel No. Fax No. Website
H1
Year of Incorporation Head Office
Products and Services Category
Retail Formats
Key People Name
Designation Chairman, MD
Director Director Director
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Private: Company 2 (2/5) Shareholders of the Company Name
Ownership Structure No. of Shares held
Segment 1 Segment 2
Segment 3 Segment 4
p1% p3% p4%
p2%
Note: AGM as of 8th Aug 2013 RETAIL MARKET IN INDIA 2014.PPT
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Private: Company 2 (3/5) Financial Snapshot
Key Ratios
Total Income
Net Profit/Loss
INR mn 15000
INR mn
p
150
q
100 10000 5000
50 a
b
r
0
2010
2011
d
c
2012
0 -50
a
-100
2013
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
Financial Summary
Operating costs (% of Sales) Administration costs (% of Sales) Interest costs (% of Sales)
• The company incurred a net loss of INR ‘m1’ mn in FY 2013, as compared to net loss of INR ‘m2’ in FY 2012
Liquidity Ratios
• The company reported total income of INR ‘m3’ in FY 2013, registering an increase of ‘p1’% over FY 2012
Leverage Ratios
• 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
Current Ratio Cash Ratio
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
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Decline
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Private: Company 2 (4/5) Business Highlights Description
News • 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
Overview
• 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’
• ‘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’
Retail Network
• ‘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
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Private: Company 2 – SWOT Analysis (5/5)
S
W
O
T
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