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UBS Investment Research
Indian Retail Sector
A step closer to FDI in retail
„ Event: formal proposal for FDI in retail
On Friday, the Government of India proposed to allow Foreign Direct Investment
(FDI) of upto 51% in multi-brand retail. The proposal is expected to be placed
before the Cabinet for approval in a few weeks.
„ Impact: proposal introduced with riders
We believe the government has introduced a few riders in an attempt to achieve a
consensus: 1) large discount stores will be allowed only in cities with a population
of more than 1m and only in states where the state governments are in favour of
FDI (Table 1); 2) ~50% of total investment would have to go toward creating backend infrastructure; and 3) stores will have to sell at least a third of their goods to
small retailers and source at least 30% of manufactured items from SMEs.
„ Action: consumption (staples & retail) to benefit
FDI in multi-brand retail will benefit the major staples companies, as modern retail
is expected to benefit dominant consumer brands. Brands will be able to launch a
wider product basket through extensions to grow consumption. We believe
retailers will benefit as they get acquired or become operational partners for
MNCs.
„ Pantaloon is the key beneficiary
Pantaloon has taken steps to benefit from the opening up of retail to FDI by
restructuring the group to enable FDI in its pure retail business. We rate Pantaloon
Retail a Buy with a price target of Rs 350, derived from a DCF-based method and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool. We
assume a WACC of 12% and a terminal growth rate of 5%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indian Retail Sector
A step closer to FDI in retail
„ Event: formal proposal for FDI in retail
On Friday, the Government of India proposed to allow Foreign Direct Investment
(FDI) of upto 51% in multi-brand retail. The proposal is expected to be placed
before the Cabinet for approval in a few weeks.
„ Impact: proposal introduced with riders
We believe the government has introduced a few riders in an attempt to achieve a
consensus: 1) large discount stores will be allowed only in cities with a population
of more than 1m and only in states where the state governments are in favour of
FDI (Table 1); 2) ~50% of total investment would have to go toward creating backend infrastructure; and 3) stores will have to sell at least a third of their goods to
small retailers and source at least 30% of manufactured items from SMEs.
„ Action: consumption (staples & retail) to benefit
FDI in multi-brand retail will benefit the major staples companies, as modern retail
is expected to benefit dominant consumer brands. Brands will be able to launch a
wider product basket through extensions to grow consumption. We believe
retailers will benefit as they get acquired or become operational partners for
MNCs.
„ Pantaloon is the key beneficiary
Pantaloon has taken steps to benefit from the opening up of retail to FDI by
restructuring the group to enable FDI in its pure retail business. We rate Pantaloon
Retail a Buy with a price target of Rs 350, derived from a DCF-based method and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool. We
assume a WACC of 12% and a terminal growth rate of 5%
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