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FDI - one more step
The Committee of Secretaries has reportedly approved FDI in retail, with
Cabinet approval being the likely next step once a proposal is finalised.
There is a lack of visibility on various riders and conditions that the
proposal will include, which will be key for determining how quickly deals
can happen. This is a positive for retail stocks with Pantaloon and Trent
as likely beneficiaries along with Shoppers Stop.
Committee of Secretaries approved FDI, details on riders awaited
News articles indicate that the Committee of Secretaries has approved FDI in multi
brand retail, recommending an ownership limit of 51% and minimum investment of
US$100m. Details of the recommendations relating to various riders are awaited.
Two riders which are mentioned in the news articles as supported by the CoS are:
50% of investment to be into back end infrastructure; FDI funded stores to be
limited to cities with a population of 1m or more (currently ~47 cities)
The riders which were reportedly rejected by CoS are: 30% of sales to be to small
traders; 30% of manufactured goods to be sourced from local manufacturers
There is no clarity on the status of the rider relating to requiring approval from
individual states, which remains a key one to watch out for
Cabinet approval still needed
The recommendations will now go to the cabinet committee on economic affairs,
which will take a final decision on the conditions to be imposed
Once the proposal is finalized, it will go the Cabinet for approval. FDI proposals do
not need a full parliamentary approval and a Cabinet approval is sufficient
No ministers have approved the proposal as yet
Within the government, there is no real opposition now with the exception of the
Trinamool Congress, which is unlikely to be a hindrance
The timing of the eventual decision still remains uncertain
Positive for retail stocks
The approval is a step in the right direction as far as FDI is concerned and is likely
to be seen as a positive for listed retail stocks
However, the fine print and riders will determine how quickly deals can happen
Pantaloon has publicly stated that it is in discussions with potential partners.
However, the company would need to restructure its subsidiaries to create an FDI
ready entity to bring a foreign partner into. Given its wider geographic footprint,
the need for such restructuring is likely to be higher for Pantaloon
Trent is already aligned with Tesco in its hypermarket format, which could lead to
an equity partnership if FDI rules allow
Bharti is aligned with Wal Mart; Carrefour is reportedly keen to get a foothold
Spencers, which is owned by CESC, could potentially seek a partner, as could
Shoppers Stop for its department store or Hypermarket businesses
Among the listed retail stocks, Pantaloon has the least demanding valuation and
could potentially see a rerating if a transaction happens at >1x EV/Sales
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FDI - one more step
The Committee of Secretaries has reportedly approved FDI in retail, with
Cabinet approval being the likely next step once a proposal is finalised.
There is a lack of visibility on various riders and conditions that the
proposal will include, which will be key for determining how quickly deals
can happen. This is a positive for retail stocks with Pantaloon and Trent
as likely beneficiaries along with Shoppers Stop.
Committee of Secretaries approved FDI, details on riders awaited
News articles indicate that the Committee of Secretaries has approved FDI in multi
brand retail, recommending an ownership limit of 51% and minimum investment of
US$100m. Details of the recommendations relating to various riders are awaited.
Two riders which are mentioned in the news articles as supported by the CoS are:
50% of investment to be into back end infrastructure; FDI funded stores to be
limited to cities with a population of 1m or more (currently ~47 cities)
The riders which were reportedly rejected by CoS are: 30% of sales to be to small
traders; 30% of manufactured goods to be sourced from local manufacturers
There is no clarity on the status of the rider relating to requiring approval from
individual states, which remains a key one to watch out for
Cabinet approval still needed
The recommendations will now go to the cabinet committee on economic affairs,
which will take a final decision on the conditions to be imposed
Once the proposal is finalized, it will go the Cabinet for approval. FDI proposals do
not need a full parliamentary approval and a Cabinet approval is sufficient
No ministers have approved the proposal as yet
Within the government, there is no real opposition now with the exception of the
Trinamool Congress, which is unlikely to be a hindrance
The timing of the eventual decision still remains uncertain
Positive for retail stocks
The approval is a step in the right direction as far as FDI is concerned and is likely
to be seen as a positive for listed retail stocks
However, the fine print and riders will determine how quickly deals can happen
Pantaloon has publicly stated that it is in discussions with potential partners.
However, the company would need to restructure its subsidiaries to create an FDI
ready entity to bring a foreign partner into. Given its wider geographic footprint,
the need for such restructuring is likely to be higher for Pantaloon
Trent is already aligned with Tesco in its hypermarket format, which could lead to
an equity partnership if FDI rules allow
Bharti is aligned with Wal Mart; Carrefour is reportedly keen to get a foothold
Spencers, which is owned by CESC, could potentially seek a partner, as could
Shoppers Stop for its department store or Hypermarket businesses
Among the listed retail stocks, Pantaloon has the least demanding valuation and
could potentially see a rerating if a transaction happens at >1x EV/Sales
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