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Shoppers Stop (SHOP IN, INR 396, Buy)
Key takeaways from conference call arranged by Edelweiss Securities Limited with Shoppers
Stop (SSL) management- Mr. Chandrashekhar Navalkar, CFO and Mr. Sanjay Chakravarti (VPFinance)
on opening up of retail space for FDI
· Parliament involvement: No approval required from the two Houses.
· Details on the bill: Will get a clearer picture once formal announcement is made; but
riders likely to be in-line with those discussed previously. Minimum FDI at USD100mn,
half of which must be invested in the back-end infrastructure like cold storages, soil
testing labs and seed farming. The government intends to allow these chains to operate
in large cities only i.e., in cities with a population of more than 1mn. Fresh agricutural
produce may be unbranded as the government holds the first right to procurement agri
products. 30% of the manufacturing goods procurement must be from small and
medium enterprises, village and cottage industries artisans and craftsmen. It defined
small industries as those with a total investment in plants and machinery of not more
than $1 mn. 30% sourcing will not be restricted to India because of the country’s World
Trade Organi zation obligations.
· Hindrances for foreign players: Foreign partners view real estate availability and tax
regime to be a serious hindrance; those companies with retail space at hand will
benefit
· The opening up of retail space may see initial hectic activity but likely to slow-down
eventually
· The foreign partner to take time to understand the cultural diversities and varied tastes
of different regions of the country which will slow down the process a little.
· The population rider not a real hindrance since most consumption is driven from these
areas only
· FDI focus likely to be in food and groceries segment and not in apparels as this segment
is largely driven (80-85%) on sourcing ability and needs little adaptation to suit local
taste; FDI presence in departmental segment likely to witness slow pace
· Current domestic economic slowdown is not likely to dampen interest of any long term
players
· 100% opening of single brand likely to see increased competitive intensity as few
players waiting to enter without Indian partner may rush in
· SSL’s benefit from FDI in retail: Nothing on the table; not looking for partners in
department store format but may review stance for Hypercity format to leverage on
partner’s sourcing and logistics ability.
· Our view: We believe the retail space to benefit from opening up of FDI in multi -brand
outlet. We have ‘BUY’ recommendation on Shoppers Stop and Pantaloon, the likely
beneficiaries from the move.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shoppers Stop (SHOP IN, INR 396, Buy)
Key takeaways from conference call arranged by Edelweiss Securities Limited with Shoppers
Stop (SSL) management- Mr. Chandrashekhar Navalkar, CFO and Mr. Sanjay Chakravarti (VPFinance)
on opening up of retail space for FDI
· Parliament involvement: No approval required from the two Houses.
· Details on the bill: Will get a clearer picture once formal announcement is made; but
riders likely to be in-line with those discussed previously. Minimum FDI at USD100mn,
half of which must be invested in the back-end infrastructure like cold storages, soil
testing labs and seed farming. The government intends to allow these chains to operate
in large cities only i.e., in cities with a population of more than 1mn. Fresh agricutural
produce may be unbranded as the government holds the first right to procurement agri
products. 30% of the manufacturing goods procurement must be from small and
medium enterprises, village and cottage industries artisans and craftsmen. It defined
small industries as those with a total investment in plants and machinery of not more
than $1 mn. 30% sourcing will not be restricted to India because of the country’s World
Trade Organi zation obligations.
· Hindrances for foreign players: Foreign partners view real estate availability and tax
regime to be a serious hindrance; those companies with retail space at hand will
benefit
· The opening up of retail space may see initial hectic activity but likely to slow-down
eventually
· The foreign partner to take time to understand the cultural diversities and varied tastes
of different regions of the country which will slow down the process a little.
· The population rider not a real hindrance since most consumption is driven from these
areas only
· FDI focus likely to be in food and groceries segment and not in apparels as this segment
is largely driven (80-85%) on sourcing ability and needs little adaptation to suit local
taste; FDI presence in departmental segment likely to witness slow pace
· Current domestic economic slowdown is not likely to dampen interest of any long term
players
· 100% opening of single brand likely to see increased competitive intensity as few
players waiting to enter without Indian partner may rush in
· SSL’s benefit from FDI in retail: Nothing on the table; not looking for partners in
department store format but may review stance for Hypercity format to leverage on
partner’s sourcing and logistics ability.
· Our view: We believe the retail space to benefit from opening up of FDI in multi -brand
outlet. We have ‘BUY’ recommendation on Shoppers Stop and Pantaloon, the likely
beneficiaries from the move.
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