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UBS Investment Research
Indian Retail Sector
F DI in multi-brand retail, close to reality
Event: Committee of Secretaries (CoS) approves 51% in multi-brand retail
The CoS approved 51% Foreign Direct Investment (FDI) in multi-brand retail on
Friday, 22 July. An important rider is that 50% of the minimum $100m investment
would have to be invested in back-end infrastructure. The Parliament is yet to clear
the proposal.
Impact: no clarity on other riders
There is no clarity yet on whether the original riders still hold; these include: 1)
large discount stores are allowed only in cities with a population of more than 1m
and in states where the governments are in favour of FDI; and 2) stores will have to
sell at least ~33% of their goods to small retailers and source ~30% of
manufactured items from SMEs.
Action: Indian consumption to benefit
We believe FDI in multi-brand retail would benefit: 1) retailers—as they have
already created back-end and front-end infrastructure stores. They could be
acquired or become JV partners with MNCs; 2) staples companies—with their
dominant market share, retailers would require their support to attract consumers;
and 3) durables companies—as durables will be available more widely.
Valuation: we are positive on the consumer, retail space
We believe Pantaloon, being the largest retailer, would be a key beneficiary of this
move. We have a Buy rating on Pantaloon with a price target of Rs375. We derive
our price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers using UBS’s VCAM tool (WACC of 12%). Our top picks are
ITC, Godrej Consumer, United Breweries and Pantaloon Retail.
Statement of Risk
The key risks that could affect the sector include increased rentals, electricity
costs and upward movement in wages. The sector mirrors the health of the
consumer and therefore, an economic downturn or any unforeseen natural or
man-made disaster could have an impact on the sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indian Retail Sector
F DI in multi-brand retail, close to reality
Event: Committee of Secretaries (CoS) approves 51% in multi-brand retail
The CoS approved 51% Foreign Direct Investment (FDI) in multi-brand retail on
Friday, 22 July. An important rider is that 50% of the minimum $100m investment
would have to be invested in back-end infrastructure. The Parliament is yet to clear
the proposal.
Impact: no clarity on other riders
There is no clarity yet on whether the original riders still hold; these include: 1)
large discount stores are allowed only in cities with a population of more than 1m
and in states where the governments are in favour of FDI; and 2) stores will have to
sell at least ~33% of their goods to small retailers and source ~30% of
manufactured items from SMEs.
Action: Indian consumption to benefit
We believe FDI in multi-brand retail would benefit: 1) retailers—as they have
already created back-end and front-end infrastructure stores. They could be
acquired or become JV partners with MNCs; 2) staples companies—with their
dominant market share, retailers would require their support to attract consumers;
and 3) durables companies—as durables will be available more widely.
Valuation: we are positive on the consumer, retail space
We believe Pantaloon, being the largest retailer, would be a key beneficiary of this
move. We have a Buy rating on Pantaloon with a price target of Rs375. We derive
our price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers using UBS’s VCAM tool (WACC of 12%). Our top picks are
ITC, Godrej Consumer, United Breweries and Pantaloon Retail.
Statement of Risk
The key risks that could affect the sector include increased rentals, electricity
costs and upward movement in wages. The sector mirrors the health of the
consumer and therefore, an economic downturn or any unforeseen natural or
man-made disaster could have an impact on the sector.
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