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FDI – progress continues
Committee of Secretaries approval in place, riders being relaxed
The Committee of Secretaries has approved FDI in multi brand retail, recommending an ownership limit of 51%
and minimum investment of US$100m
Whilst initial reports were that most of the riders would be kept in place, the CoS has reportedly relaxed some
of the more onerous norms after considering feedback from various ministries as well as the industry
The clause limiting FDI funded retailers to operations in cities with 1m people or more has been retained
The rider relating to approvals from each state has been removed
The condition that 30% of sales be to small traders has also been dropped
Whilst the condition that 50% of investment be in back end infrastructure has been retained, the procedure
around monitoring the same is reportedly being simplified. The definition for back end infrastructure will be
determined by DIPP
Cabinet approval still needed
The recommendations will go to the DIPP, which will draft the final proposal
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. However, the opposition parties as well as the federation of small traders have been
voicing their disapproval
The timing of the eventual decision still remains uncertain but may well come through soon now
What’s making news?
Varkeys on the verge of closing shop (FC)
Kerala based supermarket chain Varkeys is on the verge of closing shop. A pioneer in the region, the company
had revenues of Rs1.8bn and 0.25m sq ft of retail space till last year
The retailer has closed 56 of its 59 supermarkets and two hypermarkets. The company’s efforts to raise funds
from investors over the past few months failed
Orra to expand into tier II cities (IndiaRetailing)
Orra, the diamond jewellery chain, plans to expand into tier II cities with 8-10 stores being added every year
Currently, the company has 48 stores across 25 stores
Orra has also opened three large format stores over the past three years
Ferns N Petals plans aggressive expansion (IndiaRetailing)
The flower retail chain, Ferns N Petals, plans to expand pan-India by opening 200 outlets through the
franchisee route by end 2011
The company had revenues of Rs1bn last year with operations through franchisee stores and online sales
Ferns N Petals has 110 stores and a delivery presence in 400 cities
Value retail chains seeing increasing traction (FC)
Inflation is reportedly driving rising footfalls in value retail chains as consumers focus on cost savings
Hypermarkets in particular are reportedly offering some shelter against inflationary pressures
Garment retailers focusing on women's western wear (ET)
Most modern retailers are now reportedly devoting over 50% of shelf space to western wear for women
The trend is being driven by rising adoption rates, even in smaller towns
Women’s western wear is reportedly growing at nearly double the pace of ethnic wear at 18-20%
Inflation beginning to bite
Net sales growth
1QFY12 saw retailers registering mixed YoY growth in net
sales, with new store openings and same store growth
However, the pace of growth has slowed visibly for most
retailers from the high levels seen in 3Q
Titan sales grew 61% YoY in 1QFY12, led by jewellery
Shopper’s Stop grew 16% (7% same store growth)
Jubilant Foods, registered 60% revenue growth (36.7%
same store growth)
Trent saw revenue growth improve somewhat to 16.5%.
However, per store revenues continued to drop
Gross margin
1QFY12 saw gross margins flat to down on a year on year
basis for all major retailers with inflationary pressures
seemingly being passed on
Garment retailers in particular have been seen price hikes
ahead to offset the rise in cotton prices and seen a hit on
volumes as a result
Margin performance mixed
Ebitda margin
Similar to 4Q, 1Q saw as many retailers see margin
declines as had margin gains
Shopper’s Stop and Trent saw margins decline as opex
pressures outstripped sales growth
Titan saw margins improve, driven by operating leverage
benefits and an inventory gain in jewellery
Jubilant Foods saw the benefits of operating leverage help
improve margins although margins YoY and QoQ
Net margin
Net margin trends were better than Ebitda margin trends.
For Titan and Trent, which saw the most substantial
improvement, this was driven by improved balance sheet
position (low interest/high other income)
Shopper’s Stop was broadly flat YoY with Ebitda margin
contraction being offset by lower interest cost
Jubilant’s net margin decline was driven by a low tax rate
in the base quarter, which normalised in 1QFY12
Titan Industries- TTAN IN (SELL)
Business description:
Titan is India's largest manufacturer /retailer of watches (19% FY11
sales) and jewellery (77% FY11 sales)
In the watches segment Titan sells high, mid as well as low end
watches
In jewellery, Tanishq is Titan’s luxury jewellery retail format and
GoldPlus is its new mass market offering
Goldplus (mass market jewellery) portfolio now stable at 29 stores
with no major store additions planned
Eye+ (prescriptive eye-wear) formats are being scaled-up and is now
present in over 45 cities
Precision engineering division is expected to break-even in FY12
Growth drivers
As of March 2011, Titan has 665 stores spread over 0.8m sf
‘World of Titan’ stores: 311
Fastrack stores: 45
Helios stores: 6
Tanishq stores: 120
Gold Plus stores: 29
Zoya stores: 2
Eye+ stores: 150+
Titan well above 5 year average PE now
News and updates
Titan has launched HTSE (High Tech Self Energized), a
collection of self energizing, light powered watches
The company plans to add 150-200 stores in FY12. Capex
is expected to be Rs1.5-2bn
Pantaloon Retail- PF IN (U-PF)
Business description:
Pantaloon is India’s largest retailer and a part of Future group.
Its retail business can be grouped into 3 categories:
Lifestyle retailing: Pantaloon and Central
Value retail: Big Bazaar, Food Bazaar and KB’s fair price
Home retail: Home Town and E-Zone
Non retail businesses of Future group
Post-restructuring, PRIL will be a pure play retail company
Asset management: Real estate and private equity funds
Consumer finance, hotels and logistics
General and life insurance
The restructuring of the financial holdings has run into
regulatory hurdles
PRIL has crossed 14m sf in retail space
PRIL trading well below its 5yr mean PE
News and updates
The group plans to add Rs3bn in opening 25-30 Big Bazar stores
in FY12
Future group will reduce the size of eZone stores and position it
as a convergence platform for physical and online shoppers
Future Group plans to invest Rs4bn/year for the next two years
to strengthen its supply chain
The company will announce 4QFY12 results on 25 August
Shopper’s Stop- SHOP IN (SELL)
Business description:
Shopper’s Stop operates India’s largest chain of department
stores under the Shopper’s Stop brand
It also has 5 specialty retail formats
Crossword: Books, gifts and music
Mothercare: Mother and baby care
MAC: Cosmetics, Arcelia
Home Stop: Home furnishings
Hypercity: Food, grocery and general merchandize
It has increased its stake in Hypercity and now owns 51%
Current retail space: 2.47m sf across over 100 stores and
another 1.07m sf in Hypercity (10 stores)
News and updates
Valuation below long term average but still high
Price: Rs391
Mkt Cap: US$709m
Avg T/O: US$1.0m
Shoppers Stop will invest up to Rs4bn on expanding
its store base over the next four years, with half the
funds being devoted to 25 new Shoppers Stop stores
and the other half to 16 new Hypercity stores
Hypercity hopes to break even in FY13
Hypercity expects to reach a target of 35 stores by
FY15
Jubilant Foods – JUBI IN (O-PF)
Business description:
Master franchisee for Domino’s in India. Dunkin’ Donuts added
recently
End market for Domino’s growing at 20%+ with broad growth
and a penetration led shift towards takeaway and chain formats
Rising middle class income, evolving attitudes and a young
population drive this
Its strong brand and retail model generate healthy margins and
return ratios
Store portfolio over the 390 mark
Jubilant plans to increase its pace of store expansion
to 80 in FY12 against 72/year in FY10-11
The rollout of the Dunkin’ Donuts will be gradual with
the first store opening in 4QFY12 and 80-100 stores
over five years
The company plans to open its first Sri Lanka store
shortly and is also considering an expansion into
Bangladesh
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FDI – progress continues
Committee of Secretaries approval in place, riders being relaxed
The Committee of Secretaries has approved FDI in multi brand retail, recommending an ownership limit of 51%
and minimum investment of US$100m
Whilst initial reports were that most of the riders would be kept in place, the CoS has reportedly relaxed some
of the more onerous norms after considering feedback from various ministries as well as the industry
The clause limiting FDI funded retailers to operations in cities with 1m people or more has been retained
The rider relating to approvals from each state has been removed
The condition that 30% of sales be to small traders has also been dropped
Whilst the condition that 50% of investment be in back end infrastructure has been retained, the procedure
around monitoring the same is reportedly being simplified. The definition for back end infrastructure will be
determined by DIPP
Cabinet approval still needed
The recommendations will go to the DIPP, which will draft the final proposal
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. However, the opposition parties as well as the federation of small traders have been
voicing their disapproval
The timing of the eventual decision still remains uncertain but may well come through soon now
What’s making news?
Varkeys on the verge of closing shop (FC)
Kerala based supermarket chain Varkeys is on the verge of closing shop. A pioneer in the region, the company
had revenues of Rs1.8bn and 0.25m sq ft of retail space till last year
The retailer has closed 56 of its 59 supermarkets and two hypermarkets. The company’s efforts to raise funds
from investors over the past few months failed
Orra to expand into tier II cities (IndiaRetailing)
Orra, the diamond jewellery chain, plans to expand into tier II cities with 8-10 stores being added every year
Currently, the company has 48 stores across 25 stores
Orra has also opened three large format stores over the past three years
Ferns N Petals plans aggressive expansion (IndiaRetailing)
The flower retail chain, Ferns N Petals, plans to expand pan-India by opening 200 outlets through the
franchisee route by end 2011
The company had revenues of Rs1bn last year with operations through franchisee stores and online sales
Ferns N Petals has 110 stores and a delivery presence in 400 cities
Value retail chains seeing increasing traction (FC)
Inflation is reportedly driving rising footfalls in value retail chains as consumers focus on cost savings
Hypermarkets in particular are reportedly offering some shelter against inflationary pressures
Garment retailers focusing on women's western wear (ET)
Most modern retailers are now reportedly devoting over 50% of shelf space to western wear for women
The trend is being driven by rising adoption rates, even in smaller towns
Women’s western wear is reportedly growing at nearly double the pace of ethnic wear at 18-20%
Inflation beginning to bite
Net sales growth
1QFY12 saw retailers registering mixed YoY growth in net
sales, with new store openings and same store growth
However, the pace of growth has slowed visibly for most
retailers from the high levels seen in 3Q
Titan sales grew 61% YoY in 1QFY12, led by jewellery
Shopper’s Stop grew 16% (7% same store growth)
Jubilant Foods, registered 60% revenue growth (36.7%
same store growth)
Trent saw revenue growth improve somewhat to 16.5%.
However, per store revenues continued to drop
Gross margin
1QFY12 saw gross margins flat to down on a year on year
basis for all major retailers with inflationary pressures
seemingly being passed on
Garment retailers in particular have been seen price hikes
ahead to offset the rise in cotton prices and seen a hit on
volumes as a result
Margin performance mixed
Ebitda margin
Similar to 4Q, 1Q saw as many retailers see margin
declines as had margin gains
Shopper’s Stop and Trent saw margins decline as opex
pressures outstripped sales growth
Titan saw margins improve, driven by operating leverage
benefits and an inventory gain in jewellery
Jubilant Foods saw the benefits of operating leverage help
improve margins although margins YoY and QoQ
Net margin
Net margin trends were better than Ebitda margin trends.
For Titan and Trent, which saw the most substantial
improvement, this was driven by improved balance sheet
position (low interest/high other income)
Shopper’s Stop was broadly flat YoY with Ebitda margin
contraction being offset by lower interest cost
Jubilant’s net margin decline was driven by a low tax rate
in the base quarter, which normalised in 1QFY12
Titan Industries- TTAN IN (SELL)
Business description:
Titan is India's largest manufacturer /retailer of watches (19% FY11
sales) and jewellery (77% FY11 sales)
In the watches segment Titan sells high, mid as well as low end
watches
In jewellery, Tanishq is Titan’s luxury jewellery retail format and
GoldPlus is its new mass market offering
Goldplus (mass market jewellery) portfolio now stable at 29 stores
with no major store additions planned
Eye+ (prescriptive eye-wear) formats are being scaled-up and is now
present in over 45 cities
Precision engineering division is expected to break-even in FY12
Growth drivers
As of March 2011, Titan has 665 stores spread over 0.8m sf
‘World of Titan’ stores: 311
Fastrack stores: 45
Helios stores: 6
Tanishq stores: 120
Gold Plus stores: 29
Zoya stores: 2
Eye+ stores: 150+
Titan well above 5 year average PE now
News and updates
Titan has launched HTSE (High Tech Self Energized), a
collection of self energizing, light powered watches
The company plans to add 150-200 stores in FY12. Capex
is expected to be Rs1.5-2bn
Pantaloon Retail- PF IN (U-PF)
Business description:
Pantaloon is India’s largest retailer and a part of Future group.
Its retail business can be grouped into 3 categories:
Lifestyle retailing: Pantaloon and Central
Value retail: Big Bazaar, Food Bazaar and KB’s fair price
Home retail: Home Town and E-Zone
Non retail businesses of Future group
Post-restructuring, PRIL will be a pure play retail company
Asset management: Real estate and private equity funds
Consumer finance, hotels and logistics
General and life insurance
The restructuring of the financial holdings has run into
regulatory hurdles
PRIL has crossed 14m sf in retail space
PRIL trading well below its 5yr mean PE
News and updates
The group plans to add Rs3bn in opening 25-30 Big Bazar stores
in FY12
Future group will reduce the size of eZone stores and position it
as a convergence platform for physical and online shoppers
Future Group plans to invest Rs4bn/year for the next two years
to strengthen its supply chain
The company will announce 4QFY12 results on 25 August
Shopper’s Stop- SHOP IN (SELL)
Business description:
Shopper’s Stop operates India’s largest chain of department
stores under the Shopper’s Stop brand
It also has 5 specialty retail formats
Crossword: Books, gifts and music
Mothercare: Mother and baby care
MAC: Cosmetics, Arcelia
Home Stop: Home furnishings
Hypercity: Food, grocery and general merchandize
It has increased its stake in Hypercity and now owns 51%
Current retail space: 2.47m sf across over 100 stores and
another 1.07m sf in Hypercity (10 stores)
News and updates
Valuation below long term average but still high
Price: Rs391
Mkt Cap: US$709m
Avg T/O: US$1.0m
Shoppers Stop will invest up to Rs4bn on expanding
its store base over the next four years, with half the
funds being devoted to 25 new Shoppers Stop stores
and the other half to 16 new Hypercity stores
Hypercity hopes to break even in FY13
Hypercity expects to reach a target of 35 stores by
FY15
Jubilant Foods – JUBI IN (O-PF)
Business description:
Master franchisee for Domino’s in India. Dunkin’ Donuts added
recently
End market for Domino’s growing at 20%+ with broad growth
and a penetration led shift towards takeaway and chain formats
Rising middle class income, evolving attitudes and a young
population drive this
Its strong brand and retail model generate healthy margins and
return ratios
Store portfolio over the 390 mark
Jubilant plans to increase its pace of store expansion
to 80 in FY12 against 72/year in FY10-11
The rollout of the Dunkin’ Donuts will be gradual with
the first store opening in 4QFY12 and 80-100 stores
over five years
The company plans to open its first Sri Lanka store
shortly and is also considering an expansion into
Bangladesh
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