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Consumer products
India
Right step, high time. Media reports suggest that the Cabinet of Ministers has
approved upto 51% foreign direct investment (FDI) in multi brand retail and increased
FDI limit in single brand retail to 100%. The reported preconditions are not stiff, in our
view. FDI is not likely under the ‘automatic’ route, implying that FIPB approval is
required on a case-to-case basis. KIE views: (1) we would keenly watch for notification
of the policy, considering the likely opposition from coalition partners; (2) entry of
foreign players will likely take place over time and not immediately; (3) the policy will
likely provide an opportunity for established domestic retailers to unlock value
An incremental step, in our view
In our view, Cabinet approval is a step in the right direction to open up the retail sector to
international players
We would keenly watch for official notification of the policy (i.e. it becoming a notification
under the DIPP guidelines), considering the opposition from coalition partners (as per media
reports)
The policy will likely give an opportunity to established domestic retail players to unlock value
given that they have an established front-end system and more importantly a presence in
prominent real estate locations
Despite allowing 100% FDI under the single brand route, given the complexities of operating in
India, potential entrants may prefer to enter under the joint venture format and consider
majority stake subsequently
Likely improvement in supply chain processes given that at least 50% of the total FDI brought in
under the multi-brand route needs to be invested in back-end infrastructure.
The preconditions are not stiff, in our view
According to media reports, the Cabinet of Ministers approved upto 51% FDI in multi brand retail
and increases FDI limit in single brand retail to 100%. In India, FDI in retail is permitted under two
formats: (1) 100% FDI is allowed in cash and carry business (2) 51% FDI is allowed in single brand.
FDI in multi brand retail has been approved with the following conditions:
Minimum amount to be brought in as FDI ~US$100 mn
Retail sales locations may be set up only in cities with a population of more than 1 mn as per
2011 Census (~55 towns meet this criteria) and may also cover an area of 10 km around
municipal urban agglomeration limits of such cities
Retailers must source at least 30% of manufactured/ processed products from small industries
that have total investment in plant and machinery not exceeding US$100 mn
Fresh agricultural products, including, poultry, fishery and meat products may be unbranded.
The government will have the first right to source agriculture produce
At least 50% of the total FDI brought in shall be invested in back-end infrastructure.
Expenditure on land cost and rental, if any, will not be counted for purposes of back-end
infrastructure
Self-certification as the methodology to ensure compliance with provisions for surprise audits
With respect to single brand retail, the policy introduced an additional condition: 30%
sourcing from small and medium enterprises would be mandatory, as soon as the FDI limit
exceeds 51%. The original conditions with respect to single brand retail are as follows:
FDI in single-brand retail trading may be permitted with government approval
All products sold in the store should carry the same brand
Products should be sold under the same brand in one or more countries, other than India
Foreign investor should be the owner of the brand
Products to be sold need to be branded during the manufacturing process itself
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consumer products
India
Right step, high time. Media reports suggest that the Cabinet of Ministers has
approved upto 51% foreign direct investment (FDI) in multi brand retail and increased
FDI limit in single brand retail to 100%. The reported preconditions are not stiff, in our
view. FDI is not likely under the ‘automatic’ route, implying that FIPB approval is
required on a case-to-case basis. KIE views: (1) we would keenly watch for notification
of the policy, considering the likely opposition from coalition partners; (2) entry of
foreign players will likely take place over time and not immediately; (3) the policy will
likely provide an opportunity for established domestic retailers to unlock value
An incremental step, in our view
In our view, Cabinet approval is a step in the right direction to open up the retail sector to
international players
We would keenly watch for official notification of the policy (i.e. it becoming a notification
under the DIPP guidelines), considering the opposition from coalition partners (as per media
reports)
The policy will likely give an opportunity to established domestic retail players to unlock value
given that they have an established front-end system and more importantly a presence in
prominent real estate locations
Despite allowing 100% FDI under the single brand route, given the complexities of operating in
India, potential entrants may prefer to enter under the joint venture format and consider
majority stake subsequently
Likely improvement in supply chain processes given that at least 50% of the total FDI brought in
under the multi-brand route needs to be invested in back-end infrastructure.
The preconditions are not stiff, in our view
According to media reports, the Cabinet of Ministers approved upto 51% FDI in multi brand retail
and increases FDI limit in single brand retail to 100%. In India, FDI in retail is permitted under two
formats: (1) 100% FDI is allowed in cash and carry business (2) 51% FDI is allowed in single brand.
FDI in multi brand retail has been approved with the following conditions:
Minimum amount to be brought in as FDI ~US$100 mn
Retail sales locations may be set up only in cities with a population of more than 1 mn as per
2011 Census (~55 towns meet this criteria) and may also cover an area of 10 km around
municipal urban agglomeration limits of such cities
Retailers must source at least 30% of manufactured/ processed products from small industries
that have total investment in plant and machinery not exceeding US$100 mn
Fresh agricultural products, including, poultry, fishery and meat products may be unbranded.
The government will have the first right to source agriculture produce
At least 50% of the total FDI brought in shall be invested in back-end infrastructure.
Expenditure on land cost and rental, if any, will not be counted for purposes of back-end
infrastructure
Self-certification as the methodology to ensure compliance with provisions for surprise audits
With respect to single brand retail, the policy introduced an additional condition: 30%
sourcing from small and medium enterprises would be mandatory, as soon as the FDI limit
exceeds 51%. The original conditions with respect to single brand retail are as follows:
FDI in single-brand retail trading may be permitted with government approval
All products sold in the store should carry the same brand
Products should be sold under the same brand in one or more countries, other than India
Foreign investor should be the owner of the brand
Products to be sold need to be branded during the manufacturing process itself
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