Economics Final Final
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Transcript of Economics Final Final
8/8/2019 Economics Final Final
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DETERMINANTS OF INVESTMENT IN THE RETAIL INDUSTRY IN INDIA
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Why Study Retail in INDIA???....
• Accounts for more than 12 percent of thecountry’s GDP• Employs around 8 per cent of the Population• Huge potential in Organized Retail as it accounts
for less than 3% of total Retail• India is the most attractive market for retail
business(Source: A. T. Kearney)
According to Euromonitor International,the Indian Retail market will grow in
value terms by a total of 39.6 per cent between 2006 and 2011, averaginggrowth of almost 7 per cent a year
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Weekly MarketsVillage Fairs
Melas
Convenience StoresMom and Pop/Kiranas
PDS OutletsKhadi Stores
Cooperatives
Exclusive Brand OutletsHyper/Super Markets
Department StoresShopping Malls
Traditional/Pervasive Reach
GovernmentSupported
Historic/RuralReach
Modern Formats/International
Evolution of Indian retail
Source of Entertainmen
t
NeighborhoodStores/Convenie
nce
Availability/Low Costs /Distribution
ShoppingExperience/Efficie
ncy
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India Experiencing Rapid Economic
Growth
9.4% growth rate makes India the second fastestgrowing economy in the world
GDP(US$ bn)
RealGrowthRate
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.. and Rapid Transformation is Anticipated
Current Size & Future Projections for Indian Retail Market
342 373 408 445486
530
800
12 18 26 39 59 87
200
0100200300400500
600700800900
2007 2008 2009 2010 2011 2012 2017
U S $ B i l l i o n
Total Retail Organized Retail
And may reach a share of 25% by 2017
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Modern Retail – Organized Channels
• The share of organized retail is lessthan 3% of the total retail market
• The size of modern retail is aboutUS$ 8 Billion and has grown by 35%CAGR in last five years
85% 81%
55%40% 36% 30%
20% 20% 3%
0%
20%
40%
60%
80%
100%
US Taiwan Malaysia Thailand Braz il Indonesia Poland China Ind ia
Traditional Channel Modern Channel
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Indian retail on the fast-track
8
GRDIIndia ranked first for the third consecutive year on theGlobal Retail Development Index – 2007, conducted
by AT Kearney across 30 emerging economies. Indiais ranked as the most preferred retail destination forinternational investors.
GCCIIndia ranked first for the fifth time on the GlobalConsumer Confidence Index – June 2007, conductedby The Nielsen Company. Indians were judged as theworld’s most optimistic consumers, with high financialconfidence about their income for the next 12 months.
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Indian retail revolution
10/29/10
9
odern retail would increase its share in the totalail market to 22 per cent by 2010.
dian retail showed a growth rate of 49.73 per centh a turnover of US$ 25.44 billion in 2007-2008 asinst US$ 16.99 billion in 2006-2007.
rganized retail segment is expected to grow fromper cent to about 14 to 18 per cent by 2015.
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DID YOU KNOW?10/29/10
10
Koutons Retail will be investing US$ 70.79
million to open 200 large Koutons FamilyStores and add another 1,400 stores inmodern retail format to the existing 605stores, within the next 18 months
Indian Oil Corporation (IOC) is planning toinvest US$ 189.103 million in rural areasduring the financial year 2009
Videocon Retail plans to invest US$ 168.45million to expand its electronic retail format,
Next Retail, and Planet M, the mobile, music,
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What makes Indian Retail an AttractiveMarket ?
India tops the Global Retail Development Index
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Determinants Investment in Indian Retail
High IncomeOpportunitiesHigh Income
OpportunitiesChangingAttitude
ChangingAttitude
InternationalExposure
InternationalExposure
Necessities toLifestyle
Necessities toLifestyle
• Service Sector:creating new jobs.
• Working Populationin 2010 will 70%
• IT Industry:
increasingprofessionalopportunities
• Rising Salary levels
• MNCs enteringIndia andhomegrowncompanies going
global
• Service Sector:creating new jobs.
• Working Populationin 2010 will 70%
• IT Industry:
increasingprofessionalopportunities
• Rising Salary levels
• MNCs enteringIndia andhomegrowncompanies going
global
• From Save toSpend
• High disposableincome familystructures on arise
• Nuclear Families
• DINKS (DoubleIncome No Kids)
• Multi incomefamilies
• From Save toSpend
• High disposableincome familystructures on arise
• Nuclear Families
• DINKS (DoubleIncome No Kids)
• Multi incomefamilies
• Internationaltravel
• Exposure toglobal trends
• Highest Growth
in outboundtourists in theworld
• Internationaltravel
• Exposure toglobal trends
• Highest Growth
in outboundtourists in theworld
• Shift of expensebasket frombasics to lifestyleproducts
• Increased spendon Apparel,personal care,entertainment
• Easy Bank creditboosts retail
• Shift of expensebasket frombasics to lifestyleproducts
• Increased spendon Apparel,personal care,entertainment
• Easy Bank creditboosts retail
Customer value drivers are continuing to fragment as a result of changingdemographics & value systems
Consumption expenditure is 60 % of India’s GDP
Market &Government
Market &Government
• Easing out onImport barriers,Governmentsponsorshiptaking shape (FDIPolicy, Tax and
Duty structure,Subsidies)
• Fluid retailSegments
• M-Commerce &e-Commerceboosts retail
• Easing out onImport barriers,Governmentsponsorshiptaking shape (FDIPolicy, Tax and
Duty structure,Subsidies)
• Fluid retailSegments
• M-Commerce &e-Commerceboosts retail
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Global Heavyweights in Indian RetailingJoint Ventures Product Range Retail Formats
Bharti-Walmart (with $2.5
Billion investment by Bharti)
Food & grocery, electronics & appliances, clothing &
footwear, furniture & furnishing, household articles.
Hypermarkets, Supermarkets and
Convenience
Carrefour-Landmark Food and groceries, FMCG, apparel and electronics Hypermarkets
Home Retail Group plc -Shopper's Stop Ltd andHypercity Retail India PrivateLtd
Franchising the Argos concept under the terms of thearrangement, Argos will be providing its brand,catalogue and multi-channel expertise and IT support
Multi Channel propositions
Tata-Woolworths Sourcing agreement for Consumer durables and Foodsunder brand name CROMA
Multi brand retail chain
Staples Inc – Pantaloon RetailGlobal Sourcing of Office equipments across variousbusinesses
Cash and carry
Reliance Food & grocery, electronics & appliances, clothing &footwear, furniture & furnishing, household articles.
Multi format and Multi Category
Birla Food & grocery, electronics & appliances, clothing &footwear, furniture & furnishing, household articles.
Convenience and Supermarket
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The Indian Consumer
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Driven from Consumption Throughout the1.1 Billion Population
5-7 millionSuper Rich
70 – 80 million
Afford Cars, Private Healthcare &Foreign travel
250 - 300 million
Afford goods like Refrigerators , Scooters& Colour TVs
600-700 million ( Generally Rural )Afford simple industrial products
e.g. bicycles , radios , textileserty Line = income less than $ 1/day
urce: McKinse ,
60 % of India’s population are under 24 years
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What the consumer spends today
GDPUS$ 935 billion
Private ConsumptionUS$ 580 Billion
(62%)
Public Spending and CapitalFormation
US$ 355 Billion (38%)
RetailUS$ 342 Billion
(59%)
Non RetailUS$ 238 Billion
(41%)
Urban (5,100 towns) US$ 154 Billion
(45%)
Rural (6,27,000 villages)US$ 188 Billion
(55%)
Modern retail – US$ 12 billion8% of urban retail spends
Modern retailNegligible
Food
Apparel
Beverages
Footwear
Consumerdurables
Appliances
Stationery
Kitchenutensils
Furniture
Furnishings
Sports goods
Health &Beauty
Personal Care
Jewellery
Timing
Transport
Communicati
onRecreation
CulturalServices
Education
Rent
UtilitiesOther
Services
Source: Central Statistical Organization (CS0) and Technopak AnalysisConversion rate: 1 US$ = 40.86 Rs.
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Estimated expenditures by 2012
GDP*US$ 1,450 billion
Private ConsumptionUS$ 870 Billion
(60%)
Public Spending and CapitalFormation
US$ 580 Billion (40%)
RetailUS$ 530 Billion(61%)
Non RetailUS$ 340 Billion(39%)
UrbanUS$ 252 Billion
(47.5%)
RuralUS$ 278 Billion
(52.5%)
Modern retail – US$ 78 billion31% of urban retail spends
Modern retail – US$ 9 billion3% of rural retail spends
Source: Technopak Analysis ll figures are in nominal terms after taking into account inflation
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Rising Urbanization
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Rapid Urbanization10/29/10
20
3 out of world's 21 mega cities, inmillions: Mumbai(19); Delhi (15); Kolkata (14)
Estimated Urban Population by 2017:
500 million
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Impacts of Rapid Urbanization10/29/10
21
Real Estate Prices skyrocketedGrowth of Organized Retail sectorRetail growth in Tier II cities includedImprovement in Retail Infrastructure
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VC/PE INVESTMENTS IN RETAIL
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Driver for VC/PE
10/29/10
23
• Players taking the “first-mover advantage” • Emergence of India as Retail Sourcing Hub • Increasing Technology Adoption • Online Retailing • Emerging rural retailing • Leisure and entertainment • Special Economic Zone (SEZ) synergies
• Tourism Related Opportunities
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INVESTMENT BY VC AND PRIVATE EQUITYFIRMS
10/29/10
24
Major VC/PE deals of the year 2007
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FDI IN INDIA
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FDI In India
FranchiseInternational company gives name and technology to localpartner. Gets royalty in returnIn case master franchise is appointed for region or country, hehas right to appoint local franchisees
Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, MangoManufacturing
Company sets up Indian arm for productionBata India. It also has right to retail in India
DistributionInternational company sets up local distribution officeSupply products to Indian retailers to sellAlso set up franchised outlets for brand
Swarovski, Hugo Boss
Wholesale tradingCash and Carry operations100% FDI permitted
Metro Cash n Carry
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Benefits of FDI
Improves competitionDevelops the marketProvides access to global markets for Indian producersGreater level of exports due to increased sourcing bymajor playersEg. Wal-Mart from China improved multifold after FDIpermitted in ChinaSimilar increase in sourcing observed for Metro in IndiaInvestment in technologyCold storage chains solve the problem of wastageGreater investment in the food processing sector technologyBetter operations in production cycle and distribution
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Benefits of FDI
Better lifestyleGreater level of wages paid by international players usuallyMore product varietyNewer product categoriesEconomies of scale to help lower consumer priceIncreased purchasing capacity of consumers
Manpower and skill developmentThrough retail training andGreater managerial talent inflow from other countries
Tourism DevelopmentA strong retailing sector boosts tourism as seen from theexperience of Singapore and Dubai
Long term benefitsUp-gradation of agricultureDevelopment of efficient small and medium size industries
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Benefits to Government
Greater PerCapita Income
Greater ConsumerSpending due to
economic boom
Increasing Tax PayingPopulation
GreaterSourcingFrom India
Reduced TaxEvasion
GDP Growth
Increased TaxRevenues
GreaterExports
Employment
Benefitsto Govt.
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Benefits to Government
Increase employment levelsFDI would result in market growth and expansionEmployment generated at various levels
Increased consumer demand implies employmentgeneration across the value chain
Does not need very high skill setsNeeds high school graduates and other similar skill
levelsCurrently this is a majorly unemployed demographic
groupBoom in employment
Similar to job generation in ITES industryOn a much larger scaleBut new jobs comparatively lower down the value chain
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LICENSING REQUIREMENTS
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LICENSING REQUIREMENTS
• Shops & Establishment Act
• Municipal Corporation Act• • Drugs & Cosmetic Act, 1940
• Prevention of Food Adulteration Act
• Agricultural Produce Marketing Committee Act
• Essential Commodities Act
• Standards of Weights and Measures Act, 1976
• The Copyright Act, 1957
l d h ll
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RetailChallenges
Organizing Retail in India-Challenges
• Heterogeneous market
– Product offerings in different stores across the country will be
very different – No standard mode of operation across formats
– Market not mature (has to be validated)
• Infrastructure will bring about logistical challenges
– Though, improvements in road networks, power supply areunderway
• Trained employees with understanding of retail businessare inadequate compared to the needs of organized retail
• Barriers to Entry
– High taxes, bureaucratic clearance process and labour laws
• High cost of real estate
– though over 600 malls are to come up all over the country bythe next 4 years
• Indian retailers are deeply entrenched, are expanding andbuilding on logistics and technology initiatives
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The Way Ahead
• India is amongst the least saturated of allmajor global markets in terms of penetration of modern retailing formats
• Many strong regional and national playersemerging across formats and productcategories
• Most of these players are now gearing up toexpand rapidly after having gone through theirrespective learning curves
• Real Estate Developers are also moving fastthrough the learning curve to providequalitative environment for the consumers
• The Shopping Mall formats are fast evolving
• Partnering among Brands, retailers,franchisees, investors and malls
• Improved Infrastructure
In view of a compressedevolution cycle, retailers need to
simultaneously address issues of speed,Execution and efficiency
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CASE STUDY
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SUBHIKSHA
THE RISE:• Started in 1999 by IIM-A Alumnus• Expanded to more than 1000 stores by end of 2007
THE FALL:• Operations closed down in Jan 2009
WHAT LED TO THE DOWNFALL OF SUCH AFLOURISHING RETAIL GIANT?
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PERSPECTIVE
Before Subhiksha entered Subhiksha in monopolistic competition
Decreasing demand and huge sunkcosts, Subhiksha in losses
Entry of new firms, zero economicprofit
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SUBHIKSHA contd…
THE FINANCIAL PERSPECTIVE
BALANCE SHEET
CASH FLOW STATEMENT
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BALANCE SHEET(Rs in Crs)
Year Mar 07 Mar 06 Mar 05
SOURCES OF FUNDS :
Share Capital 31.81 29.2 24.7
Reserves Total 174.39 87.27 40.66
Equity Share Warrants 0 0 0
Equity Application Money 0 0 0
Total Shareholders Funds 206.2 116.47 65.36
Secured Loans 245.03 80.01 20.55
Unsecured Loans 0 0 0.31
Total Debt 245.03 80.01 20.86
Total Liabilities 451.23 196.48 86.22
APPLICATION OF FUNDS :
Gross Block 191.75 39.08 23.31
Le ss : Accumulat ed Depreciation 20.35 10.37 7 .75
Net Block 171.4 28.71 15.56
Lease Adjustment 0 0 0
Capital Work in Progress 16.98 50.03 0
Investments 0.01 0 0
Current Assets, Loans & Advances
Inventories 279.32 57.29 34.44
Sundry Debtors 0.3 0.01 0.83
Cash and Bank 12.87 65.04 37.8
Loans and Advances 71.43 22.66 5.5
Total Current Assets 363.92 145 78.57
Less : Current Liabilities and Provisions
Current Liabilities 93 21.69 2.67
Provisions 3.31 3.94 3.65
Total Current Liabilities 96.31 25.63 6.32
Net Current Assets 267.61 119.37 72.25
Miscellaneous Expenses not written off 0 0 0
Deferred Tax Assets 0.23 0.08 0.02
Deferred Tax Liability 5 1.71 1.61
Net Deferred Tax -4.77 -1.63 -1.59
Total Assets 451.23 196.48 86.22
Contingent Liabilities 57 30 4
http://www.capitaline.com
CASH FLOW STATEMENT(Rs in Crs)
Mar-07Mar-06Mar-05
Cash Flow Summary
Cash and Cash Equivalents at Beginning of the year
65.04 37.8 1.2
Net Cash from Operating Activities -160.8 9.47 3.04
Net Cash Used in Investing Activities -119 -82.39 -2.66
Net Cash Used in Financing Activities 227.61 100.16 36.22
Net Inc/(Dec) in Cash and Cash Equivalent -52.17 27.24 36.6
Cash and Cash Equivalents at End of the year 12.87 65.04 37.8
Intranet Version of Capitaline CorporateDatabases
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Thank You