A look at the Ma­jor Retail Play­ers in In­dia

Images Retail - - CONTENTS - – By Mo­hit Jain, Busi­ness Head-trans­ac­tion Ad­vi­sory, Wazir Ad­vi­sors

In­dia is the world’s fifth­largest global des­ti­na­tion in the retail space hav­ing the world’s se­cond rich­est ‘mid­dle class’ pop­u­la­tion. The or­ga­nized and un­or­ga­nized retail sec­tor of In­dia pro­vides em­ploy­ment to about eight to 10 per­cent of the work­ing pop­u­la­tion and ac­counts for over 10 per cent of the coun­try’s Gross Do­mes­tic Prod­uct (GDP). The coun­try is wit­ness­ing ur­ban­i­sa­tion at an un­prece­dented pace, thanks to the con­cept of ‘Smart Cities.’ Ad­di­tion­ally, over 300 mil­lion In­di­ans are con­nected to the In­ter­net with smart-phones. These facts make it lu­cra­tive for retail com­pa­nies to op­er­ate in In­dia.

A look at the ma­jor retail play­ers in In­dia.

LISTED RE­TAIL­ERS: Though listed retail com­pa­nies, con­tribut­ing around 14 per­cent share in to­tal modern retail mar­ket, re­flected healthy y-o-y net growth of 34 per­cent and 39 per­cent in 2017 and 2018, their over­all av­er­age growth re­mained less than 20 per­cent. The com­pa­nies grew at an av­er­age CAGR of 18 per­cent for the pe­riod from 2015 to 2018.

An­a­lyz­ing the per­for­mance of these com­pa­nies over the 5 year pe­riod, we no­tice that even though the com­bined rev­enue has seen a growth of around 9% the prof­itabil­ity has ac­tu­ally de­clined. On top of this, the com­bined mar­ket cap­i­tal­i­sa­tion of these com­pa­nies have al­most dou­bled. Both the rev­enue and mar­ket cap growth has been led by Arvind and Ray­mond.

While the rev­enues of all the com­pa­nies re­mained flat, ma­jor growth was seen on Arvind which reg­is­tered an ad­di­tion of around 4000 crores. Ray­mond, Cantabil and KKCL reg­is­tered mod­est growth in the rev­enues whereas Zo­diac and Celebrity fash­ions ac­tu­ally reg­is­ter­ing a de­cline.

The theme around brands and po­si­tion­ing ap­parel as a ‘bridge to lux­ury’ seg­ment has seen only a hand­ful of play­ers like Madura and

Page get­ting it right and be­ing suc­cess­ful. The growth from branded ap­parel has been lumpy with close to

200 in­ter­na­tional brands cur­rently present in the In­dia fash­ion seg­ment.

Let us have a closer look at Arvind. Cur­rently, Arvind has four power brands with each hav­ing a turnover of ap­prox­i­mately 2,500 crore. The com­pany es­ti­mates that each of these brands would be scaled up to 5,000 crore. Over a decade, the com­pany be­lieves it has added suf­fi­cient num­ber of brands and now wants to focus on its mon­eti­sa­tion. The re­struc­tur­ing of Mega­mart

(to Un­lim­ited)and clo­sure of un­suc­cess­ful ven­tures like Deben­hams and Next af­firm the man­age­ment ef­forts to focus on prof­itable growth. Ma­jor­ity of brands in In­dia, though not prof­itable, are tar­get­ing rev­enue growth. However, prof­itabil­ity will creep in once sig­nif­i­cant scale is achieved. To quote the man­age­ment, “When a brand at­tains a turnover of 100-150 crore it gets out of neg­a­tive EBITDA. By the time it touches 250 crore, ROCE be­comes at­trac­tive. By the time it gets to 350 crore, a brand makes tonnes of money”. With the cur­rently suc­cess­ful launch of GAP store and tar­get au­di­ence for Aero­postale, it is well poised to cre­ate a num­ber of power brands by 2020

Fash­ion Retail

An­a­lyz­ing com­pa­nies in Fash­ion retail, we no­tice that the rev­enues have al­most dou­bled over the 5 year pe­riod in re­view. This is mainly be­cause of ABFRL after 2016 when they merged Aditya Birla Nuvo and Pan­taloons. Ex­cept for the rel­a­tively small growth shown by V-mart and V2 retail, sales growth in Shop­pers

Stop and Trent re­mained flat. As a mat­ter of fact both the com­pa­nies reg­is­tered neg­a­tive growth dur­ing the pe­riod.

On the prof­itabil­ity front, it has started to look de­cent. With a com­bined loss of more than 200 crore, the seg­ment is now clock­ing prof­itabil­ity of around 600 crore. The ma­jor losses were be­cause of ABFRL which now has man­aged to con­trib­ute a profit of more than 100 crore. Shop­pers stop also made a sig­nif­i­cant jump in its prof­itabil­ity with a con­tri­bu­tion of 275 crore.

On the mar­ket cap­i­tal­iza­tion front, there is an al­most four times growth with Trent, ABFRL and V-mart con­tribut­ing the most. ABFRL con­trib­uted the most to the rise in mar­ket cap after the merger. The mar­ket cap growth of Shop­pers Stop did not see much change as com­pared to Trent which tripled dur­ing the pe­riod. V-mart and V2 retail also saw their Mar­ket cap reg­is­ter a huge growth.

The two themes that we see in the above chart play­ing out are:

1. Multi-brand retail – Fi­nally we can say that brick and mor­tar is here to stay. On­line and off­line have fi­nally found a way to not only co-ex­ist but also help each other grow. Com­pa­nies have em­braced the omni-chan­nel strat­egy. 2. Value retail –Grow­ing ur­ban­iza­tion and a sig­nif­i­cantly large num­ber of peo­ple mov­ing up the so­cio eco­nomic class, this is a seg­ment where we see tremen­dous growth hap­pen­ing.

Food & Gro­cery

D-mart reg­is­tered a block­buster de­but on the stock mar­ket and has kept grow­ing since list­ing. Sales have shown con­tin­u­ous growth while prof­its have

seen huge jump. The mar­ket cap has also more than dou­bled in 1 year.

The core focus of D-mart re­mains on value re­tail­ing. D-mart tar­gets dense­ly­pop­u­lated res­i­den­tial ar­eas with a ma­jor­ity of lower-mid­dle, mid­dle and as­pir­ing up­per-mid­dle class con­sumers. ASL of­fers a wide range of prod­ucts with focus on food, FMCG and gen­eral mer­chan­dise & ap­parel as prod­uct cat­e­gories. With a net­work of 141 stores and as many as 68% of its stores were lo­cated in Ma­ha­rash­tra and Gu­jarat, ASL man­ages a retail space of 4.4 mnsq ft. The clus­ter based ap­proach for open­ing new stores en­ables ASL to ef­fi­ciently man­age pro­cure­ment, inventory and lo­gis­tics costs. ASL be­lieves in op­er­at­ing on an own­er­ship model wherein it fo­cuses on de­vel­op­ment of stores with area rang­ing from 10,000 square feet (sqft) to 60,000 sq ft. Adopt­ing the low cost model and pass­ing on the ben­e­fits to con­sumers,asl fo­cuses on prof­itable growth, main­tain­ing gross mar­gins at 15%.

Watches and Jew­ellery

An­a­lyz­ing com­pa­nies in Watches and Jew­elry, we no­tice that the rev­enues have grown by around 50% over the 5 year pe­riod in re­view. The ma­jor con­tri­bu­tion came from Ti­tan and PC Jew­ellers who rev­enue al­most dou­bled.

On the prof­itabil­ity front, it has started to look de­cent. With a com­bined profit of around 1,100 crore, the seg­ment is now clock­ing prof­itabil­ity of more than 1,600 crore. Here again Ti­tan and PC Jew­ellers have done well while Timex has been able to come out of losses.

The prof­its of TBZ fell by more than 50% to around 21 crore.

On the mar­ket cap­i­tal­iza­tion front, there is an al­most four times growth with Ti­tan and PCJ con­tribut­ing the most. Ti­tan mar­ket cap in­creased by 4 times while PCJ reg­is­tered a mar­ket cap growth of more than 10 times.

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