A look at the Major Retail Players in India
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
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.