indian retail industry july 2012

Indian Retail Industry

Dinodia Capital Advisors

July 2012

I. Executive Summary

II. Market Overview

– Industry Overview

– Evolution of Indian Retail

– Corporate Initiatives in Rural Retailing

– Porter‟s Five Forces Model

– SWOT Analysis

III. Industry Analysis

– Formats of Organized Retail

– Key Challenges

– Government Initiatives and Policies

– Recent Investments

– Trends in the Industry

– Major Segments

– Emerging Retail Formats

IV. Investments in the Sector

– Recent M&A Deals

– Recent Private Equity Deals

1

Index

V. Major Players

– Major Players

– Common Stock Comparable Analysis

VI. Profile of the Major Players

– Pantaloon Retail India Ltd.

– Shopper‟s Stop Ltd.

– Trent Ltd

– Reliance Retail

– Titan Group

– Jubliant Foodworks Limited

VII. Corporate Profile (Dinodia Capital Advisors)

2

Index

3

Executive Summary (1/2)

The Indian retail industry is one of the fastest growing industries in

India. Over the last few years it has grown at a Compounded Annual

Growth Rate (CAGR) of 13.3%

Though initially, the retail industry in India was mostly unorganized,

with the change of tastes and preferences of consumers, it is getting

more organized today

Retail is mainly a volume game (especially value retailing). Going

forward, with competition intensifying and costs scaling up, those

players who are able to cater to the needs of consumers and grow

volume by ensuring footfalls, are able to reduce costs, withstand

downturns, and face competition will have a competitive advantage

The next phase of growth in the retail sector will emerge from the rural

markets, but that sector too has several challenges such as low ability

to pay of consumers, poor financing facilities, strong local

relationships with Kirana stores (familiarity and credit) and full

benefits of the government schemes such as the NREGA not reaching

all target markets

4

Executive Summary (2/2)

The industry is eagerly awaiting the approval of FDI in multi brand

retail. The incumbent players feel that FDI will help them in funding

their operations and expansion plans. The expertise brought in by

foreign retailers will also improve the way Indian retailers operate

(systems, technology and processes). Also, FDI is expected to bring in

more efficiency in the supply chain functions of retailers as well

The retail market in India offers significant opportunities for retailers &

brands across categories. This is driven by factors such as a large

consumer base, rising incomes & job opportunities, increasing

consumer awareness, etc

The luxury and E-commerce markets are also at a nascent stage in

India, but are looking to explode as brand awareness, size of the

aspiring youth population, shopping from the comfort of home and

paying on delivery, credit card penetration and internet usage are

increasing all over India

5

Market Overview

MARKET OVERVIEW Industry Overview

Evolution of Indian Retail

Corporate Initiatives in Rural Retailing

Porter’s Five Forces Model

SWOT Analysis

# The Indian retail sector is one of the most exciting and underpenetrated markets in the world

The Indian retail market is currently estimated at around $450 billion1

As per the BMI India Retail Report for the fourth-quarter of 2011, total retail

sales will grow to US$ 804.06 billion by 2015

The sector is the second largest employer after agriculture, employing more

than 35 million people with wholesale trade generating an additional

employment to an additional 5.5 million people

The sector has evolved dramatically from traditional village fairs, street

hawkers to resplendent malls and plush outlets, growing from strength to

strength

The Indian retail market has witnessed consistent growth over the last few

years, maintaining its share of around 30% of the GDP at current prices

According to the Indian Council for Research on International Economic

Relations (ICRIER), India is the seventh-largest retail market in the world

India's retail market is expected to grow at 7% over the next 10 years2

6

Retail IndustryOverview

Source: 1 As per business standard article “India Retail Outlook in 2012 stable”2 Sector Profile by FICCI

7

Retail IndustryEvolution of Indian Retail

Source: Indian Retail Sector by Resurgent India March’11

# The penetration of organized retail will happen much faster in the coming decade because of the changing demographics of the population and a healthy rate of economic growth

8


The retail industry is divided into two sectors

More than 90% of the Indian Retail market is dominated by the Unorganized

sector

In developed countries, the organized retail industry accounts for almost 80% of

the total retail trade. In contrast, in India organized retail trade accounts for

merely 5% of the total retail trade

Unorganized retail is expected to grow at 5% and reach a size of US$ 650 billion

(76%), while organized retail is expected to grow at 25% and reach a size of US$

200 billion by 2020 as per the sector profile by Federation of Indian Chambers of

Commerce and Industry (FICCI)

The organized retail segment in India is projected to be 9% of total retail market

by 2015 and ~20% by 2020

Organized Retail

Corporate backed Hyper markets

Retail ChainsPrivately owned large retail businesses

Modern Retailing Format Stores

Unorganized Retail

Kirana Shops

Owner manned General Stores Mom and

Pop Stores

Paan/beedi shops

9


India‟s twin growth engines of economic development and demographic profile

set it apart from other nations and present a compelling business case for

global retailers looking to enter the market

The Retail industry has been on a growth trajectory over the past few years.

With the economy back on track, retailers are executing their expansion plans.

The industry is expected to grow at a rate of 12% per annum for the next 5

years1

Retailing companies are back to their expansion plans with the focus on Tier II

and Tier III cities and towns. Most of the retailers have opened up new stores

in places like Pune, Indore, Kochi, etc in their wake to tap the unsaturated

potential in these markets

Rural retailing is now the focus for many retailers. It is observed that the rural

regions saw consumption even during the economic slowdown. Rural India

accounts for 2/5th of the total consumption in India. Thus, most industry players

do not want to be left out of the rural growth story and are devising strategies

suited especially to the rural consumer

# The Indian retail sector accounts for 22% of the country's gross domesticproduct (GDP) and contributes to 8% of the total employment

Source: 3as per www.equitymaster.com

10

Retail IndustryCorporate Initiatives in Rural Retailing

ITC (e-chaupal andChaupal sagar): ITC

procures all materialsdirectly from the producersthereby cutting down themiddlemen all together

HUL (Shakti): Sells its

products through women self-help groups who operate like adirect to home team of saleswomen in inaccessible areaswhere HUL’s conventional salessystem do not reach

Godrej Agrovet (Aadhar):Complete solutions provided to thefarmers rendering farm advisoryservices, credit facility to thefarmers, providing up to dateinformation on weather, price, soil& water testing facility to farmers

TATA (TATA Kisan Sansar):Provides end to end solutions, rightfrom what crops to grow, how to sell

them etc to gain maximum returns

M&M (Shubhlabh): Shubhlabh interfaces

with banks for the financing with respect to thefertilizer and seeds firm, as well as for thedelivery of produce to end buyer and paymentto farmers

11

Retail IndustryPorter‟s 5 Forces Model

Rivalry

Threat of New

Entrants

Threat of Substitutes

Bargaining Power of

Customers

Bargaining Power of Suppliers

Major barriers such as regulatory issues, supply chain complexities, inefficient infrastructure, and automatic approval not being allowed for foreign investment in retail

•The unorganized sector has a dominantposition•Established players have a slight edgeover others and enjoy brand distinction•Access to capital plays an importantpart for expansion in the space

High due to wide availability of choice.With FDI coming in, this will increasefurther

Healthy economic growth, changing demographic profile, increasing disposable incomes, changing consumer tastes and preferences are driving and will continue to drive growth in the organized retail market in India

New entrants likeInternational playersare expected tofurther intensify thecompetition

12

Retail IndustrySWOT Analysis

• Major contributor to GDP

• High Growth Rate

• Indian consumers have high disposable incomes, which translates into high consumption level

Strengths

• Highly unorganized

• Shortage of talented professionals

• Low productivity compared to international playersWeaknesses

• Increasing awareness of consumers about products and services

• Innovation for new product development

• Retail sector in rural India is almost untouched, presenting tremendous opportunity

• Global retail giants see India as a key market

Opportunities

• Rigid government policies and regulations restrict the entry of new players

• Price competition among retailers puts downward pressure on margins

• Economic slowdown is having an adverse effect on consumer spending

Threats

13

Industry Analysis

INDUSTRY ANALYSIS Formats of Organized Retail

Key Challenges

Government Initiatives and Policies

Recent Investments

Trends in the Industry

Major Segments

Emerging Retail Formats

14

Retail IndustryFormats/Channels of Organized Retail

Channel/Formats

Type of Merchandise

Pricing Size(sq ft) Location Example

Supercenter All types of

merchandise

Discount

Pricing

200,000-

300,000

Outskirts Walmart

supercenter

Hypermarket Mostly food &

grocery and

apparels

Discount

Pricing

60,000-

120,000

Malls Hypercity, Big

Bazaar

Supermarket Food & Grocery Discount

Pricing

10,000-

30,000

Malls Food Bazar

Cash and

Carry

Mostly food &

grocery

Bulk buying,

heavy

discounts

100,000-

300,000

Outskirts Metro cash

and carry

Department

Stores

Apparel and

Accessories

Competitive 20,000-

100,000

Malls Shopper‟s

Stop,

Pantaloons

Specialty

Store

Any one type of

merchandise

Competitive 500-5,000 Main

markets,

Malls

Mobile Store

15

Retail IndustryKey Challenges

• Lack of sophisticated real estate planning

• It is difficult to find suitable properties in central locations for retail atreasonable price points

• With real estate prices escalating due to increase in demand from theIndian organized retail sector, it is posing a challenge to its growth

Real Estate

• The retail sector does not have a industry status yet making it difficult forretailers to raise financing from banks to fund their expansion plans

Industry Status

• Improving supply chain and logistics will enable retailers in India tosignificantly enhance overall competitiveness and successfully deploygrowth initiatives. It will also help in significant margin pick-up &reduction in time and wastage

Inefficient Supply Chain

• There are very few courses specific to the retail sector offered atcolleges & universities in India

• Retail training-opportunities such as niche courses for areas likemerchandising, supply chain and so on are limited

• In the unorganized sector manpower is not equipped with even basiclevel of retail specific and customer service skills

Shortage of Skilled

Manpower

• Retail shrinkage is the difference in the value of stock as per the booksand the actual stock available in the shop. The causes of retailshrinkage are mainly employee theft, shoplifting, administrative errorsand vendor fraud. Effective online monitoring system need to beimplemented

Shrinkages

16

Retail IndustryGovernment Initiatives and Policies

100% FDI is permitted under the automatic route for trading companies for

cash & carry trading and wholesale trading

The Cabinet also gave the nod for raising the FDI limit in single-brand retail

ventures to 100%

Reduction in incidence of the excise duty on branded apparels from 4.5% to

3.6% is likely to boost the demand for branded apparels, and benefit

companies like Provogue and Raymonds

The Government is planning to remove the old tax systems to simplify the tax

calculation and avoid double taxation in Indian retail. New Goods and Service

Tax (GST) will simplify the tax structure

The government is in talks to allow foreign direct investment up to 51% in

multi-brand retailing

US Secretary of State Hillary Clinton on her recent visit to India, pitched for

the opening up of the Indian retail market for foreign direct investment (FDI).

The FDI in retail would allow US multi-brand retail chains like Wal-Mart to open

stores in India

# Industry Experts feel allowing multi brand retailing will assist in keepingfood and commodity prices under control and also help to narrow down thecurrent account deficit

17

Retail IndustryRecent Investments till July 2012

Illinois-based firm, Kitchen Holding Company LLC, which markets and

distributes high-end kitchenware brands like Corelle, Corningware and Pyrex

cutlery, has recently announced the setting up a wholly-owned subsidiary in

India to be called World Kitchen (India)

Italian luxury major Canali has entered into a 51:49 joint venture (JV) with

Genesis Luxury Fashion, which currently has distribution rights of Canali-

branded products in India. The company also plans to invest Rs.7.65 crore

(US$ 1.53 million) in India. The JVcompany will now sell Canali branded

products in India exclusively

Germany-based Metro AG will invest an additional Rs 560 crore (US$ 112.12

million) in 2012 to set up eight wholesale stores in India to take advantage of

the growth in consumption in Asia's third-largest economy

Mukesh Ambani-controlled Reliance Brands will bring British shirt brand

Thomas Pink to India, as it looks to rapidly increase its presence in the fast-

growing domestic premium-to-luxury fashion retail market

World leader in furniture, IKEA , also recently announced a spending of~$2bn

in India over the next few years

Source: IBEF

18

Retail IndustryRecent Investments till July 2012

Australian bakery cafe chain Muffin Break is planning to enter into India in

next two or three months and plans to open up to 40 outlets in the next two

years

International cash and carry chains in the retail sector plans to expand in

India. Walmart, the US$ 446 billion American retail giant, which operates cash

and carry outlets in India in a 50-50 per cent joint venture (JV) with the Bharti

Group, expects to open 12 to 15 wholesale outlets in 2012

According to a recent trend, retail companies such as Carrefour, IKEA, Tesco

and Walmart are regularly sourcing well-priced, high-quality products for

customers in Western markets from India. Analysts estimate that these four

retail majors together source around US$ 3.5 billion-US$ 4 billion from India

every year. "India continues to be an important sourcing market," as per

Walmart

The next generation of India's retail environment is favourable for the rise of

luxury goods. Watches are growing faster than the broader luxury market. "In

watches, there is perhaps a higher level of innovation than other luxury

categories," as per Jean Christophe Babin, CEO, Tag Heuer

Mahindra Retail, which houses Mom & Me – the specialty retail venture of the

diversified Mahindra Group is expected to raise Rs 100 crores in funding from

private equity investors

Source: IBEF

19

Retail IndustryTrends

There is high brand consciousness among the youth; 60% of India„s

population is below the age of 30 leading to popularization of brandsand products

Emergence of organized retail

Spending

capacity of youth of India

Raising

incomes and

purchasing power

Changing

mindset of customers

Easy customer

credit

Higher brand consciousness

Real estate development in the country, for example, the

construction of mega malls and shopping malls, is augmentingthe growth of the organized retail business

India has a large growth population, which is a conduciveenvironment to the growth of this sector

The per capita income in India has doubled between 2000-01 and2009-10 resulting in improved purchasing power

The customer mindset is gradually shifting from low price to betterconvenience, high value and a better shopping experience

Emergence of concepts such as quick and easy loans, EMIs, loan

through credit cards, has made purchasing possible for Indianconsumers, for products such as consumer durables

Market Segments

20

Retail IndustrySegments

59.50%

9.90%

4.00%

6.40%

3.40%

16.90%Food andGrocery

Clothing and Fashion

Beauty and Wellness

Electronics

Furniture and Furnishings

Others

The food and grocery segment

is the highest contributor to the

retail sector with maximum

contribution coming from

traditional retailing, while

penetration of modern retail is

highest in the clothing and

fashion segment, at 23% of the

growth

Source: India Retail Market Report by Deloitte-Sept’11

21

Retail IndustryMajor Segments Analysis - Food and Grocery

Food and

Grocery

Business Monitor International (BMI) forecast that sales

through Mass Grocery Retail outlets to reach to USD 27.67

billion by 2015

According to industry estimates, lack of supply chain

infrastructure results in 40% loss of farm produce;

investment in back-end infrastructure should help reduce

this

Sourcing of processed food from SMEs could result in

higher margins

Political support for FDI in food and grocery may face

challenges and many states may not allow FDI or else

allow with more restriction

Hypermarkets and supermarkets are the best suited retail

structure for this segment

BMI predicts

that sales

through Mass

Grocery Retail

(MGR) outlets

will increase by

145 per cent to

reach US$

21.35 billion

by 2014

OpportunitiesIndian household spending on food is one of the highest in the world with 48% of

income spent on food and grocery

With growing urbanization and consumerism and acceptance to modern retail this

sector exhibits huge untapped potential

22

Apparel

(Clothing and

Fashion)

Readymade and western outfits sales are growing at 40-

45% annually

Opening of multi-brand apparel retail for FDI is not

expected to face major political deliberations

For apparel retail, investment in back-end infrastructure lies

in creation of warehouses

Manufacturing facilities (for private label brands) and

logistics is most likely to be outsourced

International retailers could have private label brands

sourced from the SME segment

Departmental stores is the best suited retail structure for

this segment

OpportunitiesDemand for readymade and western outfits is growing at 40-45% annually

Critical success factors are to deliver affordable and accessible fashion, provide

value added services to sustain consumers

Even opportunity for high end clothing/accessories companies like “Rent the

Runway” from the US is possible in India

The Indian

domestic

apparel market

size is expected

to grow at 11%

CAGR to reach

$140 billion by

2020*

Retail IndustryMajor Segments Analysis - Apparel

*As per the India Retail Apparel Report by Northbridge Capital Jan’11

Furniture and

Furnishings

This category faces stiff competition from small time

traditional retailers as well as individual carpenters (India

highly customization focused)

For furniture retail, options for investment in back-end

infrastructure lies in creation of manufacturing

facilities/warehouses

Some of the furniture products could be sourced from the

SME segment

FDI in furniture retail is not expected to face major political

deliberations

Specialty retail outlet is best suited structure for this

segment

OpportunitiesThis category has recently witnessed modern retailers setting up home furnishing

sections in hypermarkets or start-up specialty stores

This category faces stiff competition from small traditional retailers as well as

individual carpenters/furnishers

The concept of showcasing what an actual bedroom or living room would look like

becoming popular too23

The size of Indian

furniture and

furnishings sector

was at about Rs

66,500 crore in

2010. It is

estimated that the

market size to

reach Rs

1,12,000 crore

by 2015

Retail IndustryMajor Segments Analysis - Furniture & Furnishings

24

Beauty and Wellness Penetration level of modern retail is just 4% and

there is a huge untapped potential in this segment

Private label brands in some of the product

categories can be sourced from the SME segment

From Dhoni announcing 200 gyms to staggering

sales of Shehnaz Hussain/Biotique type local

brands to foreign brands like MAC, Clinique etc.,

this segment is all set to explode for the health &

beauty conscious Indian youth

OpportunitiesPharmacy retailing in India is largely dominated by traditional/local chemists

with online buying to pick up

Modern retailer is increasingly moving from pure-play pharma to health and

beauty care led by product designing desire and customer demands

Strong growth in Ayurvedas and natural products as well (e.g. Himalaya stores

are popping up all over the metros and Kama Ayurveda and Forest essentials

products are almost at every hotel in India)

Owing to growing

disposable income of

the middle class

households and

changing lifestyle, it is

expected that the

cosmetics industry will

grow at a CAGR of

around 17% during

2010-2013

Retail IndustryMajor Segments Analysis - Beauty and Wellness

25

Retail IndustryEmerging Retail Formats - Luxury Retailing

A decade ago luxury retail in India

was only meant for the consumption

of elites. The spending habits of a

consumer have redefined the meaning

of luxury - luxurious goods have

become necessities, not just for the

rich but also for the middle class

population. For a common buyer, the

outlook for luxury has changed from

an “aspirer” to an “acquirer”

The Indian luxury market stood at

around USD 5.8 billion and expected

to grow to make India the twelfth-

largest luxury retail market in the

world by 2015

The Indian luxury Industry is

growing at a rapid pace with a CAGR

~20% and shall grow to nearly double

of its current size over the next 5

years

# The optimistic Indian economyreflective of the GDP growthrates coupled with the increasein the consumption byhouseholds will impact anddefine the Indian luxury sectorover the coming years

26


Growth Drivers

An increase in the young working

population especially women and

growing opportunities in the service

sector

Growing incomes coupled with

optimism about the future

Easier consumer credit & loans

Increase in credit card spending

Real estate development in the country

On-going liberalization of retail sector

# With the inexorable pursuit forluxury, the affluent class withtremendous purchasing power areon the fast lane endorsing leadingluxury brands which have allchosen India as the ‘happeningluxury retail destination’

27


Over the last few years, India‟s luxury industry has witnessed significant

transformation and advancement. A short visit to Delhi‟s Emporio mall or Mumbai

Palladium‟s will be proof enough for this as you see people queuing up to go inside

in the middle of an afternoon and thousands of people walking out with red, green,

yellow bags with Gucci, Ferragamo, Tods, Harry Winston, Hermes all over them

India used to be a production outsourcing destination for a long time, but now due to

a steadily growing economy and globalized business environment, India has rapidly

transformed into a large market for Luxury goods

In view of the growing importance of the country in the global luxury industry, Mint,

India‟s leading business daily every year conducts a conference which brings

together the stakeholders to a common platform

The following are the views of the Industry Experts from the recent Indian Luxury

conference organized by Mint:

Glenn Tutssel, Global creative director, The

Brand Union

As per Glenn, International luxury brands need to adapt to

the local Indian culture. Local is becoming much more

fascinating and intrinsic part of luxury than it used to be. He

also advises to the Indian brands to retain their roots while

venturing abroad

Gianluca Brozzetti, chief executive of Roberto

Cavalli Group

As per Brozetti, Italian fashion house Roberto Cavalli

SPA will open its first flagship store in India later this year.

The 400 sq. ft boutique, which will open in the DLF Emporio

Mall in New Delhi, will be at par with the brand‟s stores in

cities such as London, Paris, Tokyo and New York

Pamela Harper

Pamela Harper, among the most experienced operators in

the luxury market who has spent 30 years in the

business, working with brands such as Burberry, Alfred

Dunhill, etc. is currently working with iconic British luxury

brands such as Halcyon Days and Myla. These are the two

brands she would look to bring to India in the near future

Hamilton South

Hamilton South, founding partner of marketing and

communications firm HL Group thinks that in the Indian

market a lot of the younger, affluent people are very keen to

figure out how value is part of a luxury product28


Christian Louboutin

o Celebrated shoe designer Christian Louboutin known for his

five-inch heels and trademark red shoes entered the Indian

market by opening his first store in New Delhi, on February

9, this year

o The decision to open his first store in India was born out of

repeated requests from clients. “From a business point of view it

makes sense to open a store in a country where you have lots of

customers. You can ignore one or two requests but it came to a

point that I couldn‟t ignore requests from Indian clients (at my

London store) anymore.” says Louboutin

o The entry of super High end brands such as Christian

Louboutin in addition to brands such as LVMH, Gucci and

Hermes which have been in the market for a long time are a

testament to India becoming a high-end Luxury market

29


# Close to 20 luxury brands have entered India in the past four years. Yet, theIndian luxury market is in its infancy when compared with China. This givesthe chance to the luxury brands to enter into the Indian market as it willgive them first mover advantage and as per the experts early entrants arelikely to dominate luxury retail

30

Retail IndustryEmerging Retail Formats-E-Retailing

The Online retail business is another format which has high potential for growth in the

near future (every teenager wants to be a Dot com entrepreneur in India today and sell his

or her company to Google, Groupon or Facebook and retire by 25, but there are several

positives to this story)

According to a report from Internet and Mobile Association of India (IAMAI), total Indian

market for e-com is around Rs 50,000 crore, of which 80% or Rs 40,000 crore is captured

by travel e-commerce (online train, bus and airline tickets) while non-travel or retail e-com

is only 20% or Rs 10,000 crore1

The online retail segment in India is growing at an annual rate of 35%

Experts hope that by the year 2025, the total e-com market will reach at least Rs 4,00,000

crore and the share of retail will be half at Rs 2,00,000 crore

Around 60% of online buying right now comes from the top 10 cities and 40% from smaller

towns

Source: 1 as per the artticle in Deccan Herald June 15, 2012

31


It has been a fantastic phase for e-commerce growth in the last 12-15 months.

This phase can be viewed from 2 lenses: Supply, i.e. start-ups, investors &

ecosystem enablers; and Demand, i.e. consumers

The demand side has consistently grown since, and still continues to expand,

backed by a very robust and strong growth thrust that gave everyone the

confidence that the fundamentals were in place and e-commerce is here to

thrive

The last 12 months have seen a string of large investments in the Internet

space (all top five Internet funding deals in India have been inked during this

time frame)

The list of most active investors in the field of Internet and Internet-based

services is given below:

32


Internet and PC penetration- India‟s middle-class is mushrooming, with

growing purchasing power and limited personal time. As per the data available

from IAMAI, internet users have grown by 38% in 2011 and touched a

subscriber base of 121 million

Increasing usage of credit and debit cards coupled with a growing young

population who spend significant time online. Convenience of online product

research, comparison shopping and competitive pricing

Mounting prices of merchandises– escalating fuel prices and at the same

time online retailers are offering merchandises on discounted rate and extreme

climatic condition especially unbearable summer heat across the India

encourage people to shop online

Increasing demand from tier two and three cities

Social networking sites are very much influencing and driving online retail in

India. Many retailers are using it as a potent tool to get marketing and sales

leverage

Cash On delivery- New payment systems like cash on delivery has helped a

lot to this industry. Cash on delivery is being very well accepted by e shoppers

as it safeguards their interest also. It has created a new business opportunity

of cash collection for the e-commerce industry

Growth Drivers

33


Although online retail in India has covered many verticals but still there are

verticals which are untouched. The following are the segments for

growth/opportunities which can prove to be growth engine for online

retailers:

Grocery: Grocery is the prominent contributor in the overall business of Indian

retail and if online retailers will add this to their offering list, it could be a

tremendous sales boost (US example is Fresh Direct)

Drugs & Medicine: Online retailers have so far not touched this vertical. Given

the fact that consumption of medicine in India is great, online retailers can grab

this opportunity. 24*7 delivery facility of medicines can really boost retailer‟s

business and image as well

Opportunities to Grab

# The culmination of the e-commerce era in India is only at its alpha stageright now. The future of the ecommerce industry in India is quitepromising and growing internet users have fueled its growth especiallyamongst the middle class. Online business has added a new salesdimension in selling structure of our country in online retail (e-tailing) aswell as online travel

34

Investments in the Sector

INVESTMENTS IN THE RETAIL SECTOR

Recent M&A Deals

Recent Private Equity Deals

Announced

DateTarget Acquirer Details

April 14,

2010

Lilliput Bain Capital and

TPG Growth

Bain Capital and TPG have

invested USD 86mn in Lilliput

June 30,

2010

Hypercity

City Retail

Pvt. Ltd.

Shoppers Stop

Ltd.

Shoppers Stop raised its interest

to 51% by acquiring 32% stake

for USD 28.23mn

August 24,

2010

Home

Solutions

Pantaloon Retail

Ltd.

Pantaloon Retail merged Home

solution business with itself at

valuation of USD 29.8mn, 1.3

times sales multiple

September 3,

2010

Trent Ltd. Reliance Capital Reliance Capital bought 8.68% in

Trent Ltd. for USD 4.55mn

December

29, 2010

Giantti Italia

S.R.L.

Gitanjali Gems Gitanjali Gems acquired 90%

stake in 'Giantti Italia S.R.L.', a

Company based in Milan, Italy,

through its Dubai-based wholly

owned subsidiary 'Gitanjali

Ventures DMCC‟ 35

Retail IndustryM&A Deals in the Sector

Announced


February 7,

2011

Madhusudan

Securities Ltd

Madhusan Securities acquired

Weekender brand from Primus

Retail Pvt Ltd at USD 21.74mn

March 14,

2011

Shriram Group

and Texas

Pacific Group

(TPG)

TPG and Chennai-based Shriram

Group acquired the wholesale and

franchise undertaking and the retail

undertaking of Vishal Retail Limited

for Rs. 70 crs

April 15, 2011 Deccan Chronicle

Holdings Ltd

Deccan Chronicle Holdings Ltd

merged Odyssey India Ltd business

with itself

November 11,

2011

VEMB Lifestyle

Pvt Ltd, Apple

Group of

Companies

Provogue India sold it's retail chain

business - Promart Retail India

Limited to VEMB Lifestyle Pvt. Ltd.

and Apple Group of Companies for

USD 0.20mn

November 15,

2011

Shoppers Stop

Ltd

Shoppers Stop Ltd acquired 49% of

Share Capital of Gateway

Multichannel Retail (India) Limited

(Gateway) from Hypercity Retail

(India) Limited36


Announced


May 3, 2012 Pantaloon

Retail

Bennett Coleman &

Company

Ltd(BCCL)

BCCL is investing Rs. 200 crs for a

3.68% stake in Pantaloon Retail.

After the transaction, Bennett's stake

in the company will go up from

2.12% to 5.8%

April 30, 2012 Future

Group's

"Pantaloon

Format"

business

Aditya Birla Nuvo Aditya Birla Nuvo is acquiring a

controlling stake in Future Group's

"Pantaloon Format" business post its

demerger from Pantaloons Retail

India Ltd for Rs. 1,600 crs

37


Announced

DateInvestee Investor Details

August14,

2010

SAIF Partners Hongkong based SAIF partners

acquired minority stake for USD

21.46mn

January 13,

2011

REI Six Ten

Retail Ltd

Bennett

Coleman &

Company

Ltd(BCCL)

Brand Equity Treaties Ltd., an arm

of BCCL has invested USD

4.35mn in REI Six Retail Ltd. by

buying a 2% stake through a

preferential allotment

July 15, 2011 Future Ventures

India Ltd

Future Ventures India Ltd.,

Kishore Biyani‟s investment and

business management firm,

increased its stake in Indus-

League Clothing Ltd. to over 90%

by acquiring another. 5.14% stake

at undisclosed amount

July 27, 2011 Franklin

Templeton

Franklin Templeton Private Equity

Strategy bought 20% stake in

Mumbai-based Kimaya

Fashions Pvt. Ltd., for about USD

13.04mn38

Retail IndustryPrivate Equity Deals

Announced


October 24,

2011

TCNS Clothing

Company Pvt.

Ltd.

Matrix Partners Matrix Partners India has invested

USD 13.04mn TCNS Clothing

Company Pvt. Ltd., which

manufactures and markets

contemporary women‟s wear brand

W in India

November 24,

2011

Macquarie Bank

Ltd.

Macquarie Bank picked 3.14% stake

(to add to its existing 3 per cent

holding) in the company. It bought

6.52 mn shares of the company at Rs

200 a share amounting to Rs 1,304

mn

November 25,

2011

Future Venture Future Ventures India Limited has

made additional investments of USD

0.43mn in Clarks Future

Footwear Ltd. and Holii

Accessories Private Ltd.

February 15,

2012

L Capital Private

Equity arm of

LVMH

L Capital, the private equity arm of

LVMH, has bought the 8% stake held

by Wolfensohn Capital Partners in

Fabindia 39


Announced


March 5, 2012 Raymonds

Apparel Ltd.

L Capital L Capital invested Rs.750crs in

Raymonds for a minority stake (not

confined)

May 7, 2012 Pantaloon Retail

India Ltd.

Arisaig Partners Arisaig Partners acquired additional

2.11% stake in Pantaloon Retail

India Ltd. through open market

transaction

June 3, 2012 Future Capital

Holdings

Warburg Pincus Warburg Pincus LLC is set to buy a

majority holding in Indian financial

services firm Future Capital Holdings

for $100-125mn

40


41

Major Players

MAJOR PLAYERS Major Players

Common Stock Comparable

Analysis

42

Retail IndustrySome Major Players

43

Retail IndustryCommon Stock Comparison (Rs. in Crs.)

Source: As per research reports available by leading brokers like Goldman Sachs, Citi Group etc.

* Financials are on estimated basis due to the unavailability of results for the year FY12

S no. Company Name

1 Titan Industries (consolidated) 31-Mar-12 228.60 88.80 Rs. 20,299.68 (Rs. 961.20) Rs. 19,338.48

2 Pantaloons Retail (Standalone)* 30-Jun-11 306.65 20.75 6,362.69 2,334.70 8,697.39

3 Bata (Consolidated)* 31-Dec-11 530.45 6.43 3,408.87 (190.00) 3,218.87

4 Shopper's Stop (Consolidated) 31-Mar-12 389.15 8.26 3,212.91 367.69 3,580.59

5 Gitanjali Gems (Consolidated) 31-Mar-12 325.00 9.11 2,960.75 3,291.08 6,251.83

6 Trent (Standalone) 31-Mar-12 949.20 2.72 2,586.52 (29.61) 2,556.91

7 Jubiliant Foodworks (consolidated) 31-Mar-12 1,168.15 6.51 7,602.08 (12.94) 7,589.14

8 Provogue India(Standalone) 31-Mar-12 14.55 11.44 166.39 273.27 439.65

Financials

as on ….Share Price

Shares

Outstand

ing as on

Mar'12

Market Cap Net Debt 2012 EV

S no. Company Name 2012 2013E 2012 2013E 2012 2013E

1 Titan Industries (consolidated) Rs. 8,848.43 Rs. 10,295.50 Rs. 834.02 Rs. 906.00 Rs. 600.15 Rs. 675.80

2 Pantaloons Retail (Standalone)* 4,778.90 5,504.40 505.30 572.90 55.80 75.40

3 Bata (Consolidated)* 1,812.00 2,132.70 300.20 390.60 185.40 246.60

4 Shopper's Stop (Consolidated) 2,737.41 3,444.00 104.80 178.40 19.01 65.00

5 Gitanjali Gems (Consolidated) 12,498.27 14,050.50 807.59 970.80 487.25 531.00

6 Trent (Standalone) 821.79 923.27 NA 99.34 47.26 55.06

7 Jubiliant Foodworks (consolidated) 1,018.64 1,430.20 187.69 270.40 103.29 155.50

8 Provogue India(Standalone) 609.59 696.55 59.69 103.03 25.03 47.85

Sales EBITDA Net Income

44

Retail IndustryCommon Stock Comparison

Source: As per research reports available by leading brokers like Goldman Sachs, Citi Group etc.

* Financials are on estimated basis due to the unavailability of results for the year FY12

S no. Company NameEBITDA

Margin

PAT

Margin2012 2013E 2012 2013E 2012 2013E

1 Titan Industries (consolidated) 9.43% 6.78% 2.19x 1.88x 23.19x 21.34x 33.82x 30.04x

2 Pantaloons Retail (Standalone)* 10.57% 1.17% 1.82 1.58 17.21 15.18 114.03 84.39

3 Bata (Consolidated)* 16.57% 10.23% 1.78 1.51 10.72 8.24 18.39 13.82

4 Shopper's Stop (Consolidated) 3.83% 0.69% 1.31 1.04 34.17 20.07 169.01 49.43

5 Gitanjali Gems (Consolidated) 6.46% 3.90% 0.50 0.44 7.74 6.44 6.08 5.58

6 Trent (Standalone) 0.00% 5.75% 3.11 2.77 - 25.74 54.73 46.98

7 Jubiliant Foodworks (consolidated) 18.43% 10.14% 7.45 5.31 40.43 28.07 73.60 48.89

8 Provogue India(Standalone) 9.79% 4.11% 0.72 0.63 7.37 4.27 6.65 3.48

Mean 9.38% 5.35% 2.36x 1.89x 17.60x 16.17x 59.54x 35.32x

P/E EV/Sales EV/EBITDA

45

Profiles of Major Players

PROFILES OF MAJOR PLAYERS

46

Retail IndustryPantaloon Retail India Ltd. (PRIL)

Structure

Pantaloon Retail is India‟s leading retailer, operating through multiple store formats in both

the value (Big Bazaar, Food Bazaar) and lifestyle (Pantaloon, Central) segments

The group has ~500 stores across formats, occupies a total retail space of 15 million square

feet in India and has plans to add around 2m sq. ft each year over the next 2-3 years

The company is planning to take its hypermarket chain Big Bazaar to smaller cities of

Andhra Pradesh, with an investment of around US $1.54 million to US $4.41 million

depending on the size and format

The Future Group has sorted out its debt crisis after its back-to-back deals in the past few

month by managing to reduce its debt by Rs 6,000 crore

47

Incorporation Year 1987

Industry Group Retail Trading

Main Product Retail Trade

Board of Directors

MD Kishor Biyani

Director Gopi Kishan Biyani

Exec. Director Rakesh Biyani

Chairman Shailesh Haribhakti

Director Darlie Koshy

Company Overview


Company Overview

48

Financial Highlights (Rs. In Crs.)

Source: Annual Report


Financial Summary

The Company‟s

standalone net sales for

the 9 months ending

31st March 2012 (FY

ends in June) was Rs.

3327.72crs with a net

profit of Rs. ~24crs

49


Financial Summary

50

Retail IndustryShopper‟s Stop Ltd. (SSL)

Structure

51

Company Overview



Main Product Departmental

Store

Board of Directors

Chairman C L Raheja

Director Ravi C Raheja

Director Neel C Raheja

Vice Chairman B S Nagesh

Director G L Mirchandani

Shoppers Stop (SSL) is one of the largest retailers in India. It primarily caters to the lifestyle

segment and offers customers both domestic and international brands

It has a presence in high opportunity segments like home improvement through Home Stop;

infant and mothers care through Mothercare (a franchise with Mothercare PLC); cosmetics

and beauty care through M.A.C. and Clinique (a retail agreement with Estee Lauder); the books

and music space through Crossword; and in airport retailing through a JV with Nuance from

Switzerland

Shopper’s Stop Ltd along with its associate companies Hypercity Retail (India) Ltd and

Timezone Entertainment Pvt. Ltd operates in more than 3.9 mn sq ft in the country

SSL plans to venture into smaller cities with smaller store size (~40,000 sq ft). The merchandise

mix in these stores will be to suit the local needs

With its steadfast focus on systems and processes and its ability to attract global brands as

venture partners, SSL is well placed to emerge as a leading departmental store player in the

long run

Company Overview

Retail IndustryShoppers Stop Ltd. (SSL)

52

Financial Summary



* Debt includes Long term and short term borrowings


53

Financial Summary


54

Retail IndustryTATA Ltd. (Trent Ltd.)

Structure

LandmarkStar India BazarWestside

TATA LTD.

Trent Ltd. Infiniti Retail Ltd.

Croma

The company has initiated a new venture called ‘Infiniti Retail Ltd’ by entering into a

technical-cum-sourcing agreement with Woolworths, an Australian retailer. Under this

venture the company retails multi-brand consumer electronics through its stores

Croma. These stores span across 15,000-20,000sq.ft. with an investment of about INR

150 million per store 55



Main Product Departmental

Store

Board of Directors of Trent Ltd.

Chairman Farrokh K Kavarana

Vice Chairman N N Tata

Director B S Bhesania

Director A D Cooper

Director K N Suntook

Company Overview

Westside Star India Bazaar Landmark

Business

Description

A departmental store format primarily retailing apparel

Hypermarket format of the company aimed at offering products at discounted prices

Specialty stores retailing books, music, etc.

Product Offering

Apparel, home accessories, artifacts, furnishings

Fresh fruits and vegetables, staples, FMCG, health and beauty products, home products, footwear, jewellery, consumer durables

Books, stationery, greeting cards, gift items, toys, music


56

Financial Summary



The Company‟s

sales for the period

ending 31st March

2012 increased to

Rs. 822crs

registering a YOY

growth of 15%



57

Financial Summary


58

Retail IndustryReliance Retail

Company Overview



Main Product Hyper market,

specialty store

etc.

Board of Directors

Chairman Mukesh D Ambani

Director Manoj Modi

Director Dipak C Jain

Reliance Fresh

Reliance Digital

Reliance MartReliance Mini Mart

Reliance Trendz

VerticalFood and Grocery

Specialty –Consumer durables

Hypermarket Supermarket Specialty-Apparel

Product offering

Fresh fruits, vegetables and dairy products

Electronic goods and household appliances

Food and grocery, apparel, consumer durables, footwear

Food and grocery, apparel, footwear

Apparels and accessories

Area (sq.ft.)

3,000–5,00015,000 –30,000

50,000 –2,50,000 10,000 –50,000 30,000

59

Company Overview

Reliance Wellness Reliance HomeReliance Footprint

Reliance Jewels

Vertical Specialty wellness products Specialty –HomeSpecialty -Footwear

Specialty –Jewellery

Product offering

Pharmaceuticals and medical services

Furniture and furnishings

Footwear Jewellery

Area (sq.ft.) 1,500–3,500 40,000 –60,000 8,000 –10,000 2,000 –20,000

Reliance Retail a unit of Reliance Industries, started its operations in 2006 with „Reliance

Fresh‟, grocery store

Since its inception in 2006, Reliance Retail Limited (RRL) has grown into an organization that

caters to millions of customers, thousands of farmers and vendors

Reliance Retail, currently operates around 1,000 stores in the country across value retail, or food

and groceries segment, and specialty formats

The company has an aggressive plan to expand its retail network across India. It is buying real

estate in 20 towns and cities to build big-box hypermarkets, moving beyond its earlier model of

leased properties and small formats

The company has entered into exclusive agreements with textile companies such as Arvind Mills

etc. to develop exclusive brands for its retrial outlets


60


The company owns less than

half-a-dozen hypermarkets, but

under the leadership of two retail

veterans Cissell and Gray, have

been buying real estate for

bigbox departmental formats

expansion

Source: Annual Report of RIL

Financial Summary


61

Financial Summary


62

Retail IndustryTitan Group

Company Overview



Main Product Hyper market,

specialty store

etc.

Board of Directors

Chairman Debendranath Sarangi

MD Bhaskar Bhat

Director Rajeev Ranjan

Director N N Tata

Director Ishaat Hussain

Titan Industries

Watches

Eyewear

Precision Engineering

Jewellery

Titan Brands in various segments

Segment Jewellery Watches Eyewear

Luxury Zoya

Premium Tanishq Xylus

Mid Market Tanishq Titan, Zoop, Fastrack

Titan, Fastrack

Mass Market Gold Plus SonataEye+

63

Titan is among India‟s few organized specialty retailers with leadership in its key categories –

jewelry, watches and eyewear retail

The company commenced operations as a quartz watch manufacturer and marketer in 1987

with Tamil Nadu Industrial Development Corporation (TIDCO)

Today it is India‟s largest (and the world‟s fifth largest) integrated watch manufacturer with

~25% volume market share and 45% value share in the domestic watch market

Titan-Timeline of new brand introduction


Company Overview

64





Financial Summary

65


Financial Summary

66

Jubliant FoodworksCompany Profile

Company Snapshot


Industry Group Bakery products

Main Product Pizzas

Board of Directors

Chairman S S Bhartia

Co-Chairman Hari S Bhartia

CEO Ajay Kaul

Director Vishal Marwaha

Director Phiroz VandrevalaCompany Overview

Jubilant Foodworks (JFL) is the largest pizza chain in India and is also one of the

fastest growing multi‐national fast food chains

The company opened its first store in January 1996, and since then it has expanded to

gain a leadership position with 392 stores across 93 cities located in 25 states and more

than 10,000 employees. The Company got listed on the Indian bourses in February 2010

JFL commands 50% market share in the Indian pizza market and 65% in the home

delivery segment

It has expanded its portfolio by entering into an alliance with Dunkin' Donuts to develop

Dunkin' Donuts operations in India, and by operating restaurants in India. The flagship

store of Dunkin Donuts was opened on May 7, 2012 in New Delhi

67

Jubliant FoodworksExpansion Plans

Jubilant Foodworks Limited (JFL) plans to open 100 outlets of Dunkin‟ Donuts in India

over the next five years

Currently, the company has three Dunkin' Donuts restaurants in the country, and plans to

launch ten restaurants by the end of the current financial year 2012-13

JFL also plans to open five to six Domino's Pizza stores in Sri Lanka in the ongoing

financial year and increase the number to 30 in the next five years. The company is also

contemplating entry into emerging countries

In recent update company has reported increase in after-tax profit for the first quarter that

rose 40% to Rs.32.4 crores and net income jumped 45% to Rs.314.5 crores

Jubilant Foodworks plans to fund all its expansion from internal accruals and said it

has Rs. 50 crore of cash reserves currently as reported on May, 2012

Jubliant Foodworks opened 24 Domino‟s Pizza stores between April 2012 to June 2012

and as of 30th June, it had total of 489 Domino‟s stores across 110 cities. The company is

targeting an additional 100 Domino‟s stores in this financial year

68


Financial Summary



Jubliant FoodworksFinancial Performance

69

Financial Summary

Jubliant FoodworksFinancial Performance

70


CORPORATE PROFILE

71



Corporate Profile

Dinodia Capital Advisors is a Financial Consulting firm

based in New Delhi, India. It assists clients across all

industries grow, both organically and inorganically. The

firm helps clients Raise Capital. Execute Mergers &

Acquisitions opportunities. Restructure, Transform and

Turnaround businesses. Resolve challenging problems.

Take advantage of financial and strategic opportunities.

Balance investor expectations. DELIVER VALUE

72

Dinodia Capital Advisors Service Offerings

Dinodia Capital Advisors Advice Clients on :

Mergers and AcquisitionsWe help in conducting a robust scan

of the market and selecting the most

suitable buyer or seller

Capital RaisingWe advice clients on their capital

needs and find them the right

partner who brings more than just

capital

RestructuringWe advise on business

restructurings to help achieve

financial, strategic and operational

efficiency

India Entry StrategyWe help set up and incubate

businesses in India, acting as a

trusted advisor to facilitate the India

entry strategy

Organizational

TransformationWe work with companies to put

systems, processes and

people in place to help take

advantage of both organic and

inorganic synergies

TurnaroundsWe work closely with companies to

help devise and implement a

turnaround strategy by plugging the

deficiencies of

management, technology, capital or

partnerships

Dinodia Capital Advisors Private Limited C-37, Connaught Place , New-Delhi 110001, Website - www.dinodiacapital.com

Tel No: +91 11 2341 7692, 2341 5272, Fax No: +91 11 4151 3666

Email: [email protected]

For Further Details, Contact :

Pankaj DinodiaChief Executive Officer

Email: [email protected]

mailto:[email protected]

indian retail industry july 2012

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