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BLB Research
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Initiating Coverage 24th Nov 2007

Retail Sector

Deepika Bhatia
deepika@blblimited.com
91-9811418866

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Table of Contents
Page
No.
I Executive Summary ...................................................................................................... 3
II Background .................................................................................................................... 4
III Global Scenario ............................................................................................................. 5
IV Indian Retail Scenario................................................................................................... 7
V Retail Formats................................................................................................................. 13
VI Growth Drivers.............................................................................................................. 15
VII SWOT Analysis.............................................................................................................. 17
VIII Challenges....................................................................................................................... 19
IX Investment Universe .................................................................................................... 22
X Company Analysis
 Pantaloon Retail ................................................................................................ 23
 Trent .................................................................................................................... 25
 Shoppers’ Stop .................................................................................................. 27
 Provogue ............................................................................................................ 29
 Vishal Retail ..................................................................................................... 31
 Koutons Retail ................................................................................................. 33

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Executive Summary

The retailers in India have to learn both the art and science of retailing by closely following how
retailers in other parts of the world are organizing, managing, and coping up with new challenges
in an ever-changing marketplace. Indian retailers must use innovative retail formats to
enhance shopping experience and try to understand the regional variations in consumer
attitudes to retailing.
Retail marketing efforts have to improve in the country:

1. Advertising, promotions, and campaigns to attract customers have to be designed and

executed to build loyalty by identifying regular shoppers and offering benefits to them.

2. Efficient management of high-value customers is vital.

3. Monitoring customer needs constantly must be done with long-term relationships in view.

The above are some of the aspects which Indian retailers need to focus upon on a more pro-
active basis.

Growth Drivers for the Organised Retail are identified over here:

 Higher Disposable Income

 Growing Working Women population

 Adoption of Nuclear Family culture

 Baby Boomer Effect

 Growth in Urban Population

 Robust Outlook towards branded products

 Growth in Retail Malls and various other new formats

 Plastic Money becoming a greater pie of credit

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Background

Retailing is more than Retailing consists of the sale of goods or merchandise, from a
fixed location such as a department store or kiosk, in small or
selling goods individual lots for direct consumption by the purchaser. Retailing
is a well recognized business function which compromises
making available desired product in the desired quantity at the
desired time. This creates a time, place and form utility for the
consumer. The success of retailing is highly dependent on an
efficient supply chain management. A well-developed supply
chain reduces wastages and transaction cost thereby reducing the
cost of inventories to be maintained by the producers and the
traders. A reduction in the cost of inventory management leads to
a reduction in the final price to the consumer.

Retailing has been identified as a thrust area for promotion of

textiles, processed foods, agricultural and horticultural produce.

Retail Sector can be divided into organised and unorganised

sectors:

Unorganised retailing is characterized by a distorted real-estate

Unorganised Retail market, poor infrastructure and inefficient upstream processes,
lack of modern technology, inadequate funding and absence of
skilled manpower. Therefore, there is a need to promote
organised retailing.

Organised Retail refers to a form of retailing whereby customers

Organised Retail can buy goods in a similar purchase environment across more
than one physical location for verticals from food, grocery,
apparel, consumer durables, jewellery, footwear, beauty care,
home décor, books to music.

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Retail issues in developed
markets around the globe
basically will be a mirror
image of issues confronted
by the U. S. economy-aging
populations, shrinking
share of retail spending and
increased spending on
healthcare.
In Contrast, populations in
developing markets will
remain relatively young and
will increase share of retail
spending
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Global Scenario
The Global retail Industry is one of the largest industries
worldwide, increasingly being controlled by a handful of
powerful corporations based mainly in the U.S and Europe,
namely, Wal-Mart, Tesco, Carrefour and Metro. These MNCs
retailers have by and large have saturated in their home countries
and are looking for penetrating emerging markets of India, China
and Russia as they are minimally penetrated by organised retail.
Shopping will become more experiential; eating, being
entertained and “living” the shopping experience will take on
prominence. The global market will grow rapidly in our flat
world, with markets such as China and India granting access to
the world’s best retailers.
Retailing in United States
Retail Sector is the second largest industry in U.S. both in number
of establishments and number of employees. The U. S. retail
industry generates $3.8 trillion in retail sales annually ($4.2
trillion if food service sales are included), that is approximately
$11,993 per capita.
Wal-Mart is the world's largest retailer and the world's largest
company with more than $312 billion (USD) in sales annually.
Wal-Mart employs 1.3 million associates in the United States and
more than 400,000 internationally. The second largest retailer in
the world is France's Carrefour.
Retail Trends in other Countries
 China had initially restricted FDI in retailing to only joint
ventures at 49 percent foreign holding and only at
specified locations subject to a ceiling on the number of
stores.
 Malaysia, Indonesia, Thailand and Japan have enforced
zoning restrictions for mega-retailers.
 There are minimal capital requirements for foreign
retailers in Sri Lanka.
 The Philippines has imposed “sourcing” and reciprocity
requirements on foreign retailers.
 In Japan, mega-retailers must seek the views and
permission of small local stores before opening a new
store.
 In the US, major cities such as Los Angeles, California,
Chicago and New York City have restricted the opening
of Wal-Mart stores within city limits.
 France enacted the Raffairin Act that regulates the growth
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of hypermarkets larger than 300 square feet.

 In Thailand, the government has set up an assistance fund
for local retailers due to the impact of mega retailers.

Dearth of Retailing in Asian Economies

Share of Organised Sector

Country Total Market ($ bln)
( percent)
U.S. 4,030 85
Taiwan 40 81
Malaysia 20 55
Thailand 32 40
Indonesia 75 30
China 325 15
India 360 4

Comparative Penetration of Organised Retail

for International Economies

Developing markets will

15%
continue to build a big pool 19%

of university-educated labor 45%

60%
and talent, shifting the 70%
85%
nucleus of knowledge 96%

workers 85% 81%

55%
40%
30%
15%
4%

U.S. Taiwan Malaysia Thailand Indonesia China India

Organised Unorganised
Global Players operating in India:

Name Country Route Segment

(Franchise/JV/FDI)
Metro AG Germany Cash and Carry Food
McDonalds U.S.A. JV Food
Wal-mart U.S.A. JV Supply -chain
Management
Woolworths Australia. JV Consumer
Durables
Marks and U.K. Franchisee Departmental
Spencer Stores
Benetton France Manufacturing Apparel
Landmark Middle East NRI/OCB route Lifestyle Store
Lifestyle

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Indian Retail Scenario

History
Retailers in India have to
experiment with formats Traditionally Indian Retail can be traced back from Weekly
maintaining scalability in Markets, Melas, Village Fairs in Small towns and villages to
terms of segments, along Kirana stores, PDS outlets, Khadi Bhandaar, co-operative stores
in Urban cities. The wave of retail began with various textile
with deepening penetration
manufactures like Bombay Dyeing, Raymonds, S Kumar’s, and
levels Grasim foraying into selling the product through their outlets
and competition among FMCG players driving the forces
towards retailing.

The evolution of retailing lead to an emergence of various

modern formats like Shopping malls, Super-marts, Hyper-marts,
Departmental Stores, Apparel Stores, etc. catering to majorly all
sectors of society providing the all-important 3Vs – Value,
Variety and Volume.

Retail-a boom

Indian Retail Sector is at its inflexion point awaiting multifold

growth. The Retail Industry’s Size is presently Rs 1,44,253 crore
out of which the organised sector contributes to a mere 4 percent
of the market size, fairly dominated by scattered, unregulated, &
unorganised players. Retail sector is expected to grow in tandem
to the GDP growth-rate. This sector is slated to be the biggest
contributor to GDP of around 10 percent and has promisingly
generated ~8 percent employment in India, that is moving
towards a larger generation of employment opportunities in the
times ahead.

Introduction Growth /Peaking Maturity Decline

India (2011)
India (1995)

India (2006)

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Organised Share of retail
sector is expected to
increase to 8-9 percent in
2010-11 from 4 percent in
2007
Food and grocery is largest
pie of total retail sales
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Direction of Organised Retail
Due to the urban-rural divide, organised retail will grow in the
metros and large cities, followed by semi-urban and rural areas.
Thus India is on the verge of an enormous multi-fold growth of
organised retail. In a span of just 5 years, organised retail is
expected to expand in urban cities besides making an entry in
semi-urban and rural areas. Presently, the organised retail market
is ~4 percent of the total retail, that is around Rs 67,310 crore and
is expected to compound at 27 percent per annum,
aggregating to Rs 1,75,103 crore (7.44 percent of the total retail) in
2010-11. The retail industry is assumed to grow at GDP growth-
rate. The retail revolution signals softening of inflation rate on an
yearly basis, due to elimination of intermediaries in retailing and
passing on of all the benefits to the consumer. The mantra
expediting the retail growth is ‘Consumer is the King’.
Penetration of Organised Sector
2006-07 2010-11
Segmental Growth
Food and Grocery
This is the largest vertical of 74.4 percent of retail size
compromising fruits and vegetables, milk and milk products,
staples, cereals, grains, pulses, processed food, ready to cook and
ready to eat meals, spices and other eatables. This is least
penetrated segment across all verticals of around 1.5 percent,
being the most untapped pie. According to NSSO 60th round, 54
percent of the rural and 42 percent of urban expenditure was on
food.
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Apparel is the most
organised segment
Growth in nuclear families
drive the demand for
consumer durables
Home décor will expand at
highest pace
Luxuries lifestyle is
adopted
Hectic lifestyle will govern
concern for Grooming
Footwear is largely
organised segment
New Habits adopted
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Apparels
Clothing and textile is a large organised vertical dominated by
textile manufacturers Raymond, Bombay Dyeing, Vimal, and by
big retailers like Pantaloon, Pyramyd, Koutons having ~16.4
penetration level. Increasing disposable incomes and change in
the lifestyle needs has pushed the segment.
Consumer Durables
The electronics and consumer durable is the biggest organised
segment penetrated to ~20 percent. There lies more unearthed
growth in the verticals as the craze for electronic gadgets have
been picking up with the advent of nuclear families.
Home Décor and furnishing
The demand for furnishing is going to be spearheaded by a huge
demand for the real-estate, paving way to tap the unorganised
segment. Presently only a few players like Gautier, Godrej, &
Durian function as organised entities.
Jewellery and Watches
Titan is the early entrant in the segment followed by MNCs
Oyzterbay, Tanishq, Swaroski, Orra, Gitanjali, & D’damas driven
by demand for fashion accessories, and huge advertising and
promotion campaigns.
Beauty Care
The organised players in Beauty Care are HLL (Lakme Salons),
Marico (Kaya), Health and Glow are having a huge growth
impetus.
Footwear
Leaving aside the Apparel, Footwear segment is forming a big
pie in the organised retail sector, expected to grow to greater
heights with foreign payers like Crocs Inc.
Books, Music and gifts
In addition to Tier-II and Tier-III cities, the habit of reading books
and listening to music is picking up among the Tier-I cities. The
stores like Oxford Bookstore etc are experiencing this upswing.
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Growing Trends of Organised Retail

200000

150000
Retail Volume (Rs. Cr.)

100000

50000

0
2007-08E

2008-09E

2009-10E

2010-11E

2011-12E
2005-06

2006-07

Year

Food and Grocery Apparels

Consumer Durables Home Décor and Furnishing

Jewellery and Watches Beauty Care

Footwear Books, Music and gifts

Organised Retail Growth in Indian Cities

The Retail sector contributes to around 36 percent of GDP in

India and is largest employment generator. The sector is
dominated by small-scattered unorganised regional players, large
players contributing to meager 10 percent of the total pie.
Organised retail is at its nascent phase wherein the large
organised retail groups are having aggressive expansion plans to
penetrate the Metros and Tier I cities and establish themselves

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amongst rural masses of Tier I and Tier II cities. There lies a

challenge for retailers to experiment with new value formats
along with developing customer loyalties. Since there will be
demographic shift in population growth, urbanization and
migration due to transition in urban household growth and
income distribution. The total retail market in the top 67 cities in
India in 2006 was Rs. 2.55 trillion, which is expected to increase to
Rs. 3.91 trillion in 2011. According to CRISIL, around 87 percent
of the retail opportunity comes from top 25 cities compromising
Metro Delhi, Mumbai, Calcutta, Mini Metros Hyderabad,
Chennai, Bangalore, Mini Metros Ahmedabad and Pune, Tier I
cities of Kanpur , Nagpur, Surat and Ludhiana, Tier II cities
Coimbatore, Chandigarh, Lucknow, Kochi, Jaipur and Tier III
cities Vadodara, Vizag, Indore, Vijaywada, Thiruvananthpuram,
Bhopal, Nashik and Madurai.

The levels of penetration in the top 67 cities are expected to leap.

Organised retail has been

established in Metros and Pentration 2010 (%)
Pentration 2006 (%) 3%
Tier 1 cities, other cities
having negligible level of 1% 15%
5%
penetration
40%

20%

15%
30%

Top 6 Cities Next 37 Cities

Next 24 Cities Rest of India

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Foreign Direct Investment

Before 1997, there was no restriction on FDI in retail sector due to

FDI regulations in retailing which McDonalds in 1996 and Foodworld, a 51:49 JV between
have not deterred Spencer and Dairy Farm International in 1997 started operating in
prominent international India. After 1997, FDI in retail in ‘single brand’ is restricted to 51
percent (Tommy Hilfiger, Mango, Adidas, Benetton) and in cash
players from setting up
and carry format 100 percent FDI is allowed. The second run of
businesses in India reforms are eagerly awaited by industry players as many MNCs
are knocking the FIPB door to enter into front and back end
retailing operations as they would like to garner the reaping
fruits of Retail boom in India. The opening-up of the retail sector
will bring technology, quality standards, integration with global
supply-chains, & marketing, ushering-in newer economic
opportunities, more employment avenues and to release the
growth path for India.

Routes adopted by Foreign Players

 Franchise
Franchise route involves granting of rights by one party,
the franchiser to another, the franchisee in return for a
sum of money. The franchisee is allowed to conduct
business using the franchiser’s know-how and brand
name. There are various levels of franchisee: Unit
franchisee, multiple franchises, master franchisee and
regional franchisee. The foreign players which have
opened franchisee across various verticals of fast food,
apparels, and entertainment are Nike, Pizza Hut, Subway,
Tommy Hilfiger, Marks and Spencer, Swarovski and
Hugo Boss.

 Cash and Carry Wholesale Trade

In Cash and Carry Wholesale Trading, 100 percent FDI
has been allowed under the automatic route by FIPB to
encourage efficiency in back end supply chain
management. A player like Metro, Shoprite and Wal-mart
have forayed to strengthen the supply-chain management
as done by the manufacturers and wholesalers till now.

 Joint Venture
Multi National like McDonalds, Reebok, Wal-mart have
entered into joint venture with Indian companies with
share not exceeding 49 percent.

 Manufacturing
The foreign manufactures sets up its Indian unit to
manufacture and forward integrated to retailing its
products like Bata and Benetton.

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Retail Formats

 Kiranas
These are food and non-food neighborhood counter
Conventional Formats stores, also called ‘mom and pop stores’ in western
countries. These are big chunks forming the segregated
and unorganised retail segment. These are family-owned-
and-run retail-outlets picking the goods from wholesalers
totaling to around 12 million stores across India.
 Mandis
These are the largest chunk of unorganised retail catering
to urban and rural masses. Mandis are physically located
at different regions to enhance convenient shopping. The
sellers bring across various products like eatables,
vegetables and fruits, pulses, cereals, spices etc. The most
prominent of them are sabzi mandis found in most of the
localities across India.
 Village Haats
This form is operating in rural areas where buyers and
sellers gather once in a week or month from nearby
villages and small towns to cater their livelihood and
leisure needs. These haats are a source of entertainment
and socialization among rural masses.
 Push Cart Vendors
The are categories of vendors roaming from door to door
in various localities selling fruits, vegetables, and other
eatables, from which mostly housewives makes purchases
that too on credit.

Modern Organised Retail Upcoming Retail Formats

Formats
Modern Formats Area (sq. ft) Points of Differentiation
Shopping Malls 60,000-7,00,000 Multi-format, multi-
product, multi-brands
catering lifestyle needs
Hypermarts 50,000-70,000 Multi-verticals
Supermarts 5,000-10,000 Single vertical
Departmental 20,000-50,000 Sigle Vertical
Stores
Apparel Stores 20,000-25,000 Multi-branded single
verticals, focusing on
high-end customers
Specialty format 2,000-5,000 Multi-branded, single
vertical on specific needs
of customers
Exclusive formats 500-5,000 Owned/Franchised single
product

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Advantages of Conventional and Modern Organised

Retail Formats

Conventional Modern Organised

Low operating-cost and
overheads
Proximity to consumers
Long operating-hours
Strong relations with customers
Large bargaining power
Range and variety of goods
Quality assurance (brand-
related, durability)
Convenience and hygiene

In the long run, both traditional and modern retail formats will
co-exist providing the benefits of both the formats. Organised
retail will dominate the traditional formats, which will fall under
the new evolving hub-and-spoke, and cash-&-carry models.

Cash-&-carry Wholesale Model

Business Models suiting
Indian Scenario Cash-&-carry is a form of retail trade in which goods are sold
from a wholesale warehouse operated either on a self-service
basis where customers settle the invoice on-the-spot or pay cash
and carry the goods away themselves. The cash-&-carry player
also performs many value-added functions, including selling and
promoting, buying and assortment building, bulk-breaking,
warehousing, transporting, financing, risk-bearing, supplying
market information, and providing management services.

Hub-and-spoke Model

Retail Chains are entering residential areas with the hub-and-

spoke model, whereby one large store supports various smaller
stores in the nearby residential areas. This is win-win model is
well-suited to the Indian business scene where large stores obtain
supplies from the warehouse and supplies to the consumers,
involving both large payers acting as wholesalers and local
kiranas as retail outlets. With efficient supply chain management,
availability of space and proper technology in place, this will not
take much time. The Piramyd Retail’s Trumart Stores (food and
grocery) in Mumbai and Pune are based on a similar model.

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Growth Drivers

Higher Disposable Income

The disposable income has been showing a rapid increase from

the last few years and is expected to grow steadily because the
proportion of the major consuming class (population having
incomes higher than Rs 90,000) is expected to reach 48 percent by
2009-10 from 20 percent in 1995-95, at the 2001-02 prices, at a
CAGR of 9.3 percent over the next 8 years leading to new
consumption patterns due to increasing depth in the consumers’
pocket.

Growing Working women population

The propensity to spend in the case of working women is higher

by 1.3 times as compared by housewives. According to the census
report, the population of working women increased to 26 percent
in 2001 as compared to 22 percent in 1991.

Adoption of Nuclear Family culture

The increase in per capita income paved way to increase the

nuclear-family culture. The proportion of nuclear families as a
percentage of total household population has increased as shown
by fall in average household size from 5.57 in 1991to 5.36 in 2007,
expected to fall further to 5.02 by 2011. This will fuel the growth
of organised retail.

Baby Boomer Effect

The demographics of Indian population has a steep growth in

earning population (15-60 yrs). In 2000, 593 million people (58.3
percent of total population) constituted the age bracket of 15-60
yrs – growing from an unprecedented level of 335 million people
(54 percent of total population) in 1975 at a rate of 77 percent
(CAGR of 2.3 percent) in contrast to a population growth of 64
percent (CAGR of 2 percent) over the same period of 25 years.
Over the next 15 years, the earning population is expected to
increase to 62.8 percent in 2015, translating into a population of
782 million.

Growth in Urban Population

Urbanization has increased at a rate of 2.7 percent over the last 10

years (1990-2000). In 2000, the urban population was estimated to
be 281 million (27.7 percent of the total population). This trend is
likely to continue and urbanization is expected to grow at 2.4

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percent between 2000 and 2015. In 2015 the urban population is

expected to be 401 million, constituting 32.2 percent of the total
population.

Robust Outlook towards Branded products

Due to liberalization of manufacturing sector, various organised

branded products have entered into Indian markets, thereby
developing
and widening the basket for branded finished goods. With the
advent of International competition, new trends and lifestyles are
evolving among India masses resulting into 10-15 percent growth
in branded products. This has established the base for organised
retail market in India.

Growth in Retail Malls and various other new Formats

Real Estate players like Raheja’s, Future Group, DLF, Omaxe,

Piramal Group, Parsvnath, Unitech are developing retail malls
and leasing out the retail spaces to various retailers of varied
products making it a one-stop shopping destinations in urban
and semi-urban cities. These shopping-cum-entertainment malls
are wooing young buyers to increase their conversion rate backed
by increasing foot-falls. Around 358 malls have come up by 2007,
covering a total space of 87 million square feet, thereby pushing
organised retail to new heights.

Plastic Money becoming a greater Pie of credit

The use of plastic money in the form of debit and credit cards has
expanded multifold in last 5 years. The number of credit cards
has grown at a CAGR of 28 percent and debit cards galloped by
140 percent. The customers have adopted the habit of electronic
payments and leveraging their pockets shifting from basic needs
to lifestyle products.

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SWOT Analysis

 Retailing is a “technology-intensive" industry.

It is technology that will help the organised
retailers to score over the unorganised
retailers. Successful organised retailers today
work closely with their vendors to predict
STRENGHTS consumer demand, shorten lead times, reduce
inventory holding and ultimately save cost.
Example: Wal-Mart pioneered the concept of
building competitive advantage through
distribution & information systems in the
retailing industry. They introduced two
innovative logistics techniques – cross-docking
and EDI (electronic data interchange).

 On an average a super market stocks up to

5000 SKU's (Stock keeping Units) against a few
hundreds stocked with an average
unorganised-retailer.

 Less Conversion level: Despite high footfalls,

the conversion ratio has been very low in the
retail outlets in a mall as compared to the
standalone counter parts. It is seen that actual
conversions of footfall into sales for a mall
outlet is approximately 20-25 percent. On the
other hand, a high street store of retail chain
WEAKNESSES has an average conversion of about 50-60
percent. As a result, a stand-alone store has a
ROI (return on investment) of 25-30 percent; in
contrast the retail majors are experiencing a
ROI of 8-10 percent.

 Customer Loyalty: Retail chains are yet to

settle down with the proper merchandise mix
for the mall outlets. Since the stand-alone
outlets were established long time back, so
they have stabilized in terms of footfalls &
merchandise mix and thus have a higher
customer loyalty base.

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 The Indian middle class is already 30 crore &

is projected to grow to over 60 crore by 2010,
making India one of the largest consumer
markets of the world. The IMAGES-KSA
projections indicate that by 2015 India will
have over 55 crore people under the age of 20
– reflecting the enormous opportunities
possible in the kids and teens retailing
segment.

 Organised retail is only 4 percent of the total

retailing market in India. It is estimated to
grow at the rate of 27 percent p.a. and reach
Rs. 1,37,000 crore by 2010.

 Percolating down: In India it has been found

out that the top 6 cities contribute 66 percent
of the total organised retailing. While the
metros have already been exploited, the focus
OPPOURTUNITY has now been shifted towards the tier-II cities.
The 'retail boom' of which 85 percent has so
far been concentrated in the metros, is
beginning to percolate down to these smaller
cities and towns. The contribution of these
tier-II cities to total organised retailing sales is
expected to grow to 20-25 percent.

 Rural Retailing: India's huge rural population

has caught the eye of the retailers looking for
new areas of growth. ITC launched India's
first rural mall "Chaupal Saga" offering a
diverse range of products from FMCG to
electronic goods to automobiles, attempting to
provide farmers a one-stop destination for all
their needs. "Hariyali Bazar", started by DCM
Sriram group, provides farm-related inputs &
services. The Godrej group has launched the
concept of 'agri-stores' named "Aadhaar"
which offers agricultural products such as
fertilizers & animal feed along with the
required knowledge for effective use of the
same to the farmers. Pepsi on the other hand
is experimenting with the farmers of Punjab
for growing the right quality of tomato for its
tomato purees,pastes.

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 If the unorganised retailers are put together, they

are parallel to a large supermarket with little or no
THREATS over-heads, a high degree of flexibility in
merchandise, display, prices and turnover.
 Shopping Culture has not developed in India as
yet. Even now malls are just a place to hang
around, largely confined to window-shopping.

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Challenges in India
Retailing as an industry in India still has a long way to go. To
become a truly flourishing industry, retailing needs a few
changes in regulations and functions:
 Automatic approval not permitted for foreign investment
in retail.
 Regulations made to restrict real-estate purchases, and to
over-come cumbersome local laws.
 Taxation that favors small retail businesses.
 Presence of developed supply-chain and integrated IT
management.
 Increase in trained work force.
 Intrinsic complexity of retailing – rapid price changes,
constant threat of product obsolescence and low
margins.

Factors Description Implications

Barriers to FDI  FDI not permitted in pure  Absence of global players
retailing - Franchisee  Limited exposure to best
arrangement allowed practices
Lack of Industry Status  Government does not recognize  Restricted availability of finance
the industry - Restricts growth and scaling up
Structural  Lack of urbanization  Lack of awareness of
Impediments  Poor transportation Indian consumers -
infrastructure Restricted retail growth
 Consumer habit of buying fresh  Growth of small, one-
foods Administered pricing store formats, with
unmatchable cost
structure
 Wastage of almost 20 percent-25
percent of farm produce.
High Cost of Real  Pro-tenant rent laws  Difficult to find good real
Estate  Non-availability of estate in terms of location
government land, zoning and size
restrictions  High land cost owing to
 Lack of clear ownership titles, constrained supply -
high stamp duty (10 percent) Disorganised nature of
transactions
Supply Chain  Several segments like food and  Limited product range
Bottlenecks apparel reserved for SSIs  Makes scaling up difficult
 Distribution, logistics  High cost and complexity
constraints – restrictions of of sourcing & planning -
purchase and movement of food Lack of value addition and
grains, absence of cold chain increase in costs by almost
infrastructure 15 percent
 Long intermediation chain

Private Client Group 20

 Money Look
BLB Research
Research – A Passion

Factors Description Implications

Complex Taxation  Differential sales tax rates  Added cost and complexity of
System across states - Multi-point distribution
octroi  Cost advantage for smaller stores
 Sales tax avoidance by through tax evasion
smaller stores
Multiple  Stringent labor laws governing  Limits flexibility in operations
Legislations hours of work, minimum  Irritant value in establishing
wage payments chain operations; adds to overall
costs
 Multiple licenses/clearances
required
Customer  Local  Leads to product proliferation
Preferences consumption  Need to stock larger number
habits - Need for of SKUs at store level
variety  Increases complexity in sourcing
 Cultural issues & planning - Increases the cost of
store management
Availability of  Highly educated class does not  Lack of trained personnel
Talent consider retailing a profession  Higher trial and error in
of choice managing retail
 Lack of proper operations
training  Increase in personnel costs
Manufacturers  No increase in margins  Manufacturers refuse to dis-
Backlash intermediate and pass on
intermediary margins to retailers

Private Client Group 21

 Money Look
BLB Research
Research – A Passion

Investment Universe

Company CMP EPS 07 A EPS 08 E EPS 09 E EPS 10 E P/E P/E P/E P/E Target Recommendation
(in Rs.) (in Rs.) (in Rs.) (in Rs.) (in Rs.) 07 08 09 10

Pantaloon 659 8.18 14.12 22.59 36.14 80.67 46.72 29.20 18.25 903 Buy

Trent 533 22.39 19.87 25.84 33.59 23.83 26.84 20.65 15.88 839 Buy

Shopper’s
511 6.94 9.98 13.97 19.56 73.65 51.26 36.61 26.15 488 Buy on dips
Stop

Provogue 995 10.02 13.14 19.71 29.57 99.31 75.75 50.50 33.67 739 Buy on dips

Vishal 690 13.64 23.69 28.42 34.12 50.64 29.15 24.29 20.24 853 Buy

Koutons 721 12.62 16.48 26.38 42.20 57.18 43.76 27.35 17.09 1,055 Buy

Private Client Group 22

 Money Look
BLB Research
Research – A Passion

BLB Research Initiating Coverage Recommendation: BUY

Research – A Passion Pantaloon Retail (India) Ltd.

BSE Code: 523574 Company Background

NSE Code: PANTALOONR
Bloomberg Code: PF@IN Pantaloon is founded in 1987 as a garment manufacturing
Reuters Code: PART.BO
company, the company forayed into modern retail in August
Group: Pantaloon
1997 with the launch of its first department store, Pantaloons in
Face Value: Rs. 2/- Kolkata. It has established its retail presence across the major
CMP: Rs. 659 cities, managing the aggregate retail space of 6 million square
52 Week (H/L): Rs. 720/296 feet.
M Cap (Rs. mln): 9,913.13 Cr
Outstanding Shares: 15.07 Cr
Investment Rational
Shareholding Pattern
 Pantaloon is widely known for its brands, launched the
Shareholding Pattern
India’s first formal trouser brand; a formal shirt brand-
John Miller and Retail formats like Pantaloon Shoppe, a
10.75% 25.33% franchisee format to distribute branded garments; Big
Bazaar, India’s First Hypermarket chain; Food Bazaar, the
Supermart chain in food and grocery segment; Malls like
43.47% 12.32%
8.14% 0% Central and Kshitij and specialty formats like Fashion
Station and aLL and various other multiple retail formats
F o re ign Ins titutio ns
such as Collection i, Furniture Bazaar, Shoe Factory,
No n P ro m o te r C o rp. Ho ld. Go vt Ho lding
Ezone, Depot, and futurebazaar.com across the nation.
P ro m o te rs P ublic & Othe rs  India’s leading retailers operating over 6 million square
feet of retail space across 48 cities in India.
Pantaloon Retail vis-à-vis Bse Sensex
 Net sales of the company for the quarter ended Sept FY08
registered a growth of 77 percent at Rs 1019.64 crore.
Share Price Performance
 The company caters to the ‘Lifestyle’ segment through its
31 Pantaloons stores and 4 Central Malls, as well as its
3.00
2.50 other concepts. In ‘Value’ retailing it is present through 78
2.00 Big Bazaar hypermarkets and 106 Food Bazaars, and
1.50
1.00 other delivery formats.
0.50  Forayed into new businesses in capital, consumer finance,
0.00
insurance, media, logistics, and newer brands through its
May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

subsidiary companies.
 Plans to spend Rs. 800 Crore to have 10-11 million sq. ft
space for the year ending June FY08.
Close Price BSE_SENSEX
 Home solutions Segment will most likely break even this
year, and will affect bottomline going forward.
 The company holds 74 percent in future capital holding,
which is coming out with Intial Public Offering and
expected to possible value unlocking of investment.

Private Client Group 23

 Money Look
BLB Research
Research – A Passion

Concern

 In lieu of competition from international retail players

with established Brands can be a threat.
 Various Industrial Group have entered into the Retail
arena.
 Real Estate will going to be a scarce resource going
forward.
 Maintenance of economies of scale is a challenge.
 Customer Loyalty will drive the business revenue.

Valuation
The stock is trading at Rs.659 discounting FY10E earnings by
P/E(x) of 18. The earning is expected to grow at a CAGR of 64
percent for FY07A-FY10E. We initiate buy on the stock with a
target price of Rs. 903.

(Rs. in million)
EPS
Year Equity Net Sales EBIDTA PAT (Rs) P/E
2006A 268.85 18,677.71 1,462.38 641.58 4.77 138.20
2007A 293.50 33,256.11 3,076.22 1,199.92 8.18 80.67
2008E 301.50 53,209.78 3,192.59 2,128.39 14.12 46.72
2009E 301.50 85,135.64 5,108.14 3,405.43 22.59 29.20
2010E 301.50 136,217.03 8,173.02 5,448.68 36.14 18.25
(Source: Company, BLB Research)

Private Client Group 24

 Money Look
BLB Research
Research – A Passion

BLB Research Initiating Coverage Recommendation: BUY

Research – A Passion Trent Ltd.

BSE Code: 500251

NSE Code: TRENT Company Background
Bloomberg Code: LAKMEW@IN
Reuters Code: TREN.BO Established in 1998, Trent operates some of the nation's
Group: TATA
largest and fastest growing retail store chains with Westside,
Face Value: Rs. 10/- a lifestyle retail chain, which was followed up in 2004 with
CMP: Rs. 533 Star India Bazaar, a hypermarket with a large assortment of
52 Week (H/L): Rs. 883/475 products at the lowest prices. In 2005, it acquired Landmark,
M Cap (Rs. in mln): 1,034.02 Cr India's largest book and music retailer.
Outstanding Shares: 1.94 Cr
Investment Rational
Shareholding Pattern

 Trent is carrying on the business of retailing of

Shareholding Pattern
readymade garments for men, ladies and children,
household and gift items, footwear, accessories, toys
31.74%
9.45% etc., under the name “Westside” and mass retailing
20.39% under the name “STAR INDIA BAZAAR”.
 In a short span of 8 years Westside has positioned
0% itself as one of the leading organised apparel retailers
32.22% 6.20%
in India taking the shortest time to break even in the
organised apparel retail sector in India. The company
F o re ign Ins titutio ns
has expanded its Westside Stores in the major metros
No n P ro m o te r C o rp. Ho ld. Go vt Ho lding and mini-metros of India, and has its presence in 14
P ro m o te rs P ublic & Othe rs cities and is spread across all the 5 regions.
 In a period of 8 years, not only has the number of
Trent vis-à-vis Bse Sensex
markets addressed increased from 2 to 14, but the
product offering in each market has also increased.
Share Price Performance The number of product categories has increased from
3.00 5 to 21; the number of SKUs offered has increased
2.50 from 11,000 to 60,000.
2.00
1.50
Concern
1.00
0.50
0.00  Trent is dealing in Apparel segment which is seasonal
in nature.
May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

 The verticals Trent is operating are trend-based which

exaggerates the risk.
Close Price BSE_SENSEX  High level of risk prevails due to ample level of
competition in the apparel segment.

Private Client Group 25

 Money Look
BLB Research
Research – A Passion

Valuation

The stock is trading at Rs.533 discounting FY10E earnings by

P/E(x) of 16. The earning is expected to grow at a CAGR of 14
percent for FY07A-FY10E. We initiate buy on the stock with a
target price of Rs. 839.

(Rs. in millions)
Net EPS
Year Equity Sales EBIDTA PAT (Rs) P/E
2006A 144.28 3,464.41 441.04 251.28 17.42 30.63
2007A 157.61 4,557.80 642.29 352.86 22.39 23.83
2008E 194.94 7,748.26 852.31 387.41 19.87 26.84
2009E 194.94 10,072.74 1,108.00 503.64 25.84 20.65
2010E 194.94 13,094.56 1,440.40 654.73 33.59 15.88
(Source: Company, BLB Research)

Private Client Group 26

 Money Look
BLB Research
Research – A Passion

BLB Research Initiating Coverage Recommendation: BUY ON DIPS

Research – A Passion Shoppers’ Stop Ltd.

BSE Code: 532638

NSE Code: SHOPERSTOP Company Background
Bloomberg Code: SHOP@IN
Reuters Code: SHOP.BO Since its inception in 1991, Shopper’s Stop Ltd., which was
Group: K. Raheja
founded by the K Raheja Corp. Group (Chandru L Raheja
Face Value: Rs. 10/- Group), one of the leading players in the country is in the
CMP: Rs. 511 business of real estate development and hotels, has been
52 Week (H/L): Rs. 785/442 offering premium and luxury value for the entire family.
M Cap (Rs. in mln): 1,778.28 Cr
Outstanding Shares: 3.48 Cr Investment Rational
Shareholding Pattern
 Shoppers’ Stop is a chain of varied retail format stores
in fashion and lifestyle segment of home décor’,
Shareholding Pattern books, cafes’ and high-end lifestyle merchandising.
4.43% 15.29% International and domestic brands across categories
9.39%
such as apparel, accessories, cosmetics, home &
kitchenware as also its own private brands.
. 4.72%
 It was been running customer loyalty program, First
0%
Citizen Club having beyond 9 lacs members.
66.16%
 Well-Diversified Retail player is foraying into chain
F o re ign Ins titutio ns
catalogue retailing under the name Agros in
No n P ro m o te r Co rp. Ho ld. Go vt Ho lding
P ro m o te rs P ublic & Othe rs
association with Home Retail group, UK.
 Manages its own logistics through well scattered
distribution houses across all major cities.
Shoppers’ Stop vis-à-vis Bse Sensex  Customer entry increased by 29 percent to 12.29
million in the quarter ended Sep 07.
Share Price Performance  Transaction size increased by 11 percent to Rs 1,619
and Average Selling Price was up 4 percent at Rs 670
3.00
2.50 on a y-o-y basis.
2.00  Company has achieved breakeven at store level for
1.50
Timezone Entertainment and Mothercare is expected
1.00
0.50 to break-even by the quarter ending June 08.
0.00

Concern
May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Close Price BSE_SENSEX

 Conversion ratio dropped to 25 percent as compared
to 28 percent in the same period last year.
 Private Labels contribute around 21 percent of total
revenue.
 The apparel segment is affected by seasonability.
 Majorily into lifestyle segment and ignores the entry
into food retailing.
 Presently placed in Tier 1 and metro cities only which
exposes the revenue to geographical concentration.

Private Client Group 27

 Money Look
BLB Research
Research – A Passion

Valuation
The stock is trading at Rs.511 discounting FY10E earnings by
P/E(x) of 26. The earning is expected to grow at a CAGR of 41
percent for FY07A-FY10E. We initiate buy on the stock with a
target price of Rs. 488.

(Rs. in millions)
Net EPS
Year Equity Sales EBIDTA PAT (Rs) P/E
2006A 343.83 5,881.86 565.82 271.05 7.88 64.88
2007A 348.27 8,279.76 716.61 241.85 6.94 73.65
2008E 348.51 11,591.66 927.33 347.75 9.98 51.26
2009E 348.51 16,228.33 1,298.27 486.85 13.97 36.61
2010E 348.51 22,719.66 1,817.57 681.59 19.56 26.15
(Source: Company, BLB Research)

Private Client Group 28

 Money Look
BLB Research
Research – A Passion

BLB Research Initiating Coverage Recommendation: BUY ON DIPS

Research – A Passion Provogue (India) Ltd.

BSE Code: 532647

NSE Code: PROVOGUE Company Background
Bloomberg Code: PROV@IN
Reuters Code: PROV.BO Provogue operates in two core segment: designing,
Group: Provogue
manufacturing and selling of branded ready segment
Face Value: Rs. 10/- garments and accessories under the brand, Provogue which
CMP: Rs. 995 has been positioned as a fashion label in Indian Domestic
52 Week (H/L): Rs. 1,100/211 Market along with exporting finished fabrics, dyestuffs,
M Cap (Rs. in mln): 1,890.50 Cr chemicals and textile machinery to several markets in the
Outstanding Shares: 1.90 Cr African continent.

Shareholding Pattern Investment Rational

Shareholding Pattern
 Has evolved from being a pure fashion retailer to an
17.58% 26.05%
integrated retail business. Its now about ‘Brands’,
‘Retail Formats’ and ‘Retail Infrastructure’.
 Entered into a Joint Venture (JV) with Liberty
4.71%
0% International Plc, a UK FTSE-100 company with assets
43.59% 8.07%
of 8.2 billion pounds.
 Provogue brand is available in more than 100 stores
F o re ign Ins titutio ns and 65 shop-in-shops in 56 cities across the country.
No n P ro m o te r C o rp. Ho ld. Go vt Ho lding  Operates its own warehousing, quality control,
P ro m o te rs P ublic & Othe rs packing and distribution facility in Tatapur, Mumbai.
 The company does in-house manufacturing which
Provogue vis-à-vis Bse Sensex
saves huge costs.
Share Price Performance  Prozone Enterprises, subsidiary engaged in the
business developing retail infrastructure like Malls
3.00
2.50 and shopping centers in collaboration with UK’s
2.00 Liberty Plc has opened its first mall in Aurangabad
1.50
1.00
spreading around 1 million square feet, having plans
0.50 to explore retail formats in Tier 2 and Tier 3 cities.
0.00

Concern
May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Close Price BSE_SENSEX  Company's inability to set trends and understand

changing fashion styles, which can lead to lower
sales and profitability.
 Since National Presence is a success mantra, the
company needs to regionally penetrate.

Private Client Group 29

 Money Look
BLB Research
Research – A Passion

Valuation

The stock is trading at Rs.995 discounting FY10E earnings by

P/E(x) of 33. The earning is expected to grow at a CAGR of 43
percent for FY07A-FY10E. We initiate buy on the stock with a
target price of Rs. 739.

(Rs. in millions)
Net EPS
Year Equity Sales EBIDTA PAT (Rs) P/E
2006A 161.98 1,564.08 208.93 119.43 7.37 135.02
2007A 190.98 2,390.24 337.49 191.45 10.02 99.31
2008E 190.98 3,585.36 501.95 250.98 13.14 75.75
2009E 190.98 5,378.04 752.93 376.46 19.71 50.50
2010E 190.98 8,067.06 1,129.39 564.69 29.57 33.67
(Source: Company, BLB Research)

Private Client Group 30

 Money Look
BLB Research
Research – A Passion

BLB Research Initiating Coverage Recommendation: BUY

Research – A Passion Vishal Retail Ltd.

BSE Code: 532867

NSE Code: VISHALRET Company Background
Bloomberg Code: VISH@IN
Reuters Code: VIRL.BO Vishal Retail was incorporated on July 23, 2001 as Vishal Retail
Group: Vishal
Private Limited as a retailer of ready-made apparels in Kolkata
Face Value: Rs. 10/- in 2001. The company has acquired the business of 'M/s The
CMP: Rs. 690 Vishal Garments' and 'M/s Vishal Garments' in 2001. In 2003,
52 Week (H/L): Rs. 814/472 the company has acquired the manufacturing facilities from
M Cap (Rs. in mln): 1,538.70 Cr Vishal Fashions Private Limited and M/s Vishal Apparels.
Outstanding Shares: 2.23 Cr

Shareholding Pattern Investment Rational

Shareholding Pattern  Vishal Retail sells ready-made apparels (including its
own brands) and a wide range of household
merchandise and other consumer goods such as
8.13% 6.95%3.2% footwear, toys, watches, toiletries, grocery items, sports
items, crockery, gift and novelties.
0%
 Vishal is value retail company catering to middle and
17.79%
lower middle income groups.
63.93  As Apparel segment contributes 63 percent, it has plans
to focus more on FMCG.
 To reduce cost, Vishal does in-house production of
F o re ign Ins titutio ns
apparels, procurement of goods directly procurement
No n P ro m o te r C o rp. Ho ld. Go vt Ho lding
of goods from the small and medium size vendors and
P ro m o te rs P ublic & Othe rs
manufacturers.
Vishal Retail vis-à-vis Bse Senensex  Efficient Logistics and distribution system along with
customized product mix at stores depending on the
Share Price Performance regional customer behavior and preferences.
3.00
2.50  Plans of penetrating deeper into Tier 1 and Tier 2 cities
2.00 to bank upon early mover advantage, where organised
1.50
1.00 retail is yet to make a significant mark, which will help
0.50 establish and build customer loyalty prior to other
0.00
players.
Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

 Higher margins of around 5-6 percent in private labels

which account for 10 percent of sales in FY07.
Close Price BSE_SENSEX

Private Client Group 31

 Money Look
BLB Research
Research – A Passion

Concerns

 Since apparel compromises the large chunk of revenue,

the risk of competition and seasonability needs to be
overcome.
 High attrition rate of around of 35 percent.
 Benefits of demographic changes like increase in
income level is yet to be untapped among urban
population, but the company has been establishing in
various Tier 1 and Tier 2 cities.

Valuation

The stock is trading at Rs. 690 discounting FY10E earnings by

P/E(x) of 20. The earning is expected to grow at a CAGR of 35
percent for FY07A-FY10E. We initiate buy on the stock with a
target price of Rs. 853.
(Rs. in millions)
Net EPS
Year Equity Sales EBIDTA PAT (Rs) P/E
2006A 164.90 2,884.42 269.90 124.70 7.56 91.30
2007A 183.20 6,026.52 693.40 249.80 13.64 50.64
2008E 183.20 10,847.74 1,193.25 433.91 23.69 29.15
2009E 183.20 13,017.28 1,431.90 520.69 28.42 24.29
2010E 183.20 15,620.74 1,718.28 624.83 34.12 20.24
(Source: Company, BLB Research)

Private Client Group 32

 Money Look
BLB Research
Research – A Passion

BLB Research Initiating Coverage Recommendation: BUY

Research – A Passion Koutons Retail India Ltd.

BSE Code: 532901

NSE Code: KOUTONS Company Background
Bloomberg Code: NA
Reuters Code: KRIL.BO Koutons Retail desins, manufacturers and retail apparels
Group: DPS Kohli
under the brand name ‘Koutons’ and ‘Charlie Outlaw’ as
Face Value: Rs. 10/- having 18 in-house manufacturing and finishing facility in and
CMP: Rs. 721 around Gurgaon.
52 Week (H/L): Rs. 810/415
M Cap (Rs. in mln): 2,199.05 Cr Investment Rational
Outstanding Shares: 3.05 Cr

Shareholding Pattern  Having presently 999 Exclusive Brand Outlets (EBO)

and planned 140 EBO by 2009.
 Topline has grown by 154 percent over the year in
Shareholding Pattern
FY07.
 Considerable PAT Margin of around 8.57 percent.
4.67% 16.89%
 Aggressive plans to expand in women apparel and kids
10.9% wear at a large scale.
0.36%  Concentrated into Tier 1 and Tier 2 cities.
0.55%  Company’s Brands are well recognized in middle
66.63% income level segment and most of socio-economic
segments.
F o re ign Ins titutio ns  Being majorly into franchisee owned and operated
No n P ro m o te r Co rp. Ho ld. Go vt Ho lding outlets does not attract huge capital expenditure.
P ro m o te rs P ublic & Othe rs
Concern
Koutons Retail vis-à-vis Bse Sensex
Share Price Performance  Geographic concentration of around 65-70 percent in
3.00 Northern India.
2.50
 Banking upon only two brands does not fetch rich
2.00
1.50
valuations.
1.00  Process Integration can be hampered due to any
0.50 inefficiencies in logistics and supply chain management
0.00 arising because of being outsourced.
 Apparel is seasonal and highly competitive segment.
Oct-07

Oct-07

Oct-07

Nov-07

Nov-07

 Over dependence on Franchisee model may risk

Close Price BSE_SENSEX revenues.

Private Client Group 33

 Money Look
BLB Research
Research – A Passion

Valuation

The stock is trading at Rs. 721 discounting FY10E earnings by

P/E(x) of 17. The earning is expected to grow at a CAGR of 49
percent for FY07A-FY10E. We initiate buy on the stock with a
target price of Rs. 1,055.

(Rs. in millions)
Net EPS
Year Equity Sales EBIDTA PAT (Rs) P/E
2006A 49.90 1,583.50 256.70 132.20 26.49 27.23
2007A 273.40 4,024.00 715.00 344.90 12.62 57.18
2008E 273.40 6,438.40 1,094.53 450.69 16.48 43.76
2009E 273.40 10,301.44 1,751.24 721.10 26.38 27.35
2010E 273.40 16,482.30 2,801.99 1,153.76 42.20 17.09

(Source: Company, BLB Research)

Private Client Group 34

 Money Look
BLB Research
Research – A Passion

RESEARCH TEAM
P. N. Panda Head Research pnpanda@blblimited.com 011-233527459
Amit Kumar Tiwari Media & Entertainment amitkumartiwari@blblimited.com 011-233527459
Deepika Bhatia Retail deepika@blblimited.com 011-233527459
Jagvir Singh Faujdar Banking jagvirfauzdar@blblimited.com 011-233527459
Jaisheel Garg Power Jaisheel.garg@blblimited.com 011-233527459
Lalit Chaudhary Hospitality lalitchaudhary@blblimited.com 011-233527459
Nidhi Parvani Metals nidhi.parwani@blblimited.com 011-233527459
Sachin Bansal FMCG sachin@blblimited.com 011-233527459
Sameer Randive IT, Telecom sameer@blblimited.com 011-233527459
Samyukt Agrawal Infrastructure samyukt@blblimited.com 011-233527459

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Private Client Group 35