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• Not verified, but found on the net that Mahaveer Cycle Store rents cycles.
• Address: New 6-3-828, Ameerpet Begumpet, Hyderabad – 500016
Landmark: Near Siddartha Photo Studio. Phone: +91 40 23410228
begin_of_the_skype_highlighting +91 40
23410228 end_of_the_skype_highlighting
The acquisition won't come cheap, though; the price offered works out to a premium of 26
times Massmart's earnings. Does that make sense? I was surprised to see Wal-Mart add
another company and country to its portfolio. Our recent, in-progress research shows that
most retailers find it tough to use global growth to boost sales and grow profits. A look at
Wal-Mart's previous efforts at global expansion provides good context for this latest foray.
First, let's look at the acquisition in the context of the growth assumptions underlying Wal-
Mart's stock price; its experience in other countries like Mexico, China, and India; and the
opportunity that Massmart represents in Africa. Wal-Mart's expected growth rate, as implied
by its 2009 valuation, was 8.5%. That requires an increase in sales of $34 billion in 2011, and
the growth of Wal-Mart's turnover from $400 billion to $600 billion in, say, five years' time.
Given the current state of the American economy, where Wal-Mart derives 75% of its sales,
international markets have to be its future source of growth.
Wal-Mart has an extensive presence in the UK through the Asda chain; significant operations
in Latin America; large operations in China and East Asia (although not in South Korea); and
it has entered India through a joint venture. There are no real opportunities in Europe,
especially after its abortive foray into Germany, and European retailers are poised to
dominate East Europe. That brings Africa into focus.
Massmart is the third-largest retailer in South Africa, operating 290 general merchandise,
electronics, and food stores and notching up sales of almost $5 billion in 2009. In addition, it
operates 24 stores in 12 other countries such as Botswana, Zimbabwe, Tanzania, Nigeria, and
Ghana. These stores offer a platform on which Wal-Mart can enter attractive markets
throughout sub-Saharan Africa, whose GDP growth will exceed 5% in 2010. The Massmart
acquisition adds another 5% to Wal-Mart's international sales of $100 billion in 2009, and its
goal will be to expand in the most promising markets such as Nigeria and Ghana. A part of
this is priced into Massmart's stock price; Wal-Mart will pay only a 15% premium.
Wal-Mart's success in Africa will depend on the lessons it has learnt in other countries.
Massmart's focus on low price and efficient operations is consistent with Wal-Mart's
philosophy and to me, it looks like the opportunity Asda represented in the UK. Asda,
Britain's third-largest retailer, has notched up better-than-average performances consistently
after Wal-Mart took it over.
The lessons from Brazil and Mexico suggest that Wal-Mart should buy Massmart not only as
a platform for expansion but also for its management talent. Wal-Mart's Mexican operations
became profitable faster than those in Brazil did because it could rely on local managers, who
have deep consumer insights as well as the ability to tackle the everyday challenges of
operating a retail chain.
Given Wal-Mart's size, it can only acquire companies that make a meaningful impact on its
sales and profits, and they don't go up for sale or become available at everyday low prices. It
has to grab an opportunity whenever it presents itself and at the best possible price, and that's
what Wal-Mart has done in South Africa, thereby gaining first-mover advantage