With the Centre approving FDI up to 51% in multi-brand retail, the onus is now on states to give final authorisation. Nine states and three Union Territories have shown interest in opening retail to FDI. Pantaloon Retail (PRIL) and Shoppers Stop (SSL) have more than 50% of their stores in these states.
We consider PRIL and Trent as key beneficiaries. We expect SSL to scout for a partner for HyperCity. However, Mamata Banerjee (a key ally of the UPA government) had previously halted a similar attempt. Hence, we need to watch out for her next move. Besides, we would have to observe how easy it will be for retail companies to structure businesses. The Centre has also relaxed local sourcing norms in single-brand retail. We expect the share of modern retail in India for consumer companies to jump from the current ~8% to 20% plus by 2020. Also, this is a positive for discretionary consumer goods as it will help increase consumption.
Nine states and three UTs (Andhra Pradesh, Assam, Delhi, Haryana, Himachal Pradesh, Maharashtra, Rajasthan, Uttarakhand, Jammu & Kashmir, Manipur, Daman & Diu and Dadra & Nagar Haveli) have shown support for FDI. PRIL and SSL have ~53% and ~62% stores respectively in these states. To address the concerns of local kiranas, the government will appoint a high-level group under the minister of consumer affairs to examine issues concerning internal trade.
The government has made it mandatory that FDI in multi-brand be applicable in cities with a population of more than 1 million and 50% of FDI investment must be invested in the back-end infrastructure. Discretionary consumer goods and larger organised consumer players, too, will benefit as it will help increase consumption and prop volume growth by ~2%. Modern retail already accounts for 20-30% share in top cities for consumer companies. Key beneficiaries will be HUL (with a higher market share in modern retail) and companies like Nestle, GSK, Marico, GCPL, Dabur, Emami, ITC, Colgate, etc.
Overall, we expect this to be a positive for the Indian retail sector. We also expect Walmart to be a key beneficiary due to its tie-up with Bharti group. Other potential beneficiaries could be Spencers, Reliance Retail, Lifestyle, Birla Retail, Globus, etc.
Edelweiss
