Global operators are likely to initiate a flurry of courtships as they seek suitable Indian partners after India’s decision to ease foreign direct investment (FDI) rules for the retail industry.
Deals will be complicated by the piecemeal nature of the reforms, with only some states open to FDI in retail. That, analysts say, means Indian retailers may have to restructure their own businesses to take foreign equity partners.
Pinakiranjan Mishra, a retail expert at Ernst & Young, says, however, that such complexities will not be insurmountable obstacles to deals. “It’s not very difficult to manage within the existing laws, where half the states are welcoming and half are not,” he says. “There are ways and means of structuring this. I wouldn’t see this as a deal breaker.”
Walmart has a 50-50 joint venture with Bharti group for an Indian cash-and-carry business, which runs 17 Best Price Modern Wholesale stores. Walmart in effect runs Bharti’s wholly owned chain of more than 170 Easyday convenience stores and markets in 11 states.
Scott Price, Walmart’s president for Asia, says the two companies are “logical partners” for a retail joint venture and that details are under discussion.
Mr Price says Walmart has “not decided” whether to buy into Easyday, but has ruled out opening its existing wholesale stores to the general public.
Tesco is working with the Tata group’s listed retail arm, Trent, on the Indian company’s Star Bazaar hypermarkets. Under a franchise agreement, Tesco provides the 14 Star Bazaar stores with IT systems, stock management techniques and other expertise.
Tesco runs a wholesale business exclusively for Star Bazaar, providing 80 per cent of the hypermarkets’ goods. Tesco has said little about its future plans, only that it is “reviewing the conditions”.
For other global operators, the pioneering Future Group, India’s largest retailer, is a prime partnership candidate.
After 15 years of experimenting with multiple formats – some successful, others not – the Future Group, with $2.8bn in annual sales, is seeking foreign help to reduce its estimated debts of Rs20bn and fund expansion, while offering valuable market experience and prime locations in many cities.
Reliance Retail, an arm of Mukesh Ambani’s Reliance Industries, may not be in a hurry to sell stakes to foreigners. It has deep pockets and has hired expatriate retail experts from Tesco in Thailand and Walmart in China to help it upgrade its grocery chain, Reliance Fresh.
Other companies with existing retail operations include the Aditya Birla Group, and RPG. But Arvind Singhal, chairman of the Indian consultancy Technopak, says global retailers need not team up with existing Indian retailers. “There are any number of large Indian business groups who may be interested in having a partnership with a global retailer,” he said.
Via : Money Control