No foreign dominance in retail for at least 5 years: Crisil
29 Nov 2011
Foreign direct investment (FDI) in multi-brand retail will stimulate investment in Indian retail. CRISIL estimates FDI inflows of $2.5 – $3.0 billion over the next five years, modest in the context of overall FDI inflows of USD 160 billion in India over the past five years.
According to CRISIL, the food and grocery (F&G) vertical would attract a larger share of the likely FDI inflows. The clause specifying 50 per cent investment in back-end infrastructure especially aligns with the commercial requirement in the F&G segment.
F&G accounts for two-thirds of Indian retail sales, but currently has organized retail sales of only around 2 per cent , the lowest among retail verticals.
''To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale,'' said Ajay D'Souza, head - CRISIL Research.
''Every percentage point reduction in supply chain cost and resultant gain in EBITDA margin can improve equity IRR of an F&G store by 250-300 basis points. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity.''
Considering the likely supply of quality retail space and current ORP (organised retail penetration) in large cities, CRISIL believes that ORP will still remain moderate, reaching about 11 per cent by 2015-16 from 6.5 per cent currently.
