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Retail Sector in India Provogue
Retail Sector in India Provogue
Retail Sector in India Provogue
2007
A REPORT
ON
SECTOR ANALYSIS
OF
RETAIL IN INDIA
&
VALUATION OF
PROVOGUE INDIA LIMITED
SUBMITTED BY
ROHIT AGARWAL
06BS2811
(rohit_agar1@yahoo.co.in)
DISTRIBUTION LIST:
I would also like to thank Ms. Pooja Grover (Research Analyst – Joindre
Capital Services Ltd.) for her guidance and continuous support during the
complete duration of the project. Being my company guide she encouraged
me to work in the team and perform to the best of my results.
I also take this opportunity to thank Prof. D. Satish (Faculty Guide) for the
invaluable inputs in development of the project, and in terms of managing
the real time issues that we faced in the corporate world.
My sincere appreciation for all the executives of Provogue (I) Ltd. across
all the areas for their immense support, resources, time and inputs, which
helped in the timely completion of the project. Their inputs have been of
immense value addition to the project.
Last but not the least I am in debt to each and every member of our
research team for providing their uncensored support and valuable
feedback. Had it not been for them this project would have never seen its
end.
INTRODUCTION
With the burgeoning economy and young high-earner aspirational consumers, Retail
sector in India is on the growth juggernaut. A sector analysis of Retail sector in India
has been done which provides a broad perspective of the sector and explains the major
environment in which it is thriving.
The second half of the report comprises of the valuation of Provogue India Limited, one
of the pioneers in fashion ready-to-wear apparels in India.
Below mentioned table provide an insight into the Schedule of work executed through
out the program:
S.No. Weeks → 1 2 3 4 5 6 7 8 9 10
1 Collection of Data
Executed
2 Interaction with industry experts and professionals
Executed
3 Comprehension and Analysis of the Data
Executed
4 Model building and application
Executed
5 Preparation of interim report
Executed
6 Submission of interim report
Executed
7 Interim report revision and incorporation of modifications discussed
Executed
8 Interactions with company management
Executed
9 Analysis of company specific data
Executed
10 Model building and application
Executed
11 Technical Analysis
Executed
12 Preparation of Final report
Executed
13 Submission of Final report
Executed
14 Preparation of Presentation
Executed
15 Preparation of Executive Summary Report
Executed
Week 1 2 3 4 5 6 7 8 9 10
Start Date 19-Mar 26-Mar 2-Apr 9-Apr 16-Apr 23-Apr 30-Apr 7-May 14-May 21-May
Notes to Schedule of work:
9 Time schedule of interaction with company management depends upon the dates
provided by them.
9 S.No. 4 (Model building and application) was not possible due to unavailability of
complete data.
9 Technical Analysis couldn’t be complete because of unavailability of guidance due
to resignation of the concerned person.
SUMMER INTERNSHIP PROGRAM
2007
SECTOR ANALYSIS
OF
RETAIL
IN
INDIA
“For most consumers, it usually is an
advantage when retailers come in, in that
it lowers prices. Another advantage is
that it allows the economy to open up
gradually to global vendors, so you not
only have products coming in — the
P&Gs and Unilevers of the world — but
the creation of local jobs.”
By being on the top of the Global Retail Development Index 2006 and
also the Global Consumer Confidence Survey 2006, India is set to
become the battlefield for the local as well as the global retail majors. The
above surveys prove the robustness of the economy and the positive vibes
experienced by the consumers.
Food & Grocery is the most enticing vertical with highest potential and
lowest current penetration followed closely by Apparel and Fashion.
23 Recent Trends…
24 Current Buzz…
29 Major References…
Rapid and India is developing at a blistering pace with many of the last
Robust Growth years showing a GDP growth rate of more than 7% and the
current fiscal is expected to report a growth of above 8.5%.
Percentage 8
0
2000-01 2001-02 2002-03 2003-04 2004-05(P) 2005-06(Q) 2006-07(A)
2500
R s. '000 C rore
2000
1500
1000
500
0
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05(P) 2005-06(Q)
Many new areas and sectors of business have emerged and many
new are on the verge of changing their facet. One such sector
which is attracting most of the attention of big corporate houses
and global players is Retail with multi-million dollars in pipeline.
Current Size &
Retail in India is currently estimated to be a USD 230 B#
Share industry, of which organized retail makes up a meager 3% or
USD 7 B#.
The organized retail in India is limited to the big cities only with
smaller ones catching up. The cities having most of the
development includes NCR, Mumbai, Bangalore, Chennai,
Hyderabad, Kolkata and Pune. Out of around 361# mall projects
that are underway in India, 227 are in these seven cities with rest
being distributed in Tier II and Tier III cities.
The Verdicts Indian consumers made a hat-trick by being on the top of Global
Consumer Confidence Survey September 2006 conducted by AC
Nielson. This shows that for the three years in continuum now,
they are very upbeat about India and loves to shop.
Hypermarket Big Bazaar, Spencers, Vishal Retail, Magnet, Star India Bazaar,
Shop Rite.
Speciality Store M.A.C, Titan, Bata, Tanishq, Furniture Bazaar, Concept, Living
Room, Style Spa, Tangent, Viveks, Tata Croma, Vijay Sales,
Sumaria and Sony Mony.
With the greater influx of money in the real estate and housing
sector in the last few years, Home décor and furnishings could
very well be the next big opportunity for many retailers.
2000-01
Source: RBI
Clothing &
Footw ear
Food &
6%
Beverage
48%
Rent, Fuel &
Pow er
12%
2005-06
Source: RBI
Clothing
Food & Footw ear
Beverage 5%
39%
Rent, Fuel &
Pow er
Misc. Goods & 12%
Services
10% Furnishings
4%
Entrm nt. & Connectivity
Education 19% Health Care
4% 7%
The above charts clearly shows that none of the categories has
lost its standing barring Food & Beverages in the consumer
spending basket, the reduction being present in percentage terms
only and not in absolute figures, which makes utmost economic
sense that with an increase in real income any man will spend
more on food & beverages to the extent of his eating limits.
Some studies also suggests that in India Food & Grocery stores
have the lowest organized penetration and Footwear category has
the highest organized penetration among all other categories like
apparels, watches, jewelry, etc.
1. Kirana Shops
These are basically the Indian version of the mom-n-pop stores
of US. These are neighborhood stores from which households
make purchases on a daily or regular basis. They stock a range of
products major among them being FMCG products. These stores
vary widely in area from less than 200 sq. ft. to over 1,500 sq. ft.
2. Paan Shops Unique to India these shops are generally operated by a single
person and stocks tobacco, candies, chocolates and some FMCG
products. These shops are generally very small in size.
3. Cart Vendor These vendors sell fresh fruits and vegetables and housewives
buy from them on a daily basis.
5. Haat This format is normally found in rural areas. Here sellers from
various adjacent villages gather at a particular place on a periodic
basis (mostly weekly) to sell a range of products.
6. Mela It is the oldest retail format in India. Besides selling a huge range
of products, it provides a cheaper means of entertainment. It is
normally organized in festive season and footfalls are expected
from nearby villages.
7. Speciality These stores include rest of the traditional stores which used to
Stores sell only one kind of commodity. Some examples of these stores
are apparel stores, jewelry store, furniture store, cosmetic store,
medical stores, footwear store.
1. Supermarkets
Discounts, promotional offers and loyalty programs are general
business for these self-service stores which mainly caters to the
nearby residential areas and are spread across 3,000-10,000 sq.
ft. of area. These stores operate mainly in the Food, Grocery and
General Merchandise sub-category. The major players in this
segment include Food Bazaar, Reliance Fresh, Spencer,
Subhiksha, Trinethra.
2. Hypermarkets Spanning across an area of more than 50,000 sq. ft., the general
offering of hypermarkets includes significantly low prices,
everyday discounts and a vast variety of product ranges including
apparel and footwear, FMCG products, consumer durables, home
décor, food and grocery and electronic items. These stores
generally stock low-end goods. These are either located on stand
alone basis or as anchor tenants in malls. The major players
operating in this format are Big Bazaar, Hyper City, Star India
Bazaar, Spencer’s Hyper, etc.
3. Departmental With comparatively low footfalls and higher ticket size these
Stores stores are a smash hit among the upper and upper-middle strata
of consumers. Build up on a large area; besides providing quality
goods from various brands these stores provide novelty, variety,
ambience, entertainment and convenience under one roof. These
stores have different sections for different products such as
apparels, accessories, household items, toys, etc. Major players
in this segment include Pantaloon, Shoppers’ Stop, Lifestyle, etc.
4. Apparel
Build-up on an area of around 20,000 sq. ft. these stores stocks
Stores quality apparels and fashion accessories across an extensive
range. These stores could be multi-brand stores like Westside,
Globus or exclusive stores like Provogue, Raymonds, etc.
India is Young India had a very low median age of 24 years in 2000 and by 2025
it is expected to be around 31 years only.* This would position
India distinctly in comparison to various developed economies
where population is rapidly ageing. India will have a higher
number of working population having more disposable income.
100+
95-99
90-94
Male (millions) 85-89 Female (millions)
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70
2025
Source: United Nations
100+
Male (m illions) 95-99 Fem ale (m illions)
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70
Increasing
According to the census report, the population of working
number of women has increased from 22% in 1991 to 26% in 2001. This
will result in higher retail spending as the propensity to consume
Working Women for working women is higher by 1.3 times in comparison to
housewives and also they like to shop under one roof due to
paucity of time.
Nuclear Families The average household size has decreased to 5.36 in 2001 from
5.57 in 1991. The proportion of nuclear families as a percentage
Getting Richer
Income-wise Population Composition
100% 0.16 0.43 0.85 1.71
20.28
80% 27.64
34.41
46.74
60%
40%
79.56 71.94 64.74 51.54
20%
0%
1995-96 2001-02 2005-06P 2009-10P
Increasing Credit Lately due to low interest rates and easy installment schemes the
credit is available more freely than any other time. A lot more
Availability personal loans were taken resulting in higher consumer spending.
Also the increase in the distribution and usages of plastic money
(credit & debit cards) has resulted in higher spending.
Urban Rural
Pressure on
Although the scientific inventions has made life a lot easier and
Time saves a lot of time, humans are always in a hurry to finish things
up. With increasing globalisation and aspirations, ‘having so
much to do’ feeling always remain with the humans and they
want to spend minimum time in shopping. Hence, they prefer
stores where they could get almost everything under one roof and
that too in vast variety to provide the option of choice.
Seek Value for Even though Indian consumer spends a lot, the discerning
characteristic remains the value for money. They want the
Money product to be worth whatever it is priced at. This is a major
support for stores offering discounts because this is not possible
for small retailers to offer the same products at a lower price due
to unavailability of economies of scale.
Increasing exposure With more-n-more people flying for foreign shores, the exposure
to International to international lifestyle is increasing furiously. This affluent
class wants to replicate that lifestyle in India and only the
Lifestyle
organized retailers can provide them with the requisites to do the
same.
Health & Hygiene This driver particularly applies to the hotel and restaurant chains.
Conscious Now a days people prefer to eat in a restaurant rather than a road
side stall due to various hygiene related problems.
Mall Mania With the globalisation setting in India, the mall culture is quickly
gaining its ground. Malls are spread over a large area with one or
more modern retailing formats present in it. Rather than just
being a shopping centre, these places also feature food courts,
restaurants, multiplexes or gaming and entertainment zones.
2006 2008
Region Stock of retail Stock of retail
No. of Malls space (mn. Sq. ft.) No. of New Malls space (mn. Sq. ft.)
NCR N.A. 10.63 78 36.02
Mumbai 44 8.64 45 25.93
Pune N.A. 3.48 23 8.70
Hyderabad N.A. 1.66 N.A. 9.69
Chennai N.A. 1.80 12 6.20
Bangalore N.A. 2.18 20 8.00
Kolkata N.A. 2.11 N.A. 11.60
Rest of India N.A. N.A. 134 Over 41.4
Source: Knight Frank: Indian Retail Market Review
Cash & Carry With 100% FDI already allowed and now put under the
automatic route by the FIPB, this is basically a wholesale trade
format. This route basically facilitates the local retailers by
building up large distribution network. Metro and Shoprite has
entered using this route.
Franchising One of the most common routes under which the foreign players
grant some specific rights against a sum of money to its
Manufacturing In this route the foreign players have to set up their production
facilities in India and then only they would be allowed to sell
those products through their own retail outlets. The players who
have used this route are Bata and Benetton.
Distribution Under this format the foreign player sets up a distribution centre
in India and supplies its products to the local retailers.
Single Brand With a view of “attracting investments in production and
Stores marketing, improving the availability of such goods for the
consumer, encouraging increased sourcing of goods from India,
and enhancing competitiveness of business enterprises through
access to global designs, technologies and management
practices” government allowed upto 51% FDI in ‘single brand’
products in January 2006.
Supply Chain
With India’s transport in a dismal state, alongwith many a
Bottlenecks formalities that are to be met for taking goods from one state to
another, retailing in India is a difficult task. Fruits and
Vegetables suffer the most due to improper warehousing and
absence of cold storages and transport facilities with a major
chunk (around 40% of perishable food) of the total produce
going as a waste. This results in subsided revenue for the farmers
as well as higher prices for the consumers.
Restrictions on
Foreign direct investment is still not allowed in pure retailing
FDI prohibiting global players from making a foray into Indian
markets. This is a protectionist and conservative approach
adopted by the government in this global arena mainly due to the
high pressures of the left parties.
High Cost of Real estate costs in the country has gone through the roof in the
Real Estate last couple of years, putting enormous cost pressures on the
margins of retail players. Also the stamp duty prevailing in India
is very high.
Complex
India has one of the most complex taxation systems in the world
Taxation with taxes like income tax, wealth tax, excise duty, service tax,
sales tax, VAT, customs duty, octroi etc. These are levied and
System collected at different points by different government bodies
ranging from Central Government to Municipal Corporations.
Diversified India
India in itself is a world with people exercising a variety of
religions, languages, customs and beliefs. In order to be
successful it is very important for any retailer to understand its
customers properly and provide him with choices in his preferred
category. This requires higher SKUs resulting in higher
inventory costs.
Products for sale With the changing face of retail, Indian FMCG companies are
through chains also churning out new strategies to reach out to their customers.
In one such move HLL has introduced Fair & Lovely Perfect
only Radiance (targeted at upper and upper-middle segment) to be
sold through organized stores only.
Increasing Along with making their presence felt all over India and rapidly
number of Private garnering loyalty resulting in repetitive footfalls, many a retailers
in India are increasing the number and dominance of private
Labels labels in their stores.
By:
Rohit Agarwal
06BS2811
IBS – Hyderabad
Cell: 09246277545
Indian retail story… 9 Organized sector retailing growing at breathtaking speed of 25-
30%. The company is well positioned to take the advantage of
these conditions by leveraging its existing network as well as
expanding its operations.
9 As most of the Provogue outlets are situated in malls or high
streets, the consumers shift from ‘markets to malls’ will result
in increased footfalls and also help in increased revenues for
Prozone, its mall development subsidiary.
9 At 2005 figures, India’s median age is 24 years. With the
India is Young… increasing disposable income and increased globalisation,
Indian consumers are confronted with global fashion and want
to accommodate it into their lifestyle. This fashion lover
population creates a sustained demand for fashionable apparels
and accessories.
The Brand… 9 The company owns the well established Provogue brand which
is a fashion statement in itself.
9 Provogue have major expansion plans both for Provogue stores
The Scalability… and Promart stores. Currently they are operating with 106
Provogue stores and are expecting to take this tally around 135.
9 The company has increased its presence in NCS from 59 in
FY06 to 84 by FY07. This results in better reach of the brand
and ultimately better revenues.
9 Only around 20% of the Provogue stores are on franchisee,
which results in better margin gains through own stores.
9 Provogue share in the Indian apparel market is a meager 0.13%
at 2005 figures. This provides it with an immense opportunity
to scale up the operations and expand its market share.
9 At present there are around 370-400 million people who are 20-
40 years old. The company provides these fashion aspirers a
variety of products and also a fashion statement.
Promart, the cash 9 The off-price store format Promart, will improve the companies
topline substantially due to its mix of fashion-at-value appeal
juggling machine… and stocking of a larger number of brands. The company is
expecting an est. 30 crore sale in FY08 from the first Promart
store opened in Ahmedabad.
9 Margins of export business are improving continuously and
with the hold on American and European market, the company
is expected to get better revenues.
Living the Mall mania… 9 Prozone Enterprises has acquired majority stake in two real
estate developers to act as SPVs for developing commercial
properties in Indore and Nagpur. The outlook for the subsidiary
KEY RISKS
9 Fashion risk arises due the company’s inability to set trends and
understand changing fashion trends.
9 As the business model revolves around the brand Provogue,
brand risk arises from any event that tarnishes the image of the
brand.
9 Competition risk arises due to more players wanting to foray
into the enticing Indian apparel market.
500 50
400 40
300 30
200 20
100 10
0 0
FY05 FY06 FY07 E FY08 E Bas. FY05 FY06 FY07 E FY08 E Bas.
Getting flirty with Besides the Provogue Mega stores and Provogue Exclusive stores,
the company has come up with the idea of Flip, the accessory story
formats… and lately with Promart, the all time discount store which will
stock excess stock or factory seconds and mid-priced brands and
provide them to the customer at a 20-60% discount.
A Young Company
Blending enthusiasm, Provogue is basically a young company with the average age of
energy and around 27 years. The management is also young (mostly in their
late 30s) backed by hands on experience in their respective fields.
experience… This combination blends the enthusiasm and energy in the
company with the experience of the management to make a great
place to work.
Sells throughout Currently the company is present in 58 cities through its 106
India… Provogue Studios and 84 locations through National Chain Stores
(NCS), besides the brand featuring in many Multi Brand Outlets.
Flip Stores
In order to cater to the growing demand of accessories by Indian
women, the company has introduced a dedicated accessory brand,
Flip which will be distributed through NCSs and Provogue stores
besides its exclusive outlets at leading malls and high-streets.
Promart
New cash cow… Recently launched in Ahmedabad, this is an off-price store which
will stock excess stocks or factory seconds and mid-priced brands
at nice discounts throughout the year. It’ll also feature accessories
and the company is planning to open 5 more such stores by 2010.
Hospitality
Another wholly owned subsidiary, Acme Hotels and Hospitality
Pvt. Ltd. was incorporated by a promoter of Provogue (I) Ltd. and
became a subsidiary of the company in 2005. It managed the
‘Provogue Lounge’, an entrepreneurial concept and apparel store
and lounge which have now been boxed.
UNISEX WOMENS
APPAREL WEAR
9% 29%
Value-wise Share
UNIFORMS
9%
MENS WEAR
KIDSWEAR 37%
15%
UNISEX
APPAREL
WOMENS
7%
WEAR
32%
PEERSET FINANCIALS
Arvind Bombay Kewal Pantaloon Zodiac S Kumars
Raymond
Particulars Mills Rayon Kiran Retail Clothing Nation
200703 200612 200612 200703 200612 200703 200703
Net Sales 1,678.78 316.10 102.97 2,792.26 147.03 1,284.19 1,229.54
Total Expenditure 1,397.60 253.38 82.13 2,596.13 135.66 1,116.20 1,015.82
PBIDT 418.06 65.45 26.32 273.34 19.89 330.82 223.62
Reported PAT 122.44 32.87 15.45 117.16 10.11 202.12 107.48
Adj.Profit After Extra-ord. item 23.89 32.87 15.45 69.20 10.11 119.06 123.40
EPS (Unit Curr) 1.14 6.71 12.53 24.59 12.09 19.40 6.40
Equity 209.38 48.98 12.33 28.14 8.36 61.38 192.70
PBIDTM(%) 24.90 20.71 25.56 9.79 13.53 25.76 18.19
PATM(%) 1.42 10.40 15.00 2.48 6.88 9.27 10.04
PE Ratio 32.65 32.55 13.80 80.71 15.75 17.61 11.26
PB Ratio 0.73 3.52 2.28 7.10 2.31 1.55 4.70