Companies & Sectors
Wal-Mart to buy out entire stake of Bharti Enterprises in JV

The retail industry is a high capex, low margin business. Both Bharti and Wal-Mart are not ‘in the pink of health’. This, coupled with uncertainty in regulation, may have forced them to call off their retail joint venture in India

US retail major Wal-Mart Stores Inc decided to purchase the entire stake of Bharti Enterprises in their 50:50 wholesale cash-and-carry joint venture Bharti Walmart. There are multiple reasons as to why the partners, who joined hands in 2007, decided to part ways. The major reasons are regulatory uncertainty in India and funding.


In May 2009, Bharti Walmart launched its first business to business (B2B), Best Price Modern Wholesale cash-and-carry store, in Amritsar. At present, there are 20 Best Price Modern Wholesale stores located at various places, including Zirakpur, Jalandhar, Kota, Bhopal Ludhiana, Raipur, Indore, Vijayawada, Agra, Meerut, Lucknow and Jammu.


The Indian government could not come up with a comprehensive policy for organised retail. One report estimates the 2011 Indian retail market as generating sales of about $470 billion a year, of which a minuscule $27 billion comes from organised retail such as supermarkets, chain stores with centralised operations, and shops in malls.


While India presents a large market opportunity given the number and increasing purchasing power of consumers, there are significant challenges as well, given that over 90% of the retail trade is conducted through independent local stores. Other challenges include, geographically dispersed population, small ticket sizes, complex distribution network, sparse use of IT systems, limitations of mass media and existence of counterfeit goods.


Uncertain policy environment

Until 2011, the Indian government denied foreign direct investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets. Even single-brand retail was limited to 51% ownership, with the burden of a bureaucratic process.


In November 2011, India's central government announced retail reforms for both multi-brand and single-brand stores. However, the announcement sparked intense activism, both in opposition and in support of the reforms. Finally, bowing to the pressure from the opposition, the Indian government, in December 2011, placed the retail reforms on hold till a consensus was reached.


Last year, in December, the government allowed 51% investment in multi-brand retail trade. Recently, it made amendments to rules after several retailers expressed concerns on the 30% local sourcing clause, yet-to-be-made changes in Foreign Exchange Management Act (FEMA) rules, among others. Interestingly, while some states decided to allow foreign supermarkets like Walmart, Tesco and Carrefour to open stores, other states were still not ready.


The opening of retail industry to free market competition, some claim, will enable rapid growth in retail sector of Indian economy. Others believe the growth of Indian retail industry will take time, with organised retail possibly needing a decade to grow to a 25% share. A 25% market share, given the expected growth of Indian retail industry through 2021, is estimated to be over $250 billion a year: revenue equal to the 2009 revenue share from Japan for the world's 250 largest retailers.


The Economist forecasts that Indian retail will nearly double in economic value, expanding by about $400 billion by 2020. The projected increase alone is equivalent to the current retail market size of France.


In addition, the government, while allowing foreign retailers in the country, added the local sourcing clause. In fact, Wal-Mart in July, was unable to meet the norm requiring it to source 30% of the goods from small industries, said it could source only about 20%. Others retailers such as Carrefour and Metro are expanding in India rather cautiously. Big names such as IKEA, H&M are yet to announce their formal store openings in India.


Money does matter in retail business

The big bang expansion plans of international retailers into fast-growing emerging markets may not fructify at this moment because of investment capital constraints (as is to be expected in a scenario where business in the home country is weak). Wal-Mart, for instance, said in 2012 that it will slow down launches of new stores in China and other Asian markets, indicating a greater focus on operational efficiency.


The business model for retail industry, especially in India is a high cost-low margin. This is the reason why most big retailers have lost money. In fact, Bharti Walmart lost Rs277 crore during 2011.Even Reliance Retail that was launched in 2006, and is supported by India's largest private company Reliance Industries Ltd (RIL), showed profit only during FY2013.


The flagship Future Group of Kishore Biyani, which is into retail business through Big Bazaar, Food Bazaar, e-zone and Pantaloon brands had a debt of over Rs8,000 crore late last year. Last year, the group hived off its flagship Pantaloon into a separate entity to sell majority stake in it to Aditya Birla Nuvo (ABNL), which agreed to infuse Rs1,600 crore. Biyani also transferred the debt of Rs800 crore to ABNL. Not to forget the risks Biyani took while expanding the Future Group beyond retail and in the process had incurred huge debt.


Biyani, in his book called “It Happened in India”, mentioned that he wants to capture every Indians’ wallet share, from the ultra-rich to the lower middle-class. It is with this one-track mind that he singularly focused on borrowing massive amounts of money, piling up loans, hoping to be the next ‘Wal-Mart’. 


A slowdown in discretionary spending (only discount driven sales is pulling customers) and cannibalisation from new stores is limiting growth of most retailers. After all, retailing is a low margin business, a drawback that can only be overcome only with a strong customer pull.


Coming back to Walmart JV, the Bharti Enterprises group has been struggling with a debt of about $12 billion. During June 2013 quarter, Bharti Airtel, the country's largest mobile operator, again reported lower profits. This is the company's 14th consecutive quarter of falling profits.


In a joint statement, both Bharti and Wal-Mart said they have reached an agreement to independently own and operate separate business formats in India and discontinue their franchise agreement in the retail business.


As part of the proposed transactions, Bharti will acquire the $100 million worth compulsory convertible debentures (CCDs) held by Walmart in Cedar Support Services, a company owned and controlled by Bharti. Bharti Retail will continue to operate the 'easyday' retail stores across all formats.


Wal-Mart on the other hand, plans to continue to grow its business while working with the Indian government and interested stakeholders to create conditions that enable FDI in multi-brand retail.


Market highly overbought: Weekly closing report

Although there is no weakness on the bourses; reversal may happen anytime

This week which opened with pessimism among investors, has ended on a positive note with a hope of talks on re-opening the US government.


The BSE 30-share Sensex rose  612.6 points (or 3.1%) to close the week at 20,528.6, while the Nifty settled at 6,096.2, up 188.9 points (or 3.2%).


On Monday, the market had a weak opening as US government shutdown was entering its second week with no hope in sight for a near-term resolution. Sensex closed marginally down on Monday. Post the market close, the Reserve Bank of India (RBI) announced measures to improve liquidity. The marginal standing facility (MSF) rate was reduced by 50 basis points to 9% with immediate effect. It was also decided to provide additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25% of net demand and time liabilities of the banking system through variable rate auctions on every Friday, beginning 11 October 2013.


The liquidity infusion by RBI had a positive impact on market on Tuesday. Sensex closed with a gain after hitting its highest levels since 23 September 2013. However, analysts foresee the MSF rate cut by a further 0.25%, but also fear a repo rate hike by 0.25% to contain inflation.


On Wednesday, the Sensex was on a gradual uptrend and ended positive for the second consecutive session, after the comments of the RBI governor Raghuram Rajan and the release of the provisional data which showed that India's trade deficit narrowed sharply in September. RBI governor said that the current account deficit (CAD) can be contained at $70 billion this fiscal. He also that he is working to turn investor sentiment positive for India to help boost GDP growth rate. India's trade deficit narrowed sharply to $6.7 billion in September 2013 from $10.9 billion in August 2013.


On Thursday, the market again ended positive after witnessing a volatile session. Globally there was optimism on the signs of progress in ending deadlock in Washington, after news that US President Barack Obama would meet House Democrats and House Republicans. House Republican and Senate Democratic leaders are open to a short-term increase in the $16.7 trillion debt ceiling, according to congressional aides who spoke on condition of anonymity.


Before the market trading hours on Friday, Infosys came out with the September quarter result. The company has raised its revenue guidance both in dollar terms and rupee terms for FY 2014. On the US front, House Republican leaders proposed a temporary extension of the nation's debt ceiling. This led the market to open with high optimism on Friday. The market closed with a gain for the fourth consecutive session.


Back home, among the other indices on the NSE, except for Media which ended flat with a negative bias all the other indices closed in the green. The top two gainers were Realty (9%) and IT Sector (6%).


Among the Nifty-50 stocks, the top five gainers were DLF (11%); Ranbaxy Lab (11%); Tata Motors (10%); Infosys (9%) and Bank of Baroda (8%) while the top five losers were Coal India (9%); Hindalco Industries (4%); Sesa Sterlite (2%); Cipla (2%) and ACC (1%).


Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors were:


Top ML sector


Worst ML sector




Non-ferrous metals










Software & IT Services


Consumer Products


Industrial intermediates


Lifestyle & Leisure




IIP growth slows to 0.6% in August vs 2.75% in July

IIP growth during August was hurt by weak investment and consumer demand

India's index of industrial production (IIP) growth slowed to 0.6% in August from an upwardly revised 2.75% pace in July, hurt by weak investment and consumer demand.


According to data released by the union government, the general index for August 2013 stood at 165.7 while cumulative growth during April-August was 0.1%.


The IIP for the mining, manufacturing and electricity sectors were at 114.4, 175.7 and 163.1 respectively, with the corresponding growth rate of -0.2%,  -0.1% and 7.2% as compared with August 2012.


Other important items showing high negative growth are:

1.       Rice (-38.0%)

2.       Stainless/alloy steel (-25.8%)

3.       Boilers (-35.7%)

4.       Sealed Compressors (-50.4%)

5.       Air Conditioner (Room) (-52.3%)

6.       Heat Exchangers (-51.7%)

7.       'Earth Moving Machinery' (-45.8%)

8.       'Sugar Machinery' (-36.7%)

9.       'Plastic Machinery Incl. Moulding Machinery' (-33.7%)

10.     'Cement Machinery' (-48.0%)

11.     Aluminium Conductor (-31.7%)

12.     Generator/ Alternator (-72.7%)

13.     Telephone Instruments (incl. Mobile Phones & Accessories)' (-23.9%)

14.     Gems and Jewellery (-36.1%)


Some of the important items showing high positive growth during the current month over the same month in the previous year include,

1.       Woollen Carpets (67.7%)

2.       Apparels (25.1%)

3.       Leather Garments (26.6%)

4.       Aviation Turbine Fuel (46.2%),

5.       Vitamins (75.0%)

6.       Ayurvedic Medicaments (80.6%)

7.       Steel Structures (25.4%),

8.       Tractors (32.2%)

9.       Cable, Rubber Insulated (284.5%)

10.     Passenger Cars (31.5%).


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