Retailing

© 2016 CRISIL Ltd. All rights reserved.

Decoding the India retail story

August 2019
 Key conclusions
• Organised retail to grow at a slower pace 16-17% (Rs 7.4 tn) in 2019-20

o Consumption slowdown to impact the growth in FY20

• Organised retail to grow at 19-21% (Rs 15.5-16 tn) over 5 years

o Factors such as new store additions, increase in penetration in tier 2 and 3 cities, higher disposable income to

© 2016 CRISIL Ltd. All rights reserved.

contribute for the growth story

o Growth for physical retailers will be at 16-18% CAGR while e-retail will be 27-32% CAGR

• Margins to improve in 2019-20

o Right product mix, increasing private label share and store resizing to help improve margin

o Product premiumization and cost rationalization to improve EBITDA margin

• Organised retail penetration (ORP) to reach ~15% by 2023-24 from ~11% in 2018-19

o Food and grocery will be fastest growing segment; Book and music will grow slowest

2
 Slight moderation in retail growth likely in fiscal
2020
Indian retail industry to grow in medium to long term Organised retail to grow at 19-21% CAGR in long term
(₹ tn) 12% 11% (₹ bn)
120 Total retail market 18,000 Total organised Retail growth
5 yrs CAGR 19-21%
CAGR CAGR
16,000 Growth impacted due to
100 slowdown in economy
12% CAGR 14,000
during between fiscal 2012
80 12,000 and 2015, demonetisation
10,000 16-17%
60 in fiscal 2017
21%
104 8,000

© 2016 CRISIL Ltd. All rights reserved.

Last 5 yrs CAGR 17% 15,500-16,000
40 6,000
60 66
53 4,000
20 34 6,354 7,411
2,000 5,239
2,814
- -
FY20P

FY24P
FY14

FY18

FY19

FY14

FY18

FY19

FY20P

FY24P
Total retail market Total organised Retail

P: Projected P: Projected
Source: CRISIL Research Source: CRISIL Research

• Slowdown in consumption to reduce retail growth in FY20

• Overall retailing to grow at 11.5-12.5% CAGR over next five years
o Pent-up demand, along with better economic outlook, will boost consumer sentiment and drive up discretionary
spends
• With improvement in demand, new store additions is expected to gather momentum, particularly in tier 2
tier 3 cities

3
Increased store roll-out to drive growth in brick and mortar space
Store additions increased over past two years
(no.)
250 Store additions

200

150

100 204
160

© 2016 CRISIL Ltd. All rights reserved.

117 127
50 103 110

0
FY14 FY15 FY16 FY17 FY18 FY19
Store additions
Note: The data is aggregate for 8 retail chains forming ~15% of organised B&M retail
Source: Company reports, CRISIL Research
Store roll-out to pick up in medium term
(no.)
700 Store addition forecast
600
500
400
300 600-650
491
200
330
100 204
0
FY2011-13 FY2014-16 FY2017-19 FY2020-22P
Store additions

Note: The data is aggregate for 8 retail chains forming ~15% of organised B&M retail; P-Projected
Source: Company reports, CRISIL Research
Investments to happen in Tier-II & beyond cities apart from Tier-I
Retail space addition to grow 1.4-1.5x over the medium term
(mn sq ft)
16.0 Area Addition
14.0
12.0
10.0
8.0 14-15
6.0
10.2
4.0

© 2016 CRISIL Ltd. All rights reserved.

2.0
0.0
FY2017-19 FY2020-22P
Area Addition

Note: The data is aggregate for 8 retail chains forming ~15% of organised B&M retail; P-Projected
Source: Company reports, CRISIL Research

Players expanded their reach over the years across cities

(no.)
800 Presence across cities
700
600
500
400 750+
300
200 428
100 146 77 172 39 155 98 65 90 24 39 *26 49
0
Reliance Retail V-Mart Pantaloons Future Retail Future Lifestyle Shoppers Stop D-Mart
Fashion
FY14 FY19

Note: *Data for D-Mart is for FY15

Source: Industry
Online retail to witness slowdown in short term due to new e-commerce
policy
Focused funding, rationalisation of operations to normalise growth for online
(₹ bn)
6,000 e-Retail
4,924
5,000

4,000

3,000

© 2016 CRISIL Ltd. All rights reserved.

2,000
1,400

1,000
organised retail

223
Penetration in

-
FY14

FY15

FY16

FY17

FY18

FY19

FY20P

FY21P

FY22P

FY23P

FY24P
8% 22% 30-32%
e-Retail

P – Projected
Source: CRISIL Research

• Change in policy to reduce growth to 20-25% in FY20

o Growth to pick up from H2 FY20 and increase to 33-38% CAGR between FY20 and FY22 as marketplaces re-engineer business models

o E-commerce players have started taking steps to comply with the regulatory changes

• However, increasing regulation remains monitorable as commerce ministry is observing discounts and model
implementation

• Online format to record 27-32% CAGR over the long term

6
Food and grocery, apparel and lifestyle accessories to be
key growth drivers in the medium term
Organised Retail 2018-19 2021-22P

3-year
Market size ORP Market size ORP
CAGR
Segments

Rs Billion % Rs Billion % %

Food and grocery 1,192 3.6% 2,535 5.5% 28-30%

Apparel 1,444 24.9% 2,063 31.2% 19-21%

Footwear 257 17.6% 407 18.9% 16-18%

© 2016 CRISIL Ltd. All rights reserved.

Furniture & Furnis hing 124 7.1% 213 9.4% 19-21%

Pharm acy 87 7.6% 137 8.7% 15-17%

Cons um er durables , m obile

1,547 56.0% 2,578 62.8% 17-19%
& IT

Books and m us ic 50 5.7% 50 5.1% 0-1%

Others 1,654 13.2% 2,148 13.3% 14-16%

Total organised retail 6,354 10.6% 10,923 13% 19-21%

P: Projected, ORP: Organised retail penetration

Source : CRISIL Research

• Food & grocery to grow fastest on back of significant offline as well as online impetus, however ORP to
remain low on account of stiff competition from unorganised kirana stores
• Apparel and lifestyle accessories to register faster growth among verticals
• Books and music to see demand decline further due to stiff competition from digital media

7
 Operating margins to improve in 2019-20
Typical cost structure Single brand retailers – Product premiumization and cost
rationalization to improve EBITDA margin in 2019-20

(%) Selling
Expenses
16.0% 13.7% Single brand retailers profitability 11.7-12.2%
Other 14.0% 12.1% 11.7%
5-10 10.9% 10.2% 10.8% 10.9%
Expenses 12.0% 9.8%
8.9%
10-15 10.0% 7.5% 7.2%
6.4% 6.8% 7.0% 6.6%
Employee 8.0% 6.1%
Costs 6.0%
5-10 4.0%
Power and

© 2016 CRISIL Ltd. All rights reserved.

2.0%
Fuel Material cost
0.0%
1-2 70-75

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20P
Operating margins Net margins

Source: CRISIL Research Source: CRISIL Research

Multi-brand retailers- Right product mix, increasing private label

share and store resizing to help improve margin in 2019-20

9.0% Multi-brand retailers 7.7% 8.0% 7.9%7.9-8.4% • increasing store productivity and improving private
7.3%profitability
8.0%
6.0% 6.4% label share to improve margins in 2019-20
7.0% 5.3% 5.6%
6.0% 4.3% ‒ Players will see their margin improve as they continue with
5.0% 4.0% 3.7%
4.0% 4.8% 2.7% 2.8% 2.8% measures such as closing unprofitable outlets, cost
3.0% 1.7% optimisation, right sizing stores and increasing share of private
2.0%
1.0% labels
0.0%
‒ Retailers employing multiple strategies such as setting up an
2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20P

online presence (omni channel), premiumization of products,

and tying up with leading e-commerce players.
Operating margins Net margins
Source: CRISIL Research

8
About us
CRISIL Limited
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the
foremost provider of high-end research to the world's largest banks and leading corporations.
CRISIL is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity
markets worldwide.

CRISIL Research
CRISIL Research is India's largest independent integrated research house. We provide insights, opinion and analysis on the Indian economy, industry, capital markets
and companies. We also conduct training programs to financial sector professionals on a wide array of technical issues. We are India's most credible provider of

© 2016 CRISIL Ltd. All rights reserved.

economy and industry research. Our industry research covers 86 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from
our network of more than 5,000 primary sources, including industry experts, industry associations and trade channels. We play a key role in India's fixed income
markets. We are the largest provider of valuation of fixed income securities to the mutual fund, insurance and banking industries in the country. We are also the sole
provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today the country's
largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete
objectivity. We leverage our deep understanding of the macro-economy and our extensive sector coverage to provide unique insights on micro-macro and cross-
sectoral linkages. Our talent pool comprises economists, sector experts, company analysts and information management specialists.

CRISIL Privacy Notice

CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to
provide you with additional information from CRISIL and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company”) you may find of interest.
For further information, or to let us know your preferences with respect to receiving marketing materials, please visit http://www.crisil.com/privacy. You can view the
Company’s Customer Privacy at https://www.spglobal.com/privacy.
Last updated: April 2016

Disclaimer
CRISIL Research, a division of CRISIL Limited (CRISIL) has taken due care and caution in preparing this Report based on the information obtained by CRISIL from
sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible
for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a recommendation to invest / disinvest in any company covered
in the Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research
operates independently of, and does not have access to information obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS),
which may, in their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL’s
Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISIL’s prior written approval.

9
 Thank you

© 2016 CRISIL Ltd. All rights reserved.