Money Blog

It’s official now - Walmart’s India venture will have Bharti as the retail partner. Wal-Mart Stores Inc., the world’s biggest retailer, is entering India’s sprawling retail market through a tie up with Bharti Enterprises Ltd.

The joint venture will start opening stores in Asia’s fourth-largest economy from 2007, and Bharti Enterprise Chairman Sunil Mittal said he expected it will have several hundred stores across the country in the next 4 to 5 years.

Bharti did not immediately disclose financial terms of the deal, but it’s likely that the two firms would initially invest $100 million, going up to $1.46 billion. The Indian retail industry is estimated at about $300 billion, and is forecast to grow to $427 billion in 2010 and $637 billion in 2015, according to consultancy Technopak Advisors. But small local stores account for 97 percent of the market.

“This joint venture is a winning combination. Wal-Mart’s logistics skill and Bharti’s execution capability will create a potent force in the Indian market,” Gajendra Nagpal, director at Unicorn Investments.

“The joint venture with equal stakes will operate in areas where the government allows foreign investment in retail like cash-and-carry and logistics,” Sunil Mittal said. The retail shops will be owned by Bharti Enterprises under the Wal-Mart franchise. The idea is to give Indians the lowest price everyday.”

Bharti has a joint venture with the El Rothschild group for FieldFresh, which supplies fresh produce to overseas retailers. Wal-Mart has a liaison office in India and expects to step up its sourcing of items such as apparel, textiles and shoes from India, which totaled more than $1.6 billion this year.

The tie-up follows the opening of the first stores of Reliance Industries’ retail unit earlier this month, and other major Indian conglomerates such as the Tata group and the Aditya Birla Group are also moving into the sector. Reliance Industries Ltd. chief Mukesh Ambani said there was room for six to eight new players in the retail sector.

Foreign retailers are keen to enter India’s rapidly growing market, but multiple-brand retailers are only allowed to operate through franchises and licensees, or a cash-and-carry wholesale model, as Metro AG and Shoprite have chosen. Single-brand retailers are allowed to own a majority stake in a joint venture with a local partner, but India is widely expected to further ease rules on foreign investment.

Reliance Industries, the top petrochemical company, is investing $5.6 billion in its retail project, which ranges from convenience stores to hypermarkets. It expects revenue of $22 billion from retail operations by 2010/11. Cigarette maker ITC Ltd. has also opened its first grocery stores and plans to add outlets quickly.

As per the reports of CSO (Central Statistical Organisation), Indian economy grew at 9.2% during the second quarter from June 2006 to september 2006. Besides this per capita income growth is 6.4 percent per annum. Sectors like Manufacturing, Telecom, Financial services, power and infrastructure exhibited tremendous growth whereas the share of agriculture, forestry and fishery has come down. The  Prime Minister’s advisory council had projected the growth for the current fiscal to be more than 8%. In the first quarter the economy had grown at 9.1% and if it keeps its pace for the next two quarters as well, Indian economy could acheive a growth of more than 9% during this fiscal which would beat all historic records and would place India on the top amoung its asian peers.

With such encouraging figures, the India story remains intact and more and more foreign money is knocking at Indian doors. The stock markets are at all time high and FIIs are providing the all necessary liquidity. All the macro economic elements are positive except inflation, which is a cause of concern for the finance ministry. Tax collections have increased in a big way, new jobs are being created, stock markets are surging, all signalling towards a robust economy. The boom had started in the technology sector and is now spreading across the board. Manufacturing, autos, pharma, realty, retail, telecom, construction, power, trading, Banking and financial services, almost all sectors are booming. Indian companies are acquiring companies abroad, they are making a global presence, biggest brands of the world are tieing up with indian partners to exploit the potential of India.

The new Wal Mart and Bharti retail chain is expected to start opening its stores from August next year onwards. The recruitment process is expected to start soon and it is likely that the top slots will be kept by Wal Mart itself. Wal Mart has huge experience in the industry and they do not want to put the new venture solely in the hands of indian managers. However the CFO of the new venture is likely to be an Indian. Wal Mart is expected to bring Randy Guttery and Lance Retigg to spearhead the operations of the new venture. The crucial areas of operations like sourcing, merchandising and logistics will be managed by the Wal Mart team.

US based hedge fund Farallon Capital and Lakshmi Niwas Mittal have bought stake in Indiabulls Infrastructure development, a wholely owned subsidiary of Indiabulls Financial Services Ltd. Mittal has taken 3.33 percent for Rs. 111.75 Crore and Farallon has taken 10 percent for Rs. 335.25 crores. This has reduced the stake of Indiabulls Financial Services Ltd. to 86.7 percent in the company. The transaction has valued Indiabulls Infrastructure at Rs. 3350 crore, the company is setting up a 6000 acre SEZ in Maharashtra. The transaction has given a boost to indian real estate and infrastructure development companies. India is a growing economy and there is a huge opportunity for infrastructure development companies to grow with the growing economy of the country. With Mittal and Farallon taking stake in a infrastructure development company, the investor confidence in real estate and infrastructure development companies has increased. Real estate companies like Unitech, Ansal Properties, Mahendra Gesco have witnessed a sharp rise in their stock prices recently and overwhelming response to the IPO of Parsvnath developers has confirmed the investor confidence in real estate sector. Stocks of infrastructure development companies like GVK infrastructure and GMR infrastructure have also surged recently in wake of the upcoming oppertunity of infrastructure building announced by the Government. It is likely that construction, infrastructure and realty space will continue to grow at a rapid pace in the coming years.

Sugar Mills, mostly in Maharashtra and south, have not been able to sell their sugar stocks of their last year produce. This has pushed the sugar prices downwards. As per the data of Central Excise department as on 30th September 2006 Maharashtra was holding 18 lakh tonnes, Karnataka 5.17 lakh tonnes, Tamil Nadu 6 lakh tonnes and Gujrat was holding 1.7 Lakh tonnes. The total sugar production in India was 192.62 lakh tonnes last year and as on 30th September 2006 it was holding 39.65 lakh tonnes of sugar. North Indian states like Uttar Pradesh, Haryana, Punjab and Bihar are holding relatively lesser stocks. Further more, the Government has imposed a ban on export of sugar, leading to the surging of stocks. The ban is likely to be lifted in wake of the demand from sugar companies and increasing stocks of sugar. The sugar companies are witnessing high margin pressures as the prices of sugar are coming down. Almost all sugar company stocks like Balrampur Chini, Dhampur Sugar, Bajaj Hindustan, Mawana Sugar, Uttam sugar, etc. are under performing. They are hovering around their yearly lows. Lifting of ban on Indian sugar export will impact Thailand, a major sugar exporter of Asia as Indian sugar prices pose stiff competition to Thai exporters and the major buyer Indonesia is expected to unveil its year 2007 import quotas till the end of December 2006.