Indian Stock Market: Retail Sector 2019 | A Structural Story


Welcome to ValueMulticaps, ValueMulticaps
“SEBI Registered Stock Advisory Firm” .
Today in the Series of “Sector Analysis “ lets evaluate “Indian Retail Industry”
Especially Indian Apparels Retail Stocks which has potential to create Exponential Wealth
in Indian Stock Market. Indian Retail Industry’s Transformation
proves that Luxuries of the past are increasingly becoming necessities of today’s lifestyle. The Indian retail industry is one of the fastest-growing
contributing more than 10% of the country’s GDP and Employing ~8% of Indian Population. India is the world’s fastest growing Retail
Market & fifth-largest retail destination. However,India remains one of the World’s
most unorganized markets,But still it is growing exponentially,That shows Potential to growth. India’s retail market is expected to nearly
double to US$1tr by 2020, from Current US$700bn , driven by income growth, urbanization and
attitudinal shifts. Megatrends are Quite Visible in Modern apparel
retail Sector –Apparel Retail a structural story
India’s apparel and organized retail industry is at a nascent stage with per capita consumption
and penetration at extremely low levels (10% penetration in India v/s 85% penetration in
US). India’s per capita apparel consumption still
1/5th China’s.Clearly Opportunities to Catchup & Grow for India are Enormous. Organised apparel segment estimated to post
20% CAGR Growth over FY18‐25, higher growth in areas beyond metros. About 80% of the new malls development in
the next few years is expected in non-metros. Indian Retail apparels to benefit the most
from changing consumer habits, huge unorganised market, low penetration, minimal competition
& high entry barriers. So,How Indian Apparel Sector becomes Investment
Case then ? : India ,world’s youngest nation: 65% of the
Indian population is aged less than 30 years and it is estimated there will be more than
70 Crore smartphones in India by 2020. Which means 60% Population.Rise in Young Indians
fashion-consciousness and spending power driving Growth. Rising incomes & growing number of double-income
households : Per capita incomes in India has already crossed Rs1lac in FY17, a 7.5% increase
over FY16 (~Rs. 93,000). While Consumer expenditures in emerging cities
of India are rising by ~14% and in the larger cities by~12% a year because of rising affluence
and changing lifestyles. We expect India’s nominal GDP by expenditure
to grow at 11% over FY18‐25. Expenditure towards clothing as % of GDP in
FY17 stood at 4.0%, which is expected to remain steady over FY18‐25. once a country’s per capita crosses the
USD2,000 mark Retail sales Goes up more than 2x once per capita income crosses USD2,000
.Currently, India’s per capita income is at ~USD1,800, close to crossing the USD2,000
mark Rising urbanization & Rural Market : % of
population estimated to reside in urban areas by 2030 from Current 31.2% And Rising rural
incomes, improved education and greater accessibility to governmental services to increased investment
in rural infrastructure are driving consumer demand in Rural Market. Mega cities of 1 Crore people or more are
growing by 57% compared to average urban growth of 27%. Key Positive Triggers:
GST regime & Gaining Unorganized Player Market Share : unorganised market will find it difficult
to evade the tax net now.Also post demonetization , Cashless Economy & Digital Economy driving
Shopping Experience to Online towards Organised Retail. The most important organised categories are
Food & Groceries (USD13bn), apparels & accessories (USD11bn) and jewellery & watches (USD13bn). Major Postives are for Apparel Value Retail
, Bigger players—have learnt the tricks of the trade such as
1)Optimum store size: Like Economically Viable Compact hypermarket (20,000–30,000sq ft)
and supermarket (3,000‐4,000sq ft) formats improve sales per sq ft. 2)Right product mix: Players are focusing
on F&G and apparel in their search for profitability and productivity. 3)Private labels: Organised retailers prefer
private labels/Their own In House Brand & product than other outside brand (20% in India versus
35% globally) as they fetch higher margins, greater customer loyalty and clear product
differentiation. How the Indian Retail Industry Works & Positioned
: Overall Indian Retail Industry Size is Over
600 Bn US Dollars,Where Food & Grossery is 67% ,Apperels 8% & Jewellery & watches 8%
as Major Contributor. In Above all 3 Segments ,Only 10% is Organised
Retail & rest is Unorganised Retail. In Food & Groserrys (F&G) we have Organised
Playesr like Future retail,Dmart,Star Bazaar,Spenser. In Apperels ,We have players like Shoppers
stop,Future lifestyle,Westside(Trent) ,Aditya Birla Fashion,Vmart. In Jewellery &Watches we have players like
Titan. Concept of value retail in India Here Retailers deliver fashion products at
affordable prices to the aspiring middle class in tier 2 and 3 cities by modern shopping
experience with medium sized hypermarket offering an ambience. basic shopping facilities provided and have
grabbed consumer attention. These include air- conditioned premises, trial
rooms, escalators, firm prices on display, 100% power backup, food joints and toilets,
which are missing in traditional apparel outlets. While traditional stores work for restricted
hours, companies’ stores are open 12 hours a day, seven days a week and 365 days a year. Membership cards, acceptance of debit and
credit cards and shopping vouchers are other benefits offered by companies. They have created a loyalty program to reward
regular customers , customers get discounts and Get texts Messages when new products are
introduced. Entry Barrier : This has also acted as a barrier
for smaller/local players as the cost of setting up similar outlets is prohibitive. Early mover advantage in TierII/III cities
: there is low penetration of organised retail Tier 2 and 3 cities are a big opportunity,
with more than 100 cities occupied by ~10 Crore Plus population in total. These high-potential markets are witnessing
a massive shift towards branded products. Companies tapping the youth in these small-but-growing
markets, by providing them affordable fashion in a luxurious shopping environment. They plan to continue the focus on North and
East India, which are relatively underpenetrated, with 70% of modern trade being present in
South and West India. Efficient supply chain and inventory management
Retailer, are trying to improve supply chain efficiency and manage inventories better,
at both the store and warehouse level. Multiple competitive advantages of Modern
retail Players They also enjoy the first-mover advantage
in their cities of operation and have secured long-term leases (9 years) at prime locations,
shielding from future competition and rental inflation. This coupled with low staff costs (as mostly
locals are employed) They source apparel as per latest fashion
trends from multiple small suppliers across India, using high bargaining power and avoid
premium branded products. Their majority advertising campaigns are done
locally as most stores are in semi-urban areas. Companies prefer print versus the digital
media due to the lower cost and higher efficiency to generate local awareness. Size of Opportunity :
we estimate the organised apparel market to touch ~ INR5tn by FY25, CAGR of over 20% by
FY18‐25E respectively. Growing consumerism: Private consumption accounts
for 56% of India’s GDP. Around 49 metropolitan clusters are likely
to account for 77% of India’s incremental GDP till 2025. By 2025, these clusters are expected to be
home to 72% of the consuming class and 73% of the income pool. Wealth Creation Track reord for Few Major
Indian Retail Stocks : In the Last 3 to 5 year , Indian Retail Stocks
has created Incredible Wealth Creation for Shareholders & Outperformed Nifty by wide
Margin.Stocks such as Dmart ,Future Retail ,Vmart ,Titan & All. Various Credible Domestic Broking Houses has
given Postive Coverage on Indian Retail & Mostly Indian Apparels Sector .
We are Positive on Few Retail Stocks with Long Term View. To know more about those Multibagger Ideas
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