finance in retail sector

1. S. No Name Roll No.
1 Nupoor Jhingan 201610105
2 Reen Simranjeet Singh 201601335
3 Divya Soin 201601349
4 Shashank Sharma 201601329
5 Kaustuv Sen 201601341
Advance Corporate Finance
Presentation
on
The Indian Retail Sector
Submitted To: Dr. Kulbir Singh
Group No. 57
Section F

2. Retail accounts for over 10 per cent of the country’s
Gross Domestic Product (GDP)
Contributes 8 per cent of the total employment.
India is the world’s fifth-largest global destination in
the retail space.
India’s retail market is expected to nearly double to
Rs.66 trillion by 2020 from Rs.39 trillion in 2015
Introduction

3. Traditional Trade v/s E-Commerce:
Sales are expected to reach Rs.7 trillion by 2020 from
Rs.1 trillion in FY2016.
It is expected to reach Rs.14 trillion in terms of gross
merchandise value (GMV) and 35 billion shoppers by
2025
India’s direct selling industry is expected to reach a
size of Rs 23,654 crore by FY2019-20

5. Investment Scenario and the future
The Indian retail trading has received Foreign
Direct Investment equity inflows totalling Rs.35
billion during April 2000–March 2016
Amazon India has opened six new fulfillment
centres across India

6. Investment Scenario and the future
IKEA, the world’s largest furniture retailer, plans
to invest Rs 10,500 crore to set up 25 stores across
India
15,000 permanent employees and 37,500
temporary employees to assist in running its stores.
ABFRL will acquire exclusive online and offline
rights of Forever 21.

7. Government Initiatives
Government of India has allowed 100 per cent FDI in
online retail of goods and services.
100% FDI in single brand retail and 51% in multi brand
retail
The Ministry of Urban Development has come out with
a Smart National Common Mobility Card (NCMC)
Implementation of Goods and Services Tax

9. Key Ratios/Terms
Same Store Sales
Sales per Square Foot
Inventory Turnover
Consumer Confidence

10. Road Ahead
E-commerce is expanding steadily in the
country
Bottom of the Pyramid i.e. tier 3 and tier 4
cities are being targeted
Retailers would leverage the digital retail and
marketing channels

11. MERGER & ACQUISITIONS
Merger – A merger is a corporate strategy of combining
different companies into a single company in order
to enhance the financial and operational strengths of both
organizations. It is also termed as ‘Amalgamation’
Acquisition- An acquisition is a corporate action in
which a company buys most, if not all, of another firm’s
ownership to assume control of it. Acquisition occurs
when a buying company obtains more than 50%
ownership in a target company.

12. WHY MERGER/ACQUISITION
HAPPENS.
Synergy
Staff reductions
Economies of scale
Acquiring new technology
Improved market reach and industry visibility

13. VARIETIES OF MERGERS
•Horizontal merger
•Vertical merger
•Market-extension merger
•Product extension merger
•Conglomeration
•Based on financing method
-Purchase mergers
-Consolidation mergers

14. MERGER vs ACQUISITION
Acquisition may be different in name only. Unlike all
mergers, all acquisitions involve one firm purchasing
another – there is no exchange of stock or consolidation
as a new company. Acquisitions are often congenial, and
all parties feel satisfied with the deal. Other times,
acquisitions are more hostile.

15. WAYS & TOOLS TO VALUE & ASSESS
A TARGET COMPANY
1.Comparative Ratios
- Price-earning ratio
- Enterprise –value-to sales ratio
2.Replacement cost
3.Discounted cash flow

16. Financial Distress
An individual, business, or company's inability to generate revenue when
there are too many debts.
Difficulty paying off, its financial obligations to its creditors.
 Illiquid assets or revenues sensitive to economic downturns.
SIGNS:
Poor profits indicate a company is not experiencing financial health.
Struggling to break even indicates a business cannot sustain itself from
internal funds and needs to raise capital externally.
Poor sales growth or decline indicates the market.
When debtors take too much time paying their debts to the company .

17. Current ratio/Liquidity ratio:
Aditya Birla Retail Shoppers Stop Cantabil Retail Westside Future Retail
2012:1.06 - 2.71 3.29 1.29
2013:0.56 - 1.98 2.78 9.74
2014:0.71 0.54 1.42 2.50 1.31
2015:0.82 0.54 1.36 0.92 1.37
2016:0.85 0.59 1.48 0.82 1.49
Companies would aim to maintain a current ratio of at least 1 to ensure that the value
of their current assets cover at least the amount of their short term obligations.
However, a current ratio of greater than 1 provides additional cushion against
unforeseeable contingencies that may arise in the short term.
Current ratio is the primary measure of a company's liquidity. Minimum levels of
current ratio are often defined in loan covenants to protect the interest of the lenders
in the event of deteriorating financial position of the borrowers.
Current
Ratio
=
Current Assets
Current Liabilities

18. Debt to Equity Ratio:
Aditya Birla Retail Shoppers Stop Cantabil Retail Westside Future Retail
2012: 2.42 - 0.01 0.18 0.73
2013: 45.06 - 0.01 0.15 0.96
2014: 17.19 0.60 0.01 0.17 1.69
2015: 17.04 0.60 0.01 0.05 0.81
2016: 3.15 0.60 0.06 0.05 1.38
Debt-to-equity ratio which is low, say 0.1, would suggest that the company is not
fully utilizing the cheaper source of finance (i.e. debt) whereas a debt-to-equity
ratio that is high, say 0.9, would indicate that the company is facing a very high
financial risk.

19. Z= 3.3 (EBIT/ Total Assets) + 1.2 (Net Working Capital/ Total Assets) + 1.0 (Sales/ Total
Assets) + 0.6 (Market value of equity/ Book value of debt) + 1.4 (Accumulated retained
earnings/ Total Assets)
Where Z < 1.23 indicates bankruptcy prediction
1.23 <= Z <= 2.90 indicates a grey area
Z > 2.90 indicates no bankruptcy
For Example:
In Aditya Birla group
Z Score = Sum Of 5 Factors =6.4
“Hence no bankruptcy”
Z-Score

20. Net Working Capital(In Rs. Mn)

21. 2013-14 2014-15 2015-16
Future Retail 0.7 0.44 1.49
Cantabil 1.42 1.36 1.48
ABRL 0.71 0.82 0.85
Shoppers Stop 0.59 0.54 0.54
Westside 2.5 0.92 0.83
0
0.5
1
1.5
2
2.5
3
Future Retail
Cantabil
ABRL
Shoppers Stop
Westside
Current Ratio

22. 2013-14 2014-15 2015-16
Future Retail 1.52 1.41 19.43
Cantabil 1.47 1.69 1.29
ABRL 0.25 0.3 0.82
Shoppers Stop 0.66 0.7 0.72
Westside 1.64 1.01 0.86
0
5
10
15
20
25
Future Retail
Cantabil
ABRL
Shoppers Stop
Westside
Level of Current Assets

23. Future Retail Cantabil ABRL Shoppers Stop Westside
2013-14 10.24 1.13 2.9 6.17 4.74
2014-15 7.1 1.12 2.71 5.76 5.42
2015-16 2.99 1.06 3.29 5.52 5.56
0
2
4
6
8
10
12
2013-14
2014-15
2015-16
Inventory Turnover

24. Cash Conversion Cycle
Future Retail Cantabil ABRL Shoppers Stop Westside
2013-14 10.45 303.27 1.04 3.78 399.6
2014-15 13.54 266.08 18.93 9.72 113.4
2015-16 42.95 278.76 15.99 15.91 127.4
0
50
100
150
200
250
300
350
400
450
2013-14
2014-15
2015-16

25. DERIVATIVES

26. RECENT DEVELOPMENTS
• The share of derivatives has gone up sharply in retail trading
pie, while that of commodities has been going downwards.
Meanwhile, cash trading turnover has remained more or less
stagnant.
• The decrease in retail volumes in the commodity space has
coincided with the Rs 5,600-crore National Spot Exchange
Limited (NSEL) scam in 2013.
• Average monthly retail in 2016 is at Rs 27.8 lakh crore, double
compared to Rs 14 lakh crore in 2013, data compiled by
domestic brokerage