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 FinancePresentation

on

The Indian Retail SectorSubmitted To: Dr. Kulbir Singh

Group No. 57Section F

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

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

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

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.

Government InitiativesGovernment 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

Key Ratios/Terms

Same Store Sales

Sales per Square Foot

Inventory Turnover

Consumer Confidence

Road AheadE-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

MERGER & ACQUISITIONSMerger – 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.

WHY MERGER/ACQUISITION HAPPENS.

SynergyStaff reductionsEconomies of scaleAcquiring new technologyImproved market reach and industry visibility

VARIETIES OF MERGERS

•Horizontal merger•Vertical merger•Market-extension merger•Product extension merger•Conglomeration

•Based on financing method-Purchase mergers-Consolidation mergers

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.

WAYS & TOOLS TO VALUE & ASSESS A TARGET COMPANY

1.Comparative Ratios - Price-earning ratio - Enterprise –value-to sales ratio2.Replacement cost3.Discounted cash flow

Financial DistressAn 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 .

Current ratio/Liquidity ratio:

Aditya Birla Retail Shoppers Stop Cantabil Retail Westside Future Retail

2012:1.06 - 2.71 3.29 1.292013:0.56 - 1.98 2.78 9.742014:0.71 0.54 1.42 2.50 1.312015:0.82 0.54 1.36 0.92 1.372016:0.85 0.59 1.48 0.82 1.49Companies 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

Debt to Equity Ratio: Aditya Birla Retail Shoppers Stop Cantabil Retail Westside Future Retail

2012: 2.42 - 0.01 0.18 0.732013: 45.06 - 0.01 0.15 0.962014: 17.19 0.60 0.01 0.17 1.692015: 17.04 0.60 0.01 0.05 0.812016: 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.

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 prediction1.23 <= Z <= 2.90 indicates a grey areaZ > 2.90 indicates no bankruptcy

For Example:In Aditya Birla group

Z Score = Sum Of 5 Factors =6.4“Hence no bankruptcy”

Z-Score

Net Working Capital(In Rs. Mn)

2013-14 2014-15 2015-160

0.5

1

1.5

2

2.5

3

Future RetailCantabilABRLShoppers StopWestside

Current Ratio

2013-14 2014-15 2015-160

5

10

15

20

25

Future RetailCantabilABRLShoppers StopWestside

Level of Current Assets

Future Retail Cantabil ABRL Shoppers Stop Westside0

2

4

6

8

10

12

2013-142014-152015-16

Inventory Turnover

Cash Conversion Cycle

Future Retail Cantabil ABRL Shoppers Stop Westside0

50

100

150

200

250

300

350

400

450

2013-142014-152015-16

DERIVATIVES

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