VPC Newsletter | JULY – 2017

The Month That Was…….

 COUNTRY, FINANCE, MACROECONOMY, POLICY AND POLITICS

  • Finance Minister Mr. Arun Jaitley has announced that the Government has appointed a Select Committee to assess the benefits and implications related to the proposal of changing of India’s financial year to January – December, from April to March.
  • India will stay ahead of China on the growth curve in 2017 and 2018, said the International Monetary Fund (IMF), while retaining the country’s GDP forecast at 7.2 per cent for the current fiscal, whereas Q1 ending June 2017 is expected to come in between 6.5-6.8% growth, a pick up from Q4 of the previous financial year which came in at 6.1%..
  • India’s GDP could rise to about USD 8 trillion over the next 15 years if the country registers an economic growth of 8 per cent annually.
  • Consumer prices in India increased 1.54 percent year-on-year in June of 2017, slowing sharply from a 2.18 percent rise in May and below market expectations of 1.7 percent. This paves the way for what the majority of economists polled are expecting will be a rate cut when the Monetary Policy Committee meets on August 2nd.

VPC SECTORS

Consumer Markets

  • From 2016 through 2025, the share of elite and affluent in India’s five household income categories (strugglers, next billion, aspirers, affluent, elite) will increase from 8 % to 16 % of the total consumer pie. As a result, the elite and affluent categories will jointly account for 40 % of the consumption as against 27% now. But it is not only wealthy urbanites that will fuel this growth, emerging cities (with population of less than one million) will be the fastest growing in terms of consumption expenditure, buoyed by nearly 14% growth while it is 12% in India’s biggest cities. Overall the consumption expenditure is expected to increase to $ 4 trillion by 2025.
  • Bigbasket, India’s leading online grocery platform, has a long queue of suitors looking to take a stake in the company. As a matter of fact, it is rumoured that Chinese e-commerce giant Alibaba Group Holding Ltd. and its Indian associate Paytm E-commerce Pvt. Ltd are in talks to invest about $200 million for a stake of roughly 20% in India’s leading online grocer.
  • In a move aimed at differentiating itself from the rest of the pack, PaytM Mall has delisted over 85,000 sellers from its e-commerce platform due to their inability to produce brand authorization letters for the products and/or services they were selling. The move hints at the Company’s desire to be seen as a partner through which brands can be sell without fear for copyright infringements or counterfeits.
  • Flipkart has undertaken a pilot programme in Bengaluru, aiming to foray into grocery segment and may expand it to other places across the country. The e-commerce player which currently has a base of over 100 million users is working towards bringing 500 million customers on its platform in the coming few years.
  • With the latest July infusion into its India business unit, Amazon has crossed the US$ 2 Billion mark worth of aggregate investment in the market.
  • Flipkart has launched a private label for men’s fashion and apparel called `Metronaut’. For Flipkart, men’s fashion contributes ~ 60% by value of all fashion sales. This comes close to a year after close competitors Amazon India and Myntra focused on growing their private label business. In parallel, Flipkart is further solidifying its plans to enter the brick and mortar space; it will initially focus on foreign brands via master franchisee agreements whereby it will in turn sub-license the offline business while also making the products available on its digital platform. It is currently in advanced talks with Honk Kong based Giordano for a licensing deal to sell the brand in India.
  • In a dramatic turnaround from what seemed like a likely merger between India’s first and third largest e-commerce companies, Flipkart and Snapdeal respectively, the latter has rejected the former’s offer. It has instead decided to retain control and undergo a restructuring effort to create a more lean and profitable company. VPC sees this as a healthy alternative to amalgamating two large companies running very significant operational losses. We believe that this will put pressure on Snapdeal to turn a profit, becoming specialised and focused on high yield product categories. At the same time, it disallows Flipkart to continue expanding on the back of inorganic growth that provides them with high media impact macro level numbers and top line growth figures at the expense of operational efficiency.
  • On the back of the Government’s efforts to reduce cash transaction in the Indian economy, digital payment platforms have received an important impetus. Owing to this, beleaguered e-commerce player Snapdeal is looking to cash in on FreeCharge, its digital payments platform, to infuse liquidity and stay afloat as it goes through its restructuring efforts. It is rumoured that Axis Bank has found an agreement for acquiring the digital payments platform at a price of ~ US $ 60 Million. On a related note, Amazon is pumping a lot of liquidity into its Amazon Pay platform and providing incredible sops such as 10% cash back on first time purchases, to lure customers to use its payment system.
  • The women’s apparel market is set to overtake men’s wear by 2025 in the country. Women’s apparel, which accounted for ~ 13.5 Billion Euros of the 31.5 Billion Euros apparel market in 2015, is growing at 11 per cent CAGR, while the branded segment is clocking a 20 per cent growth.
  • Steve Madden has announced plans to sell its jewellery collection online via a collaboration with Amazon Fashion.
  • Leading chocolate maker Mondelez India has signed a strategic partnership with Amazon India to set up a virtual chocolate & sweet store through which it will be able to sell its products in a controlled manner.
  • India’s burgeoning middle class, overall economic growth and propensity to spend on dining, have all contributed to the enthusiasm surrounding the quick service restaurant market. Currently valued at ~ Euro 1.2 Billion, it is forecasted to grow by 22% CAGR to reach ~ Euro 3.3 Billion by the year 2021.
  • Socialising, eating out, and increased spending power are all factors that have driven the bars & pubs as well as the café industry. During the period 2014-16, growth in the number of newly opened outlets grew at 23.5% and 21.6%, respectively. The impressive growth of café openings is in line with previous trends, the surprising growth in openings of bars and pubs is primarily attributed to the proliferation of options, competition, which has in turn made going out for an alcoholic beverage more accessible to a larger group of people.
  • Gourmet Investments is set to revamp UK’s Pizza Express in India, where it has nine outlets and will launch eight more in Mumbai, Pune, Chennai, Delhi and Bengaluru in the next 6-9 months.
  • In its attempt to spur employment, Modi and the Government are considering allowing 100% FDI in supermarkets and multi-brand retail. Albeit with caveats, ranging from minimum investment volumes to local sourcing norms, the move would certainly bring a significant amount of foreign capital into the country and enhance the lagging back end infrastructure required to enhance the overall ecosystem of the sector.
  • Apple is in talks with HCL Infosystems to forge a distribution strategy whereby the former would leverage the latter’s vast network.
  • Walmart has signed an MoU with the Maharashtra Government for setting up 15 stores across the state at an investment of ~ 140 Million Euros. To begin with they are looking at the city of Pune, intent of opening 3-4 B2B shops in the very short term capable of being a one stop shop to the vast network of mom and pop shops.
  • Diversified conglomerate Lulu Group has announced plans to introduce the world leading toy chain Toys ‘R’ Us in September. Starting with its first store in Bangalore, Tablez which is the retail division of the Lulu Group, will look to compete with this fast growing space currently dominated by Hamleys.
  • On the back of 40% growth in FDI since opening up the sector to 100% FDI investment in 2016, the Government is eyeing an investment worth US$ 10 Billion in the food processing sector over the next 5 years.

Automotive

  • The Indian subsidiary of the German carmaker Volkswagen has exported more cars from India in the first quarter than India’s largest car manufacturer Maruti Suzuki and erstwhile number one car exporter Nissan. Volkswagen India dispatched 26,740 units in the first quarter.
  • Mini-trucks, dominated by Tata Ace, Mahindra Jeeto and Supro, will show a growth in sales this year – perhaps as high as 12%. In the first quarter of FY18, the mini-truck segment rose by 9% to 29,680 units, while pickup sales expanded even faster at about 17% to 52,716 units.
  • Automobile major Mahindra and Mahindra is readying two new models by the next fiscal-end as it looks to consolidate its position in the Indian passenger vehicle segment. The company, which sells utility vehicles ranging from compact KUV100 to XUV500, also has plans to introduce a new electric vehicle in the next two years.
  • The two-wheeler major Honda not only continues to lead incremental volume in domestic sales for the second quarter in a row in Q1, contributing 69 per cent, it’s also become the largest volume contributor to exports in the June quarter. With a 44 per cent growth in exports, Honda Motorcycle & Scooter India (HMSI) has contributed almost a third, to be precise 29.5 per cent of the incremental export volume in the June quarter, or three-times.
  • Car sales in rural areas during the first quarter have grown in double digits on expectations of a normal monsoon. Market leader Maruti Suzuki reported 30 per cent growth in sales volume in the rural market and Hyundai clocked 23 per cent. For both companies, which together control about 67 per cent of the Indian car market, the pace of growth in rural markets is significantly higher than overall sales growth.
  • Eicher Motors Ltd, the maker of the Royal Enfield family of motorcycle, has become India’s most valuable two wheeler company by market capitalisation; surpassing behemoths Hero MotoCorp and Bajaj Auto.

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