Crisil had expected the market share of organised retailers to grow to about 9% by fiscal 2020
Rating agency Crisil is expecting the market share of organised retail in India to rise to about 10% by fiscal 2020, compared with about 7% last fiscal. This will be supported by the government’s decision to permit 100% foreign direct investment (FDI) in single-brand retail under the automatic route from 49% earlier, relaxation in sourcing norms and healthy growth prospects for organised retail.
Before the change in rules, Crisil had expected the market share of organised retailers to grow to about 9% by fiscal 2020, based on healthy revenue growth of about 18% of organised brick and mortar (B&M) retailers.
Better operating environment for single-brand retail would also mean the pace of store additions by organised retailers will be faster than the annual 10-12% CRISIL had presaged earlier.
The impact of relaxation in rules would be more pronounced in the apparel, luxury goods, home decor, footwear, and electronics segments, which ratchet up about 45% of India’s organised retail revenues.
Anuj Sethi, senior director, Crisil Ratings, said, “Global single-brand retailers facing growth headwinds in their key geographies will now be more than keen to peg tent in India. And those already present could step up investments. The previous sourcing norms were a bottleneck to scaling-up of operations.”
While FDI approval under the automatic route will lower the time to commence business, the relaxation of 30% local sourcing norms for the first five years by allowing inclusion of incremental sourcing for global operations will provide sufficient time for new entrants to set up and stabilise their sourcing base.
“All this will mean increase in competition for domestic organised brick and mortar (B&M) retailers,” said Amit Bhave, director, Crisil Ratings. “However, more foreign retailers vending their ware would also lead to sharper focus on, and improvements in, supply chain efficiencies which will benefit the sector over the medium term.”
Crisil rates 93 organised B&M retailers and their credit quality has been improving as reflected in the credit ratio (upgrades to downgrades) of over 1 time for the past four years. The ratings agency believes healthy growth prospects for the sector and benefits of scale and focus on profitability, will help offset the impact of higher capital spending and increasing competition on credit profiles over the medium term. Hence, improvement in the credit quality of Crisil rated B&M retailers is likely to sustain.
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 "Market share of organised retail in India to increase from 7% to 10% by 2020: Crisil")
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