Organized retail in India to grow by 10% by 2010: Fitch

By agencies   |   Wednesday, 13 April 2005, 19:30 IST
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MUMBAI:International rating agency Fitch has predicted that penetration of organized retail in India will increase to about 10 percent over the next five years from the present three percent. "The penetration of organized retail in India is on track to increase to about eight to 10 percent over the next five years from an estimated three percent in 2004 which is about 28,000 crore, Fitch managing director Amit Tandon said in a special report on India's retail sector. "The rapid growth in the Indian retail sector has been driven by the country's economic fundamentals including a more favorable income distribution and increased consumption expenditure," he said. The agency said key players have customized the concepts of their outlets to better service their target market and it expects a strong top line growth across the industry including hypermarkets, department stores and supermarkets. The study, however, warned that the supermarket segment is likely to witness margin pressures and it needed to rapidly scale up its operations and promote in store brands to increase its profitability. "Retailers are expected to benefit from the increased availability of retail focused real estates as the rapid development of malls in major cities is expected to continue in the medium term," it added. Fitch said the industry is gaining acceptance from the investor community and new modes of financing are opening up for the retail sector. "However the industry as a whole remains in the investment phase, as scaling up continues to be the sector's key focus and the rapid pace of expansion has resulted in negative free cash flows for most retailers," the report said. The agency said poor industry status, lack of uniform tax structure, increasing pressures on infrastructure in key consumer markets and limited availability of quality real estate was putting a growth check on near term growth prospects for the sector. "The governments attempt to alleviate these pressures through regulatory changes like VAT legislation and FDI in construction is likely to boost the growth of the sector in the medium to long term," it said. Fitch said there was potential for strong growth in Indian retail, which would translate into higher revenues for existing players. It, however, predicted a substantial increase in competition, which would lead to reduced margins, and said the expansion would mostly be concentrated in tier II cities.