By RASUL BAILEY
MINT (Exclusive Partner The Wall Street Journal)
DELHI, 20 February 2007
Bharti Enterprises, the parent of India’s best selling wireless service provider Airtel, confirmed that it will invest up to $2.5 billion (Rs. 11,026 crores) in the next eight years to roll out convenience stores and hypermarkets nationwide, joining a raft of companies looking to profit from an expected boom in organised retailing.
As reported on Monday by Mint, Rajan Mittal, the youngest of the three founders of Bharti, will head the retail foray, dubbed Bharti Retail Pvt. Ltd. Bharti’s Investment will be financed by a mix of debt, internal accruals and equity. The investment excludes the cost of real estate.
The company is targeting Rs. 20,000 crore of revenues by 2015 but didn’t say how many stores it plans to put up and where. The company will need 10 million square feet of space for its stores and did not say whether the company would go the leasing or purchase route, or a combination of the two. The first stores are likely to start a year from now.
Bharti is also partnering with Wal-Mart Stores Inc. for managing the back-end supply chain and logistics for its new retail foray. There were very few details on that front from Bharti pending a visit by Michael Duke, vice-chairman of the Bentonville, Arkansas-based retailer later this week.
“I think putting the supply chain in place will be the critical element for Bharti,” said Devangshu Dutta of retail research firm, Third Eyesight. “It makes sense for them to open early next year as an investment of this nature and magnitude needs a year or so for the supply chain and real estate to be put in place.”
Retail has become the latest target of Indian corporate giants trying to diversify and rush into emerging opportunities. As organized retail takes roots in India, as much as $25 billion is expected to be invested in the sector in the next five years, compared with $2 billion in the last decade.
France’s Carrefour SA and Britain’s Tesco PLC are also looking at ways to enter India’s $300 billion annual market. But analysts say Bhartis major competition is expected to come from other home-grown retailers including India’s largest listed retailer, Pantaloon Retail (India) Ltd. and Reliance’s retail arm as both companies separately plan to open thousands of stores in th enext five years. Much of the criticism about organized stores hurting mom-and-pop stores has pointed the finger at the likes of Wal-Mart, even though Bharti’s retail investment is significantly lower than what the likes of Reliance have said they will spend in more ambitious roll-outs of stores.
Mittal said Bharti Retail will create 60,000 direct jobs but would also “provide linkages to farmers and small artisans”, to its stores selling everything from food to furniture.