2013 FULLKART - CASH & CARRY IIMB Karthikeyan Jagannath Shankar [ FULLKART - CASH & CARRY ] Indian Retail Forum Business Plan Competition Team Three Tailers Brand FullKart THREE TAILERS Page 1
Table of Contents EXECUTIVE SUMMARY... 3 Fullkart Business Overview... 4 Market Analysis and Customer Segmentation... 5 Market Expansion Strategy... 7 Industry Analysis... 10 Cash & Carry... 13 Porter 5 Force Analysis... 13 Rivalry among companies - Medium... 14 Threat of Substitutes - Low... 14 Threat of New Entrants - Medium... 14 Bargaining Power of Suppliers - Medium... 14 Bargaining Power of Buyers - Low... 15 Government Influence - High... 15 Organization Structure... 15 Strategy and Implementation Plan... 19 Phase I (2015 2017)... 19 Phase II (2020 2023)... 20 Supply Chain Management... 21 Inbound (Sourcing)... 21 Outbound... 21 Financial Statements... 22 Summary... 22 Profit/Loss Statement... 23 Cash Flow Statement... 23 Balance Sheet... 24 Assumption... 24 THREE TAILERS Page 2
EXECUTIVE SUMMARY Fullkart is a cash and carry format retail store operating in India from 2005 mainly concentrating on FMCG, Food & Beverages, Consumer Durables and apparels. In India, Fullkart operates 10 stores in major Tier I & Tier II cities. Last year, Fullkart had sales turnover of about Rs. 1400 crores. In recent market research report, we found that retail business has opportunity worth $500 billion in India with $150 billion will be for Cash & Carry business. Indian rural market offers huge opportunity for organized retail with market size FMCG Rs.65000 crore and Consumer Durables Rs.5000 crore. In next five years, Fullkart plans to expand their cash & carry format stores to major Tier-III cities in India and also serve the kirana store retailers in the nearby villages of these cities to exploit the market opportunity. To start with these stores will offer FMCG and Consumer durables products. Fullkart also plans to have registered retailers and also extend credit services to these retailers by tie-up with rural banks. From these programs, Fullkart plans to develop better relations with the retailers and understand their requirements by training programs etc. Fullkart will be consistently investing in the infrastructure development to build an efficient supply chain in the rural part. Based on the experience in rural marketing, Fullkart would expand their operations to selected villages in partnership with the already registered retailers. Retailers will be selected based on their willingness, past sales performance, financial, store management capabilities and relation with Fullkart. Indian rural middle class customer s disposable income is increasing over the years along with willingness to spend. Target customers will be middle class customers in rural India which category forms 41% of Indian middle class. Indian rural market expects value for money not cheap products as perceived, so Fullkart will promote Quality, Availability, Assortment and Affordability in all their products. India retail sector has 98% traditional stores even after entry Fullkart would look for business model where existing retailers are part of developing their retail market space in rural India. Organization structure will have to restructured with independent THREE TAILERS Page 3
operations of cash & carry stores in Tier-III cities controlling all the retail stores in that area as the business model is expected to unique for different states. The two-pronged strategy for Fullkart over the next ten years would be to create and develop supply chain infrastructure by expanding in select tier-iii cities and later, utilize this infrastructure to form a retail partnership with the small scale retailers in the surrounding villages. Fullkart Business Overview Fullkart is a world-class nationwide chain of cash & carry stores part of Violet Corporation Ltd (Public Limited Company). Fullkart offers Business to Business Cash & Carry wholesale services in the major cities of India. It has 10 stores in major tier I and tier II cities with headquarters located at Bangalore. Currently customers serviced by Fullkart are kirana shop owners, general merchandise resellers, hotels, restaurants, caterers, offices and institutions. Product categories include FMCG, Food & Beverages, Consumer Goods and Apparels with over 10000 products in single location. Vision Go with Fullkart; friendly neighborhood Revenue (Rs. Crore) Booker 31% Bharti Walmart 16% Metro 13% Carrefour 31% Fullkart 9% THREE TAILERS Page 4
Market Analysis and Customer Segmentation Fullkart operates in the cash and carry format. With 10 stores across tier 1 and 2 cities in India, it is growing rapidly primarily owing to the growth witnessed in the Cash and carry store formats. The factors favoring the growth of cash and carry format in India can be enumerated as follows: Cash and carry stores operating as line fillers in the retail value chain filling the gap created by distributors and wholesalers. With discounted prices across wide category assortments, they provide a value for money alternative one-stop store for business professionals. The Fullkart stores stock goods from groceries, fresh vegetables to apparels and consumer durables. The products stocked at Fullkart can be broadly categorized as follows: Broad categories include Food and Non-food. Under Foods, there are two major sub-divisions: Fresh food and dry foods. Fresh foods include Fruits and vegetables, Dairy, Bakery, Meat, Fish etc. The various categories and article groups under each category under dry foods are listed below. Dry Foods Non Food In Food Grocery Sweets & Confectionaries Beverages, Spirits, Wine and Tobacco Article Groups Detergents & Toiletries Rice, Pulses, sugar, oil etc Biscuits, Chocolates, Snacks, namkeens Carbonated, Fruit punch, Aerated fruit juices, Wine, rum etc Non-food in food includes detergents and toiletries and this falls under the foods division mainly because the procurement and usage cycle of this category follows similar pattern to that of other article groups falling under this category. The categories under Non-foods division are listed below. THREE TAILERS Page 5
Non Food Categories Apparels & Footwear Consumer Durables Office & Stationery Household Luggage Article Groups Clothing Men/Women, Footwear etc White Goods, Media, IT appliances Office supplies, Furniture, Do it yourself furniture Bags and baggage. Fullkart stores a wide variety of SKUs under each of the article groups listed above. The different store formats of Fullkart are listed as below: Economic Stores: 3000-5000 sq.ft Standard Stores: 7000 10,000 sq.ft Large format stores: > 10,000 sq.ft. Among the 10 stores, 6 stores located in the metro cities and Tier 1 cities like Chennai, Delhi, Mumbai, Kolkata, Bangalore and Hyderabad are large format stores. The 3 stores in tier 2 cities like Madurai, Indore and Chandigarh are Standard stores. In Chennai Fullkart operates a small format economic store mainly as satellite store to cater to the remote and sub-urban localities around Chennai. Generally all these stores are located in the outskirts of the cities where they are located. One stop solution for all our customers so located at outskirts also remains attractive for them. Segmentation Primarily serving the businesses by operating in the Business to business sector, the customer segmentation of Fullkart is as follows: Trader segment/kirana Segment THREE TAILERS Page 6
Chiefly includes the kirana stores, departmental stores and super markets, bakeries, provisional stores, specialty retail stores etc. HoReCa It includes the hotels, restaurant chains, caterers belonging to both institutions like colleges, schools as well as organizations like government offices, private offices etc. The trader segment mainly comes to the cash and carry store in order to get the goods that are generally not provided by the company distributors. Also, they buy products upon which Fullkart has offered discounts. Factors attracting HoReCa customers to Fullkart are: One stop shop saving time Wide assortment and availability of niche product categories Affordable and cheap price points Market Expansion Strategy As virtual all format of retail strategy has been tried and tested in the tier 1 and 2 cities, it is ideal to focus on In order to become India s largest retail format, Fullkart could employ the following strategy in the long run. The tier 3 cities towns and rural villages where much of the potential lies for the future. Some of the key factors cribbing the retailers in these tier 3 cities, towns and rural areas are listed as follows: Poor distributor support to these stores. Rising economic conditions of the families in these areas lead to increased purchasing capacity which is not combined an availability of wide range of assortments which will instigate purchase among the rural customers. THREE TAILERS Page 7
Line pushing is witnessed in these areas wherein the distributors push the company products on which they will receive higher margins rather than offering products which the retailers demand. Non-availability of certain variants and SKUs mainly in the FMCG categories like soaps, shampoos, beverages, snacks, namkeens, confectionaries etc. Lack of transport and supply chain infrastructure to support large format stores such as Fullkart to cater to these markets. Rural retailers will be averse to procure the products by themselves as most of them are in the 2 to 6 lakh monthly turnover business which will yield those small profits to the tune of around INR 40,000 on an average. Lack of financial assistance from the banks and other financial institutions to support budding entrepreneurs in these regions who will be inclined towards starting a retail outlet in these areas to sustain their livelihood. Hence, although there is an increasing demand seen in the rural areas for packed goods, FMCG products and other impulsive categories due to the rising income levels and advertising reach, availability of these various products is a major issue. Also prices are comparatively expensive for such slow moving articles. Value Proposition All products will be available at low cost with assured quality Retailers/Kirana owners will be encouraged to improve their infrastructure Product availability at rural market Helping the retailers with financial institutions Help the farmers to avoid the middleman Key contribution towards infrastructure development for the country Indian company to help the traditional stores to come out of their process and product inefficiencies Hence to tap the full potential of the rural areas, Fullkart could expand to these areas in a phased manner. The detailed approach is outlined below. 1. Expand to tier 3 cities closer to the existing tier 2 cities where Fullkart has stores. THREE TAILERS Page 8
2. Tier 3 Fullkart stores should be of a new format mid-range between the standard and economic store formats currently existing. 3. Tier 3 Fullkart stores should not stock all the categories catered to by Fullkart in tier 1 or 2 stores. 4. Once established in the tier 3 city, in phase 2, Fullkart need to establish retailer networks in the town as well in the villages around the tier 3 city. 5. The retailer network could be established in 2 ways: a. Establish franchise retail outlets in the nearby villages and even within the tier 3 city. i. Associate with self-help groups for establishing such franchise retail ii. outlets. Promote entrepreneurs to setup franchise retail outlets by helping them with credit facility through partnerships with banks. Agreement with such retailers to allocate a fixed percentage of their total monthly procurement from Fullkart. b. Partner with local retailers and those around villages through setting up a Microfinance subsidiary which could promote financial assistance for setting up the retail outlets. i. The microfinance arm of the company will evaluate the risk potential of ii. the customers and decide on providing them the loan amount desired. Tie up with local retailers who could trade their produce rice, pulses etc. with other goods from the Fullkart stores apparel, FMCG products etc. Product Mix for Tier III Cash & Carry Stores Most of the products from Cash & Carry Stores are made available in Tier III cities stores however we excluded groceries which may be available at lesser rate at these locations outside the stores Dry Foods Non Food In Food Article Groups Detergents & Toiletries Sweets & Biscuits, Chocolates, THREE TAILERS Page 9
Confectionaries Beverages, Spirits, Wine and Tobacco Non Food Categories Apparels & Footwear Consumer Durables Office & Stationery Household Luggage Snacks, namkeens Carbonated, Fruit punch, Aerated fruit juices, Wine, rum etc Article Groups Clothing Men/Women, Footwear etc White Goods, Media, IT appliances Office supplies, Furniture, Do it yourself furniture Bags and baggage. Pricing Strategy Industry margin will be followed for the products. However the cost will be reduced by improving the efficiency in the operations and supply chain. Most of the products which are moving well in the Tier I/II cities will be moved to Tier III and offered at discount prices to help the unaffordable more affordable. Industry Analysis Retail Industry Indian retail industry grows along with the economy which has dependent factors such as urbanization, investment, disposable income from the customers etc. so the Indian economic growth reflected well in the Indian retail sector growth also from the economic liberalization in the year 1990. Broadly we can classify the retail sector into organized and unorganized. Organized refers to the modern retail and unorganized refers to the traditional kirana stores etc. Organized retail consists only 8% of the retail segment and THREE TAILERS Page 10
estimated to grow at a huge rate of 30% by 2015. In 2011, 48% of total household income spent on food and groceries. Major retail segments are Food & Grocery, Home Solutions, Consumer Electronics, Apparels, Books, Music, Health & Beauty, Entertainment, E-tailing etc. Food & Grocery consists of 59.5% of the share of the retail segment followed by clothing & fashion (9.9%) and electronics (6.4%). Major retail formats in India are Hyper-marts, Supermarkets, Mom and Pop stores, Departmental stores, Convenience stores, Shopping malls, E-tailers, Discount stores, Vending, Category killers, Specialty stores. Evolution Indian economy opened after the liberalization policies introduced in 1990 such as FDI of 51% in select priority sectors. Indian Retail industry has been classified as emerging market in the year 1995. In 1997, FDI 100% allowed for Cash & Carry under automatic route. In the year 2005 2010, Indian retail segment had substantial investments by large Indian corporate. Indian retail sector entered the growth phase with more new entrants coming from both domestic and international. Until 2011, India restricted the foreign players with FDI policies in multi brand retail. In the year 2012, Indian government allowed the FDI 51% in multi brand retail. However due to political issues, the government is not able to proceed with the implementation pan India with few states opposing it. Opportunity Over the past 5 years, Indian retail industry is growing at annual CAGR of 13% and projected to growth of US $750 in the year 2015. Indian consumer s per capita expenditure is increasing with the growing economy. Indian consumer annual disposable income increased 13% across India. The change in lifestyle of the consumers has significant impact in the growth such as eating out, packaged food, online purchase etc. According to A.T.Kearney Global Retail Development Index 2012, India has been ranked 5 th. Global retail index report has reported that India has opportunity to penetrate more in the market. Indian government implements GST across THREE TAILERS Page 11
as unified tax system, then the sector will have enormous opportunity to grow. Indian rural market offers huge opportunity for organized retail with market size FMCG Rs.65000 crore and Consumer Durables Rs.5000 crore. Online commerce is expected to be next major area for retail with size of USD 1.5 Billion by 2015. The key drivers for the development of ecommerce are the young population with increasing penetration in the internet, convenience, easier transactions, accessibility, etc. FDI Policy Indian government has allowed 100% autonomy to Single brand retail however for the multi brand retail it has been only 51% ownership. FDI has also some restrictions such as sourcing of 30% from the local SME suppliers, size of the area <1million with approval from state government, minimum investment of US $100 million and 50% of that amount in back end infrastructure, ecommerce doesn t come under this rule etc. Key Retail Players in India 1. Departmental Stores a. Pantaloon (65) b. Trent (59) c. Shoppers Stop (51) d. Reliance Retail Trends 2. Hypermarkets a. Pantaloon Big Bazaar b. Hypercity c. Spencers d. More Aditya Birla Group e. Reliance 3. Supermarket/Convenience Stores a. More(640) Aditya Birla Group b. Spencers (220) c. Reliance Fresh (453) 4. Specialty Stores THREE TAILERS Page 12
a. Titan b. Tanishq c. Vijay Sales d. Croma e. E-Zone f. Viveks g. Consumer Electronics h. Landmark i. Crossword j. Odyssey 5. Cash & Carry Stores a. Metro b. Bharti Walmart c. Reliance d. Booker Group e. Carrefour FULLKART - CASH & CARRY Cash & Carry Cash & Carry business in India is expected to be at $22 billion annual opportunity by 2017. Market leader in this category is expected to have business of about $4 5 billion in annual revenue. Typical margin in the cash & carry business is in the range of 11-12%. Walmart in partnership with Bharti currently operates 20 cash & cash stores making annually Rs.2000 crores. Other players are Metro AG (15 outlets), Carrefour SA (4) and Booker Group Plc. (4). Reliance Retail plans to open 20 such stores in this fiscal year and atleast 60 in the next three years. Porter 5 Force Analysis In this analysis, we have considered the industry as Cash & Carry to compare the strategy w.r.t these firms. THREE TAILERS Page 13
Rivalry among companies - Medium Currently there are four competitors Bharti Walmart, Metro, Carrefour, Booker and Reliance has entered this market recently. Opportunities in the market look very attractive for the cash & carry business in the retail. Most of the MNC companies wanted to enter the retail business but due to the restriction in FDI policy have adopted the strategy of understanding the market by operating as a wholesaler. Even after the FDI policy of 51% in the multi brand retail, there is opposition from some state governments and also restrictions in the sourcing. So the players in the market would like to proceed with the Cash & Carry business and wait till the policies are made clear. All the competitors are getting in to the expansion strategies especially in Tier-II & III cities with huge investment. Threat of Substitutes - Low Online Shopping and Other convenience stores remain the substitutes for this industry. However when we consider the internet penetration in India, it is very less except few urban areas. So the current technology penetration will not help the online retail stores to come in this market in a huge way. Other convenience stores will not be able offer these portfolio of products to become a one stop solution for the retailers. Threat of New Entrants - Medium In this business, the investment for each store is high. However we have seen in the recent past that most of the MNC s have come to India due to attractiveness of the Market. Recently also Reliance retail has come into this business from their hypermarkets/supermarkets. We can expect some more corporate conglomerates to experiment this version of retail stores in the near future. Similarly we can see some MNC s investing in India to take some market share away from the existing players. Bargaining Power of Suppliers - Medium Initially we can foresee some amount of pressure from powerful suppliers, but it ll be based on the market share any player controls. Market leader can overcome the pressure from these suppliers. Similarly SME suppliers will need the support to survive in this globalization and competition from corporates. So there should be a clear strategic objective for all players on the part of suppliers where they are going to control the cost for their customers and increase the margin. THREE TAILERS Page 14
Bargaining Power of Buyers - Low Retailers and HoReCa are more price conscious but also expect certain amount of quality to continue their relation. As long as the pricing strategy is consistent with their expectations we can assume there will be good relationship with these retailers. Some customers located at very far places may expect additional services, so wholesaler should consider offering these services at affordable price. Government Influence - High Retail Industry had seen so many changes over the years by some important policy decisions. However in the recent past, there is so much confusion in the policy decisions and the MNC s are reluctant to proceed in the way they would have wanted. So the future decisions from the government will affect the industry. Government Influence High Threat of New Entrants Medium Bargaining Power of Suppliers Medium Rivalry among Competitors Medium Bargaining Power of Buyers Low Threat of Substitutes Low Overall the industry looks attractive with only caution would be the government policy decisions which can allow the industry to grow at really high rate Organization Structure FullKart follows a functional organization structure with clear vertical communication and reinforced procedures between departments. Being a cash and carry model, the role of merchandising and buying becomes all the more important that visual merchandising and store layout. The different functional departments of Fullkart is explained below THREE TAILERS Page 15
Operations The operations department, headed by the Chief Operating officer, performs the functionalities of store management, procurement of store specific inventory. The department consists of A senior vice-president-stores to whom each of the store managers report to. COO COO heads the operations department and oversees the operations, profitability and performance of each of the stores. Vice Presidents Stores There are four Vice-Presidents for each of the zones (North, South, East, West) who directly report to the COO. They are in charge of the performance of stores in their respective regions. Store Managers Store managers are responsible for the daily functioning of the stores. He is responsible for inventory management, employee management, results and performance of his store. Merchandising Merchandising department is responsible for making the products in each store available to the customer at the right time, right price and right place. Merchandising for a Cash and Carry model involves a lot of complexity since the customer demand is cyclical and not routine, as for a retail or super store format. Hence the department consists of a dedicated merchandising team, a planning team and a buying team. The Merchandising department is headed by the Merchandise Director to whom Senior Vice-Presidents of merchandising report to. The Senior VP merchandising handles the merchandising planners, divisional merchandising managers. The divisional merchandising managers handle the buyers who are involved in procurement from suppliers. THREE TAILERS Page 16
Human Resources The Human resources department is responsible for the recruitment, management and payroll processing of all employees. The department is headed by Senior Vice- President HR, to whom the regional HR managers report to. Customer Service Management The CSM department is in charge of target group strategy, brand development, Consumer insights and research and customer life cycle management. The Marketing function also comes under the purview of this department The Marketing function is responsible for all the marketing and selling activities of the company. The business-to-business model brings with it a lot of customer meetings with Kirana stores, mass procurement institutions like hospitals, colleges and the like. The Marketing Department is headed by the General Manager Marketing, to whom the regional marketing managers report to. The marketing managers drive a team of Field sales executives apart from the localized market research team who gather data about trends and competition. Finance, Accounts and Loss Prevention The credit control and loss prevention is the responsibility of this department which is headed by Senior Vice-President Finance with credit control managers reporting to him. The B2B model requires a lot of credit disbursement which requires a tight vigilance. This falls under the ambit of the credit control managers who handle select key accounts. Training Educated youth will be recruited in each location and proper training will be given for one week on the retail format and then on the job training to improve their performance. Each month best performer will be identified and incentives will be provided. In the future, educational institutions will be sponsored to introduce educational curriculum on retail and fund few students on the education. THREE TAILERS Page 17
MD CEO COO Merchandising Director Senior VP - CSM Senior VP - Human Resources Senior VP - Finance Senior VP - Stores General Manager - Marketing Market Research Wing HR Managers Senior VP - Merchandising Regional VP - Stores Regional Manager - Marketing Divisional Merchandise Managers Store Managers Field Sales Executives Buyers Associate Buyers THREE TAILERS Page 18
Strategy and Implementation Plan In this portion, we would like to explain the strategy and action plan from an example of Tier III city. The strategy will be followed in other cities with slight modifications needed for the local conditions. Eg. New Store: Tier III City Tirunelveli; Existing Store Tier II City Madurai; Phase I (2015 2017) Tier II store already established in Madurai will act as the model to establish new operations in the Tirunelveli area. Initially the market research will be done in the area to identify the right location for the store. The research will take into account the number of retailers in the location and surrounding rural areas in order to cater to more customers. Based on the market research, the location of the store will be decided. If two stores are required to cover more area, the decision will be taken at a later time for the second store based on the demand. THREE TAILERS Page 19
Fullkart will do cost benefit analysis to decide whether to acquire the land and construct it or take a lease for next 10 years which will include any warehouse location also. Based on the decision, Fullkart will take all the clearances from the government for the store Once the store has been constructed, identify the suppliers based on the Madurai supplier list and other local suppliers near the store. Shortlist the best suppliers and finalize the deals Develop the talent pool for the new store from recruitment and training Identify the potential customers, influencers in the location and allocate the salespeople within the territories. Propagate the Key Value Proposition for the customers Promote the registration of the customers for initial offers and membership programs Analyze the logistics requirements with the suppliers and finalize the transporters Identify the requirements and right product mix for the store Tie up with institutions such as MFI to offer funds to the retailers in the rural area in order to utilize the lowest price offered by the stores Establish trust within the network of retailers in nearby locations Offer various promotion programs for the loyal customers to retain better relationship Phase II (2020 2023) Now the focus will be on entry to retail network of the rural areas (Eg. Kovilpatti, Kayalpattinam etc.) Identify the ideal location for the retail store in the rural area near to the Tier III cash & carry store Inform the existing retailers about the market entry and evaluate their interest in partnership and capability THREE TAILERS Page 20
Based on the evaluation, decide on either independent store or partnership with the local retailer Similarly identify 5 to 10 location in the nearby location with certain population density in order to cover more customers Introduce offers to the local farmers to trade their local produce through these retail stores based on credit system The groceries will be transported to the Tier-I/II cities based on the location and demand Offer products at low price compared to other stores with increased product availability Supply Chain Management Inbound (Sourcing) Suppliers will be coordinated with fully integrated IT system which will provide the information of demand at the location and expected delivery time. Individual SKU s will be updated in the stores based on the ABC inventory management system. Multiple suppliers will be considered to avoid any risk of supplier missing the requirements on time Suppliers will be monitored on the quality of the products at various stages based on the product requirement. Minimum quality requirements will be clearly specified in the contractual agreement. Any specification with outside the limit will be penalized as the quality takes the important criteria before the price. Important updates on the process improvement will be shared with the suppliers to improve the quality and profit margins Outbound Most of the customers will be offered service at the stores only with only exception of few retailers located at far distance. In the case of retailers at long distance, private transport agencies will be arranged to aggregate the demand and will be services by optimal transportation plan. Cost for the same will be shared between the retailers. THREE TAILERS Page 21
Infrastructure of the supply chain will be improved over the years with facilities like cold chain, regional warehouses, etc. This will help in the next phase of the retail market entry where the infrastructure investment is important Financial Statements Summary Fullkart will be growing at an average growth rate of 12% similar to the industry growth rate. In the years 2016, 2017 & 2018, 5 cash & carry stores will be opened at tier III cities. So the expected revenue in the year 2016 will be 75% of the revenue from store located at Tier I/II city. In the subsequent years, the revenue increase will be 80% and 85%. Retail stores which will be opened as part of Phase-II will be providing 1%, 2% and 4% in the years 2020, 2021 & 2022 subsequently. Other assumptions are mentioned in the below table. Capital expenditure for the investment will be mostly sourced from the cash and retained earnings of the company. However minimum cash of Rs.50 crores are maintained as working capital requirement. So during the year 2015 and 2016, bonds are raised to finance the expansion of cash & carry stores. During the other financial years, the company is self-sufficient to finance the new stores. Fullkart maintains a net profit margin of range 6% -13% through the ten year projections and expected to grow further in the future. Fullkart will decide on the investment on the infrastructure during the course of the next few years and develop separate value proposition for them. THREE TAILERS Page 22
Profit/Loss Statement 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Net sales 1200 1344 2009 2788 3694 4137 4633 5223 5984 7106 7958 Cost of goods sold 1008 1507 2091 2770 3103 3475 3917 4488 5329 5969 Gross profit 336 502 697 923 1034 1158 1306 1496 1776 1990 Operating 220 240 261 285 311 338 369 402 438 478 expenses Depreciation 19 19 28 37 46 46 46 76 106 136 expenses Interest expense 1 1 2 3 3 3 3 3 3 3 Profit (loss) before 115 261 433 636 721 817 934 1091 1335 1509 taxes Income taxes 34 78 130 191 216 245 280 327 401 453 Net profit 80 183 303 445 505 572 654 764 935 1056 Net margin 6% 9% 11% 12% 12% 12% 13% 13% 13% 13% Cash Flow Statement 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Cash flow for operating activities Net profit 80 183 303 445 505 572 654 764 935 1056 Depreciation expenses 19 19 28 37 46 46 46 76 106 136 Interest expenses after tax 1 1 2 2 2 2 2 2 2 2 CFO 100 203 333 484 553 620 702 842 1043 1194 Cash Flow from Investing Capital expenditure 0 225 225 225 0 0 750 750 750 0 CFI 0-225 -225-225 0 0-750 -750-750 0 Cash Flow from Financing Interest expense 1 1 2 2 2 2 2 2 2 2 Bond raising 0 126 23 0 0 0 0 0 0 0 Bond repayment 0 0 0 0 0 0 0 0 0 0 Equity raising 0 0 0 0 0 0 0 0 0 0 CFF -1 125 21-2 -2-2 -2-2 -2-2 Cap ex through internal cash 0 99 202 225 0 0 750 750 750 0 Net cash change 99 103 129 257 551 618-50 90 291 1192 THREE TAILERS Page 23
Balance Sheet Balance Sheet 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Cash 50 149 252 381 638 1189 1807 1757 1847 2138 3330 Current assets 50 149 252 381 638 1189 1807 1757 1847 2138 3330 Gross Plant and equipment 475 475 700 925 1150 1150 1150 1900 2650 3400 3400 Depreciation 152 171 190 218 255 301 347 393 469 575 711 Net plant and equipment 323 304 510 707 895 849 803 1507 2181 2825 2689 Total assets 373 453 762 1088 1533 2038 2610 3264 4028 4963 6019 Notes payable, bank 0 0 0 0 0 0 0 0 0 0 0 Current liabilities 0 0 0 0 0 0 0 0 0 0 0 Long-term debt 156 156 282 305 305 305 305 305 305 305 305 Retained earnings 117 197 380 683 1128 1633 2205 2859 3623 4558 5614 Shareholder s equity 100 100 100 100 100 100 100 100 100 100 100 Total liabilities and stockholders' equity 373 453 762 1088 1533 2038 2610 3264 4028 4963 6019 Assumptions Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Cash & Carry Stores 10 10 15 20 25 25 25 25 25 25 25 Retail stores 0 0 0 0 0 0 0 25 50 75 75 No. of Additional Stores % increase in revenue Phase-I Growth Rate at 2 yr 5 75% Phase-I Growth Rate at 3 yr 5 80% Phase-I Growth Rate at 4 yr 5 85% Phase-II Growth Rate at 6 yr 25 1% Phase-II Growth Rate at 7 yr 50 2% Phase-II Growth Rate at 8 yr 75 4% % Increase Revenue Growth Rate 12% COGS 75% Depreciation rate 4% Operating Expense (2014) 220 Growth rate-operating 9% expenses LT borrowing rate 10.50% Annual interest on cash 4% Tax rate 30% Capital exp for new store 45 Capital exp for new retail store 30 THREE TAILERS Page 24
Contingency Plan Phase I If Cash & Carry stores located at Tier III cities are not performing well, the stores will be converted into malls as the cities are developing but still people are not able to find places to spend their weekend Phase II If the cash and carry stores are performing well but the retail stores are not, then the retail stores will be offered to the existing local kirana owners and Fullkart will operate as wholesaler in that area. References: http://www.michaelpage.co.in/websitepdf/in_retail_sector_report_2013.pdf http://www.ibef.org/download/retail-march-220313.pdf http://articles.economictimes.indiatimes.com/2013-06-10/news/39872680_1_reliance-jewelsreliance-retail-cash-and-carry THREE TAILERS Page 25