News: Pantaloon to Spend $1 Billion to Take on Reliance Challenge

(Bloomberg 16/11/2006) Mumbai - Pantaloon Retail India Ltd., the country's biggest publicly traded retailer, will spend $1 billion to fight off competition from Reliance Industries Ltd., the nation's second-biggest company by market value.

Pantaloon plans to sell stakes in some of its units to partly fund the 4,000 stores it aims to open by December 2010, Managing Director Kishore Biyani said in an interview yesterday.

Biyani, 45, is battling to retain Pantaloon's position as Reliance mounts a $5.5 billion challenge. Biyani, who started the chain in 1997, expects his early start and the retail spaces he has secured will help him retain an edge as rentals surge and overseas retailers including Wal-Mart Stores Inc. prepare their strategies to enter India, a nation of about 1.1 billion.

``The opportunity in retail is humongous and, so far, Pantaloon has had a successful track record that gives us confidence that he will be able to deliver,'' said Jayesh Shroff, a fund manager at SBI Funds Management, which has assets of $3.3 billion. ``Rising competition is a concern, but I think there will easily be room for at least two to three large players.''

Pantaloon expects annual sales of 300 billion rupees ($6.6 billion) by 2011 and a ninefold increase in retail space to 30 million square feet. Reliance Chairman Mukesh Ambani is aiming to generate 1 trillion rupees of sales in his newest venture from 100 million square feet of shopping space in that time.

``The market is too huge to talk about the competitive element now,'' Biyani said. ``We are all going to make the market grow and see that people consume and spend more.''

Pantaloon, Big Bazaar

Founded in 1987 as a garment maker, Pantaloon opened its first retail outlet in the eastern city of Kolkata in 1997. The company has about 140 stores across the nation, which include the garment chain Pantaloon and department store Big Bazaar. Biyani's Future group runs or is setting up businesses in asset management, outdoor advertising, logistics and restaurants.

Reliance, which opened its first store on Nov. 3, has 11 grocery outlets in the southern city of Hyderabad. That will rise to 27 by the end of the month, followed by stores in New Delhi, Bangalore and Chennai by January.

Pantaloon may sell stakes in group units including Future Capital, which will manage $1.1 billion in funds; Future Media, which will help companies advertise in malls and stores; and Central, a chain of malls it manages. Pantaloon may turn Central into a separate company and sell shares to the public. Biyani is targeting sales of 10 billion rupees in the year to June 30, 2008, at the mall management business before it sells shares.

Growing Middle Class

India's economy is forecast to expand at more than 8 percent for the fourth year, giving the burgeoning middle class more money to spend in malls and supermarkets that typically offer a wider choice and higher quality than neighborhood stores.

That's attracting large Indian conglomerates including the Tata Group, Bharti Group and the Aditya Birla Group to expand or plan store chains in India. They are trying to tap the organized retail market, or sales through store chains, which Morgan Stanley estimates will surge 15-fold to $60 billion by 2015.

The Tata Group, which runs the Westside chain of lifestyle stores and Star India Bazaar, opened its first electronic goods shop with sourcing and technical support from Australia's Woolworths Ltd. in Mumbai on Oct. 9 and expects the chain to generate revenue of 80 billion rupees in two years. Tata plans to open 30 stores by March 2008 and double outlets by the end of 2009.

Expansion by existing retailers such as Reliance, Tata and Pantaloon is pushing up rentals.

`Space, Inflation'

``Space and infrastructure is the biggest challenge today,'' Biyani said. The company has already secured 24 million square feet of the 30 million square feet of the space it needs, giving it an edge over rivals and controlling costs.

``We saw it coming early,'' Biyani said, referring to rentals in malls that have almost doubled in the past year. Pantaloon pays an average of $1 a square feet for rental.

India's central bank is concerned that property prices are increasing too quickly, the Financial Times reported yesterday, citing Reserve Bank of India Governor Yaga Venugopal Reddy.

``We have noticed that rising inflation has subdued consumer euphoria, which was quite noticeable in the festival season,'' Biyani said. ``Inflation isn't good for spending.''

The months of October and November coincide with the Hindu festivals of Diwali and Durga Puja when Indians buy electronic goods, garments and other household items.

AT Kearney Inc. named India the most attractive emerging market in 2006, according to its Global Retail Development Index. Russia was second and China fifth among 30 nations.

Wal-Mart, the world's biggest retailer, wants to start a chain in India, the world's second-fastest growing major economy, to revive a stuttering overseas expansion plan. The company, which wants to generate a third of its revenue and profit overseas from a fifth now, sold its German stores in July at a loss of $1 billion, two months after exiting South Korea.

Trade Minister Kamal Nath said on Sept. 18 that India is consulting Wal-Mart, Carrefour and Tesco Plc to develop a foreign investment policy for the retail business.