A confident India, and a shopping India
All of Arisaig’s partners were in India in February to run two separate tracks of visits to current holdings and prospects. Business confidence here remains ‘full steam ahead’. A recent survey[1] in Business Standard showed that 86% of CEOs are looking to expand capacity this financial year. Industrial credit[2] is back to growth (at a high single digit rate) having flatlined over the last two years. Rates in India are higher than during the COVID period, but actually below their 10-year average[3]. While the West worries about inflation and geopolitics, India is getting on with relaunching its pre-COVID growth trajectory.
Through good times and bad, one of the key amplifiers of domestic demand growth Arisaig is looking to harness in India is that of formalisation in basic consumption categories. The formalisation opportunity in retail, in particular, has long been a core pillar of Arisaig’s investment approach: businesses such as Wumart (Chinese hypermarkets), Sumber Alfaria (Indonesian small box), Future Retail (Indian grocery retail) and Raia Drogasil (Brazilian drugstores).
In India when evaluating the modern retail opportunity, it is critical to understand the immense scalability of the opportunity set. Whether it is apparel retailer (Trent), grocery retailer (DMart) or pharmacy retailer (Medplus) the growth opportunity when compared to western peers is staggering.
Of course, India isn’t America today in GDP terms but the competition isn’t either. In terms of evaluating the growth opportunity for Trent, DMart or Medplus, it is important for us to be on the ground (we have had an office in India since 2005). We know that the main competition isn’t formal competitors, but the local informal traders on the streets.
Focusing in on Trent, whose share price is up c.295% over the last 5 years. Our meetings reaffirmed that one of the key factors behind Trent’s continued strong growth in 2022 was the quality of its execution during the depths of COVID. Inventory management discipline (from our company meetings we believe Trent was one of the few businesses whose inventory days decreased in 1H21) was particularly crucial. On a longer-term view, the positioning of its Zudio brand continues to enable the company to make steady formalisation inroads: its pricing is similar to that of informal street vendors, but with significantly better quality (based on our own survey of 500 shoppers and various channel checks).
The upside surprise for Trent so far in 2023 has been that its grocery retail business has turned profitable, despite competing against 10 million kirana stores that can offer credit and convenience in equal measure. Trent’s ‘religious’ focus on pricing at a local level seems to already be winning over the hearts, minds, and wallets of Indian consumers. Longer term, its aspiration is to seek differentiation through the quality of its fresh produce – certainly a compelling proposition if they can overcome the inevitable supply chain complexities. The team continue to investigate this through channel checks and local expert meetings locally.
References:
[1] https://www.business-standard.com/companies/news/india-inc-upbeat-on-sales-may-increase-capex-hiring-in-fy24-ceo-survey-123040200399_1.html
[2] https://bfsi.economictimes.indiatimes.com/news/industry/higher-credit-growth-to-support-overall-economic-momentum-in-india/98398298#:~:text=Credit%20growth%20to%20industry%20registered,to%20contraction%20in%20manufacturing%20GVA.
[3] https://tradingeconomics.com/india/interest-rate
Disclaimer:
This material is being furnished for general informational and/or promotional purposes to professional investors only. The views expressed are those of Arisaig Partners and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact, nor should any reliance be placed on them when making investment decisions. This material does not constitute independent research and is not subject to the protections afforded to independent research.
The statements and views expressed herein are subject to change and may not express current views. Arisaig Partners makes no representation or warranty, express or implied, regarding the accuracy of the assumptions, future financial performance or events. Emerging markets are generally more sensitive to economic and political conditions than developed markets and may be more volatile and less liquid than other investments.
All information is sourced from Arisaig Partners and is current unless otherwise stated. Issued by Arisaig Partners (Asia) Pte. Ltd. Not for public use or distribution. Arisaig Partners (Asia) Pte. Ltd is licensed and regulated by the Monetary Authority of Singapore.
Disclaimer:
This material is being furnished for general informational and/or promotional purposes to professional investors only. The views expressed are those of Arisaig Partners and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact, nor should any reliance be placed on them when making investment decisions. This material does not constitute independent research and is not subject to the protections afforded to independent research.
The statements and views expressed herein are subject to change and may not express current views. Arisaig Partners makes no representation or warranty, express or implied, regarding the accuracy of the assumptions, future financial performance or events. Emerging markets are generally more sensitive to economic and political conditions than developed markets and may be more volatile and less liquid than other investments.
All information is sourced from Arisaig Partners and is current unless otherwise stated. Issued by Arisaig Partners (Asia) Pte. Ltd. Not for public use or distribution. Arisaig Partners (Asia) Pte. Ltd is licensed and regulated by the Monetary Authority of Singapore.
