Bangalore: Vijay Mallya’s UB Group is in talks with two overseas companies for a proposed entry into India’s organized retail market to gain a share of a business worth some $400 billion (around Rs18.5 trillion).
MCF International Ltd, the UB Group unit, is seeking a tie-up along the lines of Bharti Enterprises Ltd’s venture with the world’s largest retailer Wal-Mart Stores Inc.
“We have started very, very preliminary discussions with two multinational players,” said Deepak Anand, managing director of MCF International and Mangalore Chemicals and Fertilizers Ltd.
MCF International is a two-year-old, wholly owned subsidiary of the Rs2,400 crore Mangalore Chemicals and Fertilizers, formed primarily to enter agricultural produce marketing and retail.
Supply chain: MCF managing director Deepak Anand says the retail arm of the UB Group wants to become the preferred supplier of farm products to all retail chains across the southern states and Maharashtra. Hemant Mishra / Mint
Although organized retail accounts for just $18 billion, the segment is expected to grow 40% ever year, according to Technopak Advisors Pvt. Ltd. The consulting firm estimates that there would be $30 billion in fresh investments in the next five years in this space.
Companies such as France’s Carrefour SA have been seeking to enter the world’s second most populous nation, where retail is dominated by small stores, to take advantage of rising incomes in an economy growing at the fastest pace after China.
Anand said he is looking for a partner such as a large supermarket chain, with experience in logistics and reaching out to consumers.
However, Anand declined to name the companies MCF is in talks with but said he hopes to identify the partner in six months.
Whatever form a proposed partnership may take, the company is sure about wanting to be involved in the processes that lead up to the retail counter, based on the advice of Technopak.
“Our strengths are in the back-end,” said Anand, given the company’s experience of 33 years in dealing with farmers and selling them fertilizers.
MCF International wants to be the exclusive supplier of vegetables, fruits, grains and pulses to the planned retail entity. The proposed retail entry will be an extension of MCF’s new line of business, started in February and running on a pilot basis.
MCF advises farmers on inputs; buys their produce at market price; grades, cleans and sorts the produce and sells it to supermarket chains, industry canteens and hotels.
“We want to become the preferred supplier to all retail chains across the southern states and Maharashtra,” said Anand.
MCF International’s business is expected to clock a turnover of Rs20-22 crore for the year to March.
In five years, the company is targeting a turnover of Rs1,200-1,500 crore from this initiative. Around 15% of the produce is to be exported to West Asia, South-East Asia and Europe.
Last month, group chairman Mallya announced at the company’s annual general meeting an investment of Rs500 crore for MCF’s retail entry. This sum has now been trimmed to Rs350 crore because of lower equipment costs, Anand said.
Farming contributes around 17% to India’s gross domestic product but less than 10% of this is in the organized space, with prominent firms being Bharti Enterprises’ arm, FieldFresh Foods Pvt. Ltd, ITC Ltd and the Indian arm of PepsiCo Inc., said Raghav Gupta, president at Technopak.
Manish Mahawar, research analyst at brokerage Prabhudas Lilladher Pvt. Ltd, said it may take at least two years for a new company to establish itself in farm produce marketing. “This is a low-margin, high-volume business with lots of new players,” he said.