Mumbai: The Tata group-owned retail chain Trent Hypermarket Ltd (THL) is in discussions with British multinational retailer Tesco Plc. for an investment in THL. Tesco is making an application to the Foreign Investment Promotion Board (FIPB), THL said in a statement on Tuesday.
The announcement indicates strengthening of the existing relationship between Trent and Tesco—the two have a joint venture that provides back-end support and retail expertise—and lends truth to speculation about Trent serving as the entry vehicle for Tesco in India.
The total amount of investment proposed by Tesco is $110 million, according to a statement released by the commerce ministry.
If the application is approved by FIPB, the intent is to enter into a partnership in which Tesco and Trent will hold an equal stake in THL, which operates the Star Bazaar outlets in the country.
“The application is a positive step forward in the relationship between the Tata Group and Tesco,” said Noel Tata, vice-chairman, Trent. THL is a unit of Trent Ltd that runs the Westside and Landmark chain of stores, among others.
THL operates 16 stores across southern and western India. The proposed partnership will operate and build on the existing portfolio of Star Bazaar stores in Maharashtra and Karnataka.The application also comes as a boost for India’s new policy on foreign investment in retail. Although many foreign retailers have expressed interest, and the Indian government has sought to clarify their doubts and assuage their concerns, there has been nothing to show for a contentious policy change on which the United Progressive Alliance (UPA) has spent significant political capital.
Tesco’s application comes more than a year after the government allowed foreign direct investment (FDI) in multi-brand retail trade in September 2012. When allowed, it will be the first FDI in an Indian multi-brand.
In 2008, Tesco signed wholesale and franchise agreements with the Tata group, and supplies around 80% of the goods sold in Tata’s 16 Star Bazaar and Star Daily stores in southern and western India.
THL plans to open three to five more stores every financial year. The proposal mentions that the joint venture will operate in India through a chain of stores under various banners including Star Bazaar, Star Daily and Star Market, with the tag line stating: A Tata and Tesco Enterprise.
“If it (the application) were successful, it could open the way to Tesco investing directly and forming a partnership from our existing relationship with the Tata group,” said Trevor Masters, Asia chief executive officer, in a blog on Tesco’s website.
A population of 1.2 billion people, a wide range of economic and social classes and the potential for economic growth makes India an attractive market for international retailers, who have, however, been wary of political and policy uncertainties.
“We have always said we’d like to get more involved in this exciting market,” said a Tesco spokesperson.
The Indian retail market is valued at $490 billion, according to the estimates by Technopak Advisors Pvt. Ltd, a New Delhi-based retail consultancy firm. Of this, the share of organized retail is around 8%. By 2023, this share is estimated to grow to 24% of the total retail market in India.
“The move will definitely reassure other foreign retailers and renew their confidence to enter India. Retailers may start looking at the Indian market with renewed focus,” said Saloni Nangia, president, Technopak Advisors.
Analysts say most foreign retailers would wait until after next year’s general election before deciding on their strategies for the Indian market. The main opposition Bharatiya Janata Party (BJP) is opposed to foreign direct investment in multi-brand retail.
Shares of Trent rose almost 7% to Rs.1,066.55 on BSE on a day the benchmark Sensex fell 0.23% to 20,612.14 points.