UK retail major Tesco said on Tuesday that it is planning to enter multi-brand retailing in the country in partnership with Trent, the retail arm of the $97 billion Tata Group. Tesco said it has made an application to the Foreign Investment Promotion Board (FIPB) in this regard, making it the first multinational retailer to enter multi-brand retail in India after the country opened up the sector to Foreign Direct Investment (FDI) in September 2012.
“Trent and Tesco have been in discussions regarding an investment by Tesco in Trent Hypermarket Limited which operates the Star Bazaar business and is engaged in multi-brand retail trading,” a statement from Trent said. “If the application (to the FIPB) is successful, the intent would be to enter into a partnership where Trent and Tesco will each own a 50 per cent stake in THL.” Shares of Trent were up 6.97 per cent on the BSE on Tuesday to close at Rs 1,066.55. ( Must Read: India makes FDI in multi-brand retail a tad easier )
Picture for representational purpose.
THL currently operates 16 stores across the southern and western regions of India. The proposed partnership will operate and build on the existing portfolio of Star Bazaar stores in Maharashtra and Karnataka.
Noel Tata, Vice Chairman of Trent, said, “We believe that our understanding of the Indian market coupled with Tesco’s unparalleled global retail expertise will allow us to leverage the tremendous potential of the market to the benefit of all stakeholders.”
Policy uncertainties had been deterring MNCs from entering the Indian multi-brand retail. (Also See: There will be delay in economic reforms due to 2014 Lok Sabha polls, India tells US )
As per the retail FDI policy, a foreign entrant in multi-brand retail will have to invest a minimum $100 million, of which 50 per cent must be in back-end infrastructure. However, there is no clarity on what the “back-end” would be, as it could mean different things to different retailers. Also, they have to mandatorily source a minimum 30 per cent of merchandise from domestic micro, small and medium enterprises.
Other drawbacks were that e-commerce, a fast-growing segment, has been left out of the ambit of FDI and states will have the freedom to approve or disapprove retail investments. Another concern was that that a change in government at the Centre in 2014 can potentially reverse the FDI decision and put investments in peril, with the main opposition party BJP opposing FDI in multi-brand retail.