MUMBAI - The retail arm of Aditya Birla Group plans to open as many as 130 supermarkets and a dozen hypermarkets in the year starting in April, expanding in a fast-growing retail sector dominated by mom-and-pop operators.
Aditya Birla Retail, which runs stores under the More brand, plans capital spending of 2.5 billion rupees ($55.3 million) during the fiscal year that ends in March 2012, a top official told Reuters in an interview on Friday.
"Our plan for FY12 is that we are going to expand both our formats and we will continue to expand them aggressively," said Thomas Varghese, chief executive of Aditya Birla Retail.
The Aditya Birla Group, a telecoms-to-cement conglomerate, is headed by Kumar Mangalam Birla, who ranks 97th on the Forbes global rich list, with a net worth of $9.2 billion.
The loss-making retail unit expects earnings before interest, tax, depreciation and amortisation (EBITDA) to turn positive by the fourth quarter of fiscal year 2012/13, and to be profitable after tax by the fiscal year ending in March 2015, Varghese said.
India's $450 billion retail sector is among the fastest growing in the world but operators are beset by inefficient supply chains and tight margins in a price-sensitive market that has been plagued by underinvestment.
Organised retail accounts for just 6 percent of overall retail sales in India and is growing at 20 percent, more than twice the rate of the overall economy.
"It is a very tough business to run at this point in this country," Varghese said.
FOREIGN ENTRY
Asia's third-largest economy does not allow foreign ownership in multi-brand retail, and foreign ownership of single-brand retail is capped at 51 percent. Overseas investment in multi-brand operations is confined to wholesale businesses.
The world's four largest retailers -- Wal-Mart Stores, Carrefour, Tesco and Metro AG -- are eager to expand in India, where an economy growing at nearly 9 percent is increasing the spending power of a rapidly burgeoning middle class.
Varghese said he expects investment rules to be relaxed within six months.
"We have spoken to the commerce secretary who said it is on the cards and that is now the view of most bureaucrats, that a decision is just around the corner," said Varghese, who also heads the Confederation of Indian Industry's retail committee.
While many farmers, small retailers and politicians oppose the entry of big global operators, many officials in New Delhi back increased foreign participation in retail to lift investment in logistics such as cold storage and unclog supply bottlenecks, which contribute to double-digit food inflation.
Roughly 30 percent of produce in India goes to waste.
Expanding foreign participation would enable operators to attract funding and save costs by adding efficiency, he said.
"There are no internal accruals at this stage in our business. We are funding everything with a mix of debt and equity," he said.
PRIVATE LABEL PUSH
Aditya Birla Retail, whose sister firms include aluminium producer Hindalco Industries and India's sixth-largest mobile carrier Idea Cellular, aims to expand its revenue share from higher-margin in-house labels, he said.
"Almost 19-20 percent of our total revenue will come out of private labels across all categories. We want to take it up progressively over two to three years to 30 percent," he said.
Its private label brands include More, Feasters, Best of India, Enriche, Pestex and Paradise among others.
The company, which has seen input costs for its private labels rise by 4-15 percent as food and other costs rise, plans a price increase on its in-house garment brands.
"Cotton prices have been going up and then government announced an excise hike ... We plan to hike prices by 15 percent on garments and an additional 6 percent due to the excise hike," Varghese said.
India's budget for fiscal 2011/12 proposed a mandatory levy of 10 percent on branded apparel.
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