Pantaloon Gains as India May Relax Retail Investment Rules

Pantaloon Retail India Ltd. (PF), India’s largest merchant by market value, jumped the most in more than two years in Mumbai trading as the cabinet may today approve a plan to ease rules on foreign investment in the retail industry.

Pantaloon Retail climbed 13 percent, the most since August 2009, to 201.20 rupees at the close of trading in Mumbai. Shoppers Stop Ltd. (SHOP) advanced 5.5 percent and Trent Ltd. (TRENT), which has a franchise agreement with Tesco (TSCO) Plc, rose 1.1 percent.

Wal-Mart Stores Inc. (WMT), Carrefour SA (CA) and Tesco seek to invest in the retail market of the world’s second most populous nation, which is estimated to grow to $785 billion in 2015 from an estimated $396 billion this year. India’s cabinet may approve a plan allowing overseas companies to own as much as 51 percent of stores selling more than one brand, according to a government official familiar with the talks.

“It has to be one of the biggest opportunities in the world,” said Narayanan Ramaswamy, executive director at KPMG in Chennai, who advises retail companies. “Once the floodgates are open, many companies are going to come in.”

At least half of a foreign company’s investment will need to be in back-end infrastructure, according to the official, who asked not be identified, citing departmental policy.

‘Game Changer’

“It can be a game changer for us,” Kishore Biyani, the Founder and managing director of Pantaloon Retail, said in a Nov. 18 phone interview when asked about the possibility of the rules being relaxed. “We get opportunities to align with various businesses with stronger partners.”

Fresh agricultural produce, including fruit, vegetables and meat products, may be considered “unbranded” goods, the government official said. A cabinet meeting, scheduled for this evening in India, may also consider allowing 100 percent foreign ownership of single-brand retail outlets, according to the official.

India permitted foreign retailers to own wholesale stores in 1997. Foreign investment in such outlets between April 2000 and March 2010 was 1.54 percent of the total foreign direct investment in India, according to a July 2010 discussion paper of the Department of Industrial Policy and Promotion.

Wal-Mart has set up 14 wholesale stores in India through a joint venture with billionaire Sunil Mittal’s Bharti Enterprises to gain a foothold in the Indian market, while Metro AG has six locations. Carrefour opened its first wholesale outlet in December.

Rotting Fruit

Overseas retailers such as Wal-Mart have said they can help reduce prices by improving the supply chain and infrastructure to cut waste. About 40 percent of India’s fruit and vegetables rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to government estimates.

Bharti-Walmart, the local joint venture, buys fresh produce directly from about 1,200 farmers in Punjab and helps them improve their yield through better farming practices, Chief Executive Officer Raj Jain said in May.

To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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