New Mock Assign

8/3/2019 New Mock Assign

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INDIAN RETAIL INDUSTRY

ORIGIN OF RETAIL INDUSTRY

The origins for retail business in India can be traced with the

emergence of Kirana stores and mom-and-pop stores. These

stores used to cater to the local people. Gradually the government

started supporting the rural retail and many indigenous franchise

stores came up with the help of Khadi & Village IndustriesCommission. The economy began to open up in the 1980's

resulting in the change of retailing. The first few companies to

come up with retail chains were in textile sector, for example,

Bombay Dyeing, S Kumar's, Raymonds, etc. Later Titan launched

retail showrooms in the organized retail sector. With the passage

of time new entrants moved on from manufacturing to pure

retailing.

ORIGIN OF RETAIL INDUSTRY

The origins for retail business in India can be traced with the

emergence of Kirana stores and mom-and-pop stores. These


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stores used to cater to the local people. Gradually the government

started supporting the rural retail and many indigenous franchise

stores came up with the help of Khadi & Village Industries

Commission. The economy began to open up in the 1980's

resulting in the change of retailing. The first few companies tocome up with retail chains were in textile sector, for example,

Bombay Dyeing, S Kumar's, Raymonds, etc. Later Titan launched

retail showrooms in the organized retail sector. With the passage

of time new entrants moved on from manufacturing to pure

retailing.

INTRODUCTION

Today India is the fifth largest in the world in terms of Retail

Industry. Comprising of organized and unorganized sectors, Indian

retail industry is one of the fastest growing industries, especially

over the last few years. Though initially, the retail industry in India

was mostly unorganized, with the change of tastes and

preferences of the consumers, the industry is getting more popular

these days and getting organized as well. With growing market

demand, the industry is expected to grow at a pace of 25-30%

annually. The India retail industry is expected to grow from Rs.35,000 crore in 2004-05 to Rs. 109,000 crore shortly.

Striking features of Indian Retail

y At Subhiksha, 40 per cent of revenues and space come fromcities that are not state capitals.

y At Vishal Megamart, 80 per cent of revenues come from tierII and III cities

y Around 70-75 per cent of visitors end up buying from retailoutlets in smaller places, whereas, in large cities, it is around50-55 per cent

y Retail Operations in smaller cities result in extra 3 4percent margin


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ECONOMIC ANALYSIS

1. TOTAL CONTRIBUTION TO THE ECONOMY/GDP

Indian Retail Industry is the most promising emerging market forinvestment According to the 8th Annual Global Retail DevelopmentIndex (GRDI) of AT Kearney, the retail trade in India had a share

of 8-10% in the GDP (Gross Domestic Product) of the country inthe year 2007. In 2009, it rose to 12% in the year 2008 andexpected to reach 22% in the next few years.

The Indian Retail Industry is expected to grow to US$ 700 billion inthe year 2010 according to a report by Northbride Capital. In thesame year the organized sector will be 20% of the total market


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share as compared to the share of organized sector in 2007 was7.5% of the total retail market.

Retail is India's largest industry and for over 10% of the India'sGDP and around 8% of the employment. Retail sector is one of

India's fastest growing sectors with a 5% compounded annualgrowth rate. As India has a huge middle class base and itsuntapped retail industry are key attractions for global retail giantsplanning to enter newer markets. Due to the changing lifestyles,strong income growth in the middle class population and favorabledemographic patterns, Indian retail is expected to grow 25%annually and expected that retail business in India could be worthUS$ 175-200 billion by 2016.

The CII-AT Kearney retail study shows that retailing is the largest

contributing sector to the country's GDP. The retail sectorcontributes about 10 percent to the GDP compared to 8 percent in

China 6 percent in Brazil and a matching 10 percent in the US.

All these factors reflect upon the opportunities available in this

sector for new entrants. With rising consumer demand and greater

disposable income, the US$ 400 billion Indian retail sector is

expected to reach US$ 550 billion by 2014. Population expansion,

the increasing wealth of individuals and the rapid construction of

organized retail infrastructure are key factors behind the forecast

growth. The organized retail sector, which currently accounts for

around 5 per cent of the Indian retail market, is all set to witness

maximum number of large format malls and branded retail stores

in South India, followed by North, West and the East in the nexttwo years. Tier II cities like Noida, Amritsar, Kochi and Ghaziabad,

are emerging as the favored destinations for the retail sector with

their huge growth potential.


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In 2010 the retail trade accounts for 12 % of the country's GDP

and is expected to approach 22% according to Indian Brand Equity

Foundation. Another analysis according to the Mckinsery 'The rise

of Indian Consumer Market', foresees the Indian consumer market

growing by four times by the year 2025, the Indian Retail industryis worth $300 billion in terms of value. The industrys contribution

to the Gross Domestic Product is about 10%, the highest

compared to all other Indian Industries.

2.INFLATION

High inflation, mounting interest costs and rising rentals have hitgrowth of the domestic retail sector. Retailers are facing aslowdown in roll-out plans, as developers are not being able to

deliver stores on time. Despite these impediments, the sector stillhas enough headroom to grow over the long term.

Organised retail sales currently comprise around 4% of total salesin the domestic retail sector (annual sales $322 billion in 06-07).The pace of organised sectors sales growth is expected toincrease at a much faster rate and its share in the total retail tradeis likely to touch 16% by FY12. In its current stage, theunorganised retail sector will not be able to service the growingdemand of the consuming class. The report says that the

unorganised retail business is likely to grow at 10% per annumfrom $309 billion in FY07 to $496 billion in FY12. This will have asnowball effect on the organised sector. As a result, the share oforganised retail is expected to grow at a rate of 45-50% perannum. This is what the big retailers are preparing for now.

Macro-environmental factors are putting a downward pressure onthe sectors margins. The March quarter (Q4) of FY08 registered asharp slowdown in the sectors sales on a quarter-on-quarter (q-o-q) basis, with sales slipping to 5.3%, vis--vis 12.4% in the

previous quarter. Though it will not be prudent to compare theretail business on a q-o-q basis due to the seasonality factor, thesituation worsened due to rising input prices. Despite this, the totalexpenses to sales have increased by a small 28 bps at 95.6%, ascompanies have been able to contain employee costs. But interestand depreciation costs still cause some concern.

Since the beginning of FY08, the wholesale price index has been


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rising at an average of 5.09%. This seems to be affecting thedepartmental store operators more than the value-format retailers.Food and grocery being essential items, a rise in their price leaveslesser income at the disposal of customers. A similar trend isobserved in the international retail market as well. UKs Experian

National Retail FootFall Index fell by 2.6% in June, the fifthmonthly drop this year. In the UK, large department stores outsidecity limits experienced much larger drops in footfalls, down 5.8%,compared to a 1.5% fall in city centers. This fall is significantlyimpacting retail sales because these visits have a much betterconversion to sales ratio and generate much higher valuepurchases for retailers.

Pantaloon, the countrys largest retailer, has registered an 8.4%increase in its operating margins on account of efficient cost

management. With 65% of its turnover coming from its valueformat, the company has managed to handle inflation byincreasing its volumes. It has managed to increase the share ofprivate labels, which, in turn, takes care of its margins. ShoppersStop has managed to keep its same store sales higher, and alsoincreased its average selling price. However, its interest costs anddepreciation continue to be high. Similarly, Provogues costscontinue to be on the higher side. What has been a surprise is thedecline in sales for Trent. Despite opening a new store in the valueas well as lifestyle formats, the companys sales are seeing a

slowdown, which is hitting margins. The newly listed players,Vishal Retail and Koutons, continue to be in an aggressiveexpansion mode. Sales have been growing on a q-o-q basis, butmargins are expected to remain under pressure till the full roll-outtakes place. In addition, increasing competition will impact themargins of retailers, as the target audience more or less remainsthe same.Since inflationary trends are expected to continue in the nearfuture, retailers will find new ways of luring customers. Productpromotion, freebies, promotion of private labels and online

discounts are some of the avenues they will resort to, becausecustomer is the king. Ultimately, it will be the call of the consumerto choose the most cheapest in prices player.

3.Retail: Major Developments and Investments


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After the US, Germany has also come up in full support of FDI inretail in India. Metro AG, one of the prominent German retailchains, has shown intentions to venture in Indian markets alongwith US' Wal-Mart and France's Carrefour.Cumulative FDI inflowsin single-brand retail trading during April 2000 to September 2011

stood at US$ 44.45 million, according to the Department ofIndustrial Policy and Promotion (DIPP).

Certain developments and investments that took place on theIndian retail canvas recently are discussed below-

y Real estate major DLF's subsidiary DLF Brands has struck adeal with Chicago-based Claire's Stores Inc to bring thelatter to India and open its 75 stores over 2011-16. Claire's isa specialty retailer which targets young girls through over

3,000 stores globally.y French retail chain, Carrefour is on an expansion spree in

India wherein it is about to finalise lease deals across 10 to12 sites in the country to open cash-and-carry (wholesale)outlets.

y The world's largest retailer Wal-Mart will open an innovationlab in Bengaluru by the end of 2011. The lab would betasked to drive the US$ 422-billion company's nextgeneration innovations that impact shopping behavior amongthe customers.

y US fast moving consumer good (FMCG) giant McCormick,that has recently formed a joint venture (JV) with Indianbasmati rice brand Kohinoor Foods, intends to tap Indianpackaged food industry and achieve sales of US$ 85 millionin the first year of operations in the country.

y FMCG firm GSK Consumer Healthcare (GSKCH) has madea debut into Indian breakfast cereal market by launching oatscereal under its flagship brand Horlicks'. The breakfastcereal market in India is currently dominated by PepsiCo andKellogg's.

y Oral and dental hygiene products manufacturer ColgatePalmolive has decided to invest Rs 200 crore (US$ 38.52million) to establish a greenfield facility at an upcomingindustrial estate in Sanand which is being developed bystate-run Gujarat Industrial Development Corporation(GIDC).


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INDUSTRY ANALYSIS

1.RETAIL INDUSTRY LIFE CYCLE

Introduction Stage:-

An introduction is the opening phase of a market and is one

that is just entering the GRDI, Global Retail Development Index

This index is based on more than 25 macro-economic and retail

specific variables.for instance ,the country risk includes

parameters like political risk,economic performance,debt

indicators,credit ratings,access bank finance and business risk.The

market attractiveness covers reail sales per capita ,urban

population ,laws and regulations and business efficiency.

Iin this stage all, which are outside the top 30 markets, falls in this

stage. At this stage, retailers should monitor and performing high-

level assessments, they should plan for their entry strategies. India

in the late 1990's is a good example in the opening stage, while in

2006, Kazakhstan is the country in introduction stage.

Strategy suggested :A rapid penetration strategy is suggested at

this stage i>e low price and high promotion.

Growth Stage :-In growth stage, the market is developing quickly and also

ready for modern retailing. Countries, which are in Peaking stage,

are India, Ukraine and Vietnam. Retailers entering this stage have

the best chance for long-term success. Retailers at this stage

should enter through local representations, sourcing offices and

new stores. Wal-Mart success in china in the late 1990's and early

2000's gives us the importance of committing to a promising high-

growth market at right time.

Strategy suggested: The strategy of adopting quality and styledproducts with new models and shift of advertising from product

awareness to product preference Eg the big bazaar advt says surf

excel is cheaper than the market price.The idea behind adopting

strategy is to strengthen against competitors.


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Maturity Stage:-

In this stage the market is still big and growing, but the space

for new entrants will become tighter and retailers should act

quickly at this stage because retailers at this stage have limited

time to explore, and also their margin for error is thin. In general ,they should act according to the established rules and should be

open to face the competition from international retailers. This stage

generally lasts longer than the previous two stages.

Strategy suggested: Enter new market segments that is either

enter new geographic areas eg vishal megha mart has opened

stores in smaller cities tier II and III cities

Decline Stage:-

The window of opportunity is closing fast and modern retailshare is reaching 40 to 60 percent. Though the opportunity is

closing the existing retailers can enter with new formats such as

discount models or non-food formats such as consumer

electronics and apparel. Window of opportunity ends for about 5 to

10years before a market enters the closing phase and reaches

saturation level. India for example, was in the opening stage in

1995 and entered peaking stage in the year 2003 and reached

number 1 rank in 2003

2. LABOUR MARKET STRUCTURE AND TRENDS:-

Relative to the workforce as a whole, the retail industry

contains high proportions of women, young people and part-time

workers. Some 58 per cent of Retail trade employees are female,

one-third are aged 15 to 24 years and 48 per cent work part

time.The Other store-based retailing and Food retailing

subdivisions together employ 85 per cent of all retail workers (51and 34 per cent, respectively). All subdivisions, except for Motor

vehicle and motor vehicle parts retailing and Fuel retailing, have a

preponderance of female workers. Part-time workers outnumber

full-time workers in Food retailing.Retail workers tend to have

lower educational qualications than the workforce as a whole.


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This is related both to the large proportion of young people

employed, and to the lowskilled occupations that predominate, in

the industry.Retail trade workers are more likely than the workforce

as a whole to be either unemployed or underemployed. They also

have a shorter average job tenure and are more likely thanunemployed workers from any other industry to have voluntarily

left their last job.Over the last two decades, part-time employment

in Retail trade has grown very strongly, alongside only modest

growth in full-time employment. Between 1985 and 2008 the

number of people employed increased by 70 per cent and total

hours worked increased by 50 per cent.Over the same period

there was strong employment growth in both Food retailing and

Other store-based retailing. By contrast, Motor vehicle retailing and

Fuel retailing showed only minor employment growth.Over theperiod 198889 to 200304 labour productivity improved more

slowly in Retail trade than across the market sector as a whole,

while the picture for multifactor productivity was more mixed. In the

period 200304 to 200708, however, Retail trade experienced

stronger growth than the total market sector in both measures of

productivity.

3.GOVERNMENT POLICY AND REGULATION:-

India's government seems to be on a gradual but definite path

toward allowing foreign retailers into the country.... suggests the

A.T. Kearney's Retail Development Index 2006. It is a common

knowledge that the Union government has to face a number of

hurdles both from it's opponents as well as it's allies before it could

announce the final verdict. There have been demands from all

corners regarding framing of rules to safeguard interests of the so-

called small traders. Simultaneously economists have theconsensus that industrialization is imperative for the growth of the

economy and foreign investment has to play an inevitable role in it.

With Lok Sabha elections to come in 2009, the Union government

too seems a bit confused regarding decision in who's favor can

provide it a political edge. So in this study let us compare the views

for and against liberalization as is held by Indian Bureaucrats


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a. Entry of large players: stiff opposition from Left Parties

The recent outburst of fury among the Kerala's LDF(LeftDemocratic Front) Government has been noticeable. Theyhave exacted for a three-pronged approach to prevent the

retail giants from serving the Keralians. At the first stage, notonly MNCs but also the local retail giants like Reliance will beshown the red signal. In fact a magnified CPI protest hascompelled a Reliance Fresh outlet in Kochi to take policeprotection. The draft of a bill has been finalized to amend theKerala Essential Commodities Act so that the stategovernment can intervene in the retail market.

As a second step, local councils (70% of which is controlled

by the Left) will deny licenses, that are mandatory to start aretail chain in the state. Kochi and Tiruvananthapuramcorporations will be in fact commanded to reconsider thelicenses of outlets that are already operating in the regions.This strategy grants more power to the state. However a banon shopping in these outlets is still not clear. The third andthe most revolutionary judgment is actually an outcome ofthe whole game. Government-controlled supermarkets andhypermarkets will be established in some of the key cities inthe state.

This rigid legal wall not only in Kerala but across the countryhas been born out of a traditional mindset. Kerala claims tohave a literacy rate of 90.92% and a sex ratio of 1058females per 1000 males. The data speaks for thegovernment's prudent commitment in the case of Kerala. Soit is high time that the government opens up avenues for itspeople to let them grow and become self dependent.

But the government is still holding good, the conventional'infant industry' outlook. The main worry is the negativeimpact on the already gloomy condition of employment. Let'smake an attempt to understand the vicious circle ofunorganized retailing and present employment scenario.Unorganized retailing has a share of about 96% in the Indianretail sector. But why should people work in such miserable


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situations if the manufacturing and services sector arebooming is the overwhelming question. There has been atrend to migrate to cities in search of alluring bright city lights.But the consequences has been been even worse- earninglower than expected wages(Harris Todaro model ofmigration). The illiterate and unskilled people ultimately setup a grocery shop to earn a living. This gives birth to anotherunorganized retail shop in India and thus enlarges its share.So the unorganized retail market in India has born out of faterather than selection.

b.The Actual Scene

Those opposing the expansion of organized retail in India

must understand that the share of primary sector shrinksan that of the secondary and then the tertiary sector expands asan economy grows. This is the basic structural adjustment in caseof any transforming economy. India is at a take off stage. Aretardation in the agricultural sector is not permissible but inhibitingthe growth of services on grounds of protection to agriculture ismore irrational. A proof of this has been seen in a small town ofNorth Bengal. The opening of a Big Bazaar (brand name for storesunder Pantaloon) departmental store has seen a human deluge ofabout 7,000 people in the 35,000 sqft shopping mall by 3pm. This

clearly indicates that people (even in remote places) have becomefed up of monotonous marketing practices and demand nowadaysis purely governed by choice.

c.The Ruling UPA government's outlook

The UPA government is rather clear in its aim of taking India tonew highs. The commerce minister has repeatedly asserted thatFDI will kill two birds with the same stone. It will generate

substantial direct as well as indirect employment and at the sametime will not tamper with the present scope of the unorganizedretail market. The indirect employment includes jobs in transport,packaging and other logistic services. It will enhance competitionin the country thus giving a virtual chance to face global challengeswhile operating at home. Mr. Nath is clearly focused on theutilization of FDI in acquiring benefits. It is true that such


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investments will bring in huge imports but this may also help in theIndian products reaching the foreign consumers. Foreign majorssuch as Wal-Mart, Tesco and Carrefour are ready to enter India.The UPA government has already permitted 51 percent FDI inSingle-brand products without consulting its allies and it isexpected that slowly but steadily the government will achieve itsgoal.

4.Growth Potential

The key growth areas include the urban, luxury segment on oneend of the spectrum and serving the rural sector on the other. Inaddition, government policy encouraging FDI in the segment hasresulted in a plethora of international retailers keen on entering themarket; American retail giant Wal-Mart has tied-up with BhartiEnterprises and global coffee giant Starbucks' has tied up withPVR Limited. In addition,Carrefour, Boots and others are alsoexpected to come in.With so much action, it is natural that there isa huge scope for employment opportunities, and experts estimatethat the sector will generate employment for ~ 2.5 million people in2010. The top retail companiesin India include the Raheja Group,Reliance Retail, Tata Trent, Future Group, RPG Retail, and EbonyRetail Holdings.

5.Future Prospects:-


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There are many opportunities for those seeking to enterthis sector, and entry level positions such as sales executives donteven require a degree. Naturally, the higher order jobs forgraduates with relevant degrees and work experience, involvemore responsibility, challenges and remuneration. MBAs areincreasingly being recruited, which marks a change of HR policy,from the traditional preference to hire those from the FMCG andhospitality sectors. In fact, senior executives in retail such asoperations heads are extremely well looked after, and HRconsultants believe they are paid in excess of Rs. 60 lakhs.Thegood news for graduates is that since the sector is so young andvibrant, career growth happens very rapidly, and these positionsare very achievable in a compressed time period. Successfulcandidates across all levels are those who are dynamic, able to

multi-task and are equipped with great communication skills.


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INDIAN CONSTRUCTION INDUSTRY

Size of theIndustry

Indian Construction Industry consists of 200 firms in thecorporate sector. In addition to these firms, there are about 1,20,000 class A contractors registered with various governmentconstruction bodies.

Geographicaldistribution All the major cities of the country

Output per annum The Indian construction industry has been playing a vital rolein overall economic development of the country, growing atover 20% Compound Annual Growth Rate over the past 5years and contributing ~8% to GDP.

MarketCapitalization

Total sales of construction industry have reached Rs.42885.38 crores in 2004 05 from Rs. 21451.9 crores in 2000-01.


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Indian Construction Industry is highly fragmented. There are

mostly unorganised players in the industry which work on the

subcontracting basis. As the Construction activity being labour

intensive, construction companies have been mainly focusing onmechanization over past few years. Consequently, growth in

quantum of labourers required has declined from 1.6% in FY 04 to

0.9% in FY 08. Projects in Construction industry are mostly

working capital intensive.

The Indian construction industry forms an integral part of the

economy and a conduit for a substantial part of its development

investment, is poised for growth on account of industrialization,

urbanization, economic development and people's risingexpectations for improved quality of living. Construction constitutes

40% to 50% of India's capital expenditure on projects in various

sectors such as highways, roads, railways, energy, airports,

irrigation, etc and is the second largest industry in India after

agriculture. It accounts for about 11% of Indias GDP.

For the first five-year plan, construction of civil works was allotted

nearly 50 % of the total capital outlay. In 1954 National Industrial

Development Corporation (NIDC), was set up in the public sector

which is the first professional consultancy company. Then later

many architectural, design engineering and construction

companies were set up in the public sector (Indian Railways

Construction Limited (IRCON), National Buildings Construction

Corporation (NBCC), Rail India Transportation and Engineering

Services (RITES), Engineers India Limited (EIL), etc. and private

sector (M N Dastur and Co., Hindustan Construction Company

(HCC), Ansals, etc.).

Construction usually is done or coordinated by general contractors,who specialize in one type of construction such as residential or

commercial building. Cost structure of the construction industry is

dominated by raw material cost and subcontracting cost. Raw

material cost which is the major cost accounts for 30-50% of the

total cost and subcontracting cost accounts for about 20-40%. The


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raw materials consumed by Construction Industry in any country

mainly include cement and steel. The Consumption of steel by

construction industry has grown of 16.1% over past 5 years

whereas cement consumption has registered of 9.6%.

Unprecedented rise in prices of these two raw materials has adirect impact on the cost of the project and in turn margins of

construction companies. Profitability also depends upon the

diversity of the projects a company can execute. Companies

having strong presence in segments like power and industrial

segment which are complex to execute, tend to enjoy higher

margins.

Today Indian sub continent is the second fastest-growing economy

in the World. The Indian construction industry has been playing a

vital role in overall economic development of the country, growing

at over 20% Compound Annual Growth Rate over the past 5 years

and contributing ~8% to GDP.

ECONOMIC ANALYSIS

GDPInflationInvestment

InfrastructureBudget


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India is on the verge of witnessing a sustained growth ininfrastructure build up. The construction industry has been witness

to a strong growth wave powered by large spends on housing,

road, ports, water supply and airport development. The

construction sector has registered double digit growth during the

last few years and its share as a percentage of GDP has increased

considerably as compared to the last decade. The Planning

Commission of India has proposed an investment of around US$ 1

trillion in the Twelfth five-year plan (2012-2017), which is double of

that in the Eleventh five-year plan.

From a policy perspective, there has been a growing consensus

that a private-public partnership is required to remove difficulties

concerning the development of infrastructure in the country. During

the first two years of the eleventh five-year plan (2007-2012), the

share of private players in the total investment was 34%. This is

higher than the target of 30% for the eleventh five-year plan.

During the twelfth five-year plan, the contribution of private sector

in total infrastructure investment is expected to increase to 50%.The balance will be borne by the public sector.

The real estate industry comprising of construction and

development of properties has grown from family based entities

with focus on single products and having one market presence into

corporate entities with multi-city presence having differentiated


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products. The industry has witnessed considerable shift from

traditional financing methods and limited debt support to an era of

structured finance, private equity and public offering.

The construction sector is a major employment driver, being the

second largest employer in the country, next only to agriculture.This is because of the chain of backward and forward linkages that

the sector has with other sectors of the economy. About 250

ancillary industries such as cement, steel, brick, timber and

building material are dependent on the construction industry. A unit

increase in expenditure in this sector has a multiplier effect and the

capacity to generate income as high as five times.

KEY POINTS

Supply

Past 4-5 years have seen a substantial increase in the number of

contractors and builders, especially in the housing and road

construction segment.

Demand

Demand exceeds supply by a large margin. Demand for quality

infrastructure construction is mainly emanating from the housing,

transportation and urban development segments..

Barriers to entry

Low for road and housing construction. However, high working

capital requirements can create growth problems for companies

with weak financial muscle.

Bargaining power of suppliers

Low. Due to the rapid increase in the number of contractors and

construction service providers, margins have been stagnant

despite strong growth in volumes.


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Bargaining power ofcustomers

Low. The country still lacks adequate infrastructure facilities and

citizens have to pay for using public services.

Competition

Very high across segments like road construction, housing and

urban infrastructure development. Relatively less in airport and

port development.

Financial Year '11

After a slow growth in the last fiscal, order inflows in the

construction industry registered a healthy growth in FY11.

However, it was not reflected in the revenues and profitability due

to execution delays and rising cost of construction. Nevertheless,

considering the strong order backlog, the next fiscal could be

promising provided execution remains on track.

The 2011-12 Budget saw increase in allocation towards various

infrastructure development schemes. The government earmarked

Rs 2 trillion for infrastructure development as a whole. This is an

increase of 23.3% over 2010-11. The government also increased

FII limit for investment in corporate bonds issued in the

infrastructure sector to US$ 25 bn from US$ 5 bn. Backed by

governments sustained focus on housing, road, port and airport

development, infrastructure sector in India is poised to grow.

The first half of FY11 proved favorable for the real estate

companies. The global economy improved, bringing back financial

confidence to the home buyers along with low interest rates. As

demand for houses mounted, developers increased the prices.

Prices went up to pre-2008 levels and in some cases beyond that.

However, the situation has changed since 4QFY11. Rising inflation


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forced the Reserve Bank of India to hike interest rates. High

interest rates and high property prices started denting demand for

real estate. The real estate companies are reeling under heavy

debt and rising costs (both operating expenses and interest costs).

Nevertheless, as genuine demand exists for good quality homes,long-term fundamentals for real estate sector remains strong.

Prospects

India is on the verge of witnessing a sustained growth in

infrastructure buildup. Infrastructure investments continue to be the

most important growth driver for construction companies. The

proposed increase in allocation in the twelfth five-year plan (2012-2017) will translate into a healthy business for construction

companies.

Real estate investments account for majority of the total

construction investments. Demand-supply gap for residential

housing, favourable demographics, rising affordability levels,

availability of financing options as well as fiscal benefits available

on availing of home loan are the key drivers supporting the

demand for residential construction. According to the TechnicalGroup on Estimation of Housing Shortage estimates, there would

be shortage of 26.53 m houses during the Eleventh Five Year Plan

(2007-12), which provides a big investment opportunity. In addition

to this, demand for office space from IT/KPO segment is expected

to continue due to emergence of India as a preferred outsourcing

destination. Also, boom in organized retail is expected to result in

huge demand for real estate construction.

While long-term factors are likely to work in favour of the realestate developers, the outlook for the short term remains bleak.

The double whammy of plunging sales and rising costs have taken

their toll on the profitability of real estate majors. Also, banks

turned cautious towards rescheduling debt or issuing fresh loans to

real estate companies, as an aftermath of the bribe-for-loan scam.

Prices of steel, cement and labor, which together make for almost


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75% of overall construction cost, have risen by over 30% since

2009. Upward spiraling cost of construction materials has put great

pressure on project execution, in turn leading to project delays.

Entry into affordable housing is likely to pressurize margins but

would arrest the free fall in topline as witnessed during thedownturn.

INDUSTRIAL ANALYSIS

OUTLOOK AND POTENTIAL OF THE INDIAN CONSTRUCTION

INDUSTRY

SWOT ANALYSIS

STRENGTHS:

Emerging Industry:

The Construction Chemical Industry is at a nascent stage. Sothere is a long way to go for the industry. The life of the industry

goes with the construction industry, which is the end user of theConstruction Chemical products. It is estimated that the life of theIndian Construction Chemical Industry will last atleast for fifteenyears.

Huge Growth Potential:


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The Indian Construction Chemical Industry has a hugepotential to grow. Even at todays nascent stage the industry isgrowing at the rate of fifteen percent, which is almost double thanthat of the current GDP rate of India. Today the end users are notaware of the construction chemical usage and its benefits. When

the awareness among the end users will increase the industry willdefinitely grow with much rate than at which it is growing today.

Huge Export Contributor:

The Indian Construction Chemical Industry contributesconsiderably in the countrys exports. Around twenty percent of theindustry turnover is achieved through exports. The major exportsare to US, Europe, Germany and the SAARC nations. Hence thechemical segment supports at a considerable level to earn the

foreign exchange.

Improves the Productivity:

The construction chemicals improves the productivity of theconstruction sector by increasing the life of the structures,decreasing the abrasions, increasing bond strength and otherqualities which the chemicals impart to the construction works ifused on correct time and in correct manner.

Adds Value:

The construction chemicals adds value to the constructedstructures, concrete, mortars as well as by making them dustproofed and other value adding properties of the constructionchemicals. It improves the lifestyle of the place where it is used.

Sophisticated Construction Input:

The construction chemical is a sophisticated technique thatsupports the construction industry to get the desired or improvedresults from the products or structures so constructed.

WEAKNESSES:


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Improper Customer Services:

The industry is not emphasizing on the marketing activities. Asa result there is lack of technical personnels in the marketingdepartment of the organisations. The repercussion results in

improper customer services.

Costly Products:

The use of the construction chemicals increases the cost to thedevelopers by two to five percent. Also the standard products arecostlier than that of the sub standard products. Moreoverconstruction chemicals are value-adding inputs for the constructionindustry. The chemicals add value or improve the productivity ofthe

structures or works. So there is not necessary to use the products.Even if the chemicals are not used the projects can be developed.

Low Skilled Labour:

The construction chemical industry is less explored by thechemical industry technicians. Also the industry is at the nascentemerging stage. Therefore it is difficult to get the skilled labour forthe industry processes.

Low Emphasis on Marketing:

One of the weaknesses of the organised industry is costlyproducts. There is lack of technical marketing professionals for theindustry. The industry personnels emphasize low on marketingactivities. This is because the marketing expenditure will increasethe cost for the company, which is already one of the weaknesses.

Low Awareness:

Around eighty five percent of the construction industrypersonnels are not aware of the concept of construction chemicals.They are not aware of the productivity improvement and valueaddition for the construction works if the chemicals are used onproper time and in proper manner.


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OPPORTUNITIES:-

SAARC Countries:

The SAARC countries lack the well organised constructionchemical industry. This is a great opportunity for the IndianConstruction Chemical Industry to target the SAARC countries forthe penetration of their products in the country where there is lackof branded and improved products.

Exports:

The cost of manufacturing is low is India as compared to thatof the western nations. Also the organised player not compromise

in the quality and hence there is a good opportunity to target theother western nations where the construction activity is increasing.

Low Labour Cost:

The labour cost in India is lower than that of in the westernnations. If the labours are endowed with better skills the cost of

production can be decreased.

Foreign Direct Investments:

The Governments decision to introduce hundred percent FDIin construction industry has opened a great opportunity for theindustry growth. The overseas organisations will improve thequality of construction and hence will increase the use of standardconstruction chemical applications in the construction industry togive better quality of construction work products.

Expenditure in Construction Sector:

As in the beginning we saw the growth rate of the constructionindustry, the Government has realized that the Nation will onlyprogress with a sound infrastructure that will conjoin the Nation asone. The Government has increased the outflows for the


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construction activities of the country. The huge projects like NHDP,PMGSY hasbrought a good opportunity for the Indian Construction ChemicalIndustry.

CRAMS:

Contract Research and Manufacturing Services (CRAMS) isthe new emerging concept of the emerging industry. TheConstruction Chemical Industry is a problem solver industry.Hence it needs huge investments in Research & Developmentactivities. Due to the criticalities involved in the chemical processesit becomes difficult for any company to manage the businessprocesses from procuring to providing service for customers. Alsoin the competitive business world plays a vital

role in the economies of scale for the production activities. Thenew emerging concept of CRAMS has a huge potential torestructure the industry for the favorable results.

THREATS:-

Stricter Environment Regulations:

The Environment Regulations are getting stricter day by day.The Government is passing laws to conserve the environment.

These regulations if not maintained by the industry can hamper thegrowth of the Construction Chemical Industry.

Lack of Technical Guidance:

The result of the application of construction chemicals dependsmainly on the way or manner in which the chemical has beenused. The application of the chemicals require an excellenttechnical guidance to get the best results out of such costlyproducts. Today in India the end users are not skilled in the

application of these chemicals. So they require a technicalguidance to develop the skills required for the application.


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Government Policies:

1. In-Country Policies

The Government has no constraints on the usage ofconstruction chemical in the structures or in the Governmentprojects except the projects funded by world developmentorganisations. This provides an unfavorable opportunity for thedevelopers to save the input cost to get a better quality structures.

2. Export Policies

The inconsistent export policy hampers the decision of theexporters.The Government frequently changes the export policy.

The policy is not consistent throughout the year putting exportersin a muddle to take decisions. Hence the exporters are unable tomeet their obligations on time or they dont construction chemicalexport orders.

Depreciating Foreign Currency-

During the last financial year 2005 2006 the value of dollardepreciated considerably. This hampered the exports of the overallgoods. The depreciating foreign currency decreases the

purchasing power of the importers, hence hampers the exports.

Port Regulations:

Labour Unions On the ports the handling of goods cannot be done by the

outsider. Moreover the port labour are unproductive and unskilledto handle the critical material like construction chemical. Thisincreases the wastage of the goods.

Obsolete Equipments:-The obsolete handling equipments lead to pilferage and

wastage of the chemicals on port. This affects the export order.Either the exporters have to dispatch the order considering thewastage quantity or the delivered order is less than that of theorder placed with the exporter by the importer.

Lack of Research & Development:-


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The Research & Development investments of the Indiancompanies is less than that of the MNCs. The constructionchemicals are used only for a specific purpose either to add valueor to improve productivity of the existing product. So a continuousR & D effort is necessary for the growth of the industry.

Unskilled End Users:A large chunk of construction industry labours are unskilled or

low skilled. Whereas the construction chemical application requiresan adept knowledge to get the best results. Hence many a timesthe customers are not satisfied with the results of the constructionchemical.

Sub Standard Products:The introduction of sub standard products manufactured by the

small players for the sake of making sound profit is spoiling theindustry growth. The users using sub standard products dont getthe results by the applications, developing unfavorable perceptionsin the customers as well as end users for the future growth of theindustry.

GROWTH STRATEGIES

Growth strategies have been researched from multiple

perspectives. These may be organic or inorganic in nature.Organic growth involves growth either into new products or in newmarkets.Growth is realized through and mainly fuelled by: (Groves 2000)

y Geographic expansion of marketsy Higher market share in current marketsy New market share in new segments

Diversification and integration are also types of organic growth.Inorganic growth on the other hand involves, mergers and

acquisitions and joint ventures.According to study carried out onthe IT Industry in India (Anandaram 2003) growth is driven by

y Leadership and visiony Differentiated approachy Marketing investmenty Alliances and partnershipsy Cultivation of local market


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Another similar study (Naidu 2003) shows that large size offers afirm the flexibility in offering products and services. Acquisition ofresources and skills is another path to expand capabilities.

y System integrationy Project Management Skillsy Partnershipsy Serial entrepreneurshipy Merger and Acquisitions


After the US, Germany has also come up in full support of FDI inretail in India. Metro AG, one of the prominent German retailchains, has shown intentions to venture in Indian markets alongwith US' Wal-Mart and France's Carrefour.Cumulative FDI inflows

in single-brand retail trading during April 2000 to September 2011stood at US$ 44.45 million, according to the Department ofIndustrial Policy and Promotion (DIPP).


Real estate major DLF's subsidiary DLF Brands has struck a dealwith Chicago-based Claire's Stores Inc to bring the latter to Indiaand open its 75 stores over 2011-16. Claire's is a specialty retailer

which targets young girls through over 3,000 stores globally.

French retail chain, Carrefour is on an expansion spree in Indiawherein it is about to finalise lease deals across 10 to 12 sites inthe country to open cash-and-carry (wholesale) outlets.

The world's largest retailer Wal-Mart will open an innovation lab inBengaluru by the end of 2011. The lab would be tasked to drivethe US$ 422-billion company's next generation innovations thatimpact shopping behavior among the customers.

US fast moving consumer good (FMCG) giant McCormick, thathas recently formed a joint venture (JV) with Indian basmati ricebrand Kohinoor Foods, intends to tap Indian packaged foodindustry and achieve sales of US$ 85 million in the first year ofoperations in the country.


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FMCG firm GSK Consumer Healthcare (GSKCH) has made adebut into Indian breakfast cereal market by launching oats cerealunder its flagship brand Horlicks'. The breakfast cereal market inIndia is currently dominated by PepsiCo and Kellogg's.

Oral and dental hygiene products manufacturer Colgate Palmolivehas decided to invest Rs 200 crore (US$ 38.52 million) to establisha greenfield facility at an upcoming industrial estate in Sanandwhich is being developed by state-run Gujarat IndustrialDevelopment Corporation (GIDC).

INDUSTRY ANALYSIS


Introduction Stage:-An introduction is the opening phase of a market and is one








Iin this stage all, which are outside the top 30 markets, falls in thisstage. At this stage, retailers should monitor and performing high-






Growth Stage :-In growth stage, the market is developing quickly and also







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Strategy suggested: The strategy of adopting quality and styled

products with new models and shift of advertising from product

awareness to product preference Eg the big bazaar advt says surfexcel is cheaper than the market price.The idea behind adopting


Maturity Stage:-

In this stage the market is still big and growing, but the space



time to explore, and also their margin for error is thin. In general ,they should act according to the established rules and should be






Decline Stage:-

The window of opportunity is closing fast and modern retail

share is reaching 40 to 60 percent. Though the opportunity is



electronics and apparel. Window of opportunity ends for about 5 to

10years before a market enters the closing phase and reaches

saturation level. India for example, was in the opening stage in

1995 and entered peaking stage in the year 2003 and reached

number 1 rank in2003

2. LABOUR MARKET STRUCTURE AND TRENDS:-

Relative to the workforce as a whole, the retail industry

contains high proportions of women, young people and part-time


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workers. Some 58 per cent of Retail trade employees are female,

one-third are aged 15 to 24 years and 48 per cent work part

time.The Other store-based retailing and Food retailing

subdivisions together employ 85 per cent of all retail workers (51

and 34 per cent, respectively). All subdivisions, except for Motorvehicle and motor vehicle parts retailing and Fuel retailing, have a

preponderance of female workers. Part-time workers outnumber

full-time workers in Food retailing.Retail workers tend to have

lower educational qualications than the workforce as a whole.

This is related both to the large proportion of young people

employed, and to the lowskilled occupations that predominate, in

the industry.Retail trade workers are more likely than the workforce

as a whole to be either unemployed or underemployed. They also

have a shorter average job tenure and are more likely thanunemployed workers from any other industry to have voluntarily

left their last job.Over the last two decades, part-time employment

in Retail trade has grown very strongly, alongside only modest

growth in full-time employment. Between 1985 and 2008 the

number of people employed increased by 70 per cent and total

hours worked increased by 50 per cent.Over the same period

there was strong employment growth in both Food retailing and

Other store-based retailing. By contrast, Motor vehicle retailing and

Fuel retailing showed only minor employment growth.Over theperiod 198889 to 200304 labour productivity improved more

slowly in Retail trade than across the market sector as a whole,

while the picture for multifactor productivity was more mixed. In the

period 200304 to 200708, however, Retail trade experienced

stronger growth than the total market sector in both measures of

productivity.

3.GOVERNMENT POLICY AND REGULATION:-

India's government seems to be on a gradual but definite path

toward allowing foreign retailers into the country.... suggests the

A.T. Kearney's Retail Development Index 2006. It is a common

knowledge that the Union government has to face a number of

hurdles both from it's opponents as well as it's allies before it could

announce the final verdict. There have been demands from all


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corners regarding framing of rules to safeguard interests of the so-

called small traders. Simultaneously economists have the

consensus that industrialization is imperative for the growth of the

economy and foreign investment has to play an inevitable role in it.

With Lok Sabha elections to come in 2009, the Union government

too seems a bit confused regarding decision in who's favor can

provide it a political edge. So in this study let us compare the views

for and against liberalization as is held by Indian Bureaucrats

Entry of large players: stiff opposition from Left Parties

The recent outburst of fury among the Kerala's LDF(LeftDemocratic Front) Government has been noticeable. They haveexacted for a three-pronged approach to prevent the retail giantsfrom serving the Keralians. At the first stage, not only MNCs butalso the local retail giants like Reliance will be shown the redsignal. In fact a magnified CPI protest has compelled a RelianceFresh outlet in Kochi to take police protection. The draft of a billhas been finalized to amend the Kerala Essential Commodities Actso that the state government can intervene in the retail market.

The recent outburst of fury among the Kerala's LDF(Left

Democratic Front) Government has been noticeable. They haveexacted for a three-pronged approach to prevent the retail giantsfrom serving the Keralians. At the first stage, not only MNCs butalso the local retail giants like Reliance will be shown the redsignal. In fact a magnified CPI protest has compelled a RelianceFresh outlet in Kochi to take police protection. The draft of a billhas been finalized to amend the Kerala Essential Commodities Actso that the state government can intervene in the retail market.

As a second step, local councils (70% of which is controlled by theLeft) will deny licenses, that are mandatory to start a retail chain inthe state. Kochi and Tiruvananthapuram corporations will be in factcommanded to reconsider the licenses of outlets that are alreadyoperating in the regions. This strategy grants more power to thestate. However a ban on shopping in these outlets is still not clear.The third and the most revolutionary judgment is actually anoutcome of the whole game. Government-controlled supermarkets


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and hypermarkets will be established in some of the key cities inthe state.

This rigid legal wall not only in Kerala but across the country hasbeen born out of a traditional mindset. Kerala claims to have a

literacy rate of 90.92% and a sex ratio of 1058 females per 1000males. The data speaks for the government's prudent commitmentin the case of Kerala. So it is high time that the government opensup avenues for its people to let them grow and become selfdependent.

But the government is still holding good, the conventional 'infantindustry' outlook. The main worry is the negative impact on thealready gloomy condition of employment. Let's make an attempt to

understand the vicious circle of unorganized retailing and presentemployment scenario. Unorganized retailing has a share of about96% in the Indian retail sector. But why should people work in suchmiserable situations if the manufacturing and services sector arebooming is the overwhelming question. There has been a trend tomigrate to cities in search of alluring bright city lights. But theconsequences has been been even worse- earning lower thanexpected wages(Harris Todaro model of migration). The illiterateand unskilled people ultimately set up a grocery shop to earn aliving. This gives birth to another unorganized retail shop in India

and thus enlarges its share. So the unorganized retail market inIndia has born out of fate rather than selection.

b.The Actual Scene

Those opposing the expansion of organized retail in Indiamust understand that the share of primary sector shrinks andthat of the secondary and then the tertiary sector expands as aneconomy grows. This is the basic structural adjustment in case ofany transforming economy. India is at a take off stage. Aretardation in the agricultural sector is not permissible but inhibiting


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the growth of services on grounds of protection to agriculture ismore irrational. A proof of this has been seen in a small town ofNorth Bengal. The opening of a Big Bazaar (brand name for storesunder Pantaloon) departmental store has seen a human deluge ofabout 7,000 people in the 35,000 sqft shopping mall by 3pm. Thisclearly indicates that people (even in remote places) have becomefed up of monotonous marketing practices and demand nowadays is purely

governed by choice.

c.The Ruling UPA government's outlook

The UPA government is rather clear in its aim of taking India tonew highs. The commerce minister has repeatedly asserted thatFDI will kill two birds with the same stone. It will generate

substantial direct as well as indirect employment and at the sametime will not tamper with the present scope of the unorganizedretail market. The indirect employment includes jobs in transport,packaging and other logistic services. It will enhance competitionin the country thus giving a virtual chance to face global challengeswhile operating at home. Mr. Nath is clearly focused on theutilization of FDI in acquiring benefits. It is true that suchinvestments will bring in huge imports but this may also help in theIndian products reaching the foreign consumers. Foreign majorssuch as Wal-Mart, Tesco and Carrefour are ready to enter India.

The UPA government has already permitted 51 percent FDI inSingle-brand products without consulting its allies and it isexpected that slowly but steadily the government will achieve itsgoal.

4.Growth Potential

The key growth areas include the urban, luxury segment on oneend of the spectrum and serving the rural sector on the other. Inaddition, government policy encouraging FDI in the segment hasresulted in a plethora of international retailers keen on entering themarket; American retail giant Wal-Mart has tied-up with BhartiEnterprises and global coffee giant Starbucks' has tied up withPVR Limited. In addition,Carrefour, Boots and others are alsoexpected to come in.With so much action, it is natural that there isa huge scope for employment opportunities, and experts estimatethat the sector will generate employment for ~ 2.5 million people in


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2010. The top retail companiesin India include the Raheja Group,Reliance Retail, Tata Trent, Future Group, RPG Retail, and EbonyRetail Holdings.

5.Future Prospects:-

There are many opportunities for those seeking to enterthis sector, and entry level positions such as sales executives donteven require a degree. Naturally, the higher order jobs forgraduates with relevant degrees and work experience, involvemore responsibility, challenges and remuneration. MBAs areincreasingly being recruited, which marks a change of HR policy,from the traditional preference to hire those from the FMCG andhospitality sectors. In fact, senior executives in retail such as

operations heads are extremely well looked after, and HRconsultants believe they are paid in excess of Rs. 60 lakhs.Thegood news for graduates is that since the sector is so young andvibrant, career growth happens very rapidly, and these positionsare very achievable in a compressed time period. Successfulcandidatesacross all levels are those who are dynamic, able tomulti-task and are equipped with great communication skills.

INDIAN CONSTRUCTION INDUSTRY


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Size of theIndustry

Indian Construction Industry consists of 200 firms in thecorporate sector. In addition to these firms, there are about 1,20,000 class A contractors registered with various governmentconstruction bodies.

Geographicaldistribution All the major cities of the country

Output per annumThe Indian construction industry has been playing a vital rolein overall economic development of the country, growing atover 20% Compound Annual Growth Rate over the past 5years and contributing ~8% to GDP.

Market Total sales of construction industry have reached Rs.


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Capitalization 42885.38 crores in 2004 05 from Rs. 21451.9 crores in 2000-01.

Indian Construction Industry is highly fragmented. There are

mostly unorganised players in the industry which work on thesubcontracting basis. As the Construction activity being labour

intensive, construction companies have been mainly focusing on

mechanization over past few years. Consequently, growth in

quantum of labourers required has declined from 1.6% in FY 04 to

0.9% in FY 08. Projects in Construction industry are mostly

working capital intensive.

The Indian construction industry forms an integral part of the

economy and a conduit for a substantial part of its developmentinvestment, is poised for growth on account of industrialization,

urbanization, economic development and people's rising

expectations for improved quality of living. Construction constitutes

40% to 50% of India's capital expenditure on projects in various

sectors such as highways, roads, railways, energy, airports,

irrigation, etc and is the second largest industry in India after

agriculture. It accounts for about 11% of Indias GDP.

For the first five-year plan, construction of civil works was allottednearly 50 % of the total capital outlay. In 1954 National Industrial

Development Corporation (NIDC), was set up in the public sector

which is the first professional consultancy company. Then later

many architectural, design engineering and construction

companies were set up in the public sector (Indian Railways

Construction Limited (IRCON), National Buildings Construction

Corporation (NBCC), Rail India Transportation and Engineering

Services (RITES), Engineers India Limited (EIL), etc. and private

sector (M N Dastur and Co., Hindustan Construction Company(HCC), Ansals, etc.).

Construction usually is done or coordinated by general contractors,

who specialize in one type of construction such as residential or

commercial building. Cost structure of the construction industry is

dominated by raw material cost and subcontracting cost. Raw


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material cost which is the major cost accounts for 30-50% of the

total cost and subcontracting cost accounts for about 20-40%. The

raw materials consumed by Construction Industry in any country

mainly include cement and steel. The Consumption of steel by

construction industry has grown of 16.1% over past 5 yearswhereas cement consumption has registered of 9.6%.

Unprecedented rise in prices of these two raw materials has a

direct impact on the cost of the project and in turn margins of

construction companies. Profitability also depends upon the

diversity of the projects a company can execute. Companies

having strong presence in segments like power and industrial

segment which are complex to execute, tend to enjoy higher

margins.

Today Indian sub continent is the second fastest-growing economy

in the World. The Indian construction industry has been playing a

vital role in overall economic development of the country, growing

at over 20% Compound Annual Growth Rate over the past 5 years

and contributing ~8% to GDP.

ECONOMIC ANALYSIS

GDPInflationInvestmentInfrastructureBudget


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infrastructure build up. The construction industry has been witnessto a strong growth wave powered by large spends on housing,

road, ports, water supply and airport development. The

construction sector has registered double digit growth during the

last few years and its share as a percentage of GDP has increased

considerably as compared to the last decade. The Planning

Commission of India has proposed an investment of around US$ 1

trillion in the Twelfth five-year plan (2012-2017), which is double of

that in the Eleventh five-year plan.

From a policy perspective, there has been a growing consensus

that a private-public partnership is required to remove difficulties

concerning the development of infrastructure in the country. During

the first two years of the eleventh five-year plan (2007-2012), the

share of private players in the total investment was 34%. This is

higher than the target of 30% for the eleventh five-year plan.

During the twelfth five-year plan, the contribution of private sector

in total infrastructure investment is expected to increase to 50%.

The balance will be borne by the public sector.

The real estate industry comprising of construction and

development of properties has grown from family based entities

with focus on single products and having one market presence into

corporate entities with multi-city presence having differentiated

products. The industry has witnessed considerable shift from


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traditional financing methods and limited debt support to an era of

structured finance, private equity and public offering.

The construction sector is a major employment driver, being the

second largest employer in the country, next only to agriculture.

This is because of the chain of backward and forward linkages thatthe sector has with other sectors of the economy. About 250

ancillary industries such as cement, steel, brick, timber and

building material are dependent on the construction industry. A unit

increase in expenditure in this sector has a multiplier effect and the

capacity to generate income as high as five times.

KEY POINTS

Supply

Past 4-5 years have seen a substantial increase in the number of

contractors and builders, especially in the housing and road

construction segment.

Demand

Demand exceeds supply by a large margin. Demand for quality

infrastructure construction is mainly emanating from the housing,

transportation and urban development segments..Barriers to entry

Low for road and housing construction. However, high working

capital requirements can create growth problems for companies

with weak financial muscle.

Bargaining power of suppliers

Low. Due to the rapid increase in the number of contractors and

construction service providers, margins have been stagnant

despite strong growth in volumes.


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Bargaining power ofcustomers

Low. The country still lacks adequate infrastructure facilities and

citizens have to pay for using public services.

Competition

Very high across segments like road construction, housing and

urban infrastructure development. Relatively less in airport and

port development.

Financial Year'11

After a slow growth in the last fiscal, order inflows in the

construction industry registered a healthy growth in FY11.

However, it was not reflected in the revenues and profitability due

to execution delays and rising cost of construction. Nevertheless,

considering the strong order backlog, the next fiscal could be

promising provided execution remains on track.

The 2011-12 Budget saw increase in allocation towards various

infrastructure development schemes. The government earmarked

Rs 2 trillion for infrastructure development as a whole. This is an

increase of 23.3% over 2010-11. The government also increased

FII limit for investment in corporate bonds issued in the

infrastructure sector to US$ 25 bn from US$ 5 bn. Backed by

governments sustained focus on housing, road, port and airport

development, infrastructure sector in India is poised to grow.

The first half of FY11 proved favorable for the real estate

companies. The global economy improved, bringing back financial

confidence to the home buyers along with low interest rates. Asdemand for houses mounted, developers increased the prices.

Prices went up to pre-2008 levels and in some cases beyond that.

However, the situation has changed since 4QFY11. Rising inflation

forced the Reserve Bank of India to hike interest rates. High

interest rates and high property prices started denting demand for


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real estate. The real estate companies are reeling under heavy

debt and rising costs (both operating expenses and interest costs).

Nevertheless, as genuine demand exists for good quality homes,

long-term fundamentals for real estate sector remains strong.

Prospects


infrastructure buildup. Infrastructure investments continue to be the

most important growth driver for construction companies. The

proposed increase in allocation in the twelfth five-year plan (2012-

2017) will translate into a healthy business for construction

companies.

Real estate investments account for majority of the total

construction investments. Demand-supply gap for residential

housing, favourable demographics, rising affordability levels,

availability of financing options as well as fiscal benefits available

on availing of home loan are the key drivers supporting the

demand for residential construction. According to the Technical

Group on Estimation of Housing Shortage estimates, there would

be shortage of 26.53 m houses during the Eleventh Five Year Plan(2007-12), which provides a big investment opportunity. In addition

to this, demand for office space from IT/KPO segment is expected

to continue due to emergence of India as a preferred outsourcing

destination. Also, boom in organized retail is expected to result in

huge demand for real estate construction.

While long-term factors are likely to work in favour of the real

estate developers, the outlook for the short term remains bleak.

The double whammy of plunging sales and rising costs have taken

their toll on the profitability of real estate majors. Also, banks

turned cautious towards rescheduling debt or issuing fresh loans to

real estate companies, as an aftermath of the bribe-for-loan scam.

Prices of steel, cement and labor, which together make for almost

75% of overall construction cost, have risen by over 30% since

2009. Upward spiraling cost of construction materials has put great


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pressure on project execution, in turn leading to project delays.

Entry into affordable housing is likely to pressurize margins but

would arrest the free fall in topline as witnessed during the

downturn.

INDUSTRIAL ANALYSIS

OUTLOOK AND POTENTIAL OF THE INDIAN CONSTRUCTIONINDUSTRY

SWOT ANALYSIS

STRENGTHS:

Emerging Industry:

The Construction Chemical Industry is at a nascent stage. Sothere is a long way to go for the industry. The life of the industrygoes with the construction industry, which is the end user of theConstruction Chemical products. It is estimated that the life of theIndian Construction Chemical Industry will last atleast for fifteenyears.

Huge Growth Potential:

The Indian Construction Chemical Industry has a hugepotential to grow. Even at todays nascent stage the industry isgrowing at the rate of fifteen percent, which is almost double thanthat of the current GDP rate of India. Today the end users are notaware of the construction chemical usage and its benefits. Whenthe awareness among the end users will increase the industry willdefinitely grow with much rate than at which it is growing today.

Huge Export Contributor:

The Indian Construction Chemical Industry contributesconsiderably in the countrys exports. Around twenty percent of theindustry turnover is achieved through exports. The major exportsare to US, Europe, Germany and the SAARC nations. Hence thechemical segment supports at a considerable level to earn theforeign exchange.


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Improves the Productivity:

The construction chemicals improves the productivity of theconstruction sector by increasing the life of the structures,decreasing the abrasions, increasing bond strength and otherqualities which the chemicals impart to the construction works ifused on correct time and in correct manner.

Adds Value:

The construction chemicals adds value to the constructedstructures, concrete, mortars as well as by making them dustproofed and other value adding properties of the constructionchemicals. It improves the lifestyle of the place where it is used.

Sophisticated Construction Input:

The construction chemical is a sophisticated technique thatsupports the construction industry to get the desired or improvedresults from the products or structures so constructed.

WEAKNESSES:

Improper Customer Services:

The industry is not emphasizing on the marketing activities. As

a result there is lack of technical personnels in the marketingdepartment of the organisations. The repercussion results inimproper customer services.

Costly Products:

The use of the construction chemicals increases the cost to thedevelopers by two to five percent. Also the standard products are


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costlier than that of the sub standard products. Moreoverconstruction chemicals are value-adding inputs for the constructionindustry. The chemicals add value or improve the productivity ofthestructures or works. So there is not necessary to use the products.

Even if the chemicals are not used the projects can be developed.

Low Skilled Labour:

The construction chemical industry is less explored by thechemical industry technicians. Also the industry is at the nascentemerging stage. Therefore it is difficult to get the skilled labour forthe industry processes.

Low Emphasis on Marketing:

One of the weaknesses of the organised industry is costlyproducts. There is lack of technical marketing professionals for theindustry. The industry personnels emphasize low on marketingactivities. This is because the marketing expenditure will increasethe cost for the company, which is already one of the weaknesses.

Low Awareness:

Around eighty five percent of the construction industrypersonnels are not aware of the concept of construction chemicals.They are not aware of the productivity improvement and valueaddition for the construction works if the chemicals are used onproper time and in proper manner.

OPPORTUNITIES:-

SAARC Countries:

The SAARC countries lack the well organised constructionchemical industry. This is a great opportunity for the IndianConstruction Chemical Industry to target the SAARC countries forthe penetration of their products in the country where there is lackof branded and improved products.


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Exports:

The cost of manufacturing is low is India as compared to thatof the western nations. Also the organised player not compromisein the quality and hence there is a good opportunity to target the

other western nations where the construction activity is increasing.

Low Labour Cost:

The labour cost in India is lower than that of in the westernnations. If the labours are endowed with better skills the cost ofproduction can be decreased.

Foreign Direct Investments:

The Governments decision to introduce hundred percent FDIin construction industry has opened a great opportunity for theindustry growth. The overseas organisations will improve thequality of construction and hence will increase the use of standardconstruction chemical applications in the construction industry togive better quality of construction work products.

Expenditure in Construction Sector:

As in the beginning we saw the growth rate of the constructionindustry, the Government has realized that the Nation will onlyprogress with a sound infrastructure that will conjoin the Nation asone. The Government has increased the outflows for theconstruction activities of the country. The huge projects like NHDP,PMGSY hasbrought a good opportunity for the Indian Construction ChemicalIndustry.

CRAMS:

Contract Research and Manufacturing Services (CRAMS) isthe new emerging concept of the emerging industry. TheConstruction Chemical Industry is a problem solver industry.Hence it needs huge investments in Research & Developmentactivities. Due to the criticalities involved in the chemical processes


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it becomes difficult for any company to manage the businessprocesses from procuring to providing service for customers. Alsoin the competitive business world plays a vitalrole in the economies of scale for the production activities. Thenew emerging concept of CRAMS has a huge potential to

restructure the industry for the favorable results.

THREATS:-

Stricter Environment Regulations:

The Environment Regulations are getting stricter day by day.The Government is passing laws to conserve the environment.These regulations if not maintained by the industry can hamper thegrowth of the Construction Chemical Industry.

Lack of Technical Guidance:

The result of the application of construction chemicals dependsmainly on the way or manner in which the chemical has been

used. The application of the chemicals require an excellenttechnical guidance to get the best results out of such costlyproducts. Today in India the end users are not skilled in theapplication of these chemicals. So they require a technicalguidance to develop the skills required for the application.

Government Policies:

3. In-Country Policies

The Government has no constraints on the usage ofconstruction chemical in the structures or in the Government


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projects except the projects funded by world developmentorganisations. This provides an unfavorable opportunity for thedevelopers to save the input cost to get a better quality structures.

4. Export Policies

The inconsistent export policy hampers the decision of theexporters.The Government frequently changes the export policy.The policy is not consistent throughout the year putting exportersin a muddle to take decisions. Hence the exporters are unable tomeet their obligations on time or they dont construction chemicalexport orders.

Depreciating Foreign Currency-

During the last financial year 2005 2006 the value of dollardepreciated considerably. This hampered the exports of the overallgoods. The depreciating foreign currency decreases thepurchasing power of the importers, hence hampers the exports.

Port Regulations:

Labour Unions On the ports the handling of goods cannot be done by the

outsider. Moreover the port labour are unproductive and unskilled

to handle the critical material like construction chemical. Thisincreases the wastage of the goods.


After the US, Germany has also come up in full support of FDI inretail in India. Metro AG, one of the prominent German retailchains, has shown intentions to venture in Indian markets alongwith US' Wal-Mart and France's Carrefour.Cumulative FDI inflowsin single-brand retail trading during April 2000 to September 2011

stood at US$ 44.45 million, according to the Department ofIndustrial Policy and Promotion (DIPP).


Real estate major DLF's subsidiary DLF Brands has struck a dealwith Chicago-based Claire's Stores Inc to bring the latter to India


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and open its 75 stores over 2011-16. Claire's is a specialty retailerwhich targets young girls through over 3,000 stores globally.French retail chain, Carrefour is on an expansion spree in Indiawherein it is about to finalise lease deals across 10 to 12 sites inthe country to open cash-and-carry (wholesale) outlets.

The world's largest retailer Wal-Mart will open an innovation lab inBengaluru by the end of 2011. The lab would be tasked to drivethe US$ 422-billion company's next generation innovations thatimpact shopping behavior among the customers.US fast moving consumer good (FMCG) giant McCormick, thathas recently formed a joint venture (JV) with Indian basmati ricebrand Kohinoor Foods, intends to tap Indian packaged foodindustry and achieve sales of US$ 85 million in the first year ofoperations in the country.FMCG firm GSK Consumer Healthcare (GSKCH) has made a

debut into Indian breakfast cereal market by launching oats cerealunder its flagship brand Horlicks'. The breakfast cereal market inIndia is currently dominated by PepsiCo and Kellogg's.Oral and dental hygiene products manufacturer Colgate Palmolivehas decided to invest Rs 200 crore (US$ 38.52 million) to establisha greenfield facility at an upcoming industrial estate in Sanandwhich is being developed by state-run Gujarat IndustrialDevelopment Corporation (GIDC).

INDUSTRY ANALYSIS


Introduction Stage:-

An introduction is the opening phase of a market and is one





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Iin this stage all, which are outside the top 30 markets, falls in thisstage. At this stage, retailers should monitor and performing high-






Growth Stage :-

In growth stage, the market is developing quickly and also








Strategy suggested: The strategy of adopting quality and styledproducts with new models and shift of advertising from product

awareness to product preference Eg the big bazaar advt says surf

excel is cheaper than the market price.The idea behind adopting


Maturity Stage:-In this stage the market is still big and growing, but the space



time to explore, and also their margin for error is thin. In general ,

they should act according to the established rules and should be



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Decline Stage:-

The window of opportunity is closing fast and modern retail

share is reaching 40 to 60 percent. Though the opportunity is



electronics and apparel. Window of opportunity ends for

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