Revised FDI policy might flush online sales up to Rs 40,000 cr down the drain: CRISIL

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Updated: January 14, 2019 8:23:40 PM

According to CRISIL's estimate, the topline gains of brick and mortar retailers might grow to Rs 10,000-12,000 crore if they are able to acquire even a fourth of the impacted online sales.

E-commerce rules do not allow FDI in inventory-based model or multi-brand retail: DIPPAmazon and Flipkart make up for around 70% of the online retail revenue.

Online retailers loss is indeed brick and mortar retailers’ gain. Nearly 35-40% of online retail sales worth Rs 35,000-40,000 crore, could be impacted due to the tightened e-commerce FDI policy, CRISIL Ratings senior director Anuj Sethi said in a statement.

According to CRISIL’s estimate, the topline gains of brick and mortar retailers might grow to Rs 10,000-12,000 crore if they are able to acquire even a fourth of the impacted online sales.

This would mean revenue growth would be 150-200 bps higher at ~19%, compared with CRISIL’s earlier expectation of 17% for fiscal 2020, as online retailers re-engineer around revised stringent policy guidelines which would slow down their revenue growth, the statement said.

The government had last month announced changes in the e-commerce policy that stops online marketplaces with foreign investments from selling goods of the vendors and brands in which they have stakes and curbs exclusive partnership with brands or offering favourable services to few vendors.

“The impact on e-retailers would be largely in the electronics and apparel segments, which account for a bulk of their revenues,” CRISIL said.

Amazon and Flipkart making up for around 70% of the online retail revenue generate around half of their sales through group companies.

Following the new policy changes, effective from February 1, e-commerce companies will need to make changes in their supply chain and tweak business model in terms of having a franchisee model. This would increase their compliance cost as they strive to adhere to revised guidelines.

Between fiscals 2014 and 2018, e-retail in India grew at 40% a year to reach Rs 1 lakh crore compared to brick and mortar’s 13% growth to Rs 3.2 lakh crore during the same period.

“The strong growth in e-retail was driven by deeper market penetration and attractive pricing compared with B&M retailers,” said Gautam Shahi, Director, CRISIL Ratings. “Robust FDI inflows of over Rs 95,000 crore in the past four fiscals have made this possible.”

Given tightened regulatory policy and a probable moderation in revenue growth for e-retailers compared with the past, FDI inflows and consequently, discounting by e-retailers may see moderation in fiscal 2020, providing a more level playing field to brick and mortar retailers. In the near term, the retailers would see improving revenues, profitability and better cash flows, thus benefitting their overall credit profiles.

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