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Amazon Eyes Aditya Birla's More to Boost Presence in India

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AmazonAMZN is leaving no stone unturned to bolster presence in the food and grocery market on the back of its aggressive retail strategies.

Reportedly, the company is eyeing India's food and grocery supermarket chain, More. Notably, More is owned by Kumar Mangalam Birla's Aditya Birla Retail Ltd. ("ABRL").

An India-based private equity firm, Samara Capital which already has an agreement with ABRL, has approached Amazon and Goldman Sachs to form a special purpose vehicle to acquire More. Amazon is likely to hold 49% of the acquisition vehicle.

We believe the latest move will not only strengthen Amazon's position in India's retail market but also aid its e-commerce market. Additionally, this is likely to aid growth in the company's market share.

Coming to the price performance, shares of Amazon have returned 61% on a year-to-date basis, outperforming the industry 's rally of 29.2%.

India Holds Promise

Amazon's strong focus toward expansion of its footprint in India with the support of the company's vast e-commerce platform will continue to aid its momentum in the country. Notably, India is witnessing rapid penetration of mobile and internet use at the moment.

According to the report from India Brand Equity Foundation, the Indian retail market is expected to reach $1.1 trillion by 2020 from $680 billion in 2017. This can be attributed to the booming food and grocery retail space in the country.

By 2020, food and grocery retail is anticipated to generate 66% of Indian retail industry's total revenues. This is due to growth of supermarkets and hypermarkets in the country.

Further, online retailing is expected to generate $60 billion by 2020.

We note that Amazon is well poised to reap benefits from this rapidly growing market with the addition of More to its platform.

Currently, ABRL owns 493 supermarkets under its brand More and 20 hypermarkets in the country. Additionally, the company is expanding More stores across the National Capital Regions including major cities of the country - Hyderabad, Pune, Kolkata, Bengaluru and Chennai.

However, More enjoys greater market share in the southern part of the country.

Apart from food retail space, Amazon has already forayed into the department store chain space by acquiring 5% in Shoppers Stop last year.

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Strengthening Competitive position

Driven by immense growth opportunities in Indian e-commerce space, the country is experiencing increasing investments from the domestic as well as overseas companies.

Amazon's latest move is a significant example of foreign investments. Moreover, it will act as the company's counter strategy against Walmart's WMT entry in India via Flipkart buyout.

We are of the opinion that this development will strengthen Amazon's arsenal in its global food and grocery retail war against Walmart. Notably, it started with Amazon's highly accretive buyout of Whole Foods Market.

Moreover, Amazon's expanding presence in the country poses significant threat to Flipkart's market share in India.

Further, with More, Amazon is likely to gain traction among the traditional Indian buyers who account for a significant share in the total Indian population and are hesitant to shop online owing to issues regarding product quality.

This will aid the company in gaining competitive edge against Reliance Retail and the latest plan of Reliance Industries to develop an e-commerce platform by combining Reliance Retail and Reliance Jio Infocomm. The platform will be based on online-to-offline (O2O) marketing program.

Moreover, Amazon's aggressive entry in the Indian food and grocery retail space is likely to put significant competitive pressure on the Future Group and Avenue Supermarts' DMart.

Additionally, the company gains a competitive edge against Alibaba BABA which is planning to invest $250-$300 million in online grocer, Bigbasket and is trying to strike deals with Indian giants - Reliance and Tata.

Further, Amazon's growing investment in India does not bode well for eBay's EBAY recent plan to relaunch its Indian division, eBay India.

Currently, Amazon's total investment in its Indian division is pegged at $4 billion with the recent addition of $386 million. Moreover, Amazon has almost 67 warehouses in India.

Currently, Amazon sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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