New Delhi | Mumbai | Bangalore LEVERAGE YOUR STATUS QUO FRANCHISE KNOWLEDGE SERIES : FRANCHISE INDIA 2013 By Aparna Mittal Partner Corporate / M&A / Franchise and Retail October 20, 2013 © Luthra & Luthra Law Offices 1

RETAIL SECTOR IN INDIA: A PHENOMENAL GROWTH STORY  Indian retail market estimated to be USD 500 billion  One of the top five retail markets in the world.  Accounts for 14-15% of India’s total GDP.  Organized retail sector growing at 20% growth rate per annum. 2 © Luthra & Luthra Law Offices

LEVERAGE YOUR STATUS QUO  Understanding Potential of the Business and the Markets  Understanding the Regulatory Framework  Commercial Due Diligence on the Market  Forward Looking Financial and Strategic Business Plan  Identification of partner : Goals, Synergies, Ethics and Long term Strategy  Pure Franchise : No equity or financial investment from franchisor  Joint Venture (franchise / brand license and financial investment- equity vs debt ) 3

FOREIGN DIRECT INVESTMENT  Foreign Direct Investment Policy Automatic Route vs Approval Route. Sectoral Caps – Depending on industrial sector (hotel, food, retail etc). Upto 100% FDI, under the automatic route, in wholesale trading (with conditions) Upto 49% FDI, under the automatic route, in single brand retailing (with conditions) Upto 51% FDI, under the approval route, in single brand retailing (with conditions) Upto 100% FDI, under the approval route, in single brand retailing (with additional conditions) Upto 51% FDI, under the approval route, in multi brand retailing (with conditions) 4

KEY ISSUES : GROWTH & EXPANSION  Funding : Access to domestic market External Commercial Borrowings (eligibility issues and end use restrictions) Financial Investment by Franchisor (including staggered buy outs) Third Party / Private Equity Funding : Viability and Terms 5 © Luthra & Luthra Law Offices

KEY ISSUES : GROWTH & EXPANSION  Private Equity Funding : Viable route for funding Global best practices Corporate Governance Long term value creation Window dressing for going public / strategic sale 6

KEY ISSUES : GROWTH & EXPANSION  Defining scope of the alliance  Allocation of Responsibilities and Degree of Control  Duration and Milestones  Investment Outlay and Funding Commitments 7

KEY ISSUES : GROWTH & EXPANSION  Non compete : Products, Activities, Duration, Geographical Extent  Thresholds for Performance and Creative Solutions  Right of First Refusal for new business / products/ activities  Termination and Exit  Intellectual Property Rights and Protection 8

Thank You 9 Aparna Mittal Partner © Luthra & Luthra Law Offices