Kedaara and Partners set to acquire Vishal Mega Mart

A consortium of Kedaara Capital and Partners Group is set to buy retailer Vishal Mega Mart for Rs5,000 crore, two people directly involved in the transaction said.

The deal is likely to be announced within a week.

Kedaara-Partners Group will buy the retailer from TPG Capital and Shriram Group, the current owners. “Kedaara and Partners Group will be signing a definitive agreement in a week’s time to acquire Vishal Mega Mart. While Kedaara will be looking after front-end operations at the firm, Partners Group will manage the back-end,” one of the two people cited above said on condition of anonymity.

He said the deal has been structured to ensure that the foreign direct investment regulations are not violated.

Spokespersons for Kedaara Capital, Shriram Group, and TPG declined to comment. A Partners Group spokesperson could not be reached for a comment.

Up to 51% FDI is allowed in multi-brand retail in India. Consequently, Switzerland-based Partners Group has teamed up the Kedaara Capital to acquire the firm with the majority of the investment coming from Partners Group. Kedaara, being an India-registered alternative investment fund, will be treated as the local partner. Vishal Mart is a fashion-led hypermarket chain with a footprint of over 229 stores across 110 cities and towns in the country, according to the company’s website. Apart from apparel, footwear and lifestyle accessories, the firm also offers grocery products and general merchandise. The company is one of the most notable cases of a successful turnaround led by private equity investors in India.

Vishal Mega Mart was bought by TPG and Shriram Group in a distressed condition for Rs70 crore in 2010. According to a 12 April report by Jefferies, Vishal Mega Mart slipped into a crisis due to aggressive expansion of its stores, leading to piling of debt on its books. Consequently, founder Ram Chandra Agarwal was forced by the creditors—State Bank of India, HSBC and ING Vysya among others —to sell the business.

Valuation of the company has risen more than 70 times in the last eight years. Over the years, TPG has infused over Rs760 crore, turning around the business. According to data available with the Registrar of Companies, Airplaza Retail, the front-end arm of the company, posted a loss of Rs7.6 crore in fiscal year 2017compared with a loss of Rs10 crore a year earlier.

The back-end entity, Vishal Mega Mart Pvt. Ltd, turned profitable during fiscal year 2017 and posted a net profit of Rs14.5 crore as against a loss of Rs40 crore during the previous fiscal. It clocked revenue of Rs1,687 crore during fiscal 2017. The firm has also built an online presence.

Investor interest in India’s fashion retail business has seen a significant increase and valuations are expected to remain expensive. In an interview published in the Economic Times on 10 May, Kishore Biyani, founder of Future Group, the largest brick-and-mortar retailer in the country, said he was looking to sell a minority stake in the firm to a global retailer. “I will sell a minority stake to the strongest global retailer,” Biyani was cited saying.

“Strong growth prospects for the retail sector should keep the valuations expensive. We believe that consumers will continue to prefer offline channels in categories such as apparel, jewellery and high value articles where the consumer wants to get involved in the actual experience of buying the product and touch and feel the product. Hence, omni channel remains the way forward,” the Jefferies report stated.livemint