Everstone seeks strategic partner for Blue Foods

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Private equity firm Everstone Group is looking for a strategic partner for its fine-dining business platform Pan India Foods Solutions Pvt. Ltd, also known as Blue Foods, according to two people familiar with the matter.

“The fund has recently launched the process of finding a strategic partner for its fine-dining business and they are looking to either sell the entire asset to a strategic buyer or find a partner who would be willing to put capital in the business. The entire process is in a nascent stage,” said one of the persons cited above, requesting anonymity.

“We are evaluating strategic options for the business. Blue Foods has strong brands with great performance and excellent locations,” said Dhanpal Jhaveri, managing partner at Everstone Group.

The business has been reporting losses, and hence the fund is looking at these strategic options, said the second person cited above, also requesting anonymity. “In fact, the losses have increased significantly over the years, as they have tried to scale up the business.”

Data from the company’s filings with the Registrar of Companies (RoC) and its annual reports show that the food and beverage platform’s revenue has grown at a slow pace of just 3% annually to Rs.163 crore in financial year 2014-15 from Rs.149.5 crore in 2011-12. In fact, the company’s revenue dipped in 2014-15 from Rs.168.1 crore the previous year.

At the same time, losses have continued to grow exponentially. Pan India Foods’ loss has almost doubled toRs.38.8 crore in 2014-15 from Rs.19.8 crore in 2011-12, RoC data show.

Over the past two years, Everstone has been exiting some of its loss-making outlets in a bid to save costs and improve the financial health of the company.

According to a August 2015 report by ratings agency Brickworks Ratings, the number of outlets run by Blue Foods reduced to 116 from 142 in the previous year.

The fine-dining platform has a total of seven brands, including Italian-themed Spaghetti Kitchen, Copper Chimney, ice cream parlour chain Gelato Italiano, café chain The Coffee Bean & Tea Leaf, Bombay Blue and Noodle Bar. It also operates food courts under the brands Food Talk and Spoon.

Everstone Group’s first fund, Indivision India Partners, had bought a controlling stake in the company in 2008. Pan India Foods was established in 2000 by Sunil Kapur of Copper Chimney and Sanjiv Chona of Cream Centre. Over the years it has expanded its presence to 11 cities across the country.

Indian consumers spent over Rs.12,800 crore in calendar year 2013 on food in the organized restaurant segment, which is estimated to be just 5% of the total market, according to the India Food Services Report 2013 by the National Restaurant Association of India and Technopak.

The organized segment is expected to grow to Rs.33,300 crore by 2018, or approximately 10% of the total pie, the report said.

However, the past two years saw tepid growth for the industry on account of inflation and a not-so-buoyant consumer sentiment. The industry also continues to face major headwinds on the cost front.

Companies in the restaurant business have faced significant challenges in scaling up their business across the country, said experts.

“As one starts to expand rapidly, you hit challenges such as high rentals and lack of availability of labour. It is not possible to get every store right and so one needs to be agile with strategy and close down loss-making stores early to reduce damage to the overall performance of the business,” said Dhanraj Bhagat, partner at Grant Thornton India.

Also, scaling up is a challenge because of different tastes and trends in different cities. “What works for you in one city might not work in another,” he said.

Apart from Pan India Foods, Everstone also owns another platform in the food and beverage space—F&B Asia Ventures Ltd, a pan-Asian platform.

In July, F&B Asia said that it will invest up to Rs.85 crore in restaurateur Zorawar Kalra’s Massive Restaurants. Kalra’s Massive Restaurants run restaurant brands Masala Library, Made in Punjab and Farzi Cafe.

According to media reports, Everstone Capital has investedRs.1,200 crore in F&B Asia, which has in its fold assets such as Pind Balluchi, Harry’s, The Disgruntled Chef, as well as the franchises of Domino’s in Indonesia and Burger King in India and Indonesia.