PE firm in talks with
Mumbai-based hotelier; third attempt at selling the chain bought for nearly Rs. 90 crore
Mumbai: Malaysia-based private equity firm Navis
Capital Partners is in talks with a Mumbai-based hotelier to sell Nirula’s
Corner House Pvt. Ltd, the fast-food chain it acquired in 2006.This is Navis’
third attempt at selling the chain, which it bought for nearly Rs. 90 crore.It is in talks to sell Nirula’s for Rs. 150 crore, said two people with direct knowledge of the
mater.
“The two parties are seriously involved in talks
for the sale,” said one of them, who requested anonymity as he is not
authorized to talk about the development. According to him, the hotelier, who
has in the past bid for other cash-strapped food chains as well, intends to
continue with the Nirula’s brand but rework its format. Mint could not
ascertain the identity of the hotelier.
The second person said Navis’ initiative to take
complete control of Nirula’s after buying out co-owner Samir Kuckreja’s
minority stake is another step to facilitate the sale. Last month, Kuckreja
sold his stake in Nirula’s to Navis for an undisclosed amount. Mails sent to
Nicholas Bloy, one of the three founders of Navis Capital, on the exit, did not
elicit any response.
Navis has previously bought restaurants in India,
only to sell them shortly afterwards. It sold its holdings in Mumbai-based Mars
Restaurants Pvt. Ltd and affiliated airline catering company SkyGourmet
Catering Pvt. Ltd to India Hospitality Corp. for $110 million. Nirula’s was in
talks with IHC to sell stake, Mint had reported in August 2007. Navis
was looking at two options—selling out fully or selling a stake. The deal,
however, fell through. In 2009, media reports indicated Navis had appointed merchant
bankers to look for potential buyers for Nirula’s. No buyers were found.
A well-recognized brand in the national capital
region, Nirula’s is one the first fast-food chains in the country that brought
Western food items—hot chocolate fudge, burgers and pizzas—to Indians much
before multinational firms set up their shops here. Its first family-style
restaurant outlet was opened in Delhi
in 1934. Over the years, however, Nirula’s faced stiff competition from
fast-food chains such as Pizza Hut and McDonald’s, which not only entered India
but also established themselves across the country through aggressive
expansions and investments. McDonald’s has a network of at least 250
restaurants across the country, with its first restaurant launched in 1996.
Pizza Hut, which has completed 15 years in India,
operates more than 130 outlets in the country. Nirula’s, which has sales of
about Rs. 100 crore, has some 85 outlets, including
dine-in restaurants, pastry shops, ice-cream parlours, hotels and coffee shops
across the National Capital Region, Uttar Pradesh, Maharashtra, Madhya Pradesh,
Uttarakhand, Haryana, Rajasthan and Punjab.
“The brand has somehow lost its charm. It’s a
phenomenal brand but it has not been leveraged well beyond NCR,” said the first
person quote earlier.
The food and beverages market in India
is worth an estimated Rs. 8.97 trillion, according to
retail consultancy Technopak Advisors Pvt. Ltd. Investors seeking to leverage
the rise of the Indian consumer see restaurant chains as a viable route of
investment.
The recent success of Speciality Restaurants
Ltd’s public offering provides a glimmer of hope to PE investors, who are
struggling to exit from the companies they have invested in over the past few
years.
Experts, however, caution that while the high
margins in the restaurant business make the industry lucrative, steep costs can
eat into the profits.
“People believe food is a high-margin business,
but eventually one has to pay for electricity, water and maintenance bills,
there is cost of food, real estate, employees,” said Debashish Mukherjee,
partner and vice-president at A.T. Kearney, a consultancy. “While India looks big
as a market, it is actually a regional play because of palate appeal.”
Mukherjee said ethnic Indian food chains will be
a sought-after category for investors in the near future.