Food & beverages giant PepsiCo India is believed to have backed out of the race to buy a stake in Rajkot-based Balaji Wafers. The reason for this is the decision of Balaji promoters, the Virani family, to restrict the stake sale to 15-20 per cent. "Companies typically want a larger stake, as much as 49 to 51 per cent. But we do not want to offload so much. So, the ones interested and in the fray are private equity (PE) investors, whom we are talking to," Keyur Virani, director, Balaji Wafers and nephew of company managing director Chandubhai Virani said. The PE players in the reckoning include names such as Blackstone and Actis. These investors, when contacted, declined to confirm or deny that they were in talks with Balaji.
A PepsiCo India spokesperson also declined to comment on the issue. But the Viranis are demanding a total valuation of Rs 3,500 crore or 3.5 times its sales of Rs 1,000 crore, implying that a 15-20 per cent stake will be available for Rs 525-700 crore. While the norm is two to three times the sales in the fast-moving consumer goods (FMCG) sector, the issue here is that Balaji's reach is limited to Gujarat, Maharashtra, Rajasthan and Madhya Pradesh. PE investors are unwilling to pay between Rs 500 crore and Rs 700 crore for a stake in a firm with such a limited recah, persons in the know said. "Balaji has a strong balance sheet and is funded well internally. I don't think they are in dire need of funding to be asking for this high a valuation," said the chief executive officer of a global PE firm, who declined to be quoted since he was talking to Balaji earlier. Sujay Kotak, assistant vice-president at Mumbai-based boutique investment bank Singhi Advisors says, "Rising valuations and decreasing volume growth rates have made PE funds very cautious about investments in FMCG."