Birla may sell 20% in retail holding firm to PEs

Another 10% to be offloaded through public offer in stage two

The Aditya Birla Group is looking to sell a 20 per cent stake in the proposed holding company for its retail ventures to two private equity (PE) firms. Another 10 per cent will be sold when the holding company goes public in the next couple of years.

A senior executive aware of the group's plans said both the private equity firms would get a 10 per cent stake each. "Since the combined retail entity will also include a public limited company (Pantaloon Fashion & Retail), it will trigger the 10 per cent cap for foreign institutional investors. So they want to sell 10 per cent each to two investors," the executive said.

L Capital, Temasek Holdings and IFC are in talks to buy stakes in the combined entity comprising department store Pantaloons, Madura Fashion and supermarket chain 'more'. At the end of the deal process, the Aditya Birla Group would receive $400-500 million, a Reuters report said on Tuesday.

DEAL DETAILS

• L Capital, Temasek Holdings and IFC are in talks to buy stakes in the combined entity comprising department store Pantaloons, Madura Fashion and supermarket chain 'more'
   
• According to a report, the deal would fetch $ 400-500 million to Aditya Birla group

"If you look at a four-five year horizon, the combined entity will be a pretty good asset. We are keenly watching how fast the group initiates the process," said an executive with one of the prospective investors. A mail sent to Aditya Birla Retail did not elicit any response. "In the course of the business we receive several proposals which are also evaluated on a regular basis. There is no proposal which has reached the stage which would trigger Clause 36 of the Listing Agreement," Pantaloon Fashion told the stock exchanges on Wednesday.

The executive said though the three businesses operated in different areas - brands (Madura), department stores (Pantaloons) and supermarket chains (more) - these could complement each other and had a huge growth potential.

According to other executives, Madura was already profitable and was expected to grow. "The supermarket chains are close to making profits at the store level and have a high potential to grow whereas Pantaloons is intrinsically profitable," the executive said.

Madura holds rights for and retails brands such as Van Heusen, Louis Philippe and Peter England, among others.

Pantaloons, acquired from Kishore Biyani's Future group, has 80 stores and plans to open 20 more. The chain posted a net loss of Rs 187 crore on net sales of Rs 1,661 crore in 2013-14. The losses are mainly due to write-offs after the acquisition from the Future group. Aditya Birla Retail, which runs 497 supermarkets and 16 hypermarkets, under the 'more' brand, posted losses of Rs 510 crore on net sales of Rs 1,037 crore in 2012-13. "The combined entity has its own merits. Reliance also runs on a similar model. You can negotiate better with vendors and mall developers if you go as a combined entity. Corporate costs can be managed well and you can drive better economies of scale," the executive said.

Arvind Singhal, chairman of Technopak Advisors, said retailers were depending on external funding sources such as private equity as businesses were not throwing up free cash to grow through internal accruals.