Consolidation is 'inevitable', gaining momentum in retail sector: Analysts

With private equity firm, TPG Capital's reported plans to sell Vishal Megamart, consolidation is gaining ground in the Indian retail sector, said, analysts and retailers.

 

TPG Capital which bought the wholesale business of Vishal Megamart seven years ago is looking to sell the unit and the valuation could be around Rs 1,500 crore, according to reports.

 

"It is quite natural that they being an investor want to exit their investment to book profits. They have turned it around and now want to sell," said an investment banker who refused to be quoted.

 

TPG plans are a continuation of what has been happening in the retail sector of late - rivals buying out each other.

 

Last week, Shoppers Stop sold loss-making upmarket chain Hypercity to Future Retail for an enterprise valuation of Rs 911 crore. While Shoppers Stop itself did three deals within a month selling five per cent in the company for Amazon, leaving airport retail and Hypercity sell-off.

Kishore Biyani owned Future Retail has done five acquisitions in five years - buying Big Apple, Nilgiris, Bharti Retail and retail venture of Heritage Foods.

 

"Only Future Retail, Reliance and D Mart are doing well. Others are still figuring out the model," said Abneesh Roy, Senior Vice President, Edelweiss Securities.

 

“It is a tough business with wafer-thin margins and supply chain challenges,” he said. Govind Shrikhande, Managing Director of Shoppers Stop said, unless there is scale, hypermarkets cannot be profitable.

 

“Consolidation is the way out in hypermarkets,” he said.

 

Analysts also said that since there are barriers on multi-brand retail, domestic retailers and investors would be the potential buyers.

 

“If multi-brand retail rules are changed, it will change the scenario,” said Abneesh Roy of Edelweiss.