Nirula's divestment stalls as suitors find price unpalatable

Majority stakeholder's original plan was to exit this year.

Following the sharp decline in valuation of retail businesses, the divestment of Nirula’s, the New Delhi-based fast-food chain, has hit a major roadblock due to substantial differences over its worth.

A Malaysian buyout fund, Navis Capital Partners, has put the company on the block and has appointed NM Rothschild to advise it on a possible sale.

Quite a few potential suitors have walked away, saying the asking price is too high to justify the transaction in the current scenario. Navis had acquired a majority stake in the company for an enterprise value of around Rs 115 crore in May 2006.

“While the asking price was around Rs 250 crore, suitors were not willing to go above the previous level of around Rs 120 crore,” said a leading banker who was involved in the discussion on behalf of a buyer.

Sources in Nirula’s said the Malaysian firm was actually asking for upward of Rs 450 crore.

“Given the current investment scenario, combined with the presence of some of the leading global fast-food chains in India, the interest from overseas players was limited. Some North India-based industrialists were in serious discussions but the negotiation failed,” said another banker.

Refusing to comment, Nirula’s Managing Director, Samir Kuckreja, who is also a minority shareholder, said: “We are not in a hurry.” While confirming the appointment of investment bankers, he said Navis was not in a hurry to divest this asset as it was growing pretty well and making reasonable money.

By the original plan, Navis Capital was aiming to exit from the venture within three years of the investment, sources said. According to a senior official of the company: “It is unlikely that the deal would close by June 2009, unless it brings down the asking price significantly.”

In 2006, when the going was great, the valuation was different as funds had many exit routes — through listing on stock exchanges at a significant premium or to divest to another group of new private equity firms —, said the chief of a leading private equity firm.

“In the current market, when the valuation has come down significantly and the equity market is down, any private equity player, which had taken exposures in 2006 and 2007, will have to take a hair cut,” he added.

Nirula’s is expected to report an operating profit of Rs 12.5 crore in the current fiscal. Last year, the company reported an operating profit of a mere Rs 70 lakh, against operating losses of Rs 4.2 crore in 2007 fiscal. Nirula’s is targeted to post annual revenues of around Rs 94 crore in the current financial year.