Birla Group Plans to Sell Retail Stake to Private Equity Firms

May 22, 2009	(Be the first to rate this story!)  Loading ...
Print This Story   Email This Story Subscribe Newsletter

The Aditya Birla Group, a $29-billion diversified conglomerate that operates in 25 countries, may sell a stake in its loss-making retail venture to private equity firms, as it looks to raise additional funds to scale up its fledgling retail business. Private equity players, such as Warburg Pincus, KKR and Goldman Sachs, are in talks with the group, which operates a retail chain under the More brand, said a person privy to the discussions. Chairman Kumar Mangalam Birla said the group was open to the idea of roping in financial investors, but declined to comment on specific discussions. “We are not looking at a strategic partner. We will be happy to have a financial partner. We have received lots of preliminary interest from investors. We would be open to this idea,” Mr Birla said in an interview.

His comments come amid confusion on the guidelines that govern foreign investment into the Indian retail sector. Although, foreign firms are not allowed to invest in multi-brand retail, government rules make it possible for them to pick up stakes in Indian retail companies at the holding company level. A few Indian retail groups have made use of this provision and created layered holding structures to rope in foreign investors. “But, I think guidelines should be clear,” said Mr Birla, referring to the company’s plans. Executives at KKR India and Warburg Pincus neither confirmed nor denied their firms’ interest in Aditya Birla Retail.

“Retail is a sector we are very interested in. But, I will not be able to comment on any specific transaction,” said KKR India CEO and country head Sanjay Nayar. Warburg Pincus said it would “continue to identify exciting opportunities across sectors, as they arrive”. Aditya Birla Retail, which started operations in 2007, is understood to have reported a net loss of Rs 534 crore in 2008-09, on a sales turnover of Rs 1,030 crore. While refusing to confirm the financial results, the company executives said the retail business is on track and the losses are a part of initial investments in retail, which is a long-haul business. Aditya Birla Retail is currently revamping the format of its stores. More has stepped up its private label offerings to improve margins. “Now, we are moving to hypermarts of 30,000-40,000 sq ft. We are not buying real estate for our retail properties. In the past six months, we have renegotiated almost every property. Our rentals have come down 30-40%. We have about 700 supermarkets and are launching six new hypermarts,” said Mr Birla.

The management is understood to have taken a re-look at the design, positioning and merchandise offered by More, which has failed to attract huge consumer spends, said a retail industry executive, requesting anonymity. Aditya Birla Retail had roped in Satendra Aggarwal from Pepsi India to head its supermarkets business. The group’s retail business has already seen the exit of Andrew Derby, earlier head of supermarkets, and its CEO Sumant Sinha, who joined Suzlon. The group later moved Thomas Varghese, senior-executive president and head of Grasim’s pulp division to the retail business as CEO. The group seems to be determined to learn retail business through trial and error, which will impact profitability initially. Also, it is yet to hire top talent directly from the retail sector,” said the CEO of a leading lifestyle retail company.

News Published Under:   Foreign Direct Investment in India, Retail Market in India |

Comments