News: Regional retail chains may hold out for more money

(DNA 03/01/2007) Hyderabad/Mumbai/New Delhi - In one big-ticket purchase on Tuesday, Kumar Mangalam Birla has gone ahead of Mukesh Ambani in the retail space.

His acquisition of the South-based grocery chain Trinethra also may be the beginning of a significant M&A story in Indian retail.

And, as the Trinethra deal shows, it will all begin with the food and grocery segment, which accounts for a whopping 55% of the Indian consumer spend of $300 billion a year.

Market sources put the price tag for the 172 stores of the Hyderabad-headquartered Trinethra at Rs 147 crores, give or take a few crores.

Some may feel it is pricey but at one stroke, it gives the Birlas a pan-South India presence, catapulting it to a size bigger than Reliance, which kicked off its retail foray from Hyderabad some days back.

Compared with this, the Rs 110 crores-plus reportedly being paid by Reliance for the 54 stores run by the Gujarat-based Adani group to speed up its roll-out may seem on the higher side.

Industry players, however, point out that acquisitions, if any, will only be an entry strategy for stragglers and an actual consolidation is still some time away.

In fact regional chains may want to hold out longer for better valuations, they say.

“The owners of both Trinethra and the Adani chain were non-serious retailers and any such sellouts will only be distress sales by non-serious players,” pointed out R Subramanian, managing director, Subhiksha Trading Services, who was also in the running to buyout Adani. “Actually it is the time to enter the market,” he said.

While the original promoters of Trinethra sold out to India Value Fund to kick-start yet another retail format Magna Mall in Andhra Pradesh, the Adanis have other interests.

Similarly, the recent sellout of Nilgiris to venture firm Actis was reportedly on account of differences within the family that owned it.

Jaipur-based Gaurav Bardiya, director of Bardiya Group, which is looking to either sell off or go for a strategic association with a retail specialist for its chain of four Big Shopper stores in the Pink City confirms this trend.

“Real estate is our core area of business, not retailing. The current market situation is very appropriate hence we decided to either quit or expand the business through a strategic association,” he told DNA Money.

According to consultant Technopak’s chief Arvind Singhal, the food and grocery segment is perhaps the most likely candidate for consolidation if any. “Everyone chain will sell at the ‘right price’ while the retail market is beginning to separate the boys from the men!”

But clearly nobody sees this as the end of the regional player despite the advent of the big-daddies like Wal-Mart and Reliance Retail.

Raman Mangalorkar, head, consumer and retail at research firm A T Kearney, felt the market will no doubt see consolidation.

“But it will certainly not wipe out the regional retailer as we have seen in the West,” he said. The boom has just begun and the big players are looking to expand at the earliest possible.

While Subhiksha itself was reportedly an acquisition target by Reliance Retail, Subrmanian felt regional players might hang on for some more time.

“I would say no thanks. It is still early days yet and business is good so why should I sell,” he responded when asked if he would sell out if a Wal-Mart came along with a lucrative offer.

Similarly others see value in not just continuing but also entering the fray, particularly the food and grocery segment, more so because the big guys are making a beeline for the sector.

For instance Heritages Foods kicked off its three state retail foray last week with nine stores in Hyderabad with plans of taking the number to a total of 45 by March this year by adding Bangalore and Chennai to the list.

Clearly then while it is not the end of the regional player it is time to build size for many of them in anticipation of better valuations in the months to come.