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Spencer's Retail, a privately held Indian supermarket operator, plans an initial public offering soon as the chain inches close to making its first profit, group Chairman Sanjiv Goenka said.
The retailer, founded in 1863 by two Britons and which runs about 120 stores across the country, has doubled its revenue earned for every square foot of retail space in three years to Rs 1,350 a month, Goenka said in an interview at his office in Kolkata. That is about Rs 100 short of achieving break-even, he said.
"The moment Spencer's turns profitable, we will start the process of demerging or listing," he said, ruling out private equity. "The first seven months of this year, we are at Rs 1,350 a sq ft and this in a depressed market situation. So, we are almost there."
Goenka is counting on a rebound in the economy for a seven per cent spurt in sales after he shut loss-making outlets to boost the key gauge and compete with larger rivals Future Retail and Reliance Retail. A public listing could help the chain expand in a market that will soon see the entry of foreign retailers, including UK's Tesco, according to Abhishek Jain, an analyst at JHP Securities Pvt.
The Kolkata-based RP Sanjiv Goenka Group, which controls Spencer's and has diversified interests ranging from power generation to software training, has been considering a separation or listing of the unit. KPMG LLC and Ambit Capital were advising the company, Goenka said in February.
Spencer's, a unit of utility CESC, made a loss of about Rs 200 crore in the year ended March. Spencer's might break even by the end of March 2015, said JHP Securities' Jain.
"A listing or any form of raising money would also mean unlocking value for CESC shareholders, because they have been pumping money into Spencer's for about five years now," Jain said in a telephone interview from Mumbai. "Many Indian retailers are either looking for joint ventures, sale of own brands or a stake sale for capital infusion."
CESC rose 3.23 per cent to Rs 441.45 on the BSE exchange, the highest close since January 2010. The stock has climbed 39 per cent this year, compared with an 8.5 per cent gain in the benchmark S&P BSE Sensex Index.
India's rural economy is growing faster than urban areas, fueled by the best monsoon rains in six years, and most retailers in the country aren't present in smaller towns and villages to benefit from this growth, said Amnish Aggarwal, an analyst at Prabhudas Lilladher in Mumbai.
Asia's third-biggest economy expanded five per cent in the financial year ended March 31, the slowest since 2003, and HSBC Holdings predicts it might slow further to four per cent in the current year, hurting consumer spending. At the same time, consumer-price inflation was 11.2 per cent in November, the highest among the Group of 20 nations.
"As of now, consumer sentiment isn't very upbeat because inflation is high, while larger cities particularly have job uncertainty," Aggarwal said. "When the economy starts to pick up, we might see some uptick in consumer demand."
Hindustan Unilever, the Indian unit of the world's second-biggest consumer-goods company, said in October that demand for products like soaps and detergents "continued to show a slow pace of growth, both in terms of volume, as well as value and across the categories."
After seeking to lure customers away from the small neighbourhood mom-and-pop stores, called kirana shops in Hindi, billionaire Mukesh Ambani-controlled Reliance Retail and others are preparing to face competition from foreign companies.
