Though the initial public offering market remains weak and a cause of concern for private equity (PE) investors, Speciality Restaurants’ successful IPO has brought cheer to PE funds that have large exposure to restaurant chains.
Shares of Speciality Restaurants, listed at Rs 153 on May 17, are trading at Rs 207. PE investors SAIF Partners and Glix Securities gained an internal rate of return of 18 and 31 per cent, respectively, on exit.
V Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking, said: “Investors have large appetite for different formats of the foods services industry, be it fine dining or quick service restaurants (QSR), as both these business models provide investors high growth, scalability and profitability.”
Similarly, shares of Jubilant Foodworks, which floated an IPO in 2012 with an issue price of Rs 145, are now being traded at Rs 1,211 on the BSE.
“Success of Jubilant Foodworks and Specialty Restaurants clearly indicate the investors appetite for the restaurant sector. For franchisee operators, the IPOs would be very suitable when they go in for multi-brand franchisees, just the way Jubilant is doing now,” said Gopal Srinivasan, managing director of PE firm TVS Capital Funds.
Speciality Restaurants’ sales grew from Rs 115 crore in 2008-09 to Rs 191 crore in 2011-2012. “There is a good chance of an IPO for a restaurant company once it reaches a reasonable scale (Rs 200-400 crore) of revenue, with 70-80 per cent mature outlets making profits,” said Srinivasan.
“As all the companies have to put in a lot of efforts to be IPO-ready, we are also investing significant time and money for creating great assets in the restaurant industry which is ready to go for an IPO.”
TVS Capital has investments in two restaurant business—Om Pizza (runs Papa John’s pizza chain) and Indian Cookery (runs the Yellow Chilli brand of restaurants of chef Sanjeev Kapoor). “We are confident of scaling Om Pizza to a strong company in the next three-four years,” Srinivasan added.
PE firm New Silk Route (NSR) is also expanding its food and restaurant portfolio, with a $100-million investment. NSR plans to set up a holding company to acquire controlling stakes in portfolio firms and nurture them. Last month, NSR invested in Bangalore-based restaurant chain Adiga’s.
Parag Saxena, founder of NSR, said floating IPOs for restaurant chains is a feasible plan due to high growth in this area. “As more youngsters move away from family structures and nuclear families increase, there will be tremendous growth potential for restaurant chains.” NSR has investment in Coffee Day Holdings, too.
The year 2012 witnessed PE deals such as Navis Asia’s investment in Nirulas Corner House, NSR’s investment in Adiga’s and Verlinvest SA’s investment in Cuisine Asia. Last year, ICICI Ventures invested in RJ Corp’s Devyani International that runs KFC, Pizza Hut and Costa Coffee chains. Delhi-based Sagar Ratna, a restaurant chain serving south Indian cuisine across the National Capital Region, raised $35 million from India Equity Partners.
| TOP THREE PE DEALS IN RESTAURANTS SECTOR | ||
| From 2009-2012 YTD | ||
| Target | Buyer | Deal Value |
| Devyani International Ltd | ICICI Venture Ltd | 55.7 |
| Sagar Ratna Restaurants Pvt Ltd | India Equity Partners Fund I | 39.63 |
| JS Hospitality Services Pvt Ltd | Everstone Capital Management | 20 |
| IN 2012 YTD | ||
| Target | Buyer | Deal Value |
| Nirulas Corner House Pvt Ltd | Navis Asia Fund IV LP | na |
| Adigas’ Fast Food Pvt Ltd | New Silk Route Advisors Pvt Ltd | na |
| Cuisine Asia | Verlinvest SA | na |
| J & R Hospitality Management Pvt Ltd | IncuCap Fund I | 0.07 |
| Deal Value in $Million Source: VCCEdge | ||
“We foresee equally strong interest from PE investors in fine dining and QSR, as these are plays on consumption themes that will perform relatively better even when economy is growing relatively slower at 6.5 per cent GDP (gross domesctic product) growth as we are seeing today,” said Jayasankar.
According to industry estimates, the eating-out market in India is Rs 1 lakh crore ($17.88 billion), with branded vendors having less than 10 per cent of the market.
