Mumbai: Delhi-based Citykart Retail (SSR Retail Kart Pvt. Ltd), which operates a fashion retail chain in north and east India, is looking to raise around Rs100 crore in growth capital funding to expand its store network, a senior company executive said.
Citykart is promoted by Sudhanshu Agarwal, the company’s founder and chief executive who was previously associated with private equity fund TPG Capital-owned retail business TPG Wholesale (Vishal Mega Mart) and Vishal Retail Ltd.
Citykart, which currently operates 18 stores, sells clothes, accessories and footwear for men, women and children. Its average store size is 8,000-10,000 sq. ft.
“So far, all the growth that we have seen has been through funds generated from the company and from promoter contributions. We don’t have any bank debt in the company as of today. We have been growing at a CAGR (compound annual growth rate) of 30-40%,” said Agarwal. Citykart expects to close the current financial year with sales of around Rs155 crore, he said.
The company is looking to bring in external capital from a partner who can help take the business to the next level, he said. Citykart has appointed Delhi-based boutique investment bank Coralbay Advisors to help raise capital.
“The industry is picking up again. For some time the e-commerce story was overshadowing the brick-and-mortar retail story. However, given D-Mart’s successful IPO (initial public offering) recently, investors are again keen on the retail space,” Agarwal said.
Citykart envisages setting up 25-30 new stores every year, which would take its store count to over 150 in five years, he added.
“The company has sufficient resources to open 7-8 stores every year on its own. But if we take external capital on board we can open up to 25-30 stores each year. The funding for these stores will be partly from external capital and (partly) from internal sources,” said Agarwal.
The firm’s focus area is fashion retail, he said, unlike larger retailers such as D-Mart which focus heavily on groceries.
“We are into fashion retail, we don’t do grocery. Margins in apparel business are higher, while grocery is a very low-margin business. There is still a huge scope for growth for fashion retail, especially in the smaller cities and towns, where you see a lot of unorganized fashion retailers,” Agarwal said.
About 80-85% of Citykart’s revenue comes from apparel. Its geographical focus is tier II and tier III cities and smaller towns in Uttar Pradesh, Bihar, Odisha and West Bengal, with a focus on the lower middle class. The average ticket size is Rs700 per customer.
Changing demographics make the UP, Bihar and east India regions attractive for retail businesses, according to Amit Gupta, founder of Coralbay Advisors.
“This is the most populous part of the country and highly under-penetrated in terms of organized retail in tier II and III cities and towns. With rising incomes, people now do not want to travel to larger cities to meet their need for fashion retail,” he said.
Fashion retail has seen several large private equity investments in the recent past.
In October 2016, leading textile and branded apparel company Arvind Ltd raised Rs740 crore by selling a 10% stake in its brand business arm to Renuka Ramnath-led private equity (PE) firm Multiples Private Equity.
Earlier in August, US-based PE firm TA Associates Management Lp invested $140 million for a minority stake in TCNS Clothing Co. Pvt. Ltd, a leading women’s apparel platform that sells popular fashion brand ‘W’.
In February, Premji Invest, an existing investor in Fabindia, bought an additional 8% stake in the company from existing investor L Capital for around Rs360 crore.
The Indian consumption story has attracted other major PE funds too such as Everstone Capital, Warburg Pincus and US fund General Atlantic who have invested in brands such as Ritu Kumar, Biba Apparels Pvt. Ltd and Anita Dongre’s firm House of Anita Dongre.