Kolkata: The RP-Sanjiv Goenka Group is likely to carve out next year its supermarket chain from its power utility CESC Ltd to hand the reins of Spencer’s Retail Ltd to Shashwat Goenka, chairman Sanjiv Goenka’s 23-year-old son. CESC owns 94.71% of Spencer’s.
Shashwat Goenka recently completed his undergraduate studies at the Wharton School of the University of Pennsylvania and joined the family business six months ago.
The proposed restructuring of CESC, for which consulting firm KPMG is likely to be appointed adviser, may include fund-raising as well, according to Sanjiv Goenka.
The aim of CESC’s business recast is, however, to give Shashwat Goenka independent charge of Spencer’s and not fund raising, Sanjiv Goenka said, adding that if things go according to plan, the 153 supermarket stores will be spun out of the power utility before December next year.
However, if there was an opportunity, Spencer’s could also sell a stake to a strategic investor, Sanjiv Goenka said.
The company has in the past explored such opportunities—France’s Carrefour SA was among those that had shown interest in buying equity interest in Spencer’s, government regulations permitting, Sanjiv Goenka had said earlier. But the company aborted its search for strategic investors because it refused to yield controlling stake.
In fiscal 2012, Spencer’s suffered an operating loss of Rs.140 crore on a gross revenue of Rs.1,210 crore, according to a recent analyst presentation by CESC. The retailer is expected to break even within the next three-four quarters, according to Sanjiv Goenka. But that, according to some analysts, may not be easy.
“It is good to start with something difficult than with something easy,” Sanjiv Goenka said about his plan to hand control of Spencer’s to his son. “It will teach him to face adversity.”
Some analysts, however, are sceptical about the prospects of listing Spencer’s so quickly. One of them, who recently spoke to CESC’s management at length, said it was “highly unlikely” that Spencer’s, a money-losing retailer, will get a “respectable valuation” if listed.
This person declined to be named.
CESC’s shareholders will benefit from Spencer’s listing, said Koushik Vasudevan, an analyst at Elara Capital, because they will get an opportunity to cash out. But valuation is a major concern. “The listing of Spencer’s is easier said than done,” he said.
Shashwat Goenka worked extensively on CESC’s recent acquisition of a substantial stake in Firstsource Solutions Ltd, but his father said he wouldn’t immediately have a day-to-day role in running the business process outsourcing firm.
Sanjiv Goenka had said last week that consulting firm McKinsey and Co. had advised CESC to invest its cash in unrelated businesses because of extra ordinary delays in implementation of power projects.
Firstsource is the second acquisition that the RP-Sanjiv Goenka Group had attempted since Shashwat Goenka joined the family business. Earlier this year, the group tried to acquire a 27.5% stake in Living Media India Ltd, a news organization, but was outbid by the AV Birla Group.
It isn’t unusual in a group built largely on acquisitions for every new entrant to eye new businesses. Sanjiv Goenka had launched himself in business at 28 by acquiring CESC against the wish of his father Rama Prasad Goenka.
The acquisition of Firstsource, though, led to the downgrading of CESC’s stock by several brokerages, and Sanjiv Goenka spoke to several analysts on Wednesday to allay their concerns.
In the first six months of the current year, the retailer’s revenue has risen 27% to Rs.714 crore from a year ago. Spencer’s is now making “store-level profits”, Sanjiv Goenka said, meaning that the stores were able to recover operating costs.
Following the advice of McKinsey, Spencer’s is looking to pare costs and shore up revenue from apparel and other non-food merchandize. It is predominantly a food retailer—at least 70% of its revenue currently comes from sales of food.
After closing several unviable stores in the past few years, Spencer’s is again expanding its store network. Over the next five months, the company proposes to launch seven stores across India—almost all are going to be large ones with a floor area of 9,000-30,000 sq. ft.
With the addition of new stores, the retailer’s total trading area will go up to 1.11 million sq. ft from around 950,000 sq. ft currently.
Sanjiv Goenka claims that with an average revenue of Rs.1,210 per sq. ft per month, Spencer’s is one of the most efficient retailers in India. But a lot could be done to reduce costs, he admitted.