Supreme Court’s liquor ban hits F&B exit plans for PE investors
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Private equity (PE) investors, who are struggling to sell their investments in India’s food and beverages (F&B) companies, have seen their exit plans thwarted again because of a ban on liquor sales near highways.
The Supreme Court’s ban on liquor sales within 500 metres of highways has hit PE investors who have failed to sell their F&B sector investments in the past couple of years. According to Grant Thornton data, PE investments in F&B fell 82% to $29 million (nine deals) in 2016 from $159 million (19 deals) in the previous year.
“PE investors need to extend the maximum possible support to companies at this point in time as the alcohol ban is a black swan event completely out of the control of the industry. Interim results will be impacted, but investors will do well to work on strategizing with company managements to ensure minimal disruption,” said Ritesh Chandra, executive director, head-consumer, FIG and business services group at Avendus Capital Pvt. Ltd.
Several India-focused PE funds have been looking to exit their four-to-five-year-old investments in F&B, but have been unable to find a buyer for their assets.
New Silk Route Partners LLC (NSR), an Asia-focused PE firm, has been planning an exit from Moshe’s Fine Foods Pvt. Ltd. NSR had been in talks with several buyers since November 2015, Mint reported in May last year.
NSR acquired a majority stake in Moshe’s in September 2013. Its holding in Moshe is 58% and the remaining stake is held by its founder Moshe Shek, an Indian entrepreneur. The company runs a chain of restaurants and cafes that specialize in Mediterranean cuisine under the brand name Cafe Moshe’s.
NSR’s other portfolio companies in the F&B segment in India—Bengaluru-based Vasudev Adiga’s Fast Food Ltd—is also in trouble. Following a dispute with NSR, promoter K.N. Vasudeva Adiga approached the Company Law Board, which appointed an administrator in 2015 to run the food chain.
PE firm Everstone Group has also been looking to sell its fine-dining business platform Pan India Foods Solutions Pvt. Ltd, also known as Blue Foods, Mint reported in May last year. Pan India Foods’ loss have doubled to Rs38.8 crore in 2014-15 from Rs19.8 crore in 2011-12, according to Registrar of Companies (RoC) data.
Set up in September 2000, Pan India Food Solutions (Blue Foods) runs F&B operations through its brands Spaghetti Kitchen, Copper Chimney, Gelato Italiano, The Coffee Bean & Tea Leaf, Bombay Blue, Noodle Bar, Food Courts, Food Talk and Spoon.
The performance of PE-backed listed firms has not been different. Shares of Speciality Restaurants which operates Mainland China, Oh! Calcutta, Sigree and Sigree Global Grill, Haka, Machaan and Flame & Grill brands, fell about 40% as on 13 April since its listing at a price of Rs150 in May 2012.
SAIF Partners, investors in Speciality Restaurants Ltd, sold a 2% stake this month and another 2% last month. SAIF India IV FII Holdings Ltd held 8.26% in Speciality Restaurants for the quarter ended 31 December 2016.
Spokespersons for Everstone and SAIF Partners declined to answer queries for this story.
“It is a fact that many QSRs (quick service restaurants) and fine dining restaurants struggle after a few years as their USP or their value proposition to the customer wears off. This is more in the case of fine dining,” said Dhanraj Bhagat, partner, consulting firm Grant Thornton India LLP. So there should be a constant endeavour on the part of the promoters and the PEs to continuously innovate to ensure that customer interest is retained. There are recent government regulations like liquor ban and service charge issues which have acted as a dampener on the restaurant business, Bhagat added.
However, there are some investment bankers who are optimistic about the deal flow in F&B sector.
“The liquor ban definitely has affected a number of players and large F&B companies would each have one or two outlets affected by this ban. PE funds looking to invest in these companies may adjust valuation to the extent revenues/profits are likely to be affected but they may not choose to disengage from these conversations as the bigger picture would still be intact,” said Siddharth Bafna, partner and head, corporate finance at Lodha & Co., a Mumbai-based boutique investment bank.