Kolkata: French retailer Carrefour Group was keen to acquire a majority interest in Spencer’s Retail Ltd, which runs some 220 retail stores across India, but the RP Goenka Group, which founded and runs Spencer’s, spurned the offer, its vice-chairman Sanjiv Goenka claimed on Friday.
A spokesperson for Carrefour said in an emailed statement that her company was studying the market but did not wish to make any comment on its activities in the country.
“Even if they (Carrefour) were not to acquire majority control immediately, they wanted a commitment from us that they would eventually get majority stake in Spencer’s,” he said. “We said ‘no’.” It’s been “some time” since the discussions between Spencer’s and Carrefour ended, he said.
Indian regulations prohibit foreign investment in multi-brand retail. However, foreign retailers are allowed to own up to 100% of so-called cash-and-carry outlets that sell to other retailers and institutions. The world’s largest retailer Wal-Mart Stores Inc. is in India through this route and operates cash-and-carry outlets through a joint venture with Bharti Enterprises Ltd.
For several months, reports in Indian media, including Mint, have speculated on Carrefour forming an alliance with India’s Future Group.
Spencer’s is looking to sell shares and discussions with “at least one private equity fund are at an advanced stage”. “We have agreed upon almost everything… We are now going to start discussion on valuation,” Goenka said.
Spencer’s 220 stores have in all about 900,000 sq. ft of space. Average sales per sq. ft per month were more than Rs800, the company said.
This, according to an analyst with PricewaterhouseCoopers (PwC), is “quite healthy”. “Anything above Rs650 per sq. ft per month is good,” he said. He did not want to be named because he isn’t authorized to speak to the media.
In the current fiscal year, the combined revenue of its stores is expected to be around Rs95 crore a month, which, according to Goenka, is going to rise to Rs100 crore next year. “We should end the next fiscal with a turnover of Rs1,100-1,200 crore,” he said.
Spencer’s Retail, a subsidiary of power utility CESC Ltd, will end fiscal 2010 with a loss, but next year, the management expects it to be “Ebidta-positive,” according to Goenka. Ebidta is earnings before interest, depreciation, tax and amortization, a measure of profitability at the operating level.
According to the PwC analyst, retailers in India selling stake to private equity investors can expect a valuation of 8-10 times their Ebidta. He was speaking about Indian retailers in general, and not Spencer’s in particular.
Shutapa Paul contributed to this story.