BackBalaji Wafers in talks to dilute only 10% stake
Firm says it's not keen on giving away control of the brand, and will set up new factories with the funds raised
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Mumbai/Ahmedabad: Rajkot, Gujarat-based potato chips and snacks maker Balaji Wafers Pvt. Ltd has decided to sell a 10% stake, nearly five months after it began talks with strategic investors to sell a majority stake.
Investment firms Actis Capital and Capital International Private Equity Funds have emerged as the frontrunners to buy the stake.
“We are in talks with these two companies and some others as well," Balaji Wafers managing director Chandubhai Virani said on the phone. “We are looking at divesting about a 10% stake and would like to set up new factories with the funds that we raise in the process."
In response to an email, J.M. Trivedi, partner and head of South Asia at Actis, said, “We do not comment on market speculation." An email sent to the media relations team at Capital International on Friday did not elicit a response by Monday. Virani said the promoters were not keen on giving away control of the snacks maker. The exact size of the stake sale could be negotiated, but it would be a minority holding, he said, adding that the process could take another four to six months. The company has mandated consulting firm EY for the transaction.
PepsiCo Inc., the world’s largest snack-food maker, is among suitors exploring a bid for Balaji Wafers, Bloomberg reported in August. “The Virani family plans to sell up to a 49% stake for as much as $300 million," the report said, citing a person familiar with the matter who didn’t want to be named.
Balaji Wafers, with revenue of about ₹ 900 crore in the year ended 31 March 2012, plans to increase sales to ₹ 1,500 crore by 2015, Keyur Virani, a director of Balaji Wafers, told Mint in July. The valuation of the brand is about ₹ 3,500-4,000 crore, he claimed.
Balaji Wafers was founded in 1976 by Virani and has become one of the country’s largest makers of potato chips. The regional brand has a presence in states such as Gujarat, Madhya Pradesh, Rajasthan, Maharashtra and Goa.
Private equity (PE) and venture capital (VC) firms continue to bet on India’s consumer goods and services sector despite economic growth having dipped to its lowest in a decade, slumping to 5% in the year ended 31 March.
PE and VC investments rose 46% in the first half of fiscal 2014 from a year ago, with consumer companies in the retail, e-commerce, consumer packaged goods and quick service restaurants raising $609.39 million in 51 deals. This compares with $416.79 million raised in 57 deals in the year-ago period, according to investment tracker VCCEdge.
Though the intent for investments in the packaged food space is strong, PE funds often are not able to complete such deals because most target firms are regional entities that are difficult to scale up, said Rishika Chandan, vice-president, investment banking, Systematix Capital Services Pvt Ltd. “Valuation is another issue," said Chandan, adding that investors need high growth rates on sales to exit a brand, to justify their departure within 5-6 years.
“With high entry valuations and moderate growth, because of already established scale of business, exits become expensive," she said. Also, quite often, promoters undertake fund raising plans to understand and assess their own worth. “It could be because they want to put a succession plan in place or create a baseline for a dilution in future," said Chandan.
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