The proposed acquisition by Indiabulls Real Estate Ltd of retailer Piramyd Retail Ltd, an Ashok Piramal Group-promoted franchise, coincides with the real estate firm’s rapidly expanding presence in Mumbai’s retail and commercial space and gives it an edge over its peers in the retail sector, analysts say.
Real estate is one of the highest costs for retailers operating in India, with several players complaining that the escalating prices for space are eroding profits.
The planned purchase of Piramyd Retail comes weeks after Indiabulls Real Estate was hived off from the parent company, Indiabulls Financial Services Ltd, the financial services firm.
The real estate company recently announced its retail plans include an investment of Rs1,500 crore to build 30 hypermarkets over the next 15-18 months. The developer is also in the process of developing three special economic zones, a township and a beach resort, among several other projects.
Piramyd Retail, which launched India’s first mall—Crossroads, in Mumbai—currently operates 12 supermarkets under the brand name TruMart; six department stores, called Piramyd Megastore; and three gaming centres, called Jammin.
Although analysts and industry consultants estimate the acquisition to cost Rs208 crore, a spokesperson for the Piramyd Retail said the valuation of the deal was still being finalized and that it would not be a straight stock purchase.
“This acquisition clearly highlights Indiabulls’ plan to be the leader in the retail industry in India by making sure that we are present in all the major retail verticals,” said Ikroop Singh, chief executive of Indiabulls Wholesale Services Ltd, the retail arm of the company. “With this acquisition, Indiabulls will have a very strong presence across wholesale or cash-and-carry, lifestyle and convenience store formats.” Singh said the company already has started marketing its 0.5 million sq. ft retail and 1.3 million sq. ft office space, which will be the biggest of its kind in central Mumbai, last week. While retail tenants for the project, which will house luxury and premium retail, have not yet been decided, response to office space leases “has been phenomenal,” said Anuj Puri, managing director of Jones Lang LaSalle Meghraj, the real estate consulting company that is leasing space.
Indiabulls, which started life as a brokerage firm, has ridden the stock market boom with the Bombay Stock Exchange’s benchmark index rising steadily. The company has used its gains to diversify into some of the sectors expected to see strong demand, such as real estate and retail. “The quickest way to jump-start a business is to acquire a small business,” Hemant Kalbag, who heads the retail practice at management consulting company A.T. Kearney Inc., said. “But this is a hot market and valuations are very aggressive. So just a few of the deals will actually get done.”
Gagan Banga, executive director, Indiabulls, was not available to take calls on Sunday. This also marks the exit of the Ashok Piramal Group, which was among the first industrial groups to enter organized retail, from this sector. “Some of their plans really did not take off the way they expected,” said Susil Dungarwal, chief executive of Ishanya, a Pune-based mall.