Mumbai: One of the country’s largest duty-free shopping chains, Flemingo Duty Free Shop Pvt. Ltd, is planning to raise capital from private equity (PE) investors and has mandated Mumbai-based investment bank Avendus Capital Pvt. Ltd for the deal, said three persons familiar with the plan.

One of the three, a senior official at Avendus, acknowledged that the company had the mandate, but did not offer details. All three requested anonymity.

File photo of a retail outlet at Anwar Shah Road, Lake Garden, South Kolkata. Photo by Indranil Bhoumik

Flemingo Duty Free is a part of Dubai-headquartered Flemingo International Inc., a global company operating duty free shops in Asia and Africa. In India, it operates at 12 airports, eight sea ports as well as at the Wagah border between India and Pakistan, offering products such as liquor and spirits, tobacco, confectionery, jewellery and electronics.

According to an Icra Ltd report, Flemingo International holds a 60% stake in Flemingo Duty Free, with the remaining held by directors Atul Ahuja and Viren Ahuja. For the year 2009-10, the firm had net sales of 138.6 crore and net profit of 7.8 crore. For fiscal year 2012, it expects to log net sales of $50 million (around 260 crore) from India, said Thimayya.

According to an investment banker, who is not involved with the deal now but had taken a look at it earlier, Flemingo Duty Free was planning to raise over 175 crore.

Another investment banker, not directly involved in the transaction, said talks with investors are at an advanced stage. Flemingo, in Mumbai, operates as a joint venture with DFS Group LP. “Flemingo definitely requires money. The DFS group is stuffed with cash. So it is highly likely that the DFS Group itself increases the stake in the company or is at least one of the people infusing more cash in the company," this person said, requesting anonymity.

Investing in duty-free shops is an alternative way of backing retail firms for PE investors as these chains are yet to see an abundance of investments.

The number of foreign visitors to India is rising steadily. According to the annual statistical report for the year 2011, released by the ministry of tourism, there was a 10% rise in foreign tourist arrivals in India to 3.4 million in January-July, from 3.1 million in the same period a year ago.

Striking investment deals in the duty-free shopping space is a challenge. These are not easy deals because these companies deal with products such as liquor and tobacco, said the investment banker who had earlier taken a look at the deal. “Often the lack of understanding of tax and excise duties becomes an impediment for investors, who are generally averse to any kind of regulatory haze," he said.