Home >Companies >Spencer’s Retail revives IPO map as breakeven seen

Kolkata/Mumbai: Spencer’s Retail Ltd, a privately-held Indian supermarket operator, plans an initial public offering (IPO) soon as the chain inches close to making its first profit, group chairman Sanjiv Goenka said.

The retailer, which was founded in 1863 by two Britons and now runs about 120 stores across the country, has doubled its revenue earned per square foot of retail space in three years to 1,350 a month, Goenka said in an interview at his office in Kolkata. That is about 100 short of achieving breakeven, he said.

“The moment Spencer’s turns profitable, we will start the process of demerging or listing," he said, ruling out private equity. “The first seven months of this year, we are at 1,350 a square foot, and this in a depressed market situation. So, we are almost there."

Goenka is counting on a rebound in the $1.8 trillion economy for a 7% spurt in sales after he shut down loss-making outlets to boost the key gauge and compete with larger rivals Future Retail Ltd and Reliance Retail Ltd. A public listing may help the chain expand in a market that will soon see the entry of overseas retailers including Tesco Plc, according to Abhishek Jain, an analyst at JHP Securities Pvt. Ltd.

The Kolkata-based R.P. Sanjiv Goenka Group, which controls Spencer’s and has diversified interests ranging from power generation to software training, has been considering a separation or listing of the unit. KPMG LLC and Ambit Capital Pvt. Ltd were advising the company, Goenka said in February.

‘Unlocking value’

Spencer’s, a unit of utility CESC Ltd, made a loss of about 200 crore in the year ended March. Spencer’s may break even by the end of March 2015, said JHP Securities’ Jain.

“A listing or any form of raising money would also mean unlocking value for CESC shareholders, because they have been pumping money into Spencer’s for about five years now," Jain said in a telephone interview from Mumbai. Many Indian retailers are either looking for joint ventures, sale of own brands or a stake sale for capital infusion.

CESC has climbed 35% in Mumbai this year, compared with an 8.3% gain in the benchmark BSE Sensex.

“India’s rural economy is growing faster than urban areas, fueled by the best monsoon rains in six years, and most retailers in the country aren’t present in smaller towns and villages to benefit from this growth," said Amnish Aggarwal, an analyst at Prabhudas Lilladher Pvt. Ltd in Mumbai.

Inflation dampener

Asia’s third-biggest economy expanded 5% in the fiscal year ended 31 March, the slowest since 2003, and HSBC Holdings Plc predicts it may slow further to 4% in the current year, hurting consumer spending. At the same time, consumer-price inflation was 11.2% in November, the highest among the Group of 20 nations.

“As of now, consumer sentiment isn’t very upbeat because inflation is high, while larger cities particularly have job uncertainty," Aggarwal said. “When the economy starts to pick up, we might see some uptick in consumer demand."

Hindustan Unilever Ltd, the Indian unit of the world’s second-biggest consumer-goods company, said in October that demand for products such as soaps and detergents continued to show a slow pace of growth, both in terms of volume, as well as value and across the categories.

After seeking to lure customers away from the small neighbourhood mom-and-pop stores, popularly called kirana shops, Mukesh Ambani-controlled Reliance Retail Ltd and others are preparing to face competition from foreign companies.

Tesco entry

Tesco, the UK’s largest supermarket company, plans to become the first global chain to enter India since the government allowed overseas firms to invest in multibrand retail. Consulting company Technopak Advisors Pvt. Ltd estimate India’s retail market will be worth $865 billion by 2023.

“If you can compete with the kiranawala, then you can compete with anyone," Goenka said.

Spencer’s aggressively shut loss-making outlets and shrank stores to help boost sales per square foot, beating larger rivals on that gauge, according to Dhvani Bavishi, an analyst at brokerage ICICI Direct.

Spencer’s has experimented with store sizes and tailored its stocking strategy to arrive at formats that are most profitable, Bavishi said in an interview from Mumbai. Larger counterparts have been slower at adapting their strategy to the market conditions, she said.

They’ve closed down a whole lot of loss-making stores and they’ve reduced the size of their stores, Bavishi said.

Food sales

The retailer, which gets about 80% of its revenue from food sales, is likely to be less affected by the slowdown compared to peers that are more dependent on fast-moving consumer goods like soaps and shampoos, Bavishi said.

The company started by John William Spencer and Charles Durant, with its first store in Chennai, came under Indian ownership about 100 years later and became a part of the Goenka group in 1989, according to its website.

“Food retail and hypermarkets are significantly dependent on the economy," Goenka said. “Given that the economy isn’t doing that well, the whole plan may be one quarter delayed, but that’s alright." Bloomberg

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