Mumbai: American private equity fund KKR & Co. and Wipro founder Azim Premji’s family office PremjiInvest have joined the race for acquiring fashion hypermarket chain Vishal Mega Mart, two people aware of the development said.

The retail chain is currently owned by private equity TPG Capital and south India’s biggest conglomerate Shriram Group. While Vishal Mega Mart Pvt. Ltd (VMMPL), owned by TPG, runs the back end operations, Airplaza Retail owned by Shriram Group runs the front-end stores. Kotak Mahindra Capital is advising the sellers.

KKR and PremjiInvest have submitted separate bids for the stake, the two people cited above said on condition of anonymity.

US-based Carlyle Group, a consortium of Kedaara Capital and Partners Group, and online retailer Flipkart are among contenders for Vishal Mega Mart, The Economic Times had reported on 15 February.

Spokespersons for TPG, PremjiInvest and Carlyle declined to comment, while emails sent to KKR and Shriram Group did not elicit any response.

If a deal materializes, it would be the first exit for a global private equity fund from an asset that has turned around after restructuring.

Vishal Mega Mart, on its website, claims the company operates over 204 stores in over 110 cities and towns.

In 2011, the company promoted by Ram Chandra Agrawal had run up a debt of Rs760 crore with lenders such as HDFC Bank, HSBC, ING Vysya Bank and State Bank of India. It was acquired by TPG and Shriram Group for a total of Rs70 crore.

According to a Crisil Ratings February 2017 report, TPG Capital had infused Rs669 crore into VMMPL till 31 March 2016. It injected an additional Rs100 crore in fiscal 2017.

Debt levels, though reducing, remained high at Rs324 crore (Rs528 crore, including compulsory convertible debentures, or CCDs) as on 31 March 2016, it added.

For fiscal 2016, Vishal Mega Mart reported a loss of Rs36.2 crore on revenue of Rs1,346 crore, against a net loss of Rs60.3 crore on a revenue of Rs1,108 crore for the previous year.

“The main concern for global PE funds is to find the right domestic partner to meet the regulatory requirements and all the foreign funds are in discussions with local retail companies to form consortiums," said the second person on condition of anonymity.

PremjiInvest has been managing about $3 billion of assets in Indian companies, both public and private, since 2006. It has made investments in retail ventures such as Snapdeal, ethnic retailer Fabindia, online retailer Lenskart Solutions Pvt. Ltd, Myntra (owned by Flipkart) and Future Lifestyle Fashions.

“Modern retail and branded businesses have mainly focused on large cities due to the concentration of population, discretionary income and lifestyle spending available there. However, these cities are also becoming increasingly competitive, especially the premium apparel segment being impacted seriously by international brands. On the contrary, there is tremendous growth potential in true middle-class India and smaller cities, markets that Vishal Mega Mart squarely targets with its value-priced products," said Devangshu Dutta, chief executive of retail consultancy Third Eyesight.

Several PE funds are active in the retail sector in India and have closed a few of the large transactions in the recent past. Last year, Kedaara Capital had acquired about 10% in Vedant Fashion, which owns ethnic brand Manyavar, for Rs400 crore.

In the light of the government’s decision to allow 100% foreign direct investment in single-brand retail under the automatic route, the share of organized retail in India is expected to rise to 10% by 2020, up from 7% in 2016-17, according to ratings agency Crisil Ltd.

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