Hard Rock Cafe franchisee looks for Rs150 cr PE funding

Mumbai: JSM Corp. Pvt. Ltd, the Indian franchisee for Hard Rock Café, California Pizza Kitchen and Trader Vic’s, is looking at raising Rs120 crore to 150 crore from private equity investors for expansion.

The Mumbai-based company, founded by Jay Singh and Sanjay Mahtani in 2004, has revenues of nearly 150 crore. It is looking at diluting a minority stake, according to two people close to the development, who spoke on condition of anonymity.

Mint could not ascertain which investment bank has been mandated for JSM’s fund raising plans.

JSM has 12 outlets across different brands, including premium luxury lounge Shiro. It plans to establish 80-100 outlets of California Pizza Kitchen in the next five-six years, besides expansion of its other brands including Pitstop.

“They are a company with a strong topline (revenue). Their formats are upmarket and would need capital for expansion,” said one of the two persons cited above.

Setting up of a single Hard Rock Café outlet costs anywhere between 1 crore and 5 crore, he said.

Experts say it’s a good time for restaurant and fine-dining chains to raise capital. PE firms’ appetite for restaurant chains has been high and PE and venture capital (VC) funds invested a dozen times more into this segment in 2011 compared with the preceding year.

They invested $150.2 million in seven food chains last year, including an undisclosed deal, according to a report on Indian food services sector by New Delhi-based investment bank Maple Capital Advisors.

There are at least half a dozen more such companies in the market looking to raise funds.

There were three investments, including two undisclosed ones in 2010. The only disclosed investment in 2010 was TVS Shriram Group’s $11 million investment in Om Pizzas and Eats.

“The organized food services industry in India has evolved a lot over the last 10 years. There is a demand for organized food formats and the scope is no longer only in metros but tier II and III cities as well,” said Pankaj Karna, managing director, Maple Capital Advisors, which is working on a couple of deals in this space.

Karna said the key for success for such companies lies in having the right offering and price points.

According to a report by retail consultancy Technopak Advisors Pvt. Ltd, the market of food service is estimated to be $8.1 billion by 2013 and $9.6 billion by 2018. It is growing at 5-6% a year.

The organized segment of the restaurant industry, at 16-20% of the total industry, is more than the organized segment of the retail industry, which currently stands at 8%, and is growing faster than the overall restaurant industry, at 20-25% a year.

Cafes, pubs, clubs and bars together constitute 32% of the organized food service industry.

Other reasons for interest in Indian food chain from investors include factors such as 100% foreign direct investment (FDI), permissible under the automatic route.

Investors have gained confidence in food chains, especially after Jubilant FoodWorks Ltd’s share sale in February 2010. The company is the Indian franchise of the US’ Domino’s Pizza Inc. The promoters of HT Media Ltd, which publishes Mint, and Jubilant, are closely related, but there are no promoter cross-holdings.

“The industry is evolving. Once there is scale and profitability, these companies can look at going public. I think there would be two to three more such IPOs (initial public offering) in the next two years,” said Karna.

Large deals in this space include ICICI Ventures investment of $33 million in RJ Corp’s Devyani International, that runs KFC, Pizza Hut and Costa Coffee chains across the country, and India Equity Partners’ $35 million investment in New Delhi-based Sagar Ratna, a restaurant chain serving south Indian cuisine.

deepti.c@livemint.com