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NEW DELHI/MUMBAI : Metro AG is prioritizing the search for local partners to buy a majority stake in its India wholesale business, said two people familiar with the German retailer’s plans.

Investment banks Goldman Sachs and JP Morgan have been tasked by Metro to find either a buyer for the company’s entire business in the country or a partner who can acquire a majority stake and help expand operations in India’s $800 billion retail market, the people said, requesting anonymity.

A 145-page information memorandum has been circulated among potential buyers, including the country’s top retailers and private equity investors. The process of finding a partner or a buyer is being led by Metro’s headquarters in Germany. The bankers may approach prospective buyers with a pitch to pick up a majority stake, one of the two people cited above said.

“If you have a local partner, they understand the lay of the land and the regulatory environment much better," the person said.

What the company needs is an infusion of funds, he said, adding, “it’s better to be in bed with someone who invests, empowers the team, and lets it grow."

The company will need to invest close to $400 million to $500 million over four or five years to boost its market share in India, where it operates 31 wholesale stores, selling to small businesses, kirana stores and the hotel, restaurant and cafe segment.

The business has the potential to add more than 150 stores in India, said the first person cited above. “Thirty-one stores are not doing justice to the potential of India. Meanwhile, competition is heating up, too," said the person speaking on condition of anonymity.

Metro Cash and Carry opened its first store in India in 2003. In 2020-21, the company clocked 6,738.3 crore in revenue.

A majority stake sale to a local Indian partner could also pave the way for Metro to open its stores to retail customers in India. The foreign direct investment rules currently bar a foreign retailer from opening multi-brand stores in the country on its own. However, that could be possible if the retailer has an Indian partner with 51% ownership.

Metro runs a wholesale business in India, where 100% FDI is allowed. “If you just take the existing 31 stores and open the stores to the public, sales will double overnight, and profit margins will triple," the person said. Metro operates B2C stores in Germany as well as in Russia.

A second person aware of the retailer’s plans said Metro exiting India is more likely due to the extreme competition in the retail space and business gradually shifting towards digital e-commerce platforms.

“Metro’s business model requires large shopping spaces, bigger premises for storing, holding, managing and selling retail goods, and additional spaces for vehicle parking. As a result, the fixed costs get so high that margins get thin. In such a scenario, unless sales figures reach a certain large volume, it doesn’t make business sense," this person added.

This person added that if an existing domestic retail company or a large e-commerce player come as a partner, Metro may be able to gain the required economies of scale to make sufficient money.

In 2019, the German retailer put its China unit on sale, agreeing to sell an 80% stake in its Chinese operations to local retailer Wumart, according to a Reuters report. According to the arrangement, Metro has an option to exit the 20% stake over time. The local partner retains the Metro brand name for two to three years while the management stays on for a similar period to help with the transition.

If a similar transaction takes place in India, such terms will be discussed between Metro and prospective buyers, the first person cited above said.

Responding to an emailed query about Metro’s India plans, a company spokesperson in Germany said, “At Metro, we regularly assess our international portfolio, such as our market position in the respective country, the life cycle of our operations, the growth potential of our business...We will not further comment on rumours and speculations, and we hope for your kind understanding."

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