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Global Retail Majors May Come To India In ’11

December 28, 2010 By Leave a Comment

If consolidation was the buzzword for the retail sector in 2010, the coming year is expected to see some big-bang entries of global retail majors as the sector looks forward to a positive outcome on the relaxation of FDI norms in retail.

Even while India added around 5 million sq ft of retail space in 2010, some stores were relocated and some unviable ones faced closure. Once-lucrative businesses were bought out. While Vishal Retail was acquired partly by Shriram Group and partly by private equity fund Texas Pacific Group, Indiabulls, which had acquired Piramal’s Piramyd Retail in 2007, put its retail expansion plans on hold to focus on its main businesses of financial services and real estate .

Yet, with the lessons learnt from the past few years, prudent modern retailers managed to clock double-digit growth rates. Same store growth was well above 15%.

According to Thomas Varghese, CEO, Aditya Birla Retail, 2010 can rightly be called a revival year as “starting from the budget announcements to modifying income tax slabs, good salary increase across sectors and a fairly good monsoon—all aided in driving consumption across categories”.

carrefour

The revival though, had to overcome hurdles such as high rentals, attrition, higher cost of compliance and low investments flowing into the sector.

According to Varghese, the recession was a blessing in disguise for the retail industry. Though it slowed down the pace of growth, it helped retailers to introspect and revisit their business models. As a result, strong business fundamentals took over ambitious expansion plans, which warranted restructuring exercises, relocation of stores and renegotiating rentals.

These initiatives helped improve the profitability and viability of different retail formats and also enabled retailers to innovate, adopt best practices and bring in efficiencies in their operations. “I am confident that rich learning from the last couple of years will enable them to expand and build a sustainable business,” said Varghese.

What’s in store for ’11

In 2011, consulting major PwC expects more focus on the issue of FDI. This should facilitate the much-awaited entry of French retail giant Carrefour, possibly in a tie-up with Kishore Biyani’s Future Group.

According to N V Sivakumar, leader retail and consumer practice, PwC India, “It is only a matter of time before the retail sector is fully liberalized.” FDI will ensure necessary capital inflows to steer the retail industry ahead.

Shopping experience the key

APwC thought leadership report entitled ‘The Benefits of Modern Trade to Transitional Economies’ indicates that modern trade positively benefits consumers , producers/farmers as well as the exchequer.

Since growth is the result of high footfalls in stores, enhancing the consumer’s shopping experience will continue to be an important factor. “It is interesting to note that most of our population is young and have high aspirations. To understand the psyche of this evolving Indian consumer and ensuring his needs are taken care of will be key driver for growth,” said Thomas.

Till now, Indian consumers had access to private label products in food and beverage, apparel, footwear and FMCG products. An enhanced focus on workforce management would also be critical.

 

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Vishal Retail For Out-Of-The-Court Settlement With Lenders

November 15, 2010 By Leave a Comment

Debt-ridden Vishal Retail today said it is looking for an out-of-the-court “amicable solution” with its lenders, who had approached the Delhi High Court to stop the retailer from selling its assets. “Winding up petitions have been filed by certain lenders, but Honourable Courts have not given any decision.

The company is in the process of approaching lenders for amicable solution,” Vishal Retail said in a filing to the Bombay Stock Exchange. Earlier, the board of Vishal Retail had decided to sell its business to Chennai-based Shriram Group and private equity fund Texas Pacific Group for Rs 100 crore.

The sale is, however, subject to a clearance from the Delhi High Court, which has restrained the retailer from selling any assets. This was after a case filed by some of Vishal lenders – Barclays, DBS Bank, Deutsche Bank and its subsidiary Deutsche Trustees Services and SICOM Ltd — who did not take part in the debt-restructuring (CDR) programme.

Vishal got into financial trouble about a year ago, with a pile up of Rs 730 crore in debts. Last year, it underwent a CDR. These lenders had approached the court earlier this year, seeking liquidation of Vishal Retail.

Earlier in the day, the company posted a net loss of Rs 30.71 crore for the quarter ended September 30, 2010. It had a net loss of Rs 95.61 crore in the year-ago period last year.

The company”s total income declined by 5 per cent to Rs 269.42 crore from Rs 284.03 crore in the corresponding quarter last fiscal.

 

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Vishal Retail to carry out slump sale of assets, liabilities to new cos

March 13, 2010 By Leave a Comment

Discount retailer Vishal Retail appeared to have moved a step closer to the end of its once spectacular journey after a group of lenders on Friday approved a plan to move nearly all of its assets and liabilities to new companies funded by a private equity firm. Under the plan approved by the corporate debt restructuring (CDR) committee, Vishal Retail will carry out a “slump sale” of most of its assets and liabilities to two new companies funded by PE firm Texas Pacific Group. One will be a wholesale, or cash and carry, company, while another, funded by an Indian associate of TPG, will be a retail company.

For the restructuring to be executed, however, lenders outside the CDR process, as well as minority shareholders of Vishal Retail, will have to approve of the plan. In all, Rs 250 crore will be infused into the two new companies. Part of the existing debt will be converted to equity in the cash and carry company, while the remaining will stay on its balancesheet as long-term debt.

This will likely mean that while Vishal Retail’s stores will continue to function, they will now be owned by different companies, run by a new management and potentially operate under a different brand.

Once the plan is formalised, promoter RC Agarwal will lose control of the retail chain he started from a small shop in Kolkata 24 years ago. The company today owes Rs 736 crore to lenders and went into a debt restructuring process in November 2009 after multiple loan defaults. The trouble came two years after the company sought to expand aggressively following an initial public offering of shares in June 2007 and heavy-duty borrowing shortly afterwards. In 2008, following an economic slowdown in the West, consumer sentiment took a hit and sales slowed. In early 2009, Vishal Retail started defaulting on bank loans even as sales did not pick up.

ET first reported the details of the restructuring proposal on 2 March. Mr Agarwal told PTI on Friday that the corporate debt restructuring committee has approved a plan to induct a strategic investor into the company. However, the restructuring proposal circulated among lenders, a copy of which is in the possession of ET, paints a very different picture. Three persons familiar with the situation, including one who was present at Friday’s meeting, confirmed the details of the approved plan that envisages no new cash flow into Vishal Retail. Mr Agarwal said he could not comment as he was boarding a plane.

The CDR meeting also saw at least one lender “ING Vyasa” abstaining from voting, alleging procedural lapses in the CDR process, a person familiar with the situation said. The bank, which is owed Rs 60 crore by Vishal Retail, held the position that it couldn’t vote without seeing a stock audit report commissioned by the lenders. The bank also conveyed to the committee that it would approach the company law board (CLB) if its demand for an investigative audit was not met before March 31.

Of the 12 lenders of the company, who are together owed Rs 736 crore, only six are part of the CDR process. Some of the lenders outside the CDR process, such as DBS and Deutsche Bank, have initiated legal proceedings against the company and its promoter RC Agarwal.

Filed Under: Indian Retail Tagged With: , , ,

Texas Pacific Group likely to buy Vishal Retail, convert it to Cash & Carry

March 2, 2010 By Leave a Comment

Private equity fund Texas Pacific Group (TPG) may take over the assets of the troubled Vishal Retail and convert it to a cash-and carry operation that will see the exit of RC Agarwal, who built a nationwide chain out of the shop he founded in Kolkata 24 years ago. Agarwal owns about 62% stake in the company. Bennett, Coleman & Co Ltd, Gaja Advisors and Kanakdhara Traders are among other shareholders.

Vishal Retail

The latest proposal being considered by the corporate debt restructuring (CDR) committee of Vishal does not involve a fresh infusion of funds into the struggling retailer, three people with direct knowledge of the developments told ET, requesting anonymity. A significant write-down of inventory by the company has added to the chaos of the CDR process, with at least one lender demanding an audit investigation into the company’s books.

TPG’s Mumbai office did not respond to an email requesting comment. “We are (involved) in the CDR mechanism, for which confidentiality needs to be maintained. The proposal of TPG and company stands submitted, which will be evaluated on merits and we cannot comment on the contents of the proposals,” said Mr Agarwal, CMD of Vishal, in an emailed response.

Texas Pacific Group has submitted its intent to invest to the CDR committee, which involves six banks, of the 12 creditors who are together owed Rs 736 crore by Vishal. Under the new proposal, TPG will form a new cash-and-carry (wholesale) company with a capital infusion of Rs 200 crore.

Vishal will carry out a slump sale to this newly formed company, transferring all its assets and most of its liabilities. TPG’s operation will also have a sister company that will carry out the retail operations. An Indian associate company of TPG will own this firm. Foreign direct investment in retail companies is restricted, while such restrictions don’t apply in the case of cash-and-carry stores.

Lease agreements of some 140 stores owned by Vishal Retail will be transferred to the retail company, while the inventory, other assets and all liabilities will be transferred to the cash-and-carry company. A working capital infusion of about Rs 50 crore will be made to the retail company as well, but it is unclear how this investment will be routed.

Vishal went public in June 2007 with a big bang IPO that was oversubscribed 81 times and raised Rs 110 crore. Setting a scorching pace of expansion, the firm sought to grow on the back of short-term debts, borrowing some Rs 600 crore in all. The strategy backfired when consumer sentiment was hit following the financial crisis in the West. Sales slowed and losses mounted during 2009 and following multiple bank defaults, the company went into corporate debt restructuring in November 2009.

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