The Hindu Business Line : Nilgiri's in talks to offload stake

A slice of the pie
Market sources say the deal size could be worth Rs 240-280 crore.
About two to three private equity firms are learnt to have submitted bids for the stake.

New Delhi/Bangalore , July 13

Nilgiri Dairy Farm, the Bangalore-based family-run retail chain, is learnt to be in final-stage talks to offload substantial equity to a private equity firm and possibly another strategic investor.

The UK-based private equity major Actis is believed to have emerged as the frontrunner for picking up the stake, estimated at about 26-28 per cent, while about two to three private equity firms are learnt to have submitted bids for the same.

Nilgiri's currently has about 35 franchise stores and has plans of taking it to 100 by year-end.

Speaking to Business Line, Mr C. Gopalakrishnan, Director, The Nilgiri Dairy Farm Ltd, confirmed that discussions were on with a foreign equity fund and that details of the deal were being worked out. Market sources say the deal size could be worth Rs 240-280 crore.

Banking industry sources, however, pointed out that it might be difficult for a foreign private equity firm such as Actis to invest directly in Nilgiri's due to restriction in FDI in retailing. "It will be interesting to see how Actis invests in the retail chain. Either they will have to rework the fund structure or invest in the backend operations of Nilgiri's comprising the dairy farm and the food processing division," they said. Sources added that the retailing division might be spun off as a separate business to enable the stake sale.

Unlike other supermarket chains in the country that do not produce any goods of their own, nearly half of the sales in the Nilgiri's supermarkets are contributed by its own food products in the dairy and bakery segments. Nilgiri's is one of the oldest supermarket chains in the country with its origins dating back to 1905.

Private equity firm Actis has raised about $475 million funds to invest in the Indian market. The firm has indicated that it plans to invest about $100-125 million every year, though the figures may vary depending on the actual size of deals struck.

The past few months have seen increased activity in the retail space with not only newer players coming in but also existing ones announcing major expansion plans. As a result, several retail chains have already raised/or have announced intentions to raise funds from private equity and venture capital firms.

In recent months, retail chains such as Vishal Megamart, North-India based Nirulas, and jewellery chain Glodiam International have roped in strategic investors to raise funds for their expansion plans.