Retailigence

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Subhiksha to be put on the block

Posted by retailigence on September 7, 2008

Reliance Retail & Future Group approach Chennai retail chain but high valuation a deterrent

PROMOTERS of retail major Subhiksha are said to be looking at an exit route. The market is abuzz with talks that R Subramanian, chairman of Subhiksha, is looking at potential buyers for his Rs 2,300-crore odd retail business.
Sources told SundayETthat Reliance Retail and Future Group have approached the Chennai-based discount retail chain for a possible buyout. However, the valuation of the company has been a stumbling block so far.
This comes close on the heels of Wipro chairman Azim Premji picking up 10% stake in the company for Rs 230 crore. This puts Subhiksha’s valuation at around Rs 2,300 crore. Industry experts, however, cannot relate to this figure, saying Subhiksha has been overvalued. Subhikha’s promoters have 59% stake in the company, which means that if the deal comes through, R Subramanian would pocket around Rs 1,350 crore.
However, when contacted, Mr Subramanian denied the development. “The business is doing good. We are expanding and have no plans to sell the company at this stage,” he said. But company sources say the business was running on depressed margins, forcing the promoters to look for exit options.
According to industry sources, Kishore Biyani’s Future Group is one of the top contenders for Subhiksha. “Subhiksha’s model fits in with Future’s KB Fair Price stores that cater to the urban poor. These are all non-AC stores with very low operation costs and pass on the benefits to the consumers,” says an official in Future Group. When contacted, Mr Biyani too declined to comment on the issue.
Management consulting firm Technopak chairman Arvind K Singhal also agrees that Subikksha could be on the block. “Subhiksha is certainly looking for a buyer and with Azim Premji picking up stakes, things might start moving. Valuation of the company, however, is a big issue here. Subhiksha has been trying to list itself for the past three years but has not managed it yet. We would not value it for more than Rs 1,000 crore,” he said.
Reliance Retail, another front-runner for the buyout, declined comments on the issue. A company official, however, said, “It has a brand value in South, which makes it an attractive bet, but the company doesn’t have a centralised system or a strong vendor support. Also, Premji’s valuation is shooting off the roof.”
Subhiksha started as a single store entity in South Chennai in 1997 and now has pan India presence with 1,000 outlets in 90 cities. Currently, ICICI Ventures, with 14% stake, is the second major stakeholder in the company after the promoters.

Source: The Economic Times

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