Malaysia-based private equity firm Navis Capital Partners which acquired Nirula’s Corner House Pvt. Ltd. in 2006, is it talks to sell the fast food chain. This is Navis’ third attempt at selling the chain, which it bought for nearly Rs.90 crore.
The company is in talks to sell Nirula’s for Rs.150 crore, said two people with direct knowledge of the mater.
“The two parties are seriously involved in talks for the sale,” said one of them in a report by Live Mint. The person requested anonymity as he is not authorized to talk about the development.
According to him, the hotelier, who has in the past bid for other cash-strapped food chains as well, intends to continue with the Nirula’s brand but rework its format. The identity of the hotelier could not be established.
The second person said Navis’ initiative to take complete control of Nirula’s after buying out co-owner Samir Kuckreja’s minority stake is another step to facilitate the sale. Last month, Kuckreja sold his stake in Nirula’s to Navis for an undisclosed amount.
Navis has previously bought restaurants in India, only to sell them shortly afterwards. It sold its holdings in Mumbai-based Mars Restaurants Pvt. Ltd and affiliated airline catering company SkyGourmet Catering Pvt. Ltd to India Hospitality Corp. for $110 million. Nirula’s was in talks with IHC to sell stake. Navis was looking at two options—selling out fully or selling a stake. The deal, however, fell through. In 2009, media reports indicated Navis had appointed merchant bankers to look for potential buyers for Nirula’s. No buyers were found.
A well-recognized brand in the national capital region, Nirula’s is one the first fast-food chains in the country that brought Western food items—hot chocolate fudge, burgers and pizzas—to Indians much before multinational firms set up their shops. Its first family-style restaurant outlet was opened in Delhi in 1934. Over the years, however, Nirula’s faced stiff competition from fast-food chains such as Pizza Hut and McDonald’s, which not only entered India but also established themselves across the country through aggressive expansions and investments. McDonald’s has a network of at least 250 restaurants across the country, with its first restaurant launched in 1996.
Pizza Hut, which has completed 15 years in India, operates more than 130 outlets in the country. Nirula’s, which has sales of about Rs.100 crore, has some 85 outlets, including dine-in restaurants, pastry shops, ice-cream parlours, hotels and coffee shops across the National Capital Region, Uttar Pradesh, Maharashtra, Madhya Pradesh, Uttarakhand, Haryana, Rajasthan and Punjab.
“The brand has somehow lost its charm. It’s a phenomenal brand but it has not been leveraged well beyond NCR,” said the first person quoted earlier.
The food and beverages market in India is worth an estimated Rs.8.97 trillion, according to retail consultancy Technopak Advisors Pvt. Ltd. Investors seeking to leverage the rise of the Indian consumer see restaurant chains as a viable route of investment.
The recent success of Speciality Restaurants Ltd’s public offering provides a glimmer of hope to PE investors, who are struggling to exit from the companies they have invested in over the past few years.
Experts, however, caution that while the high margins in the restaurant business make the industry lucrative, steep costs can eat into the profits.
“People believe food is a high-margin business, but eventually one has to pay for electricity, water and maintenance bills, there is cost of food, real estate, employees,” said Debashish Mukherjee, partner and vice-president at A.T. Kearney, a consultancy. “While India looks big as a market, it is actually a regional play because of palate appeal.”
Mukherjee said ethnic Indian food chains will be a sought-after category for investors in the near future.