Private equity firm India Equity Partners (IEP) is investing Rs 160 crore ($35 million) in restaurant chain Sagar Ratna, which serves South Indian cuisine, primarily across the Nation Capital Region (NCR). The New York and Mumbai-based PE firm will acquire 25 per cent stake in the chain as a part of this transaction, said two sources directly involved with the development. The promoter group of the firm, led by Jayaram Banan who started the chain with one branch in South Delhi’s Defence Colony, will continue to hold a majority stake after the investment.
One source familiar with the development told VCCircle that the transaction was closed last week. According to him, the deal had been signed on June 22 and the funds were transferred on June 24. When contacted, India Equity Partners managing director Gaurav Mathur declined to comment on the deal. An e-mail query sent to Sagar Ratna CFO K S Suresh did not elicit any response at the time of filing this article.
The deal, which was in the making for a while, was initially being structured as a majority stake sale to India Equity Partners, according to the other person directly involved with the development. However, as per the final deal Sagar Ratna chairman and founder Banan will continue to hold around 75 per cent stake post-investment.
India Equity Partners, which invests through a $350 million fund, has been actively scouting for investment opportunities in the fast-growing consumption theme of food and retail in India, including buyouts. Last year, it had roped in Arvind Nair from DLF Retail and Dabur India consumer care unit’s COO Kannan Sitaram as operating partners. Nair was earlier with Chhabria Group's Jumbo Electronics, a prominent retailer of consumer electronics in the Middle East that has also expanded its footprint in India few years ago.
Sagar Ratna started as a 40-seater restaurant serving South Indian cuisine. The first outlet was located in Defence Colony, New Delhi, and it has now expanded to over 225 seats. The company also grew by opening a multi-cuisine restaurant chain under the brand name of Swagath, which now serve Coastal, Chettinad and specialty Mughlai & Chinese cuisine.
The company, incorporated as Sagar Ratna Hotels Pvt Ltd in 1997, has a network of 56 restaurants, including 23 owned/revenue-share outlets and 33 franchise outlets. The company has overseas outlets as well, in countries like Thailand, Singapore and Canada. It is now planning to enter the quick-service restaurants space through Sagar Ratna Express, which will open outlets in malls and commercial buildings.
Valuations, Other Deals In Gourmet Space
Interest in the restaurant business, especially scalable franchisee plays, has increased since the listing of Domino’s Pizza India franchise Jubilant Foodworks earlier in 2010.
JPMorgan and India Private Equity Fund (IPEF is a joint venture between Chase Capital Partners and Oppenheimer), which invested in Jubilant, had exited in the IPO. The firm listed in February, 2010, at an issue price of Rs 145 a share and is currently trading at Rs 854.25, a gain of nearly 6x.
As per Jubilant’s current market cap of Rs 5,501 crore, it is trading at over 45x FY11 EBITDA of Rs 120 crore and 85x FY10 EBITDA. The Sagar Ratna transaction values the firm at around Rs 640 crore or nearly 100x its FY10 EBITDA of Rs 6.5 crore, as per the data from VCCedge, the financial research platform of VCCircle.
With investors backing such food chains others are joining the fund raising queue. SAIF Partners-backed Speciality Restaurants (a restaurant chain that owns Oh! Calcutta and Mainland China), has already filed DRHP and are looking to tap the capital market.
There have been several deals in this space during the last six months. In May, 2011, ICICI Venture Ltd invested $56 million in Devyani International Ltd, which owns and operates fast food retail chains including Pizza Hut, KFC and UK-based coffee chain Costa Coffee, and also runs Disney Artist outlets in India.
The company is a subsidiary of RJ Corporation, which is engaged in diversified businesses such as beverages & breweries, fast food joints, dairy products, education, healthcare and hospitality. Chennai-headquartered TVS Shriram Growth Fund had also invested in Indian Cookery Pvt Ltd, the restaurant business promoted by celebrity chef Sanjeev Kapoor and owns The Yellow Chili, Khazana and Indii. TVS Shriram has also backed Om Pizzas & Eats Pvt Ltd (Indian franchisee of international chain Papa John’s Pizza), Chili’s Grill & Bar and The Great Kabab Factory.