Kishore Biyani's Future Group in talks with Actis Capital to buy supermarket chain Nilgiris 

If the deal eventually goes through, it will give Biyani control over 140 supermarket chains in south India, where the Future Group is trying to boost its presence 

Kishore Biyani-owned Future Group, India's largest listed retailer by revenues, is negotiating with private equity firm Actis Capital to buy Nilgiris, a Bangalore-based supermarket chain in which it holds a majority stake, a person with knowledge of the negotiations said.

If the deal eventually goes through, it will give Biyani control over 140 supermarket chains in south India, where theFuture Group is trying to boost its presence. "Nilgiris has an annual turnover of 700 crore but 60-70% of the stores are run by franchisees and Nilgiris gets a fee for use of the brand and by selling bakery and dairy products to the franchisee stores. So the revenue is not all on Nilgiris' books. According to me, the enterprise valuation should not be more than 450 crore," the person aware of the discussion said.

In 2006, UK-based Actis had bought 65% for about $65 million in Nilgiris.

Nilgiris is India's oldest organised retail chain founded in 1905. Since India barred foreign investment in multi-brand retailing at that time, Actis had invested in Nilgiris Dairy, the backend company that operates some of the stores. A spokesperson for Future Group declined comment while Tashi Lassalle, a spokesperson for Actis in London, said the company does not comment on "market speculation".

Murali Krishnan, chief executive of Nilgiris, did not respond to a questionnaire. Last year, Actis had mandated HSBC's investment banking unit to find a buyer. At that time, Actis was seeking an enterprise value of $150-170 million for Nilgiris. No deal fructified because of this mandate, though PE firms had expressed interest according to people aware of the earlier discussions. "For PE funds, timing is independent of the events and if they have to exit they have to exit," says Harminder Sahni, MD of retail consultancy Wazir Advisors.

"It's been a while since Actis has been trying to sell. Their option is either sell or return the shares to the original investors. They have to close regardless. It's always complicated for most companies to transfer shares to original investors," he said, adding that the buyer might be able to strike a good deal. Future Group, which has been trying to trim its high debt — it was as much as Rs 7,800 crore early last year — might seem an unlikely buyer at first glance.

But people familiar with its strategy say it is interested in retailers that specialise in supermarkets to scale up its neighbourhood grocery format known as KB Fair Price. Last year, Future Group snapped up New Delhi-based Express Retail, which operates the Big Apple chain of supermarkets in the National Capital Region, for an undisclosed amount. "If this deal happens, it will give the much-needed scale to KB Fair Price to make it attractive for (potential) foreign investors or companies," the person quoted above said.

Last year, India allowed foreign supermarket chains to own up to 51% in domestic retailers. On the other hand, Biyani is also on a selling spree. Earlier this month, the group said it had divested stake in ethnic apparel firm Biba and fashion designer Anita Dongre-run highstreet apparel chain AND for about Rs 450 crore.

Biyani is also creating holding companies for businesses, including KB Fair Price, home improvement unit Home Town and sports goods retail chain Planet Sports with the intention of shedding sizeable stake. His firm is currently in talks with a clutch of private equity players.

Executives say currently the company's debt is at a manageable level of Rs 4,500 crore and the company is hoping to pare it further by selling stake in insurance joint ventures and various other businesses.

Source : By Rasul Bailay & Chaitali Chakravarty, ET Bureau