Future Group to acquire Nilgiris for up to Rs 175 cr

New Delhi: Future Group is set to take over southern supermarket chain Nilgiris for Rs 150-175 crore, according to two people with direct knowledge of the deal. It has in principle agreed to acquire the stake of private equity firm Actis Capital along with the minority shareholding of the promoters in a transaction that could give Kishore Biyani led Future the extensive footprint in southern India he's been looking for.

The deal will be structured such that Future Group gains control of the 65% held by Actis and the holding of the Mudaliar family. In return, Actis will get a minority stake in Future Consumer Enterprise or FCEL, which runs the group's private brands business and grocery stores such as KB's Fair Price, Big Apple and Aadhaar, which will eventually put the total deal size at Rs 275-300 crore, according to the people cited. FCEL includes brands such as Sach, associated with former cricketer Sachin Tendulkar, Tasty Treat, Clean Mate and others that are sold through the Big Bazaar and Food Bazaar outlets. FCEL is part of Biyani's ambition to expand the private brand business into a Rs 10,000-crore enterprise by 2018. Biyani, chief executive of Future Group, declined to comment.

Sarah Godfrey, a Londonbased spokesperson for Actis, declined to comment. Shomik Mukherjee, a partner at Actis who directly oversees the PE's investment in Nilgiris, said: "Nilgiris is a leading retailer and food brand in south India and we as shareholders are committed to supporting its growth and helping the management team achieve its full potential."

The UK-based PE firm has been seeking an exit for about two years from the 2006 investment that gave it a controlling stake of 65% for about $65 million in Bangalore-based Nilgiris, one of India's oldest retail chains.

Late last year, Future Consumer Enterprise sold its 44% stake in Capital Foods, that sells various food products under brands such as Ching's Secret and Smith & Jones, to private equity firm Artal Group for about Rs 180 crore. FCEL is currently debt-free.

Since India barred any foreign investment in multi-brand retailing at the time, Actis invested in Nilgiris Dairy, the back-end company that operates some of the stores, but more critically sources and supplies fresh milk, dairy products, bakery items and staples under the Nilgiris brand to franchisee stores. Nilgiris fits in with Biyani's model of expanding neighbourhood stores through franchisees.

"Nilgiris has an annual turnover of Rs 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," a person aware of the initial talks between the two had told ET.

In 2012, Actis had mandated HSBC's investment banking unit to find a buyer at an enterprise value of $170 million for Nilgiris, which was established in 1905.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.