21 May 2010 | By: Mohamed Hairul Borhan

The upturn in the retail sector is attracting private equity investors that are making a beeline for a slice of the profits. According to observers tracking the sector, deal volumes were the highest in sectors such as healthcare, finance and consumer discretionary (which largely includes premium brands and retail).

In the last six months alone, several retailers have attracted PE investments. The Delhi-based kids-wear retailer Lilliput attracted investment from two of the top global private equity funds Bain Capital and TPG Growth with a PE infusion of Rs385 crore (S$115.8 million*). TPG also evinced interest in acquiring a majority stake in crisis-hit Vishal Retail for Rs250 crore.

IL&FS Investment Managers, a private equity arm of IL&FS Ltd, acquired a 10 per cent stake in The Mobile Store, an Essar group firm, for Rs100 crore.

According to Mr Jayasankar V., Head, Private Equity, Kotak Investment Banking, “There is high level of interest in the retail sector as it directly feeds on consumption. The sector is amenable to the market. We saw blue-chip companies coming to India and investors too want to be a part of the play.”

Data from Venture Intelligence, a research service focused on private equity and mergers and acquisitions, suggested that the deals in the retail sector for the second half of FY2010 (October-March) would amount to US$148 million (S$208.1 million*) as against US$57 million in the corresponding period a year ago.

For FY10 H1 (April-September) period, PE investments in retail stood at a mere US$3 million as against US$155 million in FY09 in the corresponding period a year ago.

Mr Vikram Gupta, COO, India Venture Advisors, the investment managers of the Rs400-crore private equity fund of Piramal Group, notes that, “Healthcare retail is also an area that is witnessing lot of interest from PE investors. Retail chains that cater directly to consumers are the potential margin earners.”

A monthly report by VCCEdge pointed out that India has emerged as one of private equity investors' favourite investment destinations in April 2010, with the volume of transactions rising three-fold to US$840 million year-on-year.

India Inc recorded deals worth US$455 million, US$501 million and US$972 million in January, February and March, respectively, it said.

A sector-wise analysis showed that utilities, consumer discretionary (luxury goods) and industrials were the most targeted sectors for investment, with deals worth US$201 million, US$186 million and US$160 million, respectively, in April2010, it added.

Industry sources, however, pointed out that a clear mandate on foreign direct investment in retail has a rub-off on PE investments.

“The Government's rule on foreign direct investment has a rub-off effect on PE. The issue of structuring (of companies) poses a problem for foreign investors in the current legislations.”

*Exchange rate correct as of 21 May 2010

Courtesy of IBEF