The Chennai-based retail food and pharmacy chain Subhiksha supermarket and pharmacy is in expansion mode.
The company is planning to go for a second round of funding as it plans to go national and have 400 stores in the next two years.
Speaking to Business Standard, on the sidelines of the CII organized FMCG Conclave, R Subramanian, managing director of Subhiksha Supermarket and Pharmacy said, "The promoters will be divesting stake in the retail chain further as we are considering to raise money to fund our expansion plans." Currently ICICI Ventures holds a 10 per cent of the Rs 20 crore (Rs 200 million) equity base of the retail company.
"There are other private equity firms that has evinced an interest in the company, Subramanian added but refused to divulge the names of the funds as well as the quantum of stake the promoters are looking at divesting.
"The total investment required is around Rs 140-150 crore (Rs1.4-Rs1.5 billion) and it plans to set up 400 stores entering newer cities -- Delhi, Mumbai, Gujarat and Bangalore. Currently, Subhiskha has a strong presence only in Tamil Nadu and Pondicherry with over 150 stores.
"The decision to expand outside Tamil Nadu, is because the city has reached saturation and also, the purchasing power is high in larger metros and that is where we see our growth to come from." Subramanian explained.
"We envisage an investment of about Rs 150 crore for the expansion plan. It is to set-up distribution centres which would require the large investments as a retail food chains works on a hub and spoke model."
A hub and spoke model is where one distribution centre will provide the goods required for all the stores in and around its neighbourhood, Subramanian added.
The funding will be done through a combination of equity, working capital and debt. Rs 65 crore (Rs 650 million) through equity, around Rs 55 crore (Rs 550 million) through debt and Rs 30 crore (Rs 300 million) from working capital.
Subhiksha stores sell household items and medicines at significant discount to normal prices. The retail chain earned a total revenue of Rs 235 crore (Rs 2.35 billion) in 2002-03.
The Indian retail sector is estimated to be around $180 billion of which the organised sector accounts for just 2 per cent, but with a potential to grow upto 10 per cent over a decade.
The big ticket growth drivers in the retail industry are considered to be household groceries and apparel.
Grocery is the largest segment, taking up nearly 72 per cent of the retail consumption. Unlike in the West, where organised retailing plays a larger role, here it is yet to evolve in a big way.