Be it burger, pizza or specialty chains, private equity (PE) players are increasingly developing an appetite for restaurant businesses, one of the fastest growing consumer spending themes. According to statistics provided by Venture Intelligence, in the last six months, the food and beverages industry attracted special attention from PE investors with significant sized deals in the space. This year, till now, the segment has attracted total funding of $78 million across three deals.

According to a report released by the National Restaurant Association of India (NRAI), last year, nearly 80% of the R43,000-crore restaurant industry was unorganised. The organised segment of the market is estimated between R7,000 and R8,500 crore. Industry experts feel with expanding wallet of the rising middle class in the country, consumer aspirations, changing food habits and move towards lifestyle-oriented consumption, food business is very

well placed.

In May, ICICI Ventures picked up a minority stake by investing $33 million in RJ Corp?s Devyani International, that runs KFC, Pizza Hut and Costa Coffee chains across the country.

In June, Delhi-based Sagar Ratna, a restaurant chain serving south Indian cuisine across NCR, raised $35 million from PE player India Equity Partners. According to experts, restaurant chains across formats are looking to raise funds through different routes. SAIF Partners-backed Speciality Restaurants, that owns Mainland China and Oh! Calcutta chains across the country, has filed DRHP with Sebi in an attempt to raise funds through an IPO.

Private equity major New Silk Route (NSR), which has an investment of $75 million in Coffee Day Holding, is looking to build India?s biggest platform in this sector with a commitment of $100 million.

?We will act like a holding company providing funds and expertise to promoters to operate their businesses under this platform. This should give entrepreneurs access to resources and opportunity to build their businesses without worrying about capital,? said Jacob Kurian, partner, New Silk Route Advisors.

Chains that offer competitive pricing, good quality products are poised to expand pan-India and are attractive investment targets. ?Investors are looking for a significant increase in valuation from entry to exit. Margins and generating a high return on investment in this space is a function of several aspects, including the ability to scale and expand operations, aggressive sourcing and procurement practices, ability to run robust supply chain systems, maintaining sharp pricing for anchor and new menu offerings,? said NV Sivakumar, leader retail, consumer and industrial products, PwC India.

Triggered by the IPO of Jubilant FoodWorks last year, the Indian master franchise for Dominos Pizza, the food chain space has been garnering investors? interest of late. Since its listing, Jubilant FoodWorks has seen a price appreciation of over 500%. JPMorgan and India Private Equity Fund, that invested in Jubilant, exited in the IPO last year. Experts point out that IPO and strategic sale is the likely route for investors to exit.

?It all depends on the business model. If the company has a certain scale, IPO is a possible opportunity, like Jubilant FoodWorks. But the business has to be of a certain scale in the range of R400-500 crore and not just R10-20 crore,? said Keshav Misra, head, capital allocation and investment management, Baring Private Equity, India.

Baring is exploring multiple opportunities in the space. ?Consumer-driven business is a core focus area for us. We are extremely bullish on this space. The sector will attract more capital,? he said.

Among the restaurant formats, industry experts feel, young population under the age of 25 years are increasingly visiting home-grown quick service restaurant (QSR) chains due to the convenience offered in terms of access, sharp pricing and diverse menu.

The R3,000-crore QSR space in India is growing at about 30% every year. Last year, Bangalore-based QSR chain Mast Kalandar secured a second round of investment from Helion Venture Partners, Footprint Ventures and angel investors Salarpuria Group.

Other investments in the space include Accel Partners? investment in Bangalore-based Kaati Zone, Matrix Partners in Yo!China, and Beacon India Advisors? R75-crore investment in Impresario Entertainment and Hospitality, which owns brands like Mocha.

Investors point out that among different formats, QSRs have scaled better, compared to fine-dining restaurants. And going forward, there could be more early-stage investments in the QSR space. While fine-dining and QSR formats can show margins of 20%-30%, low-cost QSRs such as Kaati Zone which require an initial investment of R30-R40 lakh, have better chances of breaking even.

For investors scalability, sound business model and management team are important factors to invest in a business. ?Its a very tough business to be in but remains a fascination for investors,? said Kurian of NSR.

Expertspeak

Keshav Misra,

Baring Private Equity, India

We are exploring multiple opportunities in this

space. Consumer-driven business is a core focus area for us. We are extremely bullish on this space. The sector will attract more capital

Jacob Kurian,

partner,

New Silk Route Advisors

We are looking to build India?s biggest platform in this sector with a commitment of

$100 million. We will act like a holding company providing funds and expertise to

promoters to operate their businesses

under this platform

NV Sivakumar,

leader (retail, consumer and industrial products), PwC India

Margins and generating a high return on investment in this space is a function of several aspects, including the ability

to scale and expand operations, aggressive sourcing and procurement practices, ability to run robust supply chain systems, maintaining sharp pricing for anchor and new menu offerings

Statfacts

FOOD FOR THOUGHT

n This year, till now, the restaurant segment has attracted total funding of $78 million across three deals

n Private equity major New Silk Route has made an investment of $75 million

in Coffee Day Holding

n ICICI Ventures invested $33 million in Devyani International

n Sagar Ratna restaurant chain raised

$35 million from India Equity Partners