Food service business is largely unaffected by recession, and a great way to ride on Indian consumption theme during good times. The private equity firms’ appetite for deals in food service continues unabated. New Silk Route (NSR), co-founded by Parag Saxena, one of the early investors in Starbucks, is in an advanced stage of negotiations to pick up a large stake in Dodsal Corp, one of the largest franchisees of Yum! Brands-owned Pizza Hut and KFC. The deal could be worth $100 million. While Dodsal Group is looking to exit the business completely, it is likely that NSR will acquire a large minority stake to begin with and will shore up its holding in the future.

A buyout cannot be ruled out given that NSR had earlier acquired a controlling stake in Aster Infrastructure. A more likely scenario is where NSR picks 30-40% stake in Dodsal for Rs 300-500 crore.

Such valuation can be justified by a similar deal struck last month where another large franchisee of Yum! Brands, Ravi Jaipuria-owned Devyani International (which has the franchisee rights for Pizza Hut and KFC for the north and east regions with 65 Pizza Hut and 7 KFC outlets in the country) diluted 21.5 per cent stake to Jacob Ballas for Rs 300 crore, valuing the firm at Rs 1,400-1,500 crore.

However, Devyani also holds the franchisee rights for Costa Coffee and Disney Artist. While these two ventures are small and have been recently added to Devyani, by virtue of a few extra stores, it might command a relatively better valuation than Dodsal, which however is in more lucrative regions.

Mumbai-based Dodsal Corp which is part of the diversified Dodsal Group (owned by the Dubai-based Kilachand family — one of the oldest business families of India) owns the franchisee rights for Pizza Hut in south and west India. It also owns KFC restaurants in the key markets of Mumbai and Bangalore. Dodsal Corporation operates 62 Pizza Hut and KFC outlets in 11 cities in India.

The group intends to exit the quick-service restaurant business to focus on its other businesses(infrastructure development, engineering and construction, and chemicals and petrochemicals) and the PE deal is the first step in that direction. Going by Devyani’s valuation, a complete sellout by Kilachands could translate into a Rs 1,000 crore ($250 million) plus deal.

For NSR it would be a portfolio diversification in India. The PE firm co-founded by former McKinsey chief Rajat Gupta, ex-DSP Merrill Lynch head Amit Chandra (he quit recently to head Bain Capital India) and Parag Saxena, has in the past invested in Aster Infrastructure, Reliance Telecom Infrastructure (RTIL), besides INX Media.

A number of PE deals have been sealed in the restaurant space in India over the last couple of years including Saif Partners-Mainland China, Navis Capital- Nirula’s and blank cheque firm IHC acquiring Mars Restaurants and SkyGourmet Catering.

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