Indigo restaurants stare at bleak future, says PE firm True North

Key Highlights:

• Recently conducted stress test shows the viability of True North's portfolio companies
• IndiGo, Hicare, Keya had been underperforming even before coronavirus crisis erupted
• True North expects Hicare, Keya to do well, but cash crunch in Indigo to continue
• Ban Labs, brand owners of Sesa hair oil, to get additional fund infusion

Homegrown private equity player True North, formerly known as India Value Fund, has concluded a stress test to assess the viability of its portfolio companies. The PE firm that has invested in over 35 companies recently conducted an exercise to assess if the firm's partner companies could survive without a substantial debt or equity support if the lockdown extended up to 90 days and with no significant recurrence of COVID-19 later this year. As per an internal document seen by Business Today, the firm is confident that most of its companies would survive, but Indigo restaurant chains (DeGustibus Hospitality) may face troubles.

The report categorically states that three brands of partner companies, Indigo (DeGustibus Hospitality), Hicare (Hicare Services Private Limited) and Keya had been under-performing even before the coronavirus crisis erupted and warranted equity infusion. While the PE firm expects both Hicare and Keya to do well, it has concluded post the re-assessment that "it will be better to cut losses and shut down Indigo for good".

True North had invested $30 million in 2015 into DeGustibus Hospitality which runs the Indigo chain for restaurants. The PE firm which picked up over 70 per cent stake in Ban Labs Pvt Ltd, the brand owners of Sesa hair oil, in late 2018, could also infuse additional equity into the company  which it believes to be a strong brand  with a potential to generate adequate revenues in spite of having underperformed over the last year and a half.  

Responding to an email  query sent by Business today, Vishal Nevatia, Managing Partner at True North Managers LLP said, "We remain committed to the business and believe that Indigo is a strong brand. Given the challenges posed by COVID crisis, we are re-evaluating the business strategy and model, so that we can make the brand and business much stronger as we re-start the business and come out of the crisis."  

True North, which has invested over $3 billion in more than 50 businesses, is currently investing out of its Fund-VI which has a corpus of $700 million.