Another retail IPO

Ten years after he launched discount store chain Subhiksha out of a middle-class neighbourhood in Chennai, R. Subramanian is finally taking his baby public. Come next February or March, Subhiksha, which has a topline of Rs 1,300 crore, may debut on the stock markets, making it one among the handful of such retail chains.

It’s been two years since Subramanian, an IIM-A grad of 1989, has been mulling listing his retail chain, but he may have decided against it over the issue of valuation. Sometime ago, Reliance Retail made an offer to buy out Subhiksha, but Subramanian had refused—again, over valuation of his retail chain.

But at least two things may be forcing his hand now: One, the stock markets have run up considerably over the recent months, and many expect it to correct a bit. That means, Subhiksha would need to hit the market while the correction is still some time away. Two, the investors in Subhiksha, including ICICI Venture and Subramanian himself, may be looking to unlock some of the wealth they have created. ICICI Venture, for example, has been invested in Subhiksha for seven years—typically, the period after which PE firms need to return money to their own investors. “We don’t have a firm deadline for the IPO, though having one at this juncture would not be out of place,’’ says Subramanian. “Now we have also reached a scale and size as India’s largest retailer in the segments we operate.’’

At present, Subhiksha has more than 1,000 stores in 12 states, and plans to add another 300 by March 2008. Unlike Pantaloon Retail’s Big Bazaar, the most valuable retailer currently, Subhiksha does not operate hypermarkets. Instead, as a discount retailer, it operates out of relatively small stores that are conveniently located in middle-class neighbourhoods. Although Subramanian would not comment on the expected valuation, some reports talk of Rs 3,500 crore as a positive number. “Currently the market sentiment on retail is quite good. There were two IPOs in the recent past (Vishal and Koutons) that have done well, although Pantaloon continues to remain a favourite,” says R. Ramakrishnan, Executive Director and Head Investment Banking, Spark Capital Advisors, a boutique I-banker in Chennai.

Retailing as such is a low-margin, high-volume gain, and for a discount retailer like Subhiksha, the margins must be thinner still. So, Subramanian must come up with a convincing story to get the valuation he thinks Subhiksha deserves.