On May 17, when I heard about it, the immediate reaction was WHY? Also the published valuation of Rs 300 crore against an annual turnover of Rs 338 crore (FY 2018-19) seemed low on every conceivable historical benchmark !
All of us know that retail businesses normally get valued at a minimum of 2x of sales with no upper limit…
So thought of finding out some facts to ascertain the real reasons for the deal at such perceived low valuation.
First, its important for the benefit of our Pan India readers to summarize the business of Godrej’s Nature Basket (GNB):
- Started in 2005, by one of the most widely respected Godrej group, GNB is a “niche high street grocery chain” spread across Mumbai, Pune and Bengaluru. Current total store count stands at 36 stores.
- Its format is neither that of a typical mom and pop store, nor of a large departmental store. Its customers mostly associate it with niche high quality food items both Indian and imported.
- The customer loyalty is reasonably high for GNB stores.
Its interesting to note here that Godrej invested almost Rs 450 cr in GNB business in last 14 years and finally they sold it for Rs 300 cr. Godrej normally is a very sharp business group and this kind of a deal surely was one offs for them. Speaks a volume about how challenging GNB would have been.
Does it make sense for Spencer’s Retail?
I believe Godrej Group sold GNB as they were finding it increasingly difficult to turn profitable and also their other businesses are doing well so why to unnecessarily waste energies on something where competition in any case is intensifying !
It makes perfect business sense and my confidence on GIL’s share further increases with this decision of theirs…
Spencer’s Retail, part of RPG Group has a very long vintage in Indian retail landscape going as back as 1863. It has been through various ups and downs over the period and currently operates 156 stores in 39 cities. In FY 19 it reported a turnover of Rs 2,215 cr and a nominal profit of Rs 2.4 cr.
Spencer’s Retail has surely made an interesting and bold move by acquiring GNB. How well it plays out, remains to be seen !