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Shobhit Agarwal, MD & CEO – ANAROCK Capital

  • From USD 600 mn from 2015-2016, private equity inflows in retail jumped to over USD 1.2 bn between 2017 and 2018
  • Of total USD 1.84 bn inflows in retail in last 4 yrs (2015-2018), Tier 2 & 3 cities attracted nearly 48% funds (of USD 880 mn) against USD 960 mn in Tier 1 cities
  • Top favoured Tier 2 & 3 cities included Amritsar, Ahmedabad, Bhubaneshwar, Chandigarh, Indore & Mohali
  • US-based funds like Blackstone & Goldman Sachs invested more than USD 1 bn between 2015-2018; UAE, Singapore, Canada & Netherlands funds also active
  • Q1 2019 saw only UAE-based Lakeshore invest USD 110 mn in Indian retail

Further liberalization in FDI policies – 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route (against the previous 49%) – has attracted major global PE funds to double their investments in the Indian retail sector.

As per ANAROCK’s Private Equity in Indian Real Estate report, the total private equity inflows in the Indian retail sector between 2015 to 2018 stood at USD 1.84 bn. Of this, nearly USD 1.2 bn were pumped in between 2017-2018 alone.

US and Canada-based PE funds together invested more than USD 1.13 bn into the retail sector, bestowing their faith on an industry riding on increasing consumerism which is pegged to rise to USD 3,600 bn by 2020.

Tier 2 & 3 cities were high on the radar of the PE investors, who in the last four years infused almost half of their total investments into the retail sector in cities like Amritsar, Ahmedabad, Bhubaneshwar, Chandigarh, Indore and Mohali.

Our report highlights the fact that unlike the commercial office sector, retail is to some extent geography-agnostic because its success depends on the spending power of its target audience.

As a result, shopping malls in Tier 2 & 3 cities have performed as well as, if not better than, their Tier 1 counterparts. This also led to an increase in rentals and profitability and caused PE investors to start considering investment options outside their accustomed Tier 1 geographies.

US-based funds like Blackstone and Goldman Sachs invested more than USD 1 bn funds into the Indian retail sector between 2015 and 2018. Of this, more than USD 700 mn went into Tier 2 & 3 citiesjust USD 300 mn came to cities like Pune and MMR.

Evidently, large PE funds have recognized the potential of smaller cities which continue to have a shortage of organized retail despite the rising disposable income and aspiration-driven consumption appetite being generated there.

PE investors from UAESingapore and Netherland also showed interest in Indian retail during the period and invested close to USD 800 mn into it.

Top 5 Retail PE Deals in Tier 2 & 3 Cities – 2015 – 2018

Investor Investee Deal Size in USDmn Cities
Blackstone Carnival Group 340 Chandigarh
Blackstone Kalani Group 190 Indore
Blackstone Alpha G: Corp 150 Amritsar & Ahmedabad
Xander (VRSA) & APG Sun Apollo &Gumberg Retails 110 Mohali
Blackstone Forum Group 40 Bhubaneshwar

Source: ANAROCK Research

The opportunity that the Indian retail sector holds in store for PE investors is more than evident – as are the geographies they must focus on for optimum returns.

ANAROCK data reveals that around 39 mn sq. ft. of organized retail space is expected to enter the market between 2019-2022. Of this supply, approximately 71% is expected to come up in Tier I cities, and the remaining 29% in Tier 2 & 3 cities.

Ahmedabad, Bhubaneshwar, Ranchi, Kochi, Lucknow, Surat and Amritsar, among others, are the new retail growth hubs where the next chapter of the Indian retail story will play out in the coming years.

In fact, global retailers are now also eyeing cities like Chandigarh, Lucknow and Jaipur, to name a few. There is every reason to expect increasing funding infusions into the retail sector of these cities in the future.

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Published by Shobhit Agarwal

Shobhit Agarwal is MD & CEO - ANAROCK Capital.

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