India Development News & Foreign Investment Opportunities

PE Funds Drawn to Tier 2&3 City Retailers

Liberal FDI opens more opportunities


Liberal FDI opens more opportunities


Further liberalization in FDI policies has attracted major global Private Equity (PE) funds to double their investments in the Indian retail sector.

The government allows 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route. Previously it was 49%.

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

US and Canada-based PE funds together invested more than US$1.13 billion into the retail sector, bestowing their faith on an industry riding on increasing consumerism which is pegged to rise to US$3.6 trillion 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.

Shobhit Agarwal, MD & CEO of ANAROCK Capital, said: “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 increase in rentals and profitability and caused PE investors to start considering investment options outside their accustomed Tier 1 geographies,” he said.

US-based funds like Blackstone and Goldman Sachs invested more than US$1 bn funds into the Indian retail sector between 2015 and 2018. Of this, more than US$700 million went into Tier 2 & 3 cities; just US$300 million 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 UAE, Singapore and Netherland also showed interest in Indian retail during the period and invested close to US$800 million into it.

Top 5 Retail PE Deals in Tier 2 & 3 Cities – 2015 – 2018:
Blackstone has invested US$340 million in Carnival Group in Chandigarh;
Blackstone US$190 million in Kalani Group in Indore;
Blackstone US$150 million in Alpha G Corp in Amritsar & Ahmedabad;
Xander (VRSA) & APG US$110 million in Sun Apollo & Gumberg Retails in Mohali;
Blackstone US$40 million in Forum Group in Bhubaneshwar.
Source: ANAROCK Research

Elaborated Anuj Kejriwal, MD & CEO at ANAROCK Retail, “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 million 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,” said Kejriwal.

“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,” he said.

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