New Delhi: Private equity firm India Equity Partners (IEP) Fund Advisors has put its majority 75 per cent stake in South Indian cuisine restaurant chain Sagar Ratna Restaurants on the block five years after acquiring it, three officials with direct knowledge of the development said.
“Differences between the original promoter and founder Jayaram Banan, who continues to hold a minority stake in Sagar Ratna, and litigation between Banan and IEP over multiple governance issues have led to IEP’s decision to exit,” one of the officials mentioned above said.
IEP had bought controlling stake in Sagar Ratna for about Rs 180 crore in 2011. The chain runs close to 90 stores across the country, split up between the company and franchisees. “IEP is keen to sell off its stake to focus on its other businesses.
But it isn’t finding too many takers at its asking price. The eating out industry is as it is undergoing stress. Banan himself is one of the contenders to buy back the stake at a discounted price, and talks between IEP and Banan are underway,” another official said.
Banan has offered to pay about 25-30 percent less than what IEP had paid, which, according to this official, is not acceptable to the fund management. An email sent to IEP managing director SidKhanna on Friday elicited no response till the time of going to print. Sagar Ratna Restaurants chief executive Murali Parna and Banan were unavailable for comment on the matter. Over the past one year or so, the Rs 70-crore turnover chain has refurbished its menu accelerated its home delivery business by tying up with online aggregators and is planning expansion across the west and south.
Parna had told ET earlier this year that the business had turned profitable in the current financial year. IEP had set up a special purpose vehicle by the name of Sanders Equities to run Sagar Ratna Restaurants on its behalf, and Banan holds 22.7 per cent equity in the chain. The conflict between IEP and Banan turned for the worse two years back when Banan filed a FIR against IEP alleging “cheating, fabrication, and forgery of documents.”
He also alleged that under IEP, Sagar Ratna’s brand value and profitability got “severely impacted.” While Banan resigned as chairman of the restaurant chain two years back, he wanted to sell off his equity but at that time, IEP did not concede to his demand. IEP, on the other hand, had alleged that Banan had violated the contract terms between the two by starting his own restaurant chain of South Indian cuisine by the name of Shri Ratnam.
IEP had at that time said it has lodged a series of civil cases against Banan and associates alleging breach of the non-compete clause between the two, interference in the operation of Sagar Ratna restaurants and use of force. Banan, who set up Sagar Ratna in 1986 in Delhi, runs another chain, Swagath, in New Delhi. IEP’s original founders Gaurav Mathur, Anurag Bhargav and Steven Wisch have all exited the fund.
The size of the food services market is estimated at Rs 309,110 crore in 2016 and projected to grow 10 percent over the next five years to touch Rs 498,130 crore, says a recent report by the National Restaurant Association of India. The report, which cites high taxes and real estate costs, over licensing and fragmented supply chain as challenges to growth, clubs quick service restaurants, casual and fine dining, cafes and pubs under the food services sector.
