Mumbai: For some, Christmas came a fortnight earlier.
The $4.1-billion Vishal Mega Mart listing earlier this month turned out to be the biggest payday for its key shareholder, Partners Group, in its 10-year-old India presence, but the public issue also set records for another unique distinction. The discount retailer’s share sale also marks the highest capital gains for any private equity investor ever in the country.
At $3.1 billion, gains in the six-year-old investment for Partners exceed Carlyle’s $2-billion profits from SBI Cards by more than 50%, data culled from publicly available sources showed.
Across VC and PE funds, though, Tiger Global still tops the charts: it made a total of $3.5 billion in gains from its phased selloff of equity in Flipkart, which was among the most it had generated from a single company globally. In the PE space now, Partners has taken the crown-another testament of the depth of the Indian capital markets and its ability to generate stratospheric returns for patient investors.
Partners Invested $420M
In the summer of 2018, the Switzerland-based Partners Group joined hands with India-focused Kedaara Capital to buy Vishal Mega Mart from a consortium of TPG Capital and Shriram Group for ₹5,000 crore. Partners alone invested ₹3,000 crore ($420 million) in the transaction. Subsequently, a small tranche of capital was infused during Covid, said people in the know, but it was largely unused. TPG in 2010 had taken over a debt-ridden Vishal Retail for a paltry ₹70 crore. After investing ₹750 crore to turn Vishal around, TPG and Shriram Group flipped the asset to a new set of owners, making 4X dollar returns and 6X rupee returns in eight years. The ₹8,000 ($944 million)-crore IPO saw purely secondary sale of shares by the two sponsors via an offer for sale. The retailer’s shares closed at ₹111.93 apiece on listing day, a gain of 44% over the initial share sale price. The sale drew bids for over 27 times the shares offered.At IPO, Partners Group realised a part of its beneficial shareholding in Vishal for $633 million (₹5,380 crore). At that closing price, the rest of Partners Group’s stake is worth $2.9 billion (₹25,700 crore).
Partial Exit
Therefore, the combined value of its ownership – both realised and unrealised – stands at around $3.5 billion (₹29,750 crore). Subtracting the initial investment, the capital gains, or profits, stand at $3.1 billion (₹26,350 crore).
Some of this is unrealised profits. But given that Vishal is now listed and its shares liquid and saleable, with the equity ownership tied to the actual trading price, the gains will be easier to calculate, believe analysts, unlike unrealised profits for a private company.
In the past 12-18 months, PEs have exited large positions via open market trades (block deals). These include KKR’s mega exit from Max Healthcare or EQT’s decision to exit its entire 26.63% stake in Coforge Ltd (formerly NIIT Technologies) for ₹7,684 crore to multiple investors through bulk deals.
“Even if you assume a slight discount to current market price, if Partners chooses to sell its residual shares (76% is still owned by Partners and Kedaara), the capital gains would still be higher than other PE investments in India,” said an official in the know. “Given the large position, this might not be saleable in a single tranche. But if you assume that these will be realised over some years, then the shares will also benefit from appreciation in price as the company’s earnings grow. On the flipside, it may also drop.”
Since listing, the share has dropped 9.14%. However, investor expectations of a gain in the share price in the future have been baked into the decision making of current institutional buyers, such as JP Morgan, HSBC, Axis Mutual Fund, among others. They expect 15%+ gains per annum for any new investments they are making, given the cost of capital, said an institutional investor who bought into the stock during the IPO.
‘Great Team, Robust Growth’
“The successful outcome was due to the backing of one of the best management teams, addressing a very large and under-penetrated market,” said Manas Tandon, partner, Partners Group. “I had the benefit of having a ringside view during TPG’s journey and had the conviction in 2018 that a lot of the lego blocks were in place for the business to take off. Based on this conviction, we were able to back it with a very large cheque at the time.”
The big gains in Vishal, a 23-year-old retailer, have come from the company’s revenue and Ebitda growth. That, in turn, was possible due to a strong rollout with new stores generating profits soon after opening. The continued double-digit same store sales growth, barring a brief period during Covid, and improved operating efficiency allowed for stable Ebitda margins. Focus on private labels also helped, believe industry players.
Vishal Mega Mart reported sales of Rs 8,900 crore in FY24 — one-fifth of DMart’s sales, the market leader and India’s most valuable listed retailer. Half of the sales come from apparel, while general merchandise and FMCG contribute 25% each.
Partners has invested $2.5 billion in the last decade in Indian and India-affiliated businesses. This, in turn, has generated returns of approximately $8.5 billion for the asset manager. In 2024, equity capital market transactions in India exceeded $11.5 billion.
