Exclusive | CX Partners open to part stake sale in IPO-bound Barbeque Nation

Homegrown private equity firm CX Partners is evaluating options to sell part stake in leading casual dining chain Barbeque Nation which has recently revived its IPO plans, four sources with knowledge of the matter told Moneycontrol.

CX Partners owns 21.72 percent stake in Barbeque Nation and entered the company in 2013 and made a second investment in 2015. The popular dining brand is also backed by Big Bull Rakesh Jhunjhunwala investment firm Alchemy Capital which holds a 2.07 percent stake. Listed hospitality firm Sayaji Hotels also holds a 45.7 percent stake in Barbeque Nation via a subsidiary.

"Currently, CX Partners is considering a part stake sale to one of its LP's (limited partners) or a private equity fund. It may also choose to exit completely during the proposed Barbeque Nation IPO. Discussions are fluid right now and it hasn’t finalized its plans as yet,” a source told Moneycontrol. A second source confirmed the same.

A private equity firm is called a general partner (GP) and its investors that commit capital are called limited partners (LPs). Limited partners generally consist of pension funds, institutional accounts and wealthy individuals.

“After initial hiccups, the IPO plans of Barbeque Nation have been revived recently and Axis Capital and IIFL Capital have been engaged as advisors. The listing plans are on track and the plan is to hit the markets this fiscal based on market conditions," a third source told Moneycontrol.

"A quick part stake sale by CX Partners would create a liquidity event and this can then be used a valuation benchmark by the merchant bankers during the IPO roadshows later," added a fourth source.

In August 2017, Barbeque Nation had filed a DRHP with market regulator Sebi for an IPO seeking to raise around Rs 700 crore, and the proceeds from the issue were aimed at setting-up of new Barbeque Nation restaurants in India, repayment of loans, and general corporate purposes.

But the plans hit a hurdle as SEBI kept the the company’s IPO application in abeyance “pending regulatory action for past violations". In January 2018, Barbeque Nation got SEBI approval for the IPO.

"In the last few years, business in the restaurant segment has taken a hit due to demonetisation, GST, the Supreme Court's highway liquor ban and the emergence of online food delivery apps. Barbeque Nation hasn’t been impacted as much as the others and its model of unlimited serving at a fixed price has remained steady," said a private equity executive on the condition of anonymity.

In January 2019, ratings agency ICRA had said the outlook for Barbeque Nation is stable citing its strong brand image in the restaurant segment which facilitates entry into new markets at competitive rentals, in turn supporting the company's revenues and operating margins.

"Barbeque Nation Hospitality Ltd (BNHL) has witnessed healthy revenue growth over the last two-three years aided by addition of new stores and consequent increase in number of covers sold in the same," the report said. But ICRA also highlighted that, "Going forward, ongoing expansion in the UAE and India is expected to continue to impact margins of the company."

As of March 31, 2019, Barbeque Nation's revenue from operations stood at Rs 739.01 crore, net profit at Rs 10.96 crore and EBITDA at Rs 77.73 crore. The chain has more than 125 outlets in India, 4 in the UAE and 1 outlet in Malaysia according to its website.

The market size of the Indian restaurants and food services industry stands at Rs 3.7 lakh crore as of 2018, registering a y-o-y growth of about 10 percent and a CAGR of 8.4 percent between 2013 and 2018. Going forward, CARE Ratings expects the restaurant and food service industry to register a growth of about 10.4 percent CAGR for the next 5 years between 2018 and 2022 to reach Rs 5.5 lakh crore by 2022.

Moneycontrol is awaiting email responses from CX Partners, Barbeque Nation, Axis Capital, IIFL and Sayaji Hotels and has sent reminders. This article will be updated as soon as we hear from them.