PE firm Lightspeed gets bid invite for Metro Cash & Carry's India ops

Private equity player Lightspeed Venture Partners, in a consortium with some other companies, is evaluating an offer by Metro AG to buy a strategic stake in its Indian operations, Metro Cash & Carry, says a source involved in the deal.

Lightspeed is the second PE fund approached by Metro AG, apart from Samara Capital, say sources. Other companies that have been approached include Reliance, the CP group, the Adani group, Amazon, and Tata.

A query sent to Lightspeed remained unanswered.

Metro AG said: “We are reviewing strategic options with potential partners to enhance Metro’s existing capabilities and accelerate business development in India. We will not comment on rumours and speculation.” 

Lightspeed also has investments in logistics company Udaan (which was earlier sounded out by Metro), e-commerce platform Dukaan, Oyo Rooms, ShareChat, Byju, and Fresh Menu, a mobile-first fully integrated food brand that provides on-demand delivery of freshly cooked food.

Merchant bankers are looking at a valuation of $1.5-2 billion for Metro Cash & Carry based on its financial performance.

According to data presented to the potential buyers, the company posted an Ebitda (before exceptional items) of Rs 118 crore in FY21 on sales of Rs 6503 crore, with a gross profit of Rs 725 crore which is 11.14 per cent on its sales.

In a business where most competitors are burning cash, Metro AG was Ebitda positive at 1.82 per cent of sales. More importantly, it has been Ebitda positive from FY17 to FY21.

In FY21, its sales were higher, at Rs 6,915 crore, but gross profit on sales was lower at 10.92 per cent, though Ebitda to sales was better at 2.12 per cent.

The need to find a buyer for its India business arose after Metro AG declined to fund its expansion plans in India, especially as it faced challenges due to closures in Ukraine and Russia.

The Indian company had approached the Dusseldorf headquarters to ask for funding of around of $300-400 million to expand its operations.

The plan was to increase the number of stores from 31 currently to over 100, expand to many more cities, open up more dark stores, invest in technology, and expand the e-commerce online business which already accounts for 20 per cent of its revenues.

It also needed the money to take on tough competition from other players such as JioMart, Udaan, and Amazon.

Sources say Metro Cash & Carry also has to combat many of the big players who are selling their products at huge discounts and focusing on topline growth by selling large volumes of products such as oil to shore up revenues.

However, some key players who have been given details of the offer for consideration say that the price expectation is quite high.

To this, sources say that the negotiation stage has not even started.  

Metro AG has asked merchant bankers J P Morgan and Goldman Sachs to identify prospective investors.

The bankers have been sounding out investors since January when the Indian operation, with the help of Bain & Company, finalised its cash requirement for expansion and taking on the competition.

HOW IT STANDS

• Lightspeed is the second PE fund approached by Metro 

• Reliance, CP group, Adani group, Amazon, Tata are others in contention

• LightSpeed also has investments in Udaan, Dukaan, Fresh Menu, Oyo Room, Sharechat, and Byju’s, among others

• Metroneeds to raise $300 million-$400 million for India expansion

• Its parent declined to put in money

• J P Morgan and Goldman Sachs roped in to identify prospective customers