A US-based private equity outfit — Exhilway – has decided to fund a Kolkata-headquartered garments retail start-up firm Sconto Retail Pvt Ltd.
Rahul Sahay, Director (Investments) of Exjhilway in India, confirmed to Business Line that the private equity would invest in Sconto.
“The initial investment, likely next month, will only be in equity of around Rs 6 crore. But the graded funding, both in equity and debt, could go up to Rs 24 crore by the first 18 months,” Sahay said.
The project proposition based on its business model has been valued by an US credit rating agency Newman Assets at Rs 120 crore.
The funding and advisory deal entails periodic performance reviews, additional investments and final exit by the end of three years.
The deal also involved listing of the entity on London Stock Exchange’s AIM segment after a year.
Business model
Sconto, which will apply to RBI seeking advance approval for FDI next week, will have initial equity of Rs 12 crore. Under the current rules, Exhilway can invest up to 49 per cent of this sum.
According to Sahay, the private equity found the business model of Sconto workable as it was primarily asset light and with shareable assets.
The model also relies on medium-sized stores (4,000-5,000 sq ft) and focussing on affordable, but branded product ranges.
The due-diligence report, prepared by Bangalore-based Cresenthum, took note of the viability factors and endorsed the valuation as well as the model.
The dollar-denominated deal will peg the exchange rate at Rs 59 to the dollar.
jayanta.mallick@thehindu.co.in