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Exclusive: Lighthouse bets on quick service restaurant chain

India-focused mid-market private equity firm Lighthouse Advisors India Pvt. Ltd is investing in an eastern India-based quick service restaurant chain, at least two people privy to the development told VCCircle. Lighthouse, according to one of the persons mentioned above, is going to pick up a minority stake in Wow! Momo Foods Pvt. Ltd, the Kolkata-based chain of quick service restaurants. “The company is raising over Rs 40 crore ($6 million) in this round,” he added.

VCCircle was the first to report last month that the company is in discussions with a few private equity firms to raise about Rs 50 crore.

“The capital will primarily be used to increase the number of outlets. It seeks to have a pan-India presence,” the second person said.

The food chain has 120 outlets across Kolkata, Bangalore, Pune, Delhi, Chennai and Kochi. It was planning to open 40 more outlets in 2016-17.

When contacted, Wow! Momo co-founder Sagar Daryani said: “We are talking to several investors. It can be a multiple-investor deal. I will be able to confirm within a week. However, the facts highlighted by you are incorrect.” An email query to Lighthouse Advisors did not elicit any response till the time of filing this report.

Wow! Momo had posted net sales of Rs 31 crore in 2015-16. The financials for the last fiscal year, however, could not be immediately ascertained.

Last year, the restaurant chain had raised Rs 7.9 crore in debt from private-sector lender Bandhan Bank. That round, which included a cash credit facility of Rs 1 crore, was supposed to be used to set up the restaurant’s back-end infrastructure in Kolkata and for opening new stores

The company, which was founded in 2008 by Daryani and Binod Homagai, said that it is profitable in Kolkata, Bangalore and Chennai, while it hopes to go into the green in Delhi-NCR soon. It had raised nearly Rs 10.09 crore in 2015 at a valuation of Rs 100 crore from the Indian Angel Network, led by Sanjeev Bikhchandani, Saurabh Shrivastava and Ashvin Chadha.

Lighthouse

The Mumbai-based PE firm is planning to raise $200 million for its third mid-market fund. It has reportedly returned 1.7 times of the invested capital from its first fund with four more exits to go.

It had recently exited cookie maker Unibic India Pvt. Ltd by selling its entire stake to Peepul Capital.

Earlier, it had sold its stake in Surakhsha Diagnostics to healthcare-focussed fund Orbimed Advisors.

Lighthouse had made six investments from its second fund. It had pumped in $10-20 million in apparel maker Fabindia in November 2016, in a round led by PremjiInvest. It had also bet on non-banking financial company Capital Trust Ltd.

The US-based Lighthouse was set up in 2001 by Krishnaswamy, a former executive at Lehman Brothers’ private equity unit, and W. Sean Sovak. It has been investing in India since 2006 and has Sachin Bhartiya as partner and Brian Larcombe as an adviser. Larcombe is the former global CEO of UK-based PE fund 3i Group.

Quick service restaurant deals

The segment has attracted several deals in the recent past. Gurgaon-based Thea Kitchen Pvt. Ltd, which runs the Biryani Blues chain, had raised a bridge round last year from one of its existing investors.

BusaGo, a restaurant chain run by celebrity chef Nikhil Chib, had raised money from a Southeast Asia-based investor in December last year.

Several hospitality firms are also exploring the market to scout for investors. Mumbai-based Olive Bar & Kitchen Pvt. Ltd is reported to have sought the help of EY’s investment banking arm to allow Aditya Birla PE to make an exit.

Competitive pricing and changing consumer habits are helping QSR chains in a fast-growing market. Many international chains have also flocked to India over the past few years, with specific cuisines and product offerings. However, the market is still fragmented and faces several challenges, including the lack of best practices, high real estate price, weak supply chains and difficulty in obtaining regulatory approvals.

According to a 2015 report by consulting firm Grant Thornton India and the Federation of Indian Chambers of Commerce and Industry, the sector was worth Rs 92,000 crore, and was growing at 16% annually.

(As published in vccircle on Tue, May 30 2017)