It's barely got a grip on the property business. But that's not keeping Indiabulls Real Estate from rolling out a retail venture. It had already drawn up plans for a chain of discount stores across the country, through Indiabulls Wholesale Services, a subsidiary of IBREL, that houses the retail initiative.
Now, the property developer has snapped up a controlling 63.9 per cent stake in the loss-making Piramyd Retail at Rs 30 per share. The Rs 159 crore (Rs 1.59 billion) Piramyd has been running 7 large Piramyd lifestyle outlets and 33 small convenience stores called TruMart. Together they cover a space of about one million square ft. These formats should complement the discount stores nicely.
It's not hard to see why IBREL is so keen on getting into organised retail. Says Ikroop Singh, CEO, IWS, "The biggest component of the retail business is good quality real estate and since we're in the space, we should be able to run a profitable venture. Earlier we were looking to invest Rs 1,500 crore (Rs 15 billion) on the discount stores but now with Piramyd in our fold, we should be spending about Rs 2,000 crore (Rs 20 billion) in the next two years and a targeting a coverage of six million sq ft."
Says Anand Mour who tracks the retail space at Prabhudas Liladhar, "One of the biggest challenges for any retail player today is getting prime real estate at a reasonable cost, so Indiabulls should have an edge." Mour believes that while sourcing property for the smaller convenience stores is not such a big issue, for the bigger lifestyle formats, it could be a problem. "That's where Indiabulls will have an advantage. For instance, if the parent company builds a mall, the lifestyle outlets could be anchor stores."
In a couple of years IBREL hopes to roll out 30 hypermarkets, spread across 100,000-1,50,000 sq ft and modelled along the lines of the USA's Costco Wholesale stores. The idea is to induce customers to pick up products in larger quantities by offering discounts of as much as 15 per cent or more. Land has been acquired for 20 of these, says Singh, in tier II cities such as Ahmedabad, Jodhpur Kanpur, Patiala and Ludhiana and customers should be able to walk into the one of these stores early next year. Lower property prices in tier II cities will keep operating costs in check.
Meanwhile, Piramyd Retail, which posted a loss of Rs 48 crore (Rs 480 million) in FY07 and a loss of Rs 46 crore (Rs 460 million) in the first half of FY08, had already tied up space for 75 stores. Singh says he proposes to ramp up the number of Piramyd (lifestyle) and TruMart (convenience) stores to 150 in a couple of years. With scale should come profits. And at this pace, it won't be surprising if retail overtakes real estate very soon.
