D-Street investors take a fancy to listed regional players

ET Intelligence Group: What’s common among PN Gadgil, Arkade Developers, Bazaar Style Retail, Saraswati Saree Depot and Tolins Tyres? All these companies have strong regional businesses and have rolled out their IPOs in recent months. Several peers, with robust regional footprints, have debuted on stock exchange the past couple of years-often to provide exit to a PE investor that had helped these companies build scale.

Some of these regional players in sectors such as healthcare, agro chemicals and jewellery have outperformed their national peers. For instance, Manoj Vaibhav Gems N Jewellers, a jewellery retail chain from Andhra Pradesh, has gained 34% since its listing last September, outperforming the Titan stock that gained 16% during the same period.

Similarly, Yatharth Hospitals, a hospital chain with presence in Delhi NCR, has gained 76% since listing in August 2023 against 38% gains made by Apollo Hospitals.

Mumbai-focused real estate company Suraj Estate Developers has risen 127% since its listing in December last year, outpacing Godrej Properties’ gain of 52%. Dharmaj Crop Guard, a Gujarat-based agro chemical company that got listed in December 2022, has gained 61% since the past one year. By contrast, the stock of agro chemicals major UPL is down nearly 4% during this period.

However, it is not that all recently listed regional players have done well on the bourses. For instance, Gujarat-based Gopal Snacks is down 11% since its listing in March this year. Sai Silks (Kalamandir), a Sari retailer from South India, has lost 31% since its listing last September. Popular Vehicles and Services, an automobile dealer from South India, has dropped 20% since its listing in March this year. Private equity investors and venture capitalists lean towards regional players as these businesses tend to grow to be strong territorial players with local market expertise, face lesser on ground competition, have localised strategies to operate efficiently at the local level and have room to grow or become attractive acquisition targets for national players. However, regional players also face certain inherent risks such as high business concentration, limited market size, higher exposure to regional geopolitical dynamics, supply chain disruptions and natural disasters, limited brand visibility and threat of acquisition from national player(s). Nevertheless, in India, there are several examples of strong local businesses growing into national ones with Amul, Haldiram’s, MTR Foods and Patanjali being just a few of them in the food space.