Ramayana May Partner With Overseas Company for Supermarkets

PT Ramayana Lestari Sentosa (RALS), Indonesia’s second-most profitable retailer, is in talks to partner with an overseas company for the supermarket business as it expects to miss its 2011 sales forecast amid competition from rivals such as Carrefour SA. (CA)

Ramayana faces rising competition from hypermarkets and minimarkets in Jakarta, Director Setyadi Surya said. Outside of Jakarta, supermarket sales are flat while the retailer lacks distribution channels in areas other than Java island, he said. The talks for a partnership are at an early stage and Ramayana doesn’t rule out the possibility of divesting its supermarkets, Surya said. He declined to identify potential partners.

“There’s interest to buy a stake but we haven’t responded yet,” Surya said in an interview in Jakarta Dec. 21. “We’re still looking for the right form of cooperation that fits our management style.” Ramayana’s controlling shareholders aren’t interested in selling a stake in the company now, he said.

Growth in Indonesia, Southeast Asia’s biggest economy that regained an investment-grade credit rating after 14 years, is helping attract overseas investors to Ramayana. The Jakarta- based retailer, which seeks to arrest a drop in its shares amid stagnant sales at its supermarkets and delays in store openings, will miss its 2011 sales target of 6.85 trillion rupiah ($750 million), Surya said.

‘Strong Brand’

“Ramayana is a strong brand but its supermarket operation isn’t doing well,” said Paul Raymond Widjaja, an analyst at PT Trimegah Asset Management that manages about $400 million in assets in Jakarta. “A partner may help address Ramayana’s distribution and expansion problems.”

Ramayana fell 4.1 percent to 700 rupiah at the close of trading in Jakarta, extending its decline this year to 18 percent. The Jakarta Composite index (JCI) has gained 2.5 percent.

The Indonesian central bank expects the economy to expand 6.5 percent in 2011, the fastest pace since 1996. Growth may quicken to as high as 6.7 percent next year, according to the central bank. Spending by Indonesia’s population of about 237 million, the world’s fourth biggest, accounts for about 56 percent of the economy, providing a buffer to slowing exports as a debt crisis in Europe threatens to curb global growth.

Main Customers

Ramayana’s main customers are from the low and middle- income groups and it doesn’t have any direct competitors in this segment, Surya said. The company runs its supermarkets inside its department stores and Ramayana is looking for a partner that can fit in with this concept, he said. Ramayana, which opened its first department store in Jakarta in 1978, operates 97 supermarkets that accounted for about 35 percent of total sales as of September, according to data provided by the company.

Supermarket sales from January through November rose 6.8 percent from a year earlier compared with a 7.4 percent gain for the whole of last year, Surya said. Competition is tough as shoppers go to Ramayana mainly because of its department store and not its supermarket, Trimegah’s Widjaja said.

Carrefour, Europe’s biggest retailer, began operating in Indonesia in 1994 and now runs 83 outlets, according to PT Carrefour Indonesia’s website.

PT Matahari Putra Prima (MPPA), an Indonesian hypermarket operator, sold control of its department-store arm to a unit of U.K. buyout firm CVC Capital Partners Ltd. for 7.2 trillion rupiah in January 2010. Matahari runs 80 department stores according to its website. Ramayana operates 107 department stores.

Ramayana’s profit in the nine months to Sept. 30 rose 7.9 percent from a year earlier to 343 billion rupiah. The stock is trading at 12.3 times estimated earnings compared with the 26.7 times of retailer PT Mitra Adiperkasa (MAPI), which runs Debenhams Plc department stores and Starbucks Corp. coffee shops. While Ramayana shares have declined this year, those of Mitra have jumped 91 percent.

Consignment Business

Consumers in Indonesia are benefitting from record low interest rates and easing inflation that has boosted purchasing power. The central bank last month cut its benchmark interest rate to a record low of 6 percent while inflation in November eased for a third month.

Revenue at Ramayana’s consignment business, which sells branded products that are more expensive, has risen 20 percent as of October compared with 18 percent for the whole of 2010, Surya said. The company is constantly “upgrading” its products to reflect rising income without abandoning its low-income consumers, he said. Surya expects spending power to further rise next year because of increased investment activities.

Indonesia last week regained its investment grade rating for its sovereign debt at Fitch Ratings after 14 years. The parliament passed on Dec. 16 a land acquisition bill that will allow the government to accelerate road, port and airport projects, bolstering President Susilo Bambang Yudhoyono’s efforts to boost growth.

“With its huge population and vast geographic areas, we see Indonesia offers growth potential for retailers,” Surya said. “We want to tap into this potential.”

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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