Q & A

Ram Ot­ta­p­athu takes Chop­pies south

Financial Mail - Investors Monthly - - Front Page - Ram Ot­ta­p­athu CEO: Chop­pies En­ter­prises

Q Why is it that a com­pany in growth mode is pay­ing out so much — 30% — in div­i­dends (with the plan to move that up to 50% as the busi­ness ma­tures)? Par­tic­u­larly in the light of your rais­ing ex­pen­sive eq­uity cap­i­tal on the JSE? A If you asked me, per­son­ally, that is my view as well. Money grows bet­ter within the busi­ness. But that is not the only view. We did de­bate this for a long time. Be­fore the IPO it was de­bated be­tween our­selves and the four peo­ple who were in­volved in the process and we came to a con­sen­sus. It was a cor­po­rate de­ci­sion, taken by the board.

Q Why have you listed in SA?

A The big­gest prob­lem with the mar­ket in Botswana is liq­uid­ity: the share price has grown rea­son­ably well but the liq­uid­ity sit­u­a­tion is re­ally poor. The JSE is one of the most liq­uid ex­changes in Africa and this is our nat­u­ral pro­gres­sion to a more liq­uid stock ex­change with ac­cess to more cap­i­tal. That in turn will ex­pose us to the en­tire South African busi­ness com­mu­nity and give a bet­ter pro­file for the com­pany to ex­pand.

Q You’re rais­ing R574m in new cap­i­tal — is that enough to ful­fil your growth am­bi­tions?

A Yes. It’s a fairly good cash gen­er­a­tive busi­ness. We don’t need to have too much cap­i­tal cur­rently to ful­fil our roll­out plan. This is a fast-track IPO.

Q What about the pric­ing of the IPO, at a PE of about 22 times? Quite a few lo­cal an­a­lysts feel it’s ex­pen­sive.

A I’m not go­ing to ar­gue about the pric­ing be­cause there is a ref­er­ence price on the Botswana stock ex­change — this is al­ready a listed stock.

We gave an in­di­ca­tion to the book builders that this was the ref­er­ence price and we have taken per­mis­sion from the share­hold­ers that that is the pa­ram­e­ter.

Q You said in your pre-list­ing press re­lease that there were “many fac­tors that dis­tin­guish Chop­pies from its com­peti­tors” — what are those fac­tors?

A If you go into a Chop­pies store and you go into any other South African su­per­mar­ket you see a dis­tinct dif­fer­ence.

We’ve got a slightly more com­pact space than our op­po­si­tion and our re­liance on our food and ser­vice de­part­ments is much stronger than the other re­tail­ers in the re­gion.

Our ser­vice depart­ment con­tri­bu­tion is very strong: like your butch­ery, fruit and veg, your take­away and your bak­ery.

Q The South African re­tail mar­ket is al­ready fiercely con­tested; why do you want to ex­pand here?

A We are com­ing into the mar­ket in SA where we have ex­pe­ri­ence. We are fo­cus­ing on the three prov­inces clos­est to Botswana. That is where we’re al­ready suc­cess­ful. We feel that the same de­mo­graphic ap­plies here and the same mar­ket con­di­tions. We are very choosy and we are go­ing to re­main in those three prov­inces.

Q What about fur­ther north? Zam­bia and Tan­za­nia are on your radar. You say the scope for for­mal re­tail devel­op­ment is sig­nif­i­cant.

A In Zam­bia only 14% of the mar­ket is for­mal re­tail; those coun­tries have much bet­ter growth rates than in SA or Botswana for that mat­ter. The mid­dle class is grow­ing. The num­ber of peo­ple with dis­pos­able in­come is grow­ing at a much faster rate and that will help in for­mal­is­ing the re­tail sec­tor as well. We ex­pect that process to con­tinue. In Tan­za­nia, the for­mal re­tail sec­tor is less than 10%.

Q Does Chop­pies have strong brand recog­ni­tion out­side its home mar­ket?

A In the places we went into, we’ve been given good sup­port from the con­sumer base. Wher­ever we are op­er­at­ing, we are a recog­nised re­tailer, whether it is in SA, Botswana or Zim­babwe. And we ex­pect the same to con­tinue in Zam­bia and Tan­za­nia. In Tan­za­nia we have a very strong lo­cal part­ner.

Q Your com­pound an­nual growth rate was 27% be­tween 2011 and 2014 — can you sus­tain that? A We ex­pect that growth to con­tinue at least for the next two to three years, eas­ily.

With the planned ex­pan­sion, we should be able to con­tinue that growth rate.

Q Would you say you’ve grown too quickly? In 2011, you had 58 re­tail out­lets. Now you have 125 — so you’ve dou­bled in three years. Doesn’t that put stress on the busi­ness?

A Not at all. We’ve got the in­fra­struc­ture and man­age­ment which can take this com­pany up to 250 stores in the next two years.

Pic­ture: THINKSTOCK

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