Mumbai: In its first investment in the agri services sector, IDFC Private Equity has invested Rs 150 crore in agri-services provider Staragri Warehousing and Collateral Management Ltd for a significant minority stake.
The Jaipur-headquartered firm, which was founded in 2006, offers warehousing, procurement and collateral management of agri commodities. It has a presence in 10 states and operates 750 agri-commodity warehouses with a cumulative capacity of around 1 million tonnes (mt). It also provides allied services such as testing, certification and transportation and is connected with 50,000 farmers. The investment was made through IDFC PE’s third fund, which has a corpus of $650 million.
The funds will be utilized by Staragri to expand its warehouse network and for creating a pan-India network of allied post-harvest management services.
“Agri services are an attractive opportunity. There is a storage deficit of nearly 50 mt for agri warehousing. There is priority sector lending by banks to the agri sector, along with a conducive regulatory environment,” said Girish Nadkarni, partner, IDFC PE, adding that his firm understands that the warehousing business has a long gestation period. The margins in such businesses offset that, he reasoned. “Services businesses have higher margins. We will look at investing in other subsectors.”
IDFC PE, which manages funds of $1.3 billion across three funds, has made 33 investments over the last eight years. It has made 17 exits.
Satish Mandhana, managing partner, IDFC PE, said that increasingly, more funds will look beyond hard infrastructure (railways, ports, highways). “We have realized that social infrastructure, be it education, healthcare, agri, are equally important in a country like India.”
Staragri’s future plans include creating 3 mt of warehousing capacity in 10 states over the next three years and reaching 2.5 million farmers directly. “We connect farmers to bulk buyers. We have a direct procurement model which enables 5-10% higher realization,” said Amith Agarwal, executive director, strategy, finance and human resources, and one of the founder members of Staragri. Agarwal said the firm has recorded a 10-fold growth in revenue in the past three years.
The agri services business has seen a few deals in recent years.
International Finance Corp. invested $20.5 million in integrated supply chain solutions provider National Collateral Management Services Ltd last year. And Mayfield India and Nexus Venture Partners invested Rs 35.5 crore in post-harvest agricultural solutions provider Sohanlal Commodity Management Pvt. Ltd.
With the last couple of years not being very positive for infrastructure investments in terms of exits and returns, investors will increasingly begin to look at allied services, say experts. “A lot of allied services will be driven by the need of infrastructure in core sectors. For example, investments in agri warehousing will be driven by increased agricultural output,” said Vikram Hosangady, head of transaction services, KPMG India. According to him, allied services such as facilities management, security services, and firms that operate and maintain power plants will be of interest to investors.