Bangalore: In 2006, when Q-India Investment Advisors, the local arm of Texas-based hedge fund Q Investments Lp., entered India and began evaluating the telecom tower business, it came across an unexpected hurdle—there were no independent players active in that space.
In an unusual move for a hedge fund, Q-India then decided to incubate a telecom tower company, Xcel Telecom Pvt. Ltd. Two years later, it successfully exited the firm by selling it to American Tower Corp. for Rs800 crore, earning a return of 2.5 times its investment.
Q-India now wants to repeat the story in financial services. The fund has narrowed down two business ideas in this space that it may want to incubate.
Q-India managing director Pranav Parikh declined to give more details, but said these specific financial services models were currently not available in India. “If we cannot do a deal, most people would move on and look for something else. However, if we think it’s different and we believe we can succeed, we don’t mind going after it to partner with professionals to create it,” he said.
Incubation is an unlikely role for a hedge fund, known more for their high-risk, high-return strategies. Incubation is rather an area for venture capital companies and private equity funds.
“I personally feel incubating a firm and starting it from scratch is a much riskier and tougher option,” said Deepak Srinath, co-founder of Bangalore-based investment bank Viedea Capital Advisors Pvt. Ltd.
Parikh is not unaware of the risks involved in start-up firms. To even the odds, Q-India would incubate two-three firms over the next three-four years, he said.
He says time and effort notwithstanding, incubating ideas that do not already exist in a market allow for a better risk-to-reward ratio. Q-India will continue to invest in growth-stage private firms and in the public market and is open to management buy-outs as well, he added.
The hedge fund has invested nearly $15 million (around Rs68 crore) in food products company Shakti Bhog Foods Ltd and $25 million in real estate company Total Environment Building Systems Pvt. Ltd’s Pune project. Q-India’s investments in private equity are in the range of $10-40 million. “We are more than a capital giver,” said Parikh. “We help companies in coming up with (the) right strategies, timing capital raising, and finance-related activities. We feel that right capital, time and partner can do wonders for a firm.”
He cites the example of Shakti Bhog, whose revenue has tripled to Rs2,700 crore in the three years since Q-India invested in it.
Q-India also sees significant debt-side opportunities, given the appetite and requirement for capital, especially in sectors such as infrastructure, and says India should look at allowing foreign debt capital. “We would be keen to look at this,” said Parikh.