Private equity (PE) and venture capital (VC) investments in retail and consumer packaged goods rose in 2012 as large companies stepped up acquisitions in a slowing economy. The investor interest in the sector will continue to be strong in 2013 as mid-tier assets will look at raising funds because the consumption story in India remains robust, said experts.
Deal value in the consumer packaged goods and retail space picked up as large companies such as Marico Ltd, maker of Parachute and Saffola; Godrej Consumer Products Ltd, maker of Hit and Cinthol; and retailers such as Pantaloon Retail (India) Ltd and Fabindia Overseas Pvt. Ltd got majority of the investments.
In retail, investments by PE and VC firms more than doubled in the first 11 months of 2012, growing 125% to $163.01 million over the past year. The funds had invested $72.45 million in the same period of the previous year, according to VCCEdge, an investment tracker. The December data has not been released yet.
Likewise, in the consumer packaged goods sector, investments increased 47% to $360.31 million from $245.27 million, said VCCEdge.
However, investors remained cautious about the online e-commerce space, which saw deal values fall even as the number of deals almost doubled.
Flipkart Online Services Pvt. Ltd, which runs flipkart.com, got close to 50% of the total investment in the sector of $325.29 million in the first 11 months of the calendar year, according to VCCEdge.
Flipkart’s $150 million deal was the single-largest in 2012 in the e-commerce space. A clutch of investors—Accel India Venture Fund, Tiger Global Management Llc, Iconiq Capital Llc and MIH Holdings Ltd—put in money in flipkart.com.
“The valuations for e-commerce portals had gone up significantly in 2011 and none of these portals has yet been able to prove their business models,” said Santosh Verma, director, investment banking, IDFC Capital Ltd, while explaining that with some of these portals having wound up in the past year, investors have turned cautious.
In late 2011, Bangalore-based e-commerce site taggle.com exited its online products retail business. Taggle had raised funding commitments of $8.75 million and $500,000 each from Battery Ventures and Greylock Advisors India Pvt. Ltd as seed investment.
Other mortalities in the space included nammagroceries.com, an online groceries venture.
Other deals in the consumer and retail space include Godrej Consumer Products raising $134.39 million from Temasek Holdings Advisors India Pvt. Ltd and Marico raising $96.32 million from GIC Special Investments Pte Ltd.
Analysts expect investor interest in the consumption space to remain strong in 2013. “In 2012, some of the smaller companies were waiting and watching and they will now revive their plans to raise capital as demand has come back,” said Ritesh Chandra, executive director and head, consumer group at Avendus Capital.
Companies such as CavinKare Pvt. Ltd, the maker of Chik and Nyle shampoo, who had in the past put off plans to raise capital are now reviving their capital raising proposals. “We had been considering raising money since 2011,” said C.K. Ranganathan, chairman and managing director, CavinKare.
A few months ago, the company revived its plans to raise approximately $75 million in the first quarter of the calendar year 2013.
“There has always been a strong investor interest in the FMCG (fast moving consumer goods) space. However there are few assets out there. Investor interest will also come back for the retail sector which will see both strategic funds and growth funds invest as foreign direct investment has now been allowed in multi-brand retail,” said Verma of IDFC.
Consumer stocks, also known as defensive stocks, found favour for most of 2011 and 2012 as a faltering economy and declining earnings drove investors away from riskier bets. BSE’s FMCG index is trading at an estimated price-earnings or PE multiple of roughly 34, which is 36% higher than its five-year average PE.