Bangalore: In March last year, bang in the middle of the financial crisis, Rajesh Srivastava made a tough decision. The chairman and managing director of Rabo Equity Advisors Pvt. Ltd decided to go ahead with the launch of Asia’s first agri-business private equity (PE) fund in India, and that too at a time when most home-grown investors were either sitting tight or eyeing exits.
India Agri Business Fund has closed four deals in the first 10 months since its launch, equivalent to any other active investor in the country. In December, it invested around Rs30 crore in the Delhi-based Daawat Foods Pvt. Ltd for a 29.5% stake.
Rabo Equity was among a handful of PE firms that swam against the panic tide that had gripped the investment world because of the 2009 slowdown, picking up plum deals in India when others had withdrawn into their protective shells. These new funds focused mainly on sectors driven by domestic demand and not too susceptible to global economic movements.
Investor Atul Khekade, for instance, found 2009 a good year?to?raise?an investment firm focusing on real estate and infrastructure. Netz Capital’s debut investment in August-September was in a private airport 80km from Mumbai. Khekade didn’t give details of the investment, but says Netz Capital’s business thesis is to take majority stakes.
India story: Fung Capital’s managing director Rajesh Ranavat.
“Such a downturn is actually a great opportunity to get into the investment business since a lot of assets and companies are in desperate need for cash, and everything is available for less valuation,” he says.
These new investors say they see some cash crunch remaining in the market for the next two-three years, making it an interesting opportunity for long-term gains. They are also betting high on their specialized sectors. “While most sectors have suffered, agriculture and food didn’t get badgered,” says Srivastava. “The simple logic?is?that?people?have to eat.”
Another fund that was launched in 2009 is Milestone Religare Investment Advisors Pvt. Ltd, which focuses on education and healthcare. The joint venture between Religare Enterprises Ltd and Milestone Group has backed two firms.
The Hong Kong-based Fung Capital, too, made its maiden investment in India last year, picking a 26% stake in Future Group’s logistics arm, Future Supply Chain Solutions, for $30 million (Rs138.6 crore). But the challenge for investors during a downturn is in raising funds “when people are reluctant to invest and banks are reluctant to lend”, Fung Capital’s managing director Rajesh Ranavat says in an email.
Funds launched in 2009 had to field tough questions from their limited partners (LPs) on viability of investing at a time when the future looked more bleak than bright. “Our anchor LP is in the US and he needed convincing. He was getting all kind of negative news at that point,” says Sandeep Daga, director, Nine Rivers Capital Holdings Pvt. Ltd. “We had to go back to them, revalidate our investment strategy and retell India’s growth story backed by numbers.” The $125 million firm has invested in GPT Infraprojects Ltd and Pranav Construction Systems Pvt. Ltd.
Last year, a new investor ventured into the seed and early-stage funding arena, considered the most risky due to the still-evolving business models of the firms. The Kolkata-based Navam Capital, a clean-technology and energy-focused firm, has backed EnNatura, a start-up incubated at the Indian Institute of Technology, Delhi. Navam closed the deal in December.
These investors say the only difference in starting in bad times is in the number of deals that could have come their way. Says?Rajesh Singhal, managing partner, Milestone Religare: “But we do realize that these are temporary times.”
Timing the downturn, though, may not have been a result of a well-thought-out strategy for many of these new funds. “They had raised funds before the Lehman collapse. They had capital, so they started investing,” says Vikram Utamsingh, executive director of audit and consulting firm KPMG India Pvt. Ltd and head of Private Equity Group, an advisory firm for PE investment in India. The bankruptcy of US investment bank Lehman Brothers Holdings Inc. in September 2008 had hastened the spread of a liquidity crisis across Europe and Asia.
Still, the new funds are filling a gap created by the inactivity of traditional investors that had set shop in India but were reluctant to invest in 2009, says Raja Sujith, a partner at Majmudar and Co., an international law firm. “There is an opportunity to invest because people are not investing. There is a vacuum.”