New Delhi: Hong Kong-based Fung Capital is the family office fund (essentially a fund based on investments from large business families) of brothers Victor and William Fung, chairman and group managing director, respectively, of Li and Fung Ltd, a group with $16.7 billion (Rs80,494 crore) in revenue. The multinational is present in three areas: export, distribution and retailing.
Fung Capital recently invested up to $30 million in Future Group’s logistics arm Future Supply Chain Solutions Pvt. Ltd (earlier known as Future Logistics Solutions Ltd) and plans to develop a logistics business in India. It also plans to bring some of its UK-based high-end menswear brands such as Hardy Amies to India and is looking to partner with Future Group for this.
Seeing value: Fung Capital’s managing director Rajesh Ranavat.
Rajesh Ranavat, managing director of Fung Capital, spoke to VCCircle, a Mint content partner, on the firm’s investment strategy in India. Edited excerpts:
What is Fung Capital’s investment strategy in India?
We will invest in businesses where we see high growth potential. In that context, in India, as one of the emerging markets, we see very good potential for modern retailing and the services which support the supply chain. Considering that, Future Supply Chain Solutions is a very attractive investment for us. Besides supporting the growth of Future Group’s retail businesses, the plan is to develop a logistics business which can serve other third-party customers as well.
Presently, the logistics industry in India is very unorganized and fragmented. The opportunity lies in value-added services to enhance the supply chain by using technology and sophisticated process management. Future Supply Chain Solutions is developing its business models on those lines where it would provide not only transportation, but also storage services and other essential services like packaging, labelling, reverse logistics, etc. We are targeting up to a 26% stake in Future Supply Chain Solutions at an investment of $30 million.
What was so compelling about Future Supply Chain Solutions?
A key factor was the strength of its management team and its track record in establishing a pan-national logistics network in India to support Future Group’s (retail’s) successful expansion over the last few years.
The other factor was Future Logistics’ two-pronged strategy: to support Future Group’s (retail) high-growth operations, its allied businesses and vendors, and also to offer services to other third-party customers. At present, the company is offering services mainly to Future Group (retail).
Would you be looking at opening an office in India?
I don’t think we have an intention of having an India office. We have offices in Hong Kong, London and the US, and we have our own service providers, legal professionals and financial advisory firms. We can move very quickly with the support we have and do not require on-the-ground presence in India.
Would you also look at late-stage or distressed investing?
We will look at special situations and specifically, small- and medium-sized companies. It will largely depend on the circumstances and an assessment of whether our involvement will substantially improve performance. Typically, we look at partnering with other investors as well.
Any particular reason for your interest in logistics in India?
India provides great potential, as the logistics industry is currently at an embryonic stage and the government, as well as the private sector, are contemplating substantial investments in the logistics infrastructure. We have a very deep understanding of how the supply chain works. That is where we can add our expertise to the investee company and to our business partners. Fung Capital is not the typical private equity (PE) outfit—this is the PE arm of the Fung brothers. We are a family office fund and have more flexibility than a typical private equity fund.
What are the other sectors that look good to you?
One of the sectors we are looking at (is) brands in (the) fashion segment. We are not interested in locally-based brands, but in global brands which can be introduced to India, as well as to China and other growing economies. We are looking at brands which are already established in the US and European markets and where there is an opportunity to bring them to the Asia-Pacific region. We already own some of the high-end menswear brands like UK’s Hardy Amies and others. So we could bring those brands to India and might partner with Future Group for this (Fung Capital recently acquired the global sourcing operations of fashion brand Tommy Hilfiger).
Is this a good time to invest in India. Are the valuations realistic?
No time is good or bad as long as deals can be concluded at reasonable valuations. I think Indian entrepreneurs and businesses are becoming aware that valuations in the past were often unrealistic. Now they are reaching a level where investors can start seeing value.
But do you think Indian businesses are comfortable diluting stakes?
This is one of the big challenges for old, family-run businesses in India. New entrepreneurs like Kishore Biyani (founder of the Future Group) and companies like Infosys Technologies Ltd have a different mindset. Such promoters and businesses are not worried about the need to have a substantial majority stake.