Oklahoma-based Argonaut Private Equity invested $7.5 million (Rs30 crore) in a second round for 73-year-old Kerala-based spice company Vallabhdas Kanji Ltd (VKL) last week. This investment brought its India total to $260 million since 2004. Argonaut has made 11 private investments in companies including Midas Communication Technologies Pvt. Ltd, Koutons Retail India Pvt. Ltd, Zylog Systems Ltd and Shriram EPC Ltd. Argonaut manages an evergreen fund of $3.5 billion for an undisclosed US-based charitable foundation, which is focused on eradicating childhood poverty. The 12-person team invests in the US, Israel, Australia, China, India, South Korea and Eastern Europe. Anil Khatod, managing director and lead partner for India, explains why the VKL investment was uncharacteristically below $10 million and what he expects from the Indian market in the next year. Edited excerpts:
Why did you invest in VKL now?
VKL’s main business has been selling bulk spice, but in the last three years they have anchored three other businesses. With these businesses they will be expanding manufacturing and sales and marketing as well as looking for acquisitions domestically and abroad.
What are the businesses?
They are creating private-label spices for international retail grocery chains in the US and England. Second, they are supplying seasoning to companies such as Pizza Hut, Domino’s, KFC and Frito-Lay. And they are creating artificial flavours and fragrances for India and exporting.
Open approach: Argonaut managing director and lead partner for India Anil Khatod.
Many sub-$10 million investments are in start-up companies. Why did you invest this amount in VKL?
We wanted to invest more, but they didn’t want to dilute further. They already have an investment from UTI Ventures. Usually, we invest $10-20 million. But with only one limited partner and three investing partners, and no set time for investing, we don’t have to worry about the size of the investment. If they do an acquisition, we do hope to be a source of funding.
What is your investment approach in India?
In the last 18 months, we have become active here, investing $250 million. We don’t have restrictions in India and are a foreign institutional investor, foreign direct investor and foreign venture capital investor. And we look across sectors except real estate. We have a two-person investment team at Nariman Point, but will be expanding.
You had a lot of activity in the last 18 months. Do you see that continuing?
I think 2008 is likely to be a range-bound market, meaning that it won’t be a spectacular market like 2007. I think it will make valuations more attractive. We look at this as a buying opportunity.