L Capital Asia will not commit more funds to existing Indian investments4 min read . Updated: 22 Mar 2016, 10:09 AM IST
L Catterton, the combined entity after the L Capital-Catterton merger, will also look at categories like packaged consumer goods, fast food and consumer services
Mumbai: L Capital Asia, the private equity fund sponsored by LVMH Moët Hennessy Louis Vuitton SA and Groupe Arnault, will not commit additional funds to its existing investments in India.
L Capital Asia currently has investments in Fabindia Overseas Pvt. Ltd, which it entered in January 2012, and Genesis Luxury Fashion Pvt. Ltd, an investment that dates back to July 2011.
The fund exited from PVR Ltd and its subsidiary PVR Leisure in which it had invested in late 2012.
The investments in India were made from its first fund of $637 million that was setup in 2009-2010. In 2014, the company raised a second fund of $1 billion. Groupe Arnault is the family holding company of LVMH chairman and chief executive officer Bernard Arnault.
“All three assets in India were from the first fund, which has come to the end of its investment period. We do not expect to deploy any capital behind the existing assets in the near term," said Ravi Thakran, managing partner, L Capital Asia and group president of the south-east Asian and Middle East operations of LVMH Group, which owns Louis Vuitton, Moet Hennessy, Dom Perignon, Dior, Fendi, Givenchy, Bulgari, TAG Heuer and Sephora in an email interview on 9 March.
Thakran added that his company is open to partnering with these companies in the future.
After its initial investments in the country, L Capital has gone slow on committing funds to India because of the challenging macro-economic environment.
“Post mid-2012, India went through a challenging phase where a combination of regulatory and macro-economic factors distorted the investing landscape, and there has been a perennial challenge of high valuation multiples in India compared to other Asian markets," said Thakran adding that the company has been unable to identify any compelling opportunities in India.
As the regulatory and macro environment improves, Thakran is hopeful of again making fresh investments in the country.
To be sure, since 2010, private equity and venture capital investments in the apparel, accessories and luxury goods sector have declined for five out of six years, according to VCCEdge, the financial research platform of VCCircle.com.
The scope of investments for L Capital has also widened following its global merger with consumer-focused private equity firm Catterton in January. L Catterton, the combined entity, will also look at categories like packaged consumer goods, fast food and consumer services besides its traditional focus on lifestyle consumption, said Thakran while pointing out that L Catterton will become the largest global consumer-focused fund.
In India, the company has also evaluated a few deals in the e-commerce space given its high growth and potential.
However, Thakran finds that e-commerce businesses in the current phase of evolution in India come with relatively high mortality rates, which is more suited to a venture capital portfolio, unlike a private equity portfolio where investors expect a stable return profile. Similarly, valuations in the sector are also challenging for traditional investors.
While L Capital has gone slow in India, in the last three years, the fund has made over 15 investments in countries like Australia, South Korea, the United Arab Emirates, China, Singapore, Taiwan and even in Europe, according to its website.
On average, L Capital looks at an investment period of 3-7 years for each asset, though this could vary on case-by-case basis.
In India, the company has made one exit in the country in 2015. PVR’s share price had risen from less than ₹ 200 per share in 2012 to ₹ 750-800 per share at the time of the fund’s exit, Thakran said in the email, adding that the returns generated were clearly healthy.
Its other two investments have been growing in double digit along with margin expansions, said Thakran, while declining to share exit plans from these investments.
Genesis Luxury Fashion, which retails brands like Jimmy Choo, Bottega Veneta, Canali and Giorgio Armani, had a profit of ₹ 10.64 crore on revenue of ₹ 260.64 crore in financial year 2015 according to documents filed with the Registrar of Companies (RoC). L Capital GLF Ltd owns 41% in Genesis Luxury while parent Genesis Colours Pvt. Ltd owns 54% and group managing director Sanjay Kapoor owns 5%.
For the financial year 2015, Fabindia Overseas, a retail chain that sells products made from artisanal and traditional techniques appealing to contemporary urban sensibilities, saw its profit decline by 17.3% to ₹ 38.62 crore from ₹ 46.68 crore a year-ago. Revenues grew by 15.1% to ₹ 1,138.39 crore from ₹ 988.71 crore a year-ago, according to filings with the RoC.
The apparel, accessories and luxury goods sector has seen 67 deals between 2010 to 2015 and 15 exits in the same period according to VCCEdge.
As such, the luxury and even retail is a very niche sector to invest besides being difficult and complex. Additionally, the gestation period is slightly longer. “On an average in the first 3-4 years, companies in this sector are a loss making proposition given the high rentals and costs of operations. It’s only in the fifth year that the finance model turns around," said Anil Talreja, partner at consulting firm Deloitte Haskins and Sells while explaining that for an investment of $10 million to make even 8% returns it will take over seven years.
Also there are not that many large private equity deals available in the country. The average ticket size for deals in the country is $5-7 million which is more suited for venture capital, said Talreja. “For every 20-25 VC deals that take place in the sector there could be one PE deal happening."