Mumbai: Singapore state-owned investment company Temasek Holdings Pte has agreed to buy a 19.99% stake in Godrej Agrovet Ltd, a unit of Godrej Industries Ltd, for 572 crore in what will be the largest investment in agriculture-related businesses in India this year.

Godrej Agrovet, a diversified agri-business company, has interests in animal feed, oil palm plantations, agri-inputs and poultry. It reported sales of 2,439 crore in the year ended 31 March.

The investment by Temasek will be a combination of primary and secondary investment components, and the primary investment is intended to support Godrej Agrovet’s expansion plans, Godrej Industries said in a statement.

“Indian agriculture is at an inflection point and with Godrej Agrovet’s focus on research and development and operational excellence, we believe that the future looks very bright for the business," said Nadir Godrej, chairman of Godrej Agrovet.

This is the second investment by Temasek in a Godrej group company. Earlier this year, Temasek invested $136 million to buy a 4.9% stake in Godrej Consumer Products Ltd, the maker of Cinthol soaps and Good Knight mosquito repellents.

“We are pleased to have another opportunity to partner with the Godrej Group in what is an attractive sector in India," said Rohit Sipahimalani, Temasek’s India head.

HSBC’s investment banking arm advised on the transaction.

Experts say there is significant investor interest in agri and allied businesses such as food processing, warehousing, logistics, dairy and machinery. “Food prices are going up, arable land is shrinking, peoples’ food habits are moving from basic to processed eatables... All this means there will be greater demand for such businesses," said Mayank Rastogi, a partner at private equity (PE) and transaction advisory services of Ernst and Young in India.

Furthermore, since the global financial crisis of 2008, PE investors in India have been betting on the consumption theory, saying the demand for food, education and healthcare tend to remain relatively unaffected by market upheavals.

Rastogi said that strategic alliances and public share sales provide viable exit routes for investors in such businesses.

Shares of Godrej Industries fell 1.85% to 308.15 on BSE on Monday. The exchange’s benchmark Sensex shed 0.38% to 19244.42 points. The announcement was made after markets closed.

Private equity investments in India have fallen 17% this year to about $3.3 billion, according to data compiled by Thomson Reuters. The number of transactions in the agri space is also falling, though deal values have more than doubled this year. Till 16 November, there have been five PE investments in the agriculture sector worth $116 million, compared with 12 deals worth $58 million in the same period a year ago, according to VCCEdge, which tracks investment activity.

Another investment banker said as agriculture and allied businesses are growing at a compounded annual growth rate of 30-40%, ticket sizes of PE investments in this sector will increase substantially over the next 18-24 months from the current average ticket size of 100 crore to 150 crore.

“Investors will give companies higher multiples for growth. Interestingly, growth will not get plateaued for such firms despite a bull run," said a Mumbai-based investment banker, who did not want to be identified. He said seed firms will see immense growth potential as well as significant investment interest from financial and strategic investors.

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