Home / Companies / IDFC PE targets up to $200 mn investment in four-five deals a year

Mumbai: The private equity (PE) arm of asset manager IDFC Alternatives Ltd wants to invest $150-200 million in four-five deals every year by identifying smaller companies and backing them early in their investment cycle, managing partner and chief executive M.K. Sinha said.

The PE division wants to invest in firms that are focused on rural consumption, agribusiness and foods, valued-added telecom services such as broadband and WiFi, and healthcare and education, Sinha said.

The firm, which has undertaken three rounds of fund-raising since 2004, has invested 5,000 crore in 36 firms till date. It is targeting returns of around 20% from its investments.

“Our strategy is to identify growth firms that are based out of cities where there is tremendous amount of growth. We are looking at companies based in tier-II and tier-III cities," Sinha said.

The PE firm, which plans to invest between $30 million and $50 million on each deal, expects to generate leads with the help of parent IDFC Bank Ltd, which launched operations as a commercial bank on 1 October, having earlier been an infrastructure finance company.

IDFC Bank has 23 operational branches—15 in three districts of Madhya Pradesh and the rest in Mumbai, Bengaluru, Pune, Chennai, Kolkata, Delhi and Ahmedabad.

This will give IDFC a broader reach in both geographical and industry coverage—from being a Mumbai-based team earlier to a team based across all major business cities in India and from covering only infrastructure clients to being present across several industries.

IDFC PE will take the bank’s help to identify firms that are “unheard of but promise strong growth", said Sinha. “The fact that we are becoming a bank, the fact that we will have our tentacles in the far hinterland of India will give us deal origination capabilities."

IDFC Alternatives’ PE arm has identified value-added telecom services as the next engine of growth for the telecom sector, given the rising Internet penetration in India. Growing rural demand for discretionary items such as clothing, footwear and other products will also make smaller manufacturers an attractive bet for investments for the PE division, said Sinha

IDFC Alternatives currently operates under three segments—PE, an infrastructure fund, and a real estate fund. In 2012, its PE fund III invested in agricultural firm Staragri Warehousing and Collateral Management Ltd, which provides warehousing, procurement and collateral management of agri-commodities, and Mumbai-based dairy products maker Parag Milk Foods.

The multi-asset class manager, whose investors include global pension funds and sovereign wealth funds, is in early stage of planning to launch a fourth vertical—private debt—which would require setting up a new dedicated team. The new vertical, which will be similar to the collaboration between Singapore’s sovereign wealth fund GIC Pte Ltd with PE firm KKR Ltd, is at business development stage and would take about three to six months to be finalized, said Sinha.

Alongside investing in smaller firms, the PE division will also be open to the idea of building new companies, said Sinha.

IDFC Alternatives set up renewable energy firm Green Infra in April 2008, which it sold to SembCorp Industries Ltd in 2015. It also set up telecom tower firm Viom Networks Ltd through a merger of the telecom tower businesses of Tata Teleservices Ltd and SREI Infrastructure Finance Ltd, led by the Kanoria family.

“There are definitely companies emerging out of smaller places (cities). And, I think, this is going to change things, especially in the financial services, healthcare and consumer sectors," said Vikas Khemani, president and chief executive at Edelweiss Securities Ltd.

PE investment in India in the nine months to September touched $13 billion across 504 transactions, according to data from Venture Intelligence, a research service focused on private company financials, transactions and their valuations.

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