With a mandate to invest 75 per cent of its $1.4 billion fund in India, private equity (PE) player New Silk Route (NSR) Advisors has largely been sector-agnostic in its choice of firms. Its investments currently range across infrastructure, consumer, financial services, telecom/media and manufacturing, with an average deal size of $40 million and going up to about $100 million.
As NSR prepares to raise its second fund by next year, Mr Darius Pandole, Partner, at the growth capital-focussed investor tells Business Line that an exit from its first batch of investments, made back in 2007 and 2008, is likely in about a year's time. These include 9X Media, and telecom sector firms such as Reliance Infratel, Ortel, Ascend Telecom and Aster.
Five years with the first fund, will you be raising a second soon?
May be after a year or so, we will raise a new fund. We have not decided the size yet, but it could be higher. One has to formulate a strategy of investment first, and decide the fund size accordingly.
From our current $1.4 billion fund, we've committed about 65-70 per cent. That will be about $800 million.
The mandate is to invest in South-East Asia, but the principal presence is in India where we have the team, people and the connectivity. Currently, out of 16 investments, only two-three are outside India. It's much harder to set up the same infrastructure in other markets. Our investment in Pakistan (Beaconhouse School System) comes from our partners in Dubai, one of them is a Pakistani national.
Are you looking to exit the first batch of companies you invested in?
For some of our earlier investments, those made in 2007 and 2008, we are now actively exploring exit opportunities - we think it will take 12-18 months. We will look at typically an IPO or a strategic sale and most strategic investors would prefer a 51 per cent stake so that they can come in and take control.
We invest for about five years on an average, could be three years as well on a minimum. Each year, we do around two-five deals.
Which are the verticals that you see the growth coming from?
That will be infrastructure and consumer. Manufacturing also, in some senses, as that story in India is still playing out.
A lot of people are looking at the broader play in restaurants and food business. The investment in Adiga is done and we're looking around for more. We can invest in other chains and consolidate that as one platform. That will give various benefits of scale, such as the same back office, branding and customers.
We could also look at multiplexes, or retail chains – anything that has a play on the consumer dynamics, driven by the upwardly mobile Indian middle-class story. The challenge is to find entrepreneurs that are looking to scale up.
We're looking for investments in ports and logistics as well. This will typically be a larger investment, which one can do as a consortium.
Any new sectors you are looking out for?
Other than real estate, we're looking across the board. We felt that realty was a different asset class, where we didn't have the capability.
Areas that have not seen a lot PE interest is e-commerce and life sciences. Healthcare has a lot of opportunity, both on the pharmaceutical and the hospital side. E-commerce is still a young area with a lot of fragmentation and company sizes are still relatively smaller. A lot of them would need venture funding, for which we are not at the best position.
Renewable energy has huge potential and we're looking at it – this includes small hydro, wind and solar. We invested in a US company called Amonix that manufactures the PV cells, apart from Mumbai-based Kiran Energy, a solar power generator.
What are the obstacles that lie before the PE industry?
One challenge that India has traditionally faced is because it is a market that from a macro perspective seems very attractive to investors, it gets a lot of competitive interest from global funds. As a result, entry valuations are somewhat higher than its peers. However, this is balanced out by the higher growth.
The critical challenge now is that the PE industry has to demonstrate more exits. If that happens, and thereby money is returned back to investors with adequate returns, then the floodgate of more funding will open. Till such time, many global investors are adopting a wait and watch policy.
Recently, more IPO windows have been shut than open. A big avenue for exits in India is a strategic sale. A lot of foreign companies are looking to enter, in which case you sell to them. Listing abroad is also an option, we've already seen evidence of that. There is a pool of capital that is looking to invest in Indian companies, but they cannot do it here.
After the recent experience in telecom, would you be averse to investing in heavily regulated sectors?
People want the stability of regulatory regime and India has always offered that, unlike China, which is a different ball game. There is an element of such risk in certain sectors that may have an impact on our investments. Typically in India, with the exception of the Vodafone issue, regulations have never changed in a retrospective basis. This can have a very damaging effect on future investments.
The telecom sector is seeing a lot of issues and volatility. However, it's a sector that we understand, so we're evaluating this at all times.
The power sector has also gone through much crisis in the last few years, but typically what you see in India is that only when an industry goes through crisis, you see a clear policy emerge. You can't argue about the potential of the power sector, if you have to maintain GDP growth. Its one of those few industries where once you set up a utility, selling is the least of your problems.