IAS Balamurugan is passionate about Tamil literature and history. No wonder that when he floated a venture to provide debt to small and medium enterprises, he named it Anicut Capital; anicut means a dam in Tamil. Balamurugan is heavily into Chola history, though he himself hails from southern Tamil Nadu, which was under a different dynasty. And, Anicut Capital’s first fund was Grand Anicut Fund I, the name coming from a dam built across the Cauvery by a Chola king.

Anicut Capital, says Balamurugan, 49, who has an engineering degree from Thiagarajar College of Engineering, Madurai, and an MBA in Finance from Madurai University, is in the process of raising a second fund, of up to ₹1,000 crore, including a greenshoe option. The first fund of ₹400 crore has been invested in 21 companies, of which there have been nine exits.

Spotting business opportunity

Balamurugan, who has wide experience in companies such as DCM and in the financial services sector in Citibank and ICICI Bank, first started a company to advise family offices. While he was doing that he spotted an opportunity to provide bridge and mezzanine debt to small and medium enterprises, a sector that banks were not keen on lending to. He teamed up with Ashvin Chadha, who has more than 15 years of experience in the financial services sector, to start Anicut Capital.

Fund 2, says Balamurugan, will be sector agnostic, but will not invest in real estate and in companies that have a significant government exposure. Its focus will be on mid-size companies with a turnover of ₹100-500 crore. The cheque size will be ₹10-60 crore with a tenor of one to three years. Fund 1, he adds, has made 15 quarterly income distributions amounting to ₹160 crore since its first close in August 2016. Fund 2 has made four quarterly income distributions since its first close in May 2019, amounting to ₹17 crore. Anicut has raised ₹270 crore of the proposed ₹1,000-crore second fund and is confident that it will achieve full close in the next few months.

Focus areas

According to him, SME credit is too asset-focussed and Anicut Capital is looking to create a market for cash flow based credit calls. Anicut’s portfolio includes dairy companies such as Milky Mist, and pharmaceutical companies. For instance, he says, when a small-size pharmaceutical company was looking to buying the brands for India and South Asia from a Swiss pharma firm, Anicut was the lender of choice because it could sanction and disburse the amount in a really short time, unlike banks which would have taken a couple of months.

Anicut’s strength is being able to provide debt to companies that are looking for money to complete an activity or are looking for a bridge loan. In some cases, Anicut Capital will also take equity positions in the companies it lends to. For instance, if it has a ₹60-crore exposure to a company, it will take equity warrants for ₹12 crore at current prices. “On my invested amount, I try and take anywhere between 10-20 per cent equity warrants at prices prevailing on the day of the investment,” says Balamurugan. “We are not,” he adds, “in the business of reducing the cost of borrowing. We are in the business of making it more organised and growing this segment.”

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