In a sign that investors, both domestic and foreign, are seeking out opportunities in India's smaller cities, Aureos Capital, a London-headquartered private equity group focused on small- and medium-sized enterprises, plans to launch a second India-focused fund.
“Aureos is going to be an India-focused fund with the ability to invest a small proportion in Sri Lanka and Bangladesh,” said Mr Raj Morjaria, partner at Aureos Capital at a meeting in London. “It is going to be a sizable fund,” he added. The group hopes to launch the fund in early 2012, and has three partners in place.
To build on existing plan
The new yet-to-be-named fund will focus on smaller cities will build on the strategy already in place at Aureos' existing South Asia Fund, which has sought out opportunities in states such as Rajasthan, Bihar, Orissa, Chhattisgarh and Madhya Pradesh. Investors in the funds include European institutional investors and high net worth individuals focused on India.
While the South Asia Fund has made acquisitions in the larger cities most recently acquiring a stake in Chennai-based publishing services provider Newgen, it has made investments in smaller cities, where the growth in demand to date have largely been overlooked by investors.
Unexplored
“There is a depth in the Tier-2 and 3 cities that are just not being serviced,” said Mr Morjaria. “We are able to find businesses that have good pricing and attractive businesses that actually need our help, not necessarily with how to run the businesses but with governance, management, recruitment systems. In particular, Aureos targets businesses that are growing as a result of urbanisation, technological advances and regulatory changes.”
Last year, the company invested $10 million in BSR Super Speciality Hospitals Ltd, which owns a hospital in Bhilai and a cancer hospital in Chhattisgarh, as well as several diagnostic centres.
The company insists that finding exits to such investments in smaller cities won't be an issue, targeting trade buyers in particular. “In these markets the driver is the type of business and we have found exits,” says Mr Morjaria.
Aureos has a number of Asian funds including a Central Asia, a China, and a Malaysia fund, as well as others in Latin America and Africa. Its funds have invested around £520 million to date. The fund has recently opened a regional headquarters in Singapore, which acts as a hub for its growing interests in Asia.