Aditya Birla Private Equity has a corpus of about Rs 1,180 crore under two funds. It invests in companies in the growth stage for a significant minority stake. Its portfolio includes CARE, Anupam Industries, Alphion, Trimax IT Infrastructure and Services, and Olive Bar and Kitchen. CEO Bharat Banka is a chartered accountant and has been with the Aditya Birla group since 1994 in various capacities. In this interview, he talks about the private-equity industry and his company’s strategy.
Excerpts:
The demand for private capital will continue. Today, the domestic market is becoming polarised. You can get capital if you are a small company with a very unique offering or then you are a very large corporate.
If you look at the last two years, there are unique players like Speciality Restaurants, Mahesh Tutorials, TBZ, Tree house — all small players — who have still been able to raise money. There are a lot of other companies which are unlisted and have been able to raise money. So, here is where private-equity players fill the void.
For unlisted companies, private-equity investors are the ones that can prepare them for the next four to five years until they can become IPOs. Increasingly, markets are becoming quality conscious. That’s where I think private-equity players are doing well in terms of deployment.
How has the industry changed over the years?
There was a small window where, earlier, a lot of private-equity investors were able to exit a few of their companies in the capital market. If you go beyond that, then there is a big space where private-equity players came in and got stuck with their portfolios. They are now coming out with their secondary-market sale. For newer private equity players who are sitting with dry powder of funds, it’s a deployment opportunity. That’s a big change that has happened. In the last one year or so, about 50-60 per cent of the deals are where the existing private equities have sold out to the newer private equities.
On valuation, there is more alignment of the companies, because they can clearly see that this is no more an arbitrage game but [it has got] to do with the fact that they are getting long-term capital, and they should be reasonable in terms of their expectations on what they should be raising from the investor. The challenges that remain are governance standards. That is the one that keeps most of the PE investors awake at night.
How will FDI in multi-brand retail affect the industry?
FDI in multi-brand retail will open up the entire space. Retail is a sunrise industry with a history of only six or seven years. Therefore, it requires a huge amount of capital.
Through FDI, more money will come in. Domestically, people who have belief will invest. Even we have investments. Recently we made an investment in a hospitality chain. In the retail industry, domestic money will not be enough.
Which sectors are attractive for investment?
We are sector agnostic. We don’t do real estate and hard infrastructure. But we are seeing opportunity in the consumption-related space. Consumption and the proxy of consumption, hospitality, BFSI (banking, financial services and insurance), IT services, education and healthcare are interesting sectors. A number of State initiatives are being laid out in rural areas. This increases their disposable income, which comes back into the market by way of consumption. We are looking at some opportunities in the clean technology space as well.
Before the end of this fiscal we should be making some investments.
The demographic change that has happened in the last two years is that a large portion of the growth is coming from bottoms up.
How much of your two funds has been deployed? In what stage is your third fund?
We have two funds — Fund I and the Sunrise Fund. Out of the Sunrise fund, we have deployed about 40 per cent, and we have deployed about 60 per cent out of Fund I. Deploying both these funds fully will take another year. Typically when two-thirds of the capital has been deployed, we start preparing for the next fund.
The third fund depends on what themes we select. We have a unique approach of raising money. We don’t usually go with a proposition to an investor. We usually engage in a three- to six-month period where we go and engage with 30-40 institutional LPs. There are few ideas which we think are opportunities. More than 50 per cent of the fund will be contributed by international investors. One big concern for them is the currency fluctuations.
Any plans to exit your investments soon?
We have made investments in ratings agency CARE. There is an IPO happening now. The DRHP (draft red herring prospectus) has been cleared by SEBI. In the next few days, they will launch their IPO. We are not exiting through the IPO. We may exit later, as we believe there will be even more value creation. Three of our companies — CARE, Trimax and Anupam Industries — are IPO-ready.