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An appetite for risk in a time to feast

"If a company goes public too early in its lifecycle, it falls on its face?, Ravi Adusumalli tells Prerna K Mishra.

india Updated: Apr 14, 2006 12:47 IST

After the famine in the Indian private equity and venture capital landscape since 2002, it’s time to feast. The ecosystem is ripe with fund carriers closing India-focused funds. And the appetite for risk was never greater. “Since January this year, the shift in mindset is more than visible. India and China are no longer allocated funds under the emerging market category.

They are treated as an individual class,” Soft Bank Asia Development Fund General Partner and Head of India Operations Ravi Adusumalli told Prerna K Mishra. Excerpts:

Is there a resurrection of confidence in the Indian private equity market. Is it time to commit more funds to India?

When we came to India in 2002, we were not really bullish about the country with only 12 to 13% of the fund earmarked for India. We had our eyes more on China and Korea. Under the second fund that was worth $650 mn and closed in 2005, we expect to invest nearly 20 to 25%in India. We plan to float the third fund in 2007-end. This would be anywhere between $800 mn and $1 bn. Under this, 30% of the investment will be India-focussed.

Has the average size of investments gone up?

The average size of investment was about $10 mn under the first fund. It went up to $1520 mn under the second fund. We have just closed the deal with Jindal Polyfilms under the second fund. But we expect the deal size to go up to $25 mn under the third fund.

With the interest of private equity funds fo cussed on mid and later stage investment in India, do you think the market is getting very competitive?

It’s true that we all may end up vying for similar companies. But what is more interesting about India is that with the bourses being on a high, private players are having to compete more with retail investors rather than other funds. Most companies are choosing to go public and ride on high market sentiments.

Is that good or bad?

One has to be cautious. Presently, some of the companies going public are garbage. It makes sense for bankers to earn a hefty fee in the process and the companies themselves are lured by the glamour of the market. But if the company goes public too early in the lifecycle, it usually falls on its face. And with retail investors entering the fray last, they are the ones who take the worst hit. It has happened before and it is on again.

What areas look promising apart from the normal suspects like BFSI, telecom, IT, media?

We have expanded our focus to manufacturing and retail, especially processes down the supply chain that presently have low multiples but have a 40 to 50 per cent growth rate. Retail is good but others areas that have a straight co-relation with the sector look better.

What does future look like for funds like yours?

We believe that hopefully with the norms to list on the Indian bourses becoming more stringent, smaller companies will be unable to tap the market with such ease. It’s then that the retail investors will go for bigger deal, emptying the private equity space to pure cash carriers. We would not be competing for the same pie and that would be a healthy sign for the entire ecosystem.