PE investments in agri-business slowly picking up

Private equity (PE) placements in India's agribusiness sector have increased from 2 in 2008 to 12  in 2012. The total PE investment in the sector has gone up from $38 million to $ 53 million during this five-year period, according to  KPMG India partner, Rajat Wahi.

PE firms are looking at investing in agribusinesses that provide transparency in their operations, funding and their assets including any land that is attached to the business. “They are also looking at businesses that have strong access to the rural markets that can be used for building up distribution of other brands/products,” Wahi told Business Standard.

He said a lot of transactions in which KPMG was currently advising were in the food and processed food sector pertaining to a range of products including jams, sausages and chips. The PE firms were finally looking at businesses that would be scalable so that they could grow with further investment and take market leadership in a sector or an area.  

“Big companies are now showing a lot of interest in the acquisition of small regional companies, which have Rs 200 crore to Rs 300 crore business. I am not saying they are acquiring but they are showing interest,” Wahi said.

This is despite the fact that agribusiness in India is bogged down by various problems like lack of good logistical support, long supply chain and multiple regulatory issues.

“At the end of the day India is a country with 300-400 million middle-class people. So there is a huge potential,” Wahi said explaining why big companies were coming forward to invest in the agri business sector.

According to a recent Ficci-KPMG report, the Indian food sector is poised for rapid growth and is expected to reach a size of Rs 400,000 crore by FY15.

Commenting on the modern retail sector, Wahi said small format stores were unable make money due to various factors like high cost of real estate and supply chain management.

Stating that the sector was also bogged down by  very complicated systems, he said, “two retailers recently told us they typically needed 53 licences to set up a store. It can go up to 83 licences in certain areas. So, they have a full team only for managing licences.”

Keeping all these in view, he said KPMG was advising its retail clients that they should look at India in a  long-term perspective — 5-10-year period. Also, they should focus on one area or one or two states where laws are similar and then expand to other areas.