Motilal Oswal Private Equity Advisors, the private equity (PE) arm of Motilal Oswal, launched its first fund five years ago. The company is now considering a second fund of Rs 750 crore. Chief Executive Officer Vishal Tulsyan, in an interview with Reghu Balakrishnan, talks about new fundraising and exit plans. Edited excerpts:
Was the fundraising scenario challenging this time, compared to 2007?
In 2007, most funds were raised on the promise of capitalising on India's growth story. Globally, limited partnership (LP) investors are now looking for tangible results and the track record of Indian fund managers is yet to be established, as exits have been slow. This has been further compounded by the macro challenges being faced by the Indian economy. However, LPs are still willing to listen to differentiated stories through which fund manager can establish their ability to deliver superior returns.
What about the second fund? Would the sweet spot be changed from $5 million to $15 million?
We are currently raising IBEF (India Business Excellence Fund)-II, our second sector-agnostic fund. Through this, we plan to raise Rs 750 crore. The fund's preferred size of investment would be Rs 40-100 crore. We have already raised Rs 500 crore from a mix of family offices, institutional and high net worth investors. We expect to announce the final close of IBEF-II by December. While the fund would be sector-agnostic, at the same time, it would be biased towards consumption, financial services and infra-led opportunities.
IBEF-I, the Rs 500-crore fund, has been fully deployed in 13 companies across eleven sectors. Motilal Oswal Private Equity Advisors is now preparing to gradually exit its portfolio companies over the next two years. The fund successfully sold part of its stake in AU Financiers at 5.6 times the entry valuation.
What about exits from IBEF-I? Are you interested in secondary transactions?
The mode of exit is company-specific. We feel an initial public offering (IPO) exit should only be explored when the company is of a certain size. In the next twelve months, we have planned another three to four exits, which would be consummated through a combination of sale to larger PE funds, strategic sale and open market sale. In 2014, we plan to launch IPOs for two of our portfolio companies.
Would it be difficult to find an exit route for investments in power and infrastructure firms, given the recent crisis?
We believe India would have to substantially upgrade its infrastructure to unlock its growth potential. While some of these sectors currently face headwinds, we believe the issues are cyclical, not structural, in nature. Our investments in these sectors performing on expected lines, and we believe these companies have created substantial strategic value. We have multiple exit routes in these investments. In the next 12-18 months, we would manage to unlock value in these.
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How do you evaluate the current market conditions? Are these good for private investment in public equity (PIPE)?
As a strategy, we are not a very active player in the PIPE space. Even if we carry out a PIPE transaction, we will only do so if there is an opportunity for primary infusion into the company.
Currently, we have not seen much deal flow in the PIPE space, possibly because of promoters' aversion to raising capital at current valuations.