 "Vishakha Mulye")
Average private equity (PE) deal sizes are increasing in India, with more action in $50-million investments than earlier. While this has led to some PE firms raising large funds, ICICI Venture is embracing a co-investment model with increasing demand from its limited partners to capture the opportunity. One of the oldest domestic PE firms, it has fully exhausted a $400-million PE fund raised in 2009 and is in the process of raising the next one. Vishakha Mulye, managing director and chief executive officer, spoke with Abhineet Kumar. Edited excerpts:
What is the update on your fundraising plans?
We have funds across four verticals, including private equity (PE), real estate, special situations and infrastructure. Across our various offerings, in the market, we expect to raise about $500 million by 2016. We are targeting different themes in each of these. For instance, growth equity in consumption spaces and consolidation opportunities in the infrastructure sector.
Our special situation fund, Aion, a joint venture with Apollo Global Management, was raised last year with a corpus of $825 million. We have invested about $250 million of this. Currently, we are in the investment phase for this fund, which has a flexibility of investing across the full capital structure.
You have also been planning a new platform for investment in the power sector. What is the update?
We have been exploring non-traditional fund models for some time. In some cases, these could be with other strategic players. I believe it would also be relevant for certain types of limited partners (LPs) that are interested in holding long-dated, de-risked, operating assets. The combined proposition of ICICI Venture as an asset manager and a strategic power company as an operating partner would enable acquisition of assets. The opportunities are immense in the sector and the risks are reasonably well crystallised.
A lot of power projects are complete or near completion, so, most of their risks have already surfaced. There appears a good consolidation opportunity here due to leverage overhang in the sector.
Your peers are raising PE funds with more than $500-million corpus. What fund are you looking for?
As deal sizes are getting larger, there is a clear shift in the philosophy for fund management. LPs now want to co-invest more. Earlier, the action was in $30 to $35-million deals but now, $50-million deals are the norm. There is opportunity to do large deals. Hence, the fund sizes are getting larger. However, one has to evaluate an optimum fund size based on its thesis. The Indian market has matured to a significant extent and different general partners (GPs) seem to be working on their thesis. Accordingly, fund sizes would vary. We will also decide our fund sizes based on a fund's objectives and not on the basis of those other GPs.
What deals are you targeting from your next PE fund?
On the investment side, our thesis is to typically do significant minority growth deals in unlisted companies. We will also be looking for opportunities for buyout or controlled deals, limited in India. We want to play an active role with sponsors in running strategy for a company. We are typically looking at investing 10 to 15 per cent of a fund in each deal. So, it will be eight to 12 deals per fund.
Buyout deals are rising in India. What contribution are you expecting from this?
ICICI Venture has a rich history in doing controlled and buyout deals. In developed markets, such as the US, a majority of the deals continue to be buyouts or control transactions; minority-style growth investments are a smaller part there. In India, especially in certain sectors, one would need to be cautious about doing buyouts. Also, norms do not encourage such deals in India, as leveraged buyouts are not possible and de-listing is a tough exercise.
What sector or theme are you looking at?
Consumption will still drive growth in India but unlike the past 10 years. This time, we are also looking to invest in manufacturing, where we have not done any investment in five to six years. Manufacturing will come back if growth has to come.
Also, with the dollar where it is today, you will find existing assets much more attractive than creation of a new one. Beside, at current dollar prices, export has become more competitive. So, manufacturing like speciality chemical, will be good. So, we will invest in niche players where we have an advantage. Also, other consumption-led sectors such as pharma, hospital and financial services will continue to grow.
So will financial intermediaries. And, non-banking financial companies, which will specialise in mortgages, will be exciting.
What is your view on investment in information technology?
The majority of PE money is still getting into information technology (IT). It is now basically across three areas, of product companies, service providers and those into new technologies such as cloud-based services. E-tail is still more on the consumption side.
In IT, while consolidation play is possible on the product side, service-side model needs to be reinvented. The advantage India had at one point of time with the cost arbitrage from a staffing standpoint is being challenged. Also, e-tailing is here to stay as a sector. This is because mobile telephony has changed the nature of the game, with smartphones widely available. Large companies now are getting ready to leverage this. The only question is about high valuations. Are these justified? Every investor has their own view.
