 "Ravi Thakran")
Ravi Thakran, chairman and managing partner of L Capital Asia, the private equity arm of French luxury goods giant LVMH group, talks to Raghavendra Kamath about the firm's plans for India. Edited excerpts:
There were reports that you're selling stake in Fabindia...
What you have heard is extremely speculative. As a matter of policy, we do not comment on speculation.
How would the creation of L Catterton impact the Asian operations of L Capital?
In a multi-polar and digital world, evolving consumer segments will span currencies, cultural affiliations and countries. L Catterton will bring more opportunity for our brands and investee companies to establish a global footprint.
L Catterton Asia's team comprises not only investing faculties but also rich operating expertise and ecosystems from leading consumer companies in Asia. The team, which will continue in toto, will work on portfolio management and exits from Funds 1 and 2 that have already been deployed and preparing for future growth initiatives. Our deep working relationships with our portfolio companies will continue as they have in the past.
L Capital has not done many deals after the initial deals. Are you finding it difficult to find right investee firms?
At L Capital Asia, we like to play the role of value-added investors, with a very deep and singular focus on lifestyle consumer businesses across the domains of consumer product brands.
While we initially started with a very strong focus on China and India, today our reach is pan-Asian, with investments in China, India, Australia, Singapore, Taiwan, South Korea, United Arab Emirates, etc.
Our approach to investing is a combination of top-down assessment of various sub-sectors, and bottoms-up assessment of individual businesses. The idea is not to have pre-conceived notions of investing a particular amount in a country or a sector.
A key challenge with the India market relative to other Asian markets has been the rich valuations of consumer companies, owing to scarcity of high-quality assets with scale. So, it has been a question of weighing the relative merits of investments. This is not to state that we're not reviewing investment opportunities in India, which we are, but that we are under no pressure to deploy capital in the country.
Why has L Capital stayed away from e-commerce here?
By nature, we come with a later stage orientation, and we find the value we bring to the table can be more effectively harvested once a business has achieved a certain scale. On the flip side, e-commerce businesses in the current phase of evolution have come with relatively high mortality rates, which is more suited to a venture capital portfolio, unlike a private equity portfolio where investors expect us to generate a stable return profile.
Are you looking out for new opportunities in retail? If yes, what kind of categories and opportunities are you looking at?
At L Capital Asia, our focus is across key segments of lifestyle consumption, across the domains of consumer product brands (in categories such as fashion, accessories, footwear & handbags; watches & jewellery, home decor, etc); beauty & wellness; lifestyle food & beverage; selective retail & distribution; media & entertainment; and travel, tourism & hospitality, where we can bring tangible operational value-addition to the companies.
All these segments are showing good traction in the Indian market, and we are continuously evaluating new opportunities across the segments.
How do you look at the growth of offline space - is online impacting its growth severely?
The digital domain is having a big influence globally on how people shop, be it online or offline. So, it is not only about wider product availability or convenience or price arbitrage/ discounts. It is also about how brands engage with consumers. E-shopping or e-commerce is only one facet of the broader development; internationally, companies are really working on more holistic O2O (offline to online) initiatives. We would expect that trend to permeate into India as well.
Will you look at mass and economy segments in retail and consumer?
While our overall focus is on lifestyle consumption, we are not averse to looking at situations of packaged consumer goods, which entail elements of branding and marketing where we can add value, but if you look at commoditised offerings, there would be very little that we could bring to the table.
How do you look at the growth in Indian retail vis-a-vis that in other Asian countries?
It is very difficult to generalise. Private consumption, and by its extension, retail is growing rapidly in India. The share of modern retail and e-commerce has also been going up. However, there is an overall concern on the development of modern retail infrastructure in India. There are simply not enough quality malls developed or being developed, and where they exist, the rental costs are fairly high compared to regional or global standards, or the level of sales that are generated. This is a broader issue, tied intrinsically to the high cost of real estate in India, as well as the time, money and effort it can take to get any large project going in the country.
Are you looking to make investments in Indian retail this year?
We made three investments in India, out of the first fund and they have all performed extremely well. We remain excited by the opportunity presented by India and will continue to partner with leading consumer companies in their next phase of growth. We view the market as having strong longer term potential across all our focus sub-sectors, and would hope to increase our investment activity in the country.
How do you look at the government's reluctance to open up foreign direct investment in multi-brand retail?
As foreign investors, we would definitely look for further opening up of the economy as that would expand the opportunity set for us, but we also recognise the government's concerns in protecting small local businesses. We're happy with the recent liberalisation in the investment norms for local Indian brands, providing them with the much-needed access to capital and know-how, and we hope the government will take steps to allow non-strategic monies into multi-brand retail without cumbersome investment or sourcing requirements.
