 "IPO uptick spells reaping season for Times Group")
With the initial public offering (IPO) of Coffee Day Enterprises closing successfully last week and a couple of portfolio companies such as Infibeam and Lavasa waiting in the wings for the market regulator's nod, Brand Capital, the private treaties business of Bennett, Coleman & Co Ltd (BCCL), widely known as the Times Group, is looking to enhance the liquidity of its burgeoning portfolio.
The return of buoyancy in the IPO market is likely to give fillip to a business model that started as a pay-in-kind one for small companies looking to build their brand, with an eye on the booming stock market of 2004-07, but has transformed into a full-fledged entrepreneurial ecosystem.
"For us, an IPO is an event that provides liquidity to our matured unlisted company portfolio to continue its rapid growth journey towards value creation," S Sivakumar, chief executive of Brand Capital, told Business Standard in an e-mail interview.
"Apart from CCD, Infibeam and Lavasa, there are a few more companies in our portfolio, which have been preparing for prospective IPOs, including HCG Global, specialist cancer care network; SMC Capital group, a financial services company; and Thyrocare, India's first automated laboratory network and the largest thyroid testing lab. Being a proprietary fund, it allows us to support the company over a long-time horizon and not consider an exit during the IPO," said Sivakumar, who has spearheaded the division since its inception.
Through the past few years, BCCL has expanded ad-for-equity deals, initially criticised but later embraced by at least a section of the competition.
Today, the invested value stands at $2.2 billion, or Rs 14,000 crore, up seven times from about Rs 2,000 crore in 2009-10. The number of portfolio companies has also shot up threefold. "We now partner about 600 investee companies across sectors as wide as retail, fast-moving consumer goods, consumer durables, realty, digital and mobile, e-retail, health and wellness, financial services, consumer services and several more," the Brand Capital website says, adding, "Our invested value stands at $2.2 billion today."
Separately, in an undated statutory disclosure, Brand Capital lists about 250 companies in which BCCL, the group's flagship company, as well as other group companies hold "securities or convertible instruments". The list comprises five broad categories, equity holding in listed entities, listed companies in which it holds warrants, unlisted investee companies, unlisted companies with warrant holding and companies that have filed IPO papers with the Securities and Exchange Board of India (Sebi).
BCCL and its subsidiaries now hold stakes in 65 listed firms, according to this disclosure. At the end of last week, its exposure to these listed stocks was valued at Rs 1,715 crore.
Apart from major stakes in four Future Group entities - Future Retail, Future Consumer, Future Lifestyle and Pantaloon Fashion - which amounts to about Rs 1,183 crore, its top holdings include Videocon Industries (Rs 199.18 crore) and MCX (Rs 108.66 crore).
The unlisted portfolio of 70 companies includes the BSE, Deccan Cargo & Express Logistics, Emaar MGF, Thyrocare and Matrix. It lists another 111 companies in which it holds warrant holdings.
Himanshu Chakrawati, chief executive of The Mobile Store, has been quoted on the site saying, "It has not only been in terms of how we do the deal but also about the flexibility in the deal because there are ups and downs in business." In another quote on the website, Rashi Choudhary, chief operating officer, Local Banya, says, "There have been days when the entire office has just sat together and taken bombarding calls because of just one ad placed in ET (The Economic Times, published by BCCL)."
A few companies in the portfolio are examples of what could go wrong with this win-win strategy. MCX, Sahara and Pyramid Saimira are among the listed companies that have seen significant erosion in both brand and stock value. In May, Mint reported the Thyrocare Technologies IPO hit a roadblock after Sebi questioned its share allotment to promoters. SMC Global and Delhi Stock Exchange have also faced regulatory orders.
The warrant holdings seem to have been a lesson from the difficult days that followed the stock market collapse in 2008, which blocked exits and eroded the value of what was then a young portfolio. "While equity is an investment, a warrant is an option. Warrants, by definition, give us and the entrepreneur greater flexibility, both in terms of time and value, for conversion to equity," Sivakumar said.
He termed stock markets irrational and said his unit refused to be distracted by market volatility. "The current focus on building, nurturing the start-up entrepreneurial ecosystem at the central and state levels provides an excellent environment for growth of entrepreneurship."
Apart from these securities, the group also picks apartments and other real estate properties in exchange for advertisements, which have now been hived off into a separate vertical.
Sivakumar, a fitness freak, likes to call Brand Capital India's largest brand venture partnership programme. To address the diverse needs of its portfolio companies, which operate across sectors, markets and life stages, Brand Capital has created five distinct verticals: Brand Capital, which provides capital to investee companies for building brands and holds stake in the investee company; Brand Estate, an offering for the realty sector that holds stake in the developer's project; Springboard, which supports entrepreneurs in building super brands in the medium term through joint ventures in asset-light sectors; Brandscope, through which Brand Capital creates new-age brands; and Incubator Capital, which aids the growth of start-ups through business and brand incubation, in collaboration with the start-up/angel ecosystem.
Recently, Brand Capital opened an office at Silicon Valley in the US to provide domestic entrepreneurs access to global capital and global companies access to Indian markets.
Functioning as a large private equity firm, Brand Capital has internal business teams that manage the portfolio and actively engage with a large number of companies. It also has an internal venture advisory team, which provides mature portfolio companies strategic guidance and advice for liquidity events, including IPOs. The listed portfolio is shuffled, based on calibrated internal benchmarks and calls recommended by an independent advisory firm overseen by the board.
Though it now has the muscle and the means to give any PE/venture giant a run for its money, Brand Capital seems to be content being a proprietary unit; it isn't looking at registering under Sebi's Alternative Investment Fund Regulations for third-party funds.
Sivakumar doesn't rule out the possibility of leveraging this network and expertise to serve third-party investors. "We are not syndicating external investors in a separate fund and our deals are proprietary to BCCL. As Brand Capital's growth trajectory evolves in the future, we will be happy to explore all opportunities, in line with our vision of providing comprehensive solutions to the entrepreneur ecosystem," he said.
In addition to the impending IPOs and possible exit opportunities, Brand Capital has cut a couple of secondary deals and is in talks for a few more exits. Sivakumar, a chartered accountant, recalls a few exits such as the sale of partial stake in Thyrocare to Ajay Relan's CX Partners, which had bought out BCCL's stake in Matrix Cellular. "We have successfully exited Nobel Hygiene, MartJack and several exit terms sheets have been signed in respect of our other portfolio companies and the due diligence is currently underway," he added.
Spacewood Furnishers, in which the group holds warrants, has partnered Japanese group Sumitomo.
"A couple of strategic M&As (mergers and acquisitions) are in the works, at advanced stages of diligence and deals might be announced this financial year," said the Brand Capital chief. "Many strategic domestic and global players looking at an entry into India continue to engage with our venture advisory team to explore alliance opportunities."
While concern over these deals influencing the editorial independence of group publications continues to linger, Sivakumar says, "As India's leading media house, editorial integrity of all our publications is paramount. BCCL's various editorial teams have and will continue to be independent of any business imperatives arising either out of our Brand Capital investment programme or from our regular advertisement programme. The well established Chinese walls between the editorial and advertisement business teams prevent any conflict of interest."
The section on code of conduct in the website says, "Brand Capital is the investment arm of Bennett, Coleman & Co Limited and does not share information relating to its investments (including proposed investments) with any of the editorial teams of the Times Group."
