“Private Equity Can Create Huge Value Over Time"

Nobody in India may have seen the evolution of private equity (PE) as closely as Renuka Ramnath, founder, managing director, and CEO of Multiples Alternate Asset Management. In a candid conversation with BW’s Munnish Puri and Clifford Alvares, she talks about the transformation of the PE industry

Having seen the evolution of the private equity business since the late 1990s, could you take us through your initial journey?
What excited me about PE is not only the ability to provide capital to entrepreneurs but also to partner with or handhold entrepreneurs in their journey to create high value in their companies.

In late 90’s, ICICI Ventures was a pioneer in the Indian PE industry — at a time when this asset class may not have been easily understood. Initially, we had a total corpus of $47.5 million raised through an international joint venture.

In 2001, when we targeted to raise a PE fund of $120 million, it was considered ‘highly’ aggressive. Our key strategy was to follow a pure classical PE approach, which is to own at least 30 per cent equity of a target company. We aimed to place the $120-million fund across 15 companies.

Raising the fund was challenging. After persistently pursuing a dialogue with LIC for two years, we finally obtained a commitment of Rs 150 crore.

What steps did you take to create a viable portfolio? What were your early successes?
Our aim is to seek investment in companies where promoters are far sighted and understand that our investment will bring in tremendous value for them. For example, Aaj Tak was an early-stage investment. Our internal research confirmed that India Today had the ability to run a Hindi news channel. The reputation of the promoter Aroon Poorie was impeccable and his credibility in the news market was very strong because of a neutral-approach. In fact, we held this investment right until the company’s IPO.

Our investment in Naukri was an enormous success too and we took the company public. Through Naukri, we realised that we must allow entrepreneurs to evolve and change. In fact, Naukri’s management decided to transition from an online-only mode to an offline mode, and we let it happen. Most importantly, we learnt that we did not have to be wedded to the business plan created at the time of making the investment.

Which entrepreneurs do you believe have created commendable value with PE proceeds?
ICICI Ventures invested early in Kiran Mazumdar Shaw. She has been a ‘poster-child’ of starting from scratch and building a very profitable enterprise. Another one of my favourite investments is Ajay Bijli’s PVR.

Do you believe PE investments are one of the best ways for promoter-controlled companies to achieve meaningful scale?
Like it is good to exercise, but only people who believe in it will go and do it; it all sums up to who the promoter/ core management is, and whether it has the right perspective. We have to clearly assess and evaluate this aspect. Ultimately, private equity can create huge value over time.

Our investment in PVR was very early on, and we picked up a 45 per cent stake at a valuation of around Rs 120 crore.

Today PVR’s market capitalisation is nearly Rs 6,000 crore!