“We Expect To Manage Close To $2 Billion In Five Years”

Ranu Vohra, Managing Director and Co-founder, Avendus Capital, believes private equity (PE) plays a catalyst role in the growth of Indian companies. In a conversation with BW’s Munnish Puri, he shares his vision about India’s PE business

How has PE impacted India’s growth story?
PE provides long-term capital that is strategic and value adding. It has supported the emergence and growth of new industry segments such as food, consumer brands, digital and biotech.

Between 2001 and 2016, the PE industry invested more than $110 billion in the country, establishing itself as a stable source of equity capital across business cycles. Between 2001 and 2013, the number of jobs in companies backed by PE posted an average CAGR of almost 9 per cent during the first five years after investment. The annual growth rate at comparable companies without PE fund was just under 3 per cent.

In the last 15 years, we have seen the rise of several businesses, some of them not the traditional family businesses but led by new-generation professional entrepreneurs. It facilitated Indian entrepreneurs to aspire for a stronger global footprint by way of acquisitions and access to markets. As many as two thirds of the companies that participated in cross-border M&A did that with private equity backing. Also, there is a demonstrable revenue increase of about 28 per cent in PE-backed companies when compared with others as per a leading global consultancy report.

What are the factors driving higher private equity in India?
The fundamental pieces are all there — quality entrepreneurs, a fast- growing economy, relatively weak alternate sources of capital and a well-understood tax environment for PE funds.

Do you think India is still a capital-starved economy for new and established entrepreneurs?
Yes. If you total up the amounts needed across sectors even in a low-capital investment phase, they cannot be met by traditional sources like public markets. PE funds perform a very vital role in taking a company to IPO — from providing a clear corporate governance framework, to creating better information about a company’s business, articulating its proposition to prospective investors and helping induct professional management in traditional family-run businesses.

What is the response time from pitch to actual investment?
The average time could vary from four to six weeks to possibly over a year. The due diligence process is customary, though we like to find issues ourselves rather than relying purely on third-party reports. Very often, we go to the market ourselves to see what retailers are saying about a product or to talk to some friends of the firm to get an “informal” view about the entrepreneur.

How has your company performed over the recent years?
We run four strategies. A growth PE fund, run in a partnership with Zodius, focussing on digital companies that have established their leadership. We have invested in companies such as Big Basket, Pepperfry, MedGenome, Zivame and Allygrow. We have two strategies for public equities — a long-only offering, which is like a private investment in public equity fund, and a long-short hedge fund. We are also creating an alternate fund in the credit space. With these four strategies, we expect to manage close to $2 billion in five years from now.