‘Whirlpool will launch products for premium India’

This Q&A first appeared in DNA Money edition on Wednesday, March 28, 2012.

Arvind Uppal

Despite being the world leader in home appliances, Whirlpool is yet to attain market leadership in India. Towards that end, it has introduced several new products in India recently. In three years, Whirlpool will be at the top, says Arvind Uppal, president-Asia Pacific and chairman and managing director, Whirlpool India. He shared his vision in an email interaction. Edited excerpts...

What has been your recent experience in India?
Our share price which used to be Rs17 in 2005 went up to Rs60 in 2008 and went on to touch a record high of Rs338 in November 2010, making us one of the highest profitable mid-cap stocks on the National Stock Exchange. Over the last 12-15 months, we anticipated the slowdown, and have intensified our focus on controlling costs and accelerating innovation. The launch of 160 models across six categories this season shows that we are far better prepared than anyone else in this industry. We are going for leadership even as the industry goes through a difficult period.

How has your Indian business grown? Which categories are piloting growth?
All our categories grew in topline and percentage margin during the period 2008-2011. We grew in our areas of strength — refrigerators and washers — led by some innovations like Protton (3-door refrigerator) and Ace Washstation (top-load washing machine), to name just two. However, we made exceptional progress in categories that Whirlpool has not generally been associated with - air-conditioners and microwaves.
Looking ahead, we see huge opportunity in growing our refrigerator business in 2012 on the back of some great innovation. We wish to become leaders in refrigerators in the next 18 months.

What have been your product failures? Explain the reasons.
Fortunately, we have not had any failures in the last 6-7 years. This is largely because all the products and innovations we bring to market are based on well-researched insights and consumer studies. Perhaps, the only failure we have had was the launch of oil heaters in 2008-09 when we had an unexpectedly short winter.

How do you plan to differentiate in the Indian clutter? 
Innovation, design, performance and quality will drive our brand. Our summer 2012 launches establish new benchmarks for performance — fastest ice-making and fastest bottle-cooling (in refrigerators) and removal of 15 different types of stains (in washing machines).

Why is Whirlpool tapping all price points?
To be No.1 in a country as diverse as India, it is important to understand the dynamics of our demography. For a country with over 200 million households, the size of the home appliance market is 15 million. There are many Indias within these 200 million households. There is the large ‘mass India’, a ‘middle India’ with approximately 65 million households and a ‘premium India’. Therefore, if we want to be No.1 in India, we will have to address each of these consumer segments. Whirlpool has been very strong in ‘mass’ and ‘middle India’, and while we strengthen our position there, we are widening our horizon to launch products that will address the needs of ‘premium India’. In the next 12-18 months, we expect to be leaders in refrigerators and washing machines and the No.1 home appliance company in three years.

We have the lowest penetration levels among emerging markets such as Brazil, China and countries in Southeast Asia. This is a huge opportunity for growth. India is a very large and heterogeneous market, both in terms of economic as well as social profiling. Hence, consumer insights in India need to be very local to the geographies and cannot be just country- specific.

In recent times, you have also launched invertors and water purifiers. What gives?
Water is a strategically important category in India and we want to be leaders there. We see great value creation opportunities here. As regards inverters, these are important but tactical opportunities and we will leverage our brand wherever there are such opportunities. We have tasted more than moderate success in our power accessory business.

Why has Whirlpool earmarked Rs100 crore for product innovation?
Whirlpool India has been a source of inspiration for low-cost innovation. It has won many awards for producing value-creating products with very low use of capital. With India’s increasing relevance to Whirlpool Corporation, we will be expected to innovate continuously for the benefit of our Indian arm and Whirlpool at large.

What’s your plan to develop and enlarge distribution?
We are targeting to be a company with more than 15,000 dealers across India. We are going outside the appliance trade to the specialist kitchen manufacturer channel. Air-conditioners are sold from appliance outlets as well as specialised AC trade called SSDs (sales and service dealers). Water has found its way into electric and small appliance stores. We intend to grow our store presence by 10% every year. We also have about 100 brand stores and these will also get attention and money in our channel strategy.

Blue Mountain denies buzz of deal for 42 UK hotels

This story first appeared in DNA Money edition on Friday, March 30, 2012.

If this hotel ‘block’ deal shapes up, it would measure up as a big-ticket transaction in the hospitality sector globally this year.

According to a report published in The Times, London, Blue Mountain Real Estate Advisors (BMREA), an Indian property investor, has been selected as the preferred bidder for 42 Marriott hotels across Britain after it offered almost £750 million.

The report further said the holding company for the portfolio of hotels collapsed under a heavy debt load of about £900 million, most of which was held by Royal Bank of Scotland (RBS), and a part of the Mumbai-based India Blue Mountain Group has been granted a period of exclusivity by RBS to tie up funds for the deal.

But Janak Vaswani, director, BMREA, said his company has nothing to do with the acquisition of 42 Marriott hotels in Britain and that it has not made any offer whatsoever.

“I am hearing this for the first time myself and I’d like to make it very clear that we have nothing to do with this transaction. While I’m not familiar with any other Indian company with a similar name - BMREA - I’d like to state that we are associated with India Blue Mountains Ltd, which is registered in Jersey, UK. However, I’m not familiar of any such deal being pursued by the overseas entity,” he said.

RBS could not be reached for comment. The assets on offer comprise a total of about 8,000 rooms in 42 hotels in England, Wales and Scotland. It is understood that about 40% of the portfolio’s value comes from six hotels in London. All the hotels are operated by Marriott International under a 30-year management agreement that took effect in 2006.

In fact, there has been some buzz surrounding the deal for a while now. The February 2012 report of The Times, citing sources, had talked about a host of business entities participating in this bid, which include Singapore-based RB Capital, Indian conglomerate Sahara and a ‘mysterious Pakistani family’.

At Rs 750 per kg, Tata Salt Flavoritz is India’s costliest

India’s leading salt manufacturer and market leader (64% market share in branded salt segment), Tata Chemicals Ltd has introduced a new range of flavoured salts under the banner Tata Salt Flavoritz. Besides being a unique offering, what sets this new product offering apart is the fact that these are the costliest, being sold in India. Its introduction also marks the entry of the first indigenous brand of flavoured salts in India.

Ashvini Hiran unveiling flavoured salts

Available in three flavours viz. lemon coriander, red paprika, onion garlic and an extension in the form of black ground pepper powder, the salts are available in 60 grams packs and come in attractive hour glass shaped HDPE sprinkler bottles. Each flavoured salt is priced at Rs45 per 60 gram bottle i.e. Rs 750 per kilogram.

The company’s current offerings include Tata Salt priced at Rs 14 per kilogram, Tata Salt Lite that costs Rs 21 per kg and I-Shakti available at Rs 12 per kg.

According to Ashvini Hiran, chief operating officer - consumer products division, Tata Chemicals Ltd, the company has always carried the onus of delivering differentiated value-added offerings within the salt spectrum. “Tata Salt has been trusted for consistency in taste, purity, iodine content and assurance of health. With Flavoritz, we are now adding a pinch of flavoured salt to our portfolio. The idea is to give consumers never-tasted-before blends of flavours that give a new dimension to their daily food. Flavored salt is iodised salt mixed with natural flavours that makes mundane recipes sumptuously tasty,” said Hiran.

The company officials said that an in-depth consumer research and studies were conducted to identify the flavours and arrive at an optimal product formulation for Flavoritz. “The product development journey was an uphill task which needed creating own benchmarks in terms of product stability and striking the right balance between saltiness and combination of flavours. Several combinations were tested over the year to arrive at a formulation that suits Indian palate,” said Parag Garde, assistant vice president – marketing and strategy, consumer products business, Tata Chemicals Ltd.

The company will initially make these flavoured salts available in key metros starting with Delhi and Mumbai with close to 1 lakh units. By September 2012, the flavoured salts will be sold through modern retailers and key local kirana outlets across the country.

Tata Chemicals currently enjoys a market share of 64% in the branded salts segment and the company management is targeting to increase it by 5-7% in the upcoming fiscal. The company's distribution network currently at 11 lakh outlets across the country is also likely to grow by 15% in the next 12 months. The company currently has a production capacity of a little over 8 lakh tonnes p.a. and its average monthly sales volumes is around 75,000 tonnes per month.  

A part of the $83.5 billion Tata Group, Tata Chemicals Limited (TCL) is the pioneer and market leader in India’s branded Iodised salt segment. The company also provides affordable, safe drinking water solution to the masses with the introduction of its innovative, low-cost, nanotechnology based water purifier called Tata Swach. The company currently is the world’s second largest producer of soda ash with manufacturing facilities in Asia, Europe, Africa and North America.

Accor’s Formule 1 to take on Tata’s Ginger

This story first appeared in DNA Money edition on Saturday, March 24, 2012.

Accor, the French hospitality major, is set to give fierce competition to Tata group’s budget hotel chain Ginger with the India debut of its Formule 1 hotels at Greater Noida next month.

The Asia Pacific’s largest international hotel operator plans to open 10 more Formule 1 hotels, its first low-cost offering in India, by 2013-end.

Philip Logan, vice-president, Formule 1 Hotels, India, said, “It will be the first true international budget hotel brand in the country filling the void for standardised comfort at a competitive price of around Rs2,000 per person.”

Accor said it would also unveil the concept of standard rooms with a single price for up to three people, though it did not share details as to how this pricing mechanism would work.

Michael Issenberg, chairman and chief operating officer, Accor Asia Pacific, in an earlier interaction with DNA Money, had said, “The Formule 1 hotels are positioned at the economy segment carrying the sub-`2,000 price tag for a night’s stay. These hotels will largely compete with brands like Ginger and offer limited services. The food and beverage facility in these hotels will be outsourced to third-party firms.”

Industry experts said Accor’s pricing strategy would be a game-changer in the budget segment.

“The Rs2,000 tag for Formule 1 guestrooms is quite aggressive. It would be interesting to see how Ginger counters it, as when it (Ginger) was launched as Indione back in 2003-4 it had promised a pricing of under `1,000. However, its rates increased to over Rs2,500 over the years across most locations,” said a senior official of a leading hospitality consulting firm.

Details about the cost per key (one guestroom) for a Formule 1 hotel were kept under wraps as well. But industry experts said that cost of a Formule 1 guestroom would be around Rs20 lakh, excluding land costs. The cost per key at Ginger was pegged at Rs15 lakh, including land costs.

All the Formule 1 hotels in the pipeline (12 hotels by 2015) would be owned and managed by Accor.

Florian Kohli, general manager, Formule 1, Greater Noida, said the 114 rooms at the hotel are stylish, more restful, with soft colours, rounded edges and soothing lighting, as well as extra storage space.

“The soundproof rooms come with TV, free wireless internet, quality bedding and individually controlled air-conditioning,” said Kohli.

Govt levies 30% tax on start-ups receiving angel investment

My colleague Beryl Menezes contributed to this story which appeared in DNA Money edition on Monday, March 19, 2012. 

Entrepreneurs looking to raise angel or venture capital funding for their respective start-ups will not be very pleased with a recent amendment being made to Clause 21 of Section 56 of the Direct Taxes by the finance minister. As per the new ruling, start-up companies will now have to pay tax at the rate of 30% on investments received from angel investors and non-registered venture capital funds operating in the Indian market.

Saurabh Srivastava, co-founder, Indian Angel Network (IAN) believes this clause is extremely ill advised and has probably been triggered by the 2G scam. “Unfortunately, it is the equivalent of dropping an atom bomb on a city because one criminal needs to be killed. This clause will completely kill all angel investment in the country and, with that, spell the death knell of first generation entrepreneurship that had begun to mushroom over the last few years,” he said. Indian Angel Network has thus far invested in over 30 start ups in the last 6 years.

While the clause exempts venture capital firms that are registered with the Indian regulator - Securities and Exchange Board of India - SEBI, there are a host of such investors are not registered in India and funds raised from such firms will be taxed by the IT department.

The clause however, makes a big dent on funds being raised from angel investors operating in India because none of them are registered. Actually, there is no such category with the Indian regulator that allows this set of individual (angel) investors to register.

“I have over a dozen such (angel) investments in my personal capacity but I am not a registered investor. In fact, if this clause was in existent earlier, Spectramind wouldn’t have happened and so would have a host of other entrepreneurial initiatives that have shaped up in the last decade or so,” said Raman Roy, member, Indian Angel Network (IAN). Roy was also the founder of Spectramind which pioneered the concept of business process outsourcing (BPO) in India back in 2000.

 

Ravi Mahajan, partner, tax and regulatory services, Ernst & Young India, feels while the provisions have been introduced to track black money, it would negatively impact genuine angel investors. “Only venture capitalists have been exempted from this amendment and any valuation more than the fair value will be taxed. This will adversely impact angel investors, if funding is based on valuation that IT authorities don't agree with, then the companies will have to pay the difference between the forward-looking investment by the angel investor and the valuation as assessed by the Income Tax department, as tax - even if they do not make profits on the same. This will thus become a cost funding for the small companies, affecting their profitability. Cost of tax would also lead to longer break-even time for smaller companies,” said Mahajan.

Angel investors generally act as catalysts by making available the initial capital - starting from Rs 10-20 lakh to a crore or more - to new start-ups with a good business idea. These set of investors work towards promoting entrepreneurial initiatives by providing the much needed financial support and ensure such activities continuously flourish in the country. However, various measures enunciated for small and medium enterprises (SMEs) will now come to naught because of this one clause, feels the angel investor community.

“This is because angel investment precedes venture capital investment. For VC's to fund 10 companies, we need 1,000 entrepreneurs to be funded by angels. It is common knowledge that when you fund an entrepreneur who just has an idea and not much else, the definition of fair market value cannot possibly be determined by any valuer and certainly not by a tax authority but only resides in the minds of the entrepreneur and the investor. A tax officer could legitimately see the value as close to zero, whereas any angel investor who chooses to invest will do so because he / she sees great value and would buy shares at a huge premium because they would want the entrepreneur to hold a majority of the company,” said Srivastava.

Roy added, “What the clause does now is that, when we invest as an angel in a company, the income tax (IT) officials will raise questions about its networth. Start-ups are about ideas and concepts with no assets that can be quantified as its networth in the market. Angel investors pay for the idea which is yet to take the form of a commercially viable business model. Google was created as an idea with just $10,000 and the company is worth billions of dollars now. If the same $10,000 was to be given to an entrepreneur in India now, the IT department will impose a 30% tax on the money raised.”

The angel investment community asserted that rather than giving them a tax break for making such risky investments for creation of wealth and employment - as is done by most countries in the world - the Government in effect is taxing them and therefore, encouraging them to put their monies in unproductive assets like farm houses and real estate.

Sageraj Bariya, managing partner, Equitorials, a stock market advisory, research and training firm, said that the move will be contrary to the Government's aim of providing more jobs, as this would dampen entrepreneurial aspirations. “The Government does not have the right to decide the valuation of a company, and this is certainly not the solution for the problems that arose from forward-looking foreign investor funding, like in the case of Telenor-Uninor, which now have their licenses cancelled as a result of the 2G scam. This move will make foreign private equity companies think twice about investing in India, which will curb investment opportunities.

“Additionally, smaller companies - like many small IT firms who have gone in for this mode of operation - will face problems in attracting new capital. So for example - a partnership like Infosys and OnMobile, may not happen as frequently as before, as these larger firms would cut their investments to avoid taxation. The need for small IT companies to move from a services-led to product-led category, by getting funding from angel investors will also be significantly impacted by this move," said Bariya.

The Rs 1,000 cr premium domestic appliances market is growing at 30% annually

This Q&A first appeared in DNA Money edition on Wednesday, March 14, 2012.

One of India’s largest electrical and power distribution equipment manufacturer, Havells entered the the over Rs 5,200 crore Indian domestic (home) appliance market in August 2011. The idea, according to Anil Gupta, joint managing director (JMD), Havells India Ltd, is to grab a significant pie of this business by leveraging on their existing distribution channel network. He speaks on the company's new business vertical and the way forward. Edited excerpts…

What really led Havells to enter the domestic appliances business?
Previously we were dealing in products (electrical and power distribution equipment) which never required a consumer interface. However, 6-7 years ago, we added fans and lightings to our product portfolio which gave us a consumer interface which significantly increased over the years. The new offering also resulted in building a large dealer as well as service network across the country.

We were then looking at expanding the product category further thereby allowing us to foray into the consumer segment. We also wanted to take advantage of the existing infrastructure and realised that the dealer and service network required by the domestic appliances products was very similar to what we already had in place. We thought the best way to leverage on this distribution channel was by entering the Rs5,200 crore domestic appliances market in India.

Are your products catering to the entire domestic appliances market in the country or addressing a specific segment?
We consciously decided to address the premium category which currently is Rs 1,000 crore market in the country. Interestingly, this market is growing at a very fast rate of 25-30% annually. Going by the Havells brand perception, it made more sense for us to tap the premium domestic appliances segment with related products. We are currently offering a host of domestic appliances across five categories including food preparation, garment care, home comfort, cooking and brewing. The price range is anywhere between Rs 1,000 going up to Rs10,000.

Who would your direct competitors be in the domestic appliances category?
Our products compete with brands like Philips, Panasonic, Murphy Richards etc.

How much has the company invested in this business?
A capex of Rs 150 crore has been earmarked already in this fiscal of which Rs 70– Rs 80 crore is being spent towards marketing, research and development of small appliances range in next 24-36 months.

What is the company’s strategy with respect to designing and manufacturing of these products?
We already have a large research and development (R&D) base in China, which has been designing our products snice a couple of years now. Of our entire range at present, 50% is coming out of China and the balance from India. We have not set up our own manufacturing plants and are using large outsourcing partners to make these products based on our prescribed design and quality standards. In fact, this is the first time ever that Havells has outsourced manufacturing of the products as 95% of the company's products were manufactured in-house.

Will you continue outsourcing route or plan to set up own manufacturing facilities as well?
It depends on how the volumes grow. If a particular product category requires to be done in-house, we will certainly look at the option.

What is the size of this business for Havells?
We are expecting to do more than Rs 100 crore in revenues in the first full year of operation i.e. the next financial year. The target for next fiscal will be Rs 200-odd core and eventually hitting the Rs 500 crore mark in the next 4 years.

Could you throw some light on the company's distribution network?
As far as overall business is concerned, we currently have more than 4000 distributors across the country. Of this approximately 1,500 distributors are for consumer and domestic appliances business.

How are you going about leveraging this distribution network?
We have identified various distribution channels for the domestic appliances business. To start with, we have the direct dealer network (1,200) that operates multi-brand outlets, then we have distributors (100) who sell to retailers primarily in the tier II, III cities and finally the Havells' single brand - Havells Galaxy Stores  - outlets (150) being rolled out through the franchise mode. This apart, we are also selling through 40-odd modern retail outlets like Croma, Spencers, More, Vijay Sales etc which are significantly growing across the country.

Considering the extensive range of products being offered under the Havells brand, we are looking to significantly expand the network of single brand outlets across the country. Havells Galaxy Stores will be increased to over 200 stores within a year.

Are you also planning to take the e-commerce route to retailing the Havells brand?
Although the kind of sales being generated through the online channel is extremely small right now, online shopping for such products will also increase in the coming years. Keeping that in mind, we have already started work on our e-commerce platform and will definitely launch it in the near future.

Any plans to get into the consumer electronics segment down the line?
No we don’t intend to tap that space as that business requires a completely different kind of a distribution network.

Are you also witnessing pricing pressure owing to increasing input costs?
The challenge for any good company is how to get the right quality at the right price. There certainly is a lot of focus on expanding the distribution and keeping the costs at bare minimum. Companies work on various designing concepts to reduce the cost of the product for the end customer. So while we are committed to give a high quality product, it does not necessarily mean a high cost.

Would you consider tapping the mass market segment of domestic appliances as well?
When I say premium products it is actually mass market but high quality. There is a switch happening from the low quality to high quality branded products which is why the over Rs1,000 crore market is growing at 30% odd annually.

A lot of private equity exits will happen by second half of 2012, says Archana Hingorani

This Q&A first appeared in DNA Money edition on Monday March 12, 2012.

After seeing a huge traction till the first half of 2011, the private equity (PE) market turned lacklustre in the second half. While the number of deals has gone down, the sizes too have shrunk. Archana Hingorani, chief executive officer and executive director of the BSE-listed IL&FS Investment Managers Ltd (IIML), one of the largest PE funds in India, with over $3.2 billion under management, spoke about the overall business environment for PE firms and developments within her company. Excerpts from the interview:

Q: PE exits have significantly slowed in 2011. Do you see the momentum picking up in 2012?
A: There certainly has been a slowdown in PE exits, which were looking very promising till the first half of 2011. That’s also because the market was looking very buoyant and stable between second half of 2010 and first six months of 2011. In fact, most of the exits that have happened in the last fiscal or are about to happen in the next fiscal, are all because of negotiations done in that period of 2010-11.

While some deals have already been concluded, many will happen in 2012. This is because in the second half of 2011, there was no expectation or ability to convert the exit discussions into a meaningful transaction. Having said that, the funds would have exited but most of the transactions wouldn’t have probably given the real value to the investors.

Q: IL&FS Investment Managers also made a few exits...
A: Yes. Our earliest exit in the last fiscal I can remember was Continental, which we sold to Warburg. But that was based on the work done in the first quarter of 2011. Everything takes time and it really is an amalgamation of a lot of work that has gone into negotiations prior to the deal getting announced. Even from this fiscal perspective, while we have done some partial exits, many of them are related to our real estate projects that have seen sales happening, with cash flow coming back into the business. Other than that, I don’t think there has been any significant full exit in 2011. I think a lot of that (full exits) will likely happen in the first six months of 2012 because a lot of work has already been done on them.

Q: Has the increased timeframe for concluding transactions impacted the size of the deals being discussed over a period of time?
A: I think post-2008 investment sizes have shrunk primarily on the real estate side. While we had a very large, fund and it would have been ideal to put in, maybe, 15 investments overall. That would have made the per-investment size way too large from an opportunity perspective. I’m not saying we are putting less in a transaction and asking other people to support it.

We are just doing smaller transactions because I don’t think in the real estate space - at least from a risk-return perspective - it makes any sense to put in $100 million pieces. While real estate per se needs a lot of money, the kind of transactions we are comfortable with are ideally in the $20 million to $50 million bracket. Based on our learning from the previous fund in 2006-07, we made smaller investments from the second fund, primarily because of the investment cycle; the amount of time taken for project completion is too long. The impact hasn’t been much in the growth capital (PE) side, especially because we are operating in the mid-market space and not putting $50 million or $100 million in a transaction.

Q: Is that the reason you always invest in special purpose vehicles (SPVs) and not at entity level?
A: We have never done entity-level investments and are biased to SPVs because one has a lot of clarity on the kind of the project, the cash flows, timelines and the exit pattern. This is not the case with entity-level investments because of the diversity of projects, and one is not able to understand how each underlying entity is doing. Besides, one has to significantly rely on public markets for an exit — which has timing-related issues.

There may be just one entity-level investment in Fund I while Fund II is entirely SPV investments. Besides, even at the SPV level, we are only focusing on smaller investments and will not go beyond $50 million a piece. We took a conscious call that the portfolio will become bigger and will require more management bandwidth.

Q: Among the three verticals— private equity, real estate and infrastructure — which one will see a lot of activity in 2012?
A: We see opportunities across and would happily and readily invest from all the three verticals if we have investible corpus. While there is an economic slowdown, assuming that interest rates are likely to come down, we do expect businesses to start coming back to growth stage. Now whether infrastructure investing will be slower than private equity or real estate will largely depend on what opportunities are being looked at.

The market isn’t expecting significant changes, but if the companies already have projects that were bagged 2-3 years ago, these are still under implementation and a lot of such investment opportunities are available. We would certainly be looking at investments across the sectors, and in infrastructure we see a lot of potential in waste management, ports and logistics.

On the growth (PE) side, we are looking at consumer-oriented businesses that are focusing on domestic consumption, while for the real estate vertical it will be largely the residential developments in the metros. That has been our investments theme and it hasn’t really changed in the last 2-3 years.

Q: What is the extent of investible corpus with the company as of now?
A: There is money left to be deployed in the infrastructure vertical (Standard Chartered IL&FS Asia Infrastructure Growth Fund — $658 million) to the extent of $250 million to $300 million. So around 40% of the original corpus we raised in 2008 is still available for investments. We are fully committed in the real estate fund, so there is no investible capital available. On the PE side, we were fully committed last year and have kick-started an exercise to raise a new fund. The growth fund is expected to be $300 million and we are very far away from that number as of now.

Q: When do you expect to do another fundraise for the infrastructure vertical?
A: We will do a fundraise as soon the corpus starts dwindling; this is a vertical where we will be deploying money this fiscal. While in normal circumstances, investment firms start new fundraise as soon as they have invested 70% of the overall corpus. However, the market has changed and the investor’s (limited partners) focus is more on the fund’s past performance and how well the underlying portfolio is really doing. I think that’s a right thing to do from the investor perspective, and our view is that the scenario is completely different in terms of when we want to start the fundraising cycle.

Q: Is the scenario indicating a possible change in the overall fundraising approach by PE firms in India?
A: If you look at our real estate vertical, we are 100% committed, but we have not yet gone out because we want to be fully invested. And because it is a new sector for India in terms of performance, track record, return on investor capital, it is more important to show operating / financial performance on the portfolios before going back to the LPs (limited partners) for another fundraise.

Q: By when will the next round of real estate fundraise happen?
A: We will start around June or so this year once we are fully invested. The corpus for our new real estate fund will be half the size of what the earlier fund was. This is because we have halved our investment size. If you have a large fund, portfolio management becomes a big challenge. The overall figure for this fund will probably be around $500 million vis-a-vis the $900 million we did in the earlier fund.

Q: Will the fundraise be largely from international markets or will you look at a mix of domestic and international markets?
A: We have done both in the past, but clearly the dollar approach is looking much better, especially looking at the rupee conversion rate; so we will do a 90:10 ratio in our funds.

Q: Which international markets are you looking to tap for the new fundraise?
A: It depends on the sectors largely. For instance, in real estate, the US investors have been ahead of the curve while it is the European investors when it comes to infrastructure. As we raise only $200 million-$300 million at a time, the set of investors in growth (PE) is pretty small. While there are institutions from across the world, a lot of family offices from Europe, Asia and the Middle East form part of investors in the growth fund.

Q: You think domestic high networth individuals (HNIs) are a good source when it comes to raising funds?
A: Internationally, family offices are largely HNIs to a great extent. As for Indian HNIs, the domestic market hasn’t matured to an extent that we can boast of having a family-office concept. There are a handful of them (like Azim Premji’s) currently which will morph into what are traditional family offices over time. But from a risk-return profile, is an individual investor putting Rs5-10 lakh in a PE fund the right candidate? The answer is no. This set of investors doesn’t understand how the PE business functions and the lack of awareness continues in the market. They are more appropriate for product-oriented or yield funds because that makes more sense for such investors.

Q: Could you take us through the performance of IL&FS Investment Managers’ portfolio of investee companies? Has the slowdown impacted their performances as well?
A: It will be very difficult to discuss each company. All I can say is that despite difficult times, many of our companies are growing at over 25% and there are a lot of them in the portfolio. There has been a slowdown significantly with investee companies from the older portfolio.

Q: Is any of them likely to do a fresh round of fundraise or go in for an initial public offering?
A: There are no new rounds of fundraising. However, some of them (in the waste management and infrastructure sectors) will certainly get ready for a public offering in the upcoming fiscal. Work is in the initial stages but some of them will hit the markets in the next 12 months. I feel if you have the right company which is doing well and expected to sustain future growth with a reasonable approach to valuations, then there certainly is room, and we have seen that happen with a few companies in the last few quarters.