PRIVATE EQUITY | Cesar Tordesillas, India

India's private equity funds tap small town ventures

Private equity players are turning to smaller cities and towns across India for stellar investment opportunities.


Strong business growth in companies based in these regions are providing better exit options compared to those in the metros.

Among those increasing their investments in non-metro areas are Motilal Oswal Private Equity, Baring Private Equity Partners and IDFC Private Equity.

"There are lots of good exit opportunities for intelligent capital," said Vishal Tulsyan, CEO of Motilal Oswal.

The company has invested half of the corpus of $125 million from its first fund in tier-II and III cities and towns. It is expecting more big exits from other portfolio companies including the Ludhiana-based Mrs Bector's Food Specialties and Gowardhan, launched by Parag Milk Foods, which have turned into multi-crore businesses.

Last year, almost a quarter of the 458 risk capital deals were targeted at companies in tier-II and III cities and towns, according to research firm Venture Intelligence. The reason for the increase of investments in companies based in non-metro locations is that these firms are clocking a steady rate of growth.

"It is like finding hidden gems and many of them have not been discovered yet," said Keshav Misra, partner at Baring Private Equity Partners India.

Last year, Baring invested $64 million in Trichy-based Cethar Vessels, an unlisted power equipment manufacturer with revenues of Rs 2,000 crore. Besides Cethar, Baring's other investments in smaller cities include Raichurbased pharma company Shilpa Medicare, Pondicherry-based publishing BPO Integra and Kochi-based JRG Securities.

Also in the hunt for opportunities in the smaller cities is IDFC Private Equity, which invested $30 million in Jaipurbased Staragri Warehousing and Collateral Management in February this year. "We want to catch them early," said Satish Mandhana, managing director at IDFC Private Equity, who believes the companies in metros have less access to the grass root level supply chain which is the main key for growth.

IDFC, which manages a corpus of US$1.3 billion has also invested in Nasik-headquartered construction company Ashoka Buildcon, and the Haryanabased carbon credit advisory firm Emergent Ventures India. Mandhana said that it is a win-win situation for both, as the private equity firms help these companies find the talent pool through their network and bring financial discipline and governance.

India Industrial Growth Fund and Strategic Ventures Fund -- private equity funds managed by Frontline Strategy too is betting big on tier-II and III cities. It has invested in Bhubaneswar-based Alfa Transfomers and Tirupati-based engineering company Krishna Saa Fabs. "Having evaluated and made multiple investments in tier-II and III cities, I can say with conviction that promoters there are second to none in terms of talent, capability and focus on their businesses," said Atim Kabra, founding partner of Frontline Strategy.

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