'Investor appetite for India has gone up quite phenomenally'

As technology continues to penetrate Indian enterprises, investors are on the lookout for companies that are disrupting classical industries. 

This is one of the biggest opportunities for private equity (PE) investors, Renuka Ramnath, founder of Multiples Alternate Asset Management, a firm that manages close to $1.1 billion in PE funds, tells Alnoor Peermohamed in an interview.

Edited excerpts: 

Your portfolio is made up of offline companies (those that are not accessible on the internet) rather than new-age technology firms. Is it a conscious strategy? 

For Multiples, it was the first fund and I had to get that right.

The risk parameters were very well-defined and its performance was pretty much the foundation for Multiples. I did say I would invest in emerging opportunities. 

If you look at India Energy Exchange, a very large investment in my portfolio, it’s an emerging opportunity.

A power exchange is not commonplace; I was taking a view that a greater amount of power will be bought and sold on an exchange rather than through bilateral trade. 

Those were a permissible investment thesis for me, but front-end e-commerce required that you would participate in subsequent rounds of funding. 

You would burn cash with the confidence that you are deepening your brand and increasing your customer connect. 

That is a much higher level of risk-taking than what I was comfortable with in the first fund. 

I don’t see Multiples as a fund that will do more venture capital-type of funding. 

It will be more of later-stage classical private equity, which is investments in traditional sectors like steel, cement and agriculture, and distress turnaround. 

The Vikram (Hospital) kind of situation (Multiples bought ICICI Venture Funds Management’s 64 per cent stake in the Mysuru-based hospital, besides infusing direct capital) is a very big opportunity for us, as we can bring capital, management capability, good governance, other investors, and can raise debt in the company. 

All these are natural for me to do, rather than betting on the next technology breakthrough or something like that. 

Are there enough opportunities in the classical PE space? 

Plenty. I am predicting the biggest change waiting to happen, and already happening, is change of ownership. 

Many companies are held by families. In many situations the beneficiaries of these family-owned companies run into hundreds. 

Families are also under pressure to monetise their businesses and give it to the second generation, third generation, and fifth generation, whatever it is, because those kids are not interested in being a part of the family enterprise. 

Their passion is something else. They want to do something more new age, and capital is what they want, not a small piece of some traditional family enterprise. 

I see that as a very big opportunity for PE. 

Can you put a number on this market? 

It is difficult to put a number, but I would say that by way of market cap if we move to 2025, I am expecting that $20-25 billion of market cap will be private equity-owned. 

If you add up the money that has come in through PE in the past 10-12 years, the cumulative would be $80-85 billion, of which $35 billion has been returned through divestments. 

So, we still have $50-55 billion with us in private equity. Currently, we’re adding at about $15 billion per year. 

I expect this number to go up because the confidence in India is coming back. 

Big PE players have pumped money into e-commerce firms and that has hurt them. Do you foresee a similar trend in the more classical PE space as India becomes a more favourable investment destination? 

Not really. People talk about too much money coming in, chasing too few deals. 

The kind of money we raise, we have to invest it over four years. We are monitored by our investors as to what disciplines we’ve put it in. 

I’ve raised about $700 million and I commit 50 per cent of the fund in the first year. 

My investors will really turn the heat on me and, god forbid, if those investments go bad, they will not again give me money. 

What’s the general economic outlook for India? 

Investor confidence has risen a lot from what I experienced three or four years ago. 

The years 2012 and 2013 were really the worst years for India, where nobody even wanted to hear about us.

Investor appetite for India has gone up quite phenomenally but I don’t see a lot of fresh investments happening.

It is only about some set of shareholders exiting and a new set coming in, but there’s no fresh capital expenditure. 

I think that is still two years away - all this ‘Make in India’ and existing companies coming up with new capital expenditure plans and infrastructure kicking off in a big way. 

I still see some distance, as people are still dealing with their legacy issues — fixing balance sheets, utilising unutilised capacities. 

The first Indian e-commerce company (Infibeam) recently came out with an initial public offering. Are retail and private investors ready for it? 

I don’t think it will be detrimental to e-commerce companies in any way. 

When you say private investors, there are speculative investors, there are informed investors and then there are investors through mutual funds. 

Generally, governance levels have gone up because of the amendments to the Companies Act, responsibility on the boards, listing guidelines requiring huge reporting and transparency that is required by both Sebi and stock exchanges. 

Individual investors are on a far better wicket, figuratively speaking, compared with 10 or even 20 years ago.