Morpheus Capital betting on brands focusing on tier-II & III markets, invests $6.5M in TVC Skyshop
Morpheus Capital Advisors is looking to bet on brands targeting consumers in tier-II and tier-III markets as the private equity firm looks to step up pace of investments in the country the coming year, a top executive told VCCircle.
Morpheus recently closed its third investment of Rs 42 crore ($6.5 million) for 8 per cent stake in TVC Skyshop. The deal values TVC Skyshop, a multi-channel direct to consumer virtual retailer, at Rs 500 crore.
Led by former IMG India head Balu Nayar, the PE firm sees potential in emerging Indian consumer brands, especially in smaller cities. "We have been focusing on companies building products for tier-II and tier-III markets as many more people are moving to brands in these cities," said Nayar.
The firm, which raised Rs 425 crore fund in 2011, is estimated to have over half of the corpus as dry powder. Although Nayar did not comment on the remaining corpus left to invest, he said the firm will deploy it over the next 18 months.
Besides TVC Skyshop, Morpheus has invested in personal care products maker IPSA Labs whose oral and skin care products are sold in markets like Uttar Pradesh, Jharkhand, Bihar and Delhi. Another one of its portfolio firms is Ahmedabad-based Shelter Pharma, which makes herbal medicines for human, veterinary and poultry care.
"Our focus is on consumer brands and we look to bridge any gap in sales and marketing of a company, helping it build its business. We are not looking at companies with perfect businesses but those which have a gap which promoters and I understand," said Nayar.
Nayar, who has also worked with companies like Yahoo! and Hutch, partnered with investment bank o3 Capital to launch Morpheus in 2008.
The firm's investment strategy is different compared to a typical PE fund—it takes equity stake in companies in lieu of advertising space, which it buys from publishers besides cash.
This is similar to what media giant Bennett Coleman & Company (BCCL), the publisher of The Times of India, does. The difference being that BCCL sells ad space of its own media vehicles instead of other publications or broadcasters.
Morpheus invests in sectors like FMCG, home and personal care, consumer services such as education and healthcare, and specialised retail. It looks to pick up 2-20 per cent stake in companies who are looking to grow and have products and services that need branding and advertising support.
Branded products, distribution network seal the deal with TVC Skyshop
Nayar said TVC Skyshop looked attractive to Morpheus Capital as the firm has its own branded products and has a large distribution network. TVC Skyshop recorded operating profits of Rs 15 crore on a top-line of around Rs 200 crore for FY13.
“We have been studying the virtual retailing space closely for some years now—this includes businesses that use either the internet, television or any other media to market and distribute brands directly to the consumer. We had met TVC about a year ago and were impressed with its old-fashioned business model—this is the only company of any significant size in this entire sector, including e-commerce, that is PAT-positive," said Nayar.
TVC Skyshop operates across platforms like print media, direct response television, internet and catalogue. While around 50 per cent of the company's revenues come from consumer electronics, another 40 per cent come from health and wellness.
TVC also has a unique distribution model where rather than building its courier network or relying on third parties, it has a network of more than 600 distributors who work on a franchisee basis across 3,500 towns. The company says it reaches out to over 17,000 serviceable PIN codes (88 per cent of PIN codes in India) compared with normal the courier reach of around 6,000 PIN codes.
Founded in 2000 by Vinod Agarwal, the firm raised its first round of private equity funding from Samara Capital in 2007.
The telemarketing and TV shopping segment has been on radar of private equity and strategic investors.
One of the largest players in this segment is HomeShop18, which recently raised $30 million from hedge fund OCP Asia at a valuation of $330 million. The firm also counts South Korea's GS Home Shopping Inc and private equity firm SAIF Partners as investors. HomeShop18 also has an e-com platform though its TV shopping business is much bigger.
Another player is Star CJ, a strategic partnership between the Star Group and South Korea-based CJ Shopping, where Providence is in the process of investing.
Last year Japan's Tri-Stage Inc said it is picking up 26.4 per cent stake in Hotbrands India Pvt Ltd, which runs a television shopping channel, for Rs 40 crore.
(Edited by Joby Puthuparampil Johnson)