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Motilal Oswal Private Equity closes second fund 

The financial services firm has raised Rs 1,000 crore for India Business Excellence Fund-II.

Motilal Oswal Private Equity Advisors has completed raising its second private equity fund in a move which will take its assets under management to Rs 1,750 crore. According to sources familiar with the development, the financial services firm has raised Rs 1,000 crore for the India Business Excellence Fund-II (IBEF-II).

The fund is a successor to India Business Excellence Fund, which raised Rs 550 crore in 2007 and has been fully deployed across 13 companies.

Vishal Tulsyan, CEO of Motilal Oswal Private Equity, confirmed the development when contacted by VCCircle.

The corpus has been raised from both domestic and overseas investors, with the fund having four interim closes. Two-third of the corpus has been raised from overseas investors while the rest from domestic investors.

Despite global institutional investors being averse to investing in captive private equity funds, the firm has been able to attract several marquee names, said Tulsyan declining to disclose any names.

VCCircle earlier reported that fund of funds like Squadron Capital besides World Bank arm International Finance Corporation (IFC) have invested in IBEF-II.

Consumer, tier-II & II markets focus attracts LPs

The fundraise comes as India story has taken a major hit with the country facing macroeconomic headwinds like slowing economic growth, widening current-account deficit, depreciating currency and outflow of foreign investment.

Besides PE industry is itself facing issues like lower returns due the high valuations paid in the boom period of 2006 to 2008, relatively few exits due to volatile capital markets.

Limited partners (LPs) are also seeking general partners (GPs) with a track record of returns and differentiated strategies. Given some of its recent exits and a focus on tier II and tier III cities in India, Motilal Oswal PE's strategy has found takers among LPs.

"The overall strategy of growth capital investment in SMEs, our proprietary deal sourcing, focus on tier-II and III cities and sectors like consumer and financial services really clicked with LPs," said Tulsyan.

There are several private equity firms targeting the SME market, including new fund managers like ASK Pravi Capital and Access Asset Managers. But Motilal Oswal PE will be the first among these players to reach a final close.

Some funds who have managed to raise capital include Zephyr Peacock India Fund III, which is targeting $150 million and has raised $70 million. Another fund, BanyanTree Growth Capital II LLC, also raised $150 million for its second close.

Lighthouse, which is raising India 2020 Fund II, had also raised over $60 million last month.

To continue with same strategy

Motilal Oswal PE will continue to focus on financial services and offshoots of domestic consumption, where it expects to deploy over 50 per cent of the corpus besides infrastructure enablers.

The strategy has worked out well for Motilal Oswal as it has already scored two exits. The PE firm got up to 7x returns from its partial exit from Jaipur-based non-banking finance company AU Financiers and 3x returns from another part exit from Pune-based dairy firm Parag Milk Foods.

"The deal market has shrunk significantly because a lot of the sectors linked to the core economy are not doing well. But at the same time it is good to sit on capital because I feel in the next two years we will see a lot of good opportunities," said Tulsyan.

The new larger fund would allow the PE firm, which in the past has typically invested around $10 million, to also do larger deals of over $25 million.

IBEF-II has already started deploying capital, making two investments earlier this year. It invested in listed non-banking finance company Intec Capital, which focuses on machinery financing requirements of small and medium enterprises (SMEs). The fund also invested Rs 35 crore in Surat-headquartered Magicrete Building Solutions, which makes lightweight concrete blocks and panels.

Motilal Oswal’s other portfolio firms include ElectroMech Material Handling Systems India Pvt Ltd (industrial machinery), Minda Industries Ltd (auto parts & equipment), Mrs Bector Foods Specialities (biscuits & bakery) and Effort BPO (call centre services). A few companies such as Resurgere Mines & Minerals India Ltd (steel) and Time Technoplast Ltd (specialty chemicals) have seen liquidity events with their IPOs.

(Edited by Joby Puthuparampil Johnson)

Motilal Oswal Private Equity Advisors Pvt. Ltd. is the private equity arm of Motilal Oswal Financial Services Ltd. It has $325 million under management. It provides finance to mid-market companies operating in India. The firm seeks to invest in food processing, retailing (except multi-brand retailing), lifestyle and leisure, consumer durables and electronics, information technology, logistics, financial services, education and related services, knowledge and business process outsourcing services, media and entertainment, construction and realty sectors. It typically invests between minimum $5 million to $15 million. The company was founded in 2006 and is based in Mumbai, Maharashtra.