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L Capital Asia raises $950M for second fund, to go slow on India deals

Even as it stays interested in India over the long term, the private equity firm feels that on a relative basis other markets in Asia are much more attractive right now.

L Capital Asia, a private equity firm backed by $37 billion global luxury conglomerate LVMH group, has raised $950 million for its second fund in one of the quickest fundraising rounds in the region. L Capital Asia 2 made a first and final close within six months of launching the fund, exceeding the initial target of $800 million.

While the firm found backing from its existing limited partners (LPs), L Capital Asia 2 has 'geographically well diversified' investors with commitments from institutions including sovereign wealth funds, fund of funds, family offices and pension funds.

"(One of the factors for our success) is our focus on middle class consumption across developing Asia, which, as endorsed by the large institutional investor fraternity is a secular theme that will play out over the next few decades," said Ravi Thakran, managing partner at L Capital Asia.

Sponsors of L Capital Asia 2 are LVMH  besides Groupe Arnault (the family holding company of one of world's richest men Bernard Arnault) and Malaysian infrastructure conglomerate YTL Corporation Berhad.

Zooming out of India

"Our largest focus has always been on the Greater China region, and that will continue as such. We had adopted an opportunistic stance initially on Southeast Asia, but that has shown great promise, and is our second focus market. Over the last few months we have de-focused from India because of the broader macro-economic issues and the valuation overhang," said Sanjay Gujral, the Singapore-based regional managing director at L Capital Asia.

L Capital Asia set up office in India in 2011 and was a fairly aggressive dealmaker, closing three transactions (five if we count investments in subsidiaries) in the first 15-16 months of its operations. It first investment was Genesis Luxury Fashion, which sells labels like Canali and Jimmy Choo followed by ethnic-wear chain FabIndia.

It largest investment is in multiplex-chain PVR where it invested in two tranches last year and is already sitting on notional gain of 75 per cent. L Capital Asia has also invested in subsidiaries of Genesis Luxury and PVR.

But despite the initial bullishness, L Capital Asia has decided to go slower in the Indian market even though it is positive on the country in the long run.

"There are several broad reasons for going slow in India. The macro situation is fairly well known and it has impacted corporate bottom-lines even though domestic consumption is fairly resilient; volatile and depreciating currency also makes it a challenge to deploy capital; the valuations in the consumer sector in India are also fairly rich compared with other markets in Asia. On a relative basis, other markets in Asia are more attractive at this point of time. However, over the longer term, we continue to be interested in India," Gujral said.

Leveraging LVMH roots, betting on lifestyle consumption

"The deal flow in India has slowed down from 2011 and 2012 and there is also a slowdown in quality of assets. But our focus is on proprietary dialogues which continue," said Gujral.

The fund will continue a strategy similar to that of its first fund, investing in deals starting from $20-30 million to deals of up to $150 million. Sweet spot for investments from the new fund will be $50 million to $100 million.

The fund will focus on lifestyle consumption segments like fashion, leather goods, accessories, wine & spirits, perfumes & cosmetics, watches and jewellery, specialty retail, etc. But unlike its parent LVMH, which is focused on luxury business, L Capital Asia would look back businesses from the upper end to mass consumer goods which appeal to the region's burgeoning middle class.

The fund will be able to directly leverage its strategic relationship with LVMH for support across the entire investment process from proprietary deal origination and industry specific due diligence to post-investment operational value-add to portfolio companies, which can lead to achieving exit premiums, L Capital Asia said in a statement.

L Capital Asia was set up in 2009 and raised $637 million for its first fund, which has invested in 13 companies. Its European affiliate, L Capital Management, has been active for 12 years and manages €1 billion or $1.32 billion in assets. Interestingly, now the Asia affiliate has larger assets under management at nearly $1.6 billion.

L Capital Asia II is a $950 million private equity fund managed by L Capital Asia LLC. It provides growth capital to companies operating in China, India, South East asia and the Middle East. The fund seeks to invest in lifestyle retail, lifestyle food and beverage, beauty and wellness, boutique hospitality, media and entertainment and private education sectors. The fund typically invests between $20 million to $150 million in its portfolio companies.

(Armani Jeans, Bottega Veneta, Canali)

Genesis Luxury Fashion Pvt. Ltd. is engaged in marketing and distribution of ladies apparels, classic menswear, accessories, handcrafted leather bags and accessories of international luxury brands. It also offers wedding services, corporate orders and acts as a fashion advisors. The firm operates its products under the brand name Canali, Kenzo, Paul Smith, Bottega Veneta, Jimmy Choo, Just Cavall etc. The company was founded in 2007 and is based in Gurgaon, Haryana.

(PVR Cinemas)

PVR Ltd. is an entertainment company. It operates multiplex cinema comprising of 454 screens in 102 properties in 43 cities pan India under the brand name PVR. It is engaged in the film production, co-production and distribution of Indian and international film business. The firm offers in-cinema advertisements and sells food and beverages in-cinemas. The company was founded in 1995 and is based in New Delhi, India.