At the VCCircle ICICI bank Investment Summit in Mumbai, nearly 200 participants- drawn from the global investment community sported huge levels of confidence and promise on the fast growing agri & food industry. But amidst this confidence, an equal amount of concern and challenges was also shown by the investment fraternity as the country is facing one of its most serious challenges – that of food inflation.
As Rajiv Sabharwal, executive director, ICICI Bank Ltd, in his inaugural speech puts it, “Inflation in the agriculture, food sectors - the biggest contributor to India’s GDP, is the major concern. According to him, the sector is poised to double to $280 billion in next 10 years- thereby meaning investments upto $50 billion in the next 10 years. He added that the private equity investors putting money to work in the space have to understand the value add that can be done to such companies.
Echoes S. Venkatraman, Sr Director & Head, Food & Agribusiness Research, Rabo India, that the Indian agri& food business is expected to grow to Rs 25 trillion by 2025. “Exploring the global horizons and the interest of MNCs in Indian space would be the drive factor in future. More joint venture with foreign players is becoming a trend in the agri& food space in India”, he said.
The increasing linkage to underlying global commodity prices offers potential for increase in crop yields / productivity. Talking more on entrepreneurship, Sabharwal said that their partnership with investors should be treated as a long-term relationship than considering them as passive financial investors or mere shareholders.
Also their investment experience with the particular sector also to be diagnosed, he added. The ability to bring the entrepreneurs to better exposures should also be a criterion to select the investors, he said.
According to Sabharwal, the fragmentation of the sector is another major concern for investors. Fragmentation of farming, lack of proper transportation are some of the issues that the industry is struggling with, he pointed out.
However, looking forward, there are positive signs of change in farming sector as farmers move towards horticulture and explore the possibilities in hybrid seeds and biotechnology with increasing awareness in organic farming.
Ajay Saraf, senior GM, ICICI Bank, said that selecting the target is more important as buying out the unwanted assets would bring liability in the future. "Whether the resources for raw material should be acquired or only the distributionship has to be acquired and ultimately what do you get from the buyout is the most important part in the M&A scenario', he said.
Other panelists such as Ramakrishna Karuturi, MD, Karuturi Global Ltd, Vijay Kumar Arora, chairman, LT Foods and Dinesh Shahra, MD, Ruchi Soya Industries were unanimous in their view that the Indian government and the embassies are supportive of their outbound acquisitions or operations.
According to Nalin Kumar, MD& Head, M&A, corporate advisory, Rabo India, the PE players are keen to help Indian companies grow better with investments. However, the concerns are the limitation of value addition, and uncertainty over returns. For the outbound deals, funding at international level would be another area the entrepreneurs need to be careful about.
The panelists agreed that acquiring the management team of the target company will add value to the buyout as this will add significant value in the domestic markets. Ramakrishna Karuturi, opined that the key person from the acquired company should remain at the helm even after the buyout.