IFC may invest up to $25M in Motilal Oswal’s second PE fund

International Finance Corporation (IFC), the private investment arm of the World Bank, is looking to commit up to $25 million to the second private equity fund of Motilal Oswal Private Equity Advisors. The India Business Excellence Fund-II (IBEF-II) made a second close at Rs 490 crore (approx. $89 million) in August last year and also roped in its first overseas institutional investor, Squadron Capital, as a limited partner.

Motilal Oswal is looking to raise $100 million for India Business Excellence Fund IIA, the offshore tranche of the fund. According to IFC, the fund has an option to accept additional commitments as recommended by the investment advisor.

IBEF-II is the second in the series while the first fund of 2006-07 vintage raised $82.5 million and was fully deployed. The fund will focus on high-growth small & medium enterprises (SMEs) with a focus on tier II and tier III cities in India. The sector focus for IBEF-II will be offshoots of domestic consumption and 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.

One point to note is that IFC is also an investor in AU Financiers. While Motilal Oswal invested in the company in 2008, IFC invested in 2010.

Motilal Oswal PE has already started deploying IBEF-II, closing two investments in the past one month. It first invested Rs 35 crore in Magicrete Building Solutions Pvt Ltd, one of the top manufacturers of autoclaved aerated concrete blocks. Next, it also closed an investment worth Rs 37.3 crore in Delhi-based Intec Capital, a listed NBFC.

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.

Fundraising has become increasingly difficult now and limited partners have become even more selective about investments in India. Also, there are several private equity firms targeting the SME market including new fund managers like ASK Pravi Capital and Access Asset Managers, among others.

Zephyr Peacock India Fund III, which is targeting $150 million, has also raised $70 million in total commitment from limited partners for the second close earlier this month. Another fund, BanyanTree Growth Capital II LLC, also raised $150 million for its second close. Tano Capital, too, raised $111.3 million for its second fund last year.

(Edited by Sanghamitra Mandal)

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