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Participants at the News Corp VCCircle Food & Agri Investment Summit 2016

Investors eager to ink bigger deals in food space, say panellists at VCCircle summit

25 October, 2016

The packaged food space in India is still at a nascent stage and will require at least five years before it can attract huge deals, said panellists at News Corp VCCircle Food & Agri Investment Summit 2016.

As most businesses are family-owned, there is some unease in working in alliance with financial investors. However, investors are eager to back companies if there are large-size transactions or if a brand, though regional, is credible enough to take a national plunge, they said.

According to the panellists, categories such as bakery, dairy and nutrition products have huge growth potential.  

“There is enough scope for players in the bakery segment in the premium category. However, companies focused on mass category should also be looked at. Much action has been seen on the dairy sector last year. The trend will continue to remain unabated in the space,” said Vinod Giri, partner at IDFC Alternatives.

Srini Vudayagiri of Peepul Capital, which has invested in several early stage companies, said rising income level has prompted people to choose food products on the basis of nutrition. “Health oriented food products will be a big hit in four-five years,” Vudayigiri said.

Rakesh Sony, director of Proterra Investment Advisors India (formerly Black River Asset Management), said it will take a lot of time by the packaged food players to attract big cheques. “A lot of shift will happen in commodity food businesses, including consolidation. We need to bring smaller regional players on one platform in a bid to invite big private equity firms to bet on them,” he said.

The panellists said credibility, distribution-led growth strategy and differential product offerings are among the factors that are likely to scale up businesses in the space.

Sony said processing facilities need to be improved and regional players need to be represented more on public markets or through modern retail. “If you are targeting 15-20 cities, ecommerce can come as a big boon for new-age innovators in the packaged food business,” Giri of IDFC Alternatives said.

Earlier in the day, Angshuman Bhattacharya, director at Alvarez & Marsal, said investors are looking for factors such as cold chain, value-added products and retail visibility before backing firms. “Themes such as penetration-led growth, chiller and freezer viability and packaging innovation can set the ball rolling for investors,” Bhattacharya said.

He said several factors are pulling back investors from taking the plunge. “Ability to build lasting brands, margin protection and execution capabilities are among the challenges,” he said.

However, buy-out firms such as Apax Partners are closely watching several sectors in the country such as restaurants, cafes and dairy firms. “We were close to investing in a large sized dairy firm in 2014 but we backed off as promoters were seeking smaller funds. We normally invest between $100 million and $150 million. Such transactions are too difficult to happen at this early stage,” said Aditya Joshi of Apax Partners.

The panellists were euphoric about the sector’s capacity to provide profitable exits to investors. “Exit is hardly an issue as there are different modes including public market listing,” said Vudayagiri.

“The capital market in India is lenient. A company can jump from growth fund to IPO. So public listing is a favourable mode of exit and a good way to seek higher valuation,” said Joshi.

Sony of Proterra urged investors to give time to these companies for growing. “Once they are grown it would be easy for firms such as Actis or Apax to buy them out,” he said.

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Investors eager to ink bigger deals in food space, say panellists at VCCircle summit

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