Fung Capital is the family office of Fung brothers – Victor and William Fung, the Chairman and Group Managing Director, respectively, of Li & Fung Ltd, a Hong Kong-based business group with revenues of $16.7 billion. The multinational is present in three areas: export, distribution and retailing. Fung Capital recently invested $30 million in Future Group’s logistics arm – Future Supply Chain Solutions Pvt Ltd, and is now planning to expand in similar areas in India. It also
has plans to bring some of its UK-based high-end menswear brands to India and is looking to partner with Future Retail for this. Rajesh Ranavat, Managing Director, Fung Capital, spoke to VCCircle on the firm’s investment strategy in India. Excerpts:
Q. What is Fung Capital’s investment strategy in India?
We will invest in businesses where we see high growth potential. In that context, in India, as one of the emerging markets, we see very good potential for modern retailing and the services which support the supply chain. Certainly, logistics is going to be one of them. Considering that, Future Supply Chain Solutions is a very attractive investment for us. Besides supporting the growth of Future Group’s retail businesses, the plan is to develop a logistics business which can serve other third party customers as well.
Presently the logistics industry in India is very unorganised and fragmented. Most of the logistics companies are essentially transport companies, which own trucks and move goods. There is a dearth of professional logistics companies in India as compared to advanced
economies. The opportunity lies in value added services to enhance the supply chain by using technology and sophisticated process management.
Future Supply Chain Solutions is developing its business models on those lines where it would provide not only transportation but also storage services and other essential services like packaging, labeling, reverse logistics etc. We are targeting up to a 26% stake in Future Supply Chain Solutions at an investment of $30 million.
Q. What was so compelling about Future Supply Chain Solutions?
A key factor was the strength of its management team and their track record in establishing a pan-national logistics network in India to support Future Retail’s successful expansion over the last few years. The other factor was Future Logistics’ two-pronged strategy: to support Future Retail’s high growth operations, its allied businesses and vendors; and also to offer services
to other third party customers, which is a major growth opportunity. At present, the company is offering services mainly to Future Retail.
Q. Is Future Group’s retail business on your radar?
We are not in active discussion for other businesses but that does not preclude us from considering other opportunities. We may have different kind of partnerships, not necessarily investing in the existing businesses. We could invest in some new brands or formats of Future Retail. One of Fung Capital’s business strategies is to acquire brands. We already own some high-end UK menswear brands like Hardy Amies and Kent & Curwen. So we could bring those brands to India and might partner with Future Group.
Q. How important is the Indian market for you? What is the kind of money you would be putting in here?
As a rapidly developing economy, we view India as an important and growing market for consumer products. We will seek out high growth investments in areas of our focus that also comply with our strategy to develop a long-term winning partnership where each side adds value to the venture.
There is no set target in terms of how much money we will invest in the next two to three years. As with all our investments, we will be very selective and prudent.
Q. Would you be looking at opening an office in India?
I don’t think we have an intention of having an India office. We have offices in Hong Kong, London and the US, and we have our own service providers, legal professionals and financial advisory firms. We can move very quickly with the support we have and do not require on the
ground presence in India.
Q. Would you be looking only at growth capital deals, but also late stage or distressed investing?
We will look at special situations and specifically small and medium sized companies. It will largely depend on the circumstances and an assessment of whether our involvement will substantially improve performance. Typically we look at partnering with other investors as well.
Q. Any particular reason for your interest in logistics in India?
India provides great potential as the logistics industry is currently at an embryonic stage and the government as well as the private sector are contemplating substantial investments in the logistics infrastructure. We are basically supply chain leaders globally and we have a very deep
understanding of how the supply chain works. That is where we can add our expertise to the investee company and to our business partners. Fung Capital is not the typical private equity outfit;-, this is the PE arm of the Fung Brothers. We are a family office fund and have more
flexibility than a typical private equity fund.
Q. What are the other sectors that look good to you?
One of the sectors we are looking at brands in fashion segment. We are not interested in locally based brands but in global brands which can be introduced to India as well as to China and other growing economies. We are looking at brands which are already established in the US and European markets and where there is an opportunity to bring them to the Asia-Pacific region. Our goal is to invest in privately-held companies and not in public entities.
Q. How attractive is India as an investment destination?
Growing domestic consumption and the potential market size are attractive features.
India is not an export dependent economy and is a bit more decoupled from the global economy than other markets including China. Also, Indian consumers are becoming more aspirational, looking increasingly at a western lifestyle. This trend will spur retail and logistics to grow and new brands from overseas will cater to an expanding middle class customer base.
Q. Do you think it’s a good time to invest and that the valuations have become realistic?
No time is good or bad as long as deals can be concluded at reasonable valuations. I think, Indian entrepreneurs and businesses are becoming aware of is that valuations in the
past were often unrealistic. Now they are reaching a level where investors can start seeing value. As the gap narrows, it will lead to more funds and investors coming to India.
Q. But do you think Indian businesses are comfortable diluting stakes?
This is one of the big challenges for old family run businesses in India. New entrepreneurs like Mr. Kishore Biyani and companies like Infosys have a different mindset. Such promoters and businesses are not worried about the need to have a substantial majority stake. The important factor here is that foreign investors will be interested in companies who don’t have a control mindset but who believe in good corporate governance and run their businesses professionally.