Mumbai-based private equity firm Kitara Capital International Ltd. is remodeling its investment strategy and henceforth will invest only through public market deals or private investment in public equity (PIPEs). The idea behind the move is to get a better handle on valuation, according to sources.

“Value determination is better in public market deals because you can see the bottom and to some extent gauge the upside also,” a person with direct knowledge of the firm’s strategy said on condition of anonymity as he is not authorised to speak to media. “Besides, it gives the firm traction in the highly competitive market (PE),” he added.

Amitabh Chakraborty, managing director and chief investment officer of Kitara Capital, in an e-mail reply said, “In India, so far Kitara Capital has invested both in unlisted and listed companies. While we remain fairly flexible in our investment approach, we find incredible opportunity to invest in good quality corporates listed in the public market, with scalable business model, where we understand the business drivers well, at a valuation that we believe has the potential to grow. We have invested in both the primary (through preferential allotment) and secondary deals in the listed companies in India.”

Before joining Kitara in 2010, Chakraborty was president (equity) at Religare Securities Ltd.

Kitara has invested in a handful of companies through public market in past few months. Last month, it picked up 1.6 per cent stake in Avigo-backed Tecpro Systems through secondary market and in March it acquired 5.68 per cent in Supreme Infrastructure India Ltd. and increased it to 7.7 per cent through a series of transactions last week.

The firm is also looking to invest upto $7 million in PE-backed Innoventive Industries Ltd. through such public market transactions according to sources.

Kitara’s other PIPE deals include steel tube maker APL Apollo Tubes Ltd (14.98 per cent) and speciality chemicals and drug maker Vivimed Labs (13.13 per cent stake). It has also invested $11 million in Oil Field Instrumentation Ltd (OFIL), a provider of mud-logging services to oil exploration companies and $18 million in MyTVS, a multi-brand car service network.

The firm has so far invested $100 million in 7 companies so far through public and private market.

With deal cycles getting elongated and executing deals becoming a challenge, private equity investors are looking at investing in listed entities for easier and faster execution of deals. Apart from addressing the valuation concerns, PIPE deals help companies look at other sources of capital in a market where raising debt is also a fair ask.

“Investors are getting to invest in good quality companies at reasonable valuations as compared to a private market. Besides, for listed companies looking at raising growth capital QIP as an option is virtually shut for last 18-20 months and raising debt at higher interest rates is expensive. Hence companies are also looking at this (PIPE deals) as a good source of raising capital,” Deepesh Garg, managing director of mid-market boutique investment bank o3 Capital said.

As per the data by VCCEdge, a research platform by VCCircle, so far in 2012, there have been ten public market deals worth $369 million by private equity investors.

Kitara was co-founded in 2008 by Umesh Khimji (CEO of the Oman-based Ajit Khimji Group) and Sachin Kamath (CIO of the Ajit Khimji Group and CEO of Kitara Capital).

The private equity firm that provides seed and early stage finance to medium-sized businesses across various sectors and geographies, invests between $10 million and $40 million in its portfolio companies. It places seed capital in private firms through its holding company, Halcyon Capital Holding Co.

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