PremjiInvest bets big on retail

Firm bullish despite Subhiksha debacle

PremjiInvest, the private equity (PE) firm owned by Wipro Chairman Azim Premji, stuck yet another deal this week in the retail segment by picking up eight per cent stake in Kishore Biyani's Future Lifestyle Fashions for Rs 125 crore, thus showing its increased willingness to invest more in the $400-billion Indian retail sector even after the Subhiksha debacle.

In the last few months, PremjiInvest - with its billion dollar corpus - has invested in online retailer Myntra, Tata group's retail firm Trent, ethnic apparel and furniture firm FabIndia, retail apparel brand Koutons and in apparel store chain Shoppers Stop. It has also invested in the preference shares of Tata Capital, which is selling financial products to retail customers.

"The company has made fairly good investments after Subhiksha. They have a huge corpus and have picked up a good companies in the recent days. Picking up the right companies is a big task in India now," says a banker.

In one of its first investments, Premji has lost close to around Rs 300 crore as the Chennai-based retailer Subhiksha imploded. A court battle in Madras High Court between the promoter of Subhiksha and Premji did not elicit any relief to the fund.

 

"They believe in Indian retail and consumption story strongly, whether it is e-commerce or brick and mortar retail. When we talk about consumer, consumption habits will not change dramatically. In that context, they are looking at these sectors," says a senior professional close to PremjiInvest operations. He attributed these factors as rerasons the PE firm picked up stake in Trent, Future Lifestyle, Shopper's Stop, so that it get a slice of retail sector. PremjiInvest did not speak on the issue in spite of repeated attempts to reach them.

"Though they made losses in Subhiksha, they believe Indian retail story is intact and since China is growing tremendously in retail. If we can replicate that growth in India, it will be phenomenal," says he.

Arvind Singhal, chairman of Technopak Advisors, says in whatever companies Premji invested in lately, be it Fabindia or Myntra, they are successful retailers. "Fabindia has seen good growth in the last five years and Myntra has also seen good traction among buyers," he says. The latest acquisition, Future Lifestyle Fashions, has a good portfolio of brands.

"Despite slowdown in the last two years, sector has drawn good interest from investors," says he.

Singhal believes failure of Subhiksha has not affected the growth story in retail. "In every sector, there will be one or two companies that do not do well. So, it's not correct to write off the whole sector," he adds.

Interestingly, different family-owned funds have bet on different sectors in India. While Ronnie Screwvala's Unilazer is also focusing on consumption as one of the key investment themes, Infosys Founder and Chairman N R Narayana Murthy-promoted Catamaran has invested across sectors such as Can Fin Homes, NRB Bearing and microfinance company SKS. Similarly, Mukesh Ambani also invested in a slew of companies, including in cargo carrier Deccan and in ports and power projects, and has lost money.

Singhal says family funds invest according to their personal preferences. "Most funds have specialised in a few sectors but some others are sector agnostic," he adds.

Analysts say most of the family-owned funds have turned cautious in the recent days and are investing money after a lot of due diligence. A Bain & Co report says private equity asset allocation to India has declined in recent times, driven by lower-than-expected returns from investments, low liquidity and uncertainly around government policy and regulations. Though investors continue to believe in the long-term potential of India, they see the value of staying invested, but with increased caution and clarity, Bain says.

Health care, technology and infotech, and consumer products and retail are expected to be the most attractive sectors for private equities and venture capital investments in the next two years. In this background, Premji is perhaps betting on the right sectors, say bankers.