'Valuations are a relative art... though manageable'
Q&A: D Sundaram, VC & MD, TVS Capital Funds
Since moving to TVS Capital Funds three months earlier, Vice-Chairman & Managing Director D Sundaram has been busy going through fresh investment proposals. In less than a week, TVS Shriram Growth Fund-I (TVC Cap manages it) has announced two investments. Last Wednesday, it announced an investment of Rs 65 crore in retailer Landmark. Today, the Rs 600-crore fund announced its intent to invest up to Rs 35 crore in Dusters Hospitality, in the facility management business. The former Hindustan Unilever vice-chairman and CFO talks to Abhijit Lele and Sidhartha on his strategy. Excerpts:
There was a period of 12 months or so when you did not invest. Was that the result of the prevailing environment then?
We have been working on the deals that we are announcing now. Deals take time, since there is a gestation period from the time you enter into discussions to due diligence and structuring. In the mid-capital growth space, there will always be an appropriate opportunity and the right entrepreneur. The macro environment is, of course, better now. The deal flow is aplenty. It was the appropriateness of the deals that may have been absent earlier.
Does the absence of appropriateness mean that valuations were high?
To some extent, appropriateness is also about how we can create value out of that. Expectations of an entrepreneur can be the level of engagement or valuation, or anything. There can be multiple reasons. Our focus is to add value to the entrepreneur, help him scale up.
How much pressure is coming from the public markets?
When the public markets are high, the valuations go up. But when an intense engagement takes place with an entrepreneur, many of them are able to see things realistically. Valuation is something which is manageable through discussions. There cannot be a value, since valuations are a relative art.
What is your timeframe for investment from this fund?
The objective is to conclude as many good deals as possible. But we need to go through a very rigorous process. We focus largely on consumer-driven opportunities and we cannot invest in infrastructure or real estate, since we are not mandated to do so. It would be our endeavour to deploy capital over the next two-three years. We have time to exit, since we have seven years from the time of commencement and we can remain invested for one more year.
Before the crisis, you invested in two companies as a co-investor. That was also when you had just started out. You have gone solo in case of the two deals announced recently. So, is it because you are more confident now?
No. The fund has a mandate to invest up to 15 per cent of the corpus (Rs 90 crore) in one company, though it was not the case with the co-investments we have done. In one case (TVS Logistics), it was a start-up. In case of co-investment with Helion in 9.9 Mediaworx, it came to both the firms. It’s a very deal-specific decision.
The SME listing norms talk of allowing private equity and venture capital firms to partly underwrite these issues. Does it make sense for you to do this?
We have not looked at the implications. But if there are opportunities in small companies that have gone to the market but are not traded, we will consider and support them through more capital.