FDI in retail likely to spur deal activity in agriculture, logistics

The food value chain has to improve to cater to retailers. PEs can help firms access capital, capabilities and customers

The government’s decision to allow foreign retailers to set up supermarkets in the country is likely to spur private equity (PE) investment in agriculture and warehouses, the backbone of the retail sector.

The need for efficiency and quality would drive investment in warehouses and supply chains, experts say.


In last five years, the country’s agriculture sector saw 35 PE/VC (venture capital) deals, worth a mere $356 million.

In 2010, seven such deals, worth $122 million, were recorded; the volume was the most since 2007. So far this year, only three deals, worth $15 million, have been recorded in the sector, compared with six, worth $24 million, last year.

SNAPSHOT OF DEALS
Year	Deal volume	Deal value ($mn)
2007	9	43.0
2008	5	89.0
2009	5	63.0
2010	7.0	122.7
2011	6	24.3
2012	3.0	14.8
Total	35	356.2
Figures rounded off to 1 decimal    Source: VCCEdge

Though India-focused PE investors run sector-specific funds in areas such as healthcare and infrastructure, only a few funds like Rabo Equity Advisors, the PE arm of Rabo Bank, operate in the agriculture sector.

KEY DEALS IN THE AGRI SPACE
Buyer	Target	Deal value ($mn)
Blackstone Advisors India	Nuziveedu Seeds	50.0
New Silk Route, Citi Venture*	KS Oils	49.0
Siva Ventures	KS Oils	35.5
Summit India	Krishidhan Seeds	30.0
Nalanda India Fund	Triveni Engineering & Industries	25.0
India Agri Business Fund	Super Agri Seeds	9.56
Unilazer Ventures	InI Farms	3.61
Acumen Fund	BASIX Krishi Samruddhi	1.67
*includes Capital, The Baring Asia PE Fund                                          Source: VCCEdge

Rabo Equity Advisors, India’s first food and agriculture-focused PE fund, had launched the $120-million India Agribusiness Fund and invested in companies such as LT Foods, Sri Biotech Labs, GeePee Agri, Daawat Foods, Global Green and Vacmet India. Rabo now plans to raise a second fund, one with a corpus of $250 million.

With a population of about 1.2 billion, growing 1.6 per cent a year, India is a large and growing market for food products.

Though food products are the single largest component of private consumption expenditure, PE/VC investors feel the sector is not yet ripe for investment. However, this is likely to change soon.

Rajesh Srivastava, chairman and managing director, Rabo Equity Advisors, says, “As food and beverages form a large part of most retailers, the sectors would obviously be targeted heavily, once foreign retailers come in. The best part is quality would be fully secured by these retailers, to protect their reputation. This would directly benefit consumers….The stakeholders in the food value chain, who deal with modern retailers would have to perk up their productivity, quality, logistics and general governance.”

According to an Ernst & Young note, India’s productivity in food and agriculture is one of the lowest in the world, and investment in better farming practices would lead to an increase in output.

Pinaki Ranjan Mishra, partner and national leader (retail and consumer products), Ernst and Young, said, “FDI (foreign direct investment) in retail would help modernise the supply chain. This presents a big opportunity for companies who manage warehouses and logistics. PE funds would have an opportunity to work with them for their future growth plans. This will include not just capital, but also providing capability and client contacts.”

Possible consolidation in the fragmented food and agriculture space, against the backdrop of increasing interest from multinational companies, could lure PE/VC investors.

“Yes, there could be some stake sales by financial investors to foreign strategic investors. Consolidation is very much possible,” Srivastava said.

by Reghu Balakrishnan for Business Standard

Source : Moneylife