Indian Agriculture offers spring of hope for Private Equity firms

CHENNAI: Private equity players are having a tough time with a slow down in the services and manufacturing sectors, which promised good returns even a year back. But some investors seem to have found an answer closer to the ground- in agricultural fields.

Last year, Indian agro-based companies attracted a host of private equity players, who see potential in this space on the back of strong demand and the sector’s insulation from the credit-induced economic crisis in the West.

The prominent deals in 2008 include the $50 million investment by Blackstone in Hyderabad-based Nuziveedu seeds, which is one of the largest hybrid seeds companies in India. Another prominent example was Morgan Stanley’s investment in castor oil maker Biotor Industries, through its Asia fund. More recently, Chennai-based Sree Ramcides, a 36-year old, family-run agro solutions company attracted $5 million from ePlanet Ventures last month.

Veda Corporate Advisors executive director C Venkat Subramanyam said the investments signalled a broader trend of private equity players looking at sectors that are more insulated from the global slow down. Veda was the exclusive advisor for the Ramcides transaction. At the time of investment, ePlanet Ventures managing director Chandrasekhar Kandasamy said, “We see a huge opportunity in agro and agro-related businesses for the next 3-5 years.”

“Compared to the manufacturing and services space in India, agriculture has been a laggard. But, unlike the manufacturing or services space, agriculture is insulated from incidents in US or Europe. So, it’s a very good diversification opportunity in the current environment,” added Mr Arun Natarajan, founder and CEO, Venture Intelligence, a research service focussed on venture capital and private equity.

According to a recent report by research firm Four-S Services, the lack of big integrated players in the agri-business, has opened up a wealth of opportunity for PE players to invest in this fragmented space that promises growth potential. Within the agri-business, private equity firms are exploring various areas including agri-biotech and seeds, food processing, organic farming, crop protection, integrated cold chain management and logistics & distribution.

Industry observers also attribute the increasing PE interest in agro-based companies to Limited Partners (institutions that back private equity or venture funds), who want to see more investments happening outside of the metros.

“Till now, PE has been a largely metro, urban story. Increasingly, LPs want to see funding happening in areas where there is not so much of a competition for deals and businesses and also want funds to move beyond the metros to the hinterland. So, agro-based industries are an obvious option. The consumer spend in Tier-II and Tier-III cities has also gone up,” Mr Natarajan added.


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