India Awards: Firm of the Year – ChrysCapital Partners

Q: How did fundraising for ChrysCapital VI differ from its predecessor given that the fund is half the size?

A: The process of fundraising was the same but we had many more difficult questions from investors. India has gone through a tough economic period due to a combination of global and local issues: We have seen high inflation, a high fiscal deficit and slowing GDP growth. Another issue has been the tough conditions in the private equity market as a whole. In our case this has been less of a problem because our exit track record is fantastic, but generally in India liquidity and exits have been very poor. The challenge is to convince people that India is still an attractive place for LPs to invest and ensuring exits continue to happen.

Q: How has your investor base changed for this latest fund?

A: Our US LP base has become slightly smaller and the rest of the world has obviously become slightly larger. Even though the fundraising environment has been hard, existing LPs are willing to invest in funds with good managers. Unfortunately the number of good GPs has fallen as returns have been lower, but this might not be a bad thing for the market.

Q: How do you plan to deploy your capital and what sectors do you find the most attractive?

A: We are aiming to make 15-17 investments of $30-40 million from the fund and it will take around four years to deploy the capital. We will continue to do minority growth capital deals in both public and private companies. The only thing that has changed is that the deal size has become smaller because the fund size has become smaller.

The areas that are very attractive right now are domestic consumption - particularly financial services, consumer goods and pharmaceuticals - and business services. We are more cautious in manufacturing and infrastructure, but our strategy continues to evolve.

Our team has been stable so we have the same guys looking at the same sectors and we have become a lot more disciplined. We have stayed away from sectors where there has been a lot of exuberance and invested in sectors where valuations have been reasonable. One year the consumer sector might be expensive, the next year it might be infrastructure, so whatever sector we are looking at now, it doesn't mean in two years time we won't be looking elsewhere. Our emphasis will change depending on India's macroeconomic situation.

Q: How did ChrysCapital deal with the transition following the retirement of its founder, AshishDhawan?

A: The team has continued to do the same thing it has for the last 10-11 years and Ashish has done a fantastic job in handling transition over the last 18 months - a lot of credit should go to him for making sure people knew about it well in advance. From the very beginning there was a partnership approach in the team and we have always been run as a collective. I think our strength as a firm is that we are very transparent and we are a very entrepreneurial in our approach. In the majority of cases people are promoted from within and our culture has remained the same.

Q: You've noted that the exit market is tough. How will it develop?

A: I think it has opened up, but only for good companies and it will remain selective. There is clear demarcation; you need companies with scale and size to list because the majority of exits in India are though the public market. One of challenges for private equity is with companies that do not have scale. I still think there won't be many strategic exits in India but you will see a lot more private equity-to-private equity exits.

Q: What is your outlook for Indian economy in 2013?

A: Our view is that interest cycle is now going to turn so, as inflation tapers down, GDP growth, which has been a bit anemic, will rise to around 7 % as spending increases. Domestic consumption should be robust. It may take 9-12 months, but the India story will continue to be pretty resilient. We strongly believe that India in the medium to long term is a very good bet. There is still robust growth - I know is has slipped to 6% but if you add inflation on top it is more like 12-13% in terms of nominal growth, and a lot of underlying sectors are expanding at 15-17% per annum.

I agree those days of 25-30% IRRs are gone but early 20% IRRs are still obtainable. There is inherent strong growth at the sector level and companies continue to perform reasonably well. People haven't made money in India not because of poor companies, but rather because a lot of investors paid too much for those assets. Our view is that if you can get into assets at a reasonable price level, growth will be there. The big issue continues to be exits and until that starts to become more consistent, India will continue to be a market under a bit of a hammer.

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• Topics
• South Asia
• Fundraising
• Expansion
• India
• ChrysCapital Management
• AVCJ Awards