India's oldest player in the private equity fund segment has seen lacklustre stock market performance in recent years. But CEO Archana Hingorani is not particularly worried. Here's why
Back in 1996 when IL&FS Investment Managers (IIML) was trying to set up a private equity (PE) fund for foreign remittances, the managers were unsure about how PE as a concept would work for India. Was there scope for aggressive acquisitions à la US funds? (KKR’s acquisition of RJR Nabisco in 1988 was the largest leveraged buyout of the time and had rocked the markets.) With no precedent in India, the IIML team was worried about working with promoters—how much should they participate in the companies?
Regardless, it went ahead with its fund, the AIG Indian Sectoral Equity Fund (AISEF), a joint venture between IL&FS and AIG. It was the first fund to be structured through the Mauritius route, a channel used by foreign investors putting money into India; it is the main provider of FDI in the country—today this has become a template followed by all funds. IIML has raised its entire funds from foreign investors.
“We started the private equity business in India when most people were not even aware of what private equity really meant,” says CEO Archana Hingorani. “Companies that we approached did not understand how to deal with us.” AISEF managed to raise $110 million, though it took almost 20 months before the first investment was finalised.
But that was then. Today, IIML is a listed company, managing $3.2 billion in assets for a fixed fee. It has raised and managed 13 funds since 1996 and has integrated two real estate funds into its operations during FY2011. What makes IIML interesting is that it is the oldest and the only listed player in the PE business in India.
According to Hingorani, there is no other team in the Indian market with an almost two-decade-long experience in asset management in the PE space. This, too, without any major changes in its key people. For instance, she has been with the company since 1994 and has participated in some of the most interesting deals of the last two decades. Some of her marquee investments include Indraprastha Gas, Hutchison Max, DEN Networks and Shoppers Stop—companies that eventually carved leadership positions in their respective businesses.
Hingorani says that now there are three areas that really matter: Real estate, infrastructure and traditional PE investment, which basically includes mid-size companies that are on a growth path.
IIML has invested around $1.7 billion in real estate, $800 million in infrastructure and $250 million in growth PE through its 13 funds.
The Big Deal(s)
Hingorani joined IL&FS in early 1994, and when the group decided to get into the PE business in 1996, she was made a part of the team. She began by assisting Shehzad Dalal, who was heading the investment process of the fund. Dalal is now vice chairman of IIML and, earlier, had served as CEO of IL&FS Asset Management Strategic Business Unit. It is here that Hingorani learned the ropes, gaining an understanding of different businesses. “Archana has been at the forefront of each of our new initiatives with undiminished vigour,” says Dalal. “Transitioning from an infrastructure DNA to breaking new ground in real estate, raising the then largest real estate fund in India, and now leading a team of over 50 professionals, is not easy. But Archana’s relentless ‘can-do’ attitude makes the difference. And more so now, when existing business models are being tested and re-moulded.”
It was the success of the first fund, AISEF, which made people notice Hingorani as a serious PE player.
The fund’s first deal, back in 1997, was with the Hutchison Max group. It invested around Rs 55 crore to acquire 10 percent of the company. But its biggest best-bet came in September 2000 with Indraprastha Gas, which was offering 50 percent of its equity to private players.
AISEF bought 20 percent of Indraprastha Gas. Its rationale: The company was planning to put up 100 gas stations in Delhi, covering transportation, residential, commercial and industrial segments. The assumption was that rapid urbanisation would lead to cleaner fuel and more piped gas in the city. The fund invested $6.1 million in the project in September 2000 and exited in 2005 with a return of 65 percent, annually.
This deal offered the training wheels for Hingorani’s team. A major portion of their time was spent in Delhi, and spread across all aspects of the project, including transporting machinery from Argentina to working with BPCL, which offered petrol stations for gas filling. Within a few years, they had gained expertise in the business of gas distribution.
The first IIML real estate fund, India Realty Fund I, was launched in 2006 with a size of $525 million. The second, Fund II, came in 2008 and collected $895 million. The size of these funds is huge compared to general PE funds because the asset class typically requires lump-sum investment. Real estate investment is done through special purpose vehicles, or SPVs, where the funds invest in particular projects of a developer which are easy to monitor. Fund I has invested $48 million in IG3 Ltd, a company engaged in state-of-the-art infrastructure to support sunrise industries in South India. Fund II has invested $42.31 million in October 2008 with the Kohinoor CTNL Infrastructure in Mumbai.
(This story appears in the 07 March, 2014 issue of Forbes India. To visit our Archives, click here.)