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August 05, 2007

PE Interview: Dilip Kothari

Here are some extracts from the interview with Dilip Kothari, Founding Managing Director of JMF India Private Equity Fund, that appeared in the Venture Intelligence quarterly Private Equity Roundup report published in early July. The full interview (available to Venture Intelligence "Series C" subscribers) provides a more detailed profile about the PE arm of JM Financial group and other interesting snippets from the fund-raising experience

VI: What would differentiate JM Financial India Fund from other funds?
DK: When we were raising money, the joint venture with Morgan Stanley had created a lot of synergy from a deal flow perspective. While the circumstances may have changed somewhat now (JM sold its stake in the JV to Morgan Stanley in Feb 2007), the original thesis still remains – JM is a strong organization in institutional broking and investment banking. This makes us a one stop shop. So a promoter could think in terms of: Can I get private equity money (from JM) if I need growth capital? Will they help me take the company public, if necessary? Can they help us in an off-shore M&A type of activity or for listing in the US or for a GDR or ADR? So this combination makes us different from other players.

VI: What sectors would you look at?
DK: We have already invested in the manufacturing, retail and auto components sectors. We are looking actively at financial services, be it NBFCs or banks. We are also looking at the BPO, pharma and logistics sectors.

VI: What about investment size?
DK: Our sweet spot is $15-20 million, with an average investment horizon of 4-5 years. We don’t want to make a lot of investments that we cannot manage actively.

VI: What attracted you to the first three investments?
DK: In the auto components sector, there is a massive cost arbitrage from the outsourcing story. Sona Group makes a lot of components for their Japanese counterparts and also for European carmakers. There is a clear cost advantage in doing that. We found it compelling.

On the manufacturing side, International Tractors has a tie-up with Yanmar of Japan, the second largest tractor manufacturers in the world. Yanmar has also taken a 12% stake in ITL. The export story here was also very compelling.

As for Satya Paul (Genesis’ brand), upscale retail brands in India have barely scratched the surface in terms of sales. We have seen the company grow at 45-50% CAGR over the last two years. We are looking at a national rollout. They have 11 stores now and plan to have a network of 70 stores, besides establishing a presence in Dubai and London.

...VI: Old Lane Capital Management and Evolvence are LPs in your fund…who are the other LPs?
DK: A strong institutional investor in India has invested in us, but I am not at liberty to name them. We also have HNIs, family offices from the US and institutional investors.

VI: Doesn’t Old Lane have its own India strategy?
DK: But their focus is on property and infrastructure.

VI: Has the dynamics changed after Old Lane was acquired by Citigroup?
DK: From our perspective, no. The management is the same, the brand is the same.