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July 13, 2011

Fund Manager Interview: Vishakha Mulye of ICICI Venture

Venture Intelligence recently spoke to Vishakha Mulye, Managing Director & CEO of ICICI Venture Funds, on the firm’s recent investments and strategy going ahead.

This interview first appeared in the latest issue of the Venture Intelligence India Private Equity Roundup Report.

Venture Intelligence: In 2011, you have announced two significant-sized investments – in restaurants chain Devyani International and vocational education firm TeamLease Services. Can you tell us about them?

Vishakha Mulye:
Both were proprietary deals. Devyani (which runs KFC, Pizza Hut and Costa Coffee chains in various parts of India) was the outcome of existing relationships and our liking for the Quick Service Restaurant (QSR) space. As India’s GDP continues to grow, our belief is that the QSR kind of businesses - which I term as a New Generation businesses - will also witness a tremendous growth. In other countries, these kinds of businesses have shown 30-40% growth over a long period of time and our belief is that, one would see that kind of growth in India as well. The biggest challenge in this industry would be scale up and we believe the high-quality team that (the promoter) Mr. Ravi Jaipuria has built has the track record and ability to take on that challenge.

Coming to TeamLease, vocational training is something we are very excited about. While other parts of the industry also have great potential, in our view, the regulation needs to develop a little more before we, as an investor who deploys third party money, can take a bet. Vocational training is –still a fragmented industry as there are not many large and organized players but the sector has tremendous potential. The ability to do placements after the course is extremely important. For TeamLease, which is a leader in staffing services segment with several large corporate clients, vocational training and staffing services create a synergistic platform. Plus, the founding team of Manish Sabharwal, Ashok Reddy and Mohit Gupta come with a very strong track record.

In line with our interest in the education/training sector, we had also invested last year in People Combine which is an emerging leading player in the K-12 segment.

VI: What sectors, if any, are you staying away from?

Despite temporary blips, our economy will continue to be one of the fastest growing in the world and will be driven by domestic consumption. Riding on the same theme, we are also very keen on BFSI sectors where we have recently made investments in ING Vysya Bank (via their QIP issue) and last year we had invested in Star Health & Allied Insurance.

As a PE investor – given the need to exit within a certain timeframe - what we cannot manage is commodity risk. So, we will probably not focus on businesses that expose us to that kind of risk. Also, we would be cautious on investing in cross-border situations.

VI: Despite the success of VA Tech, RFCL and other buyouts, why haven’t you made any new buyouts?

Buyouts have always been 5-10% of the Indian PE market and will continue being so in the foreseeable future. Our investments are also reflective of the overall opportunity set in the Indian market which is still growth equity driven. Having said that, even within growth investments, we are not passive investors and have significant rights. We take board seats and actively participate in framing the strategies for our companies. This is probably more important than the percentage holding. But if there is an opportunity to do a buyout, we do not shy away as we have a strong track record in this segment also.

VI: Is I-Ven making a conscious move away from investing into listed companies?

QIP and Preferential Allotments are what we like or would do in the listed space. We do not go out and buy shares on the exchange. By and large, we will invest into unlisted companies which are now poised for growth and need capital to take them to the next level.

VI: In the first close of your latest fund (IAF Series 3), you had raised $400 million completely from domestic sources. What will be the final split among domestic and foreign sources in the final close?

We have raised about $400 million across multiple closings. When we started fund raising, the international market was not at its best health and we thought we would revisit after things settled down. Meanwhile, the targeted amount was raised in the domestic market itself. Domestic money has its own positive characteristics in that we can invest into sectors like insurance, etc. without constraints. We expect to have the final close shortly. Our international focus is currently on new initiatives in the Infrastructure and Special Situations areas. In case of the latter we have entered into an alliance with Apollo of US to explore opportunities in the Indian market.

VI: Will you be launching any new mezzanine type funds?

Mezzanine funds are indeed attractive from an investment perspective, but from a fund raising perspective, international investors cannot be approached due to regulatory issues. Domestic fund raising for mezzanine does not have a huge potential because people here either like to go in for plain equity or debt offerings.

However, we will continue to looking at this part of the capital structure going forward.

VI: What would you say are the key learnings from your first Real Estate fund?

Firstly, the choice of the counterparty (i.e., the developer partner) is extremely important. The second important thing is, it is always better to invest behind strong cash flows rather than making an asset bet. Both of these sit well with the residential side as we see good opportunities in that area especially in the metros and other big cities.