New Silk Route Seeks Gastro Delights

Please note that this article is simply a reproduction of the original article published in the Economic Times on April 5, 2012, Bangalore Edition. If you come across any other interesting articles that I miss out, do email the link/article to me and I will review and post them for the benefit of all readers. 

Article Credit: Economic Times, Apr 5, 2012, Bangalore

New Silk Route Seeks Gastro Delights
Fund has set aside . 500 cr to invest in a portfolio of four food and beverage firms by crafting a unique model

ARCHANA RAI BANGALORE

 

New Silk Route has set aside $100 million (. 500 crore) to invest in a portfolio of four food and beverage firms by crafting a model that has never before been implemented in India. 
The investments will be channelled through a holding company that will take a controlling stake of 51 % in mid-size promoter–led firms in an initiative that has been informally termed ‘Project Gastronomy’. 
Promoters will be asked to cede control of accounting, human resource management and project management in return for fresh capital and handholding to expand their firms both in India and overseas. 
“Promoters have to buy into the fact that the whole is more valuable than the sum of the parts for this model to work”, said Jacob Kurien, a partner at the fund which invests out of a corpus of $1.4 billion in emerging markets in Asia. The fund is in advanced talks with ethnic fast food chain Adiga’s, run by the Bangalorebased K N Vasudev Adiga, and another person who runs a network of fresh fruit juice kiosks. The two other companies under this umbrella will include a chain specialising in Indo-Chinese cuisine and a network of fine dining restaurants. Kurien declined to identify the companies it is looking to invest in. 
“Once we sew up the first deal, it will offer a proof of concept to other promoters,” he observed. The innovative model is a response to the challenges faced by risk capital investors in India, who have reduced the amount of money they have committed over the past few quarters in the food & beverages business. While last year they pumped in $256 million across sixteen deals, there has been just one deal in the first quarter of 2012, according to research firm Venture Intelligence. 
“Funds such as New Silk Route will never find one single company in the food sector to back with a $100-million deal. But food & beverages is a great investment opportunity and they are figuring out new innovations to get a slice of the action,” said Mayank Rastogi, a partner at consulting firm Ernst & Young. 
High valuations demanded by promoters and very low scale of operations were the reasons why New Silk Route, which is an investor in Café Coffee Day, devised this model, according to Kurien. “If market leaders are trading at 40 times over earnings before tax then smaller promoters feel they should be paid at least twenty times. That is too high a valuation,” he said. 
Adiga’s which owns twelve vegetarian fast food joints across Bangalore and in the town of Maddur, has ambitions of taking the brand global. It hopes to add 15 outlets in India and overseas in three years, a person aware of the plan said. “The primary motivation for a promoter to consider such a model is the need to expand.”
The New Silk Route model will also offer a central pool for real estate and project management as well as a health & hygiene division to standardise processes that will be necessary to build a global brand. “A platform allows the opportunity of partnering different companies with diverse cultures. Funds that resort to such investments will have the confidence to back themselves in a sector”, said Jaspal Sabharwal, partner, Everstone Private Equity which also invests heavily in the food & beverages sector.