Private equity firms invest about Rs 940 crore in agri-logistics and cold chain industry in past three years

Mumbai: India, with an extremely high rate of food wastage, is seeing an increasing interest from private equity investors in the agri-logistics and cold chain industry, attracting high valuations for their scalable and high growth businesses.

PE firms have invested about $151.55 million (Rs 940 crore) in 11 companies in the sector in the past three years, according to Venture Intelligence. Sohan Lal Commodity received the largest investment of $33 million so far by Everstone, Mayfield, Nexus Ventures and ICICI Bank. More investments are lined up for the year ahead.

"There are at least 8-10 companies in the market looking to raise funds. Anybody who has annual revenue of more than Rs 10 crore is looking," said Hemendra Mathur, managing director, SEAF India Agribusiness International Fund.

Agri-logistics and cold chain companies, which are seeing revenue growth anywhere between 20 per cent and 100 per cent annually, are hoping to raise anywhere betweenRs 15 crore and Rs 100 crore each, to scale operations across the country, a necessity for growing this business faster. Suri Agrofresh, which is half owned by Europe's Total Produce, is looking to dilute 10-20 per cent equity in the company, its managing director Hitin Suri told ET. It has been in talks with more than 10 private equity firms. Some other companies scouting for private equity are Origo Commodities, Dev Bhumi Cold Chains, Scheduler Logistics and IG International.

India, which is primarily an agrarian economy, ironically has limited cold chain, warehousing infrastructure in place. At least 40 per cent of all fruits and vegetables are lost in India between the grower and the consumer mainly due to lack of storage facility, weak transportation system and bad roads, according to a recent food wastage report by Institution of Mechanical Engineers "The primary growth driver is the government inefficiencies and massive shortage of storage, transport facilities," said Hetal Gandhi, managing director, Tano India Advisors.

Tano recently invested Rs 80 crore in Shree Shubham Logistics. Another huge growth driver, he said, is the increasing private participation in procurement of agricultural produce and rising demand from banks to manage agri-loan collateral. Private equity is hoping for first-mover advantage as this capital-starved, but fragmented sector slowly moves towards corporatisation.

Also, as organised retail players make inroads into the country while import of fruits and vegetable picks up, cold chain businesses are seeing fortunes grow. Investors are, however, unhappy with the high valuation expectations, which range from 15-20 times EBITDA multiple. Few organised players with fewer people with operational background are driving valuations high.

Many businesses in the sector are family-run and not open to outside control. The balance sheets also tend to be unreliable. This emerging sector is still nascent and in need of professional handholding. "The theory is that private equity will bring in a network of relationships, additional investors, corporate governance oversight and experience with mergers and acquisitions," said Nikhil Shah, senior director at Alvarez & Marshal India. He is advising many private equity players on opportunities in this space.

Though these businesses are growing fast and have potential to grow faster, the gross margins tend to be in the range of just 5-6 per cent. More domain expertise and knowledge could help weed out inefficiencies. Despite the seasonal and rainfall dependent nature of the business, private equity is betting on the potential scalability of organised players in the segment.