An Overview of Mandala Capital’s Structured Approach to Investments

An Overview of Mandala Capital’s Structured Approach to Investments

 

The Private Equity designation characterizes a wide range of investment firms. Although it is tempting to evaluate the asset class through a singular lens, there are genuine differences between firms and the underlying investment themes, financial product offerings, portfolio volatility, risk-reward, and the methodology of decision making.

 

The Mandala Method

At Mandala Capital, we pride ourselves in our structured and comprehensive approach to investments in the food and agri industry. This process has been developed over a decade by our Team and built upon our past experiences and lessons learnt— particularly during the early years of Fund I.

The process is continuously refined through strategy sessions, conversations with our LPs and market participants, and constant self-introspection. Doing so allows us to better foresee trends and disruptions in the marketplace, as well as develop financial products that are best suited to withstand downward market movements and capture long term high growth opportunities.

Mandala Capital's investment strategy is focused on four steps which we define as follows:

  1. Thesis Driven
  2. Deal Creation
  3. Deal Structuring
  4. Value through Operations

Mandala Capital thoroughly evaluates each investment through this rigorous step-by-step approach— before and during an investment’s lifetime- to ensure that the deal is beneficial to all stakeholders.

 

Thesis Driven

Developing a thesis is a complex exercise and a key differentiator for Mandala Capital.

This is an ongoing and continuous process where we leverage our Team and our broader network’s combined market experience, market relationships, and access independent research where necessary. We consider three broad areas to help us develop a thesis and identify target companies. These comprise Industry, Mandala Edge, and Exit.

Using Industry research is not a novel approach. However, combined with Mandala Edge and Exit analysis, it helps create strong conviction on pursuing certain transactions and maximises return opportunities.

 

Deal Creation

We spend a long time on the ground truly understanding the needs of the companies, and more importantly, the people behind the companies we invest in.

Many firms in the Indian food-agri industry are family-run businesses that come with a unique set of challenges and concerns. Through the personal relationships we form, we are able to understand the nuances behind operational decisions that cannot be captured on spreadsheets or metrics.

 

Deal Structuring

Thanks to the unprecedented amount of time spent nurturing relationships with our partners and deeply understanding their unique needs, we are able to structure deals nontypical of a private equity firm. These include a combination of various debt-like and equity-like instruments along with FX hedges and incentive structures to align interests. In the food and agribusiness sector, where it is conceivable to see annual operating plans change several times a year due to external forces, our deal structures help secure returns and provide downside protection, while delivering a product that works for our partners and stakeholders.

While we spend increasing time on each component of our strategy and work tirelessly to develop and maintain our proprietary edge, in the area of Deal Structuring, we believe that we have been ahead of the curve from the early days with a healthy respect for risk-reward balance and reduced volatility in our investments.

 

Value through Operations

Finally, we commit to leaving every investment with greater operational capabilities post-investment, as part of our mission to grow industry-leading agriculture, food and food related companies.

We share knowledge with other thought-leaders in the industry and are heavily invested in agtech and new frontiers. With 360 degree sector understanding, we are able to advise and help increase the value of all our investments. More recently, we have also added Impact management as part of our Value through Operations step, and introduced a proprietary quantitative methodology to track and monitor the dollar impact created by each of our companies following our investment.

If you are interested in engaging with Mandala Capital, please contact us to find out more.

Mandala Capital is a private equity firm focused on long term and sustainable investments across the food value chain in India and South East Asia. We partner with visionary promoters and management by providing complete financial and operational support to increase the companies’ value and help companies achieve sustained leadership in their sectors.

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Non-Banking Finance Sector in India – A Review

Non-Banking Finance Sector in India – A Review

Rough Times for NBFCs in India

Around August 2018, it was as if a tsunami hit the world of Non-banking finance companies (NBFCs) in India.  For the last 4 to 5 months, they have gone through a rough phase which was triggered by a sudden default on its short term debt obligations by a blue chip AAA rated infrastructure lending NBFC, viz. Infrastructure Leasing and Financial Services (IL&FS).

Debt-ridden IL&FS, which various corporates as well as mutual funds and insurance firms had invested through short-term instruments like commercial papers and non-convertible debentures (NCDs), has been serially defaulting on its several debt-obligations since August. IL&FS’ borrowings from banks and financial institutions added up to nearly Rs 63,000 crore (c. $9 billion) as per the balance sheet of FY 2017-2018. There were concerns that many NBFCs could have their funds stuck in IL&FS debt instruments given its AAA pedigree. The NBFC has since been taken over by the Government of India which has appointed a Board of professionals to bring it on even keel.

Solutions and Consequences

Banks are the major resource avenue for NBFCs. After defaults by IL&FS, both public sector and private sector banks almost stopped lending to NBFCs. An asset-liability mismatch in the operations of NBFCs such as IL&FS is a fundamental issue, which means that these firms raise capital from the markets for 6 months to 1 year and lend for longer tenures of 3 to 5 years.  Many strong NBFCs have been resorting to such practice of borrowing short from Mutual Funds and lending long to arbitrage on the interest rate and earn higher NIMs.

As a consequence, ongoing liquidity situation for NBFCs remained tight till January end of 2019.  Another fall out has been that NBFCs were slapped with higher borrowing costs, given the adverse sentiment in the NBFC sector.

Things are settling down since February 2019 and even though the crisis is expected to blow over soon, it is believed that the easy money-making period of this sector will not come back soon. Strong economic growth of the past 4 to 5 years that led to robust expansion of NBFCs will not continue in this fashion. Newer NBFCs will see their first downturn and companies with models that can withstand downturns will survive and grow.

Surviving the Tumultuous NBFC Market - SAFL Case Study

Closer home, Sustainable Agro-commercial Finance Ltd. (SAFL) has managed to survive the tempest experienced by the NBFC markets. Post investment from Mandala Capital*, SAFL continues to pursue the strategy of being multi-product and multi-locational. No asset liability mismatch, and conservative lending practices gives it a distinct edge from the risk management and scalability perspective. The focus across 10 different products to cater to varying needs of farmers is a sound policy.

SAFL is focused on strengthening its franchise, capitalising on new opportunities and investing in growth while exercising prudence where required in the context of challenges in the environment. SAFL believes this strategic approach will drive continued strong performance in the years ahead.

*Myriam Chang, Managing Director of Mandala Capital, sits on the Board of Directors of SAFL. 

"SAFL’s operational strength and experienced management allowed it to show resilience during recent market disruptions. Mandala Capital remains committed to the company and the sector, and will continue to work closely with SAFL to further sustainable growth."

Mr Arvind Sonmale is the Managing Director & CEO of SAFL. A career Banker in the industry for over 41 years, he was the Chief General Manager handling Corporate Finance and Recoveries in Exim Bank, Mumbai, and Managing Director and CEO of Global Trade Finance Ltd (GTF) with equity participation from IFC, Washington and FIM Bank, Malta.  He has been on the managing councils of Industry Associations such as CII, IMC, and Indo-Italian Chamber of Commerce. Mr Sonmale set up SAFL from the drawing board stage to its current pre-eminent status in agriculture finance in India.

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Happy Lunar New Year from Mandala Capital

Happy Lunar New Year from Mandala Capital

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Harvard Business School: Jain Irrigation Case Study

Harvard Business School: Jain Irrigation Case Study

Harvard Business School recently released a comprehensive case study on Jain Irrigation, analysing the long-term growth strategy adopted by the family business, fuelled by its mission of improving the living conditions of Indian farmers and creating a legacy in drip-irrigation technology.

Access the full case study to learn how Jain grew from a door-to-door kerosene business to the global Jain brand owning over 60 sub-companies in 2018.

Case Study: Jain Irrigation Systems Limited_Continuing a Legacy

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Disruption in the Indian Dairy Industry

Disruption in the Indian Dairy Industry

Trends in East India

Our recent c. $30 million investment in Keventer Agro and the subsequent launch of the first and largest UHT milk processing plant in East India has confirmed a few of our themes:

• There remain incredible growth opportunities in the food sector that can thrive with vision, leadership and capital
• Billion-dollar market segments, such as East India dairy in the case of Keventer, remain largely untapped by investors and corporates alike for various reasons
• Non-technology disruption is still possible in traditional business through pricing, packaging, quality and distribution strategies
• Sustainable impact – one that can benefit all stakeholders and grow year on year - can be achieved through scale investments with quality partners
• Alignment of interest between investors and management teams can create true value that is greater than the sum of its parts

East India today constitutes c. 30% of India’s UHT milk consumption and has been growing at CAGR of 23% for the last 5 years.  Despite this, the major dairy processors have chosen to import milk from corners of India into the East. They have also priced their products as per national standards, not accounting for different per capita income in the east or taste differentials.

The Keventer Dream

The common theme has been that the East is milk deficient and GDP/capita is lower than the rest of the country – so the focus has always been on other areas. Keventer is designed FROM THE EAST, FOR THE EAST. The aim is to deliver higher quality local milk, fortified with vitamins and at the cheapest price possible.

Using decades of expertise and relationships with the combined teams of Keventer and Mandala, we have managed to construct a state of the art plant – the most efficient and highest quality in the country today – on budget and ahead of time. Our distribution network in the East is one of the best in the FMCG space with a distribution reach of 100,000 retailers. The net result is a “magic price” on 160 ml double toned (or skimmed) milk in a tetra pak for Rs. 10! This is the lowest price in India and one of the cheapest in the world. And all the while with a focus on the bottom line.

We akin this disruption to what Jio has done for the telecom space. We are not simply trying to take market share from competitors. We are bringing in non UHT milk users into the market due to our price point. Tea sellers – traditionally buyers of pouch milk – are now using Keventer Agro UHT milk for their daily needs. Similarly, we expect mothers to use the Rs. 10 pouch in their child’s lunchbox. All our milk is fortified, thus also addressing nutrition needs of the malnourished and increasing health and well-being across consumers of all income brackets. 

Wealth Creation for All Stakeholders

Mandala Capital has contributed strongly to this vision in various forms ranging from roll-out strategy to corporate governance. The net result is a world class company which is a good corporate citizen.

The needs of all stakeholders are considered and we hope to create wealth not just for investors but also for our distributors and retailers as the brand grows in volumes.  Best quality, employee welfare, stakeholder benefits, social impact, corporate governance and the bottom line are always on top of our minds at Board discussions. 

It is worth touching on one of the other businesses under Keventer Agro, namely its banana business. We are now the largest branded banana business in India with a volume of 25,000 tons per year. As per our calculation, we are over 1% of Chiquita’s global business (spread across 70 countries) simply in one state in India! The potential for this business is very large and we must credit the teams working on this for transforming a commodity item like a banana into a branded play. 

Impact on Lives

The company has dedicated itself to making a significant impact in improving the lives and livelihoods of the 15,000 banana farmers that it works with. Due to extremely small land-holdings (less than 0.3 acres on average), farmers in the state of West Bengal do not have access to the latest technology or knowledge required to improve yields and reduce mortality.  

Keventer has started the “Keventer Assisted Farming program” wherein it provides farmers with multiple benefits – free agronomic advice, access to best agri-inputs in partnership with global leaders like Bayer and Syngenta, and most importantly guaranteed buy-back of their produce. The company is also collaborating with Govt. sponsored Farmer Producer Companies (FPCs) as well Clusters” at various locations. 

Uday Garg is the founder of Mandala Capital and has since 2008 been exclusively focused on investments in the food value chain. Prior to Mandala Capital, he worked at Altima Partners focusing on private investments in global Emerging Markets across sectors (including agribusiness). He began his career in the Investment Banking division of Deutsche Bank (New York), followed by Portfolio Manager roles at Amaranth Advisors (Connecticut) and Duet Group (London).

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Seasons Greetings from Mandala Capital

Seasons Greetings from Mandala Capital

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