EFRAC launches Asia’s first NABL accredited CO2 Laboratory

EFRAC launches Asia’s first NABL accredited CO2 Laboratory

Mandala Capital's portfolio company EFRAC recently launched Asia’s first NABL accredited CO2 Laboratory. Increased testing, inspection and certification ensures higher quality and safety of products for consumers.

Learn more about the Gas Division and the NABL accredited gas testing lab (ISO 17025:2017). 

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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Inaugural Impact Report 2019: Creating Impact Along the Entire Food Chain

Inaugural Impact Report 2019: Creating Impact Along the Entire Food Chain

A message from Mandala Capital's Managing Partner, Mr Uday Garg


Our mission is to create impact along the entire food chain that is sustainable and scalable. What does that really mean and how is Mandala’s approach to impact as an asset manager differentiated?

Sustainable impact requires durability that ensures impact on all stakeholders beyond an investment cycle or fund life.The inherent challenge in our work is the potential for a promoter or owner of a business to have a time horizon and return expectations that are not fully aligned with the investment style and structure of a fund. As a firm, we recognize this dynamic and approach investments with the aim of balancing our objectives of optimal investor return while ensuring that investments are meaningful to the company. Often, it is only through active dialogue that these issues can be resolved to achieve an ideal outcome for all stakeholders.

Fundamentally, our relationship with the companies is built on a basis of trust that transcends the transactional and provides a foundation to influence operations post-investment. It is through our close operational involvement that we are able to closely monitor and prioritize value creating events that align EBITDA progression with sustainable social impact progression. Each of our companies are their respective category leaders in the food supply chain and, as such, innately capable of delivering positive social impact. Our investment structures are designed to ensure our companies are well poised to deploy Mandala’s investment to integrate operational adjustments as well as innovation to demonstrate return that has a correlating effect in contributing to long-term positive social impact. The developments that we guide within our portfolio are designed to be fixtures of an investee company and will amplify over time rather than truncate.

Scalable impact is impact that has a meaningful effect and that can be replicated at a larger scale without diluting impact.

Small scale start-ups established solely with the purpose of achieving impact either through innovation or geography are often dislocated from viable sources of capital and, more importantly, the supply chains that their products and services must be integrated with in order to have measurable and sustainable impact. Certainly these companies can develop and often grow into meaningful market leaders, but, as an asset management strategy, it is not a reliable assumption to expect high quality returns — financial and social — within 10 years. Instead, we have discovered that larger companies in the sector are naturally best positioned to make large scale, socially impactful, changes and bring in the private sector, government and DFI funding to grow.

In preparing to draft this impact report, we spent a long time reviewing the existing literature and practices in the space. In most instances we found at least one of two trends on display: either social impact is very loosely attributed to a fund manager’s investment or targeted impact investments show very little capability to achieve demonstrable returns. We then decided to take a slightly unconventional approach to evaluating our investments – intended to employ many of the same elements of our investment strategy – that would be focused on what our role was going to be, where we could add value and how we could showcase the sustainable and scalable impact we seek to create.

This report demonstrates our initial best effort in defining, measuring and monitoring the impact our investments havecreated and in laying the foundation for continuing to track their impact trajectory. We have defined our goals and the corresponding data points and worked with all our partners to gather the data. We have also formulated calculations that allow us to translate those data points into the monetary impact created towards each of our goals, per dollar invested into the Fund and deployed into each company.

We have taken this approach because we believe that numbers tell a complete story, removing from the results the emotion and bias that often favor less compelling and impactful investments from those which create true value. Numbers also serve as an effective bridge between our investors and portfolio companies. The trendiness of impact investing leads me to believe that the impact investing industry is moving towards a more quantitative approach in measuring and communicating impact.

Publishing and sharing Mandala’s inaugural impact report is a major milestone, both for the company and for me personally. The Mandala team – including all our partners – care about a lot of social causes and actively support and lead various philanthropic endeavors. This is in large part due to the influence of my grandfather, Mr. B.R. Barwale, who built a very large and successful business in agriculture and always emphasized the importance of giving back a significant amount to the farmers and the rural community, without seeking recognition or advertising his philanthropic efforts. Thus, from the outset, we have naturally sought partners aligned in this basic philosophy.

Mandala Capital was established in 2008 and we launched Fund I in 2014. This report is certainly long overdue, but we deliberately wanted to watch the impact investing industry mature and contemplate our role in the community of impact investors. We believe that this report reflects who we truly are while demonstrating adequate respect to the impact investing world. It is my sincere hope that you will enjoy reading it and that it will provoke new thoughts and ideas that broaden and elevate our ongoing dialogue.

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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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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