L Capital bets on luxury consumer space

Last Updated: Wed, Aug 08, 2012 19:31 hrs

L Capital Asia, the private equity arm of the world’s biggest luxury products group, Louis Vuitton Moët Hennessy (LVMH), is becoming a believer of the long-term Indian consumption story. And, its strategy is obvious: Strengthen operations in one of the fastest growing luxury markets in Asia.

This job was given to Sanjay Gujral after he was roped in as India managing director, from Everstone Capital. A year later, in July 2012, when he was promoted as regional managing director of L Capital Asia, there were three significant private equity deals under his belt. In May, L Capital Asia hired Uday Mehra, a retail veteran who has spent last 20 years with global brands such as Tommy Hilfiger and Nike.

The luxury market in India, on which L Capital is betting big, has grown 20 times in the past few years to touch $5.8 billion, said a recent CII-AT Kearney report. The business is projected to reach $14.7 billion in 2015. According to experts, the increasing spending capacity of Indian consumers makes the high-end retail space a hot investment destination.

On L Capital’s India strategy, Gujral said, “We are focussed on discretionary consumption between luxury and mass consumer goods, with a focus on businesses that embody the characteristics of being aspirational, affordable or alternative. We are broadly focused on fashion, beauty & wellness, lifestyle food & beverage, selective retail & distribution, media & entertainment and hospitality.”

L Capital Asia, with its $635-million fund, had picked up eight per cent in ethnic-wear chain FabIndia from Wolfensohn Capital Partners, and bought 25.5 per cent in Genesis Luxury Fashion that sells Italian and British luxury labels such as Canali, Paul Smith, Bottega Veneta, Jimmy Choo, Etro and Tumi. It invested Rs 108 crore in PVR Cinemas recently.

Sanjiv Kapur, managing director, Wolfensohn India Advisors, said, “The luxury consumer space remains an attractive niche growth sector as wealth creation in an emerging market like India will continue. Aspirational desires of an affluent, young, well-travelled clientele need local fulfilment.” According to the AT Kearney report, “India no longer continues to be the ‘lagging’ market that takes time to adapt to global changes. Consumers are well informed and increasingly demanding about latest trends — especially in the luxury products space.”

However, L Capital Asia also has its share of concerns with India. It shares the worries of global PE investors focussed on India — lack of big-ticket transactions. Though the investors are ready to sign large deals, India’s mid-sized players rarely give a good opportunity for PE investors, as compared with markets such as China. “Against China, the Indian luxury market is in a nascent stage. Businesses in China are typically larger, hence the investment sizes are also larger,” Gujral said.

Early this year, L Capital Asia invested around $200 million for a 10 per cent stake in Chinese luxury firm Trendy International Group. “We look at deal sizes ranging between $25 million and $100 million, but are open for larger tickets,” Gujral added.

Company Geography Funding date Exit
Sincere Holdings Ltd South East Asia Sept 2009 Exit
Culina Holdings Pvt Ltd Singapore Sept 2009 Exit
Emperor Watch and Jewellery Ltd China Sept 2010 Exit*
Charles & Keith Group Pvt Ltd South East Asia Dec 2010 -
Genesis Luxury Fashion Pvt Ltd India July 2011 -
Ming Fung Jewellery Group Ltd China Jun 2011 -
Xin Hee Co., Limited China Oct 2011 -
Trendiano Investments (BVI) Ltd China Dec 2011 -
Fabindia Overseas Pvt Ltd India Jan 2012 -
Jones The Grocer Group South East Asia July 2012 -
*Partial exit
Source: Company

L Capital is also worried about regulatory hiccups in India. “On the regulatory front, what investors look for is certainty. While one hopes for greater liberalisation, there are still multiple opportunities for investments within the current construct.” Experts said the Indian consumer story is intact despite recent downturns.

Sanjeev Krishan, executive director at PricewaterhouseCoopers, said, “A larger proportion of PE funds is focussing on the retail and consumer space. Not surprising, owing to the challenges infrastructure assets have faced, owing to lack of a stable policy regime, cost overruns and consequent high debt.”

At present, L Capital Asia is gearing up with a new venture; joining hands with leading Indian designers to set up design houses.

Though the luxury market is hit by the slowdown, L Capital Asia still bets on the “evergreen India” growth story. “In the current economic slowdown, businesses have been impacted by same-store growth as well as margins,” said Gujral.

“Our sense is that this is cyclical, and we are believers in the longer term consumption story in India,” Gujral added.

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