October 22, 2015

Private equity firm, India Value Fund Advisors(IVFA) will invest between $100 million and $150 million in India’s food businesses over the next two years.

The firm will be seeking out investment opportunities in mid-sized food businesses with a particular focus on businesses involved in ingredients, packaged foods, food services, and the supply chain.

"Food business will be one of the highest growth sectors for the country over the next 20 years. The demand is driven by need for convenience, rising disposable incomes and aspirational lifestyles," said Haresh Chawla, partner, India Value Fund Advisors.

IVFA recently made its first investment in the food services sector through the acquisition of deGustibus Hospitality for $30 million, however, the firm has also made investments in the ingredients business, VKL Seasoning and packaged food business, Keya. Moving forward, IVFA is looking to reinforce the management of deGusitbus, which owns the brands Indigo, Indigo Deli, Neel, and Tote on the Turf, and expand its presence in the country.

India’s total food service market, both organized and unorganized, is projected to grow from a value of US$48 billion in 2013 to a value of US$78 billion by 2018, according to a report by the National Restaurant Association of India. It is this growth potential that is attracting both private equity and venture capital investors, such as Everstone Capital, Goldman Sachs, IVFA, and Samara Capital, to commit capital to the country’s casual and quick service restaurant sector.

However, as is usually the case, with the good, comes some challenges. Currently the industry lacks the sufficient infrastructure and supply chain needed to support this growth, leaving individual packaged food companies and quick service food chains to invest in establishing their own infrastructure, leading to inflated capex.
 

A second challenge lies in the growing pains that come with the maturation of an industry as it struggles to evolve from founder-led businesses to professionally managed and directed ventures, giving rise to conflicts between food business managers and the private equity firms that are investing in the business and working to bring it to the next level.