What are the nuances of investing with a private equity approach to publicly-listed enterprises?
Pawan Bharadia, Managing Director at Equitree Capital, remarks, “What we do is akin to what a PIPE fund is all about. We’re pretty much on the same lines as what ChrysCapital or Nalanda does, except for the sheer size Nalanda has and focus on larger smallcaps or larger midcaps, whereas, given our AUM, we’re more focused on the microcap space of the listed segment. When I say microcap, I mean the company has a market cap range of 200 crores going up to 5000 crores”.
Bharadia remarks, “Coming from the private equity background, there’s a genre, where we find very similar characteristics to those of unlisted companies. Most of these businesses would have, at least, about 2 decades of operating history, so the business has seen enough ups and downs, they could be family-run and be at an inflexion point for very high growth”.
And why go the micro and small cap route?
“We started small, so naturally, this was the journey that best suited our investment strategy. There’s enough documentary evidence that this is the genre where the largest wealth creation happens, because these are companies which can grow at 30%+ CAGR, given their low base for very long periods of time. Today, when we invest in companies with top lines of anywhere between 500 crores to a few 1000, we are looking at these businesses growing at 25% – 30%. Now, that kind of growth doesn’t generally come about in larger companies”, states Bharadia.
“It’s extremely important to pick up the right businesses that can be scaled up and back the right kind of promoters who have the execution capability. I think that’s where we start differentiating, given the private equity approach that we bring in terms of due diligence, our ability to identify and differentiate is extremely high”, remarks Bharadia.
How about AUM?
Bharadia states, “So, we’re still very young. We just crossed 200 crores in AUM a couple of months ago”.
“The good thing is I don’t have to sell myself. All we need to do is a bit of research and groundwork… Most of the companies we have invested in haven’t raised any equity in the last 5 years. So, there’s been no dilution and I don’t have to haggle with them on the valuation front”, quips Bharadia.
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