Eye 25% returns from Shriram City in 5 yrs: Norwest Venture

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS No additional funding required: Shriram City Union Finance ALSO READ See latest News about Shriram City See previous management interviews See what other Experts & Brokerages are saying about Shriram City Shriram City BSE | NSE 13/02/12 Are Mutual Funds betting on Shriram City?

Norwest Venture, a Silicon-valley venture capital firm, had bought 8.38% stake, or 38.4 lakh shares, of Shriram City Union Finance at Rs 315 per share.

Commenting on the development, Niren Shah, Managing Director-India, Norwest Ventures, said in 3-5 years, the company is looking at over 25% internal rate of return (IRR). In that respect, he said, "Shriram City is an exceptional entity among non-banking financial companies."

Here is a verbatim transcript of the exclusive interview with Niren Shah on CNBC-TV18. Also watch the accompanying video.

Q: You have invested in Shriram City. Could you tell us what is the trend? What are you now looking for that is different from what you were looking for at that point? What is your IRR expectation, perhaps just a spattering of sectors? What has really changed at the moment?

A: We have been investing throughout the downturn. So, I don't think much has changed for us. We continue to look at long-term plays; in about three to five years, we are typically looking at over 25% IRRs. In that respect, Shriram City is an exceptional company in the NBFC space. It has done pretty well in terms of asset quality, growth and profitability.

So, we continue to look for those across sectors. Sectors we are looking at are obviously banking and finance. We are also looking at manufacturing, agriculture, education, technology and telecommunications. So, it is pretty much sector-agnostic, even things like infrastructure. But it needs to meet our criteria, which is stringent. We are pretty bullish in the long run about India. So, we are not too worried about the current ups and downs in the markets. We are trying to look three years out and say that where will certain macro things play out. This is an investment in line with that macro theme.

Q: You talked about 25% return so to speak. What is the exit option, are you doing it through initial public offer (IPO), have you been able to exit at this point, what do you do when you run into a situation like this where exit options really dry up? Do you just basically sit through it? Do you think those options are coming across?

A: I think we are more in the investment mode. Given that we have started really investing in the last year, we have not really faced any potential options to exit. But again, when we look at a three-five year term, markets will go up or down. So, you have to make sure that you are exiting at the right time, especially for growth equity as well as late stage venture fees. We are absolutely okay holding on a little longer when exit options don't materialise. Right now there are exit options in the market-the markets have run up and certain investments are doing pretty well. So, it's not that there aren't any. The exit options would be standard whether it is selling as a block into the market-be it a publically listed company or strategic sale of the company. We haven't faced that problem yet.

Q: The parent company of Shriram City Union, Shriram Transports has also had a fairly good run, why would you prefer City Union to Transport?

A: We are hoping for the same kind of run which Shriram Transports has had to be replicated in Shriram City Union. In Shriram Transport's case, we are afraid we may have missed the bus and since we have just entered India about two years back. Shriram City Union seems to be a very interesting opportunity one, which should hopefully follow suit, so that's why we have invested in Shriram City.

Q: What is the short list of sectors or companies you are looking at, would they be all in the unlisted space and what would be your choice sector at the moment in India, do you have a figure that you will invest say in the next 12 months?

A: We are looking at sectors like agriculture, manufacturing, retail, consumer, infrastructure as well as hospitality and healthcare. We aren't looking at any target number. As I mentioned earlier, we have invested about USD 100 million in the last six months. If everything looks good, the long term scenario looks intact. We were very bullish about India in the long run that we will continue to invest in this market and otherwise we remain very bullish.