Augmenting innovative and relevant technology across the agri value chain leading to strategic growth for progressive agribusinesses is one of the many projects handled by Sathguru Catalyser Advisors Private Limited (SCA); a particularly crucial sector considering the Covid-19 crisis has immediate negative effects on food and agricultural supply chains.
The food and agricultural sector accounts for ten percent of global GDP and employs an estimated 1.5 billion people worldwide, the global pandemic will likely have far-reaching and noticeable social and economic consequences for the sector and Hyderabad-based advisory services firm believes in generating long term value for stakeholders by selectively hand picking investments and transforming them into flourishing businesses. LUXUO spoke to Mr Vijayaraghavan Kannan, General Partner of Sathguru Catalyser Advisors, on what’s next for the fund.
Interview with Vijayaraghavan Kannan, General Partner of Sathguru Catalyser Advisors, on Agribusiness investing and Covid Game Changers
You are based in India, tell us more about your Company and its mission?
Sathguru Catalyser Advisors is the Asset Management Company that is spearheading creation of an alternate investment fund, focused on growth driven food and agriculture sector in India. The Fund is registered with SEBI, the Indian securities regulatory agency as a closed-end fund with a tenor of eight years. The fund aims to propel growth in innovation driven, market focused food and agri ventures with investments that can take their products to wider Indian and international markets. India is increasingly embracing innovation in agriculture and health that are providing affordable products to the rest of the world. The fund has unique focus on steering companies that have unique intellectual property that can drive their growth with disruptive products and services. The agri business in India is dominated by Small and Medium enterprises. The new generation enterprises are adopting innovation to challenge established giants. Our focus is to propel the enterprise growth that have potential to enlarge their market presence due to intellectual assets they possess. Since these enterprises are already in the market place, they are not prone to pre-seed or seed stage technology risk.
You were known in the nineties for successfully leading multiple firms through their IPO process. What led you to focus these past years on technological innovations & applications in life sciences ?
India opened its economy to the world in the ‘90s. I had the opportunity to steer some of the global company entry into India, that brought serious competition in a market place that was non-existent in the post-independence socialistic era. The challenge was for domestic companies to face the competition and realize their full potential in the light of unprecedented competition they were subjected to due to market opening. They all built sound enterprises over long years. Many of the Indian enterprises were family owned and constrained by limited family capital they could deploy. Their enterprises had significant intrinsic value due to competitive products they created. These family jewels were taken to public markets to harness the capital needed for them to stay competitive and enlarge their scale by accessing global markets and by creating strategic partnership with global leaders. The ‘90s witnessed focus on basic needs of a growth economy and Indian investments in health, food and agriculture were driven by expanding markets and the opportunity provided by the policy planners to let these companies embrace innovation to gain global competitiveness. India emerged as the world’s largest pharmaceutical exporter of generic medicine. India also accessed innovation in agriculture and food with several companies securing significant capital from the offer of securities to general public. India today commands a market size of over $ 500 Billion, third largest in size in the farm to market segment. The equity markets propelled this unprecedented transformation of the Indian life sciences sector to stay competitive and emerge as global players.
India is primarily an agricultural country. The sector provides livelihood to more than 50% of the population and contributes 17-18% to the country’s GDP. However, India lags behind many other countries in agriculture productivity
What are the critical issues India and the whole subcontinent are facing resource-wise ?
The key challenge in India is to meet the long-term capital needs to sustain the high growth in domestic consumption and to deploy natural resources in a responsible manner for sustainable development. With two decades of high growth in the range of 5 to 8 percent, The Indian economy has become three-fold in less than 15 years. The demand for investment in innovation is high to compete with global front-running enterprises that invest 10 to 12 percent of their enormous revenue in innovation. These investments cannot happen from short term funding and would require long term capital for enterprises to create high growth competitiveness. The Private equity investments are one such source and the public equity are another source to propel such growth. Indian public equity markets have attracted global attention, but the private equity investments in India have so far been focused on market brands, online-platforms and real estate. We need to get the private capital to focus on creating highly competitive real assets driven manufacturing entities that can continue to lead global production with affordable products. In the realm of life sciences, we see this transformation in human health, agriculture and animal health sector. Our farm productivity is still one of the lowest though Indian leads in quantum production of food products globally. If we double our farm productivity, we can feed the whole of Africa in addition to meeting the food demand of India and still have surplus produce for rest of the world. Investing in equity in these enterprises requires informed decision making with understanding of relevance of contemporary technologies and a clear understanding of the changing dynamics of markets. Investment in alternate capital assets can provide high returns far above market returns if focused on these high growth segments that have the opportunity to grow due to high demand for market affordable products produced competitively.
Your fund invests in innovation driven growth ventures with potential to transform the agricultural production process. How do you select these firms?
Our investment selection is driven by rigorous multiple criteria. The contemporary innovation they bring to the fold is a fundamental drive for growth. The technology savviness of the entrepreneur and the ability to drive the innovation to market is another criterion. Intellectual assets in the possession of the company needs adequate global protection for the innovator to drive growth by warding-off competition. Since market disrupting products are subject to regulations, understanding of the regulations and the potential restrictions on the products to reach to wider global market is another element we focus during due diligence. Many of the agricultural innovations have multiple applications across crops and product segments and therefore understanding the whole gamut of the value contributors is another necessity. Our unique ability to holistically assess the enterprise wide advantage factors helps us to attribute optimal value for the investment. Entering at optimal value helps us to build on that value and create value gains when the enterprise market reach is optimized with full application potential of the product in the markets.
Our inter-disciplinary fund management team with expertise in agriculture and food sector innovation, investment modelling, market assessments and valuations, enterprise governance and risk assessment provide us ability to bring a consensus on enterprise valuation with the founders. Our ability to bring in experts from within and outside to steer the growth of the investee company accelerates their ability to reach the growth goals faster. Our pedigree in Sathguru as a global sector advisor provides us the access to proprietary and superior deal references.
How key is the concept of “sustainability” when selecting agricultural projects and companies your fund invests into?
The sustainability of agriculture and food production is seriously impaired by climate change threats that are looming every part of the world but more specifically the tropical agriculture region such as India. The shrinking ground water resource, excessive carbon emission, accumulating salts on soil and the depleting organic matter on soil impact farm productivity significantly. In the post farm arena, food wastage and fossil fuel driven, in-efficient production processes enhance the methane release and carbon accumulation.
Contemporary technologies in crop input needs such as seeds, crop protection products and farm mechanization solutions can help smart adaptation to climate change challenges. Our investments are focused on bringing these changes to farm input needs. In the realm of post-harvest, non-fossil fuel driven solutions and adherence to safe food practices can reduce the methane emission and absorption of carbon. Focus on water use efficiency, energy optimization and soil enrichment help to ensure sustained farm productivity. We assess all our investments to measure judiciously the contribution they make to these sustainability factors. Several innovations in farm productivity enhancement without jeopardizing the soil characteristics or the ground water potential is introduced by product makers in agri-input segment. In the animal health arena, sustainability in poultry production or dairy or meat production is ensured by farm animal nutrition, access to fodder crops that are resilient to climate challenges and animal care with preventive vaccination that can provide higher resilience to diseases in milk producing animals. Our focus on investment ensures that we measure these contributing factors and aim at quantum improvement over the baseline during the effective span of our investment.
How important are human health-focused projects in your fund?
Our investments contribute significantly to enhance human health. Food and health nexus is age-old. The nutrition is the key driver for a growth economy such as India. Indian middle-income population aspires to consume higher quality food with more protein content. Indian average protein consumption is at the level of 30 grams a day, far lower than the optimal percapita protein consumption. The lower income communities engaged in farm labor save their farm produce to feed their family and it is important for them to secure adequate nutrition with access to diversified farm produce by them to avoid stunting in children and adult anemia.
We focus on investing in processed food ventures that can meet the growing demand for protein. While the world is focusing on alternate protein sources from non-meat ingredients, Indian protein demand is largely met by these alternate non-meat plant sources. We focus on investments that can enhance the access to protein rich plant sources. We focus on investments that can generate health healing, preventive and curative actives that are extracted from Indian spices and farm products. These nutraceuticals drive the pharma innovation currently in multiple areas such as cancer prevention, obesity and diabetes. We focus on investing in animal vaccines and protein rich feed that can ensure animal health and hygiene.
The world is focusing on alternate protein sources from non-meat ingredients, Sathguru Catalyser Advisors hopes to meet Indian protein demand with alternate non-meat plant sources.
Who are your backers? How do you select the financial institutions and private investors investing in your fund and trusting your vision?
Our initial investors are funds and family funds that have gained from investing in life sciences in the past. The investors in Asia understand the small farm agriculture and the demands of the Asian food requirement. Additionally, investors from Europe are focused on sustainability and the future of agriculture in the light of climate change challenges and would like to see enterprise innovation drive climate change adaptation in small holder farms. We have focused on investors who believe in the power of India as an emerging market for growth and the ability of Indian ventures to turn innovation to markets with global footprint.
Where do you see your fund in five years?
We would like to invest in growth driven life science ventures that can meet changing human needs and help to provide a better living for all. As human mortality age rises, we would like to see disease free healthy living and our investments will contribute to the healthy living needs. We would like to see successive funds building on the power of innovation to get superior game changing products with wide global acceptability and provide superior return to our investors.
If investors are interested in joining your fund, what are the key principles governance-wise you will inform them of? Who should they contact?
Our fund is a SEBI Registered alternate investment fund with a tenor of eight years. Investors will be called to subscribe to units in our feeder fund domiciled in Luxembourg or directly into the Trust Fund established in India, depending on their choice of contributing destination. Our investments are focused on growth oriented, real assets driven food and agri enterprises with average investment size of 5 to 8 Million US Dollars. Our global investors can contribute in any currency and are provided with the fiscal advantage of investing in a pass-through fund that will enjoy no tax deduction at source. The subscribers will be contributing to calls that will be predominantly deployed within 18 months of subscription or sooner. Our key contact will be Venu Gopal, the Investment management Partner in the fund ( venu@sathguru.com)
Has the Covid-19 global pandemic put the spotlight on what you have been advocating for years in terms of resource-control and sustainability?
Yes. In fact, the COVID has brought back the focus on the need for sustainability and access to food in an affordable manner duly deploying natural resources in a most prudent manner. Indeed, two of our investments that we have invested in the last months from our early closure have done exceedingly well during COVID not just financially but in providing all vital inputs to the farmers during the time of pandemic to continue to grow their crops. They have indeed gained higher market share during COVID. In food and agriculture products, what is needed is real investments that can make crop production with competitive cost advantage providing higher gains to the growers and creating affordable products in the market. The ecommerce can build on that to provide higher accessibility to consumers. However, tons of money invested in ecommerce in the last 18 months in India and other markets will be relying on expensive farm output if competitive crop production is not ensured. Similarly, consumer focused superior food and health products are needed to meet the growing demand for food and health care products in times such as the pandemic. Food and agriculture sector and pharmaceuticals are the only ones that have established growth in India during the last five months.
If you were to name one mentor who has inspired you along your career, who would that be?
I had the opportunity to engage with Dr.Norman Borlaug, the legendary scientist and Nobel Peace prize winner who has revolutionized agriculture in India and South Asia during the green revolution. I am inspired by his vision of bringing innovation to farms to support small farmers gain from contemporary innovation. I am also inspired by Bill Gates who has taken his philanthropic investment to bring food and health care to millions of masses who are denied of basic needs in several countries. Bill Gates has focused on innovation in agriculture and health care delivery to ensure affordable access to food and health care in number of countries in Asia and Africa. My organization is contributing to delivering some of these initiatives funded by the Foundation in needy regions of South Asia and Africa. These two visionaries have contributed to transformation of life in number of countries with their focus on knowledge transfer and investment in healthy living.
