Lok Capital Turns to Renewable Energy, Farm Sector

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Sep 2013
Global, September, 08 2013 - Lok Capital, which makes equity investments in ventures that have a social impact, now plans to put in money in the renewable energy and agriculture sectors. Here again, the focus will be on businesses that have a bearing on the lives of the poor, both in rural and urban areas.

“Primarily our focus is in the solar space and more as a B2C (business-to-consumer) type of product or service rather than B2B (business-to-business) solutions,” says Venky Natarajan, Managing Partner, Lok Capital, explaining the strategy for the renewable energy sector.

Challenging space

Lok, according to him, will look at solar projects that expand the energy footprint in areas that do not have grid access. This could be either through micro-grids or charging stations or products such as rooftop solar panels or lanterns. Anybody who goes in for a micro grid or a charging station will be predominantly in the rural areas. Increasing access to electricity in these areas will not only help in education but also aid small businesses that require uninterrupted power.

The fund has looked at a number of companies, but is yet to zero-in on where to invest. “Solar is a challenging space because the gestation periods are much longer and the economics without subsidy do not add up. In the long term, solar will become a sustainable play for all the players involved,” says Natarajan. Where the agri sector is concerned, Natarajan says Lok has been looking at organic procurement and processing companies, and also ventures that are into warehousing and collateral management. These businesses aim to increase and stabilise income levels for farmers.

“We are working with a number of them. It is a learning process for us. Usually these new sectors take time for us to understand before we commit any money. We are working with a few companies in this space and some of them will culminate in an investment,” he says.

Lok, which manages about $87 million through two venture capital funds, was among the earliest investors in the microfinance sector in the country and it seeded many of the ventures. The sector, which ran into problems two years back, has now reached a level of stability.

“Even though the returns do not look as attractive as before, the risk levels have reduced substantially,” says Natarajan. Financial inclusion, he says, continues to be Lok’s core area of interest and it has been looking at microfinance as well as different channels through which people can sell more liability type of products.

Lok Capital’s investments in the past two years include IFMR Rural Channels and Services, a multi-product rural financial services company; Vistaar, an SME financing company; Drishti, which provides basic eye-care in rural Karnataka; and Bangalore-based Hippocampus, which is into rural education. “We are looking to expand our footprint in these sectors,” says Natarajan.

Exits with returns

Lok Capital sold its stake in Satin Credit Care Network Ltd, a microfinance and MSME financing company, and Janalakshmi Financial Services, an urban microfinance company.

“I think we made reasonable returns in both. We are happy because considering the objectives of the fund and the overall regulated market of microcredit, the returns were satisfactory,” says Natarajan. He further says Lok Capital does a thorough social impact assessment of its portfolio companies. It looks at parameters such as number of woman employees and the number of people belonging to the Scheduled Castes or Tribes in the customer base. Lok also looks at how well its portfolio companies treat their employees and what is the quality of customer care.

On the impact investment sector as a whole, Venky says the growth rate has been much slower than what the players anticipated when they set up their impact investment funds. “We are making a clear distinction between the microcredit type of growth models and the other models. The profitability and margins are going to be smaller. The returns an investor can expect, on a sustainable basis, may not be high,” he adds. He points out that the environment is challenging for investments because there are very few good companies and there is a lot of money chasing them. Consequently, the valuation, especially in sectors like healthcare, is high. “We are taking a cautious approach.”



Source : Business Line
 

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