Investment Funds

Betting high on hospitality

Renuka Ramnath Managing Director and CEO ICICI Venture

While international real estate funds have doing the rounds of the Indian hospitality since last two years, Indian financial institution do not want to miss the bus, one such company is ICICI Venture. Renuka Ramnath, managing director and CEO, ICICI Venture, throws light on the booming real estate and hospitality segment in India

"Real estate is driving the GDP growth," moots Renuka Ramnath, managing director and CEO, ICICI Venture, "and today there is a lot of opportunity in the retail and hotel sector and I believe the scope in the sector will gradually go up."

Deliberating further on the real estate sector in India, Ramnath asserts that the real estate sector today is witnessing a wide spectrum of changes that are expected to make India a 'preferred' destination for real estate activity. With a number of reforms being proposed for this sector, anomalies currently existing in the industry are expected to be corrected. "Additionally, two major steps, when taken, by the government i.e. allowing FDIs and setting up real estate mutual funds will be the key catalysts in fuelling growth in the real estate sector in India," believes Ramnath.

The game plan

She further adds, "Demand in the commercial sector is expected to be driven by demand for international quality infrastructure for information technology, business process outsourcing companies, biotechnology, insurance, banking and consulting businesses." Demand for the retail segment is growing with an influx of global brands in clothing and lifestyle stores, restaurants and beverage chains, and entertainment and leisure complexes. "We are looking at investing in yield and development opportunities in the real estate industry to establish first mover advantage in the segment. We have already established our presence by consummating signature deals in both the yield and development segments," asserts Ramnath.

ICICI Venture also announced the launch of a joint venture company with Tishman Speyer Properties of US, which owns some premium property worldwide, including the Rockfeller Centre and the Chrysler Centre. Both companies will have a 50:50 equity partnership in the joint venture. The new company will take up the development of commercial offices, residential, retail and hotel properties throughout India.

Definitely the first and one of the few private equity funds to put its money on the organised retail sector. Its US $400 million fund has pumped in close to US $49 million through its flagship ICICI Venture Realty Fund, so far. And it's reaping benefits beyond the financial. ICICI Venture is now seen as a crucial industry player. Its year-on-year returns are close to 25 per cent, and according to Ramnath it is expected to reach 40 per cent.

From pushing a multi-state expansion plan for Subhiksha, to finding prospective second-round investors at PVR Cinemas, Ramnath is driving growth in the sector. If some ICICI Venture officials play a pivotal role in real-estate negotiations on behalf of companies they have invested in, others are leading financial restructuring and often forcing mergers and acquisitions to achieve economies of scale.

Pantaloon recently picked up the 68 per cent stake that ICICI Venture held in Indus League, and Subhiksha almost acquired Trinethra, a Hyderabad-based retail chain in which ICICI Venture owned 40 per cent. But there have also been setbacks. Its investment in Sanjay Narang's Mars Restaurant has turned sour and while it wants to exit, the company's IPO plans don't seem to be going anywhere. Some observers believe that exiting Pantaloon last year was a mistake, but Ramnath points out that the investment was made in '90s and the tenure of the fund was getting over. "The bullishness in retail is not a short-term trend; it's going to continue for at least another 20 years. The Indian consumer is taking to organised retail like fish to water and the lifestyle of young India will undergo a dramatic change."

On the horizon

While in the realm of real estate, retail continues to be the number one focus, it is, more specifically, looking at malls. Ramnath points out that the fund's focus on the retail and hospitality sector also stems from the fact that the sector is fairly insulated from external developments and international trends like geopolitical stability, oil shocks etc. "Investors like retail and hotels because of its insular nature. It's 'the' India story," she says. Ramnath believes that the country is in the midst of a consumption boom with almost half of its population migrating from one income level to another every year and the rate of expenditure growth is outstripping savings. While the company is in talks currently with leading hotel companies and real estate companies to forge alliances in the hotel sector, Ramnath prefers to speak when the projects reach fructification.

Ramnath believes…

The Indian real estate is booming, hotels and malls, forming an integral component of the realty sector. The future in real estate will be the emergence of mixed-use development projects, which will cater to all real estate related requirements residential, commercial, hotels and entertainment. More and more international funds will make its presence felt in the realty sector and the Indian financial houses too will look at funding realty projects including development of hotels in the country.