BTS
Committed to make Investment in Indian SMEs
By Veerendra Bhargava

BTS Investment Advisors Pvt Ltd is highly focused and uniquely positioned in promoting the Indian SME (Small and Medium Enterprises) sectors, by way of private equity participation. It has been extremely successful in raising funds for the Indian SMEs over the past 10 years, and will continue to develop a sustainable growth financing instruments for the Indian SME sector in the future; says Alastair Guggenguhl-Even, Chairman and K. Srinivas, Managing Partner of BTS.
Setup in 1996, BTS has come a long way with 19 investments in Indian companies from its first Fund which was backed by the Swiss Government. The focus of BTS has been on the manufacturing sector and the consumer driven goods and services. The role of BTS has been holding the hands of the Indian companies over the investment span extending from three to five years and helping the portfolio companies in tapping the overseas market, structuring the growth and in the process adding value to the portfolio companies.
Of the portfolio of 19 investments, BTS has divested 8 yielding a return of above 20 per cent to its Investors. BTS still holds certain investments which would reach their optimum value in the near future, during which these would be divested. Three out of the remaining portfolio companies have received the best SME awards titled as Emerging India Awards which are constituted by CNBC TV-18, ICICI Bank and Crisil in the last two years. This Fund in which the Swiss Government is involved has proved to be the most successful venture of the Swiss Government worldwide. The Swiss Government is keen to continue its mandate with BTS and is also interested in teaming up with other development agencies and institutions to proactively support BTS in development of the Indian SME sector.
“We continue to be committed to private equity investments in the Indian SME sector. In order to increase the corpus, leveraging on our credentials we have successfully launched a follow-on fund viz, BTS India Private Equity Fund Ltd which had a first closing at US$ 50 million in August 2006 and will finally close at US$ 80 million by April 2007” says Guggenguhl-Even.
“The Swiss Government, the Asian Development Bank, the Belgian Investment Company for Developing Countries (the development agency of Belgium Government), the International Cooperation and Development Fund of Taiwan (the development agency of Taiwanese Government) and number of reputed high net-worth individuals are stakeholders in BTS India Private Equity Fund Ltd” adds Guggenbuhl-Even with pride.
“During the fund raising exercise, BTS found that Indian markets have progressed tremendously and there has been growing interest from overseas investment in private equity. However, the SME space has not been serviced as much as it deserves. This is precisely where BTS plays an important role, in bridging the gap between global markets and Indian SME companies. Having brought in anchor institutional investors of the highest repute from Europe and the Far-East, which are continents apart, it's a challenge for BTS to service these investors by prudently investing the funds in the Indian SME companies” says Guggenbuhl-Even.
These SME firms that BTS is involved with are mid cap companies with a high growth rate and having a turnover of about Rs 100 crore to Rs 150 crore and most of them are export-oriented. “We look at the mid cap sector, we normally invest between $3 to 6 million,” Guggenbuhl-Even says.
He explains the BTS strategy, from the point of view of an advisor to investors who have given the company a corpus of US$80 million. . “We provide these companies an access to overseas markets. We have very stringent corporate governance requirements in terms of social and environmental responsibility,” he says, adding that BTS supports them in business development in order to ensure good returns to the investor.
When BTS was launched in 1997, India's economy was passing through an irreversible change following the initiation of reforms. The foreign direct investment (FDI) policy was liberalized and Indian companies were exposed to competition from their foreign counterparts.
“The SME sector was a niche area then. With opening up of the economy for the foreign counter parts, the SME sector went through a learning curve in terms of not only withstanding the competition but also establishing itself as a dependable outsourcing partner for the global MNCs with quality standards on par with global standards. During the process, only the best survived and have emerged much stronger, because they had gone through a learning curve during the last 10-12 years. In 1997-98 when we started our activities, we were the only one who was concentrating on the growth capital requirements of SME segment in India,” says K Srinivas, BTS Managing Partner.
In 1997-98, when Information Technology was the flavour of the Indian economy, BTS looked ahead by five years and realized that the manufacturing segment would be the key driver for the Indian economy in the next growth phase.
“So we consistently took the exposure into various manufacturing sectors like textiles, pharmaceuticals, life sciences, engineering and auto components. In 1998-2000 we took on those sectors when all other private equity players were going to the IT sector,” Srinivas says, adding, “We took a clear position before anybody could locate those opportunities. In the last five years we have seen many companies in the SME segment grow at 30-40 percent per year. To maintain this growth momentum, these companies require constant infusion of growth capital and we have identified that if we are to come into the SME segment we should have a significant minority stake, it should be between US$2 to 6 million, which will give a comfortable minority stake for a private equity player to participate actively by adding value through its network for the growth of the company.”
As a private equity player, BTS has been meticulous in selecting companies that have an excellent track record, whose management teams are efficient. BTS has followed the same strategy in managing the 19 portfolio companies and that is how it expects to continue in the future.
“The only thing that we want to do as value addition is to convert these businesses which are very promoter-centric hitherto into more of institutional businesses by bringing in the corporate governance practices through our dual presence both in Zurich as well as in India. Bring them support from the external investors and help them to grow in the global market, “ Srinivas said.
Essentially, BTS is looking at sectors in which India has proven its global competencies, such as IT, ITES, pharmaceuticals, and manufacturing, covering the areas of auto components, engineering and textiles.
“These sectors are becoming globally competitive and there are a lot of outsourcing opportunities that are coming to India. These sectors are definitely our focus areas. And then there are other industries, which are demand-driven, based on the domestic consumption. We have seen the middle class and its exploding growth rate and consumerism. The main sectors that are going to be benefited from this are the telecom and media. These are the sectors we want to concentrate apart from other manufacturing sectors,” Srinivas says.
“Manufacturing has the dual effect of being export-driven as well as domestic demand driven. So these are the 5 focus sectors that we would like to consider for the new fund BTS India Private Equity Fund,” Srinivas adds.
Traditionally on the manufacturing sector there is a lot of hand-holding support that is going on between most of the European and Indian companies. On the IT side there is a lot happening on the Indo-US corridor but on the manufacturing side we have seen the similar thing between India and the European countries.
Whether it is the US or the European countries or South-east Asia, BTS focus is to identify these companies and get them investment.
According to Guggenbuhl-Even, it is easy to enter the US market but not that easy to enter the European markets.
“We want to play a role in bridging the gap for India in helping the Indian companies enter the European markets,” he adds.