India’s gradual Opening up to Bt seeds has attracted global companies such as Monsanto and Syngenta. Delays in regulatory approvals have not deterred the big names eager for a piece of this huge market.
This segment is growing fast, thanks to the popularity of hybrid seeds. These seeds result in high growth, but the crops cannot be used as seeds in future. This means that farmers have to buy fresh seeds every season. That’s one of the reasons the industry is growing at 15% to 20% per annum. This is expected to touch $2.5 billion in the next five years from $1.5 billion today.
The promise of such growth is luring even small domestic companies to enter this segment. These companies are focussing on seeds research, especially in hybrid varieties.
Private equity (PE) players are now looking for a piece of the action. Around $153 million (Rs 750.5 crore) has been invested in the past three years through six deals in the $1.5 billion Indian seed industry. And more PE players are waiting.
“But there aren’t too many companies left to invest in,” says M. Prabhakar Rao, chairman and managing director of Hyderabad-based Nuziveedu Seeds, the country’s largest seed company with a 10% market share. Those remaining may not want to dilute their stake, he adds.
The Rs 650 crore Nuziveedu sold 10% of its stake to PE firm Blackstone India Advisors in 2008 to raise $60 million. “We needed money for working capital, research, and expansion of capacity and marketing network,” says Rao.
Since the Blackstone deal, Nuziveedu has set up four processing plants and a research centre on the outskirts of Hyderabad. Already strong in western and southern India, it is now expanding its marketing network in the east.
Domestic seed companies are also acquiring smaller ones to feed new demand. Here again the PE play has helped. Nuziveedu acquired three Hyderabad-based companies—Pravardhan Seeds, Govardhan Seeds, and Yaaganti Seeds.
In April 2010, U.S.-based growth equity firm Summit Partners invested $30 million in Krishidhan Seeds, based in Jalna, Maharashtra. Axis Holdings, the PE arm of Axis Bank, invested $5 million in Secunderabad-based Kaveri Seeds.
Krishidhan managing director Sushil Karwa says the company will use the funds from the Summit Partners investment for research, infrastructure, technology and product-related acquisitions, and international expansion. Months after the deal, Krishidhan opened its European subsidiary, Krishidhan Seeds Europe, in the Netherlands. This gave the company a toehold in the lucrative European market.
Contrary to common practice, PE firms investing in seed companies are not looking to exit once the company lists or is taken over. Nuziveedu’s Rao says, “Blackstone has assured us that they’re with us for the long haul, the next five to 10 years.” Companies and investors seem to have found common ground in growth.