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Sixth Sense scores one of the best VC exits in India in recent times

June 13, 2019

Nikhil Vora-led Sixth Sense Ventures has generated one of the highest returns on an investment by a venture capital firm in India in recent years after fully cashing out of a consumer-focussed company it had backed barely two-and-a-half-years ago.

Sixth Sense has struck its third and final exit from Hindustan Foods Ltd and earned a nine-fold return on its investment in the contract manufacturer for fast-moving consumer goods companies, VCCircle estimates show.

This translates into an internal rate of return (IRR), or annualised return, of about 220%, the estimates show. That’s far higher than the 20-30% IRR that private equity and venture capital firms typically target in rupee terms.

Sixth Sense had invested Rs 8 crore in December 2016 for a 15.4% stake in the Goa-based company, which was previously owned by diversified conglomerate Dempo Group.

It first sold a small chunk of shares last year and then a bulk of its stake earlier this year. Overall, it divested a 12.5% stake in the two tranches for Rs 56 crore.

In the final tranche, Sixth Sense recently sold the remaining 3.03% stake in Hindustan Foods for Rs 17.4 crore, regulatory filings show.

Sixth Sense’s stake was bought by homegrown public markets-focussed private equity firm WestBridge Capital Partners. The PE firm now owns a stake of about 14.7% in Hindustan Foods. Its overall investment in the company is pegged at Rs 75 crore.

Vora continues to own a 4.08% stake in a personal capacity through wife Chaitali. That stake is worth upwards of Rs 23.7 crore at the current market rate.

Shares of Hindustan Foods were up 0.8% on the BSE on Thursday at Rs 432.55 apiece. The stock has traded between Rs 484 and Rs 252.80 over the past year.

However, the rationale of the stake sale in Hindustan Foods is not clear as Sixth Sense is simultaneously making a fresh investment through warrants.

VCCircle reported earlier this year that Convergent Finance, a private equity firm floated by former Fairfax India executive Harsha Raghavan, had agreed to invest in Hindustan Foods. Sixth Sense is buying warrants convertible into equity shares as part of the same deal.

An email query sent to Vora seeking comment on the divestment, returns estimates as well as warrant purchase from the second fund did not yield a response till the time of publishing this report.

This isn’t the first time Sixth Sense has made a blockbuster exit. It had also made seven-fold return, or 175% IRR, on its investment from JHS Svendgaard Laboratories Ltd, which makes oral care products on contract for brands such as Dabur, Patanjali and Amway.

Separately, Vora himself had harvested multi-fold gains by selling his stake in digital wallet firm Paytm to Chinese e-commerce giant Alibaba two years ago.