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Sixth Sense Ventures scores blockbuster returns in secondary deal

March 4, 2019

Venture capital firm Sixth Sense Ventures has earned multi-bagger returns for a second time by selling the bulk of its stake in a company from its young portfolio.

The consumer-focussed VC firm founded by Nikhil Vora sold three-fourths of its stake in Hindustan Foods Ltd on Friday. This is the second liquidity move by the VC firm from Hindustan Foods, a contract manufacturer for fast-moving consumer goods, after it sold a small chunk of shares last May.

The investment firm had invested Rs 8 crore ($1.1 million) December 2016 for a 15.4% stake in the Goa-based company previously owned by the diversified conglomerate Dempo Group.

In May 2018, Sixth Sense made a partial exit and took home a little over Rs 2 crore, before accounting for transaction costs and statutory levies. In the process, it recovered a fourth of its principal investment.

Now, Sixth Sense has sold an 11.11% stake for Rs 54 crore, taking the total amount it has fetched so far to Rs 56 crore. Hindustan Foods has not paid dividend for the past many years.

WestBridge Capital Partners, a homegrown public markets-focussed private equity firm, bought Sixth Sense’s stake. Overall, WestBridge bought an 11.54% stake for Rs 56 crore, stock-exchange data showed.

Sixth Sense has clocked nine-fold return on its investment in a little over two years. This translates into an internal rate of return (IRR), or annualised return, of 170%, VCCircle estimates show.

PE and venture capital firms typically target 20-30% IRR in rupee terms.

Sixth Sense retains a 3.3% stake in Hindustan Foods, valued at Rs 16.4 crore. In addition, Vora owns a 4.08% stake in a personal capacity through wife Chaitali. That stake is worth upwards of Rs 20 crore at the current market rate.

Shares of Hindustan Foods gained 1.3% to close at Rs 369.85 apiece on the BSE on Friday, giving it a market capitalisation of Rs 500 crore. The stock has traded between Rs 484 and Rs 252.80 over the past year. Stock markets were closed on Monday for a religious holiday.

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 last week 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 and returns estimate did not yield a response till the time of publishing this report.

Sixth Sense’s investments

Hindustan Foods is not the first investment that has given the VC firm abundant returns.

Sixth Sense had previously invested in another Mumbai-listed firm JHS Svendgaard Laboratories Ltd, which makes oral care products on contract for brands such as Dabur, Patanjali and Amway. It has also launched its own oral care portfolio under the brand Aquawhite.

Sixth Sense had bought an 11% stake in the Delhi-based company in early 2016 for Rs 3.3 crore. This stake fell by half when the company issued convertible warrants to its promoter and other investors.

In October 2017, Sixth Sense exited its investment in JHS Svendgaard for Rs 23 crore before taxes. It is likely to have made nearly seven-fold returns, or 175% IRR, on that investment, VCCircle estimates show.

Vora and his wife continue to hold a substantial chunk in JHS, stock-exchange data showed.

Sixth Sense was founded in 2014 and raised Rs 125 crore for its fund. It had invested in luxury watch retailer Ethos in its debut deal.

In January 2015, it put money in Cross Roads India Assistance Pvt. Ltd, a roadside assistance provider for cars and two-wheelers. In November 2016, it backed Grab, a Mumbai-based hyperlocal logistics service provider.

From the first fund, it backed 10 companies such as gaming arcade operator Smaaash Entertainment Pvt. Ltd besides Hindustan Foods, JHS Svendgaard and Grab.

The investment firm floated its second fund last year with a target corpus of Rs 350 crore.

Sixth Sense has struck three exits from the first fund and recorded an aggregate multiple on invested capital of 2.3 times, or 40% IRR.

From the second fund, it has invested in seven companies and exited none so far. These include an investment in Rakesh Jhunjhunwala-backed Fullife Healthcare Pvt. Ltd, which sells sports nutrition supplements under the brand Fast & Up, in June last year. Its other investments from the second fund include AVG Logistics and Eupheus Learning, which develops textbooks and their digitised versions to integrate class and home learning.