We took an initiating position (3%) in CESC Ventures as we liked the innovative entry into snacking category with healthy positioning led by Virat Kohli and wide organic distribution which all quickly made it a Rs 400 Cr business. While we understood any new FMCG business goes through years of gestation as it builds brand and distribution, there was steady cash flow from subsidiaries (dividend), rental from retail mall along with IT business which would have ensured the diversification gets funded internally without any debt. Further, its stake in listed subsidiary Firstsource Solutions alone is worth Rs 700/share providing a good margin of safety.

We recently met the leadership team of CESC Ventures to understand the roadmap towards reaching their stated goal of being a Rs 10,000 Cr. FMCG giant and realized the management is a bit more aggressive than our comfort level. The journey will involve a lot of acquisitions, like the recent Dr. Vaidya's, which would inevitably lead to leverage in balance sheet.

Even when we take small initiating positions, eventually we want to scale up as we get more comfortable with execution. In this case, we may not be able to do that if it involves leverage, while current position size is too small to make any big difference to portfolio, hence we are exiting this position.

Please keep proceeds in cash as we find opportunities with better risk-reward and longevity.