beyondbrics

As incomes grow in emerging markets, consumers will be increasingly ready to pay for mass-market services. The challenge lies in offering clients what they want at prices they can afford, even when incomes are far below developed-world levels.

One Indian company that has found a niche is Re-Feel Cartridge Engineering, a national chain of 109 shops that refill customers’ printer ink cartridges. In just three years, Re-Feel has taken the market by storm, grabbing business from independent corner stores. Now it has secured private equity from TLG Capital, a UK-based private equity group, investing in emerging markets.

TLG is putting $4.5m into Re-Feel in exchange for a 36 per cent stake and deploying the funds into the expansion of a new chain of computer repair shops called Club Laptop. With 24 outlets already in place, Re-Feel plans to grow Club Laptop rapidly through the Re-Feel chain of stores.

Re-Feel, which provides ink refills for around a third of the cost of a new catridge, offers laptop repair for about half the charge of the original equipment manufacturers. The cost saving is, of course, the attraction for the customers in India’s fast-growing urban middle-class. Such clients earn far less than their western counterparts but their demand for modern home/office technology is similar.

Zain Latif, principal of TLG Capital said:

Given Re-feel’s access to India’s middle-class, we will be able to provide other related services in the future…In addition, we will look to replicate this business in sub-Saharan Africa given the similarities between Africa and India. Exporting stream-lined, efficient and cost-effective business models and technology from India to sub-Saharan Africa is a core theme for us.

It is a first Indian deal for TLG, founded last year by Latif, a former Goldman Sachs banker, as an investment company specialising in small deals of $4m-$6m, with an emphasis on sub-Saharan Africa.

Re-Feel was set up in 2007 in Kolkata by Alkesh Agarwal, the chief executive, and three partners. The company expects revenues to grow fourfold to nearly $2m in the end of the 2010 financial year, with a further 100 per cent increase next year as it adds 5-10 stores a month. It employs about 100, not counting franchisees and their staff.

In the enormity that is India these are small numbers. But the deal shows how deep private equity is ready to drill into the Indian economy to tap its potential.