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Caledonia sees a steady future in India

By Ian Fraser

The Sunday Times

October 21st, 2007

Tim Ingram, CEO, Caledonia InvestmentsCALEDONIA Investments, a £1.3 billion investment trust with strong Scottish roots, is now keener to put its money into India than into its original homeland.

The self-managed investment trust was founded in the 1870s to look after the fortune of the Cayzer family – a Glaswegian shipping dynasty whose heir Sir James Cayzer today has a suite in Claridges but gives his address as Kinpurnie Castle, Blairgowrie.

Even though Caledonia Investments has about £80m invested in three Scottish plcs – it has significant holdings in the oil exploration company Melrose Resources, soft drinks group AG Barr and property developer Terrace Hill – it seems more enthused by the investment opportunities in India at the moment.

Tim Ingram, the chief executive, who became the first non-family member to run the investment trust in 2002, is enthusiastic about the subcontinent’s prospects.

“India is growing very fast so needs funding and valuations are reasonable,” he says. “Also, corporate governance is improving and some great opportunities remain underresearched.

“We’re able to find companies that appreciate our long-term approach of backing management teams that have proven track records -and to get in at very attractive prices.”

Ingram says the trust developed a taste for Indian investing in 2004 and that for now it prefers India to China, where some prices are looking “toppy”. Caledonia’s recent incursions into the Indian market include a 26.3% stake in the India Capital Growth Fund, which is Alternative Investment Market-listed but managed from Mumbai. Ingram says ICGF’s net asset value has risen by 30% since its launch in December 2005. Caledonia has also taken a 50% stake in India Investment Partners, the fund management business established to manage ICGF.

Caledonia recently upped its stake in Mumbai-based GIC Housing Finance, one of India’s fastest-growing mortgage providers, to 6.4%. It has also boosted its exposure to the textiles company Alok Industries, which in April acquired a 60% stake in Mileta, a Czech textile business. Another investment was in Varun Shipping, a Mumbai bulk LPG carrier.

Overall, Caledonia Investments has 6.7% of its total assets invested in India and expects this could go as high as 10%.

Ingram says the £88m figure includes the investment trust’s holdings in ICGF and in Eredene, a London-listed company that invests in property and infrastructure projects solely in India.

He acknowledges that there are risks to investing in India, adding: “Roads, airports and ports are poor, and India has been much slower to address this than China has. They have to move more slowly (than China), because they are a democracy. But the fact they are a democracy makes it a better investment environment in the long term.”

The patient buy-and-hold approach to investing appears to work for Caledonia. The company’s share price has climbed by 282% over the past three years, versus a 103% rise in the FTSE All Share index during the same period. However, a move to cash has marred short-term performance, with the shares down 2.8% over the past year, versus an 11.3% rise in the FTSE All Share.

Caledonia certainly seems to have done well out of its investment in AG Barr, the maker of Irn-Bru. It first invested in the soft drinks group in 1987 and today has a 9.4% stake worth £22.5m. AGBarr’s shares have trebled from £4.30 to £12.40 in the past decade.

Caledonia made a significant investment in Melrose Resources in August 2003, when its shares were valued at 115p. Today they are trading at 330.5p. It bought into Terrace Hill in 2004 when its shares were about £28. They are now trading at £93.

Other strong-performing assets include the investment bank Close Brothers, in which Caledonia has a 12.2% stake.

After a high-profile bust-up a few years ago, in which a rebel faction of Cayzers was bought out, the Cayzer family still owns 46% of the trust.

Ingram seems relaxed about this as the ones who have stayed on board – several of whom serve as directors and executives – are on side and not agitating for change.

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