India-Japan Fund to deploy $600mn in three years; focus remains green, cross-country manufacturing

IJF recently made a $57 million investment in commercial EV maker EKA Mobility. The company builds electric buses, cargo vehicles, and three-wheelers.

“With the investment in EKA Mobility, we’ve deployed 34% of our capital. Over the next two-three years, we’re confident of deploying the balance,” Krishna Kumar, partner and fund head of IJF told Mint in an interview.

IJF is a part of the National Investment and Infrastructure Fund (NIIF), an alternative asset manager anchored by the Indian government. The NIIF is a quasi-sovereign fund since it blends government capital with domestic and international institutional investors.

The Indian government has committed 49% of IJF with the Japan Bank for International Cooperation, or JBIC, contributing 51%.

IJF’s focus is two-fold—invest in companies with environmental impact and back businesses that strengthen the India-Japan corridor in sectors driving economic growth. “While the two objectives are distinct, we endeavour to look for opportunities that can meet both,” said Kumar. “Our objective is always to try and marry the two and have an investment with a Japan connect.”

Besides EKA Mobility, IJF made two investments last year. Its maiden bet was a $45 million investment in Mahindra Last Mile Mobility in January 2024. The second one was in August last year when it pumped in $58 million in EV two-wheeler manufacturer Ather Energy, which went public this May.

Climate buckets

The fund breaks down its climate thesis further into three buckets: energy transition, energy efficiency and circular economy.

With energy transition, IJF looks at sectors moving away from traditional sources of energy like coal and internal combustion engines to renewable energy and electric mobility. “The focus is to back companies that are taking advantage of India’s energy transition in sectors such as power generation and transportation,” said Kumar, previously CEO of private equity firm IL&FS Investment Managers.

With energy efficiency, the fund is evaluating companies that are creating interventions to increase efficiencies. IJF is currently evaluating a company that monitors the heating, ventilation, and air conditioning systems of commercial real estate and points out the best ways to reduce electricity consumption.

“We’re looking for companies working in recycling. Basically, anything that is recyclable, where there is demonstrated circularity looks like a good investment opportunity,” added Kumar.

While the fund’s preferred investment amount is between $45 million and $56 million, it is happy to enter climate-focused companies earlier with cheques as low as $28 million.

Japan-linked manufacturing

As far as investing in the India-Japan corridor, IJF looks for opportunities which have a manufacturing focus. Here, the fund is fairly agnostic, eyeing deals in electronics, the automotive industry and industrial goods. There are currently around 12 deals in the India-Japan corridor that the fund is looking at.

While the firm also evaluates opportunities across battery materials, automotive after sales, critical mineral recycling as well as renewables supply chain, Kumar said IJF will be selective. “We’re also looking for companies operating in the energy efficiency and circular economy sectors. We’ve evaluated over 200 transactions over the last two years and remain highly selective — everything must align before we move ahead with an investment.”

By the time IJF is done deploying in the next three years, electric mobility would likely make up close to 40% of the fund, according to Kumar, explaining that the sector has healthy opportunities along with a good return profile.

“We hope to allocate around 20% of the fund to (the circular economy) theme as it scales,” said Kumar.

Structured as a 15-year fund, IJF’s holding period in an investment will range between three to six years, with four to five being the ideal sweet spot.

Ather Energy is listed but IJF has no plans to exit soon, even though the company’s IPO did provide a liquidity event to NIIF’s Strategic Opportunities Fund.

“Within our existing portfolio, Mahindra Last Mile Mobility continues to grow strongly and maintain its market leadership position while Ather Energy has expanded its market share and built further momentum following its IPO,” concluded Kumar.