Private equity investors are sitting on cash to the tune of $20 billion to enter India. Harish HV, partner at Grant Thornton, a consultancy firm, says that prospects are looking brighter than before.
The key to getting that huge hoard in is the willingness of Indian entrepreneurs to look at ‘selling’ businesses and raising cash.
Over the past two-and-a-half years, business scions like Malvinder and Shivinder Singh of Ranbaxy, Ajay Piramal, and promoters of privately-held companies like Anchor Electronics and Luminous Inverters have exited their flagship businesses.
“The change in attitude of Indian entrepreneurs could trigger the necessary consolidation in several Indian sectors,” Harish told Firstpost.
Sudhir Sethi, chairman and Managing Director of IDG Ventures, a Bangalore-based venture capital (VC) fund, said that he expects $70-75 bn of private equity (PE) and venture capital investment in India by 2015.
He said that about $22 bn is required for follow-up funding of 660 current PE-funded companies. Then, about 2,000 companies in the IT and IT-enabled services sectors, manufacturing, engineering, construction and healthcare are expected to attract close to $30 bn in new PE and VC investments over the next four years. The rest is expected to find its way into still buzzing sectors like telecom, he adds.
The total investment by private equity investors over the last six years is estimated at $50 bn through 1,600 deals, according to a report prepared by Harish and his team along with the Indian Venture Capital Journal.
India received $116 bn of foreign direct investment during the same period. This shows that a sizeable chunk of the FDI is private equity investment.
A key issue with venture capital and private equity investment in India is that there is limited angel funding like in the US. (An angel is simply a wealthy individual investor who funds a small start-up. These start-ups then graduate to a level where they can get private equity or venture capital.)
“The pipeline of deals grows when angel investee companies graduate to the next level,” Sethi said. He believes angel investment will pick up in India, but it may take a few years. For now, established companies are getting growth capital.
Here are some key takeaways from the Grant Thornton report:
* PE investments have grown from $2 bn in 2005 to $19 bn in 2007. Thereafter, investment value fell to around $6.2 bn in 2010, registering a compounded annual growth rate of 25% over the past six years.
Firstpost Comment: The trend of private equity deals taking place in tandem with high valuation in the stock market is interesting. This means many private equity investors struck poor deals. In March 2011, Bain Capital, another consultancy firm, said that $1 trillion in cash or ‘dry powder’ was looking to enter high-growth emerging markets like India, China and Brazil.
* The real estate and property development sector clocked 203 deals worth $13 bn of the total of $50 bn PE investment over the past six years.
Firstpost Comment: Over the past one year, the value of real estate shares has tumbled by an average of 50%. This could have hurt targets of private equity funds that backed real estate projects. Expect PE funds to either stay away from this sector for a while or buy more equity at lower levels from promoters.
* Telecom, banking and power sectors got $6.8 bn, $5.9 bn and $3.7 bn respectively during the same period
Firstpost Comment: Investments by the likes of Temasek in Bharti Airtel and infrastructure company Bharti Telecom could be ripe for partial, if not complete, exit. The total investment of Temasek, the Singapore government arm that invested in Bharti and Bharti Telecom, is worth over $2.2 bn.
Similarly, in 2006, Providence Equity Partners invested $460 million in Idea Cellular for a 15% stake then. We have heard pundits speak about consolidation in this space. It could potentially be driven by the presence of PE funds.
source-First Post
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