The total amount of dry powder in the PE market in India is estimated at about $20 billion ('89,800 crore), according to a report released in May by consultants Bain and Co. Inc., and the Indian Private Equity and Venture Capital Association. "A less-than-exciting secondary capital market, especially for mid-caps, and limited interest in the primary markets for fresh issuance is making private investing valuations more realistic," said Abhay Pandey, managing director at Sequoia Capital India. "We are seeing a number of companies changing their fund-raising programme from public markets to private raises with very reasonable valuation expectations."
Already, 79 companies that had filed their initial public offer (IPO) prospectus with the markets regulator over the past year, have delayed their plans to list, according to Capitaline, a financial data provider. Consider the example of Jacob Ballas Capital India Pvt. Ltd, a PE fund which bought a minority stake in PNC Infratech Ltd, an Agra-based engineering company, for '150 crore in January. PNC was looking to raise funds for over a year, but chose the PE route over a public offer even though it had filed its prospectus with Securities and Exchanges Board of India to raise '175 crore in 2009.
Tano Capital's two portfolio companies, Icomm Tele Ltd, a telecom gear manufacturer, and Virgo Engineers Ltd, manufacturer of flow-control valves, have both delayed their IPO plans and are now being approached by other PE firms. PE firms have pumped $5.3 billion into Indian companies this year from January to 24 June. For the same period in 2010, PE investments stood at $3.7 billion while in 2009 the corresponding figure was $1.9 billion, according to data from researcher VCCEdge. "This year will be a great vintage for funds that have raised money and are in the investment mode," said Hetal Gandhi, managing director at Tano India Advisors Pvt. Ltd. "Deeper the slowdown, the better it is for firms with a lot of dry powder." "Clearly, the expectation is that there will some more slowing down over the next couple of quarters before growth picks up again," said Pandey. Apollo Global Managment Llc, which has close to $70 billion under management, said it would invest $500 million in Welspun Group on Wednesday. "We like putting in more money when the markets are down," said Mintoo Bhandari, managing director, Apollo Global Management India Advisors Ltd. "We have close to $7.5-9 billion of dry powder."
Valuations are compelling for investors in rate-sensitive sectors such as infrastructure, real estate, construction and power where PE multiples have almost halved in the past six months, said K.
P. Balraj, managing director, WestBridge Capital. "People expect markets to fall around 10% more, especially if we see another RBI (Reserve Bank of India) rate hike," he said. RBI has raised rates 10 times in 15 months to tame inflation. While conditions may be favourable for PE and VC firms in investment mode, on the flip side, domestic fund-raising could become difficult for PE funds as investors hold on to cash. "Domestic money from retail investors or high networth individuals will not be forthcoming for funds raising money now," said Gandhi of Tano. In the past two years, while global fund-raising was challenging because investors such as pension funds, endowment funds and financial institutions were being cautious, PE firms were still able to raise funds from the local market.
Published by HT Syndication with permission from MINT.
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