Your Eye to Indian Private Equity

Transcription

1 Four-S Private Equity Track Issue: 27th June -3rd July, 2011 Your Eye to Indian Private Equity PE activity for the week During the week ended 3rd July, 2011 there were 12 PE/VC deals worth $684.3mn compared to 14 deals worth $233.2mn in the previous week. Out of the total, 5 were growth stage deals, 4 were early stage, 2 were Late and one was a PIPE deal. The largest transaction during the week was $290.0mn investment by Apollo Global Management LLC in Welspun Corp. Ltd th June PE Investments rd July No. of Deals Private Equity: Investment Summary during the week Investor (s) Target Stake (%) Value ($mn) Sector Business Stage Apollo Global Management LLC Welspun Corp Ltd NA Manufacturing Steel Pipe PIPE Apollo Global Management LLC Welspun Infratech NA Infrastructure EPC Services Late Navis Capital Classic Stripes NA Automobile Stripes Manufacturing Growth Apollo Global Management LLC Welspun Maxsteel Ltd Manufacturing Sponge Iron Late India Equity Partners Sagar Ratna Hospitality Restaurants Growth Sequoia Capital Prakash Snacks NA 30.0 Food & Beverage Snacks Food Growth IFC Bhilwara Energy NA 15.0 Energy Power - Cleantech Growth Rajasthan VC Fund Leeway Logistics NA 3.3 Logistics 3PL Early Grassroots Business Fund Industree Crafts NA 1.0 Manufacturing Furniture Early BlackStone Capital Financial Inclusion Network And 20 NA IT/ITeS Technology IP & Services Growth Operations (FINO) One97 Mobility Fund LeapSky Wireless NA NA IT/ITeS Mobile VAS Early Ajay Adiseshann VServ NA NA IT/ITeS Mobile VAS Early Source: Four-S PE Database Apollo invests $500mn in Welspun Group U.S.-based Apollo Global Management LLC and its affiliated funds have agreed to invest nearly $500mn in pipemaker Welspun Corp. as well as two unlisted entities, Welspun Maxsteel Ltd. and Welspun Infratech Ltd. Apollo will invest Rs 13.05bn ($290mn) in Welspun Corp., including about ` 7.88bn ($175mn) by subscribing to fully and compulsorily convertible debentures. The debentures will have a coupon of 5% and should be converted within 18 months at ` 225 a share. The private-equity company will also subscribe to non-voting global depositary receipts of ` 5.17bn ($115mn) at the same price. Welspun Corp. will buy 87.5% of Welspun

2 Maxsteel, a producer of gas-based direct reduced iron, for ` 8.05 billion and Apollo will acquire the remaining for ` 1.4bn ($31mn). Apart from these, Apollo will invest ` 1.3bn ($2.9mn) in Welspun Maxsteel for further capital expenditure. It said also Apollo and affiliated funds are in talks to invest up to `6.75bn ($150mn) in Welspun Infratech in the form of debt and equity. Four-S Comment: The deal has been widely reported as a ` 22.5bn investment. However, the `6.75bn chunk in Welspun Infratech appears to be still in discussion. Even if you take that out, at `15.75bn, this is a huge deal, and a significant commitment for a PE player in one group in India. The achievement is all the more remarkable for the Goenkas, considering that only a few months ago, in Dec 10, SEBI had passed strictures against the promoters of Welspun Corp. The SEBI order had said that the promoters rigged share prices of Welspun Corp in the period from May-November 2009 prior for capital raising through foreign currency convertible bonds (FCCB). Shares of Welspun Corp then fell 27% to ` 160 in a single day, from around ` 220 levels. The promoters though had planned to appeal against the order. Welspun shares currently trade at around ` 175, so they haven t quite recovered to the pre-sebi order level. The debentures convert at ` 225, or the pre-sebi order price. Essentially, the company is saying Hey, our share price was unfairly impacted by the SEBI order, we are worth the price we were trading at before the order came out. The business of Welspun Corp is certainly doing well. In the one quarter that has passed after the SEBI order, that is the Jan-Mar 11 quarter, revenues rose 29% to ` 21.63bn. Net profit though fell 29% to ` 1.18bn, as compared to ` 1.66bn in Jan-Mar 10. This was due to an operating margin squeeze. The deal appears to be an affirmation of corporate governance practices at the Welspun group, which had come into question following the SEBI order. Blackstone buys 20% in FINO Blackstone has acquired 20% in Mumbai based Financial Inclusion Network And Operations Limited (FINO). FINO was promoted in 2006 by lenders like ICICI Bank, which acted as an incubator for the fledgling business. The company was initially know as Financial Information Network and Operations. FINO has a huge reach in rural India where it facilitates no-frill bank accounts, universal health insurance and delivers government pension. For banks, FINO acts as business correspondent allowing customers to transact through a number of media such as ATM/ Micro Deposit Machine, point of sales terminals or mobiles. Four-S Comment FINO is perhaps the most successful play available in the financial inclusion space. While it is simply a tech-based enabler, and not a direct lender, it has built a large reach. And given the dodgy regulatory framework for micro lending it India, an enabler is certainly a safer bet, than a fund based player. Sequoia Capital invests $30mn in Prakash Snacks Sequoia Capital India has invested $30mn in Indore-based Prakash Snacks Pvt Ltd for an undisclosed stake. Prakash Snacks, established in 2002, manufactures packaged food and snacks under the brand name Yellow Diamond. Its products include potato chips, puff biscuits, wafers, fruit juices and snacks.since its inception, Prakash Snacks has been witnessing a steady growth in terms of revenue and profit. Between FY 07 and FY10, the company s revenue grew over fourfold to ` 1.54bn. Four-S Comment: Food companies are in hot demand in the PE circuit, and justifiably so. The 2-3 years of mega inflation in food in India, which say prices of staple foods rise 2-3 times, has changed the equation for packaged food companies in India. High inflation may have been the best thing to happen for food companies, since this is beginning to change consumer

3 habits in India. When a kilo of dal costs ` 100, a packet of chips at ` 5-10 suddenly appears affordable. Consumer price points are changing. For Cadbury, for example, ` 10 is the largest selling price point. This used to be ` 5 earlier. Packaged food companies have seen their business soar in the last few quarters, and this trend may continue. Trade talk tells us that Hindustan Unilever s food business (excluding beverages) could be growing at 30% this year. Cadbury, helped by new products from Kraft, is growing at 45% this year. Navis Capital acquires majority in Classic Stripes with $100mn Malaysia-based Navis Capital Partners has picked up a majority stake in automobile-decal and graphics-designer Classic Stripes (CSPL) for almost $100mn. Classic Stripes, a part of Astarc Group has four manufacturing facilities in the country with a total production capacity of over 13mn automotive graphic-sets a year. The funds would be used for future expansion, including increasing existing production capacity. Established in 1987, CSPL claims to have a market share of 70% in the Indian automotive (original equipment manufacturer) printing industry and also has a presence in overseas markets such as the UK, USA and the West Asia. It produces screen-printed decals and graphics for retailers and automobile manufacturers and offers graphics for two-wheelers, four-wheelers, tractors, and buses. Besides, the company also provides dashboard trims, car perfumes, and automobile window films. Four-S Comment: Classic Stripes is a classic niche business a market share of 70% or so, in an obscure area like graphics for automobiles. It is not clear what valuation has Navis given to Classic, but it has to be atleast `5bn or more. There are only 10 listed companies in the auto ancillary space with market cap of more than `5bn. India Equity Partners to buy minority stake in restaurant chain Sagar Ratna India Equity Partners (IEP) is investing ` 1.6bn ($35 million) in restaurant chain Sagar Ratna, which serves South Indian cuisine, primarily across the Nation Capital Region. The PE firm will acquire 25% stake in the chain as a part of this transaction. Sagar Ratna started as a 40-seater restaurant serving South Indian cuisine in New Delhi now has expanded to over 225 seats. The company also grew by opening a multi-cuisine restaurant chain under the brand name of Swagath, which now serve Coastal, Chettinad and specialty Mughlai & Chinese cuisine. Incorporated in 1997 Sagar Ratna Hotels Pvt Ltd, has a network of 56 restaurants, including 23 owned/revenue-share outlets and 33 franchise outlets. The company has overseas outlets as well, in countries like Thailand, Singapore and Canada. It is now planning to enter the quick-service restaurants space through Sagar Ratna Express, which will open outlets in malls and commercial buildings. Four-S Comment: Private equity firms are warming up to Indian restaurant chains, a key story in consumption led growth. As per the National Restaurant Association of India (NRAI), ` 430bn restaurant industry is growing at 5% p.a, and of this, only 20% is the organised sector, which is growing at an incredible 20%-25% annually. There have been several deals in this space during the last 1 year. In May, 2011, ICICI Venture invested $56mn in Devyani International, which owns and operates fast food retail chains including Pizza Hut, KFC and coffee chain Costa Coffee. In Feb 2011, TVS Shriram Growth Fund invested in Indian Cookery, the restaurant business promoted by celebrity chef Sanjeev Kapoor. Just 3 months prior to that, the fund invested Rs 500mn in Om Pizzas & Eats. The other high-profile investments have been that of Helion Venture Partners in Mast Kalandar, a 'quick-serve restaurant' chain in October 2010, and Saif Partners increasing their stake from 12% to 20% in Speciality Restaurant. Rajasthan VC Fund invests ` 150mn in Leeway Logistics Leeway Logistics Ltd (LLL) has secured ` 150mn in Series A funding from Rajasthan Venture Capital Fund (RVCF) for an undisclosed stake. Leeway operates as a third-party logistics (3PL) player, following an asset-light business model. The funds will be used to expand its current business and acquire new customers. Leeway Logistics was founded in

4 2010 by a team of professionals, led by industry veteran Sanjay Sinha, who has extensive experience across industry verticals and leading multinationals. The company focuses on end-to-end supply chain solutions and corporate people movement. Its clients include key companies like General Motors, GSK, HUL and Coca Cola. US-Based Grassroots Business Fund Invests $1mn In Industree Crafts Industree Crafts Pvt Ltd, a Bangalore-based home furnishing company, has raised $1 million (`45mn) from US-based Grassroots Business Fund for an undisclosed stake, according to a media report. The company has issued convertible debentures to the investor. Industree Crafts designs, crafts and markets furniture and various other accessories like cushions, lamps, floors, blinds, storage spaces, planters and bags. The home furnishing space in India is yet to witness big-scale PE investments. It is, however, picking up slowly and in 2010, Reliance Capital Ltd acquired 5.97% stake in Mumbai-based Nilkamal Ltd for $5.97mn. The firm acquired 0.89mn shares at a price of approximately ` per share on a preferential basis. Nilkamal Ltd manufactures and markets plastic moulded furniture and material handling products, primarily in India. One97 Mobility Fund invests in LeapSky Wireless Mobile VAS company One97 Communications Ltd's One97 Mobility Fund has invested an undisclosed amount in Singapore-based LeapSky Wireless. Founded by Siva Sai N, LeapSky has developed JumpSurf, a device which provides cheaper international data roaming to customers through bulk data deals with telecom operators across geographies. One97 Mobility Fund is a $100mn that it committed with SAIF Partners. PayMate founder invests in Vserv Ajay Adiseshann, founder and managing director of mobile payment company PayMate, has invested an undisclosed amount in Mumbai-based Vserv Digital Services Pvt Ltd for an undisclosed stake. Vserv Digital provides mobile advertising services and helps advertise cell phone apps, mobile phone features and various types of promotion on mobile web. The company leverages an ecosystem that supports full-screen ad displays across 3500-plus apps, predominantly on J2ME and Android platforms. The firm has already worked with more than 50 noted brands. Fund Raising & Liquidity Events Warburg Pincus sells 5.6% in Max India Warburg Pincus has sold more than 5.6% stake in insurance and healthcare firm Max India through multiple block deals. The PE firm, which invested in Max in 2004, sold the stake for ` 246 crore on BSE and NSE. The stake was sold at a price of ` 197 per share, which is at a discount to Max India's then trading price of ` 213. In 2004, it had It picked up a 29% stake in the firm for ` 200 crore, subscribing to shares at a price of ` 200 per unit. Before the stake sale, Warburg Pincus held a 22.55% stake in Max India through its entities Madison Holdings, Melany Holdings and Parkville Holdings and it still holds around 17%. Max India later went for a stock split in 2007 in a ratio of 1:5, which brings down Warburg's average investment per share to ` 40. The PE firm has managed to make nearly 5x from the last stake sale. Passport Capital sells 1.6% in Financial Technologies Hedge fund Passport Capital has sold 1.6% stake for ` 620mn in Financial Technologies (India) Ltd, which is behind the Multi Commodity Exchange of India (MCX). Passport, which also holds a stake in MCX, has been cutting its stake over the last 18 months from its peak of 10% in March, With the latest selloff, its stake will now fall to around 1.2%. Passport Capital had started building up the stake in Financial Technologies during January, 2007, when its share was trading at around ` 1,700. The hedge fund continued to build up its stake in the firm as its stock price reached over ` 3,000 per share and was trading between ` 2,400 and `

5 2,700 during late 2007, thus increasing its stake to 4.23% by March, The fund had later averaged out its investment by buying more shares after the financial meltdown in 2008, raising its stake to 10% in March, Former chairman halves stake in Mindtree Ltd Ashok Soota, former chairman and co-founder of IT consultancy services firm MindTree Ltd, has sold over half of his 11.10% stake in the firm to entrepreneur VG Siddhartha s group holding company Coffee Day Resorts Private Limited. Siddhartha, who has promoted India s largest café chain Café Coffee Day (CCD), will see his group s shareholding inching up to 12.35% in MindTree, making him the single largest shareholder. According to market data, Soota has sold 2.2mn shares at ` 428 each, putting the deal size at ` 9.4bn. Nomura to launch $500mn India Infra Fund in September Nomura Holdings plans to launch a $500mn India infrastructure fund in September, its country head said, joining the league of firms looking to play a role in financing infrastructure projects in Asia's third-largest economy. Private equity investors are poised to play a faster-growing role in financing much-needed infrastructure projects in a country infamous for clogged roads and power outages and lacking a mature local bond market to provide long-term project funding. OPIC commits $198mn to two India-Focused Clean Energy Funds US government agency Overseas Private Investment Corporation (OPIC) is backing two clean energy private equity funds, with India as their key location and with a commitment of $198mn. OPIC said that it would provide $136mn for Aloe Environment Fund III and $62mn for Renewable Energy Asia Fund. This comes after OPIC had announced an investment of $100mn in Global Environment Fund s South Asia Clean Energy Fund last year. Private Equity and M&A News KK Modi may acquire majority control in Godfrey Phillips KK Modi Group may acquire majority control in Godfrey Phillips India Limited (GPI) from American tobacco major Philip Morris. Incorporated in 1936, Delhi-based GPI is a JV between the KK Modi Group and Philip Morris who each held 36% stake originally. In 2009, Modi Group acquired additional 10.8% stake in GPI from Philip Morris for ` bn, taking its holding to 47%. GPI manufactures and sells cigarette, tobacco, and tea products in India. It also offers unmanufactured tobacco and mouth freshener. It has a network of 500 distributors and 800,000 retail outlets. The company posted revenue of ` 4.63bn with PAT of ` 563.2mn for quarter ending March 2011, while for FY it posted revenue of ` 16.3bn with PAT of ` 1.66bn. Avigo Capital may buy controlling stake in Spykar Avigo Capital and Metmin Investments as a co-partner may acquire a controlling stake in Spykar Lifestyles Pvt Ltd, reversing its earlier plan to exit the homegrown jeans brand. If the deal materialises, Metmin Investments may invest ` 300mn for a 30% stake in Spykar, while Avigo will hold another 30% stake. Avigo had invested close to ` 250mn in Spykar for 40% stake in Spykar Lifestyles was founded in 1992 by Prasad Pabrekar. Company's total income declined to ` 1.8bn in against ` 2.4bn in , down by 23%. It made a net loss of ` 550mn in against PAT of ` 152mn in JCBL Ltd plans to raise $10mn PE Funding Bus body manufacturing company JCBL Ltd is looking to raise $10mn funding through private equity route, by diluting around 18-20% stake. The funds will be used for enhancing manufacturing capacity, developing new technology for building specialised vehicles, expanding presence across the country and adding new customers. JCBL makes a wide array of buses and vans, including special application vehicles, election campaign vans, display vans, OB vans, radar calibration vans, riot control vehicles and mobile homes.

6 IPO, Other offerings Abhijeet Power files for ` 13.75bn IPO Nagpur-based Abhijeet Power Ltd has filed its draft red herring prospectus (DRHP) with market regulator SEBI to raise ` 13.75bn through an initial public offering. The company, which is developing power projects with a capacity of 2,671.6 MW, is also looking at a pre-ipo placement of ` 5bn. The firm has earlier said that it will look at private equity firms to raise funding after filing the DRHP. The company is developing three power projects in Maharashtra, Jharkhand and Bihar. These include: Chandwa Power Project (Jharkhand), a 1,080 MW coal-fired plant being developed by its 49 per cent JV Corporate Power Ltd; Banka Power Project, a 1,320 MW coal-fired plant being developed by Jas Infrastructure and Power Ltd where Abhijeet holds 94 per cent stake and a MW plant in Nagpur. Abhijeet Power plans to use ` 8.47bn from the issue as equity contribution for the Banka project while ` 4.02bn will be used for Chandwa Power Project. The remaining funds will be used for general corporate purposes. Parekh Aluminex to offload 35% stake via preferential issue Aluminum foil containers maker Parekh Aluminex Ltd is looking to raise as much as ` 1bn ($22mn) through a preferential allotment to a host of overseas funds including Kitara Capital. The proceeds of the preferential share issue would be used for expansion and working capital requirement of the company. The firm is planning an expansion that would absorb ` 3-3.5bn. Parekh Aluminex is one of the largest manufacturer and exporter of aluminium foil containers, and also one of the biggest manufacturers of aluminium foil rolls and lids in India. It has manufacturing facilities located at the union territory of Dadra and Nagar Haveli. The firm is looking to dilute as much as 35% through the preferential issue at a price of ` 325 a share. Parekh Aluminex had been on a high growth path. Between FY07-11 its topline grew almost five times to ` 9bn and net profit by over four times to ` 620mn for the year ended March The firm has a market cap of ` 3.83bn or a little over six times its trailing earnings. Agro seed firm Advanta India raises $50mn through FCCB issue Agro seed company Advanta India Ltd has closed $50mn Foreign Currency Convertible Bonds(FCCB) issue. The money raised through the overseas convertible bond issue would be primarily invested in Advanta s international subsidiaries and might also be utilised to meet any other requirement. The FCCBs carry a coupon rate of 3.5% plus three months US$ Libor, having a maturity of 5 years and 1 day and convertible into equity shares of face value of ` 10 each, at an initial conversion price of ` per share. Executive Tracking Lagarde elected as new IMF chief Lagarde will become the first woman to head the International Monetary Fund when her five-year term as managing director begins on July 5. She will find herself immediately immersed in efforts by the IMF and European Union to head off a Greek default that could touch off an international crisis. Lagarde, aged 55 is presently the Finance Minister of France government.

7 M&A Activities M&A Activity: Summary during the week During the week ended 3rd July, 2011, there were 9 M&A deals worth $31.5mn. In the largest deal during the week, Coffe Day Resorts Private Limited acquired 5.55% in Mindtree Ltd. where Mindtree s former chairman Mr Ashok Soota sold his half of the stake to Mr. VG Siddhartha s group holding company for $20.9mn Stake Deal value Acquiror Target Sector (%) ($ mn) Coffee Day Resorts Private Limited Mindtree Ltd. IT/ITES ITC Hotels Espirit Hotels JV Hospitality DB Corp DMC Education Ltd Education NA 0.6 Ybrant Digital Web 3.0 IT/ITES NA NA Yash Birla Group Mansycom Consultants Consulting 51.0 NA Vistaprint PrintBell Media & Entertainment NA NA LIC India Andhra Bank BFSI 10.0 NA eyantra IGC Global Promotion Services (Goods supplier) NA NA Altruist Group Vegam Solutions Pvt Ltd Mobile VAS NA NA Source: Four-S Database, Acquisition price is in $mn

8 Stock Market Updates Key Domestic Indices Indian Market Movements 52 Week Index 24-Jun-11 1-Jul-11 Change (%) High Low BSE Sensex 18, , % 21, , S&P CNX Nifty 5, , % 6, , CNX Nifty Junior 10, , % 13, , Nifty Mid Cap 50 2, , % 3, , CNX IT 6, , % 7, , Bank Nifty 10, , % 13, , CNX Infrastructure 3, , % 3, , CNX Realty % Source: BSE, NSE Key Global Indices Global Market Movements 52 Week Index 24-Jun-11 1-Jul-11 Change (%) High Low NASDAQ 2, , % 2, , DJIA 11, , % 12, , S&P 500 1, , % 1, , Nikkei 9, , % 10, , Hang Seng 22, , % 24, , Strait Times 3, , % 3, , FTSE 100 5, , % 6, , Source: Google finance

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