Opportunity in Small & Mid Cap

Transcription

1 Opportunity in Small & Mid Cap - A Private Equity Investing approach Presentation by Hiren Ved Alchemy Capital Management October 20

2 Presentation ti Path Investment Life Cycle Private equity opportunities in listed companies Case Studies

3 Investment t Life Cycle

4 Why PE opportunities in listed cos? Blurring of lines between Private and Public equity markets Long history of capital markets- since 1875 Short circuiting the normal investment cycle Large universe of listed companies 78 listed companies Street coverage

5 Why PE opportunities in listed cos? Indian economic growth and evolution Sweet spot Need for growth capital expansion, M&A, restructuring Innovation, emergence of new sectors embedded in existing companies Young Entrepreneurs- Professionalization Value unlocking Deal Dynamics very favorable Deal size ($2 20 mn) Valuation discount Speed of deal execution Transparency- Benefit of regulatory environment Ease of Due Diligence Liquidity - Ease of exit

6 Small Caps opportunity in India Established tradition of Small & Mid Caps transitioning into large firms Almost half of the BSE100 stocks can be considered to have been entrepreneur driven at an early stage of their corporate history Multiple examples of small caps companies starting off as entrepreneur driven firms but graduating into global/regional level giants Market Capitalization ($ mn) Company Name Sector 2003 Current CAGR % Gain Bharti Airtel Telecom % Financial Technologies Financial % Glenmark Pharma Pharma % Pantaloon Retail Retail % Praj Industries Alternative Energy %

7 Case Studies

8 Diamond Power Infrastructure t Investment Summary Share Price Chart Situation Company had un-serviced debt - $35 mn and negative net-worth Was constrained for working capital hence very low capacity utilization (15%- 20%) Was one of the leading players in the electrical conductors industry - the industry on the verge of takeoff Alchemy Investment x in 2 years ClearWater Capital invests in Diamond Alchemy enhances stake to 10% Opportunity To provide initial capital to restructure debt OTS with bankers Result Alchemy & other PE investors decide to infuse capital Clear Water Capital agreed to infuse $5.4 mn equity and $28.5 mn debt Immediately after funding stock price corrects by 25% Alchemy picks up 6% of the company Company enters Turnkey Project Eng. Services Alchemy enhances stakes to 10% Company makes two acquisitions Sep 2 Nov 2 Jan 2 Mar 2 May 2 Jul 2 Sep 2 Nov 2 Jan 2 Mar 2 May 2 Jul 2 Sep Financials $ mn FY05 FY CAGR (%) FY09E Sales % 275 PAT Market Cap

9 Praj Industries Investment Summary Situation In turnaround mode; straddling ethanol & brewery segments; value addition for domestic sugar industries Crude rallies; ethanol blending in 11 Indian states mandatory; coverage in tropical countries Opportunity Alternative energy moves from niche to mainstream, US $44 billion committed to alternative energy. Praj develops multi feed capabilities for ethanol; move from tropical to to temperate countries Result Alchemy invests into Praj at a very early stage recognizing the opportunity for alternative energy Vinod Khosla, leading Silicon Valley venture capitalist and a green energy evangelist invests 10% in Praj Praj starts t investing for being a global l player Morgan Stanley Asset Management invests in the company Tata s pick up a 7.2% stake in Praj Alchemy Investment 04 5 Aug 04 Source: Bloomberg 05 Price Chart 38x in 4 years Aug 05 Vinod Khosla VC picks up a 10% stake in Praj Financials 5 Aug Tata s picks up a 7.2% stake $ mn FY03 FY CAGR (%) FY09E Sales % May 5 Nov 5 Feb 5 May 5 Nov 5 Feb 5 May 5 Nov 5 Feb 5 May 5 Aug PAT % 75 Market Cap %?

10 Mount Everest Mineral Water Investment Summary Situation Great Asset Unexploited as yet MEMW has the largest source of natural mineral water at the foothills of the Himalayas the worlds largest mountain range. The source of the water was rated as one of the purest and perennial forms of water in the world- Hidell-Eyster International- USA Mount Everest had a current bottling capacity of 150,000 litres of water per day, it is only exploiting 1% of its source capacity. In comparison, international brands like Fiji bottles 80,000 liters of water per hour and Evian bottles 750,000 liters of water per hour. Opportunity A natural resource play 60 To invest in the fastest growing segment of the beverage industry, with a unique irreplaceable source Price Chart 79% in 2 years Alchemy picks up a Tata Tea acquires 64%@R 6.4% Rs.71 Rs.125 Result Alchemy invests to pick up 6.4% at an enterprise value of $ 64 mn (Rs. 71/- share) Tata Tea exits Glaceau and acquired a 25% stake in the company (June 20) at an enterprise value of $115 mn Mar 0 3 Jul 0 3 Mar 0 3 Jul 0 31 Oct Dec 3 May 3 Sep 3 Nov 3 Jan 3 May 3 Sep Source: Bloomberg

11 Thank You

12 Pi Private Equity Deals- Blurring Lines No of Deals US $ million YTD YTD Early Stage India Early Stage Cross Border Growth Stage Late Stage (A) PIPE (B) Buy Out Other Total % (A+B) of Total 59% 61% 58% 62% 51% 64% 70% 70% Source: Venture Intelligence India

13 Listed companies- by Market Cap Large Caps Mid Caps Small Caps No of Companies Source: Bloomberg Legend Large Caps Mid Cap Small Cap Market Capitalization < $750 million Market Capitalization between $100 $750 million Market Capitalization > $100 million