Your Eye to Indian Private Equity

Transcription

1 Four-S Private Equity Track Issue: 21st -26th June, 2011 Your Eye to Indian Private Equity PE activity for the week During the week ended 26th June, 2011 there were 14 PE/VC deals worth $233.2mn compared to 10 deals worth $66mn in the previous week. Out of the total, 7 were growth stage deals, 4 were early stage, and 1 each at late stage and PIPE deal. The largest transaction during the week was $78.5mn investment by IDFC Project Equity in wind-based power producer Caparo Energy (India) Ltd th June 26th June PE Investments No. of Deals Private Equity: Investment Summary during the week Investor (s) Target Stake (%) Value ($mn) Sector Business Stage IDFC Project Equity Caparo Energy India Ltd NA 78.5 Infrastructure Renewablewind Late HSBC Principal Investments Avitel Post Studioz NA 60.0 Media & Post entertainment production Growth Carlyle Group Visen Industries NA 25.0 Manufacturing Polymer emulsions Growth Sequoia, Helion Venture Partners Legal process UnitedLex IT/ITes and Canaan Partners outsourcing Growth Fidelity Growth Partners India Mind Shaper Technologies NA 15.0 Education Content Growth CVCI Janalakshmi NA 14.4 BFSI Microfinance Growth IL&FS Investment Managers JICS Logistic NA 8.9 Infrastructure Logistics Growth Tiger Global CaratLane.com NA 6.0 IT/ITeS Ecommerce Growth Catamaran, Reliance Venture Asset Management, Bluecross Wellspring Healthcare NA 4.6 Healthcare Clinics Growth BlueShield venture Partners Samena Capital Dynamatic Technologies Infrastructure Engineering PIPE Acumen Fund Orb Energy Pte Ltd NA 1.1 Infrastructure Renewable - Early HDFC PE Angels Health Pvt Ltd Healthcare Angel investor Evam Entertainment NA 0.1 Kensington Capital, Index Advisory and undisclosed investor Source: Four-S PE Database Village Laundry Service NA NA Others Media & entertainment solar products Online medical services Theatres Laundry services Early Early Early

2 Caparo raises $78.5mn from IDFC Project equity Wind-based power producer Caparo Energy (India) Ltd (Ceil) has raised $78.5mn to increase capacity, through the issue of preferred shares to the India Infrastructure Fund, which is managed by IDFC Project Equity Co. Ltd. The funding is mezzanine for a six-year term and will not dilute equity. The company s first project of 42MW comprising 20 wind tudcvrbine generators has begun commissioning in Tejwa, Rajasthan and expected to be fully connected by July The company s second project approaching completion in Mahidad, Gujarat, comprises 12 WTGs, totaling 25.2MW and expected to be fully connected by August HSBC PE arm invests $60mn in Avitel Studioz HSBC Principal Investments, the private equity arm of the HSBC Group, has invested $60mn for a minority equity interest in Avitel Post Studioz Limited, a Mumbai-based post-production and media entertainment technology company. Avitel which has presence in Europe and the Middle East will use the money to finance its international growth and expansion plans. Four-S Comment: If this investment is for a minority stake, then it is a significant leap of faith by HSBC in Avitel, which is still a relatively small player in the media BPO business. This is in fact the second round by HSBC in Avitel; HSBC had put in $10.6mn in June 10. So Avitel appears to have raised $70.6mn from HSBC (not sure if this $60mn figure includes the earlier round, we are assuming here it is two separate rounds). Even if this is for as high as 49% (since reports suggest HSBC has minority), this seems to value Avitel at upward of $140mn or around Rs 6.5bn in equity value. The listed firm Prime Focus has a market cap of around Rs 7bn at this time, and Prime could be about 5x the size of Avitel in revenues. Prime also has about Rs 4.6bn in debt, Avitel could well be debt free, but it does seem to have got a somewhat generous valuation. Carlyle Group invests $25mn in Visen Industries The Carlyle Group has invested $25mn in Visen Industries Ltd, a manufacturer of water-based polymer emulsions in India. The investment will come from FCV III, a part of the Carlyle Asia Growth Partners IV (CAGP IV), which happens to be a $1.04bn sector-agnostic fund. Visen manufactures the entire range of water-based polymer emulsions including acrylates, versatates and polyvinyl acetates, catering to customers across industries encompassing paints, textiles, adhesives and construction. Funding by will be used by Visen to expand manufacturing capacities in India and abroad. Three PE companies acquire stake in UnitedLex Existing investors, Helion Venture Partners and Canaan Partners, along with private equity major Sequoia Capital have together invested Rs 753mn (about $17mn) to pick up the entire stakeholding of co-founder Ajay Agrawal in UnitedLex Corporation, a legal process outsourcing firm. The deal gives the three PE firms an 18.1 % stake in the company that has been valued ~ $92.5mn. Fidelity Growth Partners invests in Mind Shaper Fidelity Growth Partners India has invested up to $15mn to acquire an undisclosed minority stake in Delhi-based Mind Shaper Technologies Private Ltd. Mind Shaper is into K-12 educational content in the country. The firm is working with more than 500 schools and about half a million students providing consulting and innovative technology solutions in the area of school education. The investment will be used to expand the company s product portfolio. Janalakshmi raises Rs 650mn from Citi Venture Janalakshmi Financial Services, the Bangalore-based micro finance institution (MFI) promoted by social entrepreneur Ramesh Ramanathan, has raised Rs 650mn from Citi Venture Capital International (CVCI). The money was raised as part of an ongoing round ( Series C) and more is expected to be raised in the coming weeks. Earlier, it had raised Rs 1bn as part of its Series A and Series B funding. The MFI has 62 branches in 12 states. Four-S Comment: Indian microfinance sector is likely to see consolidation in the near term. Following the regulations recommended by the Malegam committee, the Reserve Bank of India (RBI) has capped microfinance institutions

3 (MFIs) margins at 12% and interest rates at 26%. As interest rates are capped, they are unlikely to make huge profits as in the past. Moreover, funders to MFI are expected be more rigorous on criteria such as governance, unique business models and also scalability. With the sector becoming more regulated, compliance expenses will add to already high operational costs of MFIs. Smaller players do not have operational efficiency and scale would exit. IIML invests in JICS Logistics Indore-based JICS Logistic Limited has raised Rs 400mn from Tara India Fund III, a $225 mn private equity fund managed by IL&FS Investment Managers Ltd (IIML). JICS Logistics offers warehousing and warehousing management services like commodity warehousing, collateral management, assaying and certification, in 36 cities across India. The funds will be used to expand JICS' operational capacity and geographic span. Tiger Global invests $6mn in CaratLane Tiger Global has invested $6mn in online jewellery portal, CaratLane. The company will use this round of funding to consolidate its position in the online diamond jewellery space. CaratLane, which supplies to 50 cities, will use the funding to expand its national footprint. This is the sixth deal by Tiger Global in the Indian e-commerce sector this year. Other investments include Exclusively.in, Flipkart, Myntra, Lets-Buy and BabyOye.com. Four-S Comment: Private equity interest in Indian e- commerce space continues to heat up. According to Four-S data, PE investments in e-commerce ventures amount to $71.5mn (8 deals) so far in Group buying sites appear to be the recent favorites among PE investors in India. Online jewellery seems to be a new development. It is only in recent years that jewellery buying in India has made some shift from the friendly neighborhood jewellery to branded chains. Titan s Tanishq grew 43% in FY11 to cross Rs 50bn in turnover. EBIT margins have been steadily expanding for Titan, and hit 8.5% for FY11. Caratlane will have to prove that customers will buy jewellery without the touch-feel factor. What Tiger Global may be betting on is a first mover advantage. Wellspring Healthcare attracts Rs 205mn investment Catamaran, Murthy's $129-mn venture capital fund, Reliance Venture Asset Management, US-based BlueCross BlueShield Venture Partners and few angel investors have invested Rs 205mn in Mumbai-based healthcare services provider Wellspring Healthcare. Mumbai-based Wellspring will use the money to create a chain of clinics under the brand name of 'Healthspring Community Medical centres' in Mumbai and roll it out nationally later. Samena Capital acquires additional Stake in Dynamatic Technologies Samena Special Situations Fund, the fund managed by Samena Capital has bought additional 1.1% stake in Dynamatic Technologies for Rs 93mn through bulk deal. This will increase Samena Capital s stake in the company from its current holding of 7.2% to 8.3%. Initially Samena Capital bought 5.2% stake in the company last year for $8mn. It subsequently increased its stake to 7.2%. Samena Capital is a fund which invests in listed companies through market purchases and fresh issues of equity. Four-S Comment: We wrote earlier that with depressed valuations in secondary markets, this is a good time to do PIPE deals, or simply buy from the market. This makes particular sense if you already hold a stake in the company, and the shares are going at a price lower than your purchase price. In this case, though, it is not that Dynamatic shares are particularly depressed. The shares are up 48% over a 12 month period, and in fact, made a 52 week high of Rs 1,580 on 17 June. The shares trade currently at a price of Rs 1,472. The valuation isn t cheap either, at its current market cap of around Rs 8bn, Dynamatic quotes at about 36x its FY11 net profit of Rs 21.7 crore. Dynamatic hasn t grown too well in the recent past either. Its turnover went from Rs 4.05bn in FY09 to Rs 4.95bn in

4 FY11, a growth rate of just over 10%. So historical numbers don t quite explain either the high PE of Dynamatic. On the positive side, Dynamatic acquired a German automotive component maker Eisenwerke Erla GmbH earlier in June Eisenwerke, which is a 630 year old company (that makes it much older than the East India Company, which was established in 1600), supplies to global automobile majors such as Audi, BMW, Volkswagen and Daimler, earns revenues of over 100mn. It has manufacturing facilities in the German town of Erla and in Chennai. The cost of the deal was not disclosed. Eisenworke buy adds around Rs 6.3bn in revenue to Dynamatic, more than doubling its FY11 size. Orb Energy raises $1.1mn from Acumen Fund Orb Energy Pte Ltd, which provides solar energy systems to off-grid households, has raised $1.1mn in equity funding from venture firm Acumen Fund. The funding will be used by Orb to extend its household lighting systems to rural customers and scale its manufacturing, besides developing new products. Orb sells, installs and services a full range of systems including solar photovoltaic systems for lighting and back-up power, solar thermal for hot water, solar street lighting for security, as well as energy-efficient lights, fans and other appliances. Four-S Comment: It is estimated that 70% of India s population practices agriculture and lives in the rural areas. Moreover, only 65% of Indian population is currently connected to an electricity grid and estimated 80,000 villages are not connected to grid. Thus off grid power generation has immense potential as it is cost effective, environment friendly and can address the huge T&D losses that major power utilities in India are facing. It is estimated that Rs bn ($2-4bn) is spent by government every year in subsidizing the prices of kerosene. PV based home lightning systems would result in significant kerosene replacement and can be accessed by the rural population. HDFC unit buys 12% stake in Angels Health Angels Health Pvt. Ltd, an online medical services company founded by Debraj Shome and Arbinder Singal, has received its first funding from the private equity unit of India s largest mortgage lender. HDFC s private equity unit has bought around 12% stake in Angels Health, which was started in January, for Rs 25mn. Angels Health s website mediangels.com provides online consultation from a large pool of medical experts and specialty doctors across the globe to users. The website, which has around 300 doctors on its panel from at least 22 countries, also has electronic links with around 21,000 accredited diagnostic labs across India. Evam Entertainment gets angel funding Chennai-based Evam Entertainment Private Limited has raised Rs.40 lakhs for its venture Sideways Training, from an unknown angel investor. Founded in 2003 by MICA graduates, Sunil Vishnu K and Karthi Kumar, Evam deilvers live stage plays / dramas / musicals across India. It conducts live theatre shows, happy factory corporate shows, HR training modules, student interactions and internal forums and discussions. Evam is taking theatre to schools and corporate houses and is also considering opening an acting school. It is designing a theatre module for schoolchildren from class five to nine. Village Laundry Service raises Series-A funding Village Laundry Service Pvt Ltd(VLS), which operates laundry kiosks under the name of Chamak, has raised an undisclosed amount in Series A financing from Kensington Capital, Index Advisory and an undisclosed private Indian investor. Village Laundry, which is backed by Innosight Ventures, will use the new round to expand its chain of laundry kiosks. The service operates booths in 3 cities, including Bangalore and Mumbai, and has grown from 3 to 20 stores in less than a year. Four-S Comment: Several attempts are being made at setting up laundry chains. In March 2011, Jyothy Labs bought out Diamond Fabcare, which operates laundries under brand Wardrobe, in the NCR region. Wardrobe seems to have around 50 outlets currently. This suggests some value is being created by these models.

5 Fund Raising & Liquidity Events (IIML) and eplanet Venture in 2006 and 2009, respectively. While IL&FS has exited the firm completely, eplanet has also made a partial exit from its investment. Nalanda Capital raises $475mn for second India fund Nalanda Capital Pte Ltd, a Singapore-based private equity firm founded by former Warburg Pincus India MD Pulak Prasad, has closed its second fund with commitments of $475mn. Nalanda, which raised its first fund of $400mn in May, 2007, invests in listed companies or makes PIPE (private investment in public enterprises) investments. While the firm mostly invests through secondary-market purchases, it has also done some deals involving preferential issue. These include companies like Berger Paints and Vaibhav Gems, where it has also taken board seats. IL&FS Investment Managers eyes $300mn PIPE Fund IL&FS Investment Managers, one of India s largest PE firms managing assets of $3.2mn, is looking to raise a $300mn (Rs 13.6bn) fund dedicated to making PIPE (private investment in public enterprises) investments. The PIPE fund will essentially look at investing in companies which are raising monies through fresh/primary issues. But it will also be open to investing in secondary market transactions. Aureos makes partial exit from Continental Warehousing Corp Private equity firm Aureos Capital has made a partial exit by selling some of its stake in Continental Warehousing Corporation (Nhava Sheva) Ltd to Warburg Pincus. In April this year, Warburg Pincus had said that it was investing $100mn in the Chennai-based logistics firm, part of which would be used to buy out existing investors. Besides Aureos, Continental Warehousing had also raised private equity funding from IL&FS Investment Managers Ltd Merlion India Fund sells stake in ABG Shipyard Merlion India Fund, a joint venture between Standard Chartered Private Equity and Temasek, has sold half of its remaining 1.67% stake in ABG Shipyard for Rs 136mn ($3mn) to the promoters of the company. Merlion had earlier sold a part of its pre-ipo investment in the shipping firm for Rs 1.24bn ($27.6mn) last December. The fund house had co-invested, along with IL&FS Private Equity (Leverage India Fund) and Standard Chartered PE, in July, 2005, months before the public float of ABG Shipyard. The shares were picked through a mix of fresh issue and purchase from the promoters at Rs 113 a piece. This round of sale has been at Rs 340 a piece.. Private Equity and M&A News Blackstone, StanChart PE in race for Redington stake Singapore based NRI conglomerate Kewalram Chanrai Group is set to dilute just under 15% stake to one private equity investor in the Chennai-headquartered Redington India for roughly Rs 5bn. Chanrai holds around 30% stake. Blackstone and Standard Chartered Private Equity are vying to acquire a large chunk of the promoter stake. Redington India is one of the country's oldest and leading distribution firm of telecom and IT products.. Chanrai is selling Redington stake to focus on the other business ventures such as Olam International, the Singapore-listed $10bn commodities giant. Narayana Hrudayalaya to raise PE funding for dental clinics The Bangalore-based Narayana Hrudayalaya is looking to raise $15mn to expand its network of dental clinics and has set up a wholly-owned subsidiary for this foray. Nearly three years after raising a record $100mn from private equity

6 funds to expand its presence in multi-specialty expansive hospitals in 5-6 cities in India, Narayana Hrudayalaya is once again tapping the private equity route. The company has around 30 dental clinics as of now and it aims to scale this up to 200 in three years time. Actis to exit Sterling Hospitals; Fidelity, Emami Group in race Actis is looking to exit Sterling Hospitals, a Gujarat-based multi-speciality hospital chain with six centres. Actis has appointed investment bank JM Financial to sell its 80% stake in Sterling Hospitals in the next three months. Kolkata-based Emami Group and U.S.-based Fidelity International are among a growing list of suitors. Emami controls AMRI Hospitals, which had revenues of Rs 2.5bn in fiscal The advisory team of Fidelity Growth Partners, the private equity arm of Fidelity, met Sterling executives last week. Sterling has three multi-specialty tertiary care hospitals at Ahmedabad, Vadodara and Rajkot in the western state of Gujarat. GIC may buy 15% in Vasan Healthcare Specialist eye hospitals chain Vasan Healthcare is in advanced talks to sell up to 15% stake to Singapore sovereign wealth fund GIC for around $75-100mn. The company, which was born as a pharmacy and now counts venture capital firms Sequoia Capital and Westbridge Capital among its investors, hopes to use the funds from the latest round of fund raising to fund its expansion plans ahead of a proposed public flotation next year. Vasan operates 80 eyecare centers across south India now and plans to add 55 more this year. Capital International eyes $100mn stake in L&T Finance Capital International is leading the race to invest Rs 4bn, or roughly $100mn, for less than 5% stake in L&T Finance Holdings, which is set for an IPO possibly within three months. L&T Finance, a subsidiary of the $10bn engineering and construction giant Larsen & Toubro, wants to raise Rs 17bn from the public issue as early as July. L&T Finance is looking at Rs 100bn market capitalization at the time of listing. It plans to divest around 15% stake. IPO, Other offerings MCX IPO to raise Rs 7.5bn Multi Commodity Exchange of India is all set to raise Rs 7-7.bn from the capital market with its proposed initial public offering. Six institutions will cumulatively offer 12.60% stake for sale through the IPO, which is yet to be cleared by the market regulator SEBI. The lead promoter Financial Technologies has to reduce its stake to 26% from 31% before September to meet the regulatory guidelines. Tata Autocomp lines up $245mn IPO Auto-parts maker Tata Autocomp Systems, part of the diversified Tata group, plans to raise at least $245mn through an initial share sale in the next 2-3 weeks. The offer includes a fresh issue of shares to raise up to Rs 7.5bn, which will be used to cut debt and expand capacity. Existing shareholders Tata Motors, Tata Sons, Tata Industries and Tata Capital Ltd and Tata Investment Corp will together sell up to 35.6 million shares. Tata Autocomp expects to use between 35-40% of the proceeds from the fresh issue to cut debt. Its current debt - equity ratio stands at 2.2. Part of the funds would also be empolyed to expand capacity across its 47 manufacturing units. MT Educare files for IPO; Helix to offload stake MT Educare, a Mumbai-based K12 tutoring and test preparation firm, has filed draft red herring prospectus (DRHP) with market regulator SEBI for a public offering through which it will seek to raise Rs 350mn. The issue will also include a share sale by existing private equity investor Helix Investments, which is selling around 80% of its holding in the company. The fresh funds will be used by Mahesh Tutorials to start a pre-university college in Karnataka and to open new coaching centres. Helix currently owns over 28% stake in MT Educare, which it picked up by investing Rs 328mn or $8mn in 2007.

7 Executive Tracking Vinayak Shenvi joins Exponentia Capital Vinayak Shenvi, an 18-year veteran with private equity fund Citigroup Venture Capital International, has quit the firm. Shenvi was part of the five-member team that set up Citi's private equity business in India. The other members include Ajay Relan, Vivek Chhachhi, Jayanta Basu and PR Srinivasan. Shenvi is joining PR Srinivasan, who has started his own private equity venture, Exponentia sometime last year. Goldman Sachs appoints Sanghi from Citi Goldman Sachs has hired Keshav Sanghi from Citigroup as managing director and head of equities in India. Sanghi was previously head of Indian equities at Citigroup, and before that was chief executive officer of Reliance Equities International. He also headed Indian equities at Deutsche Bank (DBKGn.DE) for five years. Goldman Sachs has been building up its equities business in the competitive Indian market, and recently hired P.V. Krishna from rival Morgan Stanley to be managing director and head of capital markets in India. M&A Activities During the week ended 26th June, 2011, there were 6 M&A deals worth $47.3mn. In the largest deal during the week, NYSE-listed Molson Coors Brewing Company, the world s fifth largest brewing company, acquired a controlling stake in Lord Karan Billimoria-owned Cobra India for $35mn. M&A Activity: Summary during the week Acquiror Target Sector Stake (%) Deal value ($ mn) Molson Coors Brewing Company Cobra Indian Beer Breweries Axel Springer AG iproperty Classifieds Cadila Healthcare Nesher Pharmaceuticals Inc Healthcare 100 NA BASF India Cognis Specialty Chemicals Manufacturing-chemicals Zuari Industries Nagarjuna Fertilisers and Chemicals Manufacturing-fertilizers NA NA Zuari Industries Texmaco Manufacturing-fertilizers NA NA Source: Four-S Database, Acquisition price is in $mn

8 Stock Market Updates Key Domestic Indices Indian Market Movements 52 Week Index 17-Jun Jun-11 Change (%) High Low BSE Sensex 17, , % 21, , S&P CNX Nifty 5, , % 6, , CNX Nifty Junior 11, , % 13, , Nifty Mid Cap 50 2, , % 3, , CNX IT 6, , % 7, , Bank Nifty 10, , % 13, , CNX Infrastructure 2, , % 3, , CNX Realty % Source: BSE, NSE Key Global Indices Global Market Movements 52 Week Index 17-Jun Jun-11 Change (%) High Low NASDAQ 2, , % 2, , DJIA 12, , % 12, , S&P 500 1, , % 1, , Nikkei 9, , % 10, , Hang Seng 21, , % 24, , Strait Times 3, , % 3, , FTSE 100 5, , % 6, , Source: Google finance

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