Private equity firms are making a killing in India. Most of their investments in listed companies over the past two years have turned out to be money spinners.
Some of the PE favourites like NIIT, Lakshmi Overseas, Centurion Bank of Punjab, Diamond Cables, KS Oils, Sical Logistics and Himadri Chemicals & Industries have outpaced the Sensex in returns to investors during the period, although a few like GMR Industries, Spentex Industries and SpiceJet are yet to see positive returns on investments.
According to data compiled by research outfit Thomson Financial, the highest rise in share prices following the announcement of PE funding has been for Delhi-based infotech training firm NIIT, mustard oil manufacturer KS Oils and cables & conductors maker Diamond Cables. The share price of NIIT has shot up 518% since May 12, 2005, the day it was announced that Intel Capital would invest $10 million in the firm. In comparison, the Sensex during the same period has risen by 140%.
Baroda-based Diamond Cables’ scrip has gone up 396% from June, 2006, when PE funding in the company was announced. Sensex in the same period went up by 56%. KS Oils has seen a 230% increase in the scrip price, against a mere 15% jump for the Sensex from November 15, 2006, the day Citigroup Venture Capital’s investment in the firm was announced.
Auto component maker Amtek Auto, pharma company Jubilant Organosys, Patel Engineering and JBF Industries are the four companies where returns on the investments made by PE funds are positive, though a little less than the gains made by the Sensex during the same period.
“Clearly, PE funds are making money in India and have been successful in beating the market. Most investments in the listed space for PE funds have been successful,” said CVC managing director Ajay Relan. Unlike the West, in India, private equity funds have primarily followed a strategy of acquiring minority stakes in listed companies.
“In India, there is little difference between mutual funds and private equity funds as both take small stakes in large public companies. This is largely due to the risks involved with investments in unlisted companies,” explains Sri Rajan, Bain & Co partner and head of the firm's private equity practice in India. Adds 3i India director (growth capital) Mahesh Chhabria: “With companies looking at both organic and inorganic growth, PE funding will continue to pour in to India, but most deals will continue to be in the PIPE (private investment in public enterprises) space.”
In the past two years, there has been a huge inflow of private equity funding in India, almost touching record levels. Analyst reports suggest that this year, the amount of PE investments made in India is equal to PE investments in Hong Kong and Singapore put together. According to Thomson Financial’s data, in January-July 2007, $2.49 billion worth of PE investments were made in India, as against $1.05 billion in Hong Kong, $1.47 billion in Singapore and $752.2 million in China.
Different research outfits, however, put vastly different numbers to the amount of PE money flowing into the country. According to data compiled by accounting firm Grant Thornton, in January-July 2007, PE investments worth $9.6 billion were made.
Source: Economic Times