The uncertain future of the equity market seems to be paving the way for newer invesment opportunities
. Private equity (PE) players have been quick to recognise these. Of late, their appetite seems to have shifted from the most-talked about sectors like real estate and financial services, which were the flavour of the season till some time ago, to sectors like education, healthcare, defence, logistics, warehousing and infrastructure.
These not-so-talked-about sectors are now attracting big private equity players. Though some of these are the very basic sectors of the economy, it is only recently that investment interest has found a place in them.
The key reason is the underlying growth potential of these sectors. As compared to developed economies, India has been lagging far behind in the development of basic sectors like education, healthcare and basic infrastructure. If the Indian economy is to grow at the rate of 9%, the government will have to focus on these key sectors. Hence, it makes good business sense for investors to catch them when they are young.
Anil Chawla, head of private equity business in DE Shaw says: “As a firm, we are sector-agnostic. But we believe that the education sector, particularly vocational studies, holds a huge potential”. He further added that logistics, security, media & entertainment are some of the other areas where the fund sees good opportunities.
Though valuations remain a key concern in these sectors as well, they seem to be better placed compared to high-risk sectors like real estate. Companies with good business model and visible earnings are finding themselves in the limelight.
However, even in sectors like real estate, where promoters are willing to negotiate on valuations, funding has been forthcoming even in these turbulent times. Phoenix Mills received $325 million funding from MPC Synergy. South India-based Indu Projects received $77 million from Credit Suisse. Matrix partners invested $7.5 million in playgroup chain of schools Tree House Education.
Seventymm and Real Image Media received $12.5 million and $16 million, respectively. Nectar Lifesciences and Marck Biosciences are some of the pharma companies that have also received funding from PE players recently. But the deal sizes in these sectors remain very small compared to those in sectors like real estate, where a typical deal may vary from $25 million to over $400 million.
Besides the above sectors, PE players like General Atlantic are also interested in consumer-led sectors like retail and financial services. “The defence sector in India, when it opens up, will be another area of interest,” says General Atlantic MD Sunish Sharma.
Though there is good growth opportunity in these sectors, there are some teething issues as well. For example, considering the growth potential of the retail industry in India, the logistics industry remains one the most under developed. Efficient logistics services and good supply chain are the backbone of any retail industry.
Thus, it is inevitable for the logistics industry to grow. Given this, investment in this space at an early stage may prove to be a good strategy. “It is not the funds alone that are a problem. For instance, the power industry faces shortage of energy generation. The port sector has a shortage of dredging equipment. The shortage of skill is pervasive in all these unchartered sectors”, says Luis Miranda, CEO, IDFC Private Equity.
Source: Economic Times