Hero's success vindicates Bain's preference for listed companies

Bain Capital sold its residual stake in Hero MotoCorp last week, getting a two-times return on the $550-million investment it made four years ago. The investment had helped Munjal family buy back Honda Corp's 26 per cent stake in the company in 2011.

The Boston-based private equity (PE) giant also bought a 10 per cent stake in L&T Finance for Rs 1,300 crore a couple of months ago. Of this, a 5.27 per cent stake was acquired through preferential allotment, while the remaining 4.95 per cent stake was bought from parent Larsen & Toubro (L&T).

This highlights the interest for opportunities in listed public companies for the PE giant that started investing in India as recently as in 2010. "Bain Capital does not differentiate on targets on the basis of their listing status," says Pawan Singh, managing director, Bain Capital.

The company had acquired a 30 per cent stake in listed outsourcing firm Genpact for $1 billion (Rs 5,583 crore) from General Atlantic and Oak Hill Capital in August 2012 and a 25 per cent stake in Kolkata-based Himadri Chemicals in 2010. Its investments in private space include a 13 per cent stake bought in Pune's Emcure Pharmaceuticals for about Rs 700 crore two years ago from rival Blackstone and a $60-million investment in Lilliput Kidswear in 2010. It has written off its investment in Lilliput Kidswear after an accounting fraud was unearthed in the company.

"The firm is more focused on the growth opportunity in the investment, the quality of promoter, the valuation at the time of entry and whether that leaves room for adequate upside," says Singh. "Given the economic revival that is underway, and prospects for more benign currency trends, we feel that the Indian market is primed for better returns in this vintage than over the 2007-2011 vintage of investments."

According to the PE firm, Indian market has provided a phenomenal opportunity for patient long-term investors in listed companies. Bain is not alone in tapping opportunity in the listed space. According to VCCEdge, the financial research platform of VCCirlce.com, the first 11 months of 2015 have seen private investment in public equity (PIPE) worth $677 million across 15 deals, against $330 million PIPE deals across 18 deals in 2014. VCCEdge includes only preferential allotment to a PE firm for PIPE deals.

"PIPE deals happen when PE firms feel that companies are under-valued and there is significant opportunity for growth," says Toshan Tamhane, partner and co-leader (private equity practice) at McKinsey in India. "This clearly shows that while valuations of companies in some of the sectors have rallied, PE firms are able to identify opportunities where significant growth is still awaited."