After six years of investing actively in India, and with assets under management worth $550 million, Standard Chartered Private Equity believes it’s time to chase bigger deals. Managing Director Nainesh Jaisingh shares his growth plans with Katya B Naidu and Neha Pandey. Edited excerpts:
Standard Chartered PE has invested across various sectors in India. Was this a conscious decision?
Ours is an Asia-focussed fund with assets under management worth $2.5 billion. We have invested about $550 million in India. Having started-off with companies, such as Punj Lloyd and Aurobindo Pharma, we also invested in emerging companies like ABG Shipyard, I-flex (now Oracle Software) and Endurance — the auto-parts manufacturer. When it comes to new sectors, we have never shied away from taking risks. When we invested in ABG, ship-building was not considered big business in India. However, the company has done exceedingly well.
With the stock markets turning volatile, have you altered your investment strategy?
We have recently launched a mezzanine offering, which provides capital with a risk-reward structure that suits companies not wanting to dilute their equity. In volatile markets, mezzanine offerings can be good solution. We have not closed any such deal as yet. However, there are a couple of these at advanced stages, which we might announce in a few weeks.
Are you planning to exit some of your investments this year?
We have quite a few exits lined up, including Endurance Technologies, which is going in for an initial public offering. Some other firms would also be filing the same, but the timing will depend on market conditions. We have a three-four year window on our investments.
What is the average size of investments you look at?
The average size has been increasing. We are looking at $75-100 million. We have the appetite to do bigger deals, but the sweet spot is somewhere between $50-100 million. That’s where the bulk of do-able PE deals are. Also, with the size of the companies and the economy increasing, I am quite confident deal sizes will continue to rise. In India, most of our recent transactions were around $75-100 million. We think it will stay there. However, with quite a few big-ticket investments, the infrastructure sector will see bigger deals.
Which sectors look interesting in terms of valuation and opportunity?
Infrastructure is in huge need of capital and there are a number of opportunities. Also, domestic consumption can manifest itself into financial services, media, branded consumer goods and services. The export theme will re-emerge as western economies start stabilising. We have a number of smart Indian companies in skill exports, be it BPOs, pharma or engineering and design. That could re-emerge because of two reasons. First, the western economies are stabilising. The second thing is the currency play. The cost differentials may start showing up.
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How many deals are you likely to close this year?
We hope to close many. However, the deal mortality in India is very high. What is important for deal closures is a stable market. If the markets remain stable for a sustained period of time, it gives confidence to companies and investors alike for consummating a deal. Volatile markets lead to nervousness on both sides. In the current market, I don’t think you would find immediate closures. However, if the markets and sentiment stay less volatile, companies may take the private route.
Which are the most over-valued sectors in the current market?
In the consumer space, there are limited good-quality companies. Brand-owning and direct consumer-facing companies are commanding extremely steep valuations, and investors want a piece of the Indian consumer story. With half-a-dozen more of these companies, you might find valuations being more sensible.
What is the next phase of growth for you?
It means higher investments in India, larger transactions and helping companies do bigger things. We have helped companies make cross-border acquisitions, transform financial management systems and processes. We have also helped them raise funds. We think we can scale this model.