Technology sector falls out of favour.
Pranav Parekh, managing director of Q Investments, is now examining a host of proposals to identify his next set of investments in India.
Q Investments, which incubated Xcel Tower, invested some $40 million in the venture and later sold it to American Tower Corporation for $150 million, is not bullish on technology companies at present.
“Technology is very well-researched and very well-invested. There is no significant value add. So, we are pursuing a theme of unorganised to organised. Be it agriculture, retail, healthcare, education or restaurant, these are all sectors that have remained unorganised but now you are seeing the emergence of organised players,” said Parekh.
Q Investment is not alone. Many other venture capital (VC) and private equity (PE) funds too don’t find technology to be a hot investment option. While returns might be the driving force, sectors such as education, health, retail, agriculture, alternative energy and waste management are also seen to be recession-proof.
Since 2006, $300 million has been invested in Indian education ventures. Similarly, during the last 18 months, PE players have invested $686 million in the healthcare sector.
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According to industry estimates, another $800 million is expected to flow into these sectors over the next 12 months.
With an estimated $40-billion market for private institutions, it is no surprise that PE and VC investors are looking to ramp up their investments in education.
A Venture Intelligence survey revealed that more than 80 per cent investors planned to make an investment in education over the next six-eight months. Within education, vocational training, tutoring and test preparation drew significant PE-VC interest.
Already, Sequoia Capital and Lightspeed Ventures have invested $18 million in Tutor Vista, while Intel Capital and Helion Ventures have put $6.5 million in Global Talent Track.
In healthcare, the opportunity is being seen mainly in diagnostic services, medical devices, hospital chains and wellness products. “India has a huge competitive advantage in clinical research. Hospitals are yet another area where a lot of investment is going to be seen as the average number of beds is the lowest in India. A 20-25 per cent internal rate of return (IRR) should be possible,” said Rajiv Maliwal, partner, Sabre Capital.
Sabre Capital has set up a company called Spring Healthcare and plans to invest Rs 250 crore in hospitals, labs and clinical research organisations (CROs). Through Spring Healthcare, the fund plans to make acquisitions and has already invested Rs 65 crore in Pune-based Oyster and Pearl Hospital.
With Blackstone’s investment in Nuzivedu Seeds and Morgan Stanley’s in Biotor Industries, agriculture-led investments seem to have picked up fast in the PE space. Citigroup Venture Capital, New Silk Route and Baring recently invested in KS Oils.
“While the demand for consumption is increasing, land remains a fixed asset. Hence, there are investment opportunities in agricultural inputs as well as processed foods. There is a huge potential in food processing with India having a significant share in global trade of food products,” said Rabo Equity Advisors Chairman & Managing Director Rajesh Srivastava.
Rabo Bank recently raised a $100-million food-and-agri fund that will invest in Indian food and farm sectors.
Cleantech or renewable energy also saw increased interest from PE funds in 2008. IDFC private equity invested $91 million in SE Forge, a wind energy equipment supplier. Orient Green Power Ltd, a renewable energy company, raised $55 million from Olympus Capital.
“Climate change concern is one of the key drivers for the alternative energy sector. Regulations in India (where 10 per cent power is generated from renewable sources) and the developed world are very positive for the sector. The power sector needs significant investments and there are a number of projects on the anvil. However, the pace of financial closure, especially on the debt side, has delayed execution of these projects,” said Karthikeyan Ranganathan, head of investments, Baring Private Equity Partners.