Private Equity (PE) and venture capital (VC) funds are looking beyond the metros and the top cities in the country for firms to get better valuations. |
"Valuation in the metros has become overheated and with funds chasing the same companies, it has become very competitive," said Arun Natarajan, chief executive officer, Venture Intelligence. |
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India-focused PE and VC funds raised close to $3 billion during the first six months of the current calendar year, according to Venture Intelligence. |
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A look at Tamil Nadu, which has had 82 investments amounting to $1,613 million since 2004, affirms the disbursement of funds across seven cities. |
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While Chennai and Coimbatore received the maximum number of deals "� 69 of $1,350 million and 9 deals of $72 million respectively, other cities such as Dalmiapuram, Kumbakonam, Tuticorin and Salem received single investments ranging from $8 million to $140 million, according to the data from Venture Intelligence. |
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Depending upon a company's globalisation and growth objectives, funds are invested even in companies based in the interiors. As such, KS Oils in Morena, Madhya Pradesh, secured $20 million funding in December and is now seeking a second round of funds for $30-50 million. |
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Timmy Kandhari, executive officer, PricewaterhouseCoopers, said, "We are in talks with companies from smaller cities such as Jamseshedpur and others in Madhya Pradesh for getting them better valuations." |
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"PE funds are consciously growing their portfolios to cover tier-II cities," said Prasad Gopalan, principal investment officer, International Finance Corporation (IFC), the private sector financing arm of the World Bank. |
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"Our loans and equity investments in tier-II cities and non-metro areas have increased from a mere $15 million in 2004-05 to close to $140 million in FY06 to $170 million in FY07," he added. IFC's investments in tier-II areas include Federal Bank in Kerala, LGB and Suguna Poultry in Coimbatore and MSPL in Hospet to name a few. |
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The higher valuations and growing competitiveness in metros have the Kotak Private Equity Group looking at the corporate banking relationships of its parent company in tier-II cities. |
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"In the last financial year, we closed three investments in non-metros, a huge growth from 2005-06 where we had no investments in the non-metros," said Nitin Deshmukh, head, PE, Kotak Private Equity Group. |
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While some firms have started looking inwards, the high evaluations have other firms looking outwards at south-east Asia markets as well. Electra has invested $150 million in Asia, of which India has received over 50 per cent investments in the past. |
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Going forward, "We would emphasise in investments in south-east Asian countries such as the Philippines, Thailand and even consider China, where we do not have a single investment," said John Levack, managing director, Electra Partners Asia. |
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