PEs see opportunity in slowdown

Private equity (PE) players continue to see India as a profitable destination. They expect the inflows to be in the range of $5-8 billion in the coming year. Though these number are less than the $10.5 billion inflow last year, the numbers still look good, given that the valuation of companies have fallen significantly,

PE leaders came together at the Asian Venture Capital Journal (AVCJ) private equity and venture forum that started in Mumbai on Thursday.

While most players agreed that there will be short-term pain, India continues to be a growth capital-driven market. The consensus was that with debt and equity market drying up, PE money is the only source of funds in the present market.

Ajay Shah, senior fellow, National Institute for Public Finance and Policy, said, “Finance in India does not work well. While the top 1,000 firms have no problems in raising capital, it's an issue for the rest. In fact, even debt finance is almost zero.”

Also, valuations being at an all-time low, PE players see it as a good opportunity. Pavninder Singh, Principal, Bain Capital, said, “We are very bullish on India. Besides the underlying growth story, companies continue to register double-digit growth rates.”

Puneet Bhatia, MD and Country Head-India, TPG, said that even in these tough conditions, the deal volume in the range of $5-$8 billion was sustainable because of opportunities in companies which were creating capacities and had cash flows. PEs are also looking at conglomerates which may spin off their non-core businesses. Distress investment in good companies is another target area.

But the challenge facing the PE firms is the time frame. “India is a great opportunity, as long as you take a five to seven year view,” added Abhay Havaladar, managing director, India, General Atlantic Partners.

There was a different take on limited partners (LPs) as well. While the majority agreed that LPs were asking PEs to take a capital call only if necessary, other felt that they should continue investing.

“Most of the money that is with us comes from family-run groups. These are entrepreneurs who have the risk-taking ability. So rather than reducing the inflow, the focus is on differentiation of allocation,” said Havaldar.

In the last three years, the capital raised in India was one of the highest in the country’s PE history. "Going ahead, India will need to compete with China for capital in 2009,” said Philip Bilden, managing director, HarbourVest Partners (Asia).
 

Abhay Havaldar, MD-India, General Atlantic Partners 
"Most of the money that is with us comes from family-run groups. So what we are hearing is rather than reducing the inflows, the 
focus is on differentiation of allocation"

Puneet Bhatia, MD& Country Head, India, TPG
"Of the $10-12 billion invested, half of it was into fundamentally flawed sectors like real estate. For these players getting their money back is going to be a challenge"

Philip Bilden, MD, HarbourVest Partners (Asia) 
"GDP growth rate need not be a parameter for investment. Yet, so much capital has been invested on the basis of GDP growth 
rate in many geographies"

Pavninder Singh, Principal, Bain Capital.
"We are very bullish on India. One of the reasons is the underlying growth story. Besides companies in India are still registering double digit growth rates"