PE players see more 'realistic valuations'

With the secondary market witnessing a 25 per cent correction in January, private equity players are expecting valuations to become more realistic in the late-stage investments in India Inc, at least during this calendar year.

The performance of secondary markets always acts as a benchmark for PE players to pump capital investment into a private company, or even a publicly listed company.

Despite the unprecedented rally in the markets in the past few years, the share of PE investments in listed companies has shown a decrease since 2004.

The PE investments in public enterprises (PIPEs) amounted to $4.2 billion across 80 deals, against a total PE investment of $17 billion, last year.

"We always thought the Indian market was overvalued and the correction will bring the valuations to more realistic levels. Overall, the valuations will soften gradually this year. The expectations of the promoters have also changed," said Munish Dayal, partner, Barings Private Equity Partners (India).

"I think the correcting valuations in the secondary market will have a dramatic impact on late stage company investments, translating into higher risk perception. The earnings, which were rising exponentially, will now come down. The valuations are under scrutiny," said another PE fund official.

Apart from valuations, PE players consider the macro growth in a sector, the long-term prospects of the company, the ability of the promoter and management team to grow the ompany and uniqueness of the business model before making an investment.

"The deal flow will certainly continue and there will be many more cross-border deals. There is still a lot more money to be invested. India and China continue to be attractive destinations," said Atul Mehta, partner, Ernst & Young PE practice.

Some of the PIPE deals last year included investments by Kampani Finance, Blue Ridge and Tiger Global Management into Shriram Transport Finance ($88 million),Tata Capital's investment in Development Credit Bank ($76 million), Warbug Pincus' investment of $199 million in Punj Lloyd and Apax Partners' investment of $104 million in Apollo Hospitals.