Savvy private equity (PE) investors are using the fall in the stock market as an opportunity to raise stake in the companies part of their portfolio through secondary-market purchases. The rise in competition in private space is also compelling PE companies to try their luck at the stock market to reap quick returns.
Last week, ChrysCapital bought an additional 1.68 per cent stake in Nagarjuna Construction Company (NCC), raising its stake to nine per cent. Before that, ChrysCap had bought 3.6 per cent in NCC in August-end. In May, the PE player had bought over two per cent in NCC for around Rs 67 crore. Its entity, Warhol Ltd, acquired the shares at Rs 98.99 apiece from HSBC Global Investment Fund.
Shares of NCC touched their 52-week low of Rs 51.75 August-end on BSE. It is learnt that ChrysCap bought additional stake at Rs 53-54 a share. It is the second-largest private investor in NCC after Blackstone, which holds about 9.9 per cent.
“In a weak market, you have the option to increase stake. However, exercising the option depends on your fund size, investment strategy and risk appetite,” said ChrysCapital managing director Sanjiv Kaul.
Apart from ChrysCap, another PE major, General Atlantic (GA), too, raised its stake in its listed portfolio, IndusInd Bank, in August. GA bought close to 1 per cent in IndusInd for $26.8 million. Another PE firm, Sequoia Capital, bought additional 1.46 per cent stake in Ess Dee Aluminium last month.
Sequoia Capital Managing Director Abhay Pandey said: “The act of increasing stake is dependent on the comfort level between the investor and the portfolio. If you know the management well and are clear about the fundamentals, you can opt for further buyout in today’s market.” He agrees Sequoia is increasing stake in its listed portfolios selectively.
According to VCCedge data, PE firms invested $301 million last year through 28 open-market transactions, compared with 30 deals, worth $327 million, till date this year.
Vikram Utamsingh, head (private equity advisory), KPMG India, said: “PE firms in India like to have limited exposure to public companies as there is an opportunity to make strong returns in short timeframe. So, it is not surprising to see PE firms raising stake through secondary transactions.”
Avendus PE, which runs another public market-focused fund, is eyeing new open-market transactions than strengthening presence in portfolios.
Avendus PE Investment Advisors CEO Manoj Thakur said: “Well-managed companies with good cash flows did not witness significant erosion in share prices. We focus more on new investments rather than increasing stake in present portfolios. As opportunities are available in multiple sectors, we plan to tap that scenario by investing in new companies, which will also bring a balanced portfolio.”
Avendus PE has increased its stake in V-Guard, Mirc Electronics and Action Constructions. It plans to raise a $150-million fund to invest in mid-sized listed companies in India.
