Private equity deals pick up pace in 2014

The month of October saw PE investments of over $1.45 billion led by SoftBank Corp’s combined $837 million funding in online retail marketplace Snapdeal and online cab booking portal Olacabs. The other big investments included $197 million funding received by Kalyan Jewellers from Warburg Pincus, $125 million funding by EIG Global Energy Partners in Greenko and IFC’s $100-million investment in Ballarpur Industries’ step down subsidiary.

The IT-ITeS sector alone has received more than four-tenths of overall PE investments so far, followed by the infrastructure segment ($1.13 billion), which has seen some revival in investor interest. Banking and financial services continue to see stable investments, clocking $896 million in the first 10 months. The other major sectors receiving inflows include retail, real estate and healthcare.

The IT and ITeS sector has so far seen investments of $4.03 billion till date in 2014 — the highest in the past six years; the number of deals in the sector at 190, too, are at a new high led by strong deal activity in the e-commerce space. The numbers have been supported by large fund raising by e-commerce majors Flipkart and Snapdeal, with $1,210 million and $860 million, respectively, in 2014.

The exponential growth in the e-commerce market and huge potential ahead — led by significant rise in internet and mobile penetration in India — has prompted institutional investment firms like SoftBank and DST Global to take significant stakes in e-commerce firms.

“E-commerce in India is a $11 billion market, and is estimated to reach $20 billion by 2015, growing at a CAGR of nearly 37% over 2013-15. Google estimates this to further propel to $70 billion by 2020 (30% CAGR), of which e-tailing, which is only $2 billion in size today, will grow to become a $45-billion industry,” said a Motilal Oswal thematic report recently.

Raja Lahiri, partner at Grant Thornton, believes the IT sector would continue to see huge investments led by e-commerce players, who need good amount of money to drive growth. “On the back of changing consumer behaviour and rapid internet growth, the top players in the e-commerce space, besides some other niche segment players, would continue to receive good investments.”

Sentiments towards the core infrastructure segment also seem to be reviving with PE investments in infrastructure-related firms rising almost five times as compared to average investments in the previous two years. The sector had received a dismal $193 million of investments last year and $350 million in 2012. However, the majority of infrastructure investments have not gone into new projects, but towards restructuring the existing holding or in the form of loans. Global PE major KKR in September agreed to lend $164.2 million to GMR Holding in the form of structured long-term financing.

Lahiri believes the momentum of deal activity will continue to increase and the year will end on a high note.

The article appeared in the Financial Express. The article can be found here.