Objective

y To analyze the trends of private equity in the Indian

market
y To study the opportunities and challenges pertaining to
Indian market
y To focus on sectors having optimum potential for this
industry
 What is Private Equity?

y Private equity is essentially a way to invest in some asset

that isn't publicly traded, or to invest in a publicly traded
asset with the intention of taking it private.
y A type of investment aimed at gaining significant,
significant or even
complete, control of a company in the hopes of earning a
high return
 Process of Private Equity

Investors Intermediaries Issuers

- Pension funds Private Equity
Seed V
- Endowments Investing in Private Fund E
- Foundations Equity Funds Start – Upp N
- Bank holding T
companies Expansion U
- high net worth Private Equity R
individuals Fund of Funds Fund Replacement
p E
- insurance
companies Capital
- investment
banks Private Equity
q y Special
p
- corporations Fund Situation
- other investors Direct Investment
Buyouts
 What drives Private Equity?

y Raising Capital
y Increasing regulation of Public Markets
y Effect on Public Markets
 Why invest in Private Equity?

y Portfolio Diversification
y High long-term absolute returns
y Well informed investment opportunities in private
companies
i
y Access to experienced private equity managers
y Private Equity is a growing asset class
 Value Addition

Quantitative Value Addition Qualitative Value Addition

Efficiency in management

Change of ownership/capital Wider knowledge base & information system

structure Experience
i with
i h broader
b d baseb off board
b d

Strategy shifts in International Markets

Enhanced technology

Manufacturing Expertise
Infusion of fresh Capital
Brand Image

C
Corporate G
Governance
 Types of Private Equity

PRIVATE
EQUITY

VENTURE SPECIAL
CAPITAL BUYOUT SITUATION

SEED START UP EXPANSION

REPLACEMENT
STAGE STAGE STAGE
New Variants in Private Equity

Blank Check
Deals

New Private
Equity
Variants

Statutory/Sove
Private Treaty reign Wealth
Funds
 Sources of Investment

y Institutional Investors
y Fund of Funds
y Individuals with substantial net worth
 Key Drivers of Private Equity Return

y Broadening of the markets

y Favourable economic and financing markets
y Favourable acquisition pricing
y From cost cutting to business building
Investment Process

Generating a Deal
Flow

Due Diligence

Investment
Valuation

Pricing &
Structuring the Deal

Value Addition &

Monitoring

Exit
 Global Private Equity Market

y Started in USA in 1946

y North America dominates the industry, followed by UK
y Amount invested grows at the rate more than 10% annually
y Returns vary from the range of 15% - 20%
y IT & ITeS is the most preferred sector, followed by
Infrastructure
Source:2008 Prequin Global Private Equity review
 Emerging Private Equity Market

y Most attractive destination for investment

y Attracted huge amount of investments in last 3 years
y Offers healthy returns from 20% - 25%
y Emerging Asia – premier destination
y Sectors include: IT & ITeS, Infrastructure &
Pharmaceuticals
35000

30000

25000

20000

15000

10000

5000

0
Emerging Asia CEE/Russia Latin America & Sub-Saharan Africa MENA Pan-EM
Caribbean

2003 2004 2005 2006 2007

 Asian Private Equity Market

y India and China are the primary destination for investment

y India surpassed China during this year and became the
number one destination for private equity investment in
Asia
y The amount of investment rose considerably although the
number of deals decreased
 Private Equity in India

y Consistent Economic growth

y Growth in Public Equity Market
y World class differential capabilities
y Rising domestic market
Life Cycle of Private Equity

Dott
D
Com Dot
Birth
Boom Com Renewed
of PE
Bust Growth
in
India

Early Mid Late 2003

1990’s 1990’s 1990’s Onwards
 Investments in Private Equity
16000 450

14000 400

350
12000
nt in US$ Million
n

300
10000

250
8000
200
Amoun

6000
150

4000
100

2000 50

0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Value of Deals Number of Deals

 Investments by Sectors

Investment by Sectors - Value

7500
7000
6500
6000
5500
Amount in US$ Million

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
BFSI IT S
IT & ITeS R l Estate
Real E t t & IInfrastructure
f t t T l
Telecom

2005 2006 2007

Private Equity Snapshot
 Comparison between India & China

INDIA CHINA

y Fastest growing emerging y Number 1 emerging

economy economy
y GDP (PPP) - $ 2.965 y GDP (PPP) - $ 7.043
Trillion Trillion
y Private Equity y Private Equity
Investments as a % of Investments as a % of
GDP – 1.3% GDP – 0.25%
y Preferred Sector – y Preferred Sector -
Infrastructure & IT & ITeS Manufacturing
 PE Investments
16
14
12
10
8
6
4
2
0
2006 2007 Mar-08
China India
 Future Outlook

1200 $25,000
$19,500 $23,000
1000 $16,300 $20,000

Value oof Deals (USD million)

800 $14,234
Number of Deals

1,030 $15,000
600
940
$10,000
N

400
780
$5,000
200
387
0 $0
2007 2008 2009 2010

Number of Deals Value of Deals

Source: Evalueserve
 Outlook of Indian Economy

y Healthy
yggrowth rate at the rate of 8% - 8.5%
5

y Ranks second in FDI Confidence Index

200

180

160

140

120

100
2004 2005 2006 2007

AT Kearney: FDI Confidence Index NCAER: Business Confidence Index D&B: Business Composite Optimism Index
 Opportunities in Indian Economy

y Increasing Forex Reserves - $ 309.7 billion

y Increasing Saving Rates – 35%
y Increasing Foreign Investment - $ 30 billion
y Rising Capital market
y Sound Infrastructure facilities
SECTORS TO FOCUS UPON
 Power - Outlook

y Fifth largest electricity generation capacity in world

{ Generation capacity of 143 GW
y Transmission & Distribution network is the third largest in
world
ld
{ 5.7 million circuit km of network

y CAGR of 4.6%
4 6% from last 4 years
 Power - Opportunities
y Opportunities in Generation for:
{ Coal based plants at pithead or coastal locations (imported coal)
{ Hydel power potential of 150,000 MW is untapped as assessed by the
Government of India
{ Renovation,
i modernization,
d i i up-rating
i and d lif
life extension
i off old
ld
thermal and hydro power plants
• Opportunities in Transmission network ventures
• additional 60,000 circuit km of transmission network expected by
2012
y Opportunities in Distribution through bidding for the
privatization of distribution
 Telecom - Outlook

y Fifth largest telecom service market in the world

y Subscribers base of 160 million
y Revenue is growing at the rate of 20% - 23% from last 5
years
 Telecom - Opportunities
• Projected growth of 30-40% p.a. to reach 250 million
subscribers
b ib b 2009-2010
by
y Favourable demographics and socio economic factors
leading
g to high
g ggrowth:
{ Growth of disposable income combined with changes in lifestyle
{ Increasing affordability - low tariffs, easy payment plans and handset
financing
{ Increased coverage and availability of mobile services
 Pharmaceuticals - Outlook

y The Indian pharmaceuticals industry is about $ 9.3 billion

y 4th largest in terms of volume and 13th largest in terms of
value
y Biotechnology
Bi t h l market
k t iis iin a nascentt stage
t
{ Accounts for around 2% of the global biotech market
 Pharmaceuticals - Opportunities

y India is an attractive global sourcing destination for

Pharmaceuticals:
{ Availability of low-cost, high-quality production and regulatory
compliance
p
{ Large and growing US FDA approved plant capacity
{ Synthetic Chemistry talent for early stage compound development
{ Low cost of research and world-class
world class testing facilities
y Major opportunities in Pharmaceuticals are in the following
areas:
{ Marketing of Patented Drugs
{ Contract Research and Manufacturing (CRAM)
{ IT enabled services including clinical/market data analysis
 Challenges

y Highly volatile Indian Capital Market

y Change in government policies
y Valuation of the companies
y Conservative mentality of SME
y Appreciating Rupee value