London-basedActis Capital LLP, a private equity (PE) firm focusing on emerging markets, is raising a $3 billion (Rs12,300 crore) South-Asia fund. Out of this, over one-third or about Rs4,100 crore, is likely to be invested in India, according to a senior Actis executive.
Actis’ proposed South Asia fund is significantly more than the $475 million it raised for investment in South Asia through its India Fund 2 and South Asia Fund 2, two years ago.
“Actis’ investment targets in India will be growing companies in industry categories such as manufacturing, service business,” said this executive who didn’t want his name mentioned.
“It will provide financing for control and shared control deals, management buyouts, as well as expansion capital in sectors such as technology, business process outsourcing, pharmaceuticals, fast moving consumer goods, financial services and automotive ancillaries,” he added.
Apart from India, the South Asia fund will invest in Sri Lanka, Bangladesh and Pakistan. Actis’ move to sharply step up its India investment kitty underscores the accelerating demand for PE money from domestic industry.
In 2006, PE firms invested a record $7.46 billion in some 299 deals in India. Though information technology (IT) and IT-enabled services continued to remain the favourite sector for such investors, manufacturing, financial services, health care and life sciences, engineering, and construction also attracted funds.
PE firms provide funds to companies that seek additional capital for growth-oriented projects, including extra working capital, investment in technology development, research, manufacturing expansion and financing of acquisitions for future growth, etc.
Venture funds, on the other hand, support entrepreneurs and companies that need financial support to venture into new areas of business with promising ideas and technologies.
There are about 10 active PE and venture capital funds operating in India.
ICICI Venture Funds Management Ltd, with more than $2 billion, is the largest Indian PE firm by size of funds under management.
ChrysCapital, with more than 40 investment deals, is the largest by number of deals.
Actis is one of the successful foreign PE firms operating in India. Some of its recent investment deals include UTI Bank, Glenmark Pharmaceuticals Ltd, Jyothy Laboratories, Paras Pharmaceuticals and Sterling Hospitals.
The US-based Warburg Pincus LLC is another global PE firm active in the country.
Alluri Sreenivas Rao, a director at ICICI Venture, said many companies prefer PE firms as a financial partner as they find it easier to deal with a single shareholder.
It is also a good transit period for companies in terms of gaining corporate governance expertise before they go in for a public offer to raise money on the stock markets, Rao added.
“There is an increased momentum for private equity funding as growth-oriented companies today prefer to partner with reputed private equity investors who cannot only provide money, but help them in management strategy,” said a financial analyst associated with an equity research firm in Mumbai.
Arun Natrajan, founder & CEO of Venture Intelligence India, a research firm tracking PE and venture capital funds activities, said that Indian companies raised more funds from PE and venture capital firms in 2006 than they did via initial public offers.
A recent study published by Venture Intelligence points out that Indian firms backed by PE and venture capital funds are growing at a much faster pace than their peers that don’t have such funding.
The study shows that sales at PE-backed companies has grown by 22.9% between 2000 and 2005. In contrast, firms that have not attracted PE funds have shown only 10% sales growth.
Amit Bubna, a professor at the Indian School of Business, Hyderabad, who led the Venture Intelligence study, said: “Private equity firms are active investors and adopt a hands-on working relationship with their portfolio companies. Their strategic input is more than just financial monitoring,” he added.
Several executives at PE-backed companies said that they interact with their investors at least once a week. “Most of the fund managers at the private equity companies are professionals with experience in the respective areas of industries,” said Ajit Kamath, chairman and managing director, Arch Pharmalabs Ltd, which has received investment from three such funds.
Sanjiv Kaul, managing director, ChrysCapital, has been advising the firm’s portfolio companies in the pharmaceuticals sector. Kaul was one of the senior directors in the country’s largest drug firm Ranbaxy Laboratories Ltd and former managing director of Ranbaxy’s Chinese subsidiary.
ChrysCapital has investments in the Ahmedabad-based Intas Pharmaceuticals Ltd and the New Delhi-based Mankind Pharmaceuticals Ltd.
Said R.C. Juneja, chairman and managing director, Mankind Pharma, in which ChrysCapital has invested Rs100 crore last week: “A partner like ChrysCapital will help the company exploit growth opportunities.”