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Business News/ Market / Stock-market-news/  Private equity-backed firms lead IPO pipeline
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Private equity-backed firms lead IPO pipeline

Banking on BSE Sensex rally and revival of retail buying interest, five companies backed by PE funds have filed applications with Sebi to launch IPOs

Two of the recently concluded IPOs at the bourses have also been from companies backed by prominent private equity investors. Photo: MintPremium
Two of the recently concluded IPOs at the bourses have also been from companies backed by prominent private equity investors. Photo: Mint

Private equity (PE) funds are lining up to take their portfolio companies public, seeking to capitalize on a stock-market rally and revival of retail buying interest.

At least five companies backed by PE funds have filed applications with the Securities and Exchange Board of India (Sebi) to launch initial public offerings (IPOs); some promoters and bankers say the share sales are designed to provide an exit to PE investors.

A stock-market rally that has pushed the BSE Sensex up 25.14% so far this year, on the back of $14.22 billion of net purchases by foreign institutional investors, has prompted the proposed share sales. Exit opportunities have been scarce for PE investors in recent years as economic growth languished.

“In the last three years, private equity funds have not seen any possibility to exit or liquidate their investments through public market route. Thus, most of the IPOs that are coming in are mostly backed by private equity funds. Most of the funds are looking at an internal rate of return of 20-25% from their investments," said Ashutosh Maheshvari, managing director and chief executive officer, Motilal Oswal Investment Advisors Pvt. Ltd.

Companies that have filed applications with Sebi include Odisha-based Ortel Communications Ltd, which is backed by Asia-focused private equity fund New Silk Route Partners (NSR).

NSR-PE Mauritius Llc acquired 33.58% of the regional cable television and high speed broadband services provider in September 2008 for 60 crore and has offered to sell its entire stake in the firm, as per its draft prospectus. Kotak Mahindra Capital Ltd is the sole arranger to the issue.

Ortel Communications is likely to raise 300 crore from the IPO. NSR will exit its entire stake as part of the offering for 175 crore, which is over 2.5 times its original investment, said a person familiar with the development.

An NSR spokesperson declined to comment on portfolio-specific company decisions.

Another company in the process of listing is Hyderabad-based Power Mech Projects Ltd, which is engaged in installing, testing and commissioning boilers, turbines and generators at power plants.

The company raised growth capital of 40 crore from Motilal Oswal Private Equity (MOPE) fund’s maiden domestic fund, called India Business Excellence Fund-I, in December 2009 in return for a nearly 17% stake. The company is looking to raise 320 crore, said S. Kishore Babu, chairman and managing director of Power Mech Projects.

“The company will raise 150 crore as growth capital and to build a workshop and rest of the capital will be used to provide exit to our investor," said Babu.

MOPE will exit its investment in the firm after a span of nearly five years, by pocketing return multiple of over four times.

Samara Capital-backed Monte Carlo Fashions Ltd and Adlabs Entertainment Ltd, in which ICICI Ventures’ India Advantage Fund has invested, are other PE-backed firms looking at IPOs.

Samara Capital, which invested 175 crore in Monte Carlo Fashions in June 2012, will hold a 9.04% stake in the company after the IPO, compared with 18.51% at present, according to the draft red herring prospectus submitted to Sebi.

ICICI Ventures, which invested 144 crore in Adlabs Entertainment in August last year, will not exit its holding as part of the IPO..

CL Educate Ltd, which operates the education services company Career Launcher, will file its papers with the markets regulator on 30 September, said a banker familiar with the development. The company, backed by Gaja Capital Partners, Edelweiss Financial Services Ltd, Granite Hill India Opportunities Fund and IIFL Alternate Advisors, is looking to raise 300 crore and part of the capital will be used to give an exit to its investors, the banker added.

An email sent to CL Educate was unanswered. A Gaja Capital spokesperson said it was not in a position to comment for this story.

“In the last 10 years, around $8-10 billion of capital has been invested by private equity funds in the country every year and thus there are a lot of companies which are now backed by these funds," said S. Subramanian, managing director, investment banking, at Axis Capital Ltd.

“Even though these investments have matured, there haven’t been significant exits during last few years, so most of the exits are now being initiated through IPO market," he added.

PE firms looking to raise a new fund may also need exits from existing portfolio companies to attract investors, said Kalpana Jain, a senior director at Deloitte Touche Tohmatsu India.

“Most of the funds are looking to exit their portfolio companies and return capital to their investors and raise a new fund. Limited partners are very cautious in their approach and they want to see returns before they commit further capital," said Jain.

Limited partners are investors who provide capital to private equity funds.

According to the managing director of one of the companies listed above, who declined to be named, the IPOs are being driven by investors rather than promoters.

“We have filed our papers to give exit to our existing investor and very little portion will be sold off by the company to raise growth capital. It is more to give an exit to the existing private equity fund who had come in a few years back and want to return capital to their limited partners," he said.

As such, two of the recently concluded public offerings have also been from companies backed by prominent PE investors.

Henderson Equity Partners-backed Sharda CropChem Ltd recently closed its IPO, which was over-subscribed 59 times. The fund invested 100 crore to acquire a 15.87% stake in the crop protection chemical company in 2008.

The fund will fully exit its investment at a valuation of 206.22-223.39 crore, depending on the final price at which shares are allocated. The company offered its shares in the price range of 144-156 per share.

Norwest Venture Partners and International Finance Corporation-backed cold chain unit Snowman Logistics Ltd also raised 197 crore from the capital markets this month. Neither fund has exited as part of the IPO.

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Published: 17 Sep 2014, 12:19 AM IST
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