Bangalore: With more than one-third of market capitalization of India’s stocks eroding since January, the time would seem ideal for the private equity, or PE, business. Valuation expectations at both listed and private firms are more realistic today than ever, prompting large Indian business groups and professional PE managers to set up new funds.
But a set of PE wannabes with backgrounds ranging from real estate to retail have put on hold their ambitions to enter the investment fund business. In the current market situation, raising money from investors either in India or overseas, who together contribute around two-thirds of the typical fund’s corpus, has turned difficult for these firms, experts say.
Rough weather: P.S. Saminathan (left), chairman and managing director of Pyramid Saimira, and Rajiv Talwar, group executive director of DLF Ltd. Both firms have put their PE plans on hold. (Harikrishna Katragadda / Mint)
The promoters of New-Delhi based Vishal Retail Ltd, which runs around 90 hypermarkets (large-size multi-product stores) and speciality stores across the country, have postponed their plans of floating a PE fund by at least a year. “We do not have any plans of that now due to the market conditions. It is not conducive anymore,” says Manmohan Agarwal, chief executive of corporate affairs at Vishal Retail. Earlier this year, chairman Ram Chandra Agarwal had announced that a consumer-focussed investment fund would be launched by the company in 2008, with a corpus of at least Rs200 crore.
The Pyramid Saimira Group of Chennai has also postponed its plan to launch funds, citing market conditions. The largest distributor of films in India had planned to float two film-focussed PE funds. “We will launch the funds once (the) market stabilizes, which we expect to happen in next three months time,” says P.S. Saminathan, chairman and managing director, Pyramid Saimira.
The country’s largest real estate developer DLF Ltd, which was earlier reported to be coming out with three PE funds, says it is still “thinking about it”, according to Rajiv Talwar, group executive director. The company says it has no immediate plans of an investment fund, and will focus on its core realty business. It is not the best time for a small and new entrant into the PE space, “though big players can still continue with their plan, owing to their reputation and treasury,” says Srini Vudayagiri, managing director, Lightspeed Advisory Services India.
Meanwhile, there are companies that are going ahead with their PE fund plans. Chennai-based TVS Group and Shriram Group are the latest entrants. Last month, the two launched TVS Capital Funds Ltd, a Rs500 crore PE fund, which focuses on mid-cap firms in health care, education, hospitality, specialty retail and other sectors.
The company says it floated the fund in a downturn as it aims to use the market’s southward journey for building its portfolio of investments as equity has become cheaper. “We see a lot of entrepreneurs in the tier II and III cities. They have good market share in their regions but do not have the expertise or a management team to promote them to be pan-Indian player,” says Suresh Raju, executive director, TVS Capital Funds. Raju says as the fund is based out of Chennai, the team would have easier access to the entrepreneurs in that region.
Since 2007, as many as six big business houses have floated their own funds. These include Future Group’s Future Ventures India Ltd; A V Birla Group’s TGS Investment and Trade Pvt. Ltd; TV 18 Group backed the Indian Film Co., a film investment firm that raised $110 million (Rs475 crore); and Ranbaxy Laboratories Ltd backed Religare Enterprises, and film production house Vistaar Entertainment Ventures, which launched the country’s first regulated film fund. Others include Tata Capital Ltd, which plans to launch PE funds of $200 to 300 million, each focusing on different sectors.