Bangalore: Investor Kalpathi Suresh, founder of SSI Ltd, who sold 51% stake in the information technology training firm to PVP Global for $140 million (Rs646.8 crore now) in 2007, is no stranger to scripting big-ticket exits.
This time, aided by investor appetite for well-managed microfinance assets, Suresh has netted around 12 times of the returns in just about two years by selling his stake in Chennai-based Equitas Micro Finance India Pvt. Ltd to Sequoia Capital.
On 23 January, the Equitas board ratified the sale of 10% stake held by Kalpathi Investments, an investment unit owned by Suresh, to Sequoia in a secondary transaction valued at Rs44 crore. Suresh had invested Rs3.5 crore in Equitas in 2007-08, without any management rights or board seat. Sequoia appears to have agreed to a deal without significantly altering the contours of the original investment.
This will be Sequoia’s third investment in India’s microfinance space in less than three years. In March 2007, it invested $11.5 million in the country’s largest microfinance firm, SKS Microfinance, opening up a new deal pipeline for private equity funds which have poured in around $220 million into the sector since then. Sequoia also invested in Ujjivan, a Bangalore-based microfinance institution, in late 2008.
Mape Advisory Group arranged the sale for Kalpathi Investments. The central bank approval for the transaction came in December after Sequoia struck an initial agreement to purchase the stake in October. Incidentally, Equitas is also raising fresh funds and the latest transaction could provide a valuation benchmark for it.
“The deal was signed within three months of initiation and generated strong investor interest despite being a secondary share sale,” said Akshay Dixit, vice-president, Mape Advisory Group. “The very successful exit by a minority investor continues to demonstrate investor interest in well-operated MFIs (microfinance institutions).”
Kalpathi will retain a token 0.5% stake in Equitas.
Equitas started operations in December 2007, and has since grown to 98 branches. The company has disbursed Rs600 crore till September. Equitas had around 575,000 borrowers and a portfolio outstanding—based on assets under management—of Rs430 crore in the half-year-ended September. It reported a profit after tax of Rs10.4 crore on an income of Rs51 crore during the same six-month period. The company had reported a profit after tax of Rs2.2 crore on an income of Rs34.9 crore for the fiscal ended 31 March.
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