Home / Industry / 2015 sees highest-ever private equity investments in India

Mumbai: India was the top destination for private equity (PE) and venture capital (VC) investors in 2015.

The country received a record $22.4 billion in investments last year, 31.8% more than the previous highest of $17 billion in 2007, according to a report by Bain & Co. India Pvt. Ltd. The 2015 deal value marked a 47% increase over the $15.2 billion India received in 2014.

Consumer technology, real estate and banking, financial services and insurance top the sectors that attracted investors, accounting for 65% of deal value. Investments in consumer tech grew 46% to $6.9 billion.

Deals in banking, financial services and insurance (BFSI) doubled to $3.7 billion in 2015. The value of real estate deals increased 74% to $3.9 billion in the year.

India’s attraction as an investment destination has been burnished by the future potential of the world’s fastest growing major economy, although the country is grappling with its share of problems, including wide-spread rural distress after two back-to-back droughts, conglomerates weighed down by debt and banks laden with bad loans.

“India has the fundamentals—large population that is young with rising incomes, increasingly online and consuming more—that make it one of the most interesting countries to invest in participatory if you have a long-term investment horizon and appetite. The investors we work with understand that long-term outlook has to be balanced with the potential for volatility and risk that we see today in areas like NPAs (non-performing assets) in the financial sector, rural distress and lacklustre recent monsoons," said Arpan Sheth, head of Bain and Co.’s PE consulting practice in India.

Top deals in 2015 included an investment of $700 million in Flipkart, India’s biggest e-commerce company, by Tiger Global Management and Steadview Capital Management, and a $635 million investment by Alibaba and SAIF Partners in Paytm.

A clutch of investors including Falcon Edge Capital, Tiger Global, SoftBank Group and DST Global invested $500 million last year in ANI Technologies Pvt. Ltd, which runs Ola Cabs.

To be sure, investors have become more wary about investing in start-ups, including e-commerce firms, and deals are taking longer to close, in a slowdown that started in the middle of last year.

Apart from demanding that start-ups slow expansion, slash costs and cut discounts, many investors are setting performance milestones; some investors are only releasing funds in instalments, Mint reported on 15 January.

“Presently, valuations of e-commerce businesses are high and there are concerns that the growth rate of these business does not match with the current valuations. There are expectations that valuation will come down and hence investors are on a wait-and-watch mode," said Vikram Utamsingh, managing director at advisory firm Alvarez & Marsal India Pvt. Ltd.

On Friday, Morgan Stanley Institutional Fund Trust, a minority investor in Flipkart, disclosed a write-down in the value of its holdings in the company by as much as 27%. Morgan Stanley’s latest estimate implies the mutual fund now values Flipkart at $11 billion, down from the $15 billion it was valued at when it received the $700 million investment last year.

The top 10 deals together accounted for $4.6 billion, or 21% of total PE/venture capital investments in 2015.

The average deal size increased to $21 million, a 12% increase from 2014, said the Bain & Co. report.

The volume share of deals above $25 million increased to 17.4% in 2015 from 16.5% in the previous year, while the share of buyout transactions was barely changed from 2014.

The number of deals more than quintupled in the last 10 years, from 185 in 2005 to 1,047 in 2015.

Deals worth $100 million plus made up 5.7% of overall deals in 2015 against 4.1% in 2014.

Besides the investments in Flipkart and Paytm, top deals in 2015 included a $500-million investment in Snapdeal led by Softbank Group, Apax Partners’ $386 million investment in Shriram City Union Finance, Blackstone’s $384-million acquisition of business process outsourcing firm Serco India and a $316-million investment in the consumer division of Crompton Greaves by Temasek Holdings Pte Ltd and Advent International. According to the report, exit values have risen 57% to $9.4 billion.

Public market sales continue to be the preferred exit mode for PE firms, although exit value from secondary or strategic exits increased, the report said. The top 10 exits together constituted 43% of the total exit value in 2015.

“Large strategic buyouts in sectors such as BFSI, IT& ITES and healthcare kept these sectors attractive for investors in the past few years," Sheth of Bain & Co. added.

IT& ITES is short for information technology (IT) and IT-enabled services.

The number of exits in the BFSI sector more than tripled; exits in IT& ITES increased 68% and in healthcare 86%.

Apax Partners sold its stake in iGate Corp. for $1.1 billion to Capgemini in April. In BFSI, a clutch of investors including Citi Venture Capital International, Baring Asia Private Equity Fund and Samara Capital Partners sold their stake in broking firm Sharekhan Ltd to BNP Paribas SA.

In a secondary sale, TPG Capital Inc. sold its stake in Shriram City Union Finance to Apax Partners in a deal worth $386 million.

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