IDFC PE, UTI Ventures buy stakes in cables company

IDFC PE, UTI Ventures buy stakes in cables company

Mumbai: Private equity funds IDFC Private Equity Co. Ltd (IDFC PE) and UTI Ventures have acquired substantial stakes in Deepak Cables (India) Ltd, a Bangalore-based unlisted manufacturer of aluminium conductor wires, for some Rs285 crore, two bankers familiar with the transaction said.

IDFC PE invested Rs200 crore from its $700 million (about Rs3,353 crore) IDFC Fund-III, Satish Mandhana, managing director of the fund, confirmed. UTI Ventures invested the remaining, he added. Both funds have acquired stakes from the promoter and managing director of Deepak Cables K. Venkateshwara Rao and his family.

People familiar with the transaction said the two funds have acquired nearly 26% stake in the firm, which has had annual sales of Rs760 crore and which had set up its first aluminium conductor unit in Tumkur, Karnataka, in 1985 with an investment of Rs20 lakh. Later, the cable maker added a unit to make wire rods in Puducherry.

Rao said the equity infusion will allow his firm to bid for larger contracts to build operate, own and manage high-tension aluminium cables from state-owned Power Grid Corp. of India Ltd, or PGCIL, the nodal company to build transmission and distribution lines. The firm can now bid for projects up to Rs600 crore from the current Rs125 crore.

The cable maker said it has an order book of at least Rs1,000 crore in the year ended March and was the lowest bidder for a Rs600 crore project from PGCIL in Maharashtra, Karnataka and Punjab.

The company, founded by Rao’s father, K. Surya Rao, as an aluminium conductor maker, expanded its business to build transmission lines, mainly in Karnataka where it won orders to replace the old transmission lines with new ones.

In India, only half the money typically invested in generation is invested in transmission and distribution, while equal amounts are invested in developed countries, said Mandhana of IDFC PE, explaining the rationale behind the investment. Asked about the timing of the investment in the midst of a severe economic and investment slowdown, Rao said. “We always bid on variable costs where the upside or downside of the contract is passed on to the customer." Added Mandhana: “We have not made any changes in the valuation of the company due to (the) slowdown."

Bangalore-based O3 Capital was the exclusive adviser in the transaction with negotiations under way since July.

Deepak Cables is a small player in the transmission lines business, where it is dwarfed by the likes of Kalpataru, Jyothi Structures and KEC International, which collectively have a market share of around 70%. IDFC PE has been an active investor in energy business and its investments include stakes in units of Suzlon Energy Ltd and Moser Baer India Ltd.