This JPMorgan veteran says foreign firms should explore listing their Indian arms

“If you look at the valuation in India and the home country where the company (with a significant presence in India) operates, it’s safe to say that they should be evaluating options to list their subsidiary in the Indian market and take advantage of the valuations here," Anu Aiyengar, global head of advisory and mergers & acquisitions at JPMorgan, told Mint.

India’s valuations are at a premium to that of its emerging market peers. The benchmark Nifty 50 is trading at 23.12 times its earnings compared with 16.3x for MSCI EM Index.

India saw its largest $3.3-billion initial public offering (IPO) when Korean automaker Hyundai Motor Co. listed its local subsidiary in one of the most highly anticipated offerings—the transaction was managed by JPMorgan. Fellow Korean company LG Electronics is also planning an IPO of its Indian arm. Moneycontrol reported last week that Danish multinational brewer Carlsberg A/S is also exploring taking its domestic arm public.

The market regulator this month approved the IPO of Norwegian firm Orkla’s Indian subsidiary that owns food brands like MTR Foods and Eastern Condiments.

The growth outlook and the global appetite to make investments in India are at an all-time high, said Aiyengar, a 26-year JPMorgan veteran who has advised on more than $1 trillion worth of transactions, including LVMH’s acquisition of Tiffany, Allergan’s sale to AbbVie and Rio Tinto’s acquisition of Arcadium Lithium.

“The equity markets have performed well with healthy fund flows, and the overall sentiment has been very positive. We’ve got one of our most robust pipelines for IPOs in the Indian capital markets," said Aiyengar.

In addition to Hyundai’s offer, JPMorgan has managed public offers of Hexaware Technologies Ltd ($1 billion), Vishal Mega Mart ($1 billion) and Swiggy ($1.3 billion) in recent years.

PEs lining up for exits

“Private equity firms have also raised large amounts of capital with the intent of investing in India, alongside Japan and Korea being other areas of interest," Aiyengar said. Last year, India-focused private equity firm Kedaara Capital announced its largest fund at $1.7 billion, while ChrysCapital also raised a $2.2 billion buyout fund this year.

“The regulatory environment has become more favourable for investors to consider India as an investment destination. As they evaluate areas they want to invest in, India and Japan have a higher weightage today," she said. According to her, key sectors like technology, energy transition, infrastructure and healthcare are attracting global capital.

Investors are encouraged by the multitude of exit options that are available in the country. “They (investors) can credibly monetize and exit their stake by taking the company public or selling it to a strategic as the larger companies are also trading at pretty healthy multiples and have the confidence to do M&As."

Strategics are larger companies that are open to making acquisitions.

In India, JPMorgan has advised on Schneider Electric’s acquisition of the remaining 35% stake worth €5.5bn acquisition in its Indian joint venture from Temasek, Capgemini’s $3.6 billion buyout of WNS, Sumitomo Mitsui Banking Corp.’s 20% stake purchase worth $1.6 billion in Yes Bank and EQT’s sale of AGS Health to Blackstone.

Additionally, continuation vehicles or similar secondary exit structures have also become an established part of exiting a business in India. “Similar to IPOs or a 100% sale, investors are also looking at continuation funds and every variation of that in the same continuum. There are various ways to structure these vehicles, which makes your exit alternatives richer than they were in the past as the number of assets owned by private equity players has also increased tremendously in India," she said.

A continuation fund helps investors hold on to successful portfolio companies, or trophy assets, that need more time to reach their full potential beyond the fund cycle. Since a fund’s life cannot be in perpetuity, as instructed by regulators, continuation funds offer an effective exit route for their backers, also called limited partners.

Such sophisticated vehicles have been on the rise among venture capital and PE firms amid a broader liquidity crunch. Mint reported that several firms, including Kedaara, Multiples, ChrysCapital, IndiaQuotient, Kae Capital, Lightbox India Advisors and WestBridge Capital Management, are exploring such moves.

Secondary transactions are also gaining traction as several investors at the end of their fund’s lifecycle seek liquidity and gear up to exit companies they have been invested in for some time.

Aiyengar attributed it to the pent-up demand for exits that should have ideally happened earlier. “Typically, about 25% of private equity-owned companies should get monetized every year, but in 2023-24, only about 10% was liquidated. And that is what we are seeing play out now."