Transcript The Indian Private Equity Opportunity

The Indian Private Equity
opportunity
April 2008
Private & confidential
The Indian Private Equity opportunity
Overview of
ICICI Group
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One of India’s pre-eminent financial institutions
Relationships with a broad range of corporates across all sectors
One of the largest India-focused private equity funds
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Second fastest growing major economy in the world, projected to grow at
8% p.a. until 2020
Projected to be 2nd largest global economy by 2050
Favourable demographics, consistent policy decisions and domestic
consumption driven economy
India’s Growth
Potential
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Development
of Private
Equity in India
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Private & confidential
Private equity investment in India has increased 28x fold from 2003-2007
In 2007, US$14.2 billion of private equity transactions were completed
Increased diversification by both industry and types of investment
Overview of ICICI Group
Overview of
ICICI Bank
Development of
Private Equity
in India
Private & confidential
India’s Growth
Potential
One of India’s pre-eminent financial
institutions
ICICI Bank Ltd
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Largest private sector bank in India
First Indian company listed on the NYSE
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$22 billion market cap¹
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Listed in Forbes Asia’s “50 Fab Companies 2007”
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$94 billion of assets2
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Completed India’s largest equity issuance of US$4.3
billion
18 international locations
ICICI
Prudential
AMC
ICICI Ventures
ICICI Lombard
ICICI PRU Life
Insurance
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One of
India’s largest
PE firms
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India’s no.1
private life
insurer
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One of the
largest asset
managers
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AUM >
US$2bn
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AAA rated by
Fitch
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AUM of
US$17.6 bn2
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Completed
55+
transactions
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1. As at 24-March-2008.
2. As at 31-December-2007.
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One of the
largest
private sector
general
insurer
iAAA rated by
ICRA
ICICI
Securities
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Leading
equity
broking
house
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Leader in
fixed income
market
India’s growth potential
Overview of
ICICI Bank
Development of
Private Equity
in India
Private & confidential
India’s Growth
Potential
Indian economy : some statistics
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India is one of only 3 countries in the world to have built its own
supercomputer
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11 out of every 12 diamonds in the world are polished in India
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One of every 6 motorbikes in the world is manufactured in India
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220 of the Fortune 500 companies source software from India
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India is one of only 6 countries in the world to have satellite launch
capabilities
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One out of every 10 new mobile phone users in the world is an Indian
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India has the largest film industry in the world
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India has one of the largest television networks in the world, with over
300 channels and 500 million TV viewers
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50 percent of the world’s tea is produced in India
Source : Economic Survey, Ministry of Agriculture, Government of India, report by
investment commission of India
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2nd largest economy in the world by
2050
India GDP (US$ billions)2
Actual
Estimate / Forecast
CAGR: 17.4%
1,632
1,404
CAGR: 14.9%
1,183
603
2003
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694
2004
805
2005
915
2006
2008
2009
Indian GDP grew at an average of 14.9% p.a. in US$ terms in the 3 years to 2006. (8.6% in real terms) 2
Projected to grow at 8% p.a. in real terms until 20201
India’s GDP (US$ terms) expected to surpass that of the US by 2050 1
1. Source: Goldman Sachs Research “India’s Rising Growth Potential”, Jan-2007.
2. Source: Goldman Sachs Economic Research.
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2007
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Key growth drivers
• Requirement of US$475 billion of infrastructure investments from 2007 to 2012
Infrastructure
Investment1
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40% to be funded by private investors
• Policy initiatives to attract investments in core infrastructure projects related to power,
transportation, etc
Large
Population
• Large young population (46% between the age group of 20-40) driving consumption
• Underleveraged economy with consumer Loan/GDP ratio at 8% as compared to 50%
plus in developed markets
• Indian consumer spending projected to grow from US$425 billion to USD$1.8 trillion
by 2025
• Real estate still an under owned asset class with mortgage/GDP ratio at approximately
5% compared to 50% for developed countries
Globalisation3
• Sustainable competitive advantage in outsourcing - IT/ITES projected to grow at circa
19% per annum until 2011
• Knowledge driven businesses such as design activities and KPO moving up the value
chain
• Cross border M&A activities to give a more global outlook
1. Source: Smith Barner Research,Goldman Sachs and planning commission
2. Source: [FICCCI], Min of External Affairs., Mckinsey Report: The Bird of Gold-The Rise of India’s Consumer Market
3. Source: ‘Asia Pacific IT Services Market and Forecast, 2006-2011’ report by Springboard Research
4. Source : FICCI- E&Y study
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Beneficial backdrop for growth
The Regulatory Framework
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Strong and proactive regulators –
RBI/SEBI
India complies with BIS 26 norms of best
practices for supervisory criteria, country
risk and convertibility
Gross NPAs lower than those of
comparable nations
Liquid and deep financial markets
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Pro Growth Policies
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Liberal FDI policies across major sectors
Forex reserves can be used for
infrastructure projects
Mature political economy with
development as its core agenda
Source: IMD would competitiveness report to 2005
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Integrated financial markets
Increasing stability and breadth of the
public markets
Advanced settlement systems
Government focus on reforms
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The Banking Regulation Act to be
considered for amendments
Labor and legal reforms to be taken up
proactively
External sector reforms roadmap in line
with WTO agreements
Key risks
Policy
• General Elections: Populists measures may take its toll on fiscal discipline
• Continuance of the structural and fiscal reforms agenda
• Adequate attention to Infrastructure to support 8% GDP growth –
requirement to develop a vibrant debt market
• Adequate investments in developing talent pool to meet the rising
demand
Global
• High Energy Prices: Oil imports constitute more than 40% of India’s total
imports
• Stronger Currency: Adverse impact on exports
Inflation
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• Latest figure of 5.9% is above the 4.5%-5% target of the RBI
• Monsoons: Agriculture economy is exposed to this annual risk factor
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Development of Private Equity in
India
Overview of
ICICI Bank
Development of
Private Equity
in India
Private & confidential
India’s Growth
Potential
Growth of asset class
Value and Number of Number of Deals
387
302
146
US$14.2bln
US$7.4bln
67
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US$2.2bln
US$0.5bln
US$1.1bln
2003
2004
2005
2006
2007
• Number of deals increased 10 fold since 2003; value of deals increased 28 fold to US$ 14.2 billion
• Total private equity investments expected to be $20 billion by 2010
Source: Venture Intelligence
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Top Private Equity destination in Asia
Annual Growth in Private Equity Investments (1998-2007)
72%
52%
43%
24%
10%
India
Australia/ NZ
Greater China
South Korea
• From 1998 – 2007,
India was
Australia/NZ
25% the fastest growing private equity market in Asia
• In 2007, India was the largest market for private equity investments in Asia (ex. Australia)
Source: Thomson Financial, AVCJ, Venture Intelligence
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Japan
Uptick in ticket size in sync with
valuation
India – Average Deal Size
Average Deal Size (2007)
$47m
$227m
$25m
$22m
$97m
$15m
$11m
$47m
Malaysia
Korea
India
$37m
China (Incl.
Hong Kong)
Source: Thomson Financial, AVCJ, Venture Intelligence
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2003
2004
2005
2006
2007
Increasing diversification across
industry
2003
2007
Other
35%
Number of
Deals
I.T. &
ITES
24%
Other
33.1%
I.T. &
ITES
59%
Financial
Svcs. 3%
Medical &
Health 7%
Manufacturing
16%
Energy & Contr. 8%
Financial Svcs. 13%
Manufacturing
3%
I.T. & ITES
7%
Manufact.
12%
I.T. &
ITES
31%
Value of
Deals
Other
68%
Manufacturing 0.1%
Source: Venture Intelligence.
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Other
39%
Financial
Svcs.
1.0%
Medical &
Health 3%
Energy & Contr. 11%
Financial
Svcs. 28%
• Proportion of
“nonInformation
Technology”
deals has risen
from 19% in
2003 to 76% in
2007
• Growth in
investment into
Manufacturing,
Financial
Services and
Medical and
Health
Growth Across Segments
2003
2007
Other¹ 4%
Buy Out 2%
Buy Out 5%
PIPE 11%
VC 24%
PIPE 19%
Number of
Deals
VC 47%
Growth/
Expansion
37%
Growth/
Expansion 51%
Buy Out
16%
Other¹ 14%
VC 28%
Value of
Deals
PIPE
36%
1. Includes infrastructure
Source: Venture Intelligence
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Growth/
Expansion
19%
Buy Out
5%
PIPE
30%
VC 4%
Growth/
Expansion
48%
• Most significant
investment
currently in
growth /
expansion
segments
• PIPE deals
form a
significant
portion
Evolving exit routes
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Transaction
value of PE
exits
Number of
IPO exits
Largest Exits
Other¹
Other¹
IPOs
IPOs
Other¹
IPOs
2005
2006
2007
$3.3bn
$0.5bn
$1.5bn
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16
Warburg Pincus
from Bharti Tele
CVC from
Suzlon energy
By Actis, CVC
from Daksh eservices
1. Source : Venture Intelligence
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Key differences to “Western” private
equity model
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Limited use of leverage
– Most Indian banks unwilling to provide “cash flow based” financing
– Ability to achieve attractive returns without gearing
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Limited buy-out activity
– Many companies are family owned
– Shareholders reluctant to give up a control of their fast-growing
companies
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Focus on making minority investments (10-20%) by providing growth/
expansion capital
– Typically provides private equity investors with board seats and veto /
blocking rights
– Significant PIPE activity in the Indian Private Equity market
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Current dilemma facing investors
Current PE Market…
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Very rapid expansion in number
of India-focused funds
– Risen from 8 in 1995, to
300+ in 2007
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…Investor Dilemma
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Evaluating managers without
track records
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Selecting funds from a broad
universe
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Gaining access to the best funds
Large number of “first time” funds
– ~15 India-dedicated private
equity funds with at least one
fund vintage
Rationale for Fund of Funds Product
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Thank You
Amit Ratanpal
email:[email protected]
Mobile: +91-9820039025
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