PEs seek to encash stake as Sensex nears record high

Seven PE-backed companies file draft red-herring prospectus with Sebi; value of exits through IPOs crosses Rs 6,200 cr this year.

Private equity (PE) investors could get a bountiful return on their investments as their companies prepare to sell shares in a stock market high on investments from abroad.

About seven PE-backed companies have filed draft red-herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi). PE funds from Morgan Stanley, Sequoia Capital India, Sandstone Capital, Madison India, Stanchart PE and Kotak PE could get an option to exit their investments at a good premium. These companies include Micromax Informatics, Muthoot Finance, Oberoi Realty, Ind-Barath Power Infra and Va Tech Wabag.

Issues of PE-backed companies have seen good demand from the capital market. The total value of exits through initial public offers (IPOs) has crossed $1.4 billion (Rs 6,200 crore) in the first nine months of this year, against $1.3 billion in calendar year 2009, according to data by Venture Intelligence.

What has given general partners the confidence to tap the market is that recently-listed firms are trading above their issue prices. Since most deals happened in 2006-07 and PE firms stay invested for four to five years, they could be looking to exit.

“The markets have rallied so much and no one is sure as to how long they will sustain. PEs are looking to tap the public market. They are getting confidence from the fact that most PE-backed issues are sailing through,” said Jagannathan Thunuguntla, head (equity), SMC Capital. He expects the value of exits through IPOs to touch $2 billion this year.

SKS Microfinance’s shares — which got listed at Rs 1,036 on the Bombay Stock Exchange (BSE) — closed at Rs 1,139.60 on Tuesday. With an above 20 per cent stake, PE firm Sequoia Capital is the largest shareholder in the microfinance firm. Similarly, Career Point Infosystems, listed at Rs 461, closed at Rs 504.90 on BSE on Tuesday.

Seventeen PE-backed companies got listed in the first nine months of the current calendar year, compared to just three in the same period last year. The major IPOs include those of SKS Microfinance (Sequoia Capital India), Meru Networks (JumpStartUp), MakeMytrip.com (Helion Ventures, Sierra Ventures), Tecpro Systems (Avigo Capital) and Career Point Infosystems (Volrado Ventures, Franklin Templeton PE).

Jubiliant Foodworks is trading at Rs 504.55 against a listing price of Rs 161.60. Parabolic Drugs is the only PE-backed company trading below (25 per cent below) its sale price.