Consumer, finance stocks come to rescue of PE giants

At a time when global private equity investors are struggling to exit from their investments in India, the sectors like consumer and finance remain attractive with providing multiple returns.

Last 6 months in 2013 have seen leading open market exits such as Apax - Apollo Hospitals, Warburg Pincus- Havells and TPG- Shriram Transport with reaping 2-6 times return on their previous investments.  

Till June 2013, 68 PE / VC exits worth $1.6 billion have been taken place, where open market exits took the lead with 24 exits worth $1.2 billion.

Sanjeev Krishan, Leader, Private Equity, PwC, said, "Most of the large exits have been made through the public markets, which have been fairly buoyant over the last six to eight months. It is also pertinent to note that in all cases, the promoters are of high pedigree with a very consistent track record, which is a key determinant for Private Equity investors today."

The month of February and May, when part exits by Apax, TPG and Warburg took place, saw total exits worth $838 million and $459 million, while March and April saw exits worth mere $21 and $25 respectively.  

Apax Partners had offloaded its entire stake in Apollo Hospitals in the largest open market exits in 2013. By offloading 19% stake for Rs 2,240 crore in 2 tranche in February and May, Apax reaped more than 3 times return on its investment in Apollo Hospitals. It had acquired 11% stake in Apollo for $100 million in 2007, which was increased by later.

Shashank Singh, MD and head, Apax Partners India, said, "Various sectors linking to consumer segments - healthcare, financial services in India offer significant PE opportunity, driven by under-penetration of product & services and a rapidly growing Indian middle class with increasing aspirations."

In May, TPG Capital had exited Shriram Transport by selling off 10% stake to Piramal Enterprises for Rs 1,652 crore ($307 million). In February also, TPG had sold another 9.9% of its 20.28% stake in the Chennai-based financing company for Rs 1,660 crore. Through these total exit, TPG had bagged about 6 times return on its 8-year old investment. TPG's arm - Newbridge fund invested $100 million for a 49% stake in Shriram Holdings (Madras) in 2005.  

Sanjeev Krishan added, "It is also true that consumer and consumer related businesses like healthcare have been the best bets for PE funds, and they continue to get premium valuations - one of the reasons has been the lack of returns from alternative segments like capital goods and infrastructure. This means that fresh investments in the consumer segments continue to be with higher multiples, which on the flip side help those funds looking to exit their pre 2008 investments."

Another large deal in consumer sector was the complete exit by Warburg Pincus in electrical equipment maker Havells. With selling 8.5% stake in the market for Rs 730 crore ($130 million), Warburg gained about 2 times return on its investment. In February, Warburg had offloaded 5.5% stake in Havells India for over Rs 455 crore. Warburg had paid about Rs 680 crore for 15% of the company.

Apart from bringing a higher return, the long-term relationships with PE had helped the companies to grow even in adverse time.
"The PE investors are also stuck with the investees for a long time. TPG and the Shriram have had a very long and wider association, likewise Warburg Pincus stuck to Havells even during the time they were struggling with Sylvania - this helps in building trust and that plays a very important role in a PE - investee relationship," another PE veteran said on condition of anonymity.

In 2007, Havells India had acquired SLI Sylvania of the Netherlands for $300 million in cash, in the largest foreign acquisition by an Indian company in the electrical industry during last decade. However, the decision was proved wrong as Sylvania ran into losses after the acquisition due to the lack of integration.