PEs shift focus to sectors dependent on domestic market

Private equity (PE) investors are now diverting their attention to sectors such as energy, telecom, infrastructure, education, media and entertainment. Reason: these sectors are largely dependent on the domestic market and not foreign countries, especially the US market.

The total investment in these sectors has risen to $3,407 million (around Rs 16,600 crore) between January and September 2008 as compared to $1,371 million (around Rs 6,700 crore).

The energy sector led investments by attracting deals worth $1,570 million (around Rs 7,500 crore) between January and September 2008 as compared to $264 million (around Rs 1,260 crore) in the same period last year.

It is followed by telecom infrastructure with an investment of $834 million (around Rs 4,000 crore) as compared to $511 million (around Rs 2,450 crore), media & entertainment, with deals worth $504 million (around Rs 2,400 crore) as compared to $500 million and education sector which attracted investment worth $122 million (Rs 585 crore) as compared to $37 million (around Rs 170 crore).

PE investments in energy and telecom infrastructure sectors have seen robust growth in the last couple of months as they primarily cater to the domestic consumers and are not dependent on the US market, said Arun Natarajan, CEO, Venture Intelligence, a Chennai-based PE research firm, which compiled the investment figures.

In the energy sector, renewable and power equipments are fast emerging as attractive segments, Karthikeyan Ranganathan, head - investments, Baring Private Equity India told Business Standard. His company is planning to invest $1 billion in India, a chunk will go to the energy sector.

KPMG Infrastructure Advisory Group said in a report that India needs to double its generation capacity (currently around 135 GW) by 2015. Response has been encouraging with announcements of plans for addition of generation capacity of around 80 GW in the next 5-7 years, implying an equity capital requirement of around $20-25 billion (over Rs 96,000 crore). KPMG expects a 15-20 per cent of this requirement to come from PE firms.

According to Natarajan, the telecom infrastructure sector has attracted significant investment this year. Given that new operators are entering the market, the demand for services of third-party tower firms is likely to increase, he added.