PE funds focus on realty, infra

Sectors with cheap valuations are on the radar of most private equity funds, most of whom are flush with funds. Owing to the market slowdown in the first half of the year, most PE funds did not deploy cash. Deals clinched in the last few weeks indicate that PE funds are targeting real estate, education and infrastructure companies.

 

Recently, Bahrain’s TAIB Bank acquired a 26 per cent stake in Anant Raj Industries. Lightspeed Ventures and Sequoia Capital invested $18 million (Rs 76.3 crore) in Tutorvista.com, followed by JP Morgan, which has picked up a 33 per cent stake in Alok Infrastructure’s Special Purpose Vehicle.

 

“Real estate, as a sector, has corrected a lot and probably we could see some more correction but there is no dearth of demand. Price has now become attractive for some of the good companies in the sector. One will see lots of deals going forward,” said the country head of an international PE fund. The Bombay Stock Exchange’s Realty Index has crashed more than 60 per cent this year from its peak of 13,848 as on January 8, 2008.

 

Promoters too, as the PE funds say, are coming to terms with the reality. The lag effect is showing and the PE funds have realised that they cannot make aggressive projections way ahead of fundamentals.

 

When the markets were in doldrums a few months ago, some of the deals were called off. Indivision Partners scrapped a deal with Dish TV. Similarly, Citi Venture Capital and AIG called off the Rs 1500 crore deal with Akruti City citing market conditions and delay in getting government approvals.

 

Some of the larger funds such as Citigroup Venture Capital, Sequoia, Baring Partners and Actis, which raised money last year, are now deploying the corpus as the markets have stabilised a bit now. With the US and European markets taking a beating, PE funds have once again increased their expectations with India and China.

 

C G Srividya, partner, Grant Thornton, said, “We expect much more stability in the second half of 2008. Key focus will be on sectors such as pharma and healthcare, telecom, real estate and energy and power.”