Private equity, venture financing on back burner in Gujarat

Import sensitive and crude oil-based sectors face tough time, put investment plans on hold

Gloominess in the economy seems to have surrounded private equity investment and venture financing activity in Gujarat as most players have put their investment plans on hold.

The sectors that have crude oil-based operations and have large dependence on imported raw materials, are among the worst-affected ones mainly due to volatility in crude oil prices and instable currency.

"Investors are cautious at present. There are rapid changes in the dynamics in global and domestic economy. A PE investor would look for long-term stable growth. Valuations for investments are reasonable at present but investors staying away to venture into at least for now," said Ashesh Shah, managing director, Trans-Continental Capital Advisors - a Mumbai-based financial advisory firm.

 

International crude oil prices remained volatile during past one year. In June 2011, Brent Crude was quoted at US $ 111.68 per barrel, which surged to US $ 126.65 in February 2012. The prices started falling from April onwards and remained in the range of US $ 96-97 a barrel recently.

Also, Indian rupee stood weaker against US greenback during the first half of the calendar year. Rupee quoted at Rs 49.45 a dollar on January 31, 2012. Rupee depreciated heavily and touched Rs 56.11 a dollar on May 31, 2012.

"There is a major impact on investments coming from overseas. The fiscal 2011-12 gave a poor performance for PE industry, while 2012-13 has started on a dull note. Currently, most of the players are into wait-and-watch mode as lot of confusion prevails on several key policy decisions by the government. Once the dust settles down, we can see things improving," said Ritesh Adatiya, associate director, corporate finance advisory, BDO Consulting Private Ltd - a member of BDO International Ltd in UK.

"Also, rating agencies have started hampering investment mood in India. Weak rating to India would raise doubts about profitability and stability in the country," said Adatiya.

Gujarat Venture Finance Limited - a state sponsored firm for venture financing has also feeling the heat. The company had floated a Golden Gujarat Growth Fund of Rs 1000 crore with one of its focus areas on clean energy projects. However, the company has made a little progress on funding amid gloomy economic conditions, informed sources.

But there seems a silver lining amid this gloomy condition. Sectors such as services, IT and hospitality have emerged strong enough to withstand the economic weakness.

According to market players in Gujarat, about 2-3 deals in the hospitality sector are in the pipeline and may be valuing approx Rs 2-3 crore. Meanwhile, a couple of deals valuing in the range of Rs 60-120 crore is in the pipeline mainly in the field of consumer durables and technology, sources informed.

"There is plenty of capital with investors. And the demand is also quite robust. But due to several factors, the decision making has become cautious," informed Shah of Trans-Continental.