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L to R: Vishal Mahadevia of Warburg Pincus India, Manish Kejriwal of Kedaara Capital, ChrysCapital’s Sanjay Kukreja, Paddy Sinha from Tata Opportunities Fund, Manav Bansal of Neev Fund and L Catterton Asia’s Sanjay Gujral during a panel discussion at VCCircle LP Summit 2018

Domestic capital can change dynamics of Indian PE industry: VCCircle LP Summit

20 February, 2018

Domestic investors are warming up to Indian private equity (PE) players, creating a new class of local limited partners (LPs), and this trend is likely to deepen private investments in the country, participants in a panel discussion at the VCCircle LP Summit said on Tuesday.

The two-day annual summit kicked off in Mumbai today with the who’s who of the alternative investment industry along with a packed audience comprising LPs, PE and VC fund managers (general partners or GPs), investment bankers and other rainmakers.

At the summit opener titled ‘Alternative Investments in India – A Fast Evolving Landscape’, Manav Bansal, chief investment officer at Neev Fund, which is co-sponsored by State Bank of India, said that PE players have virtually created industries such as renewable energy and new-age logistics companies.

“The bank now has a stated policy to explore alternative investment classes and is scouting for new investment vehicles in the future,” Bansal said.

The panellists said that the past decade had proved to be a defining period for PEs, with the availability of capital from mutual funds and insurance players significantly changing. They added that it was the duty of GPs to educate and strive to increase domestic flows into this asset class.

Vishal Mahadevia, managing director and India head at Warburg Pincus India, said the country was only discovered as an investment destination a little more than a decade ago.

“Since then PE investors have found success investing in the next generation of Indian entrepreneurs,” he said. “The PE industry in India is still relatively nascent and at an early innings. At Warburg Pincus, the question is how can we find ways to invest larger amounts in India behind highly talented management teams.”

The panel was moderated by Sanjay Gujral, regional managing director at L Catterton Asia, a global PE firm that is now reviving its India investment practice.

Gujral asked the panellists if the poor returns generated by Indian fund managers was the reason why there was an expectation mismatch with LPs.

The panellists felt the quality of returns depended on the vintage of LPs betting on particular funds. While the last ten years has been difficult on the whole, the returns in the most recent three-year period went up, they said.

Sanjay Kukreja, partner at ChrysCapital, one of the oldest home-grown PE firms, said that returns are a function of when investments are made.

He cited two examples including the most recent exit from US-based digital customer engagement firm LiquidHub.

“ChrysCapital recently closed the 65th exit in a $500 million deal to a large strategic investor,” he said.

Kukreja also referred to the story of Intas Pharmaceuticals, from backing it when the company was a regional player with a small revenue base to being a growth partner over the years in the company’s eventual success.

Intas is the most valued private Indian drugmaker. ChrysCapital had partially exited the company in two tranches hitting dream returns.

Meanwhile, the panellists also felt that the poor returns for LPs was also because of factors such as currency depreciation, but the same investments in rupee terms have been good.

“The LPs have been largely disappointed over the returns generated by GPs in the two decades of operation,” said Manish Kejriwal, managing partner at Kedaara Capital. “A part of the low return was due to currency volatility, inability to find right investment opportunity in the rush to invest the capital, which also led to GPs barely engaging with the companies on their growth plan.”

He added that Kedaara, which raised the largest sector agnostic conventional PE fund dedicated to India last year, specifically looks at investments with a pathway to an eventual exit.

However, the panellists also felt that investors need to look at the stable government, formalisation of the economy, and the entrepreneurial talent as an opportunity to be aggressive.

“The dynamics of the industry have changed in the last few years. LPs that made larger constribution in the 2007-10 [period] have been cautious of their returns from the market and would continue to be,” said Paddy Sinha, managing partner, Tata Opportunities Fund. “However, the availability of the domestic capital in the market is also making an impact.”

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Domestic capital can change dynamics of Indian PE industry: VCCircle LP Summit

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