AIM-listed and India-focused private equity firm Elephant Capital has made additional investment to buy shares of the luxury hospitality firm EIH Ltd, which runs the Oberoi Group of hotels. Co-founded by Dabur Group’s Gaurav Burman, the PE firm has participated in the rights issue by EIH and committed another $2.7 million (Rs 12.1 crore). This move comes after Elephant Capital had made a part exit from the Oberoi Group more than two years ago, in what was its first liquidity event since its inception in 2007.
Elephant Capital had first invested in the luxury hotel chain operator in August, 2007, putting in $14.33 million (Rs 57.9 crore) for around 5.4 million shares purchased in the open market. In December, 2008, the firm sold 1.3 million shares for around $3.1 million (Rs 15.1 crore), with a realised profit of $0.44 million (Rs 2.5 crore translating into a return of around 16 per cent for those shares).
The private equity firm continued to hold around 4 million shares of EIH. It was entitled to 1.85 million shares under the rights issue and had fully subscribed it, taking its total invested (factoring out what it paid for the shares it sold in end 2008) amount to $14 million (Rs 56 crore). Elephant Capital’s stake in the company is unchanged at 1 per cent.
Elephant Capital’s additional investment is more of an averaging out strategy, as it needs to bring down the cost of acquisition of shares three-and-a-half years ago when the price per share was in the Rs 100-Rs 120 range. The private equity firm’s average cost of ownership is pegged around Rs 80-Rs 85 now, after subscribing to the rights issue at Rs 66 per share. It is sitting on unrealised loss of around 20 per cent.
The investment firm would not be betting on better returns as EIH now has a strong backing on Reliance Industries and with the rights issue, would be able to pare down debt and still have extra cash to boost its existing business.