AIM-listed and India-focused private equity firm Elephant Capital is exiting its minority investments in public-listed Indian firms – building materials company Nitco Tiles, Oberoi Hotels owner EIH Ltd and auto component firm Mahindra Forgings. All the three investments have been underwater, compared to the original investment amount, as are some other privately held firms in the portfolio of the PE investor.
Elephant Capital had invested around £13.1 million ($21 million or around Rs 100 crore) in these companies over a period of time, which was valued at £10.4 million ($16.5 million or Rs 81 crore) as of August 30, 2011. EIH Ltd and Nitco Tiles are currently trading below their respective share prices of August 31, 2011.
Elephant Capital has instructed its brokers to sell the shares of these companies, according to a letter from the chairman to the shareholders.
Nitco was the only listed stock which performed marginally better than the market in the last financial year ended August 2011. During the period, Elephant Capital invested another £1.7 million in EIH for its pro-rata share of the rights issue.
In August 2010, the company made a successful exit from its previous investment in the public-listed IT education firm NIIT Ltd. It exited its two-and-a-half-year-old investment in NIIT with an IRR of over 23 per cent.
Elephant Capital (formerly Promethean India Plc), which had raised £50 million in early 2007 through a public float at the AIM market in London, earlier said that it would not make any fresh investment in companies other than re-investing in existing portfolio companies and returning cash to shareholders. The company’s board is planning to return further capital to shareholders by means of another tender offer when it disposes of listed investments in India.
Performance In FY11 & Portfolio Update
As of August 31, 2011, the company’s NAV was £25.5 million or 51p per share, compared to £31.7 million or 63p per share as of February 28, 2011, and £39.6 million or 79p per share as of August 31, 2010.
In its unlisted investment portfolio, the principal reason for the fall in NAV was the write-down of investment in ClinTec from £8 million as of August 31, 2010, to £ 5.5 million as of February 28, 2011, and to £1.65 million as of August 31, 2011.
“This write-down is based on a significant shortfall in ClinTec’s performance against its original and revised budgets. The investment manager continues to work with the management to improve the operating performance of the business, and is considering other remedies which are available to Elephant Capital, including a potential warranty claim under the original share purchase agreement,” according to Elephant Capital’s chairman Vikram Lall.
Lall took over recently after Pramath Raj Sinha stepped down as chairman last November.
Besides ClinTec, Elephant Capital counts mobile payment services firm Obopay, aviation maintenance, repair and overhaul services company Air Works, Amar Chitra Katha and Global Cricket Ventures as its unlisted portfolio investments in India.
The investment in Obopay had been further written down and it reflected in Obopay’s valuation during its latest series G round of financing. The investment in Obopay was valued at £0.15 million as of August 31, 2011, against the original cost of £1.2 million.
The PE firm is also looking to exit its investment in Global Cricket Ventures and the firm has disclosed that progress has been made in reaching a settlement with certain sub-licensees prior to a possible winding up of Global Cricket Ventures. The investment in the company has been valued at £1.7 million against the original cost of £5.9 million.