A host of private equity investors in ICICI Ventures-backed VA Tech Wabag are looking to make partial exit during the proposed initial public offer of the engineering services company that focuses on water and waste water treatment. One of the rare management buyouts in India, ICICI Ventures had backed the buyout of the company from its Austrian parent VA Tech WABAG GmbH in August 2006.

ICICI Ventures funds have already made partial exit from the company in the past and now joins others such as GLG Emerging Markets Fund, Sattva India Opportunities Co and Passport India Investments to sell more shares of the company.

VA Tech Wabag is looking to raise Rs 125 crore through fresh issue of shares which would be separate from the offer for sale by the existing investors.

Although pricing of the issue is still under wraps, if the price paid by GLG to buy a stake in the company three years ago is any indication, it could be in the region of Rs 1,000 or even more. GLG had invested Rs 88 crore or about $20 million in February 2007 which translates into 9.55% stake currently. Adjusting for stock split and bonus shares last year, its average cost of ownership is pegged at around Rs 988 a piece.

Since GLG is one of the sellers in the issue and assuming it would not like to exit at a loss, the issue price is expected to be over Rs 1,000. The company could be looking at dilution of the equity base by around 10-15%. The total issue to the public would then work out to around 35% of the post issue capital.

This would mean a multibagger for ICICI Venture. It is estimated the private equity firm along with the management paid out somewhere in the region of around Rs 50-60 crore to acquire majority equity holding in the company. A pricing of over Rs 1,000 a share would mean the company will be valued anywhere between Rs 1,000-1,500 crore(~$220-330 million).

The company has four promoters led by British national Rajiv Mittal who owns 21.6% pre IPO followed by Amit Sengupta (5.6%), Shiv Narayan Saraf (5.11%) and S Varadarajan (5.11%). They will also be big gainers in the IPO. The cost of acquisition of shares for these four executives is pegged between Rs 3-7/share.

VA Tech had revenues of Rs 469 crore for the six months ended September’09 with net profit of Rs 3.45 crore on a consolidated basis. For the year ended March’09 it had consolidated revenues of Rs 1,133 crore with net profit of Rs 41 crore. VA Tech has presence in drinking water, municipal wastewater, industrial water, industrial wastewater and desalination and is said to be evaluating both organic and inorganic growth opportunities.

Some of its competitors includes Veolia Water India, Degremont India, Hindustan Dorr Oliver and L&T in the municipal sector and companies like Thermax, Ion Exchange, EIL, Hindustan Construction, Nagarjuna Constructions, Gammon India and Driplex in the industrial sector.

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