Warburg Pincus has exited its five-year-old investment in gem & jewellery exporter Vaibhav Gems with an estimated 92.5% haircut, making it one of the biggest loss-making private equity exits in India. The PE firm sold its entire 28% stake apparently to a group of high networth investors for Rs 18.4 crore or about $4 million against the purchase cost of Rs 247 crore, according to VCCircle estimates.


The Jaipur-based company had gone into a tailspin ever since Warburg Pincus picked a large minority stake and followed it with a mandatory open offer that gave it as much as 32% stake in July 2006. The PE firm had originally acquired 27% for Rs 208 crore in February 2006 and added another 5% in the open offer, making it the single largest shareholder of the company, much more than the promoters.


The company went downhill financially with its consolidated revenues shrinking for the second consecutive fiscal ended March’10 and was just about half of the figure in the year ended March’08. While revenue had shot up in the interim period, the company has slipped into the red soon after Warburg Pincus invested in the firm.


For the last four financial years, the company made total consolidated loss of Rs 586 crore. According to its last annual report for FY’10, Vaibhav Gems had taken various austerity measures to curb costs and consolidate its business operations to focus on its strength areas for fast track turnaround of business. It had closed down its loss making businesses in Mexico, St Thomas, St Maarten, Alaska, Japan and Thailand to support its core businesses of marketing gems and jewellery through the television in UK and USA besides manufacturing operations in India and China.


Incidentally, Vaibhav Gems’ scrip shot up 19.8% to hit the upper circuit for the day on Tuesday to close at Rs 29.9 or 44.7% more than the price at which Warburg Pincus sold its shares on Monday.

Warburg Pincus that made its name in the Indian market by striking one of the first multi-bagger investments in Bharti Airtel just before the mobile telephony revolution in the country, had last year (in the October-December’10 period) also exited another portfolio firm with a large haircut. It had apparently sold its entire 7.5% stake in the auto component firm, Amtek India, with over 60% loss. But the latest exit from Vaibhav Gems comes as a much bigger hit for its LPs.


Another private equity investor in Vaibhav Gems who is sitting on huge unrealised loss of value is Nalanda Capital, the Singapore-based India focused PE firm founded and headed by former Warburg Pincus India MD, Pulak Prasad.


Nalanda had acquired a minority stake for Rs 94.5 crore or about $20 million in the firm through subscription to a GDR issue in late 2007, almost one year after Warburg Pincus acquired over 30% stake in the company and just before the market valuations turned turtle in January 2008. Nalanda had picked the shares at Rs 230 per share which means it is sitting on unrealised loss of 87% on its three and half year old investment.

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