The Gujarat Private Equity Summit-2011

1 DAY PROGRAMM ON SUBJECT- “THE POWER OF PE”

THE GUJARAT PRIVATE EQUITY SUMMIT 2011.

FEBRUARY 19, 2011.

VENUE, AHMEDABAD MANAGEMENT ASSOCIATION, OPPOSITE TO IIM-A, AHMEDABAD.

          Megha Investments and Research team had the opportunity to participate in this 1 day summit on the subject ‘THE POWER OF PE’ ‘THE GUJARAT PRIVATE EQUITY SUMMIT 2011’.

          Amongst the distinguished guests and speakers were the who’s who of business and finance world. It included,

• Padma Shree Dr. Bakul Dholakiya as Chief Guest,  former IIM-A Director and presently advisor to Adani Group, and also the present director of Adani Inst.of Infrastructure Management
• Yatindra Sharma, Past AMA President
• Kalpana Morpariya, Guest of Honour, CEO of JP Morgan (India and South Asia), formerly with ICICI Bank.
• Mr. J M Trivedi, Partner and Head, South Asia, ACTIS
• Shankar Narayanan, MD, CARLYLE GROUP
• Dr. Rajiv Lall, MD & CEO, IDFC
• Ameet Desai, Executive Director, Adani Power, Formerly with Ranbaxy
• Mrs. Zia Mody, founder and senior partner, ABZ & Partners
• Mihir Joshi, MD, GVFL (Gujarat Venture Finance Limited)
• Samir Palod, Partner, 3i
• Srinivas Chidambaram, MD & CEO, Jacobs Ballas
• Nipam Shah, MD, NRS Advisors
• Girish Patel, Chairman, PARAS Pharmaceuticals
• Amit Patel, MD, Sintex Group
• Arjun Handa, MD, Claris Lifescience (recently listed)
• Jang Bahadur, MD & CEO, ICICI VENTURES
• Niten Malhan, MD, Warburg Pincus

This one day program was organized by NIPAM SHAH-AMA CENTRE FOR EXCELLENCE IN FINANCIAL MANAGEMENT and was open for invitees and registered participants.

EXCERPTS FROM THE PROGRAMME:

          Dr. Bakul dholakiya started his speech with a light note that being economist makes people believe that one can talk on any topic.! He mentioned that if Indian GDP is at market value at 1.7 trillion or 1700 million dollars then the 20 billion PE activity is not even 2% of GDP. He also said that the Agriculture and Public service community should be excluded while doing these ratios if one would want to. He also put that why at all even compare with GDP, with the mention of the PE to GDP ratio almost at parallel levels in even developed countries as well. Throughout his speech his maintained emphasis on the high savings rate that India enjoys is a boon to private equity industry to prosper domestically.

          Ms.Kalpana Morpariya mentioned in her speech that about 450 billion dollars of cash in PE money is waiting to be invested into ventures. She also recollected that when she was in ICICI Bank the question that India is ready for PE or not was debated in 1980s. She also added that till 2010 India had a lead in PE investment over China excluding Real Estate deals. She also said that every major and serious global PE player is now in India and has retained local talent.  And added that sadly the domestic  PE players and investors are yet to grow in meaningful numbers. She said there are fewer local PE firms and even fewer investors. But also added their number will rise in coming years. On a closing note she added that PE is a personalize business and close relationship and trust is required between the PE and investee company/promoter.

          Mr.JM Trivedi of ACTIS, in his speech mentioned that there are almost more than 200 PE in India. He also added that PE comprise of a significant component of FDI (Foreign Direct Investment). Giving the numbers he said there was a rapid, almost 6 fold growth in PE investment during 2005 to 2007 years. He said 25% of FDI is takes the form of PE deals. He also added that recently roughly in 25% of all IPOs in Indian stock markets have been involvement of PE firms. Advocating the performance of PE firms he quoted research firm VENTURE RESEARCH, that the returns generated by PE investments were around 25% revenue growth and 32% earnings growth compared to Sensex and Nifty, it was 15-20 percent where as for Midcap segment it was 15-21 percent.

          After Mr. JM Trivedi, Shakaran Narayanan, MD of CARLYLE GROUP, started by peeping into history of PE in USA. He said in 1987s, there were $100 billion in investments and around 76 funds in the USA.  Giving a flash of CARLYLE GROUP he said they have 27 offices across globe and their investments have earned a weighted average of 32% annually. Hi also maintained that his firm is a conservative approach firm. Giving example of OECD countries (organization for economic co-operation and development), he said that the western countries are at such an economic and business point that the only advantage they can get and try to get is to offer best product/service and best price. Thus, he added, the foreign firms will approximately invest 100 billion dollars in next 2 yrs in India into outsourcing activities ranging from auto ancialliary, fmcg, pharma, and technology design and engineering to bring the costs down and get benefit of local talent.  He mentioned technology design services, auto ancialiary, pharmaceuticals-healthcare, fmcg/consumer growth segments, education, agri & food processing and renewable energy likely the hot sectors in the radar of PE deals in future. He also gave example how his group successfully invested in a south based Dairy company without disclosing the name. On the closing note he said a lot of savings is going into education childrens, so the education segment is also likely to remain attractive.

          Then after Rajiv Lall, started his speech on a lighter note by mentioned the ‘foggy sky’ in Indian infrastructure space.  He said there are various sub-asset classes of PE investments.  He added that there are very vast array of asset classes enduring at an astonishing pace. He said PE in USA is only as old as 1970s. He added that one law in 1972 gave rise to PE firms. Till then that nature of investment was done by Merchant Banking units.  Speaking more of infra space, he said world over this segment is a regulated asset class. It is shown with a social value and you are not supposed/assumed to make a killing or earn high margins on infra projects. With that he added more different type of re-finance will become more important for infra sector going forward. He said land acquisition in infra is itself a large amount of value creation, but which is most strenuous and difficult due to political and bureaucratic involvements.  He mentioned ‘development risk capital’ in respect with infra financing.  He said in infra projects the cash flow should be predictable and relatively stable after the project is on track.  He also mentioned IDFC PEs 2 type-growth equity fund and project equity funds. Mentioning planning commission projections he said 10% of GDP is required for infra projects and almost half meaning more than 50 billion dollars every year should come from private sector. Back to back he reiterated that the Indian corporate cannot spend this amount of money by reinvestment of earnings, it is not possible so foreign PE and growth of domestic PE is necessary. He ended his speech by putting that the PE money must be much more patience than public money if it want to benefit the entrepreneur.

          The young entrepreneur and MD of Claris Lifescience Mr.Arjun Handa, talked about the international exposures and connections PE brings to your business. He also told that if you (business persons) want growth then and then only go for PE money and don’t think of it if you are contended. He also sparked that the concept that business ownership and management should be different arises and works vitally when you involve a PE investor.

There were some general points that emerged as the consensus amongst all the speakers on different topics. Below are some of them,

An entrepreneur seeking private equity capital should understand both the pleasure and perils of taking private equity.

Private equity has mostly helped companies to bring professionalism and focus.

The PE not only helps you bring buy-out ambitions but also helps with their contacts, offices, local networks and expertise to actually execute in overseas lands.

The business person must check and understand the contractual obligations and discipline he will require after taking PE money.

The entrepreneur must take care that he follow the MIS and other requirements of the PE as per contracts and keep everything open, transparent and clear for smooth sailing with the PE player.

The entrepreneur must also understand that he has to provide the PE an exit or exit option after certain period.

DISCLAIMER:

There might be mistakes in interpretation and descriptions. We do not guarantee the preciseness of information given in this article. Please also note that the original speech of the said persons might have been different or the meaning of it might have been different of wrongly misinterpreted by us mistakenly. Please note this.