1. India Growth Story & Private Equity as Source of Funding 2. Industry Private Equity Collaboration 3. Opportunity for Members

Transcription

1 1. India Growth Story & Private Equity as Source of Funding 2. Industry Private Equity Collaboration 3. Opportunity for Members 1

2 India s Priorities Priorities: 1. Internal security 2. Stepping up economic growth 3. Creation and modernization of infrastructure 4. Introduction of new programs for food security; skill development 5. Concerted action for the welfare of women, youth, children 6. Prudent fiscal management 7. Energy security; environment protection 8. Promotion of enterprise and innovation Source: President s address to Parliament, June 4th

3 However, to make it Possible, significant investments needed 11th Plan Projected (FY08-12) Infrastructure Investments Investments $ Bn % of Total % Roads & Bridges % Telecommunication % Railways % Irrigation % Water Supply Sanitation % Ports % Airports 8 1.5% Storage % Gas % Total % Electricity Source: Planning Commission 3

4 Means of Financing Plan Expenditure as part of FY09-10 Budget is approx $60 Bn This means, of the total $514 Mn that is needed, approx $300 Bn can come out of Budget Plan spending over five years The rest $214 Bn has to come out of private sector funding Over last five years, Portfolio Investments have been on average $10-$12 Bn every year and FDI has been $15 Bn every year Thus, additional $ Bn can come FDI + FII The last $100 Bn has to come from domestic savings, corporate savings & innovative financing sources Private Equity can play to fill this gap 4

5 Penetration Levels considerably lower Private Equity Investments as a Percentage of GDP (2006) Countries GDP PE Investment PE Investment/GDP Ratio USA $13,245 billion $191 billion 1.44% UK $2,374 billion $42.3 billion 1.78% China $2,630 billion $13 billion 0.49% India $910 billion $7.5 billion 0.82% Source: Evalueserve, PE investment/gdp ratio in US/UK is much higher than China/India India already catching up fast, shot up to nearly 2% in 2007 However, this remains highly volatile and fell to less than 1% in 2008 and less than 0.1% in first half of

6 Benefit of Private Equity Investments for a firm Enhanced Governance & Transparency standards. Performance of firm does not get rewarded unless coupled with Governance. So greater Governance standard will create greater bang for the performance. Availability of Capital for an idea, business model or restructuring proposition (as against security of assets, prove cash-flows or profits) Operational expertise and discipline that a PE team gets to the portfolio company Branding an investment by a prestigious PE firm can enhance image of the investee company significantly Networking & contact typically PE firm opens up many doors and opportunities through its contact hitherto not available to a firm Ability to hire right talent when backed by right PE firm 6

7 Impediments in Private Equity Investments in India Governance and transparency are a challenge in smaller firms Promoters may not like to let go partial control and commensurate authority Cost of capital may look exorbitantly high to a promoter Day-to-day information reporting, participation in decision-making may be seen burdensome Typically, investors protect the exit through covenants which may seem unfriendly to investor 7

8 Contents 1. India Growth Story & Private Equity as Source of Funding 2. Industry Private Equity Collaboration 3. Opportunity for Members 8

9 Industry PE Collaboration PE Firm Challenges and Opportunity for Industry Survival Tactics for Portfolio Companies Cost Reduction Operational Excellence Focusing on Core Operations Contract manufacturing of components in Emerging Markets Sharing services Use of newer strategies to increase company value such as Shared service common to Payroll, Finance & Accounting, Travel & Expenses and Recruitment 9

10 Industry PE Collaboration Operating Model for Value Creation Portfolio Company 1 Portfolio Company 2 PE Firm Portfolio Company 3 PE Firm s Industry Partners Partner for Sourcing components for Manf firms Partner for IT Apps & Infrastructure Partner for Operations Procurement, F&A, HR etc Partner in core business such as Network Mgmt for Telco 10

11 Industry PE Collaboration Additional thoughts on Partnering Suitable for late stage/mature Portfolio companies Partner (as against Vendor) status critical for success. Co-investing by Industry can help Focus on value creation may help create new frontiers of Outsourcing hitherto unexplored Opportunity for continuing to serve the company even after the stake has been sold 11

12 Contents 1. India Growth Story & Private Equity as Source of Funding 2. Industry Private Equity Collaboration 3.Opportunity for Members 12

13 Opportunity for Members Typical Transaction flow Deal Origination Due Diligence Valuation Share Purchase Ongoing Monitoring Exit through M&A or IPO Share Sale & Closure 13

14 Opportunity for Members Professional Opportunities Primary role of profession will be to enhance the governance levels and prepare Entrepreneurs for the greater transparency & stakeholder mgmt. Merchant Bankers origination of deals, M&A and IPOs Helping companies seeking PE funds on Business Case preparation Building practice on Valuation from PE perspective Specialization on PE Due diligence Front-ending negotiation for Share purchase or Sales Supporting PE through working with Portfolio Companies in developing and reporting on key Operating Parameters on daily, monthly & weekly basis Ongoing Accounting, Audit and Assurance work for Portfolio Companies Senior members of the profession can serve as nominee members on Board of Portfolio Companies 14

15 Summary Private Equity Investment is significantly under-penetrated in India It could be become a significant alternative funding mechanism for India s growth in coming years There are areas where Industry and PE players can partner to create significant value creation Offers a host of opportunities for the CA profession Thank You & All the Best! 15