The Hindu Business Line : `Ample opportunities for private equity funds'

UTI Venture Funds has recently made news, courtesy the initial closing of its newly-proposed investment vehicle, Ascent India Fund. The latter, says Mr Raja Kumar, CEO and MD, will inter alia focus on IT, telecom and healthcare. He also has a word about the competition unfolding in the private equity space.

"Clearly there is room for more players. No fund is squarely in competition with others... the game is more company-specific than sector-specific," he remarks.

Excerpt:

How do you view the scope for private equity in India?

Today the market offers ample opportunities for private equity funds to thrive. Large exits made by a few private players have further demonstrated the potential in India. Foreign investors, who have perhaps sensed this promise, currently lead this asset class with pure domestic funds accounting for about 15 per cent of the pool of money.

A few other factors will provide further opportunities - negligible capex in the last few years, many traditional industries running up to optimum capacity and willingness of promoters to share ownership.

Considering the size of Indian market, $1-2 billion private equity investments per year is small. Funds have niche focus, with some attending to buyouts and restructuring, and others focusing on expansion and early stage developments. Some also have sectoral orientation like infrastructure and real estate.

Typically, funds get into companies where their capital and participation in the management will help in fixing inefficiencies, thus creating value.

If the stock market is booming, will it allow venture capital or private equity players to exit profitably?

We are in a cyclical business. We do not touch a deal unless the valuations are attractive. The idea is to secure a decent internal rate of return. Our experience shows that the markets will invariably come around. Also in this business, we gradually draw money only after we build a pipeline of deals, not in advance.

Besides auto and textiles, in which investments are already lined up, what are the sectors that are of immediate importance for Ascent India Fund?

Convergence technologies (IT, telecom), BPO and healthcare sectors are our other areas of concentration. We have gained experience by virtue of investments by our first fund, which has a technology focus. These sectors leverage India's strengths in outsourcing.

The IT industry is expected to witness good growth over the next few years on the back of strong global demand. It clearly provides growth opportunities in both organic and inorganic forms.

BPO, a relatively nascent area, is expected to grow at about 50 per cent backed by a demand for outsourcing from developed markets.

Existing companies will require massive infusion of capital to add to current capacities.

Indian pharma companies are also facing strong demand for manufacturing and product development outsourcing. This is a traditional industry, marked by high promoter ownership and high reliance on bank funding; private equity may well identify players with strong credentials which can be funded to scale up to meet global demand.

Remember, competition at the larger end ($ 20 million-plus deals) will increase and so will it be in the listed segments. There are several companies, which over the next few years will scale up to $100 million-plus market cap. That should be able to absorb some of the demand.

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