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Sector offers returns double that of in Europe, US: Study

Thomas K. Thomas

New Delhi, July 4 After reaping huge returns from the Indian telecom service providers, private equity firms are now betting big on telecom value added service providers and infrastructure companies.

A new study by KPO firm Smart Cube points out that with returns from investment in developed markets dwindling, private equity firms are now betting on Indian telecom companies for big returns like never before.

The study points out that at a rate of return of 25-30 per cent, the Indian telecom sector offers a return on investments that is double of what the PEs could get in Europe or the US.

“Anything related to telecom is now getting huge interest from PEs. If we saw some major activity in 2006, this year is going to be even bigger as PEs are now looking to invest not just in telecom operators but also offshoots such as call centres, software companies and infrastructure providers,” said Mr Sameer Walia, Managing Director, The Smart Cube.

Players such as Sequoia Capital, Northwest Venture Partners, Lehman Brothers, and Matrix Partners are chasing growth opportunities in telecom value added service players. For instance, in April 2007, Aureos Capital announced an $8-10 million investment in Ordyn Technologies, a Bangalore-based manufacturer of optical telecom transmission equipment.

Sequoia Capital has investments in Mauj ($10 million), Bharti Telesoft ($12 million), Nazara ($2 million), Bubbly Motion ($10 million). The Smart Cube study points out that going forward the telecom infrastructure segment is expected to bring significant investment opportunities. Bharti Infratel (telecom tower subsidiary of Bharti-Airtel valued at $11 billion, with 40,000 towers and planned 30,000 more towers by end 2007) is considering offloading a 10-12 per cent stake to banks and PE funds in the next 18 months. It is in talks with Goldman Sachs, JP Morgan, Citi, Lehman Brothers and Warburg Pincus.

Reliance Communications and Tata Teleservices are also unlocking the value in their infrastructure business. In 2006, the telecom sector accounted for about 44 per cent of the total value of all private equity deals in India, spread over 19 deals.

“While investors are seeing a lot of potential given the low penetration levels of telecom services in the country, PEs are also seeing a lot of value in the buoyant exit option both through M&A and IPOs. PE investors are hoping to repeat Warburg Pincus’ success with Bharti Airtel,” said Mr Walia.

More Stories on : Telecommunications | Venture Capital | Marketing Research | Foreign Institutional Investors

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