Overall investment in Indian companies falls by 17 per cent in second quarter

Mumbai retained its distinction of being the favoured Indian city for PE investment in the second quarter of 2012, despite an over 50 per cent decline in the value of deals to $489 million. This was 30 per cent of the total PE investment of $1.6 billion across India during April-June, according to PricewaterhouseCoopers’ (PWC) latest MoneyTree India Report.

Bangalore-based firms were the next priority for PE investors, who pumped $247 million into start-ups and firms at various stages of growth. This translated into 15 per cent of the cumulative deal kitty, though the quantum of funding exhibited a 5 per cent drop in comparison to the corresponding period a year ago. The National Capital Region (NCR) secured $201 million of PE funding in the second quarter, less than half of what it received in April-June 2011.

Ahmedabad witnessed the highest growth in PE deal value during the quarter under review, rising 188 per cent to $69 million through two agreements. In contrast, Chennai-based companies witnessed a 55 per cent decline in PE funding.

Overall, private equity investment in Indian companies fell by 17 per cent in the second quarter, with the number of pacts also falling by 4 per cent. But fewer PE firms exited their investments during the quarter as well, with value and volume of exit activity plummeting by 89 per cent and 61 per cent, respectively.

IT and ITeS was the most-targeted sector, raking in $321 million from 38 deals, which translates into a 6.6 per cent rise in value even though the volume remained constant. Over the last eight years, IT and ITeS funding has outpaced the growth of overall PE funding in most quarters.

Energy was given the second highest priority on the list of PE firms, accounting for $290 million through five deals. This was a 10.5 per cent year-on-year decline in deal value, with the number of deals declining from six in the year-ago period. The value of PE investment in the energy sector in Q2, 2012, was primarily driven by Morgan Stanley’s $211 million investment in Continuum Wind Energy, which was the largest deal to be inked during the quarter.

Growth in PE funding was more visible in the healthcare and life sciences sector, which recorded an over two-fold rise in investment to $243 million through 12 deals. However, in comparison to the preceding quarter, the value of PE funding fell by over half from $506 million. The education sector recorded a nearly two-fold rise in investment to $71 million from four deals.

With respect to pullouts, PE firms raised $108 million through 12 exits. This was a marked departure from the corresponding period of 2012, when they raised $981 million through 31 deals. Public market sales accounted for about 49 per cent of the exit value, while the sole IPO exit raised $20 million. In terms of exit value, healthcare and life sciences was the top sector, with Warburg Pincus raising $39 million from its pullout from Max Healthcare.

arvind.jayaram@thehindu.co.in

(This article was published on August 19, 2012)
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