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The Indian Private Equity opportunity

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Title: The Indian Private Equity opportunity


1
The Indian Private Equity opportunity
  • April 2008

2
The Indian Private Equity opportunity
Overview of ICICI Group
  • One of Indias pre-eminent financial institutions
  • Relationships with a broad range of corporates
    across all sectors
  • One of the largest India-focused private equity
    funds
  • Second fastest growing major economy in the
    world, projected to grow at 8 p.a. until 2020
  • Projected to be 2nd largest global economy by
    2050
  • Favourable demographics, consistent policy
    decisions and domestic consumption driven economy

Indias Growth Potential
Development of Private Equity in India
  • Private equity investment in India has increased
    28x fold from 2003-2007
  • In 2007, US14.2 billion of private equity
    transactions were completed
  • Increased diversification by both industry and
    types of investment

3
Overview of ICICI Group
4
One of Indias pre-eminent financial institutions
ICICI Bank Ltd
  • Largest private sector bank in India
  • 22 billion market cap¹
  • 94 billion of assets2
  • 18 international locations
  • First Indian company listed on the NYSE
  • Listed in Forbes Asias 50 Fab Companies 2007
  • Completed Indias largest equity issuance of
    US4.3 billion

ICICI Ventures
ICICI Lombard
ICICI PRU Life Insurance
ICICI Prudential AMC
ICICI Securities
  • One of Indias largest PE firms
  • AUM US2bn
  • Completed 55 transactions
  • One of the largest private sector general insurer
  • iAAA rated by ICRA
  • Indias no.1 private life insurer
  • AAA rated by Fitch
  • One of the largest asset managers
  • AUM of US17.6 bn2
  • Leading equity broking house
  • Leader in fixed income market

1. As at 24-March-2008. 2. As at 31-December-2007.
5
Indias growth potential
6
Indian economy some statistics
  • India is one of only 3 countries in the world to
    have built its own supercomputer
  • 11 out of every 12 diamonds in the world are
    polished in India
  • One of every 6 motorbikes in the world is
    manufactured in India
  • 220 of the Fortune 500 companies source software
    from India
  • India is one of only 6 countries in the world to
    have satellite launch capabilities
  • One out of every 10 new mobile phone users in the
    world is an Indian
  • India has the largest film industry in the world
  • India has one of the largest television networks
    in the world, with over 300 channels and 500
    million TV viewers
  • 50 percent of the worlds tea is produced in India

Source Economic Survey, Ministry of
Agriculture, Government of India, report by
investment commission of India
7
2nd largest economy in the world by 2050
India GDP (US billions)2
Actual
Estimate / Forecast
CAGR 17.4
CAGR 14.9
  • Indian GDP grew at an average of 14.9 p.a. in
    US terms in the 3 years to 2006. (8.6 in real
    terms)2
  • Projected to grow at 8 p.a. in real terms until
    20201
  • Indias GDP (US terms) expected to surpass that
    of the US by 20501

1. Source Goldman Sachs Research Indias
Rising Growth Potential, Jan-2007. 2. Source
Goldman Sachs Economic Research.
8
Key growth drivers
  • Requirement of US475 billion of infrastructure
    investments from 2007 to 2012
  • 40 to be funded by private investors
  • Policy initiatives to attract investments in core
    infrastructure projects related to power,
    transportation, etc

Infrastructure Investment1
Large Population
  • Large young population (46 between the age group
    of 20-40) driving consumption
  • Underleveraged economy with consumer Loan/GDP
    ratio at 8 as compared to 50 plus in developed
    markets
  • Indian consumer spending projected to grow from
    US425 billion to USD1.8 trillion by 2025
  • Real estate still an under owned asset class with
    mortgage/GDP ratio at approximately 5 compared
    to 50 for developed countries

Globalisation3
  • Sustainable competitive advantage in outsourcing
    - IT/ITES projected to grow at circa 19 per
    annum until 2011
  • Knowledge driven businesses such as design
    activities and KPO moving up the value chain
  • Cross border MA activities to give a more global
    outlook

1. Source Smith Barner Research,Goldman Sachs
and planning commission 2. Source FICCCI, Min
of External Affairs., Mckinsey Report The Bird
of Gold-The Rise of Indias Consumer Market 3.
Source Asia Pacific IT Services Market and
Forecast, 2006-2011 report by Springboard
Research 4. Source FICCI- EY study
9
Beneficial backdrop for growth
The Regulatory Framework
Liquid and deep financial markets
  • Strong and proactive regulators RBI/SEBI
  • India complies with BIS 26 norms of best
    practices for supervisory criteria, country risk
    and convertibility
  • Gross NPAs lower than those of comparable nations
  • Integrated financial markets
  • Increasing stability and breadth of the public
    markets
  • Advanced settlement systems

Pro Growth Policies
Government focus on reforms
  • The Banking Regulation Act to be considered for
    amendments
  • Labor and legal reforms to be taken up
    proactively
  • External sector reforms roadmap in line with WTO
    agreements
  • Liberal FDI policies across major sectors
  • Forex reserves can be used for infrastructure
    projects
  • Mature political economy with development as its
    core agenda

Source IMD would competitiveness report to 2005
10
Key risks
  • General Elections Populists measures may take
    its toll on fiscal discipline
  • Continuance of the structural and fiscal reforms
    agenda
  • Adequate attention to Infrastructure to support
    8 GDP growth requirement to develop a vibrant
    debt market
  • Adequate investments in developing talent pool to
    meet the rising demand

Policy
  • High Energy Prices Oil imports constitute more
    than 40 of Indias total imports
  • Stronger Currency Adverse impact on exports

Global
  • Latest figure of 5.9 is above the 4.5-5 target
    of the RBI
  • Monsoons Agriculture economy is exposed to this
    annual risk factor

Inflation
11
Development of Private Equity in India
12
Growth of asset class
Value and Number of Number of Deals
  • Number of deals increased 10 fold since 2003
    value of deals increased 28 fold to US 14.2
    billion
  • Total private equity investments expected to be
    20 billion by 2010

Source Venture Intelligence
13
Top Private Equity destination in Asia
Annual Growth in Private Equity Investments
(1998-2007)
  • From 1998 2007, India was the fastest growing
    private equity market in Asia
  • In 2007, India was the largest market for private
    equity investments in Asia (ex. Australia)

Australia/NZ 25
Source Thomson Financial, AVCJ, Venture
Intelligence
14
Uptick in ticket size in sync with valuation
Average Deal Size (2007)
India Average Deal Size
Source Thomson Financial, AVCJ, Venture
Intelligence
15
Increasing diversification across industry
2003
2007
  • Proportion of non-Information Technology deals
    has risen from 19 in 2003 to 76 in 2007
  • Growth in investment into Manufacturing,
    Financial Services and Medical and Health

Number of Deals
Other 35
I.T. ITES 24
Other 33.1
I.T. ITES 59
Financial Svcs. 3
Medical Health 7
Manufacturing 16
Manufacturing 3
Energy Contr. 8
Financial Svcs. 13
I.T. ITES 7
Manufact. 12
Value of Deals
I.T. ITES 31
Other 39
Other 68
Financial Svcs. 1.0
Financial Svcs. 28
Medical Health 3
Manufacturing 0.1
Energy Contr. 11
Source Venture Intelligence.
16
Growth Across Segments
2003
2007
Number of Deals
  • Most significant investment currently in growth /
    expansion segments
  • PIPE deals form a significant portion

Other¹ 4
Buy Out 5
Buy Out 2
PIPE 11
VC 24
PIPE 19
VC 47
Growth/ Expansion 37
Growth/ Expansion 51
Value of Deals
Buy Out 16
VC 4
Other¹ 14
Growth/ Expansion 48
VC 28
Buy Out 5
PIPE 36
Growth/ Expansion 19
PIPE 30
1. Includes infrastructure Source Venture
Intelligence
17
Evolving exit routes
Other¹
Other¹
Other¹
IPOs
IPOs
IPOs
Transaction value of PE exits
3.3bn
0.5bn
1.5bn
Number of IPO exits
17
19
16
Warburg Pincus from Bharti Tele
CVC from Suzlon energy
Largest Exits
By Actis, CVC from Daksh e-services
1. Source Venture Intelligence
18
Key differences to Western private equity model
  • Limited use of leverage
  • Most Indian banks unwilling to provide cash flow
    based financing
  • Ability to achieve attractive returns without
    gearing
  • Limited buy-out activity
  • Many companies are family owned
  • Shareholders reluctant to give up a control of
    their fast-growing companies
  • Focus on making minority investments (10-20) by
    providing growth/ expansion capital
  • Typically provides private equity investors with
    board seats and veto / blocking rights
  • Significant PIPE activity in the Indian Private
    Equity market

19
Current dilemma facing investors
Current PE Market…
…Investor Dilemma
  • Very rapid expansion in number of India-focused
    funds
  • Risen from 8 in 1995, to 300 in 2007
  • Evaluating managers without track records
  • Selecting funds from a broad universe
  • Large number of first time funds
  • 15 India-dedicated private equity funds with at
    least one fund vintage
  • Gaining access to the best funds

Rationale for Fund of Funds Product
20
Disclaimer
This document and the information contained
herein are strictly confidential and are meant
solely for the selected recipient to whom it has
been specifically made available. This document
may not be altered in any way, transmitted to,
copied or distributed, in part or in whole, to
any other person or to the media or reproduced in
any form, without prior written consent of ICICI
Bank. This document is given only by way of
information and is subject to change without
notice. The information provided herein is not an
offer or solicitation for any application or
subscription for any products or services and is
not intended for distribution to, or use by, any
person in any jurisdiction where such
distribution or use would (by reason of that
person's nationality, residence or otherwise) be
contrary to law or regulation or would subject
ICICI Bank, or its affiliates to any licensing,
registration or other legal requirements. THE
INFORMATION CONTAINED IN THIS DOCUMENT IS NOT
INTENDED TO NOR SHOULD IT BE CONSTRUED TO
REPRESENT THAT ICICI BANK PROVIDES ANY PRODUCTS
OR SERVICES IN ANY JURISDICTION WHERE IT IS NOT
LICENSED OR REGISTERED OR AUTHORISED TO DO SO.
ICICI Bank or are not acting as your advisor or
in a fiduciary capacity in respect of the
contents of this document, and accepts no
liability nor responsibility whatsoever with
respect to the use of this document or its
contents. Nothing in this document is intended to
constitute legal, regulatory, tax, securities, or
investment advice, or an opinion regarding the
appropriateness of any investment, or a
solicitation of any type. The contents in this
document are intended for general information
purposes only and should not be acted upon
without first obtaining specific legal, tax, and
investment advice from a licensed professional
concerning your own situation and any specific
investment questions you may have before entering
into any financial transaction The financial or
other projections etc. set out in this document
have been prepared based upon projections that
have been determined in good faith and from
sources deemed reliable. There can be no
assurance that such projections will be accurate.
ICICI Bank does not accept any responsibility for
any errors whether caused by negligence or
otherwise or for any loss or damage incurred by
anyone in reliance on anything set out in this
document. The information in this document
reflects prevailing conditions and our views as
of this date, all of which are expressed without
any responsibility on our part and are subject to
change. In preparing this document, we have
relied upon and assumed, without independent
verification, the accuracy and completeness of
all information available from public sources or
which was provided to us or which was otherwise
reviewed by us. Past performance cannot be a
guide to future performance. No reliance may be
placed for any purpose whatsoever on the
information contained in this document or on its
completeness. The information set out herein may
be subject to updating, completion, revision,
verification and amendment and such information
may change materially. Any investment in any
fund/securities etc referred or alluded to in
this presentation should be solely on the basis
of the fund's/ securities Offering Memorandum
and the relevant issuing entitys constitutional
documents. Accordingly, this document should not
form the basis of, and should not be relied upon
in connection with, any subsequent investment in
the fund/ security. To the extent that any
statements are made in this document in relation
to the fund/ security, they are qualified in
their entirety by the terms of the Offering
Memorandum and other related constitutive
documents pertaining to the fund/ security, which
must be reviewed prior to making any decision to
invest in the fund/ security. This document does
not constitute an offer to sell or a solicitation
of an offer to sell any securities to any person
in any jurisdiction. ICICI Bank, its affiliates
and any of their licensers, directors, employees,
or agents shall not be held liable for any
direct, indirect, incidental, special, or
consequential damages arising out of the use of
information contained herein. Potential investors
should request for relevant product information
before making any investment decisions as this
document does not, and is not, a document that
relates to any investment product. The above
mentioned is not a complete list of the risks and
disclosures and other important disclosures may
be involved in availing of the products and
services described herein. The use of this
document is subject to the terms and conditions
specified herein and the users shall be deemed to
have read, understood and consented to these
terms and conditions.
21
  • Thank You

Amit Ratanpal emailamit.ratanpal_at_icicibank.com Mo
bile 91-9820039025
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