Private equity players in India focusing at hospitality and education sector

By Vipin Agnihotri

Private equity players in India are focusing at hospitality sector and education firms at this moment of time. Not so long ago, IT, manufacturing, banking and engineering were the preferred choice for private equity investors. But situated has changed in the last few months as "shallow sectors" such as hospitality, agriculture and media are gaining importance among bulge-bracket investors.

You may not believe at first but it’s true that even agriculture sector has pocketed $29 million by way of three separate deals. According to sources, agriculture-based research companies are attracting investors. On the other hand, in the energy sector, private equity investors have invested more than $250 million across 11 deals over the past nine months. In my opinion, power and power utility services are the most vibrant sub-segments of energy sector.

It has been noticed that hotel sector is attracting plenty of private equity investors. In terms of statistic, private equity investors have invested more than $25 million in hotels chains this year. According to experts, booming hospitality sector in India is seeing rising interest from both domestic and foreign players that are interested in investing in hotels.

The domestic education sector also stands to gain from the private equity investors. Because of booming economy and talent shortage, private equity investors expect the demand for services from such firms to pick up. Point to be noted here is that companies in the education sector normally give online tutoring services for customers abroad.

In some cases, they also tap the domestic market by setting up coaching centres and vocational training. Berggruen Holdings, a New-York based fund, which is interested in investing $300 million in India over the next couple of years, has identified education as one of its focus areas.

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India the New Hot Spot for Global Private Equity

By Vipin Agnihotri

Thanks to increasing consumer market and economic boom in India, the action in private equity space is increasing with every passing day. Therefore, I was not at all surprised when one of my colleagues said to me that private equity funds are queuing up to enter India (By the way, another source for private equity news that we subscribe to is the VC Circle).

Point to be noted here is that Blackstone India and Apax Partners, which started investing in India this year, already have full-fledged offices here. Same is the case with Baird Private Equity and Lehman Brothers. What’s more, Deloitte Touche Tohmatsu India has also set up a dedicated private equity practice called Deloitte Corporate Finance Services India.

According to sources, two more big names from the Private Equity scene, both having expertise in leveraged buyouts, namely Kohlberg Kravis Roberts & Co and Cerebrus Capital are setting up shop in India even though buyouts are not that famous in Indian market.

In my opinion, majority of these top buyout funds are at this moment of time not operating the way they do in the western markets. If experts are to be believed, their modus operandi is different in India. It is worth mentioning in this regard that leveraged buyouts are still not happening in India. As a matter of fact, in India funds are investing largely to build companies.

In addition, another hitch in the Indian market is that the skill sets required for leveraged buyout are not easily available. Taking this into account, foreign players like Blackstone India and Apax Partners make do with extremely lean teams in India. Whatever be the case, one thing is for sure that the potential is there of buyouts and players are bullish.

All in all, as the Indian market matures, these funds with deep pockets can create a market for their core business. But for the time being, they are just casing out the joint and waiting for bigger opportunities.

The India Street has information that Cerberus Capital Management Chairman John W Snow will come to India in December as a precursor to a direct presence.

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Editor Musings – India High Net Worth Individuals, New Videos and Other Updates

Starting this week we will be starting a couple of new things I’d like to share with our readers. First, our series of video interviews that are meant to be entertaining yet educational yet maintaining our purpose here which is to give you information to make intelligent investment decisions. Second, like the Robb report in the US, we want to start offering a look at how Indian high net worth individuals spend their money inside of India and around the world. We’ll start slowly, but we want to better examine the habits and spending activities of India’s super rich. Speaking of India’s super rich, KP Singh became India’s third rupee trillionaire after DLF’s stock rose sharply after the IPO. Incidentally, the other rupee trillionaires are Mukesh and Anil Ambani.

India Telecom Industry

India’s telecom industry’s profit is ahead of the US, Japan, France, Australia, Switzerland and a lot of other Western countries. The latest Merrill Lynch report gives high marks to the Indian Telecom industry management.

NRI’s and the Stock Market

NRI’s are starting to put more money into India Stocks. As NRI’s inherit money or land from their relatives, they are selling the land off and buying stocks. That may explain some of the recent performance of the stock market, but here we tend to believe it’s just good fundamentals. It appears NRIs are largely investing in IPOs (which we cover extensively here) and buying shares in the market. These investments have increased from over $350 million in 2000 to over $6 billion in April 2007.

Interestingly, the largest amount of money goes into bank stocks calculated at $3 billion at the end of 2006. The RBI data shows 3% of the remittances by the NRI are invested in stocks and 54% is used for family care. The remaining amounts are spent on other assets like real estate, bank deposits, and other investments.

Private Equity Deals Top China

According to Thomson Financial, in the first 6 months of 2007 India saw nearly 30 Private Equity deals worth 2.5 billion (USD) compared with 68 deals totaling 2.3 billion for all of 2006. India ranks 16^th globally in terms of completed private equity deals and above all of the BRIC countries (Brazil, Russia, India, China) – That in itself is an amazing statistic given our belief that China has a 10 year start on India. The globe is voting and India is the preferred destination for Private Equity deals.

Why did Starbucks postpone their plans of Entering India?

I do not know whose idea it was to reject the application for Starbuck’s entry into India, but I can tell you that it will hurt India not help it. How, you might be thinking can one rejection hurt India? Well when politics are involved (Starbuck’s application was rejected by the Foreign Investment Promotion Board and Commerce Ministry on account of unclear proposed equity structure for India operations). Other foreign retailers watch these political decisions and put their India plans on hold. If you want further proof, ask Harley Davidson why it took so long to get Harley’s into India. It took an Indian mango to break the impasse.

Starbucks is working with partner New Horizons, however, the Joint Venture supposedly violated FDI norms as Starbucks was not an equity partner in the Joint Venture. Speaking from experience, this is a load of bunk and in my opinion the delay is meant to allow homegrown coffee chains like Barista and Café Coffee Day to further gain market share. As a Starbucks chain will really hurt the domestic chains due to their much more efficient supply chains and management structure. Politics is clearly in play and should be immediately sidelined. Do you honestly think the Starbuck’s India attorneys didn’t advise Starbucks of FDI norms prior to their submittal to Foreign Investment Promotion Board?

REBI to Reach out to NRI’s

Bangalore’s Real Estate Bank International (REBI) plans to reach out to NRI’s an investment of Rs. 250 million. REBI currently has offices in the US, Sri Lanka, UAE, Singapore, Malaysia and Australia that enable easy real estate service information. It is expected that REBI’s domestic network will be expanded to 3000 franchises over the next three years. REBI offers brokerage, financial and relocation services to sellers and purchasers of property.

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