India In Sight #41
Weekly updates on Indian private markets
We are Ambassador Capital Partners, an investment firm with a focus on private credit and private equity. Deeply embedded in the private markets ecosystem, ACP works with large global institutions to provide creative capital solutions for companies and asset managers.
In the spirit of making Indian private markets more accessible and transparent to global LPs and GPs, we have launched ‘India In Sight’ – consolidating and curating relevant information and insights from Indian private markets including trends, key deals, fundraises, KPIs and top tier research.
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Key reports in this edition:
PE/VC Roundup - February 2024 by IVCA-EY
Export credit and role of the IFSC by PWC
FY2025 Credit Market Outlook by India Ratings
India Chartbook: an economy for the long haul by Societe Generale
FY2025 Corporate Healthcare Outlook by India Ratings
March 2024 Bulletin by RBI
Read below for insights and links to the reports!
KEY DEALS
Equity
Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers Pension Plan (OTTP) invested c.$220 million each in National Highways Infra Trust (NHIT), an InvIT sponsored by the National Highway Authority of India (NHAI). CPPIB and OTPP had initially invested in NHIT in 2021 & 2022 with their total investments now reaching c.$440 million each in the InvIT after the latest transaction. (March 20, 2024)
Pocket FM, an audio entertainment platform, raised over $100 million in Series D funding led by its existing investors Lightspeed Ventures and Stepstone Group. (March 20, 2024)
Ultrahuman, a longevity and health-monitoring platform, raised c.$35 million in a mix of equity and debt from its existing investors which include Blume Ventures, Steadview Capital, Nexus Venture Partners, Alpha Wave, and Zomato founder Deepinder Goyal. (March 20, 2024)
[Expected] Varthana Finance, an education focused loan platform and NBFC, is looking to raise c.$40 million in a mix of primary and secondary funding from its existing investors. (March 19, 2024)
Engrail Therapeutics, a neuroscience biotechnology company, raised c.$155 million in its Series B funding led by F-Prime Capital, Forbion, and Norwest Venture Partners. (March 19, 2024)
Credit Deals and Issuances
BPEA Credit, an Asia-focused private credit fund, to invest c.$65 million in Veranda Learning, an education and exam prep company, via NCDs priced at 10-11% coupon. (March 21, 2024)
Shapoorji Pallonji Group, an Indian conglomerate, is exploring to raise c.$2.4 billion in debt capital from investors like Power Finance Corp, a power focused government-backed financier, to refinance the debt taken three years ago via bonds issued by the Group’s main investment vehicle Sterling Investment Corp against shares in Tata Sons. SP Group also sold its 56% stake in Gopalpur Port, a brownfield port project in Odisha, for a firm value of c.$400 million. The share sale is part of the Group’s strategy to divest non-core assets to pay off their debt. (March 21, 2024)
Punjab National Bank is looking to raise c.$240 million through the issuance of additional tier-1 bonds (rated AA+ by CRISIL and India Ratings). (March 19, 2024)
India Vehicle Finance, a special-purpose vehicle incorporated in Mauritius by Shriram Finance, a domestic non-bank lender, raised c.$300 million via ‘social bonds’ in a first of its kind transaction. The bonds were offered to US investors at c.6%. (March 19, 2024)
IFC subscribed to the first sustainability-linked NCDs issued by Grasim Industries, a flagship paint manufacturing company of Aditya Birla Group, for c.$150 million. (March 19, 2024)
KEY FUNDS AND FUNDRAISES
Alphatron Capital, a US-based investment firm, marked the final close of its maiden fund at c.$30 million surpassing its initial target of $25 million. The fund operates as a Fund of Funds with the aim to invest 70-80% capital in 10-15 Indian venture capital funds and the remaining as direct co-investments in the portfolio companies of the investee VC funds. (March 21, 2024)
ResponsAbility Investments, a Switzerland-based impact asset manager, secured c.$100 million in LP commitment from IFC for its Asia-focused climate fund with the target corpus of c.$500 million. (March 18, 2024)
B Capital, a multi-stage global investment firm, marked the final close of its second opportunities fund at c.$750 million. The fund will aim to invest in late stage companies, majorly in US and Asia, across segments like technology, healthcare and climate tech. (March 19, 2024)
Cedar Capital, a domestic early stage fund, marked the first close of its maiden fund, which was launched in 2023 with a target corpus of c.$30 million. (March 18, 2024)
MARKET INSIGHTS & RESEARCH
Reports
As per IVCA-EY PE/VC February 2024 report, PE/VC investments in India fell to $2.2 billion in Feb 2024, down 39% vs $3.7 billion in Feb 2023, and a 67% drop vs Jan 2024, despite an increase in deal numbers to 120. The sector saw seven major deals worth $1 billion, significantly lower compared to previous periods, amidst cautious optimism due to upcoming global elections. PE/VC exits amounted to $2.9 billion across 39 deals, up by 3x yoy in value.
PWC report on Export credit and role of the IFSC offers a succinct analysis of the trends, opportunities, and challenges in export credit and finance gap mitigation, aiming to be a key resource for stakeholders, and fostering further discussion and efforts on this crucial issue. It emphasizes the International Financial Services Centre's (IFSC) contributions to reducing India's export credit gap through innovative financial solutions and incentives, providing recommendations to enhance the IFSC's role as a trade finance hub.
India Ratings’ ‘FY25 Credit Market Outlook’ report anticipates that the Indian economy will feel the combined effects of fiscal, monetary, liquidity, and regulatory tightening in FY25, with some easing in banking system liquidity expected only in the latter half of the fiscal year. Despite this, lending rates are likely to stay high until potential softening in the second half. The agency forecasts an increase in bond issuances in FY25 due to a balance of limited supply and high demand, stable or slightly softer commercial paper rates, and a cautious credit market outlook, despite overall resilient corporate credit conditions and moderated growth in NBFC lending. Read more. [Paywall]
As per the latest Societe Generale’s report on Indian economy (a good collection of charts and stats), India is poised for a significant recovery cycle post-pandemic, exhibiting signs of economic normalization. The country is expected to maintain its status as the fastest-growing large economy, with real GDP growth projected to exceed 7%, driven by major investments in both traditional and non-traditional sectors. However, growth disparities are anticipated to continue, affecting economic participation across different societal segments. India is on track to ascend to an upper middle-income economy by the early 2030s, with the potential to become a $10 trillion economy by 2034, yet the transition to a high-income economy remains a more distant goal.
India Ratings’ report on corporate healthcare anticipates a steady outlook for FY25's corporate healthcare sector, projecting a revenue increase of 12%+ driven by a strong demand and medical tourism gains. The sector is poised to keep EBITDA margins healthy at c.20%, despite expanding capacity, thanks to higher average revenue per occupied bed (ARPOB) and effective cost controls. Financial health is expected to remain solid with an optimistic view on debt reduction and cash flow improvements. [Paywall]
As per a latest report by World Inequality Lab on economic inequality in India, in 2022-23, the income and wealth shares of India's top 1% reached their highest levels historically at 22.6% and 40.1%, surpassing even developed nations like the US. The paper indicates that India is now more unequal than during the British Raj, with a significant rise in inequality since the early 2000s, attributed in part to a potentially regressive income tax system. Read more.
Articles
The Asian Development Bank observes a significant resurgence in private investments in India, particularly in climate change initiatives, following a period of governmental effort to boost investments after a corporate slowdown. Gross fixed capital formation in FY24 will account for 34% of India's GDP, the highest in over a decade. ADB mobilised $1.2 billion for private projects in India in 2023, of which its own contribution was about $775 million and private parties made up the rest. 27% of these projects pertained to climate action. ADB also supported financing of sovereign-backed projects worth $2.6 billion in India last year. Read more.
Corporate bond investments will be allowed under held-to-maturity (HTM) category for the first time from April 2024, provided the fair value is disclosed and investments protected from mark-to-market volatility, as per revised RBI rules. Indian banks are expected to increase their investments in these HTM corporate bonds due to higher yields and protection from market volatility. This strategic shift includes a reduction in publicly traded stocks and bonds, with a focus on AAA-rated bonds from state-run companies as attractive options due to their higher yields and low credit risk. Read more.
Amidst India's economic and stock market boom, the startup environment faces a slowdown with investors becoming cautious, reducing their investments after witnessing significant valuation drops in prominent tech firms like Paytm. VC firms are now aiming for fewer, but larger investments in proven entities, prioritizing potential profitability and shifting interest towards more traditional businesses over tech startups. Read more.
Venture capital investors are pressing for partial exits from late-stage startups due to increasing pressures for returns amid a tech market downturn, with investment rounds often including significant secondary components for liquidity. This shift comes as VC investments in India fell to $9.6 billion in 2023 from $38.5 billion in 2021, pushing early investors to seek returns through secondary stake transactions in companies like Shadowfax, Meesho, and Sugar Cosmetics. Read more.
Alta Capital, a domestic investment & asset management firm, is looking to invest over $1 billion in Indian education infrastructure development. Alta Capital is the sole operating partner of Rava Partners in India, an affiliate of Hillhouse Investments, that raised over $2.7 billion in 2023 to invest in real estate assets in Asia. The firm has already invested over $1 billion across warehousing, managed workspaces, student housing and educational infrastructure businesses. Key deals include: acquisition of Capella Educore, an education infrastructure development company, for $200 million; acquisition of Good Host Spaces, a student housing platform, for $320 million; investment of $200 million in Pragati Warehousing and $325 million in Table Space, a managed workspace provider. Read more.
KPIs
The RBI’s State of the Economy Report highlights that amid global uncertainties in 2024, the potential output is picking up in India with the actual output running above it, although the gap is moderate. In 2024-25, the real GDP growth target of at least 7% should be sought in an environment of macroeconomic stability in order to grow steadily. Balance sheets of financial institutions need to be strengthened and asset quality improved even further with a need of ongoing consolidation of fiscal and external balances.
India's credit growth is expected to remain strong, fueled by economic expansion and an increase in digital retail lending, despite high NPAs in certain sectors. The demand for long-term credit, particularly in infrastructure and certain manufacturing sectors, continues to rise, aligning with the country's robust economic growth of 7.6% in 2023-24.
India's business activity surged to its highest growth rate in eight months as of March, with HSBC's India Composite PMI climbing to 61.3 vs February's 60.6, signaling robust manufacturing and service sectors and affirming its status as the fastest-growing major economy.
The Finance Ministry emphasized the need for increased domestic household savings to support private sector capital formation, with expectations of a better current account balance due to a smaller trade deficit and higher service receipts, despite potential challenges in FY25 and concerns over rising crude oil prices and supply chain bottlenecks.
Below is a quick snapshot of the services sector performance from the latest RBI bulletin March 2024.
WEEKLY MARKET UPDATE (w/c March 18, 2024)
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