India In Sight #51 (with May 2024 Roundup)
India In Sight #51 (with May 2024 Roundup)
Weekly updates on Indian private markets
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Key reports in this edition:
PE/VC Roundup April 2024 by IVCA-EY
Tech Services: A hotspot for private equity investment by Avendus
GCCs in India: Building resilience for sustainable growth by KPMG
Unlocking the potential of Alter Ego Trusts: A strategic alternative to Wills by Avendus
Sector notes on power and gold jewellery (retail) by ICRA
KEY DEALS
Equity
Capital Square Partners, a Singapore-based PE firm, invested in inMorphis, an IT advisory, innovation, and services company. The financial details of the transaction were not disclosed. (May 31, 2024)
[Exit] General Atlantic sold its stake in PNB Housing Finance, a housing finance company, and KFin Technologies, a financial services platform, for a combined value of c.$135 million in secondary market transactions. The PE firm sold c.2.2% stake in PNB Housing Finance for c.$50 million and c.5.8% stake in KFin Technologies for c.$85 million. (May 30, 2024)
GIC and Xander Investment, a Singapore based real estate private equity investor, acquired WaveRock, a Hyderabad-based IT office asset from SPREF II, a JV between Shapoorji Pallonji and Allianz Real Estate for an estimated c.$265 million. The exact transaction details were not disclosed. (May 30, 2024)
Xponentia Capital, a mid-market PE firm, invested in Sedemac Mechatronics, a deep-tech company, as part of its c.$100 million funding round. Other investors included are A91 Partners and 360 One Assets. The exact financial details of the transaction were not disclosed. (May 30, 2024)
GIC acquired c.4% stake in Timken India, a bearings and power transmission products manufacturer, for c.$150 million. Other investors include Morgan Stanley and Indian mutual funds. (May 29, 2024)
Euler Motors, an electric three-wheeler maker, raised c.$25 million from Piramal Alternatives as part of its c.$68 million extended funding round. Other investors include BII and Blume Ventures. (May 29, 2024)
Infra.Markets, a B2B construction material startup, raised c.$50 million from Mars Growth Capital, a JV between MUFG Bank, a Japanese Bank, and Liquidity Capital, an Israel-based fintech company. (May 28, 2024)
[Expected] Aarthi Scans, a radiology and pathology diagnostic chain, is looking to raise c.$35 million from private equity firms for its expansion plans. (May 29, 2024)
Credit Deals and Issuances
Ather Energy, an electric scooter maker, raised c.$35 million in a mix of debt and equity funding from Stride Ventures and its founders. Stride Ventures invested c.$25 million through Series C3 debentures while the founders invested c.$10 million through Series F compulsorily convertible preference shares. (May 31, 2024)
CapitalLand India Trust, a real estate investor, secured c.148 million in sustainable-linked loan from IFC. (May 30, 2024)
Tata Steel is looking to raise c.$360 million via NCDs on a private placement basis. (May 29, 2024)
Propelld, an education-focused lending platform, secured debt funding of c.$25 million for Edgro, its wholly-owned NBFC subsidiary, from multiple lenders including Credit Saison India, AU Small Finance Bank, InCred, and Northern Arc. (May 17, 2024)
May 2024 Roundup - Key Deals
KEY FUNDS AND FUNDRAISES
Sorin Investments, a tech-focused investment firm, marked the final close of its maiden fund with a target corpus of c.$162 million (90% domestic capital). (May 30, 2024)
RPSG Capital Ventures, a consumer-focused venture capital firm, raised c.$65 million for its second fund from domestic LPs. (May 30, 2024)
Avendus Capital, a domestic investment banker and investor, launched its third private equity fund, with a target corpus of c.$350 million for making investments in late stage companies. (May 29, 2024)
EQT, a Sweden based global investor, raised c.$1.6 billion for its new Asia-focused buyout fund for its expansion in mid-market private equity investments. (May 27, 2024)
Sauce VC, a consumer-focused venture capital firm, launched its third fund with a target corpus of c.$30 million. (May 27, 2024)
May 2024 Roundup - Key Funds
MARKET INSIGHTS & RESEARCH
Reports
IVCA-EY PE/VC Roundup outlines that in April 2024, PE/VC investments amounted to $4.4 billion, down 4% from March and 35% from April 2023, despite a 56% yoy increase in deal volume. Pure play PE/VC investments reached $3.5 billion, with a 73% rise in number of deals. Real estate and infrastructure investments fell by 71% yoy. Buyout investments led with $2.1 billion, while financial services topped sectors with $1.8 billion. The first four months of 2024 saw a 38% increase in deals, though total investment value declined by 12%, reflecting cautious investor sentiment due to global uncertainties and ongoing elections.
‘Tech Services: A hotspot for private equity investment’ report by Avendus shares that PE deals in the IT services sector have tripled over the past decade, reaching c.230 deals in 2023, driven by the sector's resilience, high cash flow, and strategic focus on high-demand areas like Cloud, Analytics, and Cybersecurity. Platform-led bolt-on transactions comprise 70% deal volumes with focus on building high growth asset with niche capabilities with BFSI and healthcare focused assets capturing 50% of the total investments. With 350+ active PE investors and substantial increases in deal values, IT services offer attractive exit opportunities and significant returns. The sector has proven resilient against market downturns, attracting consistent global interest and generating 25-40% IRRs in the IT services space through strategic investments and multiple expansions (45%+ average IRR in ‘PE flips/secondaries’). [Paywall]
KPMG’s report on ‘GCCs in India: Building resilience for sustainable growth’ provides insights into the growing Global Capability Centres industry in India - 1,580 GCCs established by FY2023. GCCs are key drivers of growth and innovation, leveraging a large talent pool and supportive ecosystem. Key priorities include managing talent, leveraging emerging technologies for strategic transformation, ensuring regulatory compliance, and addressing concentration concerns. Mitigation measures focus on future talent availability, adopting advanced technologies, and enhancing service delivery models.
Avendus’ note on ‘Unlocking the potential of Alter Ego Trusts: A strategic alternative to Wills’ provides insights on creating a will that is essential but poses challenges such as revocability, potential disputes, and complicated post-life procedures. Alter Ego Trusts offers a strategic alternative, simplifying estate planning by bypassing probate, reducing costs, preserving privacy, and ensuring quicker inheritance distribution. They also provide continuity in asset management and partial incapacity planning. However, they require annual tax returns, incur high tax rates on income, and involve administrative costs. Weighing the benefits and drawbacks of Alter Ego Trusts is crucial for effective estate planning.
Avendus’ note on ‘Possible impact of the union budget on arbitrage funds’ outlines that with the Union Budget expected in mid July, speculation is rife about potential changes in taxation on listed equity capital gains and their impact on arbitrage funds. Possible changes include tax rates on short-term and long-term holdings, long-term holding periods, and grandfathering existing investments. The worst-case impact could involve a 2-3 bps drawdown due to widened equity arbitrage spreads, but past resilience of arbitrage strategies suggests potential for recovery.
Colliers report on ‘Housing price tracker’ outlines that in Q1 2024, average housing prices in India rose by 10% annually amid strong market sentiments. While unsold inventory went up by 3% yoy, robust demand momentum led to a reduction in unsold housing units on a quarterly basis. Key highlights include steep price increases in Bengaluru (19%) and Delhi NCR (16%), and a significant drop in unsold inventory in Pune (10%). Demand for spacious units surged, with 3 & 4BHK prices increasing up to 25% YoY across cities.
Sector notes from ICRA:
Power: Growth in electricity demand improved to over 14.0% in the first 28 days of May 2024 from 10.2% in April 2024, led by a favourable base and demand for cooling.
Gold jewellery (retail): The domestic jewellery retail industry (in value terms) is estimated to have grown by ~18% in FY2024 yoy. The organised retail jewellery sector is likely to benefit from accelerated formalisation of the industry and robust store expansion plans. Operating margins likely to remain range bound.
Articles
The asset management industry in India has grown significantly, with total AUM increasing from c.$313 billion to c.$820 billion over the past five years at c.20% CAGR, driven by rising incomes, better financial awareness, and supportive regulations. Alternatives, including AIFs, InvITs, and REITs, have surged, with their share rising from 9% to 19%, reflecting increased investor interest. Public alternatives, such as hedge funds and PMS, aim to generate higher returns by investing in publicly traded instruments. Read more.
As per YourStory, in May, the Indian startup ecosystem saw a significant rise in venture capital funding, increasing by c.30% annually to c.$1.3 billion, driven by large deals from Meesho and Pharmeasy. This marks the first time in 2024 that monthly VC funding surpassed $1 billion, with a 56% month-on-month increase from April's $848 million. Late-stage category received the highest amount at $605 million followed by early stage at $365 million. Read more (Entrackr article covered here).
RBI has established a framework for self-regulatory organizations (SROs) in the fintech sector, following feedback on draft norms. These industry-led SROs will oversee regulatory standards, ethical conduct, market integrity, dispute resolution, and transparency. Read more.
India is one of Asia’s leading equity markets, including IPOs, with $3.9 billion raised in IPOs so far in 2024, twice of what was raised in the same period in 2023. This exceeds the combined totals of South Korea and Hong Kong, driven by investor interest in the region's rapidly growing third-largest economy. Read more.
Late-stage funding (Series C and above) hit a seven-year low in the first five months of 2024, with the average deal size dropping to $47 million from over $57 million in the same period of 2023. Investors are now prioritizing metrics such as profitability and sustainable growth (EBITDA multiples from revenue or GMV multiples). Read more. [Paywall]
Innovative climate technologies, such as renewable energy, electric vehicles, climate-smart agriculture, green hydrogen, carbon capture, and digital technologies, offer promising strategies to combat rising temperatures and improve urban resilience in India. Overcoming challenges like high costs and regulatory hurdles requires concerted efforts from policymakers and the private sector. Read more.
KPIs
RBI’s ‘annual report’ underscores the strong position of the Indian economy, driven by improved external sector sustainability and robust corporate balance sheets. It forecasts a 7% GDP growth for 2024-25, bolstered by strong macroeconomic fundamentals, production-linked incentive schemes, and an anticipated above-normal monsoon, despite global uncertainties. Read more.
The UPI network processed a record 14+ billion transactions in May, up from 13.3 billion in April, with transaction value increasing from c.$236 billion to c.$246 billion, according to NPCI data. [Paywall]
GST collections stood at c.$20.8 billion in May, marking a 10% yoy increase but down from April's record c.$25.3 billion. The growth was driven by a 15.3% rise in domestic transactions, despite a 4.3% decline in imports. Net GST revenue after refunds was c.$17.3 billion.
India's growth surged to 8.2% in FY24, driven by a better-than-expected 7.8% expansion in the March quarter, supported by robust manufacturing. This underscores India's status as the world's fastest-expanding major economy. [Paywall]
India utilized c.$114.3 billion in capital expenditure in FY24 - c.99% of the revised estimate of c.$114.4 billion. The government aims to reduce the fiscal deficit to 5.1% in FY25 from 5.8% in FY24. With GDP growth at 7.8% in Q4 FY24 and 8.2% overall, private capex is expected to drive future growth and job creation.
FDI equity inflows in India decreased by 3.5% to $44.4 billion in 2023-24, primarily due to reduced investments in services, telecom, and pharma sectors. Total FDI, including reinvested earnings, slightly declined to $70.9 billion. However, inflows surged by 33.4% in January-March FY24.
GDP growth in Q4 FY24 was strong at 7.8%, driven by gross capital formation, which contributed 36.9% of the total growth. However, the agriculture sector and private consumption lagged, with private consumption at its lowest GDP share since March 2010. Annual growth in private consumption was at 3.9% in Q4 2024, while GVA growth was 6.2%, with manufacturing contributing slightly over a quarter of total GVA growth. [Paywall]
Below is a quick snapshot of the services sector performance from the latest RBI bulletin May 2024.
WEEKLY MARKET UPDATE (w/c May 27, 2024)
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