India In Sight #59
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:
H1 2024 Tech startup funding report by Inc42
Banking sector roundup – FY24 by BCG
Navigating FinTech cyber threats and fortifying defences by PWC
India real estate: Residential and office market by Knight Frank
Sector notes on real estate (industrial, logistics, warehousing) by Colliers and CBRE
Sector notes on Healthcare and Hospitals by CRISIL, HDFC Securities and Anand Rathi
Special section on Union Budget 2024-25 featuring key highlights and reports
KEY DEALS
Equity
Unimech Aerospace, a manufacturer of high-precision tooling for aero-engines and airframes, raised c.$30 million led by Steadview Capital, ValueQuest Scale Fund and Evolvence India at an estimated valuation of c.$390 million. (July 25, 2024)
Rays Power Infra, a renewable energy company, raised c.$15 million from HNIs, Family offices, and AIFs. The company will be filing for an IPO later this year. (July 24, 2024)
[Expected] Leap Finance, a fintech platform for Indian students studying overseas, looking to raise $70–100 million in a new round at an expected valuation of c.$1-1.2 billion. The company is seeking fresh investment after two years of its Series D round.
[Expected] OrbiMed, a US-based PE firm and British International Investment (BII) which collectively own a 49% stake in Asian Institute of Medical Sciences, a North India based hospital chain, looking to sell their stake to another private equity firm, at an expected enterprise valuation of c.$180 million. (July 26, 2024)
[Expected] Mankind Pharma, a pharmaceutical company, is looking to acquire Bharat Serums and Vaccines, a biopharmaceutical company, for an enterprise value of c.$1.6 billion from Advent International. (July 26, 2024)
MARKET INSIGHTS & RESEARCH
Reports
As per the Inc42 ‘H1 2024 Tech startup funding report’, Indian startups raised $5.3 billion across 504 deals, a slight 2% decrease from H1 2023, with a median ticket size of $2.8 million. Bengaluru led as the top funding hub, with e-commerce and fintech as the most funded sectors. Debt funding doubled to $576 million, while mega deals decreased to 7 from 14 in H1 2023. The largest round was $665 million in e-commerce. Despite these changes, 93% of investors are optimistic about a recovery in 2024.
BCG report on ‘Banking sector roundup – FY24’: India's banking sector saw a strong performance in FY24, with total net profits surpassing $36 billion (up 29% YoY) for the first time, driven by 15% credit growth and low non-performing assets. However, the sector faced liquidity challenges due to higher interest rates and competitive pressures from mutual funds and other asset classes. Some key stats: Total deposits at c.$2.5 trillion (up 13% YoY); Total net advances at c.$1.9 trillion (up 15% YoY); Total income at c.$260 billion (up 25% YoY); Net interest income at c.$94 billion (up 15% YoY); CASA ratio at 39.7% and GNPA at 2.8%.
PWC’s report on ‘Navigating FinTech cyber threats and fortifying defences’ highlights that India’s FinTech sector has surged, driven by technological advancements, government initiatives, and a growing digital user base. As of March 2024, UPI transactions hit a record $237.5 billion, supported by 1.12 billion smartphone users and 751.5 million internet users. The FinTech market, valued at over $80 billion in 2023, is projected to reach $1 trillion by 2030. In Q1 2024, sector funding rose to $551 million, a 59% increase from Q3 2023. Sector headwinds also include emerging cyberthreats, security failures and data breaches. FinTechs must shift their focus towards re-strategizing their current cybersecurity investments and frameworks in order to prevent/halt the implications of cyberthreats by following recommendations included in the report.
Knight Frank’s report on ‘India’s real estate’ outlines that the Indian real estate market witnessed significant growth in H1 2024. The residential sector saw an 11% YoY increase with 0.17 million units sold, while new launches hit a 10-year high. The office market experienced robust activity, with Mumbai leading, recording a 79% YoY increase in leasing volumes. Additionally, premiumization is on trend as the share of the number of units launched in the >INR 10 million ticket size category grew from 36% in H1 2023 to 47% in H1 2024.
CBRE’s report ‘India market monitor H1 2024 - Industrial & logistics’ highlights that India's industrial and logistics sectors see steady supply additions and are expected to benefit from festive demand and new market entrants in the coming quarters. The report gives insights into the leasing, supply and absorption status in H1 2024 - 16.6 million sq. ft. absorbed while 15.5 million sq. ft. was supplied. Key sectors that dominated leasing included 3PL (third party logistics), engineering & manufacturing, FMCG, e-commerce and retail.
Colliers report on ‘India industrial & warehousing market snapshot’ shows that in Q2 2024, Delhi NCR and Chennai led the demand for industrial and warehousing space, accounting for over half of the 6 million sq ft leased, a 48% YoY rise. The quarter saw 7.5 million sq ft of completions, a 53% YoY increase. Delhi NCR drove demand with 1.8 million sq ft. Third-party logistics (3PL) occupied over 30% of the space, followed by engineering (21%) and electronics (16%). Vacancy levels rose by 210 bps to 12.2%.
Ambit’s sector note on ‘Indian QSR: Chicken dinner is the winner’ highlights the strong growth of India's Quick Service Restaurant (QSR) sector, driven by increased store expansions and strategic initiatives despite economic challenges. The sector grew at 20%+ CAGR during FY20-25. With a market potential in over 550 cities and significant room for expansion, brands like Domino's, KFC, and Burger King have opportunities to double their presence. Recent consumption slowdowns due to inflation and normalization of demand post-COVID are noted, yet the sector remains resilient, reflecting robust demand fundamentals.
Sector focus: Healthcare & Hospitals
The CRISIL Ratings report on the Indian hospital sector highlights robust growth and stable outlook. Key points include:
Revenue growth projected at 11-12% for fiscal 2025, driven by bed additions, medical tourism, and higher insurance penetration.
Operating margins expected to rise to 16-17%, supported by higher operating leverage and complex surgeries
Capex remains high, with significant bed additions planned, primarily in metro and Tier I cities
Private hospitals are outpacing government hospitals, with continued growth expected in the medium term
HDFC Securities’ ‘Initiating coverage report on India healthcare’ highlights that India’s healthcare sector is expected to grow at an 11-12% CAGR over the next five years, driven by improved infrastructure and a shift towards organized markets. The hospital segment focuses on improving occupancy and margins post-CAPEX phase, with diagnostics and retail pharmacies also poised for significant growth. Key challenges include competition and regulatory pressures. Leading companies like Apollo Hospitals, Max Healthcare, and MedPlus are projected to perform well, with strong growth visibility and strategic expansion plans.
Anand Rathi’s report on ‘Hospitals: Brimming with opportunities ahead’ outlines that healthcare delivery services, constituting 70%+ of India’s healthcare market, are expected to grow at c.15% CAGR to $92+ billion over FY22-25, driven by demographic shifts, rising non-communicable diseases, and increased ability to pay. India’s healthcare infrastructure lags behind, with private sector growth likely to continue benefiting from this demand-supply mismatch. Rising life expectancy, urbanization, income levels, health insurance penetration, and government schemes are key demand drivers, particularly benefiting larger, organized hospitals.
Articles
EvolutionX Debt Capital, a joint venture between Temasek Holdings and DBS Bank, is reallocating its investment focus from China to India, aiming to capitalize on India's growing private credit market. The Singapore-based platform plans to allocate up to 70% of its $500 million fund to India, targeting high double-digit returns over a three to four-year investment horizon. This shift is driven by macroeconomic concerns in China, with the potential for adjustment as conditions evolve. Read more.
Google recognizes India as a crucial hub for startup innovation due to its dynamic entrepreneurial ecosystem and growing tech talent. The company is heavily investing in India, with significant engineering teams based in the country. Indian startups are increasingly leveraging generative artificial intelligence (GenAI) to create innovative solutions, addressing previously unsolvable challenges. Key examples include startups like Fitterfly and Cropin. Google is aiding this trend through its Vertex AI platform and by hosting workshops to help companies apply AI effectively. Read more.
UNION BUDGET 2024 HIGHLIGHTS
Read the Key Sectors and Investment Opportunities (Part 1) in our previous edition!
Key Sectors and Investment Opportunities (Part 2)
9 priorities areas: 1. Agriculture; 2. Employment & Skilling; 3. Inclusive human resource development and social justice; 4. Manufacturing & services; 5. Urban development; 6. Energy security; 7. Infrastructure; 8. Innovation, research & development; 9. Next generation reforms
Overall PLI allocation in the budget increased significantly by 77% YoY in FY25 to reach c.$1.7Bn, dominated by Electronics and IT, automobiles and auto components and pharma. Allocation for PLI Scheme for textiles sector increased by 9x vs interim budget
c.$64.2Bn allocated for roads and railways (up by 4%)
c.$12.9Bn allocated for boosting Employment via ‘Employment Linked Incentive’
c.$14.8Bn allocated across 5 years for skilling programme, upgradation of industrial training institutes and internships in top companies
c.$7.1Bn and c.$1.8Bn allocated for infra, road, energy development in Bihar and Andhra Pradesh respectively
Multiple schemes for MSMEs focused on easy access to credit
SIDBI to open branches across all major MSME clusters within 3 years for direct credit
Increased allocation at c.$11Bn for healthcare and pharma. Focus on the PLI scheme for bulk drugs is anticipated to reduce import dependence
Removal of indexation benefits and rationalising LTCG to 12.5% and tenure to two years, for financial and nonfinancial assets
Focus on Setting up industrial parks under Public Private Partnership (PPP) mode and National Industrial Corridor Development Programme, e-commerce hubs, promoting first-mile last mile connectivity, augmenting the logistics efficiency and driving warehousing growth
Other areas of focus include shipping and aviation, textiles, tourism and hospitality
Select reports with highlights and summary of the Budget 2024-25
Private market and investor insights
Several measures included to boost dealmaking: reducing the tax rate on slump sales from 20% to 12.5%, providing tax clarity for the Offer for Sale (OFS) route, shifting buyback tax from companies to shareholders, and abolishing the angel tax, which will enhance investor confidence. These changes are expected to increase M&A activity and make India more attractive for investments. The government also aims to simplify the withholding tax regime and compliance provisions, further supporting dealmaking efforts. Read more.
Announced the establishment of $120 million venture capital fund to support startups in the space sector, aiming to expand the space economy by 5x in the next 10 years. The budget also allows 100% foreign direct investment (FDI) in satellite manufacturing and reduces customs duties on critical minerals for sectors like space and high-tech electronics. This initiative aligns with India's strategy to liberalize and commercialize its space sector, encouraging equity investment, aiming to mobilize c.$500 million and supporting early-stage space-tech companies like Agnikul and Skyroot. Read more.
Venture Capital funds in Gujarat's GIFT City will be exempt from disclosing their fund sources under a new budget proposal aimed at promoting investment and employment. This relaxation eases compliance for VC funds and extends tax exemptions to retail schemes and ETFs, though it does not exempt them from the Prevention of Money Laundering Act (PMLA). Read more. [Paywall]
The government will seek legislative approval to introduce a variable capital company (VCC) structure for financing and leasing aircraft and ships, benefiting private equity investors. A VCC, popular in jurisdictions like Singapore and Mauritius, allows fund managers to manage multiple funds under a single umbrella, offering flexibility in share issuance, redemption, and dividend payments. This structure can reduce fund management costs and attract more capital flows into India, potentially positioning the country as a global financial hub. However, being relatively new, some investors may view VCCs as untested and prefer established structures. Read more.
The Indian startup ecosystem welcomed the removal of the Angel Tax but the relief is not retrospective, meaning investments made before April 2024 are still subject to a 30% tax. This limited scope leaves startups and investors dissatisfied, as they have been advocating for complete removal, including past investments from 2012 to 2024. While the abolition is a positive step, it doesn't address ongoing issues from previous tax assessments, which continue to affect many startups. The Angel Tax, introduced in 2012 to combat unaccounted money, remains a unique challenge for Indian startups compared to global markets. Read more.
Reduction of the long-term capital gains (LTCG) tax from 20% to 12.5% on unlisted company assets was also viewed as positive by the investors and startup ecosystem. This change brings parity with listed securities and is expected to boost investments in startups by making them more attractive. The move comes at a crucial time when primary capital access is challenging, and secondary market activity is increasing, benefiting early investors in large tech startups like Swiggy, Meesho, Lenskart, and Purplle. Read more.
Read the Key Sectors and Investment Opportunities (Part 1) in our previous edition!
KPIs
India's post-election budget reaffirms the government's commitment to reducing the fiscal deficit, targeting 4.9% of GDP for FY25 and aiming for below 4.5% by FY26. This fiscal consolidation effort, despite coalition pressures, is paired with various measures to stimulate economic growth.
The Indian financial system is stronger than in the past, and the country's economy remains resilient despite global headwinds. RBI deputy head noted India's top ranking in the Climate Change Performance Index (CCPI) among G20 nations in 2024, highlighting the country's commitment to climate action. He emphasized that aligning economic policies with climate goals can drive green investments, improve energy efficiency, and promote sustainable development across sectors.
India's business activity surged to a three-month high in July, driven by strong demand in the services sector, leading to the fastest pace of hiring in over 18 years. HSBC's flash India composite purchasing managers' index (PMI) rose to 61.4 in July from 60.9 in June, marking three consecutive months of expansion.
WEEKLY MARKET UPDATE (w/c July 22, 2024)
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