India In Sight #62
India In Sight #62
Weekly updates on Indian private markets.
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Key reports in this edition:
PE/VC July 2024 roundup by EY-IVCA
State of Indian e-commerce (focus on fashion, beauty, personal care) by Inc42
Electronics: powering India’s participation in global value chains by NITI Aayog
Carbon markets as a tool for climate financing by Invest India, auctusESG, CMAI
ESG in the age of AI by KPMG
Sector notes on FMCG by Avendus; Power, Two wheeler and API industry by ICRA
KEY DEALS
Equity
Warburg Pincus acquired a majority stake in Ebco, a furniture fittings and architectural hardware company, for an estimated deal value of $350+ million. The exact financial details of the transaction were not disclosed. (August 16, 2024)
Syfe, a wealth tech platform, raised c.$27 million in equity funding from Valar Ventures, Unbound, and two UK-based family offices. (August 14, 2024)
Ather Energy, an electric scooter maker, raised c.$70 million from NIIF at an estimated valuation of c.$1.3 billion to become the latest unicorn in India. (August 13, 2024)
Vayana, a trade finance platform, raised c.$20 million in a Series D funding round led by Sumitomo Mitsui Banking Corporation (SMBC). Other investors include IFC, Chiratae Ventures, Jungle Ventures, Quantum State Investment Fund and Emerald Company. (August 13, 2024)
Zepto, an online grocery delivery and quick commerce app, to raise c.$310 million in a fresh round of funding from Mars Growth Capital, Liquidity Group, General Catalyst and other existing investors for an estimated valuation of c.$5 billion (40% up from its last funding round over a month ago). (August 12, 2024)
Innoviti, a payment gateway and point of sales provider, raised c.$9 million in a combination of equity and debt in a Series E funding round led by Random Walk Solutions. Other investors include Bessemer Venture Partners, Patni Family Office India, and Alumni Ventures. (August 12, 2024)
Neo, a wealth and asset management company, raised c.$48 million in a Series B funding round led by MUFG Bank and Euclidean Capital. Existing investor Peak XV Partners also participated in this round. Neo had earlier raised c.$27 million in this month as part of the same funding round. (August 12, 2024)
CVC Capital Partners acquired an additional 26% stake in Aavas Financiers, a home finance firm, from Kedaara Capital and Partners Group for an estimated value of c.$400+ million. Kedaara Capital and Partners Group will exit their eight-year-old joint investment making a 6x return. (August 11, 2024)
OYO, a hotel and hospitality chain unicorn, raised c.$175 million in a Series G round from InCred Wealth, Patient Capital, J&A Partners, the family office of Mankind Pharma promoters and ASK Financial Holdings. (August 11, 2024)
[Expected] Flexiloans, a digital lending platform, is looking to raise c.$35 million in equity from domestic and global PE firms. (August 14, 2024)
[Expected] Optiemus Infracom, a wearables and telecom equipment maker, is looking to raise c.$50 million to expand its manufacturing business. (August 16, 2024)
KEY FUNDS AND FUNDRAISES
EQT is looking to launch its new Asia-focused fund with a target corpus of c.$12.5 billion. The new fund will be managed by EQT Asia. (August 16, 2024)
MARKET INSIGHTS & RESEARCH
Reports
EY & IVCA’s ‘PE/VC July 2024 roundup’ highlights that in July 2024, PE/VC investments totaled $2.7 billion, a 42% drop y-o-y and a 35% decline from June 2024. While pure-play PE/VC investments fell by 56% y-o-y to $1.8 billion, real estate and infrastructure investments surged by 67% y-o-y to $926 million. Buyout deals led the activity, accounting for $1.2 billion or 45% of the total. PE/VC exits also saw a 16% decline y-o-y, with $2.5 billion across 16 deals.
Inc42’s report ‘State of Indian e-commerce’ highlights a promising $400 billion market opportunity for Indian e-commerce by 2030, growing at a 19% CAGR. Key growth segments include fashion and beauty/personal care, with beauty and personal care expected to reach $28 billion by 2030, growing at 28% CAGR. Indian e-commerce funding has dropped by 53% in H1 2024, but seed and growth-stage funding saw a significant increase. The report also emphasizes the rising importance of AI and omnichannel strategies in driving future growth across the sector. [Paywall]
NITI Aayog’s report: ‘Electronics: powering India’s participation in global value chains’ outlines that India’s manufacturing sector plays a crucial role in the economy but remains modest compared to global leaders like China and the USA, contributing 3.3% of global output. The electronics sector is vital, accounting for US$43 billion in exports, with over 75% of exports integrated into global value chains (GVCs). Despite challenges, the industry is growing, driven by semiconductor investments, components for electronics like iPhones and significant imports from multiple countries. However, India's electronic component manufacturing and design ecosystem is still in its early stages.
Invest India’s report ‘Carbon markets as a tool for climate financing’ explores India’s plans to focus on its climate initiatives - Indian carbon markets could reach $40 billion by 2030. Multiple clean-tech start-ups have emerged with record investments of $1.1 trillion in 2023 (up by 31% y-o-y) in carbon-free infrastructure assets. The country is focusing on decarbonization to drive economic growth and capitalize on clean energy exports. India’s Carbon Credit Trading Scheme (CCTS) and the upcoming Emission Trading System (ETS) aim to meet its net-zero goals by 2070, with India being a significant player in the voluntary carbon markets.
KPMG report on ‘ESG in the age of AI’ denotes that Artificial intelligence (AI) is increasingly recognized as a key tool to help businesses achieve their ESG goals by streamlining processes, improving data collection, forecasting emissions, and assessing climate risks. According to the KPMG 2023 India CEO Outlook, 54% CEOs in India have integrated ESG into their business strategies, but balancing ESG goals with profitability remains a challenge. AI can aid in transparency and performance improvement, though the energy-intensive nature of AI itself requires careful management and governance to avoid counterproductive impacts.
Avendus’ note on ‘Fast moving consumer goods’ shares that India's FMCG sector is set for potential growth revival, driven by government measures to boost rural incomes. Rural growth outpaced urban growth in Q4 2023-24, and EBITDA margins have surpassed pre-COVID levels. However, FMCG volume growth remains subdued due to inflation and increased demand for low-unit packs (LUPs). As companies shift focus toward expanding distribution in small towns and rural markets, there is potential for both premiumization and market penetration, especially in less saturated segments like food and beverages.
ICRA Sector notes:
Indian power sector: Subsidy dependence for FY2025 is expected to rise to $23 billion from $20 billion in FY2023 due to rising costs and new subsidy schemes. The power distribution sector's outlook remains negative, with state-owned businesses facing challenges such as high power purchase costs, inefficiencies, and debt burdens, despite recent reforms.
Indian two-wheeler industry: In July 2024, domestic two-wheeler sales volumes grew by 10% y-o-y, driven by improved rural demand. Export volumes remain weak, retail sales showed a healthy 17% y-o-y growth. Electric 2W sales also improved sequentially, with a 15% increase over June 2024.
Indian API industry: The Indian API industry is projected to grow at a 7-8% CAGR from 2023 to 2029, driven by steady pharma growth, rising demand for contract manufacturing, and increased domestic sourcing. India imports 35% of its APIs, with 65-70% from China. Major companies are expected to maintain stable credit metrics in FY2025.
Articles
Tech IPOs in India have gained momentum with six successful listings between May and August, reflecting strong market confidence. Meanwhile, venture capitalists are increasingly shifting to setting up secondary funds, which buy shares from existing backers to offer more exit options for investors. Secondary transactions, comprising about two-thirds of deals in the $50-500 million range in H1 2024, are on the rise, driven by demand from both founders and investors seeking liquidity as venture funds approach their exit timelines. Read more.
LGIM’s note ‘India: The emerging market outlier’ denotes that India is rapidly approaching a crucial economic inflexion point and is expected to become the world’s third-largest economy by 2030. Key factors setting India apart include its large, relatively closed economy with low trade and financial openness, a service-export-driven structure, and a stable currency supported by strong FX reserves. India is also positioned as the only real alternative to China for driving global growth, supported by its innovative India Stack system and bond markets.
Abrdn’s note ‘India: 6 structural themes’ outlines that economic growth is expected to continue strongly, driven by factors like India's low GDP per capita, projected growth rates of over 6.5%, and structural trends like aspirational consumption, urbanization, and digitalization. While some sectors tied to the government may be overvalued, broader growth themes and self-sustaining companies present significant investment opportunities.
India is making strides towards renewable energy independence by relying on domestic funds rather than waiting for global support. India needs continued tax revenues to fund research and innovation, particularly in developing batteries for energy storage, which is essential for sustaining the renewable energy transition. Until battery capacity improves, India will still depend on fossil fuels for energy. Read more.
Despite fluctuations, long-term equity returns remain robust. Over the past 24 years, the 10-year rolling return of Nifty 50 has consistently stayed above 10% in 192 out of 290 readings. Recently, it has remained in the 11-13% range over the past two years. Typically, high returns correlate with lower PE multiples, but this trend hasn't held in the last two years, suggesting that valuations remain key and long-term returns are not necessarily shrinking. Read more. [Paywall]
India is rapidly transitioning towards a $1 trillion digital economy, with startups at the forefront of driving innovation and transforming industries. The startup workforce is projected to grow from 1.2 million to 5 million by 2030, underscoring the urgent need to upskill and prepare professionals for leadership roles in this evolving landscape. Traditional business education is struggling to keep pace, creating a gap of ambitious professionals with the skills needed to thrive in the digital-first economy. Read more.
India is considered a global leader in innovations across technology, healthcare, and agriculture, highlighting its digital public infrastructure (DPI) as a model for countries in the Global South. India has become the world's third-largest fintech economy, driven by the rise of digital payment systems like UPI. India aims to expand DPI to various sectors, including credit, e-commerce, and agriculture, aiming to enhance financial inclusion and productivity on a global scale. Read more.
KPIs
India's rural economy is outpacing urban growth, fueled by increased government spending. Continued strength is expected, supported by planned capital expenditures and favourable monsoon conditions. Experts predict a positive financial outlook with potential credit rating upgrades, driven by strong tax revenues and reduced fiscal deficits.
India's net direct tax collections rose by c.22%, reaching c.$85 billion this fiscal year. This includes personal income tax, corporate tax, Securities Transaction Tax STT contributed and other taxes.
India needs to generate between 60 to 148 million jobs by 2030 due to population growth. Labor reforms, educational overhauls, increased private investment, tax adjustments, and tariff reductions are important. Improving ease of doing business and strengthening social safety nets to ensure sustainable development is critical.
WEEKLY MARKET UPDATE (w/c August 12, 2024)
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