PE, VC in India touches a record high of $8.7bn in September quarter

Private equity (PE) and venture capital (VC) investments in India touched a record high of $8.7 billion in the quarter ended September, a sharp increase over last year, mainly driven by big-ticket transactions.

The quarter recorded the highest-ever investments in a quarter in the history of the Indian PE/VC industry, surpassing the high recorded in the previous quarter.

On a quarterly basis, investments rose 180 per cent in value ($3.1 billion in third quarter of 2016) and 17 per cent in volume terms (141 deals vs 121 deals in 3Q2016), during the third quarter of this year, according to a study by EY.

This was driven by almost a five-fold jump in minority growth capital investing, with $5.7 billion invested across 46 deals, the highest quarterly growth capital investment ever.

Two mega deals in the month of August contributed to this surge (accounting for 45 per cent of deal value in 3Q2017) with Softbank investing $2.5 billion in Flipkart for a 30 per cent stake and GIC investing $1.4 billion in DLF for a 33 per cent stake in its commercial assets business.

Buyout ($920 million across 6 deals) and PIPE ($599 million across eight deals) also recorded strong growth in 3Q2017 of 132 per cent and 201 per cent, respectively.

''India is clearly maturing as a PE market with bigger and complex deals becoming more common place. Greater numbers of large deals and buyouts support this thesis and it is clearly visible in the 3Q2017 investment numbers. Improving exit performance over the last couple of years, supported in part by buoyant capital markets, have helped PE funds reaffirm their India thesis and give confidence to their LPs,'' said Vivek Soni, Partner and Leader for PE Advisory, EY said.

''This will hopefully benefit the nation as India looks to make big investments to spur its growth curve. PE owned companies are globally known to drive revenue and margin growth leading to a multiplier effect on their eco-systems,'' he said.

Early stage/VC deals continued to dominate the deal volumes accounting for 51 per cent (72 deals) of all deals in 3Q2017, similar to last year.

The quarter recorded 19 deals of value greater than $100 million, totaling $7 billion and accounting for 80 per cent of the investments during the period. The year 2017 has witnessed and increasing proportion of large-sized deals, further validating the growing confidence of investors and maturing of the Indian PE market.

From a sector perspective, e-commerce, real estate and financial services were the leading sectors in terms of investments during the quarter. E-commerce recorded $2.6 billion across 18 deals primarily driven by Softbanks's $2.5 billion investment in Flipkart, real estate recorded $2.3 billion across 13 deals and financial services recorded $1.4 billion across 25 deals.

Technology, one of the top sectors to attract PE/VC funding in the previous quarters, saw investments decline by 44 per cent to $235 million, compared with the same period last year, despite being at par in terms of deal volume at 24 deals, mainly due lower ticket size of investment.

Exits grew 128 per cent by value during the quarter to $4.7 billion versus $2 billion during the previous year, while the number of deals remained at similar levels, recording the best quarterly performance for exits since 2009, driven by increase in exits via capital markets (both primary and secondary) and secondary divestments (sale to other PE funds).

Exits via IPO recorded $1 billion in value terms, which is the highest value for exits via IPOs in a quarter, mainly driven by the largest IPO exit ever by a PE fund in India, which saw Fairfax selling its 12 per cent stake in ICICI Lombard for $558 million in September 2017.

The other large IPO exit in 3Q2017 saw Kedaara Capital, IFC, Warburg Pincus, and ChrysCapital sell their stake in AU Small Finance Bank Ltd for $234 million.