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India Q1 PE investing increases in value, declines in number of deals, says PwC report

Private Equity (PE) firms in India invested USD1.8 billion in 91 deals in the first quarter of 2012, according to the first-ever MoneyTree India Report from PricewaterhouseCoopers Pvt Ltd (PwC), based on data provided by Venture Intelligence.

The report is a quarterly study of private equity and venture capital investment activity in India, including further analysis by industry, region and stage of development.

While quarterly PE investments decreased 24 per cent in the number of deals, the dollar value jumped 57 per cent compared to the fourth quarter of 2011 when USD1.1 billion was invested in 120 deals. The large increase in dollars invested in Q1 was due primarily to five deals above USD100 million occurring during the quarter. However, Q1 2012 PE investing dropped 50 per cent in dollars and 15 per cent in number of deals compared to the first quarter of 2011.

"PE investors continue to be enthusiastic about prospects of India’s future growth; however, the investment activity will likely remain volatile given an uncertain global environment," says Raman Chitkara (pictured), global technology industry leader, PricewaterhouseCoopers LLP. "India’s fast-growing market is a key opportunity for PE. As the pursuit of innovation and venture investing becomes more global, India will increasingly attract greater attention from PE investors."

The Healthcare & Life Sciences sector saw notable growth in PE investing during the first quarter, experiencing a seven-fold increase in dollars and a 27 per cent increase in number of deals over the prior quarter, with USD530 million going into 14 deals. Q1 investments within the Engineering & Construction sector in India rebounded strongly, with USD203 million invested in eight deals, compared to USD19 million in three deals during Q4 of 2011.

With the highest level of PE funding in terms of dollars during Q1 2012, the average deal size for the Healthcare & Life Sciences sector increased to USD38 million in Q1. This is a significant jump for the sector compared to the average deal size of USD7 million in the previous quarter and USD10 million in Q1 of 2011.
The Information Technology and IT-enabled services (IT & ITeS) sector garnered the largest number of PE deals in the first quarter, with 35 deals totalling USD263 million. This represents a 13 per cent growth in dollars, but an eight per cent decline in number of deals compared to the fourth quarter.

The Banking, Financial Services & Insurance (BFSI) sector experienced a dramatic 84 per cent surge in terms of dollars, rising to USD272 million, while the number of deals dropped to 11, a 27 per cent decrease compared to the prior quarter. Of the total BFSI deals, 36 per cent were made up of private investments in public equity (PIPE) deals.

The Textiles & Garments, Shipping & Logistics, Engineering & Construction and Fast-moving Consumer Goods sectors all experienced growth in dollars compared to the previous quarter. However, sectors including Manufacturing and Energy declined in both dollars and number of deals.

While investments into PIPE deals in India showed a significant uptick in dollars during the first quarter, rising over 174 per cent to USD438 million, the number of PIPE deals declined by 11 per cent. Conversely, Q1 saw a large number of Early- and Late-stage deals (30 and 29 deals respectively), with Late-stage deals growing by more than 135 per cent in dollars to USD699 million, compared to USD296 million last quarter. However, there was a 64 per cent decline in Late-stage investment dollar value from the same period a year ago.

Growth-stage investments came in second in terms of dollar value, with USD501 million going into 15 deals in the first quarter. The total amount invested jumped 14 per cent despite the number of Growth-stage deals falling to half of the previous quarter’s total deals. The average deal size also doubled in Q1 over last quarter, to USD33 million.

Regionally, Mumbai received the highest level of funding in India during the first quarter, with USD412 million, a 23 per cent share of the total PE investments and an 81 per cent rise in dollar value over the prior quarter. Bangalore garnered the second highest share of funding in India, at 21 per cent, with USD369 million going into 20 deals. Additionally, Chennai experienced a 407 per cent jump in Q1 2012 compared to Q4 2011, propelled by two large deals in the BFSI space. National Capital Region (NCR), which includes Delhi, Gurgaon and Noida, was the only region in India to report a decrease in funding compared to the prior quarter.

Private equity exits in Q1 2012 accounted for USD883 million from 27 deals, a major increase over the fourth quarter’s exits, which totaled USD318 million from 15 deals. Compared to the same period last year, there was significant growth, as well, (about 42 per cent) in both dollar value and number of deals.

Almost 85 per cent of the exits in terms of value and one-third in number of deals went through the public market sale during the first quarter, most of which were investments made long before the economic turmoil that began in 2008. Of the 27 deal exits in India, 10 of them went through secondary sale.

"Though deal volume was down in Q1, investors clearly used the relative buoyancy in the Indian capital markets to exit some of their investments," says Chitkara. "Continued acceleration in exit activity will contribute to a stronger environment for growth in venture and private equity investment."


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