the role of private equity in india’s · mankind, emcure, famy care, manipal, care hospitals most...

December 18, 2015

Gautam Dhawan Partner- Aurum Equity Partners LLP

The Role of Private Equity in India’s Growth Story

Strictly Confidential 2

Aurum Equity Partners LLP

An investment banking firm, with a depth of diverse-sector experience.

Strictly Confidential

• This note is presented solely for the internal use of the recipient to whom it is marked by Aurum and does not carry any right of publication or disclosure to any other party. This note is incomplete without reference to, and should be viewed solely in conjunction with, the verbal briefing provided by Aurum.

• In preparing this note Aurum has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from published and public sources. Accordingly, neither Aurum nor any of its affiliates, shareholders, directors, employees, agents or advisors make any representation as to the accuracy, completeness, reasonableness or sufficiency of any of the information contained in the note, and neither of them shall be liable for any loss or damage (direct or indirect) suffered as a result of reliance upon any statements contained in, or any omission from this note and any such liability is expressly disclaimed.

• Aurum has developed this note on its own behalf and without prejudice. This note should not be construed as an offer to sell any securities in or assets of any of the companies referred to in this document, or an invitation to offer.

Disclaimer

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1 SECTION Overview of Private Equity in

India


PE – A Source of Stable Capital

5

In 2015 PE invested have touched $17.5 bn – An increase of 34% over 2014 (Source: PwC)

PE is finding greater acceptance amongst entrepreneurs – A stable source of capital and has the potential of transforming businesses

> $ 100 bn invested

since 2001

2015

Source: McKinsey Analysis


Investments have been broad based – in over 3,100 companies across 12 major sectors

~80% of Investments by volume have been channelized across early stage to mid sized companies –

which are going to play a critical role in India’s growth story

PE - Concentrated on Early to Mid Sized Companies

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Higher Growth Revenues

Higher Earnings Growth

As per Mckinsey Analysis , PE backed companies have grown faster in revenues and earnings growth amongst others

PE backed companies have also helped accelerate employment, export sales and M&A’s

PE - Favorable Impact on Investee Companies

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2 SECTION Role of Private Equity

Investors


Role of Private Equity – Financial and Strategic

9

Value Creation

Operational

Corporate Governance

Strategic

In addition to stable capital, Private Equity also provides “strategic” capital as shown below:

Efficiencies R&D / innovation Geographical expansion (including International focus )

Talent attraction & retention

New Business Initiatives

M&A / JV’s Further capital raise Independent committee

Board Oversight Auditors

Superior financial and returns profile

Optimizing Valuations

Transformational


PE has helped shape Key Sectors in India

Evolved into a large industry Companies have achieved

leadership positions Key beneficiaries: Bharti, Idea,

Tata Teleservices, Vodafone, Bharti Infratel, Viom Networks

PE Backed Companies

Telecom

Amongst the biggest industries globally

Indian pharma firms have achieved global operations

Expansion of healthcare delivery outside metro cities

Key beneficiaries: Intas, Mankind, Emcure, Famy care, Manipal, Care Hospitals

Most active sector in deal volume terms

Key beneficiaries: Flipkart, Snapdeal, Olacabs, iGate, Mphasis, Genpact, EXL Services

Pharma/ Healthcare

Several PE investments in Private Banks, NBFCs, Brokerages, Micro-finance institutions etc

Key beneficiaries: Yes Bank, HDFC Bank, UTI Bank, AU Financiers, IIFL, PNB Housing

Financial Services

Technology

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3 SECTION Select Case Studies


A) VRL Logistics


VRL Logistics is a pan India surface logistics and parcel delivery service provider

Raised Private Equity of Rs 1,750 mn in April 2012

Raised Rs 4,679 mn in April 2015 through an IPO (including secondary portion)

Source: SEBI, Thomsonone, BSE * Employee count as on December 31, 2014

11,304 13,255

14,938 16,712

FY12 FY13 FY14 FY15

Consolidated Revenue

INR mn 17% 15% 14%

16%

FY12 FY13 FY14 FY15

Consolidated EBITDA

18% 17% 18%

29%

FY12 FY13 FY14 FY15

ROCE %

9,369 10,748 11,708

FY13 FY14 FY15

Average Wages

INR per month

13,187 13,526

14,092

FY13 FY14 FY15*

Number of Employees

157 131 149

287

FY12 FY13 FY14 FY15

Direct Taxes paid

INR mn

VRL Logistics: Track Record of Delivering Growth

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VRL Logistics: Better placed than Peers

Source: SEBI, Thomsonone, BSE

Performance of VRL Relative to Peers

Current EV/Sales#

(LFY Basis) Revenue Growth

(FY12-FY15)

Avg. EBITDA Margin (FY12-FY15)

14%

12%

7%

15%

7%

8%

2.4

1.1

1.1

Comparison with Peers

Transport Corp of India

Gati Limited

VRL Logistics

Current EV/ EBITDA#

(LFY Basis)

14.8

13.4

13.4

VRL has performed better than its competitors on historical basis

Future earnings growth (FY 2015-17) is also estimated to be higher relative to peers

PE Multiple (FY 2017 basis)

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VRL Logistics: Classic Case of Transformation

Market leader

Emerged as one of India’s leading surface logistic and parcel delivery provider

Pan India operations

Operates a fleet of 4,000 vehicles across 600 branches

Consistent track record of financial performance and returns

Sales growth at a CAGR of 15%

Healthy EBITDA margins of 16%

Return on Capital Employed of 29%

Job creation

Over 14,000 employees

Value creation

Huge value unlocking during IPO

Higher Market capitalization relative to established peers

Strong growth outlook relative to established peers

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B) Coffee Day Enterprises (“CDEL”)


CDEL – A Diversified Conglomerate

CDEL operates:

Coffee retail business; Other businesses- IT & ITES technology parks, logistics, financial services, hospitality and logistic solutions

Private Equity invested INR 8,716 mn (effective 26% equity stake) in 2010 and raised INR 11,500 mn fresh equity in October 2015

Source: SEBI, Thomsonone, BSE

10,244 15,653

20,996 22,870 24,794

FY11 FY12 FY13 FY14 FY15

Consolidated Revenue

INR mn

13% 12% 14% 14% 15%


Consolidated EBITDA

1,100 1,286

1,454 1,568 1,518

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Café Network Outlets

1% 1%

2% 2%

2%


ROCE %

228

86

466

171 210


Direct Taxes paid

INR mn

17


CDEL – Miles ahead in Coffee Retailing in India

Market leader

Café Coffee Day has emerged as the largest in the niche chained café segment

Vertically integrated – Procurement, processing to retailing

Store count of 1,538 (as on June 30, 2015)

Café footprint is nearly four times larger than the cumulative footprint of the next four competitors

Investment in non-coffee related businesses

Real Estate, IT, Financials, Logistics

Building diverse revenue streams

Job creation

Value creation

Equity value doubled over the period 2011-2015 (Currently trading price below its listing price)

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C) Paras Pharmaceuticals


Paras – A Leader in OTC Segment

Source: MCA

Operated with a portfolio of leading OTC Health and Personal Care brands:

Moov- Pain relief gel D’Cold- Cold & flu remedy Dermicool- Talcum powder Krack- Skincare cream

Actis and Sequoia together controlled 70% of the company

In 2010, Reckitt Benckiser acquired Paras for INR 32,600 mn EV/ Sales: 8.1x EV/ EBITDA: 30x

In 2012, Marico acquired personal care brands (Set Wet, Livon, Zatak, Eclipse and Dr Lips) from Reckitt Benckiser

3,012 3,353 2,954

3,820

FY07 FY08 FY09 FY10

Standalone Revenue

INR mn

20% 22% 24% 27%

FY07 FY08 FY09 FY10

Standalone EBITDA

Actis acquired 23% stake in Paras Pharmaceuticals while Sequoia Capital acquired 6% stake

Sep 2006 May 2008 Dec 2010

Actis and Sequoia acquire additional stake to take total PE stake to 70%

Reckitt Benckiser acquires 100% stake in Paras Pharmaceuticals

Feb 2012

Marico acquires Paras personal care brands

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Paras – Classic Case of Transformation

Market leader

Established market leading brands in a niche and fast growing market

Moov, the No 2 topical analgesic pain ointment

D’Cold, the No 2 cold & flu remedy

Dermicool, the No 2 for prickly heat

Krack, the No 1 medicated skin treatment for cracked heels

Ability to compete with global companies and create successful new brands

International expansion

Consistent track record of financial performance and returns

Sales growth

Strong EBITDA margins of 27%

Induction of professional managers which brought in scale and efficiencies in the business

Value creation

Strategic sale at huge premiums

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4 SECTION Aurum View


Private Equity is an important source of capital in India’s growth story

Provider of long term financial and strategic capital (Corporate Governance)

Private Equity investment are potentially intended to benefit all stakeholders by transforming investee companies:

Creating a market leading position that is professionally run and success is based on a Innovative business model

However certain critical aspects need greater evaluation to ensure value to all stakeholders:

Investor profile & experience

Track record of Company growth

Control

Valuations

Investor holding period

Exit philosophy

Aurum Views

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Gautam Dhawan

Partner

Aurum Equity Partners LLP

Tel: +91 124 4424470

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Email: [email protected]

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