India exits up, but still elude GPs

Exit values rose year-on-year during the third quarter of 2012, but a $1bn transaction by Bain Capital skewed the figures.

The value of private equity exits in India increased 82 percent in Q3 to $1.4 billion from $800 million during the same period last year, according to PricewaterhouseCoopers’ latest MoneyTree India report, using data from Venture Intelligence. 

Other top exits during the quarter included a $72 million sale of healthcare business Arch Pharmalabs by ICICI Venture and IIML; and a $70 million exit from Shriram City Union Finance by ChrysCapital and ICICI Venture, according to the report. 

Navis Capital Partners in July exited portfolio company Nirula’s Group, one of India’s largest food and ice cream restaurant groups, to a strategic buyer for an undisclosed sum, PE Asia reported earlier. During the same week, the firm sold its majority stake in Mumbai-based financial products distributor Andromeda Sales and Distribution to Casa Capital Management.


Many GPs in India invested in companies at peak valuations beginning in 2005. Sub-par capital markets have limited the ability to exit stakes at favourable valuations, leaving GPs holding onto unrealised investments in companies for which they overpaid.

The encouraging signs of exits in Q3, however, are skewed by a single $1 billion secondary sale of business process outsourcing firm Genpact to Bain Capital by General Atlantic and Oak Hill Capital.

Secondary sales made up 75 percent of exits by value, but the Genpact deal value made up the bulk of that value.


On the investment side, the value of private equity investment in India slightly increased year-on-year during Q3 2012, to $2.5 billion from $2.4 billion, according to the PwC report.

Investment values were disappointing given the Indian government’s efforts to attract foreign private equity investors. Earlier this year it reduced capital gains tax for private equity to 10 percent from 20 percent. 

“The push [by the government] in terms of private equity investment was not evident [in Q3]. [Many of] the positive policy announcements happened toward the end of the quarter to be fair,” Sanjeev Krishan, executive director and head of private equity at PwC India told PE Asia

In October, India’s ministry of finance released a recommendation that the proposed tax on indirect share transfers – potentially affecting firms invested in companies outside India but that have assets in India – should not be applied retroactively. In addition, Indian regulators finally allowed foreign entities to own 100 percent of multi-brand retail businesses and 51 percent of single-brand retail businesses in India. 

Coupled with the recommendation that the General Anti-Avoidance-Rule should be deferred for three years, Krishan hopes the regulatory moves will soon have a positive impact on private equity activity. 

However, the country faces strong macro headwinds. The IMF in October lowered India’s GDP growth forecast to 4.8 percent from 6.2 percent, which would be India's lowest growth rate in a decade.