India sees resurgence of IPO exits

Everstone and Gaja Capital portfolio companies have applied to list.

Indian private equity firms are exploiting buoyant public markets as a route to exit. Portfolio companies owned by Everstone Capital and Gaja Capital applied last week for regulator approval to stage an initial public offering (IPO) of shares, while Tata Opportunities, a Tata Capital buyout fund, has two portfolio companies considering an IPO.

Non-banking commercial vehicle finance company Hinduja Leyland Finance, a subsidiary of Ashok Leyland, has applied to list, Everstone’s managing partner for private equity Dhanpal Jhaveri told Private Equity International.

Public market multiples are now higher than those in the private market, an “absolute” reverse of the situation 10 years ago, Jhaveri said. “This is a good sign. It’s a sign if you want to go to private players there is a certain type of valuation you can expect, but if the company has the potential to go to the public markets then it is better to go to there and raise capital.”

Gaja Capital plans to exit CL Educate, an education and training services provider that owns private education company Career Launcher, through a listing. It would follow the public offering last month of another Gaja Capital portfolio company, staffing firm TeamLease. The firm partially exited the company generating a “healthy 5x return,” Gaja Capital managing partner Gopal Jain told PEI earlier.

“There is a resurgence [in IPO exits] but the primary driver is renewed interest in public markets from domestic investors,” Jain told PEI last week. “After many years Indians are again investing in public equity markets driving up both the secondary and the primary market.”

Gaja invested in CL Educate eight years ago, as its first investment from its previous fund, a 2007-vintage vehicle that raised $180 million and has invested in eight companies and partially exited two. “In India you have to be prepared for a long hold,” Jain said.

It is also planning an exit of its investment in RBL Bank, in which it invested in 2010.

Everstone invested in Hinduja Leyland Finance through Everstone Capital Partners II, a $580 million, 2011-vintage vehicle. The firm had anticipated exiting the company through the public markets.

“We knew [at the beginning of our investment] it will attract a significant amount of interest from the capital markets. We had to get it to a certain scale and we knew the capital that we brought would allow the business to get to that scale,” Jhaveri said.

The government of prime minister Narendra Modi, which came to power two years ago, coupled with the resilience of the Indian economy compared to other emerging markets, and an increasingly mature institutional domestic investor base, including insurance companies and the mutual funds, have “all contributed, in some way, to the resurgence of the public capital markets,” Jhaveri said.

Despite the fact that exits “remain challenging for most funds”, the market has become broader “in terms of both secondary sales to other financial buyers, as well as strategic sales to trade buyers, both domestic and international”, Jhaveri said.

“More than just the market dynamics, as private equity fund, we have become a lot more thoughtful about our exit strategies. We plan for it before we invest capital.”

Everstone closed its third flagship vehicle in September last year on its $730 million hard-cap, as reported by PEI. The firm has been actively hiring, making five senior appointments in the past 12 months, including of former Citigroup executive Bhavna Thakur as head of capital markets and exits.

Gaja Capital closed its third flagship vehicle at the end of last year on $240 million, exceeding its $225 million target.