2016-05-03-Bain-India_Private_Equity_Report_2016_52页_5mb

Summary of INDIA PRIVATE EQUITY REPORT 2016

Core Content

The INDIA PRIVATE EQUITY REPORT 2016 by Bain & Company provides an in-depth analysis of the private equity (PE) market in India and its performance in 2015, along with insights into the outlook for 2016.

Global Macro Trends

• The global economy grew at 2.4% in 2015, driven by India, China and a recovering US economy.
• The US GDP growth increased slightly to 2.5%, while Europe saw a recovery of 1.6% due to factors like exchange rate depreciation and quantitative easing.
• China's stock exchange crash and uncertainty around US Federal Reserve policy created financial market volatility.
• Inflationary pressure in India was eased due to declining crude oil and commodity prices, with one-year government bond yields dropping to 7.2% by January 2016.
• The Indian rupee remained relatively stable compared to other developing countries, depreciating only about 5% over the year.

India's PE Landscape

• India's PE deal value in 2015 reached $22.9 billion, up 51% from 2014 and surpassing 2007 levels.
• Deal volume increased by 31%, with the consumer technology sector, BFSI, and real estate being key drivers.
• The exit market also performed well, with a 10% increase in exits and a 57% increase in exit value to $9.4 billion.
• The top 10 deals accounted for 43% of total investments, with Flipkart leading at $700 million.
• The top 10 exits accounted for 43% of total exits, with IGATE exiting at $1.15 billion.

Fund-Raising

• Asia-Pacific fund-raising declined by 14% to $50 billion in 2015.
• In India, fund-raising dropped by 12%, but dry powder increased to $11 billion, indicating strong capital availability.
• Foreign direct investment (FDI) and foreign institutional investment (FII) remained the primary sources of capital.
• GPs expect fund-raising to become slightly easier in 2016, though macroeconomic uncertainties and past negative experiences remain key challenges.
• Co-investments with limited partners (LPs) and sovereign wealth fund (SWF) participation are expected to rise.

Main Points

Deal Making

• The consumer technology sector was the most active, contributing 30% to total deal value and 41% to deal volume.
• Deal values increased by 46% (from $4.7 billion in 2014 to $6.9 billion in 2015).
• The average deal size increased to $22 million in 2015 from $19 million in 2014.
• Funds expect growth-stage and buyout deals to dominate in the future.

Portfolio Management and Exits

• Exits were a key component of the PE strategy in 2015, with $9.4 billion in total exit value.
• Public market, secondary, and strategic sales were equally prominent exit channels.
• Funds are cautious about the future due to potential challenges such as underperformance in the IPO market, macroeconomic instability, and valuation mismatches.
• Many pre-2008 deals remain unexited, particularly in the energy and BFSI sectors.

Key Sectors

Consumer Technology

• The sector showed strong growth in 2015, driven by increasing Internet and smartphone penetration.
• Internet access in India is projected to grow from 275 million in 2015 to 575 million by 2019.
• The digital commerce market in India was estimated at $30 billion in 2015.
• Early-stage acquisitions and consolidation were notable in the sector.
• Challenges include scaling start-ups, market creation for disruptive models, long-term profitability, and competitive intensity.

Implications for Investors

• The Indian PE market is seen as a growth opportunity in 2016, with strong GDP growth and a low inflationary environment.
• GPs are advised to focus on value creation, scaling up, and strategic alignment with investors.
• Key takeaways for GPs:
  1. Re-examine the portfolio and assess risks.
  2. Invest in clear winners and support them to scale.
  3. Back entrepreneurs and ideas selectively.
  4. Help existing portfolio companies grow and be profitable.
  5. Develop sustainable and robust business models for easier exits.

Role of Government

• Government initiatives such as Startup India, Make in India, and tax regime rationalisation have improved the investment environment.
• Policies aimed at easing the regulatory environment and improving the ease of doing business are crucial for attracting PE investments.
• The government is also working on reforms such as the Goods and Services Tax (GST) and land acquisition bill, which are seen as key to unlocking further economic value.

Challenges

• Macro-economic uncertainties, valuation mismatches, difficulty in fund-raising, and exit challenges remain significant hurdles for the PE industry in India.
• Delays in government reforms and currency depreciation are also factors that investors should be mindful of.

Conclusion

2015 was a growth year for the Indian PE market, with increased deal activity, deal value, and exit performance. The consumer technology sector emerged as the most attractive for investment. The government's pro-investment policies and the improving macroeconomic environment are expected to further boost the market in 2016. Investors should focus on value creation and strategic alignment while being cautious of macroeconomic and regulatory risks.