India pe outlook 2015

Copyright 2015, Lakshmikumaran & Sridharan / Confidential

India- PE Outlook 2015Prepared by Anuroop Omkar & Kritika Krishnamurthy

Annual Private Equity Investment in India

2011

2012

2013

2014

10 100 1000 10000 100000

Source: Bain Capital PE Reports 2011 to 2014

Sector wise Analysis

5274

473

1559

1356

632

Value of Deals in 2014 (USD Million)

IT& ITES

Energy & Natural Resources

Real Estate

BFSI

Pharma, Healthcare & Biotech

26241

43

50

Number of Deals in 2014

IT& ITESReal EstateBFSI

Pharma, Healthcare& Biotech

Source: ̀ The Fourth Wheel 2015, Grant Thornton India LLP


Top PE Deals of 2014Company Sector Fund(s) Value (USD Mn.)

Bharti Airtel Telecom Qatar Foundation Endowment 1,260

Alliance Tire Group Manufacturing Kohlberg Kravis Roberts 460

Hexaware Tech IT & ITES Baring Asia 443GlobalLogic IT & ITES Apax 420

Flipkart E Commerce (IT &ITES)Tiger Global; Accel;

Morgan Stanley; Sofina; Dragoneer;

Vulcan360

CSS Corp Construction Development Partners Group, others 270

Lafarge India Manufacturing Baring Asia 257Kotak Mahindra

Bank Banking GIC 237

Gland Pharma Pharmaceuticals Kohlberg Kravis Roberts 200

Shapoorji Pallonji Group

Construction Development

Canada Pension Plan Investment Board 200

Total 4,107


Top Exits of 2014Target Sector Firm Exiting Value

(USD Mn.) Route

Hero MotoCorp(November 2014) Automobile Bain Capital 400 Public Market

Sutherland Global Services IT & ITES StanChart PE, Oak Investment Partners 300 Secondary

Mahindra & Mahindra Automobile Goldman Sachs 278 Public MarketHero MotoCorp

(June 2014) Automobile Bain Capital 250 Public Market

Myntra E Commerce (IT & ITES)Kalaari Capital, IDG

Ventures, Accel Partners, Tiger Global, PremjiInvest,

others240 Strategic

Idea Cellular Telecom Providence 234 Public MarketGalaxy Mercantiles and

BlueRidge SEZ IT & ITES IDFC PE 178 Secondary

Intas Pharmaceuticals Pharmaceuticals ChrysCapital 147 Secondary

Mahindra & Mahindra Automobiles Goldman Sachs 127 Public MarketPetronet LNG Ltd. Oil & Natural Gas Asian Development Bank 117 Public Market


Sector Specific Analysis

• Banking, Financial Services and Insurance (BFSI)

• Renewable Energy• Food Processing• IT & ITES• Pharmaceuticals

Banking, Financial Services and Insurance (BFSI) Sector

An Overview

2011-12

2012-13

2013-14

2014-15

0.0 5.0 10.0 15.0 20.0 25.0

16.5

17.2

18.5

20.9

Contribution to GDP (USD Million)

Source: Chapter 10, Service Sector, Union Budget, 2014-14

FY10 FY11 FY12 FY13 FY14 FY25 P0

5000

10000

15000

20000

25000

30000

1271 1577 1736 1763 1800

28500

Total Assets of Sector (USD Billion)

HighlightsRobust asset

growth

Growing lending and deposit

Higher ATM penetration

Rising rural penetration

Total Indian banking sector assets has reached USD 1.8 trillion in FY14 from USD 1.3 trillion in FY10 with over 70 per cent accounted by the public sector

Total lending and deposits have increased at CAGR of 20.7% and 19.7%, respectively, during FY07-14 and further poised for growth, backed by demand for housing and personal finance

Total number of ATMs in India increased to 173,697 by October 2014 and further expected to double over the next few years, thereby taking the number of ATMs per million population from 114 in 2012, to about 300 in 2017

With the Financial Inclusion Plan (FY10-13), the banking connectivity in India increased more than threefold to 211,234 villages in 2013 from 67,694 in 2010.

Foreign Investment

2009-10

2010-11

2011-12

2012-13 P

2013-14 P

0.0 500.0 1000.0 1500.0 2000.0 2500.0 3000.0

2206.0

1353.0

2603.0

2760.0

1026.0

In USD Million

Source: RBI Annual Report 2013-14 dt. June 2014

Potential to become 5th largest banking industry in the world by 2020 and 3rd largest by 2025

Financial Inclusion Schemes- 7 crore new bank accounts collecting deposits of more than INR 5000 crore

Issue of New Bank Licenses

Increase in FDI limits in Insurance Sector

Market Potential

Foreign Direct Investment (FDI)• 20% under Government RoutePublic Sector Banks

• Automatic up to 49% and Government route beyond 49% and up to 74%

• Foreign Banks may set up branch or wholly owned subsidiary

Private Sector Banks

• 100% under Automatic Route in certain sectors #Non-Banking Finance Company

• Up to 26% under Automatic Route and Government Route beyond 26% up to 49%

• Ownership and control with resident Indian entitiesInsurance

• Foreign Direct Investment prohibitedChit Funds

Regulatory Framework

LEGISLATIONS:

The Banking Regulation Act, 1949The Reserve Bank of India Act, 1934Foreign Exchange Management Act, 1999Companies Act, 1956Companies Act, 2013Insurance Act, 1938

PATRO

N MINISTRY

Ministry of Finance, Government of India.Ministry of Corporate Affairs, Government of India. RE

GULATING BODY

Reserve Bank of IndiaNational Bank for Agriculture and Rural DevelopmentNational Housing BoardInsurance Regulatory and Development AuthoritySecurities Exchange Board of India

SCOP

E

Scheduled BanksCo-operative BanksNBFCs*Micro-Finance InstitutionsRural Credit Institutions

Regulatory Overview

Private Sector Banks• Banking License from

RBI• Minimum capital

requirement of INR 2 crores which must be increased to INR 300 crores over 3 years from commencement of business

Non Banking Finance Company• Registration with RBI

unless regulated by other regulators like National Housing Board, SEBI etc.

• Minimum net-owner fund requirement of INR 2 Crores

Insurance Company• Approval required from

Insurance Regulatory and Development Authority

• Paid up capital requirement of INR 100 crores

Recent Top DealsIFC and GIC in Bandhan Financial Services

• Raised INR 1,600 crore (USD 252.69 million) from IFC and GIC to help convert its microfinance business into a full service bank in June 2015

Wells Fargo and OPIC in YES Bank• MoU with Overseas Private Investment Corp (OPIC) to explore USD 220 million of financing to lend to

micro, small and medium enterprises (MSMEs) in India in January 2015• Wells Fargo Bank will be participating in a USD 220 million long tenor funding arrangement to YES Bank.

IFC in PTC India Financial Services

• International Finance Corporation (IFC) invested USD 35 million in sector-focused NBFC PTC India Financial Services Ltd (PFS) through non-convertible debentures (NCDs) in June 2015

ChrysCapital in South Indian Bank• ChrysCapital Management Company, a Mauritian private equity firm, has invested INR527.8 million

(USD8.42 million) for a stake in The South Indian Bank Ltd., an Indian provider of personal banking, business banking and NRI banking services in March 2015

IFC in Axis Bank

• International Finance Corporation (IFC), invested up to $100 million in Axis Bank Ltd. in December 2014

Renewable Energy Sector

Power structure: India

Source: Ministry of New and Renewable Energy (MNRE), Annual Report, 2014-2015


Renewable Energy Capacity & Potential

Resource Potential (MW)

Cumulative Achievement(MW)

Wind 1,02,800 21,692.98

Biomass including bagasse cogeneration

22,500 4,045.55

Solar 50MWp/km2

2,743MW

Source: MNRE, Annual Report, 2014-15 MW- Mega Watt


Drivers of Renewable Energy

Demand-supply

gapEnergy security

Climate change

Large untapped potential

India imports around 28 per cent of it’s total energy needs

• The peak power deficit decreased to 5.1% and in absolute terms peak deficit was at 6103 MW during FY 2014-15

• Only 55 per cent of all rural households have access to electricity.

India has taken a voluntary commitment of reducing emission intensity of its GDP by 20-25 per cent from 2005 levels by 2020.

India has an estimated renewable energy potential of about 900 GW from commercially exploitable sources: Wind – 100 GW Bio-energy – 25 GW; and 750 GW solar power

F.Y.- Financial Year Source: MMNRE, Annual Report, 2015


Legal Timeline & Growth Enablers

FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 140.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

Wind Biomass Solar WtE SHP Cumulative Installed Capacity

MW

Power restructuring and national guidelines on tariff, inter-connection and third party sales

Electricity Act 2003

NEP, 2005• SERC to determine preferential tariff• Promote private sector participation in RE

Tariff Policy,2006•Discom shall fix RPO•Discom to procure RE power through competitive bidding

NAPCC guidelines

CERC RE Tariff Regulation and JNNSM guidelines

REC Regulation

JNNSM Phase II guidelines

Source: Investors guide re-invest, January 2015


12th Plan Targets (up to March 2017)Technology Target* Investment

required

Wind Power Projects 15000 MW US$15 billionBiomass based power projects 2700 MW US$2.7

billionGrid connected Solar power projects 10000MW US$12 billion

Off grid solar power projects 1000MW US$1.8 billion

Aggregate US$31.5 billion

*These are now being up-scaled to 100GW capacity addition in next five years requiring about US$ 20 billion every year excluding power evacuation facility.

Recent Top DealsSembcorp Utilities in Green Infra

• In February 2015, Sembcorp Utilities acquired 60% in Green Infra from IDFC Alternatives for $168 million• Solar and Wind Energy Generation Company

Future Fund in Applied Solar Technology

• Investment of USD 40 Million in June 2015• Rooftop Solar

Merrill Lynch in Mytrah Energy

• Invested USD 60 Million in April 2015• Wind Energy Generation Company

Pittie Group Family Office in Chargein

• Investment of USD 100 Million in March 2015• Solar Powerbank manufacturer

Food Processing Sector

An Overview

2008-09

2009-10

2010-11

2011-12

2012-13

0 20000 40000 60000 80000 100000 120000

Contribution to GDP (USD Million)

AgricultureFood Processing

2008-09 2009-10 2010-11 2011-12 2012-13

-5

0

5

10

15

20

25

Growth of Food Processing and Ag-riculture Sector

Axis Title

Source: Data Bank on Economic Parameters of the Food Processing Sector (2014), Ministry of Food Processing Industries,

Government of India

HighlightsMilk & Diary

Grains &

Cereals

Consumer

Foods

Fruits & Vegetables

Fisheries

Meat & Poultry

•Second largest producer of potatoes, garlic, dry onion, green pea, pumpkin, gourds, cauliflower and tomatoes • Presently 10% of products processed

• Second largest producer of cow milk

• Estimated market size of INR One Billion

• Third largest producer of fish•Export oriented segment • Presently small scale organized sector

• Second largest producer of rice, wheat

and lentils• Milling most important

food processing activity• High wastage due to

lack of technological upgrading

• Largest producer of buffalo meat• Second largest producer of goat meat• Presently 1-2% of products processed

• Fastest growing segment

•Tea, packed biscuits and aerated drinks largest

segments• Third largest market of

alcoholic beverages

Foreign Investment• Foreign investment

of USD 516.72 million in FY 2014-15

• Total foreign investment of USD 6310.67 million from April 2000 to March 20152008-

09 2009-

10 2010-

11 2011-

12 2012-

13 2013-

14 2014-

150

500

1000

1500

2000

2500

3000

3500

4000

4500 Foreign Investment in Food Sector (USD Million)

FDI (USD Million)

Source: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India

Recent Top DealsMitsibushi Corp in Nissin Foods

• Picked up 34% stake in Indo Nissin Foods Limited in February 2015• Estimated deal size INR 500 Crore

Goldman Sachs in FoodPanda

• India’s largest online food-ordering platform raised $ 100 million in June 2015

Fulcrum Venture India in Manna• Total investment of INR 90 Crore in Southern Health Foods Pvt Ltd, the maker of

Manna brand of processed foods in May 2015 with Strides Acrolab and othersSaama Capital and DSG Consumer Partners in Veeba Foods

• Speciality food ingredients manufacturer raised $ 6 Million (INR 38 crore) in June 2015

Foreign Direct Investment (FDI)• 100% FDI is permitted in the automatic route for most

food products except for items reserved for micro, small and medium enterprises

Food Processing

• Pickles, mustard oil, groundnut oil and bread- items reserved for the micro, small and medium sector (MSME)

• Investment upto 24%- Allowed under Automatic Route• Investment above 24%- Government Approval route

Micro, Small and Medium Enterprises

(MSME)

• 100% FDI is permitted for alcoholic beverages• Requirement of an industrial licenseAlcohol

Regulatory FrameworkFood Safety & Standards

Act 2006

PATRON MINISTRY

• Ministry of Health and Family Welfare

REGULATING BODY

• Food Safety and Standard Authority of India (FSSAI)

PRODUCT COVERAGE

• Food – primary, processed, meat, poultry, milk and processed fruits and vegetables. Dietary supplements classified as food

ISSUE COVERAGE

• Production, processing, marketing and distribution of food articles

OverviewManufacturing/ Importing Packaging

Food Additives Labelling

License requirement Govt. may ban

manufacture and sale of certain GMO, organic food etc. by notification

Penal liability for non compliances

Restriction and certain prohibitions on use of food additives Use to be limited to lowest possible levels

License requirement Specifications on packaging material (plastic) Segment wise packaging requirements

Specification of Vegetarian/ Non Vegetarian, GMO foods Country of Origin for imported goods (if processed then country of processing)Food traceability and product recall mechanism mandatory

Food Product(s) including food ingredient(s) or food additive(s) for which there are no standards notified by FSSAI will require product approvalFSSAI Approval not required for traditional Indian foods as long as additives are as per prescribed regulations

Investment Promotion Schemes Mega Food Park Scheme• 42 mega food parks being set up under PPP Model • Investment of INR 98 Billion • Primary objective- providing infrastructure facilities for food processing along the value chain from the farm to market • 1200 infrastructure enabled, developed plots which can be leased for setting up of food processing and ancillary units• Special Fund of INR 2000 crore allocated in NABARD to make available affordable credit to agro-processing units setup under the Scheme

The National Mission on Food Processing•Technology upgradation, establishment and modernization of the food processing industries •Cold chain, value addition and preservation infrastructure for non-horticultural products •Setting up, modernization and expansion of abattoirs •Primary processing and collection centres in rural areas•Modernization of meat shops and Reefer vehicles•Grant of subsidies for the setting up of mega food parks and integrated cold chains•Project imports for food processing at concessional customs duties


IT & ITeS Sector

Sector Overview

Source: Make in India

Constitutes 8.1% of GDP

7% of the Global Market Share

Largest Private Sector Employer

Estimated Revenue of USD 118 Billion in 2014

38% of India’s Service Export

Indian IT industry has saved clients USD 200 Billion in the past five years

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13P

0

20

40

60

80

100

120

4147 50

5969

7622

22 24

2932

32

Market Size of IT Industry in India (In USD Billion)

Export DomesticSource: India Brand Equity Foundation

Private Equity Investments

2010 2011 2012 2013 20140

1000

2000

3000

4000

5000

6000

7000

Value (In USD Million)Number of Deals

75%

9%2%

1%5% 8%

PE Investments by Subsector (In USD Million)

Online Services

ITeS-BPO

IT Services

IT Products

Enterprise Software

Mobile Services

Source: PWC MoneyTree India Report


Market Potential- SMAC Technologies

Social Media

Mobility Analytics Cloud0

50

100

150

200

250Global SMAC Market

2013 2016PSource: NASSCOM, Livemint

920 Million Telecom subscribers

213 Million Internet Users

40 Million Smartphone Users

USD 13 Billion e commerce

revenue

Foreign Direct Investment (FDI)E Commerce

Regulatory FrameworkScheme DescriptionSoftware Technology Parks (STPs)

• Benefits include exemptions from service tax and excise duty, and rebate for payment of Central Sales Tax

• 100% exemption of export profits from income taxSpecial Economic Zones (SEZ)

• Internationally competitive and hassle-free environment for exports• Drastic simplification of procedures and a single-window clearance for

Central and state government approvals/registrations• 100% income tax exemption for export profits for the first 5 years, 50%

for the next 5 years and 50% for next 5 years subject to transfer of profits to special reserves

Export Oriented Units (EOU)

• Exporters are treated as a special class and given the required tariff, non-tariff and policy support to facilitate their export efforts

Information Technology Investment Regions (ITIRs)

• Self contained integrated township to accelerate growth of IT/ ITeS / Electronic Hardware Manufacturing (EHM) industry with fiscal and other incentives as per State Government Policy

State Government Policies

• States like Maharashtra, Karnataka, Andhra Pradesh and Telangana have state specific policies providing fiscal incentives, tax and stamp duty exemptions and labour law compliance waiver

Recent DealsFlipkart raised USD 1 Billion

• Singapore’s sovereign wealth fund, GIC, Tiger Global Management, Naspers, Accel Partners and Morgan Stanley Investment Management in July 2014• Single largest round by any Indian internet company and among the largest in a single funding round for any e-commerce company globally

ShopClues.com raised USD 100 Million

• Tiger Global, Helion Ventures, Nexus Ventures in January 2015• E commerce marketplace

Freecharge.in raised USD 80 Million

• Valiant Capital, Tybourne Capital and Sequoia Capital in February 2015• Online mobile recharge portal

Manthan Systems raised USD 60 Million

• Temasek Holdings and Norwest Venture Partners in February 2015• Data Analytics company


Pharmaceutical Sector

Overview

72%

19%

9%

Revenue Share Breakup

Generic Drugs OTC MedicinesPatented Drugs

2005 2013 20200

10

20

30

40

50

60

612

55Revenue Projections (In USD

Billion)

Source: India Pharma 2020, McKinsey & CoSource: India Brand Equity Foundation

Market Potential- Generics

2012 2013 2014 2015 201605

101520253035404550 47

20

3337

22

Estimated Market Size of Branded Drugs going Off

Patent in USA from 2014-16 ($ Billion)

Projected as 3rd largest

pharmaceuticals market by 2020

Largest provider of generic medicines globally

Generic drugs account for 20% of global exports

by volume

Generics market expected to grow to USD 26.1 Billion by 2016 from USD 11.3

Billion in 2011

India accounts for 49% of all drug master filings

registered in the USA

Source: Make in IndiaSource: Livemint

Foreign Investment in Drugs and Pharmaceuticals

2010-11 2011-12 2012-13 2013-14 2014-150

1000

2000

3000

4000

5000

6000

7000

8000

211.99

7311.95

1123.46 1279.33 1523.37

In USD Million


Recent DealsTemasek invested in Glenmark Pharma

• Invested INR 945 crore (USD 151 million) in April 2015• Third-largest PE deal ever in Indian pharma and the top fundraiser in the industry

Sequoia Capital invested in La Renon• Invested INR 100 crore (USD 16 million) in June 2015 • Enhance R&D capabilities and expand into new categories within the chronic diseases management

spaceManekars invested in SeQuent Scientific Ltd.

• Invested INR 52.25 crore (USD 8.4 million) in April 2015• Fine chemicals and drug ingredients maker

Brand Capital (Bennett Coleman Group) invested in Lifezen Healthcare

• Agreement to invest up to INR 20 crore (USD 3.2 million) in March 2015

Foreign Direct Investment (FDI)

Greenfield Investment• 100% FDI permitted under automatic routeBrownfield Investment• 100% FDI permitted under approval route

Foreign Direct Investment (FDI)OTHER

CONDITIONS

‘Non-compete’ clause would not be allowed except in

special circumstances with the approval of the Foreign

Investment Promotion Board

The prospective investor and the prospective investee are required to provide details of agreements between the parties along with

any non compete clauses included in the agreements along

with their FIPB application

Government may incorporate appropriate

conditions for FDI in brownfield cases, at the

time of granting approval.


Founded by V. Lakshmikumaran and V. Sridharan in 1985, Lakshmikumaran & Sridharan (L&S) is one of the largest integrated law firms in India with 500 professionals, including 41 partners.

The firm has eleven offices located across India in New Delhi, Gurgaon, Mumbai, Bengaluru, Chennai, Hyderabad, Ahmedabad, Pune, Kolkata and Chandigarh. In Europe, the firm’s office is in Geneva. It specializes in the areas of Corporate law, Customs & International Trade, Taxation and Intellectual Property.

The firm has handled more than 40,000 litigationcases before various fora both in India and abroadincluding 3,000 cases before the Supreme Courtof India.

For more information, visit us atwww.lakshmisri.com and www.lakshmisri.ch

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India pe outlook 2015