Private Equity

Rakesh Sony Director, MOPE

1 AGENDA

• PE-Overview

• Why Private Equity

• PE-

• Conclusion

2 MOTILAL OSWAL PRIVATE EQUITY

• MOPE Investment Advisors Private Limited (“MOPE”) currently manages and / or advises four funds with combined corpus of Rs. 2,200 cr

o India Business Excellence Fund-I (“IBEF-I”), a 2007 vintage Rs.550 cr fund § 13 investment across 11 sectors § Have partially exited from 2 companies

o India Business Excellence Fund-II (“IBEF-II”), a 2011 vintage Rs.950 cr fund § Fund raised from marquee global Institutional investors § Already made six investments

o Actively deploying capital in growth opportunities o India Realty Excellence Fund (“IREF-I”), a 2008 vintage Rs.200 cr fund § 7 investments in Mumbai, Bangalore and Pune

o India Realty Excellence Fund (“IREF-II”), a 2013 vintage Rs.500 cr fund • Awarded ‘Best Investor 2012’ by Venture Intelligence, a leading provider of information on private equity in India. Awardees for this award are chosen by a jury panel consisting exclusively of institutional investors

3 PRIVATE EQUITY - AN OVERVIEW Private Equity refers to the equity capital raised by companies, mostly unlisted, from Private/ Institutional Investors.

• Offshore and domestic Institutions • Thematic funds • Raise • Sector agnostic funds • Family Offices/HNI’s Capital Evaluate • Buy out funds • Retail Investors Market • Multi Strategy Funds Segments

Exit Portfolio • Proprietary Companies • Intermediaries (CA’s & • IPO – Public market sale PE IB’s) Generate • Secondary/Strategic Lifecycle • Evaluate Investments Sale Deal Flow • Buy Back and Nurture Investment Portfolio companies • PE rights like board Negotiate & representation etc Structure • Institutionalization • Exit rights like tag Investments • Corporate governance along, drag along etc • Improving • Investment horizon systems/processes (5-7 years) 4 INDIAN PE STORY

Pre 1995 1995-2000 2000-2005 2005-2007 2008 onwards 1984: 1995: 2002 Late 2005 2008 • ICICI decides to • Overseas investments • IDFC sets up IDFC PE • SEBI allows PE • Economic recession allocate funds for VC in VC Funds permitted • Partial exits of Warburg investments In real hits PE industry In Activity with tax Incentives Pincus in Bharti Airtel estate India • VC funds allowed to be 1986: formed other than 2003 2006 2009 • ICICI launches first VC banks and financial • Actis makes one of the • Warburg fully exited • Deals pick up • Fund to encourage Institutions. First buy out deals – Bharti pocketing around • Next trillion dollar start ups Nitrex chemicals $ 1.5 bn opportunity 1996: • Successful IPOs of PE 1988: • SEBI issues VC Fund 2004 • backed companies like 2010 • TDICI set up (now Guidelines. • Investment activity • Suzlon and HT Media • Increased activity. ICICI ventures) picks’ up. • ICICI and Actis becomes • PE backed SKS • First guidelines issued 1999: • 6 PE backed companies Active In the buy out Microfinance gets in 1988 • SIDBI capital formed Patni and Biocon go arena listed • Chrys Capital came into public! 1989: existence 2007 2012 • Regional funds APIDC, 2005 • India – A Trillion dollar • New AIF regulations GVCL and Canara VC 2000: • Start of Broad based Economy set up. • Amendments in1996 • Investment in non IT • Peak PE investments at 2013 • First private equity regulations to fuel industries ~15bn$ • Spurt in the fund setup Credit growth number of exits Capital venture Fund • Mutual fund (UTI) sets worth over $600mn (India) Ltd by Lazard up PE arm, UTI and ADB. ventures 5 INDIAN PE FUND STRUCTURE In INR

> ` 5 bn Buy outs PE/ Buy Out Funds Growth, Pre- ` 500 mn - `1 bn Growth PE IPO, PIPE Funds

` 50-500 mn Early Stage VC funds

Institutional Seed Funds VC, + ` 25-50 mn Angel Networks/HNIs Early stage

HNIs/Faith Capital < `25 mn

6 PRIVATE EQUITY INVESTMENTS - OVERVIEW

12.0 800 11.0 11.2 759 766 10.3 10.4 743 10.0 718 700 10.0

600

8.0 518 500 433 6.0 400 4.4 300 4.0

200

2.0 100

0.0 0 2009 2010 2011 2012 2013 2014

Value (USD $ Billion) No. of Deals

Source: VCC Edge 7 PRIVATE EQUITY INVESTMENTS - SECTOR (2014)

6000 5287

5000

4000

3000

1843 2000

845 869 1000 623 356 490 206 180 213 182 214 111 114 152 50 80 30 1 133 90 0

B F R S E F I n M et e C IT a Te D Ed r G & il le i u gy c A ve c I o g r a MTE O m ri si ti G H a S t S -b fi o F e o n h p u e n o m t u er o Tr s d o s e f S rt T a i E d l a Se h s e v n n & s c r ip & xt e e g & J & M tu v p i l ss g B e R e r ic i F le & . & eH w e d in e n it s T v e e s i s g n & r C e a Val lue (USD o$ Millioan) g & e a o r lt ry r & s G n n a h ts Lo s a sp s g c E g r o t esa n i m r ru re te st e t c & r Souricce: Venture Intellingenc8e ti ta s ts o L in n if m e Sc en i t en c es PRIVATE EQUITY EXITS - OVERVIEW

6.0 245 250 5.5

5.0 184 200 4.2 4.0 3.9 150 318.67 152 170 150

3.0

2.3 100 2.6 2.0

50 1.0

0.0 0 2009 2010 2011 2012 2013 2014

Value (USD $ Billion) No. of Deals

Source: VCC Edge 9 TOP 10 PRIVATE EQUITY INVESTMENTS - 2014

Deal Value Target Date Buyer(s) Sub- Industry (USD $ mn) Tiger Global Management, India Venture Fund, Iconiq Capital, MIH Holdings, Morgan Stanley Investment Management Inc., DST Global, GIC Pvt. Ltd. Jul-14 $1,000 Internet Retail Special Investments, Sofina Societe

Steadview Capital Master Fund Ltd. ,Tiger Global Management, MIH Flipkart Pvt. Ltd. Nov-14 Holdings, DST Global, The Qatar Investment Authority, GIC Special $700 Internet Retail Investments , Iconiq Capital BlackRock, Tybourne Capital Management, Temasek Holdings, SoftBank, PI Jasper Infotech Pvt. Ltd. Oct-14 $637 Internet Retail Opportunities Fund I, Myriad Asset Management Ltd.

Kotak Mahindra Bank Ltd May-14 Canada Pension Plan Investment Board $374 Diversified Banks

L and T Infrastructure Construction & Feb-14 Canada Pension Plan Investment Board $321 Development Projects Ltd. Engineering

Data Processing Sutherland Global Services Jun-14 TPG Capital Inc. $300 & Outsourced Inc. Services Internet SoftBank, Tiger Global LP, Steadview Capital Master Fund, Matrix Partners ANI Technologies Pvt. Ltd. Oct-14 $210 Software & India II LLC Services Flipkart Pvt. Ltd. May-14 Tiger Global Management, Iconiq Capital, MIH Holdings, DST Global $210 Internet Retail Apparel, Kalyan Jewellers India Pvt. Aug-14 Warburg Pincus India Pvt. Ltd. $198 Accessories & Ltd. Luxury Goods

Intas Pharmaceuticals Ltd Aug-14 Temasek Holdings Advisors India Pvt. Ltd. $160 Pharmaceuticals

Source: VCC Edge 10 WHY PRIVATE EQUITY

• PE comes with intelligent capital at the transformation stage of a business and help it achieve accelerated growth • PE players act as partners to management/promoters sharing risks and rewards equally and not act as mere investors • PE players actively provide continuous strategic assistance and expertise to § Expand management bandwidth by recruiting new resources § Help to structure strategic mergers & acquisitions, enter new territories and roll out new ideas § Improve corporate governance through active engagement • Provide a sounding board with independent directors • Support business growth by not only investing own capital but also assist Portfolio companies to raise further capital • PE investment establishes a pricing benchmark, which helps companies to get a better valuation at the time of IPO • PE players help portfolio companies to focus strategically in order to create maximum value

11 WHAT A PE FUND LOOKS FOR INTO A COMPANY

12 WHAT A PE FUND LOOKS FOR INTO A COMPANY

Proven Passionate & Institutional Revenue Quality Leadership Capital Allocation Successful Exit Model Approach

• Assessment of revenues based on core fundamentals rather than Hypes and Hopes • Businesses with sustainable margins and earnings growth • Scalable businesses • Operating Cash flow generation by the company • Competitive strengths

13 WHAT A PE FUND LOOKS FOR INTO A COMPANY

Passionate & Proven Revenue Institutional Model Quality Capital Allocation Successful Exit Leadership Approach

• Clarity in vision • Execution capability and organization building skills • Superior understanding of businesses • Role model and focused • “Can we work along with management with for the next five years” • End of the day, it is the Leader’s vision and execution which makes the difference between a good and great company

14 WHAT A PE FUND LOOKS FOR INTO A COMPANY

Proven Revenue Passionate & Capital Institutional Model Quality Leadership Successful Exit Allocation Approach

• Properly planned investment • ROI based investment evaluation • Investment to generate long term value • Strategic view of every money spent • Ability to en-cash/exit any investment

15 WHAT A PE FUND LOOKS FOR INTO A COMPANY

Proven Revenue Passionate & Capital Allocation Model Quality Leadership Institutional Successful Exit Approach

• Ability to embrace change • Promote Institutionalization • Qualified CXOs • Second level leadership and efficient delegation of powers • Appointment of reputable auditors • Adoption of efficient systems and procedures

16 WHAT A PE FUND LOOKS FOR INTO A COMPANY

Proven Revenue Passionate & Institutional Successful Model Quality Leadership Capital Allocation Approach Exit

• IPO-ability of the company after 3-5 years. § “Does the company have a story which can be sold in the public market” • Secondary sale to different private equity: § ”Will the company be an interest to other PE players” • Strategic sale § “Does the company’s technological capabilities / market presence /niche products or services attract industry majors to acquire the company”

17 INDIAN PE - EXIT PATTERNS

• The success of the decade old Indian Private Equity story can be judged by the returns it has been able to generate for its investors. • A lot of investments dating back to 2007, the landmark year of PE investments, have matured for realization and are waiting to be liquidated. • The pressure to show exits (and deliver returns) continues to mount on fund managers as LPs have become even more skeptical of the Indian growth story and the overall investment environment. • Capital markets almost non-existent for small to medium sized companies as the public market investors looks for certain size • This has resulted into other options such as strategic and secondary sale options taking the centre stage. • What has made matters worse (read higher return expectations) is the deprecating rupee that’s over 35% cheaper (as against the USD) today than it was in 2007 when the investments were made.

18 CONCLUSION

• Strong market fundamentals make India an attractive destination for PE investment . • Private equity has emerged as an important asset class ($85 bn already invested) that can play critical role in enterprise value creation • Indian PE market is set to reach a more mature phase of development with average deal size increasing and number of buy outs growing at a faster rate than the acquisitions of small minority stakes • Breadth and Depth increasing more as more and more Fund Managers become active. • Increasing awareness of the concept of Private Equity amongst SMEs will give thrust to the industry • Reach of PE spreading to tier II and tier III cities like Baroda, Nagpur, Cochin etc

19 Partial Exit CASE STUDY – AU FINANCIERS Complete secondary transaction Partial exit by MOPE to Kedaara Capital 7000 Partial Exit Partial Exit Complete secondary transaction 6300 Partial exit by MOPE at 8.0x 6000 Mix of primary & secondary to Chryscapital Second Round: transaction; partial exit by MOPE at 5.6x to 5000 Investment of ` 55 Cr from IFC 4449 Washington (` 35 Cr) and MOPE Warburg Pincus First Round: MOPE 4000 (` 20 Cr) 3704 invested ` 20 Cr 3000 2554

2000 1266 1000 490 864 250 624 11 42 50 449 5 159 253 81 94 160 0 23 53 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15E

AUM ( Rs. In Cr) Net Income ( Rs. In Cr) PAT ( Rs. In Cr) ANALYSIS

• Sizeable transaction for Warburg Pincus , Chrys Capital & Kedaara Capital • Huge headroom for growth in future • Good corporate governance practices in place • Right size for an IPO; 20 CASE STUDY – PARAG MILKFOODS 1600 Partial Exit 1437 1400 Mix of primary & secondary transaction; partial exit by MOPE at 2.8x to IDFC PE 1200 1061 MOPE invested 40 Cr 912 1000 867

800 628 600 492 400 340 43 200 3 9 25 8 140 8 8 88 0 27 36 49 70 76 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15E

Sales ( Rs. In Cr) EBITDA ( Rs. In Cr) PAT ( Rs. In Cr) ANALYSIS

• Opportunity for IDFC PE to invest in domestic consumption theme • Reached adequate size for an IPO

21 THANK Q&A YOU

22 CONTACT

MOPE Investment Advisors (P) Limited

Rakesh Sony E-mail : [email protected]

23