Country Snapshot Ndia Rivals China As the Destination of Choice for Private Equity Investment in Emerg- • 2008 Population*: 1.2 Billion Ing Asia

IndiaAn Overview of Trends in Select Sectors and Markets September 2008 Country Snapshot ndia rivals China as the destination of choice for private equity investment in emerg- • 2008 Population*: 1.2 billion ing Asia. In 2007, India-dedicated funds raised US$4.6 billion versus China’s US$3.9 • Population Growth (2001-2008): 11% Ibillion. During the first half of 2008, India funds had raised US$3 billion. Momentum • % of Population Under 15 Years-old: 31.5% in fundraising is only part of the story, however, as a number of PE investors are deploying • GDP (2008): US$1.1 trillion* capital in India through pan-Asia funds. • GDP Growth (2008): 8% Over the last 18 months, PE investors have put more money to work in the Indian market • Annual Inflation (as of Sept. 08): 12.3% than in China. India eclipsed China in total investment in 2007, attracting US$14 billion compared to China’s US$12.8 billion. Data provider Venture Intelligence estimates that Source: CIA World Factbook, International Monetary Fund, Reserve Bank of India. private equity investment through June 2008 had reached US$6.3 billion. Zero2IPO, a data provider that tracks Chinese VC and PE investment, estimates that China attracted * Projected. US$5.2 billion during the same period.

India’s economy has thus far proven comparatively resilient to the global slowdown. The International Monetary Fund revised its 2008 GDP growth forecast only slightly from 8.4% to 7.9%. While India’s growth story remains compelling, the current local economic climate poses distinct challenges and opportunities for PE firms. Inflation in India has hit a 13-year high, registering 12.3% annual inflation in September 2008. This develop- ment raises concerns about potential value erosion. Additionally, the rupee’s erratic movement against the dollar in the last 18 months has increased currency risks for foreign-currency denominated funds. The rupee appreciated 12% against the dollar in continued on page 2

India’s PE Fundraising and Investments Totals (2005 - 1H08)

12 Fundraising

Investment 9 USD Billions 6

0 2005 2006 2007 1H 2008

Source: EMPEA (fundraising for India-dedicated private equity funds), Venture Intelligence (private equity investment in Indian companies). Note: EMPEA includes infrastructure-focused funds and excludes real estate-focused funds in its fundraising totals.

Captive Funds Launched by India Conglomerates This dramatic expansion of the funds landscape is accompa- (2008) nied by rising fund sizes. Average fundraising targets among Fund Manager Fund Size India funds have nearly tripled, from US$205 million in 2005 Aditya Birla Capital n/a to US$573 million in 2008. This expansion is being fueled by PremjiInvest US$1b the launch of dozens of new funds and the continuing stream of Reliance Capital US$1b new entrants from developed markets. Tata Capital US$200m - US$300m At the same time, local veterans are contributing to the in- creasing depth of track records. Fund managers with succes- 2007. Having reached a peak in January 2008, the rupee sub- sor funds in the market include Jacob Ballas Capital India and sequently depreciated by 12.2% against the dollar, falling to a ChrysCapital, each raising a fourth India fund. Actis, ICICI Ven- two-year low in September 2008. tures, IDFC Private Equity, IL&FS and Baring India are currently The 2008 correction in India’s capital markets has brought in the market with their third funds. mixed results for PE players. The Bombay Stock Exchange index, The Indian funds landscape is also seeing the entry of a num- the BSE Sensex, has fallen more than 25% since the beginning ber of captive and sponsored funds with household names, in- of the year. The Sensex P/E ratio fell from its December 2007 cluding Tata, Reliance, Aditya Birla and Mittal. Tata Capital, the peak monthly average of 26.94 to 20.71 in April 2008. This financial services division of the Tata Group, launched its first has been a boon to the pipelines of Indian PE firms as PE has PE vehicle in 2008, with a target of US$200-US$300 million, become a more attractive alternative for companies seeking to aimed at investments in mid-sized healthcare and technology raise capital. However, it has also made it more difficult to get companies. The Aditya Birla Group’s private equity arm began some deals done because of mismatches between investors’ investing proprietary capital in December 2007, but is now and owners’ price expectations. seeking capital from institutional limited partners. The group also plans to raise a real estate fund. Fundraising Trends continued on page 3

PE firms seeking to capitalize on India’s dramatic growth appear EMPEA Insight undeterred by these macroeconomic challenges. The number Editorial Director Jen Choi of funds focused solely on the Indian market has exploded, [email protected] reaching 136 as of September 2008, with an estimated 33 new Writing and Research Alexander Adrian / [email protected]; Sean funds launched in 2008 alone. 1 Michaels / [email protected]; Harrison Moskowitz /moskow- [email protected] 1 Estimates of the size of the Indian market vary a great deal. Evalueserve, an Indian consulting firm, has estimated that as many as 366 funds are operating in India today. AVCJ Production Manager Cristiane Nascimento puts the number at 190 as of 2007. These variances are assumed to be a reflection of methodological differences around inclusion rules. [email protected] Number of India-Focused Funds Launched by Year Advertising Opportunities (2004-2008) EMPEA Insight offers readers an overview of the data and drivers behind investment trends in emerging markets private equity. Each issue of EMPEA Insight provides an opportunity for a single 50 43 exclusive back page advertisement. Issue-specific placements are on a first come, first served basis. For a list of upcoming issues and 40 33 more information about advertising opportunities and rates, contact 29 Cristiane Nascimento at [email protected].

unds 30 About EMPEA 20 The Emerging Markets Private Equity Association is a broad-based

Number of F 12 membership organization founded in 2004 that focus on the emerg- 10 ing private equity markets of Africa, Asia, CEE, Russia/CIS, Latin 3 America, and the Middle East. 0 2004 2005 2006 2007 1H 2008

Source: EMPEA.

Sector-Focused India Funds in the Market (2008)

Fund Manager Most Recent Fund Sector (Vintage Year, Fund Size) 3LOGi Capital, Evolvence Capital Evolvence India Life Science Fund Life Sciences (2007, US$150m) A K Purwar and Ajay Piramal Health Care Fund (US$200m) Healthcare Cinema Capital Venture Fund Cinema Capital Venture Fund Entertainment (2008, US$178m) India Rizing India Rizing Fund(2008, US$100m) Defense Rabobank Private Equity India Agribusiness Fund (2008, Agriculture/Agribusiness US$100m) Tuscan Ventures Tuscan Ventures (2007, US$50m) Logistics YES BANK Limited Food and Agriculture/Agribusiness Agribusiness Fund (US$100m)

Reliance Capital, the financial services arm of conglomerate The net effect of the more sober global investment climate is Anil Dhirubhai Ambani Group, seeded Reliance’s first PE fund, still unclear, but one likely outcome is a flight to quality, which which aims to raise a total of US$1 billion for investment in phar- would make it more difficult for first-time funds to raise capital maceuticals, services, real estate and logistics. Software giant and create greater competition for access to funds with the lon- Wipro Technologies’ chairman Azim Premji has provided the gest track records. Data provider Venture Intelligence estimates funding for the US$1 billion evergreen fund known as Premji- that only two first-time funds held closes in the first six months invest, which has invested in 40 companies since its launch in of 2008, versus 14 in all of 2007 and 10 in 2006.

2006. Whatever the near-term effects, most LPs have a long-term view A reflection of the growing sophistication of the Indian market, that includes India. EMPEA’s 2008 Survey of Institutional In- funds are becoming increasingly specialized and diversified. vestor Interest revealed that 77% of LPs surveyed expect to be Previously limited to infrastructure and technology, several new investing in India within the next three to five years. sector-focused funds are zeroing in on sub-sectors within the Indian market, including agribusiness, life sciences and even the entertainment industry. By one estimate, 37% of funds Investment Trends launched in the first half of 2008 had a sector focus other than Private equity and venture capital investment reached US$6.3 infrastructure; launches of infrastructure-focused funds repre- billion in the first six months of 2008, versus US$14 billion in- sented 33% of the total in the same period. 2 vested in all of 2007 and US$5.4 billion in the first half of 2007. Sources of Capital Deal sizes nearly doubled between 2005 and 2007, from US$15 While India’s pension funds are still prohibited from investing million to US$37 million. More recently, however, deal traffic re- in private equity, this has not impeded growing participation in flects the broader market correction in India, with deal sizes in the asset class among other local institutions—primarily banks, the first six months of 2008 falling slightly to US$33 million. corporations and investment managers. A review of 352 LPs Investment in the telecom sector rose from US$50 million (rep- who have committed to India funds reveals that at least 15% resenting 1% of the total) in the first half of 2007 to US$1.3 3 to date have been local. An analysis of commitments made billion during the same period in 2008, driven by a handful of to India-dedicated funds in the first six months of the year sug- large deals. At least seven transactions completed in the first six gests that local LPs made as many as 36% of allocations in the months of 2008 totaled US$100 million or more, most of them 4 time period. in telecom-related deals. These included an IDFC Private Equity consortium’s US$185 million deal with Quippo Telecom, Provi- 2 Source: Asia Private Equity Review. 3 Source; Private Equity Intelligence: Investor Intelligence database. dence Equity Partners’ US$640 million investment in Aditya Bir- 4 Source: Asia Private Equity Review. la Telecom, KKR’s US$250 million acquisition of a 2.5% stake continued on page 4

Average Deal Size of Private Equity Transactions month, the cell phone user base is expected to increase from (2005 - 1H2008) 250 million to as many as 600 million in the next two to three years. 40 US$37

35 US$33 Private equity investment in India’s healthcare sector has simi- larly surged, more than tripling from US$126 million in the first 30 US$25 half of 2007, to US$459 million between January and June 25

s 2008. ICICI Ventures is among the PE investors targeting invest- 20 US$15 ments in healthcare facilities. ICICI’s US$250 million healthcare 15 holding company I-Ven Medicare kicked off with an investment USD Million 10 in Medica Synergie, which will set up eight hospitals in West

5 Bengal within two years. Consultancy firm Technopak estimates as much as US$5 billion will be invested in the sector between 0 2005 2006 2007 1H 2008 2008 and 2011, with roughly 70% expected to go into regional

Source: EMPEA, Venture Intelligence. hospitals in small towns. Others seizing on this trend include AIG, with a US$88 million investment in Narayana Hrudayalaya, in Bharti Infratel and a US$300 million investment in telecom and UK-based Ashmore Investment Management, which bought infrastructure firm TowerVision backed by Morgan Stanley and a 19% stake in Quality Care India for US$23 million. others. While most PE firms are eschewing high-risk pure drug discovery The statistics illustrate the tremendous potential of the Indian businesses, PE investors are looking instead to contract with re- telecom market. Growing by eight million new subscribers per continued on page 5

Sampling of Recent Investments

Fund Manager Company Name Amount Company Sector Investment Investment (US$M) Date Equity (%) Aditya Birla Capital Vmart Retail 15 Retail Jul-08 25% AIF Capital BioPlus Life Sciences 31 Life Sciences Jun-08 n/a AIG, JPMorgan Narayana Hrudayalaya 88 Health care Feb-08 25% Ashmore Investment Management Quality Care India 23 Health care Jan-08 19% Baring Private Equity Sharekhan 57 Financial Services Mar-08 12% Blackstone Capital Partners Allcargo Global Logistics 60 Logistics Feb-08 10% Darby Overseas Investments, Ltd. Amalgamated Bean Coffee Trading 25 Food & Beverage Apr-08 0.3 Company Evolvence Capital Gland Pharma Ltd 30 Healthcare Jan-08 n/a ICICI Ventures Medica Synergie 16.5 Healthcare Jan-08 n/a IDFC Asset Management Co Ltd Quippo Infrastructure 185 Infrastructure Aug-08 12% IDFC Asset Management Co Ltd Seaways Shipping 27.9 Transportation Jun-08 22% Kohlberg Kravis Roberts & Co. (KKR) Bharti Infratel 250 Telecom Feb-08 2% Morgan Stanley Tower Vision Telecom Feb-08 n/a Providence Equity Partners Inc. Aditya Birla Telecom (ABTL) 640 Telecom May-08 20% Sabre Abraaj Capital Engineering and Construction 25 Construction Apr-08 n/a Company (ECI) The Carlyle Group Repco Home Finance 27.7 Housing Jan-08 n/a Warburg Pincus LLC Laqshya Media Pvt. Ltd. 65 Media Jun-08 18% WL Ross & Co. LLC SpiceJet Ltd. 80 Travel Jul-08 n/a

search or pharmaceutical companies with pipelines of products in 2007, more than double the amount invested in 2006 and in late-stage trials. Recent deals have included Evolvence Life 30% of overall value. Sciences Fund’s US$30 million investment in Gland Pharma Examples of 2008 PE investments in the infrastructure space Ltd. and private equity-backed Arch Pharmalabs’ 70% stake in include Sabre Abraaj Capital’s US$25 million investment in Benzochem Lifesciences. Forty-five percent of Arch is held by Hyderabad-based construction leader Engineering and Con- PE firms ICICI Venture, IL&FS and SwissTec. struction Company, Blackstone’s US$60 million investment in Consumer services remain a hot target as well. As India’s Allcargo Global Logistics, and IDFC Private Equity’s US$28 mil- middle class expands, so does the need for consumer services, lion injection in Seaways Shipping. such as banking and insurance. In 2007, services represented With the drop in public markets, PE firms see the potential for 55% of GDP. PE investment in banking, financial services and improved deal pricing, but many company owners have not yet insurance totaled US$4 billion in 2007, and US$370 million in fully adjusted to lower valuations, creating strained negotiations. the first half of 2008, representing 21% of total investment from Deal-breaking disagreements between fund managers and com- January 2007 to June 2008. pany owners have been common in 2008.5 At least 14 major pri- The infrastructure need in India is immense—estimated at vate equity deals fell through in the first quarter of 2008. Among US$500 billion over the next five years. India’s installed power these were ICICI Ventures’ proposed US$800 million investment generation capacity is estimated at one-third that of China’s. in infrastructure company Jaypee Infratech, and Indivision Capi- Transport networks, particularly roads, are so poor that between tal’s proposed minority investment in Dish TV. one-third and one-half of India’s produce spoils before reach- continued on page 6 5 Source: Grant Thornton India Dealtracker. ing the consumer. PE firms are capitalizing on this problem by targeting logistics, shipping, engineering and construction companies rather than the assets or projects themselves. PE firms injected US$5.4 billion into infrastructure-related sectors

Monthly PE Ratio Averages for BSE/NSE Indices (Sept. 07 - Apr. 08)

30 NSE S&P CNX NIFTY

BSE 100 Index

BSE SENSEX 30 erages

Av 25 Monthly P/E Ratio

20 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08

Source: EMPEA, Bombay Stock Exchange (BSE), National Stock Exchange (NSE).

Exit Trends

The Indian exit environment slumped slightly in the first half India: Realized Capital in Return Multiples of 2008, as the number of liquidity events fell 31% versus the (2006 - 2007) same period in 2007, from 45 to 31. PE firms achieved 65 exits in 2007. Median return multiple was 3.13x in 1H2008 Following this year’s market correction, the attractiveness of the much-hyped Indian IPO market has waned. Only six PE-backed IPOs took place in the first half of 2008. 10510.60 30.35

According to a survey of investors conducted in April 2008 by 4th Quartile

advisory firm Deloitte, 54% of respondents believed returns in 4.00 4.79 75 India would decrease over the next six months. Median return multiples held steady in the first half of 2008 at 3.13x from 3rd Quartile 3.18x for all of 2007. 502.07 3.18 Prospects for secondary sales are growing with mega funds like 2nd Quartile Blackstone, Carlyle, Baring and 3i earmarking billions for India, and Western PE firms seeking a foothold. ChrysCapital partially 250.86 2.16 exited its 20.6% stake in Shriram EPC through a pre-IPO sec- 1st Quartile ondary sale to US PE firm Argonaut Partners. The expansion 0.20 0.28 of companies within India as well as the arrival of multinational 0 2006 2007 corporations is yielding strategic buyers for private equity assets. In 2007, Actis sold its stake in Punjab Tractors to Indian Source: Asia Private Equity Review. conglomerate, Mahindra & Mahindra. SAIF Partners sold its stake in Indian brokerage firm, IL&FS Investsmart Ltd., to HSBC in May 2008.

Sampling of Recent PE-Backed Exits

Firm Name Company Sector Investment Capital Exit Type Exit Date Year Invested (US$M) 3i India Infrastructure Adani Power Energy 2007 US$227M IPO on LSE May-08 ChrysCapital Shriram Group Transport 2005 US$22M Partial Exit through Sec- Feb-08 (20.6%) ondary Sale (US$3.5M) Granite Hill Capital Ventures Gokul Refoils and Industrials 2007 US$1.2M Partial Exit (US$35) Apr-08 Solvent (1.39%) IL&FS Investment Managers, DQ Online n/a n/a Share sale on AIM Jan-08 i-Labs, TDA Capital Partners, Entertainment Education Indian Value Funds, IFC Lehman Brothers KSK Energy Energy 2001 n/a IPO Jun-08 Ventures New Vernon Capital Updater Services Services 2006 US$10M Secondary Sale (US$26M) Feb-08 SAIF Partners IL&FS Financial 2004 US$8.4M Trade Sale May-08 Investsmart Ltd. Services (12%) UTI Ventures Excelsoft Technology 2001 US$0.6M Secondary Sale (US$31M) Apr-08 Technologies

Sampling of Firms Investing in India

PE Firms Investing in India Most Recent Fund (Vintage Year, Fund Size) Sector Focus India-dedicated Funds 3i Group India Infrastructure Fund (2007, US$1.2b) Infrastructure Actis India Real Estate Fund (2007, US$300m) Real Estate Aureos Capital South Asia Fund (2006, US$123m) Generalist Baer Capital Partners Beacon India Private Equity Fund (2007, US$220m) Generalist Baring Private Equity India Baring India Private Equity Fund III (2008, US$550m) Energy Blue River Capital Blue River Capital I (2006, US$135m) Generalist ChyrsCapital ChrysCapital Fund V (2007, US$1.25b) Generalist GVFL Limited GVFL SME Technology Venture Fund (2008, US$59.8m) Technology Helion Venture Partners Helion Venture Partners II (2008, US$210m) Generalist ICICI Venture Funds ICICI Venture Capital Fund III (US$1.5b) Generalist IDFC Asset Management Co Ltd. IDFC Private Equity Fund III (2008, US$700m) Infrastructure IL&FS Investment Managers Ltd. Tara India Fund III (2007, US$400m) Generalist Jacob Ballas Capital India New York Life Investment Management India Fund III (2008, Generalist US$278m) Kotak Private Equity Group (KPEG) Kotak India Growth Fund II (2008, US$440m) Generalist Lighthouse Funds India 2020 Opportunity Fund (2008, US$125m) Generalist Mayfield Fund Mayfield India (US$150m) Generalist Millennium Spire Asset Management Millennium Spire Fund II (US$200m) Real Estate Motilal Oswal Venture Capital Advisors Pvt India Business Excellence Fund (2008, US$125m) Generalist Ltd. New Silk Route Private Equity New Silk Route Private Equity Asia Fund (2008, US$1.5b) Generalist Nexus India Capital Nexus India Capital II (2008, US$220m) Generalist Quantum Equity Advisors Q India Fund (US$500m) Infrastructure Samara Capital Partners Samara Capital Partners Fund I (2007, US$250m) Generalist Sequoia Capital Sequoia Capital India III (2007, US$300m) Technology Tata Realty & Infrastructure Ltd. Tata Realty & Infrastructure Ltd. (US$750m) Infrastructure TVS Capital, Shriram Group TVS Shriram Growth Fund (US$115m) Consumer VenturEast VenturEast Proactive Fund (raising, US$150m) Technology YES BANK YES BANK Infrasturcture Fund (raising, US$700m) Infrastructure Zephyr Peacock Zephyr Peacock India Fund I (2006, US$100m) Generalist BTS Investment Advisors Ltd. BTS India Private Equity Fund (Raising, US$50m) Generalist Asian, Pan-EM, and Global Funds HBG Holdings HBG Holdings Limited (2007, US$200m) Generalist Citi Venture Capital International (CVCI) Growth Partnership LP Fund II (2007, US$4.5b) Generalist Global Capital Management (100% subsidiary Global Buyout Fund (2007, US$750m) Generalist of Global Investment House) Warburg Pincus Warburg Pincus PE X (2007, US$15b) Generalist Siguler Guff BRIC Opportunities Fund II (2007, US$1b) Generalist Navis Capital Partners Ltd. Navis Asia V (2007, US$1b) Generalist