E-commerce drives Indian investment
Siddharth Poddar, Contributing Writer
SINGAPORE — Private equity investments in India are set to hit an all-time high in 2015, fuelled by a flurry of e-commerce deals.
In a bumper year for the industry so far, India has seen private equity concerns invest $13 billion across 504 deals in the first nine months of 2015, making it all but certain that the total will surpass the $14.6 billion invested in 2007, the strongest year on record.
Data for the first nine months show an 82% year-on-year growth over the comparable period in 2014, according to the Indian private equity data provider Venture Intelligence. Momentum has been building throughout the year, with almost $6 billion invested in 177 private equity deals in the third quarter alone.
India’s economy is expected to expand by about 7.5% in 2015 over the previous year, exceeding China’s estimated growth rate. Other attractive macro conditions in India include a fall in inflation, declining interest rates, a relatively stable currency and improving fiscal stability.
The 2014 election of Prime Minister Narendra Modi, considered as pro-business, has also boosted business and investor sentiment.
“The interest is driven partly through Modi, and partly due to the fact that the PE funds have seen some stabilization in the financial performance of their companies,” said Low Han Seng, executive director of Asia Investment Partners, a unit of Singapore’s United Overseas Bank’s alternative investment and advisory business.
“India is again looking interesting relative to China and Southeast Asia,” said Low, adding that the Indian rupee “seems to have found a floor.”
Another active investor in India, Hideya Sadanaga, general manager of the global product division at Nissay Asset Management, said that “the seeds of reform have been sown and the economic numbers coming out of India are quite strong when compared to numbers coming out of other places in Asia.”
A heady mix
One big reason for the surge in investment in 2015 is a boom in big deals in Internet and e-commerce businesses, said Vishakha Mulye, chief executive of ICICI Venture, one of India’s largest private equity managers. This sector alone received almost $6 billion worth of private equity investment in the first nine months of 2015. Of the 16 investments of $100 million or more made by private equity firms in the third quarter, seven were in this sector.
This includes a $700 million investment in the e-commerce company Flipkart; a $500 million investment in Snapdeal, another e-commerce company; a $245 million investment in OlaCabs, a taxi app start-up; and smaller investments in companies such as OYO Rooms, an online aggregator of budget hotels; Saavn.com, a digital distributor of music; and Pepperfry, an online furniture marketplace.
Companies in this segment are profiting from a heady mix of positive factors, including increased mobile and Internet connectivity and a rise in discretionary incomes and consumption. More people are buying more goods and services, and more of these purchases are now happening online.
Moreover, many of these companies are helping consumers to mitigate the effects of poor infrastructure in the areas of transport, retail or even hotels, and bringing everyday convenience and services to their doorstep, investors say.
The e-commerce sector is likely to remain popular — and cash-hungry — for a few more years. “As these companies scale up, they need hundreds of millions of dollars every six months” to support their growth, said Shujaat Khan, managing director of Indian private equity firm Blue River Capital. Khan expects to see continued significant investment in this segment because these companies are for the most part delivering on their growth targets, or exceeding them.
Mulye said that valuations in the sector “look stretched,” but acknowledged that capital is continuing to flow in, driven by a rapid increase in mobile connectivity. From around 30 million mobile connections at the turn of the century, India has close to a billion mobile connections today.
“That has created the basic infrastructure for such e-commerce companies to grow, and therefore the scalability question is better addressed today than it was in the 1999–2000 period,” she said.
However, Mulye said ICICI Venture has thus far adopted a cautious approach to investing in these sectors, and continues to focus on positive cash-flow oriented models and companies. Businesses such as Flipkart and Snapdeal, for example, are still operating at a loss.
The information technology sector is also boosting venture capital investment. In the first nine months of the year, $1.4 billion was invested across 323 venture capital deals, more than the record $1.2 billion invested in all of 2014. The Internet and e-commerce sector accounted for about 70% of this sum.
Originally published at https://asia.nikkei.com.
