IT, manufacturing, banking and engineering undoubtedly are still the favourites as far as private equity investors are concerned. However, over the past nine months “shallow sectors” like agriculture, energy, hospitality, telecom and media are gaining importance among bulge-bracket investors.
“A standing testimony to this aspect is the fact that even a slow-moving sector like agriculture has pocketed $29 million by way of three separate deals. Agro products and agriculture-based research companies are attracting investors,” said Arun Natarajan, managing director, Venture Intelligence, a Chennai-based PE research firm.
Among other investments, in the energy sector, PE parties have invested close to $252 million across 11 deals over the past nine months. The $68 million joint equity placement of Citigroup and UTI Ventures in Ind Bharat Infrastructure, IFC’s $30 million investment in Gujarat State Petronet and the $24 million joint investment of NYLIM India and WIH Holdings are some of the major PE deals in the energy sector during the considered period. According to a sectoral outlook report put out by the International Energy Agency, China and India will account for around 45% of the increase in global primary energy demand through 2030.
Power and power utility services are the most vibrant sub-segments of energy sector. The growth of energy sector would be fuelled by government initiative to increase competition, consumers choosing cheaper power, and players’ interest in a sector with higher returns than in regulated plants. Hotels & resorts is another upcoming sector that is attracting a lot of PE interest.
Through five deals, PE players have invested close to $259 million in hotels & resort chains this year. Credit Suisse’s $55 million investment in Apeejay Surrendra Hotels and Morgan Stanley’s $37.7 million investment in Bharat Hotels are some of the larger deals in this sector.
The booming hospitality sector in India is seeing rising interest from domestic and foreign players keen to invest in hotels, resorts and serviced apartment development. The Federation of Hotel and Restaurant Associations of India (FHRAI) estimates that as compared to the present 97,000 hotel rooms in the country, India will need 30,000 additional rooms in various categories over the next three years.
“Lured by 20-25% return on investment, foreign banks like Citigroup, Morgan Stanley and Goldman Sachs are investing heavily in the Indian hospitality sector. Healthy trends are reported in average room rates (ARRs) and occupancy rates are also going north. Besides, several corporate deals have also been inked in the sector,” said a fund manager of a foreign bank.
Telecom is another sector that is slowly gaining the favour of PE investors. During the nine-month period, the sector has received $136 million through six deals. The most luring aspect of telecom sector is demography. India‘s mobile phone subscriber base is growing at a rate of 82%.
China is the biggest market in Asia Pacific with a subscriber base of 46% in the region. Compared to China, India’s share in Asia Pacific mobile phone market is a petty 7%.
Source: Economic Times