Pe KPMG May10

P R I VAT E E QU I T Y
Enabling Growth in Promising Indian

Companies
The Positive Power of Private Equity
A DV I S O RY
© 2010
© 2010KPMG,
KPMG,an an Indian
Indian Partnership
Partnership and a member
and a member firm
firm of the of the
KPMG KPMG
network network of member
of independent independent member
firms affiliated firms
with affiliated
KPMG with Cooperative
International KPMG International Cooperative
(“KPMG
“KPMG International”),
International”), a Swiss
a Swiss entity.entity. Allreserved.
All rights rights reserved.
Foreword
India survived the recent global We short-listed a few companies The list of benefits are
financial crisis better than most that had received PE funding impressive and include
large economies. GDP growth is and interviewed both the PE providing advice on business
expected to be in the range of 7- firms and the company strategy, enhancing corporate
8 percent per annum for the management to get their inputs governance, helping in brand
next couple of years. on the value addition provided building, scaling companies
Development of infrastructure by the PE firms and the manner domestically and internationally,
to support the growth is in which PE has impacted their funding new and innovative
important and a significant business, besides merely business models, and helping
portion of the capital required to providing capital. Our findings professionalise the organisation.
fund this growth could come clearly indicate that behind the
from PE. Hence, PE is being scenes there have been a broad We hope you will find these
increasingly recognised as an range of areas that PE firms insights interesting and useful.
important asset class in India. influence their portfolio
We would like to extend our
Besides, 2010 is witnessing a companies and bring resultant
thanks to all the respondents for
resurgence of PE funding, benefits to the company.
their time and contribution to
following decreased deal
this research.
activity in 2008 and 2009. Thus,
it becomes important to assess a
key question that is often asked,
which is: “can PE firms provide
value addition to their portfolio
companies in India given that
the PE India model is unique
and that PE firms are largely
minority investors?”
Vikram Utamsingh Rafiq Dossani
Head of Private Equity and Senior Research Scholar
Markets Shorenstein Asia-Pacific
KPMG in India Research Center
Stanford University
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
Foreword from CII
The strong growth of the Indian that investments from PE and Government, and bringing
Economy has been led by the VC needs to be increased three awareness to its members of the
building of many individual fold, from a trailing level of benefits.
business success stories. This USD 10 billion annually, to
This publication, in association
has in turn, been fuelled by both USD 30 billion.
with KPMG, aims to bring out
the capital market and other
As is well known, the key 17 critical, important and
forms of investment, from
difference between PE and other significant case studies of
domestic and foreign sources,
forms of capital is the strong Private Equity industry’s strong
amounting to approximately
operational discipline and relationship with Corporate
USD 350 billion annually.
management bandwidth brought India. This will serve as a useful
Indeed, as the Indian economy
in, post investment, to the example of what is possible and
expands to a higher growth rate,
investee companies. Studies inspire more companies with
it is estimated that investments
have shown that PE companies ambitious growth plans to boost
over USD 1.3 trillion may be
in India typically outperform the their growth in collaboration
required over the next three
mean of the Sensex on with PE firms.
years.
parameters like profitability,
The Private Equity (PE)/ employment generation and
Venture Capital (VC) industry innovation by 15-25 percent.
provided over USD 50 billion of
As a result, in order to facilitate
much needed venture, growth
the continuing growth of its
and other forms of capital for
members from this form of
the growth of Indian companies.
capital also, CII has taken a
Over 1,500 companies have
keen interest in the growth and
collaborated with PE firms in Gopal Srinivasan
promotion of the PE and VC
India so far and have excelled in Chairman, CII National
industry. The National
several key sectors like Committee on PE and VC
Committee on PE and VC has a
IT/ITES, Telecommunication, Chairman and MD, TVS Capital
two-pronged agenda of
Retail, Infrastructure and Funds Ltd.
advocacy to regulators and the
Manufacturing. It is estimated
“KPMG International”), a Swiss entity. All rights reserved.
Table of contents
Background 1
Introduction 5
Case studies of the impact of PE 7
Case studies 13
Infrastructure Companies 15
Consumer Companies 21
Healthcare 26
IT Enabled Services 29
Education 32
Finance 34
Conclusion 37
Background1,2
PE investment in India
India has a very vibrant Venture Capital (VC)
/ Private Equity (PE) industry with USD 32.5
billion invested across more than 1500
VC/PE deals from January 2006 till date.
It is estimated that currently there are over

137 domestic and 135 foreign PE fund
managers in India.
Over the last three years, VC/PE

investments were the equivalent of 33
percent to 72 percent of the total equity
raised from primary markets.
Source: Venture Intelligence Database
1. Extracted from the CII National Committee on VC/PE Memorandum

to SEBI, December 9, 2009, prepared by Bain & Company
2. Data on PE impact includes information from Venture Intelligence’s
report on Private Equity Impact 2009
1 “KPMG International”), a Swiss entity. All rights reserved.
Importance of VC/PE
investments for Indian
companies
Economists estimate that India needs about A study conducted in 2009 by Venture
USD 1.3 trillion dollars of investment over Intelligence on the impact of PE in India
the next three years to sustain a GDP assessed how PE-funded companies have
growth of 7-9 percent. This translates to performed vis-à-vis non-PE funded
USD 60-100 billion of VC/PE investments companies in the same industry over eight
requirement over three years, against which years from 2000-2008. The study found that
industry estimates that PE investments PE boosts the Indian economy by creating
would be in the range of USD 9-10 billion in value for corporate India. This is through
the year ending December 31, 2010. higher growth in sales and profitability of
PE-funded companies; higher R&D spends
which fuels greater innovation, and higher
wage payment as compared to non PE-
funded companies. The key findings from
the study are presented below.
PE-backed companies have performed better than Sensex companies
Source: Venture Intelligence PE Impact report 2009
The following chart shows the annual sales growth of PE-backed companies
Annual Sales Growth
Annual sales of PE-backed companies grew at almost 25 percent, a significantly higher rate
than the 16 percent growth rate of non PE-backed companies.
(“KPMG International”), a Swiss entity. All rights reserved. 2
The following chart shows that PE-backed companies are more profitable.
Annual PAT growth
Profit-After-Tax (PAT) of PE-backed companies grew at almost 35 percent, a significantly

higher rate than the 25 percent growth rate of non PE-backed companies.
The chart below shows that PE-backed companies creates well paying jobs.
Annual wages growth
Wages at PE-backed companies grew at a significantly higher rate than at their non PE-
backed peers. The growth rate of wages at PE-backed companies was almost thrice that of
Midcap index companies and more than twice that of non PE-backed companies.
The chart below shows that PE catalyses innovation in the economy by spending higher on
R&D.
Annual R&D growth
Growth in Research and Development (R&D) investments at PE-backed companies is over

twice that of non PE-backed companies.
Importance of the Micro,

small and medium
enterprise (MSME) segment
in India
Micro, small and medium enterprise Average Deal Size (INR million) Thus access to PE funding is important for
(MSMEs) account for a significant the growth of the Indian economy. Having
proportion of listed companies. Forty established that PE investments are
percent of listed companies have a market important for India, the next section
capitalisation of less than INR 1.25 billion3 analyses what PE firms do differently that
(with the Sensex at more than 17,000). Also enables higher performance in their portfolio
about 80 percent of all Bombay Stock companies as compared to non PE funded
Exchange (BSE) listed companies have a companies and the resultant impact that
turnover of less than INR 1 billion. More they have on their portfolio companies.
than 80 percent of CII members are from
the MSME sector. MSMEs are expected to
play a critical role in India’s growth story and
will continue to be a significant target for
VC/PE investment going forward. Source: Bain & Company
A significant 70 percent of VC/PE

investments in 2008 have been in MSME
companies with turnover less than INR 5
billion. Thus the average VC/PE investment
deal size over the last three years was INR
700 million (excluding Real Estate /
Infrastructure) as against an average deal
3. Approximately USD 28.03 million at an exchange rate of INR
size of INR 1,700 million across all deals. 44.595/ USD on May 4, 2010
Introduction
PE is, first and foremost, a financial While these factors justify the need for PE, The iconic case for PE in India remains,
transaction. If a company’s management PE finance can be expensive. In return for undoubtedly, Warburg Pincus’s (WP)
chooses to accept PE, this is because it providing long-term risk capital, investors in investment in Bharti Telecom (BT). Over a
determines that the company needs long- Indian PE funds expect to earn a 25 period of two years, WP invested nearly
term risk capital. Often, PE is chosen percent1 rate of return, on an average. By USD 300 million in BT. The funds came with
because long-term risk capital is not contrast, stock markets earned investors an WP’s strategic support for existing
available elsewhere, due to underdeveloped average of 14 percent2 per year over the management, who were also BT’s
equity markets. Sometimes, PE may be past decade. Indeed, with the exception of promoters. The strategies enabled BT to
taken as a substitute for long-term debt venture capital, which tends to be invested accelerate its plans of becoming a national
because public and private borrowing in significantly riskier companies than those player through acquisitions and organic
channels may be underdeveloped or financed by PE, no formally organised growth and to sign global partnerships,
unavailable. capital suppliers expect to earn PE- including a strategic joint venture (JV) with
equivalent rates of return. Singapore Telecom and a multi-billion-dollar
In India, as is the case with many
outsourcing technology management deal
developing countries, these are important Is PE, therefore, doing something
with IBM – while earning healthy returns for
considerations. Sources of long-term debt transformational for it to expect to earn
BT’s promoters and WP. The investment also
capital from public markets are limited due these rates of return? If yes, what is the
transformed the telecom sector in India;
to the relatively nascent stage of Indian nature of this transformational impact?
due to BT’s success in becoming the
debt capital markets. On the other hand, These are questions widely asked and are
leading national player during this period, its
Indian equity capital markets, which are questions which form a part of this report.
competitors were forced to look closely at
well-developed when compared with many In response, PE’s proponents claim that PE
BT’s business model of national reach,
developing countries, are nevertheless is not just finance but ‘smart finance’. This
global partnerships, strategic vendor
primarily accessible for more mature means that it is finance that comes with
relationships and technology outsourcing.
companies than those that typically need many kinds of fringe benefits that transform
Many followed suit, especially with regard
PE. companies: global access, new business
to outsourcing technology and aimed to be
models, fiscal discipline, corporate
global players.
governance and professional talent,
amongst others. As companies are
transformed into business leaders, it is
claimed that the industries they are part of
are transformed. Potentially, PE can claim
even a national impact.
1. KPMG Survey ‘Reshaping for future success’, 2009

2. http://finance.yahoo.com/q/hp?s=^BSESN&a=03&b=1&c=2000
&d=03&e=18&f=2010&g=d&z=66&y=0, for the period April 7, 2000-
April 16, 2010, downloaded April 18, 2010
Clearly, the WP-BT deal can claim both PE firms also face unique challenges as In developing countries like India, the
company-level and industry impact. A they are typically minority investors and so impact may well be even more significant.
national-level impact may also be claimed bringing changes in management style, There are several reasons. First, is the
since it is likely that the telecom sector’s trying out new business models, and previously mentioned shortage of most
growth would have been lower without BT’s cutting costs can be difficult to implement forms of capital for private companies. PE
presence. However, an equally significant and can sometimes lead to conflicts may well be the only form of capital
national-level impact could be that BT between the promoters and PE investors. available in scale for the private industry.
established a business model imitated in Nevertheless, we might expect that, should
Second, the trend towards globalisation as
many other sectors – consisting of such changes occur and lead to positive
well as the need to create management
globalised sourcing of non-core functions outcomes, it might quickly change the firm
structures that are locally adapted is a
and global service provision through and its industry, as was the case with BT
challenge that growing companies in India
strategic partnerships. and the telecom sector.
face. As a result, Indian corporations, as
Iconic though it is, the WP-BT deal is not The question of national impact in India is a they mature, are unlikely to have the same
typical of PE in India. Most Indian PE particularly interesting question because, management structure as the older
investments are considerably smaller in size even in developed countries, with large companies of western nations. The modern
(2009 average = USD 13.8 million) . There is 3
public markets, a large, positive national corporate structure in Asia and, increasingly
also a common misconception that only impact for PE is evident. The survival rate of in the west (led by Silicon Valley), is built
large well established companies receive or companies is significantly higher in around networks of small and large
benefit from PE capital. In fact, it is the companies that have received PE. A 2009 companies linked by specialised supply-
contrary. In the second section of our report study in the US showed that only 4 percent
4
chains rather than the integrated,
we showcase some companies which of startups that did not receive PE (including hierarchical, silo-style corporate structures
benefited from PE capital. While some of venture capital) survived beyond 10 years. that still dominate the west. PE can help
these companies are well established By contrast, 27 percent of those that Indian companies by providing expertise in
names today, it is pertinent to note that received PE lived beyond 10 years. creating organisations that are both well-
they were not in this position when they positioned for global growth through
received PE funding and that without PE specialisation in the supply-chain, and
funding they may not have transformed. adapted to local management talent,
ownership structures and needs.
In the following section we analyse the

impact of PE and discuss cases of PE’s
impact on companies.
3. Venture Intelligence data base April 19, 2010

4. Puri, M. and R. Zarutsie, “On the Lifecycle Dynamics of Venture-
Capital- and Non-Venture-Capital-Financed Firms,” Working Paper,
Duke University, 2009
Case studies on the impact of PE
Companies receiving PE potentially benefit The table below shows the varied and deep
in several ways. Some of these, as the table impact of PE. Improving the scale of
below shows, may be enabled by finance operations is mostly common to every PE
whereas others maybe enabled by the investment, justifying our statement at the
presence of reputationally-conscious PE start of this report that PE is, first and
investors. Thus, the capital may be used for foremost, a financial transaction.
scaling up the existing business within its Nevertheless, as the case of the PE
existing domain of products, services and investments in Paras Pharmaceuticals
geographies, recapitalising the company (for indicates - the driver for PE came from
example, reducing debt, or enabling access recognition by the promoter that it was not
to new debt capital and, ultimately, going cash, but transformational skills that were
for an IPO), financing more efficient output, needed.
such as through spending on technology or
Business model changes, corporate
training staff, professionalisation, i.e.,
governance and professional talent
bringing in new talent, usually at the
management emerge from the table below
executive or senior management levels,
as the three most important impacts of PE.
developing new products or services with
Closely following these is the impact of PE
marketing and other support, financing the
on product development and helping find
spinning off of existing product or service
acquisitions or strategic partners. Much less
lines and acquisitions. To improve the
frequent are financial recapitalisations, spin-
company’s reputation with clients, vendors
offs, new technologies and improving
and other financiers, PE investors may also
efficiency.
impose non-financial changes, such as new
standards of corporate governance, new
business models such as re-branding or
global JVs, and restructuring into more
specialised, or higher-end positions on the
value-chain. These are indicated in the table
below. The case studies that follow are
illustrations of these benefits.
This is indicated by the table below.
Scale Corporate Financial Efficiency New Talent Business Product Spin-off Acquisition
Governance Recapitalisation Technology Retention Model Development /Sale / Strategic
& Partners
Development
Ace Refractories √ √ √ √ √ √ √
Café Coffee Day √ √ √
Daksh √ √ √
Glenmark Pharma √ √ √
GMR Infrastructure √ √ √ √
Green Infra √ √
Gujarat State Petronet √ √ √
Intelenet √ √ √ √
Manipal Education √ √ √ √
Meru Taxi √ √ √ √ √
Paras Pharma √ √ √
Shringar Films Ltd. √ √
Shriram Transport Finance √ √ √
WNS √ √
Air Deccan √ √ √ √ √ √
IDFC √ √ √ √ √
Naukri.com √ √ √
Source: KPMG India Analysis 2010 based on inputs received from PE firms and Management of companies profiled
While the above table demonstrates the varied impact of PE on the cases we studied, the
chart following analyses the perception of the investee companies on where they believe
PE firms make the most impact. Not surprisingly, improving corporate governance and
providing capital for a company in its growth phase were identified as the areas of greatest
impact.
PE investment impact over the past few years
Source: KPMG India Survey of Portfolio Companies 2010
These differences in the nature of the and medium enterprises (SMEs) that need
influence and the impact arise from the advice on how to build an organisation
nature of PE investment and the stage of structure, develop a line of management
evolution of the investee companies. Most distinct from ownership, improve corporate
PE investors take a minority equity position. governance and scale up. Thus, the focus of
The PE firm is not in control and sits on the PE advice is in this direction, as is evident
Board of Directors and provides strategic from the chart below:
inputs. The investee companies are small
Perception / expectations of investee firms on PE firms' capabilities
The chart below analyses the perception of the investee companies on where they believe
PE firms add the most value:
Expertise provided by PE funds to their investee companies
In the chart below, investee companies is intended to transform the company and (also known as Café Coffee Day), Meru Taxi,
believe that PE is an excellent source of the environment as well. For example, Shriram Transport Finance and Paras
capital for funding to build new and creating a market leader that is Pharma.
innovative business models. PE is also seen professionally run and whose success is
as the best long term source of funding for based on innovative business models that
growing businesses which confirms the are likely to transform the industry it
‘staying power ‘of PE. The other implication operates in. Examples include successes
of our findings is that what PE does in India such as Amalgamated Bean Coffee Trading
Perception/ expectations from PE funds on Funding
The chart below shows that PE funding helps raise the profile of the investee company and
strengthens the credibility of the promoters (owners). This is particularly useful at the time
of making a public issue.
Perception / expectations from PE funds on Customer, profile and brand building
One of the benefits which is little base which allows access to bank finance. This is shown in the chart below. It helps
understood of PE investment is But, PE from a reputable firm is worth explain the attractiveness to investees of
enhancement of reputation. The investee much more – better terms of finance, better reputable PE firms as well as those that are
companies that need to expand are usually quality of recruitment, better client and more operationally involved.
too immature, as noted, to access equity vendor relationships and perceptions of
capital from capital markets, and too small better competitiveness.
to tap debt capital. PE enables a financial
Reputational advantages for being known as a PE funded
CASE STUDIES1
1. All data contained in each of the case studies is based on the

inputs received from both the PE firms as well as the Company
Managements
HEALTHCARE 26
Glenmark Pharmaceuticals 26
Paras Pharmaceuticals 27
INFRASTRUCTURE COMPANIES 15
Ace Refractories 15
Air Deccan 17
GMR Infrastructure 18
Green Infra 19 IT ENABLED SERVICES 29
Gujarat State Petronet Limited 20
Daksh (now IBM Daksh) 29
Intelenet 30
WNS 31
EDUCATION 32
Manipal Universal Learning (MUL) 32
CONSUMER COMPANIES 21
Amalgamated Bean Coffee Trading

(Café Coffee Day) 21
Meru Taxi 22
Naukri.com 23
FINANCE 34
Shringar Films Limited 24
IDFC 34
Shriram Transport Finance 35
INFRASTRUCTURE COMPANIES
Ace Refractories
Ace Refractories, formerly ACC Refractories, ICICI Ventures decided, prior to the
was the refractories division of the cement takeover, to retain management, but
giant, ACC, and accounted for less than 5 improve incentives for improved
percent of ACC’s turnover. While the division performance through the issuance of stock
was profitable and well-reputed, it was not options and improved compensation. As a
a focus business of ACC. The pressure to result, the management turnover was
divest increased after the global minimal. The management was also
organisation Holcim acquired a majority challenged to create a new strategic plan for
shareholding in ACC in 2005. Ace that would create new markets in
Southeast Asia and Europe, improve R&D
In 2005, ACC divested the refractory
and new product launches, enter into the
business via a ‘slump sale’2 to ICICI
refractories services business on a turnkey
Ventures for INR 2,570 million3. ICICI
basis, and source raw material from China.
Ventures was attracted by Ace’s market
Several of these initiatives were extremely
reputation and technological depth. It saw
successful. This included a ramp-up of new
an opportunity for Ace in the business of
product launches and a rise in exports from
supply of turnkey refractory services to
INR 200 million to INR 800 million by 2007.
India’s nascent construction boom, fuelled
During this time, the company’s revenue
by growth in economic activities.
rose from INR 1.8 billion to INR 4.3 billion.
In September 2007, ICICI Ventures sold its

holding to Calderys, the refractory division
of French firm Imerys for INR 5,500 million.
2. A slump sale is defined as the transfer or sale of one or more

divisions of a company for a lump sum consideration, as contrasted
with the more traditional sale of assets.
3. The original acquisition was financed by Rs 1000 million of Equity
and Rs 1570 million of debt.
Impact of PE on Ace
The most significant effect of the PE At the time when negotiations to sell Ace At the time of its acquisition, Ace was
investment was that it converted a hitherto were ongoing, ICICI Ventures worked India’s second largest refractory company,
relatively neglected division of ACC, closely with the management of Ace to with a market share of around 14 percent.
accounting for less than 5 percent of ACC’s determine its exit strategy. Both PE firms The other companies in the industry were
revenue, into a stand-alone company that and operating firms were considered as exit mostly small-scale, lower-technology
could grow at a significantly higher rate than options, but ICICI Ventures left it to companies that co-existed with market
it had as a division of ACC. This was management to make the final choice, leaders ACC and Tata Refractories. The
accomplished by retaining and providing which resulted in a preference for a creation of Ace improved the
incentives to management and by focusing corporate partner (strategic investor). This competitiveness of its product line, due to
on technology, exports and globalising was because a buy-out by another PE, new technologies and outsourcing of key
sourcing. As a senior company source however deep-pocketed, was perceived by supplies. The new entity also focused on
noted: “PE enabled the company to the management as a short term option identifying areas which would increase
optimise its operations and resources. Prior given that the PE investor could look to exit revenue such as exports and turnkey
to divesting to ICICI Ventures, Ace in the near future. projects. Hence, Ace’s market share grew
accounted for 5 percent of ACC’s turnover and led to an industry that was
When the company was sold to Calderys,
and received limited managerial attention. characterised by larger companies and
ICICI Ventures played a key role in ensuring
Post-divestment, it got 100 percent higher levels of technological sophistication.
the continuity of management personnel at
attention.”
Imerys through appropriate performance
incentives.4
4. ICICI Ventures ensured that unvested options were not lost and
management continued to be incentivised through pre determined
parameters to vest their options post sale to Calderys. Thus, ICICI
Ventures ensured that management was not financially adversely
affected by its exit from Ace.
Air Deccan
Air Deccan was established in 2003 with The high capacity was both an advantage Impact of PE on Air Deccan
the objective of setting up a budget airline, (as it became an attractive acquisition target
The PE investment in Air Deccan brought
the first of its kind in India. Price sensitivity for Kingfisher) and a disadvantage (as it
both operational and fiscal discipline. PE
and the aspirations of the typical Indian adversely impacted the company financially
firms helped setup a proper organisation
consumer were cited to be the main due to the economic slowdown and
structure and created a formal business
reasons for a budget airline. unforeseen spike in fuel cost).
plan. The financing enabled Air Deccan to
Initially, the company’s operations revolved The airline industry began to face significant pursue its aggressive business model of
around the founder, Captain G. R. Gopinath. changes in its operating environment from running a budget airline.
Modeled on Southwest Airlines in the U.S. 2005. Large rises in fuel prices and
and Ryan Air in Britain, Air Deccan competition from other budget airlines like
Impact of PE on the
positioned itself as an airline for the Spice Jet, Indigo and Go Air adversely
industry
masses. Seeking capital for growth, Air affected Air Deccan’s profitability. With ICICI
Deccan obtained PE investment from ICICI Ventures’ assistance, some of the aircraft Air Deccan had a big impact on the industry.
Ventures, which invested USD 30 million in that had been purchased were re-contracted Its no-frills flights, focus on second-tier
2004 for a 19 percent equity share. Air on a lease basis, thereby improving cash cities, and aggressive pricing led to
Deccan also received PE investment from flows. aggressive growth and spurred the entry of
Capital International, an American PE firm, comparable budget airlines. Its practices
In 2006, Air Deccan offloaded 25 percent of were imitated by established competitors
which, it hoped, would provide a global
its equity in an IPO. The IPO took place and became part of industry practice. The
presence and learning from the operations
during a very difficult time for Indian equity result was a fall in the average cost of air
of similar airlines in other countries.
markets. Fortunately, with ICICI’s support in travel in India. To a significant extent, these
Both ICICI and Capital International played the form of stepped up funding as well as new business approaches were enabled by
an active role in formulating strategy. With marketing to other investors, the issue was the initial round of funding and the models
the PE firms’ assistance, Air Deccan completed at the offer price. At its peak, the that were introduced by PE financiers
appointed a person from Ryan Air to run the market capitalisation of Air Deccan reached seeking to imitate the success of budget
business. USD 1.1 billion. airlines in other countries. Thus, we may
conclude that PE significantly impacted the
The funds were intended to build capacity By late 2007, the ongoing pressure of
industry.
in a phased manner. Accessing PE funds competition and lower than expected
was critical for being able to raise the much growth forced Air Deccan into significant
needed debt and to guarantee leases, losses. In 2008, the company was merged
without which project implementation into Kingfisher Airlines, a premium domestic
would have been difficult. airline. Kingfisher was attracted by Air
Deccan’s large fleet that enabled Kingfisher
The funds were also used to enhance plane
to rapidly scale up its operations. Although
capacity quickly by ordering 60 airbuses on
the initial understanding was that Air
purchase and leased bases. By 2007, Air
Deccan would be the budget brand of
Deccan flew into 68 cities, as compared
Kingfisher, it was later rebranded with the
with the incumbent, Government owned
Kingfisher name.
Indian Airlines coverage of 45 cities.
GMR Infrastructure
GMR Infrastructure is the infrastructure
company of the GMR Group, a family-run
conglomerate. GMR infrastructure has
interests in airports, energy, highways and
urban infrastructure. It began operations by
Impact of PE on GMR
setting up power plants and initiating road
Infrastructure
projects. Management, at the time of the IDFC PE focused its efforts on improving According to the management, PE fulfilled
PE investment, was reputed to possess corporate governance, brand building, their expectation of being helpful during a
excellent project management skills, having helping the company access strategic phase when the company was not ready for
built infrastructure projects on time and partners and advisors that would help it win public equity, rather than being a substitute
within budget. and execute projects, and helping the for public market funding.
company build domain knowledge in new
In March 2004, IDFC PE invested USD 22.5 Interestingly, IDFC PE decided to invest in
sectors of entry. It also assisted with the
million for a 15 percent holding in GMR GMR Energy because the investee’s model
pricing of the IPO.
Energy, the energy holding company that of building infrastructure agglomerations
IDFC PE and GMR decided to create. This The management of GMR Infrastructure rather than stand-alone investments in
was the first example of aggregating notes that it benefited greatly from the PE particular sectors made sense. This deal
infrastructure SPVs into a corporate investment. As a senior executive noted: thus showed how infrastructure investing in
structure that facilitated a possible IPO at an “IDFC PE investment was not an India can be structured to suit PE.
earlier date. The funds were used to build investment but a relationship which resulted
the company’s third power plant. in a harmonious value-added partnership.”
The management notes that the company’s
At the time of the investment, GMR
growth rates were substantially higher after
Infrastructure owned a contract to build a
PE funding, with an impact of at least 10
new airport at Hyderabad, but had no prior
percent additional revenue growth per
airport experience. IDFC PE decided to
annum.
partner with GMR to bid for the
restructuring of the Delhi and Mumbai
airports. This would be the second
investment of IDFC PE in the GMR Group.
IDFC PE helped bring in Fraport as a
strategic partner for the bid. This was the
first time that a PE fund participated directly
in a bid for an infrastructure project. Key
executives from Manchester airport and
Cranfield University were signed on as
professionals to help prepare the bid.
GMR Infrastructure went public in 2006 and

IDFC PE played a key role in the pricing of
the IPO. IDFC PE sold its investment in
GMR Energy for a stake in GMR
Infrastructure before the IPO.
Green Infra
Green Infra was set up in 2008 with the aim security beyond fossil fuel, volatile oil prices
of building a renewable energy portfolio and an increased focus on environmental
comprising wind, solar, biomass and small issues. The government’s interest in clean
hydel projects. As of June 2009, a 24 MW technology, exemplified by the national solar
wind farm was in operation in Tamil Nadu. mission, recent initiatives in LED lighting
Shortly thereafter in September 2009, the and interest in carbon trading, suggest that
company acquired the wind assets of BP the opportunities for companies like Green
Energy India, a unit of the petroleum giant, Infra could be significant.
BP, thus adding another 100 MW wind
capacity and taking its total generating IDFC PE and the management of Green
capacity to 124 MW. Green Infra aims to Infra are focused on value creation over the
become a 1,000 MW company within the long-term, reflecting their commitment to
next five years. build a company with a long-term

perspective on renewable energy.
Green Infra is 100 percent owned by funds Considerable managerial autonomy has
managed by IDFC PE, whose rationale for been given to the management to
investment was the creation of a leading undertake pioneering initiatives in the
renewable energy company, supported by sector.
key drivers including the need for energy
Impact of PE on Green Infra

The building up of credible professional By analysing growth opportunities and the
relationships was greatly facilitated by IDFC inherent risk return tradeoffs in the same
PE – this helped in recruitment, banking way as entrepreneur-led businesses, IDFC
relationships and access to professional PE has demonstrated that control of the
services. portfolio company can generate meaningful
benefits and help the company deliver on
IDFC PE’s experience in deal structuring ambitious growth targets.
helps when Green Infra undertakes
inorganic growth initiatives, as in the recent
acquisition of BP’s wind energy portfolio.
IDFC PE also helps with deal flow, thanks to
their national presence, a relationship with
the state, and stature.
Gujarat State Petronet

Limited (GSPL)
GSPL operates a gas pipeline in the state of
Gujarat on an open access basis, with
premium clients such as Essar Steel, Torrent
Power and Reliance Industries. It is a
subsidiary of the state-owned Gujarat State
It was IDFC PE’s first investment in a state- Impact of PE on GSPL
owned enterprise. IDFC PE’s investment in
Petroleum Corporation (GSPC), a company Post investment, IDFC PE played a
GSPL is a good example of a Public Private
involved in the complete petroleum supply- significant role in re-working the business
Partnership, where the role of the public
chain from exploration to production, plan and funding plan of GSPL. IDFC PE
sector is not just a facilitator but an active
transmission and distribution. In 2004, worked closely with GSPL in bringing in the
owner manager and where private capital
GSPC sought outside investment, next round of PE investments which
can bring in significant value addition and
particularly from PE or strategic investors, in included IDBI and Axis Bank. IDFC PE hand
the investment can also be eventually
order to get access to long term funds for held the company through the entire IPO
rewarding.
accelerated roll-out of the then existing 200 process and made it one of the successful
km of the pipeline network, to enhance IDFC PE’s holding was partly diluted just IPOs of 2006. IDFC PE also helped
corporate governance, and to validate the after the IPO of 2006 and the remainder strengthen the Board and its presence
common carrier model of operation. between 2007 and 2009. helped facilitate building credible
professional relationships including a
IDFC PE, invested INR 900 million in 2004
partnership with the Government of Andhra
for a 20.6 percent holding. This investment,
Pradesh for a possible pipeline network in
was made at a time of considerable
the state.
regulatory uncertainty – the Supreme Court
of India squashed the Gujarat Gas Act and
made the pipeline regulation a subject
matter of Government of India. The
company was holding discussions with
some domestic and international strategic
investor and with PE investors, who were
reluctant to invest because of this
uncertainty. IDFC PE took a decision based
on the demand – supply mismatch for gas
in Gujarat and the urgent need to connect
the new supply sources like Petronet LNG
and Shell LNG terminals.
CONSUMER COMPANIES
Amalgamated Bean Coffee

Trading (Café Coffee Day)
Café Coffee Day is a large coffee retailer, Impact of PE on Café

with activities from procurement and
Coffee Day
processing to retailing. The company which
was earlier Amalgamated Bean Coffee The primary impact of the PE investment Sequoia Capital, also facilitated
Trading, obtained PE funding of INR 900 was operational. First, the PE funding introductions to other PE investors in the
million (USD 20 million) in 2006 from enabled the company to hold on to market subsequent rounds. Being in a capital
Sequoia Capital, for a 10 percent leadership through expansion and provision intensive business, it was important for the
investment. The funds were used to expand of value-added services such as Wi-Fi. It is company to be able to access deep-
the company’s retail presence in India and well-ahead of its competitors; as of March pocketed large global organisation PE
Europe, resulting in a rise in café outlets 2010, its nearest competitor, Barista, is investors in later rounds. Sequoia also
from 480 in 2007 to over 900 by 2010. The estimated to run 200 outlets5, i.e., less than helped improve the credibility of the
company’s revenue rose over this period 25 percent of Café Coffee Day. company in the eyes of such investors.
from INR 3.5 billion to INR 6 billion and the
Second, the PE investors played a role in
employment base to 12,000 persons. The
improving corporate governance and helping
company has since spelled out aggressive
to recruit the CEO. Third, they helped the
plans with a budget of INR 17 billion to
management think through alternative
expand its retail outlets, and build up the
revenue streams to complement the core
plantation business in coffee as well as
business model of selling coffee. For
bananas.
instance, the in-store partnership with DSN,
In making the PE investment, Sequoia was a signage company, to explore greater
attracted by the capacities of the company’s media income, was facilitated by Sequoia.
founder, its professional management and
Another key impact was that Sequoia
the growing Indian market for lifestyle
encouraged the company to think in much
services.
larger terms than it had previously. This was
possible because they were able to
visualise the company’s success in relation
to initiatives like Starbucks that had
succeeded in the US and, later, in other
countries. Sequoia had the experience of
helping companies in other contexts think in
similar terms, including companies they had
earlier invested in, such as Google and
Cisco.
5. http://www.barista.co.in/users/worldwide.aspx
CONSUMER COMPANIES
Meru Taxi
(earlier known as V Link Pvt. Ltd.)
V-Link, the operator of Meru Taxis, began as

a Mumbai-based operator of taxicabs in
2006. Prior to Meru’s launch, cabs could not
be reserved over the phone. The company
owned a license from the state to operate
As recognition of the pro-active and holistic Impact of PE on the
radio taxis, but lacked funds for expansion.
approach to IT adoption and the seamless industry
alignment of IT with the business strategy,
Meru Cabs once again won 'NASSCOM- Meru took considerable risk in creating the
The PE firm, IVF, invested INR 2 billion in V-
CNBC IT User Award 2009' for the second Meru brand. This is because the cost to
Link in 2006, and took a majority holding,
time in a row. users is regulated by the state and does not
enabling the introduction of the Meru brand.
differ between taxicabs. Meru relied on
Apart from enabling scale, IVF brought in
achieving a certain scale of operations that
professionals. IVF facilitated the recruitment Impact of PE on Meru would justify the extra costs of air-
process, attracting high-end talent from
IVF’s investment in Meru was unusual for conditioning and IT-enabled services.
reputed companies, including global
PE because of the relatively early stage at
organisations. It also created the franchising Having succeeded in this effort, Meru’s
which funds were committed. The taking of
model based on a study of similar systems impact on the industry is becoming evident
a majority holding was also not typical of
globally, focused on air-conditioned cabs in the shift to me-too services offered by
India, though more akin to the western
fitted with high technology, including data individual operators and the rise of
model. The difference with the western
terminals and GPS systems in each Meru competing franchises.
model was that the management of Meru
cab. IVF also helped V-Link raise debt to
was retained and strengthened. Thus, Meru
purchase vehicles, standing in as guarantor.
was a test-bed of two new business ideas:
Meru expanded by enrolling franchisees whether investing in an idea at such an
from the existing owners of taxi licenses. early stage made sense; and whether
The company also added operations in control the of existing management by the
Hyderabad, Delhi and Bangalore. By March PE firm would work.
2010, the company operated over 4,000
The impact on Meru is evident. The Meru
cabs, with plans to expand to 10,000, thus
brand has become synonymous with air-
consolidating its position as the largest
conditioned radio taxis. Without PE
taxicab operator in India.
investment, the company’s
For better comfort of the passengers and to professionalisation and development
keep up with the changing times Meru has trajectory would undoubtedly be slower;
been upgrading its technology regularly. technological sophistication would likely
Recently, the company installed an Oracle have been lower, as well. The combination
ERP system, implemented by Accenture, of these two factors is that Meru is not just
which makes Meru Cabs the first radio cabs the largest taxicab operator in India, but its
service company in the world to implement most technologically sophisticated.
ERP systems.
CONSUMER COMPANIES
Naukri.com
(part of Info Edge India)
Naukri is a job search site along the lines of Impact of PE on Naukri Impact of PE on the
monster.com and similar sites in other industry
countries. Among specialised job search ICICI Ventures was a preferred investor for
sites, it controlled 90 percent of the Internet the founders of Naukri at a time when the Naukri’s competition consists primarily of
job search market at the time of the PE Internet bubble was at its peak and the the Indian arm of monster.com and an
investment, and remains, as of 2010, the company had received several expressions affiliate of the leading publisher, the Times
industry’s dominant company. of interest from investment banks, including group of companies. Other media firms run
multinational firms. The decision to go with smaller job sites. The PE investment
Naukri began in 1997 and by the year 2000- ICICI Ventures turned out to be fortuitous: enabled Naukri to set the standard for
01, the company’s revenue was only about while stock markets declined sharply the digital service in job search. However, it
USD 0.2 million. ICICI Ventures invested world over, including India, the deep- does not appear to have led to a rash of
USD 2 million in 2000 just before the pocketed PE firm was willing to be a patient imitators funded by PE or VC – perhaps this
Internet bubble burst. The company investor and provide strategic support is a sign of acceptance of Naukri’s
achieved high growth rates subsequently, covering a range of functions from dominance.
with revenue of USD 60 million for the corporate governance to financial discipline,
financial year ended March 2009. As of and to business focus.
March 2010, it employs 1200 persons.
Management ascribes its phenomenal
ICICI Ventures’ investment was akin to a growth (from INR 0.25 million to INR 2,700
venture capital investment rather than PE, million in 11 years) to PE funding without
given the early stage of the company. which it probably would have been
However, the PE firm – unlike a typical VC significantly smaller company (probably
investor – played a relatively passive role in around INR 50 million).6
operational decisions and focused its
interventions on strategic decisions, As a result, Naukri continues to dominate
particularly relating to corporate governance the market and is a profitable company.
and financial discipline. ICICI Ventures also
played a role in dissuading the company
from diversifying beyond the dotcom
classified business – otherwise,
management represents that they might
have entered the capital hungry travel
business.
ICICI Ventures remained an investor till the

IPO in 2007, when the company raised new
capital of INR 1,703 million. During this
time, it helped raise a second round of
private funding through a secondary
6. Management interview, 31 March 2010
purchase by Sherpalo Ventures and Kleiner
Perkins.
CONSUMER COMPANIES
Shringar Films Ltd

(Fame India)
Shringar Group (Shringar) operates in the

public entertainment industry and is
engaged in two principal lines of business –
the Distribution business and the Exhibition
In 2001, the company decided to invest in IVF’s interest in Fame India was the size of
business through its 2 entities Shringar
movie halls, especially in a new model for the entertainment industry in India, one of
Cinemas Limited and Shringar Films Limited
India, the multiplex. For this it needed the world’s largest. In 1999, Indian produced
(a 100 percent subsidiary of Shringar
substantial debt finance. It considered over 800 films a year, with an estimated 5
Cinemas Limited).
various financing options and finally billion admissions generating ticket sales of
Shringar Films was started by two now- contracted with the PE firm, IVF, for an about USD 3.3 billion. The industry was
legendary distributors, Shyam Shroff and equity investment. The promoter’s choice of fragmented and short of professional
Balakrishna Shroff in 1975 as a movie PE was influenced by the need to raise the expertise. The exhibition and distribution
distribution company for the western company’s equity base in order to raise the businesses were mostly run separately,
region, which predominantly covers guaranteed debt finance. Bank lenders were whereas Fame’s promoters combined these
Mumbai. Distribution is the wholesale part more likely to view new equity favourably if capacities, with the potential for synergies.
of releasing completed films. Distributors it came from a reputed PE firm rather than
IVF invested INR 300 million for a 35
purchase film rights from production houses friends and relatives. At the time of the PE
percent holding in the Shringar Group. Its
and then offer the films to cinema hall investment, the exhibition business
funds were used in the exhibition segment
owners, termed exhibitors, for release to constituted approximately 17 percent of
of Shringar’s business, subsequently
the public. Shringar’s gross revenues. These revenues
renamed as Fame India. This enabled
came from eight cinema halls under
In 1997, Shringar entered the exhibition Fame’s rapid expansion of its exhibition
management contracts for periods ranging
business by entering into cinema hall business.
between one to two years. Shringar was
management contracts. De-risking the also, at the time, developing a five-screen
IVF sold its investment in 2005 in a private
business profile was the objective of this multiplex in a JV.
placement.
decision. Film distribution is a risky
business with low overall rates of return.
Although distribution rights are often
acquired on an agreed commission based
on ticket sales, some distribution contracts
may include an upfront ‘minimum
guarantee’ in which revenue realisation is
contingent on the movie’s performance in
cinema halls. The exhibition business tends
to be the safer aspect of the business, with
predictable revenues.
Impact of PE on Shringar Impact of PE on the
industry
Prior to Shringar’s entry, the exhibition
business was dominated by family-owned The shift to multiplexes was pioneered by
single-screen theaters with monopolistic Shringar and PVR. Shringar’s entry was
control over their local ‘territory’. The enabled by PE. Further, when the company
exhibition business was also reputed to face migrated from the printed ticket system to
substantial cash leakages in order to evade online and automated printing, they had to
taxes. Shringar’s promoters foresaw the educate the regulators that there was no
trend away from large, single-screen movie risk of cash leakage and relevant taxes
halls to multiplexes and pioneered the shift would be paid as all tickets were being
using finance raised through the PE accounted for.
investment.
IVF also helped the company transform

from a family-run enterprise to a
professionally managed one. The senior
professionals hired included a Chief
Operations Officer, a Chief Marketing
Officer and the heads of the Legal and HR
functions. Over 20 such professionals were
recruited from Novartis, Star TV, Accor and
the Taj Group.
IVF also helped formulate the business

model, MIS and the cash management
system.
During the tenure of the PE investment, the

Shringar Group’s consolidated revenues
rose from INR 233 million in 2001-02 to INR
614.5 million in 2005-06, a rise of 164
percent, while EBITDA rose from INR 8.4
million to INR 74 million during the same
period, a rise of 781 percent.
HEALTHCARE COMPANIES
Glenmark
Pharmaceuticals
Glenmark Pharmaceuticals in 2002 was

primarily a mid-sized branded generics
player in the highly fragmented Indian
market. It was led by the visionary and
ambitious Glen Saldanha who aspired to
Impact of PE on Glenmark
build India’s first innovator drug company Actis aided in Glenmark’s professionalisation 8,000+ listed on Indian equity markets.
with a pipeline of New Chemicals Entities of management and achieving high Actis helped Glenmark in its image-building
(NCE), i.e., patentable rather than generic standards of corporate governance. It with the financial community, by using its
drugs. The PE firm, Actis, invested in introduced a Non Executive Director with relationships with investment bankers to
Glenmark following its IPO in 2001, international capital market expertise initiate analyst coverage from reputed
acquiring a 14 percent holding via a thereby broadening the experience of the investment banks. Actis formulated a
convertible debenture issued in 2002. Actis board of directors. The Glenmark board now liquidity action plan that improved liquidity in
took a major risk investing in a company had what was previously missing - expertise the Glenmark stock by 10 times thereby
conducting NCE research, as this was in law, cross-border investing, and enabling retail and institutional investors to
untried in the Indian market and also international banking. Actis helped the participate in the success story of the
because Indian companies were not company expand internationally specifically company. (A liquid market in a company’s
recognised for their NCE capabilities. by advising on the valuation of acquisitions stock is vital for growing companies that
made by the company. will have capital requirements from time-to-
Glenmark’s success in developing a pipeline
time.) Well researched and liquid companies
of NCE drugs, in building the US generics Not unlike other Indian mid-cap listed can then easily plan to go to public markets
business and in distinguishing itself in the companies, the strengths of Glenmark were for raising the capital to sustain their rapid
Indian branded market enabled it to perform relatively unknown to the equity markets. In growth.
well and Actis exited in 2005 and 2006 fact the company lacked proper analyst
through secondary market sales. coverage that is critical for investors to Although Glenmark is yet to develop its own
discern good value companies from the patented drugs as of 2010, the company,
through the credibility provided by Actis, is
recognised for its research.
HEALTHCARE COMPANIES
Paras
Pharmaceuticals
Paras Pharmaceuticals is one of India’s It was at that third stage that Paras sought The transformation of Paras from a family-
leading OTC healthcare and personal care Actis as a PE investor to enable the run to professional company faced the
companies, with a track record of transformation to a professionally-run challenges of cultural transformation and
introducing successful branded products. Its company. In fact, the money was the minor was not a simple task but accomplished by
two leading brands, MOOV (a pain relieving part of the transaction in a sense, since it focusing on these key areas and showed
ointment) and D’Cold (a cough syrup) are was used primarily to buy out the clear results. EBITDA margins rose from 20
both in the top 10 OTC brands in India. promoter’s holding rather than to be infused percent prior to PE funding to about 30
Personal care products are among the into the company (the company was already percent afterwards. Subsequent to the Actis
fastest growing consumer segments with a cash rich). Paras required the PE firm to investment, the company has also
growth rate in recent years at 14 percent. possess a deep understanding of the expanded internationally, especially in the
Paras has grown faster and expects to grow industry as well as understand the Middle East and North Africa.
by 25 percent in FY 2010-2011. company, both of which Actis possessed.
As a company insider notes: “PE is
Actis, a PE firm, invested USD 42 million in
expensive money: it should only be used if
2006 for a minority stake, raising it to a
it comes with other benefits.”
majority shareholding in 2008, which they
continue to hold. PE backing provided the company credibility
as a professionally run-organisation and
Actis’ rationale for the initial investment was
there was an influx of younger, highly-
based on Paras’ ability to create strong
trained talent that replaced family recruits.
brands in niche, fast-growing areas. They
Paras’ recruitment of the best quality
were impressed with the company’s ability
professionals led to positive impacts on
to compete effectively against global
operational management with a greater
organisations with innovative products; for
focus on efficiency, tighter financial controls,
example, the success of MOOV in a market
brand leveraging and an improved marketing
dominated by market leader Iodex (a Glaxo
and distribution strategy.
brand).
Actis’ view of Paras noted above is shared

by its promoters. As a key company insider
commented: “A company goes through
three stages: incubation, implementing the
initial vision and professionalisation.” At the
second stage, the team needs to be willing
to take risks and follow the founder’s vision.
Professionals are likely to be too risk-averse
to do so as failure would hurt their long-
term career prospects. At the third stage,
once the vision has been implemented,
professionals need to take charge.
Impact of PE on Paras Impact of PE on the
industry
As is evident from the above, Actis’s impact
was transformative in the sense of changing The investment shows that a domestic
how the company was run, while being company can succeed while competing
supportive of a quality that was already with global organisations. Although there
ingrained, that of conceptualising and are other successful examples, such as
developing a range of high-margin products Dabur, Paras is a special case of achieving
that could successfully compete with large this through professionalising a family-run
players, many of which are global firm in a credible way, with a majority of
organisations. Actis achieved its non-family ownership, while retaining the
transformation by getting to know the benefits of incorporating the initial
company, and then bringing in talent in promoters into the core management
selected areas that were critical for raising structure.
margins and enabling the efficient
introduction of new products, while
retaining the innovative core intact. Among
the many positive effects was a change in
practice in procurement, governance and
reporting, thus enabling a stronger brand
being built. As a result, revenue growth
rates rose to 40 percent and gross margins
rose by 10 percent. Actis also supported the
strategic shift in sales and distribution
networks; as well as international
expansion.
Critically, Actis was able to bring in a

sophisticated board support through a
domain expert and bring on board a
prominent business leader (who is their
advisor) as an advisor to the company.
IT ENABLED SERVICES
Daksh
(Now IBM Daksh)
Daksh was started by professional Impact of PE on Daksh Impact of PE on the

entrepreneurs in 2000 to provide Internet industry
support to overseas clients. It was initially (1) The avenues to raise capital at the time
funded by USD 2 million from both angel were extremely limited given the newness Daksh, Genpact, Spectramind and WNS
and venture capital investors, including Actis of the industry, limited tangible assets and were among the earliest entrants in the
(in its earlier form as a part of CDC) . By 7 the shortage of risk capital to fund BPO space. PE had a role to play in all four
2002, it had entered voice services and recruitment and marketing. So PE provided firms – in the case of Daksh and
expanded, using USD 29 million in PE from the much-needed initial capital to the Spectramind in their growth and acquisition
Citigroup Venture Capital International (CVCI) promoters phases, and, in the case of Genpact and
and General Atlantic Partners (GAP). The WNS, in their spin-offs from GE and British
(2) BPO and voice engagements were
Indian BPO industry was then just starting Airways (BA). These four firms helped
invariably long-term commitments, leading
out on the path of what was to be five define the BPO industry by establishing
to clients needing reassurance around the
years of 60 percent annual industry growth. scalability and maturity to a sector, which
longevity of the company. Since Daksh’s
Using its enhanced financial strength, earlier was a small-scale business both in
clients were all in developed countries, it
Daksh expanded and quickly emerged as a the US and India.
needed to convince them of its reliability as
market leader.
an ongoing concern. Daksh, in competition
In 2004, global services leader IBM, looking with larger, global names in the business,
to scale up quickly in voice services, benefited greatly from the credibility of PE
purchased Daksh. Since then, Daksh has investors like Actis, CVCI and GAP – it was
expanded further in scale and entered the able to bank on their credibility as
transactions processing business, with 14 stakeholders and also access clients
India-based service delivery centers and through their network. Of course, this was
two global service delivery centers in the bolstered by the professional standards of
Philippines. As of 2010, there are more than reporting and governance insisted on by the
30,000 employees associated with the PE investors. PE investors also helped them
company, compared with 6,000 in 2004.8 think through new business models, such
as plans for inorganic growth and
geographies for expansion; and influenced
board composition towards more strategic
thinkers
(3) PE helped Daksh through its acquisition

by IBM. The acquirer, IBM, was familiar with
GAP, which participated in the negotiations
leading up to the acquisition.
7. Amazon.com was an early client, facilitated by an angel investor

8. Promoter interview, 2 Feb 2010
IT ENABLED SERVICES
Intelenet
Intelenet began as a 50:50 JV between
HDFC and TCS in 2000, with management
support from HDFC. It offered a range of
BPO services, including transactions
processing and call center services in
Impact of PE on Intelenet
selected verticals, including insurance and Intelenet was completely transformed by competition and the global economic
other financial services. Blackstone’s approach to scale the company downturn. Intelenet remains a corner store
to global standards and use network power for Blackstone’s India portfolio. As a senior
TCS later decided that they would exit the
to draw more businesses to Intelenet. executive noted: “Apart from investing in
BPO business as it was not a core business
Blackstone injected the board of Intelenet the Company, Blackstone provided
for TCS, whose activities were primarily in
with committed full-time members and five significant value addition through access to
the IT services businesses. At that time,
off-shoring experts who focused on their portfolio companies and their
Barclays, the British bank, was looking to
improving quality and efficiencies. The knowledge of customer needs”.
set up a captive BPO; Barclays’ interest in a
newly incentivised and empowered
quick start sparked their interest in
management, sophisticated management
Intelenet. TCS subsequently sold its holding
practices such as the ‘360 degrees’
Impact of PE on the
in Intelenet to HDFC, making Intelenet a
marketing program, high incentives for good
industry
50:50 JV between Barclays and HDFC.
performance (stock options equaled 20 Intelenet began at a time when the BPO
percent of equity compared with a more industry was growing at 60 percent per
By 2007, Intelenet was not realising its full
traditional 5 percent), integration into and annum. Subsequently, the industry matured
potential as the company was not investing
support from other firms in the Blackstone and growth rates declined. There was a risk
in growth and primarily focused on serving
network (these currently account for 22 that Intelenet would have been marginalised
its two owners and largest clients: Barclays
percent of revenue, not yet including a with the establishment of sophisticated
and HDFC. Eager to jumpstart growth, the
newly minted seven-year USD 250 million global players. The few Indian companies
management partnered with Blackstone,
contract from a single client), and tight, that offered similar levels of sophistication –
one of the world’s largest PE firms to lead a
transparent controls by Blackstone helped TCS, Wipro and Infosys, primarily – realised
management buy-out (MBO) of Intelenet.
Intelenet achieve its goal of global-quality that BPO was not a strategic fit for their
This was the first prominent and successful sophistication. Blackstone also accelerated core engineering strengths. Blackstone’s
MBO in India, whereby PE invested in a inorganic growth in helping Intelenet to acquisition of Intelenet offered the first
majority stake in the company. Blackstone acquire Upstream – a global business opportunity for a domestically managed
did not offer specific BPO expertise, but process outsourcing company and FirstInfo, company to establish itself as a global BPO
instead offered an understanding of the the services arm of UK rail operator firm. Of course, the case of WNS is
requirements for outsourced IT-enabled FirstGroup, which is responsible for somewhat similar, but the difference is that
services from a client perspective, deep customer management, ticket issuing and the PE financier introduced its own
pockets to finance both organic and back-office processing. management team into WNS. Blackstone’s
inorganic growth, access to Blackstone’s India operations have played a key role in
From 2007 to 2010, the company almost
portfolio companies, and geographical helping Intelenet transition into a Global
tripled in revenue. As of April 2010, Intelenet
reach. BPO firm. If the model succeeds, it will
employs 31,000 employees compared with
likely have a significant strategic impact on
8,500 at the time of the Blackstone
many of the other large domestic BPO firms
acquisition. This growth is despite rising
that are struggling to succeed.
IT ENABLED SERVICES
WNS Global Services

Pvt. Ltd.
WNS, a leading global BPO services As of 2010, the company’s primary BPO Impact of PE on the
provider, was a fully-owned subsidiary of verticals are Travel and Leisure, Banking and industry
British Airways (BA) until 2002. It had earlier Financial Services, Insurance,
been created into a shared service centre Transportation, Healthcare, Consumer As we noted for Daksh, WNS was among
from BA’s inhouse operations. The carving- goods, Retail and Professional Services. the earliest entrants in BPO. It very quickly
out process began in 2000 when BA WNS has 24 operating companies in 13 became the largest company in the
undertook a strategic review exercise to countries, and employs over 21,000 people industry, being widely viewed as one of the
evaluate its future strategy with regards to servicing over 220 clients from a network of most professionally run independent
its BPO operations. Warburg Pincus (WP) 21 global delivery centres. companies, along with Daksh and
approached BA to create a platform from Spectramind, among others. Companies like
which an India-centric BPO business could . WNS thus played an important role in
be established. At that time, the business distinguishing BPO as an industry that, like
Impact of PE on WNS
employed 1,400 persons in India. In May a few others (software and IT services
2002, WP invested into the business for a WP identified the initial carve-out from BA being the main exception), could develop
64 percent holding. and created the core management team. global quality at high-ends of the value-chain
The WP funding enabled a highly in India.
BA continued as an important client
professional, strategically-focused team
following WNS’s transformation. The
leverage a strong brand-name into new
investment by WP enabled WNS to acquire
verticals and geographies. WP’s support
related capabilities as well as high-growth
included access to acquisitions for inorganic
acquisitions. In order to enter new verticals
growth. WP support was also vital to WNS’s
and acquire proprietary technology, WP
listing on the NYSE. The benefit to WNS of
supported WNS to make nine strategic
the PE investment was to create a global
acquisitions in the insurance, knowledge
strategy, attract senior talent, construct an
management, mortgage, analytics, F&A
appropriate compensation structure and
processing and other areas.
professional board, as well as providing
WP took WNS public on the NYSE in July equity for acquisitions and hands on
2006, making it one of the first Indian BPOs support. Warburg Pincus also utilised its
to be listed on the NYSE. This listing network to the benefit of WNS’s business
provided WNS access to an additional development efforts. To emphasise its
source of capital to fuel a new phase of commitment to building durable businesses,
growth as well as enhancing the company’s WP remains a majority shareholder even
credibility with customers. WNS’s most after eight years.
recent acquisition was Aviva Global

Services, the back office operations of Aviva
plc, in July 2008, which led to the
company’s first multi-year USD 1 billion
contract.
EDUCATION
Manipal Universal
Learning (MUL)
Manipal Education, a provider of higher

education services, runs a 600 acre flagship
campus in Manipal, in the state of
Karnataka. It also runs campuses in India
In 2006, an IDFC-led PE consortium, that
and internationally, with over 20,000
included the American PE firm Capital
students enrolled. Manipal is one of the few
International, invested USD 70 million in
deemed university systems in India, thus
MUL. Thereafter, City & Guilds, a large
placing it at the leading edge of higher
British provider of PSE, was introduced to
education in India. Its rapid growth in recent
MUL by IDFC PE. This led to their JV,
years has occurred in an unusually high-
targeting the unfulfilled demand for
growth environment for professional higher
vocational education in India.
education, which in turn is driven by rising
turnout of secondary-level students with a MUL, at the time, was considering
growing interest in professional degrees expanding overseas. The Board, which
such as medicine and engineering. included independent directors and
nominee directors from IDFC PE and Capital
PE firms do not invest directly in colleges
International helped MUL implement its
and universities, since degree-granting
overseas expansion strategy. This led
institutions in India must officially be non-
ultimately to MUL’s purchase of a medical
profit entities. However, the sector offers
school in Antigua in 2008.
opportunities for profit-seeking investments
in allied services such as facilities IDFC PE also facilitated an improvement in
management, after-hours instruction and the standards of corporate governance of
non-degree vocational training. A corporate MUL.
structure under Manipal Universal Learning
(MUL), a company which consisted of More recently, Premji Invest, a PE fund,
distance education, testing services, invested approximately USD 50 million in
Professional and Skills Education (PSE) and MUL in March 2010. The funds will be used
overseas campuses, facilitated the PE to expand instructional services.
investment.
At the time of the PE investment, the

Manipal brand was already well regarded in
university education. MUL’s nascent PSE
program was cognisant of the need to raise
vocational training from its status as low-
skilled training to one that is respected
because of the quality of training,
internships and placement opportunities
offered.
32
Impact of PE on MUL Impact of PE on the
industry
PSE receives considerable attention these
days in India. Some large developed Higher education, a recent growth leader in
countries’ for-profit vocational training India, is a difficult field for PE investment
providers such as Pearson and the above- owing to the legal requirement that
noted City & Guilds entered India over the providers of degree-granting institutions are
past few years in alliance with domestic not permitted to earn profit. It is estimated
firms. that, despite the industry’s growth rate in
technical fields of over 40 percent per
MUL Education could leverage Manipal’s annum between 2005 and 2009, PE
long-established brand name in non-profit investments are less than USD 300 million.9
medical and professional education into for- PE has, therefore, looked to fund ancillary
profit areas such as PSE with the infusion services that leverage brand names. Given
and strategic support of PE. the newness of the private higher education
sector, MUL’s success in using PE funds to
Thus, the IDFC PE investment had two
finance for-profit services established a
primary effects: first, enabling the access to
paradigm that was earlier set for the K-12
City & Guild and second, the Group,
sector by Educomp.
historically run by family members, was able
to swiftly expand its professional
management team. IDFC PE introduced the
current CEO of MUL to the promoters.
The other PE investor in the initial

consortium, the Capital Group, also
provided more than just equity capital. It
independently carried out assessment of
the US student loan market which provided
valuable inputs and resulted in further
support to MUL in designing its student
loan programme for students in Antigua.
With the help of PE investors, MUL was

able to renegotiate the acquisitions price of
the Antigua campus from the originally
agreed upon price immediately before the
economic crisis in the US.
9. Industry estimate, March 2010
FINANCE
IDFC
IDFC was created by the national
government in 1997 to facilitate private
capital’s involvement in large infrastructure
projects. The government was concerned
The PE funds were involved right from the senior management has been a critical
that infrastructure was stagnant due to
beginning in goal-setting, recruiting factor in taking IDFC towards its IPO and
unclear regulations and overlapping state
professionals, setting corporate governance beyond. PE investors also played a part in
authority structures. IDFC was intended to
standards and market development. They determining the timing of the IPO.
identify, nurture and develop bankable
also helped strategise the company toward
projects, and create innovative instruments
its ultimate goal of private control. Later,
and markets that would facilitate public- Impact of PE on the
they played a role in facilitating the
private partnerships. Thus, IDFC had both a
company’s IPO.
industry
policy and business mandate. It was
The establishment of best practices in
intended that ultimately, IDFC be owned by
appraisal standards and designing
private interests.
Impact of PE on IDFC concession agreements set industry
IDFC initially faced several challenges. standards, and IDFC’s influence on policy
Competing public sector financial PE provided the much needed patient formulation has since had a wide impact on
institutions and competing financial capital supporting the company through its the infrastructure industry.
institutions (both amongst themselves as initial difficult years and remained invested
well as with IDFC) controlled the board of in the company for nearly 10 years. A
IDFC. The world recession of the early significant impact of PE was the
2000’s, government pressure on IDFC to establishment of high appraisal standards.
supply capital, slow progress in regulatory This is because some of the PE nominees
reform in infrastructure – all these combined have been on the Board and also served as
to reduce the effectiveness of IDFC in Executive Committee (Ex-Co) members
fulfilling its varied mandates. IDFC’s from the point of inception until today. Ex-
mandates also occasionally overlapped and Co approved all transactions over a certain
competed with each other – such as threshold and the PE nominees were
influencing policy while taking a pro- actively engaged with senior management
business stance. in evaluation of loan proposals. This helped

in containment of Non Performing Assets
At this point, IFC and Actis (in its earlier (NPA). The PE investors also encouraged
form as a part of CDC) invested USD 35 IDFC to establish an environment
million in the initial rounds along with other department since they were aware that
investors, while the rest was owned by the most of the projects that IDFC would
government. Other PE investors included finance would require environmental
GIC, ADB, IFCI, IDBI, ICICI, Morgan Stanley, clearances.
LIC, SBI and Deutsche Bank.
PE investors played a role in identifying the
current senior management, including the
MD, and in developing remuneration and
recruitment strategies. Hiring the current
FINANCE
Shriram
Transport Finance
Shriram Transport Finance (STF), India’s Global PE major TPG invested USD 100 Impact of PE on STF
largest commercial vehicle finance million in 2006 and, as of 2010, remains an
PE initially enabled a national strategy, when
company, was established in 1979. As of active investor. TPG was interested in the
Chrys Capital invested in STF. Till then, STF’s
March 2010, the company runs 479 financial sector in India, but the banking
four regional entities operated
branches and service centers offering regulations prevented it from buying a large
independently. Thus, in the words of a
finance for purchasing commercial vehicles, holding in a regulated bank. TPG was
company insider: “Chrys Capital provided
including trucks, three-wheelers and attracted by STF’s stability in terms of
capital during the growth phase of STF.”
tractors. The company also offers ancillary customers and credit-ratings, in the midst of
services, including working capital and a co- the NBFC meltdown at the time. STF TPG’s investment transformed the company
branded credit card. The company has been further attracted TPG because of its through better internal management
consistently profitable for several years. For reputation of integrity, efficient practices and corporate governance. The
the financial year ended March 2009, STF’s management and customer loyalty. same insider notes that, where Chrys
revenue was INR 36.9 billion and PBT was
Capital enabled growth, TPG “added value”.
INR 2.9 billion. It employed 12,500 persons. The first PE funds were used by STF to
TPG helped in improving the credit rating of
The company has been quoted on the stock integrate its regional operations and control
the company and developing the company’s
exchanges for several decades. As of March them from its home base in Tamil Nadu, as
securitization business. TPG, therefore, is an
2010, its market capitalisation was INR 91.6 well as to consider international expansion.
example of a PE investor with deep pockets
billion. The second round of investing, from TPG,
and experience in running financial firms in
brought in high standards of credit
Asia and elsewhere bringing these
The truck financing business at the time, evaluation and corporate governance. TPG’s
advantages to STF.10
and even as of 2010, was fragmented and portfolio of Asian finance firms, such as
high-cost due to the risks and transactions First Bank, Korea, provided it with the
costs of lending to unorganised, single-truck experience to establish these stronger Impact of PE on the
owners. STF catered to this market but was standards. These were needed as the industry
also beginning to access the organised management was largely promoter-
borrowers that were coming into play as the dominated, which made credit rating STF is the country’s largest player in
trucking business became more organised agencies and investors somewhat cautious. commercial vehicle finance. The primary
in India. These factors had enabled STF to Also, their securitisation business was impact of the PE investment on the industry
perform well in a regulatory environment relatively undeveloped. was to begin the transformation of the
that was significantly more favourable to business from a fragmented, money-lender
banks than to NBFCs. However, the Helped by better practices, STF’s portfolio, dependent business to a more organised
company was undercapitalised at the time which was at USD 1 billion in assets when business.
of receiving the PE investment. TPG invested, had risen to USD 6.5 billion
by 2010.
The company subsequently received
multiple rounds of PE investment. In 2005,
PE firm Chrys Capital invested USD 30
million for a 17 percent holding in STF. It
exited in 2008-09.
10. STF’s credit rating also was beneficially impacted by the presence
of TPG as an investor.
Conclusion
This report began with the question about new business ideas and models. High
the transformational impact of PE on firms standards of corporate governance have
and industries. To analyse this, we studied typically not been an area of focus by such
17 companies that were funded by PE. companies until the PE investment.
While PE is, first and foremost, a financial
transaction, usually (but, interestingly, not More PE firms in India are realising the
always intended to finance expansion), we importance of this role. The slowdown in
found that the three most important, 2009 impacted the business performance of
transformational impacts of PE are on their portfolio companies. At that time PE
business model changes, corporate firms identified deviations from agreed
governance and professional talent business plans as the single biggest
management. Closely following these is the challenge that they faced post investment1.
impact of PE on product development and

In response, several PE firms are adopting
helping find acquisitions or strategic
the western model and are now building
partners. Less frequent are financial
separate operating teams to support their
recapitalisations, spin-offs, new
portfolio companies. This should bring
technologies and improving efficiency.
increasing benefits to the portfolio
The report demonstrates that PE capital is companies and help further demonstrate to
‘smart money’ and that PE firms the Indian business community that PE
meaningfully contribute towards the growth capital, although expensive, is indeed ’smart
and success of their investee companies, money’.
despite being typically minority

shareholders. There is a fine balance that
they need to maintain because as minority
shareholders, they cannot dictate; rather
they have to influence and convince the
majority shareholders (typically the
promoter) that their ideas make sense and
will ultimately help in growing and
transforming the business.
The areas of contribution are not surprising.

The portfolio companies are typically SMEs.
These companies are closely managed and
to transform and grow they need a separate
line of professional management to be
created. New management helps bring in
1. KPMG survey ‘Reshaping for future success’, 2009
“KPMG International”), a Swiss entity. All rights reserved.
Acknowledgement
This report would not have been possible

without the commitment and contribution
from Asawari Desai, Mriganko Chatterjee,
Annarissa Francis, Nisha Fernandes and
Jiten Ganatra.
kpmg.com/in
KPMG in India KPMG Contacts

Bangalore Mumbai Vikram Utamsingh
Maruthi Info-Tech Centre Lodha Excelus, Apollo Mills Executive Director
11-12/1, Inner Ring Road N. M. Joshi Marg Private Equity
Koramangala, Bangalore – 560 071 Mahalaxmi, Mumbai 400 011 +91 22 3090 2320
Tel: +91 80 3980 6000 Tel: +91 22 3989 6000 [email protected]
Fax: +91 80 3980 6999 Fax: +91 22 3983 6000
Asawari Desai
Chennai Pune Associate Director
No.10, Mahatma Gandhi Road 703, Godrej Castlemaine Private Equity
Nungambakkam Bund Garden +91 22 3090 1569
Chennai - 600034 Pune - 411 001 [email protected]
Tel: +91 44 3914 5000 Tel: +91 20 3058 5764/65
Fax: +91 44 3914 5999 Fax: +91 20 3058 5775
Delhi
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Road No.11, Banjara Hills
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Tel: +91 40 3046 5000 Head - Financial Services
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Kochi 682 016
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© 2010 KPMG, an Indian Partnership and a member firm of the

The information contained herein is of a general nature and is not intended to address the circumstances of KPMG network of independent member firms affiliated with
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P R I VAT E E QU I T Y

Enabling Growth in Promising Indian

Case studies of the impact of PE 7

It is estimated that currently there are over

Over the last three years, VC/PE

Source: Venture Intelligence Database

1. Extracted from the CII National Committee on VC/PE Memorandum

PE-backed companies have performed better than Sensex companies

Source: Venture Intelligence PE Impact report 2009

Annual Sales Growth

Source: Venture Intelligence PE Impact report 2009

Annual PAT growth

Source: Venture Intelligence PE Impact report 2009

Profit-After-Tax (PAT) of PE-backed companies grew at almost 35 percent, a significantly

Annual wages growth

Source: Venture Intelligence PE Impact report 2009

Annual R&D growth

Source: Venture Intelligence PE Impact report 2009

Growth in Research and Development (R&D) investments at PE-backed companies is over

Importance of the Micro,

A significant 70 percent of VC/PE

1. KPMG Survey ‘Reshaping for future success’, 2009

In the following section we analyse the

3. Venture Intelligence data base April 19, 2010

Café Coffee Day √ √ √

Gujarat State Petronet √ √ √

Shringar Films Ltd. √ √

Shriram Transport Finance √ √ √

Source: KPMG India Survey of Portfolio Companies 2010

Perception / expectations of investee firms on PE firms' capabilities

Source: KPMG India Survey of Portfolio Companies 2010

Expertise provided by PE funds to their investee companies

Source: KPMG India Survey of Portfolio Companies 2010

Perception/ expectations from PE funds on Funding

Source: KPMG India Survey of Portfolio Companies 2010

Perception / expectations from PE funds on Customer, profile and brand building

Source: KPMG India Survey of Portfolio Companies 2010

Reputational advantages for being known as a PE funded

Source: KPMG India Survey of Portfolio Companies 2010

1. All data contained in each of the case studies is based on the

Manipal Universal Learning (MUL) 32

Amalgamated Bean Coffee Trading

In September 2007, ICICI Ventures sold its

2. A slump sale is defined as the transfer or sale of one or more

GMR Infrastructure went public in 2006 and

become a 1,000 MW company within the long-term, reflecting their commitment to

next five years. build a company with a long-term

Impact of PE on Green Infra

Gujarat State Petronet

Amalgamated Bean Coffee

Café Coffee Day is a large coffee retailer, Impact of PE on Café

V-Link, the operator of Meru Taxis, began as

ICICI Ventures remained an investor till the

Shringar Films Ltd

Shringar Group (Shringar) operates in the

IVF also helped the company transform

IVF also helped formulate the business

During the tenure of the PE investment, the

Glenmark Pharmaceuticals in 2002 was