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Not A Progress Report

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Private equity (PE) investments in India have swelled to nearly $50 billion since 2005. It is a comforting number to have, especially as several developed economies continue to struggle. But how well have PE investors performed over the past six years? This is precisely what The Fourth Wheel, a PE report unveiled last week by audit and advisory company Grant Thornton and the Indian Venture Capital Association (IVCA) tried to answer in vain.

The report details PE investments in India during 2005-10 with sector-wise and fund-wise investment break-ups (see charts). It throws up several interesting factoids. Sample these: India has 1,500 PE-backed companies. Real estate has been the top-funded sector for five years, except in 2010 when power and energy took the top slot. Between now and 2015, the report projects that total PE investments would hit $70-75 billion.

But none of these justify the stated intent of the report. The fourth wheel, decoded, refers to the role that PE-backed companies have started to play in India's corporate environment. The other three wheels are identified as public sector enterprises, private sector enterprises and multinationals. Unfortunately, the report does not contain a single line on PE exits (an event when PE investors sell their stakes in their investee companies and book profits).

Neither does the report shed light on how some of the top PE-funded companies have performed in the country, what kind of value they have created for shareholders, and how they have impacted their respective sectors. "Exits are definitely a challenge and will continue to be so for a while, even as we see more mergers and acquisitions (M&A)-led exits as opposed to the IPO-led," said Harish H.V., partner at Grant Thornton, which is in the business of M&A advisory services.

Some may counter that it is early in terms of the maturity of the industry to measure PE performance. Still, given that several firms, such as ICICI Venture, Actis and ChrysCapital have completed full fund cycles, at least a part of the industry's performance can be measured. Especially given that IVCA, the PE industry's representative body, has partnered the report.

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(This story was published in Businessworld Issue Dated 04-07-2011)