The private equity (PE) industry in India turned out a strong performance in India during 2018 in terms deal value and exits, even though there is a liquidity squeeze. However, the dry powder in terms of investments for the future remains buoyant.
The India Private Equity Report 2019 by Bain Capital along with Indian Private Equity and Venture Capital Association (IVCA), says,
“ Private equity in India enjoyed an excellent year in 2018. Growth momentum continued, with investment value reaching the second-highest level of the last decade.”
The reports says the usual sectors such as banking, financial services and insurance (BFSI) continued to grow, investments also spurted in sectors like consumer/retail, healthcare, and energy. Overall, the average deal size remained stable, even as deal size in consumer tech declined by almost 30 percent.
This was largely driven by the scarcity of consumer tech mega-deals like the ones in 2017 such as SoftBank’s $2.5 billion investment in Flipkart.
India remained a hotbed for deal making in 2018. Investment momentum was robust for a second consecutive year, with total investment of $26.3 billion from approximately 793 deals during the year. While the deal volume was higher than in 2017, the average deal size was flat. The result was a small decline in total investment value, which still was the second-highest in the last decade.
Exits have increased consistently in the last two years in India, with 265 exits in 2018 valued at nearly $33 billion. Even excluding the $16 billion Flipkart sale to Walmart, it was one of the strongest years for exits in the last decade.
On the consumer tech investments, the report says this segment saw decline after a boom in 2014-15 as these companies struggled to find the right product-market fit and a path to profitability.
According to Bain Capital, over the last couple of years, the sector has staged a resurgence of sorts, with clear winners emerging in such sub-sectors as horizontal e-tailing (Flipkart), vertical e-tailing (Bigbasket, Lenskart, Pepperfry), food (Zomato, Swiggy) and travel/hospitality (OYO Rooms, Ola).
“As a result, over the past few years, we are seeing fewer but higher-quality deals in consumer tech, with investors backing winners to scale further,” it says.
In terms of future investments, the report says, “We believe there is sufficient India-focused dry powder to ensure high-quality deals don’t lack capital.” This number remains healthy at $11.1 billion.
However, fund-raising will continue being a key priority for most investors in India, although most expect it to become more challenging in the next 12 months.