icici venture funds management company ltd Management discussions
ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED
ANNUAL REPORT 2007-2008
MANAGEMENT DISCUSSION AND ANALYSIS
OPERATIONAL REVIEW:
Year in Retrospect:
The private equity market in India has dramatically changed over the last
few years. The industry is witnessing increased investment activity and
growing deal sizes. Your Company continues to be a leader in the Indian
private equity market with significant growth in assets under management
over the last few years. Your Company has been voted as the Indian Private
Equity Firm of the year for 2007 by readers of Private Equity International
and subscribers of PrivateEquityOnline.com. This recognition reflects your
Companys ability over the years to successfully execute groundbreaking and
profitable transactions and establish a reputation as a leading private
equity player in India.
The investments made by various funds under management or advised by the
Company reflect a distinct approach to value creation with innovative
structures and a focus on relationship building. IAF Series 1, a private
equity fund raised in 2003-2004, is in divestment mode and has already
returned over 145% of its corpus to its investors. India Advantage Funds
III & IV (Real Estate Funds) were raised in the year 2005 with the support
of some of the most respected financial institutions in India. The capital
of the Real Estate Funds stands fully committed as on March 31, 2008 with a
diversified portfolio of investments in the sector. India Advantage Fund
Series 2 (IAF Series 2), another private equity fund raised by your Company
in 2005 - 2006, has so far committed roughly 65% of its corpus. Considering
the current pipeline deals, IAF Series 2 is expected to be fully committed
by September 2008. Last year, your Company launched a new fund called India
Advantage Fund VII (Mezzanine Fund). The Mezzanine Fund is the first of its
kind in India, and has made 3 investments to date.
The Directors of your Company have great pleasure in informing you that,
during the year under review, Rajeev Bakshi joined the organisation as
Joint Managing Director. He will strengthen the senior management of the
Company and also offer immense value to the deliberations of the Board.
Portfolio and Fund Strategy:
As of March 31, 2008, your Company was Manager/Advisor to Funds aggregating
Rs. 95,517 million.
The India Advantage Fund Series 1:
Your Directors are pleased to inform you that IAF Series 1 is in the
divestment mode and has till date distributed Rs. 16.11 billion to its
investors against a corpus of Rs. 10.90 billion.
India Advantage Fund III and IV (Real Estate Funds):
The Real Estate Funds raised by your Company have been fully committed with
a diverse mix of projects such as Commercial, Retail, Residential, Township
and IT Parks, with niche developers as partners. The Real Estate Funds have
sourced deals across Tier I, Tier II and Tier III cities. The Company has
recruited additional investment and project monitoring professionals in
line with its strategy to scale up operations and ensure timely execution
of projects through tight project monitoring.
India Advantage Fund Series 2 (IAF Series 2):
IAF Series 2 has built a well diversified portfolio around the Companys
articulated investment approach through disciplined investing. Despite an
increasingly competitive investment environment that raised overall
valuations in the market during calendar year 2007, IAF Series 2 maintained
its disciplined investment approach and managed to clinch investment
opportunities at attractive valuations in high growth sectors. Your Company
is seeking to identify unique sectors and opportunities for deploying the
balance funds of IAF Series 2. Your Company believes that given the
continued growth in the private equity industry and the existing deal
pipeline, IAF Series 2 will be fully committed in the next fiscal year. One
specific segment in India where your Company has identified a large
opportunity is the health-care provider segment in India. This sector is at
an inflexion point with significant increase in private spend anticipated
over the next few years. IAF Series 2 has started an initiative to
establish an integrated healthcare company through a diversified network of
service providers across India. Your Company has also worked closely with a
leading player in the automotive sector in India to enable IAF Series 2
jointly acquire an overseas gear manufacturing company that would leverage
Indian manufacturing capability and markets. This transaction would
position your Company as a serious player in cross - border transactions.
Mezzanine Fund:
During the fiscal year 2008, India Advantage Fund VII (Mezzanine Fund-I)
began its investment operations. To date, three investments have been
approved by this Fund. The deal flow for Mezzanine Fund - I is robust and
the Fund has been selective in making its investments. The Fund has been
witnessing maximum demand from small and mid market growth companies that
seek mezzanine finance in order to postpone equity dilution. Your Company
is making efforts to popularize the concept of mezzanine financing in
India, as it expects this form of financing to grow significantly in
future.
Outlook:
Your Company is constantly evaluating investment opportunities in India and
overseas, and is taking initiatives to maintain its leadership position and
continue to be a first mover in the private equity industry.
According to published statements by the Indian Government, it is estimated
that over USD 500 billion of investment is required to address
infrastructure requirements such as power, roads, airports, etc. in India.
Availability of sufficient and adequate infrastructure is one of the most
critical requirements to sustain the growth of the Indian economy. Your
Company believes that the investment requirements of the infrastructure
sector present an opportunity, and expects more Public Private
Participation (PPP) in this sector. Your Company has set up an
Infrastructure Fund called India Advantage Fund IX during the fiscal year
2008 and this new Fund is expected to take shape in the next fiscal year.
Your Company is also making efforts to raise funds overseas and for this
purpose it is considering setting up of representative offices abroad. A
detailed business plan in this direction is being evolved.
The Board expects that the current pipeline of private equity investment
proposals would translate into IAF Series 2 being fully committed by
September 2008. Your Company maintains a positive view on the outlook for
the private equity industry, both for the growth capital and buyout
segments of the market. Given your Companys positive outlook and its
considerable expertise and knowledge of private equity transactions, your
Company proposes to raise a new private equity fund based on similar
investment themes as IAF Series 2 in the next fiscal year.
The deployable corpus of the Real Estate Funds is fully committed and,
given your Companys positive view regarding the real estate market in
India, it is proposing to raise a new real estate fund in the next fiscal
year. As the Indian economy continues to grow, your Company feels that
opportunities to invest in strategic real estate and infrastructure related
real estate assets would emerge. The thesis of this new real estate fund is
to identify and invest in such assets.
In order to focus on client relationship building, investment sourcing and
project monitoring in the Northern parts of India, your Company proposes to
set up a branch office at Delhi. Besides, it also proposes to set up a team
focused on Real Estate opportunities at its Bengaluru office.
Over the years, your Company has maintained a vision of being a leading
alternative asset manager in India across multiple asset classes and to
build an institution that would be among the best in its class globally.
The Board is confident that, given the success of past and current funds
managed by your Company, the increased depth of the management team, the
emerging opportunities, geographical expansion of the investment teams
presence into multiple cities, and raising new funds across private equity,
infrastructure and real estate in the next fiscal year, your Company will
move forward rapidly towards achieving its vision.