The stock market is volatile and everyone is optimistic of an early end to this. For private equity (PE) players, happy days are back. They consider the current choppy season as reminiscent of the ‘vintage years’ and think it’s the right time to invest in the bourses. Avendus, a leading player in the mergers & acquisitions and PE advisory business space, which has been ranked among the top six investment banks in India for the last three years, also subscribes to this view. In an exclusive interview with Yagnesh Kansara and Chirag Madia of The Financial Express, Ranu Vohra, managing director & CEO, Avendus Capital, spoke on various issues relating to inbound and outbound M&As of Indian corporates, the current market situation and prospects of the PE business. Excerpts:
There are reports that mergers and acquisitions (M&As) in India, both inbound and outbound, have dipped considerably in the last six months.
There are two ways to measure M&As. One is value-based and the other is volume-based. Currently, both value and volume are down as compared to the first six months of last year. This is expected owing to the high volatility in the capital markets. Inbound M&As have multiplied compared to the last year and FDI numbers have increased from $ 5 billion to $ 15 billion.
I am not surprised that this will result in steeper rise as we see valuations becoming more rational. This is a great opportunity for a multi- national company that did not enter the Indian markets when they were trading at the 21,000-level.
Several multinational companies, which are in the Fortune 500 list, are approaching us to acquire companies in sectors like constructions, services and engineering. But no one has evinced interest on firms in the financial sector, as the overall scenario hear is not good.
In the last few years, many Indian companies have acquired bigger companies overseas. Currently, as the world economy is slowing down, what strategy should these companies adopt with respect to their overseas acquisition?
A company should see what is happening in its own market. I think when one company acquires another, there is an integration mode. Though the companies have completed their target of acquisition, they are still under integration phase. I don’t think that the current slowdown in capital markets have in any way increased or decreased the ability of the acquirer.
Avendus Capital is an investment bank, a structured finance advisory and even into distribution. Is it necessary for every investment bank to set up an institutional broking firm. In the past we have seen some niche investment banks setting up their distribution network. What is the major reason for investment banks to initiate a institutional broking firm?
Currently, we are on the stage of evolution. What distribution today means is ability to meaningfully participate in the capital markets and enlarge institutional network. If today, I have a private company as my client, tomorrow it may want to launch an initial public offer (IPO). Then that particular company needs private equity fund or a distribution participant so it is the same client that comes again and again.
When a company goes public, it needs a follow-up financing.
We will help them in both primary and secondary markets. We also think of investment banking to the maturity level. Maturity here means to increase our franchise of brand.
With the domestic investment banking space getting crowded, what novelty will Avendus offer to Indian corporates?
Firstly, I would like to say that we don’t agree that domestic investment banking space is crowded in the current market. I say it because, if we compare it with the demands of Indian corporates, the size of investment banking is still too small. Also, the number of quality investment banks is very few in India, which is a huge market. Actually, we should see different investment banks, which have carved out their own space. I think there is still large demand in the mid-cap and small-cap segments of IPOs, which are catered to by a very few investment bankers.
Are you a registered merchant banker with Securities and Exchange Board of India (Sebi)? Which are the stock exchanges through which you operate?
Yes, we are registered with the Sebi and are currently operating in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
Where do you see the Indian markets heading? Is the volatility that we have seen in the past few months going to stay and at what levels would you expect the markets to settle down?
Currently, the markets are volatile and we think that the BSE Sensex will settle down somewhere around 13,500-15,000 by March 2009. In the current scenario, when the markets are acting very impulsively, we think it has bottomed-out and there is no further space for the...
markets to fall. Also, the gross domestic product (GDP) of the country which was projected to be around 9-9.5%, and which is likely to be say at 7-7.5%, is still impressive. As per our analysis, we think that this dreadful phase in the Indian capital will be over soon.
It is evident that the US economy, which contributes 25% of the world GDP, is set to face recession any time now. The turbulence in the US financial markets and its aftershocks are seen elsewhere in the world. In this situation, how will the corporate environment shape up in the short to medium term?
We are hearing of a US recession since the last one year. So, I don’t think that will have much impact now. Also, we have noticed that Indian companies have learnt to diversify their investment in terms of areas and geogrophies. In the wake of this, the probability of Indian companies facing adverse impact of a US recession is unlikely.
With the markets remaining volatile and valuations being in the correction mode for most of the current calendar year, do you think private equity players are enjoying good times?
Yes, PE players in India are enjoying their time now. In fact, these are considered vintage years, when one should invest in the markets. As valuations are in the correction mode, we think that this is the best time in terms of both multiple expansion and growth of a company.
