Jagannadham Thunuguntla, Equity head at New Delhi- based investment bank SMC Capitals Ltd, said,“PEs nowadays prefer to get their hands on deals not available to other PEs.”

1. mint CORPORATE NEWS 09
WEDNESDAY, MARCH 3, 2010, DELHI ° WWW.LIVEMINT.COM
EMAMI THREAT SELF­RELIANCE
Bangur tightens grip Private equity investors trying
to cut out intermediaries
overRamaNewsprint B Y S HRADDHA N AIR
shraddha.n@livemint.com
·························
Chairman buys stake THE STORY SO FAR acquiring a 24% stake from one MUMBAI
from founders, raises
holding to 53.16% after
Key developments in the control
for Rama Newsprint.
of the co-founders of Zandu.
Emami has now trained its
sights on an old Kolkata-based
A s bidding gets more com-
petitive and valuations in-
crease, private equity (PE) in-
Agarwal’s 5% ‘strategic 2003 pharmaceutical company vestors are looking to cut out
whose founders “do not see intermediaries and carry out
investment’ in firm S.K. Bangur buys 33.85% eye-to-eye any more”, accord- deals sourced through their
2009 ing to Agarwal, who refused to own research and networks.
B Y A VEEK D ATTA name the firm. Typically, merchant and in-
Emami starts building Rama Newsprint can pro- vestment bankers scout for
aveek.d@livemint.com
························· stake in newsprint manufacturer
duce up to 145,000 tonnes of good investment targets and
KOLKATA Jan-Feb 2010 newsprint a year. One of the bring them to the notice of PE
C hairman Shree Kumar
Bangur strengthened
his hold over Rama
Newsprint and Papers Ltd by
buying the holding of its
Emami ramps up stake
to 5.35%
Bangur buys out Ramsinghani
family's stake, raises stake
company’s key assets is a
400-acre factory on the out-
skirts of Surat, Gujarat, of
which at least half is vacant.
“We are exploring the possi-
investors. But funds are dis-
playing a growing taste for
“proprietary deals”, in which
they directly discover and con-
tact firms trying to raise money.
to 53.16%
founders, the Ramsinghani bility of setting up a special eco- “PE houses don’t like it (in-
family, after consumer goods Source: Mint research
nomic zone there,” said Bangur. termediary deals) because un-
maker Emami Ltd built up a 5% In fiscal 2009, Rama Newsprint fortunately, the investment
YOGESH KUMAR/MINT
stake in the company. posted a loss of Rs27.27 crore bank doesn’t contact just
“I have heard they (Emami) Bangur took over manage- on revenue of Rs346.34 crore. three-four PE firms, they con-
were planning to launch a ment control of Rama News- Emami’s unit Emami Paper tact 10-15 and so it becomes
takeover bid,” Bangur said in print in 2003, when he acquired Mills Ltd has a newsprint ca- very competitive. That auto-
an interview. “But even if we 33.85% in the company from its pacity almost equivalent to matically raises the bar on val-
hadn’t acquired the Ramsing- lenders. Since then, the Ram- that of Rama Newsprint’s uation,” said Vikram Utam-
hani family’s stake, it would singhani family has been sell- while being more profitable. In singh, executive director and Exclusive: KPMG’s Utamsingh (left) and SMC Capitals’ Thunuguntla
not have been easy for Emami ing its stake in the company. fiscal 2009, Emami Paper post- director (private equity) at au- say private equity funds are showing a preference for proprietary deals.
to take over our company.” “They sold some shares to us; ed a net profit of Rs22 crore on dit and consulting firm KPMG
Emami didn’t comment on they sold some in the market as revenue of Rs435 crore. India Pvt. Ltd. investment,” Gupta said. business director at Micromax,
whether it had wanted to take well,” Bangur said, adding he Bangur is currently busy An October 2009 report by “Most of our deals are pro- about the decision to deal di-
control of one of India’s big- bought the last tranche—over completing the Rs1,400 crore KPMG on the domestic PE in- prietary deals. Our preference rectly with TA Associates.
gest newsprint manufacturers. 9.2 million shares, or 16.84% of expansion of his other paper dustry said deals sourced from is to originate deals ourselves,” At the same time, limited
“It’s a strategic investment,” Rama Newsprint’s equity capi- firm, West Coast Paper Mills investment banks, which ac- said a senior official of a PE partners (LPs), who are the
said Emami’s chairman R.S. tal—in January for around Rs40 Ltd. “We should be able to sort counted for 31% in 2008, are firm that is backed by a corpo- primary investors in PE funds,
Agarwal. “We don’t have any crore. Bangur now owns things out at West Coast by expected to decline to 29% in rate house, adding that a PE view the ability to carry out
immediate plan of launching a 53.16% of Rama Newsprint. June, following which we will fiscal 2010. Proprietary deals, fund needs a “very good net- proprietary deals as a unique
takeover bid for Rama.” Rama Newsprint’s vice- turn to Rama,” he said. Among which formed 26%, are expec- work” to be able to generate differentiating factor.
The purchase of the Ram- chairman Vashu J. Ramsing- the options being considered ted to increase to 27% in fiscal deals on its own. The official “Every LP is asking us ‘Show
singhani stake gave Bangur a hani wasn’t available to com- for Rama Newsprint is a merg- 2010, the report added. The did not want to be identified. us your deal flow, your deal
share of more than half in ment on the transaction. er with West Coast, he added. 2008 version of the report stat- Earlier this year, TA Associ- sourcing and how are you dif-
Rama Newsprint. In October 2008, Emami West Coast is raising its an- ed that despite the majority of ates Advisory Pvt. Ltd made a ferent’,” said a partner with a
Kolkata-based Emami, concluded a hostile takeover of nual pulp-processing and pa- deals reviewed by PE houses $45 million (Rs207 crore to- PE firm, who requested ano-
whose products include Boro- herbal healthcare firm Zandu per-making capacity to being sourced by investment day) investment in Micromax nymity as the firm is in the
plus antiseptic cream, Fair and Pharmaceutical Works Ltd. It 300,000 and 400,000 tonnes, banks—51%, self-generated Informatics Ltd using the pro- fund-raising mode. “(Other-
Handsome skin fairness cream was the first successful hostile respectively. Revenue in the deals accounted for 25% of prietary route, as was a Rs550 wise) Why would they pay us
and Navratna Cool Talc, also takeover in India in many current year is expected to top completed transactions. crore investment by KKR India 2/20 (2% management fee and
produces paper. years and started with Emami Rs700 crore, said Bangur. Jagannadham Thunuguntla, Advisors Pvt. Ltd in the private- 20% outperformance fee)?”
equity head at New Delhi-based ly held investment firms of This is happening more of-
investment bank SMC Capitals Analjit Singh. ten now, he added, because
Ltd, agreed with Utamsingh, An impending investment in LPs feel that the valuations are
RETAIL GROWTH ecutive mentioned earlier. and said, “PEs nowadays prefer Asian Infrastructure Pte Ltd by high, especially in India and
Thomas Verghese, chief ex- to get their hands on deals not a group of PE investors is also China.
D­Mart on expansion ecutive of Aditya Birla Retail
Ltd, said D-Mart is a “well-es-
tablished mini-hypermarket
available to other PEs.”
He said the trend was partic-
ularly true of funds that have
proprietary, said an invest-
ment banker familiar with the
development, but who de-
But intermediaries are not
going to go out of fashion any
time soon. While a majority of
drive, looks to take player”, but would face its
“test” in the next three months
as it competes with “hyper-
been in the industry for long
and have long-standing rela-
tionships with promoters.
clined to be named.
“The PE deal volume de-
clined almost 50% last year.
the deals in mature economies
such as the US and parts of Eu-
rope are proprietary, PE inves-
leased premises route
markets, which are larger, offer Such relationships make ne- This is because the valuations tors in India simply cannot do
international experience and gotiations simpler. “Since the increased as the capital mar- without intermediaries.
strong value positioning”. competition is kept at bay, kets recovered and the com- The geographical spread of
Expansion will also see D- deals can get concluded faster. petitive bids for deals pushed the market is too vast for any
Mart operate from leased Typically, in most of the pro- the valuations further up,” said PE firm that has a handful of
B Y S APNA A GARWAL chain has stores of premises—a different ball prietary deals, the post-invest- Thunuguntla. employees to actually cover,
sapna.a@livemint.com 8,000-30,000 sq. ft, compared game, said Shubhranshu Pani, ment relationship is stronger,” Now, promoters are also be- pointed out KPMG’s Utam-
························· with up to 4,000 sq. ft for other managing director (retail serv- said Alok Gupta, managing di- ginning to understand, and singh. “Private equity is still a
MUMBAI typical supermarkets. ices) at Jones Lang LaSalle rector and chief executive of sometimes prefer, the dynam- very young industry in the
S upermarket chain D-Mart
has chalked out aggressive
expansion plans for the next
D-Mart executives credit the
chain’s operating model for its
smooth sailing. The chain pays
Meghraj, a real estate advisory.
“On an average, rentals are
3-5% of revenues, and there is
Axis Private Equity Ltd.
He pointed to a 2008 invest-
ment his fund made in Hydera-
ics of proprietary deals.
“From our side it was a stra-
tegic disinvestment, which we
country. So if you go to these
tier II and tier III cities, there is
a lack of general understand-
two years at a time when many its suppliers within 48 hours of no asset creation. Also, in the bad-based Vishwa Infrastruc- were looking (at) and not for ing of this industry,” he said,
of its midsize rivals are going delivery, gaining a 1-2% ad- long term, rentals still have to tures and Services Pvt. Ltd, purely monetary reasons. So adding that those are the re-
through a trough. vantage on cost margin over be paid versus ownership, which builds water and sewage we selected TA Associates from gions not served by PE funds,
The retailer has 29 stores in other national retailers, where the cost gets nullified,” networks. “We knew the com- all the potential partners,” said where merchant banks are re-
Maharashtra and Gujarat, and claimed the first company ex- he said. pany for two years before the Vikas Jain, co-founder and quired to educate companies.
is likely to double that number
in the next two years. “The
plan is to close financial year
2010 with 35 stores, up from
29,” a D-Mart executive said.
A second executive said, on
condition of anonymity, D-
Mart will add 10-15 large-for-
mat stores of 30,000-40,000 sq.
ft every year for the next two
years. D-Mart did not reply to
email queries.
Other midsize retailers either
shut stores or reduced their
number during the downturn.
Chennai-based discount retail-
er Subhiksha Trading Services
Ltd, shut 1,600 stores after de-
faulting on loans, vendor pay-
ments and staff salaries. Wad-
hawan Group’s retail brands
—Spinach and Sabka Bazaar
—closed more than one-fourth
of their 200-odd stores last year.
Industry observers said D-
Mart enjoys an edge due to its
combination of large stores
and a value platform.
Launched in 2001-02 by Ave-
nue Supermarkets Pvt. Ltd, the