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Private Equity/Venture Capital deals in auto sector dip in 2017: Report

Demonetisation, regulatory changes and uncertainty over GST are cited as the key factors that led to the sluggishness. PEs/VCs made investments worth $35 million in the auto sector in 2017 as compared with $138 million in 2016.

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The auto sector in 2017 saw lacklustre private equity (PE) and venture capital (VC) investor activity, in terms of both investments and exits, in 2017 as compared with 2016. (Image: Reuters)

The auto sector in 2017 saw lacklustre private equity (PE) and venture capital (VC) investor activity, in terms of both investments and exits, in 2017 as compared with 2016, said Venture Intelligence, a research service focused on private company financials, transactions and their valuations. Demonetisation, regulatory changes and uncertainty over GST are cited as the key factors that led to the sluggishness. PEs/VCs made investments worth $35 million in the auto sector in 2017 as compared with $138 million in 2016. On the exits side, 2017 saw deals worth $81 million, while 2016 recorded exits worth a hefty $1.65 billion. These include three big deals: Yokohama Rubber Company bought IFC and KKR’s stake in Alliance Tire Group for a consideration of $1.05 billion; PE major Blackstone exited International Tractors by selling its stake to Yanmar of Japan for $241 million; Actis exited Endurance Technologies through an IPO by selling shares worth $136 million. In contrast, in 2017, the only notable exits were Tata Capital’s $66-million exit from Agile Electric (through the buyback route) and Kubera Partners’ exit from Synergies Castings, an auto parts company, by selling its stake to Jamy LLC for $15 million. Kalari Capital solid its stake in electric vehicles company Volta Motors to Smarton, but the deal size was not disclosed, said Venture Intelligence. According to the data, the prominent investments during the year included Westbridge’s $28 million in Ceat Tyres; SAIF’s $3-million investment in auto-parts maker Fiem Industries and a $0.6-million investment by Sidbi VC in Gibraltar, another components firm. Kitven also invested in electric vehicles company Greendzine Technologies, but the amount was not disclosed.

The year 2017 also drew a blank on debt investments by PEs/VCs. 2016 saw some prominent strategic/debt investments such as the $55 million by KKR in auto parts company Classic Stripes and $35 million by KKR in KLT Automotive & Tubular Products. Hero MotoCorp also invested $31 million in electric two-wheeler maker Ather Energy and Newquest/Paragon Ventures invested $17 million in Maini Precision Products, according to Venture Intelligence. According to sources, the reasons behind the tepid response from PEs/VCs in terms of both investments and exits in 2017 consisted of a number of issues including demonetisation, followed by regulatory norms (BS III abolition in April 2017), then the GST imbroglio. Due to this, in the first few months of the current fiscal, the auto industry witnessed degrowth across all segments, which pushed investors to take a cautious notice on the sector.

According to S Venkat, founder and director, Veda Corporate Advisors, an investment banker, “Since the manufacturing sector, particularly the automotive industry, is the most matured one in India, the PEs and VCs have started looking at sunrise sectors like e-commerce and healthcare, among other areas. The opportunities for investors is quite limited in this area as most of the auto parts companies are listed ones, where PEs and VCs have no role at this point of time. The uncertainty over regulatory issues, as well demonetisation and GST, also must have cast a shadow on the investments into this sector. Moreover, the recent NPA issues of some of the auto parts companies have forced investors to adopt a wait-and-watch attitude. However, this sector will see revival of investments due to changing technologies, including electric mobility, hybrid and connected car technologies, among other areas.”

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First published on: 03-01-2018 at 05:37 IST
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