IFCI Venture Capital Funds Ltd.

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IFCI Venture Capital Funds Ltd.
An introduction
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About IFCI Venture
History
1975
1988
1991 2008
Launched Technology Finance and Development
scheme to promote indigenous technologies
Management of VECAUS-III floated by UTI and IFCI
Launched 3 new funds Launched SME lending
business Started Investment Advisory
Promoted by IFCI Launched Risk Capital Scheme
Background

• We are Indias oldest Venture Capital Fund, with
  over three decades of partnering with
  entrepreneurs and nurturing growth
•  
• We have provided finance to over 400 ventures and
  supported commercialization of over 50 new
  technologies in the past
• We enjoy strong parent support of IFCI, with core
  competence in long term lending to industrial and
  infrastructure sector.

Structure
Funds
Team

• Settler IFCI
• Trustee IDBI Trusteeship
•  

• India Auto Components Manufacturers Fund (IACM)
• Green India Venture Fund (GIVF)
• India Enterprise Development Fund (IEDF)

• S. P. Arora, Managing Director
• Rajeev Mukhija, Fund Manager - IACM
• Poonam Garg, Fund Manager GIVF
• Akshay Dua, Fund Manager - IEDF
•  

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Our Portfolio (Past Present)
Brick Mortar Companies
Brick Mortar Companies
New Age Industries
IFCI Venture has invested in some of the most
prominent names in India Inc.
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The PE VC Landscape (Contd)
Sector wise split up in 2009
Stage wise split up in 2009
Growth and late stage deals form a big chunk of
investments by PE funds. The smart money also
recognised the trend of rising stock prices
resulting in many PIPE deals earlier this year.
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BUSINESS MODEL
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Integrated and Synergistic Business Model
IFCI Venture provides other services to our Target Segment, including Investment Advisory Services and SME Lending Business. This completes the gamut of services by providing equity capital, debt capital and investment advisory. Hence, we are able to expand our reach, and develop more comprehensive relationships with entrepreneurs
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mETHODOLOGY
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Key Factors to consider
Market Dynamics

• Minimum market size of Rs. 1000 crore, else it
  becomes a niche play
• Porters Five Force model gives a good
  indication on the attractiveness of the industry

Business Model

• What need is the company satisfying
• Whats the strategy Cost leadership/ Product
  Differentiation
• Competitive Advantage Whats the moat???

Promoter

• Past track record /Prior experience of running
  business successfully
• Commitment
• Extensive professional reference checks

Valuations

• Financial valuations including
• Discounted Cash Flow
• Relative Valuations
• Deal Multiples etc

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Deal Timelines
Timeline
Business Due Dilgence
Study market size, market attractiveness etc.
BDC Meeting
Internal Committee act as Devils Advocate
Valuation
Valuations using DCF, Relative Valuation, Deal
Multiples etc
Termsheet Structuring
Drafting and negotiation of Termsheet
Due Diligence
Legal / Financial/ Secretorial Due diligence
Investment Committee
Final Call of the case
Legal Documentation
Signing of agreements
Disbursement
Welcome to IFCI Venture
Month 1
MONTH 1
Month 2
Month 3
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Deal Structuring, Monitoring Exits
Deal Structuring

• Instruments used Debentures vs. Preference
  Shares vs. Equity, compulsorily or optionally
  convertible
• Our returns are typically strengthened with a
  minimum buyback compounded returns of 20-22 with
  personal guarantee of promoters. This eliminates
  the downside, with option to upside enjoyed by
  IFCI Venture
• Ratchet clause / No Down Rounds helps protect our
  investments from market movements
• Tag Along Clause helps provide exit in case of
  promoter divestment
• Drag Along Clause IFCI Venture retains right to
  find the right price of its investment through
  strategic sales
• IPO Clause is put in term-sheets for companies
  with strong growth and right size, that is
  companies which are potential IPO candidates. We
  retain the right to maximise our returns by
  ensuring the right portfolio companies go for an
  IPO

Constant Monitoring

• Quarterly unaudited financial information,
• Annual audited financial statements
• Annual operating financial budget
• Material communication submitted by auditors,
  financial advisors, merchant banks or any
  governmental agency
• Board Representation
• Quarterly visits

Exit Planning

• Primary Markets health and company readiness for
  the same
• Strategic Sale
• Buyback

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Case Study P. Ltd. June 2010
Timelines
Background of operations

• is in the business of railway based logistics
  services
• exclusive deployment right for 4 rakes allocated
  under WIS for transportation of Iron Ore from
  mines in Orissa or Jharkhand to Paradeep and
  Haldia
• The company is already in the business of WIS for
  the next 8 years, expected to provide cash flows
  of Rs. 20 crore annually.
• The company has developed expertise in handling
  and transportation of loose, bagged and
  containerized cargo
• The promoter,, has over 15 years of experience in
  Indian Railways and was instrumental in
  increasing commodity loading for Indian Railways
  as well as facilitating investments through
  Private Public Partnership (PPP)

Proposed Project

• To set up 5 domestic railway hubs with
• Loading and unloading bays
• Warehousing facilities
• Weighbridges

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Case Study P. Ltd. (Contd)
Market Dynamics

• Attractive market size
• Porters Five Force Analysis
• Threat of new entrants Low Difficult to obtain
  licences, Large CAPEX requirement
• Bargaining power of Buyers Low Due to
  extremely large number of pending indents
• Bargaining power of supplier Moderate
• Threat of substitutes Low Since road transport
  is more expensive and prone to pilferage
• Internal Rivalry Low Since existing terminal
  are either owned by Indian Railways or are owned
  by companies for captive use.

Business Model

• Satisfying the need to reduce the time and costs
  associated with railway based logistics
• Whats the strategy Earn revenues by sharing a
  portion of the cost savings that the customer
  achieves through faster turnaround and lower
  pilferage
• Competitive Advantage
• Knowhow of the railway system and the ease of
  obtaining the required clearances
• Established WIS business with a cash return of
  approx. 20 cr p.a.

Promoter

• Promoter had over 15 years of experience in
  Indian Railways and was instrumental in
  increasing commodity loading for Indian Railways
  as well as facilitating investments through
  Private Public Partnership (PPP)
• Enterprising personality with a good business
  vision and past track record

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THANK YOU
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Case StudyP. Ltd. (Contd)
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The PE and VC Landscape
PE/ VC Activity shows a steep drop in 2009
Factors involved in this drop

• Valuation mismatch between Funds and Promoters,
  with a typical lag in Promoter expectations post
  the bust
• Competition from other funding options, with
  improving liquidity conditions since Mar 09
• LPs turn cautious and delay contributions, focus
  on performance, governance and returns
• Due diligence taking longer due to cautious
  approach of Funds. Internal activities are
  checked more thoroughly, with Subhiksha on
  everyones mind
• GPs focus on fortifying existing portfolio
  companies, with cash becoming key in the global
  credit crisis

In million
Uptick in activities seen in Q1 CY10, with 56
deals bringing in USD 2 billion. Another positive
trend seen in the quarter was a rise in exit
activity, with the period seeing 32 exits
including 10 IPOs, compared to 16 exits and no
IPOs in Q1 2009.
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Case Study Palogix Infra. Ltd. (Contd)
Valuations
 in Rs. lakh Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
  2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
PAT 2,311.02 4,640.70 5,442.14 6,587.27 7,064.68 7,571.93 7,943.31 8,347.96
NCC 264.85 368.19 347.64 320.84 299.92 282.96 268.26 255.49
- WC Inv (879.10) (0.76) (57.82) (69.50) (19.98) (26.49) (25.97) (29.09)
CFO 1,696.77 5,008.13 5,731.96 6,838.60 7,344.61 7,828.40 8,185.59 8,574.35
Int (1-t) 155.27 299.58 303.03 192.83 82.64 3.44 - -
-CAPEX (7,669.50) (1,562.50) - - - - - -
FCFF (5,817.46) 3,745.21 6,034.99 7,031.44 7,427.25 7,831.84 8,185.59 8,574.35
-Int (1-t) (155.27) (299.58) (303.03) (192.83) (82.64) (3.44) - -
Net Borrowing 5,491.12 (1,031.25) (1,375.00) (1,375.00) (1,375.00) (343.75) - -
FCFE (481.62) 2,414.38 4,356.96 5,463.60 5,969.61 7,484.65 8,185.59 8,574.35
FCFE Valuation                
Terminal Value - - - - - - - 27,315.67
Total CF to Equity (481.62) 2,414.38 4,356.96 5,463.60 5,969.61 7,484.65 8,185.59 35,890.03
PVF 0.837 0.700 0.586 0.490 0.410 0.343 0.287 0.240
PV (403.03) 1,690.71 2,553.17 2,679.21 2,449.66 2,570.18 2,352.20 8,630.39
Value by FCFE 22,522.52              

• Cost of Debt 11
• Cost of Equity 19.5
• Post Money Valuation 225 crore (Implying 11.11
  stake for an investment of 25 crore)
• Pre Money Valuation 200 crore

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Investment Team
S. P. Arora Managing Director

• Experience of over 28 years in Financial Services
• Worked as CGM- IFCI Ltd, handling various
  portfolios,
• M.COM,AICWA,ACS,LLB,CAIIB

Rajeev Mukhija General Manager

• Experience of over 17 years in Private Equity and
  Venture Capital domain.
• Has exceptional expertise in Investments, Fund
  Structuring, Deal Exit Strategy etc.
• Qualifications include Chartered Accountant,
  Company Secretary, Law graduate

Poonam Garg Asst. General Manager

• Experience of over 16 years in Private Equity and
  Venture Capital Funds.
• Expertise in Deal Evaluation, Investment, Capital
  Market Trading
• Qualifications include Associate Member of
  Institute of Cost Works Accountants of India
  (AICWA)

Akshay Dua Asst. Vice President

• Experience of over 6 years across financial
  services including Investment Banking, Private
  Equity
• Expertise in Deal Evaluation, Investments,
  Primary Market Offerings
• Qualifications include MBA from Indian Institute
  of Management, Lucknow, B.E. from Pune University