Ey Pe VC Agenda India Trend Book 2018

PE/VC
Agenda
India Trend Book - 2018
Contents
1
06
Why invest in India – the macro view
2
12
Investment activity - highlights and trends
3
24
PE/VC exits cross a new high
4
30
Distressed Assets - an opportunity for PE?
5
36
The evolving regulatory and policy framework
6
44
The Indian PE/VC sector – the road ahead
7
46
Appendices
Preface
Growing from strength to strength Snapshot of PE/VC activity - 2017
Investments 2017 2016
In 2017, both Private Equity (PE)/Venture Capital (VC)
investments and exits recorded new all-time highs. India received Value (US$mn) 26,458 16,203
US$26.5 billion in PE/VC investments in 2017, 35% higher than Number 595 588
the previous high of 2015 and 63% higher than previous year.
Funds raised
PE/VC exits in 2017 almost doubled in value to US$13.0 billion
compared to the previous high recorded in 2016. The record level Value (US$mn) 5,774 4,313
of growth has been driven primarily by large sized deals both in Number 44 41
case of investments and exits. From a sector perspective, all the
Exits
major sectors recorded significant increase in value invested in
2017, compared to the previous year. Value (US$mn) 13,013 6,668
Number 259 209
Fund raising by PE/VCs increased by nearly 33% to US$5.8 billion
in 2017 compared to US$4.3 billion in 2016, further adding to Source: EY analysis of VCC Edge data
the already high level of dry powder available with PE/VC funds.
In 2018 as well, the Indian PE/VC industry is off to a very strong start, with US$7.9 billion of PE/VC investments in Q1
eclipsing the previous Q1 high (2016) seen over the past four years by over 83%. Q1 2018 is now the second best quarter
in last four years for PE/VC investment activity, as it saw 13 deals with investment amounts greater than US$100 million,
against six such deals in Q1, 2017. As always, this is an amalgamation of all asset classes, including PE, real estate and
infrastructure, which accounted for US$4.8 billion, US$1.5 billion and US$1.6 billion worth of investments respectively in Q1
2018. Although pure play PE investments declined from US$5.6 billion in Q4 2017 to US$4.8 billion in Q1 2018, they are
almost 26% more than the US$3.9 billion invested in Q1 2017. The deficit in PE investment from Q4, 2017 was more than
adequately picked up by the infrastructure and real estate asset classes that saw four and two deals respectively above the
US$100 million mark.
PE/VC investment in India - Quarterly trends

220
181 188 178 164 157 165 163 180
146 129 138
121
3,450 5,139 6,003 5,043 4,310 3,658 3,097 5,138 4,179 6,214 8,686 7,379 7,916
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
US$ million No. of Deals

Activity on PE/VC exits in Q1 2018 has been comparatively muted, climbing down 51% from Q4 2017. This is not surprising
given the volatility unleashed in the Indian as well as global capital markets by a variety of factors including US inflation, Fed
rate hikes, geopolitical tensions and the recent stance of the US Government on trade tariffs.
PE/VC Exits in India –Quarterly Trend
66 69 70
60 64 61 64 64
59 59
42 51
44
1,161 2,749 1,205 1,358 2,067 1,073 2,046 1,483 2,033 2,790 4,550 3,749 1,824
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
US$ million No. of Deals
Like the Indian equity capital markets, the Indian PE/VC market With all the positives now backing the Indian PE/VC story, strong
too seems to have developed a co-relation with its Global Q1 numbers and the deal momentum in play, we believe that
counterparts. At US$354.3 billion of PE/VC investments, 2017 PE/VC investment activity in 2018 will eclipse the highs seen
was the best year since 2007 for the PE/VC industry globally. in 2017. The changes unleashed by the IBC regulation have
US$633.8 billion of dry powder is currently available to fund opened India to a new PE asset class, adding more wind to the
deals and 55% of global PE CFO’s expect to raise a new fund in already full sails of the Indian PE/VC story. The Infrastructure
2018, of which 60% expect the new fund to be larger than the asset class too is expected to see a lot of investment dollars,
previous one. Like in India, Global PE deal activity in 2018 too especially in the roads sector as the Government looks to
is off to a very active start, holding out the promise of a strong privatize arterial routes to fund their ambitious roads’ capex
year. plans. Real estate too is projected to see good investment
activity, especially commercial real estate as more ‘REITable’
According to the Global Limited Partners (LPs) Survey 2017
platforms get built.
conducted by EMPEA, India now ranks as the most attractive
emerging market for General Partners (GPs) investment over On the exits front, there are strong undercurrents of strategic
the next 12 months, climbing from 9th place in 2013. This new M&A deals in play. If and when they materialize, early stage
found fondness for India by LPs coupled with the record levels backers of the Indian E-commerce sector will see strong exits,
of dry powder raised/being raised globally is very positive for taking the Indian early stage investing eco-system to new highs.
the Indian PE/VC Industry. At EY India, we believe this will lead Overall, PE/VC exits should put up a strong performance in
to the entry of new players (regional as well as global GPs) into 2018 also, unless the Indian equity indices correct materially.
India with large amounts of funds under management, further We believe that the strong PE/VC exits seen in the past three
enriching the Indian PE/VC ecosystem. EY’s Global PE leader years (over US$26 billion) have played a material role in ‘re-
Herb Ingert says, ‘This is the Golden Age of Private Equity’ and rating’ the India PE/VC sector in the eyes of Global LPs. These
we at EY believe that India is very well positioned to attract exits have underlined the ability of the Indian market to return
a disproportionately higher share of this mountain of global foreign capital to LPs with returns, which in turn will attract
private capital looking for alpha returns. more LPs and lead to an increase in India’s share of their
Emerging Markets Capital allocation.
2017 was a landmark year for India on the regulatory front.
With big ticket reforms like Goods and Service Tax (GST), With technology led disruptions and internet connectivity
Insolvency and Bankruptcy Code (IBC) and a host of changes to bringing us closer to realizing the power of India’s demographic
the tax code (covered later in this report), the Government has dividend, we believe that the next five years will be the Golden
been busy streamlining regulations to improve India’s ‘Ease of Age of the Indian PE/VC industry. In our view, political and
Doing Business’ ranking. The overseas investment community, policy stability permitting, by 2021, annual Indian PE/VC
especially the PE/VC and LP investor community, has responded investment levels could potentially be in the range of 1.5x-2x the
favorably to these structural changes and the perception around highs of 2017.
India as an investment destination seems to have improved We hope you enjoy reading this report.
significantly.
Happy Investing
Outlook
If we look at the past 20 years history of the Indian PE/VC
industry, we find that notwithstanding intervals of weak macro’s,
political instability, unstable currency, lack of awareness of the
India opportunity by the Global LP Community, and a variety of
other negative factors, the Indian PE/VC ecosystem has grown
from approx. US$200 million in 1998 to almost US$39.5 billion
in 2017 (PE/VC investments plus exits), a CAGR of almost 32%.
Vivek Soni
National Leader, Private Equity Services
1 EY PE Capital Briefing January 2018
2 EY 2018 Global Private Equity Survey
01
Why invest in India
– the macro view
The key underlying strengths making India one of the most 2HFY18, these trends are likely to be reversed soon because of
attractive investment destinations globally are (a) its strong the strong demand push being introduced through the Budget.
growth prospects in the near and medium-term, (b) sustained
productivity-enhancing reforms undertaken since 2014 and
(c) a strong demand-side push to growth imparted by the FY19 Exhibit 1: India’s GDP growth: — actual vs. potential
Budget of the Central Government.
8.5
8.2
1. India’s re-emergence as the global
growth leader 8.0 8.0
7.4 7.6
India, for the first time, overtook China in terms of gross 7.8
7.5 7.4 7.4
domestic product (GDP) growth in FY16. But this position 7.5 7.2
7.5
was lost the very next year due to the adverse but short-
7.4 7.3 7.4
term impact of demonetization and GST transition. However, 7.1 7.25
after 1QFY18, the Indian economy has regained its growth 7.0
6.7
momentum. The World Bank and the IMF have projected India’s 7.0
FY19 growth at 7.3% and 7.4% respectively (Exhibit 1). These
projections firmly place India as the global growth leader 6.5 6.5
6.4
among the major economies of the world. The underlying
drivers of growth are export and investment demand. Other
6.0
agencies, including the Government’s Economic Survey,
FY14 FY15 FY16 FY17 FY18 FY19 FY20
estimate growth prospects for FY19 to strengthen.
The IMF has projected a strong positive outlook for global CSO Potential GDP (OECD)
growth, which would support India’s export demand. Export OECD World Bank
growth has already shown signs of strengthening since
IMF ES
2HFY18. Private investment demand has also started to
improve from 1HFY18. Although private and government Source (Basic Data): MOSPI, OECD; World Bank; Economic Survey 2017-18,
consumption expenditure showed a slight deceleration in Ministry of Finance, Government of India.
Exhibit 2: Real GDP growth (%)

AD 1H 2H 1H 2H 1H 2H 1H 2H
component FY15 FY15 FY16 FY16 FY17 FY17 FY18 FY18
PFCE 9.6 4.6 3.0 8.9 8.2 9.2 6.6 6.1
GCE 9.2 11.8 2.2 3.8 16.5 26.0 10.2 6.6
GFCF 2.6 3.4 4.8 5.4 5.2 -0.3 3.1 5.9
EXP 6.2 -2.3 -5.2 -5.2 1.8 7.2 1.2 7.6
IMP 2.1 -0.3 -4.7 -6.9 -2.2 7.0 10.4 9.7
GDP 7.6 6.4 8.0 8.2 7.7 6.5 6.0 7.0
Source: CSO, MOSPI, Government of India. AD: Aggregate demand; PFCE: Private final consumption expenditure; GCE: Government final consumption expenditure;
GFCF: Gross fixed capital formation; EXP: Exports; IMP: Imports; GDPMP: GDP at market prices.
On the demand side, as shown in Exhibit 2, recovery in gross accelerate to 7.6% in 2HFY18 as compared to 1.2% in 1HFY18.
fixed capital formation and exports is likely to support growth Export growth moved from the negative zone during 4QFY15
in 2HFY18. Investment is expected to pick up from 3.1% in to 4QFY16 to become strongly positive.
1HFY18 to 5.9% in 2HFY18 and growth in exports is likely to
PE/VC Agenda - India Trend Book - 2018 7

2. Structural and supply-side reforms: Responsibility and Budget Management Act, 2003 (FRBMA)
in its current or potentially modified form and Real Estate
sustained productivity-enhancing Regulation Act (RERA) are examples of the institutional and
effects regulatory reforms as summarized in Exhibit 3, depicting
the Policy Wheel, which highlights the current Government’s
As is already well recognized, India’s demographic profile emphasis on structural and supply-side reforms.
confers on it a long-term growth advantage through the
virtuous cycle of higher saving and investment leading Some policies can have both supply and demand side
to growth. This is further supplemented by sustained implications. Thus, the Government’s capital expenditure on
structural and supply-side reforms undertaken by the current infrastructure adds to demand but infrastructure improves
Government that have considerable productivity-enhancing the productivity of other resources. Demand and supply-side
potential. Some examples of these initiatives are GST, Make policies are not mutually exclusive and they can be pursued
in India, Smart cities, digitization and Skill India. GST, for together. Demand-side policies get the wheels of the economy
example, is very largely a supply-side policy reform as it moving by giving it a quick push. Supply-side policies sustain
aims to improve the productive efficiency of the economy by the momentum of the wheels and help produce long-term
better resource allocation, removal of inter-jurisdiction fiscal beneficial results.
barriers and bringing in supply chain efficiencies. Improved
regulatory policies including the new bankruptcy law, the Fiscal
Exhibit 3 : Policy wheel • Tax-GDP ratio slated to increase

FY19 Budget along with
outlays for selected programs Pushing
due to formalization and
aggregate digitization of economy and also
demand
due to GST.
Monetary
Subsidy
Mainly demand side policy Fiscal Demand • Wide-ranging reforms covering all
policies with supply reduction
policy side
implications policies major dimensions of the economy.
• The positive side of

Exchange rate demonetization was digitization
policy
and formalization of the economy.
Tax cuts
Institutional Trade
and regulatory policies • Digitization is a potential positive
fulcrum: e.g., spin-off of demonetization.
FRBMA, RERA,
Market based pricing Bankruptcy Deficit • Power sector reforms: from
of government resources
Law financed deficit to surplus.
infrastructure
Make in India spending • Surface transport: tangible
Smart Cities
Government
success — National Highways
Skill expenditure Development Program (NHDP),
India Digital restructuring
GST which includes projects such as
Supply side India Power
policies sector FDI policies the Golden Quadrilateral and the
reforms East-West Corridor, would be
Mainly supply side
Sustaining momentum, policies with demand brought to a close in six months’
augmenting productivity implications time.
Source: EY analysis
A significant policy priority of the Government relates to Make media and entertainment, mining, oil and gas, pharmaceuticals,
in India, which focuses on the following sectors: automobiles, ports and shipping, railways, renewable energy, roads and
automobile components, aviation, bio-technology, chemicals, highways, space, textile and garments, thermal power, tourism
construction, defense manufacturing, electrical machinery, and hospitality, and wellness. These sectors catering to both
electronic systems, food processing, IT and BPM, leather, the domestic and export markets have bright growth prospects
8 PE/VC Agenda - India Trend Book - 2018

going forward. Foreign direct investment (FDI) norms for
investment directed toward these sectors have also been
eased significantly.
With respect to FDI, the Government unveiled a new

consolidated FDI policy framework on 28 August 2017. Further
liberalization of FDI has been progressively taken up since
then. Exhibit 4 highlights how FDI inflows into India have been
gathering momentum.
Exhibit 4: Gross FDI inflows (US$ billion)
70 60.2 64.3
55.6
60 46.6 45.1
50
34.3 36.0
40
30
20
10
0
8*
2
7
-1
-1
-1
-1
-1
-1
-1
11
12
13
14
15
16
17
20
20
20
20
20
20
20
• With the progressive liberalization of FDI policies,

gross FDI inflows have shown a sustained increase
since FY15.
• FDI policy distinguishes between two routes:

automatic route and Government-approval route.
• Most sectors have now been placed under the

automatic route, where 100% FDI is allowed.
• The limited number of sectors under the Government-

approval route include space, biotechnology, mining
and some defense sectors.
Source: (Basic data): RBI; * Data forecasted for FY18 based on the data that was
available till December 2017

3. India’s FY19 Budget: a demand-side a percentage of GDP is slightly lower than the corresponding
amount in FY18 Revised Estimates (RE), this contractionary
push toward growth effect is more than made up by the utilization of extra-
The supply-side initiatives have now been supplemented budgetary resources for the selected focus areas. Looking at
by a demand-side push through the FY19 Budget of the the incremental effect of these extra-budgetary resources,
Central Government. This has envisaged significant support there is a net expansionary change in the Government’s
to aggregate demand by focusing on agriculture and rural budgetary expenditure in FY19 compared to FY18 RE to the
livelihoods, infrastructure and education, and health and extent of nearly 1 percentage point of GDP (Exhibit 5).
social sectors. While total expenditure in the FY19 Budget as
Exhibit 5: Role of budgetary and extra-budgetary resources — FY19

2017-18 (RE) 2018-19 FY19 BE over FY18 RE Incremental outlay
% of GDP Budget percentage points of (FY19 BE minus
Estimates (BE) GDP FY18 RE) INR crore
% of GDP
Total expenditure 13.21 13.04 -0.17 2,24,463
Expansionary effect of financing outlays by budgetary and extra-budgetary resources
Agriculture and rural livelihood 7.04 7.66 0.62 2,48,057

program
Schematic outlays for education, 0.73 0.74 0.01 15,600

health and social protection sectors
Capital outlay on infrastructure 2.93 3.19 0.26 1,02,830
Total outlay 10.70 11.59 0.89 3,66,487
Memo
Nominal GDP (INR crore) 16,847,455 18,722,302
Source: Union Budget documents and MOSPI
In the case of agriculture, nearly 83.6% of the total outlay is to effects in the long run make India’s growth narrative quite
be raised as extra-budgetary resources by the concerned public convincing. Its sustained position as a global growth leader
sector enterprises, special purpose vehicles and other similar makes India an attractive investment destination for private
institutions. capital looking to generate an alpha return through long-term
investing.
Thus, the policy push to growth in the short run and the
underlying structural reforms with their productivity-enhancing
Dr. DK Srivastava
Chief Policy Advisor

02
Investment activity
- highlights and trends
PE/VC investments at a new all-time of deals remained at similar levels (595 deals vs. 588 deals in
2016). Investments surpassed the previous record set in 2015
high in 2017 by 35%. This rise in value terms was despite a 22% drop in the
2017 was a record year for PE/VC investments in India, number of deals compared to 2015 (595 deals in 2017 vs. 767
recording an all-time high of US$26.5 billion. In value terms, deals in 2015).
investments rose by 63% compared to 2016, while the number
Exhibit 6: PE/VC investments in India 2008-2017

767 595
588
446 470
372 416 392
362
226
10,627 3,657 8,430 9,641 7,546 9,116 11,683 19,635 16,203 26,458
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Value (US$ million) Volume
Source: EY analysis of VCC Edge data
While the growth appears to be impressive in absolute terms, The strong investment activity in 2017 and associated data
it is skewed by a few large deals by Softbank from its gigantic indicate the emergence of the following trends:
US$100 billion Vision Investment Fund. In 2017, Softbank
I. Deals are becoming larger and more complex
made investments of close to US$5 billion in the Indian market.
Most of these investments came from its Vision Fund, which 2017 had some very large deals, making it one of the best
is also the largest pool of private capital ever mobilized. years in terms of closure of large deals. 2017 recorded 55
Such large investments by a single fund are a rarity in the deals of value greater than US$100 million, aggregating
Indian market. After adjusting for these one-off deals, the US$19.1 billion and accounting for 72% of the total value of
growth in the PE/VC investment activity in 2017 moderates. investments in 2017. In comparison, 2016 recorded only 33
Nonetheless, it is still impressive and even after adjusting for deals of value greater than US$100 million aggregating US$8.1
these mega deals, 2017 counts as the best year in terms of the billion. This also resulted in the average size of deals rising to
value of PE/VC investments, driven by an overall underlying US$55 million in 2017 from US$33 million in 2016. Even if we
trend of deals becoming larger and more complex. adjust for the large Softbank investments, deals greater than
US$100 million add up to 50 deals, aggregating to US$13.5
2017 also recorded the largest PE/VC investments in India so
billion, which is still the highest ever in terms of both value and
far, which involved Softbank investing US$2.5 billion from its
volume and significantly higher than the next best year for
Vision Fund into India’s most valuable new age e-commerce
large deals, which was 2016. Adjusted for the Softbank deals,
company — Flipkart — for a 23.6% stake.3 This deal now makes
the average deal size drops to US$45 million, which still is the
Softbank the largest investor in India’s largest online retail
highest ever and almost 35% higher than the average deal size
company, which is battling Amazon in one of the world’s most
in 2016. Also, except for credit investments, the increase in
competitive e-commerce markets. This investment is a mix of
average deal size has happened across deal segments.
primary and secondary trades. The deal provided a partial exit
to Tiger Global, which until recently, was the largest investor
in Flipkart.4 The other large investments that involve Softbank
include the US$1.4 billion invested in Paytm and the US$1.1
billion invested in Ola Cabs along with Tencent.
3 https://www.vccircle.com/india-competition-watchdog-approves-softbank-flipkart-alibaba-bigbasket-deals/, https://inc42.com/buzz/softbank-to-sell-part-of-its-stake-
in-flipkart-to-walmart-is-it-a-done-deal/
4 https://economictimes.indiatimes.com/small-biz/money/softbank-vision-fund-invests-2-5-billion-in-flipkart/articleshow/60001483.cms

The surge in deal size is not just restricted to India but is a With global funds flush with dry powder after raising a record
global phenomenon primarily driven by rich valuations and level of funds in 2017, the only constraint on private equity
more deployable capital available with PE/VC Investors. globally has been the availability of targets as opposed to
According to a Prequin report,5 higher valuations have seen capital availability.
the average deal size for venture capital deals grow 120% in
the past decade (US$10 million in 2007 vs. US$22 million in
2017).
Exhibit 7: Top 10 PE/VC Investment deals in 2017

Amount Deal Investment
Target Investor Stage Target sector
(US$m) stake % month
Flipkart SoftBank 2,500 24 Aug-17 Growth E-commerce
Paytm SoftBank 1,400 NA May-17 Growth Financial services
DLF Cyber City GIC 1,390 33 Aug-17 Growth Real estate
Developers Limited
ANI Technologies Tencent, Softbank 1,100 NA Oct-17 Growth E-commerce
Private Limited (Ola
Cabs)
Bharti Infratel KKR, CPPIB 956 10 Mar-17 PIPE Telecom
Limited
Axis Bank Limited Bain Capital 795 4 Dec-17 PIPE Financial services
GlobalLogic CPPIB 720 48 Jan-17 Growth Technology
IndoSpace CPPIB 500 NA May-17 Buyout Real estate
Logos India Ivanhoé Cambridge (the real 400 NA Oct-17 Start-up Logistics
estate subsidiary of CDPQ)
and QuadReal Property Group
ICICI Lombard Warburg Pincus LLC, 383 12 May-17 Growth Financial services
General Insurance Clermont Group, IIFL Special
Company Limited Opportunities Fund
Exhibit 8: Deals greater than US$100 million Exhibit 9: Average and median deal size
55
25 55 60
46
20 50 33
30 31 32
33 40
15
20 20 30
10 9 9 9 10 10
20
5 10 0
5 6 11 8 19
0 0
2013 2014 2015 2016 2017 Year 2013 2014 2015 2016 2017
US$ billion # of deals Average Median
Source: EY analysis of VCC Edge data Source: EY analysis of VCC Edge data
5 http://docs.preqin.com/samples/2018-Preqin-Global-Private-Equity-and-Venture-Capital-Report-Sample-Pages.pdf

with the GPs backed by them. This trend, which started about
Exhibit 10: Percentage share by value (US$ billion) five years ago in India, witnessed increased traction in 2017.
1, 4% 1, 6% Some of the reasons that can be attributed to this trend are:
1, 4%
1, 6%
1. It provides additional flexibility and choice in investment
2, 8% decisions. The direct investment route gives a better
2, 15% sense of the market by being more closely involved with
3, 11% the investment than just being financial investors through
8, 50%
19, 72% a GP.
4, 23%
2. The attractiveness of India as an investment market is
growing given its healthy growth potential, improving
2017 2016 ease of doing business and the Government’s strong
commitment on the reform agenda.
< US$10 million
US$10 million - US$20 million 3. Co-investing helps LPs improve returns by reducing fee
US$20 million - US$50 million drag, as they do not pay any incremental management fee
US$50 million - US$100 million to the GP on co-investments.
> US$100 million Direct investments by LPs in the Indian market over the past
10 years add up to approximately US$20 billion, of which
almost US$6 billion was invested in 2017 alone. Some of the
largest investors in the Indian market over the years include
Exhibit 11: Percentage share by # of deals LPs such as GIC, Temasek, International Finance Corporation,
Abu Dhabi Investment Authority and, of late, some of the
56,12% 33, 7% Canadian LPs such as Canada Pension Plan Investment Board
(CPPIB), Caisse de dépôt et placement du Québec (CDPQ), and
Public Sector Pension Investment Board (PSP).
53, 11%
45, 9%
In 2017, Canadian LPs made direct investments of
77, 16%
65, 13% approximately US$2.5 billion in India and have evinced keen
252, 52% 253, 52% interest in India as an investment destination, earmarking
significant funds for additional direct investments in India.
68, 14% 68, 14% LPs, on account of the sheer size of funds under management,
2017 2016 are more inclined to make larger ticket size investments.
Thirteen out of the 27 direct investments made by LPs in India
< US$10 million in 2017 were deals with size greater than US$100 million. In
US$10 million - US$20 million value terms, this accounts for almost 89% of the total direct
US$20 million - US$50 million investments made by LPs in 2017. GIC’s purchase of a 33%
US$50 million - US$100 million stake in DLF’s rental business arm for US$1.4 billion was the
> US$100 million
largest direct LP investment in 2017. CPPIB’s US$720 million
investment in Global Logic, a software development company,
and the US$500 million buyout of IndoSpace, a developer
of industrial and logistic parks in India, are among the larger
II. LPs are increasingly co-investing with GPs and/or
direct investments by Canadian LPs in India in 2017.
investing directly
A recent LP survey conducted by EMPEA6 indicates that almost
LPs are pension funds, insurance companies, university
two-third of the LPs surveyed are seeking to co-invest with
endowments, family foundations and even corporates with
emerging market PE funds in 2018. With almost 52% of the
multi-billion dollar funds under management. Traditionally,
survey respondents planning to increase their co-investment
fund-of-funds were used to funnel money to private equity
pools over the next two years, this appears to be a trend
and venture capital firms, but now data suggests that LPs are
pervasive across all emerging markets.
increasingly investing directly in companies, often co-investing
6 https://www.empea.org/research/2017-global-limited-partners-survey/

Exhibit 12: Top investment deals by LPs in 2017
Target Amount Deal Investment Financing Target Investor
(US$ million) stake % month stage sector
DLF Cyber City Developers 1,390.00 33 Aug-17 Growth Real estate GIC
Limited
Global Logic 720.00 48 Jan-17 Growth Technology CPPIB
IndoSpace 500.00 NA May-17 Buyout Real estate CPPIB
Logos India 400.00 NA Oct-17 Start-up Logistics Ivanhoé Cambridge

(subsidiary of CDPQ)
ReNew Power Ventures 350.00 NA Nov-17 Growth Renewables CPPIB

Private Limited
Kotak Mahindra Bank 341.65 1.5 Mar-17 PIPE Financial CPPIB,CDPQ

Limited services
Bharti Infratel Limited 302.00 3.2 Mar-17 PIPE Telecom CPPIB
Cube Highways and 300.00 NA Nov-17 Start-up Infrastructure ADIA

Infrastructure Pte. Limited
Manipal Health Enterprises 171.35 18 Aug-17 Growth Healthcare Temasek

Private Limited
Can Fin Homes Limited 112.89 13.45 Mar-17 PIPE Financial GIC
services
III. Investments in start-ups rebounded, with new US$500 million was on account of investment by Softbank
sectors leading the charge in budget stay aggregator Oyo Rooms. The number of
e-commerce deals, however, continues to be on a sharp decline
Investments in start-ups recorded a drop in 2016 after the
(45 deals in 2017 vs. 80 deal in 2016 vs. 169 deals in 2015).
record highs in 2015. This was driven primarily by a greater
than 50% decline in the number and value of e-commerce deals
following valuation concerns as e-commerce firms struggled Exhibit 13: Start-up deals in India 2014–17
to contain their cash burn amid intense competition. Start-
up funding had peaked in 2015, recording US$4.8 billion of
invested PE/VC capital across 454 deals. Of this, investments 600
454
in e-commerce accounted for more than 40% of both deal value 4.0 312
300 400
and volume. 253
The tide, however, seems to have turned with new sectors of 2.0
200
interest emerging in financial services and logistics. Financial 1.7 4.8 2.1 3.5
services recorded 52 start-up funding deals worth US$564 - 0
million in 2017 compared to 28 deals worth US$230 million 2014 2015 2016 2017
in 2016. Similarly, logistics received US$649 million in
investments across 14 deals in 2017 compared to US$124 US$ billion # of deals
million across 12 deals in 2016.
E-commerce continued to be the sector to receive the largest
amount of start-up funding at US$819 million, of which

IV. Buyout and credit deals lesser than 2016 but
Exhibit 14: Buyouts deals in India 2014-17
remain strong emerging trends
Buyout and credit deals moderated from the highs of 2016. In 6.0 40
29
value terms, buyouts declined by 20% and credit deals by 18% 25
23 30
in 2017 compared to the previous year. Nonetheless, the deal 4.0
activity in buyout and credit deals continues to remain robust. 11 20
Despite the decline, buyouts are more than three times the 2.0
10
value in 2014 and credit deals are at almost four times the 1.3 3.0 3.9 3.2
corresponding value in 2014. - 0
2014 2015 2016 2017
Since 2015, buyout deals have gained in prominence both
in the number and size of deals, in line with the global trend, US$ billion # of deals
reinforcing the fact that there is growing confidence among
funds to undertake large control transactions in emerging Source: EY analysis of VCC Edge data
markets. This is also evident from growing allocation of capital
toward India by large global pension and sovereign funds as
noted earlier. Five out of the top 25 deals in 2017 were buyout
deals.
Exhibit 15: Top buyout deals in 2017

Target Amount Deal stake Investment Target sector Investor
(US$ million) % month
IndoSpace 500 100 May-17 Real estate CPPIB
Carnival's Chandigarh Property 340 100 Jul-17 Real estate Blackstone
Aegis Limited 275 100 Apr-17 Technology Capital Square Partners
Hindustan Powerprojects 250 100 Apr-17 Power and utilities Macquarie Group
Private Limited
Karvy Computershare Limited 240 83 Aug-17 Financial services General Atlantic
Credit/Structured debt as a mode of funding, which emerged as

a new trend in 2016, continued into 2017, with the majority of Exhibit 16: Credit deals in India 2014–17
credit deals taking place in the real estate sector. While these
deals provide healthy returns with downside protection to the 4.0 65 80
57
investors, they have emerged as a viable means of financing 3.0 60
for the cash-strapped real estate sector in addition to the plain 35
2.0 24 40
vanilla bank financing option. The largest credit deal in 2017
was the mezzanine debt funding provided by Piramal and APG 1.0 20
1.1 2.9 2.5
Asset Management worth US$300 million to Mytrah Energy. 0.6
- 0
Credit deals by PE-investor-backed platforms are expected
2014 2015 2016 2017
to increase with many investors showing interest in acquiring
distressed assets and stressed loan portfolios from banks in US$ billion # of deals
wake of the resolution ecosystem put in place by the new IBC.

V. 2017 was a good year for Growth and PIPE VI. Investments rise across most sectors with
investments the traditional favorites receiving a record level of
investments
While 2017 saw investment value increase significantly
across the major deal segments of growth, start-up and PIPE All the major sectors recorded a significant increase in the
compared to 2016, growth capital accounted for more than value of investments in 2017 compared to the previous year.
50% share of the total value invested. 2017 was the best year It was the best year in terms of the value of investments for
for growth capital, with US$13.5 billion invested across 159 most sectors. In 2017, sectors like financial services, real
deals, more than twice the value recorded in 2016. As noted estate, e-commerce, technology, retail and consumer products,
earlier, large investments by Softbank and Canadian pension and healthcare recorded the highest ever investments by
funds contributed significantly to the surge in growth capital PE/VC investors in India, together accounting for 74% of all
investments. investments made during the year. Except for technology,
which recorded a decline of 10%, all the other sectors
Likewise, 2017 was also the best year for PIPE investing, with
mentioned above grew by over 50% in terms of value.
US$3.8 billion invested across 42 deals, more than a two-fold
increase in value compared to 2016. KKR and CPPIB’s US$956 Apart from these, sectors such as logistics, power and utilities
million investment in Bharti Infratel for a 10.3% stake was and food and agriculture also witnessed good investment
the largest PIPE deal for the year, followed by Bain Capital’s activity in 2017, which we expect to continue in 2018.
US$795 million investment in Axis Bank for a 3.7% stake.
Exhibit 17: Growth deals in India 2014–17 Exhibit 19: Deal value (US$ billion) by sector in
2017 and % contribution to overall value
15.0 213 159 250
200 Others, 4.7, 18%
160 Financial services,
10.0 121 150 Retail and 7.2, 27%
consumer, 0.8, 3%
100
5.0
50 Healthcare, 1, 4%
6.6 8.5 5.7 13.5
- 0 Power and Real estate,
2014 2015 2016 2017 utilities, 1.3, 5% 5.0, 18%
Technology, 1.8, 7%
US$ billion # of deals E-commerce, 4.7, 17%
Exhibit 18: PIPE deals in India 2014–17 Exhibit 20: Deal value (US$ billion) by sector in
2016 and % contribution to overall value
4.0 80
61
Others, 4.1 , 25% Real estate,
3.0 60
42 42 3.2, 20%
34
2.0 40
Healthcare, Financial
1.0 20 0.6 , 4% services,
1.6 2.3 1.6 3.8 2.5 , 16%
- 0 Infra, 0.7 , 4%
2014 2015 2016 2017 E-commerce, Technology, 2.0 , 12%
1.5 , 9%
US$ billion # of deals Telecom,1.6 , 10%

In line with the historic trend, the top five funds contributed
Exhibit 21: Deal volume by sector in 2017 more than 50% of the total funds raised, indicating a
Technology, preference for experienced GPs with a track record of
Others, 128, 22% 121, 20% performance. In fact, only US$926 million was raised by first-
time managers. There were 15 fund raises by Indian PE/VC
Healthcare, funds aggregating to US$2.4 billion in 2017. From a sector
37, 6% perspective, sector-agnostic funds comprised 60% of total
Financial value of funds raised by PE/VCs in 2017.
Retail and services,
consumer, 37, 6% 112, 19%
Exhibit 23: Funds raised and announced
Food and agri, E-commerce,
47, 8% Real estate 60, 10% (US$ million)
53, 9%
Source: EY analysis of VCC Edge data 2017 14,075 5,774
Exhibit 22: Deal volume by sector in 2016
Others, Technology, 2016 21,548 4,313

151 , 26% 114 , 19%
Food and agri, Announced Raised

E-commerce,
27 , 5%
91 , 15%
Retail and
consumer, 28 , 5%
Financial services,
72 , 12% Exhibit 24: # of funds raised and announced
Healthcare, 35 , 6% Real estate,
70 , 12%
Source: EY analysis of VCC Edge data 2017 68 44
VII. Increased investment activity expected to

continue in 2018 as investor sentiment remains
upbeat 2016 75 41
The year witnessed US$5.8 billion of new funds raised by PE/

VCs, an increase of nearly 34% compared to 2016 (US$4.3
Announced Raised
billion). Kedaara topped the charts with a sector-agnostic fund
of US$750 million. This was followed by a US$600 million fund Source: EY analysis of VCC Edge data
raised by Chryscapital’s seventh sector-agnostic fund, and
HDFC Capital’s US$550 million real estate fund.
Even globally, from CVC in Europe to Apollo Global

Management in the US, private equity funds have rapidly
raised record-sized funds backed by institutional and sovereign
investors who are chasing high returns in a low-interest rate
environment. As an example, Saudi Arabia’s large allocation
toward alternative assets contributed to the creation of
SoftBank’s US$100 billion Vision Fund, which made close to
US$5 billion worth of investments in India in 2017 alone.

Exhibit 25: Top 10 fund raises by PE/VCs during 2017
Amount
Name of the fund Month Sector focus
(US$ million)
Kedaara 750 Sep-17 Sector agnostic
ChrysCapital fund VII 600 Feb-17 Sector agnostic
HDFC Capital 550 Dec-17 Real estate
Morgan Stanley 450 Sep-17 Infrastructure
Edelweiss Special Opportunities Fund (ESOF) II 350 Apr-17 Sector agnostic
SAIF 350 Jul-17 Sector agnostic
CX Partners 250 Nov-17 Sector agnostic
Madison India 230 Sep-17 Sector agnostic
Lighthouse’s third fund 200 Dec-17 Sector agnostic
ICICI Venture: India Advantage Fund Series 4 (IAF4) 160 Feb-17 Sector agnostic
Sector Insights The investment sentiment for financial services has been
further bolstered by successful Initial Public Offering (IPO)
As noted earlier, 2017 was the best year for most of the top exits such as that of ICICI Lombard, AU Small Finance Bank,
sectors of interest to the PE/VC industry. With various policy MAS Financial Services and BSE. In fact, ICICI Lombard was the
measures targeted at these sectors, coupled with the high largest exit by a PE/VC fund in India via the IPO route, which
levels of dry powder at hand, we expect the momentum to saw Fairfax selling its 12% stake for US$558 million.
continue into 2018 as well.
Exhibit 26: Deals in the financial services sector

Financial services 8.0
in India 2014–17 112 120
100
6.0 72
Financial services emerged as the top sector for PE/VC 64 80
investments in 2017, overtaking real estate from last year. 4.0 45 60
Investments in financial services at US$7.2 billion were almost 40
three times that of last year. The Government’s demonetization 2.0
2.9 20
drive in November of 2016 with an intent to move to a “less 1.1 2.5 7.2
- 0
cash” economy helped accelerate the adoption of FinTech,
2014 2015 2016 2017
not only for payments but also for other financial services.
Concerted efforts by the Government in pushing financial US$ billion # of deals
sector reforms through measures such as Jan-Dhan Yojana
and BHIM app to promote digital and financial literacy, and
structural reforms such as bank recapitalization, revision of
FDI cap for banks and the IBC have gone a long way in driving
investments into the sector.
In addition to deals in the FinTech, microfinance and NBFC

spaces, this year also saw deals in the insurance and housing
finance sector, with deals such as the US$383 million
investment in ICICI Lombard by Warburg Pincus, Clermont and
others, US$113 million investment in Can Fin Homes by GIC
and True North’s investment of US$100 million in Home First
Finance.

Exhibit 27: Top deals in the financial services sector in 2017
Target Amount Deal stake % Investment Financing Investor
(US$ million) month stage
Paytm 1,400 NA May-17 Growth SoftBank
Axis Bank Limited 795 3.7 Dec-17 PIPE Bain Capital
ICICI Lombard General Insurance 383 12.2 May-17 Growth Warburg Pincus,
Company Limited Clermont Group, IIFL
HDFC Standard Life Insurance 356 NA Nov-17 PIPE UC-RNT Fund, other
Company Limited anchor investors
Kotak Mahindra Bank Limited 342 1.5 Mar-17 PIPE CPPIB,CDPQ
SBI Cards and Payments 325 26 Dec-17 Growth Carlyle

Services Private Limited
rentals, superior quality buildings in central business districts

Real estate (CBDs), secondary business districts (SBDs), and peripheral
business districts (PBDs) are likely to see maximum “REITable”
assets. According to a report by JLL,7 close to 283 million sq.
The real estate sector saw significant investment activity
ft. of office space in India is “REITable,” a large proportion
in 2017. Despite a slowdown in residential sales amidst the
of which is already held by PE/VC funds and their portfolio
overhang of RERA implementation, PE/VC funds remained
companies. Embassy Office Parks, an investment partnership
bullish on the real estate sector, which garnered PE investments
between Embassy Group and Blackstone Group, has received
worth US$5.0 billion in 2017. This was primarily driven by
SEBI registration for a US$600 million REIT, which includes
investor interest in yield-generating commercial assets. Four
a clutch of marquee office parks, namely, Embassy Manyata
out of the top five investments in the real estate sector in 2017
Business Park and Embassy GolfLinks in Bengaluru, measuring
were into commercial real estate. Investments in the residential
more than 20 million sq.ft of office space.8 Blackstone, which
real estate space were mostly debt and mezzanine in nature,
owns the largest portfolio of office assets in India, has invested
providing a viable alternative to cash-strapped developers as
about US$2.7 billion over the last decade in the Indian real
banks shied away from lending to developers.
estate sector.9 Canadian pension funds have also been active
As mentioned earlier in the report, interest from sovereign investors in the Indian real estate and infrastructure sector.
wealth funds and pension funds in the Indian real estate and A total of US$951 million was raised by real estate focused
infrastructure space has also greatly helped the cause, with funds in 2017 on the back of US$981 million raised in 2016.
these funds contributing close to US$2 billion of the total funds
invested by PE/VCs in the real estate sector in 2017. GIC’s
investment of US$1.4 billion for a 33% stake in DLF’s rental arm Exhibit 28: Deals in the real estate sector
is the largest investment in the Indian real estate sector till date. in India 2014–17
6.0 81 100
The Government’s focus on bringing in enabling reforms
5.0 70 80
such as RERA to the sector has bolstered the confidence of
4.0 54 53
both consumers and investors alike. Also, after according 60
infrastructure status to affordable housing in 2017, the 3.0
40
Government has announced plans to launch a dedicated 2.0
affordable housing priority sector fund under the National 1.0 2.1 20
3.4 3.2 5.0
Housing Bank (NHB) in the 2018 Budget. These measures will - 0
go a long way in boosting investor sentiment toward the sector. 2014 2015 2016 2017
Further, the Government’s support to new investment avenues
such as real estate investments trust (REIT) funds will add to the US$ billion # of deals
sector’s attractiveness. With declining vacancies, and improving
7 http://www.realtynmore.com/wp-content/uploads/2017/08/Pulse_June_2017.pdf
8 https://economictimes.indiatimes.com/industry/services/property-/-cstruction/embassy-to-list-select-office-assets-via-reit/articleshow/59173640.cms
9 https://www.dealstreetasia.com/stories/blackstone-gic-top-global-real-estate-investors-in-india-66433/

Exhibit 29: Top deals in the real estate sector in 2017
Target Amount Deal Investment Financing Investor
(US$ million) stake % month stage
DLF Cyber City Developers Limited 1,390 33 Aug-17 Growth GIC
IndoSpace 500 NA May-17 Buyout CPPIB
Carnival's Chandigarh Property 340 100 Jul-17 Buyout Blackstone
Phoenix Group, Marvel Group and Jatia Group 196 NA Mar-17 Growth Altico Capital
Shriram Properties, IT SEZ 190 100 May-17 Buyout Xander
E-commerce Exhibit 30: Deals in e-commerce sector in India

2014-17
5.0 186 200
E-commerce, with investments of US$4.7 billion in 2017
rebounded from the lows of US$1.5 billion recorded last year, 4.0 150
supported by two large deals made by Softbank worth US$3.6 3.0 91
billion. In the absence of these deals, e-commerce would have 72 100
2.0 60
recorded an even lower performance compared to last year.
1.0 50
In wake of the many “me too” kind of e-commerce businesses
3.9 4.2 1.5 4.7
sprouting up and the high valuations, investors are shifting
- 0
their focus on scalability, sustainability and profitable growth. 2014 2015 2016 2017
Consequently, the number and scale of e-commerce deals have
US$ billion # of deals
seen a proportionate decline.
Exhibit 31: Top deals in the e-commerce sector in 2017

Flipkart 2,500 23.6 Aug-17 Growth SoftBank
ANI Technologies Private Limited(Ola 1,100 NA Oct-17 Growth Tencent, Softbank
Cabs)
Oravel Stays Private Limited (OYO Rooms) 260 NA Sep-17 Start-up Lightspeed, Sequoia,
SoftBank and others
Oravel Stays Private Limited (OYO Rooms) 250 15 Apr-17 Start-up SoftBank
ANI Technologies Private Limited (Ola 102 NA May-17 Growth Falcon Edge, UC-RNT
Cabs) Fund
Technology Exhibit 32: Deals in the technology sector in India

2014–17
3.0 152 200
Technology companies received US$1.8 billion of investments 114 121
101
across 121 deals in 2017. The key themes were cloud-based 2.0
100
SaaS solutions, data analytics and mobile apps. Moreover, 1.0
PE/VC funds are showing interest in technology companies, 1.1 2.0 2.0 1.8
- 0
focusing on particular industries, typically financial services
2014 2015 2016 2017
(FinTech), analytics and healthcare. CPPIB topped the list of
technology investors with a US$720 million investment into US$ billion # of deals
Global Logic for a 48% stake.

Exhibit 33: Top deals in the technology sector in 2017
GlobalLogic 720 48 Jan-17 Growth CPPIB
Aegis Limited 275 100 Apr-17 Buyout Capital Square
Druva Software Private Limited 80 NA Aug-17 Growth Sequoia, Nexus, and other investors
Nazara Technologies Limited 79 NA Dec-17 Growth IIFL and others
Markets and Markets Research 56 NA Mar-17 Growth FTV Management, Zodius Capital
Private Limited Advisors
Healthcare Logistics
Healthcare is one of the largest sectors in India and also one Logistics is one sector that is witnessing considerable interest
of the most in need of investments. The total industry size is off late, especially after the passage of GST. Moreover, the
expected to touch US$280 billion by 2020.10 Rising income Government has recently accorded infrastructure status
level, greater health awareness, increased incidence of lifestyle to the logistics sector, covering cold chains, warehousing
diseases and improved access to insurance are expected to facilities and logistics parks, which is further increasing the
be the key contributors to growth. The sector has a huge attractiveness of the sector. Measures like the e-way bill are a
potential for PE/VC investors and is expected to continue to welcome step for the transporters, eliminating the need to visit
drive a considerable amount of investments going forward. In check posts and thereby enabling faster movement of goods
its 2018 Budget, the Government launched one of the world’s and facilitating better utilization of vehicles.
largest healthcare programs, a new flagship National Health
We have already witnessed some large investments made in
Protection Scheme, providing a health insurance cover of
this sector with CPPIB’s buyout of IndoSpace, a developer
INR5 lakh (US$8,000) per family per annum.11 The scheme
of industrial and logistics parks, for US$500 million and a
will cover 100 million vulnerable families, with approximately
commitment to invest another US$600 million. Likewise,
500 million beneficiaries. Initiatives like these provide further
another Canadian pension fund CDPQ has invested US$400
incentive for investors to allocate capital to the Indian
million in a logistics investment and development firm LOGOS
healthcare sector. In 2017, PE/VC funds invested US$1 billion
India to develop and own modern logistics facilities across
across 37 deals, up from US$640 million invested in 2016
cities. These investments could further increase in the coming
across 35 deals.
years given the increasing importance of the sector for the
growth of trade and commerce.
RCP* and Food & Agri
Like healthcare, a couple of other sectors that have seen

favorable interest driven by increasing income levels and
improving lifestyles are retail and consumer products (RCP)
and food and agriculture. RCP witnessed US$797 million in
investments across 37 deals compared to US$636 million
invested across 28 deals in 2016. Food and agriculture related
companies recorded 47 deals in the sector compared to 27 in
2016. The deal size, however, remained on the smaller side
with the largest deal being US$50 million.
* Retail and consumer products

10 https://www.ibef.org/industry/healthcare-presentation
11 https://blogs.economictimes.indiatimes.com/et-commentary/national-health-protection-scheme-now-let-the-meds-kick-in/

03
PE/VC exits cross a
new high
Exits at all-time high on the back of buoyant capital The financial services sector witnessed the maximum
markets number of exits in 2017, followed by technology, real estate
and healthcare. Financial services recorded 51 exits worth
2017 was the best year ever for exits in terms of both value
US$3.9 billion, which was more than 3x growth over 2016.
and volume. The aggregate deal value for PE/VC exits in
Financial Services sector rose by 41.4%12 on the bourses in
2017 was US$13.0 billion. This is almost twice that of the
2017, providing ample opportunities for the PE/VC funds to
previous high of US$6.7 billion achieved in 2016. This strong
exit at good valuations via the open market and IPO routes.
exit activity was driven by open markets and IPOs backed by
There were four PE/VC backed IPOs in financial services: ICICI
buoyant capital markets, which rose by close to 30% in 2017.
Lombard (US$558 million exit by Fairfax), AU Small Finance
Bank (US$234 million exit by Warburg, Kedaara, Chryscapital
Chart 34: Exits in India 2014–17 and IFC), MAS Financial Services (US$35 million exit by Sarva
Capital, NDF and others) and BSE (US$30 million exit by GKFF
15.0 254 259 300 Ventures).
209 250 Buoyant capital markets support record level of exits
10.0 166 200 via open market and IPOs
150
The rise in capital markets in 2017 provided a favorable
5.0 100 environment for open market exits, which recorded a 3.7x
3.4 50 increase over 2016 (US$6.2 billion vs. US$1.7 billion in 2016),
6.5 6.7 13.0
- 0 accounting for 47% of the total PE/VC exits in India. 2017
2014 2015 2016 2017 saw the largest PE/VC exit in India with Qatar Foundation
Endowment selling its 5% stake in Bharti Airtel for US$1.5
US$ billion # of deals billion.
Exhibit 35: Top exits via open market in 2017

Target Amount Deal Investment Target sector Seller
(US$ million) stake % month
Bharti Airtel Limited 1,485 5 May-17 Telecom Qatar Foundation

Endowment
Max Group (Max Ventures and 511 16 Nov-17 Financial services Goldman Sachs
Industries Limited and Max
Financial Services Limited)
Max Financial Services Limited 358 15 Sep-17 Financial services Goldman Sachs
Genpact Limited 294 5 Aug-17 Technology Bain Capital, GIC
Dalmia Bharat Limited 236 8 Apr-17 Cement and KKR

building products
A similar increase was seen in PE/VC backed IPOs in 2017.

Exhibit 36: Open market exits in India 2014–17 There were 20 PE/VC backed IPOs in 2017 with companies
8.0 128 150 raising close to US$3.3 billion compared to 17 PE/VC backed
119 IPOs raising close to US$2.4 billion last year. This is the highest
6.0 96 91 level of PE/VC-backed IPO’s in the last five years and a record
100 for PE/VC-backed IPO exits in which PE/VC funds garnered
4.0 proceeds of almost US$1.8 billion from the offer for sale
50 compared to US$913 million in 2016. ICICI Lombard’s IPO of
2.0
~US$891 million was the largest ever PE/VC-backed IPO in
2.5 2.4 1.7 6.2
- 0 India, which also saw one of the biggest exits via an IPO by a PE/
2014 2015 2016 2017 VC fund, with Fairfax selling its 12% stake for US$558 million.
IPOs recorded a five-year high in 2017, with 182 companies

US$ billion # of IPOs
raising US$12.1 billion, almost three times the amount raised in
Source: EY analysis of VCC Edge data 2016.12
12 as per NIFTY Financial Services index which includes banks, financial institutions, housing finance and other financial services companies
13 Chittorgarh.com,moneycontrol.com,bseindia.com,nseindia.com

Exhibit 37: Exits by PE/VC funds via IPOs in India
2014–17
2,000 25
20
17 20
1,500 15
15
1,000
10
500 3
192 5
913 1,788
36
- 0
2014 2015 2016 2017
OFS by PE/VC (US$ million) # of IPOs
Exhibit 38: Exits via IPO in 2017

Target Exit amount Exit Target sector Seller
(US$ million) stake %
ICICI Lombard General Insurance 558 12 Financial services Fairfax

Company Limited
AU Small Finance Bank Limited 234 21 Financial services Kedaara, IFC, Warburg Pincus
and ChrysCapital
Eris Lifesciences Limited 200 16 Pharmaceuticals ChrysCapital
Indian Energy Exchange Limited 94 12 Power and utilities Aditya Birla Capital, Multiples and
others
Godrej Agrovet Limited 88 6 Food and agriculture Temasek
Future Supply Chain Solutions 81 20 Logistics SSG Capital

Limited
Matrimony.Com Limited 78 15 E-commerce Mayfield, Bessemer and others
Khadim India Limited 68 33 Retail and consumer Reliance Alternative Investments

products Fund
Mahindra Logistics Limited 65 14 Logistics Kedaara Capital
Dixon Technologies India Limited 53 17 Power and utilities India Business Excellence Fund-I
S Chand and Company Limited 48 14 Education Everstone Capital
Security and Intelligence Services 42 5 Business services CX Capital

India Limited
Shankara Building Products 39 25 Industrial products Reliance Alternative Investments

Limited Fund
Tejas Networks Limited 37 11 Technology Cascade Capital, Intel Capital and

others
MAS Financial Services Limited 35 9 Financial services DEG, Netherlands Development

Finance Co. and Sarva Capital

Exhibit 38: Exits via IPO in 2017 (Cont’d)
Target Exit amount Exit Target sector Seller
(US$ million) stake %
BSE Limited 30 2 Financial services GKFF Ventures
Prataap Snacks Limited 26 8 Food and agriculture Sequoia
CL Educate Limited 9 8 Education Gaja Capital and others
Jash Engineering Limited 3 15 Industrial products Pragati India Fund
Capacit’e Infraprojects Limited NA NA Infrastructure No offer for sale by PE fund

Paragon
Exhibit 39: PE/VC-backed IPOs in the pipeline filed with Securities and Exchange Board of India (SEBI)
Company name PE investor Sector
Atria Convergence Technologies Kilimanjaro Credit Fund, Olympus Capital, Technology

Limited TA Associates , True North
IndoStar Capital Finance Limited Everstone, Goldman Sachs and others Financial services
TCNS Clothing Company Private TA Associates Retail and consumer products

Limited
AGS Transact Technologies Limited Actis Advisers, TPG Growth Technology
Nazara Technologies Limited IIFL, Westbridge Technology
CMS Info Systems Limited Baring Private Equity Asia Technology
Hinduja Leyland Finance Limited Everstone Capital Partners Financial services
Barbeque Nation Hospitality Limited Clearwater and CX Partners Food and Agriculture
John Energy Limited Singhi Advisors, Sage Capital Power and Utilities
Krishna Institute of Medical Sciences Quadria Capital and ICICI Ventures Healthcare
Capricorn Food Products India Quadria Investment Management Food and agriculture
Limited
Seven Islands Shipping Limited Wayzata Investment Partners Logistics
Gandhar Oil Refinery India Limited IDFC Oil and gas
Source: SEBI website

Note: There are close to 15 other PE backed companies that are planning to file DRHPs in 2018

Secondary exits gain traction Exhibit 40: Exits via secondary sale in India
Apart from favorable capital markets, strong interest in the 2014–17
4.0 44 50
Indian markets by global pension and sovereign funds as
well as big bracket PE/VC funds has further helped provide 3.0 32 40
favorable exit opportunities to early investors into India. As a
23 30
result, like open market and IPOs, exits via secondary sale also 2.0 18
recorded an all-time high of US$3.4 billion across 44 deals, 20
which was almost a seven-fold increase in value compared to 1.0 1.4 10
2016. Investments made by Softbank, CPPIB and other large 0.1 0.5 3.4
buyout funds contributed to this rise. Five out of the 10 largest - 0
secondary exits in India happened in 2017. This has enhanced 2014 2015 2016 2017
the credibility of the India investment story, as larger funds US$ billion # of IPOs
are willing to take on bigger bets at rich valuations, bring in
the required capitalization while providing an exit to early
investors.
Exhibit 41: Top exits via secondary sale in 2017

Target Amount Deal Investment Target Seller Investor
(US$ million) stake % month sector
Flipkart 800 NA Aug-17 E-commerce Tiger Global SoftBank
Vision Fund
Globallogic 720 48 Jan-17 Technology Apax CPPIB
ICICI Lombard 383 12 May-17 Financial Fairfax Warburg

General Insurance services Pincus,
Company Limited Clermont
Group and IIFL
Capital First Limited 275 25 May-17 Financial Warburg Pincus GIC and others
services
Mytrah Energy India 270 NA Sep-17 Power and Apollo Global, Piramal and
Private Limited utilities Goldman Sachs, APG
IDFC Alternatives
and others
Strategic exits moderate from the Indian has traditionally witnessed few large strategic exits
due to the kind of PE/VC investments, which has been
highs of 2016 predominantly growth-oriented minority holding and the
In 2017, M&A-driven exits recorded a significant decline with reluctance of promoters to sell out completely and give up
exits worth US$881 million across 42 deals in 2017 compared control. This is, however, changing slowly, with buyouts finding
to US$2.7 billion worth of M&A exits across 55 deals in 2016 favor among Indian promoters for various reasons. We have
and US$2.1 billion across 73 deals in 2015. While each of the previously discussed the growing number and value of buyout
previous two years had witnessed a US$1 billion-plus strategic deals in an earlier section of the report. Also, with many Indian
exit deal, the biggest exit in 2017 was worth US$246 million, in companies looking to deleverage balance sheets, the focus
which Bharti Airtel purchased the 4G business of Tikona Digital is on consolidation, restructuring and asset sales. This, along
from IFC, Goldman Sachs and others. with an added push from banks after the IBC, is likely to drive
increased M&A activity this year.

Exhibit 42: Strategic exits in India 2014-17
3.0 73 80
2.5 55
60
2.0 42
1.5 26 40
1.0
20
0.5 0.5 2.1 2.7 0.9
- 0
2014 2015 2016 2017
US$ billion # of deals

Moreover, just as the market attractiveness of India has

gone up in the eyes of global LPs, foreign corporates are also
keen to enter the Indian market and are on the lookout for
inorganic expansion opportunities. We witnessed some large
strategic exit deals in 2016 (Yokohana/ATG and Fosun/Gland
Pharma) and with the stock of large companies with PEs having
controlling stake piling up, we at EY India are overweight on the
chances of some large strategic exits in 2018.

04
Distressed Assets
- an opportunity for PE?
Last year, a new regulation called the Insolvency and loans in the absence of a workable resolution framework
Bankruptcy Code was promulgated by the Government of India in sight. In less than a year, IBC has already engulfed into
to help resolve the stress faced by the Indian banking sector its ambit an impressive amount of US$45 billion of non-
on account of Non Performing Assets (‘NPAs’). This regulatory performing assets comprising, inter-alia, assets among the
change has thrown open a new asset class – Distressed Assets – 30-40 largest borrowers, owing to the RBI selecting the large
for PE funds investing in India. cases to be referred to IBC. Another salvo from RBI’s recent
circular of withdrawing all extant restructuring schemes may
Introduction to IBC - the first year push another substantial amount of NPAs into IBC in the
next 6-12 months — all of it in anticipation of the corporate
IBC is one of the most important economic and corporate
insolvency resolution process (CIRP) culminating into a viable
regulatory reforms in the recent past, second only to the GST.
resolution process.
It came in at a time when the asset bubble had all but burst
and the Indian banking system was struggling to deal with the IBC came in the backdrop of an impending NPA crisis, RBI’s
surging NPAs in absence of a workable resolution framework. ongoing efforts to resolve stress by providing resolution
Until IBC was introduced, the erstwhile restructuring frameworks within its powers, and sector-specific stress ailing
mechanisms under circulars issued by the the Reserve Bank of several companies in stressed sectors. IBC promised time-
India (RBI), inter-alia including Corporate Debt Restructuring bound resolution through a “creditors-in-control” regime.
(CDR), Strategic Debt Restructuring (SDR), 5/25 scheme and Riding on this promise, more than 600 cases have been
Scheme for Sustainable Structuring of Stressed Assets (S4A), admitted into CIR process. The speed reflects the urgency to
had failed to make the headway that these schemes were resolve the NPA crisis and the stakeholders’ faith in the new
supposed to. law. However, will IBC be as effective as it had been intended
remains a question.
Just over a year ago, there was limited clarity over the
impending US$150 billion (as per certain estimates) of bad
Timeline of key events around stress asset market:
Apr14 Jun16 Jul16 Feb18
Joint Lenders’ Forum (JLF) National Company

S4A scheme was RBI withdraws existing
mechanism introduced by Law Tribunal (NCLT)
introduced by RBI restructuring guidelines
RBI notified
Jul14 May16 Dec16 Dec17

IBC code passed by Corporate insolvency Listing of security
5/25 scheme introduced by Parliament but not and other enabling receipts (SRs) of Asset
RBI notified; 100% FDI provisions of IBC Reconstruction Company
allowed in ARC notified (ARC) allowed
Aug14 Mar16 Jan17 Nov17

Bankruptcy Law Reforms Stressed asset touched
First CIRP case IBC amended:
Committee (BLRC) formed; 11.5%
admitted by NCLT now also applicable to
RBI revised from 5/95 to (Gross NPA +
under IBC personal guarantors; sec29A
15/85 structure for ARC sale Retructured advances)
inserted to disqualify certain
delinquent promoters
Jun15 Mar16 Mar17
SDR scheme introduced by No new cases referred Stressed asset remains Aug17
RBI to CDR in FY16 at 12%
Banking Regulation act
amended to widen RBI’s
power to direct lenders for
Sep15 Nov15 Jun17 resolution under IBC;
RBI identifies 21 large cases
RBI identifies 12 large
asset quality review exercise Final report and draft for IBC; 1st resolution plan
cases to be resolved
started by the RBI bill submitted by BLRC approved by NCLT in case of
under IBC
Synergy Dooray

Harmonization with IBC – other key CIR process under IBC and key tenets
regulatory updates of IBC
• Ordinance preventing certain promoters from bidding– • On the occurrence
the insertion of section 29A by a recent amendment, of a default, a Resolution process
inter-alia, makes certain persons (including the promoter/ financial creditor or
management group as well as certain other persons) operational creditor
Default
ineligible to submit a resolution plan, with an intent to keep or corporate debtor
out such persons who, inter-alia, could have potentially (CD) may file for the
willfully defaulted and are associated with NPAs > 1 year. commencement of Appointment of a
CIRP with NCLT. resolution professional
• Withdrawal of existing RBI restructuring norms – RBI
has recently withdrawn all of its extant restructuring • With effect from the Moratorium period
guidelines, viz., CDR, SDR, S4A etc., and introduced a date of NCLT order (180/270 days)
revised framework to align the restructuring effort with to commence CIRP,
IBC. Basis this framework, companies that are delinquent the board of directors Formation of Committee
will be given a 180-day period to implement a resolution (BoD) gets suspended of Creditors
plan, failing which the company will be taken to IBC. There and all powers are
are other provisions around pre-approval by credit rating vested with the interim
75% of
agencies and sustainability of the plan. resolution professional
the creditors to
(IRP). who is appointed approve
• Banks’ recapitalization – the Government had already No
by NCLT for a 30-day
infused INR250 billion in each of FY16 and FY17 as part Yes
period.
of the Indradhanush plan of infusing INR700 billion by Implement the resolution
FY19. In addition to this, the Government has announced a • IRP constitutes plan
comprehensive recapitalization plan of INR2.11 trillion. Committee of
Creditors (COC), which
• Changes in Budget 2018 – the Finance Bill, 2018 has Goes into liquidation
may retain or replace
introduced amendments in respect to Minimum Alternative
the IRP as resolution
Tax (MAT) computations, carry forward of losses and
professional (RP). The
unabsorbed depreciations u/s 115JB and u/s 79 of the
COC would make or ratify all decisions with a majority of
Income-tax Act, 1961.
75% voting rights.
• Listing of security receipts of ARC’s – SEBI, in December
• COC comprises financial creditors (FCs) or operational
2017, allowed listing of SRs issued by the ARC. It has also
creditors (OCs) (where there are no financial creditors).
relaxed certain entry norms for foreign portfolio investors
(FPIs). • Each FC or OC needs to claim the amount due from the CD
as at the date of the order.
• Amendment in Companies Act – the Government
had notified the Companies (Amendment) Act, 2017, • The corporate debtor is managed by the RP during the CIR
which brings key revisions, including issue of shares at a process reporting to the COC.
discount.
• During CIRP, the company is under moratorium and
The impact of all these amendments is a reduction in the protected from all legal actions so that all stakeholders can
ambiguity involved for the various aspects that IBC entails, focus on maintaining a going concern while a resolution
be it operational matters, legal matters or transaction-related plan is finalized.
aspects, which may have the potential to derail the IBC process.
• The resolution under IBC is a time-bound process, i.e.,
The harmonization from a regulatory perspective is key in
within 180 plus 90 days (subject to an extension granted
instilling investor confidence in the process, which we hope
by the Hon’ble NCLT).
will allow investors to move optimistically forward with the
assurance that regulators are taking a practical view of things • RP has to invite potential resolution plans and have them
and are keen on making IBC a success. approved by CoC and the Hon’ble NCLT.
• Liquidation value to be provided to stakeholders only after

the receipt of resolution plans.
• Each resolution plan has to comply with certain minimum

conditions as stipulated in IBC.

• Resolution plan can be submitted by anyone subject to It, therefore, remains a pertinent issue that the consummation
certain exclusions in the law and the eligibility criteria set of distressed debt transactions is easier said than done,
by the COC. whether in IBC or otherwise, owing to various bottlenecks
including diligence delays, lack of information availability, exit
• Certain delinquent promoters not allowed to submit
of key personnel on CIRP commencement and other legal/
resolution plan (inter-alia, if willful defaulters or account is
commercial aspects.
NPA > 1 year etc.).
In case the liquidation value is too low, it makes negotiations
• In case a resolution plan is not finalized and approved by
tougher for the banks and therefore a disincentive to prefer IBC
the NCLT, the company will go into liquidation.
as a resolution option. However, with IBC being a transparent
• Cross-border insolvency framework is yet to be framed. platform for bidders, the final pricing will be determined by
market factors and what interested investors are willing to
• RBI has shelved the extant restructuring guidelines and
pay. With the recent amendment in regulations, the liquidation
replaced it with a revised framework to harmonize the
and fair value shall be disclosed to COC members only after
restructuring with the IBC norms, failing which CIRP can be
receipt of resolution plans, the potential intent being to arrive
commenced in case of the CD.
at the most appropriate value for the asset in the transaction
process, without being influenced by the valuations. This said,
Abundant opportunity for private higher recovery shall continue to be a challenge for the bankers
capital seeking to invest in stressed and the threat of major haircuts looms large. The ongoing
deluge of bids being invited under IBC is an opportunity which
asset class could easily be leveraged by a global PE to enter India and/or
The time-bound resolution framework in IBC and risk of consolidation of sector-specific holdings within a PE portfolio.
liquidation is expected to ensure that there are significant On the resolution plan aspect, the process under IBC is yet to
assets on sale and at appropriate valuations. While banks are mature, and many bid plans may not fructify due to impending
keen to clean their balance sheets and recover as much as legal clarifications or indecisiveness of the COC.
possible from delinquent assets, most viable IBC cases may
In anticipation of the opportunity to invest at right valuations,
result in a new investor coming on board. Recent amendments
PE funds have launched several stressed asset dedicated funds
have clarified that a certain set of promoters (including,
aggregating ~US$4 billion in the past two years, some of which
inter-alia, willful defaulters, NPA assets with NPA >= 1 year
are listed in the table below:
etc.) cannot bid for the assets under IBC. While the jury is out
on whether the ordinance will benefit the process or not, it Exhibit 43: Indicative list of distressed debt funds
definitely reduces competition from a bidder perspective. launched in last two years
Many other global private equity funds, including KKR and Investors Launch date Approximate fund
Co., SSG Capital Management, Blackstone and International size
Finance Corp. (IFC) have also acquired stakes in existing ARCs,
while US-based JC Flower and Indian Investment banker Ambit Brookfield July 2016 US$1,040 million
Holdings have formed a JV and launched an ARC. Separately, Piramal group and August 2016 US$1,000 million
we are seeing a very keen interest in acquiring these assets Bain Capital
from global PE players including AION Capital, Deccan Value
International and Liberty House Group. AION- Apollo and August 2016 US$825 million
ICICI
The kick-off of the auctioning of the 12 large cases referred by
RBI has already attracted interest from several large and small Lone Star and February 2017 US$550 million
PE investors, which are in the advanced stages of negotiation. IL&FS
PE investors are trying all combinations: direct investment, tie-
CPPIB and Kotak January 2016 US$525 million
up with strategic buyers etc.
Mahindra*
The transaction perspective – SREI Alternative February 2016 US$300 million
Commercial and Legal Investment
The law is still in a nascent stage and has yet to yield the results JM Financial July 2016 US$300 million
expected. As the interpretation and implementation of the law * The JV is reportedly called off. But Kotak will go alone to invest in the market
is evolving, several complexities are cropping up including legal and CPPIB may invest on a case-to-case basis.
and operational challenges in resolving the stress. Source: News reports

Despite the bottlenecks, the resolution process in the 12 large cases has galloped ahead under the IBC and is near completion
(Refer status in Exhibit 44 below).
Exhibit 44: Status of 12 cases of RBI list and investors’ interest

S Name of Company Debt Initiated by Initiated on Bids Received from Shortlisted Bidder,
no. (US$ subject to approval
billion) by NCLT (where
applicable)
1 ABG Shipyard 1.71 ICICI Bank 01.08.2017 Liberty House Liberty House
Limited Group
2 Alok Industries 3.30 SBI 18.07.2017 RIL jointly with JM Financial ARC
Limited
3 Amtek Auto Limited 1.98 Corporation 24.07.2017 Liberty House Group, Deccan Liberty House
Bank Value Investors Group
4 Bhushan Power & 6.60 PNB 26.07.2017 Tata Steel, JSW, Liberty House
Steel Limited Group
5 Bhushan Steel 7.40 SBI 26.07.2017 Tata Steel, JSW Tata Steel
Limited
6 Electrosteel Steels 1.30 SBI 21.07.2017 Tata Steel, Vedanta, Edelweiss
Limited and Renaissance Group
7 ERA Infra 1.04 Prideco 12.04.2017 N.A (Insolvency Application not
Engineering Limited Commercial admitted)
Projects
Private
Limited
8 Essar Steel India 5.30 SBI 02.08.2017 Numetal Group, Arcelor Mittal
Limited
9 Jaypee Infratech 1.44 IDBI 09.08.2017 Multiple bids including JSW
Limited group, Adani group, Suraksha
ARC, Deutsche Bank, Jaiprakash
Associates, Jieyang Zhonguci (a
Chinese company)
10 Jyoti Structures 0.82 SBI 04.07.2017 Sharad Sanghvi and Kedar Capital
Limited
11 Lanco Infratech 1.00 IDBI 07.08.2017 OPG Group, Prem Energy, Goyal
Limited Group and Diva Group
12 Monnet Ispat and 1.08 SBI 18.07.2017 JSW steel along with AION Capital JSW steel along
Energy Limited with AION Capital
(Subject to legal
vetting by CoC)
Source: News reports (Note that no independent verification of above information has been undertaken and is purely basis publicly available information)
From a PE investor perspective, IBC continues to present a closure. The shortened time period leads to a fair amount of
big opportunity for potential acquisitions across the industry risk, which will have to be carefully evaluated prior to closing
spectrum, with specific entry opportunities for global PEs into such deals. The time period limitations and challenges from an
India. However, the value drivers in each business need to be information perspective etc. will require appropriate diligence
evaluated carefully and in detail. from investors.
Further, the time period to evaluate and execute a deal is fairly

limited, anywhere between 3 and 6 months, from inception to

Exhibit 45: List of additional 21 assets proposed The way forward for investors
by RBI for CIRP The success of IBC hinges upon the successful resolution plans
# Name of the company being finalized and their implementation in a manner that
it is a win-win for all stakeholders. The objective of the new
1 Videocon Industries Limited framework, before a company is taken to IBC, is to salvage
companies that are worthy of turnaround and thereby protect
2 Visa Steel Limited
institutional capital.
3 IVRCL Limited
The Government on its part is trying its best to create a
4 JaiPrakash Associates Limited cohesive ecosystem that is fair, transparent and business-
friendly; the regulators are responsive to ironing out difficulties
5 Ruchi Soya Industries Limited
faced by stakeholders; and newer economic policies are
6 Uttam Galva Steel Limited being implemented to boost growth across all stressed and
non-stressed sectors. This is clearly evident from the series
7 Unity Infraprojects Limited of amendments across the legal spectrum to maintain/
8 Uttam Galva Metallics Limited achieve consistency. While this may take some time to achieve
completely, the direction is right. This is also in keeping with
9 Bilt Graphic Paper Products Limited the Government’s push toward enhancing ease of doing
business in India, which has hitherto been wanting. IBC and
10 Coastal Projects Limited
other regulatory modifications are additionally an effort to
11 Jayaswal Neco Industries Limited enhance transparency and ensure that creditors’ interests are
safe.
12 SEL Manufacturing Company Limited
The existing banking NPA stress on the economy is substantial
13 Essar Projects India Limited
and so is the opportunity for investors. The debt market and
14 Asian Color Coated Ispat Limited stressed asset market are poised to expand and organize once
the first phase of IBC is complete and the ball is rolling.
15 Soma Enterprise Limited
The next 9 to 12 months will be dominated by the 30-40 cases
16 East Coast Energy Priivate Limited undergoing/completing the CIRP. Subsequent to these 12
17 Nagarjuna Oil refinery Limited months, while there would be an easing in the size of assets
undergoing IBC, it would still require anywhere between 48
18 Castex Technologies Limited and 60 months to effect a substantial clean-up of the bad
loans. This is critical so as to commence the next phase of
19 Orchid Pharma Limited
investment/growth lending, particularly in the infrastructure
20 Jai Balaji Industries Limited lending space.
21 Wind World (India) Limited The sheer size of assets on sale under IBC warrants notice
from global and domestic investors. There are abundant assets
Source: News reports (While certain news reports suggested an additional 28
and more for both financial and strategic investors. With
large accounts highlighted by RBI, for CIRP initiation, list above presents 21
names basis publicly available information) improved liquidity, legal transparency, ready market and time-
Note that no independent verification of above information has been undertaken
bound systems in place, the ball is in the court of bankers and
and is purely basis publicly available information investors to leverage the platform that IBC offers.

05
The evolving regulatory
and policy framework
From a tax and regulatory perspective, the calendar year 2017 company in the accumulated profits of the amalgamated
was very eventful to say the least. From a tax standpoint, company as on the date of amalgamation.
the Government has continued its endeavor to provide tax
• Distribution tax on deemed dividend: Loans and
certainty and bring about robust measures to simplify foreign
advances (directly or indirectly) to substantial shareholders
investment opportunities. Similarly, on the regulatory front, the
(as prescribed) to attract dividend distribution tax with a
Government has endeavored to strengthen relationships with
higher rate of 30% without grossing up.
foreign investors with the underlying objective of encouraging
foreign investments and easing the process of doing business • Relief to companies under the Insolvency resolution
in India. process:
We have summarized below some of the key tax and regulatory • Relief from Minimum Alternate tax – For computing
changes introduced in financial year 2017 that could impact book profits of the companies under IBC, the
the private equity ecosystem: aggregate of brought forward loss and unabsorbed
depreciation will be allowed as a deduction instead of
Tax updates: lower of the two.
I. Key amendments introduced vide Finance Act 2018
• Eligibility to carry forward tax losses: Change in
• Reduction in corporate tax rate to 25% (maximum shareholding of a company pursuant to resolution plan
marginal rate 29.12%) for companies having a turnover up approved under IBC shall now not result in lapse of
to INR2500 million in FY17. Further, Education Cess and carried forward business loss of such company.
Secondary and Higher Education Cess aggregating to 3%
• Amendments relating to Base Erosion and Profit
replaced with Health and Education Cess at the rate of 4%,
Shifting (BEPS): Definition of “business connection”
resulting in a marginal increase in effective tax rate.
widened to include activities of an agent that habitually
• Long term capital gains tax on sale of listed securities plays a principal role in negotiations leading to conclusion
on the recognized stock exchange (including IPOs): of contracts by the non-resident. A similar provision forms
Historically, long-term capital gains on certain listed a part of the Multilateral Instrument (MLI) which India has
securities including equity shares held for more than 12 recently signed.
months were eligible for a tax exemption, subject to certain It is also proposed that “business connection” would
conditions and payment of securities transaction tax. also include non-residents having “significant economic
Levy of a concessional tax is introduced at 10% (excluding presence” in India through digitized businesses.
surcharge and cess) on long-term capital gains from • Amendments relating to International Finance Service
disposal of equity shares and certain funds/units, subject Centre (IFSC):
to payment of securities transaction tax.
• Transactions in bonds or specified global depository
Grandfathering of past gains prescribed for listed (i.e. receipts, rupee denominated bond of an Indian
cost of acquisition to be the higher of actual cost or company, derivatives entered on or after 1 April
highest price on the stock exchange as on 31 January 2018, on a recognized stock exchange (RSE) in IFSC,
2018) and unlisted equity shares (cost of acquisition to be by a non-resident would not be regarded as a transfer
computed as per cost inflation indexed) as on 31 January and hence not taxable, provided the consideration is
2018. However, the relief may continue to be available payable in foreign currency.
under relevant tax treaties, subject to satisfaction of all
conditions for claiming benefit under these treaties. •  urther, units located in IFSC, being a non-corporate
F
person, would be subject to Alternate Minimum Tax of
The Central Government to notify transactions of listed 9% instead of 18.5%.
equity shares that will be eligible for grandfathering of
capital gains where no securities transaction tax was paid Source: www.indiabudget.nic.in
at the time of acquisition (such as shares received on
merger, bonus shares etc).
• Accumulated profits of amalgamating company to be

considered for deemed dividend: The scope of deemed
dividend has been expanded to include accumulated profits
(whether capitalized or not) or losses of an amalgamating

II. Union Cabinet approves signing of the MLI in June gains arising from the transfer of shares occurring on or after
2017 for implementing tax treaty related BEPS 1 April 2017. Shares acquired on or before 31 March 2017
measures are grandfathered and continue to qualify for the exemption,
subject to satisfying the conditions in the modified Limitation of
On 7 June 2017, the first signing ceremony of the MLI was held
Benefit (LOB) provisions of the protocol.
in which 68 jurisdictions, including India, signed the MLI, and
eight other jurisdictions signed a letter expressing their intent Transitional provisions for reduced taxation (i.e., taxation at
to sign the MLI. The MLI will operate to modify tax treaties 50% of domestic tax rates) by the source country on capital
between two countries on the principles of matching of their gains from the alienation of shares have also been provided for
choices and will be applied alongside the existing tax treaties. a limited period from 1 April 2017 to 31 March 2019, subject
Each signatory needs to notify the tax treaties it wants to to meeting the modified LOB provisions.
amend through the MLI (covered tax agreement or CTA).
The protocol also provides that the treaty does not prevent a
India has provided a provisional list of all its reservations country from applying its domestic law on prevention of tax
on specific provisions of the MLI in respect of its 93 avoidance or tax evasion.
comprehensive tax treaties. Particularly, India has chosen Source: https://online.ibfd.org/kbase/#topic=doc&url=/data/tns/docs/html/
to additionally apply the simplified Limitation of Benefits tns_2017-02-27_sg_3.html&WT.z_nav=Pagination
(SLOB) rule, which provides an objective determination to
deny treaty benefits, along with the mandatory minimum
standard of the Principal Purpose Test (PPT) to counter treaty
shopping. On permanent establishment related provisions,
India has opted for a wider scope of dependent agency
permanent establishment to include activities of an agent
playing a principal role in concluding contracts even though
such contracts are formalized abroad or such activities of an
agent who claims to be independent even though he is working
exclusively or almost exclusively for closely-related enterprises
(CREs).
Currently, Mauritius has not notified India as CTA. However,

Mauritius via a press release, announced that for the tax
treaties which are not covered by the MLI, Mauritius will discuss
bilaterally with the respective treaty partners in order to
implement the BEPS minimum standards.
Later, via a subsequent press release, the Mauritius

Government reiterates its intent to engage in bilateral dialogue
with treaty-partner countries (including India) to modify/
conclude the tax treaty agreements by the end of 2018.
Source: http://www.incometaxindia.gov.in/Lists/Press%20Releases/
Attachments/631/Press-Release-India-Signs-Multilateral-Convention-Implement-
Tax-Treaty-7-06-2017.pdf
III. Protocol to treaty between India and Singapore

enters into force
On 23 March 2017, Central Board of Direct Taxes (CBDT)
notified that the Third Protocol amending the India-Singapore
tax treaty, which was signed on 30 December 2016, had
entered into force on 27 February 2017.
The protocol introduces source-based taxation of capital

IV. Key CBDT circulars/clarifications issued during calendar year 2017:
Final guidelines for determination of place of effective board meetings, location of the head office, who constitutes
management (POEM) for corporate residency senior management etc. It is also stated that the place of
implementation of decisions or the place where routine day-
On 24 January 2017, after due public consultation, the
to-day decisions are taken is not relevant for determination
CBDT issued a circular providing the final guiding principles
of POEM. Furthermore, POEM is not to be determined
for determination of POEM of a foreign company in India.
by taking a “snapshot” view but by considering activities
The guidelines emphasize that the test of POEM is one performed over a period of time during the year for which
of “substance over form” and is to be determined having POEM is determined.
regard to the facts and circumstances of each case on a
By way of a safeguard, the guidelines require two-step
yearly basis. The guidelines provide that the determination
approvals as per which the tax officer has to seek prior
of POEM is primarily based on whether or not a company
approval from a senior tax officer before initiation of
has “active business outside India.” For companies other
assessment proceedings.
than those engaged in ABOI, the Guidelines prescribe
alternative factors such as determination of the location of
CBDT issues clarifications for implementation of General • GAAR cannot apply if Authority for Advance Rulings
Anti-Avoidance Rules (GAAR) (AAR) has, in an advance ruling, considered an
arrangement to be permissible or if an authority such
Stakeholders and industry associations had requested for
as the Court or NCLT has examined the tax avoidance
clarifications on implementation of GAAR provisions and
matters adequately while sanctioning an arrangement.
a Working Group was constituted by CBDT in June 2016.
Pursuant to it, on 27 January 2017, CBDT issued a circular • No corresponding adjustment across all taxpayers in
providing certain clarifications. an arrangement to be allowed as it militates against
the deterrence of GAAR. The Circular also notes that
Some of the key clarifications are:
adequate procedural safeguards are in place before
• GAAR can co-exist with Specific Anti-Avoidance Rules GAAR can be invoked (such as vetting by an approving
(SAAR). panel) so that GAAR provisions are applied only in
deserving cases. Other clarifications in the Circular
• GAAR provisions can also apply if the LOB test in a
deal with the scope of grandfathering to convertible
Double Tax Avoidance Agreement (DTAA) does not
securities, bonus issues etc.
adequately address tax avoidance.
• Consistency principle will be followed while applying

GAAR provisions in different years if the facts and
circumstances remain the same.
CBDT issued rules prescribing methodology for valuation of jewelry, artistic work, immovable property and
determining fair market value of unquoted equity shares shares and securities held by such company, while all other
assets and liabilities of such company would continue to be
On 12 July 2017, CBDT issued rules in relation to
valued at book value. Further, the rules also provide that
determining the fair market value (FMV) of unquoted shares
FMV of unquoted preference shares would be the price such
for the purpose of relevant provisions inserted by the FA
preference shares would fetch in the open market for which
2017 to curb abusive practices resulting in the avoidance of
the taxpayer may obtain valuation report from merchant
capital gains tax on transfer of shares.
banker or an accountant.
The Rules seek to determine the FMV of unquoted equity
shares of the company by adopting the independent fair

Non-applicability of indirect transfer provisions to specified funds in India (being a venture capital fund or a
redemption or buyback of shares/interest in multi-tier venture capital company or a Category I or II Alternative
investment structures Investment Fund) if such income accrues or arises from or in
consequence of transfer of shares or securities held in India
On 7 November 2017, CBDT issued a circular clarifying
by the specified funds and such income is chargeable to tax
that the Indirect Tax (IDT) provisions will not apply to
in India in the hands of the specified funds.
income accruing or arising to a non-resident on account of
redemption or buyback of share/interest held indirectly in
Goods and Service Tax (‘GST’) streamline the compliance and provide interim relief from
a mammoth change that GST has bought in and given the
GST is a destination-based tax on consumption of goods fact that the GST portal was not ready for handling such
and was introduced with effect from 1 July 2017. This is a massive traffic, the Government introduced a summary
substantial shift from the erstwhile indirect tax regime. In return in the form GSTR-3B to be filed each month along
India, being a federal country where both Center and states with monthly payment of taxes.
have been assigned the powers to levy and collect taxes
through appropriate legislations, a dual GST model has been Further, the Government gradually started accepting
implemented with Center and states simultaneously levying returns in Form GSTR-1, requiring the taxpayer to file
GST on a common base thereby breaking the tax into three invoice-level details for its outward supplies. However, the
components: Central Goods and Service Tax (CGST), State/ Government has temporarily suspended filing of returns in
Union Territory Goods and Service Tax (SGST/UTGST) and form GSTR-2, i.e., details of inward supplies, and GSTR-
Integrated Goods and Service Tax (IGST). 3, i.e., summary return, until further notice owing to the
issues faced on the GSTN portal. As a result, a total of 2
Whereas GST has opened a whole new pool of credit to the returns – GSTR-1 and GSTR — 3B are being now filed for
advantage of service industry, it has also impacted the industry each month until 31 March 2018.
on several grounds, which can be enlisted as below:
2. Input tax credit pools: A service provider was not allowed
1. State-wise registration: In the erstwhile Service Tax input tax credit of goods procured by them unless they
regime, a company having multiple state presence could had obtained VAT registration under the respective state
discharge its service tax compliances through a single legislations. However, with the introduction of GST, the
centralized registration. However, under GST, it would credit of taxes paid on goods and services procured either
require separate registration for each state where it domestically or imported (GST to be paid under reverse
operates, which is akin to breaking one entity into distinct charge on imports) would be eligible under the new regime
legal entities for the purpose of the law. in accordance with input tax credit rules. This enhanced
Compliance: GST returns need to be filed monthly for credit pools would ideally lead to a reasonable decline in
assessees having turnover more than INR15 million in the the cost of service and an increase in the refund of input
preceding financial year in contrast to bi-annual service tax paid.
tax returns to be filed by all the service providers. This 3. Qualification as exports and obtaining Letter of
has exponentially increased the compliance burden on the Undertaking (LUT): The basic principle for supplies to
industry, increasing bi-annual returns to monthly returns qualify as exports under the GST law is similar to the
and further multiplying it by each state registration if there erstwhile service tax regime. Accordingly, management
is presence in multiple states. Currently, the Government consultancy services would continue to avail the benefit of
has prescribed three monthly returns: GSTR-1 for outward zero-rating and be treated as exports under the GST law.
supply, GSTR-2 for inward supply and GSTR-3 as a monthly
return, which is a summary of the previous two returns However, a new procedural requirement of obtaining
filed. In addition, an annual return in GSTR-9 is to be filed an LUT has been introduced under the GST law. It is a
before 31 December after the end of the financial year, pre-requisite for claiming refunds where an assessee is
thereby number of returns to be filed from two per year to engaged in providing export services. The requirement of
37 per year per registration. submitting an LUT for availing tax benefit for exports was
not there under the earlier regime.
During the initial months, the taxpayers had to grapple with
multiple issues while filing their GST returns. In order to

4. Refunds: The Government has attempted to streamline Key changes/clarifications:
the process of refund of input tax credit under GST. In
Sourcing norms for products that have state-of-the-art and
case of refund of tax on inputs used in exports under
cutting-edge technology:
the current tax regime, refunds of 90% will be granted
provisionally within seven days of filing of the refund • In terms of the extant FDI policy, proposals involving
application and the remaining 10% will be paid within a foreign investments beyond 51% in single brand retail
maximum period of 60 days from the date of receipt of trading (SBRT) entities required sourcing of 30% of the
application. value of goods purchased from India.
5. Valuation of services: The value of supply under GST • However, in case of products that have “state-of-the-art”
shall be the transaction value except where supplier and and “cutting-edge technology” and where local sourcing is
recipient of supply are not related and price is not the sole not possible, this requirement is relaxed for the initial three
consideration for the supply and is akin to the provisions years from the commencement of business, i.e., opening
under the erstwhile law. of the first store.
However, supplies between related persons or distinct • Under the Consolidated FDI Policy, it has been decided
persons would be required to be valued in terms of the that a committee under the chairmanship of Secretary,
valuation provisions prescribed by the Government. It is Department of Industrial Policy & Promotion (DIPP), with
pertinent to note that no such special valuation rules were representatives from NITI Aayog, concerned administrative
specified in case of related party transactions under the ministry and independent technical expert(s) on the
service tax regime. Further, under the GST regime, even subject, will examine the claim and determine the products
services that are provided to related persons without getting qualified under “state-of-the-art” and “cutting
consideration would be liable to GST; these services would edge” technology, and proposals would be decided on the
have to be valued in terms of the valuation provisions. basis of their recommendations.
Under the erstwhile service tax regime, any service without
Sale through single vendor:
consideration, i.e., free services, was not liable to service
tax. • In terms of the extant FDI policy for e-commerce, an
e-commerce entity is not permitted to sell more than 25%
Foreign Trade Policy update: of the sales value affected through its marketplace from a
Further, with the introduction of the Foreign Trade Policy single vendor or group companies.
2015-2020, SEIS incentives have increased by 2% from
• In this regard, it has been clarified that 25% of the sale
earlier 3% to 5% for notified services such as market research
value will be calculated on a financial year basis.
and public opinion polling services, management consulting
services or services relating to management consulting etc. Definition of “FDI-linked performance conditions”:
The validity of duty credit scrips has increased from 18 months
• In terms of the extant FDI policy, foreign investment was
to 24 months. This has been followed by simplification in the
permitted under the automatic route in LLPs operating in
procedure for the application of Import Export Code (IEC).
sectors/activities where 100% FDI was allowed through the
Further, the EXIM scrips under the export incentive schemes automatic route and there were no FDI-linked performance
of chapter 3 of the Foreign Trade Policy (e.g., Service Exports conditions. It has now been clarified that “FDI-linked
from India scheme) can be utilized only for payment of basic performance conditions” would mean “sector-specific
customs duty at the time of import and cannot be used for conditions.”
payment of IGST and compensation cess or for payment of
Conversion of LLP into company:
CGST, SGST or IGST for domestic procurements. Further, the
sale of such scrips have been exempt from the levy of GST. • It has been clarified that conversion of an LLP that has
foreign investment into a company would be permitted
Regulatory Section:
under the automatic route.
I. Liberalization of Consolidated FDI Policy 2017
Pension sector:
On 28 August 2017, the Government issued the Consolidated
• FDI in the sector continues to be 49% under the automatic
FDI Policy 2017 (Consolidated FDI Policy), which subsumes all
route. However, it is subject to the condition that the
press notes, clarifications and press release in relation to FDI
ownership and control of an Indian pension fund shall at all
issued by the DIPP. The key highlights are as follows:
times remain with resident Indian entities.

Proposals involving cumulative foreign equity inflow of more Transfer of capital instruments
than INR50 billion:
• NRIs are permitted to transfer, by way of sale, capital
• U
 nder the extant regime, proposals for sectors under the instruments (held on repatriation or non-repatriation basis)
Government approval route and involving foreign equity even to nonresidents under the automatic route, subject to
inflow of more than INR50 billion were also considered by sectoral restrictions.
the Cabinet Committee on Economic Affairs.
• RBI has also permitted transfer of capital instruments to a
• It has now been clarified that if an entity under the non-resident pursuant to liquidation, merger, de-merger
Government approval route receives additional foreign and amalgamation of companies incorporated outside India
investment up to a cumulative amount of INR50 billion, under general permission.
then fresh approval of the Government/competent
• Pledge of shares of unlisted Indian companies has been
ministry is not required when the additional foreign
brought under the automatic route for securing credit
investment is into the same entity within an approved
facilities by its Indian subsidiary companies.
foreign equity percentage/or into a wholly owned
subsidiary (WOS). Source: https://rbi.org.in/SCRIPTS/NotificationUser.aspx?Id=11161&Mode=0
Source: http://dipp.nic.in/whats-new/consolidated-fdi-policy-circular-2017
III. Other key regulatory amendments introduced are
as under:
II. Foreign investment in India – revised foreign
exchange management regulations I. Union Cabinet approves the decision to abolish FIPB
On 7 November 2017, RBI issued a single revised Notification On 24 May 2017, the Union Cabinet formally approved the
No. FEMA.20(R)/2017-RB dated 7 November 2017 in proposal to abolish FIPB. Further, DIPP has issued a standard
supersession of earlier Notification No.FEMA.20 dated 3 May operating procedure for granting approvals for foreign
2000 (dealing with Foreign Investments in Indian companies & investments on 29 June 2017.
LLP) and Notification No.FEMA.24 dated 3 May 2000 (dealing
Corporate Law rated:
with Investments in firm or proprietary concerns in India). The
key features of the revised Foreign Investment Regulations II. Ministry of Corporate Affairs (MCA) notifies cross-
issued are as follows: border merger provisions
Definitions On 14 April 2017, MCA notified relevant provisions of

the Companies Act, 2013 that permit merger of a foreign
• Definitions of ‘Capital’, ‘Debenture’, ‘Preference Shares’ company with an Indian company and vice-versa.
and ‘Warrants’ has been consolidated under the term
‘Capital Instruments’. Subsequently, RBI, on 26 April 2017, issued draft guidelines
on cross-border mergers. The draft guidelines remove
• Certain terms like FDI, FPI and FDI linked performance the requirement of RBI approval and prescribe requisite
conditions have now been defined under the revised conditions on inbound and outbound merger and require
notification. valuation of companies involved in the cross-border merger
FDI and FPI in listed companies to be done as per the internationally accepted pricing
methodology. The final guidelines are not yet issued by RBI.
• To align with the SEBI guidelines, RBI has now clarified that
III. Restriction on number of layers of companies
a person resident outside India can invest under either the
FDI or the FPI route. On 20 September 2017, MCA notified the Companies
(Restriction on Number of Layers) Rules, 2017 (Rules).
• In future, all foreign investment by Foreign Institutional
Investor (FII), Qualified Foreign Investor (QFI) and The Rules provides that a holding company can create up
nonresidents in listed companies below 10% will be to two layers of subsidiaries only. While computing the
considered as foreign portfolio investment. number of layers, one layer that consists of one or more
wholly owned subsidiary or subsidiaries shall not be taken
• Any past FDI that reduces below the 10% limit in the future
into account. Further, the aforesaid restriction shall not
will continue to be considered as investment under the FDI
affect a company from acquiring the shares of a company
route and not as investment under the FPI route.
incorporated outside India with subsidiaries beyond two
layers as per the laws of such country.

The rules are applicable to all companies other than a and for bonds raised above US$50 million equivalent in
banking company, systematically important non-banking Indian rupees per financial year should be five years.
financial company (NBFC) registered with RBI, insurance
• All-in-cost ceiling: The all-in-cost ceiling for such bonds
company and government company.
will be 300 basis points over the prevailing yield of the
RBI related: Government securities of corresponding maturity.
IV. The Insolvency and Bankruptcy Board of India notifies
• Recognized investors: Related-party within the meaning
Corporate Voluntary Liquidation Process Regulations
as given in Ind AS 24 is not allowed to subscribe to RDB.
On 31 March 2017, the Insolvency and Bankruptcy Board of SEBI related:
India notified the Insolvency and Bankruptcy Board of India
VII. SEBI permitted investments by FPIs in unlisted
(Voluntary Liquidation Process) Regulations, 2016. These
corporate debt securities
regulations provide the process for the initiation of voluntary
liquidation of a corporate person – companies, limited liability On 24 October 2016, RBI permitted FPIs to invest in unlisted
partnerships and any other persons incorporated with limited corporate debt and securitized debt instruments. Thereafter,
liability under any law. on 17 November 2016, RBI enhanced the list of eligible
instruments for investment by FPIs under the corporate debt
The regulations have come into effect from 1 April 2017.
route along with certain terms and conditions.
V. Clarification on certain aspects in relation to FDI in
LLP In line with the RBI’s approach, on 27 February 2017, SEBI
permitted FPIs to invest in the following:
On 3 March 2017, RBI introduced certain liberalizations
dealing with FDI in an LLP. The key highlights are: • Unlisted corporate debt securities (NCDs/bonds) issued
by public or private Indian companies, subject to certain
• Foreign companies can be appointed as Designated prescribed restrictions such as minimum residual
Partner (DP) in LLPs. maturity of three years and end-use restriction on
• Individuals appointed as DPs are not required to satisfy investment in real estate business, capital market and
the residency test under FEMA. purchase of land.
• Clarification provided to state that conversion of a • Securitized debt instruments as under:

company into an LLP is covered under the automatic • Any certificate or instrument issued by a special
route provided it is engaged in a sector where 100% FDI purpose vehicle (SPV) set up for securitization of
is permitted under the automatic route, and there are no asset(s) where banks, FIs or NBFCs are originators,
FDI-linked performance conditions. and/or
• Provisions prohibiting LLP to avail external commercial • Any certificate or instrument issued and listed
borrowing (ECB) have been deleted. in terms of the SEBI (Public Offer and Listing of
Reporting of foreign investments in LLPs and divestment/ Securitised Debt Instruments) Regulations, 2008.
transfer of capital contribution or profit share may be made Further, investment by FPIs in securitized debt instrument
to the RBI in an appropriate manner from time to time as shall not be subject to the minimum three-year residual
may be prescribed. maturity requirement.
VI. Issuance of rupee denominated bonds overseas
On 7 June 2017, RBI revised the RDB guidelines and

henceforth all proposals/applications for the issuance of
RDBs will be examined by RBI at the Central Office, Mumbai.
Further, the revised provisions in respect of maturity period,

all-in-cost ceiling and recognized lenders (investors) of RDBs
(Masala Bonds) are as under:
• Maturity period: Minimum original maturity period for

Masala Bonds raised up to US$50 million equivalent in
Indian rupees per financial year should be three years

06
The Indian PE/VC sector
– the road ahead
Nifty (January 2016 to March 2018)
2017 2018
12,000 11,084
10,000 9,304
10,044 10,114
8,551 9,766
7,791
8,000
8,033
7,030
6,000
4,000
2,000
-
04-Jan-16 04-Apr-16 04-Jul-16 04-Oct-16 04-Jan-17 04-Apr-17 04-Jul-17 04-Oct-17 04-Jan-18 31-Mar-18
Source: NSE India
After a very good year in 2017, the growth story for the Inc. is expected to have a very long runway to grow at double
Indian PE/VC industry remains strong. Globally, India remains digits for a long time to come. This is expected to lead to a
one of the fastest growing large economies and this coupled compounded growth of the Indian PE/VC industry over the
with ground breaking structural reforms unleashed by the long term. Like in the case of China, in the long term, domestic
Government is expected to continue attracting alternate capital is expected to play a more important role in the Indian
investment capital into the country. PE/VC industry.
The long-term view The short to medium-term view

To put things in perspective, a record high PE/VC investment We expect 2018 to be a strong year for the Indian PE/VC
of US$26.7 billion in 2017 translates to PE investment of industry on both investment activity as well as exits. As we
US$10.68 billion per trillion US dollars of GDP (assuming pointed out earlier in the report, deals are becoming larger and
nominal GDP of US$2.5 trillion). China has PE/VC investment should two to three mega deals materialize, PE/VC investment
of US$18 billion per trillion US dollars of GDP and the levels activity in 2018 could very well surpass the record highs
seen in Asia Pacific and the OECD countries are even higher. seen in 2017. Exits are expected to remain buoyant, backed
Another metric to be considered is India’s low GDP per capita. by strong capital markets and good M&A interest from both
Adjusted for purchasing power parity, India’s GDP per capita in domestic as well as overseas strategic investors. Unless a bout
2017 was US$7,170, ranking the country 126th in the world of global volatility unsettles the domestic capital markets, PE/
and the lowest among the BRICs nations. Russia has GDP per VC-backed exits should have a strong year in 2018. Influenced
capita of US$27,900, China US$16,620,14 Brazil US$15,500 by the strong exits performance over the past three years,
and South Africa US$13,400. India clearly has a long way to global LPs already consider India as the most attractive
go.15 emerging market. The continuation of this strong exits trend is
vital for keeping the LP enthusiasm about India intact.
As the Indian GDP continues to grow at rates exceeding 7%,
and as technology and digitization increase productivity, India
14, 15 https://economictimes.indiatimes.com/news/economy/indicators/india-moves-up-one-notch-to-126-in-gdp-per-capita-terms/articleshow/61711262.cms

07
Appendices
Appendix A
Our Private Equity Services Practice exceptional client service and create a better working world.
EY has 16 offices spread across 10 cities in India. Worldwide,
EY has been working with the private equity industry for our 247,570 people across 150+ countries and 700+ cities are
more than 25 years, with approximately 25,000 seasoned united by our shared values and their unwavering commitment
professionals worldwide dedicated to the industry and its to quality.
business issues. EY serves 74% of the top 300 PE firms
included in the Global PEI 300 firms list. Private equity firms, • EY’s India Private Equity Services Practice has been among
portfolio companies and investment funds face complex the top advisors for private equity deals over the past ten
challenges. They are under pressure to deploy capital amid years. EY has been awarded the “Most Active Transaction
geopolitical uncertainty, increased competition, higher Advisor” award by Venture Intelligence for 2009-2013
valuations and rising stakeholder expectations. Successful and also the “Investment Bank of the Year, Private Equity”
deals depend on the ability to move faster, drive rapid and award by VC Circle in 2012 and 2017.
strategic growth and create greater value throughout the • EY’s India Private Equity Services Practice provides value
transaction life cycle. EY taps its global network to help source to PE funds and their portfolio companies through its deep
deal opportunities and combines deep sector insights with the sector and service expertise. EY India is organized around
proven, innovative strategies that have guided the world’s key industry verticals in a matrix structure that enables
fastest growing companies. us to offer an unparalleled blend of industry expertise
In India, EY is among the leading providers of advisory, tax, and functional skills. We actively track about 15 sectors
transactions and assurance services. The organization is with sector leads driving our penetration in each of those
also the number one professional services brand* in India, sectors.
which is a testimony to our relentless commitment to deliver
EY has been ranked as #1 Financial Advisor for over a decade across Mergermarket, Thomson Reuters
and Bloomberg**. Our position as the foremost M&A advisor in the Indian mid-market enables us to
create a robust deal origination pipeline for our PE/VC clients, acting as the tip of the spear of what is
India’s dominant PE Services practice.
Merger market Thomson Reuters Bloomberg
38
40 49 34 34
39
41 43
28 26
29 29 33 21 21
24
18 19 21 20 15
18 19
12
2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017
EY Closest compete
• # 1 advisor on deal count in Financial advisory league tables across databases

• Consistently maintaining a significant lead from closest compete
• Adjudged as the Investment Bank of the Year at the VC Circle Awards 2017
* as per Global Brand Survey, conducted by an independent research agency commissioned by EY

** for most number of deals

We offer an array of services to Private Equity funds and their portfolio/investee companies through
our various service lines.
Partners Fund assurance

(Personal tax) (Assurance and Tax Structuring)
Fund Raising
(Audit of fund performance)
Funds
Buyside advisory Buyside support
(M&A and valuations, Transaction (Financial Due Diligence, Tax
Fraud, Investigation and Dispute Structuring and Diligence, Business
Services) Advisory DD, Environmental Compliance,
Services CDM Human Capital, Valuations)
Portfolio Services
Exit readiness Transition
(IPO, GAAP Conversion, (Transaction Integration, GAAP
SOX Compliance, VDD, Conversion, Governance, Controls
Sale Mandates, Clause 49) Assessment, MIS Development,
Process Advisory, Standard
Operating Procedures)
Distressed Assurance Growth

(Bank intermediary, working (Assurance, Tax Compliance, Risk Management, (Strategic Options, Technology
capital, cost reduction) Corporate Governance Advisory, Internal Security, IT Strategy, Operational
Audits and Fraud reviews) Improvement, Market Entry
Options & Working Capital
Management)

EY has established six distinct solutions reflecting the holistic set of challenges that PE firms face across all levels of
the organization – the management company, the funds and their portfolio companies.
Operating model and automation Global compliance and reporting Deal origination
Alternative asset managers need Large asset managers have The intense competition for a
to drive efficiency through multi- hundreds of non-US legal entities in limited number of deals raises
year target operating models multiple countries, and continually stakes to win for private equity
and infrastructure strategies to create new ones – all with different firms. A proprietary investment
remain competitive. These align compliance obligations. Many approach, driven by sector
with strategic growth plans by are outsourced and require local insights, enables firms to
leveraging vendor and service knowledge. EY gathers the data, confidently place winning bids
provider activities. EY defines and leverages local EY teams familiar that generate appropriate returns.
monitors data analytics and key with accounting and tax laws, EY’s global origination team turns
performance indicators to annually performs data analytics to identify opportunities into actionable
assess data governance and risk trends, risks and opportunities and strategies. Our proprietary
against these target models. monitors filing requirements. knowledge and advanced analytics
help develop strategic capital
options to help firms achieve
success.
Integrated due diligence Value creation Exit readiness and IPO

Private equity firms conduct Private-equity firms face Private equity firms must plan
diligence on assets across increasing pressure to attract exits rigorously in order to
strategic, financial, tax, operational fresh capital. This requires successfully monetize their
and HR issues. Firms historically generating greater investment investment during the exit process
used issue-based advisors, returns and demonstrating a in today’s challenging environment.
managing different parties and consistent track record in creating Executives must identify key short-
consolidating findings at the end value in their portfolio. EY’s value and long-term priorities prior to
of the process. Employing EY’s creation solution addresses these undertaking an IPO or alternative
integrated diligence approach at challenges across all five stages of transaction. EY can advise deal
the early stages of a transaction the deal life cycle, including deal teams and portfolio companies
provides more effective, origination, diligence, inception, on exit alternatives, assess exit
comprehensive diligence on an optimization and exit strategy. readiness, prepare a business for
asset, giving firms a distinct exit/IPO and create a value story
competitive advantage. for targeted buyers.

Focused advisory solutions for private decision making, merger acquisition and valuation. EY helps
across the capability value chain ranging from strategy,
equity backed portfolio companies implementation, hosting and running the analytics functions.
Growth Navigator - Achieving your growth ambitions IPO readiness – The first step in the IPO value journey
Having a broader perspective on the drivers of growth in your EY’s IPO readiness service is the first step in what we describe
business and finding innovative ways to accelerate and sustain as the “IPO value journey” and is designed to guide the client
that growth can give you a competitive advantage. That’s through a successful transformation from private to public
why we’ve developed EY Growth Navigator™, an interactive status.
experience that uses the EY 7 Drivers of Growth to help you
and your leadership team assess your business’s current and Achieving readiness will ensure a strong debut in the capital
aspirational position, and create a strategic road map to help markets. Getting IPO readiness right means implementing
you get there. change throughout the business, organization and the
corporate culture. As a public company, the client will be
Route to Market (RTM) – Deliver a successful strategy for subject to increased filing requirements, transparency,
your business compliance, scrutiny by investors and analysts, and overall
EY identifies focused opportunities for optimizing cost accountability for delivering on promises.
and growth after full assessment; designs new RTM, Successful businesses start to prepare typically 12 to 24
including different approaches for different segments months before the IPO — in many cases with an IPO readiness
(customers, regions, seasonal demand); identifies the assessment.
optimal concessionaires’ model taking into account different
distribution approaches; and supports the implementation of
the RTM by providing IT specs and additional services (e.g.,
stock management options).
Performance improvement
Depending on objectives and business context, EY helps the

client develop a combination of short-term and long-term
strategies to reduce costs, optimize process and bring in
efficiency and effectiveness across all layers of business
to deliver positive impact on EBITDA by ensuring optimal
utilization of both tangible and intangible resources.
Cyber security
EY assists internal teams to build cyber awareness and

conduct company-wide training, as well as training of board of
directors. EY supports in building regulations and compliance
requirements with audit and readiness services. EY helps
transform the security program and integrate information
security and IT risk across the enterprise as well as help
implement globalized data protection strategies to protect
information that matters, with consideration of regulatory and
industry compliance.
Analytics - Generate insights to make smarter, faster

decisions
EY helps clients build data and information strategies using

various analytics tools to deal with big data to address
various areas of business, ranging from opportunity sizing
and feasibility, operations and customer modelling, executive

Appendix B
Our Restructuring Practice
EY has been a first mover in the Restructuring space, with the practice
established in 2012
Our offerings include

• Formal insolvency appointment
• Investment advisory under IBC (Buy-side)
• Short Term Cash Flow forecasting and management
• Business and Strategy Review
• Interim Management
• Debt Restructuring, Externalization of Debt, Refinancing
• Investment process management for stressed assets
• As part of Financial Restructuring
• During IBC
• Bonds and other structured products
• Turnaround
• Liquidation and Wind Down
• Crisis Stabilization
• New Debt Syndication
Select credentials
• Financial Restructuring for various stressed assets, engaging with investors, banks and
promoters for sustainable restructuring
• We have been appointed/ proposed as RP’s in 15 cases – one of the highest in the market
• Key IBC cases being managed by RP’s from EY Restructuring LLP include:
• Amtek Auto Limited and 2 of its subsidiaries
• Bharti Shipyard Limited
• Mandhana Industries Limited
• Coastal Projects Limited
• Orchid Pharma Limited
• Sharon Bio-Medicine Limited
• Kohinoor (Real Estate)
• Ruchi Soya Industries Limited
• Actively engaged by investors in case of buy side transactions in IBC cases
• Conducting Operational diligences on behalf of PE investors
• EBITDA expansion projects
• Fund raising projects

More than 100 debt and operational Working closely with
restructuring assignments delivered in the Government to
India with a total debt impact of around implement changes
US$100 billion
First to successfully work on all the 100 + knowledge sharing

schemes introduced by the Government sessions on policy/regulations
or RBI to deal with NPLs (SDR, S4A, IBC) update for clients
Ability to provide completely Build relationships by doing

integrated services the right thing
Sensitive to High on advocacy. Consistently

changing times issuing thought leadership
documents, industry papers and
conducting conferences for clients

Team Strength
Around
08 Partners/Associate Partners
15 Directors/Senior Managers
150 people
24 Managers
52 Seniors
42 Staffs/Assistants
External panel
Started of Industry
in 2012 experts, CFO,
CEO, COO, IPs
More than
5000 hours
in last 12 months
spent in training
the team
5 We have Qualifications: CA,
registered proven MBA, Engineers, CFA,
Insolvency methodology lawyers, CS, Insolvency
professionals to address professionals
(IPs) and various
few more in scenarios
pipeline Geographical
presence with
Sought after team in all
subject matter Sector / industry major cities of
experts by the specialization is core India
media to our team strength

Our pan-India presence
Chandigarh
Delhi NCR
Ahmedabad
Kolkata
Jamshedpur
Mumbai
Pune
Hyderabad
Bengaluru Chennai
Kochi
Our offices
Ahmedabad Delhi NCR Kolkata

2nd floor, Shivalik Ishaan Golf View Corporate Tower B 22 Camac Street
Near C.N. Vidhyalaya Sector 42, Sector Road 3rd Floor, Block ‘C’
Ambawadi Gurgaon - 122 002 Kolkata - 700 016
Ahmedabad - 380 015 Tel: + 91 124 464 4000 Tel: + 91 33 6615 3400
Tel: + 91 79 6608 3800 Fax: + 91 124 464 4050 Fax: + 91 33 2281 7750
Fax: + 91 79 6608 3900
3rd & 6th Floor, Worldmark-1 Mumbai
Bengaluru IGI Airport Hospitality District 14th Floor, The Ruby
6th, 12th & 13th floor Aerocity, New Delhi - 110 037 29 Senapati Bapat Marg
“UB City”, Canberra Block Tel: + 91 11 6671 8000 Dadar (W), Mumbai - 400 028
No.24 Vittal Mallya Road Fax + 91 11 6671 9999 Tel: + 91 22 6192 0000
Bengaluru - 560 001 Fax: + 91 22 6192 1000
Tel: + 91 80 4027 5000 4th & 5th Floor, Plot No 2B
+ 91 80 6727 5000 Tower 2, Sector 126 5th Floor, Block B-2
+ 91 80 2224 0696 NOIDA - 201 304 Nirlon Knowledge Park
Fax: + 91 80 2210 6000 Gautam Budh Nagar, U.P. Off. Western Express Highway
Tel: + 91 120 671 7000 Goregaon (E)
Ground Floor, ‘A’ wing Fax: + 91 120 671 7171 Mumbai - 400 063
Divyasree Chambers Tel: + 91 22 6192 0000
# 11, O’Shaughnessy Road Hyderabad Fax: + 91 22 6192 3000
Langford Gardens Oval Office, 18, iLabs Centre
Bengaluru - 560 025 Hitech City, Madhapur Pune
Tel: +91 80 6727 5000 Hyderabad - 500 081 C-401, 4th floor
Fax: +91 80 2222 9914 Tel: + 91 40 6736 2000 Panchshil Tech Park
Fax: + 91 40 6736 2200 Yerwada
Chandigarh (Near Don Bosco School)
1st Floor, SCO: 166-167 Jamshedpur Pune - 411 006
Sector 9-C, Madhya Marg 1st Floor, Shantiniketan Building Tel: + 91 20 6603 6000
Chandigarh - 160 009 Holding No. 1, SB Shop Area Fax: + 91 20 6601 5900
Tel: +91 172 331 7800 Bistupur, Jamshedpur – 831
Fax: +91 172 331 7888 001
Tel: +91 657 663 1000
Chennai BSNL: +91 657 223 0441
Tidel Park, 6th & 7th Floor
A Block (Module 601,701- Kochi
702) 9th Floor, ABAD Nucleus
No.4, Rajiv Gandhi Salai NH-49, Maradu PO
Taramani, Chennai - 600 113 Kochi - 682 304
Tel: + 91 44 6654 8100 Tel: + 91 484 304 4000
Fax: + 91 44 2254 0120 Fax: + 91 484 270 5393
Ernst & Young LLP Contacts
EY | Assurance | Tax | Transactions | Advisory
Private Equity Services Practice
About EY
EY is a global leader in assurance, tax, transaction
Vivek Soni Dilip Dusija
and advisory services. The insights and quality
services we deliver help build trust and confidence Partner and National Leader Associate Partner
in the capital markets and in economies the world E: Vivek.Soni@in.ey.com E: Dilip.Dusija@in.ey.com
over. We develop outstanding leaders who team to
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Ey Pe VC Agenda India Trend Book 2018

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Ey Pe VC Agenda India Trend Book 2018

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PE/VC

PE/VC investment in India - Quarterly trends

US$ million No. of Deals

PE/VC Exits in India –Quarterly Trend

Exhibit 2: Real GDP growth (%)

PFCE 9.6 4.6 3.0 8.9 8.2 9.2 6.6 6.1

GCE 9.2 11.8 2.2 3.8 16.5 26.0 10.2 6.6

GFCF 2.6 3.4 4.8 5.4 5.2 -0.3 3.1 5.9

EXP 6.2 -2.3 -5.2 -5.2 1.8 7.2 1.2 7.6

IMP 2.1 -0.3 -4.7 -6.9 -2.2 7.0 10.4 9.7

GDP 7.6 6.4 8.0 8.2 7.7 6.5 6.0 7.0

PE/VC Agenda - India Trend Book - 2018 7

Exhibit 3 : Policy wheel • Tax-GDP ratio slated to increase

• The positive side of

8 PE/VC Agenda - India Trend Book - 2018

With respect to FDI, the Government unveiled a new

Exhibit 4: Gross FDI inﬂows (US$ billion)

• With the progressive liberalization of FDI policies,

• FDI policy distinguishes between two routes:

• Most sectors have now been placed under the

• The limited number of sectors under the Government-

PE/VC Agenda - India Trend Book - 2018 9

Exhibit 5: Role of budgetary and extra-budgetary resources — FY19

Total expenditure 13.21 13.04 -0.17 2,24,463

Expansionary effect of financing outlays by budgetary and extra-budgetary resources

Agriculture and rural livelihood 7.04 7.66 0.62 2,48,057

Schematic outlays for education, 0.73 0.74 0.01 15,600

Capital outlay on infrastructure 2.93 3.19 0.26 1,02,830

Total outlay 10.70 11.59 0.89 3,66,487

Nominal GDP (INR crore) 16,847,455 18,722,302

Source: Union Budget documents and MOSPI

10 PE/VC Agenda - India Trend Book - 2018

Exhibit 6: PE/VC investments in India 2008-2017

Value (US$ million) Volume

Source: EY analysis of VCC Edge data

PE/VC Agenda - India Trend Book - 2018 13

Exhibit 7: Top 10 PE/VC Investment deals in 2017

Source: EY analysis of VCC Edge data

US$ billion # of deals Average Median

14 PE/VC Agenda - India Trend Book - 2018

PE/VC Agenda - India Trend Book - 2018 15

Global Logic 720.00 48 Jan-17 Growth Technology CPPIB

IndoSpace 500.00 NA May-17 Buyout Real estate CPPIB

Logos India 400.00 NA Oct-17 Start-up Logistics Ivanhoé Cambridge

ReNew Power Ventures 350.00 NA Nov-17 Growth Renewables CPPIB

Kotak Mahindra Bank 341.65 1.5 Mar-17 PIPE Financial CPPIB,CDPQ

Bharti Infratel Limited 302.00 3.2 Mar-17 PIPE Telecom CPPIB

Cube Highways and 300.00 NA Nov-17 Start-up Infrastructure ADIA

Manipal Health Enterprises 171.35 18 Aug-17 Growth Healthcare Temasek

Source: EY analysis of VCC Edge data

16 PE/VC Agenda - India Trend Book - 2018

Exhibit 15: Top buyout deals in 2017

IndoSpace 500 100 May-17 Real estate CPPIB

Carnival's Chandigarh Property 340 100 Jul-17 Real estate Blackstone

Aegis Limited 275 100 Apr-17 Technology Capital Square Partners

Karvy Computershare Limited 240 83 Aug-17 Financial services General Atlantic

Source: EY analysis of VCC Edge data

Credit/Structured debt as a mode of funding, which emerged as

PE/VC Agenda - India Trend Book - 2018 17

18 PE/VC Agenda - India Trend Book - 2018

Source: EY analysis of VCC Edge data 2017 14,075 5,774

Exhibit 22: Deal volume by sector in 2016

Others, Technology, 2016 21,548 4,313