Private Equity Interest Robust in Indian Water Industry

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Indian water and wastewater companies are receiving a lot of interest from private equity funds and venture capitalists. Many companies have managed to raise funds for fuelling their expansion activities in the past few years indicating that the water sector remains a hot favourite of private investors.

After a rather modest year in 2010, in which there was a perceptible drop in investments in the sector, the year 2011 has seen several deals in the past nine months. During the whole of 2010, private equity funds reportedly invested only $23 million in Indian water technology and management companies as against $66 million during 2009.

The tide seems to have got reversed during 2011. In the first six month only, several deals, both small and big, were reported in the sector. This seems to highlight the fact that water and wastewater sector remains an interesting play for PE funds.

But, it also indicates that several Indian companies, particularly in the small and medium-sized companies find it worthwhile to tap private equity investors rather than depend on domestic market to raise finance for expansion and acquisitions. By bringing in PE funds, most of these Indian companies with exposure to water and wastewater treatment industry have been able to avoid raising debt to meet capital expenses, including expansion of markets.

It’s not easy to service debt in the current market scenario and upward heading interest rates regime in India. Also, with PE funds, several companies have managed to raise their profile and created a better brand equity. Even prospective customers would feel better to know that the company being considered for sourcing water and wastewater technology and solutions has been good enough to raise the interest of the world’s best investors.

The year 2011 began with The Capital Group, one of the leading global privately-owned investment management companies, announcing in January that it has acquired about 10 per cent equity stake in India’s leading engineering services company VA Tech Wabag that focuses on water and wastewater treatment. The Capital Group bought the stake in VA Tech by buying out ICICI Ventures for about $33 million.

In February, Saisudhir Infrastructures, an EPC player, raised over $23 million in its second round of funding from US-based Global Environment Fund (GEF). The funds were to be used enhance the company’s focus on the water and water treatment sectors.

Then, in May, Pune-based Chetas Control Systems, which is a leader in India’s turnkey water metering solutions market, said it raised over $12 million from leading PE fund Matrix Partners India. It was the first institutional round of funding in the company, which planned to use the funds to bid for larger projects.

In the latest of the big PE deals in the Indian water space, Aditya Birla Capital Advisors (ABCAP) said in mid-September that it would invest about $9 million in New Delhi-based water and wastewater treatment company SMS Paryavaran Ltd.

The Aditya Birla group company would gain a minority equity stake in SMS Paryavaran, which would use the funds to stoke its growth plans and complete several projects it has undertaken across the country.

Going ahead too, the sector is expected to witness a healthy interest from PE funds, who would pick up companies with potential and a clear cut vision for growth.

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