India Awards: PE Professional of the Year – Ravi Adusumalli

When Just Dial, India's leading online and mobile listings provider, launched its IPO road show in May 2012, the timing was far from prescient. Facebook went public in the US the same week and the brouhaha surrounding its steep valuation - and the price slump that followed - made investors temporarily think twice about tech stocks.

It didn't help that Morgan Stanley, which was criticized for its role in the Facebook offering, was also working for Just Dial.

"We could have got an IPO done but we didn't want to go out at a low price, so we postponed it," says Ravi Adusumalli, managing partner at SAIF India, which became Just Dial's first institutional investor in 2006. "The business was generating cash and we were in no hurry."

Sequoia Capital and SAP Ventures put up a round of mezzanine financing the following month and the company re-filed for a listing that August. Nine months later Just Dial went public, raising INR9.5 billion ($173 million) and allowing SAIF, Sequoia, SAP, Tiger Global and ECGS to make partial exits.

SAIF made a more than 15x return on the share sale and is sitting on even larger paper gain on what was initially a $12 million investment, with Just Dial shares having risen more than 130% since their debut.

Adusumalli's explanation for the company's success is simple: it has been profitable throughout SAIF's investment period, providing listings information over the phone and then via text, email and the web as well.

Just Dial addressed 254.3 million search requests and conducted more than 195,000 campaigns for paid advertisers in the 2012 financial year, generating a net profit of INR522.8 million.

Perception and reality

He accepts that the ramp up in Just Dial's stock price is in part driven by rising valuations for market leaders in the country's consumer internet space, but is uncertain as to how many of these will actually go public in the next year.

Even the recently announced pilot program enabling companies to list overseas prior to making domestic offerings - Just Dial would likely have pursued an IPO in the US rather than India had it been introduced earlier - is not expected to have much of an immediate impact.

"From an internet perspective, where growth rates are good, profitability is a challenge - a lot of companies are losing money hand over fist," Adusumalli says. "The reality of the situation is it takes a long time for businesses to scale in India. People are drawn in by what is sexy in other countries and they bet that India was five years behind China. This is clearly not the case."

SAIF India, which spun out from SAIF Partners in 2011 and raised $350 million for its first independent fund, hasn't turned its back on consumer internet start-ups. Investments in the last 12 months include online furniture retailer UrbanLadder while Adusumalli is bullish about the prospects for iXiGo, a travel search and planning website that SAIF backs in conjunction with former portfolio company MakeMyTrip.

However, the private equity firm has been focusing more on Series C and D rounds - the earlier-stage rounds are seen as overly competitive - and IT services in particular. In the first nine months of 2013 SAIF built up a minority position in listed analytics and cloud services outsourcer Persistent Systems through a series of block trades.

Around the same time, the firm was busy exiting another outsourcer, CSS Corp, as Partners Group bought a majority stake in the business for $270 million, taking out SAIF, Goldman Sachs and Sierra Ventures in the process.

SAIF invested $22.5 million in the company in 2006, buying Baring Private Equity Partners India's stake and putting in some primary capital as well. Goldman and Sierra came on board the following year in the expectation that CSS would scale up and make acquisitions but growth was not forthcoming, leading to a fall out between the investors and the founders.

The situation was resolved by SAIF buying out the founders to take a controlling position and then bringing in a professional management team.

The outsourcing angle

CSS is one of several IT outsourcing assets to change in hands in the last year - Baring Private Equity Asia bought Hexaware Technologies while Apax Partners picked up GlobalLogic - providing exits for earlier investors.

Adusumalli notes these businesses all generate a lot of cash, much of it coming from overseas customers, which makes it easier to use leverage. And as with any export-oriented business, revenues are in US dollars and costs are in rupees so the decline in the Indian currency has boosted margins.

"Up to about six months ago, the multiples in the mid-market IT space in India were very low - 5-7x EBITDA," Adusumalli says. "As a private company, if you are going to go public, you get a discount to the established players in most cases, so it became very unappealing. But ironically in the secondaries space people are willing to write checks at a premium to the market multiples."

As to why these companies are becoming available as secondary buyouts, it comes back to the availability and indeed the suitability of the public markets. Companies are either not ready to go public and require capital and support from a larger investor to scale up, or the investors have simply run out of time and need exits so they can return money to LPs.

"There were only a handful of IPOs in India last year so people look at secondary transactions as another form of liquidity," Adusumalli says.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Venture
• South Asia
• Expansion
• Early-stage
• Exits
• SAIF Partners
• India
• Venture
• Growth capital
• Exit
• IPO
• Trade sale
• AVCJ Awards