Exclusive: NVP bags 400% returns on exiting partially from Shriram City Union Finance

Niren Shah, MD, NVP India

Stage-agnostic investment firm Norwest Venture Partners (NVP) on Wednesday sold partial stake in Chennai based non-banking financial company (NBFC) Shriram City Union Finance Ltd, clocking in returns of over 4x (or 4 times in PE parlance).

Shriram City Union Finance is a deposit-accepting NBFC specializing in retail finance.

The investment firm sold 1.65 million shares of Shriram City Union Finance to a US-based institutional investor, whose name was not divulged by NVP, for Rs.1250 per share, in a deal totaling around Rs.206 crore. In late 2009, NVP bought 4.3 million shares in the NBFC for nearly Rs.300 per share. Last year, it sold 500,000 shares in the open market.

The company has performed better than our expectations, said Niren Shah, managing director, NVP India. “We are prudent and disciplined investors and realize that we need to give back capital to our investors. Looking at the long term growth prospects of the company, we, however, decided to continue to hold partial stake in it,” he said.

"The small and medium enterprises (SME) and micro, small and medium enterprises (MSME) lending space is worth watching out for the next 10 to 15 years, on the back of the sheer demand," said Shah.

MSMEs contribute nearly 8% of the country’s GDP (gross domestic produce), 45% of the manufacturing output and 40% of the exports, according to the estimates of Ministry of Micro, Small & Medium Enterprises. MSMEs provide the largest share of employment after agriculture, it said.

The partial exit by NVP comes a few days after Piramal Enterprises Ltd agreed to buy a 9.99% stake in Shriram City Union Finance for about Rs.790 crore.

In rupee terms, NVP has generated returns of 4.3 times and internal rate of returns of 40%, which are considered extremely desirable by the PE industry, which is grappling with lower than expected returns. According to Bain and Co.’s India Private Equity Report 2013, since 2000,  PE firms have invested $85 billion in the country. Nearly 65% of these transactions are yet to offer returns, the report said. Typically, PE investors expect returns of at least 1.5x to 3x and IRR of over 25%.

Banking, financial services and insurance (or BFSI) is an attractive space for investors from both returns and growth perspective, said Sunil Goyal, managing director and chief executive, Ladderup Corporate Advisory Pvt. Ltd, a Mumbai-based investment bank.

“Financial inclusion is the need of the hour. NBFCs are growing fast and there is a big scope for future growth too. With banks not present everywhere, such businesses stand the scope of giving big returns to their investors,” said Goyal.

To be sure, NPV is also betting big on India’s BFSI segment and has companies like IndusInd Bank Ltd, ING Vysya Bank, Ratnakar Bank Ltd and Yes Bank Ltd  in its India portfolio.  

The Shriram City Union Finance partial exit is the fourth exit by NVP in the last as many years. Its other exits include Persistent Systems Ltd, Jain Irrigation Systems Ltd. and OnMobile Global Ltd.

When it comes to investments, this week, it invested $7 million in New Delhi-based Acidaes Solutions Pvt Ltd, which has a customer relationship management product called CRMnext. It also made follow-on investments in Quikr and yatra.com.

Norwest Venture Partners manages nearly $5 billion in capital is a multi-stage venture and growth equity investment firm and invests in India out of a global fund.