Team Managers of Mayhem Siddhi Rawool Ritesh Baid Shyamprasad P Rahul Khosla

KPMG International Case Competition 2012 Preliminary Round, NMIMS

Quote/Unquote

Their repeated advice to us was to forget about the share price and just focus on the good work that we were doing - Akhil Gupta, Joint MD and CFO of Bharti Airtel While we could have raised funding from other sources, Warburg Pincus involvement helped us in scaling up significantly - Akhil Gupta, Joint MD and CFO of Bharti Airtel

Benefits of PE Investment
Growth dimension

Private Equity Investment

Attractive employment arena Presence of strength of in-house experts across domains

Experience of complicated deals

Pump for Indian economy Long term investments Backing by investors across borders

Why PE funding makes sense?

Impetus to entrepreneurial spirit Creating forex inflow Guidance for strategy and operational efficiency Improving systems and corporate governance standards

Team Managers of Mayhem

NMIMS, Mumbai

PE Investment: A Success Story

Airtel: An Indian telecommunications company Largest provider of mobile telephony and second largest provider of fixed telephony in India

1998: Operated in 2 circles Delhi and Himachal Pradesh 1998: Decided to expand and seek PE funding Raised funding from Warburg Pincus 1999: Operated in 4 circles 2001: Operated in 6 circles 2004: Operated in 23 circles Acquisition of operators across 5 states AP Karnataka Rajasthan Chennai Kolkata

1998: Operated in 2 circles Delhi and Himachal Pradesh 1998: Decided to expand and seek PE funding Raised funding from Warburg Pincus 1999: Operated in 4 circles 2001: Operated in 6 circles 2004: Operated in 23 circles Acquisition of operators across 5 states AP Karnataka Rajasthan Chennai Kolkatta

Team Managers of Mayhem

NMIMS, Mumbai

Boost in Revenues
Studies have shown that companies that are backed by private equity will usually grow much faster than other types of businesses. This is due to the combination of capital and experienced management skills that comes from the company's executives to set them apart from different types of financing. The monetary stimulus provided by the PE/VC firms can be used by the investee firms to increase R&D investments and capital expenditure Private Equity-backed companies invest more in R&D activities compared to their non PE-backed counterparts. Increased R&D expenditure stimulates innovation providing a distinctive competitive advantage which increases revenue. PE funds when used for capital expansion boosts the efficiency of the investee company leading to reduced costs and increased production

Revenue Growth of Mphasis (million $)

3500 3000 2500

2000
With PE 1500 1000 500 0 1 2 3 4 5 6

Without PE

Team Managers of Mayhem

NMIMS, Mumbai

Increase in Operational efficiency

Drives Value Creation provide strategic and operational Guidance Increased Enterprise Value (EV): The valuation multiples (Price-to-Equity Ratio, Price-to-Cash Flow Ratio, Price-toSales Ration and Price-to-Book Value Ratio) of PE backed firms grow faster than the non PE backed firms Profits of a firm can be increased by: Organic growth Inorganic growth
30% 25% 20% 15% 10% 5% Series1

0%
PE Backed Firms Non PE Backed firms Nifty

Team Managers of Mayhem

NMIMS, Mumbai

Encourage Entrepreneur

PVR Cinemas
Launched In June 1997 Launched By Ajay Bijli

PE Investor ICICI Venture

One of the largest cinema chains in India Total of 197 screens in 44 cinemas in 13 states and 27 cities across India & plans to open 500 screens by 2015

Team Managers of Mayhem

NMIMS, Mumbai

ROI for Warburg Pincus (in million dollars)

2,000 1,800 1,600 1,400 1,200 1,000 ROI for Warburg Pincus (in million dollars)

800
600 400

200
0 Investment Return

Long-term Growth and Strategic Direction

Long Term Growth Orientation

To gain a competitive edge in a widely saturated market where immense competition exists To continue expanding by providing much needed funds. Increases balance sheet and valuation Helps obtain funds for small businesses that do not easily get loans or grants Provides strategic solutions. Provides independence to the companies they fund

Strategic Direction Before PE funding: Process not standardized

Best practices not implemented Improper structure Vague direction and independent reporting Improper planning

Without PE funding, my company After PE funding: Media visibility

Better wages Better reputation Better corporate governance Effective business models Proper direction and mission
Would not have existed Would have grown slower Would have developed the same way

26%

26%

48%

Team Managers of Mayhem

NMIMS, Mumbai

Cases for and against

Haste in approaching IPOs due to high listing cost involved Unavailability of bank loans for start up companies Limited long term sources of debt due to nascent stages Staying away from pre defined roles Difficulty in valuation in initial stages Funding delays Conflict due to change management