JM Financial – MP Investor Summit

October 2014

1

Indian Entrepreneurs, Opportunities in

PPP and Importance of Equity

2

Indian Entrepreneurial Spirit

• Entrepreneurship is the building block of Indian DNA

• Indian Corporate Sector is built on the backbone of

Entrepreneurs such as Mr O.P.Jindal, Mr Dhirubhai

Ambani and Mr Jamshetji Tata

• Govt is set to allocate INR 100 crores for encouraging

rural youth to take up entrepreneurship

• Launching “Skill India” program to develop the skill

of youth on entrepreneurship and employability

• A nationwide “Incubation and Accelerator” Programme

for incubation of new ideas and necessary support for

accelerating entrepreneurship

• Entrepreneur friendly legal bankruptcy

framework to enable easy exit for SMEs

Government’s Support to Entrepreneurship Educational Push for Entrepreneurship

• Government has established 14

dedicated Entrepreneurial

Development Institutes to

mentor entrepreneurs

• 30+ renowned entrepreneurial

cells have been established by

various Business Schools to

groom and advise entrepreneurs

Stratospheric

Level

Grass-Root

Level

IIM Indore

Centre for Entrepreneurship

Development, Bhopal

India has grown on the back of Entrepreneurs

2008 YTD 2014

Market Cap.@ (US$ Bn) 637 1,515

Companies with M.Cap > US$ 1 Bn 95 202

Companies with M.Cap of US$ 1 Bn - 3 Bn 60 109

Companies with M.Cap of US$ 3 Bn - 10 Bn 22 33

Companies with M.Cap > US $ 10Bn 13 30

Note

1. Market Cap as at YE for 2008 and 1st Oct 2014 for YTD 2014. Source: Bloomberg 3

GDP (US$ Bn) 1,238 1,843

What was once a Small Idea is today a very Big Company

4

Key Benefits

5

Explaining PPP

• Corporatization

• Civil works contract: DBB* & DB**

• Service Contracts

Public

Public-Private

Partnership

Privatization • Full Divestiture

• Management and operating contracts

• Lease / affermage

• Concession

• Build, Operate, Transfer

• Design, Build, Operate

• Design, Build, Finance, Operate

• Joint Venture

• Partial Divestiture

Ex

ten

t o

f P

riva

te S

ec

tor

Pa

rtic

ipa

tio

n

Pu

bli

c O

wn

ers

hip

an

d f

ina

nce

Mix

of

pu

bli

c a

nd

pri

vate

ow

ne

rsh

ip a

nd

fin

an

ce

Pri

vate

ow

ners

hip

an

d f

inan

ce

Improved Project Selection

Accelerated infrastructure provision

Whole life-cycle cost optimization

Revenue innovation

6

Key Drivers for PPP Model

High level of Political

Commitment

Favourable

Operating

Environment

Financing

Strong Policy

Framework

Dependable

Feasibility Study

Balanced Risk

Allocation

7

Indian PPP as it stands

Public63%

Private37%

Public52%

Private48%

11th Plan: $402 Bn

Public vs. Private Spending

Source Planning Commission

12th Plan: $928 Bn

Infrastructure Investments during Plan PeriodsUS$ Bn

Source Planning Commission

139

403

928

5.0%

7.2%8.2%

0.0%

3.0%

6.0%

9.0%

0

300

600

900

1,200

2002-2007 2007-2012 2012-2017

Infrastructure Investment Infrastructure Investment as % of GDP

Increasing opportunities in Infrastructure space provides huge scope for Private Sector Investments

Length of National Highway added in the various Five-Year

Plans – (Kms)

Source NHAI, MoRTH

0 1,514 179

4,819

1582,867 1,902 609

23,814

9,008 10,228

36,500

0

10,000

20,000

30,000

40,000

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12thE

% of PPP Projects

Source PPP India Database

53.0%

20.0%

8.0% 7.0% 7.0%2.0% 1.0% 1.0% 1.0%

0%

10%

20%

30%

40%

50%

60%

Roads UrbanDevelopment

Ports Power Tourism Education HealthCare

Airports Railways

8

Role Models for a Successful PPP

GMR Group &

United

Engineers

Malaysia

• Financing Innovation: The concessionaire for the project

raised debt at 3% lower rates than project debt by

securitizing the annuity payments receivable

Tuni-Anakapalli Road

-Road expansion project

for 59 km. from 2 lanes

to 4 lanes in NH-5

Roads are

operational since

December-2004

IVRCL Infra &

VA Tech Wabag

• Financing Innovation: One-time deposits in the form of

connection charges was collected from public to fund 29%

of the project cost.

• Strong Political Will: The chairman and the council of the

local municipality played a vital role in convincing the

citizens to pay a share of the project cost

Alandur Sewerage Proj

-Constructing an

underground sewage

system and waste water

treatment facility

Project was

completed in

March-2003 and

into 11th year of

operation

Rohan Builders

& Rajdeep

Buildcon Pvt

Ltd

• Favourable Operating Environment: Government issued

notifications to the effect that all intercity buses would be

required to pickup and drop off passengers at the new Bus

Terminal to boost Adda fees (Parking) & User charges for

specific amenities collected by private developer

Amritsar Intercity bus

terminal

-Developing a modern

state of the art Intercity

Bus Terminal

The project was

completed before

predetermined

time frame and

operational from

Oct-05

Voltas Ltd &

Jamshedpur

Utilities &

Services Ltd

• Strong Political Will: The Kolkata Municipal Development

Authority played a critical role in assigning zero licensee fee

payment & favourable term period (30 years) to the private

developer

Salt Lake Water supply

-The project involved the

design and construction

of all the water supply &

sewerage facilities

Roads are

operational since

Dec-04

9

Key Learnings from Mistakes in PPP

DS

Constructions &

Jaiprakash

Associates

Delhi Gurgaon Expressway

-Increasing the lanes to 6/8 for a

section of NH-8 connecting Delhi to

Gurgaon

Hyderabad Metro

-Constructing 3 dedicated elevated

corridors

Mumbai Metro

-Constructing elevated corridor

connecting Eastern and Western

suburbs

Vadodara Halol Toll Road

-Widening and strengthening of 32

kms of the existing two-lane State

Highway (SH 87)

Land Acquisition Issues:

• The government’s failure to acquire the required land for

construction could delay the schedule of the project and increase

the interest cost for the private player

Clearance Issues:

• Project might require numerous approvals from various

government bodies. Any delay would add to the cost of developing

the PPP and reduce value for public

Incorrect Traffic Estimates:

• Using outdated/incorrect traffic estimates could negatively

influence revenues thereby affecting the profitability of the private

developer

Change in Scope of Work:

• Any changes in the original design after the project inception could

escalate the time frame and project cost

Insufficient Due Diligence:

• Inefficient due diligence regarding incentives, legal environment,

etc. puts undue pressure on the viability of project operations

10

Sadbhav: A case in point

RobustBusiness Model

Rational Bidding Strategy

Focus on ‘Profitable’

Growth

Cluster approach for

bidding adjoining projects

Timely Completion of Projects

• Targeting High GDP stable and progressive

states with higher than national GDP growth

• Strategic focus on bidding during low competition

period to avoid aggressive bidding

• Partnership approach for bidding large projects in

Joint Venture

• Pioneered art of selecting quality stretches after

evaluating expected increase in economic activity

in the region – Northern and Western Region

• Bidding for longer terms projects with average

terms toll projects > 23 yrs

• Completed projects ahead of schedule receiving

performance bonus from NHAI

• Company is selective in project selection and

mobilises resources only upon receiving all

approvals

• This enables them to ensure timely completion of

projects

• Sadbhav has very strategically bidded and

secured assets adjoining to its existing assets

resulting in better operating efficiency and

improved margins:-

Rohtak-Hisar & Rohtak-Panipat,

Rajasmand-Bhilwara & Shreenathji-Udaipur &

Solapur-Bijapur & Bijapur Hungud

11

Crucial Factors for Success

Awarded

11,839 km 4,633 km 2,356 km

Stalled due to various Issues Stalled due to financial issues

Present Status of Road Projects

Key Success

Factors

Streamlining of

approvals

clearances

Proper LeveragingClarity in

determining traffic

Handling of Land

acquisition

Efficient Due

diligence

Avoiding

Aggressive

Bidding

51% of stalled projects are due to financial issues

12

Fund Raising Alternatives

Domestic Funds

Foreign Funds

Debt Structured

through EquityEquity

Own Money

(Internal Generation)

Sponsors Capital Markets

Sources of Equity

What is Private Equity?

Definition of

Private Equity (PE)

• “Private equity investing may be defined as ‘investing in securities through a negotiated process’,

majorly in unquoted companies. Private equity investment is typically a transformational, value-

added, active investment strategy.”

– European Venture Capital Association

• “…means capital raised for a dedicated programme of investing directly into primarily private

businesses, acquiring ownership stakes and taking an active role in monitoring and advising

portfolio companies”

– Fenn, Liang and Prowse (1995)

Seed

Funding

Start-up

Financing

Growth

Capital

PIPEs Buyouts

(LBO/MBO)

Evolution of PE

Investments

13

PE can help fuel growth at all stages of business cycle

Start Up

Growth

Companies

Matured

Companies

Type of PE Deal ExamplesRevenue and

Profit TrendsInvestment NeedsStrategic Focus

• Venture Capital• High Revenue Growth

• Expect losses

• Launch and startup

costs

• Investment in working

capital

• Market entry

• Revenue growth

• Growth Capital

• Pre-IPO

• PIPEs

• Steady Revenue

Growth

• Strong Profits

• Working capital• Customer acquisition

• Customer retention

• Return to shareholder

• Buyouts

• PIPEs

• Steady Revenue

• Stable or declining

Profits

• Business renewal

areas

• Acquisition

• Ensuing customers

expand beyond

existing loyalty base

• Exit strategy

• Buyouts

• Take Private

• Declining Revenue

• Declining Profits

• Capital erosion

• Capital needed for

rejuvenation

• Exit

• Reversal of fortunes

• Possible rejuvenation

• Succession

Last Exits

14

15

Private Equity Investment TrendUSD MM

Source JM Financial Database

Private Equity Investment Trend

3,432

7,5148,199

7,0498,342

5,831

691

0

2,000

4,000

6,000

8,000

10,000

2009 2010 2011 2012 2013 YTD 2014

Sep-14

202 347320 346 334 303No. of

Deals

122 190191 194 186 167Deals

< USD 25 MM

24 4543 43 28 27Deals

USD 25-50 MM

17 3832 31 29 32Deals

> USD 50 MM

39 7454 78 91 75Undisclosed

Deals

6,522

16

How Private Equity helps businesses to grow

+

Finance

Best practices in financial reporting

and systems control; building

budgets and forecasts; assistance

in additional capital raising

Imparts Credibility

Enhanced credibility and visibility

with clients, suppliers, banks and

competitors; strengthens corporate

brand identity

Global Network of Strong Relationships

Through other portfolio companies;

through people network

Value

Addition

Long Term Partnership

Offers guidance and exercises

oversight over strategic decision

making through active board

participation

Managing Growth

Optimal organizational structure

and development, counseling

management on important matters

Corporate Governance

Systems to enforce stricter

accountability and transparent

disclosure; stronger internal control;

effective functioning of the board

17

Private Equity Investors in Infrastructure

Name of The Investor ManagerAssets Under Management

(USD Bn)Select Investments

Major Players

GIC* Pankaj Sood 315 • Greenko Power,Adani Ports,GVK Energy

Macquarie Suresh Goyal 5.0• GMR Airports,Ashoka Concessions,GMR Jadcherla

Expressways,Soham Renewable

Temasek* Promeet Ghosh 177 • GMR Energy

Blackstone Amit Dixit 30 • Monnet Power ,Moser Baer Power

Rohit Chandak 12.5 • Jetpur Somnath Tollways

Warburg Pincus Vishal Mahadevia 39 • Diligent Power

Rohan Sikri 2.0 • HCC Concessions, Sadbhav Infrastructure

18

Private Equity Investors in Infrastructure (Contd)

Name of The Investor ManagerAssets Under Management

(USD Bn)Select Investments

Smaller Players

Kunal Shroff 2.5 • NCC,Gammon India,Pratibha Industries

Vipul Kamani 2.0 • GMR Airports Holding, Ocean Sparkle, Karaikal Port

Girish Nandkarni 2.0 • GMR Energy, Adhunik Power,Konaseema Gas Power,Essar Power

Nihar Shah 1.3 • Azure Power, Auro Mira Energy,Sunborne Energy

Ritesh Jain 1.0 • Salem Tollways, IVRCL Chengapally Tollways

Raj Nair 0.9 • Nandi Infrastructure Corridor Enterprises, Soma Tollways

Anand Prakash ~0.6 • Bhilwara Energy,NSL Renewable

19

Booming Indian Capital Markets – Time to raise funds

FII Flows – 2014(USD BN)

(0.60)

24.66

20.16

(0.01)

0.42 3.20 1.69 2.78 1.84 1.94 1.05 1.01

13.88

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

CY-11 CY-12 CY-13 Jan Feb March April May June July Aug Sept YTD

Source SEBI dated October 01, 2014

DII Flows – 2014(USD BN)

6.10

(10.92)(13.05)

(0.24)

0.04

(2.16)(1.14)(0.81) (0.77) (0.54)

0.38

(0.67)

(5.90)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

CY-11 CY-12 CY-13 Jan Feb March April May June July Aug Sept YTD

Source SEBI dated October 01, 2014

9.28

4.20

7.26

1.31

10.02

(0.04)

13.88

(4.0)

0.0

4.0

8.0

12.0

16.0

Brazil Indonesia Korea Phillippines Taiwan Thailand India

Performance of SENSEX vis-à-vis Global MarketsLTM

Source Bloomberg dated October 01, 2014

FII flows in key emerging markets (YTD 2014)(USD BN)

Source Bloomberg dated October 01, 2014

80

100

120

140

160

01-Oct-13 30-Nov-13 29-Jan-14 30-Mar-14 29-May-14 28-Jul-14 01-Oct-14

Dow Jones 12% FTSE 2% Nikkei 10% Straits 3%

Sensex 36% Hang Seng 0% Shanghai 9%

20

Raising Money through Capital Markets

Existing

(With Track-record)

Green Field

(Without Track-record)

Raising Capital

How important is profitability in initial years?

How much money should I bring in?

Should I be coming from a reputed family?

Is strength of management relevant?

How important is Corporate Governance?

What is the lock-in period after IPO?

What kind of investors to target?

How big a firm should be to do an IPO?

How to decide the timing for IPO? How crucial is the growth story?

Tree House Education & Accessories Ltd

21

Initial Public Offering – Case Study

• Tree house Education operates branded pre-schools

across 43 cities and provides educational services to k-12

schools in India.

• In 2011, JM Financial successfully completed the Initial

Public offering of Equity shares of INR112 crs.

• The IPO was first of a kind in education pre-school

business

• Market cap of Tree house was close to INR 450 crs during

IPO

• Prior to IPO, Matrix Partners and Foundation Capital has

invested INR 59 crs and INR 39 crs respectively in Tree

House.

• The objectives of the issue was to expand pre-school

business and constructing educational complexes

• Efficient use of capital and prudent management has

enabled them to broaden their pre-school reach from 23

cities(177 schools) to 43 cities(456 schools)

• This growth combined with efficient operations has

enabled their earnings to grow from INR 4 crs in FY10 to

INR 44 crs in FY14

• The strong growth story has enabled their current

market cap to reach INR 1,800 crs

22

Key Considerations for IPO

• At least 10% of each

class or kind of equity

shares or convertible

debentures are offered

and allotted to public if:

– Post issue capital

calculated at offer

price is more than

Rs. 4,000 crs

• Company to increase

its public shareholding

to 25% within 3 years of

listing

• For companies with

post issue capital of

less than Rs. 4,000

crores, minimum

dilution to public to be

25% or Rs. 400 crore,

whichever is lower

• Key requirements

include:

– Detailed Project

Report

– Firm arrangements

towards 75% of the

stated means of

finance, excluding

amount to be raised

through IPO or

identifiable internal

accruals

– Auditor/ CA

certificate for project

cost incurred up to 2

months prior to Offer

Document date

• 20% Post Issue Capital

to be locked-in for 3

years by Promoters as

part of Promoter’s

Contribution

• Remaining pre-Issue

capital to be locked-in

for 1 year

Promoter’s

Contribution and 1

Year Lock-in

Minimum Issue SizeIdentified Projects for

Primary Issue

Lock-inUse of IPO

ProceedsIssue Size

• Report on audited and

restated financials of

Issuer for the last 5 years

as per Indian GAAP

(Standalone +

Consolidated)

– Cannot be older than 6

months from the date

of DRHP/ Prospectus

(Indian Law)

• Interim period audit

required for RHP stage

(135 day rule would apply

in case of 144A)

• Auditor must be

subjected to peer review

Not Older than 135 Days

Key Financial

Deliverables

Note1. As per the Finance Act, 2014 no tax applicable in case of shares held for more than 36 months.

• Reservation of upto 5% of

Post Issue Capital for:

– Permanent Employees

of the Issuer/ Holding

Company / Subsidiary

and material

consolidated

associates

– Directors of the

Company

– Discount of upto 10%

can be given

• ESOP/ ESPS Scheme

may also be considered

• Reservation of upto 5% of

Issue Size for depositors,

bondholders or

subscribers to services of

the Issuer as on the date

of filing the DRHP

Reservations for

Employees and Directors

Stakeholder

Participation

IPO Process Timeline

Notes:

1. Dependent upon timely receipt of deliverables from all parties including Company and Auditors.

2. SEBI review period is indicative.

3. Price Band to be announced 5 working days in advance of bid opening.

4. Anchor Investor Bidding can also be considered. If used, Anchor Investor Bidding to open/ close and allotment to be made 1 day prior to Offer Opening.

5. Closure of QIB Book a day prior to Issue Closing can also be considered. 23

Week 1-2 Week 3-4 Week 5-6 Week 7-8 Week 9-10 Week 11-12 Week 13-14 Week 15-16 Week 17-18

IPO Complete in ~17-18 Weeks

Appoint Bankers/ Lawyers

Document Preparation and Due Diligence(1)

Kick-off

Listing and

Trading

Reply to SEBI

Observations

SEBI Review (2)

Pre-

MarketingDeal Road

Shows

Final

Observations

Filing of RHP

with RoC

Price Band (3)

Issue

Period (4) (5)

Pricing Allotment

File DRHP

Interim

ObservationsIn-Principle

Approval

Shareholder

Approval

Board Meeting Deal Launch Deal Closing

Finalisation

of DRHP

Institutional Investors in Infra

Investor NameFund Manager

Name

Investor in

Recent Indian

Equity Offering

Investors in Infrastructure

Larsen & Toubro Ltd GVK GMR Sadbhav Engineering Ltd

IL&FS Transportation

Networks Ltd Ashoka Buildcon Ltd

LIC S B Mainak

Icici PruManish Kumar,

Laxmikant Reddy

Bajaj Allianz Sampath Reddy

HDFC MF Prashant Jain

Reliance MF Sunil Singhania

Birla Sunlife MF Mahesh Patil

JP Morgan

Rukhshad Shroff,

Edward Pulling,

Raj Nair

FranklineSukumar Rajah, Siva

Subramanian

Investor with large holding Recent Buyer 24

Institutional Investors in Infra (cont’d)

Investor with large holding Recent Buyer

Investor NameFund Manager

Name

Investor in

Recent Indian

Equity Offering

Investors in Infrastructure

Larsen & Toubro Ltd GVK GMR Sadbhav Engineering Ltd

IL&FS Transportation

Networks Ltd Ashoka Buildcon Ltd

FMRSam Polyak,

Sonu Karla

Blackrock Anup Maheshwari

Jupiter Aviniash Vazirani

NBFinn E. Hvistendahi,

Ola Stavem

DWS Marco Ravagli

GIC Ken Lim

TIAA Harinder Bagai

HalbisSanjiv Duggal,

Viresh Mehta

25