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1
IL&FS Investment Managers Ltd
January 2009
2
Structure of Presentation
! Section A : Overview
! Section B : Investment Environment
! Section C : Funds Under Management
! Section D : Future Strategy
3
Section A : Overview
44
IL&FS Group Business Canvas
Financial Services
Investment Banking
Structured / Asset Finance
Project & Corporate Advisory
Private Capital Mobilization
Mergers and Acquisitions
Asset Management
Private Equity
Infrastructure
InfrastructureProject DevelopmentProject Sponsorship
SEZ / Industrial ParksPower Advisory
Surface Transport & Maritime
Social Infrastructure
Training
Education
Property Management
Environment & Social
Management
Advisory
Training
Waste & Water Management
Composite Service Platform
5
IL&FS Investment Managers
! Acquired by IL&FS in 1996 – Early recognition of establishing PE practice
– Structured as a pure asset management play
– Strong linkages forged with domestic and international investors
! Maturity through exposure
– Seen the PE world expand from < US$ 20 mn to > US$ 15 bn
– Investment spectrum spanning VC to PE; Buy-outs to PIPEs
– Cross sectoral presence
! Strong support of local partners / investees
– Over 60% of deal flow proprietary in nature
– Largely off-market deals, resulting from relationships; leads to better control on entry pricing/terms
! Team experience straddles fund and economic cycles
– 96 investments since 1998
– 47 exits / liquidity events
– Realized gross US$ IRR > 27%
Over US$ 1.9 bn under management
6
5%
6
Shareholding
IIML• IIML = “IL&FS
Investment Managers Limited”
• Focused solely on alternative asset management
IL&FS• IL&FS = “Infrastructure
Leasing & Financial Services”
• Founded 1987• Over US$ 2.96 bn of assets• Shareholders include ORIX,
ADIA, LIC, SBI, HDFC• 1,500 employees in 60
offices• Acquired IIML in 1996
Publicly Held
52%IIML
Employees
Note: Shareholding is as on March 31, 2008
43%
77
Key Persons
B.Com, ACA1220Chief Financial Officer
Manoj Borkar
B.A, MBA, PGDBA 226Chief Operating Officer
Mark Silgardo
B.A. (Economics), MBA, Ph.D
1222CEO & Executive Director
Dr Archana Hingorani
Name DesignationExperience
(Yrs)
PE Experience
(Yrs)Qualification
Shahzaad Dalal Vice Chairman 27 11 B.Com, MBA
Alok Bhargava Executive Director 22 6 B. Tech, MBA
Sanjay Mitra Company Secretary
12 6 M.Com, ICWA, CS
88
Business Model
Management Fee:- Typically 1.5-2% of AUM for the fund life - Highly visible, annuity revenue stream over 6-10 years
Carry:- Performance upside through profit share- Hurdle rate ranges between 8-11% p.a.- Carry is 20% of profits from investments - A upside component as Fund size / Asset under
Management increases
Revenue Stream
- Long-term investment horizon of 3-5 years- Majority investments in unlisted companies- Active investors with clear focus on value creation- Mitigates risk of stock market volatility
Investment Model
99
Uniquely Placed Business
The uniquely placed business model offers the following
! Retail participation in an otherwise exclusive institutional domain
! Indirect exposure to growth potential of large unlisted companies
! Stable predictable revenue stream (through management fees) with defined performance
upsides
! Manager (IIML) better positioned to create upsides vs managers of other asset classes
! Documented advantages of PE participation in the value of unlisted companies
! Higher degree of value add and relatively early stage of investment provides
significant upside at exit
! This upside captured through the Carry Structure
1010
Edge over other Classes
PE Fund Management
! Long term committed investors; predictable AUM, Fees
! High level of investor ‘stickiness’ with the Manager, with investor ‘reups’ in follow-on funds
! Proprietary deals result in entry at lower than market comparables
! No redemption pressure and need to ‘manage’ NAVs
! Significant ability to guide investee companies and control outcomes
! Carry structure captures upside
! Limited regulation / compliance issues
Mutual Funds
! Fund AUM subject to market conditions
! Varying investor interest depending on extraneous factors such as distribution reach, marketing, sentiment
! Entry at market prices
! Investment strategy hostage to NAV fluctuations and redemptions
! Inability to exercise any control
! No such profit sharing structure
! Higher degree of compliance/risks
11
AUM Growth
301
871
1,713
-
500
1,000
1,500
2,000
FY2006 FY2007 FY2008
$ m
n
AUM has risen at 1
39% CAGR
12
Income & PAT Growth
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
900.00
FY2005 FY2006 FY2007 FY2008
Inco
me
(R
s m
n)
0.00
50.00
100.00
150.00
200.00
250.00
300.00
PA
T (
Rs m
n)
Income (Rs mn) PAT (Rs mn)
IIML PAT has grown at 7
9% CAGR
FY2008 Consolidated Income & PAT of Rs 1.06 bn & Rs 319.6 mn
13
Financials
Rs mn
FY2008 FY2007 FY2006 FY2005 FY2004 FY2003
Total Income 825.54 502.93 253.41 180.83 150.08 155.96
Total Operating Costs 398.31 211.12 121.55 76.63 58.38 77.03
PBT 423.73 267.23 107.61 83.71 66.99 50.09
PBT Margin (%) 51.33 53.13 42.46 46.29 44.64 32.12
PAT 280.35 173.01 71.51 52.21 47.67 31.79
PAT Margin (%) 33.96 34.40 28.22 28.87 31.76 20.38
EPS (Basic) 10.82 7.11 * 4.63 3.48 3.19 2.17
Networth 594.26 398.39 261.42 229.88 223.84 217.03
Dividend 55% 40% 35% 30% 25% 17%
* Post Bonus Issuance
14
Cerebral Business = Higher Returns
35%41%
67% 71%
34%45%
67%
106%
0%
20%
40%
60%
80%
100%
120%
FY2005 FY2006 FY2007 FY2008
ROCE ROE
15
Section B : Investment Environment
16
1,160 937 591 4701,650 2,200
6,700
17,129
339
276
146
715678
280
110
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2000 2001 2002 2003 2004 2005 2006 2007
Valu
e of
Dea
ls (U
S$ m
n)
0
50
100
150
200
250
300
350
400
No o
f Dea
ls
Value of Deals (US$ mn) Number of Deals
! Growing Private Equity space in India– In 2007, India was the largest recipient of PE in
Asia, ahead of Australia (US$ 14.6 bn), Japan (US$ 14.4 bn) and China (US$ 11.5 bn)
– About US$ 3.3 bn invested in Jan-Mar 2008 and US$ 17 bn invested in 2007
– Fund sizes have increased from US$ 25 – 100 mn, to about US$ 400 – 1,000 mn
– Increasing deal sizes: average investment size up from US$ 4 mn in 2000 to US$ 50 mn
India : Emerging PE Destination
! India – increasing attractiveness as a PE destination– Strong economic growth leading to a majority of Indian companies looking for growth capital
– PE has fast emerged as an alternate source of funds for companies to support expansion plans
– Large Global PE investors are either setting up dedicated Indian funds or increasing allocations for Indian investments in their global portfolios
Source : Grant Thornton, IVCJ, AVCJ, Venture Intelligence
! Huge scope for catch-up to global levels– Indian PE is approx. 1% of GDP; Mature markets like US and UK have a PE to GDP ratio of 1.5-2%
– PE investment in US, for instance, was $ 191 billion last year
– This indicates the tremendous scope for growth, not just on account of the underlying GDP growth but also on account of catch-up to global levels
17
PE: Competitive Landscape
0
5
10
10 5030
No
of y
ears
in m
arke
t
Approx. Deal Size
Govt FundsSIDBI
HelionAureos
UTI Ventures
New Silk Route
New Vernon
IIMLChrys Cap
BlackstoneCarlyle
Newbridge3 i
Temasek
WarburgICICI Venture
StanChartSequoia
Blue RiverTano
Kotak
GW Capital
Experienced an entire fund cycle in India
Not experienced an entire fund cycle in India
ActisCitibankBarings
! IRR on exited investments : ~27%
! Three PE funds managed since inception
! US$ 190 mn invested in 45 companies
– Retail, Media : 23%– Life Sciences : 13%– Manufacturing : 40%– IT & ITES : 24%
! No losses till date
! First investors in Retail, Shipyard, Media
! Signature deals : Shoppers Stop, IBN18, ABG Shipyard, JBF
IIML Experience
18
! Infrastructure investments to rise from 4.5% to 8% of GDP by 2012
– Imperative for a 10% GDP growth– Translates into $495 bn investments in the next 5 years– Opportunities across sectors
PE Opportunity – Infrastructure
Source : SSKI
! Private players– Well entrenched in Roads, Telecom, Power, Ports, Airports– Opportunities in Urban Infrastructure, Railways and pipelines– Sector wise independent regulators
! Outcome : A mix of public private participation expected, increasingly skewed towards private contribution
– Private players to invest over $ 200 bn
! Key drivers in place– Regulations : Investments not permitted in areas like power distribution, airports, railways etc – now history– Independent regulators add to investor comfort– Government driven “packaged” mega projects like NHDP and UMPPs– Funds Availability
• Government contribution : Viability Gap funding, project specific cess• Cost efficient borrowing with sufficient depth possible• Growing size of project executors of comfort to international lenders
– Attitude : Willingness to pay commercial user charges– Growth Story : Sheer demand turning hitherto unviable opportunities into doable business plans
19
Infra : Competitive Landscape
No of Deals2010
10
0
No
of y
ears
in m
arke
t
5
30 40
IIML
IDFC
2010
10
0
No
of y
ears
in m
arke
t
AMPAIG
5
Blackstone Macquarie
3i
Chrys Capital
Citibank
30 40
! Signature Deals : Indraprastha Gas, Max Telecom, Noida Toll Bridge, Gujarat Pipavav Port, Ramky Infra
! IRR on exited investments : ~28%
! US$ 270 mn invested in 27 companies
! Early investors in Infra, Telecom, Roads, City Gas, Rail
IIML Experience
ICICI
CDC
Proposed Standard Chartered IL&FS Asia Infrastructure Fund with a corpus of US$ 800 mn
Telecom9%
Cable / IT linked Infra38%
Ancillary19%
Construction, Water, SEZ
8%Port5%
Power / Gas6%Roads / Rail
15%
20
PE Opportunity – Real Estate
RE expected to capture 20-25% of FDI inflows *Source: Commerce and Industry Dept, GoI. FDI has gone up from $ 5.5 bn to $ 20.1 bn in the same period
FDI in Real Estate as a % of Total FDI in India*
3.4 %
9.2 %
16.5 %
2005-06 2006-07 2007-08
Real Estate PE Investment by Asset Class
! This growth is expected due to the following factors :
– Strong economic fundamentals– Large and Growing middle class; changing
socio-economic trends – Increasing demand for good quality office
space driven by IT and KPO companies– Increasing investment in Infrastructure– New investment platforms emerging : REIT,
REMF
! Opportunities in Real Estate exist in :– Integrated Townships– Organized Retail– Adaptive Re-use of Industrial Land– Urban Site Rehabilitation– SEZs – IT / ITeS Sector
Expected size of Real Estate market in India :About US$ 90 – 150 bn by 2015
21
RE : Competitive Landscape
0
450
900
To
tal Fu
nd
Siz
e (
US
$ M
n)
Rate of Deployment (% of Total Corpus)
Sun-Apollo
Trikona-Trinity
ICICI
Venture
Urban Infra REF
Tata Infra & Real estate
Fund
HDFC Realty Fund
FDI Real Estate Funds Raised between 2005-07
Funds managed by IIML
Competitors: comparatively slower pace of deployment
Note: Analysis covers Existing FDI real estate dedicated funds (fund size>US$ 300mn; and does not include Global Proprietary Funds
Red Fort Capital
Infinite India Real Estate
Fund
100%
IL&FS India Realty Fund-I & II
! Early investors in SRA, Industrial Parks, 100% asset buyouts
! Signature Deals : QVC, Ansal, Mantri, IRPPL, Akruti City, ETL, DB Realty, MK Malls
! US$ 663 mn committed in 24 transactions
IIML Experience
! Two active funds under management with total Fund size ~ US$ 1.4 bn
! Pioneer in India : First RE fund launched in 2005 / 2006
! US$ 557 mn already deployed in 19 transactions
– Mumbai : 32%– Multi City : 21%– NCR : 19%– Bangalore : 8%– Pune : 7%– Others : 13%
22
Section C : Funds Under Management
2323
Fund – Across Spectrum
Private Equity
• Two active funds
aggregating US$ 378 mn
• First fund fully divested –
distributed carry
Real Estate
• Established 2005
• Two funds aggregating
US$ 1.4 bn
Infrastructure
• Proposed SCI Asia
Infrastructure
Growth Fund
• Pan Asian focus
Private Equity Investment Spectrum
24
Milestones
25
Diversified Exit Strategy
47 Exits / Liquidity Events
Exit Returns of 27% in US$ terms with a multiple of 2.5x
Buyback21%
Listed / IPO42%
Strategic Sale26%
Trade Sale11%
26
Existing Funds
Fund Vintage Corpus (mn)
Hurdle Rate
No. of Investments #
No. of Exits
Capital Refunded
(mn)
Profits Returned
(mn)
Expected End of Fund
SARA Mar-98 1100 (Rs) 18% 26 15 429 (Rs) 590 (Rs) 2010
PAPDF May-06* 1800 (Rs) 6%** 7 - - - 2012
LIF Apr-05 6713 (Rs) 7% 27 9 2252 (Rs) 484 (Rs) 2011
REF - I Apr-06 525 ($) 11% 17 - - - 2014
REF-II Dec-07 895 ($) 10% 7 - - - 2015
TARA Sep-07 225 ($) 8% 5 - - - 2017
* Singapore Fund in June 2007** Compounded semi-annually
# Includes Commitments
27
Section D : Future Strategy
28
! From around a billion dollars 3 years ago; projected to grow to $ 20 bn by 2010
! Cross sectoral investments opportunities to increase – A third of investments in 2007 went into Real Estate– Robust levels in Banking, Financial services, Telecom, IT and manufacturing – Infrastructure set to capture a larger share – Increasing opportunities as sectoral caps are relaxed
• Single Brand Retailing• Cargo Aviation
! Tried and tested exit routes provide comfort to foreign capital– Public markets have proved to be preferred choice– Trade sales to increase as capital with different risk / return profile flows in
! Outcome : PE activity levels will accelerate – Key to success : Global sources ; Local partners
PE : Deepening Markets
29
! IIML has a successful business model built assiduously over the last decade– Fund Manager of repute – A port of first call for investees
! Business model to be replicated resulting in enhanced AUM / revenues through – Larger follow on funds– New emerging opportunities– Extending Geographies
! Substantial increase in activity levels on all counts in the next 2-3 years– Enhanced Fund raising– High level of investment deal flow– More investments to reach liquidity / exit stage
• Carry in the medium term
Into the Future…