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Deal focus: India’s pre-IPO limbo fuels direct secondary deals

TR Capital leads a USD 90m round for Indian consumer lending player Fibe, citing a strong outlook for secondaries in a logjammed IPO market and sound long-term fundamentals

From 2022 to 2023, proceeds from Indian IPOs held steady at USD 7.9bn and are roughly on track to repeat the performance. More interestingly, the number of IPOs jumped from 150 in 2022 to 234 in 2023, the highest level in at least six years.

There were already 121 as of end-May 2024 despite the perception that many companies have put offerings on pause until after the national election. As this pathway to exit for private equity widens, demand for other liquidity channels will decline, at least in relative terms. Or so the logic goes.

This has not been the experience of Asia-focused direct secondaries specialist TR Capital, which has operated in India for the past 15 years.

Long term, TR sees the local listing boom as expanding the secondaries opportunity by building confidence in the overall market. Short term, it creates an overhang in the IPO queue as the market, wary of spoiling its momentum with lacklustre floats, tries to prudently absorb the inundation.

Frederic Azemard, a managing partner at TR, observes that companies with planned pre-IPO periods of three to five years are now extending those timeframes to seven to eight years.

“It takes time to grow companies to mature stages until they can be listed or sold, and everyone has underestimated that,” he said. “So, we are today in a place where you have good fundamentals and where secondary is definitely a liquidity option for a lot of GPs. Our market is growing quite a lot.”

TR has a team of seven investment professionals in India – Azemard is based in Hong Kong – mostly targeting consumer, healthcare, and technology categories. There are plans to enlarge the team in the foreseeable future.

The firm estimates there is potential to deploy more than USD 200m in India secondaries this year, largely by helping companies bridge the funding gap that comes with a longer than expected road to IPO. TR’s total deployment in India secondaries for 2023 was around USD 100m. Azemard sees the opening as a natural outcome of a broader maturation process.

“Let’s not forget, 20 years ago, the private equity market was almost non-existent in India but already quite sizeable in Europe and the US,” he said. “It is catching up very quickly, but there are still little adjustments that are needed, and that’s creating opportunities for us.”

TR’s latest move in this theme came last week when it led a USD 90m Series E for tech-enabled consumer lending provider Fibe, formerly known as EarlySalary. TR contributed USD 32m to the round, most of which was secondary capital, although there was a significant primary component.

All in, secondary sales accounted for USD 24m of the round. The selling shareholders have not been disclosed, but Azemard described them as financial investors who had already made good returns. Akshay Mehrotra, cofounder of Fibe, told local media that there were no major exits.

The largest part of the primary capital came from existing investors, including TPG Rise FundNorwest Venture PartnersEight Roads Ventures, and Chiratae VenturesTrifecta Capital and Amara Partners also participated.

Earlier investors include Piramal Group and Dewan Housing Finance Corp, according to AVCJ Research. Piramal, investing via a housing finance subsidiary, added about USD 6m to a USD 110m Series D in 2022 led by TPG and Norwest. Dewan backed two small rounds in 2017.

The Series E reportedly gives Fibe a post-money valuation of USD 500m, up from USD 270m at the Series D. Azemard acknowledges that a brighter spotlight on India amidst weakened sentiment for China has contributed to rich valuations but does not see this as a deterrent to backing best-in-class companies.

“The key is to really focus on the quality of the asset because paying a bit of a high price for a high-quality asset tends to lead to good returns,” he said. “This is why the background of our team is very much focused on direct investment. We spend a lot of time – whether it’s single-asset or portfolio solutions – assessing the underlying assets.”

TR liked what it saw in Fibe in terms of a strong management team addressing a growing market at the intersection of themes around rising digitalisation and consumerism. Specifically, this included an ability to adapt quickly and maintain discipline on compliance in a shifting regulatory landscape.

Revenue improved 133% during the 2024 financial year to INR 10bn (USD 120m), while profit grew 178% to INR 1bn. The company has disbursed more than 6 million loans to date worth more than INR 200bn. The progress has fanned expectations. Fibe will join the current IPO wave, but Mehrotra has stated that the move remains three to three-and-a-half years away.

“Everyone is talking about an IPO now. We’ll see. There might also be some kind of interest, at a later stage, from a financial investor that wants to take a sizeable part of the business, provided the business delivers and continues to grow,” Azemard said. “It’s always back to the question – are they a top-decile business? If so, there are exit options.”