There is more bad news for companies. High oil prices and volatile markets have taken their toll on the capital raising plans of Indian companies, with 50% capital raising plans failing to take off, according to bankers.
Valuations across many sectors, especially retail and financial services, have crashed, and investments in these segments have taken a back seat. Although most companies prefer to keep their private fund-raising plans under wraps, merchant banking sources said half the fund-raising deals being discussed late last year and early 2008 have been stymied. Stuck deals include those of Sport Station, a distributor of brands like Nike and Levis, and a large detergent player in the north.
?There were several deals on the table in the November to January period,? investment banking sources said. ?But today, these have either been shelved or are being renegotiated, and it?s taking a long, long time.?
Agrees Deepesh Garg, director, Ozone Capital Advisors, ?Financial services have been the worst hit, since they are losing business, as well as multiples. In retail, with expansions taking a hit, valuations have crashed. Moreover, promoters are taking time to realise that valuations are indeed down.”
There won’t be a let-up in the situation so soon, and the slackness may continue well into 2009, the investment bankers reckon. Says Mahesh Chabria, partner, 3i Private Limited, ?Companies that suffer the most are those that are on the verge of expansion. With plans to expand business, promoters seek more investment by diluting stakes, which will have to be kept aside if inflation is soaring high. The situation is likely to continue for the next 7-9 months.?
Industry, especially the mid-size segment, is cautious and would like to wait and watch before going ahead with deals. Earlier this year, Wockhardt Hospitals and real estate major Emaar MGF shelved plans to raise money from the capital markets. The former then said it is looking at raising private funds, but is yet to zero in on a PE player. Similarly, some pharma companies, including Piramal Healthcare, are waiting for private funding for risky R&D spin-offs, but such talks are yet to materialise.
