Renewable energy, roads, power transmission and logistics are the infrastructure sectors with plenty of investment opportunities, top industry executives said during a panel discussion at the VCCircle India Limited Partners Summit in Mumbai on Wednesday.
There has not been a better time for investors to look at Indian infrastructure and cherry-pick assets, said Yeshwanth Kini, India chief executive at private equity firm Kaup Capital. "We have focused a lot on spaces such as specialised logistics. We have invested in an oil and gas logistics company and a marine-side logistics firm. Sectors like healthcare and education are also emerging," he said.
Milind Joshi, partner-infrastructure at private equity firm IDFC Alternatives, said the multi-asset manager has invested in several road and power assets in recent years and continues to look at roads and renewable energy. He added that a focus on buying controlling stakes makes it easier to exit.
However, in order to meet large investment needs for infrastructure, India will require huge domestic and overseas capital, said Virender Pankaj, chief executive for wholesale finance at L&T Financial Services. He added that a framework will be critical to tackle uncertainties typically associated with long-term projects, so that the capital can freely flow in.
On the lending front, Pankaj was of the view that the days of generalist lenders are fading. “If you have to be a lender or an investor, you need to understand the sector well," he said. As a result of his firm’s focused strategy, he said 80% of L&T Financial Services' business in infrastructure have come from renewable energy, roads and transmission.
On renewable energy, Kailash Vaswani, deputy chief financial offer at renewable energy producer ReNew Power Ventures, said there has been a lot of disruption in the sector, leading to rates in solar energy becoming the cheapest across the power sector at Rs 2.5-3 per unit. "The growth is very real and there is a lot of potential in the country. We (India) have the most number of sunny days so the solar potential is almost 700 gigawatts (GW)."
Vaswani also said the main hurdles to the renewable energy sector were delay in payments from power distribution companies and limited financing options, with only a finite set of lenders willing to lend and state-run banks staying off the category.
Commenting on the hurdles faced by players in roads and power transmission sectors, Joshi of IDFC Alternatives said the key issues have largely been dealt with and that low internal rates of return (IRRs) are a thing of the past, when developers took bolder risks. Investing in the struggling thermal power sectors, though, would be "adventurous" at this point, he said.
The panel, moderated by Vineetha MG, partner at legal firm Samvad Partners, also observed a need for an Indian sovereign fund in infrastructure.
A report by investment bank Ambit in 2016 estimated that global pension funds and sovereign wealth funds could invest up to $50 billion in Indian infrastructure over five years. The sector raised about $3.49 billion in the financial year ended 31 March 2017 from 33 transactions, according to investment bank Equirus Capital.
In recent years, the Indian infrastructure sector has been hurt by weak finances of large conglomerates and a slump in economic activity, resulting in stalling of projects for lack of clearances or funds. Given the muted spending by private players in the space, the Centre has been leading investments, with infrastructure development on top of its agenda.
However, policy changes in the past two years and relaxation in project exit norms for highway developers have inspired hope for global pension funds and domestic investors alike. This, in turn, has given rise to transactions led by infrastructure-focussed investors such as Canadian firm Brookfield Asset Management, India's IDFC Alternatives, Australia's Macquarie Group, Dutch pension fund APG Asset Management, and Canadian pension funds Canada Pension Plan Investment Board, La Caisse de dépôt et placement du Québec (CDPQ), and Public Sector Pension Investment Board (PSP Investments).
