Sunday, 9 March 2008

A Firm 'No' to Private Equity

When Financial Express reported India Cements Limited's Plans to list Chennai Super Kings in the next three years, one of my interpretation was that India Cements Limited(ICL) is sending signals to Private Equity Investors for diluting their stake. So I was naturally surprised when I read about India Cements Limited's unwillingness to dilute their equity stake(in Times of India article).

Most of the management gurus teach that the natural path of progression for any start-up is to raise funds from Private Equity and then approach the public market(Stock Market).

4 reasons why ICL is not following the regular text book model

  • Confidence of ICL on the success of the business model of Chennai Super Kings
  • Huge Reserves of ICL, thanks to buoyant Indian economy
  • Generally Private Equity players, in addition to capital, also bring management expertise to any start-up. But I don't think any of the Indian Private Equity Players can do the same for Chennai Super Kings
  • ICL looking at Chennai Super Kings as a marketing opportunity rather than as a new business venture.

What Srinivasan Says

N Srinivasan, Vice Chairman and MD, Chennai Super Kings in his interview to Times of India says,

"A few private equity investors met me. They were interested in knowing if I would be willing to dilute my stake in the team's equity. I have told them that we are not in favour of diluting to anybody for the moment."

Unwillingness to dilute their stake clearly shows the confidence that India Cements Limited have on the success of the business model. As Srinivasan clearly explains,

"The valuation of Manchester United is £9 billion. The sheer number of people viewing cricket in India is much more than soccer viewers there. Assuming I manage to get 5% of that, you will know what I mean if you do your math. It is of course important that the tournament should take off in its first episode, which I am sure it will."

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