Luis Miranda wears his passion on his sleeve, literally. On Monday, he came to office in a shirt that bore the logo and symbol of Manipal Health Systems (MHS), one of the 22 infrastructure companies funded by IDFC Private Equity.
As president and chief executive officer of IDFC PE, the first private equity firm with a sole focus of funding infrastructure companies in India, Miranda said: “Everyone loves bitching about the poor state of infrastructure in the country, but hates to do anything about it.”
With $630 million under management between two funds, his deployable reserves fast depleting, and infrastructure taking centre stage now, Miranda is planning a third fund. He wants to complete raising it by the first quarter of the next financial year.
“...we are targeting a little over $500 million,” Miranda said, citing his apprehension over the amount of money getting raised at the moment and valuations that look unreasonable as reasons why he has not set any lofty fund-raising targets.
Currently, there’s anywhere between $5 billion and $10 billion being raised for India-dedicated infrastructure projects.
“People will wake up one fine day, and see that private-equity valuations are beyond what they should be. It’ll be something like the world suddenly waking up to the sub-prime mess in the US credit market,” he said.
But the government’s gung-ho attitude towards infrastructure waters down some of Miranda’s valuation concerns. The government has said that the country requires about $500 billion in infrastructure spends till 2012. “There is no doubt about the huge opportunity in this space. The investment framework from the government is also falling in place,” he said.
“But is the government simultaneously working on 20 airports, as it should be? No. Is it simultaneously working on 50,000 km of road, as it should be? No,” he said.
On whether he would have to compete with the IDFC-Blackstone-Citigroup combine for deals, he said: “We are not in the same space as them. While they are looking at assets with cash flows, which yield returns in their mid-teens, we will typically looking at doing private equity type of deals, investing in holding company structures, and exiting for capital gains in excess of 20%.”
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Wireless telecommunications services provider GTL Ltd and IDFC Project Equity Company, a wholly-owned subsidiary of Infrastructure Development Finance Company Ltd (IDFC), will form a special purpose vehicle (SPV) that allows GTL Infrastructure Ltd to pursue acquisitions and strategic investments into telecom tower infrastructure companies being hived off by telecom operators and other independent tower companies. The two companies have signed a memorandum of understanding to this effect.
As per industry estimates, there are over 1 lakh towers in the country today, but with more than 40% of the population yet to be covered with cellular infrastructure, at least 2 lakh more towers would be required. Bharti has around 40,000 towers, while Vodafone Essar has 20,000 and BSNL about 15,000.
The telecom regulator has allowed sharing of passive infrastructure in a bid to reduce capex requirement for operators to provide services in the semi-urban and rural areas.
As per GTL Infra’s April data, it charges a rental of Rs 40,000-45,000 per month from the anchor tenant with an Ebitda margin of 40-45%. The usual life of a tower is considered to be around 25 years and the asset is depreciated over a period of 7-15 years.
Around 60% of the cost goes into erection of tower, 20-25% into setup of other cell site facilities and the rest goes into pre-operative costs like signing land lease and obtaining licence from local bodies.
In the US, specialised players run the tower infrastructure business of most operators. Some, such as American Towers and Quipo, have also entered the domestic fray. By the rush of players, it appears that this space has a lot of potential, but one needs to wait and watch trends in tenancy, and the emerging competition in this space.
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