Toshiba to buy 26% stake in UEM India from existing shareholders

Mumbai: Japanese electronic goods giant Toshiba will purchase a 26% stake from its existing shareholders, including private equity investor, India Value Fund, in the unlisted water and waste management company, UEM India, two people with direct knowledge of the development said.

The deal signals the continued interest by Japanese firms to buy companies in the second-largest Asian economy with Hitachi Corporation buying out Indian automated teller machine (ATM) maker Prism Payments, in November. The PE fund will continue to hold UEM with around 51% stake. "This is a strategic growth area for Toshiba and we will bring our expertise and global access to the company and learn from UEM's vast experience in delivering complex, turn-key projects around the world," said Naohiro Noro, vice-president, environmental systems division, Toshiba Corporation.

UEM, founded by Krishnan Kshetry, will use the money to enter newer geographies and access better technologies to expand its business to provide water and wastewater collection, treatment, and disposal facilities. Toshiba, a maker of electrical systems for water supply and sewerage facilities, can enter into the Indian market which is stated to more than double to $3.25 billion in 2030 from $1.19 billion in 2015, according to a report by consultant Ernst & Young. Toshiba will also get a representation on the board

India Value Fund Advisors (IVFA) purchased a 70% stake in UEM in July 2010 for Rs 90 crore.

"IVFA will continue to own a majority stake in the venture and Toshiba's entire investment will be infused into the business to drive future growth," said Vishal Nevatia, managing partner of India Value Fund Advisors. It is the largest India-focused private equity fund, which manages $1.2 billion ( Rs 7,400 crore) with investments in radio taxi Meru Cabs, Radio City, DM Healthcare, Mahindra Hinoday, VKL Seasoning and Manipal Hospitals. "The company has grown four-fold from 2010 helped by better margins with higher technology and higher revenues," he added.

Noida-headquartered UEM, which has executed projects in over 30 countries across India, South East Asia, North America, Central America, and Africa, has annual revenues of around $70 million ( Rs 420 crore.) The company provides single-source services from engineering and design to construction and installation of water, waste-water and domestic waste treatment facilities.

"We believe that this partnership will provide us a bigger canvas to work on. The water sector has tremendous opportunities and we have the right tools and partners to achieve our vision," said Kshetry.

In India, 782 water management and sewerage projects primarily awarded by state governments are under stages of execution until March 31, 2013 with a total investment of Rs 24,700 crore, a Kotak Securities report said.

"The project investment in the sector has been growing at a compound annual growth rate of 5% for the past five years. The public sector is the major contributor in the sector with 99% share, of which the state government's share at around 59%."

There are many challenges for private companies. "Private participation is very low because of the grossly underpriced price of water and waste services, long delays in project clearances, and land acquisition problems result in cost and time overruns and non-availability of funds at reasonable interest rates," the report added.