Project Report On Summer Internship in
By Aarshiya Chaudhry Sri Ram College of Commerce
A project report submitted towards the partial fulfilment of the requirements of the Bachelor (Honours) degree in Commerce. NAME: Aarshiya Chaudhry CLASS: B.Com(Hons) ROLL NUMBER: 259 SECTION: I YEAR: III PAPER NUMBER: XXXVII OPTION: A
DECLARATION
I hereby declare that the project work entitled INTERNSHIP submitted to Sri Ram College Of Commerce, Delhi University is a record of original work done by me, AARSHIYA CHAUDHRY, a student of B.Com(Honours) 3rd year under the guidance of Mr.Gauri Shankar.The project work is submitted in the partial fulfilment of the requirements of the current academic years curriculum. The results embodied in this thesis have not been submitted to any other University or Institute for the award of any degree or diploma. Aarshiya Chaudhry Roll No 259
ACKNOWLEDGEMENT
The efforts undertaken by me for this project would have proved to be futile if not for the kind support and help of many individuals and organizations I was fortunate enough to work with. I would like to extend my sincere thanks to all of them. I am highly indebted to Mr Gauri Shankar for his guidance and constant supervision as well as for providing necessary information regarding the project. He devoted time to ensure my project was correct and greatly aided in its completion. I would like to express my gratitude towards Mr Salil Agarwal(Associate Director-PwC India, Delivering Deal Value) who provided me with the opportunity to intern under him and gain invaluable experience. To this extent, I would also like to thank Ms Tina Saigal( PE Consultant) for supervising my work as well as Mr Deepak Kapoor(Chairman, PwC India) for letting me work in his prestigious organisation. I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and friends for their kind co-
operation and encouragement which helped me in completion of this project.
Aarshiya Chaudhry Mr.Gauri Shankar (Proje ct Mentor)
TABLE OF CONTENTS
DECLARATION ACKNOWLEDGMENTS TABLE OF CONTENTS COMPANY PROFILE: a. PricewaterhouseCoopers b. PwC India INTRODUCTION & OBJECTIVES : a. INTERNSHIP b. PROJECT METHODOLOGY TOOLS USED CONCLUSION INTERNSHIP CERTIFICATE (copy)
COMPANY PROFILE PricewaterhouseCoopers
PricewaterhouseCoopers (trading as PwC) is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms. PwC has offices in 757 cities across 154 countries and employs over 175,000 people. It had total revenues of $29.2 billion in FY 2011, of which $14.14 billion was generated by its Assurance practice, $7.63 billion by its Tax practice and $7.46 billion by its Advisory practice. The firm was formed in 1998 by a merger between Coopers & Lybrand and Price Waterhouse. The trading name was shortened to PwC in September 2010 as part of a major rebranding exercise. As of 2010 PwC was the seventh-largest privately-owned organization in the United States.
Operations
Audit and assurance
Actuarial insurance services Assistance with capital market transactions Corporate reporting improvement Financial accounting Financial statement audit Sustainability reporting IFRS reporting Independent controls & systems process assurance Internal audit 6
Regulatory compliance and reporting Sarbanes-Oxley compliance
Consulting
Strategy Finance Technology Governance, risk and compliance Operations People & change Revenue growth Shared services and outsourcing Sustainability Delivering deal value Investigations
Deals
Business recovery services Corporate finance Delivering deal value Post deal services Structuring services Financial due diligence Strategy Valuations and economics
o o o o o o o o o o
Valuation consulting Tax valuations Economics Independent expert opinions Accounting valuations Modelling and business planning Post deal services Structuring services
Human resources
International assignments Reward HR management
Legal
Asset management Corporate and commercial Corporate secretarial 7
Dispute resolution Employment Financial services Immigration Public law
Real estate
Middle market and private companies Tax
Global compliance services Indirect taxes International tax services Mergers & acquisitions Sustainability & climate change tax Tax accounting services Tax function effectiveness Transfer pricing
PricewaterhouseCoopers has three main service lines: Assurance Services, Tax Advisory, (international tax planning and compliance with local tax laws, customs, human resource consulting, and transfer pricing) Advisory - mainly consulting activities which cover Strategy, Performance Improvement, Transactions Services, Business Recovery Services, Corporate Finance, Business Valuation, Sustainability and Crisis Management in a range of specialist areas such as accountancy and actuarial advisory.
PwC's service lines face the market in each country by broad industry specialisations such as: Consumer and Industrial Products and Service (CIPS) Financial Services (FS) Technology, Information, Communications and Entertainment (TICE) Infrastructure, Government and Utilities (IG&U) Private Company Services (PCS)
These sub-divisions may vary slightly in some territories.
Major clients
Europe and North America account for about 81% of PwC's annual revenue, with Europe alone accounting for 45%. The firm's dominant practice, auditing, accounts for over 50% of PwC's revenue. One client, the Academy of Motion Picture Arts and Sciences, gives PwC the unique distinction of having been (in various incarnations) the tabulator and certifier of votes for the Academy Awards since 1934. PwC audits 40% of companies in the FTSE 100 Index and 45% of the Fortune 1000 energy companies.
Offices
PwC has offices in 757 cities across 158 countries.
Type Member firms have different legal structures; both UK and US firms are limited liability partnerships Professional services 1998 (PricewaterhouseCoopers) 1849 (Price Waterhouse) 1854 (Coopers & Lybrand)
Industry Founded
Headquarters London, United Kingdom Area served Key people Products Worldwide Dennis Nally (Chairman) Assurance Tax Advisory Consulting Financial Advisory Actuarial Legal US$29.2 billion (FY 2011) Approximately 175,000 www.pwc.com
Revenue Employees Website
PwC India
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In India, PwC (www.pwc.com/India) offers a comprehensive portfolio of Advisory and Tax & Regulatory services; each, in turn, presents a basket of finely defined deliverables. Network firms of PwC in India also provide services in Assurance as per the relevant rules and regulations in India. Providing organisations with the advice they need, wherever they may be located, our highly qualified, experienced professionals, who have sound knowledge of the Indian business environment, listen to different points of view to help organisations solve their business issues and identify and maximise the opportunities they seek. Our industry specialisation allows us to help co-create solutions with our clients for their sector of interest. We are located in these cities: Ahmedabad, Bangalore, Bhubaneshwar, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune. PwC Offices in Delhi:
New Delhi
PricewaterhouseCoopers Pvt. Ltd. Sucheta Bhawan 11 A Vishnu Dighambar Marg New Delhi 110 002 Telephone +91 11 2323-2916/2321-0891-99/ 41150000 Fax: +91 11 2321-0594/96 PricewaterhouseCoopers Pvt. Ltd.
Building 8, 7th & 8th floor, Tower B, DLF Cyber City, Gurgaon 122002, Haryana, India Telephone: +91 124 4620000/3060000 Fax: +91 124 4620620
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OBJECTIVES AND INTRODUCTION INTERNSHIP
My objective in taking up a corporate internship was to gain insight into the corporate world and its workings. In context of my major, which is Commerce, it was important for me to go beyond my textbooks and have a broader world-view. Being exposed to day-to-day aspects of business would also lead me to a better understanding of the concepts learned in the classroom. According to my inclinations and interests, I applied to PwC India for a position as a summer intern in the Advisory Business Line, Consulting subsidiary, Delivering Deal Value. I went through a series of interviews by senior team members to qualify for this position.
CONSULTING
We help organisations to work smarter and grow faster. We consult with our clients to build effective organisations, innovate & grow, reduce costs, manage risk & regulation and leverage talent. Our aim is to support you in designing, managing and executing lasting beneficial change.
Grow & innovate
Driving profitable growth through innovation Companies, and indeed industries, are reassessing their potential for growth and innovation in an
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increasingly competitive landscape. Understand the role innovation plays in your company's growth strategy, and find out how to structure and allocate limited resources to deliver profitable market results.
Organise & operate
Building and running effective organisations Be Agile. Learn how to achieve operational excellence through sustainable improvements and more efficient processes that lower costs, increase cash flows and enhance customer satisfaction.
Manage cost
Taking control of costs without sacrificing long-term success Implementing cost-cutting measures that maximise efficiency without compromising growth potential and long-term sustainability is a tricky proposition. Learn how to drive profits through the targeted reduction of costs without damaging the long-term health of your business.
Manage talent
Rethinking pivotal talent Getting the best from people at every level when there is constant change is the key to sustainable competitive advantage. Learn how to make change stick by engaging your people and enabling them to embrace, drive and manage business change.
Manage risk & regulation
Transforming risk into opportunity To achieve risk resiliency, companies must revisit traditional approaches to risk management and focus on aligning opportunity and performance. Learn how to cultivate a risk-aware culture and make risk management and compliance a part of your day-to-day business.
DELIVERING DEAL VALUE
Shareholders are becoming increasingly demanding, so maximising the value that can be captured from deals is crucial. The number of cross-border transactions is also growing, as globalisation and connectivity reshape the marketplaceand the traffic is two-way as companies based in China, India and other emerging countries move into more developed economies. In a connected world, it is as vital to understand national and regional differences as it is to understand differences in corporate culture. Moreover, finding the right target may mean having to compare the potential of companies thousands of miles apart.
How PwC can help
We offer a full range of consulting, tax, financial and business assurance services. Were also able to call on extensive industry experience and knowledge of local markets anywhere and everywhere your company operates. We can help you: Find the best targets, and analyse their strengths and weaknesses Identify synergies and potential opportunities for improvement Negotiate the best terms Access the capital markets and other sources of finance Manage the post-deal integration process particularly the first 100 days, when it is essential to stabilise the newly acquisition and stop any "value leakages" Carve out non-core assets and sell them for as much as possible; and Make major changes to realise improvements in long-term performance.
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Post deal services
In many ways, a deal starts at completion as from here the benefits and value that the deal was designed to deliver need to be realised.
Deals often fail to deliver the value forecast for them and this can be for a variety of reasons. Often part of the reason lies in the lack of integration between the business and its newly-acquired asset. Delivering the business plan used to justify the acquisition requires considerable resources. A transaction represents a significant change to the business, and one that requires careful management if the anticipated benefits are to be turned on quickly. PwC has extensive experience of helping businesses integrate new acquisitions. Our teams comprise many individuals with "in-line" industry experience. We have developed specific tools and techniques that have proved their worth in other transactions. Their early application can save considerable time and money.
If this is your situation
You are integrating an acquisition and you are concerned that it will consume valuable time and resources, detracting from the focus on the core business. Any number of factors could be why a transaction is slow to bed down and start creating the value that was projected for it. You have issues with employee management. Successful management of employees is essential to effectively tapping into the benefits of a transaction. Where competition for talent is keen, attracting, motivating and retaining employees can be difficult. By creating increasingly complex employee benefits and compensation programmes, companies now need to have a clear picture of how these programmes integrate and whether they serve their objectives. Your deal is not delivering the potential value forecast when originally put together.
How PwC can help
Our dedicated teams of professionals work on-site to help manage the changes that a deal generates in an existing business. We address the immediate concerns of the acquirer over the first 100 days of the acquisition and produce detailed action plans to deliver value from the deal. We also carry out post-deal reviews after 6 to 12 months to assess whether objectives are being met and if not, how to get them back on track. Our broad knowledge of HR issues allows us to give practical advice on employee management. We help our clients to navigate through the wide variety of employee programmes used and to help them choose the best programmes to achieve all potential synergies.
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PROJECT: RESEARCH AND ANALYSIS ON SCOPE OF OPERATIONAL DUE DILLIGENCE IN PRIVATE EQUITY MARKET TRANSACTIONS IN INDIA
PRIVATE EQUITY A private Equity firm is a private group of investors, who make money through purchase and sale and ownership of private equity, as well as help in providing initial capital and growth capital to companies. As against publicly traded equities that are purchased and sold in the stock market, private equity funds deal with equities that are not available publicly. Private equity is unlike debts or loans to the company like bank loans and bonds since equities have greater potential for return and risk as compared to debt. Private Equity firms are companies that invest in private businesses by buying their shares and equities.
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The Indian Private Equity Market After several years of rapid growth, Indias Private Equity industry is at a turning point as funds face up to the challenges generated by the global financial crisis. According to the International Monetary Fund (IMF), Indias GDP is expected to expand to 5.4 percent in 2009 and with its growth rate expected to accelerate as the rest of the world recovers from global financial crisis, India has the potential to remain a very attractive destination for Private Equity funding. However, although the Indian economy driven by domestic demand has to some extent been protected from the global downturn, share prices were impacted. And despite the fact the stock market has now recovered it is more volatile which means that high returns on exit are no longer guaranteed. In terms of the Private Equity model in India, PE funds are now considering whether a model that tends to revolve around minority stakes in family firms can deliver sustainable and reliable returns going forward.
Equally important, do private equity fund managers have the necessary skills to get the most out of their investment?
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Over the past few years weve seen a huge amount of Private Equity activity in India, with increasing numbers of domestic and overseas funds competing for deals. In 2007, prior to the onset of the global financial crisis, around 300 firms had a presence in the Indian market. Investment peaked at US$11bn. And the Indian Private Equity industry is still relatively young. It didnt really exist up to and including 2004. What weve seen since then rather than a measured expansion over time is an explosion, both in investment and in the number of funds operating in India. That peak of US$11bn was achieved from something close to a standing start.
The turmoil in the global financial system made it harder for funds to raise cash, while the fall in the worlds stock markets Indias included put downward pressure on valuations. This trend made owners less inclined to cut deals with equity investors. The result was a sharp decline in deal flow. For instance, in the first half of 2009 volumes fell by 70 percent compared to the year before. International investors are now looking beyond Indias growth figures and asking hard questions about the countrys Private Equity model; a model that differs vastly from that of the US or Europe. For instance, While the incoming government has promised a series of reforms aimed at producing a simpler and more transparent tax system, the details have yet to be worked out. With the final shape of the reform package unclear there can be no certainty over the impact on business. Uncertainty also lingers over
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regulation. The new government promises to be much more business-friendly than its predecessor, and yet as things stand the regulatory system remains high cost. Perhaps the greatest difference between Indias investment environment and that of the West is the lack of debt in M&A deals. Indian law prevents companies borrowing in order to make acquisitions. This situation therefore prohibits the leveraged buyout deals that characterize the Private Equity model in more developed countries. If the deal is structured outside India there can be a certain amount of leverage, but this is likely to come in at around 20 percent rather than 60 or 70. Buyout opportunities have also been limited by the ownership structure of Indian businesses. Most are family owned and although their shareholding founders are usually willing to exchange equity for cash, they also generally wish to retain control. Thus, the majority of Private Equity deals are minority investments rather than buyouts.
AIM OF THE PROJECT
The aim of the project was to try and demystify the Private Equity market in India. The Delivering Deal Value team at PwC has undertaken the task of
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introducing consulting services in the area of post deal services, aiming specifically at Operational Due Diligence, which has as yet, been ignored by most Consultancy firms as well as the PE market players. The trend in the Private Equity market was to enlist a consultant firm for advice and assurance only regarding the Financial Due Diligence. Since the PE Model in the west has a defined structure and depends on leveraged buyouts, the requirement for a consultancy in operations is nonobligatory. However, seeing the limitations in the Indian market as well as the new found concerns in the post-recession scenario, there emerged a need for due diligence in Operations as well.
Hence, headed by Mr Salil Agarwal (Associate Director, Delivering Deal Value) ;specialised help from Ms Tina Saigal ( Senior Consultant, Private Equity) and Ms Anshula Bakshi (Analyst) and research and analysis support by me, Aarshiya Chaudhry, this project was undertaken.
METHODOLOGY
The project was to be completed in approximately 8 weeks, after which a detailed report was to be presented to the Partners and then a Post Deal Services package specialising in Operational Due Diligence in Private Equity acquisitions was to be pitched to prospective clients. The project involved the following methodology:
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I. Collecting primary data regarding past, current and future trends in the Indian PE market. The first step involved detailed research into the PE market and gathering raw data for further processing and analysis. It involved: a. Research through the Internet and specialised ejournals such as DealCurry,VCCircle.com, IndiaPE.com, IndiaVC.org, ivfa.com, VCIndia, etc. b. Constant perusal of Print Media such as Economic Times, Mint, Financial Times, etc. c. Tele-Interviews with offices of prominent PE funds for information on prospective deals as well as the value derived from current deals. d. Using the company network to accumulate more sensitive and confidential data and figures. II. Data Processing using Excel sheets. MS Excel was extensively used during accumulation, structuring and processing data. PE firms were listed under the following heads:
COMPANY NAME TYPE(Venture Capital; Minority Stake; Leveraged Buyout; Growth Capital etc.)
OFFICE ADDRESS
CONTACT NO.
PARTNER CONTACT
COMPANY HEAD
FUND SIZE
(Actual figures not included due to reasons of confidentiality)
ACQUISITIONS
YEAR
STAKE(%)
DEAL SIZE
SECTOR
CURRENT STATUS
WEBSITE
The database included a total of 122 PE firms which were actively investing in Indian companies(Kohlberg Kravis Roberts), or originated from India(India Value Fund) Most prominent of these firms were:
ICICI Venture
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Chrys Capital Sequoia Capital India Value Fund Kotak Private Equity Group Baring Private Equity Partners Ascent Capital Everstone Capital KKR(Kohlberg Kravis Roberts)
Blackstone Group Carlyle Group
III. Analysis of data; Trend detection. The data, upon analysis, revealed the following trends: While Private Equity investments had reached a peak around the end of 2007, they declined all through 2008 and 2009 due to the economic crisis. However, in Q2 of 2010, the PE deals picked up pace again, and in July 2011, there were as many as 30 PE deals in India. While large PE firms such as KKR and Carlyle had a fund size of upto $50 billion worldwide and $300 million reserved for Indian markets alone, smaller Indian firms had much smaller funds starting from $1 million. This resulted in different policies being followed by the multinational funds and Indian fundsa. With large funds to invest, and being more risk taking, Multinational funds invested large amounts to buy high stakes in Indian companies. However, these investments were limited to a small number of companies within a few sectors.
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For example, private equity giant Kohlberg Kravis Roberts & Co (KKR) invested around $100 million in Avnija, the wholly owned subsidiary of Dalmia Cement (Bharat).KKR picked up around 10-15% stake.
b.Indian PE firms, with a much smaller fund size, diversified into a large number of companies, mainly internet start-ups, spread through a number of different sectors. The fund amount was thus spread wide and thin. For example, Ascent Capital Advisors India Private Ltd (Ascent) invested Rs 200 crore for an undisclosed stake in Karaikal Port Private Ltd (KPPL) for the port's expansion project. Unlike in the US and European markets, where Private Equity deals are dominated by leveraged buyouts, Indian market deals were majorly minority stake buyouts, or Growth Capital infusions. Most new PE deals in India were centred around the following sectors: i) Infrastructure ii) Power and energy iii) Internet start-ups iv) Healthcare and pharmaceuticals
IV. Creating a comprehensive report on findings.
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Once the information and data had been compiled, pivot tables, graphs, charts and indices were formulated to tabulate and showcase the findings in a comprehensive manner in the form of a preliminary report, which was then edited and sent over to senior members of the team for further course of action. V. Deciding on future course of action and approach. In my 6 weeks of internship, I participated in 3 team meetings wherein I briefed the team on my progress and how it would help in the successful fruition of the project. It was decided in the last meeting that the team would go through with the project based upon the report thus compiled.
Tools Used:
Internet Search Engines and Specialised Portals a. VCCircle.com b. Dealcurry.com c. Mint (wall street journal) d. The Economic Times e. Business Line f. Company websites Telephonic Interviews as well as personal meetings - Personal meetings conducted by senior consultant only Data Management system (MS Access) (MS Excel) a. Pivot Table b. Line, Bar, Pie Charts c. Formula Calculations
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CONCLUSION
Upon the completion of the report and respective analysis by senior members of the team, it was certifiably proven that there indeed existed a market for pitching the Post-Deal Services package specialising in Operational Due Diligence to the major players in the Indian PE market. This was due to the following facts:
The Indian PE market is going through a gradual shift from a largely Venture Capital and Growth Capital based market to major stake buyouts. The Indian PE model is largely unregulated; hence, there is still a wide gap between the expectations and the delivered value of deals. While most PE firms did employ the services of a Consultancy firm, it was majorly concentrated towards financial
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due diligence, and the operational factors were ignored. However, certain drawbacks existed, which were to be overcome before commencing with the presentations: While the market may be changing, a major chunk of PE deals in India still centre around Minority buyouts. This makes it difficult for PE firms to initiate operational due diligence before acquisition, since their respective shares are not significant enough. PricewaterhouseCoopers would be a new entrant into the PE market in India while competing firms, i.e., KPMG, Ernst&Young, are already established names. Hence, in order to successfully tap the PE market, the following strategies could be used: Focus on major leveraged buyouts only, so that conducting operational due diligence is not faced by hurdles from other stake holders. Focus on the companies seeking funds instead of the PE firms. This was termed as the Reverse Approach. In this approach, the Post-Deal Services package would be offered to the companies which are looking for funds. In this way, these companies could provide
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a more transparent, functional and thereby, viable option for the PE firms to invest in. Invariably, it would be a winwin situation. ____________________________________________ __
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