Economic Times: January, 2017
New Delhi: Starting with a mind-boggling $2 billion exit from Bharti Airtel, history of Warburg Pincus’s investment in India goes back to the very origins of private equity play in India.
Over time, Warburg’s pace of investment has increased with over $1billion deployment in the past couple of years and its assets under management have quadrupled over the past 20 years. Chip Kaye and Joe Landy, co-CEOs of Warburg, spoke exclusively with Indulal PM and Arijit Barman. Edited excerpts…
What are the changes you have seen in the private equity landscape? How has it evolved over the past few years?
Chip Kaye (CK) : Our senior management group comes here every few years which demonstrates our commitment to India; this year is somewhat special as we are celebrating our 20th anniversary of investing in India.
The history of Warburg Pincus here goes back to the very origins of private equity in India and we have benefitted from a front row seat as the market has evolved.
Is it still wait-and-watch, or is it an inflection point?
CK: We have invested a substantial amount of money in India over a long time. We invested more money in India than any other private equity firm. We are not macro forecasters and actually spend little time on macro forecasts, worrying about the political and economic questions of the day.
Joe Landy (JL): What is amazing is the depth of talent that we continue to see. The next generation of entrepreneurs are much more talented and limitless in terms of what’s possible -- it is fascinating for us to see the broad base of entrepreneurs in India. India has continued to be one of the most important markets for us in the world.
Warburg started the PE craze in India with Bharti? What’s your experience like here?
JL: This is one of the most prolific regions we invest across the firm. Warburg Pincus has represented approximately, 4 per centof private equity money in India over the last 20 years and 10 per centof distributions that have gone back.
That represent, an extremely successful market for us. Fully exited portfolio companies have been some of the most successful private equity investments in India such as Bharti, Alliance Tires, Havells, Piramal, MAX, Kotak, WNS. Some of the firm’s most successful investments have been made in India.
CK: When we first came to India in the early 90s, it had its own unique capital economic development through independence to the crisis of 1999 and the beginning of reforms.
One of the legacy issue was very high interest rates. Financial assets were traded cheaply. Twenty years ago, capital was very scarce and entrepreneurs had to make careful use of capital.
A lot of the early investments we made were buying stakes in well managed companies with high integrity. But in the 2000s, with the big run-up in the markets, India had some sort of unmatched expectations, especially during the last years of the previous administration. I think over the last few years, under PM Modi, there has been some sort of reenergized excitement.
From an investment point of view, we are seeing a much broader calibre of entrepreneurs. The calibre of people, in that sense, has always been impressive.
JL: Across all the sectors we participate in, we are really participating in the growth of the economy. Finding the right management and right investment themes is critical for us.
We are fully focused on growth, and do not have a controlled/leveraged mentality but have a growth, partnership building mentality. India is a place to respect to people — not only the time when people and businesses are flourishing, but also in difficult times.
Our broad areas of focus span retail, financial services and inclusion, export services, logistics, internet/technology and telecommunications through to energy. However, over time, our strategy has remained consistent.
Our approach has always been flexible, covering both minority and majority investments and startups through to more mature companies.
Also Read: Warburg aims for $8 billion investments in 10 years in India
What are negatives and areas to improve?
CK: There are, of course, a number of legacy issues requiring attention, such as land and labour. Inability to access land at a reasonable price continues to be a constraint on development of a lot of businesses. Implementation is the next big issue. India has a strong society and institutions, but implementation continues to be a challenge.
JL: We see all this as an opportunity. Perfect markets are not necessarily ideal places where you can get fantastic returns. By working through challenges, we have found and will continue to find great opportunities.
CK: So some of the biggest issues are domestic in nature. The challenges are well known to the Indian political community and the natural order of politics will address them over the course of time. Its ability to do so as a nation will determine what the state looks like in the next 10-20 year
Warburg Pincus has already deployed $4 billion among 50-odd companies. Will you reach double that number in probably half the time?
CK: We never believe in numerical targets and do not have set investment allocations by region. But frankly, if we couldn’t deploy more than double that amount during half the time, I would say, all of us will be disappointed.
India is at an interesting inflection point and is a very compelling investment destination for us. Our pace of investments in the country has increased. We have invested over $1bn in the last couple of years. Our assets under management in India have quadrupled over the last 20 years.
As deal sizes get bigger, would you focus more on buyouts or control trade?
CK: Warburg Pincus is a growth investor, growth is in our DNA. We are agnostic to as to whether we do start-ups, minority or majority investments or buyouts.
JL: We think about the thesis in various sectors in which we invest. We have a very different thesis for energy investments, healthcare, energy, etc. Alliance Tires was a great build-out story.
You can probably argue that it was a buyout, but for us, it was a growth partnership. As deal sizes and leverage increase, we will continue invest but it will be growth-focused.
How has quality of entrepreneurs changed compared with other emerging markets?
CK: We would rank them on the highest scale. The entrepreneurial talent in India is one of the deep attractions of the Indian market. I believe a key factor has been our consistent strategy of partnering with outstanding management teams and entrepreneurs to build companies.
The capability of entrepreneurs in India to navigate difficult situations is what differentiates them. This pool of entrepreneurial talent is now broadening into many new areas and sectors, which is what makes it more fascinating.
Where will the next great deal come from, consumer/internet space? Do you think this is going to throw up the next world class entrepreneur…like a Sunil Mittal?
CK: We see great deals coming not just from the consumer and internet space. I think there are a couple of categories such as data revolution led by companies like Quikr and CarTrade, and logistics with companies like Rivigo with enormous potential and a very fascinating model, or Stellar with another revolutionary approach. Healthcare and the Bio-IT spaces are very interesting too. And, of course, we have a huge unbanked population.
What sectors interest you most?
CK: Continued financial inclusion and penetration of financial products is a play on the underlying economy. The migration from unorganised to organized/branded products and services offers is very interesting with huge potential.
The emergence of the digital economy has been exciting to discover. The building out of infrastructure and development of logistics continue to be an interesting theme. Finally, we’re also taking a new look at oil and gas and giving a lot of thought to energy and power as well.