‘We continue to be excited about what is going on in India’

It has been an action packed 2015 on the Deal Street with private equity players investing nearly $13 billion across 504 deals. Bloomberg TV India caught up with Niten Malhan and Vishal Mahadevia, co-heads of Warburg Pincus in India, to get a sense of India’s road to recovery given that the private equity firmit is betting big on India again after almost a decade.

It has been a very prolific year. You have been one of the most aggressive players in this space. How are things looking from your point?

Vishal: It has been a pretty busy year for us. We have closed on seven new investments over the past 12 months and invested a fair amount of capital into India. India has always been very important for Warburg Pincus. So, we continue to be excited about what is going on in India. The entrepreneurial activities around a number of sectors lead us to a really good list of businesses in investment pace. We have always been very micro focussed. But when we look at these opportunities that we are seeing we are pretty confident for the next four-five years. We will continue to see a very healthy investment.

Vishal: We look at the overall macro numbers here. In some sense, growth has slowed but you have got certain sectors which continue to grow very fast and continue to transform themselves. Digital is transforming the way in which people do business. It is changing the way in which Indian consumer goes out and buys things. Financial services continue to be a place of strong growth. So, when you look at different pockets and sub-sectors, our approach is very micro. You are finding fantastic entrepreneurs. They need capital, they need partners to help them in their businesses. That is really what we should be doing and of course what we are doing.

Globally, Warburg is raising its 12th fund. The Government is making all the right noises, making it easier to invest in India and to help the economy up. So, are you happy with what you hear from the Government? Will a larger chunk perhaps come in from the new funds over a period of the next two years? How are you reading this?

Niten: I would say a couple of things. First, all of these are long-term initiatives from the government’s perspective. So, I think, we all welcome all that is being said and done making it easier for companies to come to India and do business, to invest in India, or even for the businesses in India to make it easier for them to function. But we also recognise the fact that these are not the things that can change in three to six months.

And the things the government is trying to do will hopefully have a longer term impact. But, I think, the direction is right. And, hopefully, we will keep making progress. To your question of whether that causes us or will cause us to invest more here versus not; first of all, we invest out of a global pool of capital. In that sense because we are investing out of a large fund, we are not constrained for what we can do in India.

The global pool gives us a lot of flexibility. But at the end we are driven by what opportunity we see. We are not macro investors neither we are allocation-driven investors. We are ultimately investors behind entrepreneurs and companies. If we find interesting opportunities we can be very aggressive and we can invest at the pace that has been the case in the last year, maybe even higher going forward.

On the other hand, if we don’t find interesting risk rewarding opportunities we are also fine being quiet for a period and we have been quite in the past as well. But I would say global fund gives you the flexibility because hopefully other parts of the world are picking up.

Is it also the fact that India is going to outgrow the rest of the world. So, relatively speaking, how is India looking in the global context?

Niten: It is absolutely fair. There are not that many places in the world that are sizeable and growing at 7 per cent. India is a $2- trillion economy growing at 6-8 per cent. I think having said that for people like us that is only headline number which may or may not mean anything. Ultimately, it is about saying can you for our kind of capital and our form of engagement find interesting opportunities to actually deploy that capital. There is a broader opportunity for India in a world that is seeing some slowdown. If we can get our act in order as a country, I think we should be able to attract a lot of capital in the next few years and use that to build capacity in the economy.

Everybody tells me that the macro level India is looking great and the micro level is looking pretty bad because companies are highly leveraged in certain sectors. At the macro levels things are good, but at the micro level there is stress and hence there is an opportunity in trying to put money out there and get better returns. How are you seeing that space, especially in the infrastructure sectors and the core economy areas?

Vishal: In infrastructure sector, there is definitely stress. Industrial activity overall is under some stress too when you look at the micro companies, even when you look at the current companies that we invested in. I think those problems will be solved as we continue to be investors in infrastructure and in industrial companies. Some of our best investments in the past have helped entrepreneurs build world class infrastructure and world class industrial companies that can service a global economy.

Alliance Tire, which was one of our most successful investments, was a start up which turned into one of the largest off-highway tyre manufacturers in the world; manufacturing in India and supplying a global economy using India’s advantages.

Gangavaram Port in Andra Pradesh was again started from scratch, but built what was India’s deepest port with world class infrastructure. We are really proud of it. When we look at it today, I think while they are under stress we will find more opportunities. Though it is tough and not easy as I mentioned earlier. These are not the problems and issues that can be solved in three to six months. I will make the point that on the micro level there are a lot of companies in which we have currently invested in that are doing great. They are growing at 30-40 per cent a year, creating new businesses, new brands, and new ways to go to the consumer.

One area which is in a lot of focus today is real estate. You have invested in Piramal Realty and have a tie-up with Embassy Industrial Parks. How di you view this space because where there is a lot of stress?

Vishal: Real-estate has been an area of focus for us. We have done two investments recently in the sector and we feel very good about them. They are both building businesses and not just in real-estate projects. We see opportunities for well-capitalised companies to take advantage of that stress in the system. Because it is undeniable that you need real-estate and that requires capital. Current developers are stressed. For players like us when we find the right partner we would love to do more on that front. We have been very successful doing that in China and we are seeing signs for it in India. We are fairly bullish about it.

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