Mumbai: After having invested about $3 billion in India since 1994, Warburg Pincus Llc, a private equity (PE) firm with $30 billion in assets under management, is now devising a domain-specific approach to investing in India. The PE firm, which has invested in companies such as Bharti Airtel Ltd, Housing Development Finance Corp. Ltd and Kotak Mahindra Bank Ltd, calls itself a lifecycle investor and is also eyeing the fast growing e-commerce sector in India. In an interview, Niten Malhan and Vishal Mahadevia, the newly appointed co-heads of India, spoke about their India strategy. Edited excerpts:
Warburg Pincus has been investing in India since 1994. How different is the market situation today?
Mahadevia: There are two things that are different now. You have the global situation that is driving a lot of this, which is different from before. Today the situation is driven in large parts by Europe. Then there are political issues in different countries, which is driving the negative sentiment around the globe. What is also different is that in 2008, you had many businesses where funding just locked up and demand just fell off a cliff. Today, it doesn’t seem to be that way when we look across our portfolio. We aren’t seeing any of that happen, which gives us optimism that businesses are still doing well.
India strategy: Niten Malhan (sitting) and Vishal Mahadevia say infrastructure and infrastructure services will be important sectors. Photo: Kedar Bhat/Mint
Malhan: The underlying businesses seem to be doing fine. Over the last one-and-a-half years, we have made five new investments and committed half a billion to India.
With the recent leadership transition, what is your role going to be?
Malhan: It’s not different from the vision Warburg Pincus has had over the years. Also Dalip Pathak (managing director), who has been involved in the founding of this business in India, and Chip (Charles Kaye), who is the co-president, will be involved on an ongoing basis. The mandate continues to be to build our team here. The firm has a very rich history of being very strong in certain domains such as healthcare, energy, technology and financial services. I think we have done a lot of those investments in India but we would like to be specialists. That is something that Vishal and I will try over the next few years.
Mahadevia: As the size of Warburg increases in India, it gives you the flexibility to proactively spend time on different sectors versus being a generalist.
Are there certain themes or sectors you have in mind?
Malhan: Some of these will be areas that the firm has already invested a lot in, in India. For example, financial services. We have had a bunch of such investments in India and successful ones (at) that too. It’s a big area for the firm, so it’s only natural that over time, it becomes a domain we will spend more time in; likewise in healthcare and energy. We have done investments in broadly defined infrastructure —ports, logistics and liquid storage. So infrastructure and infrastructure services will be an important theme.
What about e-commerce?
Mahadevia: We have always been active investors in the e-commerce space. One of the things different about Warburg Pincus is that we tend to think of ourselves as lifecycle investors. We would like to invest as the company continues to grow and needs more capital and we are ready to invest at a higher valuation as it grows. E-commerce and Internet companies are growing extremely fast in India and penetration is really low.
Malhan: We do buyouts but a lot of what we do across the world is still growth investing. While we are happy to write a $300-500 million cheque, we also cater to a $20-30 million opportunity that could attract more capital as it scales. For instance, our investment in Bharti Airtel started with a less than $30 million investment, after which we put in $60 million and then $200 million more—ended up being a $300 million investment.
Is there any such opportunity in the pipeline?
Malhan: We are looking at some opportunity in the renewable space.
Today, limited partners, when allocating money to India, are placing a lot of emphasis on the fund managers’ ability to source quality deals. What is your strategy?
Mahadevia: We build our network not just with the entrepreneurs or big bulge bracket investment banks in Mumbai or Delhi but also the people in the tier-II or tier-III cities who have the network of entrepreneurs in these places. Entrepreneurs here now have global aspirations, and thus a PE fund can partner with not just capital but also with its global network. Alliance Tire Group, which is one of our investments, is a great example. We helped them buy a company in Israel. The company is soon going to be one of the top three off-highway tyre manufacturers in the world.
Malhan: The company was listed on the Tel Aviv exchange. We helped them delist the company. We then funded the setting up of the greenfield manufacturing capacity in India, which was a part of the thesis to use a low-cost manufacturing base to serve European markets. In the downturn in 2009, Alliance acquired a company in the US which had filed for bankruptcy. Some of this was possible because we have a global network.
Are you helping any other company with similar aspirations?
Mahadevia: We are currently working with a company QuEST Global Services Pte Ltd, which we invested in about a year ago. It provides outsourced engineering services to companies around the globe. They recently acquired two companies in Europe.
Have you exited any investment this year?
Mahadevia: We exited three companies this year—Kotak Mahindra Bank, Max Healthcare Institute Ltd and DB Corp Ltd. In the case of DB Corp, we had exited partly in the IPO in early 2010 and we fully exited earlier this year. Kotak and Max were partial exits.