TPG Capital’s Puneet Bhatia: Avalanche of capital waiting to come to India
TPG Capital MD Punnet Bhatia on the Fortis-Manipal deal and private equity in an era of superabundant capital
Puneet Bhatia, managing director, partner, and country head for TPG Capital India, talks about private equity in an era of superabundant capital, the pursuit of the Fortis deal, allocations to Indian Private equity, developing a healthcare platform at the Annual Mint Private Equity Conclave, 2018. Edited excerpts:
If you were to give me the good, bad and ugly of the Indian PE landscape, what would that be?
Ten years ago, India was mired in a lot of controversies. From that point to now, you do find that India has come a long way. This is reflected when you attend conferences and meet opinion shapers around the world. I remember an investor in particular, who every year does a highly intricate exercise with 50 variables that go into his black box to determine as to which country is best positioned for the next 20 years; and he said, ‘without fail in the last three years that country is India’. I think the global investors are now paying attention.
We particularly don’t do a good job in packaging ourselves. There’s an avalanche of capital waiting to come to India. Out of the $24 billion that came into India last year, almost two-thirds went into secondary deals and it was three corner fight where big investors like Tencent, Alibaba and SoftBank were investing in late stage companies in the consumer internet space.
India is $2 trillion economy with the strongest GDP growth, millions of entrepreneurs and 12 million employable youth coming into the workforce every year. But only $4-5 billion of global PE capital went in as primary capital to create the platforms and to meet the opportunities that exist in this country. I think this is shocking given that we have the capability to attract 10 times more capital.
We are living in an era of superabundant capital. In such an environment how are you building TPG as a differentiated franchise?
We are serving investors that want outsized returns and every investor has a choice to make in terms of an asset class and an investment manager. If you look at the cycles over the past 20 years, PE has had ebbs and flows. Globally, last year was a record year where PE funds raised a trillion dollar which is sitting as a dry powder. If you go back to 2009-10 when the markets fell quite sharply on the back of the global financial crisis, media largely focused around the theme, ‘the end of the private equity era’. So, the capital tends to be very mercurial in our business. Right now PE is looking at a high point in the cycle which is why there’s lot of capital and dry powder but I think this too shall pass. Irrespective of large capital flowing towards PE, our aim is to continue investing smartly and use our strengths and signature style to stand out.
What is the healthcare formula for TPG that has worked so well, even globally? In the past, we have seen ICICI ventures incubating I-Ven Healthcare. According to a Bloomberg report, TPG has scored more than $13 billion in profit on a string of deals since 2007. Are you trying to create a special focused vertical around healthcare in India?
When you focus on macros irrespective of who is in power, rate of India’s GDP growth, threats posed by the central bank decision; there are four sectors—consumer, financial services, IT and healthcare, which have secular tailwinds behind them. Globally, 80% of the capital from the global PE firms has gone in these four sectors.
Healthcare is a sector where the macros are compelling. The prime minister just announced the universal health coverage that will bring 500 million Indians into mainstream healthcare in India. If you look at other facets of healthcare, it is still embryonic. There’s lot of growth left and the companies in this domain can benefit a lot from global management expertise, better corporate governance and more analytics.
Talking about heathcare and going behind prized assets, from a fund manager’s perspective, how frustrating is it when a deal takes so long for fruition, as in the case of Fortis Healthcare?
I think the important thing here is, one, you have to be slightly ahead of the curve and almost anticipate how things are going to break in your favour. Some 18 months ago, we realized that you have a combination of pretty toxic cocktails. You had the Daiichi litigation combined with the fact that the Singh brothers had pledged almost entire equity with the lenders and the financial duress would actually overwhelm them. So few months before the deal actually became tangible or real, we thought it is worth having a discussion.
I think in India what you realize over a period of time is that the founders/promoters are likely to do business with the people they like. So you have to earn the trust and build relationship to be able to strike something. All that took multiple months and the deal went through twists and turns and there were lot of extraneous issues and a lot of moving parts.
Last year, we had a funnel of about 150 deals to start with, we did diligence on 10 and invested in a couple. That’s the nature of the beast that we operate in.
You were also involved with ICICI Home Finance, which did not materialize eventually. What was it that kept you at Fortis?
There are two models—one is you can be the highest bidder for deals that come for auctions, and the other is that you go for the hunt where you either identify a macro theme or a special situation ahead of its time. You then start positioning yourself ahead of the curve and wait patiently for things to break in your favour. We certainly have the choice of pulling the trigger on auctions and we certainly look at everything that’s interesting. But our Limited Partners are cycle agnostic, they don’t care whether Modi is in power or there’s a coalition running the country, whether the broad markets are up 50% or down 60%; they want us to deliver 20% plus IRR year-on-year.
Hence, you have to be very selective and fine-tune the deal situation that you got to lean into because that’s your threshold. You have to be very selective and patient for the deals you are going after.
Sneh Sushmit contributed to this story.
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