(From left) Nitish Poddar, Deepak Shadadpuri, Imran Jafar, Abhinav Dhall, Vikram Gupta, Prashant Purker and Niren Shah at the Mint India Private Equity Conclave 2018 in Mumbai.
(From left) Nitish Poddar, Deepak Shadadpuri, Imran Jafar, Abhinav Dhall, Vikram Gupta, Prashant Purker and Niren Shah at the Mint India Private Equity Conclave 2018 in Mumbai.

Evolving demography, disruptive technology key opportunities for investors

The confluence of changing demographics and technology is leading to disruptions in business models and giving rise to new investment opportunities for investors, say experts

Mumbai: While India witnessed a record year of PE investments in 2017, the evolving demography, rising discretionary income and technology disruption will offer private equity (PE) investors opportunity to deploy capital across a wide range of sectors going ahead, said several PE investors at the Mint India Private Equity Conclave 2018.

“As GDP (gross domestic product) increases, given India’s demographic profile, a larger proportion of what you have will be discretionary spend. Secondly, globally the millennials think differently and buy differently. In India, we look for categories that do not exist or are at a nascent stage; for example Sula Vineyards where we invested 12 years ago and at that point of time I thought that the wine story will become a secular growth story in the coming time," said Deepak Shahdadpuri , founder and managing director of early stage venture capital firm DSG Consumer Partners.

We also look at large categories where we believe that the current offerings are just not relevant to the millennial, he added.

“When we launched Epigamia yogurt two years ago, everyone asked why would people buy yoghurt when they can make it at their homes and there were already brands like Amul, and Nestlé in the market. But we had our own ideology of different brand offering that a 25 year old Indian would like to buy and likewise we go about looking for ideas," said Shahdadpuri.

According to Imran Jafar, co-founder and managing partner at PE firm Gaja Capital, the consumer sector, given the demographic changes, offers a wide variety of opportunities and that is making investors look deeper within the sector.

“The four sectors that we invest in, which include financial services, healthcare, education and consumer are the largest heads of Indian middle-class household spend. We are digging deeper into consumer segments which are addressing different audience like young couples, women, younger generation and in that sense we are digging deeper into our core strategy," said Jaffar.

The confluence of changing demographics and technology is leading to disruptions in business models and giving rise to new investment opportunities for investors, said experts.

“One has to look at the use of technology in traditional businesses and see how tech can be applied to scale up the business. There are business models which are emerging with the changing demography. I think we are going to see more and more disruption happening. In our portfolio, we have agri-tech companies that are using artificial intelligence and machine learning. I think if you can use the technology to help consumer take the decision then it can actually prove to be a good business model and disruptors at large," said Vikram Gupta, founder and managing partner of venture capital firm IvyCap Ventures Advisors Pvt. Ltd.

Though the disruption created by technology is various sectors has created large opportunities, PE investors have largely stayed away from investing in these opportunities due to the early-stage nature of the opportunities, said experts.

“I personally think it’s a very large opportunity staring at all of us and it has been appropriated so far by deep pocket giants like SoftBank, Tencent, others and the reason why that happened predominantly because in India there were no growth funds that were excited about this opportunity. These growth funds were sceptical about losing money. One has to bring a late stage investing lens into an early stage one in any retail or consumer business and make it work," said Abhinav Dhall, executive director, Standard Chartered Private Equity Advisory (India) Pvt. Ltd.

Financial services is another major sector that will continue to provide a plethora of opportunities to investors going ahead, said experts. Fintech, in particular, is an area that is witnessing a lot of interest.

“When I came down to India to open Norwest, I saw that financial services is the large part of our GDP and technology isn’t. A few weeks ago I noticed that 40% of the Sensex was actually financial services. So we ended up investing in six to seven companies and on an average we made about 4-5X returns. It has been a successful sector for us. In the immediate term, we continue to be bullish on financial services," said Niren Shah, managing director at Norwest Venture Partners India.

However, Shah cautioned that fintech, though promising, is still waiting to see major breakout opportunities.

“My belief is that fintech is going to have its e-commerce moment. It’s not a winner taking all situation. The other problem with fintech is that there is no entry barrier. Eventually fintech gets valued like financial services. We are waiting to see some breakouts in fintech. Personally, I’m not much bullish in fintech for a couple of years but will definitely see in the long run," he added.

According to Prashant Purker, managing director and CEO at PE firm ICICI Venture Funds Management, several sub-sectors within manufacturing have attracted PE interest and will continue to do so going ahead.

“Any type of specialized manufacturing definitely has its place in the market and India does have a competitive advantage on that. Speciality chemicals, defence components, automotive components are some areas in manufacturing sector where investors have shown interest," said Purker.

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