Temasek Holdings to increase pace of investment, diligence amid valuation reset

The Singapore state investor has put in close to $4 billion, including its investment in Manipal Healthcare Enterprises Ltd, over the last 15 months and expects to deploy $9 billion to $10 billion over the next three years, the executives said.

In FY23 alone, Temasek Holdings had invested around $2 billion in India.

"It (pace of investment) was a billion dollars a year for many years, we doubled that in FY 23. And we will try to do it every year, if we can find our opportunity," said Ravi Lambah, head, Investment Group, and head India, for Temasek Holdings.

According to Lambah, India has everything going right amid the global liquidity crunch. “Obviously, the world is in a difficult place. There's high interest rates, high inflation in the US and in the Europe. We don't have that problem. Rates are not that high, inflation is not high too. We are the fastest growing economy, globally, last year and will be this year, as well."

Its investments in FY23 in India were in subscription-based food business Country Delight; nutrition and wellness supplements manufacturer and retailer Healthkart; smart appliances maker Atomberg; and credit card platform OneCard. Temasek also raised its stake in e-commerce allied service provider Shiprocket, as well as insurance companies HDFC Life and ICICI Prudential Life.

Temasek's pace of follow-on investments in its own portfolio companies has also increased as the firm is doubling down on the winners in its portfolio, Bhandari, who is the managing director, Investment, for Temasek in India, said. “Manipal is a follow-on investment. We had an 18% stake six years back. And consequently, that, in my view, is a key reason why we got comfortable with both the sector and the specific company. So, it does add a significant degree of comfort for us to then step in when the right opportunity presents." 

Besides Manipal, the firm made follow-on investments in Ola Electric, Shiprocket and Country Delight.

Temasek’s India portfolio stood at $17 billion (MTM value at $21 billion) at the end of March 2023, which is 6% of its global portfolio.

Given the increasing instances of corporate governance lapses at startups in the country, all global investors, including Temasek have taken note. The firm said it is looking to increase scrutiny and diligence on potential investments.

"Globally, we will be a lot more focused on areas where we may not have been as focused earlier, like third party diligence. We have been getting third party diligence for many years, but we will increase our intensity now. Ultimately, we cannot diligence everything but you can do your best. And despite doing everything, you will still have problems that you did not see," Lambah added.

Investors across the board have seen cracks evolve in in portfolio companies over governance the last 12-15 months as the funding downturn has put pressure on growth metrics.

Temasek Holdings was also one of the investors in Zilingo Pte, a Singapore-based fashion retailer, which wound down earlier this year.

“Obviously we expect all our companies to invest and work with high ethical standards, that's very important. We expect them to be very focused on governance, because ultimately, as a financial investor, in many cases, we have minority, we rely on the boards to provide the governance layer," Lambah said.

Companies in India are also going through a valuation reset, the executives said, with those in the path of profitability able to attract a greater amount of capital.

“In the tech sector, when capital was abundantly available, it was ignoring companies focused on profitability and whether there was cash burn or not, capital was going everywhere. Everyone was benefiting. That reset has happened. Companies that don’t have a defined path to profitability will not see capital flow into them," he added.

Temasek is also in the process of investing in Pharmeasy, where there is an ongoing rights issue that values the company at one tenth of its 2021 valuation of more than $5 billion.

Without speaking about specific portfolio companies, Lambah said that the firm will continue to allocate capital to its portfolio companies where it can help better performance. “If a business has underperformed, if capital will help it go back into performance quadrant, then yes, we will deploy capital. At what valuation it is done is very case by case. And when we find that it is not a good use of capital (to make a follow-on investment), we will take a different decision, that is how we operate," he added.