Over the last few months a lot has been said about the Narendra Modi government’s drive to increase the reform pace in India and to ease doing business.
Is the change at guard making private-equity funds look at India differently? CNBC-TV18’s Kritika Saxena spoke with Shashank Singh, head of Apax Partners in India.
The USD 20-billion Apax invests USD 1 billion in India. But with a run rate of one deal per year and an average ticket size of USD 250 million, some feel it has been too conservative investment approach.
In this interview, Singh spoke about the macroeconomic landscape, Apax’s investment approach and sectors that PE fund is bullish on.
Below is the transcript of the interview on CNBC-TV18.
Q: We are talking about the new government coming on board, a lot of hope, lot of optimism about India being at an inflexion point. Do you really believe that we are at a point for a turnaround and do you believe that the new government is likely to usher in a change?
A: I think this will take a while. We are very positive on the country, we have seen the performance of the stock market and investors are very positive. However, the turnaround will take sometime I believe. This is because the slowdown itself took two to three years for growth to come from 7-8 percent down to 4.5 percent. So the turnaround also will take in our estimation between 12-24 months. We should not be expecting miracles in the short-term.
Having said that there are a lot of positive factors – new government that is focused on reducing red tapes, simplifying laws, improving the environment for investment; number one. Number two the global macro which has led to as we have seen recently a very sharp reduction in oil prices and generally commodity prices overall which will be beneficial to an economy like India which is in general an importer of commodities especially petroleum products and finally then long-term macro fundamentals and demographic fundamentals of India – a large middle class, a young population and a lot of the demand for consumer goods products, financial services which will come through over the next several decades. So, for all those reasons we are very positive on India going forward.
Q: Are foreign investors like yourself changing the way they see India and now going forward would you specifically look at hiking up your investment portfolio in India?
A: At one level we have to pay attention to the macro. However, we are micro investors which means we look at great companies, great management teams, great sectors and sub sectors. So as I said, the macro environment does matter. The fact that there is a new government and there is positive momentum is a great plus but there is money to be made we believe in all markets.
Q: You have had four large significant investments in India over the last four years. There have been Global Logic, Patni – these are significant investments but the run rate has almost been one per year. Can we say that with things likely to see a turnaround would you say that 2015 you may increase your run rate now? One per year is conservative to an extent.
A: That fits our business model. We have a reasonably hands-on approach with the companies that we partner with. We feel that it is important to be value-adding investors, to be very clear in value creation plan, what is our value creation plan when we partner with these companies and then to put all of our resources behind delivering the drivers of that value creation plan.
So, for example you quoted iGate. There the Apax funds backed iGate to acquire Patni and then after the transaction was done there was quite a lot of work required in the integration of the two companies, in the open offer, in the delisting of Patni, in various work streams; those are examples. It is not possible we feel to do that with too many companies in any one given year.
So, our investment pace will probably stay where it is. I don’t see us doing several deals in a year for the simple reason it is not possible to partner with these companies and to be as active partners in the creation of the value that we have done in the portfolio so far. So, I suspect the investment pace won’t change. We are always looking and hoping for larger cheques; that is really our focus.
Q: So the ticket size may increase?
A: For the right opportunity.