“We spend a lot of time on industrials given our experience in the sector and the ‘Make in India’ initiative in which we are firm believers,” says ishi Mandawat, partner, Bain Capital.
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Early this year an affiliate of global private equity firm Bain Capital sold its stake in logistics company J M Baxi Ports & Logistics to a German shipping and container transportation company, Hapag-Lloyd. Bain Capital is keen to invest more in logistics businesses given strong growth in the sector, Rishi Mandawat, partner at the investment firm, says in an interview with Raghavendra Kamath.
After your exit in JM Baxi, are you looking at this sector actively now?
We spend a lot of time on industrials given our experience in the sector and the ‘Make in India’ initiative in which we are firm believers. We think industrial growth in India will be actually higher than GDP growth over the next few years. If manufacturing grows then so too will logistics , so I think we are very keen to invest in more logistics businesses.
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There are recessionary trends in the West. What kind of impact have you seen in the Indian manufacturing space since exports also have slowed down in many categories?
The global slowdown I think is being driven by these rising rates… It has globally impacted demand a little bit. But I think in India there are three legs to manufacturing which give it a long runway. One is the domestic growth, the second is obviously exports, which are going on as usual. Relatedly, there is more of a global supply chain diversification, which is playing to India’s benefit where more and more manufacturing is being brought to India partly for the domestic market, but also to make India a supply base apart from China, Europe and US.
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Do you think Make in India has really made a big impact in the post-pandemic world?
We think it’s actually been a positive impact. I think it is definitely helped by the fact that most companies are actively looking to build manufacturing in India. I think that being supported by ‘Make in India’ offers a better business climate. Plus, I think some of the production linked incentives in specific industries have actually had a positive impact. Hopefully they will take us to a critical tipping point from where I think you can see even more of a virtuous cycle.
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How do you look at financial services as an investment class given the raising interest rates, recession fears in the West and so on?
Financial services for us has been one of our biggest sectors along with IT services in India. And so we are very bullish and optimistic. We currently have three investments, one in Axis Bank, one in L&T Finance and one in 360 Wealth and Asset Management 360 One. I would say overall, we believe there’s going to be strong GDP growth. Along with that I think there’s going to be two other themes that play out. One is greater financialisation of the economy, and the second is greater penetration of credit , which is quite low at the moment but will continue to grow. Both those things mean that you will see very strong growth.
But in addition to that, there is significant demand for financial products both on the liability and asset sides. Our whole fundamental financial system is actually very strong and I would say it’s in the best shape that it has been in a long time. So both the appetite to lend and the appetite to invest is high.
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In the current environment, do you think you’ll be able to sustain the returns this year?
When we invest in a company, we take a four to six year view on returns and that is driven by our views of long-term growth… We invest in sectors where there is fundamentally strong tailwind and we invest in companies which have strong competitive position.
We are differentiated in terms of a product offerings or talent or have some sustainable advantage, I think we don’t necessarily have the ability to take a view on in a particular year what will happen. I think some of the investments we have are public and some are private. I think public investments year to year can fluctuate depending on how the markets move. Innumerable factors around FII flows, domestic flows, redemptions can happen, so we honestly don’t take annual views.
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In terms of exits, are they becoming tougher in the current environment or are they easier now?
Private equity exits happen in three forms, right? One is, you go public and you sell in the public markets. Second is you look to sell to other private equity funds and thirdly, you sell to strategies. I think the public markets are at this point harder to execute. I mean you would have also seen that IPOs have fallen off significantly versus maybe 12-18 months ago. I think the bar on taking a company public is actually much higher.
In addition, the valuation in the public markets are lower. So I suspect from an IPO point of view, it’s much harder to look for an exit. Even private investors see global uncertainty while India continues to do well. And a lot of the valuations that you saw last year also seem to have come down. And at this point people have to, if they want to get liquidity, they have to accept that. But overall if you ask me the environment, I think at least in the second half of last year and even today continues to be difficult for exits. That being said, there will always be opportunities to exit high-quality assets and companies like we did with J M Baxi.
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How is Bain Capital looking at India as an Investment destination in the Asia PAC region?
I would say India is a core market for us both in Asia, in addition to China and Japan. We also obviously invest in Korea and in Australia. But given we have a regional fund, we obviously don’t do country funds and don’t target specific countries in terms of deployments. But in terms of just our focus, India would be absolutely critical to the Asia fund.
In your segments, are you looking at any new investments now?
We continue to look at investments across the sector on an ongoing basis. We have always got two or three as investments that we’re looking at in the pipeline.
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How did your partnership with Kotak go in JM Baxi?
The partnership with the family worked out really well. I think they really understand the business and they really drove all the right initiatives in the in the business. Second is I think we worked with the family well to drive M&A in the business. We made actually two acquisitions. And then third, I think we bid for and we managed to secure two or three critical concessions including the one in Mumbai at JNPT. That I think a catapulted the company into a much larger or a much, much better growth trajectory, which I think kind of really changed the profile of the business.
