India Awards: PE Professional of the Year – Sanjay Nayar

Q: KKR invested in TVS Logistics in April 2011. What made this company stand out?

A: We identified the logistics industry as an attractive investment area. As with any industry in which we see opportunity, we met with various companies to learn as much as possible. TVS Logistics has a quality promoter group with a track record of profitable growth as well as a longstanding relationship with KKR India's leadership team, so we were familiar with one another's business philosophies and shared a similar long-term vision.

TVS has a differentiated service offering for its customers, notably the end-to-end services required for managing auto components and finished vehicle logistics. It is one of the only pan-India players with a complete suite of services including in-bound just-in-time logistics, warehouse management, and wet leasing of equipment. Most of the company's competitors do not have the capabilities to play along the entire supply chain.

Q: How is KKR supporting TVS' M&A efforts? Do you see TVS as a broad consolidator or a specialist?

A: The Indian logistics industry is extremely fragmented and largely unorganized. Even the organized logistics segment is dominated by regional, sub-scale players offering a few services to local customers. TVS is in a phase of acquisitive growth and we believe KKR adds substantial value across operations, business growth, managerial resources and strategic decision making.

TVS has consistently been able to acquire small bolt-on companies at low valuations and then accelerate growth by providing the acquired capabilities to a larger roster of customers. It is in the process of acquiring capabilities to cross-pollinate amongst the various subsets within logistics. This will allow it to offer end-to-end supply chain solutions across different geographies.

Q: Was one private equity investment in 12 months below your expectations, based on the level of activity in recent years? To what extent are valuations a factor in this?

A: KKR is a patient investor - we do not have a quota which needs to be met. The volume of private equity investments in India was fairly low in the last calendar year compared to 2011 and 2010. However, there has been a turnaround in sentiment and long-term investors continue to bet on the India growth story.

Strategic players have always liked the country and continue to do so because there is a huge consumption market, most sectors are underpenetrated and companies have strong growth potential. Private equity can be an important asset class for India and so it is vital that we create a positive investment climate that can override macro headwinds and make businesses feel confident about investing again.

Q: Has the growth of your non-banking financial company (NBFC), KKR India Financial Services, been in line with your expectations?

A: The idea of KKR India Financial Services is to become a complete solution provider to promoters or companies. The strategy is to be a multi-asset solutions provider as mezzanine financing helps companies that are still in the growth phase, and the promoter does not need to dilute his stake or raise expensive equity.

Through this form of structured financing we see ourselves as providing a real capital solution to companies. The growth of KKR India Financial Services has been in line with our expectations and it will continue to be a significant part of our business as almost every sector in India is underpenetrated and requires strategic long-term capital solutions.

Q: BhartiInfratel recently went public. While it remains a KKR portfolio company, does the successful IPO suggest brighter prospects for exits in India?

A: While BhartiInfratel went public, KKR remains committed to this investment because we believe in staying with our portfolio companies for the longer-term. As Indian businesses become more confident about their growth prospects, private equity will play a larger role in helping companies deliver sustainable profits. This is what should lead to more options for exit.

Q: Industry participants are looking at secondary exits, often on the basis that there are more, and larger, pan-Asian funds looking for buyout opportunities. Do you agree with this premise and how does it fit in with KKR's approach to India?

A: KKR looks to invest in companies that have solid management teams, strong growth prospects, and are looking for a strategic investor that brings more than capital to the business in a partnership approach. One advantage in this pool of companies is that they have realized the benefits of patient and strategic long-term capital by having a private equity investor.

But this is a very shallow pool compared to the many, many companies that KKR can partner with to help them grow. This is one reason we now have a dedicated KKR Capstone team in India that can work closely with portfolio companies to bring about better operational efficiencies, better marketing, better logistics and better sales optimization.

Q: Before joining KKR, you worked as CEO of Citi India and had a predominantly institutional banking background. How has this shaped your approach to private equity?

A: In corporate and investment banking, to be successful one needs not only to know a lot of the entrepreneurs in India, but also their mindset. What is the risk-reward trade-off they are willing to take? What are their concerns about investing? What is it that can help them beyond the provision of capital? My experiences let me know that at KKR India we need to provide an investment platform across asset classes, including private equity, real estate, infrastructure and fixed income.

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