Industry Q&A: Sanjay Nayar

Q: India can be a difficult market for private equity. How have you approached it?

A: Before I joined, the firm had already made two investments: Aricent and Bharti Infratel; and then we did Café Coffee Day and Dalmia Cement. We've [put] $1 billion of capital to work and have simultaneously done a few structured credit deals.

Our approach has been looking for high quality mv anagement teams of fast growing companies. In India, promoters and managers are the same thing: the ones who own and run the companies. Entrepreneurs you call promoters in India, because they own significant chunks of equity. Our method has been one of pro-actively reaching out to the clients I had from my previous job [as Citigroup South Asia CEO], who generally fit into our industry focus and investment thesis. We are solutions-oriented; seeing if we can solve problems along the capital structure. It may not be just PE. It could be something on the credit or mezzanine side.

Q: So being a solutions provider is the value add from your perspective?

A: It is, as well as brinvging all the global connections KKR can bring to the table. Indian promoters are beginning to appreciate this. It takes time. People don't just appreciate this overnight. But the ability to give them a fixed-income or a mezzanine solution in addition to all the KKR solutions is important, because it strengthens your PE dialog even more. [The promoter] may not want to do an equity deal today, but when he does it tomorrow, he will probably give you a call. It's a pretty interesting model because India's not a big enough PE market to focus solely on PE.

Q: With so much money and so many options for capital raising in India, how is KKR differentiating itself for promoters?

A: Quality in terms of trust is very important. You have to align the understanding of why they are working with us. With more than 400 local GPs, there is no dearth of capital in India, so it is not just about the check. If it's just the money, then frankly there are lots of ways they can get it. The public markets are so vibrant in our market that they can probably get much cheaper financing. Rather, you need a good-quality promoter with aspirations to partner with KKR or other global GPs, so they can really improve their business and become world-class. Otherwise, you just compete with everyone. You have to distinguish yourself.

That is why we really try to focus on covering the top 100 solid companies and families. India is such a plethora of small companies, that you can pretty easily become lost, and diffuse your positioning as well. I'm pretty conscious that we should have a very clear stature and differentiated positioning in the marketplace, so when M&A activity starts and anything big begins, we get called in.

Q: Are there enough of these quality promoters out there to absorb the significant capital overhang sitting on the sidelines at the moment?

A: We understand there is $30 billion from global and local funds that is waiting to be invested just in the PE space. The way you define PE in India covers not just pure PE but PIPEs and pre-IPOs. But in our history of investing at KKR, too much capital has never been an issue given the potential opportunities in the marketplace.

In India, what matters is how you distinguish yourself away from the locals.  And then you have to further distinguish yourself away from the globals, because it's not enough just to be among the 20 globals. And, providing a company with capital alone does not distinguish one private equity investor from another, nor will it alone necessarily create long-term value.

These companies want a credible investor, with a track record of success over a considerable period of time.  They want someone who understands their business; who can put world-class operational expertise and resources [into place]; and who can help them to be even better connected to the world beyond their market. They understand that if they find all of this, then the company's total value grows and the "pie" becomes bigger for all stakeholders.

Q: Do the market dynamics – the expectations of promoters, higher valuations, capital overhang and PE mandates – translate into problems with investing in India in the next 12-18 months?

A: The deal pipeline is very active. It is possible deal momentum might slow down a little bit, because the valuations have become very expensive in the public markets, and the way the Indian business psyche works in a private or a public deal, [the promoter] always looks at the closest public comparable. And lot of this is being driven by short-term money that's flowing into the market. 

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• Topics
• South Asia
• People
• Performance
• KKR
• Sanjay Nayar