Domestic, international themes drive India opportunities

Managers told the Hong Kong Venture Capital & Private Equity Association’s (HKVCA) Asia Forum that Indian consumers' appetite for discounts makes it difficult for companies to remain profitable while appealing to a purely domestic customer base. Global markets are seen as a way for investees to address this problem.

“The international consumers will pay two to three times what an Indian will pay for almost anything, and the competition is a lot less fierce,” said Ketan Patel, founder and CEO of Greater Pacific Capital. “If we can leverage the Indian cost structure, which is still around a fifth of China's, and use it to sell something that's of quality to the world, not just India, that's the perfect business for us.”

Investors do see growing activity among companies that can target consumers in previously untapped parts of India, particularly the country’s lower-tier cities. People in these increasingly affluent areas share the aspirational lifestyle goals as their counterparts in larger cities, and with fewer brands marketing to these consumers, companies willing to make the effort can take an early lead.

Multiples Alternate Asset Management has shaped its investment philosophy more and more around this trend. The firm has seen the lower-tier market story develop in its own consumer-focused portfolio companies, including premium clothing brand US Polo.

“In the 25^th to 50^th-largest cities, they were growing at 25-30% annually, while in the top 15 cities they were growing at 15-18%,” said Nithya Easwaran, a managing director at Multiples. “So, clearly there’s something changing in these cities, and this theme of consumption creep will play across a variety of sectors, such as education, healthcare, and others.”

Even within sectors where overall growth has slowed, there are still considerable openings for businesses providing niche or specialized services, or dealing with untapped markets. However, identifying these companies and providing them the tools to take full advantage of their opportunities will require more effort from investors.

“We need to use our sector specialization, go deeper, and find those underappreciated subsectors that are growing much faster than the overall industry,” said Gaurav Ahuja, a managing director at ChrysCapital. “That’s where you can find real gems at reasonable valuations.”

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• Topics
• South Asia
• GPs
• Consumer
• Investments
• India
• Multiples Alternative Asset Management
• ChrysCapital Management
• TMT
• HKVCA