With an investment of $1.6bn and returns many times the invested amount, one would think the guys at Warburg Pincus would want to kick off their shoes, smoke Partagas and watch yachts sail gently into the Mumbai harbour. Anything but. Considered blue-blooded amongst private equity (PE) firms — Warburg Pincus — has been workmanlike this year.
“We have invested $375m this year and it has clearly been our busiest,” says Charles R Kaye, co-president, Warburg Pincus. To put things in perspective, this firm invested only $100m in the first four years of its operations in India.
“There was no pressure on us to invest, and we spent those years learning about the Indian market and entrepreneurs here,” says Dalip Pathak, MD, and the man who set up the formidable India team of Rajesh Khanna and Pulak Prasad. Mr Prasad led the Bharti investment that made Warburg boatloads of money. “We wish Pulak all the best, but you know, this is the original dream team,” says Mr Pathak.
Almost every PE investor has been envious of Warburg’s investment approach. That approach is not going to change. It will still be focused on ‘building the road rather than owning the car’. So the firm will keep its focus on infrastructure.
In the first 12 years of existence, Warburg focused on sectors like telecom infrastructure (Bharti), financial services (HDFC) and building materials (Gujarat Ambuja). The approach remains intact with investments in travel (Lemontree), energy and consumer banking (Kotak Mahindra).
When it comes to India, clearly all the capital that is pouring is not enough. “I will be disappointed if India does not get in $6-8bn in PE annually in another 2-3 years. What’s come into the country is not enough given its capital needs,” adds Mr Pathak. He reckons that India will need $350-400bn to keep its economy growing.
A part of this will be debt financed, but almost $125bn will be in equity. “Even if PE were to fund only 25%, that’s still $30bn. What is the inflow into the country right now? $2bn. People who think there’s too little money chasing too few deals should think again,” says Mr Pathak.
Warburg is putting its money where its mouth is by bringing its $1.2bn real estate fund into India and going deeper into the infrastructure. It is looking to invest in real estate developers, listed realty companies, hotels and housing.
“We like mid-market housing. Not super luxury housing, but good quality housing for professionals. Things like 50-acre townships on the outskirts of large cities that cater to professionals we would want to invest in,” explains Rajesh Khanna, MD, Warburg Pincus.
Perhaps, a clear differentiator is Warburg’s ability to spot exceptional entrepreneurs: guys who can scale companies rapidly without self-destructing. “We invested in Bharti when telecom was considered a tough space. We did cement when it had never been done before.
We spotted WNS when it had 600 people; today it has about 12,000,” says Mr Khanna. Warburg clearly loves the Indian entrepreneur. “I think some of them are exceptional. They have operated in perhaps one of the toughest business environments,” says Mr Kaye. (See box: ‘Warburg’s cheat sheet on spotting entrepreneurs’)
It’s not all hunky-dory though. The Warburg team is worried about India’s inability to invest in soft infrastrucuture. “It has taken us 10 years to consider the development of infrastructure as a priority. I hope it doesn’t take us another 10 to consider education as a priority area,” says Mr Pathak.
Mr Kaye has another perspective: “I don’t want to lecture really but you know the key structural difference between China and India? Participation of women in the workforce. In China, 52% women are in the labour force, India has just 18%”.