India trip learning – Part 1

Before I forget what I have done in the past 9 days in India, I felt obligated to myself to write a brief summary about the meetings we had and summarize some of the key learning points I got out of the visits.

1. From the Federal Reserve Bank of India -> ” If we’re to achieve results never accomplished before, we must expect to employ methods never before attempted.”  Raghuram Rajan is a great economist. He is sharp at thinking and precise in his responses to our questions. He mentioned 4 things that are critical to increase FDI in India – infrastructure development, human capital improvement, business regulation reform and finance reform.

2. From P&G and Unilever

  • India’s GDP growth depends on consumption, not net exports.
  • Only 12% of women in India are using sanitary napkins.
  • Main sales channel in India is through high frequency stores (78% of sales), modern retail (9%) and drug stores (9%).
  • South Asia accounts for 25% of the world’s population.
  • Food & personal care market is growing at a CAGR of 17%.
  • sachet packages at about 2 US cents (1 rupee) each account for 70% of the volume of sales for products such as shampoos and detergents.
  • Challenge comes from irrational competition that prolong through time.

3. Walburg Pincus

  • Buy out accounts for about 1/3 of Walburg Pincus’ deals and the rest is in growth investing.
  • They invest from a global pool of capital and dynamically choose where opportunities are. No geographical division and can take significant exposure.
  • 9/10 investments they made in India are minority investments. They also try to stay away from companies that have government involvement
  • They raise leverage offshore then bring funds into India due to the lack of a bond market in India.
  • They think about where people spend that extra $ when their wealth improve.
  • They are trying to find low cost scale manufacturing in India that have access to global market.
  • Entrepreneurship -> They look for skills (past experience, understanding of the sector) for a particular business, a good partner (test of perseverance, ability to scale and spend time with the person) and provide support to a business’ growth (fairness and integrity).
  • “If you are really dumb, you can only lose 1* the amount of money.” 
  • Bank credit/GDP = 60% in India, 180% in China. Mortgage penetration rate = 5%, retail credit/GDP = 10%.
  • Challenge facing ICICI -> money is not staying in the account (frequent withdrawal and transactions), which cannot be used to make money.
  • Lending in India is income-based, not collateral-based.

4. Family Businesses

  • Underlying assumptions (change often due to volatile environment) -> Models -> Actions -> Reality; Because of this, the reality can be as far away as you could think from predictions.
  • Tata Sons is aggressively expanding globally. Enable employees, not executing for them.
  • Godrej -> evaluate acquisition by brand and human resources, prefer acquisition of family businesses
  • “Not everything natural is good. Some of the most poisonous goods in the world are natural.”
  • India has the 2nd highest arable land in the world, but is 3 times populated as China and 10 times populated as United States.
  • The new world is volatile, uncertain and complex by nature.
  • Reliance Industries is the most actively traded stock in India. They issued a 100 years Yankee bond and 850 million perpetual bond. (first Asian group to have done that) 

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