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)