Has your investment thesis changed or evolved as a result of the global pandemic and its impact in India? What role do you see for private capital in driving post-pandemic economic growth and recovery in the country?
India has been on the cusp of a transformational growth trajectory and the global pandemic has hastened structural shifts in the country’s economy. The unique identification system created by the government, together with the addition of payment and mobile services, has democratized access to financial services across the country and driven a one-time mega adoption shift. The secure, open architecture nature of this digital public good has allowed businesses to innovate by building on top of this infrastructure. Accelerated by the pandemic, businesses that have adapted to a tech-first model have seen significant growth. Multiples recognized this opportunity early on and increased its focus on tech-enabled, consumption-driven businesses and other opportunities in tier 2/3 cities across financial services, enterprise technology, consumer, healthcare and pharma.
In addition, we see a growing acceptance of private equity as buyout opportunities are on a definitive upward trend across traditional businesses, manufacturing, healthcare, pharma and financial sectors. Multiples actively seeks the best opportunity across minority, early-stage, control and buyout situations, providing growth capital to high-growth companies in its sectors of interest.
Today, Indian corporates and banks have healthy balance sheets, the government has established a commitment to infrastructure and interest rates are low. India attracted a combined USD55.1b in private capital investment in 2019 and 2020, representing approximately half of the USD111.9b received between 2015 and 2020. As such, we believe that private capital will be a key participant and driver of the economic growth of the country.
In May 2021, Multiples led a consortium of investors including CPP Investments and RARE Enterprises in the ~ USD400m acquisition of animal health business Zydus Cadila, the largest deal that Multiples has been a part of to date. What do you see as the specific opportunity set in this industry and how do you plan to grow the company?
The Indian animal health industry is a ~USD900m addressable opportunity and is amongst the fastest growing industries globally. It has several distinctive features such as long product life, a diversified customer base, distinct regional demand drivers, low R&D requirements, as well as shorter and less complex approval processes. The ability to build brands and develop a direct connection with the end customer makes it an attractive branded generics play.
Our buyout of animal health business Zenex Animal Health (Zenex) is an example of the growing private equity opportunity in India. We observed a definite trend of promoters and conglomerates divesting some of their high-performing and valuable businesses, either because the next generation does not wish to run the business or because they wish to allocate capital to some of their core businesses.
Zenex has built a diversified presence across end segments with a focus on the retail market. The company has established a track record as a leader across a wide spectrum of therapeutic and nutritional products in the livestock segment and has been growing its presence in the poultry segment by leveraging global partnerships. Zenex is poised to grow its exports business, which will provide a boost to the growth rates. We expect the company to deliver double-digit organic growth by maintaining its 200-300 bps growth premium over industry growth. The attractive cash flow profile of the company will enable us to pursue our acquisition strategy and expand Zenex’s product portfolio.
Multiples recently co-led a USD192m Series F for Licious, the first D2C meat and seafood unicorn in India. How does this investment fit in your investment strategy and what is the opportunity in the consumer sector in India?
Multiples has been investing in tech-led opportunities since 2012; in fact, we are among the first PE funds in India to do so. We are early investors in IEX (tech-led power exchange), Delhivery (e-commerce logistics), Dream Sports (fantasy sports), Licious (D2C food brand) and most recently Acko (D2C insurance). This is in addition to our investments in the enterprise tech space – PeopleStrong (HRtech), Quantiphi (AI, ML services) and Moengage (marketing SaaS).
Within the consumer tech space, we target companies that provide a superior user experience and solve India-specific problems. Businesses with a truly D2C full-stack model that can potentially become category creators in large markets are most attractive to us. Licious ticked all of those boxes. The company’s loyal consumer base presents an opportunity to emerge as a category creator in the very large unorganized meat market. E-commerce has truly democratized distribution, which has led to the emergence of several new consumer brands across sectors, especially in food, beauty, financial services and education.
Multiples has realized a number of exits from the portfolio in 2021. Can you please share details on two to three of those exits – date of investment, growth story, path to exit, etc.? Why has this year been a particularly good environment for exiting companies in India?
Since September 2020, Multiples has delivered ~USD810m in exits across its funds. We have fully exited from investments in companies across a range of sectors, including Delhivery, Encube Ethicals, Vikram Hospital and Dream Sports. We have also achieved partial exits from PVR and Vastu Housing Finance. Specifically:
Vikram Hospital – Multiples acquired a controlling stake in Vikram Hospital, a multi-specialty hospital located in the heart of Bangalore city, in 2013. Multiples brought in new management to turn the hospital around, improving the hospital’s operations and profitability without compromising on medical outcomes and patient care. With attractive financial metrics and a strong reputation for tertiary care, Vikram Hospital emerged as an attractive asset for both domestic and global hospitals. Multiples exited Vikram Hospital to a strategic in June 2021.
Encube Ethicals – Multiples backed Encube Ethicals in 2016 and transformed it from a contract manufacturer to an integrated specialty pharma company with its own product portfolio in the US market. Multiples worked closely with the entrepreneur to strengthen the company’s R&D team and set up a front end organization in the US. Multiples successfully divested its stake to another private equity firm.
Dream Sports – In 2017, Multiples recognized the opportunity in Dream Sports, owner of online fantasy sports app Dream11. India’s young population and its enthusiasm for cricket drove a change in consumer behavior resulting in an increase in sports engagement. During Multiples’ holding period, Dream Sports has grown from 7 million users to 120 million users and diversified from a fantasy sports platform to a complete sports engagement company. Multiples executed a systematic exit over the years to return cash to its investors at every uptick in valuation and lock in the best of outcomes for the fund within reasonable timelines. Multiples’ investment paved the way for a scaled and mature platform, attracting a series of large, deep-pocketed investors. The journey with Delhivery has been similar.
Multiples recently closed its third fund at USD680m. How has the firm’s investor base evolved since its first fund and have you seen growing appetite from international investors?
While international investors form a substantial portion of our investor base across all of our funds, Multiples has chosen to open up domestic pools of capital. This is to enable domestic institutions and family offices to participate in the growth and prosperity of the Indian economy and to benefit from the opportunities that are available in private markets. In pursuing this conscious strategy, we have been able to add some very significant and high-quality Indian institutional investors and family offices to our investor base.
Driven by strong momentum and attractive Indian opportunities, we believe that there will be greater appetite for Indian funds across asset classes in the coming years.