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'We Look For A Passionate And Motivated Promoter Group'
Tax changes spook investors, and so certainty about tax matters is important, says Neeraj Bharadwaj, Managing Director, Carlyle Asia Partners
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Neeraj Bharadwaj, Managing Director, Carlyle Asia Partners, who heads the buyout fund in India, talks to BW Businessworld about private equity investments and other issues in the country.
What is your view on the private equity investments industry in India?
Private-equity investing in India is different from other countries. Here, it is about growth and gains in EBITDA and not about cost-cutting or debt repayment. Private equity enables Indian companies to improve corporate governance and to widen their reach in domestic or international markets. India, being one of the fastest-growing economies, standardising tax matters and pushing through the GAAR are initiatives that have excited international investors. India's vast potential, similar to China's in the 1990s, offers an 8% - 9% percent growth for the next 25 years.
How do you evaluate your private equity investments?
Our business model is backing effective management and well-reputed promoter teams. We don't run businesses on a day-to-day basis. That is not our style. We look for a passionate and motivated promoter group. Next, we evaluate whether the opportunity is domestic or international. We also look at a company's corporate governance standards and its willingness to continue to embrace good governance. Almost every sector in India is underpenetrated and there is tremendous scope for consolidation since fragmentation is high.
In terms of investments, in the case of PNB Housing Finance, we made the company IPO-ready. With financial services becoming increasingly technology-oriented, we got one of Cognizant's founders to join the Board, and to bring in his experience. Another portfolio company is Metropolis, one of the largest pathology companies in India. Healthcare services is a largely underpenetrated market. We doubled foot-prints and collection centres since we joined about a year ago. We also started to sharpen the focus on preventive care. In another deal, Medanta, which is one of the best hospitals, we enabled the company to make two acquisitions in the highly fragmented healthcare sector.
What are your major concerns on India's policy front?
For private equity, certainty is important in policy. Tax changes spook investors, and so certainty about tax matters is important. Challenges arise in doing business in India, and people get weighed down by bureaucracy and inertia. The more these hurdles can be eliminated and if the infrastructure can be improved, India will attract larger amounts of private equity investments.
What is your outlook on India's economy?
The economic outlook is upbeat. We will soon have the GST, which will add a percentage or so to GDP growth rates. With low oil prices, the current-account deficit is low. The government has done a good job of reigning in the fiscal deficit. The rupee is relatively stable. Public capital expenditure has increased. Private capital expenditure needs to increase, without which 8-9 percent growth rates cannot continue.