By AltG Innovation Centre On Behalf Of Poornima Vardhan And Taponeel Mukherjee
Imagine investing $2 million in Bajaj Finance two decades ago and seeing your investment grow to an astonishing $1.65 billion today. That's a return of 825 times your initial investment in USD terms. Such opportunities are what investors dream of, and the question on everyone's mind is, "What's the next Bajaj Finance?" India's status as the fastest-growing major global economy has drawn considerable attention from investors. The headlines tout India's private equity race for growth and the allure of private capital despite a few bumps in the road. The prevailing consensus is that India's private markets are where the big opportunities lie. However, a closer look at the Indian landscape reveals a conflicting narrative of failed businesses, corporate governance issues, and struggling returns. To make sense of this paradox, investors need to understand the underlying dynamics.
India's Unique Market Dynamics
The struggles faced by VC-funded startups in India are not indicative of the broader market. These struggles can be attributed to various factors, with one of the primary culprits being the force-feeding of business models that were ill-suited to the Indian market. India's unique characteristics, such as its rapid adoption of mobile technology, digital payments, and cashless transactions, underscore the need for tailored business models. The failure to recognise and adapt to these nuances has hampered the success of certain investments in the region.
The Enormous Potential of India's Private Markets
One might ask how significant India's private market really is? The short answer is that it’s massive and rapidly growing. It's not just about new businesses; the existing unlisted top 30,000 companies in India's private markets generate over $1 Trillion in revenue and over $100 Billion in profits. The time to reap the rewards is now, and investors must understand the massive potential that lies ahead. It is currently a $1 Trillion market, but projections suggest it will surpass $10 trillion in the next two decades.
Unlocking Growth and Generating Returns
The key to success in India's private markets lies in identifying sectors that are growing at an annual rate of 15-20% and individual companies within those sectors that are achieving even higher growth rates of 30-50%. Investors can play a crucial role by providing the necessary capital to support the growth of these companies. The real opportunity in India's private markets is partnering with hundreds of these small, high-growth businesses.
India's Private Markets: Teeming with Potential
India's private markets are teeming with potential, and it's not just about finding the next $100 Billion business but identifying the next 100 Billion-dollar businesses. While there may be a few bad players that garner disproportionate attention, they do not define the immense $10 Trillion opportunity presented by India. With the right investment frameworks and business models, investors can participate in this remarkable growth story.
The Concept of India's Missing Middle
Financial sponsors have traditionally dominated India's private markets. However, while large buyouts may seem appealing, fierce competition often leaves little room for significant gains. The alternative approach focuses on businesses with substantial cash-generating potential and transparent cash flow visibility. This approach takes advantage of India's ongoing transformation and untapped opportunities.
Acquisitive Platforms in India's Missing Middle
India hosts a wide array of businesses with revenues ranging from $1 million to $20 million, offering impressive EBITDA margins. These businesses operate in sectors such as ITes, B2B databases, analytics, financial software, online classifieds, and more. "India's Missing Middle" focuses on acquisitive platforms that acquire, enhance, and integrate these businesses, unlocking value for all stakeholders. While these companies often need help with unoptimised balance sheets and cost inefficiencies, their ability to convert revenues into free cash flows makes them attractive targets for investors.
Sowing the Seeds for Future Rewards
In terms of exits and secondary market liquidity, Indian equity markets typically witness IPOs starting at approximately $40 million in revenues on the main board. This is a ripe opportunity for larger PE funds and sovereign wealth funds seeking high-quality deals. Investing in India's missing middle today promises a bright future when it comes time to reap the rewards.
India's private markets hold the potential for a "BlackRock moment" for savvy investors who look beyond the hot trends and glamorous ventures. By focusing on creating acquisitive platforms that capitalise on India's missing middle, investors can unlock the full potential of the country's private markets. India's growth story is just beginning, and those who embrace this transformation stand to reap epic rewards in the not-too-distant future. As Warren Buffett's timeless wisdom reminds us, the true treasures lie in simplicity and overlooked opportunities. India's private markets are a testament to the untapped potential of the "missing middle" that holds the key to unparalleled success.
Disclaimer: In The article "Is This Indian Private Markets' Blackrock Moment?" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.