By AltG Research On Behalf Of Poornima Vardhan & Taponeel Mukherjee
India's economic rise in the 21st century is nothing short of extraordinary, offering global investors a once-in-a-lifetime chance to partner with Indian businesses on the cusp of unprecedented growth. However, our groundbreaking APEXX Formula reveals a critical misstep private market investors often make when entering the Indian market: paying a steep entry price for investments. In simpler terms, the price-to-earnings (P/E) multiple at entry is alarmingly high - Simple But Fatal!
The Perilous Pitfall: High Entry Prices in a Dynamic Landscape
India's markets are in rapid flux, with a substantial portion of its growth attributed to Micro, Small, and Medium Enterprises (MSMEs) generating less than $100 million in revenue individually. Yet, collectively, these entities represent a staggering revenue pool of $1 Trillion and an EBITDA pool of $150 billion. The challenge for investors lies in the intense competition for a limited number of large-ticket deals, exacerbated by the presence of deep-pocketed conglomerates and a robust bank loan market. Unless investors adopt a creative and strategic approach, they find themselves caught between intense competition and limited opportunities—a classic case of being stuck between the devil and the deep blue sea, or in this context, the "Red Ocean."
Diving Deeper into the Predicament
The heart of the issue lies in the fact that a significant portion of India's growth emanates from smaller companies with the potential to generate trillions in revenue. However, traditional investors, tethered to fund structures that demand a certain deal size, find it challenging to tap into these smaller deals. On the flip side, larger deals are fiercely competitive, resulting in exorbitant entry multiples. In an environment where the Federal Funds Rate hovers at 5.5%, investors and Limited Partners (LPs) must recognize that the approaches leading to suboptimal results in the past are a recipe for disastrous outcomes in the future.
A Strategic Paradigm Shift: Going Small on the Deal, Large on the Platform
In a nutshell, the solution is to invest in high-margin, high-cash flow businesses and aggregate them. The immense potential of the trillion-dollar private market in India remains largely overlooked, possibly due to a lack of awareness about the sheer magnitude of the opportunity.
Implications: Billion-dollar roll-ups and Capital Accretion
Given current valuations, a window of opportunity exists for billion-dollar roll-ups, capable of continuing to accrue capital at twice the GDP growth rate.
Unlocking Margins: The Power of "Local Monopolies"
Smaller businesses achieving impressive margins often function as "local monopolies," serving an exclusive customer base by providing essential services. The term implies a high degree of customer loyalty, with the cost of replacement being exceptionally high for both competitors and customers.
Key Takeaway: India's Hidden Opportunities
The APEXX Formula underscores India's market as a treasure trove of concealed opportunities within a fragmented industry boasting high EBITDA margins. The time is ripe for astute investors to seize these hidden opportunities and embark on a journey to unlock India's untapped wealth. Trillions of Dollars in Revenues and 100s Of Billions in EBITDA should be a good enough reason not to want to pay up to do deals!
Disclaimer: In the article "The #1 Mistake Private Market Investors Make in India Again And Again!?" 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.