Blackstone turns India into its most profitable market

Blackstone Group says it’s found the formula for making money in India, which has become its top-performing market globally after the firm began focusing on bigger buyout deals.Over the past few years, Blackstone has started concentrating on select sectors like consumer and information technology where it expects India to see the most wealth creation, according to Senior Managing Director Amit Dixit. That shift, along with a preference for larger investment sizes, helped it generate returns as high as six times on recent exits in the country, a person with knowledge of the matter said.Blackstone recorded an annualised internal rate of return of about 30% on its India private equity investments since 2011, the highest among its markets worldwide, according to the person. It booked about 25% returns in China during the period, the person said, asking not to be identified because the information is private. India-focused funds of all vintages have seen median returns of 12.4%, according to Preqin.“Limited partners always used to complain that it’s easy to invest in India and hard to get the money out,” Dixit said in an interview at Blackstone’s office in Mumbai. “That has changed now – since 2014, there has been a good exit environment.”Dixit declined to comment on the fund’s returns, citing confidentiality agreements.Blackstone, which earlier bought minority stakes in India, has decided it won’t be a passive investor, according to Dixit. Its strategy since 2011 has been to acquire majority stakes in Indian companies only in certain areas where it has “deep knowledge” like finance, health care and industrials, he said.The results are beginning to show. Blackstone’s 2013 investment in Trans Maldivian Airways, whose seaplanes ferry tourists between islands in the Indian Ocean, generated a return of about 4.8 times, the person with knowledge of the matter said. Blackstone and its partners agreed in December to sell Trans Maldivian for $500mn to a consortium led by Bain Capital.Blackstone earned a six-fold return on its investment in SH Kelkar & Co, which creates fragrances and flavours for customers including Unilever’s local arm, the person said. The buyout firm sold part of its holding in SH Kelkar’s 2015 initial public offering and offloaded more stock last year.“The key to the recent success of the Blackstone team in India has been their ability to do control transactions in India, and have the confidence and ability to manage these companies,” said Sanjay Agarwal, executive chairman of corporate finance at Deutsche Bank in India. “They have changed the narrative amongst private equity firms in India that you need local business families to be partners.” In 2016, Blackstone sealed its largest purchase yet in India. It spent about $870mn to buy control of Mphasis, a Bengaluru-based technology services provider, from Hewlett Packard Enterprise Co.The buyout firm has started front-loading management and operational changes at its targets to improve returns. It brought on more than 20 Blackstone-owned businesses as customers for Indian technology companies in its portfolio like Mphasis, Intelenet Global Services and IBS Software Services, according to Dixit. It also helped them execute 14 follow-on acquisitions.Blackstone, which has been operating in India since 2005, revamped its strategy after some early investments soured when it picked the wrong sectors and failed to plan for currency depreciation.Its 2007 takeover of Gokaldas Exports got hit when much of the garment industry’s manufacturing base moved to Bangladesh and Vietnam. Blackstone eventually sold out at a 79% loss. It also invested in Monnet Ispat & Energy, a steelmaker that has now become insolvent.“We were new to India, and we were learning,” Dixit said. “The private equity sector was finding its feet in the country.” Blackstone’s private equity funds have now invested a total of $3.5bn in India. The firm is planning to add another $2bn of such investments in the country over the next five years, Dixit said.