Given that the markets were positioning for a strong economic recovery and a strong earning expansion, do you think the news on the medical front and the impact of that on the economy is something markets were not prepared for?
The markets were prepared for this in the sense that globally we have seen second, third and fourth waves but we are also seeing the vaccination drive increasing at a very accelerated pace as well as herd immunity playing out. There will be hiccups along the way but we know collectively how to get on the other side of this crisis. It is just a matter of getting over these hiccups in the next few months.
Currently in the market, defensives are taking a backseat and cyclicals and industrials are outperforming. Is that the way forward also? Does it make sense to look at industrials, cyclicals and economy related sectors?
As a firm, we have learnt over a period of time that high quality businesses, management teams and discipline outsmarts everything else. So being tactical and having a three-six months view is something we do not focus on as a firm. As long as you focus on the other aspects of business and take a three-five year view, then one does not need to bother for the next three to six months.
When it comes to healthcare and pharmaceuticals, where do you think innovation is headed? Some of the healthcare companies are getting into diagnostics and increasing their digital presence as well. Is that a trend which is going to lead the healthcare and pharma space beyond the pandemic gains?
We have seen the healthcare, pharma space over the last few years and we have invested in many companies like
Diagnostics, Lotus Surgical Sutures Company, Sahajanand Medical Technologies which is a market leading cardiovascular stents business, Asian Institute of Gastroenterology which is amongst the best gastro hospitals in the world. We have seen the AAA effect on healthcare — awareness, access and affordability — all three are at play.
Given that we do not see these three levers slowing down over the next couple of decades, we see strong growth momentum in all aspects of healthcare. In addition to that, India has come of age in many aspects of healthcare and pharmaceuticals where innovation is playing a very big role in valuation in the pharmaceutical industry as well as healthcare.
At times, Indian innovation is able to deliver better products at cheaper prices which then creates a very strong growth momentum in terms of export opportunity. We have seen the trend in pharma and in healthcare from an export opportunity perspective. This trend, both from domestic demand and export opportunity, continues to gather momentum.
You also have investments in the retail category – be it Sapphire Foods or More Retail. What are the consumption trends that are evolving with fresh lockdowns happening across states?
Between 1960 and 2000, offline, organised retail globally played a very big role. 2000 onwards, we saw the emergence of ecommerce around the globe. We believe the next 20 years belong to businesses which will get the Omni channel right in categories that deserve the Omni channel experience. It also works in the restaurant business where increasingly dial and takeaway deliveries are contributing to the business. So brands which can have a seamless experience for a consumer in a true omni channel manner will do well. Our experience with More Retail has been a true omni channel experience for the food and grocery category. So our investment focus in this space will be brands and businesses which are gearing up to give consumers a truly omni channel experience. Even pure offline or online businesses which pivot to an Omni channel model will come out very strong winners.
What is the kind of interest that you foresee in some of these new age companies going forward? How much bigger will the pie grow and what is the kind of opportunity you see there?
I would say between 2000 and 2012, we saw the emergence of the private equity asset class graduating from minority growth capital to large buyouts. The venture capital asset class which slowed down after the late 90s early 2000 period and re-emerged strongly post 2007, in all aspects is falling in place in the Indian context whether it is quantity and quality of entrepreneurship, market opportunity, global capital and local capital being available for scale up, management professionals who are willing to be part of the start-up ecosystems at CXO levels etc.
I think the whole ecosystem is falling in place very nicely and I would say the opportunity has just begun. Over the next 20 years, globally technology and other aspects are becoming a big productivity tool driver and disruptor. Existing organisations or new ones that are getting created and who capitalise on that trend will benefit very strongly both from a consumer, shareholder and all stakeholders’ perspective. This is early days yet for the ecosystem and they will go through their share of failures, successes, learnings but will come out stronger.
Would you consider the traditional line of AI and tech for investing? Some of the key names on your list are companies driven by retail consumption rather than being functionality driven. Is that a conscious strategy?
As of now, we have the private equity and the public equity business. We do not do early stage venture capital which is where I think opportunities like that fit very well. As and when we decide to start investing in that asset class, that will definitely be a focus area. But currently we do not operate in that asset class.
You are bullish on the food delivery business. But given that Covid compulsions will knock off some of these companies, the second wave is going to be even more dangerous for some of the so-called restaurants and food delivery companies. Is a massive consolidation due in this sector?
In the last one year, the shift from unorganised to organised has accelerated. The brands which were positioned quite well for the omni channel experience even prior to Covid onset, have survived and to some extent started thriving. They were already above 100% of profitability levels in the last few months pre-Covid. So, there is a hiccup for the next few months but we are seeing that takeaway delivery demand has increased materially during the Covid period and as dining comes back in next few months, brands which are very well positioned for a true omni experience will fire on all the three channels — dine in, takeaway and delivery.
You have also invested in SMS — an integrated facilities management company. With work from home being the new normal, what is the future of these companies which are in the business of managing offices, commercial complexes and various big facilities?
Work from home for a few days a week is a new normal but offices will have to be maintained all the seven days of the week. I think people will prefer working from home twice or at best thrice a week. Everyone, at the end of the day, would like to go to the office. But anyway, offices would need to be maintained. The view on commercial real estate is getting better. I think the logic is some work from home will be there but not for seven days a week. Also offices will have to be maintained for the entire team and staff and we do not see material slowdown though incremental growth might reduce a little bit.
