Blackstone Group LP has found the formula for making money in the country. India has become its top performing market in the world after the firm began focusing on bigger buyout deals. In the last few years, they concentrated on select sectors like information technology and consumers where India expects to see the most wealth creation. This, along with a preference for larger investment size has helped it generate higher returns.
Blackstone recorded an annualized internal rate of return of 30 percent in its India private equity investment since 2011. This is the highest among the markets worldwide. It had booked 25 percent returns in China during the same period. India focused funds have seen median returns of 12.4 percent. Blackstone had earlier bought minority stakes in the country and decided that it will not be a passive investor. It has been following a strategy to acquire majority stake in companies in sectors where they have deep knowledge like healthcare, industrials and finance. This strategy was adopted since 2011 and the results are already showing.
In 2013, Blackstone made an investment in Trans Maldivian Airways Pvt., whose seaplanes are used to ferry tourists between islands in the Indian Ocean. This investment generates a return of 4.8 times. They sold Trans Maldivian in December for $500 million. They also earned a sixfold return on the investment made in SH Kelkar & Co. that creates flavors and fragrances for customers including the local arm of Unilever. They sold part of the holding in 2015 initial public offering and offloaded more stock. The key to their success in India has been the ability to control transactions in India and have the confidence to manage these companies. They have dramatically changed the narrative amongst private equity firms in India.
In 2016, the company made its largest purchase in India. It spent $870 million to purchase the control of Mphasis Ltd., which is a Bengaluru based technology services provider from Hewlett Packard Enterprise Co. The buyout firm brought on more than 20 Blackstone owned business as customers for Indian technology companies in its portfolio, which has helped them execute 14 follow-on acquisitions.
Blackstone has a presence in India since 2005; it revamped its strategy after picking the wrong sectors initially and failed to plan for currency depreciation. It made a few losses and admitted that they were new to the country and it was a learning stage. Its private equity funds have invested a total of $3.5 billion in the country and are planning to add another $2 billion in the next five years.
At the turn of the century, most Indian industries were not open to foreign investment. Private equity has now become an important source of funding for the growth of Indian companies and Blackstone has been successful in aligning its interests with portfolio company executives and in finding the right time to sell. The investment climate has also undergone a change in the last few years. The private equity firms have matured and have seen a couple of investing cycles and have the experience of Indian companies and Indian management.