Decoding The M&A Opportunities In India
Category
🗞
NewsTranscript
00:00 Hello and welcome.
00:03 You're watching BQ Prime and we are today on site at the JPMorgan India Investor Summit
00:09 where we're speaking to the top brass.
00:12 Today I have with me Rohit Chatterjee.
00:14 He's head of M&A at Asia Pacific JPMorgan.
00:17 Rohit, very good morning.
00:19 Thank you so much for joining us.
00:20 Very nice to be here.
00:21 Good to see you.
00:22 All right.
00:23 Let's begin with what the mood is like after the Fed meeting last week and that hawkish
00:28 stance which has scared everyone off largely.
00:33 When it comes to the M&A space, do you think it makes things a little tougher, the idea
00:37 that companies are going to find it harder to get funding?
00:40 Or is this now par for the course after what we've seen over the last couple of years?
00:47 In the M&A world, what you need is confidence in the outlook.
00:51 And while the macroeconomic environment is shifting a lot, that tends to be a challenge.
00:57 But when you're getting to the end of the rate hike curve, people recognize what the
01:01 new normal is likely to be for the next couple of years.
01:04 And that gives them confidence in being able to move ahead with transactions.
01:08 So I think it's actually much better now than it was maybe six, eight months ago.
01:12 OK.
01:13 Let's get an overview of your space at AIPAC.
01:18 How are things panning out?
01:19 And we'll come to the specifics of India.
01:22 What would be your sort of big statement?
01:25 So actually, there are seven, eight big markets.
01:28 Overall level of activity is very high, unlike in the capital markets, which tends to move
01:33 in tandem across the globe in general.
01:36 In the M&A world, every market has a theme that's playing out that's a little bit different.
01:41 And therefore, while some markets may be a little bit subdued for activity, the others
01:45 are compensating very strongly for it, India being one of them.
01:48 Can we go into a little bit more specifics over these seven, eight markets and which
01:52 ones you like and a bit of what's happening in China?
01:55 Sure.
01:56 Let's start with India.
01:57 Now, this is a place where financial sponsors have done really well over the last three,
02:01 four years.
02:02 Health care is booming.
02:03 Now consumer sector is booming.
02:06 Capital is flowing into infrastructure.
02:08 Capital is flowing into tech services, which is where people have done really, really well.
02:12 So the pattern recognition around what investments succeed and how these things are scaled up
02:17 here in India means that it continues to be a favorite destination for institutional capital
02:24 this year.
02:25 And I think it will continue to be next couple of years as well.
02:27 China of course is a little bit more of a complicated situation right now.
02:30 The dynamics are slightly different.
02:32 You've got now on the outbound side, the challenges because of intense regulatory scrutiny that
02:38 they get put through.
02:39 Domestically, the world is now kind of stabilizing a little bit.
02:44 People are trying to figure out exactly what some of the policy considerations that have
02:47 been announced more recently, how that plays out in creating now a more sure footing on
02:53 consumer demand and the outlook for the real estate sector.
02:57 Because I think those two do drive sentiment domestically in China.
03:02 And then once now there is some clarity around which way geopolitics might be headed, I think
03:08 the actual investments coming into China would pick up.
03:11 But having said all that, the fact is it is the second largest economy.
03:15 It is full of capital domestically.
03:19 It is also full of innovative companies that need that capital.
03:22 So I think once some of these start the line, activity level in China will pick up again.
03:27 All right, let me ask that question in a different way specifically for China.
03:31 So you have 13 regions, for example.
03:35 If China was on a scale, where was it two, three years ago?
03:40 And where is it now?
03:41 Has it slipped down the rankings?
03:42 In terms of overall activity in M&A, the answer is yes, quite meaningfully so.
03:48 I would put this year Japan, Korea, India as our most active markets.
03:54 China a little bit subdued, while as I said, the consumer demand picks its way back up.
03:59 You've got Australia, which is very active in certain sectors.
04:02 Metals and mining have been really busy now with big transactions in lithium, copper,
04:09 things that are going to drive the next stage of EV growth globally.
04:13 And you have Southeast Asia, which has seen a lot of domestic consolidation because these
04:16 markets are small and in many sectors like financial institutions, telcos, and retail,
04:23 you have opportunities for domestic consolidation, which we've seen play out this year.
04:27 Okay.
04:28 Should we come to the India piece?
04:29 Everyone wants to know what's happening in India.
04:31 Stellar year 2022, I think over $190 billion of deal activity.
04:38 Do you see that momentum continuing?
04:40 You said this year and the next looks good, but if you can get into a little bit of specifics,
04:45 what's looking good?
04:48 I think there are quite a few teams at play in India that will continue to play out over
04:52 a period of time.
04:54 Firstly, let's start with infrastructure and renewable energy.
04:58 Institutional capital is looking for ways to play that sector.
05:01 India has gotten its act together.
05:04 Investors are able to come in, find the right concession structures, scale up their investments,
05:09 and are actually able to monetize those.
05:12 So that's one great thing.
05:14 Renewable energy and the focus and the opportunity to grow and scale that segment is another
05:18 thing that's attracting capital.
05:21 Thirdly, in tech services and now increasingly in healthcare as well, the amount of opportunities
05:28 for some domestic consolidation, but also to continue to build competency with which
05:33 we can serve the globe, or now to create facilities that can plug into global supply chains in
05:39 some shape or form, are opportunities that I think will play out over the next two years.
05:44 So in India, the theme, I would say over the last six, seven months or from the start of
05:50 this calendar year with the focus on the broadly defined startup space has been these talks
05:56 of a funding winter and a chill, et cetera, and new age companies.
06:01 Do you think some of that is easing or is that a specific problem?
06:05 Well, in general, the sentiment for capital markets is improving.
06:09 Now the ARM IPO, the Instacart IPO, which we led, have started to open up the sector.
06:15 They've done well in the aftermarket, which means that the sentiment is starting to form.
06:20 Investors will look for the next tech set of where these growing tech companies are.
06:26 India's got its own cash flow.
06:28 So I suspect the demand will continue to build and there will be an opportunity to bring
06:32 some of these IPOs to the market.
06:35 Having said that, I think investors are also a little bit cautious about business plans
06:40 and their pathway to profitability.
06:42 They want management held accountable for having a more defined pathway to profitability
06:46 for these businesses.
06:48 And in some cases, now the shareholders are going to withhold capital in order to enable
06:55 some consolidation that generates a pathway to profitability to occur.
07:00 All right.
07:01 So you think there's also been a sort of realization on valuations or a reality check on valuations
07:08 which will continue?
07:09 Oh, for sure.
07:10 I think for sure.
07:13 There was a point in time when the investors were unwilling to do down rounds or the companies
07:19 were unwilling to do down rounds.
07:21 But with the passage of time, people have realized that if you need capital and you
07:27 need a pathway to going public, you just have to acknowledge that we live in a slightly
07:32 different world.
07:33 And access to capital is what continues to help these companies to grow.
07:38 And at some point in time, you just reconcile with what the mark to market value is, raise
07:43 that capital and continue your pathway to growth.
07:45 So reality check.
07:46 Absolutely.
07:47 Okay.
07:48 So I want to come back a bit, just for a bit to the sort of geopolitical piece.
07:53 And a huge story, or I would say a narrative in the last year or so, has been India as
08:01 an alternative in some spaces to China.
08:04 As an unwillingness has grown to invest in China, a lot of uncertainty there, and India
08:08 can be a great alternative destination.
08:11 Give us some clarity on how clear that picture is.
08:16 Is it more than a feel good headline?
08:18 What is there to it?
08:19 I think it's more than a feel good headline.
08:24 Having said that, it will really play itself out over a period of time.
08:29 I don't think that you suddenly create the manufacturing base to become an alternate
08:36 destination for supply chain investments.
08:39 It is a work in progress.
08:41 But I expect it to play out in one of two ways.
08:44 On the organic side, there will be more capacity being created in India.
08:48 Now, by local conglomerates, local houses, as well as by MNCs who are going to start
08:54 to create greenfield investments in order to create that capacity.
08:58 Secondly, I also expect that components of businesses that are held in Indian family
09:05 hands today might change hands and private equity might own them for the next, I would
09:12 say, journey in their life and build on them in order to eventually probably sell them
09:19 to a strategic investor coming in a few years from now.
09:22 We are starting to see that happen now.
09:25 Private equity is starting to take a view on certain sectors, certain assets in the
09:30 industrial world, in chemicals, in things that would eventually become part of a more
09:38 mainstream global supply chain.
09:41 Any specific sectors or companies that come to mind?
09:46 Chemicals, APIs, now that's the first part.
09:50 On greenfield, on new build, you're seeing the Tata established assembly plants here
09:55 for iPhones.
09:56 So those kind of things have started to happen.
09:58 It will pick up momentum, but it will take a while.
10:01 Okay.
10:02 Let's sort of wrap up with your outlook for the space, for APAC region, M&M.
10:09 What do you see as the big headwinds or challenges coming up on what otherwise looks like a pretty
10:15 positive time?
10:17 So I'd say headwinds tend to be in a market this complex and large, tends to be more geopolitics
10:24 than anything else.
10:25 Now, as we are aware, some of that will have to play out.
10:29 That determines how MNCs allocate capital.
10:32 That determines where they double up on investments.
10:35 So it helps direct the flows in the M&A world.
10:40 Second I would say is the uncertainty around the macroeconomic outlook.
10:45 I think with the view that we are getting to the top of the interest rate cycle, that
10:50 part is starting to feel behind us.
10:54 Having said that, now, we haven't yet wrestled with inflation fully.
10:59 And to the extent that now there is greater uncertainty around what the next year or two
11:06 years might look like with disruptions driven off interest rate outlooks and other macroeconomic
11:12 considerations, I think M&A might take a little bit of a step back.
11:16 But I think we are more or less behind that now.
11:20 I mean, in front of it now.
11:21 So the worst is behind us, you think?
11:23 I would think so.
11:24 All right.
11:25 That's a great note to wrap this up.
11:26 Thank you so much, Rohit, for speaking with us.
11:27 It was a very good nice to meet you.
11:28 It's been an absolute pleasure.
11:29 Cheers.
11:30 Thank you.
11:30 Thank you.
11:30 Thank you.
11:32 Thank you.
11:32 Thank you.
11:33 Thank you.
11:33 Thank you.
11:34 Thank you.
11:34 Thank you.
11:35 Thank you.
11:35 Thank you.
11:36 Thank you.
11:36 Thank you.
11:37 Thank you.
11:38 Thank you.
11:39 Thank you.
11:41 Thank you.
11:42 Thank you.
11:43 Thank you.
11:44 Thank you.
11:45 Thank you.
11:45 [BLANK_AUDIO]