Our Delhivery investment reflects changes in the segment: Neeraj Bharadwaj

Buyout fund Carlyle has invested $100 million in logistics firm Delhivery. NEERAJ BHARADWAJ, managing director, Carlyle Asia Partners, who co-heads it in India, explains to Ranju Sarkar the rationale for this deal and why he’s bullish on logistics and health care. Edited excerpts:
 
What impressed you about Delhivery and the way it has scaled up? What has it achieved to attract such a large fund infusion?
 
Delhivery has scaled to emerge as India’s largest third-party supply chain services company, focused on digital commerce. We have been very impressed with Delhivery’s management team, the company’s strong execution capabilities, leveraging its extensive network and proprietary technology platform, as well as their achievement.

 

We see significant potential for the company and the technology-enabled logistics sector in the country with the growth of e-commerce, as well as increasing customer focus on high service levels, technology integration and value-added services such as cash on delivery.The Indian e-commerce market has grown 13-fold in the past five years.
 
There is a strong demand for third-party supply chain services companies such as Delhivery. The merchandising mix is moving from mobile & electronics to apparel, home & décor and grocery. And, customers have become more focused on service levels and quality. Delhivery, with its industry-leading service metrics and cost efficiency, is well-positioned to benefit from these future growth opportunities.

 
Why are investors like you so bullish on logistics?
 
Growth in the logistics sector is a strong proxy for economic growth. The logistics industry typically grows at a multiple of that in Gross Domestic Product (GDP), driven by multiple supply and demand-side factors. On the supply side, improving of public transportation (e.g airports, roads, ports) and storage infrastructure is expected to drive growth. Demand-side factors include the increasing consumption, change in consumption patterns to newer products and services (e.g meat products, requiring the use of cold chains), implementation of GST (goods and services tax) and growth in manufacturing.

 
Logistics in India is a large sector, projected to generate annual revenue of $200 billion, with a few sub-sectors such as express logistics, cold chains and warehousing growing faster and attracting more capital. While logistics has traditionally been a low tech and high asset-intensive segment, we have seen the emergence of new-age logistics players like Delhivery, which use technology to provide transportation solutions to businesses. Most of the investments in the past six months have been in newer-age logistics companies which have been able to address a specific gap in the market (high speed cargo delivery services, e-commerce delivery, cold chain, etc).

 
India has seen an increase in buyout deals in recent years. What is driving this? Is there a secular trend or is the increase more sporadic?
 
This is a natural evolution in the market. Indian private equity is now a 20-plus years industry. As companies mature and become larger, there are unique issues, including succession planning, the need to divest non–core assets and the requirement of replacing a joint venture partner or high leverage, which necessitate sale of control.
 
India has largely been a minority stake, growth capital market. How has Carlyle had to adapt?
 
One of the fundamental theses for Carlyle globally has been to back great management teams. We have been flexible in our investment approach in India, as the opportunities span from small minority/ growth, small buyouts to larger minority investments and buyouts. Carlyle has significant flexibility to invest across ticket sizes, from $25 million to more than $1billion.

 
We, thus, have two funds investing in India — Carlyle Asia Partners which does large minority investments and buyouts and Carlyle Asia Growth Partners, which does smaller, minority investments. Carlyle is one of the most active global funds in India. We have invested about $1.4 bn of equity in a little over 30 transactions across all Carlyle funds, as of end-December 2016.
 
What makes you bullish on health care in India? What return does it offer? Given the high gestation, does it take longer to exit?
 
With the increasing income levels in India, the low current spending on health care as a percentage of GDP, high incidence of lifestyle diseases, an unmet demand and supply gap, and the large share of unorganised health care entities, we see strong growth potential for the segment. Within it, we are interested in investing in the leading players, with a strong  differentiated positioning and scale. We believe such companies will continue to deliver above-industry growth rates as the share of organised players increase. Both our investee companies, Medanta and Metropolis, come in this category.