India's Consumer Market And The Hunt for The Next Billion Dollar Baby

Hospitals, Commercial Real Estate and Infrastructure have seen a lot of Private Equity action in India in the last decade. As we move forward to a new world order with India as the growth capital of the world, we at AltG see the Indian Consumer market dominating and driving market-beating returns for investors.

With large institutional clients worldwide, AltG sees two reactions from investors and fund managers looking at investing in India: Elation (This one is obvious!) and exasperation. While India offers an excellent opportunity for private equity investors, winning in India needs a unique India-centric approach: An Investor-Operator Approach.

AltG’s Investor-Operator Approach through the APEX Formula allows clients to identify and execute investment opportunities that seamlessly captures value through removing investment complexities by Integrating Financial Engineering, Strategic-Operational Drivers And Granular On-The-Ground Research.

With over 75,000+ Hours of research, here are the three major investment themes handpicked to generate market-beating returns in the next 5-10 years and unlock significant value.

1. A Private Platform For Luxury Products. 

The Indian market for luxury products is one of the most attractive. However, just 10% of the entire addressable market is now being served; the industry is predicted to grow by double digits. It is expected to reach USD 200 billion by 2030 due to rising demand from an ambitious and expanding middle class.

The demand for the consumption of luxury goods itself is likely to mirror trends in China and Japan. China, for instance, has emerged from accounting for barely 1% of global luxury spending in 1999 to becoming the second-largest personal luxury goods market in the world today. Revenue in the Chinese luxury goods market amounted to USD 43.5 Billion in 2021 alone. 

While the Indian luxury industry has been solely focused on bringing the best brands and products of the world to India, a platform that rolls-up Indian brands to take Indian luxury products to the world will hold significant value and generate market-beating returns. With the rise of India’s influence and visibility globally, Indian luxury is a social phenomenon that will take effect in this decade, driving demand for Indian luxury globally. This is similar to the rise of Japanese and Chinese Luxury brands - think Issey Miyake, Comme des Garçons, She Uemura, Shiseido and many more.

This investment theme is also in line with the Indian public market. Over the last few years, the Indian luxury industry has proven to be pandemic-proof. With Ethos’s successful IPO and Sula expected to debut on the bourses shortly, the Indian luxury industry has finally come of age. In the next 5 - 10 years, India will witness multiple businesses publicly listed in this category.

2. Public Companies having Issues with Poor Capital Allocation and Poor Corporate Structures.

There are many listed companies in India whose share prices have dramatically underperformed in the last five years. While these companies may be cash-rich, they give a low Free Cash-Flow Yield. A prolonged period of bad financial decisions, misguided policies, overemphasis on dividends, and subsidiary-specific ailments may have dragged down the share prices of otherwise high-potential enterprises.

Compare these firms to US businesses - Nelson Peltz’s takeover of Unilever to spin out underperforming assets and brands or Michael Dell taking Dell private in collaboration with Silverlake Partners - and a pattern emerges. Such bets can generate significant ROI. Ever since Peltz’s USD 7.4 billion investment firm bought stakes in Unilever in May 2022, the company’s share price has been on an upward trend (+11.79% over the past 6 months). Meanwhile, Dell’s USD 25 billion leveraged buyout of his company in 2013 led to a jump in the value of his Dell Technologies stock from USD 3.6 billion in 2013 to USD 39 billion in 2021. And his overall net worth has tripled to USD 50 billion in less than a decade.

Similarly, investors in India will use poorly-managed firms with high growth potential to generate market-beating returns by improving their capital allocation and corporate structures.

3. 20 Billion Dollars, Healthcare & India

Currently growing at 2x GDP, the Indian diagnostics space is slated for rapid expansion and handsome returns in the near future. With rising life expectancy, increasing incidences of non-communicable diseases (NCDs), and growing health insurance coverage - riding on the back of a ballooning middle class, the diagnostics space is likely to generate handsome returns over the next decade, growing at 11-12% CAGR during this period. 

The secret to earning investment returns in the diagnostic industry in India is to expand via asset-light distribution. With the limited presence of diagnostics in Tier 3,4, and 5 cities, partnering with local healthcare players and regional labs offer high growth opportunities for large organized players. Another vital point to note is that this market is highly fragmented (94%), leaving ample opportunity for large organized players to gain market share.

AltG is keenly observing the dynamic consumer markets of India as opportunities grow. The above three themes are compelling beyond doubt for investors across the spectrum from private roll-up platforms, public equity and PIPE (Private Investment In Public Equity). 

(The views expressed in this article are personal and that of the authors, Poornima Vardhan and Taponeel Mukherjee . The authors, Poornima Vardhan and Taponeel Mukherjee, head AltG, a firm that Offers Proprietary Investment Research)