“No one likes change,” declares Rahul Bhasin, Managing Partner of Baring Private Equity Partners (BPEP) India, and perhaps that explains why one of India’s leading PE firms witnessed such high-profile departures in recent months. Subbu Subramaniam and Akhil Awasthi, partners to the fund, left the firm recently to follow other pursuits. Both of them have been with the firm since its inception.
Bhasin, who embarked on a major organisational revamp four months back, says, “the transition has been difficult but essential to face a hyper-competitive market.”
An industry veteran and senior partner at Baring Private Equity International, Rahul Bhasin says the firm is on course to ink three deals in the coming months after a very long hibernation. It is sitting on uncommitted capital of $600 million. In an interview with VCCircle, Bhasin talks about the new organisational structure and key drivers of return in the PE business in the current environment. Excerpts:-
How did you go about the organisational revamp?
In the last five years, our assets under management have grown from under $40 million to around $750 million. With our scale and size, we have grown almost 25 times. In today’s hyper-competitive market, we realise that doing more of the same is not an option.
So, we started with a formal skillset mapping of every person in the team. We did a 360 degree feedback of people within the team, our portfolio companies and our internal staff. We redefined jobs. We now have specialised people performing specialised roles. Some people benefited from these performance-driven metrics, some people did not. We defined every aspect of our business to see how we could be best in class.
What about your talent strategy?
We got back Ajeet Singh Karan, who grew Allout (a mosquito repellent brand) from Rs 50 lakh to Rs 100 crore in less than five years. We have Munish Dayal (partner) for banking and financial services, Ajeet Singh Karan for consumer practise, Karthik Ranganathan for energy & infrastructure, Mohit Ralhan for media and Keshav Mishra for growth of portfolio companies. I personally look at the IT practice. Then, we have the next layer of analysts and associates.
We have 17 people and we are looking at crossing 20 in three months. The good thing is we are attracting a lot of very senior talent. Besides, we already have an India advisory board that has helped us in a lot of transitions. The board includes Nausheed Mirza, ex head of Tata Sons and ex-head of E&Y in India, Eknath Kshirsagar, who is on the board of Tata Chemicals, Novartis and JM Financial; P Vishwanathan, ex-CEO of Alacrity Housing and Pradeep Mallick, CEO of Wartsila India. We have also partnered with several companies who do market research, incentive alignment, HR for us and our portfolio companies. So, everybody is doing what they are good at doing.
Do you think this exercise took a long time? Has the revamp been easy?
Nobody likes change. It disturbs a nice status quo but the environment has changed. If we were still eight funds in the country, I don’t need to change anything. We are over 300 funds in the country now. We are not growing at 9.5% anymore. And, if I have to meet my cost of capital, which is not coming below 25%, I have to raise the bar.
We looked at the market to understand its strengths and weaknesses and also to understand how we are going to compete. I think we just crossed that phase. We have to see the results of that action now.
What kind of improvements have you noticed with these changes?
I think our deal flow, response time to market and growth in portfolio companies have improved dramatically.
How do you ensure returns in this environment?
What gave returns in the past was underlying growth in businesses. So, if you picked your companies well and added some value, you enjoyed phenomenal returns as a consequence of a very benign environment. Now, growth has got muted for several reasons. Our investment hypothesis has to improve dramatically for us to make money when macro-growth is not there. Our ability to understand how industries will evolve, consolidate and look like in five years has to improve dramatically. For that, we need to scale our people, train them and get the best possible talent. A CEO’s job is to get the work done effectively and I had to be fair to all stakeholders.
You are sitting on $600-million of uncommitted capital. When is your next investment coming?
We have four transactions at the diligence stage. These are in the consumer, infrastructure, energy and banking and financial services segments.
Would you continue to look at majority transactions? What about exits?
Yes, because it ensures alignment of interest, exits and corporate governance. A few exits are in the pipeline. We actually sold our stake in GITT.
Do you think it’s a good time for exit or is it just driven by liquidity pressures?
We have no pressures on liquidity. We have cumulatively returned more capital than we have taken from investors. Our average holding period for the assets have been longest so far.
Will you ever competely exit Mphasis? (In September, it sold 2.1% in the IT company for Rs 190 crore. Baring PE now holds about 10% in the firm)
My cost of capital is 25% compounded. If I can earn more than that, why should I exit? The growth rates expected from the company are way higher than that. When we bought the company, its revenue was $4 million. It was making a loss of Rs 13 crore on a turnover of Rs 23 crore and suffered an attrition of 23%. That was my first deal.
So, what attracted you to a loss-making company?
We are a top down investor driven a lot by the macro indicators and a 10-year horizon of any opportunity. We have invested significantly in helping our businesses scale. As an organization, the infrastructure that we have to scale the business is way ahead. It’s not dependant on Rahul (me) or anyone. It’s the team.
How should the PE industry play out in this competitive environment?
I keep telling my team that we don’t have the birthright to keep succeeding, we have to earn it. We can’t sit back and say we have had so many returns over years. We have to re-examine and be most critical of ourselves first. You have to treat this like a business and not a club.
