We’ll double India investments to $50 million: Kabir Kewalramani

Berggruen Holdings is a $2-billion firm and a direct investment vehicle of The Nicolas Berggruen Charitable Trust. The company uses proprietary capital to invest across industries and has been operating in India for over a decade now. It has interests in a variety of businesses including hotels, real estate, car rentals, construction equipment rentals, distribution of spares and education. Kabir Kewalramani, MD, Berggruen Holdings India, speaks with Ashish K Tiwari about the performance of various verticals and plans for further expansion.

How have your investments fared in India over the last decade?

Being a proprietary investment group allows us to be highly opportunistic and patient with our businesses. We can sit on an investment for 20 years and don’t have to look at exits in four to five years like other private equity firms. We purely spend money on businesses that give us either financial gains or are very strategic in nature. For instance, we probably have the largest exposure of over $100 million in the Indian hospitality industry. We have been in India for 11 years and are looking at an upcycle hopefully over the next three to five years across our businesses from now. Particularly in the hotels space, with supply kind of ebbing out, demand growth is significant and we are hoping to outstrip the performance of the industry, which grew at 12-14% last year while we were able to clock around 25% growth. If we can manage and sustain that kind of a performance over the next few years, we will have an interesting portfolio.

Earlier this year, Nicolas opened up to the idea of putting more money in the hotels business.

We have been funding the business consistently. So the January to March quarter of 2017 saw around $10 million being deployed in the hotels business. While investments were made in a staggered manner last year, this fiscal, the plan is to bring in $30 million and that will be made available to the management team pretty much by mid-June this year.

The start-up team was given minority stake, I think 10% as Esops back in 2006. Have you bought them out? I believe your former MD and CEO Sanjay Sethi exited his stake; what was the payout like?

The start-up team played their part and has moved on. The business continues to grow under the new team now. The stakes were offered to incentivise them (four to five members) and we have bought out a couple of them. Not all of them have been bought out but we are open/willing to consolidate our position and increase our exposure in the business. Sanjay has not been with the business for two years and he is not a Board member either. The transaction with him is more private so will not get down to the numbers. All I can say is that the transaction is in addition to the $80 million we have already invested in the hotels business so far.

Have you also exited the hotel-specific land parcels?

We owned five land parcels and we have sold three. Of the two parcels, we think the one in Goa is strategic enough to hold on to. The other one in Raipur is not really a market that we think will develop a property from scratch. The issue with greenfield is that one can do 100 rooms in five years but that just doesn’t add up. If we will spend money, it must address scale; so greenfield is not something that we will look at. We will get rid of the land parcel(s) that are sitting and doing nothing for the business.

Will that be true for your real estate business as well?

Yes, we are sitting on quite a few land parcels as well as ready assets that are doing exceedingly well for the properties vertical. The real estate market has picked up and the projects are yielding good returns. We exited one land parcel in Visakhapatnam a year ago and made good returns on it. There is another land/project in Mysuru that we think will end up doing very well. We intend to develop it a little bit more and plans are progressing in that direction. Our overall approach to the business gives us an advantage, so we will never be distressed sellers. We have no urgency to sell or no pressure from any fund to exit.

What has been the impact of aggregators like Uber and Ola on your car rental business?

Our services, under Car Club, are very price competitive when compared to the likes of Ola and Uber, which is a big difference especially when you look at the west where certain players were out-priced by Uber. That’s not the case in India. Also, our drivers make as much so there is an assured guarantee and this model really works for us. The corporate car rental business is now present in 100 cities across India and we also have operations in other countries. The business is highly profitable and the margins are very attractive. We did explore the radio taxi business in the very initial years (2009) but since it did not make much sense, we moved the 100 cars bought (for that business) into the corporate car rental business, which was always the plan. We work with top 600 companies in India and currently have 8,500 cars on the road which will soon become 9,000. We own about 20% of the fleet and the balance is secured by the way of dedicated vendors. This vertical allows us to get into other services as well.

And considering there are enough sellers in the Rs 50-100 crore category, we will be keen to acquire a bunch of businesses on that side and consolidate our position in the market.

The education vertical faced some challenges too. How’s that doing now?

It was a business that kind of struggled but it has panned out well for us now. I think we have realised that just a sector by itself needs time to mature and evolve. That’s what took time for the education vertical in the first few years but now it’s churning out enough cash and is profitable. We currently have 11 institutes across Delhi, Lucknow, Pune, Thiruvananthapuram to name a few locations. These offer hospitality management and other vocational courses. We own eight of them and three are franchised. The business has come of age and I think we underestimated the time an education brand would take to build. It’s now in the 10th year of operations and has taken longer to start delivering the numbers. .

On a consolidated basis, what’s the total sum that Berggruen Holdings will invest across business verticals this year?

The way we actually work, we don’t really have a specific number. I don’t like saying that this much capital infusion is for this period. But if I have to commit a figure, it will be around $50 million in this fiscal. On a year-on-year basis, this figure is almost double the amount we invested in some of our businesses last year.

Any new businesses you are likely to get into in the near future?

The year before last we started seeing a lot of pick-up in the performance of our businesses. Last year, we focused on consolidation and growth of the businesses. We are very unlike any other investment hub considering we own quite a few business platforms in our portfolio now. This year, the idea is to use the platform to do other stuff. So the key is to try and add different businesses within these platforms.