Aiming about $5 bn of India bets this year in IT, pharma/healthcare and financials: EQT Asia's Jean Salata

India's broader macroeconomic backdrop has been extremely favourable and very positive for the last 10 years, said Jean Salata, Chairperson of EQT Asia and Head of Private Capital Asia

Jean Salata, Chairperson of EQT Asia and Head of Private Capital Asia, describes the buyout firm’s current deal pipeline in India as the strongest he has seen.

With assets under management of $250 billion, EQT (formerly BPEA EQT) has invested more than $8 billion in over 30 companies in India. In its earlier avatar, EQT focused on IT/IT services investments, betting on Hexaware, Citius Tech, Coforge, and Virtusa, and has reaped handsome returns. However, after the 2022 combination of Sweden-based EQT and Baring Private Equity Asia in a $7.5 billion deal, EQT has adopted a more diversified investment approach in India.

Since then EQT has placed significant bets on the financial services and healthcare sectors, including a $1.15-billion buyout of HDFC Credila and a majority stake purchase in Indira IVF, valuing the company at $1.1 billion.

In an interview, Salata, a tennis enthusiast, shared that EQT is considering deploying $5 billion in India this year across sectors.

Edited excerpts:

Let's start with an important subject which has gathered momentum over the past few days - the conflict between Iran and Israel. The situation has led to a rise in geopolitical tension and these kinds of conflicts engulf other nations too, especially allies. As a key global investor, what is your take on this unexpected crisis and its impact on the overall investment environment?

Well, the situation is very fluid and it's really hard to predict and it's probably too early to make any comments about what will happen. Obviously, it's something that we're paying attention to. It's a concerning development. At the end of the day, it's something completely outside of our control as well as investors. So I'd say at this stage, we're observing and that's really all we can do at this stage.

Back home, another fluid situation is the big national elections in India. The country is in election mode as we speak. What's the EQT stance on the impact such a big event can have on your investment plans in India? Is it going to be wait-and-watch mode, or it will be business as usual? After all, elections are linked to policy and policy continuity is important for folks like you.

Absolutely. I would say that under Prime Minister Modi, the investment policies and general overall policies for foreign investors in India have been very favourable and very consistent. And we as investors like that, because it creates an environment that's conducive to forming a view for the long term. We're long-term investors. We typically own assets for at least five years, sometimes more. And so when we are buying into a business, we need to have some clarity as to what the outlook is for that particular industry and for the country as a whole.

The broader macroeconomic backdrop for India has been extremely favourable and actually very positive for the last 10 years. And we expect that to continue. So we believe that whatever the outcome of the election is, if there is continuity in terms of the current policy, that would be a plus for investors.

We recently met Jonathan Gray in Mumbai, the president and chief operating officer at Blackstone. His India team told us that Blackstone is looking to pump in around $2 billion annually in the country. Is there any annual investment target you have set aside for India and what kind of monies is EQT looking to pump into India over the next five years?

We have done some numbers on the historical investments that we've made relative to the industry. And based on our analysis and also some third party numbers, the cumulative investments that we've made in private equity over the last five years would rank us as number one in terms of foreign investment into India through private equity, which is around $10 billion. If you look at just the last year alone, we've invested $2 billion through investments like Credila that we just closed or the Indira IVF business in the healthcare sector. Our pipeline right now is actually the strongest that we've seen in India. We currently have $5 billion of investments in the final stages of review, diligence and investment approval.

Over what time frame?

I don't know if all of them will close, but if they close, that would all happen this year. So it's a big number that we're working on.

A fresh $5 billion potentially this year?

Potentially, yes.

Which sectors are we looking at? In the past, EQT has looked at technology services, healthcare, pharma, financial services and consumer. Are the fresh bets going to be within these buckets or are we looking at a few newer sectors that have caught your fancy?

Historically, our biggest investment sector has been technology services. That's where we have made the most investments. We have invested in 50 companies in India in the IT services sector, 12 that we would consider what we call platform investments and another 38 bolt-on investments. So a total of 50 investments in different parts of the IT services value chain. And these investments have done phenomenally well. Our overall return on those investments has been something like three and a half times our money.

If you look at the other sectors that we have begun investing in, healthcare is a big one. And healthcare is an interesting sector because EQT globally is actually very strong in healthcare. And after the combination between Baring Private Equity Asia and EQT, we have connected our sector teams in Asia with the global sector teams.

So our healthcare team in Asia now benefits from all the experience and knowledge that our healthcare teams in Europe and the US have and that track record and also the industrial advisor network that we have. So we're bringing a lot of that expertise into our investment process, into our due diligence, into our deal origination thesis. And as a result, we have a high conviction today on pharmaceuticals, healthcare, and even med-tech devices.

In addition to that, we've just announced the closing of the investment in Credila, which was part of HDFC previously. And that is an NBFC. I think financial services generally is an area that we like. And we've been looking at it for many, many years, but this is the first large scale investment that we've been able to close. And we're very, very happy about it. We like the exposure to the education sector that it has.

Healthcare, education are areas that we like to be involved with because they also have a positive impact on society and are benefiting everyone in the country in many other ways, other than just purely as a financial investment. Beyond that, we are also actively looking more at consumer, more at also manufacturing and export manufacturing, as you start to see some of the production linked incentives kicking in from the government. So we're seeing new drivers of growth in many different areas of the Indian economy, whereas previously we were more narrowly focused purely on IT services.

You mentioned a lot of sectors. That $5-billion target this year, this calendar year, would it be safe to say that perhaps IT, pharma, healthcare would take care of that quantum?

IT, pharma, healthcare and financial services, we’ll cover that.

Moving on. What more can the Indian government do to make India a friendlier destination for investors? Many believe that India is currently the bright spot in the global economy. Any aspects from the policy or regulatory point of view or any global best practices that perhaps India can add?

I think India is doing a very good job in this category. And I think the key here is consistency, clarity, and transparency. You know, one of the things that makes foreign investors have confidence is that there are clear rules and clear laws related to investments. And if you abide by those rules and abide by the laws, you will be treated according to the rules and fairly. And I think that's been the case and that's been our experience. Our interaction with the regulators have been very favourable. When we've had issues or we've had questions or there's been concerns or delays, we have been able to approach them and discuss and resolve (the issues). I think that's important that that continues.

The other aspect of foreign investment is really the currency risk. I think the RBI has done a fantastic job in dampening the volatility. The overall economic policy of the country has resulted in a fairly stable rupee for the last couple of years. You know, that's very different from the historical experience that we've had, where the rupee has been gradually depreciating over a period of time. And that's created more uncertainty. I think if we can continue to have this stability and policy around the way the economy is being managed and stability around the currency, all of this creates the kind of level playing field that we're looking for as investors and being treated fairly when we invest in the country.

Let's shift focus specifically to the healthcare space and in that sector, you have Indira IVF and AIG hospitals. In the last few years, there has been frenetic deal activity and consolidation in the hospital space. Your peer Blackstone has become aggressive in this space, with back-to-back acquisitions of Care Hospitals and KIMS Kerala. Meanwhile, there are other hospital assets like Aster DM Healthcare India and CVC-backed Healthcare Global, which are up for grabs. Do any of these two targets interest your team here?

If you just step back, the reason why healthcare is such an interesting sector is because it really is a direct play on the growth and consumption and the growth in essentially the middle class in India. We were looking at the numbers recently and we have something like 60 million people in India making more than, say, $10,000 a year, that you can define as a category of middle class. That number will go from 60 million to 100 million, probably just in the next few years, in a fairly short period of time. That number is expanding rapidly. One of the first things that families want to do when they have some extra income is they want to spend money on better healthcare for their children, for their parents, for themselves.

And we see that at AIG. I was in Hyderabad recently and, you know, we have literally 45,000 outpatients per month going to receive treatments and getting procedures done. That level of activity is really phenomenal. And if you look at Indira IVF, we have around 125,000 families that have children now that wouldn't have had children had they not gone to get the IVF procedures done. So these are large numbers of people that are taking advantage of the services that are available to them now. So I think that's the attraction.

In terms of specific assets and activity, I think they will continue to be highly sought after because they're hard to come by. These scale, well-run large hospitals, as well as chains of service providers. But I think valuation does matter as well. So there's some market equilibrium that needs to be achieved.

So you're not ruling out further hospital M&A in India?

No, we're not ruling that out.

Let's talk about the buoyancy in the Indian public markets and its sustained buoyancy. The Sensex hit 75,000 recently. A new set of emerging companies from exciting sectors are looking to hit the Indian public markets to try and gain advantage of the valuations. Not to mention, we are also seeing a lot of large-size block deals, which wasn't the case earlier. Is EQT looking to also take advantage of the scenario and look at listing any of its Indian portfolio companies. Also, why is it that EQT has usually stuck to private targets and stayed away from the listed space in India? Is this an India-specific strategy or is that something that you prefer globally as well?

We generally prefer to invest in private companies, not public companies. That's our strategy. If you look at the exit markets here, the public markets, it's interesting to see how much they've developed in the last 10 years or so. If you look at 10 years ago, the GDP of India was something like 1.8 trillion and today it's like 3.5 or 3.7 trillion. So it's doubled. The public markets have gone from a market cap of about $1 trillion 10 years ago to about $4.5 trillion today. That's almost a 5x increase in market cap over the last decade. It’s a massive increase in the liquidity pools available to investors here in this market.

I think that has created an environment for firms like ours, where when we take a company public, like Coforge, for example, which is a listed company, we were able to sell our stake gradually over time of over $2 billion into the market to domestic investors. And that was very well received. If you look at the stock today, it's trading higher than when we sold it. So people have done well, which creates the right sort of environment. We want people to make money, people that buy stakes from companies that we're disposing of and getting monetization events done. So the Indian market's gotten deeper and it's gotten more local. And I think that's a very positive development for the industry.

So any IPOs?

We will definitely be looking to do more IPOs in India. I think the market's developing here very well. And it's a really interesting way for us to monetize our investments.

EQT has traditionally been a buyout fund. When it comes to India, would you consider altering your strategy and looking at a few minority stake opportunities as well? There are a few other global bulge bracket private equity funds here who have started nibbling away at minority stake sale situations. Would you step into that space?

Our preference really is to stick to control buyout investments. However, we will do what we call sort of 'partnering deals', where we might work with the family or the promoters, but generally we would take a majority stake and they might roll. Like Indira IVF is an example where we bought a 70 percent stake and the family rolled into a 30 percent existing stake with us. So we continue to be partners together, but we would have the controlling stake.

What next after the big bang acquisition of HDFC Credila in the financial services space? Right now, as we speak, housing finance is a hotbed of real activity with stake sales and companies going public. Financial services is an area where greater penetration is required. What role can we expect EQT to play?

Yes. Financial services is an area of focus. Housing finance we think is very interesting. We would like to do more there. And I think generally the demand for credit in the economy is significant. And we are trying to increase the amount of access that people have to credit in specific areas where we can really be a service provider that's differentiated and provides people with good value.

You have observed various countries across various geographies during your long career as a successful investor. From your global lens, what are some of the key private equity trends that you see emerging in India?

I think the biggest trend that we've seen in India is related to the development of the buyout market or the control investment market, which used to be a minority investing market. The development of the buyout market has, I think, resulted in the maturity of our industry and a scaling up of the industry because it attracts much larger pools of capital and can also, I think, have a more transformative impact on the companies that are being acquired. If you look at total buyout deals, it's probably something like over $10 billion a year. That could be a $50- billion market by 2030, which would make it one of the biggest markets in the entire region.

I think the other interesting trend that we're seeing globally is the amount of investment going into infrastructure and particularly renewable energy. We think energy transition is going to be extremely exciting. And I think India has got a big role to play and the opportunity to invest in this area. I think we are just starting to see the beginning of the scaling up of infrastructure investment in the country. That will be a much bigger opportunity going forward.