While this is Berkshire’s first investment in an Indian company, it set up operations in India when Warren Buffett visited India in 2011. Berkshire sold insurance online in a partnership with Indian firm Bajaj Allianz.
In one of his essays that have come to be regarded the gospel truth by many an investor across the world, Warren Buffett, the man with the Midas touch, the Oracle of Omaha, Mr. (Really) Big Bucks, says, “When Charlie and I are looking for acquisitions, we adopt the same attitude one might find appropriate in looking for a spouse: It pays to be active, interested, and open-minded, but it does not pay to be in a hurry.” A man, who, for all his praise of India and Indians, had shied away from making an alliance here, seems to have found an Indian spouse in PayTM. And that is our Story of the Day. My name is Rakesh, and you are listening to Moneycontrol.
Legendary investment guru and billionaire-many-times-over, Warren Buffett’s company, Berkshire Hathaway, has confirmed that it is picking up a stake, around 3 to 4 percent, in One97 Communications Ltd, the parent company of PayTM. This is Buffett’s first investment in an Indian company. The Economic Times had reported earlier this week that Berkshire was considering acquiring a stake in Paytm. Warren Buffett’s assistant, Debbie Bosanek, in a response to an email from Mint, wrote, “This is to confirm that the investment was made and that it was not a transaction in which Mr. Buffett was involved.”
Paytm’s parent company is said to have been in talks with Berkshire Hathaway since February to raise about between 300 and 350 million dollars at a valuation of about $10-12 billion. The ET report noted that Todd Combs, one of Buffett's key investment deputies, and a potential chief investment officer at Berkshire, is leading the transaction. He said, “I have been impressed by Paytm and am excited about being a part of its growth story, as it looks to transform payments and financial services in India.” Earlier this year, Combs also led Berkshire’s efforts towards a joint healthcare venture with Amazon and JPMorgan Chase. Paytm’s founder and CEO Vijay Shekhar Sharma said, “Berkshire’s experience in financial services, and long-term investment horizon, is going to be a huge advantage in Paytm’s journey...it is my honour to welcome Todd to our board, where he will bring his wealth of experience to guide our management team.”
While this is Berkshire’s first investment in an Indian company, it set up operations in India when Buffett visited here in 2011. Berkshire sold insurance online in a partnership with Indian firm Bajaj Allianz. But it exited that partnership in 2013, reportedly citing excessive regulation.
Buffett had spoken in May last year about issues that prevent foreign firms from fully owning companies in India. "Sometimes there have been restrictive laws in terms of the percentage we can own, and that's a disadvantage," he had said, adding, "We would like to own 100% of any business that we run." But Buffett did mention that India’s population and growing middle class is just too big to ignore. He said, "It's a lot of people with a lot of buying power. You can't have a billion people and not be important to this world." Was that a mere platitude or was he leaving the door open for a future opportunity? Looking back, one can appreciate that he might have just gotten tired of waiting around for a change.
Another popular investor, Jim Rogers, had famously sold all his Indian shares in 2015 after getting tired of waiting for a similar change. Rogers said in July this year that he has not invested in the Indian markets again, but rues that he may have missed the rally. He said, “I don’t like to buy anything at all-time highs...I am not going to jump onto a moving bus, because if you do so, you only get hurt.” One can’t help but wonder what he’ll make of Berkshire’s latest moves. That will be an interesting thing to keep an ear out for.
A CNN report had noted last year that companies like Walmart and Apple – both of which feature in Buffett's portfolio – had not opened their own stores in India. Cut to August 2018, and Walmart has picked up an approximately 77% stake in Flipkart, the online retail company that competes closely with Amazon’s Indian subsidiary. Apple is yet to receive approval from the Indian government for its iconic Apple stores but is going ahead with plans to open Apple Flagship Premium Reseller outlets in Tier 1 cities - large stores spread over 5,000 square feet. Currently, Apple has around 150 franchisee run Apple Premium Reseller stores in India, each a medium sized store spread over 1000 square feet. Further, Tim Cook has mentioned that the India is a key market for Apple.
With even large organizations like Walmart and Apple making big moves in India, has the business climate changed in the country? Has Warren Buffett warmed to India’s economy and businesses?
He did tell business news channel ETNow last year, “If you tell me a wonderful company in India that might be available for sale, I'll be there tomorrow." So there is possibly a hint of some sort there. Further, Berkshire has been under pressure to find significant investments, given the $108.6 billion it has in cash.
Berkshire’s deal with PayTM will be the company’s first investment in the country’s buzzing startup ecosystem. It will also be their first investment in a privately-held technology company in the world. Berkshire Hathaway has, in the past, selectively invested in some publicly listed tech companies, most notable among them being IBM and Apple. Berkshire recently exited IBM, but still owns Apple stock, as mentioned earlier. This deal between PayTM and Berkshire Hathaway could serve as an endorsement of India’s internet and tech ecosystem from one of the world’s most renowned investors. The startup ecosystem in India has faced a fair bit of scepticism, thanks to frothy valuations and unsustainable financials in recent years.
Berkshire will join PayTM’s impressive list of investors - the SoftBank Group, the Alibaba group, Ant Financial, MediaTek and SAIF Partners. Over the last couple of years, Paytm has aggressively expanded its e-commerce marketplace offering consumer goods, apparel, footwear, smartphones, bus tickets and movie tickets. The company claimed in July that its monthly gross transaction value had touched 4 billion USD, with the number of transactions reaching 1.3 billion in the quarter ended June. Mint reported earlier in August that Paytm Mall is aiming for annualized gross sales of $10 billion by March 2019. If that goal is achieved, it would make PayTM Mall the number three player in India’s e-commerce market within one year of its launch.
PayTM’s parent company, One97, started in the year 2000 as a mobile payments and mobile recharge business. It is currently among the top three consumer internet companies in the country. One97 has created a many payment solutions which help consumers transact via Paytm’s digital wallet and the Paytm Payments Bank. This payments vertical has experienced tremendous growth since demonetisation in November 2016. PayTM Founder Vijay Shekhar Sharma was one of 11 recipients of payments bank licences from the Reserve Bank of India. In the last several months, Paytm’s near-monopoly in the digital payments space has been challenged by many new players - Google’s Tez, Amazon Pay, Flipkart’s PhonePe and the government’s own UPI-based BHIM app and WhatsApp.Some analysts have observed that PayTM continues to burn through significant amounts of capital in its attempts to attract new users, and to retain existing users by offering cashbacks and discounts.
For now though, one can only imagine that Vijay Shekhar Sharma is a happy man. A Jim Morrison fan, he had told Mint in an interview what his last words would be: “O great creator of being, grant us one more hour to perform our art and perfect our lives.” And it appears he has been granted one more ally in his quest, and perhaps even a door to walk into, for bigger things in days to come.