In 2005, TPG Capital, one of the largest private equity (PE) firms in the world, decided to invest in financial services in India, a sector in which it had developed global expertise for over a decade. It had entered the country in 2004 with an investment in a pharmaceutical firm, but wanted a piece of the fast-growing financial services sector. But, first, it had to choose the right company, one with a sustainable business that could be scaled up quickly.
That was quite easily done.
From the beginning, the PE firm was clear about its interest in the Shriram Group. With its core business in commercial vehicle financing (through Shriram Transport Finance Company Ltd), the Chennai-headquartered conglomerate had a near monopoly in this under-served market. But R Thyagarajan, the founder-chairman of Shriram Group, was reluctant to take on an international investor. His primary concern: What could a US investor bring to the table for a local business like his?
“It took me six months to develop an equation with him (Thyagarajan). He was hesitant. He felt he had a special platform, one that American investors wouldn’t appreciate,” says 48-year-old Puneet Bhatia, managing director and country head of TPG Capital in India. But they persisted and, in February 2006, the firm invested a little less than $100 million in Shriram Transport. It was TPG’s first investment in an Indian financial services company and is symbolic of its long-term strategy in the country.
Typically, PE investors don’t play the persuasion game. But then, Shriram Transport is an exception: It enjoys a near monopoly in south India and, more often than not, investors get returns that are five to six times higher than their investments. Shriram enjoys solid volumes, higher debt yield and minimal credit loss. And, over the years, the group has acquired a dominant market share in sectors where banks and other financial institutions have limited reach or offerings. For instance, it provides loans to people who have only one or two trucks.
Bhatia’s persistence in getting equity exposure in Thyagarajan’s companies paid off and his investment in 2006 evolved into a deeper relationship. Since then, TPG Capital has invested three times in various firms of the same group—Shriram City Union Finance, Shriram Capital and Shriram Properties. (The group, which offers financial services and non-financial businesses in infrastructure, energy, IT and industrial manufacturing, has over 20 companies.)
As of November 2014, TPG Capital has deployed a total of $1 billion. A lion’s share—nearly $550 million—has been funnelled into Shriram Group. While PE firms do sometimes reinvest in their portfolio companies, they don’t usually take such large bets on a single conglomerate.
But TPG Capital doesn’t seem perturbed by the fact that more than half of its India exposure is in one group. It is not a massive risk, says Bhatia. “We don’t feel like we are dealing with one promoter or one family. The way this group is structured, it is not a typical conglomerate. All the four companies that we’ve invested in have their own distinct management teams. Each firm has a different rhythm,” he says.
He adds that TPG Capital believes in creating “partnerships”. It is the only international fund in India to adopt this strategy. “Investing is like a marriage; there are so many ups and downs and we can’t anticipate everything. They (Thyagarajan and Shriram Group’s board of directors) are very enlightened and treat us as partners. We would rather invest in them than seek out new businesses,” says Bhatia.
And even though it may have been love at first sight for TPG Capital, the private equity firm conducted due diligence with every fresh round of investment. It was reassured by the financial transparency in the Shriram Group.
Bhatia’s faith in his investment is bolstered by Thyagarajan’s simple and straightforward way of doing business. The 77-year-old chairman of the over Rs 76,000-crore-worth Shriram Group does not use a cellphone; a spartan man, he drives a hatchback (a Hyundai Santro).
“He [Thyagarajan] oversees the company, but has hired professionals to run it. There is no personal agenda,” says Bhatia.
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(This story appears in the 12 December, 2014 issue of Forbes India. To visit our Archives, click here.)
i dont think TPG is running V2 retail, as in the shareholding pattern i dont see TPG. Could you be kind enough to put some more light on it. also, the number of stores mentioned in this article differs greatly from when V2 retail has mentioned in its Sep quarter results. Kindly clarify sir.
on Dec 17, 2014TPG\'s confidence in the Shriram Group further bolsters the Group\'s superb business model and trustworthiness.
on Dec 9, 2014