India is currently the Hot Market: Blackrock, Temasek, Blackstone plan big bets on India

India is currently the Hot Market

It appears like India is the happening a hot market all over again for the global investors. After 2 years of weak FDI flows and FPI flows, the tide is turning on multiple fronts. Firstly, we had the large sovereign fund from Singapore, Temasek Holdings, planning to invest $10 billion into India in the next 3 years and planning to hike its India exposure in the portfolio from 6% to 10%. Now, there is Blackrock that is showing interest in multiple deals in India.

After the AMC joint venture with DSP Mutual Fund was called off, Blackrock had been looking at the right opportunity to re-enter the robust mutual funds space in India. That is happening through the Jio Financial joint venture. Additionally, like most P/E funds, the likes of Barings and Blackstone are interested in emerging market pharma companies and this time around, their focus is on picking up a sizable stake in Cipla Ltd. Let us first look at the deal that Blackrock have already signed with Jio Financial.

Creating Jio Blackrock combine to tap Indian Mutual Funds

Just a few days after Jio Financial was hived off from Reliance Industries as a separate company with a base valuation of $20 billion, it has showed its aggressive stream. In the first of the big moves, Blackrock and Jio Financial Services have formed a joint venture to foray into India’s Asset Management Industry. This will be a combination of global scale and domestic market expertise.

However, they do not plan to be the traditional buy side asset management company. In line with the global focus of Blackrock, the joint venture will focus on taking financial advisory and solutions to the masses at very affordable rates. That is normally the theme for any Reliance venture. They did that in the telecom industry and now plan to replicate the same in the financial services industry too.

Read Reliance Demerger: Jio Financial Services

Leveraging technology in Indian financial services

The idea is to leverage technology and global best practices to create and offer customized financial and investment solutions for millions of Indians. The focus would be on solutions that are personalized, innovative, and affordable. In short, it plans to transform the asset management practice in India into a digital-first offering. The idea is that the entire process of investment solutions for investors in India is democratized.

Towards this end, Jio Financial Services Ltd and Blackrock have formed Jio Blackrock as a 50:50 joint venture. Incidentally, Blackrock is the largest asset manager in the world handling more than $8.5 trillion in assets under management (AUM). Just to provide a perspective, the total AUM of Blackrock is about 2.3 times the market capitalization of the BSE. That is obviously quite something!

Value proposition that Jio and Blackrock will offer

What exactly will the combine offer? The joint venture will combine BlackRock’s deep expertise and talent pool in investment management, risk management, product excellence, and intellectual capital; apart from in-depth insights into processes, practices, and conventions. On the other hand, JFS will bring in its deep insights into the local market along with the knowledge of the resident customer. In addition, Jio Financial also brings to the table its massive digital infrastructure capabilities and robust execution capabilities.

These advantages are amply evident in Jio’s recent execution of the 5G plans. It will be the coming together of global scale, world class process expertise and deep insights into multiple markets. To trigger off the JV, both Jio Financial and BlackRock will start off with an initial investment of $150 million each. Both are betting heavily on the confluence of digital and financial solutions as the only option in the long run.

Blackstone, Barings plan big investment into Cipla

It has been reported that the promoters of Cipla (Dr Hamied and family) are in talks with top private equity (PE) players to sell a part of their total holding in the company. The promoter family of Cipla currently holds around 33.47% in the equity of Cipla with the rest held by institutions and by retail investors. Reportedly, an investment bank has already been hired to advise on the deal. It is also reported that several PE funds are in advanced stages of discussion with Cipla promoters to buy a chunk of the stake.

These PE funds include big names like Blackstone and Baring Asia; among others. Blackstone is best known for being one of the biggest real estate investors in India. Globally, Blackstone has AUM of over $1 trillion, out of which it has a $100 billion exposure to Asia. Interestingly, half of Blackstone’s Asia exposure is invested in India. With $50 billion already invested in India, Blackstone remains one of the largest foreign investors in India, with chunk of its investments in real estate properties.

Promoters of Cipla say, “Yeh dil maange more”

Promoters of Cipla, with their 33.47% stake, are looking at roping in high quality partners with a much bigger role. It would also be seen as part of the succession plan of the group. Cipla promoters are also looking for a substantial private investor to come in with not just a cheque book but also the ability and commitment to revamp future strategy of Cipla so as to enhance capital allocation, operational efficiency as well as to improve the return metrics of the company.

While the company has not denied or confirmed anything in particular, it is well known that this is not just the need of the hour but it is also part of the promoter agenda over the last few years. Pharma stocks played a pivotal role in wealth creation in the 1990s, but in the last 10-15 years have played a much smaller role as financials, autos, hydrocarbons, and IT have taken up the mantle of leading the market direction.

Impressive quarterly numbers pave the way

The latest quarterly numbers have bene very impressive with the stock price also rallying. For instance, in the Q1FY24 quarter, Cipla had reported 45% growth in net profits yoy at ₹996 crore, while sales revenues had grown 18% to ₹6,329 crore. Cipla had also reported 31% growth in EBITDA as well as a 234 basis points expansion in the operating margins to a healthy levels of 23.6%.

Cipla is one of the few Indian pharma companies with a very strong India franchise, which has made it specifically attractive to the PE funds who are looking at healthcare as a proxy for rising life expectations in the Indian economy. But the real story appears to be that foreign investors are getting interested in India all over again. Blackstone and Barings may just be starting off the trend.