Platform companies: Leveraging the India story in the long run

Real per capita GDP, stock market indices and consumption trends in India are currently interesting. Even as real GDP at an aggregate and per capita basis have broadly trended higher, equity market valuations have fluctuated. Amidst the noise of market data, it is often easy to forget that some of the best investment opportunities arise when market valuations arent quite at their peak. The single most significant takeaway is that as real GDP has trended upwards, the equity market, in real terms (inflation adjusted), has moved higher with considerable volatility. What many view as market downturns are opportunities to build and scale value-creating businesses. Market downturns in public markets (equity markets) invariably compress valuations in private markets as well. One way to generate returns from the growing GDP per capita over the next two decades is through creating a valuable platform company to aggregate assets. Such a strategy is especially relevant when high-quality assets can be acquired in a market downturn. At a fundamental level, a platform company would be one that uses acquisitions to build a business. Capital allocation is the principal function of any company, and in the case of a platform structure, the capacity to inorganically grow the business through meaningful acquisitions is the core objective. Two fundamental factors determine the success of the platform. Firstly, the pricing environment needs to be one that is in some way a "buyer's market", i.e. valuations provide for attractive acquisitions. Market downturns are usually such an environment that is conducive to attractive pricing for deals. The ability of the platform structure to make attractive acquisitions is vital.

Post a Comment