Author Archives: mfriedman33

A Drink With Suds

We spent our first night in Delhi with Sudershan Tirumala (“Suds”), a 2010 Tuck graduate currently working as a growth equity investor providing capital to promising Indian companies. We met at the magnificent Punjabi by Nature restaurant just a couple of minutes from our hotel; which, in addition to its succulent food, offers a 2 for 1 happy hour special that became a staple of our Delhi trip. Our conversation focused both on his personal Tuck experiences as well as the nature of the private equity and venture capital industry here in India.

His passion for both Tuck and India was very apparent and inspiring. We all loved hearing about how his Tuck nickname followed him across the world and greatly appreciated the fact that Suds flew in from Mumbai just for our dinner. He described his intense desire for both private equity investing and for the emerging markets, especially India, and his deliberate and thorough methodology for achieving his goal. Recognizing his lack of emerging markets, Suds studied abroad at HEC in Paris and then orchestrated independent study focusing on fundraising of private equity funds which was the first ever private equity at Tuck with a non-Tuck professor as an advisor. He used a targeted but aggressive approach to recruiting, including a broad networking effort, recurring trips to India and successful private equity summer internship.

While listening to Suds rehash his Tuck days, I could not ignore the similarities between his recruiting philosophy and mine. Over the past year and a half I have sorted through a database of over 500 private equity funds and reached out to over 150 as well as performed an independent study for a small private equity fund. This led to a summer internship in London with a private equity fund focused on emerging markets which was a very educational experience for me which I hope to leverage into a full time offer. Overall, his success using this approach was very refreshing.
In addition to Tuck memories, Suds offered fantastic insight into the nature of the private equity market in India.

Overall, I was surprised how similar the industry looks when compared to the US. Similar multiples were used for target investment values, and investors sought similar return characteristics (20-25% IRR) despite what would be perceived as a higher risk environment given the emerging economy. But there were two more similarities that really surprised me. First, Suds mentioned that the majority of growth equity investments are exited by selling to a larger buyout private equity arm as opposed to IPO or to a strategic corporation. Given the relatively young nature of private equity investing in India and the conglomerate nature of family owned businesses, this seemed counterintuitive. What enables this, which is surprise number two, is the amount of leverage used in private equity transactions is similar to that in the US. This is despite significantly higher interest rates (Indian treasury bond is 7% compared to US rate of 2%) and the added interest burden imposed on acquisition targets. In general, myself and my classmates came away very impressed with Suds and the level of sophistication of the private equity industry in India.

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Discussing Mobile Phones with Vodafone India

Our final day in Chennai started with a morning meeting with Kumar Ramanathan, the former Chief Marketing Officer of Vodafone India who now heads Vodafone’s Asian Data Analytics Group.  Mr. Ramanathan’s description of Vodafone’s strategy and its level of sophistication were quite remarkable and led to an interactive conversation of business issues and strategies resulting in us gaining a greater appreciation for the opportunities and challenges of doing business in India.  At a very high level, the nature of India’s mobile telecommunications market is drastically different to America in terms of industry dynamics, technology and marketing; but nevertheless, Vodafone has applied many skills from our MBA toolkit to successfully tackle the environment.

Industry Dynamics:   The most unique aspect of the Indian telecom market is the size and nature of its subscriber base.  Of India’s 900 million mobile subscribers (The 2nd largest in the world), 94% are pre-paid customers meaning they transfer money to an account and draw upon this balance based on usage.  The average Indian consumer spends just $2 USD per month on mobile phones (compared to ~$40 in the US) but yet recharges their balance approximately 10 times a month at one of India’s 4 million retail mobile outlets, of which Vodafone has a presence at 1.3 million outlets. The high rebalance rate has resulted in a price war as well as a high consumer churn rate as consumers simply seek the cheapest plan.  This has led to a fragmented carrier base as 10-15 operators having a “meaningful presence” in different parts of the country with no carrier achieving greater than 30% market share, resulting in one of the most competitive telecom markets in the world.

Technology:  As our group has observed quite often, India’s infrastructure is vastly underdeveloped and the same can be said for its telecom industry.  Due to both the political environment and feasibility challenges, India’s mobile network is deployed through satellites as opposed to laying cables in the ground.  With the highly probative capital costs associated with deploying satellites and with average revenue per user at just $2, launching new technologies is highly unprofitable and the country remains largely penetrated with just 2G wireless network technology (voice and texting, no internet).

Marketing:  Since telecom services are largely a commodity as operators are unable to differentiate on technology and services, Vodafone has focused its efforts on marketing.  With the bottom 55% of subscribers generating just 5% of Vodafone India’s revenue, Mr. Ramanathan’s marketing strategy focused primarily on high value customers through a data intensive approach.  Mr. Ramanathan and his team have stratified their high value consumers base through 180 different usage characteristics in order to offer customized usage plans.  The goal of such an approach is to profitably increase the rate of usage for existing high value customers as well as to gain customers away from other carriers.  Vodafone’s results have been quite impressive.

Thoughts on the Future:  Without the prevalence of credit cards, telecom operators are the single largest source of consumer transaction information.  This information base can be leveraged not just through customized data plans, but outside the telecom industry including delivering financial services such as banking.  This approach has been successful in other developing countries, most notably in Kenya by telecom operator Safaricom (A Vodafone subsidiary).

Additionally, it is not hard to imagine a consolidation wave amongst operators similar to those previously observed in developed countries.  Consolidation would allow operators to scale both new technology costs across a larger consumer base and combine the operators’ large retail channels.  Vodafone India has been acquisitive in the past and will likely be a leader in the future.

Overall, the visit was tremendously rich as Mr. Ramanathan’s business insights and marketing strategy were quite impressive and well-articulated.  While the problems faced by India’s wireless telecom operators are quite different from operators in America and the rest of the developed approach, it was both interesting and refreshing to hear how Vodafone has applied many of the same strategies and business acumen which we have studied at Tuck to their business in India.

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