Are valuations finally becoming rational? Ravi Dharamshi answers

"So, India stands absolutely at the right place at the right time in terms of this opportunity to become plugged into the aerospace manufacturing supply chain," says Ravi Dharamshi, CIO, ValueQuest Investment.

This is not for the first time we are talking private equity with you. One of the success stories for ValueQuest has been Waaree. Then, you have also invested in Wow! Momos and a couple of other startups. Which have been the super hit names for you?
Ravi Dharamshi: So, again, disclaimer, since we manage money for the public markets as well, but yes, Waaree has been one of our big winners for us on the private equity side as well as on the listed market side. And the numbers are there for everybody to see. The kind of scale change that has happened in this company.

This company used to be a 70-crore pat company in FY24. And if I were to annualise the FY25 number, they will end up with a 1600-1700 crore profit in FY25, that is a fantastic scale up. I mean, that kind of scale up where are you going to get in a manufacturing business in India. So, we have been lucky touch wood that we hit it big with one of the first and the early investment in the private equity.


So, the companies which you are showcasing, tell us a bit about them.
Ravi Dharamshi: So, we are focusing on three themes. Energy transition continues to be and it will continue to be, maybe next year also when we meet we will probably continue talking about energy transition. But there are two new sectors that we are talking about. One is aerospace and other is technology driven businesses.

Now, technology driven businesses is a very-very wide term. But there are two-three investments that we have done in the private equity space, one is a furniture rental company, other is a payment solution company, and on the aerospace side also we have one company that is an aerospace tooling company and other is going to be aerospace piping solutions company for the large aircraft manufacturers.

So, these are all interesting opportunities and as of today, there is not much knowledge or markets do not know too much about the aerospace plays. If I were to just give you a sense and you can probably get a sense during the day, but the aerospace supply chain is shifting away from the Western developed world towards India because post COVID this is a very highly skilled labour business, people have refused to come back to work and this is one industry where they will not go to China, the IP protection is paramount over here.

So, India stands absolutely at the right place at the right time in terms of this opportunity to become plugged into the aerospace manufacturing supply chain.


So, energy transition is easy to understand, we can see it, we can feel it, we can smell it, which is that migration, I am breaking it for our viewers, hydrogen to solar, or from fossil fuel to largely clean and green, it is easy to understand. So, you buy a company which is in manufacturing, you buy a wire company, you buy a capacitor company, you buy a tower company. Aerospace is a slightly more complicated space because for common man you would say aerospace either is defence or it is Boeing or perhaps it is Airbus, demystify it for us.
Ravi Dharamshi: So, first of all, energy transition two years back was as complex to understand. Today, it has become easier to understand. But in aerospace, if you actually go and check what Boeing CEO has made a statement today, they said that they are going to recruit more vendors from India over the coming next few years.

Now, that is a very telling statement. Now, what has happened is, in civil side of the aerospace, there are basically only two manufacturers, two OEMs, Boeing and Airbus. Boeing shot itself in the foot and Airbus failed to capitalise on it. Now, they are running behind schedule in terms of delivery and they are constrained by capacity and that on top of that, their supply chains have gone disarray post COVID. So, they are desperate to find vendors who can supply to them and they really do not care about what margins you make, as long as you supply the equipment to the specs that they want, I mean, if you can supply that reliably, they will not bother you about the pricing, that is the kind of pricing power these supply chain vendors are going to have.

Again, it is a very simple thing to understand that deliveries are running three years behind schedule, there is a backlog of as much as 20 years, the kind of order book that these OEMs have and they are in need of supply chain partners and all their European partners or the American partners, they do not have the ability to scale up from here.



Tech enablement, it is easiest thing to say, but very hard to scale up. We have seen great success stories, but we have seen a lot of failures here. How are you approaching this entire tech sort of enablement?
Ravi Dharamshi: So, that is a fantastic question. Number one, we are not here to fund your land grab, that is not what we do. We invest in business models which are developed to the point where they do not burn cash. So, we come in at a point in time where it is already, if not pat profitable, ebitda profitable, and cash flow throwing.

So, all they need is some capital to scale up what they have perfected over a period of time, the model that they have perfected, so that is the differentiating fact about the kind of companies ValueQuest invest in and as against probably what other business models are out there. See, between the potential and the probability, we tend to focus on the probability.

There should be a higher probability of making money than a higher potential of making money. Of course, who does not want the combination of higher potential and higher probability, but most often than not if the potential is high, the probability is low. So, you need to balance that between high potential and high probability.



There was this whole ringa ringa roses which had started. You come in at a private equity stage, wait for the company to go public, wait for mutual funds to come in terms of anchor, and then you sell at the IPO pop. It had almost become a sequence, but that sequence has reversed. Have private equity valuations also corrected in sync with public markets?
Ravi Dharamshi: So, private equity obviously corrects with a lag and it probably takes a longer time because the prices are not quoted honestly. Though now there seems to be some sort of a market for every share, so there can be some reflection of that.

But honestly speaking, it will take some time. It is a mental adjustment that the promoters have to make, the bankers have to make, the investors have to make in terms of what multiples that you are willing to pay and some correction has already happened and some more will happen over a good period of time.

But thing that comforts me the most is even from the listed market perspective is that there is no leverage over here. We are not talking about a severe downturn in the economic cycle. We are talking about high valuations getting corrected.
And as mentioned earlier, we are through with the most of the journey on the correction of valuation and hopefully the same will get reflected in the private equity side. For us, we have a runway of next three-four years to invest.

It is not like we have to invest today. It is a much different timeline that we operate in in the private equity world. So, yes, I mean, I am glad that this correction has happened, some rationality will come back into the valuations.