UK-based Dan Sandhu has extensive experience in nurturing and leading high growth companies in India and abroad both as an investor and professional manager. A chartered accountant by training, he was a founding member of 7C. The outsourcing business was subsequently bought by Vertex and Sandhu continued as its CEO in India. When Vertex was acquired by Oak Hill Capital, he joined location-based intelligence solutions company ACIS in London. He is also a member of the Indian Angel Network. A regular public speaker, he was in India recently to talk at a TiEcon Delhi 2008. He took off time to talk to FE’s Rajiv Tikoo. Excerpts:
How will the financial meltdown affect India?
There will be a slowdown. But businesses that have core skills will survive. People will take less risk. Valuations will be much more realistic. Scrutiny will be much higher and it should be. But I do get a sense that there is some denial that something will happen in India. There is still a community that is in denial. I believe India is not immune to what is happening globally.
How will India cope? What do you think?
It will be easier to manage here, though. Nine per cent growth may drop to 6% or 7%. That is still fine. The 9% growth is being driven by all the development in the cities and sectors like retail, IT, agriculture and heavy manufacturing are still growing at 4%-5%. A lot of wealth creation and opportunities in the last few years have not trickled to rural India. Rural India didnt get the upside of the boom. And it wont get the downside of it. Urban India will suffer a slowdown. But India will survive much better than other parts of the world.
What makes you think that India will do better than others?
India, unlike most other countries, got good growth over the last few years. The fundamentals of agriculture and manufacturing will keep the growth above 6%. India has got lots of natural as well as intellectual resources. So, I think India will be able to deal with it better than other parts of the world.
Is it also partly due to the conservative nature of the Indian financial system?
If you ask me as an investor-entrepreneur, the financial services industry has good regulations. The banks are generally reluctant to lend and probably very rightly so. The financial system is robust here. Their debt exposure is limited. They have cash reserves. That makes a big difference. That may be the saving grace now.
Will there be any winners, too?
I think there will be opportunity for businesses that deliver support to parts of the economy that will continue to spend. It would be public sector, for example. So, businesses that will provide services to public sector will continue to do well. The government will continue to spend because they have to spend. They have to continue to perform their task
Would you bet on any other type of businesses?
Those businesses that can provide more efficient solutions and products will continue to grow. For example, in European market, low-cost retail outlets are doing very well. The high cost retail isnt. Those who can provide low-cost alternatives are in for good times presently.
Are days of high risk and high reward over?
There are in abeyance. High risk should always give you rewards. You should expect high rewards only if you take high risk.
Indias growth journey also fuelled the entrepreneurial spirit. Will the slowdown take sheen of it now?
It will put reality into the enterprise dream. You become more selective. It will educate our managers and give them a taste of something that they have never had before. The test of a manger is to survive a slowdown. The party is not yet over. Some people are going to have hell of a hangover, though.
How difficult will be it to raise funds now?
There will be challenges in raising money now. Indian arms of global businesses will face a crunch. It will be very difficult for them to leverage the deals. What has happened in the rest of the world is that PE deals that require a lot of leverage have been put on hold. But people who are looking to invest will still invest, but valuation will be based on toadys reality. India shining story was affecting entrepreneurs minds in terms of valuations. They were getting carried away. People wont invest money because its a growth story. Investors will do reality checks in terms of hardcore business valuation. Everyone will realise that you have to be cash generative, have a good revenue growth profile, and have good service delivery. Everything has to fit in together.
So, what’s your mantra for survival?
You can sail through with a strong will and steady head. Anyone who panics will suffer. Stay where you are. Try avoid doing silly stuff. This time will separate the men from the boys.
Apart from doing due diligence, what more would you look for in a business plan as an investor today?
You just want to make sure that business plans have a macro-element. You need to step out of your individual plan and see how does an external issue affect you. Entrepreneurs have to realise that they are not living in a cocoon. Previously they didnt have to think that the US or European economy would impact them. Now they need to.
How do you factor in the unknown?
You cant predict the unknown, but ignoring its wrong. You need to always ask yourself what if things changes. You need to be prepared with back up plans.
Source: The Financial Express
Published on 6 November 2008