We are not opportunistic, Essel Propack is a strategic investment: Amit Dixit, Blackstone

  • Miles
  • April 23, 2019
  • Comments Off on We are not opportunistic, Essel Propack is a strategic investment: Amit Dixit, Blackstone

Amit Dixit-Blackstone-1200

That is not a fair description. All investments by us are strategic in nature and there was no scenario here of a desperate seller. This process has been going on for quite some time. This was not a short, quick process. From what we understand, the seller also had options.

From a Blackstone standpoint, we are not opportunistic. Our approach to any investment is a business building approach and that is why you see us committing very large amounts of dollars and putting global Blackstone resources behind our investments. We are committing almost half a billion dollars to Essel Propack. Earlier this year, we committed half a billion dollars to Aadhar Affordable Housing Finance. You may recall another public listed company — MphasisNSE -1.90 % — where we committed close to $1 billion in 2016.

But in each case, the idea is very strategic, a business building mindset. Take a solid company and then put all the Blackstone muscle behind it to improve the company and take it to the next level. That is the thought process. It is very strategic in nature and I am happy to walk you through our thesis.

Essel Propack enjoys almost a global monopoly in the packaging space. How will Blackstone ensure that the business becomes stronger?

Yes, a good question. It is a bit of all of the above. Essel Propack is the world’s number one manufacturer of laminated tubes. They operate in 10 countries with 20 manufacturing plants. In the oral care segment which is toothpaste, almost any toothpaste you may use — be it Colgate or Patanjali or Promise or Pepsodent, the tube will be made by Essel Propac. It has a 40% market share in packaging tubes.

Our thesis here is to accelerate the growth of the company along two vectors; the first vector is newer-end segments, which is beauty, cosmetics and pharmaceuticals and the second growth vector is emerging markets which is India, China and Latin America.

We can take a leadership position in the oral-care segment and accelerate the growth both in end markets and geographies. We have a very large global network in the consumer sector. We have owned and we own other packaging companies and so we know this sector and the customers of this company really well.

Many of the customers for Essel Propack have been with the company for one or two decades. A couple of customers have been with the company for three decades. They have very long-term sticky relationships which Blackstone can enhance.

In addition, being a private equity firm — probably one of the largest globally — we also have large capital resources to deploy. If there are opportunities to accelerate the growth in emerging markets in the newer-end segments, we will be happy to evaluate tuck-in acquisitions. That is on the revenue side, where we think we can enhance the revenue growth of the company.

The company is already growing at 11% top line year-on-year whereas the entire sector grows at about 1 or 2%. It is already a fast growing company. The question is can we make it a faster growing company? On the cost side, productivity improvement measures is something which Blackstone has a lot of expertise in.

For example, lean manufacturing; we have several GE Six Sigma lean experts who go into manufacturing companies and improve the operations of those companies. We also have sector experts. For example, Harish Manwani, who was the chief operating officer of Unilever globally before he retired as chairman of Hindustan UnileverNSE 0.25 %, is a senior operating partner at Blackstone.

We have people like Harish Manwani and we have 80 such executives globally who can work with the company both in driving revenue synergies and in driving better productivity or cost optimisation.

Any plans to take the company private or are you going to keep it listed? Also if you do not get the prescribed open offer, then what?

Our thought process is very long term and it is very strategic but this process of open offer tendering or taking private, the way the regulations work with SEBI, is completely out of our control. We are happy with whatever because for us the 51% was the critical threshold and if we get more, that is great. The more the merrier. If we do not, that is fine too. But we do not control that and we do not worry about that.

But the way the regulations work in India, once you have 51%, you actually have almost entire autonomy to run the company the way you want to and we have experience in that. We also have a 52% stake in Mphasis, an IT services company and we are strong believers in corporate governance.

Everything which we do whether or not it is required, we always pass it through the minority shareholders for a shareholder vote and we have never had any issues. We are very happy with 51% but I cannot speculate on tender offer, going private. Whatever comes we are very happy.

What is going to be the role of Mr Goel now? Is there any exit clause? Does the continuity remain?

Continuity is a big focus for us and it is a big part of our investment thesis. It is very important. This is a B2B business what we call in Blackstone terminology a B2B2C business because the customers you serve are B2C customers.

In such businesses, customer relationship and customer trust is paramount. So, continuity is very important, continuity of people, continuity of account managers, continuity of R&D projects because a lot of projects are underway and these are long-term projects. So, we are backing continuity here.

Ashok Goel is partnering with Blackstone, he will continue with a 6% stake in the company. He currently owns 57%. We are buying 51%. So, he will continue to have 6%. In addition, he is available as a non-executive advisor for the next five years in whichever area he can help the company.

We are quite excited about this partnership not just with Ashok Goel but also with the management team and we think the combination of continuity and acceleration of growth is the right formula for this company.

Finally your outlook on the dividend picture. Do you see it changing?

I cannot make a forward looking comment but all I can say is you can point to our track record. You can see the dividend history of Mphasis since Blackstone has taken ownership of that company in 2016. We pride ourselves on being very efficient capital allocators We don’t put any capital or cash in the company unless the management can deliver at least a 15% return on that capital. Our belief is that capital should be returned to shareholders.

We are not believers in building a big war chest for acquisitions and things of that nature, but being very prudent in capital allocation and if that capital allocation is not available or acquisition opportunities or deployment opportunities are not available to earn that 15% plus return, then that cash better belongs to the shareholders.

That is just a philosophical point of view that we have and that is evident from our track record with Mphasis.