NEW LUXURY shopping malls, such as DLF’s Emporio (left) and Promenade (right), are under construction in Delhi and throughout India. Opportunities abound for foreign investors willing to work with local contacts. (Photograph by Prashant Panjiar.)

Two of these local leaders are Kushal Pal Singh, chairman of the Indian property giant DLF Universal, and Sunil Bharti Mittal, founder of the Bharti Enterprises conglomerate. Singh built DLF into India’s largest real estate company, developing IT parks, residential and corporate towers and shopping malls in 30 cities, including the landmark DLF City in Gurgaon, best known for its ship-shaped Gateway Tower and DLF Square, an office complex that houses Fortune 500 companies such as New York Life and Citibank. He is currently developing six luxury malls, the most intriguing of which is the high-end megamall Emporio in South Delhi that will feature Dior, Chanel and Prada.

Mittal, the son of a Congress party politician from Punjab, founded his company in 1976 in his hometown of Ludhiana. He was 18 at the time, and made bicycle parts and hosiery. But his real success came from selling mobile phones to the masses, offering service for 1 cent per minute to customers who might spend only $3 or $4 each month. It was the kind of ploy that spurred people to call him crazy. Today Bharti is one of the 10 largest companies in India, with a market cap of more than $25 billion, and its Airtel division controls one-quarter of the country’s mobile phone market with some 40 million subscribers.

The two men symbolize the country’s entrepreneurial spirit—and they and others like them are keen to tie their expertise and connections with American investment capital.

Collaborative Efforts
This summer, millions of households in India, many of them stocked with new televisions and other consumer goods, tuned into their country’s version of The Apprentice. In this reality show, sponsored by Mittal, 49, five winners received undergraduate places at five British universities.

Mittal (who is not related to the Mittal Steel family) is a man who can chuckle at his crazy dreams—while simultaneously offering proof that they will come true. He calls himself the "poster boy of collaborations," and has been involved in 20 joint ventures since he started his telco. Foreign investors eager to capture a corner of India’s economy—which few doubt is poised for long-term growth—would do well to look for partnerships with entrepreneurial-minded businessmen of his ilk.

Counting themselves among Mittal’s backers are Evelyn de Rothschild and his American-born wife, Lynn. The Rothschilds spend one week each month in India pursuing their business interests. In 2004, through the family investment bank, they and Mittal launched a 50-50 partnership, the much publicized FieldFresh Foods, which aims to grow fresh fruit and vegetables in India for distribution at home, as well as in Europe and the Middle East.

FieldFresh Foods suffered a shaky beginning. The venture had what even Mittal admitted were "mixed-to-poor" results in its first year, a period in which India’s entire farm sector failed to meet its targeted growth rate of 4 percent due in large part to infrastructure problems and bureaucratic inefficiencies. For FieldFresh Foods to thrive, Mittal must succeed in his efforts to establish a contract system with farmers and teach them to produce consistent crops with the seeds and techniques the company provides. He is trying to harness the country’s traditional subsistence farmers, and claims that this kind of revolutionary change could make agriculture the next big wave on the subcontinent. "India has the highest amount of irrigable land in the world and could be the food capital of the world," Mittal says. "It has currently less than a 1 percent stake in the world food market."

While Mittal has had to fight political opposition to his business plan, which would displace farmers from their lands by consolidating fields to achieve economies of scale, his scheme has been buoyed by the ministry of agriculture’s move to simplify customs procedures so that exporters can move produce out of the country more quickly. But Mittal and the Rothschilds are counting on a partnership with yet another foreign entity to truly catalyze their venture. Bharti has joined forces with Wal-Mart to launch a wholesale distribution and logistics business. Through their subsidiary Bharti Retail, Mittal and his brothers, Rakesh and Rajan, who hold senior positions in the company, plan to invest up to $2.5 billion in their own big-box stores, as well as in smaller supermarkets and convenience stores, by 2015.

Mittal, brasher about the general outlook for his business than he was a few years ago now that India is trying to enact some of the reforms he has been promoting, claims that he could build a retail network without the benefit of the world’s largest distribution system. "With our capital base today, with our resources, we don’t need to have a Wal-Mart," he told a group of investors in a presentation to the Asia Society in New York in May. "But we figure it is best to collaborate with the best practices in the world and take a jump-start on business. If it means the foreign company will partake of a large part of the success, so be it, because it will have contributed immensely to the success of it. We are very clear that there is a model that works with large foreign companies that have the expertise and the Indian companies that know the Indian market and the customers, and, more importantly, who know the environment of work."

A substantial portion of the success of India’s entrepreneurial class can be attributed to the elite Indian Institutes of Technology; there are seven of them around the country. Jawaharlal Nehru established them after independence in 1947, and their success as schools with very high standards—reputedly harder to gain admission to than Harvard or MIT—has led to the creation of similar organizations in other fields, such as the Indian Institutes of Management. After graduating, many of these students come to elite schools in the United States or the United Kingdom for further study, then, increasingly, return to India to work. "They are like hungry wolves, and, having received an excellent education, they are the true entrepreneurs who drive the economy today," Singh says. "They are in the millions in India, millions."

Private Equity Deluge
In India’s highly effervescent economy, the country’s own business and financial leaders remain well aware that the economy shows signs of overheating. Overall GDP has grown more than 9 percent each year for the past two years. While inflation has fallen from an alarming 6.7 percent last January, the Reserve Bank of India continues to worry about a credit boom. The stock market has a price-to-earnings ratio of more than 20. And a growing current-account deficit indicates that supply cannot keep pace with demand, particularly in a country that lacks the infrastructure to sustain such growth.

In 2006, private equity investments grew to $7 billion, up 252 percent over 2005. While this level of expansion may represent a short-term anomaly, for India to maintain steady growth, experts agree that the world’s largest democracy must upgrade its infrastructure and educational system—as well as continue to reform its notoriously bureaucratic economy.

Investors foreign and domestic persist in their worry that they are chasing a dearth of good deals. "There are very few deals on hand in the private equity market and lots and lots of private equity investors scouring the markets for investment," says Ravilochan Pola, director and CEO of Kotak Mahindra, a securities firm based in Mumbai. "For each and every investment opportunity, there are about 20 to 25 investors waiting, and the investment bankers that peddle these deals in the market are having a field day. In fact, the way in which the private equity is being placed in India, it’s like a bidding process nowadays."

Nevertheless, Pola believes that private equity offers much more attractive valuations than the public market. "Especially over the last six to seven years in India, the liquidity in the IPOs has been very, very high—that is, money chasing IPOs has been extremely high," he says. By contrast, he points to private equity success stories such as the Warburg Pincus investment in Bharti Tele-Ventures, in which Warburg Pincus made close to four times its investment in a span of three to four years.

Kai Taraporevala, cofounder of India Advisory Partners, a corporate finance group that advises institutional investors from its offices in London and Mumbai, likes private equity as well, and tries to steer investors toward small and midsize companies. "For the 15 to 20 percent return you might get on a DLF, if you invest in a small- or midcap company in any industry, as long as it has a strong management team, you have a chance of getting four times that," he claims. Nearly every industry in India is likely to see a shake out of small and midsize companies in the next few years, however, during which the fittest firms will acquire a select few. Thus, Taraporevala always prefers to consider the merits of an individual company, rather than an industry itself. Nevertheless, he sees the greatest growth potential in the best of the IT and cable television companies, which are scrambling for market share in delivering media to households.

Tapping the Public Markets
Not all Indian entrepreneurs rely on private equity, of course. DLF’s Singh might soon become the richest person in India. Singh, 75, is a former army officer still fond of polo. He inherited the company from his father-in-law, and Singh’s success grew as the country’s laws became more favorable to development, first during Rajiv Gandhi’s era as prime minister in the 1980s and even more so under the current head of state, Manmohan Singh. "The whole philosophy used to be ‘Think small, manage shortages,’" says Singh, who is not related to the prime minister.

Singh’s personal net worth reached about $10 billion by last year, but that figure could climb as high as $20 billion following his company’s IPO in June. He floated just under 10 percent of DLF and raised $2.4 billion.

KUSHAL PAL Singh of DLF Universal, one of the wealthiest men in India even before his company’s IPO, says his country has millions of promising entrepreneurs.

For Singh, the IPO represents a welcome infusion of liquidity. He is the silver-haired patriarch of what is still very much a family business: His son, Rajiv, is a vice chairman and runs the day-to-day operations, while his daughter, Pia, heads the DLF entertainment venture and retail businesses. He plans to use the IPO windfall to double the company’s developments in the next two years. He seems to have no plans to retire. It’s as if he doesn’t want to miss any of the excitement. "There is so much development in India today—there is hardly a city where DLF is not coming out," Singh says in his office atop DLF Towers in New Delhi. "There is so much to do. We have so much, that if we bite more, we could get indigestion. So we have to chew properly."

Singh’s IPO marked his second attempt at a public listing. He timed the first for May 2006, but the stock market suffered a month-long, 27 percent slump. Disputes with minority shareholders further delayed the offering. When he finally floated DLF, ironically, local retail investors virtually ignored the stock, while institutions and affluent investors, in both cases primarily foreigners, came running. The former oversubscribed 5.13 times; the latter 1.17 times. They saw this as a rare opportunity to tap into the Indian real estate market, which is expected to grow to seven times its current size by 2015, but still restricts foreign direct investment in many ways.

"Foreign investors could set the value," Taraporevala says. "Local investors," he notes, "have been staying away from real estate stocks because this is a sector where there have been a lot of bubbles and minicrashes."
 
Lavina Melwani is a freelance journalist who has written for India Today, Asia Inc., Newsday, Art & Antiques and the Indian Express. She is a cofounder of Children’s Hope India, which initiates health and education projects in India.

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