CPPIB Buys an 8% Stake in India's Delhivery

Leroy Leo of livemint reports that the Canada Pension Plan Investment Board just bought an 8% stake in Delhivery for $115 million through its Fundamental Equities Asia Group:

Canada Pension Plan Investment Board (CPPIB) has invested $115 million in Delhivery Pvt Ltd, following which, the firm will get one seat on Delhivery’s Board, the two parties said in a joint release.

CPPIB, Canada’s largest pension fund manager, acquired roughly 8% stake in the logistics company at a valuation of around $1.5 billion, an official at Delhivery said.

CPPIB has invested in the third-party logistics providers through its Fundamental Equities Asia Group, which invests in corporates in Asia for the long term.

“We are delighted to welcome CPPIB as a new partner for our next phase of growth alongside our existing partners," Sahil Barua, Delhivery’s Founder & chief executive officer, said in the release.

Barua said CPPIB’s investment coincides with a major milestone for the company as it crossed over 500 million in cumulative shipments to date.

“In Delhivery, we have found a highly reputable partner who fits well with our focus on supporting high-growth businesses," said Alain Carrier, senior managing director & head of international at CPPIB said in a release.

Other investments by CPPIB’s Fundamental Equities Asia include Kotak Mahindra Bank, Alibaba Group, Ant Financials and Samsung Electronics, according to the pension fund’s website.

Delhivery was founded in 2011 by Sahil Barua, Mohit Tandon, Bhavesh Manglani, Suraj Saharan and Kapil Bharati.

The company claims to operate in more than 2,000 cities, offering a full range of logistics services—such as express parcel transportation, freight, business-to-business and business-to-consumer warehousing and technology services—at more than 17,500 pincodes.

The logistics provider entered the coveted unicorn club in March after a funding round led by the SoftBank Vision Fund, along with existing investors Carlyle Group and Fosun International, lifted its valuation to $1.5 billion. The company had raised $413 million then.

Barua had then said the company plans to scale up their warehousing and freight services, and sign global partnerships to improve the reach, reliability and efficiency of their transportation operations.

CPPIB put out a press release on this deal:

Canada Pension Plan Investment Board (CPPIB) has invested US$115 million in Delhivery Pvt Ltd., broadening its exposure to the logistics sector in India.

Delhivery, one of India’s leading third-party logistics providers, operates in more than 2,000 cities (more than 17,500 pincodes) offering a full range of supply chain services.

“The continued strong growth of e-commerce has generated significant opportunities in India’s express logistics space for long-term investors such as CPPIB, and we are pleased to partner with a market leader. This investment in Delhivery builds on our Fundamental Equities Asia group’s strategy to provide strategic capital to high-quality companies in the region,” said Deborah Orida, Senior Managing Director and Global Head of Active Equities.

The investment was made through CPPIB’s Fundamental Equities Asia (FEA) Group, which performs fundamental research and invests in quality corporates for the long term throughout Asia.

Speaking on the development, Sahil Barua, Delhivery’s Founder & CEO said, "We are delighted to welcome CPPIB as a new partner for our next phase of growth alongside our existing partners. The last year has been particularly exciting for us at Delhivery. We have crossed 17,500 pincodes across India, launched three new businesses, created over 10,000 new jobs and delivered handsome financial returns and liquidity for our early risk investors, while bringing in an incredible new set of patient partners who will continue to back us on our long-term ambition of becoming the operating system for commerce in India. CPPIB’s investment coincides with a major milestone for the company as we cross over 500 million in cumulative shipments to date."

Following the investment, CPPIB will have one seat on Delhivery’s Board.

“CPPIB has been active on the ground in India for nearly a decade and we continue to pursue opportunities to invest in the country as part of our focus on emerging markets. In Delhivery, we have found a highly reputable partner who fits well with our focus on supporting high-growth businesses,” said Alain Carrier, Senior Managing Director & Head of International, CPPIB.

As at June 30th, 2019, CPPIB’s equity investments in India totalled C$9.9 billion across all asset classes.

About Canada Pension Plan Investment Board

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits in the best interest of 20 million contributors and beneficiaries. In order to build diversified portfolios of assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney. CPPIB is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At June 30, 2019, the CPP Fund totalled $400.6 billion. For more information about CPPIB, please visit www.cppib.com or follow us on LinkedIn, Facebook or Twitter.

About Delhivery

Delhivery is India’s leading fulfillment platform for digital commerce. With its nationwide network extending beyond 17,500 pin-codes and 2,000 cities, the company provides a full suite of logistics services such as express parcel transportation, LTL and FTL freight, reverse logistics, cross-border, B2B & B2C warehousing and technology services. Delhivery has successfully fulfilled over 500 million transactions since inception and today works with over 10,000 direct customers, which includes large & small ecommerce participants, SMEs and over 350 leading enterprises & brands. Visit www.delhivery.com for more information.

So what do I think of this deal? It's another great logistics deal in a fast-growing company in India which is one of the better emerging markets in terms of demographics and politics.

Deborah Orida, Senior Managing Director and Global Head of Active Equities at CPPIB summarized the rationale for this deal very well: "The continued strong growth of e-commerce has generated significant opportunities in India’s express logistics space for long-term investors such as CPPIB, and we are pleased to partner with a market leader. This investment in Delhivery builds on our Fundamental Equities Asia group’s strategy to provide strategic capital to high-quality companies in the region.”

I'm not too familiar with CPPIB’s Fundamental Equities Asia (FEA) Group but this deal sounds like relationship investing to me, meaning when a pension fund takes a big direct stake in a public or private company to get a seat on the board and try to actively shape its long-term strategy.

In fact, I asked Wayne Kozun, a former SVP at OTPP who is now CIO of Forthlane Partners if this deal is Relationship Investing or Private Equity and here is what he shared with me:

Possibly, but it seems like more of the pension plans are combining their Relationship Investing groups into the Private Equity groups. Delhivery appears to be a private company which would make it more of a PE investment. But this is a smaller minority stake which is more similar to an RI investment. Part of the distinction may be around whether the company plans to go public in the foreseeable future. It looks like other investors in Delhivery are the Softbank Vision Fund and Carlyle Group.

Anyway, Delhivery's mission statement is fairly simple:

Delhivery provides products and services with the aim of building trust and improving the lives of consumers, small businesses, enterprises and our growing team of employees and partners. We are disrupting India’s logistics industry through our proprietary network design, infrastructure, partnerships, and engineering and technology capabilities. We bring unparalleled cost efficiency and pan-India reach to the businesses of over 100,000 customers and over 15 million consumers every month.

In a country like India with over 1.4 billion people, logistics disruptors are going to grow by leaps and bounds and those doing it first and better than others have first-mover advantage.

Delhivery has over 40,000 employees and is growing fast. That why in March of this year, it received Series F funding led by the SoftBank Vision Fund with participation from existing investors Carlyle Group and Fosun International.

In order to ascertain whether CPPIB is doing the right, all you have to do is look at the leader in global real estate investments, Blackstone. Madhurima Nandy of livemint reports that Blackstone’s realty investments is poised to cross $6 billion this year:

Blackstone Group Lp’s property investments in the country are set to cross the $6-billion mark this year, even as the global private equity firm plans to diversify into the logistics sector.

Last week, Blackstone and developer partner Salarpuria Sattva bought the 100-acre Global Village Technology Park in Bengaluru for ₹2,800 crore (around $390 million) from Coffee Day Enterprises Ltd. Of this, Blackstone’s share of investment is around $275 million.

As of March, Blackstone had committed around $5.4 billion in real estate assets in India, of which $4 billion is in office assets alone. Since then, it has bought the ‘One BKC’ office building in Mumbai for ₹2,500 crore, and is working on a couple of large purchases including an office tower in Mumbai’s Bandra Kurla Complex for ₹1,900 crore from Adani Realty and the remaining 51% stake in Indiabulls Real Estate Ltd’s (IBREL) for ₹4,800 crore. With these transactions, it is poised to well cross the $6 billion mark this year.

2019 has been a significant year for the New York-based investor in India with multiple deals, including the country’s first real estate investment trust (REIT). It is also planning its second REIT with developer partner K Raheja Corp. as a minority partner.

“Blackstone had taken early bets in office assets and enjoyed the first-mover advantage and a long run. It has adopted the partnership route in India, collaborating with regional developers. The challenge in the partnership model is, however, managing partner aspirations and expectations as investment portfolios expand over time," said Shashank Jain, partner, transaction services, PwC India. Blackstone signed its first real estate transaction in India in 2008, but started buying office assets only in 2011.

A Blackstone spokesperson declined to comment.

Close on the heels of Blackstone is Canada’s Brookfield Asset Management Inc., which in less than five years, has assets under management (AUM) of $4 billion in India, and a commercial office portfolio of nearly 30 million sq. ft. There is also Singapore government’s GIC Pte Ltd, which has committed nearly $4-5 billion in real estate here. While Brookfield believes in a 100% owned platform and functions as an investor-developer, GIC is a typical patient, growth capital provider.

Having invested in office, residential and shopping malls in the country, Blackstone is now planning to look at logistics and warehousing opportunities, said a person familiar with the plans, who didn’t wish to be named.

In June, Blackstone said it is buying industrial warehouse properties from Singapore’s GLP Pte for $18.7 billion adding logistics is currently its highest conviction global investment theme.

“...Given the competition for core office assets from global sovereign and pension funds, it’s only a matter of time before investors like Blackstone start betting heavily on newer asset classes like industrial and data centres. Also, given the excess liquidity situation in Asia Pacific, many core investors will change their return expectations and move up the risk curve. However, in the short run, we see the Indian market lacking the depth to absorb the global volume of capital chasing core assets," said Ramesh Nair, CEO and country head, JLL India.

Blackstone has also evolved its investment strategy. After deploying capital mainly in core or operational assets, it is also eyeing brownfield deals with development potential. The Global Village acquisition is one such deal, where there is an operational IT park but the land also has 5 million sq. ft of development scope, which will be executed by its partner Salarpuria Sattva Group.

Like I said, when it comes to real estate, follow the leaders, Blackstone and Brookfield, the Canadian firm which has taken on Wall Street’s private-equity titans (in my opinion, it's already a global powerhouse in alternative investments and the best infrastructure investor in the world).

Below, global yields are under significant pressure as investors flock to bonds, forcing pension plans the world over to eye plans to move up the risk ladder in a hunt for yield. For more on this, BNN Bloomberg spoke with Mark Machin, president and chief executive officer at Canada Pension Plan Investment Board.

I posted this interview recently when I went over why CPPIB is preparing for the next downturn. Machin said India has a massive young population which is why it has a demographic dividend but he cautioned this growth has to be handled correctly given the gender distortions there where it's disproportionately young men and you need jobs for these young men to maintain social stability.

Also, a look at how Blackstone Real Estate has invested in India and where they see future opportunities with Jon Gray, president and chief operating officer of Blackstone Group and one of the greatest real estate investors of our time (Blackstone is a partner of CPPIB and other large Canadian pensions).

Lastly, Delhivery brings cutting-edge commerce technology and pan-India reach to scale multi-channel retail and supply chain operations rapidly and in a cost efficient manner.