The COVID-19 pandemic has opened up new sectors for investors to target, and Indonesian private equity firms are seeking out companies that will be “champions” in the medium- to long-term.
This includes both firms in the digital and non-digital space, said top Indonesian PE executives at the Asia PE-VC Summit 2020 on Tuesday.
Sunata Tjiterosampurno, co-chief investment officer and member of the investment committee at Northstar Capital Group, said the company has seen strong growth in its portfolio despite the pandemic. Northstar’s investees include tech-enabled companies such as ride-hailing app Gojek, edtech platform Zenius, and aquaculture startup eFishery.
“We see robust growth in Halodoc, in which Go-Ventures has also invested, as well as Zenius. Yet, there are also exciting opportunities in non-digital companies,” Tjiterosampurno said.
He estimated that most companies will post poor earnings this year. However, COVID-19 is not worse than multiple crises the region has seen earlier, he added, and emphasised that private equity players and venture capitalists should make the most of the situation.
“The worst by far is the Asian Financial Crisis [of 1998], which was macro-driven, and directly hit the balance sheet of corporates and created an overlapped situation. The current crisis is coming from the supply side, due to the lockdown, which curbed consumer demand.”
To find the right opportunity, he said, investors need to understand whether companies are facing short-term disruptions or restructuring issues. For instance, the retail industry had a sales drop in the second quarter but rebounded in the third and fourth quarters.
Creador managing partner Stefanus Hadiwidjaja sees opportunities emerging in data centres, data analytics, payments, and logistics sectors in Indonesia.
The company’s portfolio currently spans home improvement retail, pharmacies, banking, and food packaging sectors. The retail industry was hit severely in the second quarter as malls were closed during the partial lockdown, Hadiwidjaja revealed.
“We have a big presence in malls, and therefore, we started to open standalone [stores]. The recovery is currently quite good, but the traffic is still low compared to pre-COVID. Meanwhile, in Malaysia, the same retail business saw a V-shaped recovery, which surprised us,” Hadiwidjaja said, referring to Mr. D.I.Y, the home improvement business which is Creador’s largest investment at the moment.
Mr. D.I.Y plans to open more standalone outlets rather than just malls. The retailer has almost 200 stores across Indonesia. It recently had an IPO in Malaysia and currently has a market valuation of $4 billion.
As COVID also accelerated the e-commerce growth business, Bukalapak’s CEO, Rachmat Kaimuddin highlighted shifting consumer priorities.
“In general, people tend to buy physical goods, and fashion and accessories become the top priority. Followed by personal care, home, and office equipment, and the last thing was electronic. Now, we see the food and beverages grow almost double in the pandemic era. Personal care and health also go up, followed by the home and office equipment too,” Kaimuddin said.
Even as the stock market rallies pinning its hopes on a recovery in 2021, Tjiterosampurno estimates the recovery will be different for different companies.
“The year 2021 will not be as bad as 2020. Certain businesses will recover to top pre-COVID levels. Yet, it would be a 70-80 per cent [recovery] for some businesses and will take time. The current crisis has created the allocations of growth and shock very fast, but the recovery will take some time,” he said.
Creador, which currently managed to exit half of Indonesia’s investments, found a challenge for its exit strategy. Although Mr. D.I.Y. has run a successful IPO in Malaysia, Creador also found it difficult to exit the food packaging business.
“The interest in terms of the bidder is slightly lower than we expect from the beginning. It’s more difficult to do more due-diligence according to strategic buyers,” Hadiwidjaja said. “The company’s high-quality assets, the well-performance, the right timing, and demand from the bidders are becoming the critical point for exit strategy during the crisis.”