How Amazon Rattles Other Companies

Amazon’s ambitions have few limits, and the mere specter of its entry into a particular industry can shape markets. When the company has appeared interested in expanding into a new business, it has spooked investors in potential competitors, leading to large sell-offs. The most recent example: Amazon, along with JPMorgan Chase and Berkshire Hathaway, announced the formation of a new health care company on Tuesday. The three companies provided few details about the new entity, other than saying it would initially focus on technology to provide simplified, high-quality health care for their employees and their families, and at a reasonable cost. But health care investors shuddered at the prospect, selling off shares of established players like UnitedHealth and Anthem plunging. Both stocks quickly fell by more than 5 percent.

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One of the more notable examples of Amazon’s influence is in the pharmacy business. After reports that Amazon might soon enter the prescription drug market, shares in CVS Health and Walgreens, the two largest pharmacy chains, fell sharply in early October.

Then, in early December, CVS said it would pay $69 billion to buy Aetna, a deal that could reshape the health industry. Many analysts said that Amazon’s interest in selling prescription drugs was one reason why the two began talking. The idea is that the deal could help insulate the companies in case Amazon does make an ambitious move into selling drugs, as well as give the combined improved leverage in negotiations with drug companies.

With huge amounts of consumer spending and frustrating inefficiencies, prescription drug sales are the type of business that invariably attracts Amazon’s attention. And the likelihood of Amazon eventually getting into the pharmacy business is high, several analysts and a former employee have said. But it is not clear when it will make that move or how aggressive it intends to be.

In June, Amazon announced that it would buy Whole Foods for more than $13 billion, by far its biggest acquisition yet. The unexpected deal sent shares in several of the nation’s biggest grocers, including Walmart, and Safeway, down sharply. Kroger, another top grocer, lost about one-tenth of its value on the day of the announcement.

But the drop in stock prices wasn’t a one-time occurrence.

Shares in these companies fell again a couple of months later, when Amazon said it would sharply lower prices on numerous products at Whole Foods. Kroger, for example, fell 8.1 percent that day.

Amazon has put a lot of time and effort into improving its ability to deliver goods to customers, encroaching bit by bit on the country’s two giant delivery companies, FedEx and U.P.S. It has leased dozens of cargo jets to distribute inventory to warehouses around the country and is a building its own hub in Kentucky for a fleet of its own planes.

The key phrases here are “own hub” and its “own planes.”

When the news was reported in January that Amazon was building a cargo hub in Kentucky, where U.P.S. has its largest air cargo facility, stocks in both U.P.S. and FedEx plunged. In U.P.S.’s case, it would take the better part of the year for its shares to recover.

That wasn’t helped by the media event that Amazon held in July to show off its Prime Air fleet of planes, which it tested during its annual Prime Day promotional event. In October, the delivery companies took another hit after a report that Amazon was testing its own delivery service.

“We do the prep. You be the chef.” So read Amazon’s trademark application in early July for prepared food kits. Then, later in the month came reports that Amazon Meal Kits were available on the company’s website. The reports sent the stock price of Blue Apron, the newly public meal kit service, down as much as 11 percent.

One area of shopping that Amazon has not yet entered is the car business.

If you want a Ford F-150 or a Tesla Model 3, you still need to go elsewhere, and there is no sign that will change anytime soon.

But car parts are another matter, and Amazon’s aggressively pursued that business in 2017, reaching deals with some large parts distributors. The result has been falling share prices for some of the nation’s biggest parts retailers, including AutoZone and Advance Auto Parts.

  • NYTimes

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PremjiInvest becomes the top investment company in India

When HDFC raised Rs 11,000 crore on Saturday, the list of marquee investors included one domestic fund: PremjiInvest, which invested Rs 1,000 crore in India’s largest mortgage lender. The other investors in HDFC were all established global heavyweight asset managers: Singapore’s GIC, which manages $359 billion globally, alternative asset firm KKR with a $153-billion corpus, Canadian pension fund OMERS with $85 billion, and
French AMC Carmignac which manages $74 billion of assets.

PremjiInvest, which according to three independent and conservative estimates, manages at least $3 billion of assets — predominantly in the public markets — is by far the largest family office in the country. The firm has a runway to increase assets under management to $6 billion, according to one of these sources. “There are only five mutual funds larger than PremjiInvest when you look at their public markets corpus,” said an investment banker, on the condition of anonymity.

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HDFC has been among a slew of bets made by PremjiInvest, which has been active in financial services and consumer-facing companies. “The consumption thesis is important, and they look for leaders in the categories,” said a venture capital investor in Bengaluru. “They are very selective of who they invest in.”

Azim Premji began the fund in 2006, as an effort distinct from the family’s philanthropy (Azim Premji Foundation) and core business (Wipro). According to a source in knowledge of the inception, the intent was to participate in growing domestic companies.

“Mr Premji envisaged it as an investment office — not a family office,” he said, adding that Premji wanted PremjiInvest to attract professional talent from private equity and investment banking. It has been a quiet rise in the markets, with the firm abstaining from even having a website. Since then, it has grown to a 40-persons outfit beside the Wipro campus at Sarjapur Road in Bengaluru. Its investment analysts number less than 10 for private equity deals, and at least 15 for the public markets, with the remaining staff in administrative roles. On the public markets, the team actively tracks the top 200 stocks, according to one source familiar with their functioning.

“What Premji has done is the right way to do it,” said Ranjan Pai, chairman of Manipal Education and Medical Group. “He put together a really high-quality team, which has invested in both public markets and private equity,” Pai added. In January 2017, former Wipro vice-chairman TK Kurien was appointed chief investment officer of Premji Invest, succeeding Prakash Parthasarathy who is credited with building the structure and processes at PremjiInvest. In the past seven years, there has been a quiet shift in its public markets portfolio. The firm has exited from most of the companies in the broader infrastructure sector like cement (India Cement, Prism Cement), ports and logistics (Gujarat Pipavav, Gateway Distriparks) and engineering, procurement and construction (HCC, IVRCL).

Out of the 13 investments in infrastructure made by the firm, it holds only three right now: NCC, Schneider Electric Infrastructure and Ramco Cements. On the other hand, it has continued to hold most of its portfolio in the consumer space, with some positions like Parachute hair oil and Saffola cooking oil maker Marico, which have been held for nearly a decade. Of the current set of 28 known public market positions held by PremjiInvest, 12 are in consumption and retail sectors. The major ones include Domino’s franchise owner Jubilant Foodworks; FMCG players like Jyothy Labs, Marico, Zydus Wellness and retailers like Future Lifestyle Fashion, Shoppers Stop and Trent. Financial services is the next big theme in the public market portfolio, with eight of the 28 investment in banks, NBFCs and insurance companies, according to data from Prime Database analysed by ET.

This focus on financial services and domestic consumption is also reflected in the private equity investments made by the firm. Since 2015, it has invested in companies like Hygienic Research Institute, the country’s third-largest hair colour maker known for Vasmol and Streax products; ready-to-eat packaged foods maker ID Fresh Foods and ethnic apparel maker FabIndia. In financial services it has backed insurance companies like ICICI Prudential Life and HDFC Standard Life in pre-IPO rounds besides home finance company Shubham and online financial products seller Policybazaar.

After backing companies like Snapdeal and Myntra in the online retail space in 2014, it has mostly stayed away from investing in startups in India. Most of the investments in startups is now focused in the US market where it has backed artificial intelligence venture Apttus, enterprise planning cloud firm Anaplan and ServiceMax, provider of cloud-based field service management solutions. In its private investments, PremjiInvest has a 10-15 year horizon, said the source close to PremjiInvest. According to two sources, Premji Invest has left most of the tech investments to Wipro, whose core business is IT services. Under Wipro’s chief strategy officer Rishad Premji, the company has built a mechanism to invest in next-generation companies. “Premji Invest has mostly stayed away from tech, and focussed on larger ticket size investments being sector-agnostic,” said one of the sources cited above.

“They don’t go by the hype, but fundamentals of a business,” said the VC investor. “They know the metrics that need to be driven, and the governance levels that need to be driven,” he added. Premji Invest has had sour experiences with investments like retail chain Subhiksha in 2008, when it had infused Rs 230 crore. Some other investments like car services player Carnation Auto and online marketplace Snapdeal have also not worked out. Crucially, according to the sources, having started out early has helped Premji Invest stay the course and lead a fast-growing tribe of family offices. “They are the most organised of family offices in terms of strategy,” the VC investor said. “Family offices tend to be opportunistic because they are driven by a successful promoter. Premji Invest is the most organised–opportunities by sector and intrasector categories. They bring a lot of conviction into the thesis.”

  • ET

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