The Mumbai-based Arch Pharma has raised $27 million from private equity funding in the last four years and its managing director Ajit Kamath just can't stop explaining the changes PE investors have brought in the functioning of the company.
"PEs have helped the company put its house in order by implementing improved standards in transparency," says Kamath. Arch Pharma's sales have grown six-fold in the last five years.
Kamath isn't alone in saying how PE funds are adding value to India Inc's business practices. Logix IT Park, a family-managed firm, got $40 million investment from the Citigroup. Post-investment, the company was restructured with professional management taking over and the promoters distancing themselves from daily management.
Akhil Gupta, chairman and managing director of Blackstone Advisors, one of the largest PE funds, says the PE investors' contribution to bring in better transparency in entrepreneurial management is proven globally.
The global private equity giant does not invest in a company if it finds that it cannot add value to the company's business, he adds. Blackstone recently invested $275 million in Ushodaya Enterprises, which runs the Eenadu Newspaper and ETV franchise and Pune-based Emcure Pharma, and will get a board representation.
S Srinivasan, CEO, Kotak Retail, says private equity investors may help a big established company to take a prudent business decision. "But the investor's role is more important for businesses where the entrepreneur had grown the business to a certain level based on his business instinct. Now he needs the help and guidance of the PE investor who has global experience in the business," he points out.
Shujaat Khan, managing director, Blue River Capital, says a private equity investor's association with a company begins by taking a slot on the board. " The PE investor helps a company to put in a proper corporate governance framework and the right knowledge-based tools in place to monitor the business effectively," he adds.
Blue River Capital, along with two others, picked up nearly 10 per cent stake in the Coimbatore-based integrated textiles company KPR Mills for Rs 105 crore. One immediate result was the appointment of three independent directors on the KPR board.
Experts say with PE investments going up substantially ($7,460 million in 2006, three times over the 2005 figure), they will play a more significant role.
"These investors role can be compared with the contribution of the financial investors to help companies be compatible with the stock market norms some years ago," adds an investment banker.
It's not corporate governance alone that PE funds have helped bring in. For example, a report on the impact of private equity on the Indian corporate sector since 2004, by the Indian School of Business, Hyderabad, and Venture Intelligence (a part of the Chennai-based TSJ Media), shows that PE-backed companies grew at a significantly faster pace than non-PE-backed companies as well as market indices such as CNX Midcap and the Nifty.
CNX Nifty grew by 15.8 per cent over a five-year average, PE-backed companies across sectors reported a growth of 22.9 per cent while non-PE-backed companies reported 10 per cent growth over the same period.
PE backed companies also outperformed market indices. For instance, pharma companies backed by private equity grew by 23 per cent compared with the CNX Pharma index which grew at19 per cent.
