At a time when private equity investments in India are slowing down, a study has found that PE-backed companies are more profitable than their non-PE backed peers.
The study, conducted by Venture Intelligence, says PE- and venture capital-backed companies are growing significantly faster than non-PE backed companies as well as market indices such as Sensex, Nifty and CNX midcap.
While PE and VC funds have invested $32 billion in Indian companies in the last three years, the value addition has been much better. On an average, PE-backed companies grew at 24.9 per cent compared to 15.5 per cent by non-PE backed companies.
Arun Natarajan, Founder & CEO of Venture Intelligence, said, “Private equity investment, when chosen and leveraged well, can help Indian companies innovate, scale up rapidly and accelerate growth in several ways that add significant value to the economy. PE and VC firms have been forging active partnerships with their investee companies to improve capital efficiency, business strategy and corporate governance, besides opening up new markets internationally.”
Genpact, a Gurgaon-based BPO, which got private equity investment from General Atlantic Partners and Oak Hill Capital, has been able to develop customer contacts from the global network of its PE funds. It also helped Genpact in making acquisitions and corporate governance by restructuring the board and committees.
Companies where private equity funds have invested have shown 34.6 per cent growth in profits compared to 25.3 per cent shown by companies without PE funding.
The study has found that growth rate of wages at PE-backed companies was almost thrice that of mid-cap index companies and substantially more than that of non-PE backed companies.
R&D (Research & Development) - the key gauge for innovation has been found to be much higher in PE-funded companies as compared to their non-PE backed counterparts. Since a lot of PE-funded companies are in export oriented sectors such as IT services, BPO and pharma, they have been able to generate better foreign exchange earnings.
