BS BFSI Summit: 'Higher PE/VC funding boosts governance excellence'

Bain Capital's Kotecha highlighted that the strongest indicator of PE's value is the long-term track record and measurable impact on portfolio companies

This report has been updated  Higher private equity (PE) and venture capital (VC) investment has driven governance excellence and accountability among Indian companies, leading to better valuations, heads of top PE firms said on Friday.

 

“After we make an investment, there is an element of higher governance standards, an element of strategy in terms of picking the right lanes and taking a longer view because we have a longer horizon within which companies want to build these businesses,” said Ashish Kotecha, Partner, PE, Bain Capital, at the Business Standard BFSI Insight Summit.

 

Kotecha highlighted that the strongest indicator of PE’s value is its long-term track record and measurable impact on portfolio firms. He said well-managed PE-backed firms consistently outperform their public counterparts, with Bain Capital’s portfolio firms achieving 50-100 per cent greater growth in revenue, Ebitda, and stock price appreciation than their peers.

 

 

Ankur Bansal, co-founder and managing director of Blacksoil Capital, said the increasing attention on public markets helped many businesses focus on fundamentals.

 

“There’s a move towards fixing the business from the basic nuts and bolts, because the public market has now become the latest avenue for exit. From a business perspective, the demand for debt has only increased manifold as the equity supply has reduced, with more people looking for alternative avenues of capital, which has become a significant route for accessing funds quickly,” said Bansal.

 

Bansal highlighted a shift in the startup ecosystem, where achieving growth through Ebitda breakeven or profitability has become a primary focus. Unlike four years ago, when Ebitda was rarely discussed among startups, it has emerged as the key metric, overshadowing valuation, which has turned into a secondary consideration.

 

“Most of the high-quality institutional investors, global pension funds, and institutions have closely observed PE for several years, bringing the same governance structure to India. So, governance structures in funds are very well developed. Overall, you will find that PE funds have been well-governed,” said Sudhir Variyar, MD and Deputy CEO, Multiples Alternate Asset Management.

 

The industry is, however, still far from reaching its full potential, said Variyar. He emphasised that it is the responsibility of the industry to help policymakers better understand its value, as existing regulations continue to impose restrictions that limit further growth.

 

“From where we were about three to five years back to where we are today, it is a lot better organised,” said Variyar.

 

Abhishek Kabra, MD of Samara Capital, divided PE investments into three types: venture capital (VC), growth capital, and buyout funds. VC funds primarily support founders setting up businesses, while growth capital targets firms preparing for initial public offerings (IPOs), helping them expand into new products and markets. Buyout funds, on the other hand, take majority control of companies to improve operations or facilitate the owner’s exit.

 

“Not many would be aware that 50 per cent of the global assets under management for PE reside with buyout funds. India has seen a lot more VC funds because that is how the ecosystem developed,” said Kabra, indicating the ecosystem’s maturity.

 

Panellists agreed that, while PE is often overshadowed by public market success stories, the industry’s focus on operational improvement and longer-term, fundamentals-based growth presents a strong case for private capital as an asset class.

 

Regulatory support is also seen as a key driver of growth, with greater engagement with market regulators Sebi and the Reserve Bank of India to refine governing frameworks, the CEOs said.

 

The CEOs highlighted the sector’s potential to enhance economic efficiency by turning around under-managed companies and helping industries align with Prime Minister Narendra Modi’s vision of self-reliance.

 

During the discussion, PE leaders explored whether recent global political events, particularly the US election, might impact the PE landscape in India. They highlighted India’s long-term economic growth trajectory and the increasing interest of global capital allocators in the market. While global events may create short-term noise, they do not alter the underlying trend.

 

India’s economic growth and potential are drawing attention from capital allocators worldwide, said Variyar, adding that while channels for this capital flow are still maturing, temporary disruptions like elections or developments in China are unlikely to impact the long-term trajectory.

 

“If anything, the trend line will only be affected by the performance of our companies, our performance as PE investors, and the returns we are able to generate,” said Variyar.

 

Sharing the sentiment, Kabra said nothing has changed regarding the fundamentals of Indian businesses. “The only impact I foresee might be on the currency. Many believe there could be higher depreciation if Trump comes in, affecting returns when raising dollar capital for repatriation, as it would be on a devalued rupee,” said Kabra.

 

Kotecha said global investors believe in the India story and that there is now more appetite for India. “This focus on Aatma Nirbhar is incredibly important as it will spur a wave of investments in the industrial sector, which we think will be a really interesting opportunity.”