New Delhi, Mar 27 Companies backed by VC funds and private equity are growing significantly faster than the ones that do not have such fundings and also the publicly listed firms including those part of Sensex and Nifty, says a study.
Besides, such firms exhibit a more efficient working capital management as compared to listed peers. Further, revenue growth of PE-VC backed companies are more than twice that of other benchmarks.
The study by Venture Intelligence was conducted under the guidance of Professor Thillai Rajan, Department of Management Studies, IIT Madras.
In the six years between 2011 and 2016, PE-VC firms invested over USD 72 billion in Indian companies -- over 6.5 times what corporate India raised via initial public offers (IPOs) during the same period, the study noted.
"The PE impact study demonstrates how PE and VC firms adopt a long-term perspective in their investment decisions. The presence of a PE/VC investor provides a kind of certification which, while broadening the equity base, also helps the investee companies access other sources of funding including debt capital
"PE/VC investors also forge active partnerships with their investee companies to improve growth and business strategy, besides opening up new opportunities," Rajan said.
PE investment, which is largely associated with smaller firms, is associated not just with top line growth but also with growth in asset creation.
PE-VC investors invest even in times even when there is a squeeze in conventional markets, thereby helping the companies to tide over the industry down cycles, the report noted.
As promoters of small-to-mid sized companies typically face limitations in terms of the quantum of equity contribution they can make, PE-VC investors step in to provide the long term funding require to catalyse growth, it added.
New Delhi, Mar 27 Top Indian companies might be having excess working capital of Rs 4 lakh crore, says a report.
Giving the estimate on the excess working capital that might be available with the domestic companies, global consultancy EY today said firms need to execute focused programmes to release such funds towards growth activities.
"A high-level comparative analysis indicates that Indian companies may have up to Rs 4 trillion (USD 60 billion) in excess working capital, over and above the level they require to operate their business model efficiently and meet all their operating requirements.
"This figure is equivalent to nearly 9 per cent of their combined sales," EY said in a report.
As per the report, there is a significant potential for improvement in operations of the companies.
"To stay competitive in the global market, Indian companies need to establish and execute focused programmes to release free cash from working capital to fund growth," it noted.
Further, the report said companies should explore traditional and innovative working capital funding techniques with the aim to improve the overall cash flow position.
The conclusions are based on a review of the working capital performance of leading 500 companies -- in terms of sales -- headquartered in India.
It excludes financial institutions, automobile manufacturers, and infrastructure and real estate corporations.
"Our overall analysis draws on companies' latest fiscal 2016 reports and compares performance in 2016 with that in 2015 and the previous four years," EY said.
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