Private equity funds, which have so far avoided investing in Coimbatore's textile industry, may soon have a large presence there.
Faced with a need to expand at a rapid pace in order to be competitive, textile companies are taking a fresh look at their capital infusion plans. They are now contemplating multiple options including private equity for raising money. Funds, too, appear keen on investing $5-15 million in a company with a decent growth record.
The mutual suspicion and apprehensions of the past appear to be making way for mutual co-operation. Even companies with less than Rs 100 crore in topline want a private equity participation of above $3 million. "More deals will happen in this belt. The aggressive growth strategies chalked out by textile companies call for equity infusion. As the valuations are also attractive, private equity funds are also looking at investing in these companies," says C Venkat Subramanyam, director of Veda Corporate Advisors.
Veda Corporate Advisors, an investment banking firm, structured a deal in July by which Kotak private equity picked up a significant stake in the Karur-based home textiles company Sabare International in July. Funds are eyeing under captilised tier-2 and tier-3 companies for deals. They want to invest in companies with a turnover of above Rs 100 crore, a PE ratio of 12 and a bottomline of Rs 7-8 crore. Typically, they are interested in taking a stake of about Rs 20-40 crore. Though industry players are eager to take the private equity route, they however expect the funds to be more realistic about their assessment. "Textiles are a cyclical business. Unlike software, the industry has a history. Funds should understand all this," they say. In the past, while entrepreneurs felt that private equity funds were expecting high returns, the latter believed the the promoters were conscious of retaining control over companies. Differences over exit clauses also kept the largely family-run companies away from funds.