The Hindu Business Line : Focus on private equity funding in textiles

EVEN as textile enterprises are busy chalking investment plans to ramp up capacities, private equity funds are exploring investment avenues among south-based textile industries.

But the predominantly family run textile enterprises in the region appear to be baffled at the rigors associated with the private equity route to mop up expansion capital they need. Most of these new generation investors need to be reassured on adhering to laid-out management practices including the stiff management information system they have to comply with if they are to seriously pursue the venture capital or the private equity capital route.

This dilemma was evidently reflecting on the faces of most of the members of the textile industry, especially the many first generation textile entrepreneurs who had teamed up at the Southern India Mills Association (SIMA) premises where an exposition on venture/private equity capital was organised for the benefits of the industry in the region.

Actis, the $2.7-billion private equity fund from the UK, which took part in a presentation on equity fund programme for the emerging markets at the SIMA-sponsored meet, has expressed its willingness to bring the new equity funding to the textile sector.

Mr Subba Rao, Partner of Actis from Bangalore and his teammate Mr Jabes Muthyala assured the gathering that funding the capital expansion needs apart, the UK private equity is also ready to participate in the management buyout programme of the industry. (Later talking to this correspondent Mr Rao said that Actis was interested in taking up textile accounts that measure up to his funds' expectation.)

The IL&FS Investment Managers Ltd's Assistant Vice-President, Mr Yashodhan Sathe, who shared the dais with Actis representatives, said though the path of winning the confidence of the private equity funds may not be felt smooth by many, it was sure route to create wealth for business for the convinced ones.

Given the new growth opportunity presented by the quota-free global textile market and the favourable investment climate created by the pro-active government measures, private equity flow into the domestic textile sector is expected to pick up, said Mr Sathe who expected a quantum of three to four billion dollar private equity to hit the Indian textile sector in the coming months.

The corporate consultants, Deloitte Haskins and Sells' Director Mr P.N. Sudharsan, pointed out that domestic textile industry remained for long one of the highly leveraged sectors due to the pressures of high debts, higher interest cost, low margins. The sector needed to change course by shifting from commodity centric to consumer centric to take advantage of new opportunities but this also called for changing its high debt oriented capital structure to equity orientation in funding capacity expansion considering the fact that huge margin and high cost involved in servicing the debts.

The SIMA Chairman, Mr Vijay Venkataswamy, held the view that considering the huge capital of Rs 1,40,000 crore required to refurbish the Indian textile industry and 40 per cent of this (Rs 56,000 crore) to be raised through equity.

He also hinted at the possibility of SIMA holding similar private equity exposition to its members in other States by roping in different private equity funds.

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