India’s SMEs are no longer depending on banks for funding. Now, leading investment houses and private equity, or PE funds are cashing in on the funding needs of the SMEs, reports CNBC-TV18.
PE funds have started lining up at the doors of SMEs. And traditionally, promoters owned SMEs too are now willing to share their equities and raise funds rather than depending solely on banks for their funding needs.
Harish Mehta, CFO, Gini and Jony, says, “We deploy our own capital and leverage it out two or three times through banking facilities. But when internal accruals do not match growth plans, we have to go elsewhere. Banks have constraints and they cannot lend beyond a stipulated limit. They require the owner or promoter to borrow funds from his own resources. Hence one has to part with his own equity.”
IDBI Capital Market Services, that has a Rs 50-crore private equity fund, has invested in GSPC Gas, a subsidiary of Gujarat Petroleum Corporation. And,
Motilal Oswal that has a $ 100-million fund is looking to invest $3-$4 million on an average per SME.
Religare too is planning to step in this arena. The company is going to invest in SMEs through a $100-150 million fund that it plans to launch soon.
KC Vaidya, Head (PE), Religare, says, “We have already invested in a Bhopal-based company called GI Hemen and another company that manufactures copper tubes which are used by the power industry.”
Apart from providing capital investment, PE funds also bring with them various other expertise to the company with regard to corporate governance, managerial assistance and cost effective strategies.
Vaidya adds, “A PE also invests in various parts of the world and has experience with similar companies and similar investment structure. So, it helps both SME and the PE to grow to a scalable model.”
While the banking sector has been aggressively pushing funds to the SME sector; many still feel the best rates are not available to them. On the other hand, PE funds flushed with money are looking for good investment avenues. Clearly, a win-win for both.
Moneycontrol