Coimbatore industrialists plan region-specific PE fund

Coimbatore industrialists plan region-specific PE fund

Coimbatore: Having ridden the industrial growth wave to expand in this textile and manufacturing hub, but now seeing brighter prospects elsewhere, a group of Coimbatore industrialists are planning to make their money work for them by setting up a private equity (PE) fund of at least 100 crore.

“Right now, most of us have cash cow companies," said Annush Ramasamy, president of SPM Ltd, which runs some of the textile operations of the diversified nearly-$500 million (around 2,450 crore) KG Group, whose flagship business is yarn and fabric manufacture.

“Most of us are wondering where the next growth will come from," said Ramasamy, who is spearheading the effort to set up the fund.

Industry group-sponsored PE funds have so far been “a double-edged sword", said K. Ramakrishnan, executive director of Chennai-based investment bank Spark Capital, which facilitates private equity investments.

Entrepreneurs looking for capital generally prefer independent funds over those backed by corporate houses, he said, because “the worry is that these funds may not have the maturity and balance to take the ups and downs of a start-up business".

Some corporate-backed PE funds—such as those started by Reliance Equity Advisors (India) Ltd, Aditya Birla Capital Advisors Pvt. Ltd and Tata Capital Ltd—include third-party investment and therefore have a governance structure in place, a factor that could determine the success of such a venture, Ramakrishnan said.

Besides being a manufacturing centre for engineering products such as industrial pumps and auto components, Coimbatore is home to a large cluster of yarn-spinning mills. The region has 50% of the country’s spinning capacity, according to KG’s Ramasamy.

Now, however, manufacturing, bearing the direct impact of general economic and sector-specific vagaries, is looking slightly less lustrous to some industrialists here, relative to the new wealth generator, PE investment.

The planned sector-agnostic fund out of Coimbatore will focus on start-ups based in the city and its vicinity, leveraging the industrialist-investors’ knowledge and network in local business, politics and bureaucracy, Ramasamy said. This would help differentiate the fund from bigger players, and perhaps also attract their interest at a later stage, he said.

Interested investors have committed to at least 100 crore for the fund, according to Ramasamy, who said it was early to reveal their names, with paperwork yet to be done. The group was still deciding on investment and exit strategies, and would likely be ready to launch the fund in six months, he said, adding that the KG Group would likely contribute 20 crore to the corpus.

Ramasamy’s PE plan comes at a time when a steep fall in yarn prices have caused the KG Group’s revenue to drop by about 25% in the four months ended 31 August from a year earlier. The group’s revenue this fiscal may not grow significantly or may even decline from the $500 million it reported in 2010-11, Ramasamy said.

Though the downtown would be only temporary, “we see exponential growth coming only from PE companies, where we invest for a stake in high-growth companies, and facilitate their success", he said.

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