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India’s family-owned firms making more money for investors than others

, ETMarkets.com|
Updated: Sep 14, 2018, 03.52 PM IST
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12 of Indian firms made it to the list of 50 most profitable family-owned businesses in Asia.
NEW DELHI: Do you know Indian family-owned companies have delivered an average 13.9 per cent annual return since 2006 compared with 6 per cent retu rns generated by their non-family-owned peers?

Well, family matters. Who better knows this than India which ranks third in terms of the number of family-owned businesses, according to the Credit Suisse Family 1000 study done this year.

The findings hold well not only for India, but also for other Asian markets, excluding Japan. But what makes India stand out is the fact that more than 50 per cent of the top 30 best performing family-owned companies in Asia, excluding Japan, are from India.

Among them, 12 Indian family-owned companies with a total market capitalisation of $192.2 billion generated an average annual CFROI (cash flow return on investment) of 22.7-43 per cent in three years.

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As many as 12 of Indian businesses made it to the list of 50 most profitable family-owned businesses in Asia, excluding Japan. They include Emami, Bajaj, Godrej Consumer Products, Eicher, Symphony, HCL Technologies, Page Industries, Marico, Hero MotoCorp and TCS.

Total market-capitalisation of the Indian family-owned companies stood at $839 billion against China’s $1.4 trillion and Hong Kong's $633 billion.

Family businesses outstrip their non-family-owned peers in Asia with superior financial performance and more robust share price returns, largely due to their longer-term focus.

Technology (18 per cent), consumer discretionary (16 per cent) and materials (15 per cent) emerged the biggest wealth creators in terms of their contributions to total market capitalisation.

Financial performance of the family-owned businesses was superior than that of non-family-owned businesses. Revenue growth was stronger, earnings before interest, tax, depreciation and amortisation (Ebitda) margins were higher, cash flow returns were better and gearing was lower, the Credit Suisse study said.

“This year family-owned businesses are continuing to outperform their peers in every region, every sector, whatever their size. This is due to the longer-term outlook of family-owned businesses relying less on external funding and investing more in research and development,” said Eugène Klerk, Head Analyst of Thematic Investments at Credit Suisse.

In 2017 alone, family-owned companies in Asia outside of Japan generated 25.63 per cent more cash flow return on investment (CFROI) than that of their non-family owned counterparts, and delivered a 4.2 per cent outperformance in annual average share price return since 2006.

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“Indian firms on an average generated some of the highest absolute CFROIs across our non-Japan Asian nations,” the report said.

The study suggests family-owned companies with special voting right structures perform relatively in line with those with ordinary shares, contrary to the fears expressed by many investors.

China, India and Hong Kong alone comprise 65 per cent of the non-Japan Asia section of the database. The three countries enjoyed a market capitalisation of $2.85 trillion, or 71 per cent of the total market share of these family-owned businesses in Asia, excluding Japan.

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