India has third highest number of family-owned mega businesses: Credit Suisse report
At 111, India has the third highest number of publicly-listed family-owned companies in the world, according to Credit Suisse Research Institute’s latest CS Family 2018 report. China tops the list with 159 companies, followed by the US at 121.
For the report, Credit Suise identified family businesses based on two criteria—direct shareholding by founders or descendants is at least 20%, and voting rights held by the founders or descendants are at least 20%. The survey looks at 1,015 family-owned companies around the world with a minimum market capitalisation of $250 million.
By that measure, over 50% of the companies in the BSE 100, the top 100 companies by market capitalisation listed on the Bombay Stock Exchange, are family-owned. That includes Reliance Industries Ltd, Dabur India Ltd and Emami Ltd. Almost 20% of the companies are government-owned.
The number of Indian companies in the report increased from 108 in 2017 to 111 this year, while in the case of China, the number declined to 159 in 2018 from 167 in the previous year. The average market capitalisation of the family-owned companies was $7.6 billion compared to $6.5 billion a year ago, according to the report.
In terms of market capitalisation, in Asia, excluding Japan, the family-owned company segment is dominated by China, India and Hong Kong. China accounts for around $1.4 trillion, India for around $839 billion and Hong Kong by $633 billion. The average family-owned company in China and Hong Kong has a market capitalisation of $8.7 billion, compared to $7.6 billion in India. Based on financial performance, Indian and Chinese family-owned companies dominate the list of success stories, the report notes.
“This year we find family-owned businesses are continuing to outperform their peers in every region, every sector, whatever their size,” said Eugene Klerk, head analyst, thematic investments at Credit Suisse and the report’s lead author. “We believe this is down to the longer-term outlook of family-owned businesses relying less on external funding and investing more in research and development. Our research on a global scale also 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.”
For instance, family-owned companies in China, Indonesia and India have been among the fastest growing companies in Asia excluding Japan on a one-year and 10-year basis. Also more than 50% of the top 30 family-owned companies in Asia are from India. Revenue growth for family-owned companies in India was around 18% since 2006 and around 16% in 2017.
“There is a case to believe that family-owned businesses do well because they have the skin in the game and the involvement is extremely high. The owner is far more passionate,” said Srikanth Subramanian, senior executive director, Kotak Wealth Management.
“Unlike public market in western countries, the Indian public market is not very deep and hence the company creates far more value at a private ownership level. Culturally, too, the concept in India is to keep within the realms of private members compared with going institutional. Family-run businesses are far more serious,” said Subramanian.
The report also says that Indian firms on average generated the highest absolute cash flow return on investment across non-Japan Asian group. However, they generated the second lowest absolute share price returns in 2017 and on average since 2006. The one country where the relationship between relative profitability and returns does appear to hold is China.
It also adds that family-owned companies tend to outperform the broader equity markets. In Asia, family-owned companies have outperformed their non-family-owned local peers in every country since 2006. Since 2006, the best-performing family-owned companies can be found in Germany, Italy, China and India, finds the report.