India Has Third-Highest Number Of Family-Owned Businesses: Credit Suisse
India ranks third on the list of countries with the highest number of family-owned business, according to a research report based on a study of 1,015 companies of $250 million or more in market capitalisation
The country has 111 family-owned business, with a market capitalisation of $839 billion, after China (159) and U.S. (121), according to the Credit Suisse Family 1000 report. China, India and Hong Kong dominate the list in the non-Japan Asian region.
“This year, we find that the family-owned businesses are continuing to outperform their peers in every region and sector—whatever their size,” Eugène Klerk, head analyst of Thematic Investments at Credit Suisse and the report’s lead author, said in a media statement.
We believe this is due to the long-term outlook of family-owned businesses relying less on external funding and investing more in research and development.Eugène Klerk, Head Analyst of Thematic Investments, Credit Suisse
Among top 50 profitable companies globally, 24 were from Asia, with a total market capitalisation of $748 billion, of which 12 were Indian family-owned companies valued at $192.2 billion, the report said.
Potential Returns And Healthy Growth
Indian family-owned companies generated 13.9 percent annual average returns since 2006, compared with 6 percent returns clocked by their non-family-owned peers, the research report said. It noted that technology, consumer discretionary and materials are the top three sectors in terms of market capitalisation.
Non-Japan-Asia-based family-owned companies generated 25.63 percent greater cash flow return on investment than non-family owned companies, the report said, adding that it delivered a 4.2 percent outperformance in annual average share price return since 2006.
The financial performance of family-owned companies, the report said, is superior to that of non-family-owned businesses with stronger revenue growth, higher operating margins and better cash-flow returns.
The Alpha Factor
- The family-owned alpha factor exists for all regions.
- The family-owned alpha factor is bigger for small-cap family-owned companies than for large-cap family-owned companies.
- The family-owned alpha factor can be found in every sector.
The Generation Gap
Since 2006, older family-owned companies have generally performed worse than those family-owned companies that were in their first or second generation.
One reason why returns seem to fade with the age of a family-owned company might be that older companies are by definition more mature. The other reason is they are less likely to be in “new”, more disruptive sectors.
The study shows that family-owned companies may underperform non-family-owned companies during periods in which economic conditions or sentiment improve.
This could be explained by the popular belief that family-owned companies tend to be more conservatively managed, resulting in more defensive characteristics relative to non-family-owned peers.
Top 50 Companies By Market Capitalisation
- Alphabet - $856.5 bn
- Facebook - $536.1 bn
- Alibaba - $463 bn
- Berkshire Hathaway - $277.4 bn
- Samsung Electronics - $266.8 bn
- Walmart - $264.6bn
- Anheuser-Busch Inbev - $201.5 bn
- Oracle - $193.8 bn
- LVMH - $174.2 bn
- Roche Holding - $172.2 bn
Reliance Industries. at number 15, is the only Indian company on this list.
Using its proprietary cash flow return on investment measure the Credit Suisse report also ranked most profitable family-owned companies. Emami Ltd, Bajaj Finance Ltd., Godrej Consumer Products Ltd., Page Industries Ltd., Marico Ltd., Hero Motocorp Ltd., TCS ltd., Eicher Motors Ltd, HCL Technologies Ltd., Britannia Industries Ltd., Ajanta Pharma Ltd. rank among the top 50.
- The average family-owned company relies less on debt funding than the average non-family-owned company.
- Family-owned companies across all key regions spend more than their annual depreciation on capex.
- Family-owned companies across the key regions do indeed spend less of their cash flows on buy-backs. Just 6.8 percent of cash flow versus non-family-owned companies’ spend of 15.8 percent.