NOT being a part of an elite business house is no more a sign of weakness in India Inc. Just look at the list of independent companies in this edition of ET500. Or better still, ask the top management of companies like L&T, ICICI Bank, HDFC, ITC, Infosys, IVRCL or Satyam. These companies are growing fast, rank among India's most valuable companies and their management sounds more confident and ambitious than their peers in the power business houses. Given the size they have attained, they no longer have to fear becoming the targets of hostile takeover bids by bigger business groups.

However, this was not always the case in the past. Most observers had predicted the demise of western-style independent companies - with no big promoter to exert his/her control - in India. They were not entirely off the mark either. Till a few years ago, independent companies - ACC, L&T, BSES (now Reliance Energy) and ITC - were on the backfoot; they were trying to fend off corporate raiders to protect their independent existence. And two of them - ACC and BSES - were acquired by established business houses.

However, contrary to predictions, the number of independent companies - those where the promoter's holding is less than 20% - is growing. There are 25 independent companies in this edition of ET500. Though they account for only 5% of the net sales of ET500 companies, they are more profitable and attract better valuations. Independent companies account for 12% and 8.3% of the combined m-cap and net profit, respectively, of ET500 companies.

Another good way of evaluating independent companies is to compare the median turnover of an independent company with that of the entire set of ET500 companies. The median turnover of an independent company is Rs 1,583 crore - around 15% more than the median size of a typical ET500 company. A similar analysis of profits reveals a typical independent company tends to be more profitable and has higher market share. Does this mean independently owned and managed companies are bigger, or companies tend to get independent as they get bigger? This is tough to say with conviction.

Most of these companies now rank among leaders in their own segment and there is little fear of them being gobbled up by family groups, given their high valuations. For instance, L&T is now among India's top 10 most valuable stocks and it's at least 7-8 times bigger than its nearest competitor in the engineering & construction space. At its current m-cap, an individual/ group will need to cough up at least

Rs 25,000-30,000 crore ($6-8 billion) to acquire a controlling stake in the company. The same is the case with ITC, IVRCL or HDFC. And given their past record and growth plans, these companies will only get bigger.

The biggest concentration of independent companies is in the banking & finance space, followed by IT. In the case of the former, it is primarily due to ownership regulation imposed by RBI - a cap on the maximum holding of a promoter and an informal ban on established business houses to get bank licenses. Not surprisingly, some of the biggest and most valuable independent companies - ICICI Bank, HDFC, IDFC and IFCI - are independent. The trend is similar the world over. Anyway, given the capital requirements of a bank, it's beyond the capacity of an individual or a business group to keep funding growth without diluting its stake.

The predominance of independent companies in the IT sector is because professionals founded most of these companies, co-funded by independent investors. As the business expanded and companies needed to raise fresh capital, the promoters' stake reduced progressively. This has been the case with Infosys, Teledata Informatics, Moser Baer and Mascon Global.

The necessity to raise an ever-growing amount of capital to fund growth has also been the reason why founding promoters of many companies in old economy and emerging sectors such as L&T, IVRCL, Strides Arcolab, SpiceJet and Deccan Aviation chose to give up control over their companies rather than sacrifice growth. There is nothing unique about this trend, though. Globally, some of the world's biggest companies are independently owned and managed. These companies are truly public limited companies. As the Indian economy grows and companies are forced to scale up their investment, more companies may slip out of control of the founder-promoter, unless the latter chooses to sacrifice growth.

To many observers, this trend may signify a decline in entrepreneurial power and rise in the power of corporate bureaucracy and celebrity CEOs. But it is possibly a cause for celebration, more than lament. The number and size of independent companies is considered a measure of maturity and sophistication of a country's capital market and business environment. It demonstrates that an individual doesn't need to have a big pile of cash or a huge family fortune to build a global-sized business enterprise. You just need a bright idea, the ability to execute and the willingness to sacrifice direct control. If these factors are present, the capital market and financial community, in all likelihood, will be willing to put their money where your mouth is.

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