India's Top Value Creators
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Let’s begin with an interesting thought from Paul Meyer. According to him, “Productivity is never an accident. It is always the result of a commitment to excellence, intelligent planning, and focussed effort”. If you read these lines carefully, you would certainly find them to be at the core of any human endeavour. Be it an enterprise or an individual, the strife to excel is what takes us to the next level of being.
From where it began, the Indian corporate sector has come a long way, with stories of remarkable successes as well as dismal failures dotting the historical timeline. These stories have been chronicled by many in varied forms and features. But reading stories purely as a matter of interest is one thing. What really counts is what you take out of them. This is particularly true of capitalistic thoughts associated with enterprise, as the successes and failures of companies determine the overall wealth creation of their stakeholders.
So, what helps you pick those stories which will really foster wealth creation? Is there a source which can help you put a finger on such opportunities in an instant? Can you rely on anybody to help you cut through the maze of data and the clutter of companies to get to the real winners?
To say DSIJ has done so and will continue to do so will be an understatement. We have been the pioneers and flagbearers of financial research in the country for over a quarter of a century now, spearheading research and investor education, and in turn advancing wealth creation.[PAGE BREAK]
It has been DSIJ's sincere endeavour to act as a vital connect between the financial world and investors, helping them in understanding the nuances of the financial markets. To recognise and felicitate a very important constituent of our economic system – Corporate India – we at DSIJ, have conducted a study which shines a spotlight on the stars of the firmament of Indian industry. This study forms the core of this 27th Anniversary Issue being presented to you.
The thought of this kind of a study is not new. But the methods employed and the rigour of testing is unmatched in our case. The methodology that we have followed gives you a clear idea of the parameters and the processes that we have employed to rank companies. Our 27 years of experience in research on companies and financial markets has provided us the base for conducting such an indepth study. Our findings are not only about which companies have fared well or badly until now, but they also provide a basis to gauge which among these will continue to do better in the future too.
Research is a continuous exercise. It is always necessary to carry the findings into the future and fine tune them further, and this is exactly what we intend doing. For now, here is what this year’s findings look like. We are sure these would prove to be insights which will go a long way in helping you build a profitable portfolio.[PAGE BREAK]
The Findings
Coming up with a list of the top companies is never an easy task. As mentioned earlier, numerous studies employing the most complex criteria have been conducted by many. However, the beauty of any work that intends to come up with a list of the best in any category or class lies in its simplicity. It is not only essential that the developers and researchers understand what the study implies, but it is even more important that those at whom the study is targeted find it easy to understand and thereby relate to the results that the study comes up with. Having said that, let us help you understand what our study has come up with.
We have broadly divided our study into two parts. The first part deals with companies which have more than Rs 10000 crore in market capitalisation. The second one deals with those companies which have a market capitalisation of over Rs 1000 crore but less than Rs 10000 crore. The final compilation consists of the top 50 companies from the former category and the top 100 from the latter. This is what gave us our ‘Super 50’ and the ‘Elite 100’ as we have christened them.
The Sectoral Spread
Sectors are fancied and sectors are shunned. This happens in cycles. Take for instance the late 90s and the early part of the new millennium. Software companies were the darlings of the market at that point of time. In fact top companies like Infosys then traded at a PE of more than 100! But then came the bust, and the sector lost its former glory. It has never been able to catch up ever since. Same has been the case with Auto Ancillaries. This sector was again strong on investors’ radars in the mid 2000s. But the whole edifice on which this fancy stood just crumbled, and the story fizzled out even before it could be played out. In fact, the most recent and glaring example of this would be Infrastructure and Real Estate. This sector dominated for almost three years during the bull run which spread between 2003-2007. But the moment it started facing headwinds, investors jettisoned the stocks like dead weight.[PAGE BREAK]
The point that we are trying to make here is that there is no way a particular sector can dominate the toppers list in any study on value or wealth creation for a long time. Such instances are few and far between and least sustainable, if at all. So, what is the spread of our list of winners?
Well, the point that we have made earlier stands true of our study as well. Our list of top 10 companies has as many as nine different sectors. There are two pharmaceutical companies, and the remaining are from varied quarters. In fact, the ‘Super 50’ list of companies consists of 24 sectors. Among these, none of the sectors has individually been able to take away a slot of more than 10 per cent. The largest representation is shared by three sectors – IT, Pharma and Auto – with five companies from each of these finding a place among the leading 50. The remaining 21 sectors have an average representation of three per cent in the list.
Hence, despite the fact that there are many sectors which have found and lost favour over the period of our study, yet most of them have found a place in the toppers list. One fact that gets reinforced by this finding is that you could always find a good company in a beaten down sector too.[PAGE BREAK]
What Took Them Up
What really helps create value and what are the characteristics of true wealth creators? Look at some of the toppers from our list and you will find your answers. How many of you would have invested in Titan when the company went public way back in 2004? Surely, only a few would have actually believed in what it was out to achieve. But today, Titan is a global brand competing with the best in the industry in one of the most high profile segments. Launching lifestyle products and succeeding in it is a job cut out for leaders. The company’s emergence on our list reinforces this. Continuous innovation and diversification has led to it creating immense value and generating good wealth for its stakeholders.
The same applies to Sun Pharma, which has emerged very high on our list of winners. The management’s ability to look into future growth opportunities and seize them in earnest has led it to the top. Not only has the company grown organically but it has done well on the inorganic front too, and in turn added value.
Value creation and wealth generation is not just about private enterprise. In fact, the topper of our ‘Super 50’ list, NMDC, is a public sector enterprise. But it doesn’t end there. There are six public sector enterprises that have found a place in the list– NMDC, Bharat Heavy Electricals, Oil And Natural Gas Corporation, Petronet LNG, GAIL (India) and Neyveli Lignite Corporation – which makes their presence rather dominant.[PAGE BREAK]
India has had many big family-oriented success stories which have created value for their stakeholders. Some have found a place in our top 50 list, but there are surprises too. The best example of this is the Tata Group. Four of this group’s companies have found a place among the top 50, including Tata Power, Titan, Tata Motors and TCS. Similarly, look at the OP Jindal Group. Two of its companies, Jindal Steel & Power and JSW Steel have found a place among the top rankers in our study.
Scan through the 50 toppers and you will surprised to find the Reliance Group (led by Mukesh Ambani) conspicuous by its absence. However, there are reasons why the group hasn’t made it to the toppers list. Over the five years ending FY12, the company’s operational performance as well as its stock returns have not gone anywhere. If we look closely at the important ratios indicating the financial health of the company, in the last five years, it has deteriorated in every aspect. The stock’s CAGR over the last five years is just about two per cent.
So, it is more than clear that value creation or wealth generation isn’t really limited to a particular set of companies. All it takes is the concerted effort of the managements to seek future growth with good business practices in order to succeed.
You would surely like to take a look at the complete list of Super 50 companies and , which we have provided as a separate section along with a snapshot of the factors that have seen them emerging high on the parameters that we used for evaluation. Also, read ahead for details about the nuts and bolts of the methodology we have followed.