NSE2ZOOM: ET 500

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Friday, December 21, 2012

ET 500: Companies that are growing the fastest regardless of competition

ET 500: Companies that are growing the fastest regardless of competition

There are companies that are scorching the tracks regardless of competition, emerging as the fastest growing companies' in the ET 500 ranking

Growth is Life' is the motto of one of India's biggest corporates. And rightly so as investors stand to gain only when a company shows it can grow fast.

Even in the ET 500 list there are some that stand apart. These are companies that are scorching the tracks regardless of competition, emerging as the fastest growing companies' in the ET 500 ranking.

Full coverage: ET 500 - India's biggest companies

Kerala-based Manappuram Finance BSE 1.12 % tops the list of fastest-growing companies for the second consecutive year. A secular rise in gold prices has helped the company to expand its business. The surge in profits was driven by a rapid increase in assets under management which rose at a four-year compounded annual growth rate of over 112% to Rs 11,630 crore at the end of FY12.

That's what helped another gold finance company,Muthoot Finance BSE 0.12 %, the largest in the business. It was the third fastest-growing in the ET 500 club.

Oil exploration firm Cairn India BSE -0.08 %, now a part of the Vedanta group, became the second-fastest company this year, helped by higher production from its Rajasthan block over the last three years. It ramped up production to 175,000 barrels a day boosting profits.

IL&FS Transport has systematically expanded by securing new projects, achieving speedy financial closures and commencing commercial operations, placing it at number four in the list of the fastest-growing companies in the ET 500 list. The turnover of the company has grown at a CAGR of 133% over the last three years due to the larger number of projects awarded by the NHAI.

The emergence of Bajaj Finance BSE 6.16 % as one of India's largest two-wheeler financiers in FY12 makes it a natural candidate for our list of fastest-growing companies. The company has expanded its reach by making funds available through more than 350 dealer locations and 1,170 sub-dealers across the country. It acquired over 45% of the customers through the direct cash collection model aimed primarily at the unbanked rural and semi-urban consumers.

It has also emerged as the largest consumer durables financier with a presence in 79 cities helping finance 10% of all consumer electronics goods.

Kwality Dairy BSE 0.64 % has grown by leaps and bounds during the last few years as it launched brands such as 'Dairy Best', 'Desi Ghee' and 'Livlite' while forging tie-ups with large customers like the Indian Railways and some of India's biggest temples for marketing its products.

The company procures milk directly from about 3,50,000 farmers through a collection network of milk chilling centres built across 5,000-6,000 villages. The company is also expanding its global footprint through a subsidiary which has been formed in the UAE.

METHODOLOGY

For the fastest-growing companies in the ET 500universe we took into account the cumulative annualised growth rate or CAGR of revenue, PBDIT and net profit of all the 500 companies over the past three years.

The weighted average of the growth rates was considered for ranking the companies. Being the primary criteria, revenue was given a weightage of 50% while growth in PBDIT and net profit were given an equal weightage of 25% each. The list contains a few companies for which the three-year CAGR couldn't be calculated either because their numbers for FY09 were not available or they had posted losses then.

We also excluded a few companies. For instance, strategic investments in companies enabled L&T Finance Holdings to boost its revenue. Bajaj Finserv BSE 1.84 % was a holding company for Bajaj Finance BSE 6.14 % and other entities and was not considered.

Source : MEGHA SARAF,ET BUREAU

ET 500: New entrants, gainers and losers

The ET 500 list continues to evolve every year with the entry and exit of some companies, a select few moving faster than the others and climbing up the ranks even as others lose ground

The ET 500 list continues to evolve every year with the entry and exit of some companies, a select few moving faster than the others and climbing up the ranks even as others lose ground.

Full coverage: ET 500 - India's biggest companies

NEW ENTRANTS

There are 42 companies in the 2012 list which were not featured last year. Due to a change in the methodology of treating trading companies, six companies from the gems and jewellery sector have secured berths in the ET 500 ranking. Shree Ganesh Jewellery BSE 0.59 %became the top new entrant in the list with a ranking of 103.

GTL Infra just about managed to enter the club as the company was able to grow its revenue by 40% to Rs 1,407 crore. Increasing tele-density helped the telecom tower company.

GAINERS

Manappuram Finance BSE 1.12 % turned out to be the biggest gainer, vaulting to 292. The company greatly benefitted from the rise in gold prices to mark a 140% jump in its revenues. Force Motors BSE 0.47 % saw the second-biggest gain improving by 145 positions on the back of an expanding portfolio and its entry into segments like LCVs and SUVs.

Similarly, commissioning of projects in the power and port businesses helped the three Adani groupcompanies - Adani Ports, Adani Power BSE 1.25 %and Adani Enterprises BSE 0.89 % - to gallop ahead in the ET 500 ranking.

When it comes to the Top 10, Coal India BSE 1.20 %made a forceful entry at the 9th position edging out Hindalco BSE 1.26 % from the elite group.

LOSERS

Zuari Global was the biggest loser as it slid from 97 to 381 on completion of its restructuring exercise as part of which its fertilizer business was housed in a new entity - Zuari Holdings.

Biocon BSE -0.02 %, a leading pharmaceutical company, tumbled to the 343rd rank due to a decline in licensing income and cancellation of a deal with Pfizer BSE 0.13 %. High interest rates led to a slowdown in the investment cycle and the capital goods sector had to bear the brunt of this. Twenty-one companies from the sector saw a fall in their rankings.

EXIT ROUTE

Sujana Universe, which was ranked 230 in the FY11 list, was the highest-ranked company to make an exit due to a change in the methodology of identifying trading companies this year.

The ET 500 list continues to evolve every year with the entry and exit of some companies, a select few moving faster than the others and climbing up the ranks even as others lose ground.

Full coverage: ET 500 - India's biggest companies

Source : GAURAV MODI,ET BUREAU

ET 500: Companies and sectors that passed the RoE test

In our 2012 list, three out of 10 companies reported a higher RoE compared with four out of 10 a year ago

For shareholders, the efficiency with which a company employs its invested capital is a crucial yardstick to decide whether to stay invested. Organisations which fail to do so often end up seeing their cost of capital rise.

Return on equity or RoE is a popular measure of capital efficiency for equity holders. It allows shareholders to assess the net profit of a company from the perspective of the capital invested.

Full coverage: ET 500 - India's biggest companies

RoE is net profit as a percentage of the total equity capital of a company. The total equity consists of paid-up capital, reserves and surplus. A higher RoE is a reflection of the company's efficiency in utilising investors' money to generate profit.

In our 2012 list, three out of 10 companies reported a higher RoE compared with four out of 10 a year ago. Apart from the changing composition of ET 500 with new entries and exits, pressure on profits due to higher input costs, depreciation and interest expenses also contributed to lower RoE.

The financial sector had the highest representation in the list of ET 500 companies which reported a year-on-year improvement in RoE. There were 22 banks and financial institutions making up 15% of the 152 companies which clocked a higher RoE.

ET 500: Companies and sectors that passed the RoE test

Select pharma companies such as Cipla BSE 0.70 %, Dr Reddy's Laboratories BSE 0.76 %, Glenmark Pharmaceuticals BSE 0.13 % and Sun Pharmaceutical Industries BSE 2.03 % improved their RoE. In our latest rankings, there were six companies which showed an improvement in RoEs in each of the four years to FY12.

Banks and financial companies were again at the forefront. Bajaj Finance BSE 6.48 %, Jammu & Kashmir Bank and United Bank of India BSE 0.78 % consistently reported a higher RoE. Joining them in the list were Adani Ports, Kwality Dairy BSE 0.64 % and Zee Entertainment BSE -1.08 %.

Source :RANJIT SHINDE,ET BUREAU

ET 500: Key factors that sets apart some companies which improved cash flows consistently

Spread across various sectors, there are 24 companies in the ET 500 list which have shown a consistent growth in net profits and operating cash flow

Operating cash flow reflects the ability of a company to generate enough cash to sustain its operations after providing for various operational expenditures. This makes it a sturdier parameter of analysis when compared with net profit of a company.

The latest ET 500 ranking includes a few companies which improved their cash flows consistently over the years. We looked at the key factors that set apart these firms.

Full coverage: ET 500 - India's biggest companies

We selected companies whose net profits grew at a compounded annual growth rate or CAGR of over 20% in the last five years. We then short-listed companies from manufacturing and capital-intensive industries whose operating cash flow, excluding interest had grown at a CAGR of over 20% during this period. This was done to assess the consistency in cash flows with net profits.

Spread across various sectors, there are 24 companies in the ET 500 list which have shown a consistent growth in net profits and operating cash flow.

DOMINANCE

There are many ways a company can dominate its industry - access to superlative technology, a vast distribution network, and established brands. A dominant player is often in a position to enjoy pricing power in the industry.

Hero MotoCorp BSE 0.66 % has long maintained its dominance in the 100-cc segment of the two-wheeler industry through brands such as Splendor, Passion, CD Dawn and CD Deluxe which have huge acceptance, especially, in rural areas and to a reasonable extent in urban areas.

ET 500: Key factors that sets apart some companies which improved cash flows consistently

SYSTEMATIC EXPANSION

A company which embarks upon cautious expansion through a mix of debt, equity and internal accruals will have a stable cash flow. Shree Cement BSE 0.40 %, one of the largest cement companies in North India, more than doubled its capacity from 6.3 million tonne (MT) in FY08 to 13.5 MT in 2012. Yet it has maintained its debt-to-equity ratio at an optimum level of less than 1.7 during these years. That has helped the company to deliver consistent returns over the last five years.

STRONG BRANDING

A strong and trusted brand ensures a loyal customer base, which is hard to replicate. Castrol, one of the pioneers in automotive lubricants, is a prime example of this. Despite bigger peers such as Indian Oil BSE 0.15 %, BPCL BSE 1.39 % and HPCL BSE 0.91 %, the Indian unit of the multinational company was able to maintain a healthy growth over the past five years.

The company invests nearly 6% of its sales every year in brand building. Because of its established brand,Castrol BSE 0.45 % India's products enjoy a premium of nearly 20% over its peers.

NICHE BUSINESS

A strong presence in a niche segment often results in better and consistent cash flows. Pidilite Industries BSE 0.00 %, one of the biggest companies in the adhesives industry, has stuck to its core competency of manufacturing various kinds of adhesives used across different industries. With a portfolio of brands including Fevicol, Dr Fixit, M-seal and Fevistik, the company has been able to carve out a market share of close to 45% in the adhesives and sealant market.

PARENTAGE

Having a strong parent helps a company cope better in a difficult economic scenario. An established company is likely to invest more in research and development, which helps in beating competition.

Bayer CropScience BSE 0.69 % is one such company which has enjoyed healthy returns over the years due to constant innovation. Bayer BSE 0.69 % CropScience is a subsidiary of Bayer AG, one of the world's leading companies in crop protection. Thanks to the robust R&D capability of its parent, Bayer CropScience has been able to launch three to four products every year.

Source : RAJESH NAIDU & SURAJ SOWKAR,ET BUREAU

ET 500: 12 companies that dazzled despite the slowdown

ET spotlights a select dozen companies whose performance under pressure marks them out as a cut above the rest

As the character of Big Daddy in Tennessee Williams's play "Cat on a Hot Tin Roof" says, "When you've got pain, it's better to judge yourself, a lot of things".

When the animal spirits are roaring even a shoe-shine boy can make a million. So is the case with companies. All and sundry become investor darlings in a booming economy, but it is only when the tide turns that one finds out who has been swimming naked. The tide did turn and many have fallen by the way side in the last four years. But some are standing tall, and they will continue to do so for years to come. Not because they are monopolies in their respective markets, but because their values, business models, and management philosophies are such that they could weather the storm.

Full coverage: ET 500 - India's biggest companies

Resisting the temptation to keep up with the Joneses and being parsimonious helped them survive the economic debacle. ET spotlights a select dozen whose performance under pressure marks them out as a cut above the rest.

Indeed, the slowdown was an opportunity for them to weed out unwanted businesses and correct the mistakes of the past.

Fiscal 2012 was a difficult year for Indian corporates. Slowing economic growth, faltering industrial demand due to lower capital expenditure, a weak rupeeoffsetting the benefit of falling global prices ofcommodities, sliding export growth, and high interest rates weighed on growth and profitability of companies.

Recent policy decisions have come as a ray of hope, but they are just rays on the horizon. Till such time as they translate into actual benefits on the ground, companies will have to continue to battle headwinds. The winners are those who are able to surmount these challenges.

The 2012 edition of ET 500 ranking showcases corporates that withstood the pressures of a post-subprime era when global markets seized. Some of the companies we have identified focused on their core strengths by restructuring business lines and exiting non-core activities; others sought newer markets. There were no exceptions to slower revenue growth or the squeeze on profitability, but these companies remained financially sound and agile enough to rebound when the economy recovered.

THE FLAG BEARERS

To identify these companies we analysed their performance over the last four years when the business environment was a testing one. Growth has faltered since 2008, at home and overseas. The current state of the global economy is not much different. In fact, it may turn worse if the Euro zone crisis blows up and if the US falls off the fiscal cliff. In the US, which saw some revival in relative terms, several economic parameters are nowhere near pre-sub prime levels. Though the number of jobless has come off historic highs, US firms have cut more jobs in 2012 than the year before.

If the global economy slips back into recession and India struggles to shake off its policy paralysis, there are only a few companies that could survive the double trouble.

We chose 12 companies which could sail BSE 2.38 % the rough seas. They have not only survived the last slowdown, but are also in the pink of health to sustain long-term growth.

Some of them are large capitalised stocks such as Tata Consultancy Services BSE 1.78 %, HDFC Bank BSE 1.09 %, Sun Pharma BSE 1.79 %, auto component maker Bosch, cement producer ACC BSE 0.11 %, drug-maker Lupin BSE 1.05 %, and shampoo and hair-dye maker Godrej Consumer BSE -0.64 %. Multinational companies such as lubricants player Castrol BSE 1.46 %, and engines maker Cummins India BSE 0.61 % are also on the best-run list. Then there are some that are small, but are still beautiful. Apollo Hospitals BSE 0.36 % and Mahindra & Mahindra Financial Services are better positioned than their rivals.

HOW WE SPOTTED THEM

An economic downturn makes it difficult to assess a company's financials over a number of years since it tends to skew the findings during the period of hardships. This was a major challenge while evaluating the performance in terms of growth in revenues, profits, cash flows and other financial parameters of ET 500companies since 2008 - the year the world woke up to the economic realities of a credit binge.

For a more realistic picture we added the stock market performance of the companies to the analysis of their financials. We concentrated on companies that outperformed the benchmark index, the Sensex.

But, stock markets are not perfect either, and the fact that the Sensex halved in just about nine months in 2008 and bounced back equally fast is testimony to that.

To smoothen out the bias such wild market movements induce, we employed a rather complex measure of stock performance. Starting January 2008 and keeping this entry point fixed, we calculated returns for one year (end of 2008 stock price), two years (end of 2009), three years (end of 2010), four years (end of 2011), and five years (end of September 2012).

We then selected stocks that beat the Sensex returns in each of these periods. We picked up companies with a market capitalisation of Rs 5,000 crore or more as at the end of September 2012. The final list of 12 companies or the "Dazzling Dozen" was selected from this sample.

THRIVING ON CHAOS

A look at the time series of financials of the chosen ones revealed that their market-beating performance was not an accident. Each of these companies showed resilience through tough times. Of the 12 companies, nine more than doubled their revenues and net profits in five years.

Automobile maker Eicher takes the cake with a 10-fold jump in net profit and a seven times increase in profit before depreciation, interest and tax expense. A master stroke of a joint venture with Swedish auto maker Volvo to manufacture commercial vehicles in 2008 was the game changer. Royal Enfield, which became a part of the group in 1994, has also reported traction in demand. Sales volume of the division trebled in the three years to September 2012.

Others such as Cummins India BSE 0.61 %, HDFC Bank BSE 0.97 % and Sun Pharma BSE 1.77 % also thrived during the period. We spoke to the leaders at these companies and the common mantra that emerged is that stick to your core strength and avoid adventure.

With such grounded-in-reality philosophy, these twelve companies not only managed to survive, but also promise to thrive.

Source : RANJIT SHINDE,ET BUREAU