- Education And Career
- Companies & Markets
- Gadgets & Technology
- After Hours
- Banking & Finance
- Energy & Infra
- Case Study
- Web Exclusive
- Property Review
- Digital India
- Work Life Balance
- Test category by sumit
More The Merrier
Photo Credit :
In the past five years, Era's construction orders have grown at 54 per cent. It has an order book of Rs 9,290 crore — spanning power, infrastructure, industrial and urban infrastructure projects. That may look impressive, but it is "below the industry average of Rs 15,000-20,000 crore. And that is a concern," says an analysts at Crisil.
Increases in interest rates and raw material prices could worry Era going forward. But team Era is confident that infrastructure demands will help it grow. "We diversified our business," says group chief financial officer Joy Saxena. Era now plays in low-cost housing, roads, power, airports etc. Its big projects include the construction works for the Commonwealth Games, the cargo terminal at Kolkata airport and the civil works for the Talcher super thermal power project in Orissa. Saxena is confident that strong fundamentals will help the company keep up its good performance.
4. Steely Growth And Strong Future
IT has been under the radar for close to quarter of a century. Brij Bhushan Singal acquired cold-rolled steel (CRS) strips maker Jawahar Metal Industries in 1987, which was later renamed Bhushan Steel & Strips. It is a Rs 7,000-crore firm now, making 2.2 million tonne CRS sheets and coils annually. Bhushan was listed on the BSE in 1993. Over the past 10 years, the firm has performed below the average absolute return on the BSE in only two years. It recorded a growth of 14,024 per cent over the period. Steel capacity rose from about 1 million tonne in 2002-03 to close to 5 million tonne now. Its profits rose from Rs 40 crore in 2002-03 to Rs 1,005 crore in 2010-11.
To tide over rising commodity prices, the company sought access to mines in Orissa. In 2010, it bought 60 per cent in Australia's Bowen Energy. During 2002-11, Bhushan has seen sales rise at a CAGR of 19.91 per cent, and net profit rose at 38 per cent. That should continue as Bhushan expands capacity. By 2013, Bhushan will be able to manufacture 4.7 million tonne of CRS annually, more than double today's capacity. Bhushan is among the few steel companies in India that make specialised automobile grade steel.
5. Learn From The Customer
Bangalore-based Opto Circuits would have remained a small-time supplier of sensors and chip-on-board assemblies to OEMs, but for a decision its key customer then, Logitech, took. Logitech started increasingly sourcing from China and Opto realised the mistake of relying on one large customer while not having its own brand. Vinod Ramnani, CMD of Opto Circuits vowed never to let that happen again. Through the money raised in an IPO in 2000, it bought Advanced Micronic Devices that distributed medical equipment. In the past decade, it made 11 acquisitions, spending over $200 million.
During 2002-11, Opto outperformed the BSE in seven out of the 10 years, growing 11,558 per cent. Says Ramnani: "We have succeeded because we focused on execution." Today, Opto has 168 patents, with another 53 pending. It markets its products in 150 countries and has six R&D facilities. A recent report by Motilal Oswal says debt on books (Rs 884 crore), high working capital needs and low free cash-flow generation trouble Opto. But Ramnani says, "Our leverage is about 0.6. There is no cause for concern." Opto wants to be a billion-dollar entity in three years.
6. The Road Not Taken
THE success of Gujarat Flourochemicals (GFL) lies in the fact it dared to be different. Unlike other chemical firms, it ventured into areas such as multiplexes and wind energy. In 1998-99, GFL set up a cinema chain through its arm Inox Leisure. "Now, we are the largest chain in India with 80-90 multiplexes," says Vivek Kumar Jain, managing director, GFL. He is also betting big on wind energy, aiming to become India's largest renewable energy company with an installed capacity of 2,000 MW in five years.
Investors also kept confidence in the firm. Only thrice in the past 10 years did it underperform the BSE's average; its absolute returns rose by 9,567 per cent over the period. "GFL is a consistent dividend payer with a track record in implementing new businesses," notes equity analyst Prashant Sharma of HBJ Capital in a recent report.
From a small chemicals firm in 1987, GFL became a leading manufacturer of chlorofluorocarbon, which was mandated to be phased out to comply with the Montreal Protocol of 1889. Soon, GFL ventured to produce non-polluting hydro-chlorofluorocarbon (HCFC) refrigerants. Today, it is the largest producer of HCFCs in India and exports 95 per cent of the output to over 75 countries.
7. A Loan To Growth
SHRIRAM Transport Finance Corporation (STFC) recorded a return of 8,743 per cent against the BSE 500 absolute return of 539 per cent. STFC owes the success to its ability to lend in India's 4-5-million strong used-truck market, ensuring strong repayments. "We did well because the net interest margin spread narrowed," says R. Sridhar, managing director. And its future seems only brighter given that the market for commercial vehicles grew 20 per cent from 1.5 million in 2009-10 to 1.8 million in 2010-11.
Earlier, STFC used to borrow on floating rates from banks and lend on fixed rates. Of late, it has changed the pattern, where securitisation forms 40 per cent of its asset base, and 60 per cent is the amount borrowed. "We raised money through private placements and mutual funds," says Sridhar. This allowed STFC to reduce its dependency on banks. In 2010-11, it reported a net profit of Rs 1,230 crore, up 40 per cent from a year ago. The return on assets is 216 times. That said, rising interest rates and fuel prices would also trouble STFC. But it is looking at growth. It plans to open 60 auto-malls in two years; a market place for buying, selling, servicing and financing trucks.
8. Low Exposure Mantra
NAVABharat Ventures (NBV), which is present across power, ferro-alloys, mining and sugar, has seen its stock grow 7,545 per cent over 2002-11. In only two of the 10 years did the scrip underperform the annual average of absolute return of companies on the BSE 500. The success has been attributed largely to NBV's ferro-alloys business, a material used in deoxidising steel. It also has thermal plants and a sugar factory with 35,000 tonne per day capacity. All the three businesses are dependent on coal, a raw material that NBV has managed to take control of in Zambia and exploring in Indonesia. The Zambian mine has 120 million tonne reserves and the company paid $26 million to own 65 per cent in the mine. But acquisitions tapered down NBV's cash position by 65 per cent to Rs 174 crore last year. Also, as its business is linked to steel making, a slowdown could further squeeze its bottom line. But its debt to equity ratio is the lowest in the industry, at 0.15 times. This means its share-holders have enough funds covered to meet debt.
9 Rising From The Ashes
CROMPTON Greaves (CG) is one of the best performers with the stock recording nearly 7,169 per cent returns over the past 10 years. Only in two years did the scrip underperform the benchmark BSE 500 — in 2009 and 2011.
In July, it was hit hard when Sudhir Trehan, vice-chairman, sold his entire personal holding for Rs 4.5 crore. The firm said he was planning his retirement. But the market felt he gave the wrong guidance on CG's future.
Trehan's action wiped out nearly 41 per cent of the company's market cap in less than a month, compared to a 10 per cent fall in the BSE Sensex. Gautam Thapar, the company's chairman, also saw a hit of Rs 2,600 crore to his personal wealth. But CG remains the most precious jewel in Thapar's crown thanks to Trehan's tenure. In 2000, when Trehan took over as the managing director, the company was making losses. It became profitable after a slew of overseas acquisitions (nine between May 2005 and May 2011).
Today, it is a $2.2-billion (revenue) global company that has registered a compounded annual growth rate of 21 per cent since 2000. The company's debt-equity ratio dropped from 2.36 to 0.1 during the period. Only time will tell if Trehan was over-optimistic or not.
The Recessionary Storm
SIMPLEX Infrastructures is a traditional but diversified company present across power, housing, ports and roads. Its stock price has grown 6,968 per cent since 2002. The stock has underperformed the BSE 500 only in three years over the past decade.
The growth of the Simplex stock is not surprising given its steady performance. Despite seasonal and recessionary dips, the firm has shown a cumulative average growth rate of 28 per cent in its order book — Rs 14,384 crore now — over the past five years. Its sales have grown at 28 per cent over the past 10 years. Recessionary conditions have squeezed margins, but Simplex has maintained profit after tax over the past three years since FY09 in the Rs 123-127 crore range. Earnings per share, too, have risen steadily peaking in FY10 at Rs 25.70. "Our business model is broad-based and diversified across nine construction verticals and geographies that pan India and overseas, plus projects in Bangladesh, West Asia and Ethiopia," said B.D. Mundhra, Simplex's chairman and managing director, in a recent report. Overseas revenues, a stream launched only in 2006, has contributed heavily to the top line, rising 30 per cent in FY2008 and 2009. In FY11, it has fallen to 13 per cent, though.
Established in 1924, Simplex has had a stable management in the Mundhra family that took over 1947. It uses a low-risk model with its single client exposure averaging just 0.6 per cent. Simplex has, however, taken a battering in the past two years with its global ventures. "The global recession has led to stretched working capital and higher interest costs," says Sailesh Kanani of Angel Broking. However, its diversified model may help Simplex weather the current choppy seas.
(This story was published in Businessworld Issue Dated 14-11-2011)