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BW Businessworld

Win Some, Lose Some

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Stockmarket valuation of companies can make investors euphoric. They can also cause deep depression. Euphoria for the enormous wealth sky-rocketing stock prices can make for investors; depression, for its prince-to-pauper capability.

Years of allegations of rigging, insider trading and scams in India and around the world have failed to diminish the attraction of this Talismanic world. Because stockmarkets continue to remain the most democratic, meritocratic and transparent — though occasionally illogical — institutions of capitalism.

Despite this love-hate relationship, all roads from the world of capitalism lead to the stockmarkets. And India's 136-year-old Bombay Stock Exchange and its younger peers have periodically thrown up both performers and laggards. While some on the fast track — such as Reliance Industries (RIL) — have gone on to greater heights, others such as Hindustan Motors have failed to swing the magic.

This listing is a quantitative assessment of outperformers (those that have generated superlative returns for investors) on the stockmarkets over a 10-year period (FY 2002-11). It is also a listing of those that are, perhaps, losing out. Even as we analysed (see methodology on page 44), we applied yet another filter to weed out the freak out-performers from among the consistent performers. Each company's year-on-year returns were calculated. They were then pitted against the year's returns delivered by the BSE 500 to arrive at the outperformers and the underperformers for each year. To this, we applied the 70 per cent criteria: companies that outperformed the BSE 500 in seven or more years were ranked on the basis of their 10-year returns. Those that outperformed in six years or less were separated and ranked independently (see that list on

Jindal Steel & Power, run by the politician-cum-businessman Naveen Jindal, has returned the highest 10-year returns — 28,222 per cent. Hypothetically, Rs 1 lakh invested in the company on 31 March 2002 would have fetched an investor Rs 2.82 crore on 31 March 2011. During this period, the firm's revenues have gone up from Rs 511 crore to Rs 9,574 crore and net profit from Rs 107 crore to Rs 2,064 crore.

But is that enough to silence Naveen's critics who have jeered at him for taking home the highest pay packet in corporate India for two years in a row? In 2010-11, Naveen Jindal took home Rs 67.21 crore, which was nearly a 4 per cent drop from the Rs 69.76 crore he earned in 2009-10 (he was closely followed by Sun TV's Kalanithi Maran and his wife Kavery Maran at Rs 64.4 crore each). "It shouldn't matter when the company has created huge wealth for investors. Unlike other promoters, he has been straight by taking money in the form of salary," says an analyst from a domestic broking firm in Mumbai.

In comparison, India's richest man, Mukesh Ambani, chairman of Reliance Industries (RIL), has earned Rs 15 crore in each of the past three years. He froze his salary after a public outcry over his bloated package just after the economic downturn of 2007-08.

Incidentally, JSW Steel, run by Naveen's elder brother Sajjan, reported even better returns of 45,715 per cent over the 10-year period. However, unlike Jindal Steel which underperformed the BSE 500 only two times in 10 years, Sajjan's JSW was more volatile as a stock and under-performed in four of the 10 years. Kwality Dairy and United Phosphorus, too, delivered insane returns between FY2002 and 2011, but both under-performed in nearly half of the 10 years.

The list of the top 10 companies mirrors two broad trends in corporate India: firms that rode the global commodity boom and those that capitalised on India's desperate effort at improving its crumbling infrastructure. If Jindal Steel, iron ore major Sesa Goa, automotive grade steel producer Bhushan Steel fall in the former category, the likes of Era Infra, Shriram Transport, Nava Bharat Ventures, Crompton Greaves and Simplex Infrastructure fall in the latter. "It is a cyclical impact. In the last cycle of moneymaking, real estate, infrastructure and commodity companies benefited," says an analyst.

The most noticeable aspect is, almost all of them were trading low for years, but seem to have rebound. Partly due to the industry trends and partly due to their own performance. Jindal Steel closed at Rs 2.47 on 28 March 2002 (adjusted closing price), while it rocketed to Rs 698.60 on 31 March 2011. Sesa Goa was at Rs 1.21 (Rs 290.4) and Era Infra at Rs 0.86 (Rs 188.6).

One of the biggest surprises from the study is the performance of India's most prominent corporates. Particularly, India's most-valued organisation, RIL. According to the year-on-year returns delivered by the company's stock, it has under-performed the BSE 500 in seven out of the 10 years. Largely due to a loss-making investment in telecom in early 2000s and the battle between the two Ambani brothers.
Other stars such as Bharti Airtel, State Bank of India, Videocon Industries, Tata Steel, Asian Paints and ICICI Bank — all find themselves ranked after the Top 100, as they struggle to keep step with the frenetic pace of share price growth set by the newer firms.

Yet, they have maintained a fairly healthy rate of growth by western standards. The Bharti Airtel stock, for instance, reported 1,762 per cent growth over the 10-year period, though it under-performed the BSE 500 in four of the 10 years. But an investor, who would have bought Rs 1 lakh worth of shares in Bharti, was worth Rs 18.6 lakh on 31 March 2011.

While the winners bask in their glory, companies that lost value for their shareholders have nowhere to hide. The study throws up 20 firms that reported returns below 118 per cent (the assured returns delivered by the National Saving Certificate over the 10-year period). Of these, six firms eroded the shareholders' capital. As in the case of the winners, the losers too fell into the pattern of declining fortunes of mid-tier telecom and IT firms. The former, due to intense competition and falling average revenue per user; the latter, due to belt tightening in some of their major markets such as the US and Europe. "They suffered due to the high-base effect. But the shift in technology also played a huge role. When the cycle turned, the ones who innovated did well and those who couldn't innovate suffered," says Sunil Sewhani, senior research analyst, GEPL Capital, a Mumbai-based financial services firm.

At the top of the list are two telecom companies — Himachal Futuristic and Mahanagar Telephone Nigam — which underperformed for nine and eight years, respectively. These are followed by four IT firms (Moser Baer, Mastek, Subex and Polaris Software). Himachal Futuristic, in particular, is paying the price for its high valuations during the early 2000s as it gained notoriety after bidding an unrealistic Rs 86,000 crore in nine circles in 1995, which nearly derailed India's fledgling telecom industry.

It wasn't just the IT and telecom firms, even multinational and state-run companies disappointed investors. MNCs, in particular, have not rewarded investors in these 10 years. While those such as Cadbury India and Carrier Air Conditioning delisted from the exchanges. "MNCs were considered low-risk stocks. When India was growing at a faster pace, MNC stocks got neglected. In terms of growth, they have not been bad," says Sewhani. Dive straight into the issue for a deeper insight into what clicked for the winners and what derailed the losers.

The lists of the winners and the losers have been determined by each company's share price return over the past 10 years. Only the BSE 500 stocks have been considered for the study. Using the Ace Equity database, we calculated the returns on an adjusted share price (after accounting for share splits, bonus and dividend) of all BSE 500 companies in the past 10 years (from 28 March 2002 to 31 March 2011). At the first screening, companies that were not listed for all of the past 10 years had to be removed. That left us with 314 companies.

In the next stage, share prices of companies on two dates (28 March 2002 and 31 March 2011) were calculated. Their return was compared with the absolute return of BSE 500 and with an assured return product — National Saving Certificate — that posted returns of 538.56 per cent and 118 per cent, respectively. Then, returns were calculated year on year between 2002 and 2011, and compared with each year's BSE 500 returns to decide whether the company over-performed or under-performed in each year. The study provided 20 companies that recorded a performance below 118 per cent returns in the past 10 years. Of these, six companies eroded capital.

The study threw up 227 winners that outperformed the BSE 500 index. But in order to arrive at a list of winners who outperformed consistently, as opposed to freak returns in a couple of years, the list of winners only comprises of those companies whose year-on-year returns were better than BSE 500 returns in at least seven out of the 10 years. This issue carries the top 50 among the stock value creators and destroyers.


(This story was published in Businessworld Issue Dated 14-11-2011)

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