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India’s Biggest Wealth Creators FY2010-11
With Exclusive Interviews and Incisive Insights, B&E brings The Annual listing of India’s top wealth Creators during The Financial year 2010-2011; Companies that gave The Largest Rise in Market Capitalisation for their Shareholders!
Issue Date - 26/05/2011
 
In what can be called a radical column, published in Bloomberg Businessweek in January 2010, two INSEAD professors N. Craig Smith and Luk Van Wassenhove had blamed business schools, “indirectly” though, for the 2007-09 global financial meltdown. And the reason was their adherence to and perpetuation of an ideology – Shareholder Value Maximization (SVM) – that, they said, contributed significantly to the crisis. They expressed the view that this model has resulted in serving only the interests of shareholders and the managers who are its adherents than the economy per se, at least when the compensation of top managers is pegged to shareholder returns. Backed by such ideologies, critics of SVM also argued that managing for shareholders’ value actually encourages executives to overemphasize the short term performance and thereby boost share prices to garner higher performance related pays. Similar was the criticism from many other intellectuals on this fanatic focus on shareholders’ wealth CEOs maintained. In such a scenario, should appreciation in shareholder value be considered as real wealth creation by a company?

Jumping straight to the kill, the answer is yes. And before we disclose to you the biggest wealth creators for FY 2011, perhaps it’s necessary to explain why shareholder value maximisation is and should remain the key indicator for corporate performance, and why it should be treated with utmost importance in every B-school. The biggest reason, of course, is the very fact that the concept of SVM never forces companies to overplay short-term benefits at the cost of long-term sustainability. Secondly, as we said in our last year’s edition of B&E Wealth Creators, “Gone are the days when some corporate house could make a grandiose announcement, hype over it through scrappily sassy PR and see investors falling hook, line and sinker for the same, raising their bids for the company’s stocks, which ultimately would end up increasing the company’s market cap to unparalleled highs.” More so for the brazenly cheeky, impudently crusty, Goldmansquely audacious Foreign Institutional Investors FIIs, who now constitute the largest part of the global investors, and are armed with supremely qualified analytical tools that looked through ostentatious corporate window dressing and ensured that market dynamics were driven less by company spiel, and more by actual action. And last, but not the least, as Boston Consulting Group (BCG) put it, “Sustainable improvements in shareholder value not only lays the foundation for a long term survival, but also ensures long term return to all stake holders.” Now that the kill is done, we move to the diatribe.

 
B&E hall of fame:
Financial year 2010-11 was not a year of turbulence like the two preceding financial years, but at the same time, the stock market performance during the year had its own ups and downs forcing the Indian benchmark Sensex to end the year with a mediocre gain of just about 10%, surging from 17,692 on April 1, 2010 to close at 19,445 on the last trading day of the fiscal. But the companies that played on fundamentals and showed immense character amid rising input costs, managed to put up a huge show for their shareholders, whereas those who believed purely on perception building reeled under market pressure. The table of those who performed (absolute change in M-cap) is led by none other than India’s numero uno IT company Tata Consultancy Services (TCS). Despite exchange rate concerns, TCS added a mind-boggling Rs.733 billion to its market cap making its shareholders laugh all the way to the bank with a return of 46.39% for the year. But the show stopper for investors in the last fiscal was Adani Enterprises, which not only emerged as the second largest M-cap earner in the last fiscal with an addition of Rs.510 billion to its market value, but also emerged as the number one among the BSE 500 companies in terms of year-on-year change in M-cap with a whopping 200% jump over its market cap at the end of financial year 2009-10. (See annexure for the detailed list of Wealth Creators 2010-11).

Delivering value on a sloppy economy:
Calling the economic conditions sloppy may not be very correct, but considering a slower growth rate, high inflation, unstable crude price, rising commodity prices and ‘yet to recover’ global economic conditions, well, the business environment was certainly not conducive enough for India Inc. to deliver great value. And not very surprisingly, some of the big brothers of the industry, like Reliance Industries, MMTC and SAIL, who were among the top 10 wealth creators last year, fell prey to the circumstances by losing as much as Rs.147 billion (4%), Rs.340 billion (33%) and Rs.652 billion (41%) respectively. But under the same conditions, companies like Adani Enterprises, Delta Corp (160% y-o-y growth in M-Cap), M&M Financials (124% y-o-y growth), Manappuram General Finance (114%) and Gitanjali Gems Ltd (108%) have created wealth for their investors at a much faster rate. And the reasons for the same are the basic principles, ranging from investment in R&D and product development to globalisation and an appropriate combination of organic and inorganic strategies. What can be better an example than Tata Motors in this context? Rs.19.58 billion of the company’s reported consolidated net profit after tax of Rs.24.24 billion (81%) in Q3 FY 2011 has been contributed by its subsidiary Jaguar and Land Rover.

Be prepared to create value in an inf lation-led economy:
The biggest problem for India at present is inflation; and considering that both RBI and the government will now have to initiate strong measures to control inflation, growth for sure will take a hit. Already, RBI has cut its GDP growth forecast for the fiscal to 8% from government estimations of 9%. And operating in such an economy will certainly call for some improved skills on part of the companies. Even ‘killer stocks’ have been hit critically in the recent past. For example, stocks of RIL, ranked as #2 value creator globally by BCG on basis of its performance between 2005 and 2009, underperformed in FY2011 despite the refining and petrochemical business doing well. Given that RBI will continue to remain blind to the fact that the Indian inflation is purely a supply side than a demand side issue, one would continue seeing quantum jumps in the interest rates to a point where the Indian economic growth could well fall below 6% in the case of a structural collapse.

          

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