Wealth Creation Study 2002-2007

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Information about Wealth Creation Study 2002-2007
Business & Mgmt

Published on March 11, 2014

Author: MotilalOswalltd

Source: slideshare.net

Description

The most special feature of MOSt Research is the Wealth Creation Report. It is work of the foremost value investor in India and the joint MD and promoter– Mr. Raamdeo Agrawal. An equity research stalwart, Mr. Agrawal analyses the most consistent, the fastest and the biggest value creators in the Indian equity universe every year. Though the study is done every year, the report is timeless in its use. The report is unveiled at a special annual function, where the best are felicitated. The Wealth Creation Report is available on request as soft copy or printed format

www.motilaloswal.com12th Annual Wealth Creation Study 12th Annual Wealth Creation Study 2002-2007 By Raamdeo Agrawal December 14, 2007

www.motilaloswal.com12th Annual Wealth Creation Study Concept Wealth Creation: The process by which a company enhances market value of the capital entrusted to it by its shareholders

www.motilaloswal.com12th Annual Wealth Creation Study Wealth Creation Study Methodology Wealth Creators: Companies which created at least Rs100 crores of wealth between 2002 and 2007 (adjusted for corporate events such as mergers, de-mergers, equity issues, etc)

www.motilaloswal.com12th Annual Wealth Creation Study The 10 Biggest Wealth Creators Rank Company Net Wealth Created Price Price Rs crores % share Apprec. (X) 7.7 4.8 19.9 4.3 6.9 13.4 23.3 17.9 4.5 2.0 CAGR (%) 1 Reliance Inds. 185,551 11.4 50 2 O N G C 149,020 9.1 37 3 Bharti Airtel 136,578 8.4 82 4 Infosys Tech. 85,471 5.2 34 5 ICICI Bank 56,564 3.5 47 6 B H E L 51,201 3.1 68 7 S A I L 45,104 2.8 88 8 Larsen & Toubro 43,277 2.7 78 9 S B I 40,688 2.5 35 10 Wipro 39,361 2.4 15 Total of above 832,815 51.0 Total of 100 cos. 1,632,267 100.0

www.motilaloswal.com12th Annual Wealth Creation Study The 10 Fastest Wealth Creators Rank Company Price Appre- Price MCap 2002 ciation (X) CAGR (%) (Rs cr) 1 BF Utilities 665 267 13 2 Unitech 497 246 63 3 Anant Raj Inds. 401 232 4 4 Praj Inds. 274 207 9 5 Aban Offshore 144 170 44 6 Kirl. Brothers 110 156 35 7 Guj. Flouro 76 138 43 8 Sesa Goa 70 134 95 9 Areva T&D 57 124 76 10 Pantaloon Retail 51 120 59

www.motilaloswal.com12th Annual Wealth Creation Study The Most Consistent Wealth Creators Rank Company Appeared In 15-yr Price WC Study (X) CAGR (%) 24 14 47 36 23 20 19 12 10 8 1 Hero Honda Motor 12 2 Ranbaxy Labs. 12 3 Wipro 11 4 Cipla 11 5 Dr Reddy's Labs. 11 6 H D F C 11 7 Asian Paints 10 8 ITC 10 9 Nicholas Piramal 10 10 GSK Pharma 10

www.motilaloswal.com12th Annual Wealth Creation Study Wealthex v/s Sensex (2002-2007) Year ending March 2002 2003 2004 2005 2006 2007 5-Year CAGR (%) BSE Sensex 3,469 3,049 5,591 6,493 11,280 13,072 30 YoY change (%) -12 83 16 74 16 Wealthex-rebased 3,469 3,529 7,706 9,590 16,671 19,261 41 YoY change (%) 2 118 24 74 16 Sensex EPS (Rs) 201 272 348 450 523 718 29 YoY change (%) 35 28 29 16 37 Sensex PE (x) 17 11 16 14 22 18 Wealthex EPS (Rs) 284 442 564 761 860 1,174 33 YoY change (%) 56 28 35 13 37 Wealthex PE (x) 12 8 14 13 19 16

www.motilaloswal.com12th Annual Wealth Creation Study Wealth Creation by Industry Industry (No. of cos.) Wealth Created (Rs cr) Share of WC (%) Oil & Gas (7) 398,056 24 Banking & Finance (11) 208,313 13 Engineering (13) 171,086 10 IT (6) 168,659 10 Metals (10) 148,465 9 Telecom (2) 142,690 9 Auto (10) 96,116 6 FMCG (7) 65,405 4 Pharma (10) 60,118 4 Cement (5) 45,359 3 Others (8) 42,209 3 Constn / Real Estate (3) 37,691 2 Ultility (4) 25,307 2 Media (2) 14,652 1 Retail (2) 8,141 0 Total 16,32,267 100

www.motilaloswal.com12th Annual Wealth Creation Study Wealth Creation by Mcap (Base Year) Price CAGR by MCap : The rise of Indian Entrepreneurship 2002 Mid-Cap Range (Rs crores) 136 76 51 51 33 25 69 34 < 200 200-500 500-1000 1000-2000 2000-5000 5000-10000 10000- 20000 >20000 Avg Price CAGR: 41%

www.motilaloswal.com12th Annual Wealth Creation Study Wealth Creation by Earnings Growth Earnings Growth Range (%) 28 28 46 52 70 32 68 0-10 10-20 20-30 30-40 40-50 50-70 >70 Avg Price CAGR: 41% Price CAGR by Earnings Growth Range : Higher the better

www.motilaloswal.com12th Annual Wealth Creation Study Wealth Creation based on ROE ? Price CAGR by ROE in 2002 : Bargains are found when the markets are blind to change 72 69 45 30 39 27 25 17 <5 5-10 10-15 15-20 20-25 25-30 30-40 >40 Avg Price CAGR:41% Return-risk balance Bargains 2002 ROE Range (%)

www.motilaloswal.com12th Annual Wealth Creation Study Wealth Creation by Age Group Price CAGR by Age Range : Young companies have speed Age range in years 100 49 106 39 45 35 313134 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 >90 Avg Price CAGR : 41%

www.motilaloswal.com12th Annual Wealth Creation Study PSUs v/s Private Companies Value Migration from Public to Private sector 49 25 28 30 26 18 36 51 1999-2004 2000-2005 2001-2006 2002-2007 % Wealth Created No. of PSUs

www.motilaloswal.com12th Annual Wealth Creation Study “There is absolutely no substitute for paying right price. In the Bible, it says that love covers a multitude of sins. Well, in the investing field, price covers a multitude of mistakes. For human beings, there is no substitute for love. For investing there is no substitute for paying right price – absolutely none.” — Van Dan Berg, OID, April 2004 Wealth Creation by Value Parameters

www.motilaloswal.com12th Annual Wealth Creation Study Wealth Creation by Value Parameters Purchase price is critical BASE YEAR P/E 2002 P/E (x) No of Cos. Share of WC (%) Price CAGR (%) < 5 23 21 56 5-10 29 40 44 10-15 14 15 43 15-20 14 8 37 > 20 20 16 28 Total 100 100 41 BASE YEAR PRICE/BOOK 2002 Price to Book (x) No of Cos. Share of WC (%) Price CAGR (%) < 1 45 28 65 1-2 29 48 43 > 2 26 24 28 Total 100 100 41

www.motilaloswal.com12th Annual Wealth Creation Study Top Wealth Destroyers (2002-2007) Even Blue Chips can turn Red !! Company Wealth Destroyed Price Rs Crores % Share CAGR (%) Hindustan Unilever 4,442 31 -2 Pentamedia Graphics 3,289 23 -47 H P C L 1,495 11 -3 Silverline Technologies 317 2 -4 Mascon Global 252 2 18 Morepen Labs. 245 2 -4 LML 219 2 -14 Rashel Agrotech 213 2 -61 Baffin Engg. 205 1 -50 Total of above 10,676 75 -3 Total Wealth Destroyed 14,155 100 -4

www.motilaloswal.com12th Annual Wealth Creation Study Theme 2008 India : The Next Trillion $$$ Opportunity !!

www.motilaloswal.com12th Annual Wealth Creation Study 101 136 184 198 210 246 293 317 260 324 386 414 461 509 696 1,006 2,003 1,355 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009E 2011E First US$ Trillion Second US$ Trillion CAGR of 14.8% CAGR of 6.2% for 25 years CAGR of 16% in 5 years US$100 bn to US$1,000 bn - 30 Years US$1,000 bn to US$2,000 bn - 5 Years India’s Journey – 1977 to 2012

www.motilaloswal.com12th Annual Wealth Creation Study India Shining … in the world too! 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 1.9% of World GDP of $11 Trillion 1.1% of World GDP of $25 Trillion 1.8% of World GDP of $48 Trillion 1.0 2.0 3.0 4.0 5.0 1980 1985 1990 1995 2000 2005 Following the Chinese trail … India China India: Share of World GDP (%)

www.motilaloswal.com12th Annual Wealth Creation Study Exponentiality in the NTD Era • Macro-economic exponentiality • Exponentiality in key industries • Corporate profit exponentiality • Valuation exponentiality

www.motilaloswal.com12th Annual Wealth Creation Study Macro economic exponentiality — Consumption — Government — Investment — External Sector

www.motilaloswal.com12th Annual Wealth Creation Study 73.9 75.1 71.0 67.3 66.2 65.2 56.4 56.4 18.8 19.0 22.6 20.4 18.3 19.5 18.7 22.6 6.7 8.4 8.2 12.3 16.6 16.2 27.7 23.8 -2.8-2.8-0.9-1.2-1.8-2.5 0.5 1977 1982 1987 1992 1997 2002 2007 2012 Consumption (%) Govt (%) Pvt Invt (%) Net exports (%) GDP ( US$ b ) 101 190 246 268 386 480 1,006 2,003 The Big Picture India’s GDP breakdown (exp. approach) – C + G + I + X

www.motilaloswal.com12th Annual Wealth Creation Study Consumption exponentiality

www.motilaloswal.com12th Annual Wealth Creation Study Accelerating Per Capita GDP, but … 451 357 897 1,657 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Per Capita GDP expected to grow to US$1,657 in 2012 from US$897 in 2007 Acceleration in Per Capita GDP from 2000 CAGR of 2.4% CAGR of 10.3% CAGR of 12.8%

www.motilaloswal.com12th Annual Wealth Creation Study 14.6 15.4 17.1 18.7 20.6 23.3 45.1 39.8 35.0 30.8 27.0 64.1 62.8 61.8 59.7 57.9 56.9 56.8 56.8 56.7 56.6 56.4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Private final conspn. exp. (Rs lakh cr) PFCE (% to GDP) … Consumption Lagging GDP Growth PRIVATE FINAL CONSUMPTION EXPENDITURE TO GDP (%)

www.motilaloswal.com12th Annual Wealth Creation Study … Consumption Lagging GDP Growth Consumption & Saving pattern determined by income distribution 60 30 10 Population (mln) 30 36 34 Share of Income 33 37 30 Share of Cons. Exp. Top 10% income Next 30% income Bottom 60%

www.motilaloswal.com12th Annual Wealth Creation Study Consumption Exponentiality – Comforts & Luxuries % TO GDP CAGR (%) 2000-06 2006-15 Nominal GDP 10.6 14.2 Consumption Exp. 8.7 13.8 Luxuries 15.9 16.6 Comforts 13.8 15.6 Necessities 4.6 11.3 High-growth categories Beverages 25.3 19.5 Communication 18.4 19.5 Educ. & Recreation 12.3 18.6 Personal transport 17.5 18.1 Hotels & restaurants 13.0 17.2 Healthcare 16.3 17.2 42.1 36.3 30.2 23.9 11.9 13.6 14.1 15.7 10.3 12.8 13.6 16.4 2000 2003 2006 2015 64.2 62.8 57.9 56.0 Necessities Comforts Luxuries

www.motilaloswal.com12th Annual Wealth Creation Study Government finance exponentiality

www.motilaloswal.com12th Annual Wealth Creation Study Tax Buoyancy Boosts Government Finance India’s Tax Collection to GDP is rising 10,56,100 7,34,200 4,66,500 1,87,1001,71,700 3,04,900 13.4 8.2 11.6 10.3 8.8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Direct Tax Indirect Tax Tax % to GDP

www.motilaloswal.com12th Annual Wealth Creation Study Revenue Deficit As % Of GDP : down to zero in 2008-09 4.4 3.6 2.5 7.0 5.8 2.7 1.2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Centre Combined Centre & State Exponential Impact of Tax Buoyancy

www.motilaloswal.com12th Annual Wealth Creation Study Combined Fisc capped at 6% of GDP : thrust on capex 6.2 4.5 3.7 3.0 3.0 9.9 8.5 6.7 6.0 6.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Centre Combined Centre & State Exponential Impact of Improved Govt Finance

www.motilaloswal.com12th Annual Wealth Creation Study Investment exponentiality

www.motilaloswal.com12th Annual Wealth Creation Study Exponential thrust on infrastructure Infrastructure Spend rising to 9.2% of GDP by end of XI Plan 7,38,049 4,43,606 2,50,490 1,75,089 1,14,053 5.6 9.2 7.2 6.0 5.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Infra. spend (Rs cr) % to GDP CAGR of 17% CAGR of 24%

www.motilaloswal.com12th Annual Wealth Creation Study Exponential growth in private sector investment Housing and corporate capex drive capital formation 12,69,500 11,42,700 9,40,000 7,65,900 6,00,500 4,71,200 3,64,800 26.727.4 26.4 24.5 21.7 19.2 16.0 2002 2003 2004 2005 2006 2007 2008 Private Capex (Rs cr) Private Capex (% to GDP)

www.motilaloswal.com12th Annual Wealth Creation Study External Sector exponentiality

www.motilaloswal.com12th Annual Wealth Creation Study India’s Foreign Trade 17 18 18 19 22 26 32 33 35 33 37 44 44 53 64 84 103 126 -21 -24 -20 -22 -23 -29 -37 -39 -42 -42 -50 -50 -52 -62 -78 -111 -149 -190 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Exports - $ B Imports - $ B 2002-07 CAGR : 23% 2002-07 CAGR : 30%

www.motilaloswal.com12th Annual Wealth Creation Study -1.0 -1.3 -0.4 2.5 1.4 0.8 -0.6 -1.1-1.1 -1.5-1.3 -1.8 -1.2 -0.5 -1.6 -0.5 -3.4 4.5 3.2 4.4 3.0 2.3 1.92.1 2.5 2.1 2.5 3.1 0.7 2.5 3.6 2.4 2.0 3.0 200720052003200119991997199519931991 Current Account Balance (% of GDP) Foreign Capital Inflow (% of GDP) Forex capital flows higher than CAD

www.motilaloswal.com12th Annual Wealth Creation Study 199 152 141 110 75 54 4238 32 2622 1721 15 662 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 Exponential Rise in Forex Reserves Figures in US$ billion

www.motilaloswal.com12th Annual Wealth Creation Study Exponentiality in key industries

www.motilaloswal.com12th Annual Wealth Creation Study Financial Services High Level Of Domestic Savings 113 134 179 216 261 313 384 437 498 567 646 32.332.332.4 23.5 29.7 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Gross Domestic Savings (US$ B) Gross Domestic Savings / GDP (%) Cumulative $900 b Cumulative $2,500 b

www.motilaloswal.com12th Annual Wealth Creation Study Financial Services India’s Credit / GDP (%) among the lowest in the world 319 224 206 185 168 144 136 133 111 110 86 83 71 57 51 136 51 Japan USA Canada South Africa UK Malaysia China Germany New Zealand Thailand France Chile Brazil Singapore Turkey Philippines India

www.motilaloswal.com12th Annual Wealth Creation Study Wireless Telecom Mobile Penetration (% Of Population) - India Vs China 35.1 30.1 25.8 20.9 11.4 16.0 14.3 8.6 5.0 3.2 1.20.6 2001 2002 2003 2004 2005 2006 CHINA INDIA

www.motilaloswal.com12th Annual Wealth Creation Study Cars Cars ('000 nos.) - India Vs China 571 507 607 704 1,092 2,071 2,276 2,770 3,870 410 639 591 558 612 819 981 1,052 1,269 1998 1999 2000 2001 2002 2003 2004 2005 2006 CHINA INDIA

www.motilaloswal.com12th Annual Wealth Creation Study Engineering & Construction Beneficiary of huge spend in infrastructure 7,38,049 4,43,606 2,50,490 1,75,089 1,14,053 5.6 9.2 7.2 6.0 5.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Infra. spend (Rs cr) % to GDP CAGR of 17% CAGR of 24%

www.motilaloswal.com12th Annual Wealth Creation Study Cement Cement Production (Million Tonnes) - India Vs China 536512 573 597 661 725 862 967 1,069 1,240 77 82 94 94 102 111 117 126 142 155 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 CHINA INDIA

www.motilaloswal.com12th Annual Wealth Creation Study Steel Crude Steel Production (Million Tonnes) - India Vs China 283 222 353 420 32 32 39 43 2003 2004 2005 2006 CHINA INDIA

www.motilaloswal.com12th Annual Wealth Creation Study Market Outlook

www.motilaloswal.com12th Annual Wealth Creation Study High Corporate Tax Buoyancy Past Corporate Tax Buoyancy – multiple of nominal GDP growth Financial Year Corporate Tax Buoyancy 1995-96 2.19 1996-97 2.21 1997-98 2.18 1998-99 2.22 1999-00 2.25 2000-01 2.26 2001-02 2.29 2002-03 2.29 2003-04 2.33 2004-05 2.29 2005-06 2.31

www.motilaloswal.com12th Annual Wealth Creation Study Healthy Corporate Sector Profit Growth Corporate Profits To GDP (%) : At all time highs 1.3 1.6 2.2 3.5 2.4 1.8 2.1 5.0 3.1 5.8 6.7 7.8 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

www.motilaloswal.com12th Annual Wealth Creation Study Interest Rate scenario benign-to-favourable 10-year GSec yield : seems to have plateau-ed 11.7 5.1 7.9 14 4.0 6.5 9.0 11.5 14.0 Nov-92 Nov-93 Nov-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07

www.motilaloswal.com12th Annual Wealth Creation Study Earnings yield to bond yield < 15-year average 0.6 1.8 0.2 0.0 0.3 0.6 0.9 1.2 1.5 1.8 Nov-92 Nov-93 Nov-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 15 Year Average: 0.74x

www.motilaloswal.com12th Annual Wealth Creation Study Market Cap to GDP (%) - All Time High 19 54 24 43 43 44 29 51 26 26 23 43 54 85 86 136 34 37 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Nov-07

www.motilaloswal.com12th Annual Wealth Creation Study Sensex EPS & PE Future EPS growth of 20% - slower than 30% of last five years 201 1,772 1,477 1,231 1,026 523 348 272 450 718 876 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E CAGR of 29% CAGR of 20% 0 5 10 15 20 25 30 35 40 45 Nov-07Nov-04Nov-01Nov-98Nov-95Nov-92 15 Year Median: 15.7x P/E higher than 15-year median

www.motilaloswal.com12th Annual Wealth Creation Study • Bargains are made when markets are blind to large opportunities, positive changes or sustained growth • Losses are guaranteed when one grossly overpays • India's next trillion dollar journey will see distinctly buoyant corporate profits; boom in savings & investment • At current market valuations, margin of safety is low • High liquidity could lift the market to rich valuation levels for quite some time In Conclusion

www.motilaloswal.com12th Annual Wealth Creation Study Thank You & Happy Wealth Creating in the NTD era !!

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