January 19, 2012 Strategy STRATEGY THEMATIC Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please refer to disclaimer section on the last page for further important disclaimer. Analyst contacts Gaurav Mehta Tel: +91 22 3043 3255 [email protected]Saurabh Mukherjea, CFA Tel: +91 22 3043 3174 [email protected]Exhibit 1: The Great 25 Company Ticker Mcap ($mn) Attractive Valuations* B H E L BHEL IN 13,240 Tata Power Co. TPWR IN 4,592 Cadila Health. CDH IN 2,621 Cummins India KKC IN 2,117 Castrol India CSTRL IN 2,068 Exide Inds. EXID IN 2,018 Torrent Pharma. TRP IN 911 G S F C GSFC IN 607 Voltas VOLT IN 545 Sadbhav Engg. SADE IN 340 Bajaj Electrical BJE IN 327 Mahindra Life. MLIFE IN 206 ICRA ICRA IN 168 Moderate Valuations** Nestle India NEST IN 7,683 Asian Paints APNT IN 5,171 Lupin LPC IN 3,814 Titan Inds. TTAN IN 3,219 CMC CMC IN 555 Elgi Equipment ELEQ IN 211 Rich Valuations*** ITC ITC IN 31,969 GlaxoSmith C H L SKB IN 2,045 Coromandel Inter CRIN IN 1,468 CRISIL CRISIL IN 1,289 EID Parry EID IN 670 Supreme Inds. SI IN 460 Source: Ambit Capital research; * Trading below 5 year P/E, P/B, EV/EBITDA (on at least 2 of these 3 measures) ** Trading below either 5 year P/E, 5 year P/B or 5 year EV/EBITDA (on 1 of these three measures) *** Trading above 5 year P/E, P/B, EV/EBITDA Tomorrow’s ten baggers 31 firms have outperformed the BSE100 by 10x or more since 1996 (excluding Financials or firms with market cap less than US$100mn). We take a subset of these 31 and identify the drivers of their outperformance i.e. the operating levers which differentiate great firms from the rest of the market. We then apply these drivers of greatness in today’s context to identify 71 firms in the BSE500 (which are most able to deliver on these drivers). Of these 71 firms, 25 pass our accounting cleanliness and governance filters (see Exhibit 1). This is the “Great 25”. Going beyond “Good & Clean” and thinking long term Whilst the consistent and marked outperformance of our Good & Clean (G&C) portfolios over the past year has attracted attention, we have also been criticised by clients for the ‘short termism’ of the G&C portfolios. (The G&C portfolios are constructed using: (i) a battery of financial tests based on the previous fiscal year’s data, and (ii) our forensic accounting model. Each G&C portfolio typically runs for a quarter before we revise it.) Hence, in this note we have used multi-year financial analysis to create a list of 25 great Indian companies that have the potential to be tenbaggers in the coming decade. Step 1: Defining greatness We identify firms that have delivered 10 times as much returns as the BSE100 over the last 15 years. We call these firms 10Xers. After filtering such firms (there are 31 of them) for weak accounting quality and corporate governance, we get a final list of 14 stocks. It is these 14 stocks that we use to identify the drivers of greatness. Step 2: The drivers of greatness We identify what differentiates a great firm relative to an average firm at each stage of the value generation process: investment, conversion of these investments to sales, pricing discipline, balance sheet discipline and cash generation. Not only do the great firms perform significantly better than an average firm on a variety of measures encompassing the five aforementioned stages, even more interestingly the great firms show a more consistent and calibrated approach to growth over long periods of time. Step 3: Investment implications We apply the winning formula (i.e. the drivers of greatness) to the BSE500 ex- Financials universe of firms over the more recent past (FY06-FY11). We find that 71 firms are able to muster passing scores on two-thirds of the drivers. Of these 71, 25 firms pass our accounting quality and corporate governance standards. These 25 firms are shown in Exhibit 1. Of these 25 firms, 13 are trading below their five year valuation averages. Many of the firms which emerge from this filtering approach – Tata Power, BHEL, Voltas, Cummins – are cyclicals. Obviously, the fate of these firms is tied to the economy and the interest rate cycle. However, to the extent that we are relatively close to a turn in the rate cycle, even from a cyclical perspective these companies look relatively well placed.
Transcript
January 19, 2012
Strategy
STRATEGY THEMATIC
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to disclaimer section on the last page for further important disclaimer.
* Trading below 5 year P/E, P/B, EV/EBITDA (on at least 2 of these 3 measures)
** Trading below either 5 year P/E, 5 year P/B or 5 year EV/EBITDA (on 1 of these three measures)
*** Trading above 5 year P/E, P/B, EV/EBITDA
Tomorrow’s ten baggers 31 firms have outperformed the BSE100 by 10x or more since 1996 (excluding Financials or firms with market cap less than US$100mn). We take a subset of these 31 and identify the drivers of their outperformance i.e. the operating levers which differentiate great firms from the rest of the market. We then apply these drivers of greatness in today’s context to identify 71 firms in the BSE500 (which are most able to deliver on these drivers). Of these 71 firms, 25 pass our accounting cleanliness and governance filters (see Exhibit 1). This is the “Great 25”.
Going beyond “Good & Clean” and thinking long term Whilst the consistent and marked outperformance of our Good & Clean (G&C) portfolios over the past year has attracted attention, we have also been criticised by clients for the ‘short termism’ of the G&C portfolios. (The G&C portfolios are constructed using: (i) a battery of financial tests based on the previous fiscal year’s data, and (ii) our forensic accounting model. Each G&C portfolio typically runs for a quarter before we revise it.) Hence, in this note we have used multi-year financial analysis to create a list of 25 great Indian companies that have the potential to be tenbaggers in the coming decade.
Step 1: Defining greatness We identify firms that have delivered 10 times as much returns as the BSE100 over the last 15 years. We call these firms 10Xers. After filtering such firms (there are 31 of them) for weak accounting quality and corporate governance, we get a final list of 14 stocks. It is these 14 stocks that we use to identify the drivers of greatness.
Step 2: The drivers of greatness We identify what differentiates a great firm relative to an average firm at each stage of the value generation process: investment, conversion of these investments to sales, pricing discipline, balance sheet discipline and cash generation.
Not only do the great firms perform significantly better than an average firm on a variety of measures encompassing the five aforementioned stages, even more interestingly the great firms show a more consistent and calibrated approach to growth over long periods of time.
Step 3: Investment implications We apply the winning formula (i.e. the drivers of greatness) to the BSE500 ex-Financials universe of firms over the more recent past (FY06-FY11). We find that 71 firms are able to muster passing scores on two-thirds of the drivers. Of these 71, 25 firms pass our accounting quality and corporate governance standards. These 25 firms are shown in Exhibit 1. Of these 25 firms, 13 are trading below their five year valuation averages.
Many of the firms which emerge from this filtering approach – Tata Power, BHEL, Voltas, Cummins – are cyclicals. Obviously, the fate of these firms is tied to the economy and the interest rate cycle. However, to the extent that we are relatively close to a turn in the rate cycle, even from a cyclical perspective these companies look relatively well placed.
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Step 1: Defining greatness We begin our analysis by identifying greatness on the basis of stock market outperformance. We identify firms which have delivered 10 times as much return as the BSE100 over the last 15 years and call these firms 10Xers. With 1996 as the initial year, we look for all firms which were listed then or subsequently, and have, over the period of their existence, delivered 10 times the returns of the benchmark BSE100 index.
This gives us a list of 31 such firms from the universe of all listed firms’ (excl Financial Services firms) with a market cap of over US$100mn. We then filter these firms for accounting quality and corporate governance to get a final list of 14 stocks. It is these 14 stocks or 10Xers that we focus on in ”Step 2” of this note.
Exhibit 1: 10Xers*
Source: Ambit Capital research. * “10xers” is a term popularized by the American business guru Jim Collins in his latest book “Great by Choice”. We are avid fans of Mr.Collins and have tried to apply his thinking in the Indian context of rapid economic change and insufficient data.
Obviously, over the years, these 10Xers have delivered better RoCEs, RoEs and EPS CAGR than an average firm and this has contributed to their stellar performance versus the benchmark. This can be readily seen in exhibit 2.
10Xers since 1996 Company Bloomberg Ticker
Infosys INFO IN Equity
Wipro WPRO IN Equity
NMDC NMDC IN Equity
Sun Pharma.Inds. SUNP IN Equity
Hind.Zinc HZ IN Equity
Jindal Steel JSP IN Equity
Hero Motocorp HMCL IN Equity
Adani Enterp. ADE IN Equity
Sterlite Inds. STLT IN Equity
Exide Inds. EXID IN Equity
Glenmark Pharma. GNP IN Equity
Coromandel Inter CRIN IN Equity
United Phosp. UNTP IN Equity
Motherson Sumi MSS IN Equity
G M D C GMDC IN Equity
Havells India HAVL IN Equity
Rajesh Exports RJEX IN Equity
Pantaloon Retail PF IN Equity
Opto Circuits OPTC IN Equity
Berger Paints BRGR IN Equity
Phoenix Mills PHNX IN Equity
Nava Bharat Vent NBVL IN Equity
KPIT Infosys. KPIT IN Equity
Praj Inds. PRJ IN Equity
BF Utilities BFUT IN Equity
Kemrock Inds. KRI IN Equity
Kwality Dairy KLD IN Equity
NESCO NSE IN Equity
Hawkins Cookers HAWK IN Equity
CRISIL CRISIL IN Equity
Chromatic India CRDS IN Equity
Our Focus Set for Step 2 Company Bloomberg Ticker
Infosys INFO IN Equity
Wipro WPRO IN Equity
CRISIL CRISIL IN Equity
Hind.Zinc HZ IN Equity
Hero Motocorp HMCL IN Equity
Exide Inds. EXID IN Equity
Coromandel Inter CRIN IN Equity
Motherson Sumi MSS IN Equity
Rajesh Exports RJEX IN Equity
Phoenix Mills PHNX IN Equity
Nava Bharat Vent NBVL IN Equity
KPIT Infosys. KPIT IN Equity
Praj Inds. PRJ IN Equity
Hawkins Cookers HAWK IN Equity
Our accounting and governance filters
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Exhibit 2: 10Xers over BSE100 - RoE, RoCE and EPS
FY96-11 10xers v/s BSE100 Average Median
Measure 10Xers BSE100 10Xers BSE100
EPS (CAGR %) 28 12 28 12
EPS (CAGR/Standard deviation) 0.53 0.34 0.50 0.21
RoE (Change- last 5 yrs v/s first 5 yrs)* 15.1 1.8 12.2 (0.7)
RoE (CAGR/Std Dev) 0.02 (0.11) 0.03 (0.02)
RoCE (Change- last 5 yrs v/s first 5 yrs)* 13.9 0.5 9.4 0.4
RoCE (CAGR/ Standard deviation) 0.03 (0.11) 0.04 (0.02)
Source: Ambit Capital research, Capitaline
* For example, for a firm listed since 1996, this will be the change between the average value for FY2007-2011 over the average for FY1996-2000
Not just growth, ‘consistent’ growth
Before we go into the next section to understand what made these firms so successful, it is worth highlighting a very important fact about the 10Xers - they haven’t just beaten the benchmarks in terms of EPS, RoE and RoCE improvements; they have done so more consistently than other firms in the market (see the table above). This has resulted in higher CAGR to standard deviation measures (i.e. better growth adjusted for noise) on all these three counts for the 10Xers. However, the more interesting question is: “What was the recipe for their success?”- “What was it that these firms did differently to start with that helped them generate superior financial performance and shareholder returns?” To answer this question and thereby identify the drivers of greatness, we turn to the next section.
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Step 2: The drivers of greatness To identify the drivers of greatness, we use the following chart as a framework to understand what the 10Xers do differently at each stage of a firm’s value addition process.
Exhibit 3: Framework for determining drivers of greatness
Source: Ambit Capital research
a. Investment
The first step in a firm’s value generation process is obviously investment.
Exhibit 4: Markers of greatness - Investment
FY96-11 10Xers v/s BSE100 Average Median
Measure 10Xers BSE100 10Xers BSE100
Gross Block (Change- last 5 yrs v/s first 5 yrs, %)* 1483 714 820 313
Net Block (Change- last 5 yrs v/s first 5 yrs, %)* 1466 659 793 295
Net Block (CAGR/Standard deviation) 0.61 0.46 0.58 0.41
Source: Ambit Capital research, Capitaline
* For example, for a firm listed since 1996, this will be the change between the average value for FY2007-2011 over the average for FY1996-2000
The 10Xers invest more (much more) than the average BSE100 firms (see the first and third rows of the table shown above). While this is to be expected, the more interesting finding from Exhibit 4 is that the 10Xers have shown more consistent and calibrated growth. This is evident from the fact that the CAGR to standard deviation ratio (i.e. better growth adjusted for noise) is higher for 10Xers versus the benchmarks on both gross block and net block.
b. Conversion of investment to sales (asset turnover, sales)
c. Pricing discipline (PBIT margin)
d. Balance sheet discipline (D/E, current ratio)
a. Investment (gross block)
e. Cash generation (CFO)
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b. Conversion to sales
After having made the investment decision, it is vital that a firm translates its investments into better sales. This can be monitored by measuring the change in asset turnover ratio or the growth in sales figures themselves.
Exhibit 5: Markers of greatness - Conversion to sales
FY96-11 10Xers v/s BSE100 Average Median
Measure 10Xers BSE100 10Xers BSE100
Fixed assets turnover (Change- last 5 yrs v/s first 5 yrs)* 0.82 0.59 0.83 (0.01)
Sales (CAGR/ Standard deviation ) 0.99 0.91 0.97 0.71
Source: Ambit Capital research, Capitaline
* For example, for a firm listed since 1996, this will be the change between the average value for FY2007-2011 over the average for FY1996-2000
Again, the 10Xers haven’t just shown better improvement on both Asset Turnover and Sales than the average BSE100 firms but have also achieved it in a more consistent and calibrated manner. This has meant higher CAGR to standard deviation ratio (i.e. better growth adjusted for noise) for the 10Xers versus the average firm on both these measures. c. Pricing discipline
After ensuring translation of higher investments to sales, the next key decision for a firm is pricing. What 10xers are able to do is to maintain pricing discipline. The concrete measure at this stage is operating margins.
Exhibit 6: Markers of greatness - Pricing discipline
FY96-11 10Xers v/s BSE100 Average Median
Measure 10Xers BSE100 10Xers BSE100
PBIT margin (Change - last 5 yrs v/s first 5 yrs)* 9.9 (0.7) 3.1 (0.6)
* For example, for a firm listed since 1996, this will be the change between the average value for FY2007-2011 over the average for FY1996-2000
Yet again, the 10Xers were found to be better both in terms of PBIT margin improvement as well as better CAGR to standard deviation ratio on this measure versus the average firm. (In fact the average BSE100 firm seems to have shed PBIT margin over the past decade.)
d. Balance sheet discipline
Whilst all the action described above takes place on the P&L, in a “high cost of capital” market like India, it is essential that a firm focus on maintaining Balance Sheet discipline. We look for improvements on debt-equity and current ratios to assess a firm’s ability to maintain a healthy Balance Sheet.
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Exhibit 7: Markers of greatness - Balance sheet discipline
FY96-11 10Xers v/s BSE100 Average Median
Measure 10Xers BSE100 10Xers BSE100
Net Debt Equity (Change- last 5 yrs v/s first 5 yrs)* (1.02) (0.25) (0.71) (0.24)
Net Debt Equity (CAGR/Standard deviation) (0.59) (0.32) (0.31) (0.01)
Current Ratio (Change- last 5 yrs v/s first 5 yrs)* (0.03) (0.23) (0.13) (0.26)
Current Ratio (CAGR/Standard deviation) (0.00) (0.06) (0.05) (0.08)
Source: Ambit Capital research, Capitaline * For example, for a firm listed since 1996, this will be the change between the average value for FY2007-2011 over the average for FY1996-2000
The 10Xers again score better not just on magnitude changes but also on CAGR to standard deviation ratio on both net debt equity and current ratio measures than the average firm.
Interestingly, whilst the 10xers seem to have delevered 3-4x more than the broader market over the past decade, it is encouraging to note that the broader market has also reduced its leverage over this period.
e. Cash generation
Eventually everything that a firm does should lead to better operating cashflow generation (especially over the long time periods that we are using here). Healthy cash generation also then feeds back toward funding investments for the future growth of the firm (which in turn kicks off the whole virtuous cycle all over again).
Exhibit 8: Markers of greatness - Cash generation
FY96-11 10Xers v/s BSE100 Average Median
Measure 10Xers BSE100 10Xers BSE100
CFO (Change- last 5 yrs v/s first 5 yrs, %)* 23.6 6.5 16.2 3.9
* For example, for a firm listed since 1996, this will be the change between the average value for FY2007-2011 over the average for FY1996-2000
The 10Xers again score better both on magnitude change (3-4x better than the average firm) as well as CAGR to standard deviation ratio versus the average firm.
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A framework for picking tomorrow’s multibaggers Having identified the drivers of greatness in the previous section, we now turn to identifying tomorrow’s multibaggers. For this we look for firms, which in more recent times (FY2006-FY2011), have replicated the same sort of operational metrics improvement which the 10Xers have shown over FY1996-2011, in terms of improvements across factors (a)-(e) outlined above. These improvements are not just magnitude based improvements but should also reflect consistency as measured by CAGR to standard deviation ratios. These steps (investment, conversion to sales, pricing discipline, financial discipline etc.), if undertaken, should then result in improvements in the bottomline as measured by EPS while also resulting in higher return ratios, as measured by RoEs and RoCEs. Again, these should not just be magnitude based improvements but also higher CAGR to noise improvements. We thus have a total of six heads which we weigh equally to provide each firm a cumulative greatness score on 100. Improvements are measured over the last six years (FY2006-FY2011). These six headings along with the respective sub-criteria are outlined below.
Exhibit 9: Factors used for quantifying and identifying greatness in India
Head Criteria Threshold or Medians
for BSE500 firms (over FY06-FY11)
1 Investments a. Above median gross block increase (FY09-11 over FY06-08) 80%
b. Above median gross block CAGR to standard deviation 0.95
2 Conversion to sales a. Improvement in asset turnover (FY09-11 over FY06-08) 0
b. Above median asset turnover CAGR to standard deviation (0.03)
c. Above median sales increase (FY09-11 over FY06-08) 80%
d. Above median sales CAGR to standard deviation 1.0
3 Pricing discipline a. Above median PBIT margin increase (FY09-11 over FY06-08) 0.07
b. Above median PBIT margin CAGR to standard deviation 0.06
4 Balance sheet discipline a. Below median Debt:Equity decline (FY09-11 over FY06-08) 0.03
b. Below median Debt:Equity CAGR to standard deviation (0.01)
c. Above median current ratio increase (FY09-11 over FY06-08) 0.04
d. Above median current ratio CAGR to standard deviation 0.10
5 Cash generation and EPS improvement a. Above median CFO increase (FY09-11 over FY06-08) 82%
b. Above median CFO CAGR to standard deviation 0.13
c. Above median EPS increase (FY09-11 over FY06-08) 33%
d. Above median EPS CAGR to standard deviation 0.27
6 Return ratio improvement a. Improvement in RoE (FY09-11 over FY06-08) 0
b. Above median RoE CAGR to standard deviation (0.05)
c. Improvement in RoCE (FY09-11 over FY06-08) 0
d. Above median RoCE CAGR to standard deviation (0.07)
Source: Ambit Capital research
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Quantifying greatness From the universe of BSE500 firms, after removing Financial Services firms and firms with insufficient data, there were 396 firms which we scored on the six headings highlighted on the previous page. The cut-off for greatness was placed at 66.7%* and there were just 71 firms (less than 18% of the total population of 396 firms) which could manage a score above this cut-off.
Exhibit 10: Distribution of firms on the greatness score
In the next exhibit, we present key financial data on the three zones defined above – Mediocrity (217 firms), Good but not great (107 firms), and Great (71 firms) - based on their degrees of greatness.
Exhibit 11: Zones of greatness - Financial summary
Mediocre Good but not great Great
Number of firms 218 107 71
Mcap (US$ mn) 417 523 552
Share price (3-year CAGR) 12% 30% 38%
Gross block (3-year CAGR) 15% 25% 14%
Sales (3-year CAGR) 14% 20% 21%
EPS (3-year CAGR) -2% 17% 27%
CFO (3-year CAGR) 0% 14% 17%
RoE (3-year average) 12.9 20.1 27.6
RoCE (3-year average) 12.3 20.3 28.7
Debt equity 0.75 0.48 0.29
PE (FY11) 12.5 15.0 12.4
PB (FY11) 1.5 2.2 2.6
EV EBITDA (FY11) 7.4 8.3 7.5
Source: Ambit Capital research, Capitaline
With regard to fundamentals, the superiority of Great firms compared to the other two groups is evident in Exhibit 11. However, the bottom three rows of the exhibit show that the 71 Great firms are actually trading at a 10% valuation discount to 107 “Good but not great” firms.
Of these 71 great firms, only 25 clear our accounting and corporate governance filters and this gives us our final list of 25 great companies. We present the ‘Great 25’ in the next section (Step 3).
* The greatness score is calculated by assigning equal weights to the 6 factors outlined in Exhibit 9 on the previous page.
Thus each of these 6 factors carries a weight of 16.7%. The scoring on sub-criteria within each of these factors is binary with a firm getting either 1 or 0 based on whether it has done better than the respective threshold or not.
These scores are then cumulated to arrive at a final greatness score on 100 for the firm.
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Step 3: Investment implications Great firms, but are these good stocks? Having identified the 25 great firms that exhibit the ingredients required to be tomorrow’s winners, we next run a valuation check to ascertain if they are currently trading at reasonable prices for outright investments. We compare these firms with respect to their 5-year average valuations on three metrics — P/B, P/E and EV/EBITDA. We find 13 firms to be inexpensive on at least two of the three metrics and hence attractive for investment. Six firms are expensive compared to their 5-year average P/B, P/E and EV/EBITDA multiples. However, as we had highlighted in our October 19 note, Good & Clean 3.0: Battleships, empirical evidence suggests that valuations don’t make much of a difference when investing in high quality firms with a long term (at least one year) horizon. It is worth noting that three firms – Exide, Coromandel and CRISIL – appear both in the “Focus Set” created in Step1 and in the “Great 25” shown below.
Exhibit 12: The Great 25 — Arranged by attractiveness of valuations
Current Valuation Cheap w.r.t history? (1 for “Yes”)
SN Ticker Company P/E P/B EV/
Ebitda P/E P/B EV/ Ebitda
Overall cheap on how many
counts?
Attractive Valuations*
1 BHEL IN Equity B H E L 10.9 3.0 6.2 1 1 1 3/3
2 TPWR IN Equity Tata Power Co. 18.1 1.8 10.6 1 1 1 3/3
25 SI IN Equity Supreme Inds. 12.3 4.1 7.4 0 0 0 0/3
Source: Ambit Capital research, Bloomberg, Capitaline. * Trading below 5 year average P/E, P/B, EV/EBITDA (on at least 2 of these 3 measures)
** Trading below either 5 year average P/E, 5 year P/B or 5 year EV/EBITDA (on 1 of these three measures)
*** Trading above 5 year average P/E, P/B and EV/EBITDA
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More colour on the Great 25
Exhibits 13 through 15 in the following pages provide greater colour on these 25 great companies. More specifically, exhibit 13 provides a financial summary of these firms based on historical data. Exhibit 14 provides market cap, 3-month ADV and forward looking EPS and BVPS CAG` for these firms over FY11-FY13. Finally, Exhibit 15, provides a brief description of the key business activities of each of these firms.
Exhibit 13: The Great 25 — Financial summary based on historical data
Ticker Company Share price
(3 year CAGR)
Gross block (3 year CAGR)
Sales (3 year CAGR)
EPS (3 year CAGR)
CFO (3 year CAGR)
RoE (3 year
average)
RoCE (3 year
average)
Debt Equity
BHEL IN B H E L -1% 23% 29% 29% -8% 29.2 44.3 (0.5)
TPWR IN Tata Power Co. 9% 14% 21% 23% 30% 14.8 12.5 1.6
SI IN Supreme Inds. 100% 13% 23% 60% 17% 36.1 34.9 0.9
Source: Ambit Capital research, Capitaline * Cash flows reversed from negative to positive during the period and hence CAGR cannot be computed
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Exhibit 14: The Great 25 — Forward looking data
Sr. No. Ticker Company Mcap
(US$ mn) 3-month ADV
(US$ mn) FY11-13 EPS
CAGR (%) FY11-13 BVPS
CAGR (%)
1 BHEL IN B H E L 13,240 21.2 9.1 23.3
2 TPWR IN Tata Power Co. 4,592 6.3 3.9 16.2
3 CDH IN Cadila Health. 2,621 1.2 17.7 24.5
4 KKC IN Cummins India 2,117 2.3 2.6 11.5
5 CSTRL IN Castrol India 2,068 0.6 5.3 12.2
6 EXID IN Exide Inds. 2,018 4.4 13.6 19.5
7 TRP IN Torrent Pharma. 911 0.2 17.2 22.9
8 GSFC IN G S F C 607 0.8 3.2 24.4
9 VOLT IN Voltas 545 2.0 -9.9 14.7
10 SADE IN Sadbhav Engg. 340 0.3 22.3 23.5
11 BJE IN Bajaj Electrical 327 0.3 13.5 17.6
12 MLIFE IN Mahindra Life. 206 0.1 30.5 11.4
13 ICRA IN ICRA 168 0.4 6.3 11.6
14 NEST IN Nestle India 7,683 2.6 21.5 51.4
15 APNT IN Asian Paints 5,171 4.1 16.7 23.9
16 LPC IN Lupin 3,814 7.7 18.8 26.4
17 TTAN IN Titan Inds. 3,219 17.3 26.8 34.1
18 CMC IN CMC 555 0.3 7.6 18.4
19 ELEQ IN Elgi Equipment 211 0.1 -4.1 20.4
20 ITC IN ITC 31,969 27.2 18.8 11.2
21 SKB IN GlaxoSmith C H L 2,045 1.1 20.0 12.1
22 CRIN IN Coromandel Inter 1,468 0.9 18.9 7.8
23 CRISIL IN CRISIL 1,289 1.5 18.5 19.7
24 EID IN EID Parry 670 0.3 DNA DNA
25 SI IN Supreme Inds. 460 0.2 30.5 30.4
Source: Bloomberg, Ambit Capital research
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Exhibit 15: The Great 25- Business activity description
Sr. No. Ticker Company Business activity description
1 BHEL IN B H E L
Bharat Heavy Electricals Limited manufactures power plant equipment. The Company's products include gas turbines, generators, thermal sets, diesel shunters, turbo sets, hydro sets, power transformers, switch gears, circuit breakers and boilers. The Company also manufactures compressors, valves, rectifiers, pumps, capacitors, oil rigs, as well as castings and forgings.
2 TPWR IN Tata Power Co.
Tata Power Company Limited generates and supplies electricity in Mumbai and its suburbs. The Company also constructs and operates independent power plants as well as captive power plants for industrial concerns. Tata Power also provides various services related to electricity distribution, erects and commissions transmission lines, and is diversifying into the telecommunications market.
3 CDH IN Cadila Health.
Cadila Healthcare Ltd. manufactures, and markets healthcare solutions ranging from formulations, active pharmaceutical ingredients, vaccines, diagnostics, health and dietetic foods, animal healthcare to cosmeceuticals. The Company's products are available in tablets, capsules, injections, liquids, dry syrups, powders, granules, and ointments.
4 KKC IN Cummins India
Cummins India Limited manufactures internal combustion engines, including diesel, reciprocating piston, gas turbine and gasoline engines. The Company also manufactures generating sets and public transport-type passenger motor vehicles, including luxury coaches and air-field buses. In addition, Cummins India Ltd. operates a computerized and fully-equipped research and development facility.
5 CSTRL IN Castrol India Castrol (India) Limited manufactures and markets automotive and industrial lubricants and specialty products. The Company's products include lubricating oils, greases and brake fluids. The Company also manufactures cable filling compounds, jellies, waxes and other items.
6 EXID IN Exide Inds. Exide Industries Ltd. manufactures a wide range of lead and electric storage batteries. The Company's batteries are used for automobiles, railways, aircrafts, power stations, telephone exchanges, and other uses.
7 TRP IN Torrent Pharma.
Torrent Pharmaceuticals Ltd. manufactures bulk drugs and pharmaceutical formulations. The Company's formulations include cardio-vascular, psychotropic and anti-biotic drugs while its bulk drugs include atenolol, ciprofloxacin and norfloxacin. Torrent Pharmaceuticals has wholly owned subsidiaries in several regulated and less regulated international markets.
8 GSFC IN G S F C Gujarat State Fertilizers & Chemicals Limited manufactures fertilizers and chemicals in four product areas: Finished Products, Intermediate Products, Polymers and Fibre Products. The Company also maintains trading activities in nylon products, petrochemicals, industrial gases and plastics.
9 VOLT IN Voltas
Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, machine tools, mining and construction equipment, materials handling, water management, building management systems, indoor air quality and chemicals.
10 SADE IN Sadbhav Engg. Sadbhav Engineering Limited provides construction services, with a focus on irrigation, roads and highways, and mining operations. The Company constructs earthen dams and canals, rehabilitates and upgrades roads, and excavates overburden of mineral properties.
11 BJE IN Bajaj Electrical Bajaj Electricals Limited manufactures electric fans and general lighting items, such as lamps, special lamps, fluorescent tubes, and lighting fixtures. The Company also manufactures consumer durables like small electrical appliances.
12 MLIFE IN Mahindra Life. Mahindra Lifespace Developers Limited specializes in the construction and operation of commercial and residential property complexes, projects management services and business centers.
13 ICRA IN ICRA ICRA Limited provides investment information and credit rating services in India.
14 NEST IN Nestle India
Nestle India Ltd. manufactures brand name milk products and other food products The Company's products include Everyday dairy whitener, milk powder and ghee, Milkmaid sweetened condensed milk and Cerelac weaning foods. Nestle's beverages include Nescafe and Sunrise coffee and Nesfit enriched glucose powder. Nestle also manufactures Maggi noodles, soups and sauces.
15 APNT IN Asian Paints Asian Paints Limited manufactures a wide range of decorative paints, varnishes, enamels, and black & synthetic resins. The Company, through its subsidiaries, also manufactures specialty industrial chemicals and vinyl pyridine latex products which are used in the manufacture of rubber tires.
16 LPC IN Lupin
Lupin Limited manufactures bulk actives and formulations. The principal bulk actives manufactured by it include Rifampicin, Pyrazinamide, Ethambutol (anti-TB), Cephalosporins (anti-infectives) and cardiovasculars. The company also possesses competencies in phytomedicines, in which medicines are made out of plant and herbal resources supported by the discipline of modern medicine.
17 TTAN IN Titan Inds. Titan Industries Ltd. manufactures and retails jewelry and watches. The Company produces quartz analog electronic watches, watch movements, step motors and watch cases.
18 CMC IN CMC CMC Ltd. provides computer users with a range of computer software and hardware support services. The Company's services comprise of hardware maintenance, site preparations, installation and commissioning of systems, software development, education and training.
Strategy
Ambit Capital Pvt Ltd 13
Sr. No. Ticker Company Business activity description
19 ELEQ IN Elgi Equipment
Elgi Equipments Limited manufactures reciprocating and screw type air compressors, diesel engines. generators and pumps, garage equipment, auto products and heat pressure cleaners. Elgi markets a range of wheel balancers, oil suction units, AC recovery plants, mobile service units, and pasteurizer and bottle washers. The Company operates in India and markets its products globally.
20 ITC IN ITC ITC Limited, a member of BAT Group of UK, is a holding company, which has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards and other FMCG products.
21 SKB IN GlaxoSmith C H L Glaxo SmithKline Consumer Healthcare Limited manufactures and sells malted milk food products. The Group's products, which include energy & protein products, cereals, baby foods, ghee & butter, are sold under the "Horlicks", "Boost", "Viva", "Brylcream", "Eno", "Maltova" and "Gopika" brand names.
22 CRIN IN Coromandel Inter Coromandel International Ltd. manufactures fertilizers and pesticides. The Company produces both chemical and organic fertilizers, insecticides, fungicides, herbcides, and plant biostimulant.
23 CRISIL IN CRISIL Crisil Ltd. operates a credit rating agency in India. The Company specializes in the areas of risk identification, classification and assessment, across a broad spectrum of industries.
24 EID IN EID Parry E.I.D. - Parry (India) Limited is a diversified manufacturer of fertilizers, pesticides, sugar, ceramics, electronics and seeds. The Company is also diversifying into the manufacture of organic fertilizers, bio-pesticides, acetic acid, wall tiles and horticultural activities.
25 SI IN Supreme Inds.
Supreme Industries Limited manufactures industrial and engineered molded products and storage and material handling crates. The Company also manufactures chemicals, multilayer sheets, multilayer films, packaging films and expanded polyethylene foam, PVC pipes and fittings, molded furniture and disposable EPS containers.
Source: Bloomberg
Strategy
Ambit Capital Pvt Ltd 14
Institutional Equities Team
Saurabh Mukherjea, CFA Head of Equities (022) 30433174 [email protected]
(over 12-month period from date of initial rating)
Buy >5%
Sell <5%
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