Cover Story: BT 500: India's Most Valuable Companies [Pg.1]

Remember the Dilbert t-shirt that screamed: ''change is good. Let it happen to somebody else.'' Chances are you won't, because those pieces can't be selling too well these days. For the change happening these days isn't exactly ''good''. And it may be ''happening to somebody else'', but not before leaving its indelible mark on you. The more things change these days they hardly remain the same (in this case, not even the cliché).

Stripped off the figures of speech, what we're trying to say is that India Inc-and the entire global corporate landscape for that matter-has been brought back, rudely, to terra firma. Bravado, courtesy of hype, valuations and projections, have made way for sobriety. That's change at its worst-quick and unpleasant. As consumers and investors go into their shells, economies slow down and stockmarkets find new lows, CEOs are realising that the honeymoon with the myths of the new economy is well and truly over. If Information was considered god yesterday, well, today Assets are once again vying for that lofty perch. Services might have been the new mantra in the Internet Age, but don't underestimate the power of Products. And Revenues and Profits (or rather losses) do, after all exist, along with Market Capitalisation.

Hang on, did we say market capitalisation? Well, sure enough, there's plenty that's gone out the window, but as long as providing value to shareholders remains the buzzword for companies, marketcap will continue to be considered the holy grail. After all, that's the most visible, and simple, reflection of how well a company is treating the people who've bought into it. And that's why our BT 500 assumes plenty of significance, arguably even more relevance, in such bearish times. For fads may come and go, markets may spurt or tank, but the shareholder is there to stay-and to be rewarded. Nobody cares about how respected a company is, if it doesn't respect its minority stakeholders.

THEN AND NOW
Top 10 Old Economy Companies Market Capitalisation (Rs crore)
Company	Average 2000-01	On Sep.20, 01
HLL	49,525.0	46,224
Reliance Ind	36,633.3	25,353
Reliance Petro	24,058.4	13,784
ITC	18,872.3	15,765
Ranbaxy	7,491.1	7,419
HDFC	6,084.3	7,721
HDFC Bank	5,860.0	6,153
Hindalco	5,752.4	4,172
Cipla	5,500.5	7,100
Nirma	5,436.1	2,358
Top 10 New Economy Companies Market Capitalisation (Rs crore)
Company	Average 2000-01	On Sep.20, 01
Wipro	61,714.0	21,910
Infosys	46,915.6	16,285
HCL Tech	17,019.1	4,643
Zee	16,536.0	4,042
Satyam	13,079.1	3,951
HFCL	8,855.7	246
NIIT	6,374.7	365
Sterlite	4,425.6	593
Global Tele	4,411.0	386
HSS	3,852.1	689

''At Reliance, maximising shareholder value and returns is central to all our decisions and strategies. It is our endeavour to consistently maximise overall shareholder value through profitable operations and efficient deployment of capital for superior returns,'' points out Anil Ambani, Managing Director, Reliance Industries. The Ambanis should know: Reliance Industries and Reliance Petroleum occupy fourth and fifth slot respectively in the BT 500. That's not exactly a surprise, considering that the stock of Reliance Industries has appreciated 111 per cent in three years, 157 per cent in five years, and 192 per cent in 10.

Indeed, that's why corporations in the top rung of the BT 500 are embracing shareholder value like never before. Take the case of Hindustan Lever (No. 2 on the BT 500), which is chasing growth in a market that's stagnant. ''It's not just growth, but sustained, profitable growth that Lever is pursuing. That's our key priority, along with efficient use of capital, which together will ensure that we deliver value to our shareholders,'' explains Manvinder Singh Banga, Chairman, Hindustan Lever.

Scan the BT 500 list, and your first reaction is bound to be: ''Oh, it contains the usual suspects.'' True enough, as the ranking is based on the average market capitalisation for fiscal 2000-2001. But for the slight shuffle at the top-it's Wipro at pole position this time round, although it's marketcap is down by half from 1999-2000 levels-there's not much to differentiate the BT 500 from the previous year's list.

What's more, the TMT (technology, media, telecom) sector still dominates, with six of the Top 10 being such companies. We're now just about half-way through the current fiscal, and the past six months have witnessed a carnage on the markets, and to a fair extent make a mockery of our list. Over this period, technology stocks have been beaten down by as much as 95 per cent.

The it stocks that are down by 70 per cent are the luckier ones. Consider: as per our rankings, Wipro's marketcap stands at close to Rs 62,000 crore (remember this is the average for the whole of last year). That figure, as of September 17, was down to a little over Rs 25,000 crore. Infosys, doesn't fare much better, its market cap crashing from just under Rs 47,000 crore to Rs 17,350 crore.

The non-it companies haven't got burned, although they're down too, with Reliance Industries slipping from Rs 36,600 crore to Rs 27,500 crore, ITC (No. 6) inching down from Rs 18,800 crore to 15,200 crore, and Hindustan Lever losing 20 per cent of its marketcap in that period.

Then, there are those stocks that make you rub your eyes in disbelief and wonder how did they ever get to the top of the BT 500-or alternatively, how did they manage to hit rock bottom so fast. Consider Zee Telefilms which, at No. 8, came in with a marketcap of Rs 16,500 crore. These days, that figure is barely over Rs 3,000 crore. But the real shocker is HFCL (No. 10), which is plumbing the depths at a little over Rs 200 crore from last year's average high of-hold your breath-Rs 8,855 crore.

That's the flip side of the endeavour toward value creation: stock prices that were totally out of whack with fundamentals. And in that quest for valuations, every trick (many of them out of the book) was resorted to. But that's history. Now that the dust has settled, the good news for most of these companies is that things can't get any worse.

As Manoj Tirodkar, Chairman & CEO of Global Tele-systems (No. 22), which has seen its marketcap eroded from Rs 4,400 crore to Rs 330 crore, says: ''My stock price can't go to -5. This is the best time to rework my strategy with a long-term perspective in mind.''

To be sure, when at rock-bottom, there's only way to go: up. And companies of all hues, right from the so-called old economy ones (wonder why that phrase isn't used too much these days?) to the infotech giants, have a job on their hands: to grow even as recessionary conditions ravage the economy. And for the pretenders, it's sheer survival that's at stake.

The challenge is two-fold: one, slash costs in a bid to ensure growth even if markets are flat; and two, foray into sunrise areas that will broadbase the company's opportunity for growth over the longer term. Says Sanjay Jain, Partner, Accenture, " Most companies have sharpened the focus on the top line. One would think companies would look to reduce costs. But a lot of companies have been focusing on their sales and marketing to drive top line growth."

Reliance Industries, for instance, has been able to counter a sluggish global petrochem industry-it notched up a 4 per cent growth in sales and 14 per cent in profits in the first quarter of this year-thanks to higher capacity-utilisation rates, productivity improvements, and cost-reduction exercises. ''Also, our continued focus on speciality grades results in premium pricing, and contributes to higher margins, thereby insulating us from the commodity downcycle to an extent,'' explains Ambani.

Also dealing with sluggish markets is FMCG major, Hindustan Lever. The strategy of focusing on 30 power brands is showing positive results: for instance, in the first half of the current year (January-June), the power brands-which account for 100 per cent of Lever's profits, registered a growth rate of 4.8 per cent, as against just a 1.5 per cent total sales growth. ''We're getting good results, and are on the right track,'' says Banga.

Amalgamations and divestitures are also part of the Lever game plan, with International Best Foods and Lakme Lever being merged into the company, and the animal feeds business being sold off.

Meantime, ITC too is using the merger route-by integrating with sister company ITC Bhadrachalam-to boost value. ''We are committed to being the No. 1 player in every category we are in the domestic market,'' says chairman Yogi Deveshwar. Adds K. Vaidyanath, Finance Director: ''Not only will the net profit of Bhadrachalam strengthen our bottomline, but there will be substantial tax benefits as well, given the accumulated losses of Bhadrachalam in the mid-nineties.''

Reliance for its part has trained its sights on the disinvestments process, evincing interest in IBP and VSNL. But the buzzword here too is value. ''Reliance's decisions to build or buy assets and businesses will depend on the available value propositions,'' says Ambani.

But the most exciting buzz emanating from these companies is related to the new ventures they have on their plate. After announcing its investment of a whopping Rs 25,000 crore in the infocom business (voice, data, and value-added services), Reliance is now, perhaps inevitably, blueprinting its next big foray: into biotech. Lever's Banga points out that his company has identified ''four-five'' new businesses, as part of its ''Project Millennium'' exercise; and last fortnight, he was preparing to take one of his new forays-into confectionery, under the brand Max-national, after testing the product in Tamil Nadu.

The Lakme beauty salons venture too is on song. As of today, Lever has some 25 salons, which will go up to 200 in two years. And ITC is hedging its flagship tobacco business by spreading its wings. As Sanjive Keshava, Chief Executive of the Lifestyle Retailing Business Division, points out: ''We are aggressively growing this business by setting up a network of 100 stores across the country over the next two years.'' The intention is to position Wills Sport and Wills Lifestyle as premium Indian brands.

If there's one sector that's least touched by the bearish conditions prevailing, it's pharmaceuticals. And that's why we can expect much more in future rankings from this year's toppers-Ranbaxy (No. 11), Cipla (No. 16) and Dr Reddy's (No. 24)-all of which are heavily focused on research and the global markets. Ranbaxy CEO D.S. Brar, for instance, wants to touch revenues of $1 billion by 2004 by making Ranbaxy a ''truly global company''.

That's not going to be the easiest of tasks for this Rs 1,746 crore company, given that growth in the domestic market is sluggish, and that Ranbaxy has to take on the multinationals when it comes to drug discovery. However, Brar, who hopes to end the current year with sales of $600 million (Rs 2,880 crore), says he's well on course. Much of that expected growth will have to come from the US market, which accounts for 47 per cent of the global pharma pie. Currently, the US contributes only 16 per cent to Ranbaxy's revenues. In the short term, that may prove beneficial to the company, considering the uncertainty in that part of the world.

In that light, Ranbaxy's strategy to focus on other world markets like Brazil, China, Germany and the UK, and to strike supply agreements with companies in Portugal, France, Belgium, Spain, and Germany makes even more sense today.