NOVEMBER 9, 2003
 Cover Story
 BT 500
 Personal Finance
 The Other 500
 Back of the Book

Gates Against Malaria
Bill Gates, who claims
to watch the efficiency
of each dollar he spends, has put down $168 million to
combat malaria.

Age Discrimination
The UAE wants to kick
all expats above 60 out
of their jobs. A fine
start to the IMF/ World Bank meet in Dubai, eh?

More Net Specials
Business Today,  October 26, 2003
Pedigreed Cats N' Dogs
Scan the last 100 of the BT 500. Would you invest your hard-earned money in them? If you're game, here are six that could make your year.

They're all there, the stable-if-slow elephants, the udderly milkable cows and the roar-n-claw-baring tigers. Even some lumbering dinosaurs. All concentrated in the upper reaches of the BT 500 for investors to marvel at. And invest in. Scroll yourself down a few hundred ranks to the last 100 of the list, however, and you will find yourself shrugging from company to company. Just who are these guys? The cats and dogs of the list.

Are they of any consequence? So long as returns are spelt R-E-T-U-R-N-S, are denominated in a valid currency and some are likely to outperform their peers, yes. They do all their growling and clawing below the sensor-tips of the big investment firms and research houses, and suffer from chronic public anonymity. But that is also the reason that their upside potential is so high. Remember, just a decade ago, few had heard of some of today's biggest successes.

True, most small-cap Indian companies are entrepreneur run. While this has some obvious drawbacks, there exist benefits in terms of swift decisions, risk appetite and guerrilla skills. "As a result," says Sivasubramanian K.N., Senior Vice President (Equity), Templeton Mutual Fund, "dynamic and well-managed small and medium-sized enterprises experience higher growth rates than their more established, large-sized counterparts, which often does not get captured in their valuations. And if identified early, investments in such companies could give substantial capital appreciation over time."

The flip side? They may languish in the shadows for years and years, and you're not here to participate in some ribbon-tying exercise at an obscure dog show. Even otherwise, the risks are high, and the typical lack of transparency can be a big put-off. Small businesses may not be resilient enough to withstand shocks. Also, sleazy operators could turn these stocks into gambling balls, which could unhinge all calculations. The good news is that some of these risks are mitigated by strong parentage in some cases, and by other factors in others.

So, with that out of the way, which stocks should you look at?

Denso India
This supplier of electrical parts to the cars and two-wheeler industries boasts a strong parent in Denso Corporation of Japan, a $24-billion company that dominates the global market for thermal and electrical systems. In India, Denso is faring better than its competitors, MICO and TVS Lucas, and the demand boom in the auto-ancillary sector is working strongly in its favour. For the quarter ended June 30, it has shown a sales growth of 26 per cent, year-on-year. As Maruti Udyog, which holds a tenth of the company's equity, expands volumes in sync with the current auto upturn, Denso shines brighter.

This, no spring chicken, is a turnaround story in the making. As India's largest diesel engines and transmission gear producer, it holds promise. What dragged it into the red was its unrelated diversification into polymers (through Rajasthan Polymers), a decision it has since reversed. Greaves has used the cash from the divestment to clear debts. Its core business now seems set to boom, thanks to the economic resurgence.

KPIT Cummins Infosystems
This software company would be a bet on explosive low-physical-asset growth, as with the earlier software cases. The difference is that this firm sees the future belonging to software makers with well-tuned domain specialisations, as the industry ascends the value scale. The company, with its Cummins forbearance, has weathered the recent downturn rather well, scaling revenues of Rs 73 crore in 2002-03. It has made an overseas acquisition of Panex Consulting, a Houston-based sap consulting firm, for $1.7 million (around Rs 8 crore), which gives it ERP skills to augment its sector-specific software capabilities in banking, finance and manufacturing.

Heritage Foods
This is a case of a company left out in the cold for being a quiet, modestly-tagged animal putting its mark on unfancied territory. Processed food may be glamourous, but South India's fresh milk market? The fact is, it has a firm grip on the daily needs of Bangalore, Chennai and Hyderabad, from which is gets 85 per cent of its revenues (Rs 194 crore in 2002-03). Its profitability is reassuring-with an operating profit margin of 14 per cent. It is efficient in its use of capital, which it turns around particularly fast. Its small capital base has resulted in a high ROCE (return on capital employed) of 25 per cent plus over the last three years. Its p/e? Less than five.

Savita Chemicals
This is another fundamentally strong company that is not yet fancied by the market. What makes it so strong? Take its R&D emphasis, to start with. Around 75 per cent of its products are self-developed, a rarity in the transformer oil and lubricants business. No wonder its exports in 2002-03 were up 70 per cent over the previous year. Other than that, the company is thinking innovatively, as seen in the 3.8 mw wind power generating plant it has set up in Karnataka. While volatile oil prices could play havoc with its main raw material bill, the more noteworthy story is the growth in demand from the Indian power and automotive industries. The company sits on fat reserves (Rs 103 crore against the share capital of Rs 8.76 crore), which alone could justify a P/E higher than four.

Sintex Industries
Yet another sufferer in the shadows. Still, Sintex continues as a generic name for water storage tanks in the country, and commands more than two-thirds of the market. It has successfully launched several other value-added plastic products such as water harvesting systems, plastic doors and windows and other pre-fabricated structures. The fact that few notice how far plastic has come to invade our lives is evidence of its success. If you expect plastic to play an increasing role in the material world around you, buy this stock.