f o r    m a n a g i n g    t o m o r r o w
NOV. 19, 2006
 Cover Story
 BT Special
 Back of the Book

Rural-Urban Divide
The rural-urban divide continues despite a high growth rate. According to the 61st round of the National Sample Survey, apart from rural-urban wage differentials, gender differentials are very much a part of the present-day Indian economy. The urban regular wage earner earned Rs 194 a day, which was one-and-a-half times the rural average of Rs 134 a day in 2004-05. Interestingly, the wage gap is most pronounced among graduates. An analysis.

The Asian Agenda
Is a region-wide free-trade area a realistic goal? So far, 183 free trade agreements have either been signed or are being proposed or negotiated across Asia. The share of intra-regional trade has risen to about 55 per cent last year from 40 per cent in the early 1990s. Aside from trade in goods, there is a need to focus on free trade in services. Given the stalled WTO talks, it is vital for Asian countries to pursue further market opening and structural reforms.
More Net Specials
Business Today,  November 5, 2006
The Surge Stocks

These shares registered the handsomest gains over the last one year.

Baba Kalyani: Consolidating value

The empire is striking back. And how? New Economy is no longer the flavour in the menu of the India story. Fourteen of the top 25 gainers in market capitalisation (M-cap) in the list of Business Today's Top 500 companies are real estate and infrastructure companies. Brick and mortar, it seems, has become the alchemist's dream. Says Nilesh Shah, President, Kotak AMC: "The government has never been as serious about infrastructure development as it is now. The expectation of sustained earnings growth for companies in this space is driving the higher valuations." Among them, Unitech (up 2,190 per cent to Rs 14,786.5 crore) posted the highest gains, followed by Lok Housing & Construction (up 984 per cent to Rs 347 crore), Anant Raj Industries (up 767 per cent to Rs 1,826 crore), bf Utilities (up 723 per cent to Rs 6,306 crore) and Era Construction (up 469 per cent to Rs 597.5 crore).

But all the news isn't as bullish. Overall, the laggards (defined as companies whose shares underperformed the BSE Sensex) outnumbered the gainers in BT 500-267 companies lagged the Sensex, which recorded a 59 per cent rise in M-cap to Rs 14,02,575 crore, compared to Rs 8,84,195 crore in the first half of the previous year. Of these, 68 reported erosions in M-cap. Only 201 companies outperformed the Sensex; there were 32 new entrants.

"The rally in the market is mainly driven by institutional capital; the large-cap companies have registered impressive performances, so there was no major compelling reason for the big investors to shift their focus to mid-caps and small-caps. That is primarily why losers outnumber the gainers," says Shah.

"Going ahead, the company will continue to consolidate the number of companies in the group"
Venugopal Dhoot
Chairman/ Videocon Industries

Larsen & Toubro (L&T) clocked the largest gains among the Top 10 companies in BT 500. The conglomerate's M-cap surged 114.5 per cent to Rs 33,149 crore from Rs 15,460 crore in the corresponding period last year-taking it to the #10 slot, from #14 last year-on the basis of a Rs 31,000-crore order book backlog that is expected to rise to Rs 35,000 crore by the end of the year. Overall, it ranked 89th in terms of gains.

"Over the last 12 months, we've ventured into new businesses like shipbuilding, increased our presence in West Asia and commissioned three new manufacturing plants in China; we've also improved our overall margins by 2.5 per cent," says A.M. Naik, CMD, L&T. For the second quarter ended September 30, 2006, the company reported a 41 per cent rise in net profit to Rs 201.22 crore (Rs 143.05 crore), on a 12.3 per cent rise in net sales to Rs 3,736 crore (Rs 3,327 crore).

Apart from L&T, Siemens (up 145 per cent to Rs 16,997 crore), Hindustan Construction (up 114 per cent to Rs 3,195.06 crore), IVRCL Infrastructures (up 110.5 per cent to Rs 2,619.63 crore) and Crompton Greaves (up 99.5 per cent to Rs 5,336.13 crore) were the other gainers among the large infrastructure and engineering companies.

Mystery Company

Why is the market paying a premium of 2,000 times earnings for a small wind power generating company with sales of Rs 16.46 crore and a net profit of Rs 1.93 crore? In the last one year, BF Utilities, a small Kalyani Group company, has seen its market capitalisation (M-cap) rise 723 per cent, or Rs 5,539 crore, to Rs 6,306 crore, from Rs 766.45 crore, taking it to #56 in M-cap rankings from #235. "The premium is because of the Bangalore-Mysore Infrastructure Corridor Project," says an analyst at a local broking firm.

BF Utilities holds a 74 per cent stake in Nandi Infrastructure Corridor Enterprise (NICE), which is building the Rs 2,250-crore Bangalore-Mysore Infrastructure Corridor Project and five townships alongside. Adds an analyst: "The project is caught in several litigations (it has also become a political hot potato in Karnataka); so the stock is overpriced at current levels (closing price on October 27, 2006, was Rs 2,256.20)."

The real reason for the massive premium is probably its large exposure to other group companies and the equity market. BF Utilities has become something of a holding and investment company for the Kalyani Group promoters led by Baba Kalyani. The total value of its equity holdings stood at Rs 625 crore on September 30, 2006, compared to Rs 254 crore on September 30, 2005.

Says Ajit Gulabchand, CMD, Hindustan Construction: "Infrastructure projects remain a key driver for us, but there's also immense potential in real estate development. Revenues from Hincon Realty" (its real estate arm which is developing a 10,000 acre township near Pune) "still don't reflect in our balance sheet. Once this happens (complete development of 113 million sq. ft will take 10 years), it will show in the company's valuation." Hincon also plans to build an it park on its 2 million sq. ft property in Vikhroli, Mumbai, and has the option of developing 1,500 acres of land near Thane, Panvel, Pune and Nasik.

Meanwhile, Anil Agarwal's Sterlite Group has thrown up a clutch of winners. Four group companies-Hindustan Zinc (up 282.5 per cent to Rs 27,300 crore), Sterlite Industries (up 217 per cent to Rs 23,636 crore), Madras Aluminium (up 86.5 per cent to Rs 827 crore) and Sterlite Opticals (up 78 per cent to Rs 813.6 crore)-outperformed the bse Sensex. They benefitted from the rising prices of non-ferrous metals in the international market as well as a revival in the optical fibre business. The first two, in fact, made it to the list of Top 100 gainers at #17 and #21, respectively.

The Videocon Group also made large strides in the M-cap sweepstakes. Flagship Videocon Industries' M-cap jumped 169 per cent to Rs 9,446 crore from Rs 3,517 crore. This lifted it to #44 from #59 on our list. Says Venugopal Dhoot, Chairman, Videocon Industries: "The two mega acquisitions in 2005-Swedish white goods giant Electrolux AB's Indian subsidiary and French conglomerate Thomson SA's colour picture tube unit-have catapulted Videocon into the global league and are achievements of momentous significance for the group." Last year, the flagship also merged subsidiaries Petrocon India and Videocon International with itself. "Going ahead, we will consolidate the number of companies in the group and broadbase their boards," says Dhoot. He is betting big on oil. Videocon has a 25 per cent interest in the Ravva oil fields-which has proven reserves of 250 million barrels-on which it has already invested $180 million (Rs 828 crore). The group also has joint ventures in the oil and gas sector in Oman and Australia. The importance of oil to the group's financial performance shows up in its balance sheet. In the October 2005-March 2006 period (first half, as the company's financial year ends in September), oil and gas accounted for 19.3 per cent of revenues and 49 per cent of profits.

The Laggards

Jet airways has been the biggest loser in the list of Business Today's Top 500 companies. Its average market capitalisation (M-cap) between the first half of 2005-06 and the first half of this financial year is down nearly 44 per cent, or Rs 4,723 crore, from Rs 10,744 crore to Rs 6,021 crore. Consequently, it has fallen to #57 in the BT 500 pecking order from #23 last year. Rising fuel and salary costs are primarily responsible for this. For the quarter ended September 2006, the company posted a loss of Rs 55 crore, compared to a net profit of Rs 61 crore in the corresponding period of the previous year.

This year, the laggards outnumber the gainers in BT 500. Of the top 500 companies, 267 companies underperformed the benchmark BSE Sensex that recorded a 59 per cent rise in M-cap to Rs 14,02,575 crore, compared to Rs 8,84,195 crore in the first half of the previous year. Of these 267 companies, 68 reported erosions in M-cap.

The performance of the pharmaceutical companies has also been disappointing. Ten of them witnessed a fall in M-cap. Ranbaxy Laboratories' M-cap is down nearly 20 per cent, or Rs 3,800 crore, to Rs 15,284 crore. Result: it plummeted down the rankings from #11 to #30. Biocon (down 11 per cent to Rs 3,873 crore), Nicholas Piramal (down 12 per cent to Rs 4,470 crore), Wockhardt (down 6.5 per cent to Rs 4,312.5 crore), Novartis (down 10.5 per cent to Rs 1,495.5 crore), FDC (down 9.6 per cent to Rs 824 crore), Ipca Labs (down 17 per cent to Rs 812 crore) and Abbott India (down 17.5 per cent to Rs 824.4 crore) were among the other losers in the pharma sector.

Among the other biggies, Reliance Energy was the worst performing stock in the power sector. A senior executive in a large domestic broking firm says: "Nothing concrete is emerging from the major projects announced by the company; there are concerns over its power projects in UP, its failure to bag any of the airport privatisation projects and its inability to pass on rising costs to the consumer." The company's M-cap eroded 5 per cent to Rs 10,582 crore (Rs 11,143 crore), dragging it down from # 21 to #39 in the M-cap rankings. Even Tata Power underperformed the BSE Sensex; its M-cap rose 30 per cent to Rs 10,147 crore from Rs 7,206 crore. This underperformance brought down the company from #28 to #41 in the M-cap rankings.

Among others, Financial Technologies was the best performing stock in the technology segment. The company's M-cap surged 125 per cent to Rs 6,429 crore (Rs 2,852 crore), lifting it from #72 to #55 in our M-cap rankings. The company earns revenues on every transaction done on the Multi Commodity Exchange (MCX), its subsidiary. (FT supplies its technologies to MCX and charges it on a per transaction basis.) The stock is mainly driven by the immense growth prospects of the exchange. The company also expects to benefit from the recently started Dubai Gold & Commodity Exchange, which uses its software on the same terms. "Going ahead, we plan to increase shareholder value by being present wherever there is digital transaction," says Jignesh Shah, CMD, Financial Technologies.

"We plan to increase shareholder value by being present wherever there is digital transaction"
Jignesh Shah
CMD/ Financial Technologies

Unlike the IT and banking sectors, which largely underperformed the BSE Sensex, the financial services sector caught the fancy of investors. Companies like jm Financial, Reliance Capital and Indiabulls Financial Services cashed in on the sustained bull run and made good money on the bourses. JM Financial's M-cap surged 745 per cent to Rs 1,781.4 crore, lifting it from #517 to #165 the BT 500 M-cap rankings. Similarly, Reliance Capital's M-cap rose 123 per cent to Rs 10,974.5 crore from Rs 4,912 crore; and Indiabulls Financial Services' M-cap went up 83.5 per cent to Rs 4,534 crore from Rs 2,471 crore.

There were only minor changes in the Top 10 list. Reliance Industries retained its #1 position on the back of yet another impressive performance. The Mukesh Ambani led-company's M-cap grew 60.5 per cent, or Rs 53,359.5 crore, to Rs 1,41,641 crore. Reliance Communications and Larsen & Toubro are new entrants in the Top 10 club. For the first half of 2006-07, the former's average M-cap stood at Rs 37,202 crore, giving it #9 rank in the bt-500 m-cap hierarchy.

Other sectors like sugar, automobiles and cement also gave handsome returns to their investors.




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