Baba Kalyani: Consolidating value
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
"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
ahead, the company will continue to consolidate the number
of companies in the group"
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
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
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
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
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.
plan to increase shareholder value by being present wherever
there is digital transaction"
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.