The Most Valuable

The champions, clearly, provide a complete profile of corporate India. Among the Top Ten, HLL is a transnational company; L&T and ITC are professionally-managed Indian companies; Industrial Development Bank of India (IDBI) is a government-controlled financial institution; and TISCO, TELCO, Tata Chemicals, RIL, and Hindalco are family-managed businesses. Not only do family businesses dominate the Top Ten, they straddle the value league too: as many as 428 companies--representing 64 per cent of the market capitalisation--are family businesses. The Tata Group itself has 26 of its members in the BT-500. That speaks volumes for a business that is facing mounting pressures from the competition. Crucially, each business in the Top Ten is sharply focused on its competencies.

For the first time since the introduction of the BT-500, the gold goes to a transnational. After being in the Top Five for five consecutive years, the Mumbai-based HLL--whose business swelled after its group company, Brooke Bond Lipton India Ltd, was merged into it--takes the premium perch. The consumer non-durables major increased its average market value by 36.27 per cent during the year, from Rs 8,968 crore to Rs 12,220.76 crore. Sales have jumped from Rs 3,782.96 crore in calendar 1995 to Rs 7,136 crore in calendar 1996--a rise of 96 per cent--and Profits After Tax have risen from Rs 239 crore to Rs 414.26 crore--a rise of 73 per cent.

Interestingly, just one company dropped out of the Top Ten in 1995-96. The star of the House of B.K.ÄK.M. Birla: Grasim Industries, which slumped from 10 to 13 this year. That position was usurped by another family jewel: Tata Chemicals, of the House of Tata. So, except this family swap, there is virtually no change in the pecking order. The most valuable jewel in the House of Tata, TELCO, has moved a notch up, from No. 3 to No. 2, improving its average market value by 26.76 per cent. That's not all: TELCO, with sales at Rs 10,096.60 crore, also topped the sales league. Besides, its net profit margin for 1996-97 rose from 6.50 to 7.60 per cent. Evidently, the market has taken notice.

RIL--which has been the most valuable company twice, in 1993-94 and 1994-95--has been pushed to the third slot. India's most competitive globocorp (See Lessons From India's Most Competitive Companies, business today, July 7-21) lost its sheen in the market even as it was battling cheaper imports. RIL's net profits grew by just 1 per cent, from Rs 1,305 crore to Rs 1,323 crore, resulting in a 10 per cent drop in profitability. That performance just did not miss the ever-vigilant investor; RIL's average market capitalisation declined by 8 per cent during 1996-97.

One blue-chip that has bucked the sentiment is ITC, which has moved up from sixth to fourth position despite the Enforcement Directorate's investigations into its alleged Foreign Exchange Regulation Act violations during the year. After all, as the ITC case proves, it's the fundamentals that matter. Controversies can wait. Even as ITC's operating cash-flows almost doubled, from Rs 488 crore to Rs 969 crore, net profits rose by 36 per cent, from Rs 261 crore to Rs 347 crore.

How do the Top Ten rank in terms of sales?

Eight of the most valuable companies in the country are also among the 10 largest companies in terms of sales. The exceptions: Hindalco Industries (sales rank: 31) and Tata Chemicals (which wasn't ranked since 1996-97 sales data were not available), which have been replaced by Mahindra & Mahindra (value rank: 12) and the Industrial Credit & Investment Corporation of India (value rank: 19).

Interestingly, seven companies in the Top Ten represent sectors that have risen in market value: HLL (consumer non-durables), TELCO (automobiles), RIL (textiles), ITC (tobacco), Bajaj Auto (automobiles), IDBI (banking), Hindalco Industries (aluminium). Three belong to sectors that have dipped in value: TISCO (steel), L&T (engineering), and Tata Chemicals (chemicals).

The Sectors And Value

Although the top ten---which includes auto majors TELCO (value rank: 3) and Bajaj Auto (value rank: 4)--does give a fair indication of the performance of the automobiles sector, it does not tell the whole story. Not only is automobiles the most valuable sector, with an average market value of Rs 28,165.59 crore, the average value of each auto-maker was Rs 1,408.28 crore--2.8 times the average of the BT-500. Interestingly, its market value grew by 24.70 per cent, the highest sector-wise. In contrast, the steepest decline among the Top Twenty sectors was seen in financial services: around 36 per cent.

In the second place were consumer non-durable companies, with an average value of Rs 1,256.32 crore and a market capitalisation of Rs 26,382.65 crore. At the bottom were tyre-makers, with an average value of Rs 337 crore and a market capitalisation of Rs 2,696 crore.

The industry scorecard clearly mirrors investor indifference. In all, 11 sectors--engineering, drugs and pharmaceuticals, steel, petrochemicals, diversified, cement, chemicals, textiles, fertilisers, finance and leasing, and consumer durables--out of the Top Twenty diluted their value.

Depressing as the news of the decline in market value may be, it holds a grim lesson for corporate India. Since market value is the best proxy for a company's worth, it is important to adopt strategies that enhance shareholder value.

Just how do corporates rethink themselves? First, shun incremental thinking. Anticipate what the customer wants, and you will be able to reconfigure yourself in time. For, the customer is the means to an end (market value). Take her for granted, and you will be dislodged by new nimble competitors. Market value and profitability will migrate from your company to another.

Second, unearth good old financial ideas. There is just no alternative to discovering ingenious ways of employing capital. So, ensure that the providers of capital--the lenders and the shareholders--get returns more than the opportunity cost of money, consistently. Organisations fuelled by prudent financial management are the darlings of the stockmarkets. For, there is nothing that the most impartial judge of them all--the ever-vigilant investor--values more than efficient use of capital.

Move with the customer, and you'll move ahead of competition. Manage your capital well, and you'll capture value. In essence, think value. That is the shibboleth of today's value strategy.

For a list of the BT 500, please see the print edition of Business Today dated September 22-October 6, 1997

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