2015 had little to cheer with the stock market going nowhere as corporate earnings stagnated due to weak consumer demand and negligible investment-led growth. The only good thing for companies was the weak commodity prices which led to better margins. Interestingly, while the lack of reforms saw foreign institutional investors pull money off the table in CY15, domestic investors continued to place their faith in the India growth story. Against such a backdrop, the fourth edition of Outlook Business’ special annual issue, Fastest Growing Companies, profiles some outliers, who have managed to buck the trend.
Interestingly, this year’s list boasts of a lot of mid-cap entrants, partially due to a change in our standard criteria. We started off with all companies listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) having a net sales and market capitalisation of above Rs.100 crore and net sales of above Rs.100 crore. The companies that made the cut were then subject to a growth filter of 25% compounded for sales and profits for the past five years (FY11 to FY15).
For December-ending companies, the time period considered was CY10 to CY14. Apart from the revenue and profit growth filters, the companies also needed to have a return on capital employed of over 15% in every year over the same period. Ever since we started this exercise in 2012, the only criterion that has changed is while the list was strictly confined to the combined universe of BSE and NSE 500 companies, we had to cast the net wider to include all companies in the BSE and NSE to find our list of fastest growing companies. The good news is that while only 17 companies made the cut last year, this year, 31 made it to the list.
From a top-down perspective, consumer sector continues to dominate the list with seven companies similar to the previous year but significantly lower than 16 companies that made the cut in the first edition in 2012. Not surprisingly, infrastructure companies have since fallen out.
While about a third of the companies were able to grow their profit by 30-40%, on an average, over the past five years, stock market favourites and consumer heavy weights TTK Prestige and Godrej Consumer Products, which made it in the first edition, didn’t make the cut as growth slowed down in key markets.
The list saw a lot of new entrants, almost half of them making their presence felt for the first time such as V-Mart Retail, which started off as a single store in 2003, to morph into an 120-odd retail chain network focused on Tier II and Tier III cities that has successfully leveraged on the growing aspirations of consumers in smaller towns, Mumbai-based Ajanta Pharma, which turned around its fortune by moving into more specialty segments in generics and higher presence in emerging markets; newly listed companies such as contract manufacturing firm Caplin Pharma and pre-engineered building and design company Pennar Engineered Building Systems and new market favourites Camlin Fine Sciences whose portfolio of products has little competition both in the domestic and international markets and Ashapura Intimate Apparels which got the attention of fund managers given its consistent performance.
Though the increasing number of entrants made this year’s list look almost entirely new, there are a handful of companies that have made it through the list across the four years such as Page Industries, which has grown consistently on increasing consumer demand and knowledge outsourcing company, eClerx, which has gained on its customers’ growing need to cut costs Companies such as Cera Sanitaryware and Jubilant FoodWorks managed to make the list consistently over the past three years.
Even as the numbers look good not all of them are likely to continue to grow like they have. Take the case of Sun Pharmaceuticals, one of the best performing pharma companies has run into rough weather over the past three quarters owing to high integration costs following its merger with Ranbaxy and a run-in with the US Foods and Drug Administration on quality issues. And given its profit warning, it is almost certain that it won’t be making the list next year.
Tech Mahindra took came under rough weather as some of its largest telecom clients put a hold on their IT spend. While things are starting to look up for the company, it is hoping that some of its new initiatives such as digitisation and automated platforms will drive growth.
While investors search for much elusive growth across companies, as we close the fourth edition it is clear to us that finding companies on a sustained growth trajectory is going to even more tougher in FY16 going by India Inc’s performance in the first two quarters. Clearly, not an inspiring note to start the New Year with.