Mar 23, 2007|
India Inc.: Small wonders!
It is common knowledge that India Inc. has had its dream run since the early years of this decade and this has been well manifested in the valuations accorded to them in the equity markets. While the corporate growth has been holistic with contribution from companies across sectors, select majors in each of the sectors have made their presence felt.
A comparison of the compounded annual growth clocked by a sample of few sectors selected by us to the compounded annual growth in the market share of the top few companies in those sectors, gives us an interesting perspective on this. While it is a given that the low base effect has magnified the growth numbers for the smaller companies, it is also worthwhile noting that a few of the companies have displaced some of their larger counterparts in the respective product segments by clocking relatively superior level and quality of growth.
Source:CMIE Industry market size and shares - March 2007
|Hyundai Motor India
* The market share of Grasim for FY06 includes that of Ultratech (9.4%)
In case of manufacturing companies like Grasim, capacity addition (standalone as well as acquisition of Ultra Tech) and higher utilisation levels apart from better realisations and improved efficiency has helped the company report stronger numbers. While Ultra Tech was one of the major propellers of the company's growth, savings in operating costs resulting from ongoing modernisation efforts, up-gradation of plants and energy optimisation have aided the gain in market share.
Similar capex led volume game was the case with JSW Steel in the steel sector. In the detergent market, P&G Health & Hygiene's 'Tide' garnered better realisations as compared to peer HLL's 'Surf Excel' and 'Rin', thus scoring higher over the latter. The strong performance of the company was also on the back of focused marketing initiatives and deeper distribution.
Both Raymond and Tata Motors derived the benefits of 'exclusivity' in their respective sectors by regularly launching new products and catering to a niche segment. Cipla, on the other hand, focused on stability of revenues through its contract manufacturing business, against the volatile generic business (subject to pricing pressure) of its peers Ranbaxy and Dr. Reddy's.
Players in the service sectors, like Infosys (software) and ITC (hotels), focused on expanding their capacities in terms of employees and rooms. Better pricing power in terms of billing rates and average room rentals (ARR) respectively, also supported their case.
The point that we wish to drive home is that while companies with bigger balance sheets, higher turnover and wider reach may offer a comfortable hedge in times of short term volatility, the smaller and equally promising entities may seize a larger chunk of the growth pie in the longer term. Thus instead of concentrating only on the blue chips, investors must also evaluate the prospects of some of the smaller entities in the sector that have an equally compelling business model, with the potential to generate higher growth and returns as compared to their larger counterparts. The catch also lies in the fact that you may find the most opportune moment to buy the Infosys' and HLLs in the making at attractive valuations!
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