TCS, Ajanta Pharma & Asian Paints –
Biggest, Fastest & Most Consistent Wealth Creators
Mumbai, 8th December 2017: Motilal Oswal Financial Services Ltd. today announced the Motilal Oswal 22ndAnnual Wealth Creation Study, 2017.
Every year for 22 years now, Mr.Raamdeo Agrawal, Joint Managing Director of Motilal Oswal Group, commissions an Annual Wealth Creation Study.
The Motilal Oswal 22nd Annual Wealth Creation Study has two parts
1) Findings on Wealth Creation during the period 2012-17, and
2) Theme 2018: CAP & GAP – Power of longevity in Wealth Creation
Key Conclusions of Motilal Oswal 22ndAnnual Wealth Creation Study
- TCS, Ajanta Pharma&Asian Paints – Biggest, Fastest & Most Consistent Wealth Creator,respectively, between 2012 and 2017.
- Banking & Finance is the largest wealth creating sectorbetween 2012 and 2017.
- State-owned companies have become marginalized in Wealth Creation with their share collapsing from 51% in 2005 to 10% in 2017.
- Payback ratio (Mkt Cap ÷ 5-years forward PAT) < 1remains the most reliable indicator of superior Wealth Creation across market cycles.
- Longevated profit growth companies are few. Understanding of Competitive Advantage Period (CAP) and Growth Advantage Period (GAP) improves the chances of finding them.
- Moat without growth will underperform; growth without moat will end soon.
- Longevity and speed of growth are inversely correlated.
- Three characteristics of CAP-cum-GAP companies are –
- Clear strategy, High growth mindset, and High-growth industry situations.
Part 1) Wealth Creation Study findings
The 22ndWealth Creation Study analyzes the top 100 wealth creating companies during the period 2012-17. Wealth created is calculated as change in the market cap of companies between 2012 and 2017, duly adjusted for corporate events such as mergers, de-mergers, fresh issuance of capital, buyback, etc. The Study identifies the Fastest, Biggest and MostConsistent wealth creators. Further, it analyzes key trends in wealth creation, provides insights into winning companies and distills strategies for successful equity investing.
Study Highlights – Wealth Creation
Top 100 Wealth Creators created Rs 38.9 lakh crores wealth during 2012-17
This is the highest ever quantum of Wealth Created. During 2012-17, Sensex CAGR was only 11%, but pace of Wealth Creation was healthy at 22% CAGR. This reinforces the point that Wealth Creation happens in all kinds of market conditions. So, investors are better off focusing on which stocks to invest in, rather than timing the markets.
TCS is the Biggest Wealth Creator for the fifth time in a row
TCS has emerged the biggest Wealth Creator for the period 2012-17, with Rs 2.5 lakh crores of Wealth Created.HDFC Bank is a close No.2 with Rs 2.3 lakh crores of Wealth Created.
Ajanta Pharmais the Fastest Wealth Creator for the third year in a row
Ajanta Pharma has emerged as the Fastest Wealth Creator for the second time in a row, with 2012-17 stock return at a whopping 96% CAGR.Eicher Motors is among the top 10 Fastest Wealth Creators in the last 6 studies, and Bajaj Finance in the last 4.
Asian Paints is the Most Consistent Wealth Creator
Asian Paints is the Most Consistent Wealth Creator over the last 10-year period2007-17, by virtue of – (1) Appearing among top 100 Wealth Creators in each of the last 10 studies; and (2)Recording highest 10-year Price CAGRof 30%, ahead of Titan Company (27%) and HDFC Bank (22%).
Other key takeaways
- Wealth Creation Classification by Industry:Banking/Finance has emerged as India’s biggest Wealth Creating sector after a gap of four years. The surge in Wealth Creation in the sector has been led byprivate banks and NBFCs..
- Wealth Creation by Ownership – PSU v/s Private:PSUs’ (public sector undertakings) Wealth Creation performance remains weak during 2012-17: (1) The number of PSUs in the top 100 Wealth Creators is only 9, and (2) Wealth Created by these 7 PSUs is only 10% of the total. However this is higher than 2% and 4% in the previous two studies, suggesting early signs of potential revival in PSU fortunes.
- Wealth Creators by Valuation Parameters: Every study invariably suggests that the highest return is generated when payback ratio is less than 1x. (Payback is a proprietary ratio of Motilal Oswal, defined as current market cap divided by estimated profits over the next five years. For 2011, we calculate this ratio based on the actual profits reported over the next five years).
- Wealth Destroyers:The total Wealth Destroyed during 2012-17 is Rs 6 lakh crores, 15% of the total Wealth Created by top 100 companies. The broader theme of Wealth Destruction is cyclical downturn, led by Metals/Mining sector followed by Banking & Finance (mainly PSU banks).