With exclusive interviews and incisive insights, B&E brings the electrifying annual listing of India’s top’ wealth creators during the financial year 2009-2010; companies that gave the largest rise in market capitalisation for their shareholders! By Deepak Ranjan Patra
Did Globalisation Matter?
The 2006 study titled Globalization and the Impact on Shareholder Value and Revenues proved that companies which globalize “create more value for shareholders than companies that don’t globalize!” The 2006 Accenture report Expanding Markets: Innovation and Globalization added that “the best performers were 83% globalized, while the average performers were only 18% globalized!”
While the world is shrinking with every passing day, when it’s about a market place and business opportunities, companies that have globalised in emerging markets and large income geographies have more or less been the ones that have come out of the economic slowdown much stronger. For that matter, as analysts believe, RIL’s thrust on its global ventures could certainly have gone a long way in creating some true value for the company. Its latest joint-venture with Atlas Energy in the US, to buy 40% stake for $1.7 billion in a shale gas project in Pennsylvania has acted as a sure shot booster for the company as the undeveloped 300,000 acres area has a potential of 13.3 tcf [trillion cubic feet].
Citigroup is an obvious inclusion in this commentary. The bank has just returned from the brink of oblivion. If Goldman Sachs’ profitability came from hedging exposures and shorting losses (that is, pure financial investments) the brilliant turnaround time for Citi has been possible mostly because of the group’s strong global presence (on-site presence in 100 countries and operations in over 140 countries). As per Citi’s books for the financial year ended on December 31, 2009, 77% of the $14.8 billion profit earned by Citicorp came from regions like Asia, Latin America and EMEA (Europe, Middle-East and Africa). Not that the group jumped into profits for the last financial year. But because of this contribution from Citicorp, the group managed to restrict its losses to just $1.6 billion as compared to a mammoth loss of $27.7 billion in 2008. This certainly should be a lesson for Indian banks like SBI and ICICI Bank, who, although being amongst the country’s biggest wealth creators and profit makers, are still living with a very negligible global presence.
When it’s about creating a true value for a company’s shareholders by foreign ventures, it certainly is an area of expertise for the Indian IT brigade- TCS, Infosys and Wipro. This has been their key growth area for years now with over 90% of their revenue coming from the overseas markets. Moreover, with the conditions in the international market – especially in the US – improving, these companies are all charged up to swing back to their best in those markets. A company like Infosys (read more about it in the last story in this cover package) has beaten Microsoft comprehensively if one were to consider the three year average growth rates for profits and revenues (see chart on left page) and even the past FY’s earning per share. It’s the same case when one sees our #6 company ICICI Bank in comparison with Citigroup. Does this mean that ICICI Bank is better than Citigroup; or that Infosys is better than Microsoft? Actually, that’s quite possible.
Though Microsoft apparently comes in fourth on this year’s US list of top m-cap gainers in absolute value, the Steve Ballmer led fireball has actually devastated shareholder value since the start of this decade. Microsoft has plummeted from close to $580 billion dollars in market capitalisation in April 2000 to around $270 billion dollars in April 2010. That is what we’d call murderous! Compare this to Apple’s m-cap increase: from $20 billion or so in April 2000 to $240 billion in April 2010. That’s godly!
Coming back to India, TCS, which has been growing consistently in the North American market even during the recession, has ensured that the North American contribution to its growth trajectory moves up to 52.8% during FY’2009-10 from 51.5% in the previous fiscal. And N. Chandrasekaran, CEO and MD, TCS, confirms that, “Our ability to react to growth opportunities and execute efficiently has helped TCS deliver a superior performance. Our sales and execution machine is primed and we have laid a solid platform for growth. There is significant traction for our strategy of full services, which together with our global engagement model positions us well for accelerated growth.”
One noteworthy aspect of the top five Indian market capitalisation stalwarts is that with respect to simply their stock price growth (and not absolute m-cap rise) through the previous financial year, all of them outbeat the BSE Sensex and the NYSE Index (see chart on previous page). And in the flow of things, if one were to rate listed firms purely based on m-cap percentage growth (rather than m-cap absolute growth; see chart below) for the past financial year, none of our original BSE top ten absolute wealth creators figure on the new list, which has names like Kwality Dairy (1,342% stock price growth), IVRCL Assets (989%), JP Power Venture (894%) and the likes. But truly, pure stock price growth can be misleading given how a smaller base of stock price in one year is enough to give a top ranking in the next year.
Did R&D Matter?
The joint HBS and Southwestern University 2006 ‘Industry R&D Survey’ proved how, in the US, the total number of R&D spenders has almost regularly gone down year after year since 1993. The Stock Market Valuation of R&D Expenditures by Chan, Lakonishok & Sougiannis of The University of Illinois summarises that “the average historical stock returns of firms doing R&D matches the returns of firms without R&D...” The concept is double proved by simply reviewing the two IT icons. While Microsoft spent nearly 15% of sales as its R&D expense, Apple spent about 3% only! And down south, TCS spent only 0.28%! Case proved!
In Conclusion
While CEOs in contemporary times do realise that they have to modulate all strategies and tactical moves with the shareholders’ wealth in mind, the paradox still remains on the viciousness of the expectations of shareholders – who more or less demand immediate short term stock price increases disregarding long term vision. Would not focusing purely on short-term shareholders’ wealth destroy the company completely? Jim Collins gave the right answer two years back in his brilliant analysis in the Fortune 500 issue, “Of the 500 companies that appeared on the first Fortune 500 list in 1955, only 71 have a place on the list today. Nearly 2,000 companies have appeared on the list since its inception, and most are long gone from it.” In conclusion, maximise shareholders’ wealth, even if it means destroying the company!
Did Globalisation Matter?
The 2006 study titled Globalization and the Impact on Shareholder Value and Revenues proved that companies which globalize “create more value for shareholders than companies that don’t globalize!” The 2006 Accenture report Expanding Markets: Innovation and Globalization added that “the best performers were 83% globalized, while the average performers were only 18% globalized!”
While the world is shrinking with every passing day, when it’s about a market place and business opportunities, companies that have globalised in emerging markets and large income geographies have more or less been the ones that have come out of the economic slowdown much stronger. For that matter, as analysts believe, RIL’s thrust on its global ventures could certainly have gone a long way in creating some true value for the company. Its latest joint-venture with Atlas Energy in the US, to buy 40% stake for $1.7 billion in a shale gas project in Pennsylvania has acted as a sure shot booster for the company as the undeveloped 300,000 acres area has a potential of 13.3 tcf [trillion cubic feet].
Citigroup is an obvious inclusion in this commentary. The bank has just returned from the brink of oblivion. If Goldman Sachs’ profitability came from hedging exposures and shorting losses (that is, pure financial investments) the brilliant turnaround time for Citi has been possible mostly because of the group’s strong global presence (on-site presence in 100 countries and operations in over 140 countries). As per Citi’s books for the financial year ended on December 31, 2009, 77% of the $14.8 billion profit earned by Citicorp came from regions like Asia, Latin America and EMEA (Europe, Middle-East and Africa). Not that the group jumped into profits for the last financial year. But because of this contribution from Citicorp, the group managed to restrict its losses to just $1.6 billion as compared to a mammoth loss of $27.7 billion in 2008. This certainly should be a lesson for Indian banks like SBI and ICICI Bank, who, although being amongst the country’s biggest wealth creators and profit makers, are still living with a very negligible global presence.
When it’s about creating a true value for a company’s shareholders by foreign ventures, it certainly is an area of expertise for the Indian IT brigade- TCS, Infosys and Wipro. This has been their key growth area for years now with over 90% of their revenue coming from the overseas markets. Moreover, with the conditions in the international market – especially in the US – improving, these companies are all charged up to swing back to their best in those markets. A company like Infosys (read more about it in the last story in this cover package) has beaten Microsoft comprehensively if one were to consider the three year average growth rates for profits and revenues (see chart on left page) and even the past FY’s earning per share. It’s the same case when one sees our #6 company ICICI Bank in comparison with Citigroup. Does this mean that ICICI Bank is better than Citigroup; or that Infosys is better than Microsoft? Actually, that’s quite possible.
Though Microsoft apparently comes in fourth on this year’s US list of top m-cap gainers in absolute value, the Steve Ballmer led fireball has actually devastated shareholder value since the start of this decade. Microsoft has plummeted from close to $580 billion dollars in market capitalisation in April 2000 to around $270 billion dollars in April 2010. That is what we’d call murderous! Compare this to Apple’s m-cap increase: from $20 billion or so in April 2000 to $240 billion in April 2010. That’s godly!
Coming back to India, TCS, which has been growing consistently in the North American market even during the recession, has ensured that the North American contribution to its growth trajectory moves up to 52.8% during FY’2009-10 from 51.5% in the previous fiscal. And N. Chandrasekaran, CEO and MD, TCS, confirms that, “Our ability to react to growth opportunities and execute efficiently has helped TCS deliver a superior performance. Our sales and execution machine is primed and we have laid a solid platform for growth. There is significant traction for our strategy of full services, which together with our global engagement model positions us well for accelerated growth.”
One noteworthy aspect of the top five Indian market capitalisation stalwarts is that with respect to simply their stock price growth (and not absolute m-cap rise) through the previous financial year, all of them outbeat the BSE Sensex and the NYSE Index (see chart on previous page). And in the flow of things, if one were to rate listed firms purely based on m-cap percentage growth (rather than m-cap absolute growth; see chart below) for the past financial year, none of our original BSE top ten absolute wealth creators figure on the new list, which has names like Kwality Dairy (1,342% stock price growth), IVRCL Assets (989%), JP Power Venture (894%) and the likes. But truly, pure stock price growth can be misleading given how a smaller base of stock price in one year is enough to give a top ranking in the next year.
Did R&D Matter?
The joint HBS and Southwestern University 2006 ‘Industry R&D Survey’ proved how, in the US, the total number of R&D spenders has almost regularly gone down year after year since 1993. The Stock Market Valuation of R&D Expenditures by Chan, Lakonishok & Sougiannis of The University of Illinois summarises that “the average historical stock returns of firms doing R&D matches the returns of firms without R&D...” The concept is double proved by simply reviewing the two IT icons. While Microsoft spent nearly 15% of sales as its R&D expense, Apple spent about 3% only! And down south, TCS spent only 0.28%! Case proved!
In Conclusion
While CEOs in contemporary times do realise that they have to modulate all strategies and tactical moves with the shareholders’ wealth in mind, the paradox still remains on the viciousness of the expectations of shareholders – who more or less demand immediate short term stock price increases disregarding long term vision. Would not focusing purely on short-term shareholders’ wealth destroy the company completely? Jim Collins gave the right answer two years back in his brilliant analysis in the Fortune 500 issue, “Of the 500 companies that appeared on the first Fortune 500 list in 1955, only 71 have a place on the list today. Nearly 2,000 companies have appeared on the list since its inception, and most are long gone from it.” In conclusion, maximise shareholders’ wealth, even if it means destroying the company!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
