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June 2023
Volume XVI, Number 12
COVER STORY
EDITORIAL POLICY
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4 Wealth Insight June 2023


Columns

EDIT STOCK ADVISOR
by DHIRENDRA KUMAR by DHIRENDRA KUMAR
Profit is everything. On the right track

We are back again with our list of In more than five years of service, Value
the 100 most profitable companies e
Research Stock Advisor has created a huge
opportunity for investors to understand
investing and succeed in their mettle

MAIN STREET
by SAURABH MUKHERJEA
ANALYST’S DIARY
INSIGHT
India’s high corporate Splurging on ad expenses
tax rate is holding back by IAN CASSEL
Good companies,
corporate capex The microcap mogul poor prices
India must lower its corporate tax to
become more competitive Can stockbrokers thrive
in the long run?
MARKET MOVES
Market Reporter
EVERYDAY ECONOMICS Stock Story - SRF
by PUJA MEHRA
Big Moves
The grounding Index Watch:
of Go First? S&P BSE Healthcare
Go First has filed for insolvency.
Find out why Indian airlines keep failing.
VIS-A-VIS

STRAIGHT TALK
by ANAND TANDON STOCK SCREEN
The current state of
electric car sales MARKET COMPASS Reasonably priced
growth stocks
How are they faring globally and Market Barometer
what the future holds Institutional moves
Change in
promoter stake
Pledging Tracker
OFF THIS & THAT...
by SANJEEV PANDIYA
A strategy to carry
How to play the decline
of the dollar WORDS WORTH NOW
',6&/$,0(5
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
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to the jurisdiction of Delhi courts only. ALL RIGHTS RESERVED
June 2023 Wealth Insight 5

EDIT
Profit is everything
We are back again with our list of the
100 most profitable companies
DHIRENDRA KUMAR
Profit 100, our cover feature this This is where Value Research, Wealth Insight, and
month, is an annual exercise and has been so for many this issue’s cover story come in. Now, I feel this is not
years. Until recently, I always considered it to be the just a routine cover story but something with a didactic
kind of feature that was extremely useful for investors purpose. We need to blow the trumpets of profits
but a fairly routine exercise. Our team has evolved a because not only are profits the kings of the realm of
unique and effective methodology for working on the investing, but they’re also pretty much its only truly
data analysis for the feature. Still, at the conceptual or important citizens.
theoretical level, there was nothing much to discuss. It’s seven years since we started running this annual
However, things have changed now, and not for the series on India’s most profitable companies. Through
better. Here’s what happened. Since time immemorial, these years, the progression of our research team’s
everyone has understood that profits are the central annual exercise has transitioned from a simple ranking
feature of businesses and investments, and no discussion primarily focused on just profitability to a more
is needed on this issue. comprehensive and multifactorial analysis. We’ve
Here are some basics any sane businessperson, gradually incorporated various criteria and prerequisites
investor, or analyst considers undeniable: Sustaining that companies must meet for consideration, irrespective
profits is crucial for survival. Optimising profits with of their apparent profitability. This shift in approach is
less resource allocation, such as capital and other a systematic departure from the methodologies that such
inputs, is desirable. It’s more beneficial to have rising exercises normally use and, indeed, with which we
profits than to be stagnant. Many other rules can be ourselves embarked on this series. Over these last few
derived from this, but those are just a waste of breath. years, Indian businesses have faced various headwinds
And yet, the acceptability of these viewpoints seems to – some have faltered while others have flourished.
have diminished in the past ten years. Many people, Through all this, our team has analysed the changing
particularly in the endless chatter of media and social conditions and heavily tweaked the real meaning of the
media, now perceive profits as non-essential. This is the word ‘profit’. This revised and expanded meaning of the
ideological influence of startup propaganda. Not real word profit is different from what it means for an
startups but those sustained by Venture Predators. accountant or a taxman, but it’s what makes more sense
Until recently, in India, this attitude was only prevalent for an investor.
in the fantasy worlds of social media and media but not As it happens with every one of our data-driven stock
in the real world of equity markets and investors. selection stories since 2016, when you read our analysis
However, the IPOs of eternal lossmaker ‘startups’ in and go through the chosen set of companies, you will see
India have also introduced these zombies into the equity names that will come as a surprise. We all tend to have
markets. As long as they were sustained by foreign preconceptions of what ‘good companies’ are, and we
venture capital, I didn’t care. Still, now that Indian shrink away when we see names that contradict those
equity investors are putting their money into these biases. A key motivation for crafting these highly data-
profitless businesses that are not businesses, we need to centric narratives is to compel us to face and question
counter this propaganda. our inherent biases.

INSIGHT
The microcap mogul

Failure is a part of the journey, just as is embracing risk. If we’re not
bouncing up against our limitations from time to time, we aren’t
growing. If we aren’t failing in some small way we aren’t learning what
will work the next time.
Ian Cassel
@iancassel If you invest in microcaps you will have turnover. 20% of what you own
today will likely deserve to be owned 5 years from today. This means
237k | Followers
that 80% of what you own today will deserve to be sold. My intention
with every purchase is to hold forever but few will earn that right.
The hardest part of microcap investing is finding businesses that

Why Follow
deserve to be held for the long-term. Normally I have 3 out of 10 that
I have extreme confidence. The other seven I’m watching how they
I
nvesting in microcaps is not evolve - holding, adding, or replacing with new candidates.
for the faint of heart. But
To be a successful microcap investor you have to be an independent
Ian Cassell makes it look minded person. You have to get used to no analyst coverage (no help),
simple. He has over 15 years no institutional following (no cloning), no liquidity (no easy way out).
of experience in microcaps You have to do the work yourself and build your own conviction.
and has invested solely in It’s a bad sign whenever I start worrying about “the next quarter”
microcaps since 2018. Cassell because it tells me I don’t have the conviction to not care about “the
also founded MicroCapClub, a next quarter”.
forum for microcap investors to Just because a founder owns 10-20-30%+ of a business, it doesn’t
share their ideas and investing automatically mean they know what they are doing and/or aligned with
experience, in 2011. While your interests.
microcaps are his expertise, he Just as many major gold discoveries are found by mining (running into
shares investing philosophies an ore body), than by pure exploration. It’s the same for idea generation
and stock-picking strategies for in stock picking. Sometimes luck and serendipity collide and other
times it’s from just showing up day after day and doing the work.
every kind of investor on his
Twitter handle.
Follow us on social media
@VROStocks vrostocks VROStocks

MARKET
MOVES MARKET REPORTER
PI Industries steps into the pharma biz

This leading agri-chemical company has ventured into the pharmaceutical
industry by acquiring a slew of companies for around `925 crore. PI Health
Sciences, its wholly-owned subsidiary, has acquired a 100 per cent stake in
Therachem Research Medilab India and Solis Pharmachem (subsidiaries of TRM
US). Also, it acquired Italy-based Archimica.
`6,000 cr
IS THE CAPEX PLANNED BY ULTRATECH
CEMENT FOR FY24 AND FY25 EACH.
THE AMOUNT WILL BE USED TO
Godrej Consumer acquires EXPAND THE COMPANY’S TOTAL
Raymond’s FMCG biz CAPACITY BY 22.6 MILLION TONNES.
In a surprise move, Godrej Consumer Products acquired the
FMCG business of Raymond Consumer Care (a Raymond
subsidiary) for around `2,825 crore. To fund this acquisition, the
company has raised debentures of `5,000 crore.
With this acquisition, Godrej will foray into the men’s
personal care and sexual wellness categories.
The interest-rate story

The US Federal Reserve raised its benchmark
interest rate’s target range by 0.25 per cent to
5–5.25 per cent. However, it indicated that
soon, rate hikes would come to a halt.
Meanwhile, the European Central Bank raised
Pricol’s hostile takeover by Minda its benchmark interest rate by 0.5 per cent to
3.5 per cent.
The battle for market share in the automobile instrument-
cluster industry has intensified. After acquiring a 15.7 per cent
stake in Pricol (the market leader) for `400 crore, Minda
Corporation has sought the approval of the Competition
Commission of India (CCI) to buy an additional 24.5 per cent
stake. Pricol, on the other hand, has responded by filing an
objection against Minda Corporation’s application with the CCI.
Reliance Industries to demerge financial services biz

In October 2022, the Board of Reliance Industries approved the demerger of Reliance
Strategic Ventures (its financial-services business). Recently, the company’s creditors
have also approved the demerger. The shareholders of Reliance Industries would
receive one share of the demerged entity for every share held in Reliance Industries.
The demerged entity will be renamed Jio Financial Services.

MARKET
MARKET REPORTER MOVES
`91,000 cr
IS THE AMOUNT TO BE SPENT
BY COAL INDIA ON UPCOMING
PROJECTS. IT PLANS TO SPEND
`46,000 CR ON MINE
DEVELOPERS AND `36,000 CR
The end of an era ON GASIFICATION.
After spending 58 years at Larsen &
Toubro, AM Naik (non-executive
Chairman) has decided to call it time.
He played an important role in turning Aditya Birla
L&T into a global engineering major.
His tenure will end in September 2023. Fashion to
SN Subrahmanyan (who took over as
the CEO and MD from Naik in 2017) will
acquire TCNS
take over as the Chairman and MD. Clothing
Aditya Birla Fashion, India’s
largest fashion retailer, has
announced that it would
acquire a 51 per cent stake in
TCNS Clothing. In the first
Go First’s crash
phase, it would acquire a
majority stake at a cost of
landing
Wadia Group, Go First’s
`503 per share. In the next
promoters, has filed for
phase, it would merge TCNS
voluntary insolvency.
with itself by issuing 11
The National Company
Tata Motors’ shares for every six shares
held in TCNS.
Law Tribunal has
changing fortunes admitted the plea and as a

result, a moratorium has
After reporting losses for four straight been imposed on financial
years, Tata Motors reported a net profit of obligations, including
`2,414 crore on revenue of `3,45,967 crore that of lessors. The
in FY23. Moreover, for the first time since airline has been suffering
2016, the company will pay a dividend. The engine issues for the last
Board has recommended a dividend of `2 two years and in
and `2.10 per share for ordinary and DVR December 2022, it had to
shareholders, respectively. ground 50 per cent of its
fleet due to the issue.
Adani Group to raise more capital

Following the cancellation of its follow-on public offer, Adani Group is seeking
institutional investors to raise capital. The boards of Adani Enterprises and Adani
Transmission have already approved the raising of `12,500 crore and `8,500 crore,
respectively. Adani Green is also set to approve the raising of funds in its board
meeting on May 24, 2023.

MARKET
MOVES MARKET REPORTER
ECONOMIC METRICS
`17,000 cr
.:;JVSSLJ[PVU
2,00,000 In ` cr
1,50,000
IS THE OUTLAY FOR THE
PRODUCTION-LINKED INCENTIVE 1,00,000
SCHEME FOR IT HARDWARE. 50,000
THIS SCHEME WILL HELP TO 0

Apr '21 Apr '23
INCREASE PRODUCTION BY
`3.4 LAKH CRORE.
0UMSH[PVU!*VUZ\TLY7YPJL0UKL_
8 % change YoY
S P Hinduja passes 7
away at the age of 87 6
5
Srichand Paramanand Hinduja
(S P Hinduja), the Chairman of 4
Hinduja Group, passed away in Apr '21 Apr '23
London at the age of 87.
Plywood makers to Inheriting the family business
from his father, he propelled the
0UK\Z[YPHSHJ[P]P[`!0UKL_VM
go big on MDF group’s fortunes by acquiring
0UK\Z[YPHS7YVK\J[PVU
180 % change YoY
Century Plyboards is all set to Ashok Leyland and Gulf Oil. He
was also the founder of IndusInd 120
invest `2,000 crore to expand its
capacity in manufacturing MDF, Bank, India’s sixth-largest bank
60
laminates and particle board. by market cap.
0
With this investment, the
company aims to achieve a -60
turnover of `5,000 crore by FY26. Mar '21 Mar '23
On the other hand, Greenpanel
Industries is set to expand its
MDF-manufacturing capacity in 059]Z<:+
its Andhra Pradesh plant by 72 Inverted scale
35 per cent for `600 crore. 75
78
Electric two-wheelers to get costlier 81
The Ministry of Heavy Industries has planned to reduce the subsidy for 84
May '21 May '23
electric two-wheeler manufacturers under the Fame-II scheme by `5,000
per kWh per vehicle. Earlier, the scheme had a subsidy of `15,000 per
kWh, with an overall outlay of `10,000 crore. But owing to a boost in *Y\KLVPS
sales, the government has seen a rapid
140 Brent $/barrel
depletion in the allocation. Since 80 per
cent of target sales has been achieved, 120
the government has opted to slash the 100
subsidy. The move will also help
maintain the balance for the rest 80
of the year. 60
May '21 May '23

MARKET
MOVES STOCK STORY SRF
Catalysing growth
Here is the illustrious journey of a leading chemical company that has grown
over the years through expansion and acquisitions
S
RF is a chemical behemoth. It operates in three
major business segments: chemicals (50 per cent
of FY23 revenue), packaging films (35 per cent)
and technical textiles (13 per cent). Besides, it has a
presence in ancillary activities.
Its origin dates back to 1970, when it was
incorporated as a subsidiary of DCM Limited. SRF’s
initial operations were focused on manufacturing
nylon tyre cord fabrics. Soon, it ventured into other
segments, including engineering plastics, belting
fabrics, coated fabrics, finance, chemicals,
packaging films and speciality chemicals.
Finally, in 1999, under the leadership of Arun
Bharat Ram, the grandson of Sir Shri Ram, it was
demerged from its parent company DCM.
Following the split, the company accelerated its
expansion plans. In addition to enhancing its
capacity, SRF embarked on an acquisition spree.
During FY05–FY10, it spent around 16 per cent of its
cumulative revenue on capital expenditure and its stock up by 17 per cent in the last three months.
acquired Industex Technical Textiles and Thai Now, it is all set to commission its aluminium-foil-
Baroda Industries. It also started manufacturing manufacturing plant.
polyester yarns and laminated fabrics. All these However, it was not all smooth sailing for SRF.
activities paid off, as the company witnessed a Many of its overseas ventures didn’t pan out during the
sixfold increase in its revenue and profit after tax same period. So, the company had to exit from them.
from FY10 to FY23. In fact, its profit after tax By Udhayaprakash
increased by about 15 per cent YoY in FY23, pushing
Sensex rebased to stock price

SRF Sensex
Apr 03, 2006

Jan 03, 2000
` `
4HY 4H` 1\S 4H` -LI

Invests The US Patent & Acquires Industex Commences the Approves capex
`160 crore to Trademark Office Technical Textiles production of projects worth
manufacture approves the patent polyester yarns `655 crore
polyester films for Difluoromethane,
an ozone-friendly
refrigerant gas

MARKET
MOVES
5HYHQXHDQGQHWSURÀW
Revenue (` cr, left side)
Net profit (` cr, right side)
15,000 2,500
12,000 2,000
9,000 1,500
6,000 1,000
3,000 500
0 0
Mar ’14 Mar ’23
2SHUDWLQJSURÀWDQGPDUJLQ
Operating profit (` cr, left side)
Operating profit margin (%, right side)
3,500 25
2,800 20
2,100 15
1,400 10
700 5
0 0
Mar ’14 Mar ’23
ROE and ROCE

ROE (%) ROCE (%)
6HJPHQWZLVHUHYHQXH 30
25
Packaging Technical
Chemicals Others
films textiles 20
In % 15
Mar ’19 31.8 34.5 26.9 6.8 10
5
Mar ’20 41.3 36.1 18.8 3.9 Mar ’14 Mar ’23
Sep 13, 2022 May 9, 2023

Mar ’21 43.4 39.2 14.7 2.8
` `
Mar ’22 42.1 38.4 16.7 2.7 Oct 12, 2021
`
Mar ’23 49.8 34.8 12.7 2.6
Jul 05, 2022
`
Apr 01, 2020
May 08, 2018

`
Aug 04, 2015 ` Mar 25, 2021
` `

1HU 5V] 4H` 4H` -LI

Acquires Global Acquires Mexichem Sells engineering The board Announces its
DuPont’s Dymel UK’s hydrofluorocar- plastics division approves the foray into
pharma business bon-refrigerant to DSM India setting up of a manufacturing
assets multi-purpose plant aluminium foil with
for `375 crore an investment of
`425 crore

MARKET
MOVES BIG MOVES
Large caps Price to earnings Net profit (` crore)

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
876
46.6 142.5 914

Adani Green
GQG Partners invested `15,446 crore in Adani group companies
and Adani Green’s Q4 FY23 PAT jumped 320 per cent YoY. 20.8 156.7
598
234
43.7 8.4 10,727

Adani Power
Its Q4 FY23 PAT jumped 598 times sequentially and
13 per cent YoY. 18.0 88.7
163
1,012
31.5 5.8* 2,677

Cholamandalam Investment
It plans to raise `1,000 crore through debentures and its
Q4 FY23 PAT rose 25 per cent YoY. 17.4 36.4
769
470
28.8 57.1 1,101

DLF
It recorded the highest annual sales booking at `15,058 crore
and its FY23 PAT grew 36 per cent. -0.2 40.0
365
684
18.1 29.1 5,008

Adani Ports and SEZ
GQG Partners invested `15,446 crore in Adani group companies
and Adani Ports acquired Karaikal Port. 15.7 1.7
580
1,900
17.3 87.6 2,209

Adani Enterprises
GQG Partners invested `15,446 crore in Adani group companies,
and Adani Enterprises’ PAT for FY23 jumped 207 per cent. 3.9 40.4
1,620
516
16.4 70.9 2,353

Tata Motors
FY23 volumes jumped 31 per cent, and it posted an operating
profit of `7,059 crore. -20.9 30.3
443
63
16.2 - -1,143
Zomato
Q3 FY23 gross order value and revenue increased by 21 and
75 per cent YoY, respectively. -77.7 -8.0
55
82
-4.8 54.9 1,131

Samvardhana Motherson
Sumitomo Wirings, its parent company, sold a 3.4 per cent
stake in the company. 7.9 -9.0
78
874
-9.6 80.2 1,080

Adani Transmission
The share price tanked recently as the company is set to exit the
MSCI index. 18.7 10.7
790
*Price to book value. Our large-cap universe has 112 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in
the last three months. Data as on May 17, 2023.

MARKET
MOVES BIG MOVES
Mid caps Price to earnings Net profit (` crore)

122
83.7 17.7 1,284

Rail Vikas Nigam
Its JV with SCC won an order worth `2,249 crore.
18.0 19.2
66
1,169
83.5 69.1 212

Anupam Rasayan
It entered into an MoU with the Government of Gujarat to
set up three new plants for `670 crore. 8.6 44.5
637
804
37.1 2.0* 2,818

Cholamandalam Financial Holdings
Its Q4 net interest income and PAT rose 20 and 31 per cent YoY,
respectively. 33.7 34.3
586
317
31.3 33.4 613

The Fertilisers And Chemicals Travancore
Its FY23 PAT jumped 77 per cent and it will sell 15 acres of
land to the Kerala government. -^ -14.3
241
757
30.4 72.0 125

JBM Auto
It announced an investment of `350 crore in a new plant.
12.0 21.8
580
33
25.5 1.6* 1,313

Punjab & Sind Bank
Its FY23 PAT rose 26 per cent and its net NPA fell to
1.84 per cent. -18.7 13.1
26
1,640
21.7 74.1 124

Data Patterns
It announced a qualified institutional placement of
`500 crore. 23.7 308.1
1,348
2,792
20.2 16.8 638

Apar Industries
Its Q4 PAT increased by 194 per cent YoY.
13.5 67.7
2,323
1,556
16.8 19.6 522

Raymond
It sold its FMCG business to Godrej Consumer, and its FY23
PAT more than doubled. 0.5 118.3
1,332
989
12.5 98.1 495

Macrotech Developers
Its Q4 FY23 PAT increased by 39 per cent YoY.
12.0 -9.8
880
^Negative equity; *Price to book value. Our mid-cap universe has 255 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have
fluctuated most wildly in the last three months. Data as on May 17, 2023.

MARKET
BIG MOVES MOVES
Small caps Price to earnings Net profit (` crore)

2,381
989.0 94.8 9
Remedium Lifecare
Its Q3 PAT increased by 120 per cent YoY.
15.5 901.6
219
505
167.0 160.4 7
K&R Rail Engineering
It won multiple projects, including a `300-crore railway
siding project. 12.1 42.8
189
28
107.7 12.0 179

Patel Engineering
It won multiple projects, including a `3,637-crore project from
NHPC. -2.4 78.8
14
1,894
86.4 33.7 56
Tanfac Industries
Its Q4 PAT jumped 217 per cent YoY.
34.2 49.0
1,016
803
81.7 38.5 25
KSolves India
Its FY23 PAT increased by 56 per cent.
118.6 358.7
442
210
80.2 – -9
GE T&D India
It posted a net profit of `5 crore in Q3 FY23 as against a loss in
the previous year. -7.8 23.9
117
25
-7.5 154.7 2
Goyal Aluminiums
The share price has been falling due to general market
conditions. 4.5 13.0
23
25
-32.2 2.5 1,365

Brightcom Group
The stock crashed recently as SEBI issued a show-cause notice
on alleged fraud. 17.4 45.8
17
19
-34.4 – -8
Toyam Sports
The share price has been falling due to general market
conditions. 3.5 29.7
12
688
-39.3 3.3 346

EKI Energy
Its Q3 PAT crashed 75 per cent YoY and 61 per cent
sequentially. 137.2 725.9
418
Our small-cap universe (minimum market capitalisation of `500 crore) has 941 small-cap companies, making the last 10 per cent of the total market capitalisation. The list mentions the
stocks that have fluctuated most wildly in the last three months. Data as on May 17, 2023.

MARKET
MOVES INDEX WATCH
S&P BSE Healthcare

Since 2020, the S&P BSE Healthcare Index has outperformed the Sensex in 38 out of 41
months and has come out as one of the most consistent performers. It has given 3.8 per cent
returns in the last three months. While its P/E is trading at a significant premium to its five-year
median, its P/B and dividend yield are close to the median. However, investors beware as several
macroeconomic headwinds plague this sector.
2LÙ\TILYZ 0UKL_TV]LTLU[ 0UKL_:LUZL_4LKPHU
34.4 3.8
30,000
25,000
Price to earnings Price to book 20,000
0.73 13.6
15,000
10,000
Sensex rebased to index
5,000
Dividend yield (%) Market cap (` lakh cr) May ’18 May ’19 May ’20 May ’21 May ’22 May ’23
0UKL_^LPNO[Z
7YPJL[VIVVR]HS\L7)
Others
40.0 6
5
Sun Pharma 3.8
4
Torrent 15.2
Pharma 2.4 3
Alkem 2
Labs 2.6 Dr. Reddy’s
Labs 8.2 1
May ’18 May ’19 May ’20 May ’21 May ’22 May ’23
Aurobindo
Pharma 2.6 Cipla 7.4
Lupin 2.8 Apollo 7YPJL[VLHYUPUNZ7,

Hospitals 6.8
60
Max
Healthcare Divi’s Labs 6.2 50
5.8
40 34.9
=HS\H[PVUZKP]PKLUKZHUKYL[\YUZ 30
Dividend 1Y 20
Company P/B P/E yield (%) return (%)
10
Max Healthcare 6.9 46.1 0.0 42.1 May ’18 May ’19 May ’20 May ’21 May ’22 May ’23
Torrent Pharma 8.8 67.4 2.9 26.5
Apollo Hospitals 10.4 84.3 0.3 17.5
+P]PKLUK`PLSK
Alkem Labs 4.2 39.6 1.0 16.5 in %
1.4
Aurobindo Pharma 1.4 18.2 1.5 15.6
1.2
Dr. Reddy’s Labs 3.2 16.5 0.9 14.7
Lupin 2.9 82.7 0.5 13.0 1.0
Sun Pharma 4.1 53.3 1.1 4.9 0.8

0.6%
Cipla 3.2 26.6 0.9 -1.6 0.6
Divi’s Labs 7.0 36.2 0.9 -24.1
0.4
Data as of May 17, 2023 May ’18 May ’19 May ’20 May ’21 May ’22 May ’23

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MARKET
C MPASS
Market barometer
Some charts that will help you make sense of the current market in terms of
valuations and return potential
Sensex’s movement
In ’000 The Sensex is the most convenient indicator to
65
Max 63,284 tell the state of the Indian market. The 10-year
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
graph presented alongside shows the secular
55 Current run in the markets. However, this rally was
61,561 punctuated by several bearish phases. The
45 most prominent ones include the following:
Chinese growth concerns in 2015,
demonetisation blues in 2016, the sell-off in
35
2018 due to US–China trade war, and the
March 2020 COVID-19 shock. After staging a
25 remarkable recovery from the lows of March
2020, the markets yielded to the Russian
15
Min 17,906 invasion of Ukraine and rising interest rates.
May May May May May May May May May May May With recessionary fears easing, Sensex
’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23 reached a new all-time high.
Sensex’s price to earnings

40 The price-to-earnings ratio of the Sensex is a
simple market-valuation ratio. A general
35 Max 35.1 guideline to help understand the valuation is:
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
P/E > 24 = Dangerously

overvalued
30
P/E > 20 < 24 = Overvalued
P/E > 16 < 20 = Fairly valued
25 P/E > 12 < 16 = Undervalued
Current 23.7
P/E < 12 = Highly undervalued
20 Median 22.8 (mouthwatering valuations)
Min 16.8
15
May May May May May May May May May May May This graph is based on standalone data of Sensex companies.
’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23 If one takes the consolidated data, the P/E will likely be lower.
Sensex’s price to book value

4.0 The price-to-book-value ratio tells us how
Max 3.83 many times an investor is ready to pay for a
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
rupee of net assets.

3.6
Since book value is stable and less volatile
3.2
Current 3.29 than earnings, some consider it better than
the P/E as a measure of valuation.
Median 2.99 If:
2.8
P/B > Median P/B = Overvalued
P/B < Median P/B = Undervalued
2.4 Min 2.36
2.0
May May May May May May May May May May May
’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23

MARKET
C MPASS
Sensex’s dividend yield
1.7% Dividend yield is nothing but the return an
Max 1.61 investor gets in the form of dividend on his
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
investment. It is measured as
1.5 dividend per share divided by price
per share.
1.3 Generally speaking, when stocks are cheap,

Current 1.27 dividend yields are high.
Median 1.22 If:

1.1
Dividend yield >
Median dividend yield = Undervalued
0.9 Dividend yield <
Median dividend yield = Overvalued
0.7
Min 0.72
May May May May May May May May May May May
’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23
Market cap to GDP

115% This measure is Buffett’s personal favourite.
Max 112 He said, “It is probably the single best
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
measure of where valuations stand at any

100 given moment.”
Current 91 Here we have considered the market
85 capitalisation of all the listed companies on
Median 81 the BSE.
If:
70
Market cap > GDP = Overvalued
Market cap < GDP = Undervalued
55 Min 57
Considering market cap of all the listed companies on
the BSE, revised estimate of FY22 nominal GDP and
advance estimates of FY23 and FY24 nominal GDP
40
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
10Y G-sec yield vs Sensex’s earnings yield

4.0% Max 3.97 The spread between G-sec yield and Sensex’s
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
earnings yield is another valuation measure.

G-sec yield is the yield of the 10-year
3.2 Median 2.90 government bond. Sensex’s earnings yield is
Current 2.75 the inverse of the Sensex’s P/E ratio. The
greater the deviation from the median in either
2.4 direction, the greater the degree of
overvaluation or the undervaluation of the
Sensex.
1.6
If:
Min 0.94 Spread > Median = Overvalued

0.8 Spread < Median = Undervalued
0
May May May May May May May May May May May All data as of May 17, 2023
’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23

MARKET
C MPASS
Institutional moves
Top five companies across
market caps in which mutual
funds have significantly
changed their holdings
(in terms of per cent
of equity) between
December 2022 and
March 2023.
Increase in position Decrease in position

Large caps
Change Change
Company name Sector Mar ’23 Dec ’22 (% pt) Company name Sector Mar ’23 Dec ’22 (% pt)
Samvardhana Motherson Auto & Anc. 11.4 8.9 2.5 Ambuja Cements Const. Materials 5.8 7.8 -2.0
Interglobe Aviation Aviation 8.3 6.2 2.1 Adani Ports and SEZ Logistics 3.1 4.4 -1.3
Tata Motors Auto & Anc. 9.0 6.9 2.1 UPL Chemicals 4.6 5.8 -1.2
Page Inds. Textile 16.6 15.0 1.6 Max Healthcare Healthcare 18.9 20.0 -1.1
Hindustan Aeronautics Capital Goods 8.8 7.4 1.4 Dr. Reddy’s Labs Healthcare 9.9 10.9 -1.0
Mid caps
Change Change
PVR Inox Media & Entt. 24.6 17.6 7.0 Jindal Stainless Iron & Steel 3.3 6.3 -3.0
Sona BLW Auto & Anc. 27.0 21.8 5.2 Bata India Retailing 21.1 24.0 -2.9
Dixon Tech. Cons. Durables 12.0 7.6 4.4 Max Financial Finance 29.8 32.3 -2.5
HDFC AMC AMC 7.2 3.1 4.1 NALCO Non-Ferrous Metals 8.5 9.9 -1.4
Coforge IT 23.4 19.9 3.5 IDFC First Bank Bank 2.7 4.0 -1.3
Small caps
Change Change
Equitas SFB Bank 37.9 13.4 24.5 Stove Kraft Cons. Durables 6.6 9.6 -3.0
Kirloskar Oil Engines Capital Goods 19.9 11.9 8.0 Himatsingka Seide Textile 5.0 7.4 -2.4
Elin Electronics Capital Goods 16.0 10.3 5.7 Tata Metaliks Iron & Steel 6.8 8.6 -1.8
Gokaldas Exports Textile 26.1 21.9 4.2 Anand Rathi Wealth Finance 9.9 11.6 1.7
Zensar Tech. IT 15.3 11.4 3.9 Tamil Nadu Newsprint Paper 10.5 12.2 -1.7

MARKET
C MPASS
Change in promoter stake

Companies that have seen a rise or decline in promoter stake in Q4 FY23
H
igher promoter holding shows that promoters are tracking promoter stake.
bullish about their company. In contrast, a fall in The tables below list companies in which the
promoter stake is usually a negative development. promoter stake has changed notably over the last
However, corporate actions, such as rights issue, quarter. We took companies where the promoter stake
mergers, and promoter reclassification, can also impact in the previous quarter was at least 25 per cent and
promoter holdings. Hence, one needs to dig deeper while changed by at least 4 percentage points.
9PZLPUWYVTV[LYZ[HRL
Companies where the promoter stake in the previous quarter was at least 25 per cent and has risen by at least 4 percentage points
Promoters’ stake (%)
Company name Sector M-cap (` cr) Mar '23 Dec '22 Increase in promoter holdings (% pt) 3M return (%)
JTL Inds. Iron & Steel 2,585 56.3 43.7 12.6 2.8
Quess Corp IT 5,741 56.7 51.9 4.8 -10.6
IOL Chem. and Pharma Healthcare 2,452 48.2 43.7 4.5 -24.2
Tejas Networks Cons. Durables 11,138 56.4 52.0 4.4 0.4
Aster DM Healthcare Healthcare 12,725 41.9 37.9 4.0 4.5
M-cap more than `1,000 crore as on May 16, 2023. Returns as of March 2023.
-HSSPUWYVTV[LYZ[HRL
Companies where the promoter stake in the previous quarter was at least 25 per cent and has fallen by at least 4 percentage points
Promoters’ stake (%)
Company name Sector M-cap (` cr) Mar '23 Dec '22 Decrease in promoter holdings (% pt) 3M return (%)
Vodafone Idea Telecom 35,780 50.4 75.0 -24.6 -26.3
Sona BLW Auto & Anc. 31,773 33.0 53.5 -20.5 -1.6
Kirloskar Oil Engines Capital Goods 6,322 41.3 59.4 -18.1 22.1
SEPC Infrastructure 1,395 31.1 47.6 -16.5 1.1
Jindal Stainless Iron & Steel 23,069 57.9 70.1 -12.2 21.1
RHI Magnesita Capital Goods 13,869 60.1 70.2 -10.1 -25.1
Syngene Int. Healthcare 27,970 54.9 64.9 -10.0 1.6
Coforge IT 25,683 30.2 40.0 -9.8 -1.8
Lloyds Metals Iron & Steel 16,684 65.8 74.6 -8.8 16.1
"UTTERmY'ANDHIMATHI Cons. Durables 1,906 75.0 82.8 -7.8 -23.0
Imagicaaworld Entt. Hospitality 1,764 66.0 72.7 -6.7 23.0
Mahindra CIE Auto. Auto & Anc. 17,033 68.9 75.0 -6.1 2.0
LT Foods FMCG 3,896 51.0 56.8 -5.8 -16.3
Angel One Finance 10,820 38.5 43.7 -5.2 -11.3
Marksans Pharma Healthcare 3,424 43.9 49.0 -5.1 20.9
Hariom Pipe Inds. Iron & Steel 1,643 60.9 66.0 -5.1 31.9
#APRI'LOBAL#APITAL Finance 14,010 69.9 74.6 -4.7 -8.3
Jammu & Kashmir Bank Bank 5,766 63.4 68.0 -4.6 -13.3
Kalpataru Power Infrastructure 8,466 47.2 51.5 -4.3 -4.2
Adani Ports and SEZ Logistics 1,48,326 61.0 65.1 -4.1 -22.8
)NTERGLOBE!VIATION Aviation 87,951 67.9 71.9 -4.0 -4.7
M-cap more than `1,000 crore as on May 16, 2023. Returns as of March 2023.

MARKET
C MPASS
Pledging tracker
Companies that have seen a rise or decline in promoter pledging
in Q4 FY23
P
romoter pledging is an important ugly turn when the pledged stake is
analytical parameter. When high and the promoter is unable to
promoters pledge shares, they pay back the dues. This may force
keep shares as collateral with a the financing institution to sell
financial institution, such as a the pledged stake, which can
bank, to raise money. It’s just result in a sudden fall in the
like mortgaging something for stock price and the dilution of
money. promoter stake in the company.
Pledging is not always bad. Generally speaking, a high
Many times, promoters pledge pledged stake also indicates a bad
their stake for sound business management. Investors should
reasons and later release their stay away from companies that
pledged shares. But pledging takes an have high levels of pledging.
0UJYLHZLPUWSLKNPUN

Companies in which promoter pledging has gone up by 10 percentage points and the minimum promoter stake is 25 per cent
M-cap Pledged stake (%) Increase Promoter 3M stock Debt to
Company name Sector (` crore) Mar '23 Dec '22 (% pt) stake (%) return (%) Z-Score F-Score equity
Aster DM Healthcare Healthcare 12,725 98.9 10.4 88.5 41.9 4.5 3.4 8 0.6
India Power Corp. Power 1,037 67.2 0.0 67.2 59.5 -21.3 3.6 4 0.2
'-20OWER Power 1,125 75.8 30.4 45.4 59.8 -31.1 -0.1 4 -3.2
#ONlDENCE0ETROLEUM Inds. Gases & Fuels 1,677 32.2 16.9 15.3 61.5 -22.4 10.5 7 0.0
Strides Pharma Healthcare 3,384 81.8 69.4 12.4 28.3 -18.0 1.1 1 1.2
Jain Irrigation Plastic Products 2,350 58.5 46.5 12.0 28.4 1.7 1.5 8 2.0
Shilpa Medicare Healthcare 2,231 12.9 1.4 11.5 50.0 -17.6 2.8 5 0.4
'ENSOL%NGG Infrastructure 1,187 41.8 30.9 10.9 64.7 4.2 11.2 4 0.8
+LJYLHZLPUWSLKNPUN
Companies in which promoter pledging has come down by 10 percentage points and the minimum promoter stake is 25 per cent
M-cap Pledged stake (%) Decrease Promoter 3M stock Debt to
Company name Sector (` crore) Mar '23 Dec '22 (% pt) stake (%) return (%) Z-Score F-Score equity
#'0OWER Capital Goods 51,650 0.0 87.7 -87.7 58.1 10.8 11.8 5 0.0
SEPC Infrastructure 1,395 0.0 28.6 -28.6 31.1 1.1 0.8 2 0.4
Steel Exchange Iron & Steel 1,741 76.0 91.8 -15.8 50.9 -1.7 3.6 4 0.5
4RIVENI%NGG)NDS Agri 5,738 0.0 15.1 -15.1 61.0 -3.6 3.7 4 0.3
Adani Ports and SEZ Logistics 1,48,326 4.7 17.3 -12.6 61.0 -22.8 5.1 4 1.0
Sula Vineyards Alcohol 3,611 9.6 21.9 -12.3 27.3 10.8 7.8 8 0.4
Patel Engg. Infrastructure 2,131 88.7 99.3 -10.6 39.4 -13.3 2.9 7 0.6
Min m-cap ` CROREASON-AY 2ETURNSASOF-ARCH: 3CORE0REDICTSACOMPANYSÜNANCIALDISTRESSORTHEPOSSIBILITYOFITSGOINGBANKRUPTWITHINTWOYEARS
!: SCOREOFMORETHANTHREEISDESIRABLE& 3CORE(IGHLIGHTSÜNANCIALPERFORMANCEASCOMPAREDTOTHATINTHEPREVIOUSYEAR!N& 3COREOFSEVENORABOVEISGOOD
A negative value for debt-to-equity implies negative net worth.

17 ANNIVERSARY
ISSUE
On stands: June 25, 2023

th

ANALYST’S
DIARY
Splurging on ad expenses
We take a look at the efficiency of ad expenses for FMCG companies
O
ver FY18–22, Hindustan revenue growth in the following three
Unilever’s ad spend years. We did this for four successive
was pegged at around periods over FY13–22.
`23,000 crore – around 44 per cent of Here is how we have classified the
its FY22 revenue. Interestingly, even 10 companies (see the exhibit
though its products are ubiquitously ‘Efficiency of ad spend’):
available across the country, the z High efficiency: The revenue of
company leaves no stone unturned to these companies grew faster than
promote its products. advertising expenses in all four
Given this, we have delved into periods.
the biggest ad spenders in the BSE z Average efficiency: Revenue growth
FMCG Index. Since the FY23 results
)PNVUHKZ was lower than the growth in
were not available for all the advertising expenses in one or two
HUL is responsible for roughly half of the
companies, we have used the data yearly ad spends among this group of periods.
from FY13 to FY22. Only 10 companies z Poor efficiency: Advertising
companies have a 10-year average expenses grew faster than these
10Y avg. ad spend
advertising expense-to-revenue ratio Company as a % of revenue companies’ revenue in at least
of at least 10 per cent (see the table Zydus Wellness 19.3 three periods.
‘Big on ads!’). Interestingly, the 10-year share
Emami 17.1
Cumulatively, these 10 companies price returns of these companies have
spent around `82,000 crore in Bajaj Consumer 15.8 moved in line with the efficiency of
advertising over FY13–22. Hindustan Tilaknagar Inds. 14.8 their ad spending. That is, the higher
Unilever did most of the heavy lifting Colgate-Palmolive (I) 14.2 the efficiency, on average, the higher
by spending `41,000 crore. the return.
Gillette India 11.7
Thereafter, in a bid to check the However, it is important to note
impact of ad spending on companies’ HUL 11.4 that several other variables
toplines, we performed a simple Godrej Consumer 11.0 contribute to a company’s
exercise. We calculated the three-year Marico 10.4 performance. So, one should never
annualised growth in ad spend and focus on the ad expense in isolation.
Tata Consumer 10.4
compared it with the annualised By Vishal Goyal
,MMPJPLUJ`VMHKZWLUKZ
Are the large ad spends resulting in higher revenues?
M-cap 5,92,590 73,480 68,896 9,668 98,445 43,616 15,106 2,472 2,458 16,941
(` cr)
Ad spend
efficiency HIGH HIGH HIGH HIGH AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE POOR
10Y price 17.7 19.8 19.2 13.2 13.7 9.6 9.5 7.2 -1.8 7.0
return (% pa)
HUL Tata Marico Zydus Godrej Colgate- Gillette India Tilaknagar Bajaj Emami
Consumer Wellness Consumer Palmolive Inds. Consumer
Price data as of May 10, 2023. Returns are inclusive of dividends. (India)

ANALYST’S
DIARY
Good companies,
poor prices
A great company can be a bad buy too.
Here is why.
C
onsistent financial performance is something that prior to 2020.
every company wants to achieve and every We found a total of 62 companies had their highest
investor considers before making any investment respective prices in 2018 or 2019. Out of them, three
decisions. However, financial performance does not companies were removed because of insufficient
always translate into market returns, especially when a financial history. To focus only on good performers, we
company is overvalued. applied the following filters:
A good quality company can earn below-average z Profitable in each of the last 10 years
returns when bought at an exorbitant price, while an z At least 15 per cent five-year median ROE before and
average or poor company can outperform the market if after its peak
bought at the right price. z At least 8 per cent p.a five-year PAT growth before and
Having said that, it does not mean that the quality of a after its peak.
company is not important. The first step of the We finally came up with six companies. These
investment process always starts with identifying good companies performed well fundamentally, but their
companies and then evaluating whether the stock is share prices declined after reaching their peak. The
overvalued or undervalued in the market. primary reason for this was overvaluation. The sheer fall
Howard Marks, a legendary investor and in P/E (and P/B for IIFL Finance) is a testimony to that.
co-founder of Oaktree Capital, famously states, In fact, three out of four companies (with five-year share
“Our goal is not to find good assets, but good buys. price history) were trading at a premium to their five-
Thus, it is not what you buy; it is what you pay for year median P/E or P/B.
it.” This is the crux of value investing. So, the lesson here is don’t get too attached to the
Following the advice of Marks, we looked at quality of a business. Pay close attention to how much
companies in the BSE 500 index that reported good you are paying for it as well.
financial performance but their share price had peaked By Hemkesh Khattar
.VVKJVTWHUPLZIHKI\`Z
Valuations went far ahead of fundamentals. This led to disappointing share price performance.
At the highest price date Share price PAT growth (% pa) Median ROE (%)
Current Current Highest Price Median return from 5Y before 5Y after 5Y before 5Y after
Company price (`) P/E | P/B price date (`) P/E | P/B P/E | P/B high (% pa) high high high high
KRBL 387 13.2 Jun-18 558 29.3 14.8 -7.2 27.3 9.8 23.5 16.8
Petronet LNG 228 10.3 Sep-19 302 17.8 18.1 -7.4 25.7 10.5^ 22.3 25.5^
IIFL Finance 449 1.9* May-18 759 4.7 2.9 -10.0 23.9 13.6 18.8 17.6
SIS 392 16.5 May-18 702 60.5 - -11.0 23.2 16.4 18.5 17.7
Sun TV Network 434 9.9 May-18 1,028 33.0 21.0 -15.9 9.9 8.9 26.1 23.9
HDFC AMC 1,842 27.6 Nov-19 3,844 67.9 - -19.1 21.1 11.2^ 41.1 28.7^
Price data as of May 10, 2023. ^PAT growth and median ROE for four years.

ANALYST’S
DIARY
Can stockbrokers
thrive in the long run?
Technological advances and
regulatory changes are bringing a
sea change to the industry
T
he pandemic turned out to ;\YUPUN[PKL
be an opportunity in Barring one equity broker, all have reported a fall in profit after tax in FY23
disguise for the equity FY23 PAT growth YoY (%) Share price return (% pa)
broking industry. The Company M-cap (` cr) P/E 1Y 3Y
work-from-home culture, coupled ICICI Securities -19.2 9.2
16,045 16.0
14.4
with the bull run (immediately
42.4 3.0
after a steep decline in 2020) and Angel One 10,947 NA
12.3
convenient trading mechanisms -28.9 -22.5
Motilal Oswal 9,287 7.6
(mobile apps), gave a major fillip 10.0
to stockbrokers. As a result, listed -18.3 -21.3
IIFL Securities 1,758 22.8
7.0
stockbrokers posted strong results
-35.5 -15.3
for multiple quarters. Geojit Financial 1,023 35.2
10.5
However, with the restoration Price data as of May 15, 2023. Share price return inclusive of dividends.
of normalcy post pandemic, the
good days are coming to an end for
stockbrokers, as a number of trading (the number of monthly Since there has always been a
tailwinds that caused the boom net new demat accounts fell from correlation between trading
are now fading away. Markets about 36 lakh in Oct 2021 to volumes and the levels of the
have plateaued due to various around 19 lakh in March 2023). indices, this sort of boom and bust
factors like geopolitical tensions, Besides, an industry-wide is not unexpected in the broking
hawkish monetary policy, etc. decline in brokerage charges industry. However, it seems quite
This contributed to a significant resulted in lower incremental unlikely that the next boom will
decline in retail participation in revenues and profits. benefit brokers.

ANALYST’S
DIARY
Firstly, technological changes

have enabled brokers to acquire a 4HYRL[ZOHYLVM[VWLX\P[ÌYVRLYZ
large volume of clients and The leading brokers have been consolidating their position
process their trades efficiently Market share of top 10 brokers Number of brokers registered with NSE
with nil-to-low incremental 80 % 1,400
expenses. This has fundamentally 70 1,300
obviated the need for the presence
60 1,200
of a high number of brokers.
Besides, those brokers who can 50 1,100
achieve economies of scale can 40 1,000
lower their prices, thereby posing FY15 FY23
a challenge to small brokers. Market share calculated in terms of active clients (those who trade at least once every year)
Regulatory changes are also a
cause of concern for brokers.
Increasing compliance (KP]LYZPMPLKYL]LU\LIHZL
requirements over the last few Except for two brokers, the contribution of broking income to revenue has decreased over the years
years (and consequently costs) Share of revenue from broking (%): FY18 FY23
have affected small players Share of revenue from interest income (%): FY18 FY23
disproportionately. SEBI’s recent 68.9 66.9
61.3 61.6
initiative to introduce an ASBA-
55.1
like framework (which eliminates
47.6
the need to transfer money to the 40.1
broker’s account) for secondary 36.8 34.7
29.3 31.0 29.4
market trades can potentially 28.3
wipe out another significant 17.2 19.2 19.2
15.0
source of profit, i.e., interest 8.5
income. And now adding to the 1.2 3.4
0.8
blow is the government’s recent
ICICI Securities Angel One Motilal Oswal IIFL Securities Geojit Financial
hike in the transaction tax for
trading in equity derivatives,
which has resulted in a sharp players are decreasing their Going by recent trends, the
decline of 17 per cent (month-on- reliance on broking revenue. future of the broking industry
month) in turnover in April 2023. Having realised that the key to does not seem to be very bright.
While many marginal players sustained profitability lies in The rumour in 2020 that SEBI was
have already shut shop, the top 10 offering difficult-to-replicate mulling over enabling retail
brokers have steadily improved services, many brokers have participants to trade directly on
their market share by leveraging already started focussing on newer the stock exchange was an
technology (cloud computing, services, such as loans against existential concern that all
digital acquisition, simplified user securities, margin trade funding, investors of broking companies
experience, etc.). This has made it international investing, etc. should constantly monitor (even
evident that investments in though nothing came out of it).
technology are the key ;OLKLTPZLVM[OLZ\IIYVRLYZ Any such change could result
differentiator between small and in a repeat of what happened to
large players. It also indicates that one segment of trading
the trend of consolidation will intermediaries called sub-brokers,
likely continue. 83,952 whose count plummeted from
But even among large players, 83,952 in FY11 to 25,878 in FY18.
42,351
the fact remains that equity The very concept of a sub-broker
broking has become an extremely 0 got abandoned soon afterwards.
commoditised service and many FY11 FY15 FY19 By Arul Selvan and Samridh Rela

WORDS
WORTH
WISDOM 7,;,9;/0,3Partner, Founders Fund
‘Avoid competition
as much as possible’
Key learnings from a venture capitalist
A
lawyer by education, Peter Thiel is the So the man is an investing genius. However,
co-founder of PayPal (an online he also has a flair for the absurd. Recently, he
payments platform) and Palantir exited all his Bitcoin holdings just days before
Technologies (a big-data analytics firm). an event where he lauded Bitcoin’s immense
He was the first outside investor in Meta potential. But his quirks shouldn’t undermine
(formerly Facebook). Founders Fund, his venture his expertise. In his book, ‘Zero to One’, Thiel
capital firm, has made investments in a number of outlines the principles of creating a successful
startups, including SpaceX, LinkedIn and Airbnb. company. Though the equity markets are not
his home, his ideas and principles can help
long-term equity investors.
ZERO TO ONE
Doing what we already know how to do takes the
world from 1 to n, adding more of something familiar.
But every time we create something new, we go
from 0 to 1.
PERFECT COMPETITION VS MONOPOLY

There’s an enormous difference between perfect
competition and monopoly and most businesses
are much closer to one extreme than we commonly
realise… Both monopolists and competitors are
incentivised to bend the truth.
Monopolists lie to protect themselves… Since
they very much want their monopoly profits to
continue unmolested, they tend to do whatever
they can to conceal their monopoly -
usually by exaggerating the power of their
(nonexistent) competition.
…Non-monopolists tell the opposite lie:
“We’re in a league of our own.”
Entrepreneurs are always biased to
understate the scale of competition, but
that is the biggest mistake a startup can
make. The fatal temptation is to describe
your market extremely narrowly so that
you dominate it by definition.
…Competition can make people halluci-
nate opportunities where none exist… If you
can recognise competition as a destructive
force instead of a sign of value, you’re
already more sane than most.

WORDS
WORTH
WISDOM
THE DURABILITY OF A BUILDING A MONOPOLY

MONOPOLY A. Start small and monopolise: Always err on the side of starting too small.
Escaping competition will The reason is simple: it’s easier to dominate a small market than a large one.
give you a monopoly, but B. Scaling up: Once you create and dominate a niche market, then you should
even a monopoly is only a gradually expand into related and slightly broader markets.
great business if it can C. Don’t disrupt: If you think of yourself as an insurgent battling dark forces,
endure in the future… it’s easy to become unduly fixated on the obstacles in your path…
A great business is defined Avoid competition as much as possible.
by its ability to generate
cash flows in the future.
…For a company to be
valuable it must grow and
endure, but many entrepre-
SEVEN QUESTIONS
neurs focus only on short- THAT EVERY BUSINESS MUST ANSWER
term growth. They have an
1
excuse: growth is easy to
measure, but durability The engineering question: Can you
isn’t. Those who succumb to create breakthrough technology
measurement mania obsess instead of incremental improvements?
about weekly active user sta-
2
tistics, monthly revenue tar- The monopoly question:
gets, and quarterly earnings Are you starting with a big
reports. However, you can share of a small market?
hit those numbers and still
3
overlook deeper, hard-
er-to-measure problems that The timing question: Is
threaten the durability of now the right time to start
your business. your particular business?
If you focus on near-term
4
growth above all else, you The people question:
miss the most important Do you have the
question you should be ask- right team?
5
ing: will this business still
be around a decade from The distribution question:
now? Numbers alone won’t Do you have a way to not
tell you the answer; instead, just create but deliver
you must think critically your product?
6
about the qualitative charac-
teristics of your business. The durability question:
Will your market position
be defensible 10 and 20
THE CONTRARIAN years into the future?
QUESTION
7
“What valuable company is The secret question: Have you
nobody building?” This ques- identified a unique opportunity
tion is harder than it looks, that others don’t see?
because your company could
create a lot of value without
becoming very valuable If you don’t have good answers to these questions, you’ll run into
itself. Creating value is not lots of ‘bad luck’ and your business will fail. If you nail all seven,
enough – you also need to you’ll master fortune and succeed. Even getting five or six correct
capture some of the value might work.
you create.

VIS-A-VIS
Staying cool
The Indian heating, ventilation, and air conditioning (HVAC) market is heating
up. We compare two leading AC manufacturers.
Blue Star Voltas
It is a leading air-conditioning and commercial-refrig- With a market share of over 20 per cent, Voltas is
eration company in India. Central air conditioning India’s largest air conditioner (AC) manufacturer. In
and variant refrigerant flow systems are its major addition to manufacturing residential and commercial
revenue generators (50 per cent of FY23). Besides, it is ACs, it provides end-to-end solutions for HVAC. It also
involved in manufacturing and selling a wide range has a presence in textile machinery and mining equip-
of residential and commercial ACs. Also, it is an ment. With a market share of 55 per cent, it is the mar-
authorised distributor of electronics for a number of ket leader in textile machinery. It also sells home appli-
global manufacturers. ances through a joint venture with Arcelik.
-PUHUJPHSZ All numbers in ` cr -PUHUJPHSZ All numbers in ` cr
Operating Net Net Total Cash from Market Operating Net Net Total Cash from Market
Revenue profit profit worth debt operations cap Revenue profit profit worth debt operations cap
7,977 408 400 1,331 578 247 13,573 9,499 533 135 5,452 616 159 26,711
7YPJLJOHY[ 7,JOHY[
250 Blue Star Voltas 400 Blue Star Voltas
200 300
150 200
100 100
50 0
May 2018 Rebased to 100 May 2023 May 2018 May 2023
34.1
33.9 10.2 0.85 0.4
25.8 197.8 4.9 0.53 0.1
Price to earnings Price to book Dividend yield (%) Debt to equity
-P]L`LHYHUU\HSPZLKNYV^[O
11.7
11.5
8.2
5.0 5.1 5.6 21.4 22.6
1.4 2.5
-25.1
-3.2
Net Operating ROE (%) ROCE (%)
margin (%) margin (%) Revenue (%) Operating profit (%) EPS (%)
Price data as on May 10, 2023. All financial data as of FY23.

According to Technavio (a leading global technology research and advisory company), the Indian HVAC
market is expected to grow at 10 per cent per annum till FY26 on the back of the growing use of residential
ACs, low-capacity commercial refrigeration and PLI schemes for white goods. In addition, the government’s
push on infrastructure and a higher private capex will fuel growth in the industrial segment.

COVER STORY
India’s most profitable companies

By Karthik Anand Vijay
I
n his book ‘The Personal MBA’, Josh Kaufman often fail to sustain themselves.
writes, “Roughly defined, a business is a Having said that, merely generating profits
repeatable process that: is not enough. To ensure business sustainability,
1. Creates and delivers something of value a company has to generate sufficient profits
2. That other people want or need to sustain its operations, which is never an
3. At a price they are willing to pay easy accomplishment.
4. In a way that satisfies the customer’s needs As our regular readers would know, Profit 100
and expectations is our annual exercise that is aimed at finding the
5. So that the business brings in enough profit most profitable companies in India. In the
to make it worthwhile for the owners to following pages, we shed light on the methodology
continue operation.” used to identify the 100 companies. Finally, in the
This month’s cover story revolves around the end, you will find some bite-sized insights into the
last point mentioned by Kaufman while defining a companies that found their place on the list.
business. Profit, moolah or dough – call it Needless to say, these companies are not our
whatever you want, but it is the lifeline of any recommendations. Please do your due diligence
business. Businesses that fail to generate profit before investing in them.

Identifying the Profit 100
The stock-picking methodology behind our Profit 100 list
I
n each of the previous editions of the Profit Growth in profit
100, we have tried to capture the best possible Earning profits is not enough. A company must also
universe of profitable companies for you. grow its profits consistently. We selected the
Along the way, we have evolved our companies with net profit growth of at least
methodology. 10 per cent p.a. over the last five and 10 years.
In our first edition (back in 2016), we focused
on companies with high margins, high capital Hygiene of profit
efficiency and low debt. Over the years, we In business, turnover is vanity, profit is sanity but
evolved our methodology to pick only the most cash is reality. Although several companies are able
profitable businesses for you. And this year, too,
we have tweaked our filters. 7YVTPULU[JVTWHUPLZMHPSPUN
We set out with the objective of finding the
companies that have the following four
[OLNYV^[OMPS[LYZ
PAT growth less than 10 per cent p.a. in at least one of the periods
dimensions of profits:
PAT growth (% pa)
z Longevity: Does the company have a long
Company M-cap (` cr) 5Y 10Y
track record of profitability?
ITC 5,30,863 10.1 9.1
z Growth: Has the company demonstrated its
Infosys 5,26,699 8.5 9.8
ability to grow?
Larsen & Toubro 3,31,132 6.5 6.9
z Hygiene: Is the company able to convert its
Maruti Suzuki 2,65,776 0.8 12.8
accounting profits into cash?
Sun Pharma 2,31,164 15.0 3.5
z Quality: Are the company’s profits sufficient
Ultratech Cement 2,16,545 17.9 6.6
to sustain its growth?
Wipro 2,11,401 7.2 6.3
Here is how we filtered companies with the
Nestle India 2,10,815 14.3 8.4
above dimensions.
Adani Enterprises 2,09,595 22.1 2.5
Methodology ONGC 2,02,794 13.8 5.7

NTPC 1,70,807 10.3 3.2
We first removed banking, financial services and
M&M 1,53,632 5.6 9.2
insurance companies from our universe.
Coal India 1,45,903 33.0 5.4
However, you will find a list of the top financial
Adani Ports & SEZ 1,44,697 6.7 12.1
companies in the ‘Insights’ section.
Hindustan Zinc 1,32,886 2.5 4.3
Minimum market cap of `500 crore Siemens 1,26,084 6.3 16.2

Bajaj Auto 1,25,782 7.5 6.8
Companies with a market cap of less than `500
Pidilite Inds. 1,25,094 5.3 11.4
crore usually have fewer disclosures and
Tech Mahindra 1,01,240 4.9 14.1
inadequate information. Therefore, we removed
Hindustan Aeronautics 1,00,525 25.1 7.4
them from our coverage.
Godrej Consumer 96,047 -0.3 7.3
Longevity of profit Dabur 95,303 4.7 8.3

Eicher Motors 91,574 6.0 23.2
We picked the companies that reported net
Shree Cement 87,521 0.3 3.4
profits in each of the last 10 years. Around half of
Dr. Reddy's Labs 82,457 30.9 9.1
the companies got eliminated at this stage.
M-cap as of May 3, 2023

7YVTPULU[JVTWHUPLZ 7YVTPULU[JVTWHUPLZ
MHPSPUN[OLO`NPLULMPS[LYZ MHPSPUN[OLX\HSP[`MPS[LYZ
CFO negative in more than two years and/or Low capital efficiency and/or operating profit margin
debt-to-equity of more than one M-cap ROCE (%) OPM (%)
No. of times CFO Latest debt- Company (` cr) Current 10Y median Current 10Y avg
Company M-cap (` cr) < 0 in last 10Y to-equity
Reliance Inds. 16,37,263 14.2 10.4 11.5 10.3
Titan 2,35,650 4 0.2
Avenue Supermarts 2,30,532 27.0 21.5 7.3 6.7
Power Grid Corp. 1,67,132 0 1.6
Bajaj Holdings 77,245 0.9 7.3 62.1 75.9
Grasim Inds. 1,14,261 2 1.1
SRF 76,135 30.4 13.6 20.4 14.6
Britannia Inds. 1,09,121 0 1.5
ABB India 73,223 30.7 13.6 9.4 5.8
Bharat Electronics 77,740 4 0.0
Polycab 49,285 32.9 21.9 11.0 8.8
UPL 55,522 0 1.3
Linde India 34,344 22.8 6.1 15.8 9.6
TVS Motor 54,963 2 3.6
APL Apollo Tubes 33,065 32.9 21.8 5.3 5.8
Oberoi Realty 33,551 4 0.3
UNO Minda 29,716 29.1 18.9 7.1 5.6
Rail Vikas Nigam 27,147 7 0.9
Coromandel Int. 27,684 42.2 22.6 9.6 9.3
Hatsun Agro 19,603 0 1.4
Deepak Nitrite 26,613 39.0 18.4 15.0 13.3
Chambal Fertilisers 12,218 4 1.0
Escorts Kubota 26,184 16.1 16.8 7.9 7.5
GR Infraprojects 9,575 6 0.9
Phoenix Mills 25,639 13.5 10.7 46.7 37.1
JBM Auto 9,272 1 1.7
Prestige Estates 19,512 15.7 13.6 16.0 19.7
Sundaram-Clayton 8,047 2 3.5
Dixon Tech. 17,320 36.6 30.1 3.1 3.2
PNC Infratech 7,494 1 1.4
Laurus Labs 17,296 28.8 16.4 21.0 16.5
M-cap as of May 3, 2023. CFO refers to cash flow from operation.
KEI Industries 16,590 28.3 23.8 9.4 9.1
Exide Industries 16,380 17.3 22.5 7.1 7.2
to report accounting profits on a consistent basis,
Trident 16,378 21.1 10.6 10.3 11.0
they fail to convert them into cash flows. Therefore,
JB Chem. & Pharma 16,197 28.4 18.7 18.3 15.5
we removed companies that didn’t report positive
M-cap as of May 3, 2023. OPM refers to operating profit margin.
cash flow from operations in at least eight of the last
10 years. trailing 12-month profits as of December 2022 and
We also removed companies with a current debt-to- their latest balance sheet.
equity ratio of more than one. While debt can amplify
returns, it also has the potential to wreak havoc. The criteria for the final ranking
To rank the companies, we gave higher weightage
Quality of profit to the recent performance (last five years) than
This is where the wheat gets separated from the chaff. long-term performance (10 years). We applied the
To check for quality, we have considered capital following criteria:
efficiency (in terms of ROCE) and operating profit z Five-year PAT growth of more than 10-year
margin. The following filters were applied: PAT growth
z ROCE of 15 per cent or more in at least eight out of z Five-year median ROCE more than 10-year
the last 10 years; median ROCE
z Current ROCE of at least 15 per cent; z Five-year average operating profit margin higher
z A 10-year average operating profit margin of at than the 10-year average operating profit margin
least 10 per cent; For the final ranking, we gave equal weightage to
z A current operating profit margin of at least each of these three criteria.
10 per cent. The Profit 100 list is designed to facilitate your
We have considered the FY23 numbers of investment journey. So, consider the list as your
those companies that have disclosed their starting point, dig deeper and pick some potential
results. For others, we have used their latest winners for your portfolio.

India’s most
profitable
companies
Here is the list of India’s 100 most profitable
companies, based on profit growth, capital
efficiency and operating profit margin
Prev PAT GROWTH (% PA) ROCE (%)

year
Rank rank Company Sector M-cap (` cr) 5Y 10Y Latest 5Y median 10Y median
1 - HLE Glascoat Capital Goods 4,077 67.3 34.6 35.0 35.0 24.9
2 - Kama Holdings Holding Company 8,041 39.1 21.5 47.0 24.9 18.3
3 - CDSL Depository 10,347 21.7 18.6 33.7 32.4 24.2
4 - Jubilant FoodWorks Restaurant 30,228 16.5 12.4 63.1 44.0 36.8
5 - CMS Info Systems Logistics 4,443 29.9 10.7 42.5 26.8 24.3
6 - Gujarat Themis Biosyn Healthcare 1,063 70.7 48.6 67.7 67.9 67.9
7 - Godfrey Phillips FMCG 8,727 32.4 14.3 32.4 21.4 20.2
8 15 IRCTC Hospitality 50,196 33.8 31.3 69.1 53.9 52.3
9 6 Alkyl Amines Chemicals Chemicals 13,169 28.0 25.1 34.3 34.3 27.6
10 - GSK Pharma Healthcare 21,149 37.1 11.7 65.6 32.5 30.7
11 - Marksans Pharma Healthcare 3,655 45.4 16.7 29.4 25.6 24.7
12 - Balaji Amines Chemicals 7,444 27.9 28.6 52.3 35.6 27.6
13 58 Saksoft IT 2,050 27.8 21.2 33.9 27.3 23.6
14 - Mold-Tek Tech. IT 823 39.6 37.6 50.1 28.0 26.6
15 40 Manali Petrochemicals Chemicals 1,249 16.6 16.4 20.8 25.6 24.4
16 43 K.P.R. Mill Textile 20,174 22.9 23.0 28.4 25.5 21.1
17 - Jash Engineering Capital Goods 1,115 162.0 39.6 27.0 19.4 17.0
18 - Wendt Abrasives 1,843 25.0 12.0 34.8 17.8 17.0
19 64 Vinati Organics Chemicals 19,878 25.3 20.5 36.0 33.3 33.2
20 - Coforge IT 25,025 19.9 12.5 41.3 29.5 25.9
21 - SKF India Auto & Anc. 20,440 11.6 10.4 41.0 28.7 24.8
22 - Carysil FMCG 1,580 36.4 27.8 28.0 22.5 21.4
23 2 Heranba Inds. Chemicals 1,480 23.7 30.6 27.4 42.9 33.5
24 - Shri Jagdamba Polymers Plastic Products 554 14.1 26.0 23.5 37.6 30.0
25 - Grindwell Norton Abrasives 21,227 18.7 13.7 35.7 25.2 24.7

HLE Glascoat
1 Leads the Profit 100 list due to its incredible

performance over the last five years in terms
of profit growth and ROCE.
CMS Info Systems
5
Recently listed, it is India’s largest cash manage-
ment company. Robust improvement in profit
growth, ROCE and operating profit margin in the
last five years is why it made it to the list.
Gujarat Themis Biosyn
6
Making its first appearance in our Profit 100 list,
this company recorded the biggest increase in
the five-year average operating profit margin
over the 10-year operating profit margin.
OPERATING PROFIT MARGIN (%) P/E SHARE PRICE RETURN (% PA) Prev
Latest year
Latest 5Y average 10Y average debt-to-equity Current 5Y median 1Y 5Y 10Y Company rank Rank
12.0 14.2 11.7 0.7 58.0 56.2 -34.7 80.0 55.5 HLE Glascoat - 1
21.4 17.8 14.6 0.7 6.3 8.6 10.4 21.0 44.8 Kama Holdings - 2
54.7 52.6 48.7 0.0 37.5 34.7 -23.5 28.5 - CDSL - 3
14.5 13.7 10.4 0.1 71.7 79.9 -16.3 12.4 15.1 Jubilant FoodWorks - 4
20.8 16.4 13.8 0.0 15.8 17.6 11.0 - - CMS Info Systems - 5
46.8 37.8 26.3 0.0 19.0 12.8 57.0 78.6 49.9 Gujarat Themis Biosyn - 6
16.0 15.5 12.2 0.0 13.5 15.2 38.5 14.3 13.3 Godfrey Phillips - 7
35.9 29.3 21.8 0.0 53.4 73.7 -14.9 - - IRCTC 15 8
17.4 21.7 18.9 0.1 58.2 28.7 -17.7 57.2 56.9 Alkyl Amines Chemicals 6 9
22.8 19.4 17.7 0.0 12.5 54.8 -19.5 1.3 0.9 GSK Pharma - 10
13.1 15.0 12.8 0.0 17.1 11.9 54.4 20.2 35.6 Marksans Pharma - 11
25.1 21.8 18.8 0.1 19.2 19.7 -28.2 28.0 50.4 Balaji Amines - 12
14.2 14.9 13.4 0.0 27.5 10.3 142.2 50.5 49.0 Saksoft 58 13
25.6 17.0 13.6 0.0 28.1 17.2 196.8 43.5 49.1 Mold-Tek Tech. - 14
12.2 17.5 13.3 0.0 10.0 6.2 -46.5 15.8 23.3 Manali Petrochemicals 40 15
17.8 17.6 15.2 0.4 24.8 16.1 -5.5 33.6 46.4 K.P.R. Mill 43 16
11.5 10.6 10.5 0.4 26.6 19.0 46.3 45.0 - Jash Engineering - 17
22.9 14.0 12.9 0.0 46.0 46.4 46.7 24.2 23.1 Wendt - 18
25.7 30.9 28.1 0.0 44.8 41.1 -5.4 34.5 42.6 Vinati Organics 64 19
12.8 13.3 12.8 0.1 36.1 30.3 -0.6 31.1 31.8 Coforge - 20
16.3 13.6 12.2 0.0 40.0 37.5 24.3 17.6 22.5 SKF India - 21
14.5 15.3 14.2 0.7 28.0 21.3 -19.7 39.0 43.2 Carysil - 22
12.3 14.2 11.0 0.1 10.7 11.7 -40.4 - - Heranba Inds. 2 23
10.7 16.3 12.6 0.2 17.4 12.7 -29.7 22.3 - Shri Jagdamba Polymers - 24
17.9 15.6 14.0 0.0 60.2 40.2 12.6 29.8 30.8 Grindwell Norton - 25

58
IEX Has the highest 10Y average
operating profit margin due to low
capital requirements and a near
monopoly position.

year
26 - Timken India Auto & Anc. 22,276 34.7 24.9 37.9 21.7 22.8
27 - Fine Organic Inds. Chemicals 13,757 44.0 39.7 79.1 38.8 38.0
28 - Raghav Productivity Mining 1,030 33.9 53.8 28.2 28.2 23.3
29 - Maithan Alloys Ferro Manganese 2,675 17.1 30.6 42.8 33.0 28.3
30 - Stylam Inds. Const. Materials 2,024 33.7 35.6 36.8 24.0 17.2
31 - Gujarat State Petronet Gas Transmission 15,973 18.1 12.2 46.1 35.9 25.0
32 68 Lincoln Pharma Healthcare 798 15.6 22.1 24.4 24.3 21.7
33 - Expleo Solutions IT 1,352 20.8 15.5 48.6 39.2 38.6
34 - Emami FMCG 16,685 22.6 10.5 39.7 29.9 28.4
35 3 Aditya Birla Sun Life AMC AMC & Allied 10,123 11.3 21.2 35.3 46.4 45.1
36 - 3ANOl)NDIA Healthcare 12,471 13.7 13.4 49.5 29.8 29.3
37 - Sandur Manganese Mining 3,436 24.6 29.6 23.8 23.8 23.1
38 73 Solar Industries Chemicals 34,595 28.0 20.6 40.3 25.6 23.5
39 - Sumitomo Chemical Chemicals 20,852 28.3 44.4 36.7 33.3 26.7
40 12 CAMS AMC & Allied 10,058 13.7 15.8 69.3 53.0 50.5
41 65 Newgen Software Tech. IT 3,856 19.3 18.6 27.4 27.5 27.4
42 10 Astral Plastic Products 39,939 17.6 20.6 32.3 30.3 23.5
43 97 Eldeco Housing Realty 589 12.6 16.6 20.4 27.3 27.9
44 - Bhansali Engineering Chemicals 1,875 14.4 66.6 29.6 29.6 28.7
45 54 Divi's Labs Healthcare 86,737 22.3 14.8 30.1 30.1 31.1
46 - Ratnamani Metals Iron & Steel 15,436 23.2 12.2 28.8 24.1 24.3
47 - Meghmani Finechem Chemicals 3,899 17.8 29.9 38.1 29.4 20.4
48 - Beekay Steel Inds. Iron & Steel 819 11.6 20.4 21.3 21.3 18.8
49 - Ambika Cotton Mills Textile 867 18.1 16.3 31.2 18.9 19.9
50 - Navin Fluorine Int. Chemicals 23,779 11.8 21.9 22.8 21.7 21.3
51 - H.G. Infra Infrastructure 5,937 38.3 41.2 31.0 25.6 25.7
52 - Paushak Chemicals 2,239 19.8 21.1 27.1 22.5 26.7
53 9 Vidhi Specialty Food Chemicals 1,858 22.3 26.3 22.8 29.6 29.0
54 16 HDFC AMC AMC & Allied 38,232 14.9 16.1 33.2 39.9 54.6
55 25 Abbott India Healthcare 47,926 18.3 20.4 52.5 37.9 38.9
56 - Alkem Labs Healthcare 42,048 10.1 10.3 16.8 18.7 18.3
57 86 Indraprastha Gas Gas Transmission 34,339 18.3 16.8 30.7 30.7 30.4
58 21 IEX Power 13,857 18.4 16.6 58.8 59.9 64.4
59 34 HUL FMCG 584,167 14.2 10.2 29.5 38.4 107.2
60 96 Persistent Systems IT 35,982 23.3 17.2 38.8 23.7 23.9
61 38 Gland Pharma Healthcare 22,567 25.2 20.1 20.6 26.1 26.8
62 80 Fineotex Chemical Chemicals 2,783 28.3 27.4 39.9 29.4 28.7
63 - 3CHAEFmER)NDIA Auto & Anc. 43,441 17.7 18.6 29.8 24.8 23.6

TOP 10
Companies by 10Y revenue growth
Seven out of the ten companies have a market cap of less than Rs 5,000 crore
% pa
41.3 32.3 29.1 27.9 27.8 27.3 26.1 25.5 23.1 22.1
Valiant Gujarat State H.G. HLE Infobeans Caplin Point Sandur Neogen Raghav SIRCA
Organics Petronet Infra Glascoat Tech. Labs Manganese Chemicals Productivity Paints
Latest year
18.7 16.2 13.6 0.0 54.7 49.8 53.2 33.9 33.8 Timken India - 26
24.4 19.1 17.7 0.0 23.3 58.7 0.6 - - Fine Organic Inds. - 27
24.2 21.5 16.1 0.1 40.9 35.7 67.0 57.1 - Raghav Productivity - 28
24.7 20.9 16.3 0.0 4.2 5.9 -27.9 3.2 36.8 Maithan Alloys - 29
12.6 13.3 11.8 0.2 23.6 24.2 17.1 25.9 55.4 Stylam Inds. - 30
16.6 20.7 35.4 0.0 9.4 9.6 6.6 10.1 15.7 Gujarat State Petronet - 31
16.2 17.0 13.4 0.0 11.2 8.8 20.9 12.7 31.5 Lincoln Pharma 68 32
16.9 17.9 16.8 0.0 16.4 13.6 -1.7 20.8 34.0 Expleo Solutions - 33
16.7 16.5 16.7 0.0 19.6 46.5 -22.8 -6.9 5.6 Emami - 34
54.7 53.6 42.7 0.0 17.0 19.3 -32.3 - - Aditya Birla Sun Life AMC 3 35
23.9 21.3 18.6 0.0 20.1 34.7 -22.0 2.2 7.9 Sanofi India - 36
14.0 29.5 21.2 0.2 10.3 5.3 -0.6 28.4 28.1 Sandur Manganese - 37
16.8 16.6 17.1 0.4 45.7 45.6 30.4 29.2 34.2 Solar Industries 73 38
18.3 15.4 12.4 0.0 41.3 53.1 -4.2 - - Sumitomo Chemical - 39
37.8 34.3 32.7 0.0 35.4 39.1 -15.9 - - CAMS 12 40
19.3 20.0 17.9 0.0 21.9 19.9 20.3 17.7 - Newgen Software Tech. 65 41
11.0 13.4 12.2 0.0 101.4 78.3 -4.1 28.5 45.7 Astral 10 42
40.2 38.8 30.4 0.0 13.4 10.6 -14.4 8.5 32.0 Eldeco Housing 97 43
16.6 19.1 13.1 0.0 9.6 12.3 -8.4 -9.2 18.0 Bhansali Engineering - 44
31.7 34.7 33.9 0.0 36.2 37.3 -27.5 22.2 19.8 Divi's Labs 54 45
14.2 13.8 13.8 0.1 35.9 27.5 38.9 27.5 38.9 Ratnamani Metals - 46
26.5 27.5 26.2 0.8 11.0 14.9 -32.3 - - Meghmani Finechem - 47
12.0 13.9 11.8 0.3 6.7 5.9 -16.8 3.2 - Beekay Steel Inds. - 48
19.8 17.7 15.9 0.0 6.2 9.0 -31.7 1.9 22.0 Ambika Cotton Mills - 49
21.0 21.0 17.4 0.3 75.7 32.0 22.6 44.7 60.9 Navin Fluorine Int. - 50
16.8 14.5 11.6 0.9 13.9 10.6 49.9 22.1 - H.G. Infra - 51
30.0 29.2 24.5 0.0 42.3 35.8 -33.8 37.9 56.2 Paushak - 52
12.9 17.5 15.3 0.3 43.5 21.1 -17.5 31.5 62.9 Vidhi Specialty Food 9 53
72.2 71.9 61.8 0.0 26.9 39.0 -11.6 - - HDFC AMC 16 54
21.9 19.1 16.1 0.0 51.6 49.4 32.3 29.0 31.8 Abbott India 25 55
11.4 14.8 13.9 0.2 41.2 27.3 7.5 11.6 - Alkem Labs - 56
12.2 19.0 18.6 0.0 20.5 26.5 40.0 12.6 23.0 Indraprastha Gas 86 57
78.9 76.3 74.0 0.0 45.3 37.1 -26.1 24.2 - IEX 21 58
21.5 22.0 19.6 0.0 57.7 66.8 11.6 11.3 15.8 HUL 34 59
14.9 12.3 12.8 0.1 39.1 25.7 12.6 43.1 33.6 Persistent Systems 96 60
27.0 31.4 31.4 0.0 22.8 30.0 -57.3 - - Gland Pharma 38 61
19.5 18.3 18.6 0.0 35.2 24.6 30.4 27.2 64.5 Fineotex Chemical 80 62
15.9 12.4 12.4 0.0 48.7 45.9 22.6 21.1 25.6 Schaeffler India - 63

CAPLIN POINT LABS Topper of the
92
previous year’s Profit 100 list. It slipped
ranks as the company’s performance
over the last five years was poorer
compared to that over the last 10 years.

year
64 - Neogen Chemicals Chemicals 3,939 36.1 28.7 18.3 18.3 22.9

65 63 Granules India Healthcare 7,261 30.8 31.6 25.6 17.4 18.1
66 20 LTIMindtree IT 132,669 25.2 19.6 33.6 40.4 44.1
67 - Supreme Inds. Plastic Products 35,026 14.9 11.5 29.8 29.8 30.6
68 33 Berger Paints Chemicals 59,655 14.2 15.1 31.6 29.4 29.5
69 - Aarti Industries Chemicals 19,999 14.1 17.0 17.6 17.6 18.5
70 - Amrutanjan Health Care Healthcare 1,774 15.8 15.3 24.5 25.4 26.2
71 - GHCL Chemicals 4,675 25.8 31.8 40.3 21.4 21.0
72 22 Page Inds. Textile 45,134 14.5 19.8 87.0 70.2 63.3
73 31 Hawkins Cookers Cons. Durables 3,369 13.9 10.6 56.3 57.2 61.5
74 - Atul Chemicals 19,419 13.2 15.7 19.2 24.5 25.3
75 - Monte Carlo Fashions Textile 1,420 13.1 10.6 26.8 18.4 19.5
76 - Transpek Chemicals 1,030 22.4 25.7 23.6 23.6 23.3
77 - Metro Brands Retailing 24,448 21.1 19.7 63.0 34.1 36.8
78 66 Galaxy Surfactants Chemicals 8,789 19.7 105.5 29.6 25.6 24.2
79 27 Tata Elxsi IT 41,601 24.3 42.1 67.0 51.2 53.9
80 45 TCS IT 1,163,688 10.3 11.7 64.4 52.6 52.4
81 92 Mold-Tek Packaging Plastic Products 3,319 23.6 30.1 24.7 21.8 22.0
82 48 Asian Paints Chemicals 280,983 12.8 12.8 43.9 35.8 38.3
83 89 Dhanuka Agritech Chemicals 2,958 12.0 13.2 31.3 31.3 31.9
84 - RHI Magnesita Capital Goods 13,912 29.5 22.4 43.7 36.9 44.0
85 29 Valiant Organics Chemicals 1,396 40.5 36.3 20.2 30.7 43.4
86 - Infobeans Tech. IT 1,203 23.8 22.7 43.1 23.1 25.2
87 - PI Inds. Chemicals 51,974 25.7 28.0 25.2 23.1 25.2
88 59 Poly Medicure Healthcare 9,433 17.3 20.5 22.7 22.5 24.7
89 - AIA Engineering Auto & Anc. 26,640 17.2 16.6 26.6 19.6 22.9
90 - Century Plyboards Const. Materials 11,661 17.0 20.5 33.9 19.4 21.5
91 - Grauer & Weil Chemicals 2,527 11.4 18.6 27.3 22.3 22.7
92 1 Caplin Point Labs Healthcare 5,200 19.5 38.1 31.3 31.3 50.5
93 - SIRCA Paints Chemicals 1,669 17.2 56.0 26.8 18.6 28.8
94 72 Kovai Medical Center Healthcare 2,174 12.4 17.7 23.9 16.9 22.7
95 - Cera Sanitaryware Const. Materials 8,286 14.1 15.7 30.1 20.6 26.5
96 91 HCL Tech. IT 287,445 11.2 13.9 35.9 28.4 31.3
97 - eClerx Services IT 6,759 10.4 10.7 44.4 28.6 37.9
98 - Elantas Beck India Chemicals 4,832 12.2 13.5 23.5 19.5 30.8
99 - Control Print Const. Materials 931 11.0 15.8 28.9 21.7 23.0
100 - Indo Count Inds. Textile 3,035 16.2 24.7 19.5 19.5 22.8

TOP 10
Sectors represented by market cap
More than one-fourth of the companies belong to the chemicals sector z Count z M-cap (` cr)
12 zzzzzz
zzzzzz 28 zzzzzz
zzzzzz 4 zzzz
14 zzzzzz
zzzzzz 4 zzzz
4 zzzz
5 zzzzz
3 zzz
2 zz
1z
zzzzzz zz
zzzzzz
zzzz
2,64,256
1,12,798 78,837 70,631 58,413 50,311 50,196
17,02,452 6,12,698 6,11,159
IT Chemicals FMCG Healthcare Auto & Anc. Plastic Textile AMC & Gas Hospitality
Products Allied Transmission
Latest year
14.1 16.2 15.6 0.6 76.8 68.6 -0.5 - - Neogen Chemicals - 64

16.2 16.0 14.8 0.4 14.3 15.5 8.2 23.3 36.9 Granules India 63 65
15.5 17.3 16.7 0.0 30.1 30.4 -4.9 24.6 - LTIMindtree 20 66
10.2 12.4 12.5 0.0 40.5 30.2 37.1 14.8 23.8 Supreme Inds. - 67
11.8 13.0 12.3 0.3 66.7 72.9 -13.9 17.2 24.2 Berger Paints 33 68
13.4 18.3 16.4 0.6 31.1 30.7 -35.1 10.8 37.3 Aarti Industries - 69
11.1 13.9 13.3 0.0 42.4 39.7 -32.4 16.7 24.8 Amrutanjan Health Care - 70
28.2 21.6 20.2 0.1 4.1 7.0 -25.8 12.4 30.6 GHCL - 71
18.7 17.8 18.7 0.0 66.0 78.7 -11.3 11.7 26.7 Page Inds. 22 72
12.4 13.0 12.4 0.2 36.1 33.1 22.9 16.4 11.4 Hawkins Cookers 31 73
10.6 16.1 14.7 0.0 37.8 30.2 -25.9 18.5 33.3 Atul - 74
16.2 13.9 14.0 0.4 11.3 10.4 25.3 5.4 - Monte Carlo Fashions - 75
11.9 12.4 11.6 0.2 14.2 15.2 -0.7 3.4 38.7 Transpek - 76
25.2 17.7 17.1 0.0 67.6 67.4 60.2 - - Metro Brands - 77
11.0 11.2 10.4 0.2 22.6 27.9 -16.3 11.9 - Galaxy Surfactants 66 78
28.7 25.3 21.7 0.0 58.3 34.3 -13.0 40.4 52.5 Tata Elxsi 27 79
24.0 25.1 25.5 0.0 27.6 29.0 -10.2 12.8 16.2 TCS 45 80
14.4 14.2 13.2 0.1 41.3 27.7 31.9 24.3 48.7 Mold-Tek Packaging 92 81
14.9 16.0 16.0 0.1 75.5 75.5 -8.4 19.4 20.1 Asian Paints 48 82
15.1 15.5 15.9 0.0 13.3 16.9 -8.3 2.0 18.2 Dhanuka Agritech 89 83
16.8 15.4 16.8 0.0 44.4 31.8 13.3 33.4 35.4 RHI Magnesita - 84
12.4 20.1 20.6 0.5 15.6 24.5 -41.2 3.3 - Valiant Organics 29 85
14.2 14.3 15.5 0.0 24.7 14.0 -36.8 45.1 - Infobeans Tech. - 86
20.2 18.1 18.1 0.0 45.1 46.8 19.6 31.9 38.0 PI Inds. - 87
17.0 17.9 17.5 0.1 60.2 39.9 11.2 31.0 31.8 Poly Medicure 59 88
22.4 19.7 21.5 0.1 27.1 31.3 45.5 14.8 24.8 AIA Engineering - 89
13.4 12.1 12.3 0.1 32.7 33.1 -20.0 11.2 26.2 Century Plyboards - 90
14.1 13.5 14.2 0.0 23.1 17.5 60.5 12.4 38.7 Grauer & Weil - 91
26.2 27.9 26.3 0.0 14.7 17.9 -1.6 2.9 48.8 Caplin Point Labs 1 92
21.2 18.4 17.1 0.0 39.0 43.2 24.1 - - SIRCA Paints - 93
17.2 17.5 17.3 0.8 20.9 15.2 21.4 9.7 28.2 Kovai Medical Center 72 94
15.3 12.3 12.8 0.0 41.6 35.7 53.9 15.5 30.2 Cera Sanitaryware - 95
18.2 19.4 20.1 0.0 19.4 18.4 -0.8 18.0 18.9 HCL Tech. 91 96
23.1 21.7 26.1 0.0 14.2 15.8 -12.4 9.3 16.3 eClerx Services - 97
15.7 13.9 14.7 0.0 49.4 39.1 63.4 22.3 28.6 Elantas Beck India - 98
20.0 18.2 19.8 0.0 17.6 15.9 24.1 5.2 30.2 Control Print - 99
14.1 10.8 11.6 0.6 11.4 11.8 -3.8 12.1 51.2 Indo Count Inds. - 100
Financials as per the latest available. Price data as of May 3, 2023; For companies that don’t have a five-year trading history, the median P/E is for the period since they started trading.

;VWIHURPUN
MPUHUJPHSZLY]PJLZ
HUKPUZ\YHUJL
JVTWHUPLZ
To get the list, we applied the
following filters:
z M-cap greater than `500 crore
z Profitable in each of the last

10 years
z 5Y and 10Y profit growth of at

least 10 per cent p.a.
z ROE of 15 per cent or more in

at least eight out of 10 years
INSIGHTS
z Current ROE of at least
15 per cent
Company 10Y PAT growth 10Y median

(% pa) ROE (%)
360 One
Wam 37.2 21.4
Bajaj
Finance 34.6 20.0
Can Fin
Homes 27.6 18.8
Cholamandalam
Fin. Holdings 15.2 33.8
Cholamandalam
Investment 24.1 18.1
HDFC Bank 20.9 17.8
;VWJVTWHUPLZI`@H]LYHNLVWLYH[PUNTHYNPU
ICICI Lombard 18.9 20.7 Operating margin highlights the profitability of the company from its core operations.
Companies with low capital requirement dominate the list.
ICICI
Securities 32.3 64.7 In %
IEX 74.0
LIC 34.2 292.9 HDFC AMC 61.8
Manappuram
Finance 20.5 18.0 CDSL 48.7
Muthoot Aditya Birla Sun Life AMC 42.7

Finance 13.7 21.7
Gujarat State Petronet 35.4
PFC 12.5 20.7 Divi’s Labs 33.9
REC 10.5 20.8 CAMS 32.7
Gland Pharma 31.4

SBI Cards 32.4 28.4
Eldeco Housing 30.4
Share India
Securities 70.3 26.0 Vinati Organics 28.1

@YL[\YU[VWWLYZ
Six companies are from the chemicals sector with five of them holding the top five spots
In % pa
64.5 62.9 60.9 56.9 56.2 55.5 55.4 52.5 51.2 50.4
Fineotex Vidhi Navin Alkyl Paushak HLE Stylam Tata Indo Balaji
Chemical Specialty Fluorine Amines Glascoat Inds. Elxsi Count Amines
Food Int. Chemicals Inds.
Data as on May 3, 2023
;VWJVTWHUPLZI`@WYVMP[NYV^[O
105.5 Five out of the ten companies operate in the chemical sector
In % pa
66.6
56.0 53.8
48.6
44.4 42.1 41.2 39.7 39.6
Galaxy Bhansali SIRCA Raghav Gujarat Sumitomo Tata Elxsi H.G. Infra Fine Jash
Surfactants Engg. Paints Prod. Themis Chemical Organic Engg.
Enhancers Biosyn Inds.
;VWJVTWHUPLZI`@TLKPHU96*,
A high ROCE indicates efficient utilisation of capital
In %
107.2 67.9 64.4 63.3 61.5 54.6 53.9 52.4 52.3 50.5
HUL GujaratThemis IEX Page Hawkins HDFC Tata TCS IRCTC Caplin Point
Biosyn Inds. Cookers AMC Elxsi Labs
;VWTVZ[L_WLUZP]LZ[VJRZ ;VWJOLHWLZ[Z[VJRZ
Companies trading at a premium of at least 50 per cent to five-year Companies trading at a discount of at least 25% to five-year median
median P/E and P/B P/E and P/B.
In % Saksoft 166.2 In % -77.2 GSK Pharma
Navin Fluorine Int. 136.8 -60.3 Fine Organic Inds.
Vidhi Specialty Food 106.2 -57.9 Emami
Alkyl Amines Chemicals 102.9 -42.1 3ANOl)NDIA
Sandur Manganese 94.4 -41.3 GHCL

Data as on May 3, 2023 Data as on May 3, 2023

INTERVIEW
PANKAJ TIBREWAL
Senior Executive Vice President,
sident, Fund Management - Equity, Kotak Mutual Fund
‘Growth
should not
be at any
cost’
P ankaj Tibrewal
rewal
is a fund manager at Kotakk
Mutual Fund. With over 133 years
of experience in fund
management, he is a treasure
ure
trove of investing wisdom and
stock-picking ideas. Hence,, we
decided to pick his brains and ask
him, among other things, about
the themes/sectors he is betting
etting
on, investing mistakes to avoid
and how to deal with setbacks.
cks.
Here’s our exclusive interview
view
with him.
In the recent Berkshire Hathaway

thaway
AGM, Buffett and Munger offered
opposing views on future return
expectations. While Mungerer

INTERVIEW
expects lower returns going

forward, Buffett felt that
opportunities always exist. What
FOR INVESTORS WITH AN INVESTMENT
is your take on this? HORIZON OF FIVE TO SEVEN YEARS,
Both Buffet and Munger are
legends and have been highly THESE CURRENT PERIODS OF
successful investors with strong
investment track records across
UNCERTAINTY WOULD BE THE
cycles. However, their investment BEST TIME TO BUILD A PORTFOLIO
styles could vary based on their
perceptions of macro
uncertainties and investment According to you, which sectors banking financial companies like
horizons. With continuing of the market are showing mono-line NBFCs, insurance,
recession fears, elevated market resilience? Which ones are poised AMCs, wealth management
valuations and the real impact of a for growth? companies, etc.
steep hike in interest rates across Some of the themes/sectors we are
key US and European markets, positive about from a medium- How do you assess the
Munger believes near-term risk- term perspective are: sustainability and hygiene of
adjusted returns could be lower. z Big getting bigger, strong profits? Do you use some
On the contrary, Buffet usually getting stronger: Consolidation qualitative parameters as well?
looks for times of uncertainties. across different sectors like Most investors emphasise only
He invests in a sector/company airlines, steel, cement, telecom, earnings growth and topline
experiencing a downturn or banking, insurance etc., where the growth while evaluating
temporary challenges as long as top three to five players are investment opportunities. What
he believes that competitive gaining market share. we have learnt, and because of
advantage is intact and the z Revival of industrial which a lot of mistakes have been
opportunity is available at an manufacturing and private sector avoided, is that the balance sheet
attractive price. For example, his capex led by government and cash flows are very important.
investments in US financial spending, policy reforms like And that’s why we believe that
companies during the great production-linked incentives, topline is vanity, the bottom
financial crisis of 2007-2008 and, corporate tax rate cut, China plus line is sanity but cash in the
more recently, in Japan. one, import substitution, higher bank is reality.
We agree with both of their capacity utilisation across core Further, we have a growth-
views. Markets will offer lower industries and strong balance oriented mindset and India is a
risk-adjusted returns in the near sheets across corporate and banks. growth market. But growth should
term. At the same time, for z Revival of residential rest not be at any cost. Because if a
investors with an investment estate: Strong demand momentum company’s return on equity
horizon of five to seven years, on residential real estate for the remains below the cost of equity
these current periods of adversity last couple of years. The best way for a longer period of time, then
and uncertainty would be the best to play this theme is through the that growth is toxic and destroys
time to build a portfolio with home improvement sector and the value of the firm. Hence, for
quality businesses having home financiers. us, only accounting profit makes
strong moats, market leadership z Digitalisation: Indian IT stack little meaning and we focus on
and corporates with likely could be the game changer for sustainable return on capital
15-18 per cent annualised earnings India and a very important theme. employed and balance sheet and
per share growth over next three z Physical to financial savings cash flows.
to five years. through banks and other non-
Buffett said in the AGM, “What
gives you opportunities is other
people doing dumb things.” Can
IDENTIFYING THE DNA OF PROMOTERS you highlight some of the mistakes
AND MANAGEMENT IS THE KEY TO that investors should avoid?
We have learnt a lot of lessons
SUCCESSFUL INVESTING IN INDIA over the last two decades of our
investing journey at Kotak. We

INTERVIEW
have learnt that investing is all

about company management,
balance sheet, cash flows, IN MARKETS, YOUR BIGGEST
valuation, and more importantly,
managing yourself.
ENEMY IS YOURSELF. SO, MANAGING
Identifying the DNA of YOURSELF IS EXTREMELY IMPORTANT.
promoters and management is the
key to successful investing in
India, particularly if one goes in life, you should be aware of poor results, such as temporary
beyond the broader market, i.e., your core area of competence. If setbacks or fundamental issues. I
apart from the top 100 companies. you don’t understand anything, review the company’s financials,
Trustworthiness, integrity and leave it. Always work on processes management’s actions, and external
passion are some of the very and inputs because outputs are factors affecting its performance.
important traits we look for in not under your control. If we believe the poor results
management, and this is What you should be aware of is are temporary or the company has
something you learn and develop what your investment framework a solid plan to address the issues,
over a period of time. is and whether you are operating we may choose to hold on. Long-
Secondly, as mentioned above, within that framework. Because term conviction in the company’s
focusing on the balance sheet, thinking about what the Fed will business model, competitive
cash flows, return on capital do, how inflation will behave and advantages, balance sheet, cash
employed etc. is extremely how certain macro parameters flows and management’s ability to
important to avoid mistakes will behave will add to the stress. execute its strategy gives us the
during exuberance periods. But these are things which are confidence to stay invested.
The third most important not under your control. What is However, if we find that the
thing is that don’t completely under your control is your input poor results indicate deeper
forget about valuations. Even if – stock-selection filters and your fundamental problems, a
it is a great business, what own temperament. significant change in the
makes a difference is the price at company’s prospects, red flags in
which you are buying it. As When a company in your portfolio the balance sheet and cash flows,
Howard Marks says, everything reports poor results, how do you or any corporate governance
is good at a price. So, always deal with it? What gives you the issues, we consider exiting the
have a margin of safety. conviction to hold on or get out? investment.
Last but not least is that in When a company in our portfolio In summary, I carefully assess
markets, your biggest enemy is reports poor results, we approach it the reasons behind poor results,
yourself. So, managing yourself is by evaluating the situation evaluate the company’s long-term
extremely important. What we objectively. We consider several prospects, and weigh them against
have learnt is that one should factors to determine whether to hold other investment options before
strive for awareness and on to or exit the investment. First, deciding whether to hold on or
equanimity. In markets as well as we analyse the reasons behind the exit a position.
Get money smart

.QRZWKHULVNVVXLWDELOLW\UHWXUQSRWHQWLDOWD[EHQHÀWV
and how to invest in various investment options

MAIN
STREET
India’s high corporate tax rate

is holding back corporate capex
India must lower its corporate tax to become more competitive
SAURABH MUKHERJEA
Courtesy of the face-off between Early signs of a recovery in corporate capex…

China and the United States, India has a once-in-a-gener- Corporate capex in India has started to show some signs
ation opportunity to become the factory of the world for of recovering after nearly a decade of slowing down. This
knowledge-intensive light industrial manufacturing in is evidenced by a slew of indicators, including but not
sectors such as electronics, pharmaceuticals and spe- limited to corporate credit offtake growth (see Exhibit 1)
cialty chemicals. However, India’s competitiveness is in FY22. This figure was in double digits after three years.
hindered by an effective corporate tax rate that is four
percentage points higher than America’s or China’s. …underscore a puzzlingly weak capex recovery
This higher tax rate makes India uncompetitive in key Given that India is still a low-income country with a
export-oriented sectors and creates the need for expen- GDP per capita of $2,300 and given that it has been a
sive policy interventions like Production Linked decade since the previous capex cycle ended, India’s
Incentives (PLIs). For India to decisively capture the post-Covid capex recovery isn’t as strong as expected.
China+1 opportunity and transform the employment The modest nature of the capex recovery is even more
prospects of tens of millions of Indians, a corporate tax puzzling given that a variety of indicators suggest that
rate cut, rather than PLIs, is a necessary and sufficient capacity utilisation in the economy is running at high
precondition for take-off. levels – the RBI’s latest indicator of capacity utilisation
is 74.3 per cent, inching above the 10-year average of
73 per cent. In a similar vein,
,_OPIP[!@V@JYLKP[VMM[HRL z power demand in April 2023 (in MwH) was double
what it was five years ago;
20 % Corporate (YoY growth) Retail (YoY growth)
z cement production has grown 28 per cent YoY, driven
16 by strong demand from both the real estate sector and
the civil construction sector;
12 z the largest construction company in the country,
L&T, reported an order book of `3.9 lakh crore at the
8 end of Q3 FY23 (30 per cent higher than the pre-Covid
figure in Mar 2020).
4
As Exhibit 2 suggests, gross fixed capital formation
0 (or GFCF is the investment in fixed assets of producers
Mar-12 Apr-Dec ‘23 residing in India, net of any disposals, during the year;
this is the technical term for capex) as a per cent of
Source: Marcellus Investment Managers, RBI
India’s GDP has hovered around the 30-33 per cent mark

MAIN
STREET
However, given the modest tax receipts of the Indian

,_OPIP[!.-*-HZHWLYJLU[VM.+7OHZ Exchequer (central government tax to GDP is a mere
ILLUYLSH[P]LS`MSH[ZPUJLº 12 per cent compared to 25 per cent for a developed coun-
try like, say, the UK), government capex is bound to be a
37 % small part of the overall capex pie in India (around
14 per cent) and therefore cannot be expected to be the
34
critical driver of capex growth in India. Corporate capex
31 from the private sector has to be revved up to drive a sus-
tainable economic recovery in India.
28
So, what can India do to rev up private sector capex?
25
Economic theory suggests that the higher the corporate
tax rate, the lower the incentive for a company to expedite
22
capex. This theory is best understood by comparing the
Jun-96 Dec-22
steel industry in the United States and India.
Source: Marcellus Investment Managers, Bloomberg - OECD; both the metrics
As is well known, steel is a commodity and steel prices
are in constant 2015 prices terms
are set by global supply-demand dynamics; no company,
regardless of how competitive it might be, is able to influ-
for over 15 years now. China’s growth take-off post-2003 ence the global price of steel. The pre-tax profit margin of
was underpinned by GFCF to GDP ratios of over 40 per a well-managed integrated steel manufacturer tends to be
cent. So, what can India do to stimulate capex growth around 18-20 per cent. Furthermore, a $1 billion capex for
further and take its GFCF to GDP ratio to 40 per cent? setting up a steel plant results in 1.3-1.4 million tonnes per
Delving deeper into corporate capex, we find that con- annum of production capacity. Taking the current price
struction capex (which typically accounts for a quarter of per tonne of steel ($750 per tonne), this capacity generates
the overall capex pie) is the area where the lack of dyna- an annual revenue of about $1 billion. Applying the pre-
mism is most worrisome. As shown in Exhibit 3, con- tax profit margin of 20 per cent yields an annual profit
struction capex has been on a downtrend for over a dec- before tax (PBT) of $200 million.
ade now (both as a per cent of GDP and of overall capex). In America, this PBT becomes a PAT of $164 million
To be fair, the Government of India is trying to juice up (applying an effective corporate tax rate of 18 per cent). In
capex through its own spending. In FY21, FY22, FY23, and India, on the other hand, this PBT becomes a PAT of
FY24 (estimate), government capex has grown at 21, 44, 24, $150 million (applying an effective corporate tax rate of
and 37 per cent respectively, significantly faster than the 22 per cent). The steel plant owner, therefore, recovers his
broader economic growth and private sector capex. capex in America in five years versus six years in India
(assuming a 10 per cent growth rate and assuming that
,_OPIP[!*VUZ[Y\J[PVU.=([V.+7HUK.-*- PBT margins remain stable at 20 per cent).

In fact, there is a significant body of empirical work done
10.0 % Construction/GDP (left axis) Construction/GFCF (right axis) 28 % by economists which shows that lower tax rates lead to
accelerated corporate capex. One of the most comprehen-
8.5 26
sive cross-sectional studies on the subject was collectively
conducted by the World Bank, PwC, and Harvard
7.0 24
University. In 2004, the team consisting of S. Djankov, T.
Ganser, C. McLiesh, R. Ramalho, and A. Schleifer estab-
5.5 22
lished a significant and negative relationship between
4.0 20
effective tax rates for companies and investments by them.
To be specific, they found that a 10 percentage point
Jun-11 Dec-22
increase in effective corporate tax rate results in roughly a
Source: Marcellus Investment Managers, Bloomberg - CSO; all underlying
data reported in 2011-12 constant `bn terms two percentage point fall in aggregate investment to GDP
ratio. You can access the study here: https://bit.ly/419degz.

MAIN
STREET
The Government of India has shown that it under- Chinese counterparts. As is evident from the comparison
stands both the above theory and its practical implica- of effective corporate tax rates in Exhibit 4, this entire
tions. In 2019, the Ministry of Finance, Government of gap can be more than made up with a five percentage
India, slashed the corporate tax rate to 25 per cent from point cut in India’s corporate tax rate.
35 per cent. However, even after this slashing, India’s
corporate tax rate is higher than that of the world’s two Fiscal implications of a corporate tax rate cut
largest economies – USA and China (see Exhibit 4). The FY23 union budget documents show that corporate
taxes produced `10 lakh crore of revenues for the
Exhibit 4: Effective corporate tax rate Exchequer. Cutting this number by a fifth (i.e., moving
among the top 5 economies India from a corporate tax rate of 25 per cent to
20 per cent) implies a roughly `2 lakh crore reduction in
United States tax revenues, all other things being equal. This reduc-
17.9
tion in tax revenues is equivalent to 0.8 per cent of GDP.
Furthermore, cutting the corporate tax rate eliminates
the need for expensive and complicated policy interven-
China tions like PLIs, which are being gamed by a variety of
18.0
unscrupulous agents and are costing the Exchequer
`0.55 lakh crore per annum (about 0.2 per cent of GDP
per year). Therefore, net of the cost of PLIs, the cost of a
India 5 per cent cut in India’s corporate tax rate is likely to be
22.2
close to `1.5 lakh crore p.a. (about 0.6 per cent of GDP).
Assuming that the corporate tax rate cuts
trigger a recovery in corporate capex,
Germany tax revenues should pick up from fis-
24.2
cal years t+2, t+3 and t+4 onwards
(‘t’ being the year in
which the corporate
Japan tax rate is cut).
Even if we assume
26.9 a very modest

pick-up in corpo-
rate tax revenues in
year t+1, our modelling
Source: Marcellus Investment Managers, Bloomberg, Ace Equity; effective tax suggests that by year t+4 (i.e., within
rate has been calculated by dividing the income tax expense by profit before one full General Election cycle), the
tax for S&P 500 companies for the US, CSI 300 for China, TOPIX for Japan, Exchequer will be better off than it
and CDAX for Germany and BSE 500 for India; Figures for CY22;
*FY23 number has been imputed using 9M FY22 to FY22 growth and applying would have been without the corporate
it to 9 month FY23 numbers. tax rate cut. Indeed, the fact that
just three years after the 2019
Not only does India’s high corporate tax disincentivise corporate tax rate cut, the
capex (as explained by the steel case study outlined Government’s direct tax collections
above), but it also puts India at a competitive disadvan- are hitting all-time highs (as a per cent of
tage to China. To be specific, in several critical sectors GDP) points to the effectiveness of tax cuts as a
where India is emerging as a credible competitor, e.g., method of boosting tax collections.
electronics manufacturing, specialty chemicals, the sub-
Saurabh Mukherjea is part of the Investments team at Marcellus
stantial corporate tax rate differential between the econ- Investment Managers (www.marcellus.in). He is the author of
omies possibly makes Indian manufacturers’ price points ‘Diamonds in the Dust: Consistent Compounding for
about two to five per cent higher than those of their Extraordinary Wealth Creation’.

STOCK
ADVISOR
On the right track

In more than five years of service, Value Research Stock Advisor has created a huge
opportunity for investors to understand investing and succeed in their mettle
DHIRENDRA KUMAR
Investing in equities can be challenging,

and guiding others in this field may prove even
more so.
Indeed, there are very few certainties in the realm
of equity investing. On any particular day, certitude
is simply non-existent, a factor that underscores the
difficulty of being an equity investor. Often, your days
in the market can be incredibly challenging, but the
overall journey is profoundly exhilarating. Yet, I see
so many constantly stressed. There’s the stress of
choosing the wrong companies, there’s the stress of
the markets rising and falling, and there’s the stress
of your stocks not following your predictions. For
some, there’s the stress of others outperforming them.
And yet, after some years of stress, investors who stay
focussed start noticing how well their money has
grown on the whole! carrying on their work in a calm and routine manner,
and whatever the passengers fear is not justifiable.
Knowledge and Confidence Information and understanding are the key to
But this stress is not compulsory. Knowledge and reducing stress.
confidence can solve the problem. This reminds me of I think there’s an equivalent in equity investing as
a technique I read about for reducing well, and that’s the same. If we are thrashing about,
passenger stress that some European investing based on guesswork and rumours, there’s
airlines are trying. Many have a deep fear bound to be stress. However, if we are confident
of flying. The aircraft manufacturer about our investments, we know and understand the
Airbus has discovered that if such logic of why we chose each stock, and we are keeping
passengers can listen in on the conversation between an eye on how the business is progressing for each of
the pilots and the air traffic control, they don’t feel them, then why would there be any stress? That’s the
scared. Why? Simply because they know what is going equity investment equivalent of listening to the pilot
on. They can hear that the pilots and the ATC are and the ATC.

STOCK
ADVISOR
Funds, Stocks, and Something More principles of value investing that are the basis of a
Unfortunately, many investors struggle to acquire profitable investment, we had to wait before we could
adequate information and thus never gain confidence. recommend some great ones to our customers.
As recommended by Value Research many times, the However, since then, with the ups and downs of the
simplest option is to invest in an equity mutual fund. markets, many of our A-listers have become available
That way, you can offload the tough at great value.
decision-making to a fund manager and As we continue to release new recommendations
reduce your task to choosing and steadily – the number is well above 50 now – our
tracking mutual funds. Not a difficult subscribers’ portfolios built up at low valuations that
task with Value Research on your side. bode well for the future returns they will generate.
However, many want to take the next step, i.e., to Higher potential returns, with transparency of
understand and choose stocks oneself. That’s the goal research and deep knowledge – this is the core service
that this magazine serves and has been serving for 17 that the Stock Advisor provides. But there’s much
years now. During these years, we have had more that our subscribers are taking advantage of.
tremendous success in terms of the ideas for
choosing stocks, as well as the actual stock choices A lot more than just a list
we made. However, a few years ago, we decided to Our team has designed and implemented a Stock
move a step ahead. Screener system that is by far the best you will find.
This is a unique tool, and nothing like it has been
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Some of our readers wanted a different deal, a enables you to screen stocks based on any financial
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provided just that. However, the far more novel screens are
The years since the launch of the service in early the ‘Value Guru’ screens. They automatically
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one hand, we have continuously added a world of five investing gurus of our liking, namely, Ben
features for our growing members. On the other hand, Graham, Joel Greenblatt, John Neff, Peter Lynch, and
the markets have been on the kind of Walter Schloss. While we have covered them in
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at www.valueresearchstocks.com or scan the QR code.

EVERYDAY
ECONOMICS
The grounding of Go First

Go First has filed for insolvency. Find out why Indian airlines keep failing.
PUJA MEHRA
Nusli Wadia’s Go First has become had to incur as a consequence, adds up to more than
the latest Indian airline to bow out. Before the `10,000 crore. Its losses doubled from `1,809 crore in
pandemic, it was India’s third-largest airline. In the 2021-22 to `3,600 crore in 2022-23. With more and more
last few years, the Wadias pumped `3,200 crore into planes on the ground, the operating revenue per plane
the airline. In early May, they initiated bankruptcy reduced from `13 crore to `10 crore. Expenses more
proceedings (for a summary, see https://bit. than doubled.
ly/41u6KZB). The airline has exhausted all its financial resources
With nearly half its aircraft fleet in no shape to fly, now, including credit lines from lenders and letters of
the airline was forced to cancel all flights, affecting credit from aircraft and other equipment suppliers.
about 77,500 passengers. In the bankruptcy filings, the Funds from an emergency credit lifeline the
company has laid all blame on the aircraft engine government has thrown to companies struggling to
maker, Pratt & Whitney. It says that nearly 80 per cent cope with the disruption
of the engines supplied to it started malfunctioning `3,200 crore: caused by the Covid-19
even before completing 5,000 hours of flying time and The amount pandemic to business had
had to be removed from the aircraft for repairing,
causing the planes to be grounded. However, the
invested by the helped to keep the
beleaguered airline afloat
meter on their leases kept running, resulting in Wadia group in so far. But the engine
financial losses piling up. Go First says it owes around Go First in the problem remaining
`11,500 crore to financial institutions, aircraft and last few years unresolved brought its
equipment lessors, vendors, and passengers for tickets revenues under a cloud. It
booked on flights now cancelled. The engine maker, started defaulting on or delaying payments of salaries
according to it, backed out on the conditions it had and dues, including for aircraft leases. Aircraft lessors
agreed to at the time of signing the purchase are taking back possession of their aircraft, which has
agreement for guaranteed replacements within made chances of a revival bleak and closure certain.
48 hours and repairs of failed engines at no charge. Go First was started by Wadia’s son, Jeh, in 2005. It
The airline wants the engine manufacturer to pay it a has 7,000 staff on its rolls and another 10,000 work
compensation of `7,000 crore for the faulty engines. indirectly for it.
The engine maker in the past has compensated the The airline business has been a magnet for affluent
airline for its failures but has accused Go First of Indians – from Vijay Mallya (Kingfisher Airlines) to
failing on financial obligations to it in a public late billionaire Rakesh Jhunjhunwala (Akasa Air).
statement it issued in response to the bankruptcy The lure of the skies is simple enough: India is the
filing. The feud between the two sides has been going world’s fastest-growing aviation market. Indian
on in an arbitration case in Singapore. airline companies are among the biggest buyers of
The airline says that the revenue it has lost to faults planes in the world. The Covid-19 year, 2020-21, saw
in the engines, including the additional expenses it airlines in India collectively losing `19,564 crore. But

EVERYDAY
ECONOMICS
the market has recovered smartly. secure market share, a strategy that
Domestic airlines flew 3,70,000 - they fail to sustain for long. On
4,40,000 passengers on average every occasion, the government, giving in
day in February. The pre-Covid high to populism, has imposed caps on
of 4,20,000 passengers in a day was ticket prices.
outdone this year. The new high in a I recall Delhi-Mumbai fares at about
day is 4,56,000. `14,000 in the early 2000s and about `26,000
But what makes the airline business difficult in the early 1990s. A quick search shows
and profitless when the market is so tickets are available for less than `5,000
promising? In 2019-20, airlines in now. Passengers have benefited
India had combined losses from the entry of more
of around and more
In
2019-20,
airlines
in India had combined losses
of around $1.7 billion.
$1.7 billion. By
By 2021-22, airlines into
2021-22, the figure had the figure the market. Over
risen to $8 billion. Even
promoters that run other
had the years, fares have
dropped, and the number of
businesses successfully (Mallya’s United risen to seats and destinations has increased.
Breweries holds more than half the market; $8 billion. But the airlines have not had it easy. Few
the Wadias have a legacy of highly have turned in profits consistently, which
successful family businesses, including has made long-term viability difficult.
cookies-maker Britannia) and have deep IndiGo – run on a tight budget and
pockets haven’t succeeded in airlines. Air promoted by a deep-pocketed savvy
Deccan, Kingfisher, Sahara, Paramount, Jet businessman and a negotiator of bulk
Airways, and Spicejet’s three earlier aircraft acquisition deals at bargain prices
versions – the promoters of all these airlines – is the market leader; it flies one of every
bowed out after failing to keep their airlines two domestic flyers. Air India and Vistara,
running. As the losses piled up, their airlines both owned jointly by the mighty Tatas and
ultimately became defunct. Efforts are Singapore Airlines, fly half of the rest.
underway to revive Jet Airways, which gave a If a few years later, only these two players end
good flying experience, was impeccably on time, up dominating the skies, low fares will
and had built up a dedicated clientele, but it’s highly ineluctably become a thing of the past. The lesson
unlikely that it will fly again. from India’s airline story is that commercial viability
Airlines were a difficult business in India even and economic success require more than a fast-growing
before the disruption of the pandemic. The reason is consumption class and affordability. Economic
the sector’s high-cost structure. Fuel – the largest cost potential translates into prosperity when policies,
incurred in keeping planes in the air – is expensive as including on taxation, are sensible.
it is. But it is more so in India because of steep taxes. Puja Mehra is a Delhi-based journalist and the author of ‘The Lost
Passenger volumes also do not translate into profits Decade (2008-18): How the India Growth Story Devolved into Growth
because airlines compete fiercely and keep fares low to Without a Story’

STRAIGHT
TALK
The current state of

electric car sales
How are they faring globally and what the future holds
ANAND TANDON
Electric car (EC) sales, including for the share of EC sales is projected to increase to
battery electric vehicles (BEVs) and plug-in hybrid 35 per cent in 2030, up from less than 25 per cent in the
electric vehicles (PHEVs), are seeing exponential previous outlook, according to the IEA Stated Policies
growth, with over 10 million units sold in 2022, Scenario (STEPS). China is expected to retain its
representing a 14 per cent share of all new car sales. position as the largest market for electric cars, with
This was in the context of a contracting car market 40 per cent of total sales by 2030, while the United
and a disrupted supply chain. Total car sales dipped States and Europe are projected to double and maintain
3 per cent compared to the year 2021. The 10 million their current market shares, respectively.
figure exceeded the total number of cars sold in the SUVs and large cars currently dominate the
EU. Over 26 million ECs were on the road in 2022. available electric car options, accounting for
China, the frontrunner, accounted for 60 per cent of 60 per cent of available BEV options in China and
global EC sales and has already exceeded its 2025 Europe and even more in the United States. However,
target for new energy vehicle sales. Europe is the market is becoming increasingly
ales
the second largest market, with EC sales comp
competitive, with a growing number of
increasing by over 15 per cent in 2022,2, new entrants offering more affordable
representing more than one in every mo
models, primarily from China and
he
five cars sold. The United States is the
The IEA has oth emerging markets. The number
other
third largest market, with sales of available electric car models reached
increasing by 55 per cent in 2022,
revised its 500 in 2022, more than double the
reaching a sales share of 8 per cent. projection options
op available in 2018, but outside of
EC sales are generally low outside of electric Ch
China, there is still a need for OEMs to
major markets, but there are cars’ share offer
off affordable, competitively priced
promising signs for emerging electricc
in total sales op
options to enable mass adoption of EVs.
vehicle (EV) markets, particularly in
22,
India, Thailand, and Indonesia. In 2022,
in 2030 from Policy support helps demand
Po
es
sales of electric cars in these countries less than The adoption of new CO2 standards for
Th
more than tripled compared to 2021, 25 per cent cars and vans by the European Union
car
reaching 80,000. to 35 per cent and the Inflation Reduction Act (IRA)
an
in the United States are aligned with
Growth outlook strong their electrification ambitions. These
the
The outlook for EVs is bright, driven by policies could deliver a 50 per cent
po
market trends and landmark policies in market
m share for electric cars in the
major car markets. The global outlook k United
U States by 2030, in line with the

STRAIGHT
TALK
national target. The Supply chain dynamics

implementation of Higher demand for electric vehicles
the recently
The entry of new is driving demand for
proposed emissions batteries and related
standards from the
manufacturers will likely critical minerals.
US Environmental spark high competition in a Automotive
Protection Agency market that is still stagnant at sales lithium-ion
is set to further below pre-covid levels battery demand
increase this share. increased by
India has a about 65 per cent
government incentive to 550 GWh in
program of $3.2 billion 2022, from about
that has attracted investments totalling $8.3 billion, 330 GWh in 2021, primarily as a result of growth in
which is helping to ramp up EV and component electric passenger car sales. The share of lithium-iron-
manufacturing. Global spending on electric cars has phosphate (LFP) chemistries reached its highest point
increased significantly. Investors are confident about ever, driven primarily by China, while supply chains
EVs, and venture capital investments in start-up firms for lithium-free sodium-ion batteries are also being
developing EV and battery technologies reached established. The EV supply chain is expanding, but
nearly $2.1 billion in 2022. manufacturing remains highly concentrated in
certain regions, with China being the main player in
Beyond private mobility the battery and EV component trade.
The trend of electrification is not limited to cars To ensure supply chain resilience and security,
but is expanding to other vehicle segments as well. new alternatives to conventional lithium-ion batteries
Two- and three-wheelers, which are popular in are also being explored.
emerging markets and developing economies, Governments around the world are increasingly
are seeing increasing electrification due to recognizing the importance of building resilient and
government incentives and lower lifecycle costs. diverse EV supply chains to support the growth of the
Over half of India’s three-wheeler registrations in electric vehicle market. The proposed Net Zero
2022 were electric. Industry Act in the European Union, for example,
Electric buses, too, are gaining traction, with sales aims to boost EU battery manufacturing capacity to
increasing by over 50 per cent in 2022 compared with meet 90 per cent of the EU’s annual battery demand by
the previous year, reaching almost 1,00,000 units. 2030. India is also implementing Production Linked
This growth is driven by China, which accounts for Incentive schemes to boost domestic EV and battery
98 per cent of the world’s electric bus fleet. By 2030, manufacturing, while the United States’ IRA focuses
electric buses could avoid around 770 megatonnes of on strengthening domestic supply chains for EVs and
CO2-equivalent emissions per year if they replace batteries, with clean vehicle tax credits tied to certain
conventional buses in all major markets. criteria. Major EV and battery makers have already
Trucks and other heavy-duty vehicles are the announced significant investments in North American
largest contributors to CO2 emissions in road EV supply chains in response to the IRA.
transport, but electrification is also beginning to
penetrate these segments. In 2022, major Indian OEMs have a strong product pipeline
manufacturers started delivering small numbers of Announcements by OEMs based in India indicate a
electric delivery vans and trucks, which could be strong pipeline driven by increasing affordability and
attractive for urban delivery services due to lower the perception of a product upgrade by the consumer. It
operating costs and local pollution benefits. will be a while before clear winners emerge – especially
Electric light commercial vehicle sales worldwide in the two-wheeler space. Here, the entry of new
increased by more than 90 per cent in 2022, while manufacturers will likely spark high competition in a
66,000 electric buses and 60,000 medium- and heavy- market that is still stagnant at sales below pre-covid
duty trucks were sold worldwide. levels. The EV space is in for interesting times.

OF THIS
& THAT...
A strategy to carry
How to play the decline of the dollar
SANJEEV PANDIYA
Everyone is worried about the Middle East. This was used
future of the world’s reserve currency - the dollar. The as currency between non-US
situation is not the same as in 2008, when there was a glob- countries. These dollars never
al knee-jerk during the risk-off trade (i.e., investors and came back to the US to
traders getting out of risky assets). This time, however, the be claimed.
cost of insuring against a US default (through a credit The other market is
default swap) has risen above that of 2008 as the markets the huge central bank
are scared of a government default in June. foreign exchange
assets that came
But why fuss about it now? about as a result
The immediate causa proxima is the over-reach of the of the huge and
‘Sanctions Regime’ by the US in trying to clamp down on consistent current
Russia (and Iran-Venezuela before it) by confiscating their account deficits run up by the US. Japan, China, the
dollar reserves. Far East, and these days even India, are holding a
Imposing sanctions like freezing nearly half combined $5-7 trillion of these or about 20 per cent of the
($300 billion) of Russia’s foreign currency reserves and the US GDP.
removal of major Russian banks from SWIFT (a global So now these countries, particularly Japan (and to
messaging system for banks that enables cross-border a lesser extent China, and certainly India), find
money transfer instructions) has made many other coun- themselves riding a tiger: if they stop accumulating
tries realise that the US could “weaponise” the dollar these reserves, their industrial capacities must find
against them as well. alternative markets. If they try to find alternate
This has set off a kind of bank run on the dollar, visible investment avenues (especially investments in their
below the surface. Almost everyone outside the US allies is domestic economies), they are just ‘passing the par-
looking for an option to hold their store of value in a cel’ till the dollars end up back in the US. And if they
non-dollar holding. try to sell their dollar holdings, they will end up
Importantly, a large number of sins of the US govern- tanking the dollar.
ment that were earlier forgiven (large twin deficits - a high So this tangle of feedback loops is what is keeping up
current account deficit and a high fiscal deficit - both fund- the dollar. Don’t be fooled by the Luddites who are still
ed by foreign central banks) will now suddenly be remem- talking about “where will they go”? Anywhere but the
bered and will come home to roost. dollar will soon be the answer. Focus on the INTENT of
How did this all come about? Japan, China, the Far East, and India,
The real causes were the massive money-printing of the are holding a combined $5-7 trillion
last 20 years, peaking with the pandemic. With these dol-
of their central bank reserves in the
lars held abroad being used to fund the American deficits,
two major “markets” sprang up. One of them was the
form of US Treasuries (or about
“petrodollar” market that consisted of oil surpluses in the 20 per cent of the US GDP)

OF THIS
& THAT...
the USD holders, not their options: supply (of currency

investments) will create its own demand.
What is the immediate case against the dollar?

Besides the avalanche of sentiment in many nations due to
the expropriation of Russia-Iran-Venezuela reserves, the
case against the dollar has many layers:
z Foreign central banks hold about 6-7 per cent of global
GDP and 25 per cent of American GDP in US Treasuries.
The day the dollar loses its reserve status, this amount will
disappear. Moreover, there’s no way to judge the size of
private holdings. These are the dollars America has to
either “buy back” through export surpluses or has to
inflate away, which is the more likely route.
z Despite the fact that the battle against American infla- But India is perhaps the most ‘investible’ country in the
tion is not over, the US is likely to have slowed down (or world right now. This comes from:
even reverse) the trajectory of rate hikes. This would leave z A large, young population, made up of poor, educated
the country in an extended period of “savings repression”. people with rising economic productivity and democra-
Obviously, savers will flee to places where they get better tised learning (thanks to the Digital Stack and high inter-
yields, principally the emerging markets, which seem to net acceptance).
have a better hold over inflation with higher real rates. z The adoption of new technologies will accelerate, thanks
z Importantly, either Yen (Japan) or Yuan (China), cur- to a plethora of new digital platforms that deploy new
rencies with structural surpluses against the dollar, and ideas, from agriculture to education.
current account surplus as a whole, could see a material
currency appreciation, which would also weaken the dol- The spreads of bonds over cash, and
lar. Even India has a trade surplus with the US, although it equity over bonds, should be
has an overall current account deficit. So, external factors watched. Markets are out of
could also play a material role in the weakening of the
USD. Even a small increase in interest rates in the Yen
equilibrium whenever these spreads
could send it soaring. get excessive.
z A sudden government close-down or debt default (even
if temporary) is not discounted by markets yet. This is an z Great macros, falling indebtedness across retail, corpo-
even risk, with sudden but cataclysmic consequences: for rate and even government. This displays rising economic
sure, it will contribute to great volatility. A settlement productivity (again, the Digital Stack). From this, a par-
will bring back the government to borrow a huge ticularly clean banking system to deploy any external
$1 trillion, definitely at higher rates, which will harden savings that are seeking institutional mechanisms to help
the dollar for a while. lock into any big trend.
z Large problems to be addressed: from climate change to
So that’s where the ` comes in infrastructure to cleantech to sustainability and the circu-
Consider that $5-6 trillion of central bank foreign exchange lar economy. There’s no dearth of big problems that need
reserves is looking to go somewhere. Who can absorb it? innovators, risk-taking capital, hungry customers, and
China, of course, but they have their trust issues. Plus, provide large runways for growth.
since they own more than half of the said reserves, they are A ‘stable economy’ has the following abiding character-
both the investor and the investee. At the moment, we see istics. If it doesn’t, then things must be trending back to
their Belt and Road initiative soak some of their dollar these ‘stable’ conditions. If they do not, then you spin out
surpluses. Despite setbacks like Pakistan and Sri Lanka, of control, a la Pakistan and Sri Lanka:
the program has opened up new trade routes and given z Inflation: spending and output should be in line with
China considerable leverage in both trade and geopolitics. capacity. Otherwise, supply constraints will cause

OF THIS
& THAT...
structural inflation, which squeezes out some custom- nor even the USD (compared to its share of
ers. That’s regressive, and things should be reverting 63 per cent in central bank reserves, the USD has a
back to equilibrium. An ideal would be a 6 per cent real mere 25 per cent of global GDP). India will attract ‘safe
growth, 5 per cent inflation (roughly 50:50) for develop- haven’ flows, not because of its dominance in world
ing economies, and half of this (2 per cent growth, trade, but because of its investibility.
2 per cent inflation) for the developed world. Reserves are about the store of value. The tacit under-
z Debt growth should be in line with income growth. standing is TRUST, i.e., the perishability of the value
Interest rates should reflect this: a rise in indebtedness embedded in the currency. That is dependent upon mac-
would put upward pressure on interest rates, with genuine ro-stability, not the share of global trade.
risk premiums. Similarly, deleveraging will lower credit On the trade account, India has a surprising mer-
costs but reduce potential GDP. chandise deficit with the BRICS (Brazil because of
z Both of the above impact risk premiums: The spreads of commodities, South Africa because of minerals,
bonds over cash, and equity over bonds, should be China because of widgets and Russia because of oil).
watched. Markets are out of equilibrium whenever these This is a combined $120 billion, of which China is
spreads get excessive. $100 billion, while Russia now accounts for the rest.
If you judge India against the world on these parame- But with the US and Europe, India accounts for a
ters, you’ll find few comparable economies, even in the $50 billion surplus ($30 billion for the US and the
developed world. remaining $20 billion from Europe). As India is a
service economy, this pattern is unlikely to change
What decides the “reserve-ness” of a reserve currency? in the near term.
If a currency has two functions - as a means of exchange
and as a store of value - the former is flow and the latter is Sandeep Pandiya is a student of behavioural economics. He has
stock. Reserves are stock, so the “reserve-ness” of a curren- spent three decades as a CFO and has immense experience in
cy comes from the stock function. corporate transformation. He has been stock-picking for high-
So what is the point in arguing that a currency (the profile investors and has experience as a derivatives strategist. He
`, in this case) doesn’t qualify because it is not a domi- is passionate about mentoring people, communities & corporates
nant trading partner? Neither is the CHF (Swiss Franc) on the principles of human rationality. www.sanjeevpandiya.com
6XEVFULEH1RZ
Insights into the Indian stock market and companies
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STOCK
SCREEN
Reasonably priced growth stocks

Investing in growth companies is one of the most popular ways to profit from
stocks. But one shouldn’t overpay for them. This is where this screen helps.
A
stock screen filters out companies based on that their valuations also tend to be high as growth
certain criteria. Its main advantage is that it commands a valuation premium.
helps you generate stock ideas with just a few As an investor, your job is to pick wealth-creating
clicks. Once you have the list of ‘deserving’ stocks at fair or less than fair value. This is what
stocks, you can research them further to find the ones this screen is all about. It combines earnings growth
worth investing in. and low valuations. However, do note that this is
The Value Research website provides you with based on past performance. Your returns will be
many ready-made stock screens. Here we will be determined by future performance. So, don’t forget
covering the ‘reasonably priced growth stocks’ to take into account the future prospects of the
screen in detail. We have also given a concise stock companies in the list.
list from the other screens. To get the full list in real
time, visit https://www.valueresearchonline.com/ (^VYKVMJH\[PVU
stocks-screener/in/. Note that mere inclusion in a stock screen does not
mean that a stock is investment-worthy. Consider
>OH[KVLZ[OPZZJYLLUVMMLY& the output of stock screens as the starting point for
Growth companies are those that, as you may have your research. You must apply your own analysis to
guessed it, in the growth phase. This means that select companies.
they are expanding, growing their revenues and However, if you are interested in a list of stocks to
profits, and hence their share prices also tend to invest in right away, then subscribe to our
follow the course of the underlying business. Growth recommendation service at Value Research Stock
investing is perhaps the most popular form of Advisor. You can access the details by visiting:
investing. The main problem with growth stocks is www.valueresearchstocks.com.

STOCK
SCREEN
No. of companies that
REASONS TO INVEST THE FILTERS CLEAREDTHElLTERS
All-weather style Market cap greater than

At least 20% in the trailing 12
1,325
Companies with strong `500 cr months YoY
fundamentals Earnings growth of:

At least 20% in latest quarter
YoY 164
Greater stability vis-a-vis
At least 20% in the past five Stocks with a P/E of less
value or growth years 47
than 15
On a fast track
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Aditya Birla Capital

Misc. Fin.services 8.3 21.2 0.16 35 181 39 39,617 164 175-86
Oil India
Oil & Gas Exploration 3.2 5.3 0.10 76 104 31 29,154 269 306-168
Cholamandalam Fin Holdings

Misc. Fin.services 12.1 14.1 0.19 34 26 20 15,646 834 840-511
IDFC
SIDCs/SFCs 3.4 48.0 0.13 1,641 6,517 48 14,469 91 94-42
Angel One
Brokerage Services 11.3 15.8 0.27 30 41 77 10,015 1,196 1674-999
The Great Eastern Shipping

Shipping 3.8 8.1 0.05 282 317 72 9,711 681 749-360
Godfrey Phillips India

Tobacco Products 13.9 15.1 0.53 70 51 26 9,022 1,737 2149-1016
Karur Vysya Bank

Banking 7.6 11.4 0.97 58 64 24 8,426 105 116-42
PNC Infratech
Construction 10.9 12.4 0.29 68 57 37 8,282 323 352-219
NCC
Construction 10.9 10.4 0.17 100 82 69 7,173 114 127-52
JK Paper
Paper 5.0 7.7 0.20 65 120 24 6,037 356 453-267
H.G. Infra Engineering

Construction
12.2 10.6 0.29 64 30 39 5,983 920 978-509
Jindal Saw
Steel Tubes & Pipes
9.5 6.3 0.40 179 54 29 5,973 187 198-75
Maharashtra Seamless
Steel Tubes & Pipes
9.8 11.0 0.35 81 168 25 5,877 439 458-263
Rashtriya Chem and Fert

Nitrogenous Fertilizer.
5.6 12.1 0.18 71 64 31 5,738 104 145-71

STOCK
SCREEN
Share India Securities

Brokerage Services 12.2 13.5 0.15 88 84 71 4,024 1,229 1426-991
Ujjivan Financial Services

Misc. Fin.services
4.4 118.3 0.03 69 565 167 3,900 321 345-121
Nava
Diversified
3.8 4.0 0.06 45 153 63 3,674 253 280-143
Technocraft Industries (I)

Structurals
12.6 9.0 0.57 33 23 23 3,614 1,570 1635-701
HMT
Industrial Machinery
5.6 51.6 0.48 26 623 40 3,070 25 40-22
Sunflag Iron And Steel Co

Finished Steel
2.7 7.0 0.10 40 336 27 3,000 167 176-72
Kaveri Seed Company

Other Agriculture Products
10.5 13.4 0.47 420 38 26 2,874 513 600-415
Best Agrolife 10.5 30.6 0.04 98 145 143 2,506 1,060 1775-774
Pesticides
Gokaldas Exports 12.9 15.0 0.37 31 110 28 2,407 397 488-301

Readymade Garments
Cigniti Technologies 13.8 11.1 0.35 124 89 39 2,324 853 908-388

Software
Welspun Enterprises 3.5 11.3 0.05 3,072 536 66 2,260 151 175-76
Construction
J Kumar Infraprojects 7.4 7.7 0.37 21 67 20 2,032 268 352-212

Construction
Andhra Paper 3.5 8.5 0.08 168 274 44 1,810 455 510-282
Paper
Vishnu Chemicals 13.2 13.5 0.20 25 68 66 1,802 302 434-245

Inorganic Chem.
Tamil Nadu Newsprint 5.7 12.5 0.06 12,305 2,652 95 1,755 254 284-159
Paper
GNA Axles
Auto Ancillaries
12.6 13.4 0.51 88 47 25 1,640 766 953-471
GOCL Corporation
Lubricants & Grease 4.4 18.6 0.08 351 465 58 1,498 302 420-217
Den Networks
Media & Entertainment 6.0 12.0 0.08 167 38 37 1,450 30 40-25

STOCK
SCREEN
Southern Petrochem Ind Corp

Other Fertilisers 5.1 7.2 0.19 50 35 23 1,421 70 92-41
BF Utilities
Electricity Generation 10.8 37.6 0.28 42 204 73 1,277 339 490-263
TGV SRACC
Caustic Soda 3.0 5.8 0.05 112 480 48 1,197 112 182-63
Satia Industries
Paper 5.8 9.6 0.25 57 91 23 1,111 111 164-101
Pearl Global Industries

Cloth 7.2 9.6 0.14 92 113 51 1,071 493 618-325
Refex Industries
Organic Chemicals 8.1 6.4 0.06 263 204 125 942 427 427-98
B.L. Kashyap and Sons

Construction 12.9 13.8 0.24 531 757 51 942 42 43-17
D-Link (India)
Computer Hardware 10.1 12.5 0.49 73 104 20 865 243 311-105
Vascon Engineers
Real Estate 8.1 14.1 0.08 358 183 68 805 37 42-18
Indraprastha Medical Corp

Health Services 9.3 11.5 0.29 31 39 32 756 82 94-52
Kirloskar Electric Company

Motors & generators 5.9 3.7 0.22 131 377 27 740 112 126-21
Data as of May 19, 2023. This is not the full list. For the full list, visit https://bit.ly/3ImzbSQ.
2L`[LYTZ
<UP]LYZLJVTWHUPLZ! In order to arrive at our universe of companies, 8\HY[LYS`,7:NYV^[O ! The YoY growth rate of the quarterly EPS
we checked if the companies traded on all the days for the last two ;;4 ,7: NYV^[O ! The YoY growth rate of the trailing-12-month
quarters. We considered the companies with a market capitalisation of EPS
more than `500 crore. @,7:NYV^[O ! The five-year annualised growth rate of the EPS
7YPJL[VLHYUPUNZ! The ratio of the stock price and earnings per share :[VJR :[`SL! Derived from a combination of the stock’s valuation
(EPS). It shows in multiples how much investors are willing to pay for (growth or value) and its market capitalisation (large, mid and small).
the earnings. The thumb rule of valuing a stock is that a high-growth For example, on the right, we have shown the stock style of a large-cap
stock will have a high P/E ratio, while a value stock will have a relative- growth stock.
ly lower P/E ratio. 4JHW! Stands for market capitalisation. Growth Value
@TLKPHU7,! The median P/E over the last five years Obtained by multiplying the stock price by the
7,[VLHYUPUNZNYV^[O7,.!The ratio of P/E to the five-year EPS Large
total number of shares. Shows a company’s mar-
growth of the stock. Shows how high a price we are paying for the ket value or size. Mid
growth that we are purchasing. A PEG of less than one indicates an ^LLROPNOSV^! The highest/lowest price of
Small
attractively priced stock. the stock over the last one year or 52 weeks.

STOCK
SCREEN
Want more? Here you go

Other screens available on the Value Research website, along with their
themes and some of their stocks
([[YHJ[P]LIS\L 1. Aarti Industries 6. KPR Mill

JOPWZ 2. APL Apollo Tubes
3. Coromandel International
Gives you large caps with strong fundamentals 4. Deepak Nitrite
and solid growth that are trading at a 5. Emami
reasonable valuation
https://bit.ly/42WLgpV
+PZJV\U[[VIVVR 1. ONGC 6. GNFC

]HS\L 2. SAIL 7. Tamilnad Mercantile Bank
3. NMDC 8. Shipping Corporation
Presents companies that are available at less 4. Oil India 9. Nava
than their net worth 5. CESC 10. Uflex
https://bit.ly/3Ms8gGu
/PNOKP]PKLUK`PLSK 1. Tata Steel 6. GE Shipping

Z[VJRZ 2. IRFC 7. Hinduja Global Solutions
3. PFC 8. GHCL
A screen for those looking for a steady stream 4. REC 9. MOIL
of dividends 5. Angel One 10. Gulf Oil Lubricants
https://bit.ly/3MiLAs8
8\HSP[`Z[VJRZ 1. Coal India 6. Craftsman Automation

H]HPSHISLJOLHW 2. Gujarat Fluorochemicals 7. NIIT
3. Aster DM Healthcare 8. CMS Info Systems
Companies that clear our essential checks on 4. JK Lakshmi Cement 9. Greenpanel Industries
solvency, accounting, recent financial
5. Godfrey Phillips 10. Meghmani Finechem
performance and valuation
https://bit.ly/3ZU7uHU
:THSSJHWNYV^[O 1. Route Mobile 6. Globus Spirits

JVTWHUPLZ 2. Kama Holdings 7. Tanfac Industries
3. Balaji Amines 8. Carysil
Wades through the small-cap maze and gives 4. Mastek 9. Likhitha Infrastructure
out fundamentally strong small caps that are
5. Rajratan Global Wire 10. Gujarat Themis Biosyn
available at a reasonable valuation
https://bit.ly/42RFkhM
For all the screens and to customise them as

per your requirements, visit
www.valueresearchonline.com/stocks/selector
WORDS
WORTH NOW
I thought it would happen eventually, but we had plenty of time: 30 to

50 years. I don’t think that any more. And I don’t know any examples
of more intelligent things being controlled by less intelligent things –
at least, not since Biden got elected…
But I wouldn’t rule out a year or two. And I still wouldn’t rule out 100
years – it’s just that my confidence that this wasn’t coming for quite a
while has been shaken by the realisation that biological intelligence
and digital intelligence are very different, and digital intelligence is
probably much better… I think people who are confident in this
situation are crazy.
GEOFFREY HINTON Computer Scientist, Ex-Google, The Guardian, May 5, 2023
If Congress fails to do that (raise We are prepared to do more if

or suspend the debt ceiling), it greater monetary policy
really impairs our credit rating. restraint is warranted…
We have to default on some A decision on a pause was not
obligation, whether it’s Treasuries made today… We on the
or payments to Social Security committee have a view that
recipients. That’s something inflation is going to come down
America hasn’t done since 1789. not so quickly. It will take some
time, and in that world, if that
JANET YELLEN Secretary of the Treasury, USA,
Bloomberg, May 12, 2023
forecast is broadly right, it
would not be appropriate to cut
rates and we won’t cut rates.
JEROME POWELL Chairman,
This moment is different than Federal Reserve, CNBC, May 4, 2023
anything we have had in the
40 years before… with inflation
proving stickier and interest
rates higher than currently
expected… When a $4 taco costs
$1 to have it delivered, that’s one
thing. When the $4 taco costs $8
with delivery, that’s different.
CHIP KAYE CEO, Warburg Pincus, Financial Times,
May 15, 2023
It’s not nearly as bad as it was in 2008.

But trouble happens to banking just like trouble
happens everywhere else. In the good times, you
get into bad habits . . . When bad times come they
lose too much.
CHARLIE MUNGER Vice Chairman, Berkshire Hathaway,
Financial Times, May 1, 2023

Riskometer is as on April 28, 2023

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4 Wealth Insight June 2023

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June 2023 Wealth Insight 5

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The microcap mogul

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PI Industries steps into the pharma biz

The interest-rate story

Reliance Industries to demerge financial services biz

10 Wealth Insight June 2023

changing fortunes admitted the plea and as a

Adani Group to raise more capital

June 2023 Wealth Insight 11

SCHEME FOR IT HARDWARE. 50,000

THIS SCHEME WILL HELP TO 0

away at the age of 87 6

Electric two-wheelers to get costlier 81

12 Wealth Insight June 2023

Sensex rebased to stock price

Apr 03, 2006

4HY 4H` 1\S 4H` -LI

14 Wealth Insight June 2023

ROE and ROCE

Sep 13, 2022 May 9, 2023

May 08, 2018

1HU 5V] 4H` 4H` -LI

June 2023 Wealth Insight 15

Large caps Price to earnings Net profit (` crore)

46.6 142.5 914

43.7 8.4 10,727

31.5 5.8* 2,677

28.8 57.1 1,101

18.1 29.1 5,008

17.3 87.6 2,209

16.4 70.9 2,353

-4.8 54.9 1,131

-9.6 80.2 1,080

16 Wealth Insight June 2023

Mid caps Price to earnings Net profit (` crore)

83.7 17.7 1,284

83.5 69.1 212

37.1 2.0* 2,818

31.3 33.4 613

30.4 72.0 125

25.5 1.6* 1,313

21.7 74.1 124

20.2 16.8 638

16.8 19.6 522

12.5 98.1 495

18 Wealth Insight June 2023

Small caps Price to earnings Net profit (` crore)

4HY 4H` 1\S 4H` -LI

1HU 5V] 4H` 4H` -LI

Lupin 2.8 Apollo 7YPJL[VLHYUPUNZ7,