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Corporate Dec 14, 2012

Big surprise: ITC top wealth creator; ONGC, RIL out of top 100

By Sourav Majumdar

This year, the wealth creation stakes have thrown up a few big surprises. Tobacco-to-hotels major ITC Ltd has emerged as the biggest wealth creator for the first time ever, breaking the stranglehold of oil and gas majors Reliance Industries and ONGC, which dominated the rankings for the past several years.

The latest wealth creation study, an important ranking put out every year by brokerage firm Motilal Oswal, shows ITC moving up to pole position from number 7 last year. Tata Group software bellwether Tata Consultancy Services holds on to its runner up position, closely chasing ITC at number two.

Reliance had dominated these rankings for the past five years, and ONGC for the three years prior to that. Agencies

The third position among wealth creators has gone to the private sector HDFC Bank, which has jumped three spots from last year's rankings. The study identifies and analyzes the top 100 wealth creators in the Indian stock market for the period 2007-12.

According to the study, neither Reliance nor ONGC even made it to the top 100 wealth creators after dominating the rankings for years. Reliance had dominated these rankings for the past five years, and ONGC for the three years prior to that.

However, serious market underperformance saw these two oil and gas majors drop out of this year's top 100. The 2007-12 stock price compounded annual growth rate (CAGR) was just 4 percent for ONGC and only 2 percent for Reliance, against 6 percent for the BSE Sensex.

The study defines wealth created as the difference in market capitalisation over these five years, after adjusting for equity dilution. Hitherto, it ranked the top 100 wealth creators based on a simple listing of companies in descending order of absolute wealth created.

This year, the study introduces a condition that during the study period, the company's stock price should have at least outperformed the benchmark index, the BSE Sensex. Speed of wealth creation is price CAGR during the period under study.

Based on thematic findings, the study says Indian banking will be a serious sector to watch out for on the wealth creation front, and HDFC Bank may be the pick of the lot soon enough for the top slot.

Importantly, while ITC, which also has a serious fast-moving consumer goods (FMCG) play, has emerged the winner this year, Hindustan Unilever also makes a comeback into the top 10 list, at number 9, after a long gap of 12 years. The study says most leading consumer goods companies are likely to be 'fountainheads' of wealth creation going forward.

In value terms, ITC created wealth of a hefty Rs 1,18,700 crore during the year, while TCS came a close second with Rs 1,08,200 crore and HDFC Bank with Rs 74,400 crore, according to the study.

In the fastest wealth creators category, TTK Prestige emerges the winner for the period 2007-12, during which period its stock multiplied 24 times, translating into an annualised return of 89 percent. Despite this performance, this is the slowest recorded since 1998, the study points out.

In a signal that the FMCG companies are coming in with a big impact on wealth creation, four consumer companies, including TTK, make it to this year's fastest wealth creators list. Bata India, Titan Industries and GSK Consumer are the others.

Kotak Mahindra Bank retains its top place as the most consistent wealth creator. Siemens, Sun Pharma and Asian Paints also feature at numbers 2,3 and 4, respectively, in the most consistent list.

A key finding of the study is that while it was generally seen that consumer goods companies and are more in the category of steady growth businesses, not necessarily high returns, a number of consumer companies appear to be enjoying the benefits of the next trillion dollar of GDP concept and are breaking into the fastest-growing wealth creators mode.

by Sourav Majumdar

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