Mumbai, India (PressExposure) December 22, 2009 -- Every year, Mr Raamdeo Agrawal, Managing Director of Motilal Oswal Group, commissions an Annual Wealth Creation Study. The Motilal Oswal 14th Annual Wealth Creation Study (2004-09) is divided into three parts - 1. Wealth Creation Study findings 2. Winner Categories + Category Winners = Formula for Wealth Creation in the NTD Era 3. Market Outlook
Part 1: Wealth Creation Study findings
Part 1 analyzes the top 100 wealth creating companies during the period 2004-09. (Wealth created is calculated as change in the market cap of companies between 2003 and 2009, duly adjusted for corporate events such as mergers, de-mergers, fresh issuance of capital, buyback, etc.)
The key highlights of this section are: â¢ Reliance Industries has emerged as the biggest wealth creator for the third time in a row. It has created 1514 billion RS worth of wealth contributing 15.6% of total wealth created in FY09. â¢ Unitech is the Fastest Wealth Creator during 2004-09, for the second time in a row. Its 5-year stock price CAGR is a staggering 122% â¢ Five companies - HDFC, Sun Pharma, Reliance Inds, Hero Honda and Infosys - have featured among the top 100 wealth creators in each of the last 10 years. HDFC is ranked as the most consistent by virtue of its 10-year price CAGR being the highest. â¢ For the last six years, the biggest wealth creator in India has emerged from Oil & Gas - the first three years led by ONGC and next three by Reliance. â¢ This year, NMDC has the unique distinction of featuring in both the biggest and the fastest wealth creators list. â¢ This year, eight of the top 10 most consistent wealth creators are consumer-facing businesses with strong franchise.
â¢ Comparing the performance of the top 100 Wealth Creating companies(Wealthex); over the entire period, the Wealthex outperformed the Sensex by 83%, Wealthex earnings CAGR was 24.2% compared to 18.8% for the Sensex and the Wealthex P/E was 16.3x, lower than 16.8x for the Sensex.
â¢ Oil & Gas continues to be the largest wealth creating sector. However, over the last five years, its share has fallen from 43% of wealth created to 22%, clearly indicating value cmigration to sectors such as Telecom and FMCG. Telecom's rising share of wealth created can be attributed to superior PAT CAGR of 62% over the last 5 years. On the other hand, FMCG PAT CAGR is a muted 14%; however, the sector has seen a valuation re-rating, more so given the flight to safety phenomenon during the market downturn in FY09.
â¢ FY04-09 marks a semblance of the MNC resurgence, with number of top wealth creating companies more than doubling from 10 to 23 and share of wealth created increasing from 7% to 14%. A major factor for this resurgence is FMCG, led by ITC, Hindustan Unilever and Nestle.
â¢ 74 of the top 100 wealth creating companies had a base market cap of less than Rs50b in 2004.
â¢ A sure shot formula for multi-baggers is - - P/E of less than 10x - Price/Book of less than 1x - Price/Sales of 1x or less - Payback ratio of 1x or less.
â¢ Of the top 100 wealth creators, 66 were companies which enjoyed entry barriers. These companies accounted for a disproportionate 86% share of the total wealth created.
Part 2: Winner Categories + Category Winners: Formula for Wealth Creation
The theme of this year's study outlines a winning formula for wealth creation
1. Winner Categories = Categories benefiting from India's Next Trillion Dollar GDP opportunity + Scalability
2. Category Winners = Winner Categories + Entry Barriers + Great management
3. Winning investments = Category Winners + Reasonable valuation
Winner Categories: India's NTD Era will see a huge boom in consumption and savings/investment, which will throw up several Winner Categories i.e. those which grow at over 1.5x GDP growth rate, and are consolidated in nature. The study identifies 21 Winner Categories:
1. Alcoholic beverages 12. Finance - Housing 2. Auto - 2 wheelers 13. FMCG - Personal Care 3. Auto - Cars & UVs 14. FMCG - Processed Food 4. Auto - Tractors 15. Gas distribution 5. Capital Goods - Power equipment 16. Infrastructure 6. Construction 17. Insurance 7. Engineering - Turnkey 18. Media - Entertainment 8. Finance - Banks, Private Sector 19. Real Estate 9. Finance - Banks, Public Sector 20. Retailing 10. Finance - Brokerages 21. Telecom 11. Finance - Credit rating
Category Winners: These are companies from Winner Categories, which have high Entry Barriers and great managements.
Winning investments: Category Winners bought at reasonable (not necessarily cheap) valuation create significant wealth over the long term. The study constructs a model portfolio for the NTD Era, based on the above principles.
Model portfolio for India's NTD Era â¢ Auto - 2 wheelers : Hero Honda â¢ Auto - Cars & UVs: Maruti Suzuki â¢ Auto - Cars & UVs/tractors: Mahindra & Mahindra â¢ Capital Goods - Power equipment: BHEL â¢ Engineering - Turnkey: Larsen and Toubro â¢ Finance - Banks, Private Sector: HDFC Bank â¢ Finance - Banks, Public Sector: SBI â¢ Finance - Credit rating: CRISIL â¢ Finance Housing: HDFC â¢ FMCG Personal Care: Dabur India â¢ FMCG Processed food: Nestle India â¢ Infrastructure: Mundra Port â¢ Media - Entertainment: Sun TV â¢ Retailing: Pantaloon Retail â¢ Telecom: Bharti Airtel
Part 3: Market Outlook
â¢ Corporate profit to GDP has bottomed out and should hit new highs in the next 4-5 years on the back of sustained economic performance. â¢ Sensex EPS: Expect 15-20% growth beyond FY11; but no significant P/E re-rating from current levels. â¢ Despite expected Sensex EPS growth of 25%+ in FY11, markets are unlikely to cross earlier peak of 21,000 in next 12 months. â¢ Inflation concerns, strong pipeline of issuances and current rich valuation will cap significant market upmove, despite fairly healthy earnings outlook.