India's wealth creators.
Corporate India's wealth creators
Team ET
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Mumbai 16 JANUARY
''TO BECOME a CEO in the US you have to create wealth for your shareholders,'' the highest-paid Indian CEO in the world, Shailesh J Mehta of the $12 bn (assets-managed) Providian Finance Corp told The Economic Times recently. Then, last week, we ran a story about how N R Narayana Murthy, the man behind Infosys' phenomenal success, has created enormous wealth for his shareholders: an investment of Rs 10,000 in 1993, when the company floated its initial public offering (IPO), would be worth almost Rs 15 lakh today.
The day may not be far away when, just as in the US, where men like Jack Welch of GE are legends for the shareholder we-alth they have created, in India too, promoters and their CEOs will increasingly be judged by similar yardsticks.
So who are India's wealth creators and how do they stack up ? A study conducted by The Economic Times with some help from research house Probity Research threw up some interesting answers. The top three wealth creators in the country over a three-year perspective are the Hyderabad-based B Ramalinga Raju of Satyam Computers, Azim Premji of Wipro and N R Narayana Murthy of Infosys Technologies. Azim Premji also, perhaps, now qualifies as amongst the richest businessmen in India. (Providian's Mehta, by the way, got paid $28 m last year and his stock has been steadily appreciating on Wall Street.)
If you had invested Rs 10,000 in each of these companies on January 15, 1996, your investment would be worth Rs 226,111, Rs 219,987 and Rs 200,000 respectively. On an average, your investment would have thus multiplied 20 times. Of course, in companies like Infosys, if you had come in at the IPO stage in 1993, your investment would have multiplied a mind-bending 147 times.
This study defines wealth as the money you as an investor would have made in these companies over a fixed time-frame, taking into account bonus offers and rights issues made over the last one or three years as the case may be, but ignoring dividend payments - being a small component of stock returns.
Many readers would wonder if this is a fair criteria, especially since commodity stocks are having a bad time for no fault of theirs. Not in India, perhaps, but internationally yes. Nigel Wilson, managing director of Odin, a fund that owns 10 per cent of construction major Kvaerner said in Fortune recently, ''...Where a company has a price that over time does not reflect the real value and potential of the -2
Returning to the study, if you were to take away the software companies for a moment (they account for seven of the top 10), the only other wealth creators in the top 10 are Britannia Industries under the stewardship of Sunil Alagh, and Subash Chandra's Zee Telefilms.
A sum of Rs 10,000 invested in these companies on January 15, 1996 would be worth Rs 60,942 and Rs 57,757 respectively, roughly six baggers.
Now, looking at a one-year perspective, once again we find that the top seven of 10 wealth creators are software companies, and pretty much the same ones. Air-conditioning major Voltas is the new entry in the top 10 list of wealth creators over the last year. Zee has actually moved up in the recent past.
Interestingly, there are very few MNC stocks amongst the wealth creators. Sm-ithKline Pharma, Hind Lever Chemicals, Pfizer and ISPL figure in the top 20 wealth creators over three years. Over a one-year perspective, Rhone Poulenc is the only MNC stock to be present in the top 20 list.
Companies which are restructuring are creating wealth for their shareholders. Bata India is number 18 in the three-year ranking. Voltas too is a restructuring story. And the top software wealth creators in addition to the top three are KS Ganesh of Software Solutions, Vijay Thadani of NIIT, Nirmal Jain of Tata Infotech, and DSQ Software.
But commodity companies have clearly not created as much wealth for their shareholders. One reason could be that this three-year period catches them in the wrong cycle. But that's the luck of the draw and the bottomline is that investors have lost or not gained much.
For starters, if you invested Rs 10,000 in Reliance Industries three years ago, your investment would be worth Rs 14,436.
Investing in the AV Birla group you may not have been so lucky. The group may have seen some restructuring recently, but it is still early days as far as the markets are concerned. A Rs 10,000 investment in Grasim Industries three years ago would have been worth Rs 3,612. Aluminium major Hindalco Industries is better off. Your investment would be worth Rs 8,481, but Indian Rayon is close to Grasim, at Rs 3,679.
Among other Tata group companies, Tata Steel would stand at Rs 6,700. Telco's stock price has risen sharply in the recent past, but not enough to recoup your investment made in 1996. Your investment would be worth Rs 5,580.
Banks and finance companies at large have destroyed wealth. An investment in State Bank of India is worth Rs 8,955, ICICI would be worth Rs 6,894 and IDBI would down a third at Rs 3,687. Private finance companies have not fared better. An investment in investment banker Uday S Kotak's Kotak Mahindra (KMFL) would be worth Rs 2,139.
Some of the new private banks have done well. An investment in HDFC Bank would have more than doubled to Rs 22,126.
Most PSU blue-chip stocks have lost in value. A Rs 10,000 investment in IOC would be worth Rs 6,367, while an investment in IPCL would be worth Rs 5,917 only.
The ultimate test, of course, lies in the ability to consistently create value over a period of time. GE's Welch, for instance, has given shareholders one hell of a ride during the 20 years he's been in the driver's seat. A person who put $10,000 into GE in 1980 has been rewarded hand over fist: he's today worth about $370,000. During this period, Welch has created $200 bn in new wealth for his shareholders.
That's a benchmark Indian CEOs might try stacking themselves up against.
economictimes.com
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