Software major Tata Consultancy Services has emerged as the biggest wealth creator in the past five years, followed by ITC and HDFC Bank. Titan Industries is the most consistent wealth creator in the last 10 years followed by Sun Pharma, according to the 20th Annual Wealth Creation Study by financial services company Motilal Oswal.
Drugmaker Ajanta Pharma is the emerged fastest wealth creator for 2010-15, followed by Symphony and Eicher Motors. Reliance Industries topped the list of companies where investors lost the most in the last five years, according to the study. For listed companies, the study defines wealth created as the difference in market capitalisation over a period of last five years, after adjusting for equity dilution.
Biggest wealth creators
Tata Consultancy Services (TCS) has emerged as the biggest wealth creator for the period 2010-15. The company created wealth of R3,45,800 crore and retained the top spot it held even in the previous two study periods (2009-14 and 2008-13). Even consumer giant ITC and financial giant HDFC Bank have also retained their second and third position position for the third year in a row. In fact, eight of the 10 top wealth creators of this year are the same of last year, barring Hindustan Unilever and Axis Bank, which have entered the top 10 slot replacing Wipro and ICICI Bank.
The Motilal Oswal study found that till 2011, Reliance Industries was the biggest wealth creator for the fifth successive year. Since then it has slipped and failed to make it to the top 100 wealth creators list. This year, it is actually in the list of top 10 wealth destroyers.
Fastest wealth creators
Ajanta Pharma is the fastest wealth creator during the period 2010-15, with a stock price rise of 50 times over the five-year period. Eicher Motors and Page Industries are among the top fastest wealth creators, for the last four years. In fact, the fastest wealth creators were really small in 2010 but operating in large sectors like pharmaceuticals, finance and auto.
Most consistent wealth creators
Titan Industries earned the distinction of being the most consistent wealth creator over the 10-year period beginning 2005. The second company in this category is Sun Pharma and the third is Asian Paints. Also, the study shows that eight of the 10 most consistent wealth creators are consumer-facing companies, with Bosh and Cummins India, the only two non-consumer facing firms.
Wealth creators: Public versus private
The number of public sector companies in the top 100 wealth creators list is at an all-time low. The five wealth creating companies are BPCL, HPCL, Petronet LNG, Concor and LIC Housing. However, these five companies on average are weaker than their private counterparts on all major financial parameters like PAT and RoE. On the other hand, six of the 10 top wealth destroying companies are state-owned. Of these five – MMTC, SAIL, NMDC, BHEL and NTPC are in the top 10 list for the third consecutive year.
Sectoral wealth creators
After losing its top spot to technology sector during 2009-14, consumer/retail sector has re-emerged as the biggest wealth creator in 2010-15. The wealth created by consumer/retail sector between 2010 and 2015 was R7.5 lakh crore, the biggest ever by any sector. The report underlines that the sector’s 2010-15 PAT grew CAGR 16%, which was lower than the universe’s average of 19%. “The sector has seen a massive P/E re-rating – from 28x in 2010 to 44x in 2015, reflecting the market’s flight to relatively safe seculars rather than uncertain cyclicals,” the report says.
Value migration is increasingly becoming the key driver for wealth creation. The value of the fop five wealth creating sectors — financials, technology and healthcare — are the real examples of value migration, which means flow of value from outmodeled business designs to new ideas and business designs. In the financial sector, the value migration is taking place from public sector banks to private sector banks.
Catch them young
Young companies (1 to 20 years) have created most of the wealth and also have the distinction of the faster growth in wealth. Also, 38 of the 100 wealth creators had market cap of less than Rs 5000 crore in 2010 and have growth significantly over the years. Data from the study show that there is a inverse relation between the size and speed of wealth creations, which means the smaller the market cap, faster is the wealth created.
Between 2010 and 2015, small cap companies saw the highest P/E re-rating from 23 times in 2010 to 42 times in 2015. In fact, the learning from this trend is that small companies enjoy a low base effect and are able
to clock PAT growth significantly higher than their larger counterparts. Once their growth story gets recognised, valuations get re-rated which leads to higher wealth creation in the long run. However, they are also prone to volatility.
Large-cap companies have stability in returns. So, a portfolio with a mix of small and large-cap is an ideal strategy for long-term equity investors.