Tuesday, July 31, 2012

A number of companies that dropped out of the Sensex

A number of companies that dropped out of the Sensex in 1991 are still showing shaky fundamentals. But then again, there are those who have at least mastered the art of survival

ACC remained strong even post-liberalisation, but perhaps didn’t get its due attention from the Tata Group, which sold its 14.4% stake in 2000 to Gujarat Ambuja. Now under Swiss giant Holcim, the company’s revenues are growing at a CAGR of 8.3% over a 4 year period to reach Rs.79.76 billion in FY 2009-10, though profit at Rs.11.2 billion is less by 9.07% of its value in FY 2005-06. Grasim is a more surprising case of a company that was dropped in 2010. Post its consolidation with Ultratech, Grasim is the eighth largest producer of cement in the world with a capacity of 52 MTPA as compared to 8.5 million tonnes in 1995. Even post-demerger of the cement business, Grasim’s total revenue was Rs.46.46 billion in 2010-11 largely contributed by its other key strength – VSF.

The automotive segment has the obvious cases of Hindustan Motors & Premier Automobiles; legacy companies which were like chickens in the headlights when competition intensified. Both remain bit players. The former is still struggling with a consolidated net loss of Rs.505.2 million on revenues of Rs.5.7 billion in FY 2010-11 and the latter posted sales of just Rs.1.71 billion and a net profit of Rs.381.2 million. Ballarpur Industries was another case study that struggled to cope with South East Asian competitors post 1991 till scion Gautam Thapar led an impressive turnaround. Ceat from the Goenka group similarly fell from its perch and was in fact an overleveraged loss making company in 2001. Even today, its net profit at Rs.35.163 billion for FY 2010-11 puts it significantly behind competitors like MRF at Rs.74.63 billion and JK Tyres at Rs.48.31 billion. While the Tata Group owned Indian Hotels is expanding into new segments, its revenues at Rs.16.73 billion for FY 2010-11 are just growing at around 2% yoy since FY 2006-07 and profits at Rs.1.41 billion are in fact down by 56.2% since that year. Siemens India presents an interesting case of an MNC that dropped out of the Sensex. The company suffered from overzealous expansion into capital intensive sectors to go into the red, and also missed the mobile boom to Nokia. It went for a turnaround in the late 1990s and has been showing promise again.

While the new entrants show tremendous promise, it’s hard to say how many of them will stay twenty years hence. It is a rule of the markets that as companies grow larger, they find it increasingly difficult to adapt to market changes. And the new crop that come into their place tends to be better suited to live by the new rules of survival and natural selection.