Thematic Study | 12 December 2012
17th ANNUAL WEALTH CREATION STUDY (2007-2012)
Economic Moat
Fountainhead of Wealth Creation
HIGHLIGHTS
Economic Moat protects profits and profitability of companies from
competitive attack.
Extended CAP (competitive advantage period) of Economic Moat
Companies (EMCs) leads to superior levels of profits and stock returns.
Over 2002-2012, EMCs in India have outperformed benchmark indices.
Breach of Economic Moat causes massive wealth destruction.
Markets seem poised to touch new highs in the next 12 months.
"(Great companies to invest are like) Wonderful castles, surrounded by deep, dangerous
moats where the leader inside is an honest and decent person. Preferably, the castle gets its
strength from the genius inside; the moat is permanent and acts as a powerful deterrent to
those considering an attack; and inside, the leader makes gold but doesn't keep it all for
himself. Roughly translated, we like great companies with dominant positions, whose franchise
is hard to duplicate and has tremendous staying power or some permanence to it."
—
Warren Buffett
TOP 10 WEALTH CREATORS (2007-2012)
THE BIGGEST
Rank
1
2
3
4
5
6
7
8
9
10
Company
ITC
TCS
HDFC Bank
MMTC
HDFC
State Bank of India
Infosys
Tata Motors
Hind Unilever
Jindal Steel
Wealth
Created
(INR b)
1,187
1,082
744
671
558
556
516
499
457
436
THE FASTEST
Company
TTK Prestige
LIC Housing Finance
Coromandel Inter
Eicher Motors
IndusInd Bank
MMTC
Jindal Steel
Bata India
Titan Inds
GSK Consumer
5-Year
Price
CAGR (%)
89
57
54
52
50
48
47
41
40
39
THE MOST CONSISTENT
Company
Appeared
in WC
Study (x)
10
10
10
10
10
10
10
10
10
10
10-Year
Price
CAGR (%)
48
44
40
35
31
30
29
29
26
21
Kotak Mahindra Bank
Siemens
Sun Pharma
Asian Paints
HDFC Bank
Hero Motocorp
HDFC
ACC
Ambuja Cements
Infosys
Raamdeo Agrawal
(Raamdeo@MotilalOswal.com)
/
Shrinath Mithanthaya
(ShrinathM@MotilalOswal.com)
We thank Mr Dhruv Mehta (Dhruv.Mehta@dhruvmehta.in), Investment Consultant, for his invaluable contribution to this report.

Wealth Creation Study 2007-2012
Contents
Objective, Concept and Methodology
.................................................................
1
Wealth Creation Study 2007-2012: Findings.................................................. 2-15
Theme 2013:Economic Moat........................................................................ 16-36
Market Outlook
............................................................................................
37-39
Appendix I: MOSL 100 – Biggest Wealth Creators
.......................................
40-41
Appendix II: MOSL 100 – Fastest Wealth Creators
......................................
42-43
Appendix III: MOSL 100 – Wealth Creators (alphabetical)
................................
44
Abbreviations and Terms used in this report
ABBREVIATION / TERM
2007, 2012, etc
Avg
CAGR
L to P / P to L
Price CAGR
INR b
WC
Wealth Created
DESCRIPTION
Reference to years for India are financial year ending March, unless otherwise stated
Average
Compound Annual Growth Rate; All CAGR calculations are for 2005 to 2010
unless otherwise stated
Loss to Profit / Profit to Loss. In such cases, calculation of PAT CAGR is not possible
In the case of aggregates, Price CAGR refers to Market Cap CAGR
Indian Rupees in billion
Wealth Creation / Wealth Created
Increase in Market Capitalization over the last 5 years, duly adjusted for corporate
events such as fresh equity issuance, mergers, demergers, share buybacks, etc.
Capitaline database has been used for this study

Wealth Creation Study 2007-2012
Findings
Wealth Creation Study 2007-2012
Objective, Concept and Methodology
Report structure
Part 1 | Wealth Creation Study findings:
Here, we identify and analyze the top 100 Wealth
Creators in the Indian stock market for the period 2007-2012.
Part 2 | Theme - Economic Moat:
Here, we explain the concept of Economic Moat and its
effective application for Wealth Creation.
Objective:
The foundation of Wealth Creation is in buying businesses at a price substantially
lower than their "intrinsic value" or "expected value". The lower the market value compared
to the intrinsic value, the higher is the margin of safety. Every year for the past 15 years, we
endeavor to cull out the characteristics of businesses, which create value for their
shareholders.
As Phil Fisher says, "It seems logical that even before thinking of buying any common stock,
the first step is to see how money has been most successfully made in the past." Our Wealth
Creation studies are attempts to study the past as a guide to the future and gain insights into
the various dynamics of stock market investing.
Concept:
Wealth Creation is the process by which a company enhances the market value of
the capital entrusted to it by its shareholders. It is a basic measure of success for any
commercial venture. Wealth Creation is achieved by the rational actions of a company in a
sustained manner.
Methodology & change in methodology from this year:
We define Wealth Created as the
difference in market capitalization over this period of five years, after adjusting for equity
dilution. Hitherto, we ranked the top 100 Wealth Creators based on a simple listing of
companies in descending order of absolute Wealth Created. This year, we introduce a
condition that during the study period, the company's stock price should have at least
outperformed the benchmark index (the BSE Sensex in our case). Speed of Wealth Creation
(speed is price CAGR during the period under study).
Due to the "Market Outperformance Filter", 9 companies dropped off from the Top 100
despite high absolute wealth created, some of them by a hair's breadth. We list below the
drop-outs and also the companies which made it at their expense.
Market Outperformance Filter
(Sensex CAGR over 2007-12 was 6%)
Who missed the Wealth Creators list …
… and who made it
Company
Adjusted
Price
NWC CAGR (%)
ONGC
40,863
4.0
Wipro
26,602
5.6
IOCL
15,839
5.6
NTPC
10,678
1.7
Hindalco Inds.
8,838
1.8
BHEL
7,557
2.6
Cipla
5,463
5.3
Oracle Fin.Serv.
4,594
4.7
Ranbaxy Labs.
3,712
5.9
* Market Outperformance Filter
Normal
Rank*
11
19
31
44
55
61
79
85
95
Adjusted
NWC
Tata Chemicals
3,236
Tata Global
3,201
TTK Prestige
3,191
Kansai Nerolac
3,103
Godrej Inds
2,958
Ashok Leyland
2,953
BOC India
2,826
MRF
2,796
Ipca Labs
2,698
Company
Price
CAGR (%)
11
13
89
22
10
10
30
24
23
Rank
92
93
94
95
96
97
98
99
100
12 December 2012 1

Wealth Creation Study 2007-2012
Findings
Wealth Creation
2007-2012
The 17
TH
Annual Study
Findings
12 December 2012 2

Wealth Creation Study 2007-2012
Findings
#1 The Biggest Wealth Creators
ITC is the Biggest Wealth Creator
ITC
has emerged as the biggest wealth creator for the first time ever, significantly
improving its 7th rank in last year's study. This breaks the 8-year stranglehold of Oil &
Gas companies with Reliance Industries topping the list in the last 5 years, and ONGC in
the 3 years prior to that.
Interestingly, both Reliance and ONGC did not make it to the top 100 wealth creators
due to market underperformance (2007-12 stock price CAGR was 4% for ONGC and 2%
for Reliance v/s 6% for the Sensex).
TCS has held on to its position as close runner-up. HDFC Bank is in the third place,
jumping 3 spots from its last year's rank of 6th. Going by the findings of our thematic
study on Economic Moat (page 16 onwards), Indian Banking is the sector to watch out
for, and HDFC Bank is a serious contender for the top spot sooner rather than later.
Top 10 Biggest Wealth Creators
Rank Company
1
2
3
4
5
6
7
8
9
10
ITC
TCS
HDFC Bank
MMTC
HDFC
State Bank of India
Infosys
Tata Motors
Hind Unilever
Jindal Steel
Total/Avg of above
Total of Top 100
Wealth Created
(INR b) % Share
1,187
7
1,082
7
744
5
671
4
558
3
556
3
516
3
499
3
457
3
436
3
6,707
41
16,380
100
CAGR (%)
Price
PAT
26
17
14
20
32
36
48
-8
21
26
21
19
8
17
26
46
15
11
47
41
20
24
20
21
P/E (x)
FY12
FY07
29
21
22
29
23
27
761
70
18
22
9
8
20
29
6
13
35
29
13
10
17
20
16
16
RoE (%)
FY12
FY07
35
28
38
56
19
19
5
14
19
19
16
16
29
42
52
32
87
64
24
32
24
23
19
21
Biggest wealth creators and wealth created (INR b):
ITC breaks the long-standing dominance of Oil & Gas
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1,187 ITC
1,742
1,514 RIL
3,077RIL
1,856 RIL
1,678 ONGC
1,065 ONGC
1,030 ONGC
245 Wi pro
383 Wi pro
377 Hind. Lever
1,247 Wi pro
Hind. Lever
341
262 Hind. Lever
73 Hi nd. Lever
91 Hi nd. Lever
RIL
2,556 RIL
Share of wealth creation by top 10 declining,
suggesting higher dispersion
76
59
53
50
45
51 49
41 42 41
(%)
Key Finding #1
Even as ITC tops the list, Hindustan Unilever has made a silent but strong comeback in the
Top 10 list after long gap of 12 years. Most leading consumer companies in India have an
Economic Moat and are likely to remain fountainheads of Wealth Creation.
12 December 2012 3

Wealth Creation Study 2007-2012
Findings
#2 The Fastest Wealth Creators
TTK Prestige is the Fastest Wealth Creator
TTK Prestige
has emerged as the fastest Wealth Creator between 2007 and 2012, during
which period, its stock price multiplied 24x, translating into annualized return of 89%.
Yet, this stunning performance is one of the slowest among all the Fastest Wealth Creators
since 1998.
Akin to Hindustan Unilever's re-entry into the Top 10 Wealth Creators list, 4 consumer
goods companies including TTK have made it to the Top 10 Fastest Wealth Creators list.
Top 10 Fastest Wealth Creators
Rank
Price
Multiple (x)
1 TTK Prestige
24
2 LIC Housing Fin.
10
3 Coromandel Inter
9
4 Eicher Motors
8
5 IndusInd Bank
8
6 MMTC
7
7 Jindal Steel
7
8 Bata India
6
9 Titan Inds
5
10 GSK Consumer
5
CAGR (%)
Wealth Created
Price
PAT
(INR b)
89
58
32
57
27
106
54
43
69
52
41
47
50
56
118
48
-8
671
47
41
436
41
42
41
40
41
166
39
23
94
Mkt Cap (INR b)
2012
2007
33
1
133
12
81
8
54
7
150
13
783
112
509
73
49
9
203
37
116
22
P/E (x)
2012
2007
29
12
14
4
12
7
19
13
19
16
761
70
13
10
32
33
34
35
33
17
Of all the fastest wealth creators since 1999, this year is the slowest! (Price multiple - X)
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
24
TTK Prestige
50
Sanwaria Agro
28
Unitec h
54
Unitech
837
Unitech
665
B F Utilities
182
Matrix Labs
136
Matrix Labs
75
Matrix Labs
50
e- Serve
69
Wipro
66
Infosys
223
SSI
75
Satyam Computers
23
Satyam Computers
7
Cipla
30
Dr Reddy's Lab
Key Finding #2
Consumer goods companies are generally considered to be steady growth businesses,
and deemed unlikely to generate high returns. However, increasing number of consumer
companies seem to be enjoying the tailwind of India's NTD era (Next Trillion Dollar of
GDP), and breaking into the league of Fastest Wealth Creators as well.
12 December 2012 4

Wealth Creation Study 2007-2012
Findings
#3 Most Consistent Wealth Creating Companies
Kotak Mahindra is the Most Consistent Wealth Creator
Kotak Mahindra Bank has retained its place as the Most Consistent Wealth Creator.
Given low cyclicality, consumer facing companies (both goods and services) are better
placed to appear in the list of Most Consistent Wealth Creators. Notable exceptions are
Holcim Group companies, ACC and Ambuja Cements, which appear in the top 10 list
both this year and last. Clearly, Holcim's presence has made the behavior of these
companies more predictable to investors, leading to better and stable valuations.
Top 10 Consistent Wealth Creators
Rank Company
1
2
3
4
5
6
7
8
9
10
Appeared in
WC Study (x)
Kotak Mahindra Bank
10
Siemens
10
Sun Pharma
10
Asian Paints
10
HDFC Bank
10
Hero Motocorp
10
HDFC
10
ACC
10
Ambuja Cements
10
Infosys
10
10-yr Price
CAGR (%)
48
44
40
35
31
30
29
29
26
21
5-Year PAT
CAGR (%)
28
17
27
28
36
23
26
3
2
17
P/E (x)
2012
2007
30
22
48
30
29
25
26
32
27
23
18
19
22
18
12
20
15
22
29
20
RoE (%)
2012
2007
18
15
36
23
38
25
37
39
19
19
38
66
19
19
41
19
35
16
42
29
Consumer facing companies score high on Consistent Wealth Creation
Consistent Wealth Creators (Last 5 years, 2007 to 2012)
Non-Consumer Facing
Consumer Facing
Healthcare
Cipla (1)
Piramal Health. (1)
Ranbaxy Lab (1)
Sun Pharma (5)
Consumer
Asian Paints (4)
ITC (2)
Nestle India (1)
Others
Hero MotoCorp (4)
HDFC (5)
HDFC Bank (4)
Kotak Mah. Bk (3)
Technology
Infosys (5)
Satyam (1)
Others
ACC (2)
Ambuja Cement (3)
Hind. Zinc (1)
O N G C (2)
Siemens (1)
Reliance Inds (4)
Number in brackets indicates times appeared within top 10 in last five Wealth Creation Studies
Key Finding #3
Quality of management is a key factor behind consistent wealth creation. This is further
amplified by the role of management strategy in creating and/or defending a company's
Economic Moat which protects its profitability from being eroded by competitive forces
(see theme study on Economic Moat from Page 16).
12 December 2012 5

Wealth Creation Study 2007-2012
Findings
#4 Wealth Creators (Wealthex) v/s BSE Sensex
Superior and more consistent performance over benchmark
We have compared the performance of Wealthex (top 100 Wealth Creators index) with the
BSE Sensex on three parameters - (1) market performance, (2) earnings growth, and (3)
valuation.
Market performance:
Over the last five years, wealth creating companies have delivered
point-to-point return CAGR of 20% against only 6% for the BSE Sensex.
Earnings growth:
Over the last five years, wealth creating companies clocked earnings
CAGR of 21% compared to benchmark earnings CAGR of only 9%.
Valuation:
Wealth creating companies' aggregate P/E in March 2007 was at a discount to
the Sensex, but over the next five years ended up at a premium to the Sensex. Higher
than benchmark earnings growth led to valuation re-rating, combined leading to superior
returns over benchmark.
Wealth Creators' Index v/s BSE Sensex (March 2007 to March 2012)
38,000
31,000
24,000
17,000
10,000
3,000
118% Outperformance
Wea l thex - Reba s ed
Sens ex
Sensex v/s Wealth Creators: Higher earnings growth, lower valuation
Mar-07
BSE SENSEX
YoY performance (%)
Wealthex - based to Sensex
YoY performance (%)
Sensex EPS (INR)
YoY performance (%)
Sensex PE (x)
Wealthex EPS (INR)
YoY performance (%)
Wealthex PE (x)
13,072
13,072
718
18
809
16
Mar-08
15,644
20
18,816
44
833
16
19
1,026
27
18
Mar-09
9,709
-38
13,167
-30
820
-2
12
1,111
8
12
Mar-10
17,528
81
28,180
114
834
2
21
1,436
29
20
Mar-11
19,445
11
33,120
18
1,024
23
19
1,838
28
18
Mar-12
17,404
-10
32,884
-1
1,125
10
15
2,102
14
16
5-year
CAGR (%)
6
20
9
21
Key Finding #4
Most Wealth Creating companies will conform to characteristics of Economic Moat
Companies (EMCs). As discussed in our theme study (page 16 onwards), EMCs are those
who enjoy a sustainable competitive advantage in their respective industry, which helps
them earn superior profits and deliver higher shareholder value.
12 December 2012 6

Wealth Creation Study 2007-2012
Findings
#5 Wealth Creation Classification by Industry
Financials maintain top spot as the largest Wealth Creating sector
Financials sector has retained its top spot of the largest Wealth Creator. In the 2011
study, Financials emerged as the largest Wealth Creating sector for the first time ever,
hitherto a stronghold of commodity sectors, mainly Oil & Gas and Metals/Mining.
Size apart, Financials has also outperformed in terms of price with 24% CAGR, second
only to Metals/Mining (27%). This is on the back of robust 25% CAGR in PAT, second only
to Auto (27%).
Even after a huge run-up in stock prices, Financials sector valuations remain lower than
average, arguably on concerns regarding asset quality and the impact of fresh competition
by way of new banking licenses.
Wealth Creators: Classification by industry (INR b)
Industry
WC
(No of Companies)
(INR b)
Financials (21)
3,672
Consumer & Retail (21) 3,358
Metals / Mining (8)
2,095
Technology (3)
1,734
Auto (11)
1,630
Healthcare (11)
1,215
Oil & Gas (7)
996
Cement (5)
668
Capital Goods (6)
609
Ultility (3)
235
Others (4)
166
Grand Total
16,380
Share of WC (%)
2012
2007
22
13
21
5
13
9
11
10
10
6
7
4
6
24
4
3
4
10
1
2
1
15
100
100
CAGR (%)
Price
PAT
24
25
24
18
27
19
11
18
21
27
23
18
20
23
16
8
13
21
18
5
30
22
20
21
P/E (x)
2012 2007
11
11
33
25
15
10
20
27
12
15
26
21
11
12
17
12
20
27
26
15
14
10
16
16
RoE (%)
2012 2007
16
16
32
31
22
42
30
38
28
26
17
25
16
10
16
32
18
26
6
8
17
19
19
21
During FY07-12, the financials sector is beginning to assert its dominance (INR b)
5,826
3,891
2,723
1,839
2,126
4,949
5,194
3,672
2005
Oi l & Ga s
2006
Oi l & Ga s
2007
Oi l & Ga s
2008
Oi l & Gas
2009
2010
2011
2012
Oi l & Gas Meta l s /Mi n. Fi nanci a l s Fi nanci a l s
Key Finding #5
Clearly, the Financials sector has gained hugely from restrictions on new banking licenses,
a major sector-level entry barrier (or Economic Moat as we call it in our theme study, see
page 16). Protected by this moat, even relatively inefficient banks have significantly
grown in terms of profits and market cap. When new set of private banks first entered in
the 1980s, significant portion of value migrated from public sector banks to private sector
counterparts. Fresh banking licenses are expected to be issued sooner rather later. This
change in competitive landscape should further separate the men (i.e. those with strong
strategy) from the boys (those without strategy).
12 December 2012 7

Wealth Creation Study 2007-2012
Findings
#6 Wealth Creation by Ownership – PSU v/s Private
Wealth migration follows value migration
PSUs' (public sector undertakings) share of wealth creation continues to be on a secular
decline with their share of wealth created more than halving from 50% in 2004/2005 to
about 20% in the current study.
This is one of the classic cases of value migration from the public sector to private sector
in almost every single erstwhile stronghold of PSUs – banking, oil & gas metals/mining,
capital goods, etc.
As of end-FY12, markets valued Wealth Creating PSUs at about 10x trailing earnings,
almost 50% discount to 18x for the private sector Wealth Creating companies. If these
multiples are any indication, the markets expect PSUs' share of Value Creation to remain
low, implying lower Wealth Creation as well.
Wealth Creators: PSU v/s Privately-owned
2007-2012
PSU
Private
20
80
20
80
21
24
19
22
22
20
9
20
10
18
17
24
16
21
Financials dominate PSU Wealth Creation too
Financials
43%
Utility
2%
Capital
Goods
2%
Oil &
Gas
16%
No. of Wealth Creators
Share of Wealth Created (%)
Sales CAGR (2007-12, %)
PAT CAGR (2007-12, %)
Market Cap CAGR (2007-12, %)
P/E - 2007 (x)
P/E - 2012 (x)
RoE - 2007 (%)
RoE - 2012 (%)
Metals/
Mining
37%
Deregulation diminishes role of state-owned companies in Wealth Created
49
51
36
25
30
No of PSUs
35
27
% Wea l th Crea ted
30
27
20
28
26
18
25
16
22
24
20
Key Finding #6
In the context of our theme study on Economic Moat, lower valuation multiples of PSU
companies imply that the market expects their competitive advantage period (CAP) to
be significantly shorter than their private sector counterparts. See page 30 for insights
into the concept of CAP.
12 December 2012 8

Wealth Creation Study 2007-2012
Findings
#7 Wealth Creation by Age and Market Cap
"In youth we learn, in age we understand." -
Marie von Ebner-Eschenbach
Pace of Wealth Creation is fairly agnostic to age of companies. Younger companies start
off on a low base and manage to deliver high rates of growth. However, markets are
reasonably efficient in pricing these growth rates upfront. As a result, although PAT
growth rates vary across age groups, the Price CAGR is much more homogenous, and
hovering around average overall return of 20%.
Unlike younger companies, smaller companies (i.e. small- and mid-caps based on market
cap of 2007) seem to have an edge in faster wealth creation. But as is the case with age-
based classification, the divergence in market performance of small and large cap
companies is much lower than that in earnings growthlarger ones create wealth a bit
slowly, but with low level of risk.
Wealth Creators: Classification by age-group
2007 Age
No.
range
of cos
1-20
24
21-40
28
41-60
24
>61
24
Total
100
WC
(INR b)
4,327
4,121
3,676
4,256
16,380
% Share
of WC
26
25
22
26
100
CAGR (%)
Price
PAT
22
32
18
19
21
15
20
22
20
21
P/E (x)
2012
2007
17
25
18
19
14
11
14
14
16
16
RoE (%)
2012
2007
20
16
21
23
16
22
21
22
19
21
Price CAGR and PAT CAGR by base market cap range
121
Pri ce CAGR (%)
PAT CAGR (%)
23
28
25
28
21
19
19
1-5
6-10
11-15
16-20
Base Market Cap Range (INR b)
Key Finding #7
One of the key findings of our theme study this year (see page 16) is that a company's
competitive advantage in its industry (what we call Economic Moat) is a key factor
influencing sustained profitability and in turn, Wealth Creation. So long as companies
generate health profits, markets are agnostic to factors like age of company and market
cap at the time of purchase.
12 December 2012 9

Wealth Creation Study 2007-2012
Findings
#8 Wealth Creation by Sales and Earnings growth
Markets remain slaves of earnings power
Pace of wealth creation is almost singularly decided by quantum of earnings growth, at
least in the short- and medium term. Earnings growth, in turn, has a very high correlation
with Sales growth, as margin expansion is not sustainable over long periods.
In this year's study, the performance of groups based on Sales growth and PAT growth
has been significantly influenced by commencement of Sales and PAT at Cairn India, and
a significant turnaround in Tata Motors' consolidated performance. As a result, despite
PAT growth in excess of 30%, P/Es have shrunk as the markets deem such PAT performance
to be cyclical and most likely unsustainable.
Strong correlation between PAT growth & Price CAGR
Average Price CAGR: 20%
18
20
32
30
17
<10
10-20
20-30
30-40
>40
2007-12 PAT Growth Range (%)
Wealth Creators: Classification by 2007-12 Sales Growth
Sales
Growth
<15
15-20
20-25
25-30
30-35
>35
Total
No. of
cos
18
19
25
14
14
10
100
WC
(INR b)
2,091
3,154
4,653
1,680
2,340
2,462
16,380
% Share
of WC
13
19
28
10
14
15
100
CAGR (%)
Price
PAT
15
6
16
12
21
20
19
23
28
26
26
46
20
21
P/E (x)
2012
2007
21
14
23
19
15
15
11
13
20
19
10
21
16
16
RoE (%)
2012
2007
18
35
20
23
20
22
17
19
15
21
24
10
19
21
Key Finding #8
In his 2007 letter to Berkshire Hathaway shareholders, Warren Buffett writes, "Long-term
competitive advantage in a stable industry is what we seek in a business. If that comes
with rapid organic growth, great. But even without organic growth, such a business is
rewarding." In the final analysis, markets love steady earnings growth sustained over
long periods in time. This is possible only in the case of companies which enjoy an
Economic Moat, as explained in our theme study from page 16.
12 December 2012 10

Wealth Creation Study 2007-2012
Findings
#9 Wealth Creation by RoE
A key reflector of the strength of Economic Moat
Even as earnings growth is important, markets also have a keen eye for the depth of a
company's competitive advantage (or Economic Moat) and its sustainability. The depth
of a company's Economic Moat is reflected in its RoE relative to peers, and its sustainability
in its competitive advantage period or CAP (for clarity on these terms, see our theme
study on page 16 for details).
Interestingly, since markets are efficient, in most cases, quality of an Economic Moat is
priced in. Given this, it is the deepening or the narrowing of the moat (i.e. delta or
incremental RoE) that influences stock prices more than the absolute levels.
The above is confirmed in this year's study as well. Companies with RoEs in excess of
35% have underperformed the benchmark return of 20%. Apart from low earnings
growth, this also reflects their meaningful fall in RoE over the 5-year period, a proxy for
lower competitive advantage.
Wealth Creators: Classification by RoE
2007 RoE
No.
Range
of cos
<15
17
15-20
24
20-25
15
25-30
15
30-35
14
>35
15
Total
100
WC
(INR b)
2,014
3,681
1,415
3,626
1,930
3,715
16,380
% Share
of WC
12
22
9
22
12
23
100
CAGR (%)
Price
PAT
23
29
25
21
19
12
22
25
13
16
19
18
20
21
P/E (x)
2012
2007
10
13
15
13
19
13
15
16
20
22
19
18
16
16
RoE (%)
2012
2007
15
9
16
17
16
22
24
27
25
33
28
50
19
21
Key Finding #9
As our study on Economic Moat suggests, positive change in a company's RoE mostly
reflects strengthening of its competitive advantage vis-à-vis its rivals. This is a major
trigger for valuation re-rating, a major source of Wealth Creation.
12 December 2012 11

Wealth Creation Study 2007-2012
Findings
#10 Wealth Creators by Valuation Parameters
Payback ratio of less than 1x continues to guarantee highest returns
In almost every single of our past Wealth Creation Studies, the key valuation indicators
for multi-baggers are -
1. P/E of less than 10x
2. Price/Book of less than 1x
3. Price/Sales of 1x or less
4. Payback Ratio of less than 1x
(Payback is a proprietary ratio of Motilal Oswal, defined as current market cap divided
by estimated profits over the next five years. We back-test this in 2007, based on the
actual profits reported over the next five years).
Unlike in past years, Wealth Creators with 2007 P/E less than 10x have delivered only
average returns despite some re-rating. The main reason is that the group's PAT CAGR at
18% was below the average of 20%.
Wealth Creators: Classification by Valuation Parameters (March 2007)
Range
<10
10-15
15-20
20-25
25-30
>30
No. of
cos
18
21
19
13
13
16
WC
(INR b)
2,811
2,869
1,557
2,899
4,579
1,666
% Share
of WC
17
18
10
18
28
10
CAGR (%)
Price
PAT
20
22
21
25
16
25
18
24
20
24
21
24
P/E (x)
2012
2007
9
11
17
22
23
49
8
12
17
22
28
47
RoE (%)
2012
2007
16
22
19
21
25
19
16
25
18
22
33
21
P/E - 2007
P/B - 2007
<1
1-2
2-3
3-4
4-5
5-6
>6
6
20
10
11
13
11
29
972
1,944
1,088
2,110
2,348
2,326
5,592
6
12
7
13
14
14
34
25
20
24
20
22
26
17
28
19
21
20
24
21
19
8
10
12
12
15
24
27
9
9
11
12
17
20
30
16
14
19
24
19
27
27
9
15
25
28
27
27
37
P/S - 2007
<1
1-2
2-3
3-4
4-5
>5
23
27
19
9
7
15
3,180
2,892
2,323
1,662
2,270
4,053
19
18
14
10
14
25
26
21
21
18
26
15
23
15
17
20
23
26
10
17
16
20
25
17
9
13
13
21
23
27
18
17
18
22
21
23
17
22
34
26
18
19
Payback Ratio
<1
1-2
2-3
>3
Total
19
37
26
18
100
2,371
5,486
4,770
3,753
16,380
14
33
29
23
100
26
23
20
15
20
25
24
15
16
21
8
12
25
28
16
8
13
20
30
16
17
20
19
27
19
16
19
23
36
21
12 December 2012 12

Wealth Creation Study 2007-2012
Findings
#11 Wealth Creators & dividends
Our last year's study on Blue Chip Investing had revealed to us the power of dividends in
wealth creation, especially over long periods of time across economic and business
cycles.
Wealth creating companies continue to demonstrate that companies with high RoE's
tend to have high payout ratios, as they require very little external capital to grow.
Companies with high dividend payout ratios tend to enjoy high share of share of wealth
created.
Wealth Creators: Classification by Payout
2007
Payout
<10
10-20
20-30
30-40
>40
Total
No. of
cos
13
16
22
27
22
100
WC
(INR b)
2,227
3,135
3,380
3,924
3,714
16,380
% Share
of WC
14
19
21
24
23
100
CAGR (%)
Price
PAT
22
22
18
18
21
25
19
21
23
18
20
21
P/E (x)
2012
2007
14
14
16
16
12
14
16
17
27
22
16
16
RoE (%)
2012
2007
17
17
17
20
18
20
22
22
30
26
19
21
Top 10 total dividend paying companies (2007-12): TCS takes sweet revenge over ITC!
2007-12
Dividend
(INR b)
TCS
167
ITC
157
Infosys
126
State Bank of India
110
Hind Unilever
94
Hero Motocorp
70
HDFC
66
NMDC
62
GAIL (India)
56
Tata Motors
50
Avg Payout
CAGR (%)
(%)
Adj EPS
Price
45
19
14
72
16
25
39
16
7
19
15
17
81
9
15
79
23
25
36
-12
17
25
25
20
32
12
16
20
32
14
P/E (x)
2012
2007
22
29
29
21
20
29
9
8
35
29
19
18
18
22
9
11
11
9
6
13
RoE (%)
2012
2007
38
56
35
28
29
42
16
16
87
64
66
38
19
19
33
47
18
23
52
32
Top 10 dividend hike companies (2007-12): Top 4 ranks same as total dividend; HUL, Hero Motocorp,
GAIL out, NMDC, Hind Zinc, L&T in
Div.
(INR b)
TCS
44
ITC
27
Infosys
24
State Bank of India
18
NMDC
15
HDFC
13
Hindustan Zinc
9
HDFC Bank
9
Tata Motors
8
Larsen & Toubro
7
2007-12
Payout
(%)
24
16
18
4
6
-3
16
-1
-21
5
CAGR (%)
Adj EPS
Price
19
14
16
25
16
7
15
17
25
20
-12
17
4
19
26
22
32
14
15
10
P/E (x)
2012
2007
22
29
29
21
20
29
9
8
9
11
18
22
11
5
23
27
6
13
18
25
RoE (%)
2012
2007
38
56
35
28
29
42
16
16
33
47
19
19
22
80
19
19
52
32
16
30
12 December 2012 13

Wealth Creation Study 2007-2012
Findings
#11
Wealth Creators & dividends
(contd)
Top payout ratio companies (2007-12): Castrol, Colgate on top, as was the case in 2011
2007-12
Avg
Payout (%)
Castrol India
90
Colgate-Palmolive
85
Hind Unilever
81
Hero Motocorp
79
Nestle India
73
ITC
72
GSK Pharma
72
Guj Gas Company
66
Engineers India
61
Britannia Inds
57
Dividend
(INR b)
16
15
94
70
25
157
19
7
13
4
CAGR (%)
Adj EPS
Price
25
38
25
27
9
15
23
25
26
38
16
25
-7
15
22
25
36
27
13
19
P/E (x)
2012
2007
27
18
34
25
35
29
19
18
46
28
29
21
33
26
18
19
14
18
37
30
RoE (%)
2012
2007
83
38
109
65
87
64
66
38
90
85
35
28
30
34
33
21
38
14
54
18
Top 10 payout ratio hike companies: Piramal tops due to disbursement of business sale proceeds
2007-12
Piramal Ente.
Guj Gas
GSK Pharma
Hind Copper
Bosch
MMTC
Divi's Lab
Gillette India
BPCL
Cummins India
Payout
(%)
278
98
49
33
33
33
30
29
28
25
Div.
(INR b)
3
3
1
1
4
0
2
0
-3
3
CAGR (%)
Adj EPS
Price
-19
14
22
25
-7
15
-4
26
15
20
-19
48
22
20
3
25
-19
18
16
21
P/E (x)
2012
2007
102
22
18
19
33
26
76
38
24
24
761
70
19
21
108
35
30
5
26
20
RoE (%)
2012
2007
1
22
33
21
30
34
25
35
25
25
5
14
27
42
12
22
5
21
31
29
Top 10 dividend paying companies (Overall)
2007-12
ONGC
NTPC
Coal India
TCS
ITC
Infosys
Reliance Inds
State Bank of India
IOCL
Hind Unilever
Dividend
(INR b)
366
155
144
143
135
108
105
94
84
81
Avg Payout
(%)
39
42
44
45
72
39
13
19
30
81
Top 10 dividend payout companies (Overall)*
Avg Payout
Dividend
(%)
(INR b)
Castrol India
90
14
Colgate-Palmolive
85
13
Hind Unilever
81
81
Hero Motocorp
79
60
HCL Infosystems
76
7
Nestle India
73
21
ITC
72
135
GSK Pharma
72
16
Engineers India
61
11
Ashok Leyland
54
11
* Among top 100 dividend paying companies
2007-12
12 December 2012 14

Wealth Creation Study 2007-2012
Findings
#12 Wealth Destroyers
Wealth Destroyed is over 33% of Wealth Created
The 2007-12 period saw about INR5.4 trillion of Wealth Destruction, a high 33% of the
Wealth Created by top 100 companies (the figure in last year's study was 15%, whereas
during the peak of the market boom in 2007-08, the figure was as low as 2%).
This year's data is a classic case study on how change in the competitive landscape of an
industry (a key element of a company's Economic Moat) drastically affects value and
wealth creation. Barely 4 years ago, the Indian Telecom sector was the 5th largest Wealth
Creator and sector leader Bharti Airtel was the third largest Wealth Creator. Four years
later, the Telecom sector leads the Wealth Destruction list, and top 4 of 10 Wealth
Destroyer companies emerging from the sector (including RCom, Bharti and MTNL).
This is a grim reminder to both companies and investors of the far-reaching impact of
Economic Moats getting breached. We discuss the concept in detail from page 16.
Top-10 Wealth Destroyers (2007-2012)
Company
Rel. Comm.
Unitech
Suzlon Energy
Satyam Computer
Bharti Airtel
SAIL
Tech Mahindra
MTNL
Himachal Futuristic
B F Utilities
Total of Above
Total Wealth Destroyed
(INR b)
677
294
276
249
169
83
82
75
74
73
1,905
5,425
Wealth Destroyed
% Share
12
5
5
5
3
2
2
1
1
1
35
100
Price
CAGR (%)
-28
-32
-34
-30
-2
-4
-13
-29
-12
-30
Wealth Destruction by Industry (%)
Sector
No of
Cos
(INR b)
Wealth Destroyed
% Share
Telecom
Construction / Real Estate
Technology
Capital Goods
Metals
Banking & Finance
Textiles
Media
Utilities
Auto
Oil & Gas
Chemicals & Fertilizers
Healthcare
Sugar
Consumer
Airlines
Cement
Te a
Paper
Others
Total
20
78
149
115
74
120
160
48
4
71
7
65
51
32
32
4
12
4
21
259
1,326
1,111
828
749
575
267
240
206
167
135
132
101
99
89
60
59
42
32
6
5
521
5,425
20
15
14
11
5
4
4
3
2
2
2
2
2
1
1
1
1
0
0
10
100
12 December 2012 15

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
Wealth Creation
2007-2012
The 17
TH
Annual Study
Theme 2013:
Economic Moat
12 December 2012 16

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
Economic Moat
Fountainhead of wealth creation
"(Great companies to invest are like) Wonderful castles, surrounded by deep, dangerous
moats where the leader inside is an honest and decent person. Preferably, the castle gets
its strength from the genius inside; the moat is permanent and acts as a powerful deterrent
to those considering an attack; and inside, the leader makes gold but doesn't keep it all
for himself. Roughly translated, we like great companies with dominant positions, whose
franchise is hard to duplicate and has tremendous staying power or some permanence to
it."
- Warren Buffett
Report scope and structure
OST of us would have read or heard frequent references to "moats" or "Economic
Moats" in the context of equity investing. We believe with a clear understanding of
the concept and its effective application, moats can prove to be fountainheads of Wealth
Creation.
We attempt this in the following pages as follows -
M
Section 1
introduces the concept of Economic Moat and covers 4 examples of how
investing in EMCs (Economic Moat Companies) pays off handsomely in the stock markets
vis-à-vis non-EMCs.
Section 2
discusses the factors determining Economic Moats, including the importance
of a strong corporate strategy to defend and deepen the same.
Section 3
is where we apply our understanding of Economic Moats for Wealth Creation.
Our backtesting of Economic Moats throws up several interesting findings. We finally
apply the same methodology to identify EMCs among Nifty constituents.
The Appendix
(for the academically inclined) is where we share the methodology of
how we went about quantifying what is essentially a qualitative idea.
12 December 2012 17

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
1. Introduction: Economic Moat – the what and the why
In the long run, investors can earn only as much as the company itself earns
1.1 What is an Economic Moat?
"The idea of an
economic moat
refers to how likely a company is able to keep competitors
at bay for an extended period. One of the keys to finding superior long-term investments
is buying companies that will be able to stay one step ahead of their competitors."
-
MorningStar,
a US-based investment firm, which manages a Wide Moat Focus Index
The concept of 'Economic Moat' has its roots in the idea of a traditional moat. A moat is a
deep, wide trench, usually filled with water, that surrounds the rampart of a castle or fortified
place. In many cases, the waters are also infested with sharks and crocodiles to further keep
enemies at bay, and the inhabitants safe.
Akin to a moat, an Economic Moat protects a company's profits from being attacked by a
combination of multiple business forces. Traditional management theory terms such as
"Sustainable Competitive Advantage" or "Entry Barriers" essentially connote the idea of an
Economic Moat.
1.2 Why Economic Moat?
The dynamics of capitalism guarantee that competitors will repeatedly assault any
business "castle" that is earning high returns … Business history is filled with "Roman
Candles," companies whose moats proved illusory and were soon crossed."
-
Warren Buffett
in his 2007 letter to Berkshire Hathaway shareholders
The sole financial objective of companies is to maximize return on capital invested in their
business, and sustain the same for long periods of time. Capital always chases returns, and
hence will find its way to businesses with high profits and profitability. If a company running
a highly profitable enterprise does not have a deep and wide-enough Economic Moat,
competition from rivals will ensure that its high returns are reduced to the level of the
economic cost of capital (which includes a nominal level of profit), or in some cases even
lower than that.
From a broader perspective, companies do not compete only with rivals for profit. As Joan
Magretta says in her book
Understanding Michael Porter
–
"Companies are also engaged in a struggle for profits with their customers, who would
always be happier to pay less and get more.
They compete with their suppliers, who would always be happier to be paid more and
deliver less.
They compete with producers who make products that could, in a pinch, be substituted
for their own.
And they compete with potential rivals as well as existing ones, because even the
threat of new entrants places limits on how much they can charge their customers."
12 December 2012 18

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
In this context, an Economic Moat or Sustainable Competitive Advantage is that which
helps a business sustain superior long-term profitability amidst various pulls and
pressures (commonly known as Michael Porter's Five Forces in management theory
parlance).
Porter's Five Forces of Industry:
Economic Moat helps a company sustain
superior profitability amidst these pulls
and pressures
Threat of new
entrants
Bargaining power
of suppliers
Rivalry
among
existing
competitors
Bargaining power
of buyers
Threat of
substitute
products or
services
1.3 Economic Moat and equity investing
"The number one idea is to view a stock as an ownership of the business and to judge the
staying quality of the business in terms of its competitive advantage."
-
Charlie Munger,
co-owner Berkshire Hathaway, in
Poor Charlie's Almanack
In essence, equity investing is about forgoing purchasing power today for much higher
purchasing power in future, adjusted for inflation and net of taxes. Given this, much like
companies, equity investors too chase high returns on their investments. In the long run,
equity investors can only make as much money and return as the company itself makes.
Hence, it pays to invest in companies with formidable Economic Moats, as this is the only
way to ensure sustained superior profitability and wealth creation.
Markets world over are replete with examples of how companies with "deep, dangerous
moats" (read, sustainable competitive advantage) comprehensively outperform those
without such moats, both in terms of financial performance and stock returns. In the following
section, we present examples chosen across sectors in India.
12 December 2012 19

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
1.3.1 Example #1: Hero MotoCorp v/s TVS Motor
The facts
Both Hero MotoCorp (then, Hero Honda)
and TVS Motor (then TVS Suzuki) started
business around the same time in the
1980s, when the Indian government
permitted foreign investment.
Both started off as Indo-Japanese joint
ventures - Hero Group with Honda and
TVS Group with Suzuki.
The Indian promoters in both ventures
had some background in India's
transportation business - Hero was
India's leading bicycle manufacturer, and
TVS group owned several auto ancillary
businesses.
Still, Hero MotoCorp has gone on to
become the world's largest two-wheeler
company, whereas TVS Motor is
struggling to retain its hitherto No. 3 spot
in India's motorcycle market.
The figures
FY12
Volume (m)
Mkt share (%)
Sales (INR b)
PAT (INR b)
RoE (%)
FY02-12:
Sales CAGR (%)
PAT CAGR (%)
Avg RoE (%)
Hero MotoCorp
6.2
40
236
22
66
18
17
56
TVS Motor
2.2
14
74
1
15
14
11
14
The picture: 363% outperformance (10-yr)
Hero MotoCorp - Rebas ed
TVS - Reba s ed
700
600
500
400
300
200
100
0
1.3.2 Example #2: Bharti Airtel v/s Tata Teleservices
The facts
Both Bharti and Tata Teleservices were
incorporated in 1995 on the eve of India's
telecom boom. In fact, unlike Bharti, Tata
Tele had the rich legacy of India's
foremost business group.
Both companies have journeyed India's
wireless explosion, including a near total
value migration from wired telephony.
Today, Bharti is India's largest telecom
service provider, and was among India's
leading market cap companies before
the stock lost sheen on the back of
heightened domestic competition and
Bharti's own major foray into Africa.
In contrast, Tata Teleservices is yet to
report a single quarter of positive profit.
The figures
FY12
Sales (INR b)
PAT (INR b)
RoE (%)
FY02-12:
Sales CAGR (%)
PAT CAGR (%)
Avg RoE (%)
Bharti Airtel
715
43
8
47
Loss to Profit
23
Tata Tele
25
-5
-ve
25
Loss to Loss
-9
The picture: 1240% outperformance (10-yr)
Tata Tel e - Reba s ed
Bha rti - Reba s ed
2,800
2,100
1,400
700
0
12 December 2012 20

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
1.3.3 Example #3: L&T v/s HCC
The facts
Both L&T and HCC are long standing
companies in India's construction
industry. In fact, HCC was incorporated
in 1926, much earlier than L&T in 1946.
Both companies are primarily engaged
in construction and related project
activities, and have been beneficiaries
of India's exponential growth in
infrastructure, real estate and
construction activity.
Today, L&T is not only India's largest
construction company, but also has
developed global competitive edge. A
la General Electric, it has also diversified
into businesses such as IT, finance and
power generation, and is poised to
progressively unlock value in them.
In contrast, HCC is struggling to remain
profitable, with additional troubles on
hand (BOT projects, environmental
issues in its Lavasa City project, etc).
The figures
FY12
Sales (INR b)
PAT (INR b)
RoE (%)
FY02-12:
Sales CAGR (%)
PAT CAGR (%)
Avg RoE (%)
L&T
643
45
16
22
32
22
HCC
82
-4
- ve
32
Profit to Loss
11
The picture: 2800% outperformance (10-yr)
HCC - Rebas ed
7,200
5,400
3,600
1,800
0
L&T - Reba s ed
1.3.4 Example #4: HDFC Bank v/s Central Bank
The facts
Central Bank has recently completed
100 years of existence. HDFC Bank, in
contrast, is less than 20 years old.
Further, Central Bank's branches at
over 4,000 are 60% more than HDFC
Bank's 2,500. In contrast, HDFC Bank's
ATMs at almost 9,000 are 5x that of
Central Bank.
Despite its huge early mover advantage
and seemingly wider reach, Central
Bank today significantly lags HDFC Bank
on all key performance metrics -
deposit base, loan book, NPAs, ROTA,
RoE, etc.
HDFC Bank's FY12 PAT is almost 10x that
of Central Bank, but even more
significantly, its current market cap is a
whopping 27x!
The figures
FY12
Deposits (INR b)
Advances (INR b)
PAT (INR b)
RoE (%)
RoTA (%)
FY02-12:
PAT CAGR (%)
Avg RoE (%)
HDFC Bank
2,465
1,988
52
19
1.7
33
18
Central Bank
1,962
1,477
6
5
0.3
14
17
The picture: 230% outperformance (5-yr)
HDFC Bank - Rebas ed
Centra l Bank - Reba s ed
300
250
200
150
100
50
0
12 December 2012 21

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
2. Factors determining Economic Moat
Weave of industry structure and corporate strategy
"Why are some companies more profitable than others? … The answer has two parts.
First, companies benefit from (or are hurt by) the structure of their industry. Second, a
company's relative position within its industry can account for even more of the
difference."
-
Joan Magretta
in her book
Understanding Michael Porter
Interestingly, a company's profitability and the strength of its Economic Moat are both
determined by the same set of factors: (1) Industry structure, and (2) Company's own strategy.
2.1 Role of industry structure
The industry structure that a company faces is the first-level macro determinant of a
company's profitability. As depicted by Porter's Five Forces Framework, the industry structure
may be highly favorable or highly unfavorable or, in most cases, somewhere in between.
A favorable industry structure implies that competitors are likely to sink whenever they
take the first step to breach it. On the other hand, an unfavorable industry structure makes
it easy for competitors to step in.
Whether an industry structure is favorable or not depends on several factors, some of
which are listed below:
Bargaining power with customers:
This affects an industry's terms of trade on the revenue
side such as product prices, volume discounts, credit period to customers, ability to pass
on cost hikes, finished goods inventory levels, etc. Industries which supply to large,
consolidated or well-informed buyers are adversely placed and vice versa. Likewise, if
an industry's products can be easily substituted by buyers, it is adversely placed and
vica-versa.
Bargaining power with suppliers:
This affects an industry's terms of trade on the cost
side such as cost of raw materials, credit period from suppliers, ability to defer cost
hikes, raw material inventory levels, wage negotiations with labor, etc. Industries with
large and consolidated suppliers (including strong worker unions) are unfavorably placed
and vice versa.
Entry barriers:
Ease of entry decides how quickly supernormal profits can be leveled off
in an industry due to emergence of players. Some of the entry barriers to an industry
include high capital cost, access to distribution network, government regulations (e.g.
on imports, on safety and environment norms, etc).
Rapid changes in business environment:
Industries which are vulnerable to rapid and
far-reaching changes in business environment are unfavorably placed vis-à-vis more
stable industries. For instance, companies in dynamic businesses face overnight
obsolescence if a better substitute product or service emerges e.g. audio/video cassettes,
film-based photography, pagers, etc. This phenomenon is particularly true in businesses
involving high R&D spend such as healthcare and technology.
Government policy:
Government policies on various aspects of doing business determine
whether or not an industry is favorably placed.
12 December 2012 22

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
Examples of how industry factors which affect moat
Industry factor
1. Bargaining
power with
customers
2. Bargaining
power with
suppliers
Examples of favorably placed
Computer chip industry
(duopoly)
OPEC (global bargaining
power)
Auto OEMs (buy from small
parts suppliers)
Large consumer and retail
companies e.g. Walmart
Examples of unfavorably placed
Auto ancillaries (supplies to
large OEMs)
Unorganized sector
Auto ancillaries (purchase
from metals majors)
Plastic processors (purchase
from petchem giants)
Glass bottles industry (threat
of plastic bottles)
Internet-based businesses
Business without specialized
skill-sets e.g. general
manufacturing, travel agency,
etc
3. Entry barriers
Indian banking (due to
licensing restrictions)
Industries with large capital
outlays and gestation period
such as Oil & Gas, Power,
Petrochemicals, Hotels, etc
Indian cigarettes industry
(no new entrant, whether
local or global)
Government ruling on
mandatory digitization is
highly favorable for Indian
TV industry
4. Government
policy
Many Indian power generation
companies operate on
regulated return on capital.
The Indian government's new
Drug Pricing Control Order is
likely to regulate selling prices
of several drugs, affecting the
Healthcare sector
Interplay of various forces create wide variations in industry profitability (1995-2002 Avg RoE, %)
52 49
28 27 26
24 23
22 20 19
19 19 18
18 18
Economic Moat Universe
Avg RoE: 18%
17
15 14 13
12
10
8
2.2 Role of company strategy
As the moat created by the industry structure is broadly the same for all industry incumbents.
A weak company in the industry remains vulnerable to both, incumbents and new entrants.
Therefore, it is the company's strategy which finally influences the quality of its moat, by
making it dangerous for others to try and breach it.
12 December 2012 23

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
Company's strategic issues which affect moat
Positive impact
Strong brand and/or lowest cost
High focus on core competence
Scale
and continuity through
innovation, steady capacity expansion
High level of ethics and compliance
with the law of the land
Balanced approach towards all
stakeholders – customers, employees,
shareholders, and society at large
Negative impact
No unique competitive advantage
Diversification into unrelated businesses
and/or new geographies
Attempt to achieve scale through large
acquisitions, whether domestic or global
Lapses in corporate governance by way of
unethical or illegal business practices
Excessive focus on shareholders, and that
too the majority owner-shareholders
What is strategy?
Very often, the term 'strategy' is confused with things like vision, goal,
action plan, decision-making, etc. However,
strategy is all about ensuring that a company
creates and/or maintains its competitive edge over rivals i.e. at least defends its Economic
Moat and ideally deepens it.
There are several frameworks for a company strategy. Here,
we find that Porter's own Value Chain framework integrates well with the concept of
Economic Moat (see box below for 5 key elements of Porter's strategy framework.).
Porter's Value Chain cum Strategy framework
A good strategy is one that will sustain superior economic performance for a company,
and must pass the following 5 tests -
1. Distinctive value proposition (to customers):
This emerges from Porter's belief that
companies should not compete to be the best, but to be unique. Thus, the first step
to achieve this is to meet customer needs differently from rivals by (1) choosing the
target customer, (2) identifying the needs, and (3) creating a product or service which
addresses both (1) and (2).
2. Tailored Value Chain:
A Value Chain is the sequence of activities that a company
performs to design, produce, sell, deliver, and support its products. In turn, it is part
of a company's larger Value System i.e. all activities and players involved to deliver its
value proposition, including suppliers, distribution channel, etc. A tailored value chain
makes a company's value proposition hard to replicate.
3. Trade-offs different from rivals:
This essentially involves deciding on what a company
will or will not do, differently from its rivals e.g. budget airlines do not offer free food
and beverages on board, as they are targeting only those customers whose focus is
not food, bur rather to reach their destination faster (than rail, road, etc).
4. Fit across value chain:
Fit determines how well the value chain activities connect
with each other to amplify the company's value proposition, thereby making it even
harder to replicate e.g. Globally, Domino's is focused on home delivery of pizzas.
Therefore, its outlets are smaller than those of Pizza Hut, which are designed for dine
in. In fact, even the Domino's pizza is tailored for home delivery so that it does not get
soft and soggy during delivery.
5. Continuity over time:
Continuity gives an organization the time it needs to deepen its
understanding of the strategy. Sticking with a strategy allows a company to more
fully understand the value it creates and to become really good at it. Continuity
improves an organizations's ability to adapt to changes and to innovate.
12 December 2012 24

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
2.2.1 Company strategy: Two case studies
We present two case studies of Indian companies which illustrate the Value Chain framework.
Case Study #1: Jubilant Foodworks
The Strategy Framework: The "Domino" effect hits pizza demand
A. Brief description & backdrop
Jubilant Foodworks has entered into a Master Franchise Agreement with Domino's
International, which provides them with the exclusive right to develop and operate Domino's
pizza delivery stores in India, Nepal, Bangladesh and Sri Lanka. It is growing rapidly in terms
of sales, profits and market cap. Recently, it has also entered into a similar arrangement
with Dunkin' Donuts to offer a range of donuts and coffee. The menu has been customized
for India to include select Indian snack foods as well.
B. Nature of competition
Jubilant competes with QSRs (quick service restaurants) across categories - pizza (e.g. Pizza
Hut), burgers (e.g. McDonalds), other breads (e.g. Subway), Indian QSRs (e.g. Dosa Diner).
C. Strategy elements
1. Distinct value proposition
Hot, ready-to-eat food (pizza) delivered at your doorstep
2. Tailored value chain
Several, small outlets:
Domino's has a large number of outlets across the country.
However, they are mostly small-sized outlets, designed to discourage dine-in, as
their core proposition is home delivery.
All owned outlets:
All of Jubilant Foodworks outlets are company owned and
operated to ensure no compromise on quality.
Pizza more suited for home delivery vis-à-vis rivals:
The pizza dough, other materials
used and the baking process of Domino's allows for pizzas to remain fresher and
crisper after budgeting delivery time. (Pizza of rivals are more designed for dine-in,
and tend to get softer and soggier during the process of home delivery.)
3. Trade-offs
Yes to home delivery, no to dine-in:
This is the very first trade-off in the sense that
Domino's outlets actually discourage dine-in.
Yes to pizza and related products, no to others:
Domino's is focused only on pizzas
and related side-dishes like garlic bread and cake.
Yes to company owned outlets, no to franchising
(as explained earlier).
4. Fit across value chain
Product fit:
The pizza is more suited for home delivery vis-à-vis rivals.
Place fit:
Smaller outlets save on rentals, and make up for the occasional dine-in
customers that may be lost.
Promotion fit:
Every pizza delivered is accompanied by a discount coupon on the
next purchase with time validity. This induces repeat purchase.
Ordering channel fit:
To ensure that it does not lose orders on account of busy phone
lines, and to save on high manpower costs, Domino's is encouraging orders to be
placed online by marginally lower pricing.
12 December 2012 25

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
5. Continuity over time
Nascent market:
The pizza market in India is nascent and has tremendous room for
growth. Jubilant is well placed to leverage its competitive advantage to gain massive
scale.
Expansion:
Jubilant is continuously adding outlets and entering new cities – within a
short span of time, it has established its presence in over 105 cities with over 465
outlets.
Replication of Domino's story:
Cash flows from Domino's are being ploughed to
replicate the Domino success story with Dunkin' Donuts. The donuts category is
currently at the same stage as pizza was when Jubilant entered the business.
Domino's and Dunkin' may well prove to be a highly successful combination, making
Jubilant's Economic Moat a "Deep & Dangerous" one.
D. The Success Payoff
Sales and PAT Chart
Sal es (INR m)
PAT (INR m)
1,077
721
10,189
2,360
84
FY08
2,806
79
FY09
333
6,783
4,755
FY10
FY11
FY12
700
600
500
400
300
200
100
0
Stock Price Chart
Ju bi l ant - Reb ase d
S ens ex - R ebas ed
Case Study #2: Bajaj Auto
The Strategy Framework: Re-Discover lost Economic Moat
A. Brief description & backdrop
Bajaj Auto is one of India's earliest manufacturers of two-wheelers. The scooter was the
company's staple product for several years. With scooters as the core, the positioning was
extended to mopeds and 3-wheelers. In the 1990s, Bajaj Auto's Economic Moat was severely
dented by -
(1) The entry of motorcycles; and
(2) The introduction of the gearless scooter by Honda under Kinetic Honda.
The current Managing Director Mr Rajiv Bajaj took over the reins from his father and
predecessor Mr Rahul Bajaj in early 2000s.
B. Nature of competition
Competition was intense with the onset of Indo-Japanese motorcycles on the one hand
(Hero Honda, TVS Suzuki and Escorts Yamaha), and gearless scooters by Honda on the other.
Bajaj's then existing products soon lost their value proposition. Subsequently, Rajiv Bajaj
revived the company's competitive advantage. The elements of the strategy he pursued
are as given in the following section.
12 December 2012 26

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
C. Strategy elements
1. Distinct value proposition
Sportier, powerful bike:
Bajaj positioned itself firmly in the upwards of 125cc market
with Discover and Pulsar brands. The products were positioned as sporty and powerful,
vis-à-vis the typical Indo-Japanese bikes positioning of light and fuel-efficient
vehicles.
2. Tailored value chain
Focus on urban youth:
The product positioning was in line with the marketing focus
on urban youth.
Lower emphasis on mother brand 'Bajaj' in favor of product brands:
All of Bajaj's
advertising is focused on promoting the product sub-brands such as Discover and
Pulsar, as the Bajaj brand is associated with a wide range of products - from fans to
hair oil.
Leveraging domestic scale efficiencies to export competitively priced motorcycles:
Bajaj exports its bikes to other developing countries e.g. in Africa.
3. Trade-offs
Yes to motorcycles, no to scooters:
Bajaj does not sell even a single scooter today.
Yes to premium powerful, sporty bikes, no to entry-level bikes:
Bajaj sells a very
small quantity of mass market bikes.
Yes to two-wheelers, no to cars or other vehicles
4. Fit across value chain
There is a strong fit within Bajaj Auto's product positioning, promotion and pricing,
all combining to make Bajaj Auto one of the most profitable two wheeler companies
in the world.
5. Continuity over time
The company has acquired a 50% stake in KTM, an Austrian manufacturer of sports
bikes, to further fortify its global competitive advantage.
D. The Success Payoff
Sales and PAT Chart
Sa l es (INR b)
28
PAT (INR b)
31
700
600
500
400
300
200
100
0
Stock Price Chart
Baja j Auto - Reba s ed
Sens ex - Reba s ed
17
8
87
FY08
6
84
FY09
FY10
FY11
FY12
164
115
196
12 December 2012 27

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
3. Applying Economic Moat concept to investing
Buy profit castles with deep and dangerous moats
"Competitive strategy analysis lies at the heart of security analysis."
-
Alfred Rappaport & Michael Mauboussin,
in their book
Expectations Investing
A truly great business must have an enduring "moat" that protects excellent returns on
invested capital.
-
Warren Buffett
in his 2007 letter to Berkshire Hathaway shareholders
The concept of Economic Moat has implications for both companies and investors -
For companies:
Truly successful companies are those which intricately weave industry
structure and their own strategy to create and defend an unbreachable Economic Moat,
ensuring superior profits and high profitability over peers for generations.
For investors:
Investors can use the above frameworks to actively seek out companies
with "Deep & Dangerous Moats", run by "honest and decent leaders" (to use Buffett's
words). This way, investors can ensure that they continue to enjoy their share of the
"gold" which the leaders make within the safety of their moat.
In the subsequent sections, we -
1. Present our findings of backtesting the concept of Economic Moat investing, and
demonstrate how the strategy works extremely well for equity investing; and
2. Apply the same methodology to Nifty constituent companies both then and now.
3.1 Backtesting the Economic Moat investing hypothesis
As stated through this report, companies with "deep and/or dangerous" moat tend to enjoy
superior profits and profitability for sustained periods of time. Thus, such companies are
widely acknowledged by the markets as great companies, giving rise to the often heard
quote – "great companies are rarely great stocks". The seeming rationale behind this is that
while there is no denying the high quality of EMCs (Economic Moat Companies), their
premium valuations ensure that they do not generate adequate returns on the bourses.
Accordingly, we backtested the Economic Moat hypothesis over the 17 years between 1995
and 2012. In this section, we present our key steps and findings of the backtest.
Step 1: The Economic Moat hypothesis
Investing in a
portfolio of companies
of EMCs should lead to sustained outperformance
over benchmark indices across years, irrespective of market conditions.
(Note: The keyword here is portfolio of companies. Else, critics are prone to point out the
one-off cases of a Hindustan Unilever underperforming for almost 11 years since 1994 or an
Infosys underperforming for 10 years since its peak of 2000.)
Step 2: Establishing criteria for Economic Moat
This was the key challenge for our backtesting as Economic Moat is a highly qualitative
concept, not easily reducible to numbers. So, in deciding our final methodology, we applied
two key principles of Economic Moat -
1. A company's Economic Moat needs to ultimately reflect in its financials with return on
investment significantly superior to peers.
12 December 2012 28

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
2. Economic Moat or competitive advantage holds true only within a particular sector and
not across sectors. Thus, a consumer facing company enjoying RoE in excess of 50%
cannot be deemed to enjoy a superior over a bank which earns 20% RoE.
For the academically inclined, we present our full methodology on page 35. In essence, we
compared RoE of companies in the same sector vis-à-vis the sector average for 8 years 1995
to 2002. Companies whose RoE was higher than sector average for 6 years or more were
deemed to enjoy an Economic Moat. Having flagged off companies with or without Economic
Moat, we observed their stock performance over next 10 years to 2012.
Step 3: The findings
We believe our backtesting has thrown up several interesting findings, many of them
counterintuitive.
Finding #1 - EMCs handsomely outperform
A portfolio of companies with Economic Moat bought and held for 10 years comfortably
outperforms benchmark indices every year over the next 10 years. Further even in terms of
annual return, performance of EMCs matches that of non-EMCs for the initial 3 years, before
meaningful outperformance sets in from Year 4 every year. Besides, average stock returns
on EMCs are 2x that of non-EMCs.
EMCs outperform benchmark, but non-EMCs don't
Return
Sensex
Alpha
EMCs
25%
18%
7%
Non-EMCs
12%
18%
-6%
Overall
18%
18%
0%
Payoff profile of EMCs, non-EMCs and Sensex (2002-2012)
1000
EMCs
750
500
250
Non-EMCs
Sensex
25%, 9.3x
18%, 5.0x
(All rebased to 100 in March 2002)
33% CAGR, 5.5x
20% CAGR, 3.0x
0
FY02
FY03
FY04
FY05
FY06
F Y07
FY08
FY09
FY10
12%, 3.1x
FY11
FY12
Finding #2 - EMCs' outperformance is earnings and valuations agnostic
This is arguably one of the most liberating conclusions from the investor's perspective.
Most investors are faced with two ordeals - (1) forecasting earnings of stocks, and (2)
assessing market's likely valuation of the stock based on the same. However, in our testing,
we applied no criteria (past, present or future) other than that of Economic Moat, which is
a far easier call to make than a stock's future earnings growth and valuation.
12 December 2012 29

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
The most plausible explanation for this is as follows -
Earnings agnosticism
arises from EMCs' strong competitive advantage which ensures
that they enjoy a more-than-fair share of the growth inherent in most sectors in India.
Valuation agnosticism
may well be explained by the phenomenon of continuous rollover
of EMCs' competitive advantage period (CAP), as explained in the box on page 30.
Why EMCs delivery healthy returns over time despite premium valuations
World over, even seasoned investors struggle to explain a profound mystery:
Why do
companies with strong franchises (i.e. deep Economic Moat) continue to outperform the
market despite their perennial rich valuations?
The answer may well lie in the continuous
roll-over of these companies' competitive advantage period or CAP.
What is CAP?
Competitive advantage period (CAP) is the
time during which a company is expected to
generate returns on incremental investment
that exceed its cost of capital. As discussed in
the context of Economic Moat, if a company
earns supernormal return on its invested
capital, its business will attract competitors
that will accept lower returns, eventually
driving down overall industry returns to
economic cost of capital, and sometimes even
below it. (The Indian telecom industry is
currently a classic case of this phenomenon.)
Markets intuitively value companies based
on CAP …
Rate
of
Return
Competitive forces work to
bring down excess return
Excess
Return
WACC
CAP
Time (in years)
Return=WACC
The idea of CAP is graphically presented alongside. Obviously, longer the CAP, the better
it is for both the company and its investors.
CAP rollover: Excess returns of EMCs explained
Markets are generally efficient and do indeed
… but markets are unable to appropriately
assign premium valuations to EMCs (Economic
value EMCs whose CAP rolls over with every
Moat Companies), given their reasonably
passing period
accurate assessment that such companies
Rate
of
enjoy a very long CAP.
Incremental excess return
Return
Where the markets fail is in recognizing that
barring a low mortality rate of less than 15%,
these EMCs continue to draw upon the
strength of their moat and sustain their high
return with passage of time. Thus, as brilliantly
WACC
put by Michael Mauboussin in a paper written
CAP rolls over by 1 year
way back in 1997 that with each passing year,
0
Year 1
Time (in years)
the CAP period of EMCs simply rolls over,
creating
incremental
excess return for investors in these stocks, as represented alongside.
This rollover phenomenon continues so long as EMCs successfully at least defend (if not
deepen) their moat, leading to their stock achieving both sustained outperformance in
the markets, despite their premium valuations.
12 December 2012 30

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
Finding #3 - EMCs' outperformance is sector agnostic
Stocks of EMCs are likely to outperform benchmarks across sectors, even if the sector itself
is out of market favor. Thus, out of our 22 homogenous sector groupings, EMCs
underperformed the BSE Sensex in only two sectors – Oil Refining and Textiles.
The mother buckets' average price performance (2003-12)
EMCs (2002)
Price CAGR
43
34
27
20
27
28
23
21
25
35
30
28
21
43
21
11
32
22
18
22
36
17
25
Cos.
2
3
2
1
1
11
2
3
3
2
3
6
3
2
3
4
2
5
9
3
1
3
74
Non-EMCs (2002)
Price CAGR
Cos.
Sector
Price CAGR
43
34
19
-2
22
28
34
24
25
23
25
22
-10
33
21
12
32
22
14
22
15
11
18
Cos.
2
3
5
3
3
22
3
10
3
6
11
10
17
5
3
5
4
5
31
3
6
17
177
Auto Ancillaries - Batteries
Auto Ancillaries - Bearings
Auto Ancillaries - Tyres
Automobile - 2W
Automobile - CV
Banks
Capital Goods - Engines
Cement
Cigarettes
Construction / Infrastructure
Fertilizers
Finance
IT - Software
Metals & Mining - Steel
Oil & Gas
Oil & Gas - Refining
Paints
Personal Products
Pharmaceuticals
Processed Food
Retail
Textiles
Avg Price CAGR / Total cos.
13
-13
20
28
56
25
17
22
13
-17
27
16
33
13
10
10
12
3
2
2
11
1
7
4
8
4
14
3
1
2
22
5
14
103
Note: Shaded area is to indicate which of the two group of stocks has outperfomed in a sector
Sectors circled denote EMCs' underperformance to Sensex
2003-12 Average Price CAGR of EMCs by sector
43 43
36 35 34
32 30
28 28 27 27
25
Sensex CAGR (2003‐12): 18%
Average return of all EMCs: 25%
23 22 22
21 21
21 20
18 17
11
12 December 2012 31

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
2003-12 Average Price CAGR of non-EMCs by sector
56
33
28
27
25
22
20
17
16
Sensex CAGR (2003-12): 18%
Average return of all non-EMCs: 12%
13
13
13
10
10
-13
-17
Finding #4 - Future not too meaningful for EMCs, but critical for non-EMCs
We applied the same RoE-based methodology to assess the backtested companies' Economic
Moat in the "future" i.e. 2003 to 2012. The most interesting findings are -
Economic Moats are generally structural; thus, over the next 10 years, only 25 companies
upgraded to EMCs out of an initial 103 non-EMCs (i.e. status quo rate of over 75%). Those
who did not improve their Economic Moat delivered only 8% return v/s benchmark
return of 18%.
More interestingly, only 12 out of 74 initial EMCs slipped into non-EMCs i.e. status quo
rate of 84% and mortality rate of only 16%. But then, even these fallen stars delivered
higher than market performance.
Besides, even going right on the future competitive strength of EMCs did not make a
huge difference to returns. In contrast, making the right call on the future of non-EMCs
has the highest payoff of 27% compounded over 10 years, but with low probability of
only 25%.
Even the 2003-12 earnings CAGR of EMCs at 18% was comparable with the 21% clocked
by upgraded EMCs.
Stock returns matrix of EMCs and non- EMCs
Earnings growth matrix of EMCs & non-EMCs
Appraisal
period EMCs
(2003-12)
Yes
No
27%
8%
No
26%
20%
Yes
Future EMCs
(2003-12)
Yes
No
21%
7%
No
18%
10%
Yes
Study period EMC (1995-02)
Note: Sensex return during 2003-12 is 18%
Outperforming quadrants are in blue.
Study period EMC (1995-02)
12 December 2012 32

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
EMCs's stock performance is even future agnostic!
Sector
EMC (Current Yes; 74 cos)
Current-Future
Y-Y (62 cos)
Y-N (12)
43
39
23
27
20
27
31
16
29
18
21
25
35
35
21
27
34
15
33
43
21
8
32
22
20
10
22
36
24
3
26
20
EMC (Current No; 103 cos)
Current-Future
N-Y (25)
N-N (78)
Sector Avg
Price CAGR
(177 cos)
43
34
19
-2
22
28
34
24
25
23
25
22
-10
33
21
10
32
22
14
22
15
11
18
Auto Ancillaries - Batteries
Auto Ancillaries - Bearings
Auto Ancillaries - Tyres
Automobile - 2W
Automobile - CV
Banks
Capital Goods - Engines
Cement
Cigarettes
Construction / Infrastructure
Fertilizers
Finance
IT - Software
Metals & Mining - Steel
Oil & Gas
Oil & Gas - Refining
Paints
Personal Products
Pharmaceuticals
Processed Food
Retail
Textiles
Average Price CAGR
29
33
56
28
19
27
7
34
5
-13
20
26
24
16
19
13
-26
23
16
33
31
57
15
27
6
-1
9
8
Note: Shaded area is to indicate which of the two group of stocks has outperfomed in a sector
3.4 Applying the methodology on Nifty stocks
We backtested our EMC hypothesis on companies which constituted the Nifty in 2002. 38 of
50 companies were common between then Nifty and our Economic Moat Universe of 177
companies. Of these, 29 companies were deemed to be EMCs then and 9 companies to be
non-EMCs. During the price performance period 2003-12, the EMCs clocked price CAGR of
22% v/s 16% for non-EMCs and overall return of 20%.
Further, applying the "future (i.e. 2003-12)" EMC test also threw up results similar to that of
the broader universe –
22 of the 29 initial EMCs remained EMCs, but the total return remained the same at 22%
CARG.
7 companies regressed to non-EMC and delivered 14% CAGR.
3 of the 9 initial non-EMCs maintained status quo and returned only 4% CAGR.
The balance 6 non-EMCs upgraded to turn EMCs, and delivered returns of 21%, in line
with that of status quo EMCs.
Avg stock returns on 2002 Nifty EMCs non-EMCS
Avg stock returns matrix on Nifty constituents
Price CAGR %
No. of cos.
Future EMC
(2003-12)
EMCs
Non-EMCs
Overall
12 December 2012 33
22
16
20
29
9
38
Yes
No
21%
4%
No
22%
14%
Yes
Study period EMC (1995-02)
Note: Nifty return during 2003-12 is 17%

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
Based on our backtesting methodology, the current constituent companies of Nifty can be
classified as EMCs as non-EMCs as tabled below. If our findings hold going forward (and we
have reasons to believe they will), the ECMs among Nifty should meaningfully outperform
both the non-EMCs and overall Nifty index.
Nifty constituents: EMCs and non-EMCs
Nifty EMCs (33 companies)
ACC
Ambuja Cement
Asian Paints
Axis Bank
BHEL
Bajaj Auto
Bharti Airtel
Cairn India
Coal India
GAIL (India)
Grasim Inds
HDFC
HDFC Bank
Hero MotoCorp
Hind Unilever
Infosys
ITC
Jindal Steel
Kotak Mahindra Bank
Larsen & Toubro
Lupin
M&M
Maruti Suzuki
NTPC
ONGC
Power Grid Corporation
Punjab National Bank
State Bank of India
Sun Pharma
Tata Motors
TCS
UltraTech Cement
Wipro
Nifty non-EMCs (17 companies)
BPCL
JP Associates
Bank of Baroda
Ranbaxy Labs
Cipla
Reliance Inds
DLF
Reliance Infra
Dr Reddy's Labs
Sesa Goa
HCL Technologies
Siemens
Hindalco Inds
Tata Power
ICICI Bank
Tata Steel
IDFC
4. Conclusions
Consumer sector has bounced back into wealth creation - ITC is the largest wealth creator,
TTK Prestige the fastest and Hindustan Unilever is back in the top 10.
Financials has emerged the largest wealth creating sector for the second time in a row.
Absence of new entrants is leading to widespread profitability and stock performance.
Economic Moat protects the profit of companies from competitive attack.
Extended CAP (competitive advantage period) of Economic Moat Companies (EMCs)
leads to superior levels of profits and stock returns.
Over 2002-2012, EMCs in India have meaningfully outperformed benchmark indices.
Breach of Economic Moat causes massive wealth destruction e.g. the Telecom sector has
moved from a leading wealth creating sector 4 years ago to the top wealth destroyer in
2012.
Markets seem poised to touch new highs in the next 12 months.
12 December 2012 34

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
APPENDIX: Economic Moat – Backtesting methodology
We backtested our Economic Moat hypothesis over the 17 years between 1995 and 2012. In
this section, we present the key steps and nuances in our methodology.
Step 1: The Economic Moat hypothesis
Investing in a portfolio of companies of EMCs (Economic Moat Companies) should lead to
sustained outperformance over benchmark indices across years, irrespective of market
conditions.
Step 2: Establishing criteria for Economic Moat
This was the key challenge for our backtesting as Economic Moat is a highly qualitative
concept, not easily reducible to numbers. So, in deciding our final methodology, we applied
two key principles of Economic Moat -
1. A company's Economic Moat needs to ultimately reflect in its financials, with return on
investment significantly superior to peers.
2. Economic Moat or competitive advantage holds true only within a particular sector and
not across sectors. Thus, a consumer-facing company enjoying RoE in excess of 50%
cannot be deemed to enjoy a superior Economic Moat over a bank which earns 20% RoE.
3. An Economic Moat is not about being the best or the biggest or even the most profitable,
but about being unique.
We applied these principles as follows -
Economic Moat Period (EMP):
We intended to test the stock market returns of EMCs
across economic and equity cycles. Accordingly, we fixed the price performance period
as 2002-2012. This price performance period implied that we identify EMCs as on financial
year ending March 2012, and observe their subsequent equity returns. For this purpose,
our EMP was the 8-year period from 1995 to 2002.
Economic Moat Universe (EMU):
We shortlisted our EMU based on 3 criteria: (1) Minimum
financial history of 8-years ending 2002, (2), Market cap of at least INR500m as on 31
March 2012 (this was done merely to restrict the EMU to a reasonable size), and (3) From
the shortlist given by (1) and (2), select as my homogenous companies as possible.
Our
total EMU is 177 companies.
Whether EMC or no in 2002:
To achieve this, we first classified most of the 177 companies
into homogenous groups with at least two players. However, most consumer companies
do not have comparable peers, though one of their divisions may be competing against
each other. In these cases, given their high absolute RoEs, we deem them to enjoy
Economic Moat. For others, we calculated the average sector RoE for each of the 8 years
1995 to 2002.
A company was decided to be an EMC if for at least 6 of the 8 years, its RoE
was higher than the industry average.
However, even here, if the RoE data suggested a
clearly broken business model closer to the investment period, we deemed the
Economic Moats of such companies to be drying up. Also, in some homogenous groups
with few companies, we considered cases where all of them enjoyed a Economic Moat,
deviation from sector average notwithstanding.
Whether EMC or no in 2012:
We followed the above process for 2012 as well, except that
the EMP was 10 years (2002 to 2012) and the greater-than-industry-average threshold
was raised to 7 years.
12 December 2012 35

Wealth Creation Study 2007-2012
Theme 2013: Economic Moat
Step 3: The final 6 buckets
EMCs were flagged off as "Y" and non-EMCs as "N", both in 2002 and 2012, which formed the
two mother buckets. Next, depending on how the Economic Moat of companies shaped
during the 10 years, 4 more observation buckets emerged -
"Y-Y"
- EMC in 2002 which sustained its moat to remain an EMC in 2012 as well
"Y-N"
- EMC in 2002 whose moat got breached by 2012
"N-Y"
- Non-EMC in 2002 which strengthened in moat to emerge an EMC by 2012, and
"N-N"
- Non-EMC in 2002 which remained a non-EMC even in 2012.
Step 4: The final observations
We observed the 2003-12 stock price CAGR of companies in each of these bucket portfolios.
The master table is given below, which led us to conclude that EMCs handsomely outperform
the market with very low mortality rate of less than 15%. Most interestingly, the observations
were future agnostic, sector agnostic, earnings growth agnostic, and even valuation agnostic.
The mother buckets' average price performance (2003-12)
EMCs (2002)
Price CAGR
43
34
27
20
27
28
23
21
25
35
30
28
21
43
21
11
32
22
18
22
36
17
25
Cos.
2
3
2
1
1
11
2
3
3
2
3
6
3
2
3
4
2
5
9
3
1
3
74
Non-EMCs (2002)
Price CAGR
Cos.
Sector
Price CAGR
43
34
19
-2
22
28
34
24
25
23
25
22
-10
33
21
12
32
22
14
22
15
11
18
Cos.
2
3
5
3
3
22
3
10
3
6
11
10
17
5
3
5
4
5
31
3
6
17
177
Auto Ancillaries - Batteries
Auto Ancillaries - Bearings
Auto Ancillaries - Tyres
Automobile - 2W
Automobile - CV
Banks
Capital Goods - Engines
Cement
Cigarettes
Construction / Infrastructure
Fertilizers
Finance
IT - Software
Metals & Mining - Steel
Oil & Gas
Oil & Gas - Refining
Paints
Personal Products
Pharmaceuticals
Processed Food
Retail
Textiles
Avg Price CAGR / Total cos.
13
-13
20
28
56
25
17
22
13
-17
27
16
33
13
10
10
12
3
2
2
11
1
7
4
8
4
14
3
1
2
22
5
14
103
Stock returns matrix of EMCs and non- EMCs
Earnings growth matrix of EMCs & non-EMCs
Appraisal
period EMCs
(2003-12)
Yes
No
27%
8%
No
26%
20%
Yes
Future EMCs
(2003-12)
Yes
No
21%
7%
No
18%
10%
Yes
Study period EMC (1995-02)
Note: Sensex return during 2003-12 is 18%
Outperforming quadrants are in blue.
Study period EMC (1995-02)
12 December 2012 36

Wealth Creation Study 2007-2012
Wealth Creation
2007-2012
The 17
TH
Annual Study
Market Outlook
12 December 2012 37

Wealth Creation Study 2007-2012
Market Outlook
Market Outlook
Corporate Profit to GDP
Corporate Profit moved up from 3% of GDP in 2003 to a peak of almost 7% in 2008 on the back
of high economic growth and rising commodity prices. Corporate profit to GDP has steadiliy
declined since, and should be around 5% for 2013 close to the last 10-year average of 4.6%.
Corporate Profit growth is expected to remain at 10%.
Corporate Profit to GDP (%)
6.7 6.9
5.4
5.9
5.2
4.5
3.4
1.3 1.5 1.5
2.1
Average of 3.6x
5.7 5.5
5.2
3.2 2.3 2.3
2.1 2.2 2.9
1.7 1.9
Interest Rate
After hitting a peak of 9% last year rates have softened to 8.2% and are expected to further
fall over the next year.
10-year G-Sec Yield (%)
14.5
12.0
9.5
7.0
4.5
5.3
11.7
9.3
8.2
Sensex P/E
Despite a 20% increase in the Sensex during the year, the Sensex forward P/E is currently at
about 14.4x which is around long-term average and reasonable.
12 December 2012 38

Wealth Creation Study 2007-2012
Market Outlook
Sensex P/E (x) and Sensex
27
22
17
12
7
10 Year Avg: 14.8x
Sens ex P/E (x) - (LHS)
Sens ex (RHS)
21,700
16,700
11,700
6,700
1,700
Earnings Yield to Bond Yield
The current Earnings Yield to Bond Yield at 0.9x is just below parity, and is reasonable in the
backdrop of current high interest rates, and expected fall in rates over the next one year.
Sensex Earning Yield to Bond Yield (x)
2.2
1.7
1.2
15 Year Avg
is 0.92x
Market Cap to GDP (%)
115
90
65
0.9
40
15
Avg of 50%
for the period
70
2.0
103
53
0.7
0.5
0.2
Sensex EPS
FY12-14E:
11% CAGR
FY08-12E:
8% CAGR
FY03-08:
25% CAGR
FY93-96:
45% CAGR
1,389
1,215
1,124
1,024
833 820 834
718
FY96-03: 1% CAGR
348
250 266 291 278 280 216 236 272
181
81 129
450 523
Conclusion
Earnings growth of around 10%, imminent moderation in interest rate, and reasonable current
valuation has improved the probability of the market going into new highs in the next 12
months.
12 December 2012 39

Wealth Creation Study 2007-2012
Appendix I: MOSL 100 – Biggest Wealth Creators
Ranked according to The Biggest Wealth Creators
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Company
ITC
TCS
HDFC Bank
MMTC
HDFC
State Bank of India
Infosys
Tata Motors
Hind Unilever
Jindal Steel
NMDC
Sun Pharma
Cairn India
Nestle India
Hindustan Zinc
Larsen & Toubro
Hero Motocorp
GAIL (India)
Axis Bank
Asian Paints
Kotak Mahindra Bank
M&M
Grasim Inds
Bank of Baroda
Lupin
UltraTech Cement
Dr Reddy's Labs
Titan Inds
Bosch
Maruti Suzuki
BPCL
HCL Technologies
Punjab National Bank
Hindustan Copper
IndusInd Bank
ACC
Cadila Healthcare
Canara Bank
Tata Power
Colgate-Palmolive
LIC Housing Finance
Castrol India
Dabur India
Shriram Transport Fin.
Godrej Consumer
GSK Pharma
Ambuja Cements
Petronet LNG
GSK Consumer
Power Finance Corp
Wealth Created
INR b
Share (%)
1,187
7
1,082
7
744
5
671
4
558
3
556
3
516
3
499
3
457
3
436
3
377
2
377
2
374
2
354
2
321
2
290
2
274
2
252
2
247
2
237
1
211
1
206
1
195
1
193
1
183
1
178
1
175
1
166
1
157
1
153
1
144
1
137
1
135
1
123
1
118
1
117
1
113
1
110
1
109
1
107
1
106
1
105
1
103
1
100
1
100
1
99
1
99
1
95
1
94
1
89
1
CAGR (2007-12, %)
Price
PAT
Sales
25
17
16
14
20
21
22
36
33
48
-8
23
17
26
36
17
19
22
7
17
19
14
46
39
15
11
14
47
41
39
20
26
22
22
27
30
21
100
164
38
24
22
19
3
6
10
20
26
25
23
19
16
12
22
19
45
38
33
28
21
18
28
34
12
14
29
15
4
12
30
36
27
34
32
29
14
23
31
19
8
8
40
41
33
20
19
16
10
-1
19
18
-18
17
11
14
28
14
25
26
26
-1
-1
50
56
29
13
3
12
28
25
24
19
17
22
15
-204
32
27
20
16
57
27
31
38
28
11
18
18
21
38
47
35
27
33
39
15
10
9
10
2
15
32
28
33
39
23
19
12
22
28
RoE (%)
2012
2007
35
28
38
56
19
19
5
14
19
19
16
16
29
42
52
32
87
64
24
32
33
47
25
38
18
0
90
85
22
80
16
30
66
38
18
23
20
19
39
37
15
18
14
30
17
37
21
13
24
29
20
56
29
32
48
37
25
25
10
25
5
21
28
37
20
15
25
35
19
9
19
41
28
31
16
19
-5
13
109
65
19
19
83
38
41
57
24
20
26
144
30
34
16
35
34
27
34
25
17
13
P/E (x)
2012
2007
29
21
22
29
23
27
761
70
18
22
9
8
20
29
6
13
35
29
13
10
9
11
25
29
8
0
46
28
11
5
18
25
19
18
11
9
11
21
32
26
22
30
14
12
10
10
6
7
27
22
19
12
21
13
34
35
24
24
26
15
30
5
14
15
6
9
76
38
19
16
20
12
24
20
6
5
0
14
34
25
14
4
27
18
29
30
10
11
29
24
33
26
22
15
12
10
33
17
8
10
12 December 2012 40

Wealth Creation Study 2007-2012
Appendix I: MOSL 100 – Biggest Wealth Creators
(contd.)
Ranked according to The Biggest Wealth Creators
Rank
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
Company
Exide Inds
Cummins India
Bank of India
Sesa Goa
Shree Cement
Yes Bank
Siemens
United Breweries
Marico
Coromandel Inter
Torrent Power
Indian Bank
Divi's Lab
Pidilite Inds
Engineers India
MRPL
Neyveli Lignite
Union Bank (I)
IDFC
Piramal Enterprises
Alfa Laval (I)
Gillette India
CRISIL
Apollo Hospitals
Eicher Motors
P & G Hygiene
Havells India
Allahabad Bank
Emami
Motherson Sumi
Bhushan Steel
GMDC
M & M Financial
Britannia Inds
Bata India
Indraprastha Gas
Astrazeneca Pharma
Blue Dart Express
Torrent Pharma
Guj Gas Company
Federal Bank
Tata Chemicals
Tata Global
TTK Prestige
Kansai Nerolac
Godrej Inds
Ashok Leyland
BOC India
MRF
Ipca Labs
TOTAL / AVG
Wealth Created
INR b
Share (%)
88
1
85
1
81
0
81
0
79
0
75
0
72
0
70
0
70
0
69
0
67
0
64
0
61
0
61
0
60
0
60
0
59
0
57
0
57
0
56
0
56
0
56
0
51
0
50
0
47
0
47
0
46
0
45
0
45
0
43
0
43
0
43
0
41
0
41
0
41
0
39
0
37
0
37
0
37
0
34
0
33
0
32
0
32
0
32
0
31
0
30
0
30
0
28
0
28
0
27
0
16,380
100
CAGR (2007-12, %)
Price
PAT
Sales
29
46
19
21
15
14
17
20
26
18
33
32
28
25
27
21
60
61
7
17
15
15
18
25
23
26
21
54
43
36
28
53
23
22
16
24
20
23
21
26
24
20
27
34
45
15
12
14
11
20
19
18
16
23
10
25
33
14
-20
-2
36
14
14
25
0
22
30
28
23
21
25
27
52
41
23
23
15
19
21
30
35
21
20
26
33
31
23
21
15
57
32
26
21
31
39
23
23
37
28
19
14
19
41
42
15
31
17
32
28
-17
15
35
19
17
26
29
16
25
25
20
21
21
25
11
13
19
13
1
11
89
58
31
22
16
15
10
83
19
10
6
13
30
33
19
24
52
21
23
18
20
20
21
23
RoE (%)
2012
2007
19
31
31
29
15
20
15
47
21
44
23
14
23
36
11
17
31
43
29
23
24
5
20
28
27
42
27
25
38
14
13
20
12
7
14
19
13
18
1
22
29
31
12
22
51
38
10
10
23
13
28
32
46
47
19
18
37
41
9
38
15
30
26
12
23
18
54
18
34
14
27
33
11
36
20
23
30
25
33
21
14
21
16
21
8
17
48
24
22
21
4
3
20
27
10
9
17
5
24
28
19
21
P/E (x)
2012
2007
28
48
26
20
7
7
6
10
23
20
13
42
30
48
113
104
34
38
12
7
8
19
6
5
19
21
29
26
14
18
13
11
10
15
7
6
13
19
102
22
56
23
108
35
34
33
39
36
19
13
40
29
19
23
5
4
24
18
28
20
9
7
12
16
11
15
37
30
32
33
17
10
266
31
38
20
16
18
18
19
10
6
9
9
21
11
29
12
23
17
39
454
14
12
34
23
12
33
15
12
16
16
12 December 2012 41

Wealth Creation Study 2007-2012
Appendix II: MOSL 100 – Fastest Wealth Creators
Ranked according to The fastest Wealth Creators
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
2007-12 Price
CAGR (2007-12, %)
Company
CAGR (%) Multiple (x)
PAT
Sales
TTK Prestige
89
24.0
58
31
LIC Housing Finance
57
9.6
27
31
Coromandel Inter
54
8.7
43
36
Eicher Motors
52
8.0
41
23
IndusInd Bank
50
7.6
56
29
MMTC
48
7.0
-8
23
Jindal Steel
47
6.9
41
39
Bata India
41
5.6
42
15
Titan Inds
40
5.4
41
33
GSK Consumer
39
5.2
23
19
Castrol India
38
5.0
28
11
Shriram Transport
38
5.0
47
35
Nestle India
38
4.9
24
22
Alfa Laval (I)
36
4.6
14
14
Blue Dart Express
35
4.5
19
17
Lupin
34
4.4
32
29
Asian Paints
33
4.2
28
21
Emami
33
4.1
31
23
Bhushan Steel
32
4.0
26
21
Petronet LNG
32
4.0
28
33
GMDC
31
3.8
39
23
Indraprastha Gas
31
3.8
17
32
Bank of Baroda
30
3.7
36
27
BOC India
30
3.7
33
19
CRISIL
30
3.7
28
23
Exide Inds
29
3.6
46
19
Shree Cement
28
3.5
25
27
Astrazeneca Pharma
28
3.5
-17
15
Torrent Power
28
3.4
53
23
Cadila Healthcare
28
3.4
25
24
Engineers India
27
3.4
34
45
Colgate-Palmolive
27
3.4
20
16
Godrej Consumer
27
3.3
33
39
Hindustan Copper
26
3.2
-1
-1
Torrent Pharma
26
3.2
29
16
Pidilite Inds
26
3.1
24
20
Gillette India
25
3.1
0
22
Guj Gas Company
25
3.1
25
20
ITC
25
3.0
17
16
Hero Motocorp
25
3.0
23
19
MRF
24
3.0
52
21
M & M Financial
23
2.9
37
28
Marico
23
2.8
26
21
P & G Hygiene
23
2.8
15
19
Ipca Labs
23
2.8
18
20
HDFC Bank
22
2.7
36
33
Kansai Nerolac
22
2.7
16
15
Sun Pharma
22
2.7
27
30
Indian Bank
22
2.7
16
24
Cummins India
21
2.6
15
14
Wealth Created
INR b Share (%)
32
0.2
106
0.6
69
0.4
47
0.3
118
0.7
671
4.1
436
2.7
41
0.2
166
1.0
94
0.6
105
0.6
100
0.6
354
2.2
56
0.3
37
0.2
183
1.1
237
1.4
45
0.3
43
0.3
95
0.6
43
0.3
39
0.2
193
1.2
28
0.2
51
0.3
88
0.5
79
0.5
37
0.2
67
0.4
113
0.7
60
0.4
107
0.7
100
0.6
123
0.8
37
0.2
61
0.4
56
0.3
34
0.2
1,187
7.2
274
1.7
28
0.2
41
0.3
70
0.4
47
0.3
27
0.2
744
4.5
31
0.2
377
2.3
64
0.4
85
0.5
RoE (%)
2012
2007
48
24
19
19
29
23
23
13
19
9
5
14
24
32
34
14
48
37
34
25
83
38
24
20
90
85
29
31
20
23
24
29
39
37
37
41
15
30
34
27
26
12
27
33
21
13
10
9
51
38
19
31
21
44
11
36
24
5
28
31
38
14
109
65
26
144
25
35
30
25
27
25
12
22
33
21
35
28
66
38
17
5
23
18
31
43
28
32
24
28
19
19
22
21
25
38
20
28
31
29
P/E (x)
2012
2007
29
12
14
4
12
7
19
13
19
16
761
70
13
10
32
33
34
35
33
17
27
18
10
11
46
28
56
23
38
20
27
22
32
26
24
18
9
7
12
10
12
16
17
10
6
7
34
23
34
33
28
48
23
20
266
31
8
19
24
20
14
18
34
25
29
24
76
38
16
18
29
26
108
35
18
19
29
21
19
18
12
33
11
15
34
38
40
29
15
12
23
27
23
17
25
29
6
5
26
20
12 December 2012 42

Wealth Creation Study 2007-2012
Appendix II: MOSL 100 – Fastest Wealth Creators
(contd.)
Ranked according to The fastest Wealth Creators
Rank
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
2007-12 Price
CAGR (2007-12, %) Wealth Created
Company
CAGR (%) Multiple (x)
PAT
Sales
INR b Share (%)
Havells India
21
2.6
30
35
46
0.3
Yes Bank
21
2.6
60
61
75
0.5
Motherson Sumi
21
2.6
15
57
43
0.3
Federal Bank
21
2.6
21
25
33
0.2
Apollo Hospitals
21
2.6
25
27
50
0.3
Allahabad Bank
21
2.6
20
26
45
0.3
Cairn India
21
2.5
100
164
374
2.3
Bosch
20
2.5
19
16
157
1.0
Divi's Lab
20
2.5
23
21
61
0.4
NMDC
20
2.4
26
22
377
2.3
Canara Bank
19
2.4
17
22
110
0.7
Dr Reddy's Labs
19
2.4
8
8
175
1.1
Britannia Inds
19
2.4
14
19
41
0.2
Hindustan Zinc
19
2.3
3
6
321
2.0
Axis Bank
19
2.3
45
38
247
1.5
BPCL
18
2.3
-18
17
144
0.9
Sesa Goa
18
2.3
33
32
81
0.5
Kotak Mahindra
18
2.3
28
34
211
1.3
Union Bank (I)
18
2.3
16
23
57
0.4
Dabur India
18
2.2
18
21
103
0.6
State Bank of India
17
2.2
19
22
556
3.4
HDFC
17
2.2
26
36
558
3.4
Bank of India
17
2.2
20
26
81
0.5
GAIL (India)
16
2.1
12
22
252
1.5
GSK Pharma
15
2.1
10
9
99
0.6
United Breweries
15
2.0
18
25
70
0.4
Grasim Inds
15
2.0
4
12
195
1.2
MRPL
15
2.0
12
14
60
0.4
Hind Unilever
15
2.0
11
14
457
2.8
Tata Power
15
2.0
-204
32
109
0.7
Punjab Natl Bank
14
2.0
25
26
135
0.8
Tata Motors
14
2.0
46
39
499
3.0
UltraTech Cement
14
2.0
23
31
178
1.1
Piramal Enterprises
14
1.9
-20
-2
56
0.3
TCS
14
1.9
20
21
1,082
6.6
ACC
13
1.8
3
12
117
0.7
Tata Global
13
1.8
1
11
32
0.2
M&M
12
1.8
14
29
206
1.3
Power Finance Corp
12
1.8
22
28
89
0.5
Neyveli Lignite
11
1.7
20
19
59
0.4
Tata Chemicals
11
1.7
13
19
32
0.2
HCL Technologies
11
1.7
14
28
137
0.8
Maruti Suzuki
10
1.6
-1
19
153
0.9
Larsen & Toubro
10
1.6
20
26
290
1.8
IDFC
10
1.6
25
33
57
0.3
Ambuja Cements
10
1.6
2
15
99
0.6
Godrej Inds
10
1.6
83
19
30
0.2
Ashok Leyland
10
1.6
6
13
30
0.2
Infosys
7
1.4
17
19
516
3.1
Siemens
7
1.4
17
15
72
0.4
TOTAL / AVG
20
2.5
21
23
16,380
100
RoE (%)
2012
2007
46
47
23
14
9
38
14
21
10
10
19
18
18
0
25
25
27
42
33
47
16
19
29
32
54
18
22
80
20
19
5
21
15
47
15
18
14
19
41
57
16
16
19
19
15
20
18
23
30
34
11
17
17
37
13
20
87
64
-5
13
20
15
52
32
20
56
1
22
38
56
19
41
8
17
14
30
17
13
12
7
16
21
28
37
10
25
16
30
13
18
16
35
4
3
20
27
29
42
23
36
19
21
P/E (x)
2012
2007
19
23
13
42
28
20
10
6
39
36
5
4
8
0
24
24
19
21
9
11
6
5
21
13
37
30
11
5
11
21
30
5
6
10
22
30
7
6
29
30
9
8
18
22
7
7
11
9
33
26
113
104
10
10
13
11
35
29
0
14
6
9
6
13
19
12
102
22
22
29
20
12
21
11
14
12
8
10
10
15
9
9
14
15
26
15
18
25
13
19
22
15
39
454
14
12
20
29
30
48
16
16
12 December 2012 43

Wealth Creation Study 2007-2012
Appendix III: MOSL 100 – Wealth Creators (alphabetical)
Alphabetically arranged
Company
WC Rank
Biggest Fastest
Wealth Created
INR b
Price
Price
CAGR Multi.
(%)
(x)
117
13
1.8
56
36
4.6
45
21
2.6
99
10
1.6
50
21
2.6
30
10
1.6
237
33
4.2
37
28
3.5
247
19
2.3
144
18
2.3
193
30
3.7
81
17
2.2
41
41
5.6
43
32
4.0
37
35
4.5
28
30
3.7
157
20
2.5
41
19
2.4
113
28
3.4
374
21
2.5
110
19
2.4
105
38
5.0
107
27
3.4
69
54
8.7
51
30
3.7
85
21
2.6
103
18
2.2
61
20
2.5
175
19
2.4
47
52
8.0
45
33
4.1
60
27
3.4
88
29
3.6
33
21
2.6
43
31
3.8
252
16
2.1
56
25
3.1
100
27
3.3
30
10
1.6
195
15
2.0
94
39
5.2
99
15
2.1
34
25
3.1
558
17
2.2
46
21
2.6
137
11
1.7
744
22
2.7
274
25
3.0
457
15
2.0
123
26
3.2
Company
WC Rank
Biggest Fastest
Wealth Created
INR b
Price
Price
CAGR Multi.
(%)
(x)
321
19
2.3
57
10
1.6
64
22
2.7
39
31
3.8
118
50
7.6
516
7
1.4
27
23
2.8
1,187
25
3.0
436
47
6.9
31
22
2.7
211
18
2.3
290
10
1.6
106
57
9.6
183
34
4.4
206
12
1.8
41
23
2.9
60
15
2.0
70
23
2.8
153
10
1.6
671
48
7.0
43
21
2.6
28
24
3.0
354
38
4.9
59
11
1.7
377
20
2.4
47
23
2.8
95
32
4.0
61
26
3.1
56
14
1.9
89
12
1.8
135
14
2.0
81
18
2.3
79
28
3.5
100
38
5.0
72
7
1.4
556
17
2.2
377
22
2.7
32
11
1.7
32
13
1.8
499
14
2.0
109
15
2.0
1,082
14
1.9
166
40
5.4
37
26
3.2
67
28
3.4
32
89
24.0
178
14
2.0
57
18
2.3
70
15
2.0
75
21
2.6
ACC
Alfa Laval (I)
Allahabad Bank
Ambuja Cements
Apollo Hospitals
Ashok Leyland
Asian Paints
Astrazeneca Pharma
Axis Bank
BPCL
Bank of Baroda
Bank of India
Bata India
Bhushan Steel
Blue Dart Express
BOC India
Bosch
Britannia Inds
Cadila Healthcare
Cairn India
Canara Bank
Castrol India
Colgate-Palmolive
Coromandel Inter
CRISIL
Cummins India
Dabur India
Divi's Lab
Dr Reddy's Labs
Eicher Motors
Emami
Engineers India
Exide Inds
Federal Bank
GMDC
GAIL (India)
Gillette India
Godrej Consumer
Godrej Inds
Grasim Inds
GSK Consumer
GSK Pharma
Guj Gas Company
HDFC
Havells India
HCL Technologies
HDFC Bank
Hero Motocorp
Hind Unilever
Hindustan Copper
36
71
78
47
74
97
20
87
19
31
24
53
85
81
88
98
29
84
37
13
38
42
40
60
73
52
43
63
27
75
79
65
51
91
82
18
72
45
96
23
49
46
90
5
77
32
3
17
9
34
86
14
56
96
55
98
17
28
65
66
23
73
8
19
15
24
58
63
30
57
61
11
32
3
25
50
70
59
62
4
18
31
26
54
21
74
37
33
97
77
10
75
38
72
51
92
46
40
79
34
Hindustan Zinc
IDFC
Indian Bank
Indraprastha Gas
IndusInd Bank
Infosys
Ipca Labs
ITC
Jindal Steel
Kansai Nerolac
Kotak Mahindra
Larsen & Toubro
LIC Housing Finance
Lupin
M&M
M & M Financial
MRPL
Marico
Maruti Suzuki
MMTC
Motherson Sumi
MRF
Nestle India
Neyveli Lignite
NMDC
P & G Hygiene
Petronet LNG
Pidilite Inds
Piramal Enterprises
Power Finance Corp
Punjab Natl Bank
Sesa Goa
Shree Cement
Shriram Transport
Siemens
State Bank of India
Sun Pharma
Tata Chemicals
Tata Global
Tata Motors
Tata Power
TCS
Titan Inds
Torrent Pharma
Torrent Power
TTK Prestige
UltraTech Cement
Union Bank (I)
United Breweries
Yes Bank
15
69
62
86
35
7
100
1
10
95
21
16
41
25
22
83
66
59
30
4
80
99
14
67
11
76
48
64
70
50
33
54
55
44
57
6
12
92
93
8
39
2
28
89
61
94
26
68
58
56
64
95
49
22
5
99
45
39
7
47
68
94
2
16
88
42
78
43
93
6
53
41
13
90
60
44
20
36
84
89
81
67
27
12
100
71
48
91
87
82
80
85
9
35
29
1
83
69
76
52
12 December 2012 44

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