Thematic Study
15 December 2010
15TH ANNUAL WEALTH CREATION STUDY (2005-2010)
UU Investing
Creating wealth from the unknown and unknowable
HIGHLIGHTS
UU situations offer
asymmetric payoffs; these
can be exploited only by
investors with
complementary skills and
unusual judgement
Low payback ratio remains
the most reliable valuation
indicator of fastest wealth
creation
Ten Trillion
TTS – Ten Trillion Dollar
Savings through 2020 – will
throw up many UU investing
opportunities in Indian
financial services
WEALTH CREAT
(2005
201
TOP 10 WEALTH CREATORS (200 5 - 20 10)
THE BIGGEST
Wealth
Rank Company
Created
(Rs b)
1 Reliance Inds.
2,556
2 ONGC
1,092
3 NMDC
1,014
4 NTPC
1,000
5 BHEL
980
6 Infosys Technologies
870
7 TCS
838
8 State Bank of India
802
9 Larsen & Toubro
799
10 Bharti Airtel
792
THE FASTEST
Company
Unitech
Areva T&D
Jindal Steel
Adani Enterprises
Sesa Goa
Shriram Transport
Exide Inds
Titan Inds
Bhushan Steel
Hind Copper
/
THE MOST CONSISTENT
5-Y
5-Year
Price
CAGR (%)
95
85
82
73
67
57
56
52
52
51
Appeared
Company
in WC
Study (x)
Hero Honda Motor
10
Sun Pharma
10
Asian Paints
10
HDFC
10
HDFC Bank
10
Reliance Inds
10
Infosys
10
Kotak Mahindra Bank
9
Hind Zinc
9
ONGC
9
10-Y
10-Year
Price
CAGR (%)
33.9
33.2
32.3
29.1
26.7
23.7
19.9
58.9
56.7
32.3
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.
 Market Research | Indian Economy | Corporate Sectors | Equity Investment Ideas - MotilalOswal.com
Wealth Creation Study 2005-2010
Contents
Objective, Concept and Methodology
........................................................................
3
Wealth Creation Study 2005-2010: Findings
.........................................................
4-17
Theme 2011: UU Investing -
Creating wealth from the unknown and unknowable
........
18-35
Market Outlook
....................................................................................................
36-38
Appendix I: MOSL 100 – Biggest Wealth Creators
..........................................
39-40
Appendix II: MOSL 100 – Fastest Wealth Creators
.........................................
41-42
Appendix III: MOSL 100 – Wealth Creators (alphabetical).............................. 43-44
Abbreviations and Terms used in this report
ABBREVIATION / TERM
DESCRIPTION
2005, 2010, etc
Avg
CAGR
L to P / P to L
Price CAGR
RS B
WC
Wealth Created
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.
15 December 2010
2
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Wealth Creation Study 2005-2010
Wealth Creation Study 2005-2010
Objective, Concept and Methodology
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
For the purpose of our study*, we have identified the top 100 Wealth Creators in the Indian
stock market for the period 2005-2010. These companies have the distinction of having
added at least Rs1b to their market capitalization over this period of five years, after
adjusting for dilution. We have termed the group of Wealth Creators as the ‘MOSL
- 100’.
The biggest and fastest Wealth Creators have been listed in Appendix I and II on page 39
and 41, respectively. Ranks have been accorded on the basis of Size and Speed of Wealth
Creation (speed is price CAGR during the period under study).
On the cover page, we have presented the top 10 companies in terms of Size of Wealth
Creation (called THE BIGGEST), the top 10 companies in terms of Speed of Wealth
Creation (called THE FASTEST), and the top 10 companies in terms of their frequency of
appearance as wealth creators in our Wealth Creation studies (called THE MOST
CONSISTENT).
Theme 2011
Our Theme for 2011 is
Investing in the unknown and unknowable,
discussion on
which starts from page 18.
* Capitaline database has been used for this study
15 December 2010
3
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Wealth Creation Study 2005-2010
Findings
Wealth Creation
2005-2010
The 15
TH
Annual Study
Findings
15 December 2010
4
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Wealth Creation Study 2005-2010
Findings
Wealth Creation
2005-2010
The Biggest Wealth Creators
Reliance is No.1
Reliance Industries has emerged as the biggest
wealth creator for the fourth time in a row.
Over FY05-10, Reliance’s stock price CAGR at
37% is significantly higher than its PAT CAGR of
16.5%. Valuations have seen a sharp re-rating (P/
E of 22x vs 10x in FY05), led by huge expectations
from KG-D6.
For the last seven years, the biggest wealth creator
in India has emerged from the Oil & Gas sector –
ONGC in the first three years and Reliance in the
next four.
The current firm trend in crude prices is likely to
ensure no major change in the above equation for
some more time to come.
TOP 10 BIGGEST WEALTH CREATORS
RANK COMPANY
NET WEALTH CREATED
RS B
% SHARE
PRICE
CAGR (%)
PAT
CAGR (%)
P/E (X)
FY10
FY05
1
2
3
4
5
6
7
8
9
10
Reliance Inds.
ONGC
NMDC
NTPC
BHEL
Infosys
TCS
State Bank of India
Larsen & Toubro
Bharti Airtel
2,556
1,092
1,014
1,000
980
870
838
802
799
792
9.6
4.1
3.8
3.8
3.7
3.3
3.2
3.0
3.0
3.0
37.1
13.3
50.3
19.3
44.1
18.4
16.9
27.4
45.6
24.7
16.5
5.2
35.5
8.5
35.2
25.0
25.1
16.3
34.8
50.8
21.6
14.0
33.8
19.6
27.1
25.9
27.2
14.4
22.4
12.6
10.0
9.7
20.1
12.2
19.7
32.0
37.6
8.0
13.1
31.7
BIGGEST WEALTH CREATORS AND WEALTH
CREATED (RS B): OIL & GAS DOMINATES
SHARE OF TOP 10 WEALTH CREATORS IN TOTAL
WEALTH CREATION STEADILY DECLINING (%)
Key Finding
Wealth creation in India is getting dispersed. The
share of top 10 wealth creators is on a secular
declining trend - from 76% in FY03 to as low as
41% in FY10.
15 December 2010
5
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
2,556 Reliance Inds
1,514 Reliance
3,077 Reliance Inds
1,856 Reliance Inds
1,678 ONGC
1,065 ONGC
1,030 ONGC
245 Wipro
383 Wipro
377 Hind. Lever
1,247 Wipro
341 Hind. Lever
262 Hind. Lever
73 Hind. Lever
91 Hind. Lever
76
59
53
50
45
41
51
49
2003
2004
2005
2006
2007
2008
2009
2010
 Market Research | Indian Economy | Corporate Sectors | Equity Investment Ideas - MotilalOswal.com
Wealth Creation Study 2005-2010
Findings
Wealth Creation
2005-2010
The Fastest Wealth Creators
Unitech is No.1
Unitech is the Fastest Wealth Creator during 2005-
10, for the third time in a row.
Unitech has featured among the Top 10 fastest
wealth creators for the last five years in a row.
However, considering the current headwinds in the
real estate sector coupled with high valuation, a
change in leadership is inevitable going forward.
Five out of the top 10 fastest wealth creators had
base market cap of less than Rs10b, and seven had
less than Rs15b. The current de-rating of mid-caps
in the Indian markets offers excellent opportunities
for picking up the fastest wealth creators over the
next five years.
Key Finding
The key trigger for fastest wealth creation is a
situation of UU (unknown and unknowable), the
theme of this year's study. A stock's journey from
UU to KK (known and knowable) is marked by high
growth in earnings coupled with sharp valuation re-
rating, leading to rapid wealth creation.
15 December 2010
6
TOP 10 FASTEST WEALTH CREATORS
RANK COMPANY
PRICE APPRE- PRICE
CIATION (X) CAGR (%)
PAT
CAGR (%)
MCAP (RS B)
FY10
FY05
P/E (X)
FY10
FY05
1
2
3
4
5
6
7
8
9
10
Unitech
Areva T&D
Jindal Steel
Adani Enterprises
Sesa Goa
Shriram Transport
Exide Inds
Titan Inds
Bhushan Steel
Hind Copper
28
22
20
16
13
10
9
8
8
8
95
85
82
73
67
57
56
52
52
51
79
55
23
19
36
78
47
59
41
23
179.0
72.9
653.9
248.2
391.4
118.2
105.5
81.7
71.3
493.5
4.2
2.8
32.3
13.5
28.8
3.6
10.6
9.8
32.9
37.9
44.2
97.6
18.5
13.5
19.6
32.6
14.1
13.2
6.3
12.4
6.2
7.3
13.7
39.3
5.5
88.1
8.4
8.4
49.3 319.0
HISTORY OF FASTEST WEALTH CREATOR (PRICE APPRECIATION - X)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
28
Unitech
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
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Wealth Creation Study 2005-2010
Findings
Wealth Creation
2005-2010
Most Consistent Wealth Creators
Hero Honda is Most Consistent
Seven companies have featured among the top 100
wealth creators in each of the last 10 years. Hero
Honda is ranked as the most consistent by virtue of
its 10-year price CAGR being the highest at 34%.
Consumer-facing non-cyclical businesses tend to
be consistent wealth creators due to low volatility
in their earnings. For the first time, four non-
consumer companies have made it to the top 10 –
Reliance, Infosys, Hindustan Zinc and ONGC. The
global rise in commodity prices suggests that
commodity stocks may increasingly feature in the
list of consistent wealth creators.
TOP 10 CONSISTENT WEALTH CREATORS
RANK COMPANY
APPEARED IN LAST
10 WC STUDIES (X)
10-YR PRICE
CAGR (%)
PAT
CAGR (%)
P/E (X)
2010
2005
1
2
3
4
5
6
7
8
9
10
Hero Honda Motor
Sun Pharma
Asian Paints
HDFC
HDFC Bank
Reliance Inds
Infosys
Kotak Mahindra Bank
Hind.Zinc
ONGC
10
10
10
10
10
10
10
9
9
9
33.9
33.2
32.3
29.1
26.7
23.7
19.9
58.9
56.7
32.3
22.5
24.1
34.8
22.2
34.7
16.5
25.0
45.9
43.9
5.2
17.4
41.2
25.3
27.6
30.0
21.6
25.9
46.5
12.6
14.0
13.5
28.6
21.6
17.5
25.3
10.0
32.0
49.5
11.0
9.7
CONSUMER FACING COMPANIES SCORE HIGH ON CONSISTENT WEALTH CREATION
Consistent Wealth Creators - 2005 to 2010
Consumer Facing
Non-Consumer Facing
Key Finding
Consistent wealth creators have a remarkable track
record of steady earnings growth. This makes them
relatively immune to wide fluctuations in valuation,
causing stock prices to consistently appreciate over
long periods of time.
15 December 2010
7
Pharma
Cipla (3)
Dr Reddy's Lab (2)
GSK Pharma (1)
Piramal Health. (3)
Ranbaxy Lab (3)
Sun Pharma (3)
FMCG
Asian Paints (3)
ITC (4)
Nestle India (1)
Others
Hero Honda (5)
HDFC (5)
HDFC Bank (2)
Kotak Mah. Bk (1)
IT
Infosys (4)
Wipro (2)
Satyam (2)
Others
Reliance Inds (3)
Ambuja Cement (1)
Hind.Zinc (1)
O N G C (1)
Number in brackets indicates times appeared within top 10 in last six years, 2005 to 2010
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Wealth Creation Study 2005-2010
Findings
Wealth Creators (Wealthex)
Comparative Performance
v/s BSE Sensex
Superior 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 a point-
to-point return of 240% (28% CAGR), which is 70%
higher than the benchmark return of 170% (22%
CAGR).
Earnings growth:
Over the last five years, wealth
creating companies' earnings are up 130% (18%
CAGR) compared to benchmark earnings growth
of 84% (13% CAGR).
Valuation:
Despite superior earnings performance,
wealth creating companies' valuations remain lower
compared to benchmark.
Key Finding
Long-term wealth creating companies defy the
investing maxim of "higher-risk-higher-return". Their
stock prices outperform markets without trading at
significant valuation premiums.
15 December 2010
8
WEALTH CREATORS’ INDEX V/S BSE SENSEX (31.3.05 TO 31.3.10)
Wealthex - Rebased
32,000
Sensex
70% Outperformance
24,000
16,000
8,000
0
SENSEX V/S WEALTH CREATORS: HIGHER EARNINGS GROWTH, LOWER VALUATION
MAR-05
MAR-06
MAR-07
MAR-08
MAR-09 MAR-10
5-YEAR
CAGR (%)
BSE Sensex
CAGR (%)
YoY Performance (%)
Wealthex - based to Sensex
CAGR (%)
YoY Performance (%)
Sensex EPS (Rs)
YoY Performance (%)
Sensex P/E (x)
Wealthex EPS (Rs)
YoY Performance (%)
Wealthex P/E (x)
6,493
6,493
450
14.4
497
13.1
11,280
73.7
73.7
11,035
70.0
70.0
523
16.4
21.6
566
13.8
19.5
13,072
41.9
15.9
12,568
39.1
13.9
718
37.3
18.2
774
36.8
16.2
15,644
34.1
19.7
17,154
38.2
36.5
833
16.0
18.8
963
24.4
17.8
9,709
10.6
(37.9)
11,470
15.3
(33.1)
820
(1.7)
11.8
954
(0.9)
12.0
17,528
22.0
80.5
22,054
27.7
92.3
829
1.2
21.1
1,141
19.5
19.3
22.0
27.7
13.0
18.1
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Wealth Creation Study 2005-2010
Findings
(RS B)
PRICE
CAGR
(%)
PAT
CAGR
(%)
P/E (X)
2010
2005
Wealth Creation
Classification By
Industry
Metals/Mining - the new leader after six years:
For the first time since 2004, Oil & Gas has lost its
position as the biggest wealth creating sector. The
new leader, Metals/Mining, has steadily increased
its share of wealth from 13% in FY05 to 19% in
FY10.
Emergence of the service sector:
Finance,
Engineering and IT and close on the heels of the
commodity sectors in the pecking order of wealth
creation. Steadily rising share of services in India’s
GDP will pave the way for these businesses to
eventually take the lead in wealth creation as well.
WEALTH CREATORS: CLASSIFICATION BY INDUSTRY
INDUSTRY
WEALTH
CREATED
(RS B)
SHARE OF WEALTH
CREATED (%)
2010
2005
Metals / Mining (13)
Oil & Gas (7)
Banking & Finance (15)
Engineering (11)
IT (7)
FMCG / Retail (14)
Ultility (4)
Auto (8)
Pharma (8)
Telecom (1)
Cement (5)
Const./Real Estate (2)
Others (5)
Total
4,949
4,412
3,879
2,722
2,679
1,878
1,470
1,303
1,009
792
521
334
574
26,522
18.7
16.6
14.6
10.3
10.1
7.1
5.5
4.9
3.8
3.0
2.0
1.3
2.2
100.0
12.6
36.9
15.8
7.3
0.2
3.4
3.5
6.8
4.8
0.0
3.0
0.0
5.6
100.0
40.4
21.0
32.7
42.9
19.1
26.3
20.6
28.3
29.9
25.3
22.6
66.3
32.5
27.7
12.9
10.9
23.6
32.5
27.0
18.1
8.3
20.8
27.5
50.8
30.5
56.8
7.9
18.0
21.5
15.5
16.5
25.8
24.5
27.3
20.9
17.8
27.3
12.6
12.6
22.1
28.7
19.3
7.2
10.0
11.6
17.7
33.7
19.4
12.2
13.2
24.9
31.7
17.2
16.4
10.3
13.0
NEW ECONOMY PERFORMANCE IN THE TOP 100 WEALTH CREATORS
No of Companies
20
12
10
10
1
2000-05
1
5
2001-06
2002-07
10
% Wealth Created
16
14.0
11
11
Key Finding
Sustained commodity boom is reflected in FY05-10
wealth creation. In the years ahead, users of
commodities will have challenging times unless their
franchise is very strong. Service sectors like
banking, telecom and IT could bring surprises in terms
of wealth creation.
15 December 2010
9
2003-08
2004-09
2005-10
Old economy vs New
economy:
Telecom has
faced the biggest setback,
slipping from 5th position
last year to 10th this year.
Also, only one telecom
company (Bharti) features
among the top 100 wealth
creators compared to four
in our last year’s study.
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Wealth Creation Study 2005-2010
Findings
MNC WEALTH CREATION BY SECTOR
Wealth Creators
Classification By
Ownership: MNCs v/s Indian
The Indianization of markets
In five of our first six wealth creation studies (1996
to 2001), Hindustan Lever (now Hindustan
Unilever) was the biggest wealth creator.
But since then, share of MNCs in stock market
wealth creation is steadily declining. The two key
reasons are –
1. The rise of Indian entrepreneurship; and
2. MNCs increasingly participating in the India
story through non-listed companies (Coca Cola,
Pepsi, Hyundai, Toyota, McDonald’s, Nokia,
Samsung, etc).
And though their share in total wealth creation is
down, MNCs continue to deliver wealth to investors
– stock price CAGR of 25% on the back of PAT
CAGR of 19%, with superior RoEs and premium
valuations compared to Indian companies.
Key Finding
Future for MNCs looks very promising as technology
and brand intensive companies will do well as the
Indian economy evolves.
15 December 2010
10
WEALTH CREATORS: MNCs V/S INDIAN COMPANIES
2005-2010
MNC
INDIAN
Pharma
4%
IT
10%
Number of Wealth Creators
% Wealth Created
Sales CAGR (%)
PAT CAGR (%)
Price CAGR (%)
P/E - 2005 (x)
P/E - 2010 (x)
RoE - 2005 (%)
RoE - 2010 (%)
16
9.4
19.5
19.2
25.3
19.0
24.4
28.8
30.3
84
90.6
18.1
18.0
28.0
12.6
18.9
22.2
17.2
FMCG
50%
Auto
18%
Engg
18%
MNCs ARE WANING IN WEALTH CREATION BUT RECOVER SOMEWHAT IN 2005-2010
50
Top Wealth Creating MNCs
Share of Wealth Created (%)
30
43
23
15
3
21
19
16
10
8
11
2
7
10
7
7
23
12
16
10
10
14
9
1994-99 1995-00 1996-01 1997-02 1998-03 1999-04 2000-05 2001-06 2002-07 2003-08 2004-09 2005-10
 Market Research | Indian Economy | Corporate Sectors | Equity Investment Ideas - MotilalOswal.com
Wealth Creation Study 2005-2010
Findings
PSU WEALTH CREATION BY SECTOR
PRIVATE
Wealth Creators
Classification By
Ownership: PSU v/s Private
PSU underperformance continues
PSU share of wealth creation has increased from
16% in our last study to 22% this year, thanks mainly
to ONGC, NMDC and NTPC.
However, in fundamental parameters, PSUs
continue to underperform their private counterparts
– FY05-10 Sales CAGR of 14% (23% for private)
and PAT CAGR of 12% (24% for private).
PSU Price CAGR at 23% is higher than PAT
CAGR due to valuation re-rating of NMDC and
NTPC. Still, this is lower than the private sector
price CAGR of 30%.
WEALTH CREATORS: PSU V/S PRIVATELY-OWNED
2005-2010
PSU
Number of Wealth Creators in Top 100
Share of Wealth Created (%)
5-year Sales CAGR (%)
5-year PAT CAGR (%)
5-year Price CAGR (%)
P/E - 2005 (x)
P/E - 2010 (x)
RoE - 2005 (%)
RoE - 2010 (%)
22
30.5
14.3
11.7
23.0
9.5
15.4
21.9
18.0
78
69.5
22.6
23.8
30.3
17.0
22.0
23.2
17.7
Mining &
Metals
30%
Oil & Gas
21%
Utilities
14%
Others
1%
Banks
19%
Engg
15%
DEREGULATION DIMINISHES ROLE OF STATE-OWNED COMPANIES IN WEALTH CREATED
No of PSUs
48.5
50.6
% Wealth Created
35.9
28
30
26
24.8
34.6
27.0
25
18
16
22
30.5
Key Finding
PSU share of India's market capitalization is set to
increase due to: (1) listing of mining companies led
by Coal India, and (2) recapitalization of PSU banks.
15 December 2010
11
1999-2004
2000-2005
2001-2006
2002-2007
2003-2008
2004-2009
2005-2010
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Wealth Creation Study 2005-2010
Findings
Wealth Creators
Classification By
Age Group and Market Cap
Getting better with age?
For the first time ever, companies in the age group
of 0-10 years have delivered market returns below
the group average.
Till last year, this group had companies such as
HDFC Bank, ICICI Bank and JSW Steel which
have since moved to the 11-20 years bracket.
Further, performance of the remaining stars, Bharti
and TCS, was slower than in the past.
The fastest wealth creating age group is 31-40 led
by Unitech, Sesa Goa and Hindustan Copper, all of
which individually feature in the list of top 10 fastest
wealth creators.
WEALTH CREATORS: CLASSIFICATION BY AGE-GROUP
NO. OF
YEARS
NO. OF
COS.
WEALTH CREATED
(RS B)
% SHARE
OF WC
PAT
CAGR (%)
PRICE
CAGR (%)
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
>90
Total
7
22
21
8
12
15
4
2
3
6
100
2,155
4,506
5,601
4,855
3,948
2,779
504
352
407
1,415
26,522
8.1
17.0
21.1
18.3
14.9
10.5
1.9
1.3
1.5
5.3
100.0
40.2
13.3
18.1
14.1
18.4
20.4
29.7
14.3
17.1
17.8
18.0
23.9
25.6
27.6
39.3
29.2
26.0
30.4
14.7
27.4
23.0
27.7
PRICE CAGR AND PAT CAGR BY BASE MARKET CAP RANGE
40
39
Price CAGR (%)
PAT CAGR (%)
Avg Price CAGR: 28%
Avg PAT CAGR: 18%
24
26
28
18
13
14
29
26
18
20
30
30
27
23
17
15
14
18
Key Finding
Age may well have no bar on size and speed of
wealth creation, but small is still beautiful.
Companies with base market cap of less than Rs50b
in FY05, handsomely outperformed their larger peers,
both in terms of PAT CAGR and Price CAGR.
15 December 2010
12
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
>90
Base Market Cap Range (Rs b)
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Wealth Creation Study 2005-2010
Findings
Wealth Creators
Classification By
Sales and Earnings Growth
The safety of growth
Companies with sales growth over 20% and profit
growth over 30% have delivered above-average
stock price returns. This much is easily explained.
But what is interesting is that high growth companies
have delivered high stock performance despite
sharp de-rating in their valuations.
Markets tend to overly focus on P/E to determine
whether a stock is expensive or not. In the case of
hyper growth companies, a superior approach would
be consider the absolute PAT and MCap and
juxtapose the same with the size of the business
opportunity that lies ahead.
Hyper growth stocks will always appear expensive
and yet deliver superior returns.
Key Finding
Hyper growth in sales and profit are typically possible
in UU situations (unknown & unknowable, see theme
section). Markets are unable to price these situations
appropriately, resulting in huge wealth creation at a
rapid pace.
15 December 2010
13
WEALTH CREATORS: CLASSIFICATION BY SALES GROWTH
SALES GR.
RANGE
(%)
NO. OF
COS.
SHARE
OF WC
(%)
PRICE
CAGR
(%)
PAT
CAGR
(%)
2010
2005
2010
2005
ROE (%)
P/E (X)
0-10
10-20
20-30
30-40
40-50
>50
Total
9
37
36
8
4
6
100
10.3
25.9
52.1
7.3
1.8
2.6
100.0
18.7
22.3
32.6
35.0
45.9
48.0
27.7
3.4
14.1
26.0
47.4
54.9
57.3
18.0
18.4
17.1
18.2
19.5
16.9
12.4
17.8
31.5
20.5
21.1
20.3
13.9
5.6
22.5
16.1
16.7
22.2
19.2
16.9
31.6
19.3
8.1
11.8
17.2
29.8
22.8
42.8
13.0
PRICE CAGR (%) BY 2005-10 PAT GROWTH RANGE
CLASSIFICATION BY PAT GROWTH
PAT GR.
RANGE (%)
NO. OF
COS
PRICE
CAGR (%)
P/E (X)
2010
2005
51
46
43
37
0-10
10-20
20-30
30-40
40-50
50-70
>70
Total
15
16
28
18
7
10
6
100
18.4
26.8
25.3
42.8
45.7
37.4
50.8
27.7
15.9
18.4
23.2
21.7
17.5
19.8
16.6
19.3
8.7
11.6
22.1
16.4
17.4
33.7
54.2
13.0
27
18
25
0-10
10-20
20-30
30-40
40-50
50-70
>70
PAT Growth Range (%)
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Wealth Creation Study 2005-2010
Findings
Wealth Creators
Classification By
RoE
Indian markets: The growth v/s quality
dilemma persists
FY05-10 data suggests that companies with RoE
of less than 10% in FY05 delivered significantly
superior returns over the next five years. This is
counter-intuitive as RoE is supposed to be a key
indicator of the quality of company’s earnings.
But typically, RoEs are low when the companies
are in the investment mode, or are faced with a
cyclical downturn. At these times, even P/Es look
very high. However, from such a low base, the
companies are able to deliver very high earnings
growth over the medium term at least.
Going by past returns, Indian markets still seem to
reward growth higher than quality.
WEALTH CREATORS: CLASSIFICATION BY BASE ROE
2005 ROE
RANGE (%)
NO. OF
COS.
SHARE OF
WC (%)
PRICE
CAGR
(%)
PAT
CAGR (%)
ROE (%)
2010
2005
P/E (X)
2010
2005
<5
5-10
10-15
15-20
20-25
25-30
30-40
>40
Total
5
7
13
21
13
17
12
12
100
5
3
11
18
15
24
12
12
100
46
32
29
28
32
26
26
23
28
65.1
34
20
19
18
17
23
11
18
7.7
12
15
15
16
21
23
25
18
2.7
8
13
18
21
28
33
57
23
59
20
21
16
19
19
22
19
19
110
22
15
11
11
13
19
11
13
WEALTH CREATORS: PRICE CAGR BY ROE
46
32
29
28
32
Avg Price CAGR: 28%
26
26
23
Key Finding
Contrary to popular perception, rather than absolute
RoE markets give more importance to change in
RoE as it is an indicator of things to come.
15 December 2010
14
<5
5-10
10-15
15-20
20-25
25-30
30-40
>40
2005 RoE Range (%)
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Wealth Creation Study 2005-2010
Findings
Wealth Creators
Classification By
Valuation Parameters
Lower valuations are not equal to higher
returns: An aberration or a new trend?
In all of our recent wealth creation studies, we
maintained that three elements of a sure shot formula
for multi-baggers are -
1. PE of less than 10x
2. Price/Book of less than 1x
3. Price/Sales of 1x or less.
For the first time, data for the period FY05-10 defies
the above norms.
Stocks with P/Es in excess of 15x have delivered
higher returns than stocks with P/Es less than
10x.
Likewise, stocks with high P/B have delivered
higher than stocks with lower P/B.
WEALTH CREATORS: CLASSIFICATION BY VALUATION PARAMETERS (MARCH 2005)
NO. OF COS
% WEALTH CREATED
PRICE CAGR %
P/E (x)
<5
5-10
10-15
15-20
20-25
>25
Total
Price/Book (x)
<1.5
1.5-2.0
2-3
3-4
4-5
>5
Total
Price/Sales (x)
<0.5
0.5-1.0
1.0-1.5
1.5-2.0
2.0-3.0
3.0-5.0
>5.0
Total
2
19
24
18
13
24
100
3
18
30
15
9
25
100
30
23
29
33
33
27
28
10
14
22
17
11
26
100
8
10
32
17
8
25
100
31
20
29
36
29
24
28
6
13
20
16
15
16
14
100
2
11
24
11
12
18
22
100
15
37
34
34
20
27
27
28
15 December 2010
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Wealth Creation Study 2005-2010
Findings
Wealth Creators
Classification By
Valuation Parameters
(contd.)
Payback ratio of less than 1x continues to
guarantees high returns
The 4th element of our multi-bagger formula
referred to earlier is Payback ratio of less than 1x.
(We define payback ratio as current market cap
divided by estimated profits of next five years.)
Whereas our other 3 elements have failed the test
in this study, payback ratio of 1x continues to remain
a reliable indicator of significantly superior returns.
Over FY05-10, stocks with payback ratio greater
than 1x have delivered average returns at best.
WEALTH CREATORS: CLASSIFICATION BY VALUATION PARAMETERS (MARCH 2005)
NO. OF COS
% WEALTH CREATED
PRICE CAGR %
Payback Ratio (x)
<0.5
0.5-1
1-1.5
1.5-2
>2
Total
7
28
23
26
16
100
4
35
22
22
16
100
61
36
23
28
21
28
MEDIAN VALUATIONS (X)
2005
SENSEX
WEALTH CREATORS
SENSEX
2010
WEALTH CREATORS
Median P/E
Median P/B
Media P/S
15.3
3.2
2.5
16.9
3.1
1.9
21.4
3.5
3.2
22.0
4.1
3.3
Key Finding
Stocks with lower P/E and P/B have not necessarily
delivered superior returns over FY05-10. Chances
are high that this is an aberration.
In this context, it may be relevant to check out the
UU investing approach, covered in the theme section
of this report.
15 December 2010
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Wealth Creation Study 2005-2010
Findings
Wealth Destroyers
TOP-10 WEALTH DESTROYERS (2005-2010)
COMPANY
RS B
WEALTH DESTROYED
% SHARE
PRICE
CAGR (%)
Jet Airways
Indiabulls Fin.
63
38
26
26
25
17
17
16
14
13
255
650
10
6
4
4
4
3
3
3
2
2
39
100
-17
0
-15
-9
-18
-1
-28
-20
-22
-1
Wealth destroyed is 2% of wealth created
During FY05-10, total wealth destroyed at Rs650b
is about 2% of the total wealth created of Rs26,500b.
This reflects the significant recovery of the Indian
market over FY09. In our last study covering FY04-
09, wealth destroyed was a high 17% of the wealth
created.
Decline in profits will always be severely punished
by markets even in boom times.
Satyam Computer, Ranbaxy and MTNL were
featured in last year’s study as well. But some other
wealth destroyers of last year – Tata Motors, Tata
Steel, etc – have staged a remarkable comeback.
Satyam Computer
MTNL
Wockhardt
Ranbaxy Labs.
HFCL Infotel
Sundaram Clayton
Arvind Ltd
Videocon Inds.
Total of above
Total Wealth Destroyed
WEALTH DESTRUCTION BY INDUSTRY (%)
Textiles, 10.9
IT, 15.4
Pharma, 9.6
Key Finding
A positive approach towards wealth destroyers is
that if the factors which caused wealth destruction
are temporary, the bounceback holds potential for
significant wealth creation. Turnaround is a key UU
situation, and can offer favorable risk-reward ratio
(see UU investing in the theme section).
15 December 2010
17
Banking &
Finance, 8.1
Auto, 7.7
Telecom, 7.7
Engineering,
5.4
Others, 35.2
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Wealth Creation Study 2005-2010
Theme 2011
Wealth Creation
2005-2010
The 15
TH
Annual Study
Theme 2011
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Wealth Creation Study 2005-2010
Theme 2011
UU Investing
Creating wealth from the unknown and unknowable
"Learning to invest more wisely in a UU world may be the most promising way to
significantly bolster your prosperity."
- Richard Zeckhauser, Professor of Political Economy, Kennedy School, Harvard University *
1. Introduction
The stock market presents investors with situations of varying levels of uncertainty. In
many cases though, such uncertainty goes into a completely different dimension of non-
knowledge. Richard Zeckhauser of Harvard University calls this the "world of ignorance"
or "unknown and unknowable (UU)". Classical examples are: (1) a new company in a
new business (e.g. casino company in India), or (2) a company prospecting for precious
metals such as gold.
Traditional models of investing and finance do not apply in UU situations. And yet, wise
investors can go about systematically thinking through UU opportunities and earn
extraordinary returns. Legg Mason Value Fund manager Bill Miller's large subscription to
Google IPO and, more recently, Warren Buffett's investment in BYD (a Chinese company
making batteries and electric cars) are real-life examples of UU investing. Closer home,
Infosys' IPO in 1994 was a textbook UU situation. Of late, Vedanta group's series of
acquisitions in India - Balco, Hindustan Zinc, Sesa Goa and now Cairn India - have a
strong UU flavor.
In the traditional investing model, portfolio return in excess of benchmark is called "Alpha".
As Zeckhauser says, "Unknowable situations have been and will be associated with
remarkably powerful investment returns." We call the very high excess return possible
from UU situations "Omega".
Beta, Alpha, Omega - Thematic representation
… If these ways are
followed, they can provide a
path to extraordinary
expected investment
returns.
There are systematic ways
to think about unknowable
situations …
* The core idea in this report is
drawn from Richard
Zeckhauser's paper, "Investing
in the unknown and
unknowable". All quotes in this
note are from this paper,
unless otherwise stated.
15 December 2010
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Wealth Creation Study 2005-2010
Theme 2011
1.1 Report structure
We cover the theme in the subsequent pages as follows:
Backdrop to UU investing - understanding risk, uncertainty and ignorance
What is UU investing?
How to go about UU investing?
Case study: Indian banking stock ideas for 2020.
2. Backdrop to UU investing – understanding risk,
uncertainty and ignorance
In 1995, American mathematician Ralph Gomory wrote that all knowledge can be classified
into three states - (1) Known, (2) Unknown, and (3) Unknowable. Underlying these terms
is the concept of
probability distribution
i.e. a complete and exhaustive set of outcomes,
together with associated probabilities.
2.1 Known (or Risk):
This refers to a situation where the distribution is completely
specified. This is equivalent to Frank Knight's (1921) definition of risk - both outcomes and
probabilities are specified.
Example:
Based on long-term historic data, the distribution of automobile or life insurance
claims for an insurance company is more or less known.
The real world of investing
often ratchets the level of
non-knowledge into still
another dimension, where
even the identity and nature
of possible future states
are not known. This is
the world of ignorance.
In it, there is no way
that one can sensibly
assign probabilities to
the unknown states
of the world.
2.2 Unknown (or Uncertainty):
This refers to a situation where probabilities cannot be
assigned to at least part of the event space. This is equivalent to Knight's definition of
uncertainty - events are specified but probabilities are not.
Examples:
Terrorist attacks, systemic risk in financial systems, stock prices
2.3 Unknowable (or Ignorance):
This refers to a situation where even the events defining
the space cannot be identified in advance. Only after they occur, do they enter the domain
of uncertainty or risk, as the case may be. This is because the events are discontinuous -
there is no precedence or even an underlying model with which to explain them. A new
model will need to be conceived or conjectured.
Example:
Long-term future of a sunrise industry or a start-up company.
The following table captures the implications of these states of knowledge in investing.
Escalating challenges of effective investing
Investment
challenge
Risk
(K)
Uncertainty
(U)
Ignorance
(UU)
Knowledge of
states of the world
Outcomes known;
Probabilities known
Outcomes known;
Probabilities unknown
Outcomes or states
of the world unknown
Investment
environment
Distribution of
returns known
Distribution of returns
conjectured
Distribution of returns
conjectured, often from
deductions about other's
behavior
Complementary (i.e.
special investing) skills
often rewarded
Skills needed
Portfolio optimization
Stock market
relevance
Not very relevant as very
few outcomes, if any,
have known probabilities
Portfolio
optimization

Decision theory
Portfolio
optimization
Decision theory
Complementary skills
(mainly unusual
judgment)
Strategic inference
Faced by all stock market
investors
Profitably exploited by
intelligent investors
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Wealth Creation Study 2005-2010
Theme 2011
3. What is UU investing?
UU investing may be defined as the process of "identifying good investments when the
level of uncertainty is well beyond that considered in traditional models of finance".
If UU is a situation where future states of the world are unknown, then UU investing is
the art of "selecting assets that will fare well when future states of the world become
known."
3.1 Core essence of UU investing
1. Assessing asymmetric payoff using special skills:
Investors with special investing
skills such as strategic thinking, domain knowledge, and unusual judgment can identify
stock opportunities with very high payoff asymmetry i.e. significantly high upside for a
fixed maximum downside of 100%.
(Zeckhauser calls such special investing skills "complementary skills". Such skills are
also advantageous in situations such as venture capital where entrepreneurs approach
only those funds that not only bring in money, but also their connections and business
knowhow.)
2. Identifying unique situations with low competition and attractive price:
Most
investors - even speculators and arbitrageurs - tend to avoid UU situations due to: (1)
fear of capital loss due to ignorance or ambiguity, and (2) aversion to hindsight criticism,
if the investment decision goes wrong. As a result, there is hardly any competition for
UU investments, leading to an extremely attractive price.
3. Portfolio approach to diversify risks:
A reasonably diversified portfolio of such
UU investments ensures that even if only a couple of ideas play out as expected, the
huge positive payoffs from them will handsomely compensate for losses, if any, on all
the remaining ideas.
It would be surprising not to
see significant expected
excess returns to
investments that have three
characteristics:
(1) UU underlying features,
(2) complementary
capabilities are required
to undertake them, so
the investments are not
available to the general
market, and
(3) it is unlikely that a party
on the other side of the
transaction is better
informed.
3.2 Where UU is relevant
Empirical evidence suggests that in normal life, most massive gains (or losses) are the
outcome of positive (or negative) UU events. For instance, positive UU events could
include an unexpected lucrative job, or a low-value real estate holding exploding in value,
sharp surge in the value of gold accumulated over time, or even a lottery jackpot.
The classical arenas of UU are insurance and venture capital. However, the UU investing
technique can also be effectively deployed for stock market investments. The following
matrix provides more clarity on the terms known, knowable, unknown and unknowable in
the context of stock market investing.
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Wealth Creation Study 2005-2010
Theme 2011
The KK-UU matrix
Note: The arrow indicates
the typical path of stock
knowledge in the markets -
from the UU zone to the
UK zone to the KK zone
Key takeaways from the KK-UU matrix
All future is uncertain, and hence falls into the realm of the unknown.
When the future is broadly a continuity of the past, it becomes knowable through
methodic research and analysis.
In equity investing, the market typically rewards successful knowability (i.e. ability to
know) with a reasonable excess return over the benchmark i.e. Alpha.
When the future is discontinuous from the past, it enters the realm of the unknowable.
Rational decision-making and behavior in this situation calls for a radically different
skill-set culminating in unusual judgment, courage and patience.
The market handsomely rewards a successful journey from UU (unknown-unknowable)
to KK (known-knowable) i.e. Omega.
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Wealth Creation Study 2005-2010
Theme 2011
3.3 Past examples of UU investing
Example #1
Infosys:
at the time of IPO in 1994, which got undersubscribed
UU situation
Special investing skills
New company in a new sector
The Y2K opportunity
India's competitive advantage in
intellectual capital businesses
Management depth of Infosys
Domain knowledge of IT and its
potential
Knowledge of IT experience in other
countries
Assessment of Infosys' management
competence and character
Understanding of labor cost arbitrage
Infosys v/s Sensex
Infosys
Sensex - Rebased
1,600
Payoff
Infosys stock
appreciated 890x
over 7 years post
IPO listing
1,200
Payoff:
890x in less than 7 years (173% CAGR)
800
Market:
2x (12% CAGR)
400
0
Example #2
Bharti Airtel:
in FY03 when it had a net loss of Rs1.8b
UU situation
Special investing skills
The opportunity size of wireless
telephony
High level of profitability once the
break-even level of subscribers is
achieved
Management execution capability
The concept of value migration - from
wired telephony to wireless
The exponentiality of network
businesses, where every member
added to a network expands the
number of transactions manifold
Bharti Airtel v/s Sensex
Bharti
600
Sensex - Rebased
Payoff
Bharti stock
appreciated 37x in
4.5 years from
March 2003
450
300
Payoff:
37x in 4.5 years (123% CAGR)
Market:
6x (49% CAGR)
150
0
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Wealth Creation Study 2005-2010
Theme 2011
Past examples of UU investing (continued)
Example #3
Pantaloon Retail:
early stage investing
UU situation
Special investing skills
New company in a new sector
The opportunity in Indian organized
retail
Management execution capability
The concept of value migration - from
unorganized retail to organized
The success story of organized retail
elsewhere e.g. Wal-mart
Pantaloon Retail v/s Sensex
Pantaloon
Sensex - Rebased
Payoff
Pantaloon stock
appreciated over
109x in less than 5
years from
March 2003
800
600
400
Payoff:
109x in less than 5 years (156% CAGR)
Market:
7x (46% CAGR)
200
0
Example #4
Unitech:
pioneer of organized real estate
UU situation
Special investing skills
Real estate boom
Unitech's low-cost land bank
Management execution capability
Experience of real estate boom in
other Asian countries
Increase in funding sources for home
buyers due to focus of banks on
mortgages
Unitech v/s Sensex
Unitech
Sensex - Rebased
600
Payoff
Unitech stock
appreciated 64x in 2
years beginning 2006
Payoff:
64x in 2 years (701% CAGR)
450
300
150
0
Market:
2x (48% CAGR)
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Wealth Creation Study 2005-2010
Theme 2011
Past examples of UU investing (continued)
Example #5
Titan Industries:
resurgence from Rs131m PAT in FY02 to Rs2.5b in FY10
UU situation
Special investing skills
Explosion in jewelry sales (13x)
Divergence of rising profits amidst
falling margins (due to higher share of
lower margin jewelry business)
Exponentiality of discretionary spend
(e.g. jewelry) on the back of
economic prosperity
Value migration from unorganized to
organized jewelers, specially the re-
assurance of house of Tatas
Profitability of near monopoly
business (domestic watches)
Titan Industries v/s Sensex
Titan
Sensex - Rebased
4,400
Payoff
Titan stock up above
58x in the last
10 years
3,300
Payoff:
58x in 10 years (50% CAGR)
2,200
Market:
5x (17% CAGR)
1,100
0
Example #6
Tata Motors:
recent turnaround
UU situation
Special investing skills
The turnaround in JLR
The revival in Indian CV sector
Domain knowledge of the luxury car
business
JLR's focus on emerging markets like
Russia and China
Scope for margin improvement
following falling commodity prices
Knowledge of CV business cycles
Tata Motors v/s Sensex
Tata Motors
Sensex - Rebased
1,600
Payoff
Tata Motors stock is
up over 7x in
2 years beginning
early 2009
Payoff:
7x+ in 2 years (170% CAGR)
1,200
800
400
0
Market:
2x (40% CAGR)
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Wealth Creation Study 2005-2010
Theme 2011
4. How to go about UU investing
The payoffs in the above examples are highly attractive. But one needs to be very clear
that these numbers are only with 20:20 hindsight vision. Achieving such returns before the
UU situation plays out as expected requires a very high level of knowledge, skill and
discipline. We see three major steps for the first-time UU practitioner:
1. Knowing the success principles of UU investing
2. Looking out for UU situations and events
3. Being aware of the pitfalls.
4.1 UU investing: Success principles
Successful investing in UU situations calls for strict adherence to the success principles
(SPs) of UU investing. Each one of these principles is necessary, but no one of them is
sufficient. In a sense, these principles also make a check-list of pre-conditions. To have
any chance of successful UU investing, all these pre-conditions need to be met.
SP #1: High asymmetric payoff
SP #2: High level of complementary (i.e. special) skills
SP #3: Low competition
SP #4: Portfolio approach
SP #5: Non-aversion to hindsight criticism
SP #6: Long-term outlook and patience.
SP #1: High asymmetric payoff
A key governing principle underlying UU investing is that no matter what the situation, the
downside is capped at 100% whereas the upside is unlimited. To quote Richard Zeckhauser,
"The opportunity to get a 10 or 100 multiple on your investment as often as you lose
virtually all of it is tremendously attractive." As there is risk of capital loss in UU situations,
the positive payoff potential needs to be very high. Thus, even if 8 out of 10 UU ideas turn
adverse, the payoff on the 2 which do succeed more than makes up for the loss.
The payoff diagram of UU investing is depicted on next page. At first glance, one is likely
to conclude that UU investing corresponds to the classical investment maxim of "high-
risk-high-return". The key differences, however, are (1) UU features (which wards of
competition), and (2) special investing skills, both of which combine to significantly raise
the potential payoff (which could be as high as 100x or 10000%) and lower the potential
loss (which in all cases is capped at 100%).
Alas, few of us possess the
skills to be a real estate
developer, venture capitalist
or high tech pioneer. But
how about becoming a star
of ordinary stock
investment? For such
efforts an ideal
complementary skill is
unusual judgment.
Clear thinking about UU
situations, which includes
prior diagnosis of their
elements, and relevant
practice with simulated
situations, may vastly
improve investment
decisions where UU
events are involved.
The opportunity to get a 10
or 100 multiple on your
investment as often as you
lose virtually all of it is
tremendously attractive.
SP #2: High level of complementary (i.e. special) skills
Complementary or special investing skills form the core of UU investing. But for these,
committing monies in UU situations is tantamount to sheer speculation. By deploying these
special investing skills, the investor is able to determine in any given UU situation, whether
there is a favorable chance of a highly asymmetric positive payoff.
Such special investing skills pertain to both decision-making behavior, and vary from investor
to investor. However, the more generic ones are:
Domain knowledge of specific businesses
Past experience elsewhere (in other companies, in other industries, or in other
geographies)
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UU investing - the payoff diagram
Key takeaways from the
payoff diagram
Higher the investment
challenge (i.e. risk,
uncertainty or UU),
higher the payoff,
whether upside or
downside.
Higher the special
skills, higher the
upside payoff and
lower the downside
payoff.
The upside payoff is
unlimited whereas the
downside payoff is
capped at 100%,
creating the payoff
asymmetry.
Management assessment (mainly its ability to encash the upside possibility, when it
arises)
Imagination and unusual judgment
Conviction and courage to finally commit the investment
In a situation where
probabilities may be hard
for either side to assess, it
may be sufficient to assess
your knowledge relative to
the party on the other side
(perhaps the market).
These special skills help investors create a positive asymmetry of information for themselves.
Thus, they move from quadrant C shown in the matrix below to quadrant D, and earn
omega returns from the UU situation.
Investment matrix amidst asymmetric information
Easy for Others to Estimate Hard for Others to Estimate
Easy for You to Estimate
A. Tough markets; no excess
D. Benefit from the UU
returns possible
situation using special
investing skills
Hard for You to Estimate
B. Avoid action; possibility
C. Potential UU situation
of significant loss
UUU investments -
unknown, unknowable and
unique - drive off
speculators, which creates
the potential for an
attractive low price.
SP #3: Low competition
In UU situations, typically, neither buyers nor sellers have any meaningful clarity on the
future prospects or pitfalls of investing in a particular situation. As a result, competition is
very low for the investor who brings to the table the relevant special investing skills. In
fact, low competition is not only a principle but also a fundamental evidence of the UU
nature of a situation.
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Theme 2011
SP #4: Portfolio approach
Portfolio approach is a key principle of risk diversification even in the traditional investing
model. It becomes more important in UU investing given high risk of loss associated with
in each situation. Asymmetric payoff of each UU investment in the portfolio ensures that
even if the success ratio is low, the overall portfolio performance is very healthy (see
exhibits below). At the same time, however, the UU portfolio cannot be too diversified, as
it is unlikely that the investor can bring the same level of special skills in many cases.
Initial portfolio
Final portfolio healthy despite low success ratio due to
asymmetric payoff
5
Portfolio up 2.5x
10
5
12.5
1
Stock A
1
Stock B
1
Stock C
1
Stock D
1
Stock E
Portfolio
Year 0
0.25
Portfolio Stock A
Year 0
0.50
0.75
1
Stock B Stock C Stock D Stock E Portfolio
Year n
Source: MOSL
If none of your investments
looks foolish after the fact,
you are staying too far away
from the unknowable.
SP #5: Non-aversion to hindsight criticism
Just as special skill is the core decision-making principle, non-aversion to hindsight criticism
is the core behavioral principle. Though the UU portfolio may offer healthy returns as a
whole, several individual ideas in the portfolio would perform very poorly. This creates
room for hindsight criticism of these investment decisions. In Zeckhauser's own words, "If
blame aversion is a prime concern, the world of UU is not for you."
Looking at it the other way, aversion to hindsight criticism is what partly helps create UU
situations as institutional investors tend to shun away from stocks of lesser known companies
fearing hindsight criticism if the stock were to underperform.
SP #6: Long-term outlook and patience
This again is a principle of the traditional investing model, but all the more important in UU
investing to allow for the UU situation to journey play out into KK and for the positive
upside to pay off.
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Unknowable situations are
widespread and inevitable
4.2 UU situations and events
All situations where the future is discontinuous from the past are UU situations. This
includes situations where there is no past e.g. a sunrise industry or a start-up venture.
Likewise, all events which cause the future to be discontinuous from the past are UU
events e.g. a major global acquisition.
From the investing perspective, UU situations and events can be understood in three
areas: (1) Business, (2) Management, and (3) Valuation. We discuss the most relevant
ones below, with appropriate examples. In the case of some investment opportunities,
more than one of UU situations/events could be at play. In general, higher the number of
UU situations/events in a particular case, lower the competition, and higher the potential
upside payoff.
UU situations and events are multiple and diverse
UU situation / event
Business-related
#1 Short history of industry
and/or company
Past example(s)
Industries such as IT, dotcoms, wind energy,
telecom, real estate, etc, when they were sunrise
Start-up ventures (e.g. private equity investment
into Google when it was a fledgling)
Indian IT and Infosys, Wipro, TCS
Wireless telecom and Bharti
Organized retail and Pantaloon
Gas and Reliance Industries' KG-D6 discovery
Proliferation of PCs compared to mainframes
Decimation of pagers by cellphones
Private sector Indian banks armed with technology
(e.g. core banking system, ATMs, etc)
Amazon versus traditional booksellers
Lowering of trade and tariff barriers to imports,
increasing the competition for global tradables
Cement decontrol in the '90s
Issue of new licenses in wireless telecom
From wired to wireless in telecom
From unorganized to organized in retail
From non-brands to brands in FMCG
From PSU banks to private banks
Expansion of shampoo market by sachets
Exponential rise in wireless subscribers on
lower tariffs
Boom in affordable housing
Rising penetration of branded noodles
Sale of Nihar brand of coconut oil to Marico
Issue of new licenses in wireless telecom
Several new players in BTG (boiler-turbine-
generator)
Gradually rising competition in two-wheelers
#2 Huge size of opportunity
coupled with company's
own scalability
#3 Technology intensity
of business
#4 Change (or scope for
change) in government
regulation
#5 Value migration
Demand J-curve inflexion
Demand
hits J-Curve
earlier if
product
prices fall
Product Price
#6 Demand J-curve
inflexion point
Time
#7 Change in competitive
landscape
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Theme 2011
UU situation / event
Business-related (continued)
Past example(s)
If the events are
unpleasant, it is not clear
when to celebrate
their end.
#8 Turnaround
Crompton Greaves' turnaround in FY02 after two
successive years of loss
Ranbaxy turning from profit to loss in 2008
JLR turnaround in FY11
Major M&A activity (Reliance group break-up,
Tata-Corus, Tata Motors-JLR, Hindalco-Novelis,
Bharti-Zain)
Unprecedented capex plan (e.g. Nestle India)
Change in business model (e.g. Lupin)
Satyam Computers' disclosure of fraud
Change in C, V, P, M (cost, volume, profit, mix)
due to factors not covered above
e.g. sharp rise in global commodity prices is a
positive UU for commodity suppliers and negative
UU for commodity users
Start-ups by first generation entrepreneurs
Satyam's takeover by Mahindra group
Privatization of Hindustan Zinc
In its heydays, Ambuja Cement traded at a
premium to peers due to innovative management
Recent sharp decline in stock prices of mgmts
allegedly involved in stock price rigging
#9 Discontinuous corporate
action
#10 Discontinuous change
in operating metrics
Management-related
#1 Management with no
track record
#2 Change in management
#3 Intellect and integrity
of management
Valuation-related
Extreme pessimism and optimism in the markets
creates UU situations e.g.
Infosys valuation at the height of dotcom boom
Indian stock valuations at the height of global
crisis in early 2009
Tata Motors hitting rock bottom in 2009
4.3 UU investing pitfalls
The two major pitfalls of UU investing are:: (1) Overconfidence leading to loss; and
(2) Hindsight criticism.
If you lack Buffett
capabilities, you will
get chewed up as a
bold stock picker.
1. Overconfidence:
Behavioral economics suggests people tend to think they know much
more about unknowable quantities than they do. This can prove to be a dangerous tendency
when coupled with the temptation of high payoffs in UU investing. Zeckhauser puts it
aptly, “If you lack Buffett capabilities, you will get chewed up as a bold stock picker.”
2. Hindsight criticism:
We have already mentioned non-aversion to hindsight criticism
as a core principle of UU investing. Still, it is important enough to be reiterated as a pitfall
that investors need to be aware of. By definition, UU investing involves taking calculated
bets in situations where knowledge is scanty. If such investment(s) were to incur significant
loss, the investment would be criticized in hindsight as foolish by all but the most sophisticated.
Investors who are prone to get affected by such hindsight criticism – technically termed
Monday Morning Quarterback risk – need to refrain from the UU investing approach.
One might be
blamed for a poor
outcome if one
invests in ignorance
when, in fact, it was
a good decision that
got a bad outcome.
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Theme 2011
5. UU investing case study
Indian banking stock ideas for 2020
We have applied all of the above understanding to identify banking stock ideas for 2020,
both under the traditional and UU models of investing. The major exhibits of the case
study are annexed later. The mapping to key UU elements is as under.
UU mapping of the Indian banking sector
UU element
UU situation
Special skills
Size of opportunity
Application in case study
Which bank(s) will yield the maximum return by 2020
Clarity on the NTD framework (next trillion dollar of
India's GDP)
TTS by 2020 - Ten Trillion Saving (in dollars, decadal
cumulative), 5x the last decade
Huge opportunity for financial intermediation
2020 aggregate banking sector profit will be 6x 2010
Growth will be higher for banks with UU potential
High upside with relatively low downside
The bank stocks will be part of a larger UU portfolio
Unavoidable!
As Buffett is likely to say, "We are OK if the stock
market were to remain shut for the next 7-8 years!"
Asymmetric payoff
Portfolio approach
Hindsight criticism
Long-term outlook, patience
5.1 The final picture …
2020 banking sector Beta, Alpha, Omega - Thematic representation
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Theme 2011
5.2 Major exhibits
5.2.1 NTD revisited: India's GDP will near US$5 trillion by 2020
In 2007, we published our first note on the concept of NTD (next trillion dollar of India's
GDP). The core NTD thesis is this: It took India about 60 years post independence to
clock the first trillion dollar of GDP. With nominal GDP growth of 14-15%, at constant
exchange rates, India's next trillion dollar (NTD) will come in just 5-7 years. This linear
growth in GDP has exponential growth implications for several businesses.
We juxtapose the NTD idea with the GDP growth experience of China to arrive at India's
GDP of almost US$5 trillion by 2020.
By 2020 India's GDP would triple from the current level almost ~5 times the level of FY08
Key assumptions in this
case study
Real GDP growth
8% p.a.
Inflation
5% p.a.
INR/USD
Fixed at 45
Saving rate (GDS/GDP)
To grow from 34%
currently to 40% by 2020.
Credit/deposits to GDP
Up 3% every year (as
observed during FY00-10)
Sector aggregate profits
1.3% of deposits in line
with past trend
5th US$ tn
1.5 years
4th US$ tn
2.5 years
2nd US$ tn
5 years
1st US$ tn
58 years
3rd US$ tn
3 years
Source: MOSL
5.2.2 TTS: Over ten trillion dollar cumulative saving through 2020
India's current GDS (gross domestic saving) is at 34% of GDP. In line with long-term
trend, we expect this to rise steadily to 40% by 2020. This translates to cumulative decadal
saving of over US$10 trillion, compared to US$2.7 trillion during the decade to 2010.
TTS - Ten trillion dollar cumulative saving through 2020
Cum ulative saving:
US$11.3 trillion
Decadal cumulative
savings (US$ trillion)
US$9t
Cum ulative saving:
US$2.7 trillion
11,281
US$2t
2,665
799
1990s
2000s
2010s
Source: MOSL
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Theme 2011
5.2.3 Huge opportunity for banking sector; business 5x, profits 6x the previous
decade
The large savings pool presents a huge opportunity for the banking sector. Applying a
trended growth rate correlated to GDP, in the decade to 2020, business opportunity will be
5x and profits 6x the previous decade.
2010-20: Business opportunity 5x previous decade ...
Credit (US$ b)
Deposits (US$ b)
... profits 6x previous decade (US$ b)
68
11
0.0
FY60
FY70
FY80
FY90
FY00
FY10
FY20
FY60
0.1
FY70
0.5
FY80
1
2
FY90
FY00
FY10
FY20
Source: CMIE/MOSL
5.2.4 Which stocks to bet on?
This would involve an unusual judgement based on several factors including -
Impact of technology on various banks, especially PSU banks
Assessment of the bank management, and the vision of the Chairman, specially in
case of a new incumbent
Various data screens (annexed on page 34)
5.2.5 The unusual judgement:
Buy one small/medium high-growth bank and one large, unpopular bank
Small/medium high-growth bank - Yes Bank
Management with established credentials
Growing at 2x industry growth rate
Branch scale-up plans to increase CASA and expand NIMs
Not among the cheapest banks, but absolute market cap low compared to size of
opportunity and that of peers
Large, unpopular bank - Central Bank of India
Among top 10 banks by asset size
Recently completed 100% CBS; full benefits to accrue in future
Management focus on margin improvement through focus on high-yielding retail
segment
Not among the cheapest in terms of P/B, but very attractive in terms of MCap/Assets.
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Theme 2011
Indian Banking: Data Screen (Rs b)
Criteria
Asset size - PSU
(5-year avg, Rs b)
The U (usual) suspects
Top tier banks
SBI (Cons)
Punjab National Bank
Canara Bank
Bank of Baroda
Bank of India
10,588
2,101
1,927
1,882
1,866
The UU suspects
Second tier banks
IDBI Bank
Union Bank of India
Central Bank of India
Syndicate Bank
Indian Overseas Bank
Second tier banks
3,477
1,499
1,122
336
322
ING Vysya Bank
Indusind Bank
Karnataka Bank
Yes Bank
South Indian Bank
Top losers
0.3
0.3
0.2
0.2
0.1
Bank of Maharashtra
Dena Bank
Central Bank of India
Canara Bank
SBI (Cons)
Top losers
4.5
2.5
2.2
0.6
0.1
Karnataka Bank
Indusind Bank
Development Credit Bank
ING Vysya Bank
J&K Bank
Lowest 5
1.5
1.2
1.2
1.2
1.2
Dena Bank
Vijaya Bank
Bank of Maharashtra
IDBI Bank
Central Bank of India
Lowest 5
1.6
1.6
1.5
1.4
1.3
J&K Bank
South Indian Bank
ING Vysya Bank
Indusind Bank
Development Credit Bank
Next cheapest 5
1.0
1.1
1.1
1.1
1.2
IDBI Bank
Central Bank of India
Corporation Bank
Andhra Bank
Allahabad Bank
Next cheapest 5
1.0
1.1
1.3
1.4
1.6
ING Vysya
City Union Bank
DCB
Karur Vysya Bank
Yes Bank
1.8
1.8
1.9
2.1
2.7
1.2
1.2
1.3
1.3
1.3
1.1
0.8
0.5
0.5
(0.8)
0.8
0.7
0.6
0.6
0.5
-0.1
-0.1
-0.2
-0.2
-0.3
-0.3
-0.4
-0.6
-0.7
-7.0
255
250
201
183
175
1,458
1,344
1,245
1,054
991
Asset size - Private
(5-year avg, Rs b)
Top tier banks
ICICI Bank
HDFC Bank
Axis Bank
J&K Bank
Federal Bank
Market share (%) - PSU
(FY01-10)
Top gainers
Allahabad Bank
Corporation Bank
Union Bank of India
Oriental Bank of Commerce
Syndicate Bank
Top gainers
ICICI Bank
HDFC Bank
Axis Bank
Yes Bank (did not exist in FY01)
City Union Bank
Market share (%) - Private
(FY01-10)
Return on Assets - PSU
(5-year avg, %)
Highest 5
Indian Bank
Punjab National Bank
Andhra Bank
Corporation Bank
Indian Overseas Bank
Return on Assets - Private
(5-year avg, %)
Highest 5
Karur Vysya Bank
Yes Bank
City Union Bank
HDFC Bank
Axis Bank
Valuation - PSU
(FY11 P/B x)
Cheapest 5
United Bank of India
Syndicate Bank
Indian Overseas Bank
Dena Bank
Oriental Bank of Commerce
Valuation - Private
(FY11 P/B x)
Cheapest 5
Karnataka Bank
J&K Bank
Dhanalakshmi Bank
Federal Bank
South Indian Bank
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Theme 2011
6. Conclusions
Metals/Mining sector has dominated this year’s Wealth Creation Study.
(1) The sector has displaced Oil & Gas as the biggest wealth creator.
(2) 4 out of top 10 fastest wealth creators are from this sector.
(3) The sector has even made a beginning into the consistent wealth creating category.
Low payback ratio (Market cap/Next 5 years’ profits) remains the most reliable valuation
indicator of fastest wealth creation.
UU situations offer asymmetric payoffs; these can be exploited only by investors with
complementary skills, unusual judgement, and no fear of MMQ (Monday Morning
Quarterback) risk.
TTS – Ten Trillion Dollar Savings through 2020 – will throw up many UU investing
opportunities in Indian financial services.
India’s high linear economic growth will create exponential business situations – the
perfect backdrop for UU investing.
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Wealth Creation
2005-2010
The 15
TH
Annual Study
Market Outlook
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Wealth Creation Study 2005-2010
Market Outlook
Market Outlook
Sensex earnings in a new growth cycle ...
After a two-year growth holiday, India's corporate sector is expected to clock earnings
CAGR of 24% through FY12.
Sensex EPS (Rs): On a new cycle of growth
FY10-12:
24% CAGR
1,275
FY08-10E:
1,065
-0.2% CAGR
833 820 829
718
523
FY93-96:
45% CAGR
FY03-08:
25% CAGR
FY96-03: 1% CAGR
450
348
250 266 291 278 280 216 236 272
181
81 129
Source: MOSL
... but face headwinds of rising commodity prices and inflation
Rising global commodity prices led by crude, coupled with persistently high domestic inflation
increase the risk of earnings downgrades going forward. Still, earnings growth will be
higher than the nominal growth in GDP, implying that corporate profits to GDP would
bottom out.
Indian corporate sector profits to GDP (%)
6.4 6.8
5.1
4.4
3.5 3.3
Average of 3.8x
3.1
2.4 2.3
2.1 2.3
1.8 1.9
65
40
19
15
24
54
43
43
34
28 26
44
37
26
23
5.6
5.4 5.3
90
Average of 49%
for the period
51
43
82
83
52
55
Indian Market Cap to GDP (%)
115
104
99
102
Source: CMIE/MOSL
Liquidity tight; valuations fair
However, market cap/GDP ratio is close to its all-time high. In parallel, domestic liquidity
situation is tight and interest rates are trending higher.
Market valuations do not offer any margin of safety; earnings yield to bond yield is below
its long-period average (LPA) while Sensex P/E at 16x one-year forward earnings is
above its LPA of 14.5x.
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Market Outlook
Sensex earnings yield v/s bond yield (%)
2.2
2.0
1.7
1.4
1.2
15 Year Avg is 0.89x
0.7
0.4
0.2
0.8
10-year G-Sec yield (%)
10.5
9.0
7.5
6.0
5.3
4.5
9.3
8.2
Source: MOSL
1-year forward Sensex P/E (x)
27
22
17
12
7
23.1
21.5
15 Year
Average 14.5x
16.3
Sensex trend
24,000
18,000
12,000
6,000
0
11.7
Source: MOSL
Governance: A whole new concern
Macroeconomic and business headwinds apart, markets have reason to be concerned
about the serious and relentless issues of corporate and political governance which India is
currently embroiled in. Till the air on these issues is cleared, global investor sentiment for
India is unlikely to be highly positive, keeping valuations in check.
Conclusion
All things considered, we expect Indian markets to remain range-bound in 2011. Downside
is limited given the bedrock of steady earnings growth, but upside is capped given no
valuation triggers.
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MOSL 100
Biggest Wealth Creators
RANKED ACCORDING TO THE BIGGEST WEALTH CREATORS
RANK COMPANY
NO.
NAME
WEALTH CREATED
RS B
% SHARE
PRICE
CAGR (%)
PAT
SALES
ROE (%)
FY10
FY05
Appendix I
P/E (X)
FY10
FY05
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
Reliance Inds.
ONGC
NMDC
NTPC
BHEL
Infosys Tech.
TCS
St Bk of India
Larsen & Toubro
Bharti Airtel
SAIL
ITC
Jindal Steel
HDFC Bank
HDFC
Wipro
ICICI Bank
Sterlite Inds.
Hind.Copper
Hind.Zinc
Sesa Goa
GAIL (India)
Axis Bank
Maruti Suzuki
Hero Honda Motor
Sun Pharma.Inds.
Hind. Unilever
M&M
Adani Enterp.
Tata Power Co.
Tata Motors
Hindalco Inds.
JP Associates
Tata Steel
Nestle India
Kotak Mah. Bank
Punjab Natl.Bank
IOCL
Siemens
Cipla
JSW Steel
Asian Paints
Grasim Inds
Bank of Baroda
Natl. Aluminium
Dr Reddy's Labs
Crompton Greaves
Oracle Fin.Serv.
Reliance Capital
Neyveli Lignite
2,556
1,092
1,014
1,000
980
870
838
802
799
792
780
661
622
553
547
546
492
478
447
437
354
341
321
288
278
268
239
234
232
225
220
209
205
204
197
197
196
195
191
180
163
158
155
154
150
149
146
141
135
131
9.6
4.1
3.8
3.8
3.7
3.3
3.2
3.0
3.0
3.0
2.9
2.5
2.3
2.1
2.1
2.1
1.9
1.8
1.7
1.6
1.3
1.3
1.2
1.1
1.0
1.0
0.9
0.9
0.9
0.8
0.8
0.8
0.8
0.8
0.7
0.7
0.7
0.7
0.7
0.7
0.6
0.6
0.6
0.6
0.6
0.6
0.5
0.5
0.5
0.5
37
13
50
19
44
18
17
27
46
25
32
24
82
29
30
16
19
43
51
48
67
24
37
27
29
31
13
34
73
31
14
10
42
12
33
41
21
6
34
27
28
39
18
24
18
28
49
31
33
17
16
5
35
8
35
25
25
16
35
51
0
13
23
35
22
27
15
51
23
44
36
10
50
24
22
24
13
32
19
11
13
8
52
8
21
46
23
16
47
21
18
35
19
35
-8
67
40
27
26
1
24
5
23
15
28
25
23
17
23
35
7
19
27
39
28
26
22
28
22
29
29
13
43
22
16
16
12
23
-3
13
16
16
30
11
18
51
20
14
36
20
23
21
6
21
4
24
21
20
52
7
13
19
24
14
27
26
37
14
24
26
20
29
22
14
19
28
8
4
14
22
29
19
16
21
64
16
85
27
13
9
15
7
21
14
113
12
24
20
36
18
21
50
29
20
8
14
35
16
5
12
20
28
29
14
16
36
55
18
29
27
66
28
39
15
27
31
16
3
-129
32
64
23
14
19
54
28
57
26
16
11
30
17
17
49
79
11
18
19
25
27
30
30
20
12
26
3
29
18
7
16
22
14
34
20
27
26
27
14
22
13
15
25
44
30
28
21
26
86
319
13
18
17
19
16
17
41
24
15
98
35
19
18
19
11
39
46
8
7
24
25
11
25
12
8
32
25
27
29
55
19
10
10
20
12
20
32
38
8
13
32
4
15
6
25
17
32
14
74
88
11
6
9
20
14
14
29
24
11
12
13
12
9
17
6
24
49
9
10
37
19
5
22
13
10
9
86
20
22
22
9
15 December 2010
39
 Market Research | Indian Economy | Corporate Sectors | Equity Investment Ideas - MotilalOswal.com
Wealth Creation Study 2005-2010
MOSL 100
Biggest Wealth Creators
(contd.)
RANKED ACCORDING TO THE BIGGEST WEALTH CREATORS
RANK COMPANY
NO.
NAME
WEALTH CREATED
RS B
% SHARE
PRICE
CAGR (%)
PAT
SALES
ROE (%)
FY10
FY05
Appendix I
P/E (X)
FY10
FY05
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
Unitech
ABB
HCL Technologies
Essar Oil
Bharat Electronics
Zee Entertainment
Lupin
Container Corpn
Bank of India
Reliance Infra.
ACC
Dabur India
Engineers India
MphasiS
UltraTech Cem.
United Spirits
Union Bank (I)
Glaxosmit Pharma
Exide Inds.
Bosch
Shriram Trans.
Ambuja Cem.
Canara Bank
Cadila Health.
Cummins India
Divi's Lab.
Titan Inds.
Shree Cement
Colgate-Palm.
Thermax
Castrol India
Jain Irrigation
Financial Tech.
LIC Housing Fin.
BPCL
Areva T&D
Bhushan Steel
Marico
Voltas
MRPL
GlaxoSmith C H L
Pidilite Inds.
IndusInd Bank
P & G Hygiene
Pantaloon Retail
GE Shipping Co
Ashok Leyland
Piramal Health
Godrej Consumer
Jindal Saw
129
127
127
122
122
120
118
117
115
113
111
106
105
101
100
93
91
91
88
88
87
87
86
83
80
76
71
68
67
67
62
60
57
56
56
55
52
52
51
50
48
47
47
47
47
45
45
45
45
40
0.5
0.5
0.5
0.5
0.5
0.5
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
95
29
14
32
27
14
42
27
27
14
21
34
46
41
27
41
21
20
56
19
57
17
15
29
36
47
52
47
30
42
30
50
43
30
8
85
52
35
51
10
34
41
28
29
26
14
22
16
28
32
79
18
26
24
10
28
50
13
39
17
34
24
31
76
229
70
24
9
47
10
78
21
22
31
26
39
59
88
30
21
24
53
103
36
10
55
41
26
47
5
26
32
11
8
36
-13
9
21
24
67
30
23
29
104
10
15
26
13
24
19
15
18
17
69
22
34
22
7
27
16
68
22
20
12
19
22
34
43
15
27
12
34
59
27
16
36
16
17
27
12
17
20
19
6
42
-1
12
17
18
45
7
15
21
1
17
20
26
18
14
8
27
58
39
41
24
8
24
29
25
17
23
19
24
31
28
22
35
37
130
13
77
20
17
20
12
22
21
41
35
20
26
31
16
34
7
7
18
30
30
20
17
22
12
0
28
8
17
25
8
9
24
44
13
9
0
9
23
36
18
30
25
21
19
21
20
23
18
10
45
15
35
14
7
12
15
11
21
34
26
41
14
20
25
55
18
37
24
34
173
15
33
50
23
593
24
21
22
21
10
21
11
32
28
16
13
44
7
29
20
26
14
15
6
22
23
26
33
12
22
57
22
27
21
13
12
38
8
28
17
12
27
20
20
36
45
11
18
20
32
8
14
32
36
355
12
35
26
12
15
19
17
21
16
35
1,548
45
7
19
14
17
7
15
7
22
16
19
39
41
22
26
18
23
117
14
11
13
5
19
15
9
21
14
7
15
42
4
9
25
20
19
15 December 2010
40
 Market Research | Indian Economy | Corporate Sectors | Equity Investment Ideas - MotilalOswal.com
Wealth Creation Study 2005-2010
MOSL 100
Fastest Wealth Creators
RANKED ACCORDING TO THE FASTEST WEALTH CREATORS
RANK COMPANY
NO.
NAME
WEALTH CREATED
RS B
% SHARE
PRICE
CAGR (%)
PAT
SALES
ROE (%)
FY10
FY05
Appendix II
P/E (X)
FY10
FY05
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
Unitech
Areva T&D
Jindal Steel
Adani Enterp.
Sesa Goa
Shriram Trans.
Exide Inds.
Titan Inds.
Bhushan Steel
Hind.Copper
Voltas
NMDC
Jain Irrigation
Crompton Greaves
Hind.Zinc
Divi's Lab.
Shree Cement
Engineers India
Larsen & Toubro
BHEL
Financial Tech.
Sterlite Inds.
Lupin
Thermax
JP Associates
United Spirits
MphasiS
Pidilite Inds.
Kotak Mah. Bank
Asian Paints
Reliance Inds.
Axis Bank
Cummins India
Marico
M&M
Siemens
GlaxoSmith C H L
Dabur India
Reliance Capital
Nestle India
SAIL
Jindal Saw
Essar Oil
Oracle Fin.Serv.
Tata Power Co.
Sun Pharma.Inds.
HDFC
Colgate-Palm.
LIC Housing Fin.
Castrol India
129
55
622
232
354
87
88
71
52
447
51
1,014
60
146
437
76
68
105
799
980
57
478
118
67
205
93
101
47
197
158
2,556
321
80
52
234
191
48
106
135
197
780
40
122
141
225
268
547
67
56
62
0.5
0.2
2.3
0.9
1.3
0.3
0.3
0.3
0.2
1.7
0.2
3.8
0.2
0.5
1.6
0.3
0.3
0.4
3.0
3.7
0.2
1.8
0.4
0.3
0.8
0.3
0.4
0.2
0.7
0.6
9.6
1.2
0.3
0.2
0.9
0.7
0.2
0.4
0.5
0.7
2.9
0.2
0.5
0.5
0.8
1.0
2.1
0.3
0.2
0.2
95
85
82
73
67
57
56
52
52
51
51
50
50
49
48
47
47
46
46
44
43
43
42
42
42
41
41
41
41
39
37
37
36
35
34
34
34
34
33
33
32
32
32
31
31
31
30
30
30
30
79
55
23
19
36
78
47
59
41
23
47
35
53
40
44
39
88
31
35
35
103
51
50
21
52
70
76
32
46
35
16</