Study of Market Cap Performance of Large Business Groups

Post the financial crisis, the stock markets globally have given stupendous returns. In India, last 10 years have witnessed several upheavals like demonetization, GST, change of government, virus, floods, etc. We decided to study this period to check for out on business groups that have sailed through turbulent period with elan. We studied business groups that have a market cap of around Rs. 50000 crs or more. Needless to mention the results have been interesting. Given below are some tables that give details of performances. Please note that the prices are as of 27/8/2021 and the details have been sourced from Ace Equity.

Table 1: Top 15 Business Groups by Market Cap performance

Table 2: Contributors to change in cumulative market cap of business groups

Note: Business Groups with top performing solitary companies, have been excluded from this table, e.g. Reliance Ind.,Pidilite Industries, Asian Paints, etc.

Table 3: Performance of groups that have a cumulative market cap of more than Rs. 5 lac crores

Table 4: Top 5 winners and bottom 5 losers among Government owned companies

Observations:

• It is interesting to see how erstwhile midcap companies have gradually transformed into large midcaps or largecaps, despite a tumultuous decade. These smaller groups, most of whom are single company business groups have stayed focused on their business, maintained a strong balance sheet, have become asset light, have attractive return ratios and maintained high levels of corporate governance. In Table 1, most of the companies are such transformed groups. Conventionally well-known groups like Bajaj, Shiv Nadar, TVS, Wadias, etc have demonstrated enough nimbleness and business acumen to figure in the top 15, amidst the onslaught of the single company focused business groups.
• It is the technology, financials and consumer businesses that have done well in the last 10 years, which is not very surprising. The sluggishness in the manufacturing sector is apparent from the list of top performers. However, there are some exceptions like Balkrishna Industries, TVS Motors, Ultratech Cement, Shree Cement, etc which have put up a resolute show.
• Several business groups have benefitted from demerging businesses and listing them and/or listing their unlisted businesses. The largest beneficiary of this exercise has been the Adani group which has seen it’s market group swell by 8 times, in the last 10 years, with most of the incremental market cap coming in from the new listings. Similarly, ICICI and HDFC groups too have benefitted by listing their insurance/AMC arms.
• Biggest gainers have been the financial service arms of the Bajaj group, who contributed only 15% to the group market cap 10 years ago, but now contribute an astounding 79%. CAGR of Bajaj Finance has been 69%, for the last years!! Similarly, companies like Balkrishna Industries, Ultratech Cement, Cholamandalam Finance, JSW Steel, Britannia Industries, TCS, Vedanta, Mindtree, Firstsource Solutions, Tech Mahindra, Torrent Pharma, etc have done well to be only/large contributors to the growth in group market caps.
• The Tata group has seen widespread re-rating in it’s businesses, which makes them unique. While the technology businesses have done better than the others, non tech businesses have also given robust returns. The group returning 16% CAGR over the last 10 years despite it’s size and fragmentation, is commendable. With initiatives underway to consolidate the group, the next 10 years could be interesting for the group.
• Considering the commodity nature of their business and the in-built volatility, the Sajjan Jindal, AV Birla and Vedanta groups have done well to deliver attractive returns, enough to compete with several stabler businesses
• Government owned companies continue to be laggards. 10 years ago their cumulative market cap was about 5 times the next largest group, i.e. Tatas. Today the Tatas have closed in on the Government group. Next 10 years should witness the pecking order change significantly, for very large business groups. Canfin Homes, despite being Government owned, has been an interesting outlier and has delivered returns that could challenge several private sector compatriots!

While we have only considered groups with market caps of more than Rs. 50000 crs for the study, there are several smaller groups that have also done very well over the last decade and have the potential of featuring among the top 15, in the next decade.

The performance of corporate India is exemplary considering the numerous headwinds that they faced in the last decade. The “solution-finding” spirit and the solid control on costs, is what keeps our entrepreneurs at the top!!

Hope you find these statistics of use! A small request as always to write your suggestions or comments in the comment box to enable us to improve.

Happy investing!

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