10TH

ANNUAL WEALTH CREATION STUDY

2000-2005

OBJECTIVE

Wealth Creation studies are attempts to study the past as a guide to the future and gain insights into How to Value a Business.

CONCEPT

Wealth Creation is the process by which a company enhances the market value of the capital entrusted to it by its shareholders.

METHODOLOGYWe have identified the top-100 Wealth Creators for the period 2000 2005 in the Indian stock market. These companies have the distinctionof having added at least Rs1b to their market capitalization over thisperiod of five years.

Wealth Creation Study

No. of Companies creating >1b net wealth

2000-05 383

1999-04 294

1998-03 83

1997-02 85

1996-01 71

1995-00 130

1994-99 102

1993-98 124

1992-97 45

1991-96 112

TOP 10 WEALTH CREATORS (2000 - 2005)

RANK COMPANY

NET WEALTH CREATED

(RS B)APPRECIATION

(X)

1 O N G C 1065.3 6.52 Indian Oil 365.5 3.53 Reliance Inds. 348.6 1.74 St Bk of India 239.9 3.35 S A I L 227.4 8.06 T I S C O 179.3 5.27 B H E L 157.2 6.18 ITC 150.8 1.89 ICICI Bank 140.9 1.5

10 H D F C 134.8 3.8

THE BIGGEST

TOP 10 WEALTH CREATORS (2000 - 2005)

RANK COMPANYADJ. PRICE CAGR (%)

APPRECIATION (X)

1 Matrix Labs. 167.2 1362 Aban Loyd Chiles 146.2 903 Guj. NRE Coke 140.2 804 Sterling Biotech 120.0 525 Jubilant Organ. 103.6 356 Pantaloon Retail 95.4 287 Amtek Auto 95.4 288 Sesa Goa 86.1 229 Hind.Zinc 80.8 19

10 Bharat Earth Movers 75.7 17

THE FASTEST

TOP 10 MOST CONSISTENT WEALTH CREATORS (1991 - 2005)

RANK COMPANY

APPEARED IN WC

STUDY (X)

PRICE CAGR WITH DIV. REINVEST

(%)

No of times

(X)

1 Hero Honda Motor 10 40.8 120

2 Ranbaxy Labs. 10 34.7 65

3 Wipro 9 57.1 552

4 Dr Reddy's Labs. 9 43.5 156

5 H D F C 9 41.8 133

6 Cipla 9 39.6 106

7 Nicholas Piramal 8 33.7 59

8 ITC 8 29.5 37

9 GSK Pharma 8 21.6 15

10 Asian Paints 8 21.4 15

WEALTH CREATORS COMPARATIVE PERFORMANCE V/S BSE SENSEX

(31.3.00 TO 31.3.05)

(%)

WEALTH CREATORS COMPARATIVE PERFORMANCE V/S BSE SENSEX

GROWTH : SENSEX v/s WEALTH CREATORS

YEAR Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05

BSE SENSEX 5,001 3,604 3,469 3,049 5,591 6,493

y-o-y performance (%) - (27.9) (3.7) (12.1) 83.4 16.1

Wealth Creators Index 100 86 102 113 262 319

y-o-y performance (%) - (13.7) 18.3 10.9 131.4 21.6

Sensex PE (x) 29.0 13.5 13.7 9.4 12.6 11.7

Wealth Creators PE (x) 13.2 9.7 10.6 6.8 12.1 11.2

5Year CAGR (%) Sensex Index       5.4

5Year Earnings CAGR (%) Sensex       26.3

5Year CAGR (%) Wealth Creators Index       26.1

5Year Earnings CAGR (%) Wealth Creators       30.0

WEALTH CREATORS: NATURE OF BUSINESS

Industry

Speed CAGR

(%)No. of Cos.

Contr. To Wealth Created

Net Profit CAGR (%)

Sales CAGR (%)

Oil & Gas 17.1 11 30.3 22.9 14.5

Banks 32.6 15 15.8 16.5 8.6

Metals 34.6 10 12.6 - 19.4

Engineering 32.9 10 7.3 22.1 12.0

Auto 27.3 10 6.8 31.5 16.6

Petrochem 18.9 3 6.6 26.8 31.1

Pharma 21.2 8 4.8 30.8 18.3

Ultility 41.2 4 3.5 23.0 14.5

FMCG 13.6 4 3.4 21.1 12.4

Cement 26.3 5 3.0 26.1 10.0

Textiles 45.3 5 1.4 - 4.1

IT 0.7 1 0.2 45.4 50.7

Others 42.8 14 4.2 35.8 12.1

Total 22.2 100 100.0 30.0 15.4

WEALTH CREATORS CLASSIFICATION BYMARKET CAP – SPEED VS SIZE

WEALTH CREATORS: BUSINESS ACTIVITY

WEALTH CREATION STUDY FOCUSED (%) DIVERSIFIED (%)

2000-05 97 3

1999-04 96 4

1998-03 98 2

1997-02 96 4

1996-01 100 0

1995-00 95 5

1994-99 96 4

1993-98 93 7

WEALTH CREATORS CLASSIFICATION BY PRODUCT ATTRIBUTE

2000-05

WEALTH CREATED

(RS B)

WEALTH CREATED

(%)

Brands 1,830 30.1

Commodity 3,981 65.6

Technology 261 4.3

Total 6,072 100.0

WEALTH CREATORS OWNERSHIP: STATE V/S PRIVATE

WEALTH CREATORS: STATE OWNED V/S PRIVATELY OWNED

  2000-2005

  STATE-OWNED PRIVATE

Number of Wealth Creators 30 70

5-year Earnings CAGR (%) 27 34

5-year Market Cap CAGR (%) 37 20

P/E at the beginning of study period (x) 6.0 24.2

P/E at the end of study period (x) 8.6 14.3

Wealth Created (%) 50.6 49.4

WEALTH CREATORS:NEW V/S OLD ECONOMY

  2000-2005

  OLD NEW

Number of Wealth Creators 99 1

5-year Earnings CAGR (%) 29.7 45.4

5-year Market Cap CAGR (%) 29.7 0.7

P/E (x) at the beginning of study period 10.7 200.7

P/E (x) at the end of study period 10.7 32.0

% Wealth Created 99.8 0.2

WEALTH CREATORS VALUATIONS

WEALTH CREATORS VALUATIONS

  2000 2005

  SensexWealth

Creators Sensex Wealth

Creators

Median Price/Book Value 1.93 0.82 3.24 3.09

Median Price/Sales 1.86 0.50 2.54 1.90

Median Price/Earnings 12.71 6.84 15.36 14.66

WEALTH DESTROYERS

IndustryNo. of Cos.

Net Wealth Created

Share in Wealth Destroyed

IT 42 -1,466 56.7

Media 8 -404 15.6

Telecom 10 -335 13.0

FMCG 6 -294 11.4

Consumer Durables 5 -14 0.6

Finance 5 -8 0.3

Others 24 -64 2.5

Total 100 -2,586 100.0

WEALTH DESTROYERS CLASSIFICATION BY INDUSTRY (2000-2005) (RS B)

WEALTH DESTROYERS

No CompanyPrice CAGR

(%)

No of Times Price

Adjusted Net

Wealth Created

PE FY00

(x)

Profit CAGR

1 Wipro Ltd -18 0.4 -796.1 507.0 43.2

2 Zee Telefilms Ltd -33 0.1 -364.2 507.7 14.6

3 Hindustan Lever Ltd -12 0.5 -247.8 41.0 -1.8

4 Himachal Futuristic Comm. Ltd -60 0.01 -128.5 141.1 -214.6

5 Satyam Computer Services Ltd -14 0.5 -126.8 191.6 42.0

6 Videsh Sanchar Nigam Ltd -21 0.3 -121.5 20.8 -2.1

7 GTL Ltd -46 0.04 -93.9 41.9 -14.3

8 Mahanagar Telephone Nigam Ltd -13 0.5 -75.7 13.6 -2.7

9 NIIT Ltd -38 0.1 -70.1 35.4 -41.0

10 SSI Ltd -62 0.01 -62.5 99.8 -194.7

TOP 10 WEALTH DESTROYERS (2000-2005) (RS B)

“There is absolutely no substitute for paying right price.

In the Bible, it says that love covers a multitude of sins.

Well, in the investing field, price covers a multitude of mistakes.

For human beings, there is no substitute for love.

For investing there is no substitute for paying right price

– absolutely none.”

(Van Dan Berg, OID, April 2004)

MARKET OUTLOOK

MARKET OUTLOOK

To form our opinion on the markets, we have looked at the following parameters:

1. Corporate earnings

2. Interest rates

3. Valuations

INDIA: CORPORATE PROFIT TO GDP (%)

EXPECT SUSTAINABLE EARNINGS GROWTH OF 14%

INDIA: 10-YEAR G-SEC YIELD (%)

MARKET OUTLOOK

EARNINGS YIELD/G-SEC YIELD

DESPITE THE RUN-UP, INDIAN EQUITIES ARE STILL REASONABLY VALUED

Median 0.48

SENSEX & P/E

DESPITE THE RUN-UP, INDIAN EQUITIES ARE STILL REASONABLY VALUED

Median PE 15.8

Theme 2006:

CONSISTENT WEALTH CREATORS- THE CORNERSTONE OF A SOLID PORTFOLIO

15 YEARS – A DEFINING PERIOD

  1991 2005Growth

(X)14 Year

CAGR (%)

GDP (Rs B) 5,110 28,305 6 13

Corporate Profits (Rs B) 74 1,404 19 23

Corporate Profits/ GDP (%) 1.5 5.0    

SENSEX 1,168 6,493 6 13

Market Cap (Rs B) 852 17,047 20 24

Market Cap/ GDP (%) 16.7 60.2    

Risk Free Interest Rate (%) 10.8 6.7    

TOP 10 CONSISTENT WEALTH CREATORS

Company Industry

No of Times appeared in WC study

Price CAGR (%) with dividend reinvestment

Net Wealth Created (RSB)

Hero Honda Motor Automobiles 10 40.8 10,829

Ranbaxy Labs. Pharmaceuticals 10 34.7 17,689

Wipro Technology 9 57.1 46,178

Dr Reddy's Labs. Pharmaceuticals 9 43.5 4,175

H D F C Bank 9 41.8 17,241

Cipla Pharmaceuticals 9 39.6 7,521

Nicholas Piramal Pharmaceuticals 8 33.7 3,944

ITC FMCG 8 29.5 31,507

GSK Pharma Pharmaceuticals 8 21.6 4,704

Asian Paints FMCG 8 21.4 3,420

TOP 10 CONSISTENT WEALTH CREATORS

Characteristics:

• 9 out of top 10 companies are consumer companies.

• 5 out of 10 are pharmaceutical companies

• All these businesses are non cyclical in character.

• All the companies are leaders in their respective business segments.

• The companies are highly profitable in terms of return on networth.

ABSOLUTE PERFORMANCE (5-YEAR ROLLING) OF TOP 10 CONSISTENT WEALTH CREATORS

  CompanyNegative Returns

Returns from 0-25%

Returns from 25-50%

Returns >50%

1 Hero Honda 0 4 3 3

2 Ranbaxy 1 5 3 1

3 Wipro 1 2 0 7

4 DR REDDYS 1 2 5 2

5 HDFC 1 6 2 1

6 CIPLA 0 3 4 3

7 Nicholas Piramal 2 7 0 1

8 ITC 2 5 3 0

9 GSK Pharma 2 4 3 0

10 Asian Paints 0 9 1 0

  Total 10 47 24 18

Average absolute return 29%.

The Glut

Hero Honda: Rolling return considering dividend reinvestment

Year & Month

Invested Sum(RS lakhs)

PEEarnings Growth

RoE

ROLLING GROWTH

1 YEAR 5 YEAR10

YEAR14

YEAR

199103 1 7   79        

199203 4 28 -4 47 269      

199303 2 12 3 35 -57      

199403 5 35 -1 27 193      

199503 4 23 26 28 -15      

199603 5 22 35 31 30 39    

199703 5 12 91 43 5 8    

199803 16 23 52 44 193 58    

199903 32 29 58 48 101 47    

200003 36 20 58 51 12 55    

200103 26 11 29 46 -27 38 39  

200203 63 14 88 70 140 63 33  

200303 39 6 25 75 -38 19 37  

200403 104 13 25 65 170 27 36  

200503 120 14 11 62 16 28 41 41

Mean 18.0   50.1        

Median 14.4   46.6        

The Glut

Ranbaxy: Rolling return considering dividend reinvestmentYear & Month

Invested Sum (RS in lakhs)

PEEarnings Growth

RoE

ROLLING GROWTH

1 YEAR

5 YEAR

10 YEAR

14 YEAR

199103 1 11   27        

199203 6 46 36 29 491      

199303 4 20 115 38 -34      

199403 12 37 80 39 211      

199503 11 25 74 22 -6      

199603 13 24 22 19 13 67    

199703 12 20 14 16 -10 15    

199803 13 20 21 16 12 27    

199812 10 20 -16 12 -31 -4    

199912 35 54 26 14 247 27    

200012 26 43 -7 12 -26 16 40  

200112 27 32 38 14 4 19 17  

200212 37 18 147 36 39 25 26  

200312 70 26 27 38 88 47 20  

200412 81 44 -34 22 15 18 22 38

Mean 29.3   23.4        

Median 24.8   21.9        

ABSOLUTE PERFORMANCE OF TOP 10 CONSISTENT WEALTH CREATORS (5-YEAR ROLLING)

    Absolute Performance  

    Negative 0-25% 25-50% >50%GrandTotal

Deviation from median P/E

< -50% 0 1 3 9 13

-25 to -50% 0 2 6 2 10

0 to -25% 0 10 5 3 18

0 to 25% 1 10 5 2 18

25 to 50% 2 9 0 1 12

> 50% 7 15 5 1 28

  Grand Total 10 47 24 18 99

100% chance of positive return if bought below median.Average absolute return 45.7% if bought below median.

IF YOU WANT, on a 5 Year basis:No chance of absolute lossOut performance to SENSEX of 35%Absolute performance of 45.7%

The ONLY thing you need to do is:Buy the Consistent Wealth Creators below the median valuation.

WILL HISTORY REPEAT ITSELF???Company TTM PE Median PE

1 3M India 31.5 71.3

2 Aventis Pharma 24.4 39.0

3 Merck 12.0 18.6

4 Nestle India 29.3 38.3

5 GSK Pharma 31.1 40.3

6 Castrol India 21.0 25.7

7 Monsanto India 18.0 20.9

8 Pfizer 34.1 38.4

9 Britannia Inds. 24.8 27.2

10 Hind. Lever 33.3 36.4

11 Hindalco Inds. 12.4 13.4

12 Tata Elxsi 22.0 21.9

13 Glaxo C H L 23.3 22.9

14 M I C O 24.0 22.8

15 Wipro 37.7 35.1

CONCLUSION

• Fad investing in 2000 at exorbitant prices was the single biggest source of wealth destruction.

• Commodity companies have gained further importance as a source of wealth creation.

• At parity, Earnings/Bond Yield is far above the historical median of about 0.5, signifying limited downside and a potential upside in the markets.

• Consistent wealth creators can create significant wealth at respectable pace, with limited risk to the capital, if purchased below long-term average valuations

Thank you