January 19, 2012

Strategy
STRATEGY THEMATIC

Tomorrows ten baggers

31 firms have outperformed the BSE100 by 10x or more since
1996 (excluding Financials or firms with market cap less than
US$100mn). We take a subset of these 31 and identify the
drivers of their outperformance i.e. the operating levers which
differentiate great firms from the rest of the market. We then
apply these drivers of greatness in todays context to identify 71
firms in the BSE500 (which are most able to deliver on these
drivers). Of these 71 firms, 25 pass our accounting cleanliness
and governance filters (see Exhibit 1). This is the Great 25.
Going beyond Good & Clean and thinking long term
Whilst the consistent and marked outperformance of our Good & Clean (G&C)
portfolios over the past year has attracted attention, we have also been
criticised by clients for the short termism of the G&C portfolios. (The G&C
portfolios are constructed using: (i) a battery of financial tests based on the
previous fiscal years data, and (ii) our forensic accounting model. Each G&C
portfolio typically runs for a quarter before we revise it.) Hence, in this note
we have used multi-year financial analysis to create a list of 25 great Indian
companies that have the potential to be tenbaggers in the coming decade.

Step 1: Defining greatness

We identify firms that have delivered 10 times as much returns as the BSE100
over the last 15 years. We call these firms 10Xers. After filtering such firms
(there are 31 of them) for weak accounting quality and corporate governance,
we get a final list of 14 stocks. It is these 14 stocks that we use to identify the
drivers of greatness.

Step 2: The drivers of greatness

We identify what differentiates a great firm relative to an average firm at each
stage of the value generation process: investment, conversion of these
investments to sales, pricing discipline, balance sheet discipline and cash
generation.
Not only do the great firms perform significantly better than an average firm
on a variety of measures encompassing the five aforementioned stages, even
more interestingly the great firms show a more consistent and calibrated
approach to growth over long periods of time.

Step 3: Investment implications

We apply the winning formula (i.e. the drivers of greatness) to the BSE500 exFinancials universe of firms over the more recent past (FY06-FY11). We find
that 71 firms are able to muster passing scores on two-thirds of the drivers. Of
these 71, 25 firms pass our accounting quality and corporate governance
standards. These 25 firms are shown in Exhibit 1. Of these 25 firms, 13 are
trading below their five year valuation averages.
Many of the firms which emerge from this filtering approach Tata Power,
BHEL, Voltas, Cummins are cyclicals. Obviously, the fate of these firms is tied
to the economy and the interest rate cycle. However, to the extent that we are
relatively close to a turn in the rate cycle, even from a cyclical perspective
these companies look relatively well placed.

Analyst contacts
Gaurav Mehta
Tel: +91 22 3043 3255
gauravmehta@ambitcapital.com

Saurabh Mukherjea, CFA

Tel: +91 22 3043 3174
saurabhmukherjea@ambitcapital.com

Exhibit 1: The Great 25

Company

Ticker

Mcap
($mn)

Attractive Valuations*
BHEL

BHEL IN

13,240

Tata Power Co.

TPWR IN

4,592

Cadila Health.

CDH IN

2,621

Cummins India

KKC IN

2,117

Castrol India

CSTRL IN

2,068

Exide Inds.

EXID IN

2,018

Torrent Pharma.

TRP IN

911

GSFC

GSFC IN

607

Voltas

VOLT IN

545

Sadbhav Engg.

SADE IN

340

Bajaj Electrical

BJE IN

327

Mahindra Life.

MLIFE IN

206

ICRA

ICRA IN

168

Moderate Valuations**
Nestle India

NEST IN

7,683

Asian Paints

APNT IN

5,171

Lupin

LPC IN

3,814

Titan Inds.

TTAN IN

3,219

CMC

CMC IN

555

Elgi Equipment

ELEQ IN

211

Rich Valuations***
ITC

ITC IN

31,969

GlaxoSmith C H L SKB IN

2,045

Coromandel Inter CRIN IN

1,468

CRISIL

CRISIL IN

1,289

EID Parry

EID IN

670

Supreme Inds.

SI IN

460

Source: Ambit Capital research;

* Trading below 5 year P/E, P/B, EV/EBITDA (on at
least 2 of these 3 measures)
** Trading below either 5 year P/E, 5 year P/B or 5
year EV/EBITDA (on 1 of these three measures)
*** Trading above 5 year P/E, P/B, EV/EBITDA

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit
Capital may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to disclaimer section on the last page for further important disclaimer.

Strategy

Step 1: Defining greatness

We begin our analysis by identifying greatness on the basis of stock market
outperformance. We identify firms which have delivered 10 times as much return
as the BSE100 over the last 15 years and call these firms 10Xers. With 1996 as the
initial year, we look for all firms which were listed then or subsequently, and have,
over the period of their existence, delivered 10 times the returns of the benchmark
BSE100 index.
This gives us a list of 31 such firms from the universe of all listed firms (excl
Financial Services firms) with a market cap of over US$100mn. We then filter these
firms for accounting quality and corporate governance to get a final list of 14
stocks. It is these 14 stocks or 10Xers that we focus on in Step 2 of this note.
Exhibit 1: 10Xers*

10Xers since 1996

Company
Infosys

Bloomberg Ticker
INFO IN Equity

Wipro

WPRO IN Equity

NMDC

NMDC IN Equity

Sun Pharma.Inds.

SUNP IN Equity

Hind.Zinc

HZ IN Equity

Jindal Steel

JSP IN Equity

Hero Motocorp

Our Focus Set for Step 2

HMCL IN Equity

Company

Bloomberg Ticker

Adani Enterp.

ADE IN Equity

Infosys

INFO IN Equity

Sterlite Inds.

STLT IN Equity

Exide Inds.

EXID IN Equity

Wipro

WPRO IN Equity

Glenmark Pharma.

GNP IN Equity

CRISIL

CRISIL IN Equity

Coromandel Inter

CRIN IN Equity

United Phosp.

UNTP IN Equity

Motherson Sumi
GMDC

MSS IN Equity
GMDC IN Equity

Havells India

HAVL IN Equity

Rajesh Exports

RJEX IN Equity

Pantaloon Retail

PF IN Equity

Opto Circuits

OPTC IN Equity

Berger Paints

BRGR IN Equity

Phoenix Mills

PHNX IN Equity

Nava Bharat Vent

NBVL IN Equity

KPIT Infosys.

KPIT IN Equity

Praj Inds.

PRJ IN Equity

BF Utilities

BFUT IN Equity

Kemrock Inds.

Hind.Zinc

Our
accounting
and
governance
filters

Hero Motocorp

HZ IN Equity
HMCL IN Equity

Exide Inds.

EXID IN Equity

Coromandel Inter

CRIN IN Equity

Motherson Sumi

MSS IN Equity

Rajesh Exports

RJEX IN Equity

Phoenix Mills

PHNX IN Equity

Nava Bharat Vent

NBVL IN Equity

KPIT Infosys.

KPIT IN Equity

Praj Inds.
Hawkins Cookers

PRJ IN Equity
HAWK IN Equity

KRI IN Equity

Kwality Dairy

KLD IN Equity

NESCO

NSE IN Equity

Hawkins Cookers

HAWK IN Equity

CRISIL

CRISIL IN Equity

Chromatic India

CRDS IN Equity

Source: Ambit Capital research. * 10xers is a term popularized by the American business guru Jim Collins in his latest book Great by Choice. We
are avid fans of Mr.Collins and have tried to apply his thinking in the Indian context of rapid economic change and insufficient data.

Obviously, over the years, these 10Xers have delivered better RoCEs, RoEs and EPS
CAGR than an average firm and this has contributed to their stellar performance
versus the benchmark. This can be readily seen in exhibit 2.

Ambit Capital Pvt Ltd

Strategy
Exhibit 2: 10Xers over BSE100 - RoE, RoCE and EPS
FY96-11 10xers v/s BSE100

Average

Median

10Xers

BSE100

10Xers

BSE100

28

12

28

12

EPS (CAGR/Standard deviation)

0.53

0.34

0.50

0.21

RoE (Change- last 5 yrs v/s first 5 yrs)*

15.1

1.8

12.2

(0.7)

RoE (CAGR/Std Dev)

0.02

(0.11)

0.03

(0.02)

Measure
EPS (CAGR %)

RoCE (Change- last 5 yrs v/s first 5 yrs)*

13.9

0.5

9.4

0.4

RoCE (CAGR/ Standard deviation)

0.03

(0.11)

0.04

(0.02)

Source: Ambit Capital research, Capitaline

* For example, for a firm listed since 1996, this will be the change between the average value for FY20072011 over the average for FY1996-2000

Not just growth, consistent growth

Before we go into the next section to understand what made these firms so
successful, it is worth highlighting a very important fact about the 10Xers - they
havent just beaten the benchmarks in terms of EPS, RoE and RoCE improvements;
they have done so more consistently than other firms in the market (see the table
above). This has resulted in higher CAGR to standard deviation measures (i.e.
better growth adjusted for noise) on all these three counts for the 10Xers.
However, the more interesting question is: What was the recipe for their
success?- What was it that these firms did differently to start with that helped
them generate superior financial performance and shareholder returns?
To answer this question and thereby identify the drivers of greatness, we turn to
the next section.

Ambit Capital Pvt Ltd

Strategy

Step 2: The drivers of greatness

To identify the drivers of greatness, we use the following chart as a framework to
understand what the 10Xers do differently at each stage of a firms value addition
process.
Exhibit 3: Framework for determining drivers of greatness

a. Investment
(gross block)

b. Conversion of
investment to
sales (asset
turnover, sales)

c. Pricing
discipline (PBIT
margin)

e. Cash
generation
(CFO)

d. Balance sheet
discipline (D/E,
current ratio)

Source: Ambit Capital research

a. Investment
The first step in a firms value generation process is obviously investment.
Exhibit 4: Markers of greatness - Investment
FY96-11 10Xers v/s BSE100
Measure
Gross Block (Change- last 5 yrs v/s first 5 yrs, %)*

Average
10Xers

Median

BSE100

10Xers

BSE100

1483

714

820

313

Gross Block (CAGR/Standard deviation)

0.82

0.74

0.82

0.66

Net Block (Change- last 5 yrs v/s first 5 yrs, %)*

1466

659

793

295

Net Block (CAGR/Standard deviation)

0.61

0.46

0.58

0.41

Source: Ambit Capital research, Capitaline

* For example, for a firm listed since 1996, this will be the change between the average value for FY20072011 over the average for FY1996-2000

The 10Xers invest more (much more) than the average BSE100 firms (see the
first and third rows of the table shown above). While this is to be expected, the
more interesting finding from Exhibit 4 is that the 10Xers have shown more
consistent and calibrated growth. This is evident from the fact that the CAGR to
standard deviation ratio (i.e. better growth adjusted for noise) is higher for
10Xers versus the benchmarks on both gross block and net block.

Ambit Capital Pvt Ltd

Strategy
b. Conversion to sales
After having made the investment decision, it is vital that a firm translates its
investments into better sales. This can be monitored by measuring the change
in asset turnover ratio or the growth in sales figures themselves.
Exhibit 5: Markers of greatness - Conversion to sales
FY96-11 10Xers v/s BSE100

Average

Median

10Xers

BSE100

Fixed assets turnover (Change- last 5 yrs v/s first 5 yrs)*

0.82

0.59

0.83

(0.01)

Fixed assets turnover (CAGR/Standard deviation)

0.05

(0.08)

0.04

(0.10)

Measure

Sales (CAGR %)
Sales (CAGR/ Standard deviation )

10Xers BSE100

28

16

25

15

0.99

0.91

0.97

0.71

Source: Ambit Capital research, Capitaline

* For example, for a firm listed since 1996, this will be the change between the average value for FY20072011 over the average for FY1996-2000

Again, the 10Xers havent just shown better improvement on both Asset
Turnover and Sales than the average BSE100 firms but have also achieved it in
a more consistent and calibrated manner. This has meant higher CAGR to
standard deviation ratio (i.e. better growth adjusted for noise) for the 10Xers
versus the average firm on both these measures.
c.

Pricing discipline

After ensuring translation of higher investments to sales, the next key decision
for a firm is pricing. What 10xers are able to do is to maintain pricing
discipline. The concrete measure at this stage is operating margins.
Exhibit 6: Markers of greatness - Pricing discipline
FY96-11 10Xers v/s BSE100
Measure
PBIT margin (Change - last 5 yrs v/s first 5 yrs)*
PBIT margin (CAGR/Standard deviation)

Average

Median

10Xers

BSE100

10Xers

BSE100

9.9

(0.7)

3.1

(0.6)

0.06

(0.02)

0.02

(0.01)

Source: Ambit Capital research, Capitaline

* For example, for a firm listed since 1996, this will be the change between the average value for FY20072011 over the average for FY1996-2000

Yet again, the 10Xers were found to be better both in terms of PBIT margin
improvement as well as better CAGR to standard deviation ratio on this
measure versus the average firm. (In fact the average BSE100 firm seems to
have shed PBIT margin over the past decade.)
d. Balance sheet discipline
Whilst all the action described above takes place on the P&L, in a high cost of
capital market like India, it is essential that a firm focus on maintaining
Balance Sheet discipline. We look for improvements on debt-equity and
current ratios to assess a firms ability to maintain a healthy Balance Sheet.

Ambit Capital Pvt Ltd

Strategy
Exhibit 7: Markers of greatness - Balance sheet discipline
FY96-11 10Xers v/s BSE100

Average

Measure

Median

10Xers

BSE100

Net Debt Equity (Change- last 5 yrs v/s first 5 yrs)*

(1.02)

(0.25)

(0.71)

(0.24)

Net Debt Equity (CAGR/Standard deviation)

(0.59)

(0.32)

(0.31)

(0.01)

Current Ratio (Change- last 5 yrs v/s first 5 yrs)*

(0.03)

(0.23)

(0.13)

(0.26)

Current Ratio (CAGR/Standard deviation)

(0.00)

(0.06)

(0.05)

(0.08)

10Xers BSE100

Source: Ambit Capital research, Capitaline

* For example, for a firm listed since 1996, this will be the change between the average value for FY20072011 over the average for FY1996-2000

The 10Xers again score better not just on magnitude changes but also on
CAGR to standard deviation ratio on both net debt equity and current ratio
measures than the average firm.
Interestingly, whilst the 10xers seem to have delevered 3-4x more than the
broader market over the past decade, it is encouraging to note that the
broader market has also reduced its leverage over this period.
e. Cash generation
Eventually everything that a firm does should lead to better operating cashflow
generation (especially over the long time periods that we are using here).
Healthy cash generation also then feeds back toward funding investments for
the future growth of the firm (which in turn kicks off the whole virtuous cycle all
over again).
Exhibit 8: Markers of greatness - Cash generation
FY96-11 10Xers v/s BSE100
Measure

Average

Median

10Xers

BSE100

10Xers

BSE100

CFO (Change- last 5 yrs v/s first 5 yrs, %)*

23.6

6.5

16.2

3.9

CFO (CAGR/Standard deviation)

0.12

(0.12)

0.13

0.04

Source: Ambit Capital research, Capitaline

* For example, for a firm listed since 1996, this will be the change between the average value for FY20072011 over the average for FY1996-2000

The 10Xers again score better both on magnitude change (3-4x better than the
average firm) as well as CAGR to standard deviation ratio versus the average
firm.

Ambit Capital Pvt Ltd

Strategy

A framework for picking tomorrows

multibaggers
Having identified the drivers of greatness in the previous section, we now turn to
identifying tomorrows multibaggers. For this we look for firms, which in more
recent times (FY2006-FY2011), have replicated the same sort of operational
metrics improvement which the 10Xers have shown over FY1996-2011, in terms of
improvements across factors (a)-(e) outlined above. These improvements are not
just magnitude based improvements but should also reflect consistency as
measured by CAGR to standard deviation ratios.
These steps (investment, conversion to sales, pricing discipline, financial discipline
etc.), if undertaken, should then result in improvements in the bottomline as
measured by EPS while also resulting in higher return ratios, as measured by RoEs
and RoCEs. Again, these should not just be magnitude based improvements but
also higher CAGR to noise improvements. We thus have a total of six heads which
we weigh equally to provide each firm a cumulative greatness score on 100.
Improvements are measured over the last six years (FY2006-FY2011). These six
headings along with the respective sub-criteria are outlined below.
Exhibit 9: Factors used for quantifying and identifying greatness in India
Head
1 Investments

2 Conversion to sales

Criteria
a. Above median gross block increase (FY09-11 over FY06-08)

80%

b. Above median gross block CAGR to standard deviation

0.95

a. Improvement in asset turnover (FY09-11 over FY06-08)

b. Above median asset turnover CAGR to standard deviation

c. Above median sales increase (FY09-11 over FY06-08)
d. Above median sales CAGR to standard deviation
3 Pricing discipline

4 Balance sheet discipline

Cash generation and EPS

improvement

(0.03)
80%
1.0

a. Above median PBIT margin increase (FY09-11 over FY06-08)

0.07

b. Above median PBIT margin CAGR to standard deviation

0.06

a. Below median Debt:Equity decline (FY09-11 over FY06-08)

0.03

b. Below median Debt:Equity CAGR to standard deviation

Threshold or Medians
for BSE500 firms
(over FY06-FY11)

(0.01)

c. Above median current ratio increase (FY09-11 over FY06-08)

0.04

d. Above median current ratio CAGR to standard deviation

0.10

a. Above median CFO increase (FY09-11 over FY06-08)

82%

b. Above median CFO CAGR to standard deviation

0.13

c. Above median EPS increase (FY09-11 over FY06-08)

33%

d. Above median EPS CAGR to standard deviation

0.27

6 Return ratio improvement a. Improvement in RoE (FY09-11 over FY06-08)

b. Above median RoE CAGR to standard deviation
c. Improvement in RoCE (FY09-11 over FY06-08)
d. Above median RoCE CAGR to standard deviation

0
(0.05)
0
(0.07)

Source: Ambit Capital research

Ambit Capital Pvt Ltd

Strategy

Quantifying greatness

* The greatness score is

calculated by assigning equal
weights to the 6 factors
outlined in Exhibit 9 on the
previous page.

From the universe of BSE500 firms, after removing Financial Services firms and
firms with insufficient data, there were 396 firms which we scored on the six
headings highlighted on the previous page. The cut-off for greatness was placed at
66.7%* and there were just 71 firms (less than 18% of the total population of 396
firms) which could manage a score above this cut-off.
Exhibit 10: Distribution of firms on the greatness score

80

Greatness beckons
Only 71 firms
score > 67%

60
50
40
30
20
10
0
0%-10%

These
scores
are
then
cumulated to arrive at a final
greatness score on 100 for
the firm.

107 firms
(between 50%
and 67%)

218 firms
score < 50%

70

No. of firms

Thus each of these 6 factors

carries a weight of 16.7%.
The scoring on sub-criteria
within each of these factors is
binary with a firm getting
either 1 or 0 based on
whether it has done better
than the respective threshold
or not.

Good,
not Great

Zone of mediocrity

90

10%-20%

20%-30%

30%-40%

40%-50%

50%-60%

60%-70%

70%-80%

80%-90% 90%-100%

Greatness Score

Source: Ambit Capital research

In the next exhibit, we present key financial data on the three zones defined above
Mediocrity (217 firms), Good but not great (107 firms), and Great (71 firms) based on their degrees of greatness.
Exhibit 11: Zones of greatness - Financial summary
Number of firms

Mediocre

Good but not great

Great

218

107

71

Mcap (US$ mn)

417

523

552

Share price (3-year CAGR)

12%

30%

38%

Gross block (3-year CAGR)

15%

25%

14%

Sales (3-year CAGR)

14%

20%

21%

EPS (3-year CAGR)

-2%

17%

27%

CFO (3-year CAGR)

0%

14%

17%

RoE (3-year average)

12.9

20.1

27.6

RoCE (3-year average)

12.3

20.3

28.7

Debt equity

0.75

0.48

0.29

PE (FY11)

12.5

15.0

12.4

PB (FY11)

1.5

2.2

2.6

EV EBITDA (FY11)

7.4

8.3

7.5

Source: Ambit Capital research, Capitaline

With regard to fundamentals, the superiority of Great firms compared to the other
two groups is evident in Exhibit 11. However, the bottom three rows of the exhibit
show that the 71 Great firms are actually trading at a 10% valuation discount to
107 Good but not great firms.
Of these 71 great firms, only 25 clear our accounting and corporate
governance filters and this gives us our final list of 25 great companies.
We present the Great 25 in the next section (Step 3).

Ambit Capital Pvt Ltd

Strategy

Step 3: Investment implications

Great firms, but are these good stocks? Having identified the 25 great firms
that exhibit the ingredients required to be tomorrows winners, we next run a
valuation check to ascertain if they are currently trading at reasonable prices for
outright investments. We compare these firms with respect to their 5-year average
valuations on three metrics P/B, P/E and EV/EBITDA. We find 13 firms to be
inexpensive on at least two of the three metrics and hence attractive for
investment. Six firms are expensive compared to their 5-year average P/B, P/E and
EV/EBITDA multiples. However, as we had highlighted in our October 19 note,
Good & Clean 3.0: Battleships, empirical evidence suggests that valuations dont
make much of a difference when investing in high quality firms with a long
term (at least one year) horizon. It is worth noting that three firms Exide,
Coromandel and CRISIL appear both in the Focus Set created in Step1 and in
the Great 25 shown below.
Exhibit 12: The Great 25 Arranged by attractiveness of valuations
Current Valuation
SN

Ticker

Company
P/E

P/B

EV/
Ebitda

Cheap w.r.t history?

Overall cheap on
(1 for Yes)
how many
EV/
counts?
P/E
P/B
Ebitda

Attractive Valuations*
1

BHEL IN Equity

BHEL

10.9

3.0

6.2

3/3

TPWR IN Equity

Tata Power Co.

18.1

1.8

10.6

3/3

CDH IN Equity

Cadila Health.

20.1

5.7

15.6

2/3

KKC IN Equity

Cummins India

20.0

5.2

13.7

2/3

CSTRL IN Equity

Castrol India

21.6

16.1

12.6

3/3

EXID IN Equity

Exide Inds.

16.3

3.6

10.6

2/3

TRP IN Equity

Torrent Pharma.

15.0

3.9

10.1

2/3

GSFC IN Equity

GSFC

4.3

0.9

2.9

3/3

VOLT IN Equity

Voltas

9.7

2.0

6.6

3/3

10

SADE IN Equity

Sadbhav Engg.

13.3

2.2

8.3

3/3

11

BJE IN Equity

Bajaj Electrical

10.4

2.4

6.1

3/3

12

MLIFE IN Equity

Mahindra Life.

8.9

0.9

6.2

3/3

13

ICRA IN Equity

ICRA

18.0

3.3

11.6

2/3

Moderate Valuations**
14

NEST IN Equity

Nestle India

41.4

33.7

25.0

1/3

15

APNT IN Equity

Asian Paints

31.6

11.4

19.3

1/3

16

LPC IN Equity

Lupin

22.0

5.4

17.7

1/3

17

TTAN IN Equity

Titan Inds.

33.6

13.7

21.5

1/3

18

CMC IN Equity

CMC

17.9

4.2

13.4

1/3

19

ELEQ IN Equity

Elgi Equipment

13.6

3.0

7.8

1/3

Rich Valuations***
20

ITC IN Equity

ITC

31.6

9.4

18.6

0/3

21

SKB IN Equity

GlaxoSmith C H L

31.7

9.2

17.7

0/3

22

CRIN IN Equity

Coromandel Inter

10.8

3.5

7.6

0/3

23

CRISIL IN Equity

CRISIL

32.5

15.0

20.9

0/3

24

EID IN Equity

EID Parry

24.2

2.1

13.6

0/3

25

SI IN Equity

Supreme Inds.

12.3

4.1

7.4

0/3

Source: Ambit Capital research, Bloomberg, Capitaline. * Trading below 5 year average P/E, P/B, EV/EBITDA (on at least 2 of these 3 measures)
** Trading below either 5 year average P/E, 5 year P/B or 5 year EV/EBITDA (on 1 of these three measures)
*** Trading above 5 year average P/E, P/B and EV/EBITDA

Ambit Capital Pvt Ltd

Strategy

More colour on the Great 25

Exhibits 13 through 15 in the following pages provide greater colour on these 25
great companies. More specifically, exhibit 13 provides a financial summary of
these firms based on historical data. Exhibit 14 provides market cap, 3-month ADV
and forward looking EPS and BVPS CAG` for these firms over FY11-FY13.
Finally, Exhibit 15, provides a brief description of the key business activities of each
of these firms.
Exhibit 13: The Great 25 Financial summary based on historical data
Share price
(3 year
CAGR)

Gross block
(3 year
CAGR)

Sales
(3 year
CAGR)

EPS
(3 year
CAGR)

RoCE
(3 year
average)

Debt
Equity

-1%

23%

29%

29%

-8%

29.2

44.3

(0.5)

9%

14%

21%

23%

56%

14%

25%

38%

30%

14.8

12.5

1.6

53%

33.3

25.7

0.4

38%

8%

14%

39%

6%

13%

21%

14%

32.6

44.4

(0.0)

32%

13%

76.7

117.5

0.0

Exide Inds.

40%

14%

17%

52%

-4%

34.9

45.8

0.0

TRP IN

Torrent Pharma.

57%

GSFC IN

GSFC

69%

14%

18%

26%

19%

30.7

26.4

0.1

4%

10%

47%

35%

24.0

30.3

(0.1)

VOLT IN

Voltas

SADE IN

Sadbhav Engg.

20%

19%

17%

20%

-52%

35.2

46.2

(0.3)

53%

45%

36%

14%

87%

8.8

12.0

2.1

BJE IN

Bajaj Electrical

61%

17%

26%

20%

20%

34.5

41.3

0.1

MLIFE IN

Mahindra Life.

22%

23%

38%

17%

DNA*

8.4

9.6

0.3

ICRA IN

ICRA

29%

11%

25%

19%

DNA*

22.7

33.9

0.0

NEST IN

Nestle India

40%

16%

21%

27%

26%

119.3

169.0

0.0

APNT IN

Asian Paints

43%

17%

20%

28%

17%

45.5

57.5

0.0

LPC IN

Lupin

54%

21%

29%

25%

46%

33.9

25.9

0.2

TTAN IN

Titan Inds.

57%

6%

30%

43%

112%

40.2

49.4

(1.0)

CMC IN

CMC

83%

5%

0%

25%

16%

31.4

35.8

(0.1)

ELEQ IN

Elgi Equipment

63%

14%

23%

19%

29%

25.6

41.2

(0.4)

ITC IN

ITC

36%

13%

15%

14%

22%

29.2

43.1

(0.1)

SKB IN

GlaxoSmith C H L

64%

5%

22%

20%

20%

29.0

44.3

0.0

CRIN IN

Coromandel Inter

80%

6%

26%

48%

41%

43.4

31.3

0.4

CRISIL IN

CRISIL

59%

19%

16%

32%

27%

41.2

53.6

0.0

EID IN

EID Parry

38%

23%

26%

47%

-14%

27.4

21.7

1.0

SI IN

Supreme Inds.

100%

13%

23%

60%

17%

36.1

34.9

0.9

Ticker

Company

BHEL IN

BHEL

TPWR IN

Tata Power Co.

CDH IN

Cadila Health.

KKC IN

Cummins India

CSTRL IN

Castrol India

EXID IN

CFO
RoE
(3 year
(3 year
CAGR) average)

Source: Ambit Capital research, Capitaline * Cash flows reversed from negative to positive during the period and hence CAGR cannot be computed

Ambit Capital Pvt Ltd

10

Strategy
Exhibit 14: The Great 25 Forward looking data
Sr.
Ticker
No.

Company

Mcap
(US$ mn)

3-month ADV
(US$ mn)

FY11-13 EPS
CAGR (%)

FY11-13 BVPS
CAGR (%)

13,240

21.2

9.1

23.3

BHEL IN

BHEL

TPWR IN

Tata Power Co.

4,592

6.3

3.9

16.2

CDH IN

Cadila Health.

2,621

1.2

17.7

24.5

KKC IN

Cummins India

2,117

2.3

2.6

11.5

CSTRL IN

Castrol India

2,068

0.6

5.3

12.2

EXID IN

Exide Inds.

2,018

4.4

13.6

19.5

TRP IN

Torrent Pharma.

911

0.2

17.2

22.9

GSFC IN

GSFC

607

0.8

3.2

24.4

VOLT IN

Voltas

545

2.0

-9.9

14.7

10

SADE IN

Sadbhav Engg.

340

0.3

22.3

23.5

11

BJE IN

Bajaj Electrical

327

0.3

13.5

17.6

12

MLIFE IN

Mahindra Life.

206

0.1

30.5

11.4

13

ICRA IN

ICRA

168

0.4

6.3

11.6

14

NEST IN

Nestle India

7,683

2.6

21.5

51.4

15

APNT IN

Asian Paints

5,171

4.1

16.7

23.9

16

LPC IN

Lupin

3,814

7.7

18.8

26.4

17

TTAN IN

Titan Inds.

3,219

17.3

26.8

34.1

18

CMC IN

CMC

555

0.3

7.6

18.4

19

ELEQ IN

Elgi Equipment

211

0.1

-4.1

20.4

20

ITC IN

ITC

31,969

27.2

18.8

11.2

21

SKB IN

GlaxoSmith C H L

2,045

1.1

20.0

12.1

22

CRIN IN

Coromandel Inter

1,468

0.9

18.9

7.8

23

CRISIL IN

CRISIL

1,289

1.5

18.5

19.7

24

EID IN

EID Parry

670

0.3

DNA

DNA

25

SI IN

Supreme Inds.

460

0.2

30.5

30.4

Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt Ltd

11

Strategy
Exhibit 15: The Great 25- Business activity description
Sr. No.

Ticker Company

Business activity description

BHEL IN B H E L

Bharat Heavy Electricals Limited manufactures power plant equipment. The Company's products include
gas turbines, generators, thermal sets, diesel shunters, turbo sets, hydro sets, power transformers,
switch gears, circuit breakers and boilers. The Company also manufactures compressors, valves,
rectifiers, pumps, capacitors, oil rigs, as well as castings and forgings.

TPWR IN Tata Power Co.

Tata Power Company Limited generates and supplies electricity in Mumbai and its suburbs. The
Company also constructs and operates independent power plants as well as captive power plants for
industrial concerns. Tata Power also provides various services related to electricity distribution, erects
and commissions transmission lines, and is diversifying into the telecommunications market.

CDH IN Cadila Health.

Cadila Healthcare Ltd. manufactures, and markets healthcare solutions ranging from formulations,
active pharmaceutical ingredients, vaccines, diagnostics, health and dietetic foods, animal healthcare to
cosmeceuticals. The Company's products are available in tablets, capsules, injections, liquids, dry
syrups, powders, granules, and ointments.

KKC IN Cummins India

Cummins India Limited manufactures internal combustion engines, including diesel, reciprocating
piston, gas turbine and gasoline engines. The Company also manufactures generating sets and public
transport-type passenger motor vehicles, including luxury coaches and air-field buses. In addition,
Cummins India Ltd. operates a computerized and fully-equipped research and development facility.

CSTRL IN Castrol India

Castrol (India) Limited manufactures and markets automotive and industrial lubricants and specialty
products. The Company's products include lubricating oils, greases and brake fluids. The Company also
manufactures cable filling compounds, jellies, waxes and other items.

EXID IN Exide Inds.

Exide Industries Ltd. manufactures a wide range of lead and electric storage batteries. The Company's
batteries are used for automobiles, railways, aircrafts, power stations, telephone exchanges, and other
uses.

TRP IN Torrent Pharma.

Torrent Pharmaceuticals Ltd. manufactures bulk drugs and pharmaceutical formulations. The Company's
formulations include cardio-vascular, psychotropic and anti-biotic drugs while its bulk drugs include
atenolol, ciprofloxacin and norfloxacin. Torrent Pharmaceuticals has wholly owned subsidiaries in
several regulated and less regulated international markets.

GSFC IN G S F C

Gujarat State Fertilizers & Chemicals Limited manufactures fertilizers and chemicals in four product
areas: Finished Products, Intermediate Products, Polymers and Fibre Products. The Company also
maintains trading activities in nylon products, petrochemicals, industrial gases and plastics.

VOLT IN Voltas

Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating,
ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, machine
tools, mining and construction equipment, materials handling, water management, building
management systems, indoor air quality and chemicals.

SADE IN Sadbhav Engg.

Sadbhav Engineering Limited provides construction services, with a focus on irrigation, roads and
highways, and mining operations. The Company constructs earthen dams and canals, rehabilitates and
upgrades roads, and excavates overburden of mineral properties.

10

Bajaj Electrical

Bajaj Electricals Limited manufactures electric fans and general lighting items, such as lamps, special
lamps, fluorescent tubes, and lighting fixtures. The Company also manufactures consumer durables like
small electrical appliances.

12

MLIFE IN Mahindra Life.

Mahindra Lifespace Developers Limited specializes in the construction and operation of commercial and
residential property complexes, projects management services and business centers.

13

ICRA IN ICRA

ICRA Limited provides investment information and credit rating services in India.

14

NEST IN Nestle India

Nestle India Ltd. manufactures brand name milk products and other food products The Company's
products include Everyday dairy whitener, milk powder and ghee, Milkmaid sweetened condensed milk
and Cerelac weaning foods. Nestle's beverages include Nescafe and Sunrise coffee and Nesfit enriched
glucose powder. Nestle also manufactures Maggi noodles, soups and sauces.

15

APNT IN Asian Paints

Asian Paints Limited manufactures a wide range of decorative paints, varnishes, enamels, and black &
synthetic resins. The Company, through its subsidiaries, also manufactures specialty industrial chemicals
and vinyl pyridine latex products which are used in the manufacture of rubber tires.

11

16

BJE IN

LPC IN Lupin

Lupin Limited manufactures bulk actives and formulations. The principal bulk actives manufactured by it
include Rifampicin, Pyrazinamide, Ethambutol (anti-TB), Cephalosporins (anti-infectives) and
cardiovasculars. The company also possesses competencies in phytomedicines, in which medicines are
made out of plant and herbal resources supported by the discipline of modern medicine.

17

TTAN IN Titan Inds.

Titan Industries Ltd. manufactures and retails jewelry and watches. The Company produces quartz
analog electronic watches, watch movements, step motors and watch cases.

18

CMC IN CMC

CMC Ltd. provides computer users with a range of computer software and hardware support services.
The Company's services comprise of hardware maintenance, site preparations, installation and
commissioning of systems, software development, education and training.

Ambit Capital Pvt Ltd

12

Strategy
Sr. No.

19

Ticker Company

ELEQ IN Elgi Equipment

ITC

Business activity description

Elgi Equipments Limited manufactures reciprocating and screw type air compressors, diesel engines.
generators and pumps, garage equipment, auto products and heat pressure cleaners. Elgi markets a
range of wheel balancers, oil suction units, AC recovery plants, mobile service units, and pasteurizer
and bottle washers. The Company operates in India and markets its products globally.
ITC Limited, a member of BAT Group of UK, is a holding company, which has a diversified presence in
Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods &
Confectionery, Branded Apparel, Greeting Cards and other FMCG products.

20

ITC IN

21

Glaxo SmithKline Consumer Healthcare Limited manufactures and sells malted milk food products. The
SKB IN GlaxoSmith C H L Group's products, which include energy & protein products, cereals, baby foods, ghee & butter, are sold
under the "Horlicks", "Boost", "Viva", "Brylcream", "Eno", "Maltova" and "Gopika" brand names.

22

CRIN IN Coromandel Inter

Coromandel International Ltd. manufactures fertilizers and pesticides. The Company produces both
chemical and organic fertilizers, insecticides, fungicides, herbcides, and plant biostimulant.

23

CRISIL IN CRISIL

Crisil Ltd. operates a credit rating agency in India. The Company specializes in the areas of risk
identification, classification and assessment, across a broad spectrum of industries.

24

25

EID IN EID Parry

SI IN

Supreme Inds.

E.I.D. - Parry (India) Limited is a diversified manufacturer of fertilizers, pesticides, sugar, ceramics,
electronics and seeds. The Company is also diversifying into the manufacture of organic fertilizers, biopesticides, acetic acid, wall tiles and horticultural activities.
Supreme Industries Limited manufactures industrial and engineered molded products and storage and
material handling crates. The Company also manufactures chemicals, multilayer sheets, multilayer
films, packaging films and expanded polyethylene foam, PVC pipes and fittings, molded furniture and
disposable EPS containers.

Source: Bloomberg

Ambit Capital Pvt Ltd

13

Strategy

Institutional Equities Team

Saurabh Mukherjea, CFA

Head of Equities

(022) 30433174

saurabhmukherjea@ambitcapital.com

Research
Analysts

Industry Sectors

Desk-Phone

Aadesh Mehta

Banking / NBFCs

(022) 30433239

E-mail
aadeshmehta@ambitcapital.com

Anand Mour

FMCG

(022) 30433169

anandmour@ambitcapital.com

Ankur Rudra, CFA

Technology / Telecom / Education

(022) 30433211

ankurrudra@ambitcapital.com

Ashvin Shetty

Automobile

(022) 30433285

ashvinshetty@ambitcapital.com

Bhargav Buddhadev

Power / Capital Goods

(022) 30433252

bhargavbuddhadev@ambitcapital.com

Chandrani De, CFA

Metals & Mining

(022) 30433210

chandranide@ambitcapital.com

Chhavi Agarwal

Construction / Infrastructure

(022) 30433203

chhaviagarwal@ambitcapital.com

Dayanand Mittal

Oil & Gas

(022) 30433202

dayanandmittal@ambitcapital.com

Gaurav Mehta

Derivatives Research

(022) 30433255

gauravmehta@ambitcapital.com

Hardik Shah

Technology / Education Services

(022) 30433291

hardikshah@ambitcapital.com

Krishnan ASV

Banking

(022) 30433205

vkrishnan@ambitcapital.com

Nitin Bhasin

Construction / Infrastructure / Cement

(022) 30433241

nitinbhasin@ambitcapital.com

Pankaj Agarwal, CFA

NBFCs

(022) 30433206

pankajagarwal@ambitcapital.com

Parita Ashar

Metals & Mining / Media / Telecom

(022) 30433223

paritaashar@ambitcapital.com

Puneet Bambha

Power / Capital Goods

(022) 30433259

puneetbambha@ambitcapital.com

Rakshit Ranjan, CFA

Mid-Cap

(022) 30433201

rakshitranjan@ambitcapital.com

Ritika Mankar Mukherjee

Economy

(022) 30433175

ritikamankar@ambitcapital.com

Ritu Modi

Cement

(022) 30433292

ritumodi@ambitcapital.com

Shariq Merchant

Consumer

(022) 30433246

shariqmerchant@ambitcapital.com

Sales
Name

Regions

Desk-Phone

Deepak Sawhney

India / Asia

(022) 30433295

deepaksawhney@ambitcapital.com

Dharmen Shah

India / Asia

(022) 30433289

dharmenshah@ambitcapital.com

Dipti Mehta

India / Europe

(022) 30433053

diptimehta@ambitcapital.com

Pramod Gubbi, CFA

India / Asia

(022) 30433228

pramodgubbi@ambitcapital.com

Sarojini Ramachandran

UK

+44 (0) 20 7614 8374

E-mail

sarojini@panmure.com

Production
Sajid Merchant

Production

(022) 30433247

sajidmerchant@ambitcapital.com

Kausalya Vijapurkar

Editor

(022) 30433284

kausalyavijapurkar@ambitcapital.com

Praveen Mascarenhas

Database

(022) 30433251

praveenmascarenhas@ambitcapital.com

Ambit Capital Pvt Ltd

14

Strategy

Explanation of Investment Rating

Investment Rating

Expected return
(over 12-month period from date of initial rating)

Buy

>5%

Sell

<5%

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15