How we ranked India's Best CEOs

This is Business Today's third ranking of India's Best CEOs. In 2012, we published our first ranking, in partnership with INSEAD and HBR. That particular study looked at CEOs' performance over a 15-year time period, and the parameters used - broadly - were total shareholder return and market cap.

In 2013, we introduced a new methodology that would look at CEOs' performance over three years. We also changed the parameters of measuring CEO performance, bringing in - broadly again - top line growth, bottom line growth, market cap growth, and growth in return on equity or RoE. And to bring in the X factor, we introduced a jury panel to choose the final winners. Our partner in this effort was PwC India.

This year we have continued with the same methodology, with some tweaks. First, we introduced a cut-off for companies to qualify. Only companies with more than Rs 1,000 crore revenue in the BT 500 - BT's listing of the country's most valuable companies by average market capitalisation of April to September - were included in the study. Second, we decided to split companies into large and mid-sized groups within their sectors, and very large, large and mid-sized groups for the overall ranking. This resulted in a far better apples-to-apples comparison.

IN PICTURES: India's Best CEOs 2014

The process began with data being pulled out of CMIE Prowess for 2013/14, 2012/13 and 2011/10. After the Rs 1,000 cut-off, companies which reported a loss in any of the three fiscals of our study period were eliminated. Then, only companies whose accounting period in all three fiscals is between nine and 15 months were considered. Companies whose latest audited financial year results were not available - either on Prowess, company websites or the BSE website - as on October 1 were eliminated. We also removed all banks from the list as we do a separate study on India's Best Banks. Finally, companies whose CEOs did not serve the position for the complete study period, were dropped.

At the end, 190 companies qualified for the actual data analysis. P&L numbers used for the analysis were net of extraordinary incomes and expenses. And only standalone numbers were used.

PHASE I: We measured both absolute growth (three-year average) and percentage growth (three-year CAGR) on top line and bottom line, scored them, and added them up to get the Phase one score.

PHASE II: We measured growth in market capitalisation over three years - again, both absolute growth and CAGR. The CAGR growth was compared with BSE SENSEX CAGR for the same period, and the companies were scored on the basis of their outperformance against SENSEX. Scores from absolute growth and CAGR were then added to get the Phase II score.

PHASE III: We measured a company's efficiency at generating profits through Return on equity (RoE). Companies were ranked - and scored - on the basis of geometric mean of RoE for three years.

The scores from the three phases were added to get the final score. PwC India's analysts reviewed the process and did random checks on the data.

Why they don't figure in the list

Based on the final score, CEOs of the top 100 companies were put into a listing of India's Best 100 CEOs (see page 130). Then, to zoom in to the specific awards, the qualifying 190 companies were split into three groups - Very Large, Large and Mid-sized. To make the split we computed the average total income of the 190 companies. Companies with total income more than 3X (three times) the average income were labelled very large companies. Companies with total income between average and 3X were called large companies. And the remaining were mid-sized companies. This created nominations for the overall awards.

PROFILES: India's Gladiators

A similar process was used for sectors. For each sector, companies with total income above the average of the sector were called large and the others, mid-sized.

The top five ranked companies in each group - overall and in each sector - were presented to the jury as nominations. This year, the jury comprised Kalpana Morparia, CEO, JP Morgan India; Rama Bijapurkar, eminent strategy consultant; Ashish Nanda, Director of IIM Ahmedabad; Surjit Bhalla, Managing Director of Oxus Research; and Gagan Rai, Managing Director of NSDL e-governance infrastructure. The jury, in its wisdom, decided to not award some categories altogether - such as mining & metals (because of the cloud over the sector last year). After the jury deliberations, we were left with 22 award categories, and 20 winners.

(Data research and analysis by Jyotindra Dubey, Niti Kiran and Alokesh Bhattacharyya)