Winners in the downturn

If one swallow does not a summer make, two financial quarters of heady earnings growth numbers may not a champion make, either. Yet, the handful of companies that we’ve picked out are noteworthy because they have succeeded in taking off at a time when industrial growth is slowing down, exports are coming crashing down, investments are decelerating and consumption is moderating. That’s a headwind of huge proportions blistering against an India Inc. which, till only recently, was basking in the glory of international conquests and burgeoning domestic demand.

Nobody likes an escalating headwind—especially, when it’s beginning to slow down growth. That was evident in the quarter ended December, when net profits of Indian companies fell by 12.7 per cent—a decline for the first time after 23 quarters of gung-ho growth.

But headwinds do have their advantages. Aviators, for instance, prefer to take off or land in one. Like good pilots, a clutch of Indian promoters has actually been able to use the ongoing slowdown to their advantage. A few of them are also smartly allocating capital to expand operations or even make acquisitions on the cheap.

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Early Birds
So, what sets these winners apart from the rest of the pack? Plenty, actually. Let’s begin with the sheer benefits of size and pedigree. Corporations like Bharti Airtel, Larsen & Toubro and Hero Honda are all leaders in their sectors. They’re also the only companies in their sectors that have been notching smart growth even as their rivals flounder. They also prove that being an early bird helps in getting the worm—even during a downturn. Then, there’s a company like Sun Pharma that has countered the downtrend in the pharma sector by perfecting, over the years, a four-pronged strategy for balanced, profitable growth. Some of the names on this list are lesser-known. Some of their businesses are hardly glamorous—gas cylinders anybody? But the uniqueness of these promoters is their business model. Companies like AIA Engineering and Everest Kanto are among a select few, not just in India, but also the world over. Replicating their operations isn’t easy because of the high entry barriers to these businesses. We have also included Mundra Port, although there is no comparative growth for the September quarter (as the company got listed recently) because analysts expect it to be the fastest growing port in Asia till 2011.

To arrive at this list we considered companies with a minimum market capitalisation and annual revenues of Rs 500 crore. Will all of them continue to have the wind beneath their wings, as the slowdown rages on? Perhaps not. The last quarter of this fiscal (ending March) is going to be a virtual carnage for India Inc., with the downturn exacting a heavy toll. We’ll be keeping track of our winners. Here they are, in order of their annual sales for the financial year ended March 2008.