India's most investor friendly companies

Until early this year, it didn’t take much to make you happy if you were an equity investor. India seemed like the flavour of the decade, India Inc.’s flagbearers were snapping up big rivals elsewhere in the world, and Sensex at 25,000 was where we were all headed (gosh, all that seems so awfully long ago now). Cut to today, investors are licking their burnt fingers and swearing never to touch equity again. Not surprising at all. In a stock market that has plunged from 21,000-something to less than 15,000 now, there’s hardly anyone—small or big investor—who hasn’t lost money.

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But it’s equally true that equity provides the best returns over the long term. So, if you are in for the long haul, who should you be investing with? Which are the companies that treat their shareholders like kings? Which companies announce their results on time, hold their annual general meetings every year and, most importantly, have a history of paying dividends consistently? As you can probably imagine, there aren’t too many of them. What makes it harder still for companies is our methodology, which makes them jump through some tough hoops (see How We Did It on page 154). For example, to make the cut, a company must have had extraordinary appreciation in its stock price for three years in a row, among others.

The list on the left, then, represents companies that have delivered on our methodology’s demands. You’ll find the Top 10 featured on the pages that follow. As you can tell, these aren’t (minus a handful) the biggest companies in corporate India, but they are—well, in some sense—like Gautam Gambhir: they won’t give you sixes every over, but they score steadily over the long haul. So, if you are betting on stocks for the long term, this is a good list to start with.

Digger of black gold

Aban Offshore, India’s largest private sector offshore oil services provider and tenth-largest player in the world, has shown an uncanny ability to take advantage of favourable market conditions to chart a rapid growth path.

Runaway oil prices have meant that exploration and prospecting (E&Y) activities are at their peak, thanks to global oil majors’ quest for newer oil reserves. This has led to a significant shortage of oil rigs across the world, thus pushing up the daily rig rates nearly three-fold over the last four years.

In 2006-07, Aban surprised stock markets by announcing the acquisition of Sinvest ASA, Norway for $1.3 billion (Rs 5,500 crore). Its 2005-06 revenue was just Rs 505 crore. Funded by a large dose of debt, the Sinvest acquisition gave the company access to 10 new vessels.

“Over the last 20 years, no new rigs had come into operation. We anticipated the demand coming,’’ explains C.P. Gopalkrishnan, Deputy Managing Director, Aban Offshore, on its decision to acquire a player many times its own size.

“We are a global cost leader and considering the oil prices, we were confident of repaying the debt raised for the acquisition,’’ he adds. With 21 rigs in its fleet (with an average age of 10 years against global average of 22.9 years), Aban’s consolidated revenues for 2007-08 grew by 164 per cent to Rs 2,128 crore and profits stood at Rs 123 crore (compared to a loss of Rs 14 crore in 2006-07). It has declared a dividend of 180 per cent. “Aban appears to have bought these (Sinvest) assets cost effectively and at an appropriate time, considering the long-term industry outlook, prevailing day rates and projected payback period,” says Morgan Stanley in its June research report.

It expects the global investment in E&Y to increase 13 per cent from $230 billion in 2007 to $260 billion in 2011. Much of the investment growth is likely in Asia and West Asia and Aban’s assets are apt for drilling conditions in Asia-Pacific and the West Asia, Morgan Stanley further points out in its report.

Aban’s next step is to look at deep-sea drilling (depth of 10,000-12,000 ft). “We are looking at both organic and inorganic options. We want to grow,’’ says Gopalkrishnan. Aban’s growth story, it appears, has just begun.
 
—N. MadhavanAn integrated play

Prices of coking coal, a key input for making steel, have almost doubled over the last one year, but there’s no sweat on Vikram Gujral’s brow. Sure, the Vice Chairman and CEO of Jindal Steel and Power (JSPL) has been able to increase steel prices by around 35 per cent, but that’s not the reason why he’s in clover. Rather, JSPL has what not too many steel makers in the industry have: the advantage of having its own iron ore mines and a merchant power plant. In fact, “JSPL is the only Indian player with a unique blend of steel and merchant power business,” says Tarang Bhanushali, Research Analyst, India Infoline. “It has superior technological capabilities and impressive execution record.”

Don’t take Bhanushali for his word. Take a look at JSPL’s numbers. In 2007-08, the Delhi-headquartered company upped its net profits by 75.96 per cent to Rs 1,236.96 crore and revenue by 53.72 per cent to Rs 5,410.75 crore. In the quarter ended June 30, 2008, it racked up a net profit of Rs 402.30 crore, compared to Rs 250.11 crore for the corresponding quarter last year. Total income jumped to Rs 1,902.74 crore, compared to Rs 1,232.73 crore for the same quarter a year ago.

Given a market place that’s chronically power starved and yet in growth mode, JSPL plans to ramp up capacity. In another 12 years, it hopes to have an annual steel capacity of over 30 million tonnes from 2.9 MT at present, and power generating capacity of 6,160 MW (1,000 MW currently). Says Gujral: “Given the emphasis on infrastructure development, the demand for steel will increase, especially for roads, bridges and housing.” Evidently, investors agree with his assessment. The 33 per cent drop in JSPL’S stocks closely tracks the 31 per cent correction in Sensex over the last seven months.

—Manu KaushikSouth’s lender of choice

Consumer Finance companies in India are generally either scaling down their business or shutting shop altogether, but not Shriram City Union Finance (SCUF). In sharp contrast, the Chennai-based consumer finance firm is bravely going where few of its competitors want to go. Result: Its net interest income as a percentage of revenue has shot up from Rs 100 crore in 2005-06 to Rs 356 crore in 2007-08, while its net profit has soared from Rs 32 crore to Rs 88 crore in the same period. Guess what? It anticipates 100 per cent compounded annual growth rate (CAGR) at least over the next five years. “We estimate our target market for lending to be at least Rs 15,000 crore,” says R. Kannan, the firm’s MD.

It’s easy for any consumer finance company to increase its disbursements; the harder act is to keep its profits ringing. Evidently, SCUF has cracked that problem as well. Its profit margins are at least 25 per cent, minus sticky loans, which last year accounted for a bare 2 per cent of total advances. A healthy P&L allows SCUF to reward its shareholders generously. Last year, for instance, it paid out a 40 per cent dividend.

“We find (consumer finance) even more lucrative than our truck financing business,’’says Shriram Group Chairman R. Thyagarajan. What also gives SCUF an edge over competitors is its robust chit funds business. Over the last 30 years, Shriram Chit Funds has acquired more than three lakh customers.

That explains why SCUF managed to disburse consumer loans worth Rs 3,744 crore in 2007-08 alone. Most of its borrowers are middle-class consumers and others who have little access to bank finance. That clientele ranges from a middle-class consumer to a small businessman. The average loan size is Rs 5 lakh, although SCUF is equally happy lending as little as a few thousand rupees and as much as Rs 10 lakh. “Our success is equally on account of our collection, which we have learnt from Shriram Chit Funds not to outsource,’’ says Subhasri Sriram, Executive Director.

The firm’s smarts will be tested as it moves out of South, which accounts for 90 per cent of its business, to other parts of India. Investors will be watching.

—Nitya VaradarajanIt’s a cool one

It’s the only consumer durables company in the top 10 and the only other airconditioning company on our list. But here’s the thing: Voltas, part of the Tata Group, isn’t really a consumer durables company. Rather, it’s an engineering solutions company that does everything from electrical work to temperature and ventilation control to manufacturing materials handling equipment.

Did you know, for instance, that Hyderabad’s new international airport will get its electrical, plumbing and cooling systems from Voltas? Says A. Soni, MD, Voltas: “We are replicating our international MEP (mechanical, electrical and public health) business model in India that’s based on scale and scope. The scope has already changed from HVAC (heating, ventilation and air-conditioning) to MEP and the scale is getting bigger with bigger projects coming our way.”

Some of the recent MEP projects that form part of its Rs 5,700 crore order book include those from Fortis Healthcare, Neptune Mall in Mumbai, and Indira Gandhi Indoor Stadium Complex, New Delhi. “At present, just 10 per cent of the domestic airconditioning market constitutes MEP projects, but the business is growing,” says an IL&FS Investsmart India report on Voltas.

On his part, Soni wants to more than triple the company’s top line from Rs 3,086 crore in 2007-08 to Rs 10,000 crore by 2010-11. And he’s also looking at acquisitions as a route to that target. “We look at acquisitions in terms of certain expertise and one that will add to our top line growth,” Soni explains. Despite its fuddy-duddy image, Voltas is a company on the go.

—Anusha SubramanianLearning all the right moves

It’s a company whose core business is not one that’s instantly associated with money, but Mumbai-based Core Projects & Technologies, which provides end-to-end solutions in the education space globally, has business flowing in like never before. In 2007-08, it reported net sales of Rs 446 crore, a growth of 130 per cent over the previous year. Profits grew by 153 per cent to Rs 84.5 crore. It is perhaps this growth that prompted the A.V. Birla group to buy a minority stake in Core.

“We strongly believe that the education sector will continue to do well worldwide. Countries like the US, the UK, Australia and Africa are spending anywhere between 4 per cent and 6 per cent of GDP on education. India is planning to spend roughly 7 per cent of GDP (11th Plan 2007-2012) on education,” says Sanjeev Mansotra, Chairman and MD, Core Projects & Technologies.

“We are extremely confident of achieving a 30 per cent organic growth in the US and the UK,” he adds. These markets fetch 95 per cent of Core’s revenues. The rest comes from India and the West Asia. In all, the company provides solutions across 19 states in the US, 1,200 schools in the UK, eight countries in Africa and three countries in the Caribbean Islands.

The company, however, plans to increase its India focus. “We expect a very healthy growth in India. The scope in India with the state governments, universities and within institutions of higher learning such as IGNOU is huge,” says Mansotra, who believes that the Core’s partnerships with organisations like IL&FS, IBM, & IGNOU will help it crack the domestic market.

To improve its profit margins, the company has been consolidating its companies in the US and the UK, centralising corporate functions such as HR, accounts, marketing and administration and moving most of its product development to offshore development centres in India. Looks like Core wants the best of both worlds.

—T.V. MahalingamThe oily way to success

With a turnover of more than Rs 2,000 crore in 2007-08 and a market cap in excess of Rs 1,800 crore, Morena-based KS Oils is a leading player in the country’s edible oil industry.

With a market share of 7 per cent in the overall mustard oil industry (valued at Rs 12,000 crore), the company controls a fourth of the organised mustard oil market in India.

However, the organised market itself accounts for just 15 per cent of overall mustard oil sales in the country. Little wonder, then, KS Oils has been aggressively pushing its branded products and is reaping rich rewards.

In its recently-declared first quarter results, revenues leapfrogged by 90 per cent to touch Rs 696 crore and net profit soared 75 per cent to touch Rs 41 crore y-o-y. “Our surge in revenues is largely due to our FMCG-led retail sales focus,” says Sanjay Agarwal, MD, KS Oils.

“Our products Kalash and Double Sher are now being sold in Big Bazaar, Spencers and More outlets in certain cities in eastern India ,” he adds. The company plans to reach out through other organised retail outlets in rest of the country. It has also launched its first television commercials in certain parts of the country. “We have allocated a budget of Rs 10 crore for advertising and marketing spends,” says Agarwal.

Analysts who track the company say that KS Oils’ transparency and willingness to reach out to shareholders makes it a great company to follow. “As an analyst, it’s a great company to work with. You call them late in the night and they are ready to talk numbers. It’s a fundamentally sound mid-cap company,” says Girish Solanki, an analyst with Angel Broking who tracks the company. The company’s snazzy website is proof enough.

—T.V. MahalingamBasking in reflected glory

If Guinness had entries for record stock performances, Jai Corp. would be a shooin. Over the last three years, Jai’s stock price has meteored some 9,000 per cent—from Rs 4.63 in beginning of July 2005 to Rs 429 now (Aug 1; price adjusted for bonus and stock split). Needless to say, along the way, it has bumped its head against the Bombay Stock Exchange circuit breaker multiple times.

Ask D-Street watchers what’s so hot about a company that had revenues of Rs 438 crore and a net profit of Rs 128 crore in 2007-08, and they’ll throw up their hands, but tell you reverentially that it’s an Anand Jain company. Jain is, of course, considered Reliance Industries supremo Mukesh Ambani’s right hand man.

But there’s good reason why there are only buyers and no sellers on this counter. Jai, which started in 1985 as a manufacturer of specialised textiles and steel, owns a 10 per cent stake in Mumbai SEZ Ltd and Navi Mumbai SEZ, both of which are majority-owned by Mukesh Ambani.

One of Jai’s subsidiaries has a Rs 3,300-crore real estate fund, Urban Infrastructure Fund. Jai also owns a stake in Rewas Port, which is close to the two SEZs. With 12,000 acres of land already bought, Jai has started work on the SEZs. When BT asked Anand Jain for financial projections for the new projects, he simply quipped, “Sky is the limit”. Advice: you don’t want to take this man lightly.

—Virendra VermaColour of money

When you are talking to Dani, Vice Chairman and MD of Asian Paints, don’t ever use the word whitewash if you mean to say paint. Otherwise, the affable Dani will look at you in mock horror and take pains to explain the difference. Point: Dani, who’s got paint flowing in his veins, is very particular about how his company is projected among consumers and investors. After all, it is Asian Paints’ superior brand image that has made it the #1 player in India and an emerging global player. “Internatonal business has been doing well and it should grow in future,” says Dani. Between 1999 and 2003, Asian Paints acquired six companies abroad. Now, close to 20 per cent of its revenues come from overseas.

Aggressive spending on marketing and branding (it accounts for nearly 4 per cent of sales), acquisitions and the boom in the domestic market have kept Asian Paints on a roll.

Consider this: Between 1999-2000 and 2005-06, its net profit rose 94 per cent while in the last two years (2006-07 and 2007-08) it doubled. In absolute terms, in the first six years net profit rose to Rs 188 crore from Rs 97 crore, and in the last two years it doubled to Rs 377 crore from Rs 188 crore. Dani readily admits that robust demand for paints has helped.

Happily for Asian Paints’ investors, Dani has been willing to put some money back in their pockets. Dividend payouts in the recent years have been more than 50 per cent of net profit. “We try to look after the interests of all our stakeholders, and our shareholders are part of it,” says Dani.

Despite the payouts, most of the acquisitions have been funded through internal accruals. As a result, Asian Paints’ debt of Rs 95 crore is just a tenth of its net worth of Rs 900 crore. Most of its equity capital—over 90 per cent of Rs 95 crore—has been built through bonus shares. Its last bonus issue was in 2003, and shareholders are hoping that Dani will do an encore this year.

—Virendra VermaRising from the bottom

He who would climb the ladder must begin at the bottom”. This line from the first page of Modern India’s 2007-08 annual report is a pithy and fitting description of the turnaround that Vijay Kumar Jatia has pulled off at Modern India. Once a textile firm, Modern turned sick in 1986 and spent 10 long years as a basket case. Today, in its 75th year, Modern has reinvented itself as a real estate company.

Jatia, Chairman and MD of Modern, knows just what did the trick. “As a rehabilitation project, the first real estate project came up in the textile mill in central Mumbai,” he recalls. That helped Modern, founded in 1933, repay its loans. The rest, as they say, is history. In 2004, Modern shut its textiles business for good and became a real estate developer. Improved financials and a boom in real estate have resulted in Modern’s stock soaring more than 1,800 per cent over the last three years. Interestingly enough, while real estate stocks have taken a huge hit in the recent months, Modern’s hasn’t been much impacted. One reason, analysts say, could be its development model. Instead of outright sale, Modern gives away its properties on rent. Morever, Modern has revised its rentals to Rs 225-275 per square foot from Rs 75.

Following its success in Mumbai, Modern is setting up an IT SEZ in Khapholi and a Free Trade Warehousing complex in Panvel, both near Mumbai. “The warehousing complex is located near the Jawaharlal Nehru Port Trust and the proposed international airport. Lots of companies will want to use our infrastructure either for imports or exports,” says Jatia. Second time lucky, did you say?

—Virendra VermaFeeding off the steel boom

Over the last 54 years, India’s largest private exporter of iron ore has seen three different owners (including Baron Ludovic who set it up in 1954; Mitsui, which bought a 51 per cent stake in it in 1996; and Vedanta Resources, which acquired Mitsui’s stake in 2007), but one thing has remained unchanged about it—at least since 1981. It has paid dividends every single year since. And now, thanks to the new owner and the global boom in steel prices, Sesa Goa is an even sweeter spot.

The Goa-headquartered company, which has seen its profit grow from just Rs 26 crore on sales of Rs 668 crore in 2003 to Rs 1,548 crore on sales of Rs 3,871 crore in 2008, has rewarded investors handsomely. The payout percentage, which used to be 20-25 per cent till 2003-2004, has gone up to 200-300 per cent over the past few years. Analysts are also happy with the new owner’s openness. “It’s easy to get relevant information from them, and that helps us take an informed decision about the stock,” says an analyst who didn’t wish to be identified.

In the first quarter of 2008-09, Sesa Goa’s net sales grew by 151 per cent to Rs 1,300 crore and profit after tax rose by 382 per cent to Rs 630 crore (year-on-year basis). The sales volumes of iron ore, which contributes 80 per cent to the company’s revenues, rose by 47 per cent and it produced 3.5 million tonnes of iron ore during the quarter.

Sesa Goa is ramping up production from 10.8 million tonnes per annum (MTPA) to 15 MTPA by end of March 2009. Says P.K. Mukherjee, Managing Director of Sesa Goa: “We have created a 10-year vision that sees Sesa Goa among top 4-5 mining companies in the world.”

—Rachna Monga