High growth and an efficient use of capital have, over time, produced the best stock price returns. Smart investors stick to this tried-and-tested formula. For some companies this growth comes in short, sharp bursts while for others it comes over long periods of time. The latter go on to become wealth-creating machines.
It was this construct that Forbes India used to arrive at its Super50 list: A mix of three-year return on equity, revenue growth and stock price gains. The result: A list (not a ranking) of companies that have built up robust business franchises.
The list is not immune to the cyclicality that every business goes through. Our 2015 list had as many as 10 pharma companies, but the sector has since seen profitability tumble primarily on account of quality issues flagged by the US regulator. The 2018 list has two pharma companies.
What it does have is a preponderance—14 companies—of financial services’ businesses. We do, however, highlight the fac that they may stumble in the short term on account of tightening interest rates.
We have also covered businesses that are on the path to become compounding machines. While Wabco India and 3M have worked hard at making their products relevant for India, the second generation of the Biyani family, Ashni Biyani of Future Consumer, has set herself on the long road to becoming a consummate consumer goods company.
Forbes India, with knowledge support from PwC India, adopted a robust multiple-stage process to select India’s Super 50 Companies. In the first stage, a set of eliminators was employed to arrive at a critical mass of strong contenders. Out of all the listed companies on the stock exchanges, we selected those with a market capitalisation of more than ₹10,000 crore (as of March 31, 2018). From these, all PSUs were eliminated; only the top two companies based on market capitalisation from any business group were included; companies where trading was suspended for penal reasons were removed and so were those that were listed after April 1, 2015. This yielded a list of 135 companies which were further evaluated on a different set of parameters. These parameters included shareholder returns exhibited on the stock exchange over a three-year period, sales growth (three-year CAGR) and return on equity (three-year average). As a final check, we considered those companies which were more consistent than others—in the context of our parameters—and we also used relevant eliminators to remove the outliers. The result is a strong list of companies that comprise Forbes India’s Super 50 listing. The list is in alphabetical order and is not a ranking.
(This story appears in the 31 August, 2018 issue of Forbes India. To visit our Archives, click here.)