Thematic Study 19 December 2008

Great Good Gruesome

13TH ANNUAL WEALTH CREATION STUDY (2003 - 2008)
Understanding of Great, Good and Gruesome companies is critical to investment success. Great time to buy Great companies (perpetual bonds) at reasonable prices, as interest rates are likely to remain low for quite some time. Gruesome companies are best avoided. Market is likely to see a sector churn - dominance of commodities will probably give way to users of commodities. Corporate profit boom of last five years is unlikely to continue. However, we have probably seen the market bottom at Sensex levels of 7,700.

THE BIGGEST
Rank Company 1 Reliance Industries Wealth Created (Rs b)

THE FASTEST
Company 5-Y 5-Year Price CAGR (%)

THE MOST CONSISTENT

Company Appeared in WC Study (x) 10-Y 10-Year Price CAGR (%)

7.01h]aF 8475oCT4 0CU7-45.84 -1.692 T6911/011(%(CAGR (%))T39IF 8475 239 3.692 056c-0.R 98(%))G6Tj0.015 -0.1.84 -1.692 TDu111C

Raamdeo Agrawal (Raamdeo@MotilalOswal.com) / Shrinath Mithanthaya (ShrinathM@MotilalOswal.com)

We thank Mr Dhruv Mehta (dhruvlmehta@gmail.com), Investment Consultant, for his invaluable contribution to this report.

Wealth Creation Study 2003-2008

Contents
Objective, Concept and Methodology Wealth Creation Study 2003-2008: Findings Theme 2009: The Great, the Good and the Gruesome Market Outlook Appendix I: MOSL 100 Biggest Wealth Creators Appendix II: MOSL 100 Fastest Wealth Creators Appendix III: MOSL 100 Wealth Creators (alphabetical) 3 4-18 20-33 34-37 39-40 41-42 43-44

Abbreviations and Terms used in this report

ABBREVIATION / TERM DESCRIPTION

2003, 2008, etc Avg CAGR L to P / P to L Price CAGR RS B WC Wealth Created

Reference to years for India are financial year ending March, unless otherwise stated Average Compound Annual Growth Rate; All CAGR calculations are for 2003 to 2008 unless otherwise stated Loss to Profit / Profit to Loss. In such cases, calculation of PAT CAGR is not possible In the case of aggregates, Price CAGR refers to Market Cap CAGR Indian Rupees in billion Wealth Creation / Wealth Created Increase in Market Capitalization over the last 5 years, duly adjusted for corporate events such as fresh equity issuance, mergers, demergers, share buybacks, etc.

19 December 2008

Wealth Creation Study 2003-2008

Objective, Concept and Methodology

Objective The foundation of Wealth Creation is in buying businesses at a price substantially lower than their intrinsic value or expected value. The lower the market value is compared to the intrinsic value, the higher is the margin of safety. In this year study, we continue s our endeavor to cull out the characteristics of businesses, which create value for their shareholders. As Phil Fisher says, It seems logical that even before thinking of buying any common stock, the first step is to see how money has been most successfully made in the past. Our Wealth Creation studies are attempts to study the past as a guide to the future and gain insights into How to Value a Business. Concept Wealth Creation is the process by which a company enhances the market value of the capital entrusted to it by its shareholders. It is a basic measure of success for any commercial venture. Wealth Creation is achieved by the rational actions of a company in a sustained manner. Methodology For the purpose of our study*, we have identified the top 100 Wealth Creators in the Indian stock market for the period 2003-2008. These companies have the distinction of having added at least Rs1b to their market capitalization over this period of five years, after adjusting for dilution. We have termed the group of Wealth Creators as the MOSL - 100 . The biggest and fastest Wealth Creators have been listed in Appendix I and II on page 39 and 41, respectively. Ranks have been accorded on the basis of Size and Speed of Wealth Creation (speed is price CAGR during the period under study). On the cover page, we have presented the top 10 companies in terms of Size of Wealth Creation (called THE BIGGEST), the top 10 companies in terms of Speed of Wealth Creation (called THE FASTEST), and the top 10 companies in terms of their frequency of appearance as wealth creators in our Wealth Creation studies (called THE MOST CONSISTENT).

Theme 2009 Our Theme for 2009 is The Great, the Good and the Gruesome, discussion on which starts from page 20.
* Capitaline database has been used for this study 19 December 2008

Wealth Creation Study 2003-2008

Findings

Wealth Creation 2003-2008 The 13TH Annual Study

Findings

19 December 2008

Wealth Creation Study 2003-2008

Findings

Wealth Creation 2003-2008 The Biggest Wealth Creators

Reliance Industries is No.1 Reliance is the biggest Wealth Creator for the second year in a row. The company has steadily climbed its way up the list of Motilal Oswal Biggest Wealth Creators. It was ranked 4th in 2004, 3rd in 2005, 2nd in 2006 (behind ONGC) and 1st in 2007. Wider participation in wealth creation In 2003-08, top 10 wealth creating companies accounted for 49% of wealth created compared to 76% during 1998-2003. The strong bull run in the market has led to wider participation in the wealth creation process.
TOP 10 BIGGEST WEALTH CREATORS RANK COMPANY NET WEALTH CREATED RS B % SHARE PRICE CAGR (%) PAT CAGR (%) FY08 P/E (X) FY03

1 2 3 4 5 6 7 8 9 10

Reliance Inds. ONGC Bharti Airtel NMDC MMTC BHEL Larsen & Toubro SAIL State Bank of India ITC

3,077 1,593 1,505 1,356 1,084 952 813 727 701 617

12.1 6.3 5.9 5.3 4.3 3.7 3.2 2.9 2.8 2.4

58.7 32.8 96.4 158.3 186.8 79.1 100.9 83.8 44.4 37.5

36.5 9.7 L to P 59.8 51.6 45.1 38.1 L to P 16.7 17.9

16.9 12.6 24.5 42.1 543.6 35.2 40.7 10.1 15.0 24.9

9.4 4.8 L to P 3.8 22.4 12.3 10.6 L to P 4.6 11.4

DISTRIBUTION OF WEALTH CREATION BY RANK (%)

76

2008

2003

49

16

Key Finding
Commodities led by Oil & Gas had been the front runners in 2003-08. But change of leadership is almost certain going forward.
19 December 2008 5

11

10

5 2 41-50

4 2 51-60

3 1 61-70

2 1 71-80

2 0 81-90

2 0 91-100

1-10

11-20

21-30

31-40

Wealth Creation Study 2003-2008

Findings

Wealth Creation 2003-2008 The Fastest Wealth Creators

Unitech is No.1 Unitech is the Fastest Wealth Creator during 200308, with a 5-year stock price CAGR of a whopping 284%. This is the highest ever in our 13 Wealth Creation studies so far. MMTC and NMDC enjoy the rare privilege of featuring in both the biggest and fastest wealth creators list. Two dominant themes (1) Real estate / Embedded value (Unitech, B F Utilities, Godrej Industries, Jai Corp, Financial Technologies) and (2) Commodities (MMTC, NMDC, Sesa Goa and REI Agro). Key Finding
At times, Fad Investing (e.g. Real estate) and Momentum Investing (e.g. Commodities) can make serious money in the stock markets over reasonably long periods. Nothing is more profitable than investing in an early stage bubble.
19 December 2008 6 TOP 10 FASTEST WEALTH CREATORS RANK COMPANY PRICE APPREN. (X) PRICE CAGR (%) PAT CAGR (%) MCAP (RS B) FY08 FY03

1 2 3 4 5 6 7 8 9 10

Unitech Jai Corp MMTC Financial Tech. BF Utilities Aban Offshore NMDC Ltd Godrej Indus. Sesa Goa REI Agro

837 316 194 164 152 118 115 108 102 99

284 216 187 177 173 160 158 155 152 150

150 50 52 226 45 77 60 27 160 66

448 92 1090 74 40 114 1367 83 123 71

0.5 0.3 5.6 0.4 0.3 0.9 11.9 0.7 1.2 0.4

2003-08 PRICE APPRECIATION (X): UNITECH - FASTEST EVER WEALTH CREATOR

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996

837 Unitech 665 B F Utilities 182 Matrix Labs 136 Matrix Labs 75 Matrix Labs 50 e-Serve 69 Wipro 66 Infosys 223 SSI 75 Satyam Computer 23 Satyam Computer 7 Cipla 30 Dr Reddy's Labs

Wealth Creation Study 2003-2008

Findings

Wealth Creation 2003-2008 Most Consistent Wealth Creators

TOP 10 CONSISTENT WEALTH CREATORS

Infosys is Most Consistent Infosys, Hero Honda and Ranbaxy have all appeared in all of the last 10 studies. Infosys is ranked as the most consistent by virtue of its higher price CAGR. Indian IT, which is truly global and stable in character, is a new source of consistent wealth creation.

RANK COMPANY

APPEARED IN LAST 10 WC STUDIES (X)

10-YR PRICE CAGR (%)

PAT CAGR (%)

P/E (X) 2008 2003

1 2 3 4 5 6 7 8 9 10

Infosys Tech. Hero Honda Motor Ranbaxy Labs. Sun Pharma. Reliance Inds. HDFC Cipla Satyam Computer Piramal Healthcare ITC

10 10 10 9 9 9 9 9 9 9

25.7 16.5 8.7 46.0 40.5 40.2 21.8 19.2 16.6 13.9

36.1 10.8 -0.2 34.4 36.5 28.7 23.1 41.0 20.6 17.9

18.3 14.2 26.5 25.2 16.9 27.8 24.4 15.4 21.0 24.9

27.9 6.5 18.6 10.9 9.4 11.7 17.3 18.1 6.6 11.4

CONSUMER COMPANIES SCORE HIGH ON CONSISTENT WEALTH CREATION

Consistent Wealth Creators - 2005, 2006, 2007 & 2008 Consumer Facing Pharma ? Cipla ? Dr Reddy's Lab ? Piramal Healthcare ? Piramal Healthcare ? Ranbaxy Lab ? Sun Pharma FMCG ? Asian Paints ? ITC Others ? Hero Honda ? HDFC Non-Consumer Facing IT
? Infosys ? Wipro ? Satyam ? Reliance Industries

Key Finding
FMCG, Pharma and IT companies dominate the list of consistent wealth creators. Thus, non-cyclicality of business is a key driver of consistent wealth creation.
19 December 2008 7

Wealth Creation Study 2003-2008

Findings

Wealth Creators (Wealthex) Comparative Performance v/s BSE Sensex

Superior performance on all fronts We have compared the performance of Wealthex (top 100 Wealth Creators index) with the BSE Sensex on three parameters (1) market performance, (2) earnings growth, and (3) valuation. The Wealthex is superior to the Sensex in all the three. Market performance: The Wealthex significantly beat the Sensex in FY04, FY05 and FY08, and matched it in FY06 and FY07. Over the five-year period FY03-08, the Wealthex outperformed the Sensex by 241%. Earnings growth: Five-year EPS CAGR for the Wealthex is 26%, compared to 25% for the Sensex. Valuation: In spite of superior earnings performance, the Wealthex traded cheaper than the Sensex in each of the last six years. Key Finding
Wealth creating companies were available in 2003 at superior valuation to Sensex, which led to their outperformance.
19 December 2008 8 WEALTH CREATORS INDEX V/S BSE SENSEX (31.3.03 TO 31.3.08)

Wealthex - Rebased 32,000

Sensex 241% Outperformance

24,000 16,000 8,000 0 Jun-03 Jun-04 Jun-05 Jun-06 Dec-03 Dec-04 Dec-05 Dec-06 Jun-07 Dec-07 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Mar-08

SENSEX V/S WEALTH CREATORS: HIGHER EARNINGS GROWTH, LOWER VALUATION MAR-03 MAR-04 MAR-05 MAR-06 MAR-07 MAR-08 5-YEAR CAGR (%)

BSE Sensex YoY Performance (%) Wealth Creators - based to Sensex YoY Performance (%) Sensex EPS YoY Performance (%) Sensex P/E (x) Wealth Creators EPS YoY Performance (%) Wealth Creators P/E (x)

3,049 3,049 272 11.2 386 7.9

5,591 83.4 6,470 112.2 348 27.9 16.1 487 26.3 13.3

6,493 16.1 8,019 23.9 450 29.3 14.4 641 31.6 12.5

11,280 73.7 13,724 71.1 523 16.2 21.6 719 12.2 19.1

13,072 15.9 15,680 14.2 718 37.4 18.2 977 35.9 16.0

15,644 19.7 22,987 46.6 833 16.0 18.8 1228 25.7 18.7

38.7 49.8 25.1

26.1

Wealth Creation Study 2003-2008

Findings
(RS B) PRICE CAGR (%) PAT CAGR (%) P/E (X) 2008 2003

Wealth Creators Classification By Industry

Size: The commodity factor Oil & Gas (led by Reliance and ONGC) and Metals/ Mining (led by NMDC, MMTC and SAIL) dominate the wealth created, with a combined share of 40%. In 2003, their share was half this figure. In contrast, IT which enjoyed 43% share in 2003, has a share of only 5% in 2008. Speed: The fad factor Real estate and Retail emerged the fastest wealth creators, as they were the flavor-of-the-season sectors for investors in the Indian markets. Metals/Mining, Engineering, Telecom: Best of both worlds Metals/Mining, Engineering and Telecom enjoyed the best combination of size and speed. Key Finding
Engineering and Telecom are the sectors to watch out for in terms of huge wealth creation at a rapid pace. Oil & Gas and Metals/Mining may lose out as they are hit by the global slowdown, and collapse in commodity prices.
19 December 2008 9

W E A L T H C R E A T ORS: C L A S S I F I C A T I O N B Y I N D U S T R Y WEALTH INDUSTRY CREATED (RS B) SHARE OF WEALTH CREATED (%) 2008 2003

Oil & Gas (8) 5,826 Metals/Mining (13) 4,416 Banking & Finance (15) 3,282 Engineering (10) 2,603 Telecom (2) 1,636 IT (5) 1,234 FMCG (6) 1,180 Pharma (8) 733 Auto (7) 680 Ultility (4) 635 Cement (4) 527 Construction/Real Estate (2) 491 Media (2) 147 Retail (2) 96 Others (12) 1,903 Total 25,390

22.9 17.4 12.9 10.3 6.4 4.9 4.6 2.9 2.7 2.5 2.1 1.9 0.6 0.4 7.5 100.0

17.0 2.0 12.0 2.0 0.0 43.0 2.0 15.0 2.0 0.0 1.0 0.0 0.0 0.0 4.0 100.0

41.5 83.3 54.1 78.3 87.8 24.4 25.9 35.1 45.2 52.5 50.7 253.4 42.4 107.8 91.3 49.8

15.9 62.7 21.5 40.2 63.4 35.6 12.5 24.2 32.7 10.7 49.6 116.5 28.4 73.4 33.5 26.2

14.2 16.8 16.3 34.0 25.6 17.7 27.6 23.1 16.1 25.9 11.2 40.4 47.1 41.2 35.4 18.7

5.2 9.2 5.0 10.2 12.8 27.3 15.8 15.2 10.3 5.2 10.8 3.5 28.1 16.7 5.9 7.9

NEW ECONOMY PERFORMANCE IN THE TOP 100 WEALTH CREATORS

No of Companies % Wealth Created 10 5 1 2000-05 2001-06

20 11.9 10 10

2002-07

2003-08

Wealth Creation Study 2003-2008

Findings

Wealth Creators Classification By MNCs v/s Indian Companies

MNCs have underperformed Indian companies During the study period, MNCs sharply underperformed Indian companies both in terms of earnings CAGR and price CAGR. However, Indian markets still believe in the long-term potential of MNCs as indicated by their higher P/Es. MNC dominance on the wane The last 10 wealth creation studies clearly indicate the waning dominance of MNCs in India. Over the last 10 years, MNCs have lost significant share both in terms of number of companies and amount of wealth created. Within MNCs, engineering and capital goods companies like ABB, Siemens, Bosch and Cummins are increasing their share of wealth created, relative to consumer goods companies like Hindustan Unilever and Colgate. Key Finding
New Indian businesses and entrepreneurs have eclipsed old MNC clout in wealth creation. New MNCs like Nokia and Samsung do not seem keen on listing themselves in India.
19 December 2008 10 WEALTH CREATORS: MNCs V/S INDIAN COMPANIES 2003-2008 MNC INDIAN

Number of Wealth Creators % Wealth Created 5-year Earnings CAGR (%) 5-year Price CAGR (%) P/E (x) at the Beginning of Study Period P/E (x) at the End of Study Period

10 6.8 20.1 31.4 15.5 24.3

90 93.2 26.6 52.2 7.3 18.4

MNCs ARE WANING IN WEALTH CREATION

80 50 60 43 40 20 0 15 21

Top Wealth Creating MNCs 30 23 3 16 10 8 2

Share of Wealth Created (%)

60.0 40.0

7 11

10 12

7 10

7 10

20.0 0.0 -20.0

19

1994-99 1995-00 1996-01 1997-02 1998-03 1999-04 2000-05 2001-06 2002-07 2003-08

Wealth Creation Study 2003-2008

Findings

Wealth Creators Classification By Ownership: State v/s Private

WEALTH CREATORS: STATE-OWNED V/S PRIVATELY-OWNED

During the study period, PSUs in aggregate underperformed the Indian companies in terms of earnings CAGR. However, led by commodity companies such as ONGC, NMDC, MMTC and SAIL, PSUs matched their private sector counterparts in terms of price CAGR. Value migration to the private sector has been reversed in 2003-08. However, we believe this is temporary as it is mainly led by commodity price hikes, which have since corrected sharply.

2003-2008 STATE-OWNED PRIVATE

No. of Wealth Creators in Top 100 Share of Wealth Created (%) 5-year Earnings CAGR (%) 5-year Price CAGR (%) P/E (x) at the Beginning of Study Period P/E (x) at the End of Study Period

25 34.6 17.0 49.9 4.6 15.9

75 65.4 35.7 49.7 12.6 20.6

DEREGULATION DIMINISHES ROLE OF STATE-OWNED COMPANIES IN WEALTH CREATED

48.5

50.6 35.9

No of PSUs % Wealth Created 34.6 24.8 18.0 25.0

Key Finding
PSUs sometimes tend to be the handmaidens of the government (eg. Gujarat state government has mandated that all Gujarat state PSUs set aside 30% of their PBT towards corporate social responsibility). Hence, it is advisable to have a large weight for the private sector in any portfolio. However, select PSUs like SBI, BHEL and ONGC, which are dominant in their respective sectors cannot be ignored.
19 December 2008 11

28.0

30.0

26.0

1999-2004

2000-2005

2001-2006

2002-2007

2003-2008

Wealth Creation Study 2003-2008

Findings

19 December 2008

12

Wealth Creation Study 2003-2008

Findings

Wealth Creators Classification By Size

Data indicates an inverse relationship between MCap and speed of returns i.e. smaller the market cap, larger the returns. Stocks which had less than Rs2b MCap in 2003 have delivered a price CAGR of 165%. On the other hand, large caps offered 33% returns, much lower than the average of 50%. Rapidly growing and deregulating Indian economy will produce many young and fast-growing enterprises.

WEALTH CREATORS: BASE YEAR MARKET CAP 2003 MARKET CAP RANGE (RS B) NO. OF COMPANIES WEALTH CREATED SHARE OF WC (RS B) (%) 2008 MCAP (RS B) 2003

<2 2-5 5-10 10-20 20-50 50-100 100-200 >200 Total

17 13 14 14 24 9 4 5 100

1,707 1,222 2,956 2,572 5,068 4,467 1,705 5,694 25,390

7 5 12 10 20 18 7 22 100

1,878 1,307 3,266 2,787 6,126 5,493 2,482 7,335 30,675

15 38 106 177 793 574 595 1,772 4,068

WEALTH CREATORS: PRICE CAGR BY MARKET CAP RANGE IN 2003

165

Key Finding
Small- and mid-size companies with a large business opportunity and ambitious, aggressive management can prove to be kickers for superior returns in any portfolio. Example: Some of the sub-Rs2b companies in our 2003-08 study include Unitech, Pantaloon, Aban Offshore, Sesa Goa, Voltas and United Spirits.
19 December 2008 13

103

99 74 51 57 33 33 Avg Price CAGR: 50%

<2

2-5

5-10

10-20 20-50 50-100 2003 Market Cap Range (Rs b)

100-200

>200

Wealth Creation Study 2003-2008

Findings

Wealth Creators Classification By Sales and Earnings Growth

Sales growth: Higher the better This is saying the obvious, but still saying it is important. Typically, one would expect high sales growth to be accompanied by high valuation multiples. However, occasionally, the market throws in bargains e.g. companies whose 2003-08 sales CAGR was in the range of 40-50% were available at a PE of 5x in FY03. In the adjacent table, 40-50% sales growth companies include cylicals such as Sterlite, Jindal Steel and Hindustan Zinc. The >50% range includes sunrise companies like Bharti Airtel, Financial Technologies, Pantaloon Retail and TV18.
WEALTH CREATORS: CLASSIFICATION BY SALES GROWTH SALES GR. RANGE (%) NO. OF COS. SHARE OF WC (%) PRICE CAGR (%) PAT CAGR (%) 2008 2003 2008 2003 ROE (%) P/E (X)

0-10 10-20 20-30 30-40 40-50 >50 Total

15 25 26 19 5 10 100

9.3 22.6 31.1 22.2 4.7 10.1 100.0

33.2 40.1 57.5 50.9 114.4 109.3 49.8

10.9 17.6 34.8 42.7 66.1 L to P 26.2

15.0 22.5 20.5 23.7 24.0 29.1 21.3

18.0 25.2 15.2 15.2 15.7 -1.6 19.4

19.4 12.3 20.6 27.8 17.8 24.2 18.7

7.7 5.1 9.5 21.0 5.0 N.A. 7.9

WEALTH CREATORS: PRICE CAGR BY 2003-08 EARNINGS GROWTH RANGE

108

98

Key Finding
Sunrise businesses (such as telecom, retail, media, insurance) should continue to do well in the foreseeable future. At the same time, the growing Indian economy has resulted in a new dawn for many traditional businesses such as engineering, construction and financial services.
19 December 2008 14

Avg Price CAGR: 50% 49 43 27 45

67

0-10

10-20

20-30 30-40 40-50 Earnings Growth Range (%)

50-70

>70

Wealth Creation Study 2003-2008

Findings

Wealth Creators Classification By RoE

WEALTH CREATORS: PRICE CAGR BY ROE

Bargains are found when markets are blind to change When profitability of companies is good (i.e. high RoE), it is tough to find them cheap. This causes a paradox companies which already have high RoE do not tend to deliver high stock price returns. Bargains are available when changing dynamics of a company business is not known to the market s i.e. when current RoEs are low. However, such investments also have attendant risks. One way of balancing risk and return is to invest in companies with moderate RoEs (10-20%), and potential for growth.

92

Bargains

77

Risk-return balance
56 61 39 36 32 15 Avg Price CAGR: 50%

<5

5-10

10-15

15-20

20-25

25-30

30-40

>40

2003 RoE Range (%)

Key Finding
Anticipating change in profitability ahead of the crowd is rewarded very well in the markets.
19 December 2008 15

Wealth Creation Study 2003-2008

Findings

Wealth Creators Classification By Valuation Parameters

WEALTH CREATORS: CLASSIFICATION BY VALUATION PARAMETERS (MARCH 2003)

Margin of safety in single digit PE Two-thirds of wealth created, and two-thirds of the top wealth creators had a PE of less than 10x in 2003. This suggests high margin of safety in single digit PE multiples. Price/Book of less than 1x works best! 47 out of the top 100 wealth creators were available in 2003 at Price/Book of less than 1x. Their price CAGR at 67% is significantly higher than the average 50%.

NO. OF COS

% WEALTH CREATED

PRICE CAGR %

P/E (x) <5 5-10 10-15 15-20 >20 Total Price/Book (x) <1 1-2 >2 Total Price/Sales (x) <0.25 0.25-0.50 0.50-1.00 1-2 >2 Total

36 27 18 7 12 100

41 26 18 5 11 100

55 57 59 25 37 50

47 32 21 100

34 49 17 100

67 54 30 50

Watch out for Price/Sales of 1x or less 66 of the top 100 wealth creators had Price/Sales of 1x or less in 2003.

19 19 28 14 20 100

15 13 37 18 17 100

66 63 62 47 30 50

19 December 2008

16

Wealth Creation Study 2003-2008

Findings

Wealth Creators Classification By Valuation Parameters (contd.)

WEALTH CREATORS: CLASSIFICATION BY VALUATION PARAMETERS (MARCH 2003)

Payback of less than 1x guarantees high returns Payback is the ratio of current market cap divided by expected profits of the next five years. When companies are in high growth phase, it is difficult to value them using conventional measures. Payback is based on empirical wisdom that markets try and seek visibility of five years. A high 82 of the top 100 wealth creators presented a payback opportunity of less than 1x in 2003.

NO. OF COS

% WEALTH CREATED

PRICE CAGR %

Payback Ratio (x) <0.25 0.25-0.50 0.50-1.00 1-2 >2 Total

22 28 32 9 9 100

18 19 48 10 6 100

116 59 50 38 22 50

MEDIAN VALUATIONS (X) 2003 SENSEX WEALTH CREATORS SENSEX 2008 WEALTH CREATORS

Median P/E Median Price/Book Median Price/Sales

13.1 1.9 1.3

6.7 1.0 0.7

20.4 4.1 3.6

22.1 4.6 3.5

Key Finding
The median valuations in 2003 clearly spell out the sure shot formulas for multi-baggers ? PE of less than 10x ? Price/Book of less than 1x ? Price/Sales of 1x or less ? Payback ratio of 1x or less
19 December 2008 17

Wealth Creation Study 2003-2008

Findings

Wealth Destroyers
TOP-10 WEALTH DESTROYERS (2003-2008) COMPANY RS B WEALTH DESTROYED % SHARE PRICE CAGR (%)

Wealth destroyed is 0.2% of wealth created The stock market boom in 2003-08 is so widespread that total wealth destroyed is only Rs59b. This is barely 0.2% of the Rs25,390b wealth created by the top 100 companies alone. Among the top wealth destroyers, HPCL and TVS Motor are the only prominent names.

HPCL Vaibhav Gems Media Matrix Pan India Corporation Rashel Agrotech T. Spiritual JIK Industries Netvision Web Ramco Systems TVS Motor Gufic BioScience Total of above Total Wealth Destroyed
WEALTH DESTRUCTION BY INDUSTRY

13 4 3 2 2 2 2 2 1 1 1 33 59

22 7 5 4 3 3 3 3 2 2 2 56 100

-3 25 -33 17 -59 -47 -54 -43 -19 -3 -16

Trading Autos Textiles 7% 6% 7% Pharma 6%

Chemicals 4% Finance 4%

Key Finding
Oil & Gas and Finance figure among top wealth creating industries as well as top wealth destroying industries. This suggests that wealth creation is more dependent on company-specific rather than industry-level factors.
19 December 2008 18

Others 17% Media 7% Oil & Gas 23%

IT 19%

Wealth Creation Study 2003-2008

THIS PAGE IS INTENTIONALLY LEFT BLANK

19 December 2008

19

Wealth Creation Study 2003-2008

Theme 2009

Wealth Creation 2003-2008 The 13TH Annual Study

Theme 2009

19 December 2008

20

21

Wealth Creation Study 2003-2008

Theme 2009

Understanding Great, Good, Gruesome companies Great companies Firstly, it must be mentioned that any country will have only a few Great companies. A truly Great company must have an enduring moat (i.e. long-term competitive advantage) that protects excellent returns on invested capital. This is possible only in either of two cases 1. It must be either a low-cost producer, or 2. It possesses powerful brand(s). Great companies tend to grow slower than their Good and Gruesome counterparts. But the key aspect of this growth is that it is achieved by consuming very little additional capital. Over time, given the power of compounding, Great companies become significant cash machines with high and steadily rising RoE, and high dividend payouts. Investors can deploy these payouts to earn returns in other avenues. To quote Buffett, Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. Good companies Good companies grow at healthy rates, but need large increases in capital to sustain growth. Like Great companies, they too enjoy competitive advantage and make healthy profits. However, they need to reinvest a significant proportion of these profits for growth. Buffett calls this the put-up-more-to-earn-more phenomenon, which is true of most companies across countries. Compared to great companies, return ratios will tend to be much lower, as will dividend payouts. Gruesome companies Paradoxically, Gruesome companies tend to enjoy very high growth rates, which turns out to be a trap. These companies require significant capital for such growth, and then earn little or no money. Buffett says, Think airlines. Here a durable competitive advantage has proven elusive since the days of the Wright brothers The airline industry demand for capital ever s since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.

19 December 2008

22

Wealth Creation Study 2003-2008

Theme 2009

Characteristics of Great, Good and Gruesome companies Return on equity is the financial differentiator of Great, Good and Gruesome companies. However, numbers are lag indicators, and are the outcome of several qualitative characteristics of the businesses. We summarize them below (for a fuller description of the characteristics, see Annexure 1, page 28).
IDENTIFYING THE GREAT, THE GOOD AND THE GRUESOME CRITERIA GREAT GOOD GRUESOME

Nature of Business Competitive Advantage

Stable business i.e. no rapid or continuous change High and rising long-term competitive advantage from brand / lowest-cost production High pricing power Low dependence on greatness of management Typically moderate growth; high growth rates a rarity Low capital intensity; high level of intangible assets Very high and rising RoE Typically, high dividend payout Hero Honda, Nestle, GSK Pharma, Infosys

Subject to moderate change

Business likely to have rapid changes Low or no competitive advantage

Steady competitive advantage

Pricing Power Management

? ?

? ?

Moderate pricing power Management, key success factor Moderate-to-high growth rate

? ?

Pricing power absent High dependence on management Typically high growth rates Very high capital intensity Low / falling RoE Low or zero dividend payout Tata Tele, Jet Airways, Arvind
Source: MOSL

Growth

Capital Intensity

Moderate-to-high capital intensity Stable and attractive RoE Reasonable dividend payout

RoE Dividend Payout

? ?

? ?

? ?

Examples

HDFC Bank, Larsen & Toubro, BHEL, Tata Steel

The financial profile of a typical Great, Good and Gruesome company is as tabled below.
GREAT, GOOD AND GRUESOME: TYPICAL FINANCIAL PROFILE NESTLE (GREAT) HDFC BANK (GOOD) TATA TELE (MAH) (GRUESOME)

10-year CAGR (%) Sales PAT Capital Employed RoE (%) Latest 10-years Ago 10-year Incremental RoE In last 10 years Cumulative PAT (Rs b) Total Dividend (Rs b) Average Payout (%) 22.3 18.2 81.0 58.7 12.0 21.0 -26.7 0.0 0.0 Source: MOSL 19 December 2008 102.5 36.4 230.0 17.7 26.4 14.0 Net Worth eroded -10.3 Not calculable 10.0 19.0 -3.0 44.0 39.0 46.0 101.0 Loss to Loss 15.0

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Key takeaways: ? Greatness is not dependent on growth. Nestle has grown much slower than HDFC Bank both in terms of sales and profit. Its cumulative PAT in the last 10 years too is less than 40% of HDFC Bank. However, Nestle total dividend paid out is 1.5x that s of HDFC Bank. ? Great companies are invariably asset light. This means that they enjoy high and rising RoE. In the last 10 years, Nestle capital employed actually declined 3% annually. s Its RoE was 36% 10 years ago, and its latest RoE is over 100%. Incremental RoE is a high 230%. ? Great companies are fountains of dividends. Nestle average payout ratio is a s high 81%. ? Good companies are fountains of earnings. HDFC Bank has delivered high profits at high growth rates. ? Gruesome companies are bottomless pits of capital consumption. Tata Teleservices capital employed has grown at a compounded 15% for the last 10 years. But it has not made profits even in a single year in the last 10 years. See Candy v/s Nestle India: An interesting parallel s Warren Buffett cites the example of See Candy (owned by Berkshire Hathaway) as an s example of a great business.
SEE CANDY GREAT PERFORMANCE (US$ M) S S 1972 2007 CAGR %

Sales PBT PBT Margin (%) PAT Capital Employed (CE) PAT / CE (%) Incremental PAT / CE (%) Cumulative PBT (35 Years) Incremental Capital Deployed Purchase Price P/E (x) Post-tax Earnings Yield (%) Total return (Earnings Yield + PAT CAGR) *

30.0 5.0 16.7 3.4 8.0 41.9

383.0 82.0 21.4 54.9 40.0 137.4 161.2 1,350 32.0

7.5 8.3 8.3 4.7

25.0 7.5 13.4 21.7

* Over the long-term, expected return on stocks is equal to dividend yield + growth rates

The key points of the See case are as follows s ? Berkshire acquired See in 1972 for US$25m. s ? PAT at the time of acquisition was ~US$3.4m, and the capital employed was US$8m, i.e. PAT/CE of 42%. ? In 35 years, candy volumes grew only 2% annually (16m pounds in 1972 to 31m pounds in 2007), sales grew 7.5% and PBT grew 8.3%. ? In 2007, See reported a PAT of ~US$55m, on capital employed of US$40m. Thus, s PAT/CE zoomed to 137%.
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Theme 2009

Over the 35 years, See delivered cumulative pre-tax profit of US$1.35b. This is 42 s times the incremental investment of US$32m, and 54 times Berkshire investment s value of US$25m.

The Nestle parallel We compare the See case with the last 15 years data of Nestle India. Like See Nestle s s, has deployed very little capital employed relative to incremental earnings. As a result, incremental PAT/CE is very high.
NESTLE INDIA'S RETURN IS THE SAME AS SEE CANDY (RS B) S 1993 2007 CAGR %

Sales PBT PBT Margin (%) PAT Capital Employed (CE) PAT / CE (%) Incremental PAT / CE (%) Cumulative PBT (15 Years) Incremental Capital Deployed Purchase Price (Mcap) P/E (x) Post-tax Earnings Yield (%) Total Return (Earnings Yield + PAT CAGR)

5.4 0.5 9.8 0.4 2.6 13.3

35.0 6.3 17.9 4.1 4.2 98.3 239.9 37.6 1.6

14.3 19.3 19.3 3.4

16.6 47.3 2.1 21.4

At 21.4%, Nestle return is exactly comparable with 21.7% of See However, there is s s. one key difference: In Nestle, much of the return is by way of earnings growth, whereas in See it is by way of earnings yield (ie, higher margin of safety, discussed below). s Great companies need not be great investments Great investments are the result of huge margin of safety at the time of purchase. Margin of safety: Given below are key quotes by Benjamin Graham on the concept of margin of safety: 1. The margin of safety is always dependent on the price paid. 2. It is a favorable difference between price [paid] on the one hand, and indicated or appraised value on the other. 3. Margin of safety is available for absorbing the effect of miscalculations or worse than average luck. 4. The function of margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future. 5. In the ordinary common stock, bought for investment under normal conditions, the margin of safety lies in an expected earning power considerably above the going rate for bonds.
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Theme 2009

Point 5 refers to comparing earnings yield of a stock to the risk-free treasury bond yield. Higher the gap between the two, higher is the margin of safety. Obviously, if margin of safety is high the price is great, if it is moderate then the price is good, and if it is low, then the price is gruesome. We present below the investment pay-off matrix for the various company-price combinations.
GREAT, GOOD AND GRUESOME: INVESTMENT PAY-OFF MATRIX

Return:

Return: High

Return: Very High Capital Safety: High

Great (High MoS*)

Speculative

Capital Safety: Moderate

Capital Safety: High

Return:

Return: Moderate Capital Safety: Moderate

Purchase Price

Return: Moderate-to-High Capital Safety: High

Good (Fair MoS*)

Low-to-Negative Capital Safety: Low

Return: Negative

Return: Low-to-Negative Capital Safety: Risk of Loss of Capital

Return: Low Capital Safety: High

Gruesome (Low MoS*)

Capital Safety: Permanent Loss of Capital

Gruesome

Good Company

Great

Great Option; but very rare * MoS: Margin of Safety

Best Available Option

Avoid Source: MOSL

Key takeaways On Great companies: ? Great companies do not necessarily mean great investments. If bought at gruesome price, returns will be very low. ? Great companies at great price are extremely rewarding, but extremely rare as well. ? Over the long term, Great companies offer high safety of capital. On Good companies: ? In buying good companies, margin of safety needs to be higher than when buying great companies.
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Theme 2009

On Gruesome companies: ? Gruesome companies grow rapidly, require significant capital to engender the growth, and then earn little or no money. Hence, such companies are best avoided at all price levels, unless there is high possibility of turnarounds, corporate restructuring, etc. Best investment strategy: ? Buying good companies at great (bargain) price or buying great companies at good (reasonable) price are the two options for investors at large. Investment examples Great company at good price: Hero Honda ? Long-term competitive advantage: (1) 60% market share of Indian motorcycle market; and (2) strong brand equity including a tie-up with Honda, the world leading twos wheeler brand. ? Reasonably large size of opportunity motorcycle penetration of only 25% of Indian households ? High level of profitability working on negative capital employed ? Sensible price tag TTM P/E of 14x for an expected earnings CAGR of 15-20%. Good company at great price: State Bank of India ? India largest banking franchise with 25% market share s ? High share of low-cost deposits due to large network of branches across India ? Technology benefits and cost control to significantly expand profits ? Embedded value of SBI Life, third biggest insurer in India ? Sensible price tag stock available at Price/Book of 1x. Gruesome company that has turned around: Idea Cellular ? Fourth largest GSM player in India with first mover advantage in many telecom circles ? Mobility is the natural state of communication; India mobile penetration to increase s from 25% to 60% by 2012 ? Fastest growing among major wireless operators due to (1) entry into new circles (Mumbai, Bihar, Tamil Nadu, Orissa, etc) and (2) acquisition of Spice Telecom (Punjab and Karnataka) ? Well-funded with equity placement to Telekom Malaysia International and stake sale of tower subsidiary to private equity fund, Providence ? Sensible price tag stock available at P/E of 17x FY09. In the final analysis, Century Management Arnold Van Dan Berg words are gospel for s s investors: There is absolutely no substitute for paying the right price. In the bible, it says that love covers a multitude of sins. Well, in the investing field, price covers a multitude of mistakes. For human beings, there is no substitute for love. For investing, there is no substitute for paying the right price absolutely none. (Outstanding Investors Digest, April 2004).
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Theme 2009

Annexure 1: Characteristics of Great, Good and Gruesome companies

Great companies
We describe below the typical characteristics of Great businesses. Stable business: Companies with businesses that are prone to rapid and continuous change rarely qualify as Great. Creative destruction in unstable businesses could lead to redundancy of capital invested, adversely affecting cash flows and return on capital. High and rising long-term competitive advantage: There are only two sources of an enduring moat (Buffettology for long-term competitive advantage) 1. Low cost production; and 2. Powerful brand. The enduring moat of Great companies is more likely to widen as the years pass by. For instance, branded products (e.g. Colgate) are habit-forming with customers, and switching costs are high. Such formidable entry barriers allow great companies to: ? Enjoy pricing power; and ? Maintain high return on invested capital. Low dependence on greatness of management: Buffett own words describe this s the best: If a business requires a superstar to produce great results, the business itself cannot be deemed great. A medical partnership led by your area premier brain surgeon s may enjoy outsized and growing earnings, but that tells little about its future. The partnership s moat will go when the surgeon goes. You can count, though, on the moat of the Mayo Clinic to endure, even though you can name its CEO. t Modest growth rates: Great companies seem to enjoy modest but stable growth. High growth rates are a rarity because their businesses are stable, and have typically reached mature phase. Low capital intensity, very high RoE, high dividend payout: For great companies, all the financial attributes go hand-in-hand. Great companies require very little incremental capital for growth (e.g. most FMCG and pharma companies outsource their production). This leads to very high RoE. Free cash flow is also high which enables huge dividend payouts. For instance, Colgate payout is 100%, Castrol ~95% and Nestle ~90%.

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Good companies
We describe below the typical characteristics of Good companies. Subject to moderate change: Unlike Great companies, the businesses of Good companies may be subject to moderate level of changes. For instance, banks have to deal with RBI measures on CRR, repo rates, etc. Likewise, metals sector too is faced with volatility in product prices. Steady competitive advantage: Good companies enjoy steady competitive advantage, which typically arises from economies of scale (eg, State Bank of India in banking, L&T in engineering). Management, a key success factor: Good companies have relatively weaker moats. Hence, efficient execution of all major processes becomes a key success factor. Thus, unlike great companies, good companies will tend to depend on their management character s and competence. Moderate-to-high growth rates: Good companies tend to enjoy growth rates higher than great businesses. However, such growth requires additional capital, whether own or from outside. Moderate-to-high capital intensity, healthy RoE, reasonable dividend payout: Businesses such as banking, steel and engineering need to plough back a sizeable proportion of their earnings for fixed- and/or working capital requirements. As a result, though the businesses are profitable, RoEs tend to be in the 15-25% band and dividend payout 2030%.

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Theme 2009

Gruesome companies
We describe below the typical characteristics of Gruesome companies. Business most likely to have rapid changes: The best example of this is the dotcom boom and bust. Companies raised huge amounts of money to fund business models which were subject to rapid and continuous change. Low or no long-term competitive advantage: Gruesome companies do not have an established track record of long-term competitive advantage. This is mainly because the business is either nascent and dynamic or extremely competitive (eg, the airlines sector has been vitiated by the entry of several no-frill airlines). Businesses with rapid growth due to huge size of opportunity: Paradoxically, gruesome companies enjoy great growth rates. This is because such businesses have a huge size opportunity. For instance, Tata Teleservices sales growth in the last 10 years is a high 101%. Yet it has not yet reported a profit in any single year. High dependence on management: Gruesome companies will be found to be led by one of two kinds of management: (1) extremely passive and laid-back (eg chemicals) or (2) extremely aggressive and ambitious (eg airlines, retailing). Passive managements will be content with carrying on existing low-profit operations, ploughing back a significant proportion of earnings. On the other hand, if current earnings are inadequate for the growth plans, an aggressive and ambitious management is the only hope of raising external funds for Gruesome companies. This typically leads to further value destruction. Very high capital intensity, low RoE/losses, low dividend payout: The universal example of a gruesome business is airlines. It is very highly capital intensive, leading to losses in the worst case and low RoE in the best case, implying zero-to-low dividend payout.

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Theme 2009

Annexure 2 A mathematical framework for Great, Good and Gruesome Mathematically, RoE is the starting point to differentiate between Great, Good and Gruesome businesses. To assess the core operating RoE, the reported RoE can be adjusted to account for surplus cash, if any, in the balance sheet. For the purposes of our study, we used Adjusted RoE to shortlist the companies as follows: Common steps: 1. Universe: Top Wealth Creators (100 companies) 2. Shortlist companies with a 10-year track record (95 companies) 3. Compute Adjusted RoEs for companies whose cash is in excess of debt: (a) Deduct 7% of cash equivalents from PAT to get Adjusted PAT; (b) Deduct excess cash from Net Worth to get Adjusted Net Worth; (c) Compute Adjusted RoE as Adjusted PAT Adjusted Net Worth. Classification criteria: 4. Great companies: (a) 10-year average Adjusted RoE > 25%; (b) Adjusted RoE not less than 15% in any of the last 10 years; and (c) rising trend of RoEs (going by Warren Buffett definition of great companies). s 5. Gruesome companies: 10-year average Adjusted RoE of less than 10% 6. Good companies: Companies which are neither Great nor Gruesome Note: The above methodology serves as a good first screen of companies. Beyond that some element of subjectivity will need to be applied to finally decide whether a company is Great, Good or Gruesome.

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Theme 2009

MOSL 100 Top Wealth Creators classified as Great, Good and Gruesome
(Note: All calculations based on consolidated financials wherever applicable)
GREAT COMPANIES COMPANY 10-YR AVG. ADJ. ROE % ROE (%) LATEST 10 YRS AGO INCREMENTAL ROE ROCE (%) LATEST 10 YRS AGO INCREMENTAL ROCE DIVIDEND PAYOUT (%)

Hero Honda Motor Hind. Unilever GlaxoSmith Pharma NMDC Ltd Nestle India Infosys Tech. Satyam Computer Wipro Dabur India Container Corpn Sun Pharma. ITC Asian Paints

394.0 158.5 105.0 101.9 85.1 67.6 53.8 41.5 37.4 36.5 34.2 32.6 32.2

32.4 127.0 39.7 39.2 98.9 33.8 23.3 28.1 54.1 23.2 29.8 25.8 41.7

40.4 47.6 26.8 16.9 31.2 23.5 43.6 27.3 19.2 30.0 22.2 28.8 25.2

31.5 Very high 43.6 41.7 230.2 34.2 22.8 28.1 79.7 22.0 30.2 25.2 49.0

45.3 145.8 58.3 59.7 149.4 38.9 26.0 24.1 55.6 29.0 30.2 37.5 50.0

46.0 57.3 37.6 20.7 31.6 27.6 25.0 21.4 15.1 37.6 19.0 33.5 23.6

45.2 Very high* 65.2 64.0 Very high* 39.4 26.1 24.3 192.2 27.2 31.1 39.0 67.4

45.7 73.9 49.8 18.8 78.6 31.7 16.6 26.1 40.9 21.6 16.2 34.5 45.1

* Very high because incremental capital employed is actually negative

GRUESOME COMPANIES COMPANY 10-YR AVG. ADJ. ROE % ROE (%) LATEST 10 YRS AGO INCREMENTAL ROE ROCE (%) LATEST 10 YRS AGO INCREMENTAL ROCE DIVIDEND PAYOUT (%)

Hind.Copper HMT Essar Oil Aditya Birla Nuvo Zee Entertainment Pantaloon Retail Jai Corp IDBI Bank TV 18 India Reliance Infra

-135.9 -44.0 -0.3 2.6 6.8 6.9 7.8 8.8 8.8 9.4

27.4 -11.8 -1.2 1.5 13.4 -0.5 5.5 10.6 1.1 7.9

-45.5 N.M. 1.2 7.5 31.9 11.9 10.8 13.7 4.1 13.2

52.8 -2.0 -3.3 0.5 12.1 -0.7 5.1 24.8 1.0 7.0

32.6 2.2 -0.3 3.7 18.8 4.5 5.9 7.0 7.7 7.8

-7.8 11.6 0.6 11.2 35.8 16.6 13.2 11.3 11.8 14.4

78.4 -9.0 -0.8 2.7 17.4 4.4 5.4 2.4 7.6 6.6

0.0 0.0 0.0 32.3 18.9 19.9 2.5 20.2 31.4 15.5

GOOD COMPANIES COMPANY 10-YR AVG. ADJ. ROE % ROE (%) LATEST 10 YRS AGO INCREMENTAL ROE ROCE (%) LATEST 10 YRS AGO INCREMENTAL ROCE DIVIDEND PAYOUT (%)

Siemens Bharat Electronics Sesa Goa Financial Tech Hind.Zinc Thermax Unitech Bosch HCL Technologies ABB Glenmark Pharma Tata Steel Voltas Ambuja Cements GE Shipping Jindal Steel BHEL SAIL Natl. Aluminium Indian Overseas 19 December 2008

82.7 75.7 75.0 69.6 60.5 46.8 46.1 40.1 39.7 36.0 35.6 32.5 29.3 28.7 27.8 26.7 26.5 25.8 24.9 24.9

37.9 25.1 52.4 57.9 37.1 38.3 46.0 23.8 25.2 30.5 41.6 42.4 35.9 38.0 33.7 33.3 26.5 32.6 18.4 25.5

-76.2 12.2 13.8 0.2 7.8 11.0 10.7 17.0 47.0 8.4 36.0 6.8 8.4 14.3 10.4 17.6 17.7 -22.5 8.8 10.2

42.7 27.0 55.7 58.1 39.7 61.2 47.1 25.1 24.0 39.1 41.8 48.5 45.9 44.5 42.8 34.5 30.1 56.3 22.9 27.4

53.9 35.6 78.4 61.5 50.7 59.9 16.8 30.6 28.3 48.0 31.2 23.6 48.5 55.1 23.6 16.9 41.1 43.6 28.5 7.3

0.0 25.1 12.6 3.5 15.5 15.1 12.2 26.0 50.0 12.6 40.7 7.4 16.4 14.4 9.9 18.5 29.7 1.4 10.4 7.9

68.9 37.8 88.2 61.7 54.2 101.1 16.9 31.6 27.1 62.5 31.0 25.5 83.6 79.6 29.5 16.8 46.0 Very high* 40.2 7.1

15.5 20.0 17.8 15.1 6.6 37.2 3.7 10.3 56.9 16.4 5.7 17.0 22.8 29.7 21.0 7.3 21.8 23.4 27.7 18.1

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GOOD COMPANIES (CONTD.) COMPANY 10-YR AVG. ADJ. ROE % ROE (%) LATEST 10 YRS AGO INCREMENTAL ROE ROCE (%) LATEST 10 YRS AGO INCREMENTAL ROCE DIVIDEND PAYOUT (%)

Jubilant Organosys Titan Inds. ONGC Cipla Piramal Health Sterlite Inds. Cummins India ACC M&M GAIL Ranbaxy Labs. Grasim Inds IOC Shriram Trans. Bharat Forge Union Bank Larsen & Toubro Shipping Corpn. Areva T&D Reliance Inds. Canara Bank Adani Enterprises BPCL Punjab Natl Bank Tata Motors Welspun Guj.Stahl Bank of India Exide Inds HDFC Crompton Greaves Tata Comm HDFC Bank Axis Bank Hindalco Inds. St Bk of India Tata Chemicals GMDC Bank of Baroda Neyveli Lignite Godrej Inds IVRCL Infra. EIH MRPL Indian Hotels Tata Power Co. Reliance Capital Essar Shipping Aban Offshore Kotak Mah. Bank ICICI Bank MMTC Century Textiles

24.7 24.7 24.7 24.1 23.9 23.9 23.6 23.5 22.8 21.9 21.5 21.4 21.0 20.7 20.6 20.4 20.0 19.9 19.5 19.4 19.4 19.1 18.3 18.2 17.9 17.4 17.2 16.7 16.6 16.3 16.2 16.0 15.9 15.8 15.6 14.4 13.8 13.8 13.7 13.5 12.9 12.9 12.5 12.1 11.8 11.5 11.5 11.2 11.1 10.9 10.8 10.6

31.9 33.1 25.5 18.7 30.5 19.7 26.3 34.3 25.5 20.5 27.8 31.7 18.1 22.0 18.2 24.7 20.4 14.5 39.5 23.6 21.1 17.5 13.7 19.1 25.0 23.0 22.0 20.5 12.8 31.5 0.2 13.7 12.1 13.9 14.6 25.8 24.9 13.6 12.2 12.4 11.5 21.9 33.7 15.8 12.7 15.3 9.6 7.4 11.3 7.6 22.1 21.7

18.4 10.8 11.4 25.5 14.2 12.4 17.9 5.5 15.4 25.6 8.4 6.3 18.0 8.3 9.1 14.0 12.9 11.1 -6.7 18.2 9.9 24.2 23.2 23.8 2.6 -3.2 9.2 15.6 16.9 4.2 24.4 24.3 15.1 17.4 9.9 10.8 19.1 14.5 13.4 -12.9 22.3 13.8 1.1 13.4 10.0 8.0 4.8 5.9 3.7 20.5 2.9 -10.9

33.4 45.4 31.8 17.8 37.0 20.2 30.7 43.7 28.8 18.3 47.6 41.9 18.2 22.3 21.2 27.4 24.3 16.0 55.7 24.3 25.1 16.5 10.8 18.4 42.2 25.4 26.2 22.8 12.4 51.9 489.5 13.4 12.0 13.0 15.6 38.0 29.0 13.3 11.1 17.7 11.4 40.1 50.2 17.3 13.4 16.8 12.2 7.9 11.6 7.5 44.6 83.1

14.6 34.1 33.4 19.8 25.3 26.6 36.8 43.0 16.8 24.5 16.3 31.5 16.9 11.5 17.1 7.2 16.8 13.6 54.9 17.5 7.8 9.8 12.5 6.6 19.6 16.1 6.5 36.7 9.8 32.4 3.8 6.2 5.9 9.4 6.8 15.3 27.7 6.1 12.1 14.0 11.8 23.3 32.2 14.0 11.4 10.2 8.1 6.3 9.2 7.4 10.6 17.1

14.8 12.9 13.6 32.8 19.9 11.0 25.4 9.2 14.6 21.7 10.2 9.2 17.7 14.9 10.5 7.5 11.4 10.9 -0.4 12.1 7.6 18.5 24.6 7.9 7.4 1.0 7.1 14.9 13.9 9.6 35.3 9.0 9.2 20.2 7.7 12.5 32.0 8.0 13.5 5.6 21.5 12.5 7.5 16.6 12.2 8.9 5.4 14.2 13.3 7.9 4.3 4.8

14.6 236.0 44.0 18.1 27.0 28.0 42.8 81.2 17.2 26.1 18.5 41.8 16.7 11.4 19.1 7.1 19.0 16.5 75.3 18.5 7.8 9.2 10.3 6.2 26.1 17.5 6.2 63.3 9.2 63.9 -50.9 6.1 5.8 8.5 6.6 17.0 26.3 5.4 11.0 17.3 11.6 33.8 Very high* 13.5 11.3 10.5 9.4 6.2 9.1 7.4 12.3 405.3

9.5 23.9 36.0 22.4 33.0 6.1 38.4 28.0 20.7 31.1 48.3 14.5 25.9 29.0 27.3 19.0 25.8 27.7 22.2 12.4 16.5 6.2 23.5 13.8 31.2 7.2 16.8 27.1 34.5 22.9 67.3 20.0 20.7 11.1 12.7 35.8 18.3 19.8 26.3 32.6 9.1 33.4 30.4 32.8 23.0 17.1 0.0 24.8 6.1 33.6 26.2 20.7

* Very high because incremental capital employed is actually negative 19 December 2008

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Wealth Creation Study 2003-2008

Wealth Creation 2003-2008 The 13TH Annual Study

Market Outlook

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Wealth Creation Study 2003-2008

Market Outlook

Market Outlook

India corporate profit to GDP is headed lower s In the last five years, India GDP grew 14% annually. Against this backdrop, corporate s profit CAGR was a robust 32%. As a result, corporate profit to GDP moved up from 3.1% in FY03 to a high of 6.4% in FY08. Following the global slowdown, corporate profit to GDP is likely to revert to 4.5-5% over the next three years. Likewise, FY03-08 Sensex EPS CAGR is 25%, which is much higher than the long-term CAGR of 15-17%. Overall, we are skeptical of profit growth over the medium term.
INDIA CORPORATE PROFIT TO GDP (%) S

7.5 6.1 6.0 4.5 3.0 1.5 0.0 1.3 1.6 1.6 2.2 4.4 3.5 3.3 2.4 2.3 1.8 Mean: 3.3x 2.3 1.9 2.1 3.1 5.5 4.9

6.4

6.0

Source: MOSL
FY93 TO FY08 - SENSEX EPS PERFORMANCE (RS)

900
GR CA

833

675

CAGR : 17% 93-08 FY

R CAG 29% -98: FY93

450

FY98-03: -1% CA GR

5% :2 -08 03 FY

291

272

225 81 0 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

Source: MOSL

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FY09E

FY91

FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

Wealth Creation Study 2003-2008

Market Outlook

Interest rates are headed down Interest rates in India are clearly headed down in line with the global trend (eg, US 10year treasury yields are at an all-time low of 2.7%).
INTEREST RATES IN INDIA AND ELSEWHERE IN THE WORLD ARE FALLING

16.0 14.0 12.5 9.0 Diff of 840 bp 5.5 5.6 2.0 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07
Dec-08

10-Year India G-Sec Yield (%)

10 Year US G-Sec Yield (%)

Diff of 390bp

6.6

2.7 Dec-08
21,700 16,700 15 Year Median P/E: 15.6x 11,700 6,700 11.0 1,700

Source: MOSL

Market is expecting earnings slowdown Despite low interest rates, the BSE Sensex is currently trading at a trailing 12-month P/E of 11x, close to its historic lows of March 2003 (the beginning of a five-year rally). Low market P/E clearly suggests that the market currently anticipates a sharp fall in corporate profits across the board.
MARKET P/E (TRAILING 12 MONTHS) IS CLOSE TO ALL-TIME LOWS

Sensex P/E ( LHS) 40 30 20 10 0 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02

Sensex ( RHS )

Dec-03

Dec-04

Dec-05

Dec-06

Reasonable margin of safety at current levels India market cap to GDP has corrected sharply from a high of 109% to 55% currently. s This is much closer to the long-term mean of 46%.

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Dec-07

Source: MOSL

Wealth Creation Study 2003-2008

Market Outlook

INDIA MARKET CAP TO GDP (%) HAS CORRECTED SHARPLY S

120 109 90 60 30 19 0 FY09E FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 24 54 44 43 43 34 37 28 26 26 23 51 54 43 M e an: 46 55 85 85

Source: MOSL

Most importantly, thanks to falling interest rates, earnings yield to bond yield is currently at a comfortable 1.4x, close to its all-time high of 1.6x.
EARNINGS YIELD (TRAILING) TO BOND YIELD (X): COMFORTABLY HIGH

1.7

1.6 1.4 1.4

1.2 15 Year Avg is 0.73x 0.7

0.2 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

Source: MOSL

Moderate market cap to GDP and high earnings yield to bond yield suggest reasonable margin of safety at current levels. Conclusions ? We have probably seen the market bottom at Sensex levels of 7,700. ? We expect unprecedented reduction in interest rates. ? We see distinct possibility of earnings decline over the next two years, contrary to consensus estimates. ? Earnings to bond yield is currently at 1.4x, which is an attractive zone. This sets the stage for a sharp 30-40% recovery in the markets. ? Sustenance of this recovery will be dependent on stability in corporate profit and its subsequent revival.
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W
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Wealth Creation Study 2003-2008

MOSL 100 Biggest Wealth Creators

RANKED ACCORDING TO THE BIGGEST WEALTH CREATORS RANK COMPANY NO. NAME WEALTH CREATED RS B % SHARE PRICE CAGR (%) PAT SALES ROE (%) FY08 FY03

Appendix I
P/E (X) FY08 FY03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Reliance Inds. ONGC Bharti Airtel NMDC MMTC BHEL Larsen & Toubro SAIL State Bank of India ITC HDFC Infosys Tech. ICICI Bank Unitech Tata Steel Sterlite Inds. HDFC Bank Hind.Copper Indian Oil Wipro Jindal Steel GAIL Reliance Capital Natl. Aluminium ABB Essar Oil Tata Power Hind.Zinc Sun Pharma. Axis Bank Reliance Infra. Grasim Satyam Computer Siemens Kotak Mah. Bank Hind. Unilever Tata Motors M&M Neyveli Lignite Adani Enterprises Tata Comm Ambuja Cements ACC MRPL Sesa Goa Hindalco Inds. Cipla HCL Technologies Glenmark Pharma Pun. Natl. Bank

3,077 1,593 1,505 1,356 1,084 952 813 727 701 617 547 525 469 448 401 398 346 342 339 317 314 296 269 245 237 231 226 216 215 213 213 206 203 196 187 181 179 158 157 144 132 131 126 122 122 121 121 120 117 114

12.1 6.3 5.9 5.3 4.3 3.7 3.2 2.9 2.8 2.4 2.2 2.1 1.8 1.8 1.6 1.6 1.4 1.3 1.3 1.2 1.2 1.2 1.1 1.0 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.4

58.7 32.8 96.4 158.3 186.8 79.1 100.9 83.8 44.4 37.5 48.4 23.1 41.9 284.2 54.5 111.6 41.4 53.1 23.5 15.7 130.2 41.5 90.8 44.8 82.8 118.5 59.6 104.6 55.5 81.1 42.2 50.8 34.9 85.3 81.9 9.1 32.0 69.5 35.4 117.6 47.5 41.6 42.9 57.2 152.0 26.8 30.9 27.3 115.5 37.9

37 10 L to P 60 52 45 38 L to P 17 18 29 36 28 150 36 42 33 L to P 3 30 54 10 58 26 38 P to L 10 99 34 41 46 43 41 47 46 2 47 50 -1 29 -17 51 69 L to P 160 37 23 20 64 19

24 12 55 36 33 23 21 19 10 19 24 34 27 64 18 44 38 30 18 34 43 10 35 14 38 14 7 41 32 37 10 17 32 43 70 7 26 25 2 32 -6 27 19 32 55 32 23 40 35 14

25 24 30 39 19 27 23 33 14 26 20 33 9 48 21 7 14 27 17 27 33 20 17 18 31 -1 11 37 24 12 11 27 23 38 8 134 26 25 12 23 5 38 35 34 53 17 19 24 38 19

15 29 -6 19 4 9 12 -12 18 26 23 33 17 8 32 13 17 36 32 24 25 26 8 16 20 2 11 12 34 21 6 12 14 23 8 48 12 9 19 16 14 14 10 -41 5 9 23 14 23 23

17 13 25 42 544 35 41 10 15 25 28 18 21 43 11 53 29 147 8 20 26 14 29 18 51 N.A. 30 5 25 26 27 11 15 35 74 26 12 15 18 47 48 10 11 11 8 7 24 22 31 8

9 5 N.A. 4 22 12 11 N.A. 5 11 12 28 7 5 5 3 17 N.A. 3 35 3 4 6 9 13 7 4 4 11 5 18 8 18 11 21 18 17 8 4 3 3 11 23 N.A. 10 8 17 14 6 3

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Wealth Creation Study 2003-2008

MOSL 100 Biggest Wealth Creators (contd.)

RANKED ACCORDING TO THE BIGGEST WEALTH CREATORS RANK COMPANY NO. NAME WEALTH CREATED RS B % SHARE PRICE CAGR (%) PAT SALES ROE (%) FY08 FY03

Appendix I
P/E (X) FY08 FY03

51 52 53 54 55 56 57 58 59 60 61 62 63 85 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Aban Offshore United Spirits Bosch Zee Entertainment Bank of India Hero Honda Motor Crompton Greaves Container Corpn. Aditya Birla Nuvo Asian Paints Nestle India Dabur India Divi's Lab GE Shipping Godrej Industries Jai Corp Bharat Electronics Thermax Financial Tech. REI Agro Century Textiles Indian Overseas Indian Hotels Canara Bank Bank of Baroda Essar Shipping Welspun Guj. Stahl Areva T&D Voltas BPCL GSK Pharma Union Bank Piramal Healthcare Cummins India Pantaloon Retail Exide Inds. Ranbaxy Labs. Shriram Transport EIH IDBI Bank Tata Chemicals Titan Inds. GMDC HMT TV 18 India Bharat Forge IVRCL Infra. Shipping Corpn. Jubilant Organosys BF Utilities

111 111 107 103 101 100 100 98 98 94 93 85 79 77 76 71 70 69 68 68 65 64 64 63 63 61 58 58 57 57 56 55 54 53 52 49 49 47 46 45 45 44 44 44 44 43 43 42 41 40

0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

159.7 113.9 58.3 31.4 46.2 29.7 106.4 51.6 80.5 40.4 22.9 55.8 95.9 58.0 155.1 216.1 42.5 85.2 177.5 150.5 76.6 53.7 46.2 25.9 27.0 96.1 122.0 132.1 103.0 13.1 29.1 41.2 51.9 43.8 123.6 79.9 7.0 89.1 46.0 40.0 35.7 84.8 80.9 38.0 112.8 41.1 124.7 31.4 76.7 173.1

77 90 35 26 19 11 62 23 18 21 15 30 45 44 27 50 26 42 226 66 32 24 56 9 13 31 196 101 52 5 41 20 21 24 62 37 0 75 70 13 37 89 26 L to L L to P 28 68 24 52 45

22 26 22 17 16 15 21 18 23 17 13 12 33 22 2 9 10 44 58 30 10 18 25 16 14 10 59 34 21 21 8 17 13 23 63 29 9 72 23 7 22 32 27 1 58 29 53 9 23 19

23 16 24 14 23 32 34 24 7 40 99 60 40 33 10 5 26 38 65 20 22 25 19 19 13 10 24 39 39 14 40 25 30 25 7 25 24 22 20 11 27 34 25 -12 6 19 13 14 28 6

7 5 19 2 25 67 7 25 9 30 70 21 33 18 16 8 26 13 12 23 9 32 5 25 18 6 1 4 16 26 17 27 32 15 6 18 33 33 2 6 12 5 14 -53 -1 57 16 12 34 1

72 47 19 36 7 14 32 15 55 31 35 30 23 4 76 72 10 26 8 65 24 6 21 6 7 26 19 34 28 9 16 5 21 22 53 21 27 17 25 9 7 31 18 N.A. 155 22 25 7 12 321

10 13 9 27 2 6 10 5 4 15 26 12 5 3 2 2 6 7 14 5 6 2 20 3 3 2 130 14 7 5 22 2 7 11 7 5 19 2 53 3 6 34 3 N.A. N.A. 11 2 5 5 14

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Wealth Creation Study 2003-2008

MOSL 100 Fastest Wealth Creators

RANKED ACCORDING TO THE FASTEST WEALTH CREATORS RANK COMPANY NO. NAME PRICE APPRN. (X) PRICE CAGR (%) PAT SALES ROE (%) FY08 FY03

Appendix II
P/E (X) FY08 FY03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Unitech Jai Corp MMTC Financial Tech. BF Utilities Aban Offshore NMDC Godrej Industries Sesa Goa REI Agro Areva T&D Jindal Steel IVRCL Infra. Pantaloon Retail Welspun Guj. Stahl Essar Oil Adani Enterprises Glenmark Pharma United Spirits TV 18 India Sterlite Inds. Crompton Greaves Hind.Zinc Voltas Larsen & Toubro Bharti Airtel Essar Shipping Divi's Lab Reliance Capital Shriram Transport Siemens Thermax Titan Inds. SAIL ABB Kotak Mah. Bank Axis Bank GMDC Aditya Birla Nuvo Exide Inds. BHEL Jubilant Organosys Century Textiles M&M Tata Power Reliance Inds. Bosch GE Shipping MRPL Dabur India

837 316 194 164 152 118 115 108 102 99 67 65 57 56 54 50 49 46 45 44 42 37 36 34 33 29 29 29 25 24 22 22 22 21 20 20 19 19 19 19 18 17 17 14 10 10 10 10 10 9

284 216 187 177 173 160 158 155 152 150 132 130 125 124 122 118 118 115 114 113 112 106 105 103 101 96 96 96 91 89 85 85 85 84 83 82 81 81 81 80 79 77 77 69 60 59 58 58 57 56

150 50 52 226 45 77 60 27 160 66 101 54 68 62 196 P to L 29 64 90 L to P 42 62 99 52 38 L to P 31 45 58 75 47 42 89 L to P 38 46 41 26 18 37 45 52 32 50 10 37 35 44 L to P 30

64 9 33 58 19 22 36 2 55 30 34 43 53 63 59 14 32 35 26 58 44 21 41 21 21 55 10 33 35 72 43 44 32 19 38 70 37 27 23 29 23 23 10 25 7 24 22 22 32 12

48 5 19 65 6 23 39 10 53 20 39 33 13 7 24 -1 23 38 16 6 7 34 37 39 23 30 10 40 17 22 38 38 34 33 31 8 12 25 7 25 27 28 22 25 11 25 24 33 34 60

8 8 4 12 1 7 19 16 5 23 4 25 16 6 1 2 16 23 5 -1 13 7 12 16 12 -6 6 33 8 33 23 13 5 -12 20 8 21 14 9 18 9 34 9 9 11 15 19 18 -41 21

43 72 544 8 321 72 42 76 8 65 34 26 25 53 19 N.A. 47 31 47 155 53 32 5 28 41 25 26 23 29 17 35 26 31 10 51 74 26 18 55 21 35 12 24 15 30 17 19 4 11 30

5 2 22 14 14 10 4 2 10 5 14 3 2 7 130 7 3 6 13 N.A. 3 10 4 7 11 N.A. 2 5 6 2 11 7 34 N.A. 13 21 5 3 4 5 12 5 6 8 4 9 9 3 N.A. 12

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Wealth Creation Study 2003-2008

MOSL 100 Fastest Wealth Creators (contd.)

RANKED ACCORDING TO THE FASTEST WEALTH CREATORS RANK COMPANY NO. NAME PRICE APPRN. (X) PRICE CAGR (%) PAT SALES ROE (%) FY08 FY03

Appendix II
P/E (X) FY08 FY03

51 52 53 54 55 56 57 58 59 60 61 62 63 85 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Sun Pharma. Tata Steel Indian Overseas Hind.Copper Piramal Healthcare Container Corpn. Grasim Inds. HDFC Tata Comm Bank of India Indian Hotels EIH Natl. Aluminium State Bank of India Cummins India ACC Bharat Electronics Reliance Infra. ICICI Bank Ambuja Cements GAIL HDFC Bank Union Bank Bharat Forge Asian Paints IDBI Bank HMT Pun. Natl. Bank ITC Tata Chemicals Neyveli Lignite Satyam Computer ONGC Tata Motors Shipping Corpn. Zee Entertainment Cipla Hero Honda Motor GSK Pharma. HCL Technologies Bank of Baroda Hindalco Inds. Canara Bank Indian Oil Infosys Tech. Nestle India Wipro BPCL Hind. Unilever Ranbaxy Labs.

9 9 9 8 8 8 8 7 7 7 7 7 6 6 6 6 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 2 2 2 1

56 54 54 53 52 52 51 48 48 46 46 46 45 44 44 43 42 42 42 42 41 41 41 41 40 40 38 38 38 36 35 35 33 32 31 31 31 30 29 27 27 27 26 24 23 23 16 13 9 7

34 36 24 L to P 21 23 43 29 -17 19 56 70 26 17 24 69 26 46 28 51 10 33 20 28 21 13 L to L 19 18 37 -1 41 10 47 24 26 23 11 41 20 13 37 9 3 36 15 30 5 2 0

32 18 18 30 13 18 17 24 -6 16 25 23 14 10 23 19 10 10 27 27 10 38 17 29 17 7 1 14 19 22 2 32 12 26 9 17 23 15 8 40 14 32 16 18 34 13 34 21 7 9

24 21 25 27 30 24 27 20 5 23 19 20 18 14 25 35 26 11 9 38 20 14 25 19 40 11 -12 19 26 27 12 23 24 26 14 14 19 32 40 24 13 17 19 17 33 99 27 14 134 24

34 32 32 36 32 25 12 23 14 25 5 2 16 18 15 10 26 6 17 14 26 17 27 57 30 6 -53 23 26 12 19 14 29 12 12 2 23 67 17 14 18 9 25 32 33 70 24 26 48 33

25 11 6 147 21 15 11 28 48 7 21 25 18 15 22 11 10 27 21 10 14 29 5 22 31 9 N.A. 8 25 7 18 15 13 12 7 36 24 14 16 22 7 7 6 8 18 35 20 9 26 27

11 5 2 N.A. 7 5 8 12 3 2 20 53 9 5 11 23 6 18 7 11 4 17 2 11 15 3 N.A. 3 11 6 4 18 5 17 5 27 17 6 22 14 3 8 3 3 28 26 35 5 18 19

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Wealth Creation Study 2003-2008

MOSL 100 Wealth Creators (alphabetical)

ALPHABETICALLY ARRANGED SR. NO. COMPANY NAME BIGGEST RANK WC (RS B) FASTEST RANK PRICE CAGR (%) CAGR (%) PAT SALES ROE (%) FY08

Appendix III

P/E (X) FY08 FY03

FY03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

ABB Aban Offshore ACC Adani Enterprises Aditya Birla Nuvo Ambuja Cements Areva T&D Asian Paints Axis Bank BHEL BPCL Bank of Baroda Bank of India BF Utilities Bharat Electronics Bharat Forge Bharti Airtel Bosch Canara Bank Century Textiles Cipla Container Corpn. Crompton Greaves Cummins India Dabur India Divi's Lab EIH Essar Oil Essar Shipping Exide Inds. Financial Tech. GAIL GE Shipping GlaxoSmithKline Pharma. Glenmark Pharma GMDC Godrej Inds. Grasim Inds. HDFC HCL Technologies HDFC Bank Hero Honda Motor Hind. Unilever Hind.Copper Hind.Zinc Hindalco Inds. HMT ICICI Bank IDBI Bank Indian Hotels

25 51 43 40 59 42 77 60 30 6 79 74 55 100 66 96 3 53 73 70 47 58 57 83 62 63 89 26 75 86 68 22 85 80 49 93 64 32 11 48 17 56 36 18 28 46 94 13 90 72

237 111 126 144 98 131 58 94 213 952 57 63 101 40 70 43 1,505 107 63 65 121 98 100 53 85 79 46 231 61 49 68 296 77 56 117 44 76 206 547 120 346 100 181 342 216 121 44 469 45 64

35 6 65 17 39 69 11 74 37 41 98 91 60 5 66 73 26 47 93 43 87 56 22 64 50 28 62 16 27 40 4 70 48 89 18 38 8 57 58 90 71 88 99 54 23 92 76 68 75 61

83 160 43 118 81 42 132 40 81 79 13 27 46 173 42 41 96 58 26 77 31 52 106 44 56 96 46 118 96 80 177 41 58 29 115 81 155 51 48 27 41 30 9 53 105 27 38 42 40 46

38 77 69 29 18 51 101 21 41 45 5 13 19 45 26 28 L to P 35 9 32 23 23 62 24 30 45 70 P to L 31 37 226 10 44 41 64 26 27 43 29 20 33 11 2 L to P 99 37 L to L 28 13 56

38 22 19 32 23 27 34 17 37 23 21 14 16 19 10 29 55 22 16 10 23 18 21 23 12 33 23 14 10 29 58 10 22 8 35 27 2 17 24 40 38 15 7 30 41 32 1 27 7 25

31 23 35 23 7 38 39 40 12 27 14 13 23 6 26 19 30 24 19 22 19 24 34 25 60 40 20 -1 10 25 65 20 33 40 38 25 10 27 20 24 14 32 134 27 37 17 -12 9 11 19

20 7 10 16 9 14 4 30 21 9 26 18 25 1 26 57 -6 19 25 9 23 25 7 15 21 33 2 2 6 18 12 26 18 17 23 14 16 12 23 14 17 67 48 36 12 9 -53 17 6 5

51 72 11 47 55 10 34 31 26 35 9 7 7 321 10 22 25 19 6 24 24 15 32 22 30 23 25 N.A. 26 21 8 14 4 16 31 18 76 11 28 22 29 14 26 147 5 7 N.A. 21 9 21

13 10 23 3 4 11 14 15 5 12 5 3 2 14 6 11 N.A. 9 3 6 17 5 10 11 12 5 53 7 2 5 14 4 3 22 6 3 2 8 12 14 17 6 18 N.A. 4 8 N.A. 7 3 20

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Wealth Creation Study 2003-2008

MOSL 100 Wealth Creators (alphabetical, contd.)

ALPHABETICALLY ARRANGED SR. NO. COMPANY NAME BIGGEST RANK WC (RS B) FASTEST RANK PRICE CAGR (%) CAGR (%) PAT SALES ROE (%) FY07

Appendix III

P/E (X) FY07 FY02

FY02

51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Indian Oil Indian Overseas Infosys Tech. ITC IVRCL Infra. Jai Corp Jindal Steel Jubilant Organosys Kotak Mah. Bank Larsen & Toubro M&M Mangalore Refineries MMTC Natl. Aluminium Nestle India Neyveli Lignite NMDC ONGC Pantaloon Retail Piramal Healthcare Pun. Natl. Bank Ranbaxy Labs. REI Agro Reliance Capital Reliance Inds. Reliance Infra. SAIL Satyam Computer Sesa Goa Shipping Corpn. Shriram Transport Siemens State Bank of India Sterlite Inds. Sun Pharma. Tata Chemicals Tata Comm Tata Motors Tata Power Tata Steel Thermax Titan Inds. TV 18 India Union Bank Unitech United Spirits Voltas Welspun Guj. Stahl Wipro Zee Entertainment

19 71 12 10 97 65 21 99 35 7 38 44 5 24 61 39 4 2 84 82 50 87 69 23 1 31 8 33 45 98 88 34 9 16 29 91 41 37 27 15 67 92 95 81 14 52 78 76 20 54

339 64 525 617 43 71 314 41 187 813 158 122 1,084 245 93 157 1,356 1,593 52 54 114 49 68 269 3,077 213 727 203 122 42 47 196 701 398 215 45 132 179 226 401 69 44 44 55 448 111 57 58 317 103

94 53 95 78 13 2 12 42 36 25 44 49 3 63 96 80 7 82 14 55 77 100 10 29 46 67 34 81 9 84 30 31 85 21 51 79 59 83 45 52 32 33 20 72 1 19 24 15 97 86

24 54 23 38 125 216 130 77 82 101 69 57 187 45 23 35 158 33 124 52 38 7 150 91 59 42 84 35 152 31 89 85 44 112 56 36 48 32 60 54 85 85 113 41 284 114 103 122 16 31

3 24 36 18 68 50 54 52 46 38 50 L to P 52 26 15 -1 60 10 62 21 19 0 66 58 37 46 L to P 41 160 24 75 47 17 42 34 37 -17 47 10 36 42 89 L to P 20 150 90 52 196 30 26

18 18 34 19 53 9 43 23 70 21 25 32 33 14 13 2 36 12 63 13 14 9 30 35 24 10 19 32 55 9 72 43 10 44 32 22 -6 26 7 18 44 32 58 17 64 26 21 59 34 17

17 25 33 26 13 5 33 28 8 23 25 34 19 18 99 12 39 24 7 30 19 24 20 17 25 11 33 23 53 14 22 38 14 7 24 27 5 26 11 21 38 34 6 25 48 16 39 24 27 14

32 32 33 26 16 8 25 34 8 12 9 -41 4 16 70 19 19 29 6 32 23 33 23 8 15 6 -12 14 5 12 33 23 18 13 34 12 14 12 11 32 13 5 -1 27 8 5 16 1 24 2

8 6 18 25 25 72 26 12 74 41 15 11 544 18 35 18 42 13 53 21 8 27 65 29 17 27 10 15 8 7 17 35 15 53 25 7 48 12 30 11 26 31 155 5 43 47 28 19 20 36

3 2 28 11 2 2 3 5 21 11 8 N.A. 22 9 26 4 4 5 7 7 3 19 5 6 9 18 N.A. 18 10 5 2 11 5 3 11 6 3 17 4 5 7 34 N.A. 2 5 13 7 130 35 27

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N O T E S

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N O T E S

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For more copies or other information, contact Institutional: Navin Agarwal. Retail: Manish Shah Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: inquire@motilaloswal.com
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. MOSt or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. MOSt and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to this statement as may be required from time to time. Nevertheless, MOSt is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.

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