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Endnote

The Indian corporate sector is commanding and receiving global distinction like never before, not only in terms of size (as encapsulated by the slew of cross border deals in the past year) but also in terms of innovations. Ensuring a wide array of activities, right from expansions, takeovers, mergers, acquisitions to the ‘Nano’ effect, large Indian companies are now focusing on inclusive growth strategies and are set to cross many milestones domestically and globally. In the medium to long term, mega investment plans are on the anvil. Besides, the government’s thrust on various sectors and massive spending plans, especially in infrastructure, would provide further boost to the Indian growth story.

Owing to the impressive expansion in economic activities and renewed drive of corporate India, we at D&B envisage a dramatic change in the composition of India’s Top 500 Companies over the next few years, in what could be a dramatic shift in the structure of corporate India.

The aggregate Total Income of the Top 500 Companies increased by an impressive 28.4% on a y-o-y basis. Among the various sectors, Retail, Non-Ferrous Metals and Construction and Allied Activities emerged as the fastest growing sectors.

However, the moot question now is that whether this high decibel performance can be sustained in the medium to the long run. On the face of it, growth in fact does look sustainable, based on the investment plans announced by corporate giants.

Since the above are merely statement of intention, D&B Research attempted to analyse the underlying trends to estimate the future outlook for India Inc. We therefore studied trends in capital work-in-progress (CWIP) for 49 sectors (predominately manufacturing sectors) to gain insight into the actual investment projects currently underway. These 49 sectors encompass 431 companies from both manufacturing and services sector. The services sectors included are Telecom Services, Software and ITeS, and Hotels. Further, the analyses are based upon two financial years, i.e. 2006 and 2007 and the information is extracted from annual reports.

CWIP equivalent to 2.6% of GDP

The Indian corporate sector has reacted extremely favourably to the macro-economic buoyancy of the country, and has made ambitious capacity addition and expansion plans, as is apparent from a study of CWIP. To put things in perspective, the value CWIP of 49 sectors is equivalent to about 2.6% of the country’s GDP. This number becomes even more significant when one takes into account that it covers just 431 companies.

Further, there is an incremental jump of 40 basis points y-o-y in terms of the CWIP as a percent of the country’s GDP. In FY06, CWIP as a percentage of GDP stood at 2.2%. The overall CWIP for FY07 stood at Rs 1,059 bn, having grown at of the rate of 33.5% on a y-o-y basis. This rise in CWIP underscores the preparedness of corporate India to service incremental demand that may be on the anvil. This trend strongly endorses the business confidence and future growth prospects of the Indian industry.

Automobiles the most aggressive and optimistic

In order to gauge quantum of CWIP, we have sorted sectors based on CWIP as percentage of net worth. The sectoral analysis of CWIP revealed further interesting insights. Amongst all the sectors considered, Automobiles, Sugar, Textiles, Metal Pipes, Glass & Ceramics, Power, Oil Field Services, Cement, Oil - Refining and Marketing, Gas - Processing, Transmission and Marketing, Iron and Steel and Chemicals emerged as most aggressive in terms of capacity addition and expansion.

The 20 sectors enumerated in the table titled ‘Most Aggressive and Optimistic Sectors’ accounted for over 85% of the aggregate CWIP of all the 49 sectors taken together. Further, these 20 sectors reported robust double-digit growth in Total Income, the Telecom Equipment sector (79%), the Retail sector (62%) and Non-Ferrous Metals sector (61%) reporting the highest growth rates.

Most Aggressive and Optimistic Sectors

Note: - Sectors with the highest percentage of CWIP as a share of Net Worth were considered.

Oil - Refining & Marketing and Power the real mammoths

In terms of absolute value of CWIP, the top 10 sectors account for 82.8% of the aggregate CWIP. Among these top 10, the Oil - Refining and Marketing sector and the Power sector are the ones with huge CWIP of Rs 280.6 bn and Rs 226.2 bn respectively.

Further considering quantum of capital expenditure and its contribution to net worth, the y-o-y growth in CWIP is robust in the case of Cement (166.6%) followed by Non-Ferrous Metals (149.2%) and Automobiles (110.3%). The marginal de-growth in case of the Oil – Refining & Marketing sector reflects that small portion of CWIP which is going on-stream or has been converted into assets.

Capex Mammoths

Apart from confirming the strong business confidence of India Inc, the robust CWIP also highlights sectors that would drive the Indian economy into the future. It also provides hints about the shape of future Top 500 Companies of India. It is conceivable that the basic and infrastructure related sectors such as Oil – Refining & Marketing, Power, Iron & Steel, Cement and Telecom Services would hog the limelight in future. Moreover, India with her enormous natural and human resources would support and drive the economic growth and provide opportunities for various sectors to grow in depth and reach. We at D&B are committed to capture this transformation of corporate India in our future editions of India’s Top 500 Companies.