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Overview of the Top 500 Companies

The Insights Section is an attempt to capture the real pulse of India Inc. Apart from providing a birds eye view of corporate India in terms of growth and future outlook, it also looks into the issues and challenges faced by them. It also highlights key sector specific trends. This section has been further sub-divided into four segments, covering various sectors and future outlook. The Insights are based on the databank of financial and operational information collated from the annual reports of the 500 companies featured in this publication.

This first segment offers comprehensive comments on financial performance, growth trends, profitability and other aspects of the Top 500 Companies for 2007. It also takes into account ownership patterns and scale of business while analysing the information. The analysis are based on financial results for FY07; financial year ending between September 2006 to June 2007.

In terms of composition, Indian private promoters dominate the Top 500 list with a share of 77.8%, followed by foreign private promoters with 11.4%, with public sector enterprises accounting for the remaining 10.8%. On the basis of size, the mid cap companies dominate with a 46.8% share, followed by large cap with 28% and small cap with 25.2%.

The classification under small, medium and large is based on market capitalization for FY07. The small cap is defined as companies with market capitalisation up to Rs 5,000 mn, mid cap from Rs. 5,000 mn to Rs. 33,000 mn and large cap Rs. 33,000 mn and above. This classification is based on the 80:15:5 principle, which is used by various stock exchanges to categorize companies as having small, medium and large capitalisation.

New comers on growth spree

This year, 103 new companies made it to Top 500 vis-a-vis last edition, forming 20.6% of total companies. Though these new comers accounted for 8.7% of total market cap of Top 500 companies, they reported overall robust growth of 58% in their total income. These companies are spread across various sectors.

Indian Inc on a dream run with a 28.4% growth in Top Line

The cumulative Total Income of the Top 500 companies grew by an impressive 28.4% over the previous year and stood at Rs 19,335.2 bn. Retail, Non-Ferrous Metals and Construction and Allied Activities Sectors outperformed others in terms of growth in total income

Almost 51% of the cumulative total income was contributed by four sectors namely Oil- refining & marketing sector, Banks, Iron and Steel and Automobiles. The large cap companies, 28% of total companies, accounted for a large chunk of total income (75.1%). Moreover, PSUs cornered the largest share of 54% of the cumulative total income among large cap companies.

The sector wise total income contribution is given in the chart below:

Market cap equivalent to 70.5% of GDP

The total market capitalisation of the Top 500 Companies is equivalent to about 70.5% of India’s GDP for the year 2006-07. In fact, the average market cap of the Top 500 companies is 87.4% of the total market cap of all the companies listed on the BSE. The market capitalisation of Top 500 is the average market capitalisation for the trading period for FY07.

Large cap companies account for around 28% of all companies, with almost an 87% share of the total market cap of the Top 500 companies. The mid cap companies accounted for 11.7% of total market cap, while small cap accounted for the rest 1.3%.

The chart shows distribution of ownership in all categories.

Software and Banking sectors take the cream

In terms of market value, the Software & ITeS, Banking and Oil - Refining & Marketing sectors dominated, followed by the Pharmaceutical, Textile and Construction & Allied activities sectors. It is interesting to note that the large cap companies completely ruled 23 sectors, with no presence of any small cap companies. These 23 sectors, apart from capital intensive sectors such as Oil – Refining & Marketing, Cement, Power & Power equipments, also includes FMCG and Software & ITeS sectors. The mid cap companies have a fair amount of spread among various sectors. Further, there are 16 sectors in the Top 500 classification that do not have a single company from the large cap bracket. Such sectors include textile, tyres, food processing polymers/plastic/ plastic products among others.

The following chart depicts the composition of major sectors contributing to market capitalisation.

PSUs rule the market value roster

PSU companies command a share of 25.2% of overall market capitalisation of the Top 500 Companies, although the number of companies is comparatively low at 10.8% (54 companies). The total market capitalisation of the government owned companies in the Top 500 list is a whopping Rs 7,347.3 bn.

The breakup of market capitalisation on the basis of ownership is given in the chart:

In case of foreign companies,

Performance of Foreign Private Companies

Banks tops bottom-line charts

The total net profit for the Top 500 grew by around 36.9% on y-o-y basis and stood at Rs 1,891.9 bn. The highest contribution to the total net profit came from the Banking sector, which contributed 13%. The Oil – Refining & Marketing and Software & ITeS sectors followed the banking sector. The growth in profitability for these sectors can be largely contributed to robust top-line.

The Private Indian companies accounted for 55% of the total profit of all 500 companies. Again, large cap companies cornered the largest share in total net profit, which stood at 84%, while the small cap companies just contributed 2% of the total net profit. Nine companies reported loss, out of which four companies were loss making in the previous year as well.

While considering EBITDA margins for the Top 500 companies, three sectors viz., Banks, FIs/NBFC and Software were excluded. For the remaining sectors, average EBITDA margins stood at 17%. There were many sectors which outperformed the average EBITDA levels, such as Cement, which enjoyed a margin of 30%, Mining sector and Non-Ferrous Metals sector showing margins of 39% and 35.6% respectively. Those sectors that underperformed as compared to the average include Trading and Computer Hardware, mainly due to nature of their business.

Few sectors which had high EBITDA margins failed to show strong net profit margins due to the rapid capacity expansion in almost all manufacturing sectors. For instance, the Cement sector though commanded high EBITDA margins of close to 30%, but the bottom line margins reported were low, and the NPM stood at around 16%. The graph below shows a spike in growth of Capital Work-in-progress (CWIP), suggesting that expansion plans of Cement companies are in full stream, leading to an increase in interest expenditure as well as high depreciation.

As concerns the Oil-Refining & Marketing and Pharmaceutical sectors, the CWIP shows a dip, but further analysis of the fall reveals that the depreciation has increased over the last year by almost 23-26%, while for all Top 500 companies the average growth in depreciation has been about 19%. This implies that for these sectors, either the expansion is over or is reaching completion.

Exports

74% of companies of all Top 500 companies are involved in exports. Expor ts under this calculat ion include FOB expor t s, deemed expor ts and services rendered outside geographical boundaries of the country. Exports contributed 19 % to the cumulative total in come of the companies covered under exports. Predictably, sectors such as Software & ITeS, Pharmaceutical and Gems & Jewellery contributed the major portion of exports value.

The percentage contribution of exports to total income in the case of the Software & ITeS and Gems & Jewellery sectors was 85% and 75.2% respectively. The NPM for these two sectors stood at 22.7% and 2.9% respectively. Going forward, in light of the Rupee appreciation against US dollar, the Software and the Gems and Jewellery sector is likely to see more pressure on margins. Gems and Jewellery is likely to be hit the hardest as margins are low, given the nature of business.

Oil Marketing companies tops dividend pay out charts with dividend of Rs 52.7 bn

The Top 500 Companies paid a total of 2.6% of their total income as dividends, amounting to Rs 502.9 bn. In all, 447 or 89.4% companies paid dividends, in the form of interim and final to their equity shareholders. Interestingly, though the PSU companies account for just 10.8% in numbers, they contributed 42.9% of total dividend paid by the Top 500 Companies. This is mainly due to the large number of PSU companies from the Banking and Oil Refining sectors that paid huge dividends and accumulated reserves. In fact, Oil and Marketing companies contributed maximum (10.5%) to the total dividend paid by Top 500 companies.

Of the companies that did not pay out dividends, only 26.4% of them or 14 in total were loss making companies either in the last or current fiscal. The 8 profitable but non-dividend paying companies were from the Iron and Steel sector; for them, the CWIP has risen by a massive 233% y-o-y. This group was mainly made up of where financial restructuring has taken place in the last few years, and that were in the process of creating new capacities or rationalising the existing ones.

Engineering PSU companies sitting on massive reserves followed by the Shipping & Logistics Sector

PSU companies, including those owned centrally and others, amounted to 10.8% of the Top 500 companies. We considered sectors such as Gas & Transmission, Oil - Refining & Marketing, Heavy Engineering, Power, Trading, Fertilizer and Shipping & Logistics. It was observed that in case of the Heavy Engineering sector, the ratio of Reserves to Equity Capital was 31.1 (times), followed by Shipping & Logistics at 21.3. In case of sectors such as Trading and Oil - Refining & Marketing, the ratio of Reserves to Equi ty var ied in the range of 14-15.5. However, it was low in the case of Power and Fertilizer sectors. The chart depicts the ratio of Net Reserves to Total Equity Capital for PSU companies.

Intangible forms significant portfion of net worth

Intangible Asset for all Top 500 companies stood at Rs 116,781.2 mn, about 1.3% of total tangible net worth. Intangible assets in FY07 were higher at 41.3%, on a y-o-y basis. Further, the top 50 companies on the basis of market capitalization, accounted for almost 67.5% of total intangibles of the Top 500 companies.

The intangibles are the assets that do not have any physical existent and include goodwill, trademarks, copyrights, patents, other intellectual property, technical know how, rights, brand, software and the likes

The graph below shows the sectors where share of intangibles to tangible net worth was high:

The percentage of intangible assets to total tangible asset was highest in the case of the Telecom Services sector at 11.2%, followed by the Retail sector at 5.1%. The Telecom sector had intangible assets to the tune of Rs. 51,774 mn, which was mainly due to the procurement of telecom licenses. For the pharmaceutical sector, total intangible assets stood at Rs. 5749 mn, due to the major R&D expenditure incurred by them.

The graph below depicts the contribution by type of Intangible Assets: