Markets
BSE See NSE See 39,046.34
85.55 (0.22%)
collapse Related Readings collapse

Looking Beyond The Numbers

| 3/21/2013 9:00 PM Thursday

Value creation is central to, in fact the raison d'être, of corporates and the most obvious inviting proposition for investors. But can stock price be the only gauge of value? Shailendra Lotlikar tells us otherwise.

(With inputs from Shashikant and Prasanna Bidkar)

There are innumerable thoughts that have been presented on what value creation means. The moment one speaks of value, it is automatically connoted as the stock returns generated over a period of time. But if stock returns were a means of measuring corporate excellence, imagine the kind of companies that would have taken the top slot. Do you remember Hindustan Futuristic Communications (HFCL) or Global Telesystems? Do DSQ Software or Aftek ring a bell? All these stocks were the darlings of the market at one point of time.

Those were my early days as an analyst. “Sell your house and buy HFCL” was the rhetoric on the streets then. A close friend of mine associated with the broking industry as a trader was in his element while recommending these to us, and there were reasons to believe him too. The stock was galloping at an unbelievable pace. Having placed a large bet on this counter, he was counting his profits. The thought of having let such a wealth creating opportunity pass made me feel rather sick for some time. But the feeling didn’t last too long. We all know what happened to HFCL down the line. I still own my house but my friend, though still in the business, lost his.

The point that I am trying to make is that corporate excellence is not just about rising share prices. In fact, it is a rather holistic concept encompassing the whole lifecycle of a company. From earning reasonable profits to building assets, and from rewarding shareholders with dividends to giving back to society, there is a gamut of activities around which real excellence revolves.

Stock prices may languish for long periods of time, but that doesn’t mean that the companies have necessarily failed to create value. There are numerous other measures which will put certain companies higher as compared to those who see a good share price movement. Take, for instance, ITC. This group is among the oldest business houses in India, but the stock price of the company hasn’t really delivered superlative returns, so to say. But while it is true that ITC has been a rather slow-moving stock, it is important to note that it has moved up gradually over the years.

Now, consider the overall value creation in terms of excellence that this group has achieved. Trying to shun its image as a tobacco-centric company depending solely on cigarettes to derive profits, it changed course in the late 90s and early 2000s. Since then, it has added Hotels and FMCG to its business interests. At the beginning, pundits feared that the group was over-diversifying and would fail in the process. But, this has eventually turned out to be a new leaf for the group. This is what real corporate excellence is all about.

On the other hand, have a look at some over-ambitious failures. The real estate sector has innumerable examples of this. HDIL, DB Realty and BL Kashyap are some names which you should look at when considering share prices as an indicator of value creation. Over-leveraging themselves to expand business has rather taken these countries downhill on the fundamentals side. This is where professional management and business foresight step in. There are many more names to name in this category. Whether it was the foolish idea of Koutons Retail to sell at throwaway prices to generate volumes or Pyramid Saimira’s acquisition of thousands of single-screen theaters to create a global footprint, all seem to have been mass destroyers of value and wealth, which makes them rank low on the corporate excellence front.

‘Create’, ‘expand’ and ‘sustain’ are three words which help build not just companies, but conglomerates of excellence. The Indian business scene has seen it all. The most important feature which distinguishes corporate excellence from mediocrity or plain bad business acumen is a good management which has an ability to recognise the right opportunities and cash in on them. As Edward De Bono said, “Companies that solely focus on competition will ultimately die. Those that focus on value creation will thrive”.

 

Find More Articles on: DSIJ Magazine, DSIJ Perspective, Product, Large Cap, Mid Cap, Small Cap

news letter

More for the early bird.

Get the post-market reports and breakfast news right in your inbox. See latest »

DSIJ Mindshare

MIDHANI and HAL partner to develop bio implants

Geyatee Deshpande / Article rating: 5.0

Mishra Dhatu Nigam Limited (MIDHANI) signs an MoU with Hindustan Antibiotics Limited (HAL). This MoU will provide synergy for quality manufacturing of MIDHANI’s Bio-medical Implants and get access to the pan-India distribution of HAL. This partnership is aimed to gain advantage from the strengths of both the companies and benefit users of Bio-medical products in India.

12345678910Last

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Tiger Logistics topline to grow by 10%--buoyant over infra sector status to logistics sector

Logistics sector will play a vital role in making the concept of ‘Make in India’ a success. This will be further aided by some of the recent steps taken by Government of India such as granting of infra sector status to logistics sector.

Best and worst Performing Sector Funds of Year 2017

Best and worst Performing Sector Funds of Year 2017

As the year-end has approached most of you are eager to know the mutual fund movers and shakers of the year 2017. Read on to find the performance of various sector dedicated funds.

Markets may start positive, but volatility likely due to F&O expiry

Markets may start positive, but volatility likely due to F&O expiry

The start of the F&O expiry day is likely to be in the green, but volatility may creep in with the progress of the session. The SGX Nifty suggests that the Nifty could open at 10,525 with gains of 32 points at the opening bell. 

Pidilite announces buyback of Rs 500 crore

Pidilite announces buyback of Rs 500 crore

The buyback offer comprises purchase of up to 50,00,000 equity shares. The buyback offer size comprises 0.975 per cent of the total paid-up equity capital of the company.

Bank Nifty drags markets to close in the red

Bank Nifty drags markets to close in the red

The late session fall in Bank Nifty changed the direction of the market, leading to a marginal fall in the benchmark indices. Bank Nifty yet again resisted at its multiple point downward sloping trendline level at 25733.

Six major underperforming MF schemes having higher expense ratios

Six major underperforming MF schemes having higher expense ratios

Mutual funds with a large size of assets under management (AUMs) are supposed to have lower expense ratios. However, there are schemes with large AUMs but having higher expense ratios and generating lower returns. 

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma supports market; Sun Pharma at bullish reversal

Nifty Pharma index has come in as the healer in an otherwise sluggish market. Index has given a consolidation breakout at the 9420 level today and if the it sustains 9420, followed by 9628 on the upside, it has a long way to go.

Ten stocks close to their 52-week low

Ten stocks close to their 52-week low

Following stocks are close to their 52-week low as at 12.35 p.m. on December 27.

Ten stocks close to their 52-week high

Ten stocks close to their 52-week high

The markets on December 27 opened gap down. BSE Sensex is trading at 34,068.15, up by 57.54 points and the Nifty is trading at 10,539.45, up by 7.95 points.

Five stocks with selling interest

Five stocks with selling interest

Overall volumes in futures & options currently stand at 62.75 lakh contracts with a turnover of Rs. 5,19,204.72 crore.