Younger companies such as technology majors Infosys and Wipro and mining firm Sesa Goa have created more value for their shareholders in the past two decades than what Reliance Industries has done since 1977.
An investment worth Rs 1,000 in Reliance Industries’ initial public offer (IPO) about 35 years earlier is now worth Rs 7.78 lakh, said its chief, Mukesh Ambani, on Thursday. Noting this was a compounded annual growth rate of 21.6 per cent, he promised further value creation for shareholders, at the company’s 38th annual general meeting here on Thursday, according to a PTI report.
While this is impressive, Rs 1,000 invested in Infosys in its initial share sale in 1993 would be worth Rs 20.42 lakh today. And, not just Infosys; several other large companies have outperformed the “investors’ darling” in the past two decades. While Infosys and Wipro are from the fast growing information technology sector, there are some surprises such as Hindustan Unilever (HUL), ITC and State Bank of India (SBI).
According to an analysis of BSE 500 firms by the Business Standard Research Bureau, at least 44 companies did better than RIL during the period between January 1, 1991, and on Thursday. Data prior to 1991 was not available. During this period, RIL multiplied investors’ money 38 times. An investment of Rs 1,000 made in RIL shares on January 1, 1991, is worth Rs 38,085.
Of the 44, as many as 10 are part of the Sensex on Thursday. An amount of Rs 1,000 invested in Wipro shares in 1991 would be now worth Rs 10.75 lakh. Hero MotoCorp (Rs 4.74 lakh), Cipla (Rs 4 lakh) and HDFC (Rs 2.73 lakh) are some of the other top Sensex value creators.
Among non-Sensex firms, Sesa Goa shares have turned Rs 1,000 into Rs 10.03 lakh. Dr Reddy’s has made it Rs 3.79 lakh. SBI, ITC , Mahindra and Mahindra and HUL are some of the other Sensex firms which had beaten the oil and gas behemoth in the ex-1991 returns.
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Analysts say the past few years have been bad for RIL, due to the dip in production (of gas) in the Krishna-Godavari basin. A K Prabhakar, senior vice-president, equity research, Anand Rathi Financial Services, said: “One thing is sure, that there is pressure mounting on the company and it has been underperforming for the last three years. ROE (return on equity) has been the lowest in the last 10 years, at 12.97 per cent for FY12 where globally companies have 18-19 per cent in this segment.”
According to Prabhakar, operating and profit after tax margins have also been deteriorating in these years. “Going ahead, the petchem cycle and the refining margins are seen under pressure and with crude (oil) going down, is negative for the company. With the (ongoing) buyback (of shares), it is just supporting the price and we feel till visible performance is not seen, the stock is expected to consolidate in the range of 600-800 levels for the next one year or so,” he added.
S P Tulsian of Premium Investments said, “When Mr Ambani has talked about value creation, he has talked about his own company, not in relation to others. RIL has had problems in gas production for the last two years. That is taking a toll on financial performance.”
| TOP LONG-TERM VALUE CREATORS Current Sensex list | |||
| Adjusted price in Rs | Current value of Rs 1,000 invested in Jan 1991* | ||
| Name | Jan-1991 | Jun-2012 | |
| Wipro | 0.38 | 408.5 | 10,75,000 |
| Hero Motocorp | 4.10 | 1,945.75 | 4,74,573 |
| Cipla | 0.76 | 308.95 | 4,06,513 |
| Housing Development Finance | 2.37 | 649.35 | 2,73,987 |
| ITC | 1.04 | 234.15 | 2,25,144 |
| Sterlite Industries India | 0.44 | 93.60 | 2,12,727 |
| Mahindra & Mahindra | 9.95 | 675.70 | 67,910 |
| State Bank of India | 33.02 | 2,159.45 | 65,398 |
| Hindustan Unilever | 9.34 | 420.15 | 44,984 |
| Reliance Industries | 18.75 | 714.10 | 38,085 |
| Infosys** | 1.18 | 2,410.05 | 20,42,415 |
| *List filtered of current BSE500; **Listed on June 14, 1993 Compiled by BS Research Bureau Source: Bloomberg | |||
Analysts do say RIL’s long-term performance has trailed some other stocks during this period, but is still way ahead of other asset classes. Among the 10 companies that were part of the Sensex in 1991 but are out of the index today, only Hindustan Construction Corporation created more value. A sum of Rs 1,000 invested in HCC shares then would be worth Rs 50,000 on Thursday.