|
| Oil & gas companies top wealth creators: Study |
| BS Reporter / Mumbai Dec 16, 2010, 00:13 IST |
|
 Most investors perceive the oil and gas sector as a perpetual underperformer due to pricing restrictions. However, according to a study, the biggest wealth creator in the past seven years has been an oil and gas company. The study also highlights the emergence of metals and mining as surprise wealth creators.
Motilal Oswal Financial Services, in its ‘Wealth Creation Study 2005-10’, says the biggest wealth creator in India for the past seven years has been Oil and Natural Gas Corporation in the first three years and Reliance Industries (RIL) in the next four. “Over FY05-10 (meaning 2004-05 to 2009-10), Reliance’s CAGR (compounded annual growth rate) of 37 per cent is significantly higher than its profit after tax CAGR of 16.5 per cent. Valuations have seen a sharp re-rating (P/E, or, price to earnings, of 22x versus 10x in FY05), led by huge expectations from the Krishna-Godavari D6 field,” according to the study.
While RIL and ONGC have been the largest wealth creators in recent years, the most consistent has been auto major Hero Honda. “Hero Honda is ranked as the most consistent by virtue of its 10-year price CAGR being the highest at 34 per cent,” says the report. This means an appreciation of 17.5 times versus the 3.5 per cent rise of the Sensex in the period.
It is only now, for the first time since 2004, that oil and gas has lost its position as the biggest wealth creator. The new leader, metals/mining, has steadily increased its share of wealth from 13 per cent in 2004-05 to 19 per cent in 2009-10.
The share of public sector undertakings in wealth creation has increased from 16 per cent to 22 per cent, primarily on account of ONGC, NMDC and NTPC. “However, in fundamental parameters, PSUs continue to underperform their private counterparts – FY05-10 sales CAGR of 14 per cent (23 per cent for private) and profit after tax CAGR of 12 per cent (24 per cent for private),” says the report.
The data analysis suggests that companies with a return on equity (RoE) of less than 10 per cent in FY05 delivered significantly superior returns over the next five years. “This is counter-intuitive, as RoE is supposed to be a key indicator of the quality of a company’s earnings,” notes the report. “But, typically, RoEs are low when companies are in the investment mode or are faced with a cyclical downturn. During these times, even P/Es look very high,” it adds.
The brokerage expects Indian markets to remain range-bound in 2011. “The downside is limited, given the bedrock of steady earnings growth, but the upside is capped, given no valuation triggers,” it says.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
