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Manufacturing beats IT, pharma in returns

BS Reporter  |  Mumbai 

The manufacturing sector was the top performer in creating shareholders value, according to a study by the Boston Consulting Group (BCG) and the Confederation of Indian Industry (CII), released today.
Three manufacturing sectors (engineering and construction, industrial commodities and materials and commodities) created more value for its shareholders in last five years than IT or pharmaceutical
Engineering and construction companies, led by Larsen & Toubro and BHEL, posted a total shareholder return (TSR) of 81 per cent in the last five years trailing March 31, 2007, the BCG-CII study showed.
They were followed by in the industrial and manufacturing sector (like Crompton Greaves or Thermax), which posted a TSR of 72 per cent, followed by in the materials and commodities sector (cement, steel) which delivered a TSR of 57 per cent in the last five years.
(Shareholder returns by key sectors)
Sector 2002-07 (%) 2001-06 (%)
Engineering & Construction 81 64
Materials & Commodities 72 67
Telecom 57 65
Chemicals & Plastics 47 54
Automotives 46 63
Transportation & Logistics 43 62
Oil & Gas 34 43
Pharmaceuticals 28 33
Information Technology 26 23
FMCG, Retail & Durables 18 20
Sectors that followed the manufacturing sectors in creating value in the last five years were telecom (51 per cent), banking (49 per cent), chemicals and fertilisers (47 per cent), automotives (46 per cent).
Compared to that, IT and pharmaceuticals posted returns of 26 per cent and 28 per cent, respectively over the last five years.
TSR includes returns earned through dividends and by way of capital appreciation. The study excludes companies listed after March 2002 and represent 70 per cent of the market.
''Engineering and construction was led by Larsen & Toubro, which besides riding the boom in infrastructure, is entering new areas like power: it will start making super-critical boilers, a highly value-added segment which will grow both its top line and bottom line,'' said Abheek Singhi, partner and director at BCG.
The poster boy in industrial and manufacturing was Crompton & Greaves, which took bold steps to correct its cost structures when its profits came under stress in the mid-1990s, Singhi told Business Standard.
Between 1997 and 2002, the company improved its productivity, made four acquisitions and built a niche presence in electrical transformers.
The key drivers for companies in the top three manufacturing sectors were that they went global, played the M&A game to gain customers, markets and capabilities, tried to manage their people well and fostered innovation, Singhi said.

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First Published: Tue, November 20 2007. 00:00 IST