Okay, how fast is fast? If we are talking of hot wheels, the Bugatti Vey- ron Super Sport with a top speed of 431 km per hour holds the world title, though the Hennessey Venom GT broke the record this February when it hit 435 kmph on the space shuttle runway at the Kennedy Space Centre in Florida. At Outlook Business, we have defined fast as firms that can continue to grow their revenue at a compound annual growth rate (CAGR) of 25% by staying profitable in each of the five years, debt/equity ratio less than 2X and also deliver a minimum return on capital employed (RoCE) of 15% every year. These criteria form the bedrock of our annual compilation, brought together in the Fastest Growing Companies special issue.
Consumer companies dominate the sector-wise tally
Since companies were yet to declare full-year numbers for FY14 when the exercise began, we annualised the nine months’ performance for computing revenue CAGR. What is striking about the exercise is that in just three years, the list has shrunk dramatically: beginning with 40 companies in 2012, it fell to 30 in 2013 and is now at 17 companies. Now, that is a telling commentary, considering that the filters were applied to over 3,200 listed companies across the two national bourses with sales in excess of ₹100 crore and market capitalisation of over ₹500 crore. These were the only criteria to be eased from the 2012 exercise, where the list was strictly confined to the combined universe of BSE-500 and NSE-500 firm.
Though the Sensex has been on a trajectory of its own, the business environment is far from favourable and that is amply reflected in the way the companies have dropped out of the reckoning. From a top-down perspective, the consumer sector continues to dominate the list with eight companies, but again the count has halved from the original 16 names that made it to the first edition. No surprises that infrastructure companies are conspicuous by their absence after making the cut in 2012 and 2013; the only proxy for the sector are plastic pipes major Astral Poly Technik and tower company BS Ltd (formerly BS Transcomm).
Interestingly, one other sector that was caught in a pincer following the slowdown has made its debut this year. We are talking about the media business and it was surprising to see Hindustan Media Ventures topping the list on the back of an impressive five-year CAGR growth of 110% and a mind-boggling 328% CAGR in profit over the same period. Hard to believe, but the HT Media group company, which owns the second-largest Hindi newspaper, Hindustan, with a readership of 14.25 million, has managed a stellar performance. From less than ₹1 crore in FY09, Hindustan Media Ventures’ net profit has zoomed to ₹84 crore for the nine months ended December 2013. This has been largely possible as the newspaper’s circulation increased and the company leveraged its brand to rake in more regional advertisements. With a strong balance sheet (cash of ₹381 crore), the company can make further inroads into tier 2 and 3 towns in north India, which is its key market.
Only a handful of companies managed to grow their toplines and bottomlines
Along with HT Media, four other firms made their debut this year: Astral Poly Technik, Justdial (directory services), PC Jeweller (gold and diamond jewellery) and V-Guard Industries (electrical appliances). But for Astral, all the others have listed on the bourses only over the past one-and-a-half years. While five new firms entered the listed universe, an equal number were part of all the three annual listings, one from the IT space and four consumer companies: eClerx Services (knowledge process outsourcing), Godrej Consumer Products, Jubilant Foodworks (pizza chain), Page Industries (innerwear) and TTK Prestige (kitchen appliances).
Most of the companies have managed to grow both their sales and profits in the 30% to 40% CAGR band. Three companies — Hindustan Media Ventures, Kaveri Seed and PC Jeweller — have managed to clock above 50% CAGR in sales and profits and another three companies managed to grow only their profits by over 50%, despite managing less than 50% growth. This is an indication that the three companies, Jubilant Foodworks, Justdial and Mayur Uniquoters, have enjoyed good pricing power thus far.
So far so good, but will the companies continue to grow like they have and that too, profitably? Two consumer companies are already seeing a slowdown: TTK’s nine-month sales are down 5% coupled with 19% drop in profit, as is the case V-Guard Industries, which derives a chunk of its sales down south. While the company’s revenue has grown 10% in the nine months, profits fell 8% as it entered non-southern markets by offering huge discounts. Similarly, while Jubilant Foodwork’s CAGR numbers look great, its profit for the nine months are down 2% even as sales were up 24%, an indication that the QSR major is losing its pricing power even as it expands Domino’s reach.
So, how is the Street viewing these 17 names? In terms of valuation, Justdial is the most expensive of the lot at 60X estimated FY15 earnings, followed by Jubilant, Page Industries and Godrej Consumer in the 30-35X range. While Jubilant’s valuation will contract as the going gets tough, there are a couple of names that could well make for a good bet. One of them is our list-topper Hindustan Media Ventures, which is trading cheap at 8X estimated FY15 earnings. Want to know which way the wind is blowing for others? Go to the movers & shakers