A number of companies that dropped out of the Sensex in 1991 are still showing shaky fundamentals. But then again, there are those who have at least mastered the art of survival
When any listed company talks about its risk factors in its annual report, one feels that every attempt is made to be as comprehensive as possible. It only goes to show how even the best of organizations can feel overwhelmed by a multitude of factors, right from customer mix/perceptions to sectoral disruptions and volatility, political uncertainty, employee retention challenges, environmental challenges, activism related challenges & unfriendly regulation.
In particular, a sudden change in the environment can lead to a dramatic reorganization in the pecking order and leave us with a list of winners and losers. Only 61 companies from the original Fortune 500 list in 1955 are still there. From 1999 to 2009 itself, 262 companies exited the list. And in line with Nicholas Taleb’s Black Swan Theory, experts can only put things into perspective once the entire change process is behind us.
Twenty one constituents have moved out of the Sensex since liberalisation. And an analysis of a few important cases reveals that a number of them are still shaky in their financial fundamentals. The liberalization at large was a watershed moment that sounded the death knell for many Indian firms and a fall from grace for some others. The family angle made a valuable contribution to the fall of some of these businesses, or at least exposed chinks in their armour. For instance, Century Textiles, Indian Rayon, Hindustan Motors & Grasim were all part of the extended Birla empire that split up acrimoniously among family members after the 1980s and barring Hindalco & Grasim, none of the other companies could truly keep up with the pace of the liberalisation era. The Thapar group that owned BILT industries saw a lot of bad blood between the family members for around 38 years before the group eventually split in 2000.
When we look at those who dropped out in terms of sectors, textiles is one area that appears prominently. Century Textiles, Bombay Dyeing & Indian Rayon Industries were all part of the Sensex in 1991. While the lifting of quotas did provide a lot of opportunities to the textile industry, liberalization also brought more FDI ($80 million between 1991 and 2005 as per CCI) and much more competition. Century from the B.K. Birla Group couldn’t stay with the Sensex, but managed to survive thanks to its diversification into cement, shipping, pulp & paper, et al. In fact cement accounted for 59% of its revenues in FY 2009-10. Revenue is growing at a CAGR of 10.96% over the past 4 years to reach Rs.47.65 billion in FY 2010-11. Bombay Dyeing just couldn’t cope with a fleet footed entrepreneurial economy that emerged post 1991 and saw a drastic fall in fortunes. That was in tune with the story of the Wadia group in fact, which missed important opportunities to then competitor Reliance. To its credit, its revenues in FY 2010-11 were Rs.19.5 billion, and it is growing at an impressive CAGR of 40.6% yoy, but profitability at Rs.213 million is still a concern, down by 40.46% from its value in FY 2006-07. This compares unfavourably to a peer like Sutlej Textiles that posted sales of Rs.16.02 billion in the financial year 2010-11 but profits were at Rs.1.14 billion.
In particular, a sudden change in the environment can lead to a dramatic reorganization in the pecking order and leave us with a list of winners and losers. Only 61 companies from the original Fortune 500 list in 1955 are still there. From 1999 to 2009 itself, 262 companies exited the list. And in line with Nicholas Taleb’s Black Swan Theory, experts can only put things into perspective once the entire change process is behind us.
Twenty one constituents have moved out of the Sensex since liberalisation. And an analysis of a few important cases reveals that a number of them are still shaky in their financial fundamentals. The liberalization at large was a watershed moment that sounded the death knell for many Indian firms and a fall from grace for some others. The family angle made a valuable contribution to the fall of some of these businesses, or at least exposed chinks in their armour. For instance, Century Textiles, Indian Rayon, Hindustan Motors & Grasim were all part of the extended Birla empire that split up acrimoniously among family members after the 1980s and barring Hindalco & Grasim, none of the other companies could truly keep up with the pace of the liberalisation era. The Thapar group that owned BILT industries saw a lot of bad blood between the family members for around 38 years before the group eventually split in 2000.
When we look at those who dropped out in terms of sectors, textiles is one area that appears prominently. Century Textiles, Bombay Dyeing & Indian Rayon Industries were all part of the Sensex in 1991. While the lifting of quotas did provide a lot of opportunities to the textile industry, liberalization also brought more FDI ($80 million between 1991 and 2005 as per CCI) and much more competition. Century from the B.K. Birla Group couldn’t stay with the Sensex, but managed to survive thanks to its diversification into cement, shipping, pulp & paper, et al. In fact cement accounted for 59% of its revenues in FY 2009-10. Revenue is growing at a CAGR of 10.96% over the past 4 years to reach Rs.47.65 billion in FY 2010-11. Bombay Dyeing just couldn’t cope with a fleet footed entrepreneurial economy that emerged post 1991 and saw a drastic fall in fortunes. That was in tune with the story of the Wadia group in fact, which missed important opportunities to then competitor Reliance. To its credit, its revenues in FY 2010-11 were Rs.19.5 billion, and it is growing at an impressive CAGR of 40.6% yoy, but profitability at Rs.213 million is still a concern, down by 40.46% from its value in FY 2006-07. This compares unfavourably to a peer like Sutlej Textiles that posted sales of Rs.16.02 billion in the financial year 2010-11 but profits were at Rs.1.14 billion.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
