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10 Graphs on 10-Year Performance of Indian Companies

The last decade has seen a dream run for Indian companies. Helped by fast growth of the Indian economy and supported by higher consumer and industrial spending, companies have seen their businesses grow by leaps and bounds.

However, has this growth filtered across all parameters that make companies ‘good’?

And have the shareholders benefited from this growth?

Here are 10 graphs that show the combined performance of India’s leading companies (BSE-200, excluding banks and financial institutions) over the past 10 years. This will provide some answers to the questions above.

1. Sales: This has been one of the two most promising charts, the other being the next one. As I mentioned above, Indian companies have benefited from economic growth and rising spending. This has led to higher sales year after year, except a slight lull in FY10 that was due to a widespread economic slowdown.

2. EBITDA Margin: EBIDTA margin represents the operating profitability of a company – how much is left over after reducing operating expenses (like employee costs, sales and marketing expenses, and other general costs incurred for normal working of a company) from sales. On an average, EBITDA margin has risen for Indian companies, largely helped by higher sales and cost cutting measures.

3. Profit After Tax (PAT): The PAT or net profit of Indian companies sports a good long term growth number, though there have been periods of weaknesses. Over the 10 year period, PAT has grown at an average annual rate of 22%, even faster than the growth in sales. This has been largely led by improvements in operating profitability apart from decline in interest costs – not only did interest rates remain low during these 10 years, Indian companies also assumed lower debt as percentage of the total capital employed.

4. Debt to Equity: This is one very important chart and shows that Indian companies, on an average, have repaired their balance sheets over the past 10 years. Helped by higher profits and greater cash generation, companies have paid of previous debt and have borrowed lesser money as compared to equity (shareholder’s funds). A 0.9x debt/equity ratio is a good average, though you can find numerous companies that have been reckless in their borrowing and have paid a heavy price for that.

5. Return on Equity: Return on Equity or ROE indicates how much a company earns as compared to the money shareholders have invested in it. It’s a very important number and one that Warren Buffett uses to identify good businesses. An average of around 23% is good by global standards, but then even here you find companies that earn ROEs in the sub-10% region (bad businesses) an others that earn above 50% ROE (very good businesses) on a consistent basis.

6. Dividend Yield: This is a key number from an investor’s perspective as this is what you can compare with the interest rate you receive on a bond or fixed deposit. You get dividend yield by dividing the dividend per share you receive by your cost per share of acquiring that stock. The reason this number has consistently fallen has a lot to do with the rise in stock prices (the denominator in the above formula) than a fall in dividend payments.

7. Dividend Payout: Payout is what you get by dividing the dividends a company pays in a year by its net profit (or PAT) for that year. This number has remained relatively stable for Indian companies over the past 10 years.

8. P/E Ratio: The P/E or price-to-earnings ratio suggests how cheap or expensive a stock is as compared to the company’s profit. High P/E generally means that a stock is expensive, and low P/E generally indicates that a stock is cheap. The average P/E ratio for Indian companies has been high at 19x, and the current number is even higher than this average.

9. Asset Turnover: This formula shows how much sales a company earns for every rupee of money it has invested in its assets. This is a good indicator of the management’s capability of utilizing the company’s assets for maximum returns. The reason this number has fallen over the years is because assets have risen at a faster rate than the growth in sales.

10. Current Ratio: This ratio suggests how capable a company is to meet its short-term operating needs sufficiently. As a general rule, any number above 1.5x is comfortable, though the requirements differ from industry to industry. A 3.4x average number looks fine for Indian companies.

Note: Data for above charts has been sourced from Ace Equity

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Excellent article Vishalji. From the graphs, it looks like the decade has been full of growth, any such analysis for the next decade FY11-FY20 :-)?
    I would like to understand Current ratio better. I got the concept, but since this is a ratio, what is the numerator and denominator to calculate this? Like PE ratio has Price and Earning of a company to arrive at the ratio.

  2. @mansoor,
    current assets / current liabilities = current ratio
    if you deduct stock in trade from current assets, you get liquid ratio. some calculate removing stock in trade from current assets and bank finance from current liabilities to arrive at liquid ratio.
    both these ratios help one to understand the liquidity of the company. Current Ratio should not be above 2 and liquid ratio not above 1.
    In the above current asset chart, the ratio at 3.4 times indicate the indian companies are not so good in management of short term assets…probably a sign of weakness. It can be either liquid stocks, or high not realisable debtors etc…..

  3. mistake in previous comment

    read instead of ‘liquid’ ….illiquid

  4. Awanish Chandra says:

    Hey….great analysis…..good to recapture the old good things happened…..seems everything went well for the last 10 years……but alas …i missed most of this growth…..and mostly seems to be trapped in the sideways growth story going forward….but analysis was very good…..

  5. bharat sharma says:

    this very very nice and excellent article. and knowledgeable article for investors. My congratulation to author Vishal khandelwalbhai Thanks…… B.A.Sharma Advocate small investor.

  6. excellent Article for investors. many Congratulations Vishal

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