SRF, Tata Elxsi, Bajaj Finance, Astral and TVS Motor emerged as stocks that gave the highest hockey-stick returns (HSRs) in the 10 years between 2013 and 2023, according to Motilal Oswal’s annual Wealth Creation Study. HSRs refer to a sharp and sustained rise in stock price that leads to a ‘hockey-stick’ formation on the price chart, translating into good returns for the stockholders, the report added.
According to the report, speciality chemicals maker SRF has given a 53 percent price compound annual growth rate (CAGR) during 2013-23, while Tata Elxsi posted a 51 percent price CAGR and Bajaj Finance 47 percent price CAGR (see chart).
Conventionally, earnings are associated with accounting profit. However, the study discusses the concept of economic profit and why it is arguably a superior metric to accounting profit.
Economic profit is judged based on trends, endowment and moves. First, ‘trends’ are directional shifts in the broader economy, various sectors, technology and consumer behaviour that create opportunities for some businesses and threats for others.
‘Endowment’ refers to the current strengths of a company that enable it to harness those trends. Finally, ‘moves’ refers to strategic initiatives taken by a company to leverage its ‘trend’ and ‘endowment’ to drive ‘economic profit’ growth.
The study referenced select case studies for stocks like Astral, Bajaj Finance, JB Chemicals & Pharmaceuticals, PI Industries and Persistent Systems. Here’s a compilation.
Also read: Reliance Industries emerges as largest wealth creator in 5 years: Motilal Oswal report
Astral
Pipe and fittings company Astral delivered a price CAGR of 45 percent over 10 years.
As per the report, some of the favourable ‘trends’ included a shift in demand to the organised sector from unorganised, a strong uptick in realty, and value migration to plastics from metals.
Harnessing these trends, Astral’s ‘endowments’ were a wide product profile, a nationwide distribution network and a strong balance sheet with low debt.
Lastly, some of the key measures to optimise both ‘trend’ and ‘endowment’ included Astral’s acquisition of rival companies in pipes, heavy investment in automation and tech, and aggressive advertising campaigns.
Bajaj Finance
Non-banking lender Bajaj Finance delivered an HSR CAGR of 47 percent during 2013-23.
The report suggested its favourable ‘trend’ to be steady systemic credit growth of 10 percent and strong adoption of digital payments.
‘Endowment’ was the strong brand of the Bajaj Group, being the leading two-wheeler financier in the country, sustaining customer relationships, and introducing EMI card and flexisaver schemes.
‘Moves’ entailed cross-selling, product innovations in payments and new product lines in lending like auto, microfinance, tractor, CV and emerging corporate loans.
JB Chemicals & Pharma
The pharma company stock delivered an HSR CAGR of 39 percent over the 10 years under review.
Its ‘trend’ was the expansion of the generics market, heavy investment in R&D for newer drugs and better treatments, and the rise of chronic disease burden.
A strong brand portfolio, eight state-of-the-art manufacturing facilities in India, heavy investment in marketing efforts, and an experienced management team constituted its ‘endowments’.
‘Moves’ were divestment of non-core businesses such as its OTC portfolio in Russia, increased focus on exports and implementation of cost-reduction measures.
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PI Industries
Agri-chemicals company PI Industries had an HSR CAGR of 37 percent during 2013-23.
The company’s ‘trend’ was made up of outsourcing by global agrochemical players, rising per capita application of pesticides in the domestic market and a partnership-driven approach both for manufacturing and marketing.
“Endowment’ came from five formulation facilities and 15 multi-purpose manufacturing inputs, long-term pacts with leading companies, and expertise in chemistry and process engineering.
‘Moves’ was a consistent investment in R&D, built technical capabilities, and diversification in pharma and speciality chemicals.
Persistent Systems
Over 10 years, the Persistent Systems stock delivered a CAGR of 33 percent.
Traditional outsourcing in the IT services industry and outsourcing of areas like product and software engineering services comprised its ‘trend’.
‘Endowment’ arose from its focus on the relatively premium development end of IT services, work with large software developers and average compensation versus industry peers.
‘Moves’ included a partnership with IBM between 2013 and 2020, the appointment of Sandeep Kalra as CEO in late 2020, and tapping into high-growth cloud services demand.
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