(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.) (Refiles to fix typo in paragraph six;
adds codes for wider distribution.)
By Una Galani
HONG KONG Oct 14 (Reuters Breakingviews) - India's flashier
tycoons are best avoided. The country is full of colourful
businessmen. But shareholders looking for ways to profit from
the world's fastest-growing large economy are better off backing
quiet introverts. That is the main takeaway from Saurabh
Mukherjea's "The Unusual Billionaires", a collection of case
studies of the tiny fraction of listed Indian companies that
have consistently generated superior returns over the past
The author is chief executive of institutional equities at
Ambit Capital, a home-grown brokerage known for its sharp and
witty research. The book is wordy, technical in large parts, and
can be tough going. Nevertheless, it provides a valuable
insight into the characteristics that companies need to succeed
in the noisy and evolving emerging market.
Unsurprisingly for a cricket-mad nation, analogies to the
national sport abound. In his hunt for the corporate equivalent
of Rahul Dravid, the renowned Indian batsman, Mukherjea screens
companies based on old-fashioned fundamentals.
He filters roughly 1,500 sizeable listed companies, picking
out those that have delivered both annual revenue growth of at
least 10 percent and a return on capital employed of no less
than 15 percent for each of the last ten years. Different
measures are used for financial companies.
The hurdle does not seem particularly high given that
India's nominal GDP has expanded by almost 15 percent a year
over the same period. Nevertheless, just eight companies make
the cut: private banks Axis and HDFC Bank ; Asian
Paints and Berger Paints ; fast-moving
consumer goods firm Marico ; Page Industries,
which makes Jockey branded underwear; and Astral Poly Technik
, a less sexy manufacturer of pipes and fittings.
This select group includes companies controlled by multiple
families but run by professional management teams - a rarity in
India. It also counts firms with a truly independent board of
directors. That's a refreshing affirmation of the importance of
strong corporate governance in a country where companies often
appoint friends or relatives to meet a legal requirement that
independent outsiders make up as much as half of the board.
India's best companies also stand out for being innovators
and thinking ahead. Asian Paints, for example, was the first
company in the country to buy a mainframe computer. Marico
pioneered the open-plan office and was the first Indian firm to
start declaring quarterly dividends.
The $50 billion HDFC beat its local rivals to launch mobile
banking. Meanwhile, the story of how a talented management team
from the public sector turned Axis into a market leading private
sector bank amid resistance from vested parties is comforting
considering the bad-loan problem now facing state-controlled
lenders. The deep dive into the history of each company is
valuable for anyone with a serious eye on the India's corporate
What is really striking, though, is how few of India's
better-known corporate names made the cut. Mukherjea's list
excludes Indian outsourcing companies like Infosys and
Wipro, which are often cited as examples of how big
business can thrive when the government doesn't interfere.
Companies backed by the prominent Ambani, Birla, and Tata
families are also notable by their absence.
Perhaps the book's most important message is that crony
capitalism no longer pays. Mukherjea's thoughtful analysis
demonstrates that clean companies can not only survive in India
but also rank amongst the very best. He happily admits that
these unusual billionaires are not flamboyant individuals but
those "bordering on the boring" who engage in sensible capital
allocation and resist the temptation to take on too much at
Business based on political connections is slowly going out
of fashion under the government of Prime Minister Narendra Modi.
Indeed, Ambit has separately tracked 75 companies believed to
have benefited from government ties in rent-seeking industries.
An index based on their shares halved between mid-2010 and
mid-2015, even as India's stock market gained 50 percent. "The
Unusual Billionaires" is a timely reminder that such murky
dealings never really benefited anyone apart from a few
On Twitter twitter.com/ugalani
- "The Unusual Billionaires" by Saurabh Mukherjea was
published by Penguin on Aug. 17.
- For previous columns by the author, Reuters customers can
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(Editing by Peter Thal Larsen and Kathy Gao)