It is often said, and has been proven time and again, that fundamentally sound companies outperform the market in the long-run. They may tend to lag behind the general market in the short-term, but over the long-term there is no matching their performances. The trend was again visible and can be charted keeping the BSE Sensex and BSE Small-Cap indices in mind.
In the current market rally, which started on March 9, 2009, BSE Small Cap gained around 42 per cent till April 24, 2009, while the corresponding gain by Sensex was 38.83 per cent. The biggest gainer on the BSE Small-Cap, which gained by more than 200 per cent, was Reliance Infrastructure, while the biggest gainer on Sensex was Jaiprakash Associates, which gained 91 per cent.
But if we take a longer period, to separate the wheat from the chaff, trailing three years (ending April 24, 2009), then both Sensex and BSE Small Cap indices are trading in negative territory. However, with just a two per cent fall, Sensex is in a much better shape than BSE Small Cap index, which fell 17 per cent.
Therefore, in the short-run the performances of companies on the BSE Sensex may look unattractive, but over a longer period they are the ones who steal the show.
Working on this premise, we have filtered out eight companies that have been able to increase, not just their net profits, but also their operating profits during the tough times in the first three quarters of FY09.
Marico has been the worst-performer among our list. It clearly exhibits the defensive nature of an FMCG company with a fall of just 19 per cent in 2008 compared to the nearly 52 per cent fall in the Sensex. Double-digit growth in sales in FY09 helped it beat market expectations and increase net profit by 14.63 per cent for the December quarter of FY09 over the past quarter.
Another company from the defensive sector, this time from healthcare, has managed an eye-catching performance. Although the gains over previous quarter were nearly 2 per cent i.e. in December quarter of FY09, on Y-o-Y basis it saw a robust growth of 67.78 per cent. It’s operating margins also improved by 3.05 per cent . Not to forget, its fall in 2008 was just 18 per cent.
This is another FMCG company. It is one of India’s leading integrated edible oil companies. Its net profit rose by 32.84 per cent for the third quarter of FY09 over same period in previous year. With downsizing becoming the name of the game for most companies in these tough times, this company is going for expansion through its subsidiary, KS Natural Resources, which is the first Indian company from agri-sector to be awarded the International Headquarters status by Singapore Economic Development Board.
This is the biggest FMCG company by market capitalisation in India. It matched the market expectations with a 12.52 per cent gain in net profits for Q3 of FY09 over previous quarter. Its stock also showed resilience in the market downturn in 2008 with a fall of just 18.47 per cent, but hasn’t kept pace in the current rally.
India’s second-biggest IT company grew at a rate higher than its peers in FY03 in the downturn during the dotcom bust, signalling its versatility to leapfrog bad times. Reflecting this strength, it saw a 28.5 per cent rise in net profit for FY09. In the current crisis, the company saw its first decline in sales for Q4 FY09 period at 2.6 per cent over the previous quarter.
Power Finance Corporation
This financial institution, dedicated to the power sector saw a rise of 12.30 per cent in net profits in FY09 on the back of higher volumes. Its total income of rose to Rs 6,583 crore from Rs 5,029 crore over this period.
At its current price this bank is below its book value. The bank’s Price to Book value Ratio is 0.6. It saw more than 10 per cent jump both in its net profit and operating profit in third quarter of FY09 as compared to the same period in the FY08.
This engineering company saw its operating margins improve to 25.15 per cent in Q3 of FY09 from 19.25 per cent in the same quarter of previous year while net profit increased by a huge 78.71 per cent over this period.