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State power

You can bank upon Gujarat-based companies for good returns on investment...

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Here's an interesting fact: Gujarat represents 5 per cent of the total population yet its contribution to India's GDP is 7 per cent. It won't be surprising if we were to say that Gujarat today has become the face of corporate India. To emphasise the argument a little more we present some of the facts that make it even more compelling:
• Gujarat is the only state in India to have a statewide gas grid of 2,200 km
• Nearly 100 per cent of Gujarat's villages have 24-hour electricity access
• About 87.9 per cent of the total roads in the state are asphalt surfaced and its 98.8 per cent villages are connected with all-weather roads
• Gujarat has the largest optical fiber cable network of more than 50,000 km
• The state registered 12.8 per cent agricultural growth over the past five years against the national average of 2 per cent.
• 30 per cent of BSE-500 companies have presence in the state
• As per RBI, in 2006-07, of the total finance companies, 26 per cent were in Gujarat

You must be wondering why we are narrating this to you. We are not promoting the state for any reason, we are telling you this so that you can take advantage of this growth even if you are not a resident of Gujarat. Simple, invest in companies which are based in Gujarat.

Why Gujarat-based companies are doing well?
These companies are leveraging on the infrastructure support and the ease with which they can carry out their business operations with minimum political interference. The favourable demographics and rising income of the people in Gujarat also push up the consumption, thus benefiting corporates due to increased local demand. Here are some Gujarat-based companies you can bank upon:
• Cera Sanitaryware
• Gruh Finance
• GMDC
• Astral Poly Technik
• Navneet Publications
• Sun Pharmaceutical
• Cadila Healthcare

Similarly, we also analysed companies based in Andhra Pradesh which are considered to be the most politically-influenced ones. We found that most of the Andhra-based companies on BSE 500 have underperformed than those based in Gujarat.

For analytical purpose, we decided to run a simple screen of filters on companies from both the states: a) the 5-year average RoE should be more than 20 per cent and b) Sales and EPS growth over the past 5 years should be more than 20 per cent.

Of the total 68 Gujarat-based companies, 11 qualified with the above criteria while only 5 Andhra-based companies were able to come through from a total of 45 companies.