Fastest Growing Companies | Sectors That Pack A Punch

The Indian economy has been blessed with a vast array of fast-growing companies across the industry spectrum: manufacturing, IT, telecom, consumer goods, pharma, autos and auto ancillaries, you name it.

A sizeable roster has now fast-tracked revenue and profit growth, despite snail-paced movement in the domestic economy. Entrepreneurial spirits though are still driving innovation and growth among big and small companies alike. That is why the Indian economy continues to rank among the fastestgrowing economies in the world, providing the sound foundation needed for businesses to prosper.

Growth does not just raise revenues and profits. But, with a good growth rate, companies can smoothly expand operations, create more jobs, generate higher profits, and ultimately raise GDP. In the end, the mantra for growth is scaling up. And companies which have the ability to clock faster growth rates can achieve economies of scale more rapidly than others, and deliver shareholder and economic value.

One of the key measures of growth is, of course, revenue. After all, sizeable growth in revenue enables companies to capture a much larger share of the market. Revenues are key in sustaining growth: it allows companies to widen their footprint and innovate and introduce products.

Profit growth is another key parameter in evaluating companies. Ultimately, enhanced profit growth helps businesses and shareholders who take the risk of investing in or starting ventures to secure better returns on their capital. Which is why the four-year compounded annual growth rates in both revenues and net profits have been taken into consideration for this year’s fast growers.

Surprisingly, an analysis of revenue and profit growth reveals that these growth indicators have been consistent at the top and mid-level categories. The Super Heavyweight (revenues above Rs 50,000 cr) and the Middleweight categories (revenues between Rs 5,000 cr and Rs 9,999 cr), have grown considerably faster in profit than the other categories. Both these categories reported about 16 and 17 per cent CAGRs, respectively, in profit in the past four years.

On the revenue front, the Super Heavyweights were unable to gain sizeable market growth as revenues inched up barely 4 per cent. However, these companies were able to extract maximum operating efficiencies, squeezing out some of the best margins and net profit growth.

In all the other categories, growth in revenues was steady, in the range of about 10-12 per cent, and profitability came similarly, at around 10-12 percent. Sector-wise, profit growth in air conditioners was a cool 44 per cent on a 15 per cent revenue CAGR. The media sector of film distribution has been another fast profit-growing sector, expanding 36 per cent. Textiles have grown spectacularly because of the low base and sound margin expansion. In the last four years, revenues have risen 12 per cent, and net profit 45.8 per cent. Media and TV broadcasting has been another sector, clocking racy 36 per cent profit growth on 10 per cent revenue growth. But the best performing sector has been tyres, with super profit growth. Lower rubber prices have expanded margins in the business; as a result, profits have surged 53.9 per cent in the last four years.

As usual, among the consistent performers, pharma has delivered revenue and net profit CAGRs in the last four years of respectively 13.4 and 19.1 per cent. The other traditional defensive sector, ie, technology, clocked revenue and net profit growth rates of respectively 13.3 and 17 per cent. Yet another fast-moving sector has been FMCG, which has grown steadily, 13.2 per cent profit growth on 14.4 per cent revenue growth, despite quite stiff competition and lower margins.

No single magic formula to increase revenues and profits applies to all companies. Some have come up with excellent revenue growth because of changes in industry dynamics such as better pricing power, others have derived greater cost benefits.

Consider the sector that has outstripped others: tyres. Huge net profits were largely due to the roll-back in rubber prices in the last few years. Nevertheless, the companies that can significantly expand margins due to better performances are those well placed to deliver shareholder returns.

Retailing, for example, has been a mixed bag. While newly-listed companies such as D-Mart have been growing spectacularly, (though it is not a part of this study) the retailing business has not particularly been a cakewalk for many. Retail revenues have increased 17 per cent, while profits have dipped due to changing customer preferences and rising rentals.

But some fast-growing companies have been particularly swift in spotting the changing trends. We have seen the rapid ascent of companies such as Eicher Motors, which has stuck to the basics of good manufacturing, simultaneously delivering better products.

When technological innovation is gathering speed, companies need to be in the vanguard in recognising opportunities for enhanced revenue growth. In the wake of rapid expansion of technology such as 3D printing and artificial intelligence, companies need to be ever more watchful regarding developments in their fields.

At the same time, though, the Indian economy has been providing the much-needed base for companies to thrive and prosper. Some traditional core industries such as power and roads are beginning to see accelerated growth. Reforms are being pushed, budgeted for and fasttracked. With the economy clocking growth rates of around 7 per cent, a large opportunity beckons Indian companies. Economic activity in construction, ports and railways can perhaps raise the growth levels a notch higher in the coming years as the economic activity increases around infrastructure development. If the economy is said to be growing at seven percent, there’s an open sky to achieve growth. And companies that deliver growth rates over the nominal 13 per cent are the ones to watch.