The ‘State’ of affairs!
A rundown on the state that is home to India’s most profitable

So which state is the favourite breeding ground of India Inc.’s most profitable? Where are its whereabouts? Where does it belong to? Is it the financial capital, or the capital city, or our IT capital that India Inc. prefers the most? Answers to these questions throw definite light on which all states have moved ahead from being bureaucratic, protectionist and infrastructure waste zones to becoming the heart-throbs of the most profitable companies in the country.

With thumping margins, it is Maharashtra that emerges the runaway winner with 48% of India’s most profitable 100 corporations having their registered offices in the state. Even amongst the top 10 most profitable, the state is home to five firms, a list which includes names like Reliance Industries, TCS, Indian Oil, HLL and SBI. Following Maharashtra is the capital city Delhi, sheltering 17% of companies from the top 100. Interestingly, from the top 10, the number one company in the list, ONGC, with its obvious government lineage, has its registered office in Delhi; but so does Bharti Airtel, a similarly obvious ‘non-PSU’ corporation that features in the top ten. Karnataka, with a 10% share of companies, runs a distant third; and for its share in the top ten, boasts the names of two IT behemoths , namely, Infosys and Wipro. Gujarat runs close to Karnataka for the fourth position, with 9% companies registered here; names including companies like ICICI Bank, Reliance Capital, Sun Pharma et al.

However, if one were to consider FDI figures – which is another barometer of how overseas investors perceive a particular state’s investment and business climate – the ranking does undergo an anomalous change. According to the Ministry of Commerce’s FDI figures, the national capital region of Delhi (including part of UP & Haryana too), though being ranked second in the previous list, tops the FDI chart when it comes to foreigners’ perception of business opportunities in the state. At the same time, Gujarat, which ranked 4th in the previous list, slips down to 6th on the FDI parameter, making way for Andhra Pradesh (4th on FDI) and Tamil Nadu (5th).

If one were to consider just cities, Mumbai, the financial capital, stands tall at the top position, home to 42 of the top 100 profitable companies registered. Commenting on Maharashtra’s stupendous performance, C. C. Charekar, Of ficer on Special Duty (Special Cell), Department of Industries, Maharashtra, said, “Maharashtra is a modern and progressive state and has diversified and highly productive human resources with positive work culture, educational facilities and no language barriers. It has excellent infrastructure – industrial estates & clusters developed both by the government and the private sector.”

With an installed power capacity of 15,210 MW, abundant water supply, undersea water-cable connectivity, better and reliable telecommunication systems with economical connectivity, both domestically and internationally, Maharashtra clearly boasts of a sound and well developed infrastructure, most conducive for businesses. Accessibility is surely one of the main strengths of Maharashtra, with two ports and three international airports that handle 58% of India’s total passenger and cargo. Not surprisingly, Maharashtra has more than 250 industrial parks developed by the Maharashtra Industrial Development Corporation. And it’s not only about the infrastructure, but also about the fact that with 37% higher output on a per factory basis than the next best state, Maharashtra is the most productive state in India contributing 13% to India’s GDP and a staggering 40% to national fiscal receipts (Maharashtra Development Report, Planning Commission).

According to the World Competitiveness Report 2006 (IMD Lausanne) – that measures countries and states in terms of economic performance, business efficiency, government efficiency and infrastructure – Maharashtra was remarkably ranked 37th, ahead of the states in countries like Brazil, Philippines, Korea, Italy, Indonesia, South Africa and Russia. And if one looks at the capital city Mumbai, the record looks even more impressive. Mumbai, the sixth largest metropolitan city in the world (geographically), contributes a whopping 33% to income tax, 40% to total foreign trade and a colossal 60% to the total customs duty collections in India. And just for the records, Mumbai is also home to 90% of all merchant banking activities of the country.

Key industries in Maharashtra include automobiles, textiles, IT and ITeS, biotech, pharma, hospitality, entertainment, food processing and fl oriculture. Maharashtra produces 70% of the total medium and heavy trucks that are produced in India. Moreover, every third tractor produced in India is from a factory based in Maharashtra. In textiles, the state produces 25% of the total cotton produced in India. The state also contributes 17% to the total cotton yarn produced in India and houses the largest number of exportoriented units in the country. Even in terms of IT, Maharashtra is quite prominent, with a PC penetration of 35% and contribution of 20% to India’s total software exports. Maharashtra’s share of the country’s total turnover in biotech and pharmais a significant 40%. And one need not even mention that Maharashtra, home to Bollywood, annually produces more number of movies than the other state in the world.

Although Mumbai still suffers from controversies galore (from airport privatization sagas to the regular annual horror story around the monsoon), the state seems to be committed towards building world-class infrastructure to facilitate more investments. With the Sensex crossing the 12,000 mark again on September 15, 2006, the confidence rampantly visible around the personality of Mumbai cannot be ignored. This state, which will in all probability remain at the numero uno position for years to come, stands as a benchmark that should be followed by almost all other Indian states, whether in internal governance or in external positioning. Mumbai, it surely is!

Ignominious India

According to a recent World Bank report – “Doing Business in 2007” – India was ranked a pathetic 134 amongst 175 countries surveyed. The report, which ranks countries in 10 different parameters, ranging from starting a business, getting credit, enforcing contracts, paying taxes to even closing down a business, revealed that India was ranked the worst (175) in terms of enforcing contracts, followed by similar pathetic ranks of 158, 155, 139 and 133, in terms of paying taxes, dealing with licences, trading across borders and closing a business, respectively. This report truly reflects how hard it is to do business in India. Even though some states that have nurtured the most profitable companies are leading the way in making India a bearable place, there are miles for India to travel the direction of the global corporate world!

Methodology Raison d’etre
If you were wondering how we chose the inimitable B&E Power 100, here lie the answers...

The initial set of companies selected for arriving at India’s top 100 profitable companies were chosen from the BSE 500 index. Incidentally, the BSE 500 index represents 93% of the total market capitalisation on BSE. Only those companies, whose financial details were available, were taken into consideration. The advantage of using the BSE 500 index as a sample was that it virtually covers all possible sectors that have contributed to the economy, and hence, is an index not biased or inclined towards a particular sector. Grouping of the companies was done strictly according to the sector bifurcation done by the BSE (primary data sourced from Capital Line Plus).

In total, 17 sectors were identified, namely, agriculture, capital goods, consumer durables, textiles, FMCG, banking, telecom, healthcare, housing-related, IT, media & publishing, metal & mining, oil & gas, power, transport equipment, chemicals & petrochemicals and other diversified. Subsequently, the B&E ranking used authenticated and published parameters that credibly reflected the actual profitability figures of the corporations being considered. For records, the parameters taken into consideration were Cash EPS (Earning Per Share), adjusted ROCE (Return on Capital Employed), ROA (Return on Assets) and market capitalisation. The absolute figures for the past three financial years were taken into account, thereby, discounting down the effects of any windfall gains or abrupt losses that companies may have had in the recent short term.

While equal weights were assigned to all the four parameters, their averages (over the past three years) were taken for the final consideration. Two additional ranking details – in terms of, firstly, the dividend yield, and secondly, the PAT/Sales ratio – have also been given. Apart from giving performance summaries and profile commentaries about the top companies in each sector, a brief comparison has also been drawn between the company that tops the chart in each sector and the company that is the leader internationally. Final results may be skewed due to the fact that in India, market capitalisation, which has been given a 25% weight, moves more by market dynamics than by true fundamental or technical analysis. Moreover, some leading companies that were not listed on BSE 500, were also left out.

Defining Parameters

Cash EPS - It is the ratio of cash generated from operating activities to number of outstanding shares

Outstanding Shares - Number of total shares excluding shares held by the promoters that have been publicly issued

Adjusted Return On Capital Employed (ROCE) - It is the ratio of Profit After Tax (PAT) to gross capital employed after adjustments

Adjusted Capital Employed - Total funds utilised, excluding short-term liabilities, but including long-term debt

Return On Assets - Ratio of PAT to total assets

Market Capitalisation - Total float, that is, market price per share multiplied by the total number of shares issued

Dividend Yield - Ratio of dividend per share to market price of the share

Limitations - Since the data considers only listed companies for which the data was available, the ranking doesn’t consider companies like Coca Cola, Pepsi, LG, Samsung, GE, Citibank, which are obviously highly active in the Indian market, but whose India-specific financial details were either not publicly available or the corporations themselves refused to disclose the same. Even some companies from emerging sectors like aviation, real estate, retail et al did not feature in the final list because their representation at the Indian bourses is minimal...