Four major companies have consistently performed better than their peers in at least three bearish phases witnessed by the market in the past decade, an ET analysis shows.
HDFC Bank, Hero Honda Motors, Tata Power Company and ITC have outperformed the broader Sensex in the bear phase which began in April 2000 and lasted till April 2003; in the short but intense bearish spell of May-June 2006 and in the current phase which began in January this year.
ET analysed the performance of all BSE 100 companies during the three phases of the market. First the companies’ market performance was considered, then the financial performance. The stock prices of these companies were compared with that of the benchmark Sensex.
“Management quality is the most important saviour for companies in all business cycles and phases of market. In fact, it helps companies to come out with full strength when the market is in punishing mood. Companies such as HDFC Bank, Hero Honda Motors, Tata Power and ITC have outperformed the Sensex are the testimony to this fact," says Kaushal Shah, deputy-head, research, LKP Shares.
Factors that have worked for these companies are their cash-generating ability, dividend-paying record and more importantly their ability to diversify or protect their core business with new products.
Take the case of Hero Honda Motors. The company gained 1.73 per cent in April 2000-2003 period, when the market fell by 37.64 per cent while in the current phase, the stock has gained 8 per cent though the overall market has fallen more than 50 per cent. It has a record of consistent cash generation and dividend payment.
Hero Honda has also launched new vehicles and variants (added enhanced features) of its existing products.
In the past eight years, the company has been giving more than 100 per cent dividend on an average. In the last two years March 2007 and March 2008, the company gave 850 per cent and 950 per cent dividend respectively.
Tata Power gained 73 per cent in the April 2000-2003 period, while it fell marginally less than the Sensex in the current phase. While the Sensex fell 54 per cent, Tata Power has slipped 52.78 per cent.
When the market fell by 37.64 per cent in April 2000-2003, the ITC stock fell by 13.32 per cent. And in the current phase, it has fallen by 21.85 per cent whereas the Sensex fell by 54 per cent.
The core thing that has worked for ITC is the steady cash earned by its main tobacco business. This business earns more than 70 per cent of thecompany’s earnings before interest tax and depreciation.
HDFC Bank gained 1.38 per cent in April 2000-2003 versus a 37 per cent fall in the Sensex. HDFC Bank has fallen 44.77 per cent in the current phase compared with a 54 per cent fall in the Sensex. The bank has consistently maintained its net interest margin (NIM).
Says an analyst with a broking firm, "The crucial thing that has worked for HDFC Bank is its branch and distribution network. The bank has been conservative in its approach and it has scrupulous and consistent on the profile of the customer."
More so, a glance through the companies and their respective sectors performance reveals that these companies have also outperformed their respective sectors in key parameters such as net profit and sales growth.
In the past eight years, HDFC Bank's sales and PAT have grown at a CAGR of more than 40 per cent respectively. Hero Honda Motors and Tata Power have seen CAGR growth (sales, PAT) of more than 25 per cent, while ITC has seen CAGR growth of more than 18 per cent in sales and PAT.