Forbes India – August 4, 2017

chaitanya dinesh surpur

and an astute management of
payment terms with suppliers.
Given the dynamic business
environment we are in today,
companies must ensure that the
cash blocked in sales and inventory
is released on time and deployed to
generate more sales, finance capex
and thereby, improve profitability.
Notably, companies that perform
better in working capital management
also have robust balance sheets and
provide greater returns, as their
requirements are met through
internal accruals rather than relying
on debt or equity for capital needs.
This is also evident from the fact
that the final 50 companies in the
list had, on an average, greater
return on equity than those that
were eliminated from the long list.
Another common trait is that
the Super 50 companies have been
sweating their assets to the full,
which is why their asset turnover
ratio—the measure of a company’s
ability to generate sales from its
assets—is around 50 percent higher
than those that failed to meet the
cut. That is, they are generating
around 50 percent more sales per

unit of assets owned. This trend

is more evident in manufacturing

sectors like automotive, consumer

products, pharma and cement.

A few years ago, corporate India

went through a phase of massive

capacity addition in the hope of

an increase in demand. Sectors

like cement, power and oil & gas

saw large investments, which

resulted in underutilisation and a

fall in the asset turnover ratio.

Now that the demand situation

has improved, some companies have

been able to perform better on this

front. Improvement in asset turnover

is the combined result of a number

of parameters. Such companies

have high capacity utilisation and

productivity, efficient inventory

management and robust receivable

collection systems, and Forbes India’s

Super 50 companies have performed

well on most of these fronts.

Notably, the average asset turnover

ratio of the Super 50 companies

(excluding financial services)

improved by around 9 percent over

the last two years, while the same for

the larger list deteriorated by around

10 percent over the same period. It is

also important to note that generating

higher sales at the cost of profitability

is counterproductive. Companies

need to ensure higher margins that

are consistent with growing revenues,

a trend which is seen in the Super

50 companies, which recorded 8

percentage points more return on

equity than other companies.

One sector that is notable due to

its absence is information technology

(IT). IT companies have been in the

doldrums since mid-2016, when the

impending US presidential election

cast a cloud over the future of the

Indian IT outsourcing market.

The stocks of most IT majors have

moved south since July 2016 before

hitting a trough in November,

triggering their exodus from this

year’s Super 50 Companies list.

Like the global policy environment,

business conditions at home are

also dynamic. With FY18 witnessing

the biggest change in the Indian

taxation system since Independence

in the form of GST, it remains to

be seen which companies will

emerge in next year’s list.

(The writer is partner, corporate finance &

investment banking, PwC India)

August 4, 2017 forbes india | 37

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