India’s most admired companies

THE LAST 12-ODD months have been brutal. The real economy has grindingly slowed down, the markets have collapsed, the rupee has plunged, scams have abounded, policymaking has been in disarray, and the government has been discredited. Worse, the overall India story has been in doubt. Advocates of the idea that the world’s largest democracy could convert itself into one of the world’s largest economies have hunkered down in dismay, asking themselves a crucial question: Were India’s go-go years between 2003 and 2008 an aberration, caused by a confluence of factors such as a global bull market, excess liquidity overseas, and vitally, an expedient disregard for India’s structural problems?

In times like this, admiration is harder to win. It’s almost axiomatic that in good times companies get careless, and it’s only the most diligent, conscientious, and canniest that win the admiration of their peers. But in bad times, when everyone tries so hard, every company deserves to be a winner. After all, during war, heroes are easier to find. And so, in a manner of speaking, Fortune India’s 2013 list of Most Admired Companies is a toast to all of India Inc., which is heroically striving against all odds.

If you look at the actual list, a few things emerge. Take the list of All Stars (see page 83). The composition of the top 10 mirrors India Inc. There are two IT companies, two banks, two consumer goods companies, one infrastructure company, one energy company, one auto maker, and one steel maker. If there’s one thing that binds them, it’s their exemplary battle against the tide.

This year, companies were also ranked based on unprompted endorsements by peers (see page 90). This ranking threw up some surprises and, in almost all cases, differed from the overall rankings by a few notches. In some cases, the difference was stark: NTPC, for instance, is ranked 29 overall, but comes in at 18 based on endorsements. Admiration, as we have seen earlier too, has little to do with financial performance or global business footprint.

Now, on to the overall rankings. It’s no secret that the IT business, especially in India, has been under attack over the last 18 to 24 months. Most Indian outfits have had to fight falling revenues and margins and the onslaught of international players such as Accenture and IBM. Despite that, there are two home-grown IT companies in the top 5.

TCS (rank 1) has stood tall—in the past two years, its top line has grown 30% annualised, while in the last, it’s grown by 29%. Its operating margins have moved from 26.2% in 2008-09 to 32.6% in the last year. This despite its size.

Multiple reasons explain TCS’s success. It’s spread across various segments in IT (it runs call centres as well as high-end, sophisticated technology projects); it has steadily expanded its geographic footprint; and it enjoys deep, trusted relationships with its clients. One of its recent successes has been bagging a contract to modernise the IT backbone of Network Rail Infrastructure, which operates Britain’s railway infrastructure, and also a six-year contract from the Indian Department of Posts for its IT modernisation.

At second place is Hindustan Unilever. For decades, it was the model multinational subsidiary. Indeed, for the first decade or so after liberalisation, managers at Hindustan Lever (as it was then known) were much sought after to helm the torrent of companies that entered India. Sometime during the 2000s, Hindustan Unilever lost its way and its sheen. But its turnaround in the past two years has been remarkable. It has doubled its direct distribution reach from 1 million stores to 2 million, relaunched its popular Lifebuoy talcum powder, and has identified certain categories, such as bodywashes, hair conditioners, tea bags, and flavoured teas, as future growth areas. Little wonder the company has come in at No. 2. In fact, in terms of endorsements by peers, Hindustan Unilever heads the list, beating TCS.

It’s perhaps fitting that close on Hindustan Unilever’s heels is ITC, India’s other consumer products giant. There are many similarities between the origins of the two—both started as subsidiaries of European MNCs, had a similar work culture, doled out prized jobs, etc. But, somewhere in their evolution, their paths diverged. Thus, if Hindustan Unilever is the good son—its parent is in the process of increasing shareholding from 52.3% to 75%—ITC is the prodigal.

ITC is no longer just a cigarette company. Indeed, the white stick barely contributes to 43.2% of revenue today, down from 80% a decade ago. And while its forays into hotels back in the 1970s demonstrated what it was truly capable of, its more recent diversification into foods and personal care is what’s getting it all the kudos. This is a business that has been growing at an average of 23% year on year for the past five years and could, one day, even become bigger than the core cigarettes business.

It’s a little more perplexing to explain the presence of Infosys (rank 3, jointly shared with ITC) in the All Stars. The company has been hard put to explain its deteriorating performance of the past 24 months. Indeed, last month it even recalled its founder and former chairman N.R. Narayana Murthy from retirement to pull the company out of the morass it is in.

But then, as we found last year as well, financial and business performance is only one of the several factors that excites the admiration of peers. Infosys still enjoys a larger-than-life stature. In terms of unprompted endorsements, it ranks third. Many see it as the embodiment of the best traits of Indian entrepreneurship—camaraderie, honesty, shared middle-class values, hunger to succeed, and enterprise, all sewn together with the idea that made India Inc. famous in the first place—technology. Clearly, once reputations are made, it takes more than a few quarters of disappointing financials to destroy. And that’s a silver lining for Narayana Murthy as he begins the onerous task of pushing up the company he founded.

One of the surprises in such a ranking done at this point in time is the fact that public sector companies, generally referred to as inefficient relics of another age, feature high on the list. State Bank of India (SBI), for one, is ranked 6, ahead of private sector rivals ICICI and HDFC Bank. And SBI tops the list when it comes to financial soundness and endurance, although it’s ranked far lower in terms of innovation and global business footprint. Evidently, despite all that’s said in public and private about public sector behemoths being anachronisms, they are still looked up to.

In business, admiration is always a composite of multiple qualities. This is why the Fortune India survey ranks companies across 10 distinct parameters. But the sector rankings, where respondents from the same industry rank companies, throw up some interesting observations. Companies that have been ranked on top score the highest on two parameters—product quality and financial soundness. Of the 16 companies that have topped their respective categories, 12 have topped the ‘product/service quality’ attribute and ‘financial soundness’ attribute. Then comes ‘innovation’ with 11 of the 16 topping, followed by endurance, leadership, talent management, corporate social responsibility, and global business footprint with 10. Then comes corporate governance at nine, and performance at eight.

Come to think of it, in bad times, the ability of a company to keep quality constant and not make it subject to margin fluctuation, and its financial soundness, is key. Then there is the ability to innovate and thrive. As the rankings show, that’s key to managing bad times.