ANY GUESSES ON HOW many years did it take for the first Indian company to hit the ₹1 lakh crore revenue mark? 37 years! The honour went to state-owned Indian Oil Corporation (IOCL), which breached the bar in FY01, after coming into business in 1964. Five years later, in FY07, the second company — the first from the private sector, though — to reach the mark was the Mukesh Ambani-owned Reliance Industries (RIL). However, the journey for the oil-to-telecom conglomerate, incorporated in 1973, was a longer one, 12 years more than IOCL’s. Though the subsequent ₹1 lakh crore came at a faster pace, in three years, IOCL retained its edge over RIL for a good 12 years. The competition at one point was so intense that when RIL declared it was the first company to hit ₹1 lakh crore in quarterly revenues in Q2FY14, IOCL issued a statement that it had achieved the feat way back in Q3 of FY12!

With RIL spreading its wings beyond oil and gas, it was only a matter of time before IOCL’s crown went to RIL in FY19. Since then, RIL has not only emerged as India’s biggest company by revenue but has also secured the top rank on the Fortune 500 India list for each consecutive year. The only difference is that the over ₹1 lakh crore-plus difference that RIL enjoyed over IOCL in three years (FY20 to FY22) has shrunk to ₹48,181 crore in FY23. Though RIL’s first-half revenue in the current fiscal (₹4.50 lakh crore) is ₹71,000 crore higher than IOCL’s ₹3.79 lakh crore, it would be interesting to see by the year-end if RIL manages to widen the lead back to over ₹1 lakh crore.

All the hullabaloo around ₹1 lakh crore is not without reason. Since 2010 when the Fortune 500 India list was unveiled, members of the elite club have only swelled. But this year’s listing stands out as a record nine new entrants — three PSUs and six private companies — have entered the ₹1 lakh crore club, against five debutants last year. The three PSUs are GAIL India, Canara Bank and Bank of Baroda, while the private sector debutants include the diversified conglomerate Mahindra & Mahindra (M&M), Grasim, Axis Bank, HCL Technologies and two MNCs, Maruti Suzuki and Nayara Energy.

With 14 new entrants in two years, the overall count has hit 30, collectively generating ₹80.92 lakh crore in total income — over 7x from ₹10.78 lakh crore in 2010 — even as the number of companies has increased by over 4x. What’s pertinent to note is that these 30 companies are the engines of growth in the list, collectively making up for over 55% of the cumulative turnover of ₹146 lakh crore clocked by the 500 companies. That’s a clear validation that India’s growth story is not just intact but also blooming, given the diversity of the sectors. The list is comprehensive — automobiles, banks, engineering & construction, insurance, software services, metals & mining, NBFCs, oil & gas, power, and telecom. In fact, the diversified portfolios of three conglomerates — RIL, Grasim, and M&M, spanning retail, cement, textiles, chemicals, and financial services, further widen the ambit.

“The reality is that as industries consolidate, larger players emerge. It is these larger companies which will keep growing as the industry grows,” says Anish Tawakley, ICICI Prudential AMC’s head of research and deputy CIO, equity, who manages ₹63,774.39 crore in equity AUM.

Incidentally, since 2010, besides RIL and IOC, four more companies — ONGC, BPCL, SBI and Tata Steel — have constantly clocked over ₹1 lakh crore in revenues every year. The compounding of numbers is inevitable, given that the list includes seven listed firms with quarterly revenues exceeding ₹1 lakh crore. Among these, five are state-controlled — IOCL, LIC, ONGC, BPCL, and HPCL — in addition to RIL and Tata Motors.

“With 11-12% nominal GDP growth rate, these companies would have, in aggregate, grown at about 15%. Some would have grown at 20-25%, while others would have grown a little slower,” says Raamdeo Agrawal, chairman & co-founder, Motilal Oswal Financial Services (MOSL), adding that the club members will only increase in the coming years. In fact, in FY23, these 30 companies, barring Tata Steel, have shown an average year-on-year growth of 22.56%, even as India’s nominal GDP grew 16% to ₹272 lakh crore.

Big, Better, Best

While the queue of ₹1 lakh crore club aspirants is expected to grow in the coming years, those in the big league are already thinking beyond, to stay further ahead. Notable among them are the likes of Reliance and Grasim which have diverse businesses within the parent entity. This diversity implies significant potential for value creation through unlocking these businesses. For instance, even as RIL has spun off Jio Financial, it still has the telecom and retail businesses. However, Tawakley is quick to qualify the observation. “Whether the business is operating as a division or a subsidiary within the same company does not materially matter for value creation. What matters is whether the company is in an attractive industry, and does it enjoy a strong competitive position within that sector,” says the CIO, whose fund house has invested over ₹12,000 crore in RIL across 30 schemes.

Maintaining its competitive position is what comes naturally for India’s richest man and owner of the country’s largest private sector company. Reliance has cumulatively invested more than $150 billion over the past decade, the highest among Indian companies. Ambani sounded confident of RIL’s growth trajectory at the company’s AGM this August, mentioning that Reliance has been successfully reinvesting and reinventing. In the ’80s, Reliance dreamt of a largely self-sufficient India in the wonder materials of that era — polyester, polymers and petrochemicals. The ’90s were about eliminating India’s dependence on imported fuels refined abroad. In the first decade of the 21st Century, Reliance was focused on enhancing India’s energy security by exploring hydrocarbons in the depths of oceans. “In the last 15-odd years, Reliance has pursued two big dreams — to create an omni-channel retail network, and bring power of digital technology to every Indian. Each dream was bigger than the last one. Each dream made Reliance reinvent itself,” says Ambani. A case in point is when RIL launched its 4G services in 2016 it had to rely on global partners for equipment. But the 5G rollout was powered by Jio’s in-house-developed 5G stack. “In the coming years, I can see Jio leveraging our Made-in-India tech stack to drive value creation and revenue growth, both at home and abroad,” says Ambani.

Even as the Numero Uno on the Fortune 500 India list is gaining heft, the debutants are equally zealous about their future. For Anish Shah, MD, Mahindra & Mahindra, it was all about getting the core entrepreneurial spirit back into the group. “As a large company, very often there is comfort in doing more of the same and often processes lead to bureaucracies. But if you look back at our history, we succeeded because we were bold. The launch of Scorpio and the XUV series, acquisition of Satyam and Punjab Tractors, or venturing into finance, real estate, and time share holiday businesses. All of these were bold entrepreneurial moves. But we lost that zeal somewhere along the way and had to bring it back,” Shah tells Fortune India.

On the back of bold new launches in the auto business. M&M managed to stay head and shoulders above what its peers had to offer, especially in the SUV space. Its market share in SUVs has surged to 19% in just two years from 13.6% in FY21. The group is now looking beyond auto and tractor business. “We have taken steps to increase revenue and profitability across businesses,” says Shah. Auto is being driven by products. In the farm business, new opportunities in farm machinery and going global have enhanced revenues. In Mahindra Finance, a combination of technology and data with a focus on asset quality created more value for the business. In Tech Mahindra, it’s been branching beyond telecom and looking at large deals. “We will do less, but whatever we do we will do it very well. And given the breadth of the group, it’s not less in any case,” says Shah. Little wonder, the market cap of M&M has surged 94%, since Shah took over as the MD in April 2021, to ₹1.91 lakh crore, as on November 15.

Even as M&M is revving up its auto business, this year’s debutant in the ₹1 lakh crore club also happens to be the country’s biggest passenger carmaker. Ironically, Maruti Suzuki’s entry comes amid its market share falling to a 10-year low of 41% in FY23. But what’s noteworthy is that the company’s profits have more than doubled to ₹8,211 crore, resulting in the Japanese carmaker announcing its highest-ever dividend of ₹90 a share. Chairman R.C. Bhargava is not perturbed about the vagaries of market share. “The Indian market is no more a single market. It’s three-tiered based on the income distribution. There is a segment, which in all respects is comparable with the European market. There’s another segment comparable to mid-income countries such as Indonesia. Finally, there’s the lower strata of the market, which is really the Bharat market for sub $2,000 cars. In a three-tier market, there will be variations in the types of products that get sold,” Bhargava tells Fortune India.

The perspective is not entirely misplaced considering the tide is turning in FY24. With an expanded portfolio, Maruti’s SUV market share has improved from 18% in FY23 to 23% in Q1FY24. While stress in the hinterlands has hit sales of entry-level cars, a big source of revenue for Maruti, Bhargava believes the slowdown is more cyclical than structural. “At the moment, the third category is a depressed segment because of the affordability factor. But that affordability factor is not a permanent one. We cannot have a nation where people at the lower end are not able to buy cars, that is not going to happen in the long term,” explains Bhargava.

While the company took 40 years to reach ₹1 lakh crore with 1.96 million units sold in FY23, the next ₹1 lakh crore will come faster. “I can’t make a guess how many years it will take, but it will be much, much shorter than what it took to reach here. Among other factors, what needs to be considered is that the value of cars has changed substantially owing to regulatory changes, more enhanced features, and higher share of electronics. So, achieving ₹2 lakh crore won’t be a long-drawn affair,” says the 89-year-old.

If discretionary sales are going to improve, how can financiers be behind? A prolonged period of weak private investment cycle and India Inc.’s deleveraging spree have resulted in public sector banks jostling with private sector peers in the burgeoning retail credit segment. Higher yields in retail products combined with lower non-performing assets (NPAs) have given state-owned banks a fresh lease of life. While a spate of consolidation in PSUs has added heft in the operations of incumbents, bankers are making the most of the favourable lending environment. Canara Bank and Bank of Baroda have both shown robust net interest margin growth in Q2 of FY24 even as bad loans have come down.

Long-term Bias, Short-term Blur

While India Inc.’s growth story is a given, it’s not all hunky-dory. For instance, though this year’s cumulative profit of Fortune 500 India universe crossed the ₹10 lakh crore mark for the first time, hitting a record ₹10.93 lakh crore, a more than 3x jump since 2010, the mercurial growth blitzkrieg is going cold.

Cumulative net profit has grown only 9.71% in FY23 — the lowest in three years. In FY21 and FY22, the growth was astounding at 75% and 60%, respectively. Tawakley believes the super-normal growth was on account of the pandemic which is now getting evened out. “On a normalised basis, the growth seen in FY21 and FY22 was just a recovery to normalcy, post the pandemic.” The only other two years when profit growth was in single digits was in FY13 and FY14, at 5.85% and 4.25%, respectively.

More importantly, the performance was punctuated by 15 companies slipping into the red this year. In an ominous sign, a record 144 companies saw PAT growth tapering between 1% and 95% with more than 36 companies’ profits halving over the previous year. Among sectors, automobiles, IT, power, and capital goods saw double-digit growth in both sales and profitability, whereas crude oil, iron and steel, non-ferrous metals, cement and textile dragged the overall profitability. While there was some relief owing to easing input costs, it was partially offset by an increase in interest and employee expenses. The only positive thing is that the number of loss-making companies has declined from 81 in 2020 to 45 this year, even as cumulative losses have come off from ₹2.28 lakh crore to ₹90,195 crore in FY23.

But Agrawal is not reading too much into the aberrations. “That is the beauty of India. Long term is extremely predictable, but the short term will have ups and downs. So, how do you reconcile the short term with the long term is where the art lies,” says the 67-year-old.

In such a scenario, it’s the mega companies and those aspiring to be the one which might make the most of India’s rapid GDP growth. Currently, there are three companies, Punjab National Bank, Union Bank of India and Wipro, which should cross the ₹1 lakh crore next year as their total incomes are already well over ₹90,000 crore. Besides, there are 14 companies whose total income is between ₹50,000 crore and ₹90,000 crore. While five companies have been compounding growth above 20% over the past five years, nine companies are growing at five-year CAGR of anywhere between 6.8% and 18.45%.

According to Agrawal, companies clocking revenues above ₹25,000 crore also have a good chance of eventually making it to the ₹1 lakh crore club, including new-age tech firms. “Some companies such as Zomato, Swiggy and other digital companies, will come from behind. In 15 years, either they’ll become zero or become mega companies,” says Agrawal. Zomato, whose revenue is a shade lesser than a billion dollars at ₹7,804 crore, has already jumped 49 ranks to the 278th position in the Fortune 500 India list, on the back of 55% growth over last year. Pertinently, it has reduced its losses to ₹971 crore. “There were no digital companies a decade back. But today these companies are clocking very high gross merchandise value (GMV) and can scale up very quickly,” explains Agrawal. That’s true. Consider this: in CY22, Zomato’s GMV for its food delivery business was $3.2 billion, a 26% year-on-year growth. In fact, both Zomato and Swiggy are annualising GMV of over $1 billion, as per analyst estimates.

But Tawakley wants to play it by the ear when it comes to the newbies. “We believe some of new-age tech companies, instead of expanding, will have to shrink to become profitable. Currently, these companies are addressing even those customers who do not have the ability to pay for their services. In economics, demand is defined as the desire backed by the ability to pay. So, eventually, they will have to scale back to become profitable,” says Tawakley.

While the debate around growth and profitability continues, legacy players are clear about what shareholders expect of them. Shah of Mahindra mentions the group accords top priority to profitability with a special attention to capital allocation. “It is about ensuring that the capital is generating returns we had committed and being able to make big decisions if things are not going as expected,” he says. A case in point is the conglomerate’s decision to exit 15 businesses which helped bump up return on equity in FY23 to 19.9%, higher than the committed level of 18%. “We started with 1% with a target to hit 18% in five years. A lot of stakeholders, including investors and analysts, thought we were crazy. But we reached our target in one-and-a-half years,” says Shah, adding that the return ratio in Q1FY24 was 24%.

Similarly, Maruti Suzuki expects to double its revenue by FY31 through higher sales growth, which means the MNC has to increase its annual turnover every year by more than 11% to double its revenue by FY31. Given the increasing competition, EV disruption and affordability factor, it will be interesting to watch how the company grows as its five-year sales CAGR is around 8%. Bhargava points out that the company sold 1.97 million vehicles during the year, despite missing production of about 170,000 units due to shortage of electronic components. “That’s a growth of 19% over FY22,” he adds.

For investors looking to make the most of the gravy train, spotting winners from mega caps would be a tough affair given the not-so-attractive PE and market cap-to-sales multiples. For instance, FSN E-Commerce with a market cap of ₹40,000 crore has a TTM PE multiple of 2,223x, while Trent with a market cap of ₹78,000 crore enjoys a 159x TTM PE. In fact, while a lot of companies continue to be in the growth phase only a handful have free cash flowing through their books. Tawakley, however, sees more value in large caps. “Mid and small caps are richly valued which makes us cautious about the space,” says the CIO, who is positive for domestic cyclicals comprising sectors such as automobiles, cement and capital goods.

The current year’s listing of Fortune 500 India is clearly foreboding that the good times will keep rolling with an average mcap-to-sales multiple of 2.96x with a peak multiple of 25.75x (DLF). Trailing 12-month PE multiples, too, reflect the same with an average of 65.75x and a peak multiple of 2,223x (FSN E-Commerce). Even on a forward EV/Ebitda multiple, it is trading at over 118x! But then outcomes in the stock market are probabilistic and never 100% because the moment that happens, prices will reflect the consensus. Not surprising that Agrawal follows the “QGLP” (Quality Growth Longevity & Favourable Price) investment process and follows the ‘Buy Right, Sit Tight’ investing philosophy. “Somehow, if you are reconciled to the long-term aspects of the market, you’ll do much better than a lot of brilliant guys. But if you’re brilliant and reconciled, then you become Warren Buffet,” Agrawal puts it succinctly.

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