IF GROWTH is a constant, then the decade-long saga of The Next 500 would be the adrenaline-pumping chronicle of India Inc.’s unstoppable surge and an ode to the indefatigable spirit of India’s growth story which has hit a crescendo in 2024.

The Next 500, the definitive list of those poised to blitz into the hallowed ranks of the marquee Fortune 500 India, has throttled past a new milestone, with this year’s collective total income nearly doubling (1.9x jump) from the ₹5.63 lakh crore in its inaugural year, 2015, to ₹10.62 lakh crore, this year. But the real deal is the quadrupling of cumulative profit to a massive ₹60,653 crore (See: It’s a perfect 10).

Pertinently, the growth of India Inc.’s emerging giants has largely mirrored the near doubling (1.9x) of India’s GDP from $1.7 trillion in FY14 to $3.3 trillion by FY23. Over the same period, the growth shown by the larger companies in the Fortune 500 India universe is similar with cumulative revenue surging 2.1x from ₹69.36 lakh crore to ₹145 lakh crore and cumulative profit rising more than doubling (2.52x) from ₹4.33 lakh crore to ₹10.94 lakh crore.

There are 63 debutants in the list this year, commanding a cumulative total income of ₹1.25 lakh crore and profit of ₹8,639 crore. The performance has also to be measured against a turbulent landscape punctuated by the pandemic, geopolitical skirmishes, and rising interest rates. Not to mention, India-specific developments of demonetisation and the introduction of GST. Not surprising that the average GDP growth over the past decade (FY15-FY24) was lower at 5.9% over an average 6.8% seen over the decade of FY05-FY14.

Amid such a challenging macro, the strong performance shown by smaller and mid-sized companies has had a rub-off effect on the Street. In CY23, while the benchmark Nifty created a record by ending the eighth consecutive year with a positive return of 20%, it was the Nifty Midcap 100 (+47% YoY) and Nifty Smallcap 100 (+56% YoY) that stole the show by outperforming the benchmark by a wide margin of 27 and 36 percentage points, respectively (See: Small is beautiful). “The recovery of underperforming sectors from the past decade (such as real estate, capital goods, PSUs, industrials, defence, among others), despite not being a major contributor to large-cap indices, led the rally in the broader markets, mentions Gautam Duggad, head of research, institutional equities, Motilal Oswal Financial Services.

The exuberance around emerging firms is reflective in the way the total income cut-off has been on the rise since the exercise began in 2015. For instance, in the first year of listing, the top ranker in the list had a total income of ₹1,690 crore. That topline number decisively passed the ₹2,000 crore mark in 2019 with Himadri Speciality Chemical topping the chart. In the ensuing five years, though the cut-off came below the ₹2,000 crore threshold in 2021 and 2022, it has crossed the ₹3,000 crore hurdle this year with Landmark Cars taking the crown. Similarly, the cut-off for the 500th name on the list, too, has kept rising from ₹725 crore in 2014 to ₹1,239 crore this year. This year’s list has more than 65 companies with total income of over ₹3,000 crore, accounting for a cumulative topline of ₹2.09 lakh crore. But the bulwark of the club is the 197 companies that have a total income of over ₹2,000 crore but less than ₹3,000 crore. They form the core of the list with a cumulative revenue of ₹4.79 lakh crore. The remaining 238 companies make up for companies in the ₹1,000-2,000 crore band, accounting for ₹3.73 lakh crore. Talking about raising the bar higher, it’s noteworthy that for the first time The Next 500 list comprises companies upwards of ₹1,000 crore, with Chalet Hotels making it as the 500th company with a total income of ₹1,239 crore.

That just goes on to show that breaking out of The Next 500 league into Fortune 500 India is not an easy affair. In fact, the cumulative topline and profit of this year’s The Next 500 club is just a fraction of — less than 10% — of that of the Fortune 500 India universe!

As Jack Welch says, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” And we are seeing more and more companies struggling to keep pace with this change. Around 216 companies in The Next 500 list have not been able to migrate to the marquee Fortune 500 India list in the past eight years.

From the maiden list of companies in 2015, around 160 companies have made the cut into the top league of Fortune 500 India over the subsequent nine years. But they have not been able to consistently feature in the marquee list, which means they have either fallen back into The Next 500 or would not have made the cut if the results were not available on the date of listing. Only seven companies have managed to successfully migrate into the Fortune 500 India universe and have since consistently featured in the rankings over the subsequent nine years.

The seven names represent diversified sectors such as banks (Ratnakar Bank), IT services (Sonata Software), consumer durables (KEI Industries), FMCG (Avanti Feeds), trading (Redington), auto ancillaries (Minda) and consumer durables (V Guard). But what is heartening is that the club of seven has expanded by an additional eight members over a five-year time frame (2019-2023), taking the total to 15 companies which have since migrated to the Fortune 500 India club. These eight companies are: chemicals (Deepak Nitrite), auto ancillaries (Schaeffler India), mining & minerals (Solar Industries), diversified (NBFC) (Kirloskar Industries), real estate (Brigade Enterprises), metals (Ratnamani Metals), pharma (Granules India) and textiles (Filatex). Interestingly, Schaeffler India, Brigade, Ratnamani Metals, and Filatex had fallen off the Fortune 500 India list back into The Next 500, though in a five-year period, they did hold on to the Fortune 500 India membership. Similarly, in the 10-year block, the companies that had earlier featured in the Fortune 500 India list, that is prior to 2015, were Sonata Software, KEI Industries, and Minda Corp.

The pace of topline growth, however, is stark as the seven companies (Ratnakar, Sonata, KEI , Avanti, Redington, Minda and V Guard) have compounded their total income growth in the range of 11.46% to 25.05%, whereas the eight companies (Deepak, Schaeffler, Solar, Kirloskar, Brigade, Ratnamani, Granules and Filatex) in the five-year period have compounded growth in the 17.13-37.79% range.

That growth is not without reason. “Strong growth, prudent policy reforms, focus on infrastructure and capex, healthy corporate books, comfortable forex reserves, and lower commodity cost inflation could protect India from any external shock and position it to outpace other countries in the coming decade,” mentions Duggad.

Of last year’s The Next 500 list, 12 companies had migrated into the Fortune 500 India list in 2023. Their cumulative income in The Next 500 was ₹24,792 crore but they burst into the big league as cumulative total income surged 86% to ₹46,223 crore.

The big push is coming from the PLI scheme, rolled out in 2020 for three sectors, which is now available across 14 manufacturing sectors with an incentive outlay of ₹1.97 lakh crore (over $26 billion). By incentivising local production through subsidies, the government wants to ramp up exports, curb cheap imports and create more jobs. “Manufacturing is a huge jigsaw puzzle which is slowly falling in place. PLI is a small start but a good beginning. In the initial phase of China’s growth story, investments were led by multinationals either on their own or through JVs. It will play out in India as well. If that works, it will eventually scale up,” says Rishabh Seth, co-founder and co-CIO, Karma Capital, which manages over ₹5,000 crore through a PMS fund.

In terms of profitability, the ranking shows a completely different story. Just five companies — GFL, Visa Steel, Essar Shipping, SJVN and Ramky Infrastructure — churned out a profit of over ₹1,000 crore, making up for a cumulative ₹8,059 crore. Nearly 30 companies made profits above ₹500 crore but less than ₹1,000 crore, making up for ₹19,003 crore in cumulative terms, that is 31.33% of the overall profit pool of ₹60,653 crore. Around 113 companies clocked profits between ₹200 and ₹500 crore, making up for the lion’s share of ₹33,992 crore (56.04%) of the total profit pool. Around 146 companies have bottomlines of over ₹100 crore but less ₹200 crore, making up for ₹21,018 crore, or 34.65% of the cumulative profit. Around 149 companies have churned out profits in the range of ₹1 crore to ₹100 crore, contributing ₹7,757 crore (12.79%) to the combined pool.

There are 56 loss-making companies in the list with a combined loss of ₹29,175 crore, but the one company that contributed the most to that number was Srei Infrastructure Finance with a loss of ₹11,109 crore. Five companies — Mcleod Russel India, Sterling & Wilson Renewable Energy, Dish TV India, GTL Infrastructure and MTNL — with losses of over ₹1,000 crore each, made up for a cumulative ₹8,642 crore. The remaining 50 companies made for the remainder (₹9,425 crore) in losses.

From a sectoral perspective, there are no big surprises considering that auto ancillary companies (48) are making the most of the boom in the auto industry by posting cumulative total income of ₹1.07 lakh crore and profits of ₹6,615 crore. Not surprising that auto ancillaries have been faring well over OEM stocks on the Street. India’s premier auto car and services player, Landmark Cars is on top of this year’s The Next 500 list (See: Why Landmark Cars is in a sweet spot). Other ancillary makers who hogged the limelight include those who are making the transition to EV and connected vehicles. For instance, Sona BLW Precision Forgings, which has been developing EV gear train components since CY16, is now developing next-gen technologies such as autonomous driving and connected vehicles. It is foraying into the advanced driver-assistance system sensor market by acquiring Serbian firm NOVELIC, one of the few profitable, hi-tech, and fast-growing companies in the ADAS sensor space, having a special class of radar technology that uses short-wavelength electromagnetic waves. “Sona has successfully transitioned from an ICE-based portfolio to an EV-focused product line with BEV revenue share of 27% in H1FY24 from 1.3% in FY19, led by strong R&D and innovation,” says Jay Kale, who tracks the sector at Elara Securities India.

Underscoring India’s consumption story is the fast-moving consumer goods sector, which has 49 companies with ₹1.04 lakh crore in total income, churning out ₹5,008 crore in cumulative profits. Among the prominent names in the list are Emami with ₹3,438 crore in total income and ₹640 crore PAT, and Devyani International with ₹3,030 crore in total income and ₹265 crore in PAT. But, of late, rising food prices and weak consumer demand have proved to be spoilsports. “High inflation across industries and categories from a macroeconomic perspective has led to a short-term impact on consumer sentiment and depressed consumer spending in the last few quarters,” Ravi Jaipuria, non-executive chairman, RJ Corp, which manages Devyani International, told analysts recently. In any business facing headwinds, the focus of management continues to be on improving efficiency. “We are optimising menu pricing, reducing wastage, cost controls and improving operational efficiency,” says Jaipuria. In the case of Emami, Mohan Goenka, vice chairman, says, “We are optimistic about the coming quarters. Anticipated improvements in agricultural yields, the onset of the festive season, rising rural wages and increased government spending on infrastructure projects are positive indicators that bolster our confidence in the recovery of rural markets,” Goenka tells analysts in a recent earnings call.

Beyond the consumption basket, sectors such as agrochem and chemicals are in vogue. The agrochem sector has clocked ₹20,912 crore in total income, generating a PAT of ₹1,783 crore, while the chemicals industry with 40 companies have generated ₹80,632 crore in total income and ₹6,980 crore in profit. Giving them company are the 25 companies from the metals sector with ₹58,740 crore in total income and ₹3,670 crore in profit. Often referred to as a proxy to play the India growth story, the financial sector has 11 banks featuring in the list with ₹24,702 crore in total income and ₹3,546 in PAT, followed by NBFCs making up for ₹62,717 crore and ₹1,945 crore, respectively.

While the markets have hit a crescendo, given the backdrop of general elections and uncertain trajectory of interest rates, both globally and back home, the narrative is turning into cautious optimism with Ridham Desai of Morgan Stanley pointing out that rates have peaked, and may not come down significantly given the growth impulses. “This sets the stage for outperformance for financials, consumer and industrial cyclicals,” says the India strategist.

While the idea of perpetual growth is a chimera, there is no denying that one way or the other The Next 500 constituents will continue to thrive. But since growth come in cycles, how many of those will remain a bonsai or bloom into Fortune 500 India giants will be clear over the next 12 months.

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