The Indian equity market has witnessed impressive growth over the past five years, with the benchmark Nifty 50 index rising by over 73%. However, not all stocks have fared well during this period. In this edition of the Chart of the Week, we take a look at companies that saw a significant decline in their share prices over the past five years, underperforming the index and destroying investor wealth.
There are 26 Nifty 500 companies in the wealth destroyers screener, which looks for stocks with negative share price changes in the past five years as well as the past year. The banking & finance sector has the highest number (four) of wealth destroyers. These include Piramal Enterprises, Bandhan Bank, City Union Bank and Motilal Oswal Financial Services.
The telecom and pharmaceuticals sectors come in second with three companies each. Vodafone-Idea, Indus Towers and Sterlite Technologies represent the telecom industry, while Sun Pharma Advanced Research, Natco Pharma and Biocon show up in the Pharmaceuticals sector.
Though the banking and finance sector has four companies in the screener, overall it has achieved a high 5-year return of 106.5%. The worst performers from this segment are Piramal Enterprises and Bandhan Bank, with share price declines of 66.9% and 54.8% respectively over the past five years.
Piramal Enterprises’ share price fall can be attributed to investor dissatisfaction with the demerger of Piramal Pharma. The company saw net profit margins decline from 44% to 8% and operating margins drop by 10% during 2018-2022. Bandhan Bank, on the other hand, has underperformed due to a decrease of 200 basis points in its net interest margin between 2018 and 2023. The bank has struggled with bad loans while other banks have improved their asset quality.
The telecom sector has risen by 133% in the past five years, but companies like Vodafone-Idea, Indus Towers, and Sterlite Technologies have shown poor performance. Jio's disruptive entry in 2018 with free or highly discounted plans, caused a 41% decline in ARPU for the sector between 2018 and 2020.
Vodafone-Idea has witnessed a significant share price decline of 87.5% over the past five years due to its high debt of Rs 2,22,890 crore. Raising funds remains challenging for the company, given its debt and falling market share in a capital-intensive sector. Indus Towers, which gets 40% of its total revenue from Vodafone-Idea, has also seen its share price fall sharply in the past five years. Similarly, share price of Sterlite Technologies, a telecom equipment manufacturer, has fallen by 49.2% due to the closure of its Tamil Nadu plant in 2018 following protests citing health hazards.
The pharmaceutical sector has grown by 113.7% in the past five years, outperforming the Nifty 50 index. However, Sun Pharma Advanced Research Company's value declined by 54% over the same period due to decreasing net profit margins and widening losses by 13% from FY18 to FY23, reaching Rs 222.6 crore.
Similarly, Graphite India, a General Industrials company, experienced a decline of 51.8% in five years as its overall capacity utilisation dropped from 90% in Q3FY22 to 42% in Q3FY23. This drop was due to the closure of a German electrode plant and weak global demand.
A favourite sector for investors over the past five years has been software and services, which delivered an impressive growth of 141.2%. However, Quess Corp stands out as the sole Nifty500 company from the sector with a significant decline of 65.5%. The employment platform suffered challenges during the pandemic, leading to a 74% drop in its stock value. It reached an all-time low in March 2020. Quess Corp faced additional challenges in 2021 as the Income Tax department made allegations of a Rs 880 crore claim against the company.
The realty sector also witnessed remarkable growth of 706.3% in the past five years, driven by increased demand for coworking and residential properties. In contrast, Indiabulls Real Estate experienced a sharp decline of 63.2% during the same period. This decline came from shrinking operating profit margins and a significant net loss of Rs 608.4 crore in FY23, compared to a net profit of Rs 2372.8 crore in FY18. On May 9, 2023, the shares of Indiabulls Real Estate plummeted nearly 20% in trade after the company disclosed that the merger of Nam Estates Private Limited and Embassy One into the company had been withheld by the Chandigarh Bench of the National Company Law Tribunal (NCLT).
In the media sector, which experienced an overall growth of 166.8% in five years, Zee Entertainment stands out with a decline of 65.2%. The company has been dogged over the years by controversy and scandal. In 2019, Zee faced allegations of links with Nityank Infrapower and Multiventures, which were being investigated by SFIO for deposits exceeding Rs 3,000 crore after demonetisation. This resulted in a 26% drop in Zee’s stock. In February 2023, IndusInd Bank filed a plea against Zee due to non-payment of a Rs 83.1 crore debt, leading to the withholding of the Sony deal. In May 2023, allegations surfaced regarding fund diversion to Essel Group's gold refinery.
