Stock Market: How stocks of largest spenders on R&D have performed during the last 10 years

NEW DELHI: India needs a higher spending on research and development (R&D) activities, especially from the private sector, to boost total factor productivity (TFP) to over 3 per cent for achieving more than 8 per cent growth, according to ICICI Securities.

In general, there is a belief that higher R&D spend and innovations result in improvement in TFP in an economy, thereby boosting gross domestic product (GDP) growth. Data shows that around 409 listed companies spent Rs 36,000 crore, or 0.9 per cent, of their revenue on R&D activities during FY20.

By spending Rs 11,100 crore, automobile sector emerged as the top contributor, followed by pharmaceutical sector (Rs 10,600 crore), industrials, including energy (Rs 8,200 crore) and IT (Rs 2,300 crore).

Overall, spending on R&D activities in India has remained stable at 0.70 per cent of GDP since 2014. On the other hand, ICICI Securities said that the figure seems relatively lower as compared with other emerging economies (1-1.5 per cent) and significantly weaker than developed economies and China (more than 2 per cent).

Who spent the most on R&D
In absolute terms, Tata Motors (Rs 3,100 crore) stood as the biggest spender on R&D in FY20. The figure was 7.10 per cent of its total revenue. Mahindra & Mahindra spend Rs 3,000 crore or 6.50 per cent of its revenue on R&D, Reliance Industries (Rs 2,500 crore or 0.8 per cent of revenue), Lupin (Rs 1,500 crore or 13.90 per cent of revenue) and Hindustan Aeronautics (Rs 1,200 crore or 5.70 per cent of revenue).

Shares of Tata Motors have declined 17 per cent and 4 per cent annually during the past five years and 10 years, respectively. On the other hand, Reliance Industries and M&M have increased by 16 per cent and 6 per cent CAGR during the past 10 years.

Hindustan Aeronautics, Dr Reddy’s Labs, Cipla, Sun Pharmaceuticals, BHEL and Aurobindo Pharma spent between Rs 800 crore and Rs 1,200 crore on R&D activities in FY20.

In terms of the largest spenders relative to revenue, pharmaceutical players SPARC and Suven Life Sciences spent 587 per cent and 304 per cent of their revenues on R&D in FY20. Shares of SPARC and Suven Life have gained 7 per cent and 42 per cent CAGR during the past 10 years.

Tejas Networks, Alembic Pharma, Unichem Labs and Lupin spent between 14 per cent and 31 per cent of their revenues on R&D.

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