Suggested Structure of the Research report:

Company Profile
1 Brief introduction of the company

ace equity would br helpful: check profile un

2 Business detail:
(i) Demand Side Economics
(ii) Supply Side Economics
3

Investment Summary:
Investment Thesis
Moat Points
Investment Rationale
Concern

4 Valuation and Price comfort:

DCF
Asset Bargain
Cash Bargain
5 Financial Snapshots
5 Segmental finance
6 Peer Comparison
Product/Business Understanding
All financials at the bottom
Note should include Perfect Logo on each page right side top corner

Separate file to be attached while mailing report to sir:

(a) template- standalone or consolidated
(b) Ace Dump

Moat means a competitive advantage over

rt:

br helpful: check profile under general in ace equity

mpetitive advantage over present and future competition

Where to find research reports:

Research Reports
A

Check the following groups

err-club
stock talks group
analysts-meet
stocktalksdaily
Check for readymade reports on google
Process

Blogs
Dalal Street
Valuepickr
Neeraj Marathe
Kiran
Rohit Chauhan
Manu Jain
Equity desk

Websites
BSE Website
NSE Website
Equity Master (Login required)

Not Active

Uername: ashishkila@yahoo.com
Password: KILA3834

open google, type co name and drhp, eg. Skumars drhp

Click on this link and find your subject company through Ctrl+F

Common Key word to be searched in the google search engine

<company name> research report
<Company name> research report .pdf
<Company name> Initiating coverage report
<Company name> Initiating coverage report .pdf
<company Name>
<company Name> Valuepickr
<company Name> DRHP
<company Name> company prospectus
<company Name> CRISIL
<company Name> CARE

User Id: discussstockideas@gmail.com, password:- KILA3834

Mail
username: discussstockideas@gmail.com
username:ashishkila@yahoo.com
username: discussstockideas@gmail.com
username: discussstockideas@gmail.com
Type the desired metadata followed by "filetype:pdf"
type part of name first, if too many results also write price target, try with bse, nse code separately,
Source
http://dalal-street.in/
http://www.valuepickr.com/
http://neerajmarathe.blogspot.com/
http://kiraninvestsandlearns.wordpress.com/

http://valueinvestorindia.blogspot.com/
http://talkmanujain.blogspot.com/

Source

(Link)
(Link)
(Link)

http://www.motilaloswal.com/researchreport/MainReport.aspx?mode=112

Choose search criteria in google As BLOG instead of WEB, you may find posts in different blogs
Valuepickr is a blog

15 Minutes Rejection Checklist for Special Situatio

Enter Company name
Enter special situation

Merger

Things to check

1 S.No.

2
3
4

1
2
3
4

Promoters' Holding
Dividend yield
PAT (Rs. Cr.)
P/E

5
6
7
8

Margin of Safety
Debt
PAT Margin
ROE
Mkt Cap (Rs. Cr.)

Look for the major shareholders of the company.

Find the purpose of the special situation.
Find the post sitaution structure of the company.

Enter required fields

#DIV/0!
0.00

List
Buy Back Offer
Merger
Demerger
Delisting
Voluntary Delisting
Open Offer
Offer For Sale (OFS)

ecklist for Special Situations

CMP
Vol. -

DCF model
CFO In FY- 13

Reject if
Less than 40%
No Dividend Yield
Average of last 2 yrs. PAT is -ve.
Greater than 20
No margin of safety in DCF model
in 1st cut (check for 3 years)
High debt
PAT Margin is less than 3%

CFO in FY - 12
CFO In FY-11
Average CFO
Discount Rate
Enterprise value
Total Debt
cash+Other Current Assets
Equity Value
No. of shares
EQ Value per share
Current market price
Margin of safety

#DIV/0!
0.12
#DIV/0!

#DIV/0!
#DIV/0!
#DIV/0!

Indian Companies
Overseas Companies

Price Comfort
CMP(With date)
52 WEEK HIGH(Date)
52 WEEK LOW (Date)
2008-09 Low Price
Last six month Avg. Closing Price
Last Three Month Avg. Closing Price
Recent MF buying activity

Valuation Comfort
DCF Valuation

1
CFO In FY- 13
CFO In FY- 12
CFO in FY - 11
Average CFO
Discount Rate
Enterprise value
Total Debt
cash+Other Current Assets
Equity Value
No. of shares
EQ Value per share
Current market price
Margin of safety

Multiples
(a)
(b)
(c)

Investment Bargain
Total Asset/ No of Shares
Investment Bargain

Cash Bargain
Year End
Cash and Bank
Other Current Assets
Secured Loans
Unsecured Loans
Total Debts

Number of Equity Shares Paid Up

Net
Cash
Position
Net
Cash
Position (Excluding Other current
Assets)
Notice point for Cash Bargain:

Cash bargain means stock is available at a price less than Net Cash (Cash & Bank minus Debt) available per share
In case of cash bargain there are few reasons that can go against our investment idea, these are:

a) Cash Burn: Maybe the operating business is losing money and cash will be dissipated

b) Corporate mis-governance: What if the promoters of the company are well-entrenched because they have a 70%
wealth of the company with the minority investors?
They pay no dividends, and will never liquidate the company.Then what the

c) Bubble market: When the markets are frothy, people desperately looking for value gravitate towards cash bargains b

that when the markets decline, these stocks will also decline, often by much more than th

Investments
What are these investments? (Is it in significant ammount(as % of Net sales)
Are they marketable securities?
Are they money parked in debt mutual funds?
Are they surplus to the needs of the business?
Are investments earns interest as other income?

Quick Snapshot of Key Ratios

EPS(TTM)
P/E(TTM)
Industry P/E
Price / Book Value(x)
Dividend Yield(%)
EV/Net Sales(x)
EV/EBITDA(x)
EV/EBIT(x)
M Cap / Sales
Free cash flow / Sales
EBITM (%)
PATM (%)
ROA (%)
ROE (%)
ROCE (%)
Asset Turnover(x)
Inventory Turnover(x)
Cash Conversion Cycle
Debtors Turnover(x)
Inventory Days
Cash Conversion Cycle
EBIT Growth(%) (CAGR in last 3Yrs./5 Yrs.)
PAT Growth(%) (CAGR in last 3Yrs./5 Yrs.)
Total Debt/Equity(x)
Debt ratio

Current Ratio(x)
Interest Cover(x)

Total expenditure as % of Net sales

Raw material as % of Net Sales

Financial analysis
1

Financial Health of the company

Market Cap (Rs cr.)
Book Value (Rs)
Net sales (FY-12)
Net sales growth (CAGR in last 5 yrs.)
PAT
PAT (CAGR in last 5 yrs.)
Total Debt
Cash and cash equivalents
Working capital

Great businesses are much more likely to have the winning combination of:
(a) being debt-free;
(b) being cash rich; and
(c) with a negative working capital

High promoter holding and preferebly no pledging

Segmental Finance
Description
Revenue From Operations(Total)
Segment-1 revenue
As a % of sales
Segment-2 revenue
As a % of sales

Segment Results (Total)

Segment-1 EBIT
As a % of total EBIT
Segment-2 EBIT
As a % of total EBIT
EBIT Margin (Total)
Segment-1 margin
Segment-2 Margin
Assets (Total)
Segment-1 asset
% of Total asset
Segment-2 asset
% of total asset

Capital Expenditure (Total)

Segment-1 Capex
% of total capex
Segment-2 Capex
% of total cCapex

Cap Ex % / Asset % for segment-1

Cap Ex % / Asset % for segment-2
Liability (Total)
Segment-1 Libility
% of total liability
Segment-2 Libility
% of total liability
Note:

1.)
2.)
3.)
4.)
5.)
6.)

Check sudden increase in Liabilty

% of capex/% of assets:- It shows that on which segment company is doing ex
Compare EBIT contribution of the segment and proportionate capex
Which segment is contributing more in topline as well as botttomline
Which segment is more profitable
If a division is experiencing lower EBIT margin, lower growth but higher capex, qu

Peer Analysis
Sample format you can use to draw comparative chart

PEER COMPARISON
LTP
52 W H/L
Net Sales
Market Cap
EBITDA Margin(%)
PAT
PAT Margin(%)
Gearing
TTM EPS
TTM P/E
TTM P/BV
ROCE(%)
ROE(%)
EV/EBITDA
EV/ Net Sales
M cap / Sales

Quick Check point

www. watchoutinvestor.com
www.ingovern.com
www.iias.in

Link
Link

71
84(18/12/2012)
50(25/03/2013)
Use ace equity to find this. If it is a recently incorporated company then find all time low price

Check in ace equity, and avg. price of buy

DCF Valuation
Take last three years operating cash flow, if CFO is negative, its a highly
negative trait and potentially should be rejected in 1st cut process only. If
you find high fluctuation in CFO instead of a trend, then take more than 3
yrs. CFO to get better average estimation
Take average of above taken CFOs
12%
#VALUE!
X
Y
#VALUE!
Z
#VALUE!
See last closng price/current price

#VALUE!

P/E of the company in compared to its close comparables and industry

P/B of the company- If it is near one should be considered good
If the P/E is quoting at less than the growth rate then youve found yourself a bargain.

Will get automatically generated in your template

Will get automatically generated in your template

Cash (Cash & Bank minus Debt) available per share. Sounds impressive but in reality it may not.
inst our investment idea, these are:

s is losing money and cash will be dissipated away in just a few quarters.

e company are well-entrenched because they have a 70% stake, and they have no intention of sharing the
h of the company with the minority investors?
dends, and will never liquidate the company.Then what the company owns is irrelevant for minority investors.

rately looking for value gravitate towards cash bargains because they are evidently cheap. History shows
, these stocks will also decline, often by much more than the market.

t(as % of Net sales)

TTM- means Trailing- taking last 4 quarters

When capital turnover ratio is high, the company can afford to have a low margin, and still deliver an
exceptional return on capital. (ROE= NI/Sales(Margin) * Sales/Capital(turnover))

ROCE of 20% should impress you to continue for 2nd cut.

Shold be less 0.5, however zero is best to prefer.

Debt ratio should not be greater than 25%
Greater than 1.5 shoud be considered good. However if this ratio is less than one, the
company might be operating on negative working capital. This requires further digging in 2nd
cut.

Will keep adding points from blog readings

Companies with negative working capital may lack the funds necessary for growth.

g combination of:

If WC is negative due to high level of advance received from customer-Unearned revenue.

check the trend of ratio of advance received from customer to sales- if it is increasing over the period
of time- it is strong moat for the business. For example- Laxmi machine works.

Any other reason for Negative WC like company running out of cash- is a negative signal
Check if there is any pledged shares by promoters in BSE india under shareholding pattern section.
High level of debt along with pledged promoter's holding is a deadly combination

Mar-12

Mar-11

sayaji hotels

on which segment company is doing excess capex in comparison to its % of assets

t and proportionate capex
line as well as botttomline

rgin, lower growth but higher capex, question should be arised on Capital allocation issue.

PEER COMPARISON
Subject company

Search the company name in the search box

Don't go in detail, just make a list if there is/was any issue.

Comparables-2

Mar-10

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

Mar-04

Mar-03

Mar-02

n issue.

Comparables-3

pricing power

One of the most important attributes of a great busine

Pricing power can be cited by comparing trend of no. of pr

earnings over the years. If no. is decreasing but then a
shows the pricing power of the com
Dummy Example for a product

Sales Amount
YOY growth
Sales Qty
YOY growth
Sales Per Unit(Unit Curr)
YOY growth
Raw Material price
YOY growth
EBIT Margin(%)
YOY growth

Moat Of the Business

1.) Float in the account
Liability Side
Equity(share capital+reserve & surplus)+ Debt
Float(Balancing Figure)
Total Liabilities
Marginal Float

High degree of float

2.) If working capital is negative, see the component o

High advance received from customer(or item of s

3.) Low 'cash conversion cycle' and Low 'Days of

4.) Factors that can provide moat to the

Capital Intensive Business?

Need to compare the amount of fixed assets employed

company. Calculate asset turno

Some assets complete their life cycle in few years, need t

in that cycle. If it is about to complete, company will need
it soon.
Check the mode of growth of the company:
Organic or Inorganic(Acquisitions)
Show trend of these ratios for last few years:
Working capital / Sales
Free Cash Flow (FCF)
Free Cash Flow Yield (FCF/ Price)

When you find a company earning a high

return on capital (as seen in the ratios in the
1st cut) ask two questions:

Return on business

Sales CAGR, (for 3Yrs.) and (for yrs.)

EBIT CAGR, (for 3Yrs.) and (for yrs.)
ROE
ROIC

Stability of the business

1.)

Dupont decomposition

EPS (Du-pont way)

Years
1.) Earning/sales
2.) Sales/Assets
3.) Assets/Networth
4.) Networth/No.of shares
EPS (Du-pont)

Notes
1
2
3
4

Rising Earning/sales cannot be a good signal of sta

Rising Sales/Assets cannot be a good signal of long
Assets/Networth,if this ratio is increasing year over
Networth/No.of shares, if this ratio is increas

2.) ROIC (Return on invested caital) breakdown:

Years

NOPAT(EBIT-Tax)
Invested Capital (Debt + Equity or Networth )
Excess cash (Cash+OCA+ S.T. Inv.)
ROIC = NOPAT / (Invested capital-Excess cash)

Note:

ROIC -This measure controls for idiosyncratic differences in ca

It indicates the ability to generate return against re

Hence good tool to judge return ability among peer

ROIC can be compared with weighted average

Excess Cash isn't really invested capital used t
Earnings Quality Checkpost

By using cash flow based ratios:

Items
PAT (Net Income)
Interest
Debt Repayment
Debt Repayment + Interest
CFO
ICR (Interest coverage ratio)=CFO/Int. paid
DSCR =CFO/Interest+Debt repayment (debt
service coverage ratio)
Adjusted CFO (=CFO-Interest)
NICFOR (=PAT / Adjst. CFO)- Earnings quality ratio
PAT Y-O-Y Growth %
Adjusted CFO Y-O-Y Growth %
Total Debt
EBITDA / Cash EBITDARatio

Note:
Minimum interest coverage ratio should 2x.
Minimum Debt service coverage ratio(DSCR) should be
Increase in PAT should be in sync with growth in Cash Flow (Ad
NICFOR stands for Net Income to CFO ratio. Lower the earnin
NICFOR can be used to find P/E multiple based on cash flow
if a firm has latest PE of 10x and NICFOR of 1.5x this m
Similarly if the same firm had a NICFOR of 0.7x that me
NICFOR is earrning quality ratio
(f) Cash Ebitda ratio is CFO before interest and tax. (Cash EBITD
In Indian A/C system CFO is already before Interest, we only

(a)
(b)
( C)
(d)
(e)

Trend Analysis of Financials

( A ) History of Positive operating cash flow is a sign of healthy

If its negative for the all the 5 years, ditch the company an
( B ) Increase in debtors and doubtful debts at alarming rate sig

(C)
(D)
(E)
(F)

If there seems to be an unusual buildup in their finished go

If there is debt in their accounts, check whether interest is
Check the trend of "Average capital turnover"(ROCE) and
Check whether the Earnings are REAL
check Operating profit against the difference between Cas
If there is a wide difference year on year over the period o
( G ) if the company is increasing its revenues year on year (f
Topline is hard to manipulate
(H)

Regulatory Issues

Barriers to Entry
Future Outlook

A very high Tax Payout Ratio is a signal th

Sector Specific
Eg:- IGL
Muthoot Finance
High/Low/Medium
Reason
Mgmt vs Street

utes of a great business.

aring trend of no. of product sold/manufactured with

decreasing but then also earning is increasing, it
ricing power of the company.
CAGR-5Yrs.

201103
201003
200903 200803 200703
16%
102.12
81.71
77.77
65.39
56.41
25%
5%
19%
16%
17%
4%
###
###
###
###
###
#VALUE!
-10%
13%
20%
3%
-4%
12%
912.06
657.05
707.3
714.11
636.28
62%
39%
-7%
-1%
12%
22%
You need to check rise in price of raw materials and whether this rise has been followeed

You need to compare that if sales grows- and ebit margin remain stable or growing with sales then it i
if sales is growing but ebit margin is decreasing it may signal that company is compromising with m
grow sales.

Asset side
Financial Assets
Operating Assets(balancing figures)
Total Assets
If Current liabilities are greater than current assets (negative working capital)
Eg: Trade payables are more than inventory+receivables
If
Netfloat
operating
is negative
Here
exceedsasset
investment
in inventories, receivables, and fixed
assets
In the above table Float figure is more than Ope

ee the component of current liabilities.

stomer(or item of similar nature) signifies that company has moat in the business.

and Low 'Days of working Capital' can be result of high moat power of the company.
(a) Brand value (customer recognition is very high)
(b) Trade restriction (Licence, patent contract etc.)
High Entry and Exit barrier (like high capex- both one time and regular)

Ex:- If maintenance capex is high, company has to achieve a particular level of market share to sustai

xed assets employed with annual revenues of the

Calculate asset turnover.

le in few years, need to find where presently stands

te, company will need to employ capital to replenish
it soon.
For Ex:- Motherson Sumi follows
inorganic growth path

t few years:

(a) Can they sustain the high return for an extended period of time?
(b) How much of the profits are they retaining/ploughing back into the business?

For last few yrs.

For last few yrs.

Eps=Earning/No.of shares
2012
2011
30%
20%
2
1.5
2.5
2
3
2.5
4.5
1.5

2010
10%
1
1.5
2
0.3

a good signal of stable business because as margins increases, competitors will enter the market and margins w
good signal of long term growing stable business as there is a limit on this ratio, a company can utilise its asset
ncreasing year over year that means company is borrowing money and investing in assets, which means Debt/E
is ratio is increasing year on year and contributing maximum in the rise of EPS (among all the four

ital) breakdown:
2012

2011

2010

2009

2008

cratic differences in capital structure and tax rates across companies and industries

te return against required capital invested to maintain competitive edge.

ability among peers

weighted average cost of capital (WACC).

ted capital used to generate the company's revenues and profits , hence deducted from capital emplo

FY-12

FY_11

FY-10

quality ratio

FY-09

SCR) should be 1.5x.

growth in Cash Flow (Adjusted CFO).
ratio. Lower the earnings quality ratio is better.
iple based on cash flow as follows:
ICFOR of 1.5x this means that the actual PE is 15x ( reported PE x NICFOR)
CFOR of 0.7x that means actual PE is 7x and not 10x.

t and tax. (Cash EBITDA = CFO (from ace equity)+ Tax)

fore Interest, we only need to add back tax with CFO to get "Cash EBITDA"

ow is a sign of healthy business. (check for last five years)

ditch the company analysis
bts at alarming rate signifies something awry in their collection process.

FY-08

dup in their finished goods which leads me to believe that the company is not really efficient in managing customer demand.
eck whether interest is easily covered by its earnings for now or not. we need to keep a watch on this figure. If it jumps again, we
turnover"(ROCE) and "average profit margins". This trend should not be dropping in last 3 years.

fference between Cash generated from Operations and Depreciation

year over the period of 5 yrs (or 10 yrs if you have the data), the reported earnings are not real
enues year on year (for 5/10 yrs of data).

Ratio is a signal that earnings are for real and the management genuine.

Answer to this section would be subjective, you may get help from broker's report or by reading else where to make your view.

You need to see that what management is saying about growth prospect of business(check MD&A or
Chairman's Speech or any other company generated material available on the company website.)
vis--vis What analyst expects for the business future(check research reports)

200603 200503
48.27
20.94
131%
###
###
123%
523.42
505.92
3%
s been followeed by rise in product price or not.

with sales then it is OK. BUT

mpromising with margins to

rket share to sustain its business

arket and margins will decrease

can utilise its assets only to their full capacity
which means Debt/Equity ratio is deteriorating.
mong all the four component) then its a sign of stable business, because its increasing the value to

rom capital employed

g customer demand.
e. If it jumps again, we have a cause for concern.

ere to make your view.

s increasing the value to its shareholder by retaining money, its nothing but the Book value per sh

Book value per share.

Buffett's Earnings Retention Test

Step 1

Add up profits earned over the last 10 yeas

Step 2

Deduct dividends paid over the next 10 years

Step 3

Result is total earnings retained over a 10 year period. (ER)

Step 4

Compute increase in market cap over the last 10 years. (Delta MC)

Step 5

Compute Delta MC/ER

Interpretation:

It tells us , that for every Rs 1 earned & retained inside the firm , how much

period. (ER)

10 years. (Delta MC)

d inside the firm , how much was the increase in M.cap

Management analysis/Corporate Governance

1 Few Quick check list
(a)
(b)
(C)

(d)

What has management done with the free cash in the past?

Are managements salaries too high?

Compare salaries against companies profit not with that of other companies

Has there been any substantial equity dilution in the past?

The worrying point for existing investors is when the company raises more money in the future

Is the management known for its capital allocation skill and integrity?
Trend of ROE can give us signal about this and any past news or event about management

Checklist for corporate governance

Best practices for good governance
The no. of Independent directors should be at
least Three-fourth (75%) of the total

board composition.
The best practice to follow is to
separate the CEO and Chairman position.
The audit committee should only include the
independent board of directors and must meet the
auditors
of the
least
once annually.
Attendance
of company
Director inatthe
AGM/EGM
should be
high
The members of Board of directors should not
serve on more than two or three boards.

Independent directors should be of the

same industry

Use of Independent or expert legal

counsel whenever required rather than
internal corporate councel

General Checklist
1
2
3
4
5
6
7
8

Promoters who keep diluting equity, should be considered questionable

Promoters who issue warrants to themselves at substantial discounts to ma
Whether the stock price moves just about a fortnight before the unexpected
Distinguish between what is known as mosaic theory.
Companies that buy back their own shares only to reissue them later at huge
Decline or rise in promoter holdings.
A very large Institutional Ownership means that the company is well researc
The CEO position. Whether it is within the family or outside?
Educational Qualifications of the top Brass.

Is the management putting cash in other non core areas which has no releva
10 What is the % of non core income (other than operations). Is it more than 10
11 Is the management lending excess cash to sister firms via loans and advanc
9

Sno

Attributes

1 Evasive managers

An abundance of related party

2 transactions

3 Talking up the share price

4 Egotism
Sudden resignations of directors or key
5 operating staf
6 Media leaks

7 Lack of boardroom investment

8 Hopping on the next big thing

9 Bowing to institutional pressure

10 Unjustified global aspirations

Annual reports as an exercise in
11 propaganda
12 Frequent issuing of new shares

13 A luxurious head office

14 Litigious by nature
15 Poor board attendance

16 Loyalty bonuses

17 Poor Diversification

18 Exorbitant remuneration
Lack of industry experience at board
19 level

20 Lack of non-executive directors

21 Directors selling shares

orate Governance
www.watchoutinvestors.com. Www.ingovern.in, www.iias.com

Useful info on corporate gopverance, frauds, litigations

Company Prospectus (DRHP File)- Check Litigation
DRHP files are useful for all recently issed IPOs and FPOs company's LITIGATION
Pledged shares- check in BSE India

If in 1st cut we find that some shares are pledged, in 2nd cut we need to search and find timing of pledging of those shares.
so that we can calculate pledged amount, margin call probability etc. by using price at that time.
Dividend

Check if company is having investment(CAPEX) by taking loan along with

Dividend issue:- signifies serious capital allocation problem, and we need to point
out this matter.

with the free cash in the past?

oo high?
profit not with that of other companies

tial equity dilution in the past?

ors is when the company raises more money in the future via warrants or FCCBs, this could lead to dilution in the equity, and th

or its capital allocation skill and integrity?

ut this and any past news or event about management

Being practiced in the subject company

Remark

quity, should be considered questionable

ts to themselves at substantial discounts to market price.
s just about a fortnight before the unexpected news (e.g. acquisition, hefty dividend etc).
nown as mosaic theory.
r own shares only to reissue them later at huge premiums are again playing foul on small investors.

ership means that the company is well researched and prima facie management concerns are not ther
t is within the family or outside?
he top Brass.

sh in other non core areas which has no relevance to the core biz ?
ome (other than operations). Is it more than 10%, does it look fishy ?

xcess cash to sister firms via loans and advance, sometime even

Blather has become a fine art in the corporate world but plain
speaking is a quality to look for. Good managers tend to speak
openly about failure. Questionable management try and change
the subject or disguise the truth in a shower of jargon.
Money passing between a company and one of the directors'
private interests is always a concern. How can a manager claim to
have your best interests at heart when they're personally
benefiting from the transaction?
We prefer managers that talk the share price down. It's a good
indicator of integrity. Managers who make unrealistic promises are
likely to do rash things trying to live up to them.
Gargantuan egos are a prerequisite for climbing the corporate
ladder. But they are also a source of many a company's problems.
Examples of aggressive takeovers, boardroom disharmony, lavish
options packages, secrecy and the many Machiavellian traits that
accompany the power mad are all too common.
When 'insiders' leave in strange circumstances, especially the
CFO, it can be a hint of more serious future problems.
Seeing dirty linen dragged through the press by one of the
directors is a sure sign that things aren't rosy at board level.

We're big fans of 'owner managers', or managers who have a

large personal stake in the business. You know that their interests
are truly aligned with yours, unlike an options package.
Companies that stick to their knitting generally do better than
those seduced by fads and bubbles.
It's a common problem among companies that have many
institutional shareholders. Since when has a fund manager known
more than a company manager?
AMP built up a great brand name in Australia. Management
inherited the company's massive competitive advantages and
then waltzed over to the UK where those advantages didn't exist
and blew lots of money. It's all too common a story.
The annual report is an investors single most important tool. It's
crucial that it's seen as an honest appraisal of the business. Too
much selling suggests that management views shareholders as
Managers who do this patsies,
regularlynot
areowners.
usually empire builders. This
kind of egotism leaves little room for building shareholders'
wealth.
US investor Peter Lynch noted 'the extravagance of any corporate
office is directly proportional to management's reluctance to
reward the shareholders.'
Companies that regularly threaten legal action, especially libel
and defamation, are often run by managers more concerned with
public perception than managing a business.
If directors don't turn up to board meetings then how can they be
looking after shareholders' interests?
Financial incentives can cause directors to ponder the cost of
speaking out. And how would management feel if they had to pay
shareholders a loyalty bonus for holding their shares for more
than, say, two years? Ridiculous isn't it? So why should directors
get paid more simply for being there?
Or 'diworsification' as Peter Lynch calls it. If a company doesn't
have some sort of competitive advantage in a new industry it will
most likely fail in it.
Fanatics like Gerry Harvey (Harvey Norman) and Graham Turner
(Flight Centre) put their hearts into a business and don't rip out
massive salaries. They prefer to build wealth through the
company, along with shareholders rather than at their expense.
How can a board member without industry experience know what
to ask?
While it's important for directors to have a thorough
understanding of the business, it's also necessary that some are
totally independent. It can be tough for members of the old boys'
club to take a stand against bad decisions.
This isnt always bad newssometimes we all need to sell shares
wed rather hang on tobut rarely is it good news.

g of pledging of those shares.

o dilution in the equity, and therefore all per share numbers.

idend etc).

ul on small investors.

nt concerns are not there.

1.)

2.)

3.)

It should preferably be a market leader or no.2 in the sector it operates in.

It should be one of the lowest cost producers of the commodity/product it is engaged in.

Does the company face intense competition in its segment from some new competitor ?
Does the industry have a history of intense competition in the past ?
Does the company operate in a segment which could see severe competition from a large com
Is the company getting impacted or will get impacted by low cost imports ?

how i think market values growth companies. Typically there are four phases:

Phase 1: Growth? Where? - This is the first phase when due to a catalyst unknown to the market a company starts to grow at
historical past. Think about a company like TTK Prestige - this was a no shakes stocks and it hardly moved from 2000 to 2005.
Market was least interested in this stock.

Phase 2: Growth? Meh. - But then suddenly it started growing much faster from 2005 onwards - thanks to a cut in excise duty
in general. But the market refused to pay much attention to this growth and the stock price moved much in line with the profit gr
price moved from 38 to 130 from 2005 to 2009. A very decent 35% CAGR growth rate - this at a time when stocks like Pantaloo
infrastructure stocks were growing at half that rate but trading at twice the PE. All in all the market gave our stock (TTK Prestige
stock price grew at the rate of earnings growth.

Phase 3: Growth! Wow this could be big -Then came the trigger for the market. After having consistently grown at a decent r
really has something going for it. 2010 turned out to be a bumper year for TTK Prestige since their raw material Aluminium's pri
and the company posted a profit which was two and half times 2009's profit. The market acted promptly and in one year the sto
market had by now figured out this could be a great growth stock. Time for fireworks.This is the best time to get in, if you are

Phase 4: Growth! Lets extrapolate! - The imminent PE re-rating finally happened. This is when the biggest money is made in
by 60% and can you guess how much the price grew? From 430 in 2010 to 1650 in 2011 - that's about 4 times in one year. Sin
more to 2600 in line with a profit increase of about 50%. The market is now expecting TTK Prestige to grow profits at about 40%
high PE till such time that it grows in that range.This is a good time to enter too as long as you think the company still has
years, if not more.

Phase 5: Growth? This Story's over! - Ofcourse a company cannot grow at 40-50% forever - there will come a time when the
will shrug it off expecting the company to bounce back -this is the time to get out when the PEs are still reasonably high bu
of less than anticipated growth the PE will start to contract permanently and will plateau to a level.

This then is the story of every growth company. Some companies remain in phase 1 or phase 2 forever while some jump from p
companies that make the biggest amount of wealth make a smooth transition from phase 2 to 3 to 4 and then onto a bumpy ph
company in

Resources Useful for Industry Analysis:

There is a website where all cases related to imposing duty on import material are listed. Pasting below its link:
http://dgsafeguards.gov.in/newversion/HR.html
Under 'concluded investigation' section in this site we can find information on lots of materials which can be useful for our stu
Neeraj marathe used this site link as follows: http://neerajmarathe.blogspot.in/2012/12/phillips-carbon-black-goes-in-red.html)

http://www.ibef.org/industry.aspx
Check Industry section- take notice of last updated date.
http://www.equitymaster.com/research-it/sector-info/
In equitymaster- go to research it- then go to Sector info- here you can find sector report on some limited number of sectors.

Parameter
Consumer monopoly or commodity?

Understand how business works

Is the company conservatively financed?

Are earnings strong and do they show an

upward trend?

Does the company stick with what it knows?

Has the company been buying back its shares?

Have retained earnings been invested well?

Is the companys return on equity above
average?

Is the company free to adjust prices to inflation?

Does the company need to constantly reinvest in

capital?

Conclusion
Never Forget

Buffett Checklist - R
Source - Buffettology b
Explanation

Seek out companies that have no or less competition, either due to a patent or brand name or similar intangible that
high margins may simply highlight companies within industries with traditionally high margins. Thus, look for compan

Try to invest in industries where you possess some specialized knowledge (where you work) or can more effectively
areas of interest. You should "only" consider analyzing those companies that operate in areas that you can clearly g
circle is to know its boundaries.
Seeks out companies with conservative financing, which equates to a simple, safe balance sheet. Such companies
generating positive free cash flows.

Rising earnings serve as a good catalyst for stock prices. So seek companies with strong, consistent, and expandin
strong, look for companies where the last 3-years earnings growth rate is higher than the last 10-years growth rate.
high.

Like you should stock to your circle of competence, a company should invest its capital only in those businesses wit
new directions. They should fit within the primary range of operations for the firm. Be cautious of companies that hav

Buffett prefers that firms reinvest their earnings within the company, provided that profitable opportunities exist. Whe
examination of a company would reveal if it has a share buyback plan in place.

Seek companies where earnings have risen as retained earnings (earnings after paying dividends) have been emplo

Consider it a positive sign when a company is able to earn above-average (better than competitors) returns on equit
(16%) or more than this. Again, consistency is the key here.

That's what is called "pricing power". Companies with moat (as seen from other screening metrics as suggested abo

Companies that consistently need capital to grow their sales and profits are like bank savings account, and thus bad
operations at competitive levels, so the lower the amount needed to maintain current operations, the better. Here, m

Sensible investing is always about using folly and discipline - the discipline to identify excellent businesses, and wa
implementation is dependent upon your dedication to learn and follow the principles, and apply them to pick stocks s
Focus on decisions, not outcomes. Look for disconfirming evidence. Pray!

Company search
Ace
Ace

Company history
High low
close price
BSE

No of Trades Vs. value traded ..if no of trade is small and value traded is high..indicates mgt/instt/fund play
News put in one word document
Bseindia results - notes
will automatically get generated in your template
History of bonuses over last 10 years
History of rights issues over last 10 years

NSE-will automatically get generated in your template

http://www.nseindia.com/content/equities/eq_sechistdata.htm

Moneycontrol

Google News
Annual Report

Check Credit rating sites

http://www.crisil.com/siteSearch_bro/sitesearch-more.jsp
http://www.icra.in/
http://www.google.com/search?q=usha%20martin%20site%3Acareratings.com&hl=en&lr=&tbo=s&tbs=qdr:y

Check BIFR website

http://bifr.nic.in/casesregd.htm
Board of directors profile
http://www.directorsdatabase.com/t_list.asp?list=master_annex1_today&findword=[1-9,A]
Independent Directors profile
http://www.directorsdatabase.com/t_list.asp?list=master_annex1_today_ind&findword=[1-9,A]
check for any additional names
Discuss with ashish -- from kotak site
https://kstrade.kotaksecurities.com/jspprog/newshome.jsp?page=OI

Open co website, save reports : Use www.researchbyte.com

1
2
3

company details

Details of director
google search on name

individual name

Parent's Subsidiary

Management Integrity
Annual report analysis - of company in question plus competitors
Summary of important points from Management discussion and analysis
Future Growth prospects
Demographics
Company Prospectus

subaccounts
http://www.sebi.gov.in/SubAccount.jsp

involvement in any scams, raids , enquiries, qualififcations of management

rough idea on how much we are paying
trend of last month
WWW.BSEINDIA.COM

es Vs. value traded ..if no of trade is small and value traded is high..indicates mgt/instt/fund play
word document
notes

y get generated in your template

s over last 10 years
ssues over last 10 years

atically get generated in your template

a.com/content/equities/eq_sechistdata.htm

dates last month ...download csv format and filter >70%

www.moneycontrol.com

http://news.google.com/
http://sebiedifar.nic.in/

Read last five years MD&A and Directors report

company website
bseindia filing
www.Business-Beacon.com
ashishkila.admin
ministry of company affairs website - login

ng sites
om/siteSearch_bro/sitesearch-more.jsp

com/search?q=usha%20martin%20site%3Acareratings.com&hl=en&lr=&tbo=s&tbs=qdr:y

sesregd.htm

rs profile
rsdatabase.com/t_list.asp?list=master_annex1_today&findword=[1-9,A]
ctors profile
rsdatabase.com/t_list.asp?list=master_annex1_today_ind&findword=[1-9,A]

ditional names
hish -- from kotak site
taksecurities.com/jspprog/newshome.jsp?page=OI

e, save reports : Use www.researchbyte.com

Conf calls
investor presentations
Save Investor relations contacts

http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=31

http://mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=39
name

http://www.directorsdatabase.com/t_plist.asp

0.135135

In case of a MNC company find out its Shareholding patten in other Subsidiary's
http://www.sec.gov/edgar/searchedgar/companysearch.html
look for companies with sic code and in similar business
do control-f
Open form 10-K and then open ex21

Please see attached worksheet

alysis - of company in question plus competitors
rtant points from Management discussion and analysis
ospects
DRHP on SEBI's site- Every company need to submit a prospectus for IPO issue to SEBI, which may be useful specially to track litigation.
Search on google: company name +drhp.pdf

In the details of Bulk Trading and Insider Trading we may find unknown trader's account, so to check that accounts belongingness we need to refer SEBI website at

v.in/SubAccount.jsp

efer SEBI website at below link.

Website
G Sudhakar
Clerk of Advocate

www.courtnic.nic.in
8802216999