Equitymaster Agora Research Private Limited

Independent Investment Research

14 October 2016

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Often the rationale to invest in small-cap companies or funds is rather

simple: their superior return potential compared to larger peers.
We recommend a
staggered approach to
Mutual funds often advertise small caps as a way to spice up the overall
buying a stock with a
returns of an equity portfolio. The argument is that small caps have
maximum buy price in
better average historic returns than a large-cap or even a mid-cap fund.
mind.
The most dangerous word here is 'average'.

The is akin to a person of five feet, who does not know to swim, going in a pool with an average depth of four
feet...never realising that the pool is ten feet deep at its lowest point.

Though small-cap stocks have the potential to get you better returns than their larger counterparts, most of these
companies are land mines. And one wrong step can mean a serious permanent erosion of your capital.

Now, the small-cap space is a fertile ground for multibaggers. However, the probability of one successful find can
be per 50 or even more than 100 stocks you research.

Further, these small companies are inherently extremely volatile. A lot of these small-cap stocks are presently
trading at insane valuations. Most of them are frogs disguised as princesses.

How do you distinguish a frog guised as a princess or mud caps guised as small caps?

Understand the Business Model of the company

Most small companies' business models are easy to understand. Make sure you know how the company makes
its money. Look for a low or no debt business that has a sound business model, potential future growth, and a
healthy return on capital.

Understand the Management

The business must be run by an honest and competent management. Look out for long-term capital allocation
trends by the management, instances of the management displaying fairness towards its minority shareholders.
An established dividend payout policy is an indicator that the company profits are real and not just accounting.

Pay the Right Price

The biggest risk in buying small companies is paying too much. It is crucial not to allow emotions get the better of
you. Respect your buy price limit.

Turning a blind eye to the price of the stock can mean lower returns and a smaller margin of safety. We
recommend a staggered approach to buying a stock with a maximum buy price in mind.

We live in interesting and volatile times. In the long run, those who show discipline and patience will be rewarded.
Control what one can control. You can control the price at which you buy a stock. It is best not to think too much
on the indices or market sentiments. Rather, one must think in terms of price at which the stock can be bought
and its expected return thereon.

That, in short, is the name of the game.

Quality Matters in More Ways Than One in the Software Industry

I don't believe it matters which business you are in; if you wish to be competitive, then developing a detailed
understanding of your competition and working smartly to gain a competitive advantage over them are key
components. - David Coultard, Formula One Veteran

Imagine my surprise when I read this in a white paper prepared by the company we are discussing in this month's
Hidden Treasure. For those who don't know, this man finished second to a certain Michael Schumacher in the 2001
Formula One World Championship. It's safe to say that he understands what competition is all about.

The software used in F1 cars is extremely advanced. But did you know that a lot of it is also quite boring?

Yes, indeed. A lot of work done by so called 'advanced' software is not so advanced at all. A major part of the
usefulness of any piece of software is ensuring that all systems are running as per specifications. This may seem
rather routine. It is. But is also vital.

Welcome to the world of 'software testing'. This segment is among the few segments in the software industry that
still has good growth potential.

Software testing is exactly what its name implies. A large bank firm installs a new piece of software. They want to
know if it can do what it's supposed to without causing problems. So they don't deploy it at once. They test it.
They make sure that everything's working as planned. Only then do they launch it. This is where a software testing
service provider comes into the picture.

This month's Hidden Treasure, SQS India BFSI, is India's leading independent software testing service provider.
'Independent' because its clients don't have to depend on the firm that supplied the software originally. SQS India
BFSI does the job more efficiently and at a lower cost. This is the company's core value proposition.

Formerly known as Thinksoft Global Services Ltd, this Chennai-based company is focused exclusively on the
banking, financial services, and insurance segment (hence BFSI in the name). It has developed a strong track
record of providing of over fifteen years of maintaining high standards in execution, quality, and confidentiality.

Its quality of services was well-known, but the company, just like many like it, was struggling to scale up and
manage its costs. However, this problem was overcome when the German company, SQS Software Quality
Systems AG, acquired Thinksoft in FY14.

Together, many synergies were achieved:

New business opportunities opened up with existing and new clients.

Joint project wins from existing SQS and Thinksoft clients became possible.

European, US, and Indian employees could work effectively together on-site.

Sales decline in the US (due to the financial crisis) was reversed.

Both firms learned from each other and developed best practices.
The company's transformation has been extraordinary (see the financials below). It now has a competitive
advantage over its rivals and has the potential to scale up revenues significantly. We believe the company is well
on its way to achieving its long-elusive full potential.

This is an excellent long-term growth story. However, subscribers should only buy the stock if the valuations
provide sufficient margin of safety. Is that the case now? Read on to find out...

How SQS India BFSI Will Boost its Fortunes

Strong Support from Parent

The parent company, SQS Software Quality Systems AG, is world's leading specialist in software quality. SQS'
position and expertise as the market leader are the result of over 30 years of experience in this niche. The
company derives its competitive edge stems mainly from its in-house developed PractiQ methodology. This is
based on many years of project experience and specialised knowledge across a wide range of industries. SQS
has a strong customer base, including half of the DAX-30, almost a third of the STOXX-50, and twenty of the
FTSE-100 companies. Some of its customers are Allianz, BP, Commerzbank, Daimler, Deutsche Post, Generali,
Meteor, UBS and Volkswagen.

SQS India BFSI is a core strategic asset for SQS Software Quality Systems AG. The Thinksoft acquisition was
done to create a platform for accelerated growth with the potential to increase sales and shareholder returns.
The strategy of combining these two businesses was to leverage complementary strengths, increase sales,
reduce costs and increase shareholder value. The new management has certainly achieved all this.

SQS India BFSI derives a rising share of sales from its parent. From almost nil in FY14, sales from group entities
increased to 3% in FY15, and then to 11% in FY16. This trend will continue for the foreseeable future. This is a
win-win for both parties. The parent gains market-share by positioning SQS India BFSI as a German company,
which can provide services at a lower cost compared to its rivals. At the same time SQS India BFSI benefits
from steady growth with higher margins, due to negligible increase in marketing costs.

Well Executed Strategy Leads to Excellent Financial Performance

Even the best strategy would not mean anything to shareholders if not executed well. The proof lies in the
numbers. We have no complaints on that front. Margins were on the upswing even before the takeover by SQS.
The new management has put the company firmly on the growth path with stability in the operating margins.
This was the crucial ingredient that was missing before. We believe, both the margins as well as the topline
growth are sustainable in the long-term.

The Management's Strategy is Working

 The management is focused on winding up relationships with non-profitable clients (see below), cutting down
on administrative costs, paying out excess cash, increasing employee utilisation, and increasing the use of
in-house automation. All this, combined with the management's positioning of SQS India BFSI as a specialised,
independent, low-cost testing service provider, that is focused exclusively on the BFSI segment, provides us with
a lot of comfort.

Next Phase of Growth Will Be Driven by New Clients

The management is certainly not resting on its laurels. Thinksoft had a large number of legacy clients which
were neither profitable nor scalable. The company is in the process of winding down these relationships. This
will slow down the topline growth to an extent, but it will help stabilise the gross margin. Other factors like
improving employee utilisation, and increasing the use of in-house automation, will also help margins. On the
other hand, growth will be driven by new deal wins.

The management has set its sights on winning fewer deals than before but only those that are profitable and
scalable. These deals are in the US$ 0.5 million to US$ 1 million range. These deals can be scaled up to US$ 5
million after the company has established itself as a strategic vendor. This process takes upto 1.5 to 2 years, as
per the management. This long gestation period discourages competition and acts as an entry barrier.

Improving Deal Wins That Can Be Scaled Up Over Time

We believe, financial firms globally, are looking at multiple, non-traditional services from its software vendors.
Testing providers that cannot provide holistic testing of business processes and end-to-end Quality Assurance,
will lose market share to well-established specialised, independent players like SQS.

Key Challenges for SQS India BFSI

Challenges in scaling up

There is enough competition in the software testing business. The growth in the long term for the company will
depend on its ability to scale up and maintain long term relationships with the clients. One must note that the
sales cycle takes around one and a half year. As the company adds new clients, there will be workers onsite
which may affect the margins in the short term. Further, the company has added more employees based on the
revenue projections. In case the performance falls short of expectations, it will not just affect growth but impact
margins.

Mid-level management attrition

 Testing doesn't need very high employee skills. While the lower level attrition can be relatively easily dealt with
due to easy availability of employees, mid-level management attrition can lead to delays, customer
dissatisfaction, and can adversely impact client relationships and growth plans.

Forex fluctuations

The business is highly exposed to currency fluctuations. It does not have any policy for hedging the exchange
fluctuations and does not make any forward covers/options/swaps etc. It maintains and operates Exchange
Earner's Foreign currency (EEFC) accounts through which foreign currency transactions/exposures are being
handled. The company's earnings are in GBP (25%), US dollar (30%) and Euro (31%), forex risk remain significant
and could lead to volatility in the profits. Depreciation in any of currencies could impact the earnings of the
company.

About the Company

SQS India BFSI Limited, formerly known as Thinksoft Global Services Ltd is one of the leading companies in India
that offers software testing services focused exclusively on the financial sector. It is based in Chennai.

In over last 15 years, the company has served 150 plus customers in Asia Pacific, USA, UK, Europe, and he Middle
East. the company's centers are SSAE 16/ISAE 3402 compliant and one of its centers is PCI: DSS compliant.

The company helps clients reduce software product life cycle costs and develop 'business ready software' within
compressed timelines, through intense domain focus, structured software testing methodologies, offshore
delivery, and test automation expertise.

Its financial software testing services have helped system integrators and product development companies to
achieve near defect-free rollouts of software products such as PRIME, TS2®, VisionPLUS®, Oracle FLEXCUBE®,
T24, Equation, B@ncs24, CS Eximbills, FinnOne™, Kondor+, Pan Credit, TS2, Siebel, Newton, Kastle, Genius, Premia,
MIDAS, ClarityQ, and Finacle.

The company is a part of the SQS Group, the world's leading specialist in software quality that enjoys competitive
edge stems mainly from its PractiQ methodology. With over 7,000 completed projects and staff strength of
approximately 4,600 in Europe, Asia, North America and Africa, SQS enjoys strong customer base that includes
Allianz, BP, Commerzbank, Daimler, Deutsche Post, Generali, Meteor, UBS and Volkswagen.

Key Management Personnel

David Bellin, serves as the Chairman of SQS India BFSI Limited. Mr. Bellin has been the Chairman of Supervisory
Board at SQS Software Quality Systems AG since May 28, 2014 and as its member of Supervisory Board since
September 24, 2013. He has been Non-Independent, Non-Executive Director of SQS India BFSI Limited since June
2014.

He was a political and business television correspondent, producer and programme editor before switching to
management in the 80s and leading his own production company producing specialist postgraduate medical
programmes in the 90s. He has advised on media development and investments in Europe, the Balkans, Ukraine,
S.E. Asia and India. In 2004 he was involved in the successful startup of Racing UK Ltd, a specialist horseracing
channel owned by 34 UK racecourses, where he remained as Executive Director of Broadcast and PR until April
2013.

Aarti Arvind, has been the Managing Director of SQS India BFSI Limited since 01 April, 2016. Ms. Arvind served as
an Executive Vice President of SQS India BFSI Limited since April 01, 2013 until March 31, 2016 and served as its
Vice President of Commercial Management since December 2004. Ms. Arvind has been associated with the
company since 2001.

She has more than 7 years of experience in Marketing and Human resources and is handling the departments like
Commercial & Country Desk. Previously Ms. Arvind was handling a number of areas such as recruitment, training,
staffing co-ordination, commercial management and other HR operations. She holds a Bachelor of Science from
Madras University and Post Graduate Diploma in Management from T. A. Pai Management Institute, Manipal.

Risk Analysis
In order to further improve our risk analysis of companies we have come out with a revised Equitymaster Risk
Matrix (ERMTM). The ERMTM is broken down in to 4 sub heads namely industry risk, performance risk,
management risk and balance sheet risk. (For details please refer to the ERMTM at the end of the report).

Regulatory Risk

Some businesses are subject to regulations by external government agencies. These businesses are subject to
regulatory risk since they do not have the liberty to operate in a free environment. Excessive regulations can
create bureaucratic hassles and impede growth. Thus, higher the regulation, higher is the risk of volatility in
profit and growth for any business. Though the regulatory framework in India is conducive for IT companies, the
companies are subject to the regulations in their client countries. As seen in recent times, most of the changes
in regulations in the client countries (e.g. Visa regulations etc) have had an impact on the Indian IT companies.
As a result, we have assigned a rating of 4 to the company.

Cyclicality Risk

An industry cycle is characterized by an upturn as well as downturn. Businesses whose fortunes typically swing
with industry cycles are known as cyclical businesses. Cyclical businesses do well during an industry upturn
and vice versa. On the other hand, there are some businesses that are not very cyclical. These businesses are
more immune to changes in industry cycles in the sector and have less risk. In short, if the business is cyclical
higher is the risk. Given that the IT sector is not a cyclical business, we assign a low risk score of 8 to the
company on this parameter.

Competition Risk

Every industry is characterized by competition. However, some industries where entry and exit barriers are
typically low have higher competition risk. Low barriers mean more players can enter into the industry there by
intensifying competition. The competition in the IT services sector is intense and global in nature. Therefore, we
assign a rating of 2 to the company.

Sales Growth

Over the ten-year period (actual history of past 6 years and explicit forecast for the next 4 years), the growth is
estimated at a CAGR of 18.1%. We thus assign a risk rating of 5 to the stock on this parameter.

Net Profit Growth

Over the ten-year period (actual history of past 6 years and explicit forecast for the next 4 years), the growth is
estimated at a CAGR of 22.7%. We thus assign a risk rating of 7 to the stock on this parameter.
 Operating Margins

Operating margin is a measurement of what proportion of a company's revenue is left over after paying for
variable costs of production such as raw materials, wages, and sales and marketing costs. A healthy operating
margin is required for a company to be able to pay for its fixed costs, such as interest on debt. The higher the
margin, the better it is for the company as it indicates its operating efficiency. Over the ten-year period (actual
history of past 6 years and explicit forecast for the next 4 years), the average operating margin stands at 17.4%.
We thus assign a risk rating of 5 to the stock on this parameter.

Net margin

Net margin is a measurement of what proportion of a company's revenue is left over after paying for all the
variable and fixed costs inclusive of interest and depreciation charges. Net margin is the final measure of
profitability. It reflects the total profits the company takes home. Higher the margin, better it is for the company
as it indicates better pricing power and effective cost management. Over the ten-year period (actual history of
past 6 years and explicit forecast for the next 4 years), the average operating margin stands at 12.1%. We thus
assign a risk rating of 5 to the stock on this parameter.

Return on INet Worth (RoNW)

RoNW is an important tool to assess a company's potential to be a quality investment by determining how well
the management is able to allocate capital into its operations for future growth. A RoNW of above 15% is
considered decent for companies that are in an expansionary phase. Over the ten-year period (actual history of
past 6 years and explicit forecast for the next 4 years), the average return on net worth stands at 28.5%. We thus
assign a risk rating of 9 to the stock on this parameter.

Earnings Quality

This measure helps us assess the quality of earnings reported by the company. For instance, some companies
may follow aggressive accounting practices and recognize revenues earlier than warranted. Earlier recognition
of revenues boosts profits. However, at the same time they do not generate sufficient operating cash flow (OCF).
This signifies debtors are not liquidated on time as sales were booked in advance. Such companies face
working capital issues and their quality of earnings is poor. We assess earnings quality by dividing operating
cash flow to net profits. Higher the ratio better is the quality of earnings. Over the ten-year period (actual history
of past 6 years and explicit forecast for the next 4 years), the average OCF/net profit ratio stands at 0.7. We thus
assign a risk rating of 10 to the stock on this parameter.

Transparency

Transparency is the key to any business. Transparency can be gauged by assessing the past dealings of the
company with various stakeholders, the way it displays its financial information and the frequency of
management's desire to communicate with external shareholders whenever some unfortunate incident
happens. The easiest way to gauge the same is checking the level of disclosures in the company's quarterly
financial updates and annual reports. Transparent managements would get a higher rating. We have assigned a
score of 6 to the company on this parameter.

Capital allocation

Apart from honesty, capital allocation skills are equally important in assessing management quality. By capital
 allocation we mean how the management chooses to deploy capital in the business. There are many instances
where growth is given priority over returns on the investment. This results in a company with larger size but with
poor returns. Managements are enticed to increase the size since their compensation is tied to the size of
organization they manage. Also, they sometimes destroy shareholder wealth by making expensive acquisitions
or by diversifying into unrelated areas. Hence, capital allocation skills assume great importance in gauging
management quality. Capital allocation skills are good when return ratios depict resilience. In short, more
stable/higher the return ratios better the capital allocation skills. The company's return ratios have been quite
impressive. Plus, the company's simple strategy of paying out what is not required by the business is an aspect
that we really admire. We assign a score of 8 to the stock on this parameter.

Promoter Pledging

Promoters typically pledge their shares to take a loan which is generally infused in the company. This exercise is
generally resorted to when all other sources of external liquidity dry out. The risk with this strategy arises when
share price falls. This triggers margin calls. If management is unable to provide some sort of a collateral to the
lending party from whom the money is borrowed that party may sell the shares to recover its money. This
accentuates the share price fall. Hence, higher the promoter pledging higher is the risk. None of the promoter
equity is pledged. We thus assign a risk rating of 10 to the stock on this parameter.

Debt to Equity Ratio

A highly leveraged business is the first to get hit during times of economic downturn, as companies have to
consistently pay interest costs, despite lower profitability. We believe that a debt to equity ratio of greater than 1
is a high-risk proposition. The company has zero debt on its books. Thus, we assign a score of 10 to the
company.

Interest Coverage Ratio

It is used to determine how comfortably a company is placed in terms of payment of interest on outstanding
debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense
for a given period. The lower the ratio, the greater are the risks. Considering no debt on the company's books as
well as its strong cash flows, we assign a rating of 10 to the stock on this parameter.

It may be noted that leverage, return generating capability, earnings quality and management risk get the
highest weight in our matrix. Hence, scores assigned to these factors influence the overall score.

Considering the above analysis, the total ranking assigned to the company is 97. On a weighted basis, it stands at
7.4. This makes the stock a low-risk investment from a long-term perspective.

ERMTM

Regulatory risk $ 4 5.0% 0.2

Cyclicality risk $ 8 5.0% 0.4

Competition risk $ 2 5.0% 0.1

Sales growth 5 5.0% 0.3

 Net profit growth 7 5.0% 0.4

Operating margins 5 5.0% 0.3

Net margin 5 5.0% 0.3

RoIC / RoNW 9 10.0% 0.9

Earnings Quality (OCF/PAT) 8 10.0% 0.8

Transparency $ 6 10.0% 0.6

Capital allocation $ 8 10.0% 0.8

Promoter pledging $ 10 10.0% 1.0

Debt to equity ratio 10 10.0% 1.0

Interest coverage ratio 10 5.0% 0.5

Final Rating# 97 7.4

*Excluding extraordinary gains

For qualitative factors, denoted by $ sign, lower the risk, higher the rating.
For any risk parameter if the score is below or equal to 4 it indicates high risk.
The risk score of these parameters is highlighted in red color.
For risk parameters where the score is above 4 riskiness is low.
The risk score of such parameters is highlighted in grey.

Updates On THINKSOFT GLOBAL: Why Is the Stock Worthy of Investment?

Add: Alert | Portfolio
Strong domain expertise, stable margins, good
Market Data revenue visibility, excellent cash flows, and a Buy the stock
high dividend payout makes the stock of SQS of SQS India
Price On Reco. Date (Rs) 837 (BSE)
India BFSI a compelling pick. The BFSI Ltd at
CMP - BSE / NSE (Rs) 837 / 831 management is very competent and lower price.
Change Since Reco.  0.0% shareholder friendly.
52-week High/Low (Rs) 1,290 / 656

NSE Symbol SQSBFSI

The parent company has positioned SQS India BFSI, as a specialised,
independent, low-cost testing service provider, focused exclusively on the
BSE Code 533121
BFSI segment. The strategy is paying off. The business will create
No. Of Shares 10.7 m
significant value for shareholders as the new deal wins scale up and a
Face value 10.0
greater proportion of the work is brought offshore.
FY16 DPS 24.0

Dividend Yld (FY16 at current 2.9% At the current price of Rs 837, the stock is trading at a price to earnings
prices)
(P/E) multiple of 24 times its trailing 12-month earnings. We believe, at
Free Float 46.1%
these levels, there is insufficient margin of safety. We recommend
Market Cap (Rs m) 8,956
subscribers to buy the stock at lower price, post a correction of 24%.

Premium Search Rationale for Valuation

The software sector is very dynamic in nature. The valuation of
companies in this sector depends on multiple factors. Macro factors like
Rs 100 Invested Is Now Worth
economic growth in the client's countries, latest trends in software
technologies, and the performance of the respective sectors that they
 cater to are all important.

Apart from this, a wide variety of micro factors also play a very important
role in determining the valuations of an IT company. The management's
integrity, foresight and competence would rank high up in this list.
Additional factors would be domain expertise, employee productivity,
return ratios and scale of the services offered as well as the competition.
View Updated Chart
IT companies are valued based on the price/earnings (P/E) ratio.
Stock Price Performance
SQS India BFSI is a unique software firm providing specialised,
independent, low-cost software testing services. This work is not high-end
in nature in terms of skills involved. The customer engagement cycle is
SQS BFSI Index# long i.e. 1.5 to 2 years. Pricing power is very hard to achieve. The key to
India Ltd
success in this field is to become a strategic vendor and provide holistic
1-Yr 23.9% 14.3% testing of business processes that require end-to-end QA specialists who
3-Yr 86% 31.9% take responsibility for application and product quality. We believe SQS
5-Yr 86% 13.7% India BFSI is well placed in this regard. We have valued the stock at 15
times forward earnings.
* BSE Smallcap
Returns over 1 year are compounded annual
averages (CAGR)

Shareholding (September-2016)

Category (%)

Promoters 53.9

Banks, FIs and MFs 1.9

FIIs 1.3

Public 42.9

Others 0.0

Total 100.0
Financials At A Glance

Sales 1,944 2,142 2,642 3,004 3,372 3,822 4,381

Sales growth (%) 20.4% 10.1% 23.4% 13.7% 12.3% 13.3% 14.6%

Operating profit 397 371 541 622 701 799 920

Operating profit margin (%) 20.4% 17.3% 20.5% 20.7% 20.8% 20.9% 21.0%

Net profit 300 216 369 437 491 557 639

Net profit margin (%) 15.4% 10.1% 14.0% 14.5% 14.6% 14.6% 14.6%

               

Balance Sheet

Fixed assets 281 257 248 242 237 234 234

Other assets 31 14 15 15 15 15 15

Receivables 558 567 544 617 693 785 900

Current assets 1,157 1,380 1,557 1,702 1,846 2,011 2,204

Total Assets 1,469 1,651 1,819 1,958 2,098 2,260 2,453

               

Net worth 1,082 1,018 1,091 1,164 1,247 1,340 1,448

Loans 96 73 0 0 0 0 0

Other non current liabilities 290 560 728 794 851 920 1,006

Total liabilities 1,469 1,651 1,819 1,958 2,098 2,260 2,453

Valuations

Revenue (Rs m) 1,944 2,142 2,642 3,004 3,372 3,822 4,381

PAT (Rs m) 300 216 369 437 491 557 639

EPS (Rs) 28.1 20.3 34.6 40.9 46.0 52.2 59.8

Price to earnings (x) 29.7 41.3 24.2 20.5 18.2 16.0 14.0

Price to sales (x) 4.6 4.2 3.4 3.0 2.6 2.3 2.0

Price to book value(x) 8.3 8.8 8.2 7.7 7.2 6.7 6.2

Performance Review
It was an eventful month with markets reacting to the Indian Army's surgical strikes on terror launch pads last
night across the Line of Control (LoC) in PoK. On the interest rate front, the Reserve Bank of India Governor Urjit
Patel cut repo rates by a quarter point as forecast by economists citing softening inflation outlook.

The BSE Small cap index has gained 2.8% month on month as compared to a loss of 2.6% for the BSE Sensex.

Some of our recommendations have witnessed significant stock price movements the last one month. Kindly keep
a track of result updates and special reports for latest views on the stocks under coverage.

We have recently revised our estimates for Navneet Education. Based on our updated estimates, we have arrived
at a revised target price of Rs 153 for Navneet Education from FY19 perspective. The company has tailwinds in
the form of syllabus change for publishing segment and a robust monsoon to help boost its rural sales in the
stationery segment. We maintain our Buy view on the stock.
We have recently revised our estimates on eClerx Services Ltd. On the basis of updated estimates, the target price
from FY20 perspective comes to Rs 1943. We maintain a Hold view on the stock. For a detailed update on the
quarterly performance and Buy back offer, please refer to the special report.

We have recently released the result analysis of Kolte Patil Developers Ltd. We maintain Buy view on the stock
while the target price has been kept under review.

We have revised our estimates for Mayur Uniquoters and have revised target price to Rs 600 from FY19
perspective. We maintain Buy view on the stock and the maximum buy price is Rs 460. Please note that our
estimates do not consider any upside from the PU plant. For a detailed update on the buyback offer, please refer to
the special report.

We have recently released an update on demerger of Sintex Industries Ltd. We view at the proposed demerger as a
positive development for the company and maintain Buy view on the stock. As per management, the whole
process of demerger will take approximately about 6-8 months. With this corporate action, we are keeping target
price under review. We will update the financials as and when we get more clarity.

The stock of Mold-Tek Packaging Ltd has recently touched the original target price of Rs 215. We have recently
updated our estimates and the revised target price comes to Rs 290 from FY20 perspective. We maintain a Hold
view on the stock.

The stock of GMDC is up 17% since our recommendation. While we maintain the Buy view and target price of Rs
145 from FY20 perspective, the maximum buy price has been revised to Rs 105 (from Rs 95 earlier).

We have closed the position on Ruchira Papers this month with a gain of 91% in 9 months. For a detailed update,
please click here.

We have closed the position on Accelya Kale Solutions Ltd last month with a gain of 105% in 2.5 months (ex.
Dividends). For a detailed update, please click here.

The stock of Persistent Systems has moved up 11% since our recommendation last month and is trading above
our maximum buy price of Rs 650. As such, we change our view to Hold.

According to us, small cap stocks should comprise of not more than 10% of one's total equity portfolio. Further,
we believe that a single small cap stock should not form more than 2-3% of the total portfolio. Please note that
this allocation will vary from person to person. For something that works best for you, we recommend you talk to
your investment advisor.

Open Position Table

Page Industries 15-Jan-09 Buy 305 17,377 15,720 5054% Hold 11%

eClerx Services Ltd #^ 14-Mar-09 Buy 48 1,943 1,523 3092% Hold NA

Savita Oil 15-Jun-11 Buy 538 850 702 30% Hold 21%
Technologies Ltd *

Kolte Patil Developers 15-Oct-13 Buy 76 Under 127 67% Buy NA

Ltd ^ review

Indoco Remedies 15-Nov-13 Buy 98 420 314 222% Hold 34%

 CanFin Homes # 14-Oct-14 Buy 429 1,758 1,739 305% Hold 1%

Orbit Exports 15-Nov-14 Buy 363 530 265 -27% Hold 100%

Navneet Education 15-Dec-14 Buy 97 153 100 3% Buy 53%

Ltd ^

Mayur Uniquoters ^ 14-Mar-15 Buy 449 600 440 -2% Buy 36%

Fluidomat Ltd @ 24-Mar-15 Buy 234 400 183 -22% Buy 119%

Infinite Computer 11-Apr-15 Buy 296 423 250 -16% Hold 70%
Solution

Gulshan Polyols * 15-May-15 Buy 332 500 377 14% Buy 33%

Ambika Cotton Mills * 15-Jul-15 Buy 1,052 1,420 890 -15% Buy 60%

Vinati Organics Ltd 15-Oct-15 Buy 430 740 617 43% Hold 20%

Sintex Industries ^ 14-Nov-15 Buy 100 Under 80 -20% Buy NA

review

Hindustan Media 15-Feb-16 Buy 272 496 297 9% Buy 67%

Ventures Ltd

Mold-Tek Packaging 14-Mar-16 Buy 128 290 212 66% Hold 37%
Ltd^

Cyient Ltd 14-Apr-16 Buy 453 719 539 19% Hold 33%

Sonata Software Ltd 15-Jun-16 Buy 159 227 153 -4% Buy 48%

GMDC Ltd^ 15-Jul-16 Buy 83 145 97 17% Buy 50%

Persistent Systems^ 8-Sep-16 Buy 609 934 677 11% Hold 38%

** Calculated by dividing current price by recommended price

* Based on estimates for FY18
# Adjusted for stock split/bonus/rights issue
^ Revision with respect to previous monthly review
@ While Fluidomat was recommended with 'But at lower price' view on 15th January 2015, the view was revised to Buy on 24th March 2015 with recommendation
price of Rs 234. 'Change (%)' has been calculated accordingly.
## Please note: Subscribers must note that stocks with the highest expected returns may not necessarily be fundamentally the safest ones to invest your money.
These stocks also need to be evaluated on various qualitative parameters like management quality, competitive advantage and stability in earnings and profit
margins. We strongly recommend subscribers to go through our latest updates on all stocks before making any investment decisions.

Closed Position Table

Ruchira Papers 15-Jan-16 Buy 55 106 91% 7-Oct-16

Accelya Kale Solutions 14-Mar-14 Buy 691 1,419 105% 26-Sep-16

Ltd

Top Stocks To Consider Buying

Allow us to introduce you to the logic, our thought process and selection criteria for the top stocks to buy. Now, as
we are aware, it is a tough task for subscribers to choose a handful of Best buys from amongst our buy
recommendation. That is the reason we decided to include this feature in our reports, where we will do the job of
short-listing the best buys.

The 'must have' criteria for stocks to be eligible in the list of best buys are a high rating on the ERMTM. The
additional level of filter will be their return potential over a period of four-five years. However, as you understand,
the list will not be static but will evolve over time.

As you can see in the Performance review, we currently have a 'Buy' view on ten stocks. Out of these, three stocks
make it to the list of 'Top Stocks To Consider Buying', being available at attractive valuations. Further, their ERMTM
scores too qualify for featuring in the list.

As the prices of these stocks change, subscribers will receive updates about the action to be taken. Meanwhile, if
there are few other smallcap stocks that we really like and find attractive, we will add them too to this list.

According to us, small cap stocks should comprise of not more than 10% of one's total equity portfolio. Further, we
believe that a single small cap stock should not form more than 2-3% of the total portfolio. Please note that this
allocation will vary from person to person. For something that works best for you, we recommend you talk to your
investment advisor.

Here is our list of Top Stocks To Consider Buying

Mayur Uniquoters

Navneet Education

Hindustan Media Ventures Ltd (HMVL)

Richa Agarwal (Research Analyst), Managing Editor, Hidden Treasure has over 7
years of experience as an equity research analyst. She routinely scours the small cap
universe for fundamentally strong companies trading at attractive prices. Having
degrees in both finance as well as engineering has served her well in analysing business
models across the small cap space. Richa is also the specialist in our team for the Oil &
Gas sector.

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014

INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint
venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research
Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment
opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:

For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:

a. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
b. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
c. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject
company at the end of the month immediately preceding the date of publication of the research report.
d. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research
report.
e. Equitymaster's technical team/other research services have given a 'BUY' view on Persistent Systems

DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:

a. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
b. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
 c. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject
company in the past twelve months.
d. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or
brokerage services from the subject company in the past twelve months.
e. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the
research report.

GENERAL DISCLOSURES:

a. The Research Analyst has not served as an officer, director or employee of the subject company.
b. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.

Definitions of Terms Used:

a. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective
of the recommendation service.
b. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock
at current market price.
c. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive
valuations keeping in mind the tenure and the objective of the service.
d. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the
recommendation service.

Feedback:

If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

MORE ON SQS INDIA BFSI MORE HIDDEN TREASURE

Sorry! There are no related views on news for this GMDC: A Robust Quarter
(Quarterly Results Update - Detailed)
company
Oct 10, 2016

GMDC Ltd has reported 26.8% year on year (YoY)

growth in the topline for the quarter ended June
2016 while the bottomline for the quarter grew
58.9% YoY.

Mayur Uniquoters: Buyback Offer On...Should

You Tender Your Shares?
(Hidden Treasure Special Report)
Oct 10, 2016

Should subscribers tender their shares in the

buyback offer of Mayur Uniquoters.

eClerx Services: Quarterly Result and Buyback

Update
(Quarterly Results Update - Detailed)
Oct 7, 2016

eClerx Services has reported a 0.8% QoQ fall in the

topline and a decrease of 12.1% QoQ in the
bottomline for the quarter ended June 2016.

Mold-Tek Packaging and Ruchira Papers:

Target Price Achieved. What Next?
(Hidden Treasure Special Report)
Oct 7, 2016

Mold-Tek Packaging Ltd and Ruchira Papers have

 met their respective target prices. What should
subscribers do now?

Ambika Cotton: A Lackluster Quarter

(Quarterly Results Update - Detailed)
Oct 5, 2016

Ambika Cotton Mills Ltd has reported 1.5% year on

year (YoY) growth in the net sales and 3.7% YoY
growth in the bottomline for the quarter ended June
2016.

More Views on News     Recommended Reading

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