Investment Style: Jim Rogers

Jim Rogers Contrarian Value Investing Approach

Rogers has a knack for spotting a long-term trend

long before the masses. The top down approach: Start by determining whether a country has turned a

corner economically. If it has, confirm that the currency is convertible. Because one should to be able to sell if there is a change in opinion. If all systems are going well, he usually buys two or three of the largest companies there. Being more of a top down player he was more interested in the macro set up of things rather than worry about quarter on quarter fluctuations.

Jim Rogers criteria to look for before investing in a company

The best short candidates are stocks where Institutions

own more than 3 quarter of the shares. Never try and make money from insider because it is almost impossible to do so on a consistent basis. Buy stocks of companies that are so undervalued that even if nothing positive happens the maximum you can lose is on the opportunity cost of capital. The micro numbers that he loved working on were:
Capital Expenditure as a percentage of depreciation, gross plant

and net plant The ratio is highest when the company is at the top of a cycle and vice versa. Compare this with a cash flow analysis. At times of high capital expenditure plans the free cash flow diminishes and equity valuations take a hit. Look at ratio of sales to receivables, debt to equity. A very high profit margin with lower inventories and increasing capital expenditure is another indication to go short on a company. Growth stocks are classic cases of shorting opportunities.

Criteria used for short listing Companies

75% of companys equity be held by their promoters

and promoter groups P/E Ratio less than 10 PEG Ratio less than 1 Higher Profit Margin Accordingly following 7 companies were finally shortlisted:

Engineers India Ltd. JSW Energy Ltd. Muthoot Finance Ltd. NHPC Ltd. Schneider Electric Infrastructure Ltd. State Bank of Mysore State Bank of Travancore

Efficient Frontier
Efficient Frontier
19.00% 18.50%

18.00%
17.50% 17.00% 16.50%

Target Mean 15.50% Return (%) 15.00%

14.50% 14.00% 13.50% 13.00% 12.50% 12.00% 3.000% 3.250% 3.500% 3.750% 4.000% 4.250% 4.500% 4.750% 5.000%

16.00%

Standard Deviation (%)

Portfolio

Equity Research Report of Muthoot Finance Ltd.

Emotional attachment of Indian

consumer to their gold makes gold loan popular MF is the largest gold financing company in India:
20% market share Highest ROE: ~42%

Applied for Banking License

with RBI- to leverage upon existing strong network of branches Applied to SEBI for 5th issue of NCDs worth Rs. 300 Cr- Rs. 1400 Cr raised till date, paying regular interest and 40% dividend in last fiscal year Recommendation: Buy

Financials and Valuation

Expected Value of Cash Flows

Observed Trends
Year
2008 2009 2010 2011

PAT (Cr)
63.60 97.72 227.57 494.18

2012

892.02

PAT (Cr)
1000.00

900.00
800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2008 2009 2010 2011 2012 PAT (Cr)

Observed Trends
Year
2008 2009 2010 2011

ROE (%)
34.06 33.9 48.08 51.51

2012

41.88

ROE(%)
60

50
40 30 20 10 0 2008 ROE(%)

2009

2010

2011

2012

Concerns
Fluctuating Gold Prices:

If the gold prices fall drastically as it did in the initial quarter of year 2013 the probability of borrowers defaulting rises, thus adding to the Non Performing Asset base of companies such as MF Regulatory Changes: Recent regulatory changes by RBI have had a negative impact on the stocks of these companies. e.g. Recent reduction of the Loan to Value (LTV) from 75-90% margin to 60%, now if bank LTV margins remain same, there would be a shift in gold loans market from NBFCs to banks

Thank You!