Factor

2001
RONW
ROCE
debt/equity (incl AP / Accrued
expenses etc)
Fixed assest T.O
W cap T.O
Inv T.O
Recievables TO
Total asset T.O
OPM ( EBIT/Sales)
NPM
Salesgr
OP gr
NP gr
Interest cost
Overhead %
RM Cost %of sales
Manpower cost
Tax % of PBT
current ratio
Dividend ratio (DPS/EPS)
Depriciation (% of sales)
Avg Capex ( % of sales)
FCF (% of sales)
Net cash from ops/ net profit
Investment / share
Sales
Seasonality analysis
Cash on books (Crs)
Interest income as % of cash
Key no brainer questions

2002

screen
2005
2006
13.8%
14.1%

2003
10.5%

2004
9.5%

0.6
0.7
1.8
2.3
4.3
0.48

0.5
0.7
1.8
2.4
3.8
0.50

0.42
1.1
2.6
2.6
3.7
0.75

10.5%

9.6%
6.8%

-2.6%
8.6%
6.7%
42.1%
40%
42%
43%
10.8% 10.7%
11%
8%
1.39
1.54
21%
21%
5%
6%

3249

3469

Sector no
2010 avg
21.0%

2007
14.3%

2008
28.6%

2009
18.8%

0.78
0.9
1.8
2.5
3.4
0.62

1.3
1.1
1.8
2.4
3.3
0.67

1.1
1.4
1.8
2.6
3.4
0.80

0.82
1.6
1.9
2.55
3.31
0.87

0.47
1.5
1.8
2.20
4.80
0.95

10.0%
54.9%

10.5%
6.7%

12.1%
37.3%

15.9%
46.7%

10.5%
17.7%

15.4%
12.2%

61.3%
2.4%
33.5%
34.0%
7.8%
20.9%
3.0
21%
3.8%

12.5%
2.1%
39.7%
35.4%
12.6%
21.1%
3.2
22%
4.3%

57.3%
3.0%
39.7%
38.9%
12.2%
31.6%
4.0
18%
4.1%

93.7%
3.2%
36.4%
37.3%
10.1%
21.4%
4.0
23%
3.3%

-22.7%
3.1%
33.5%
40%
10%
36%
3.4
32%
3.0%

65.1%
2.3%
37.4%
37.8%
8.8%
8%
4.4
22%
2.9%

5374

5735

7877

11558

13609

15263

Key variables (3-4) which control performance of the compay

raw material pricing
Demand from steel industry

Factors to track to know if company doing well

Factor

Company specific Key variables (Important and

knowable/predictable)
2005
2006
2007
2008
2009
2010

comments

likely to head lower as new capacity needs to be added

steady
steady
steady, may drop a bit
asset turns improved due to improvement in FA turns
assume 10-11% normalised

avg maintenance capex is 6% of sales

for FCF take 2% out of margin. Normalized margin is 9-10%

net of debt is zero

Checklist - to be developed based on my and other's mistakes

Debt
Does the company have > 0.7 times debt (unless it is a bank / finance institution)
Will the company be able to finance/ renew the debt without equity dilution or bankruptcy
Is the debt non-recourse or recourse ?
Does the company have contigent / off balance sheet liabilities ?
Does the company need borrowed money for funding a critical aspect of the business ?

Valuation and growth

Does the company sell @ PE >20
Does the valuation assume growth in excess of the past or the same as past above average growth ?
Is the company not growing or likely to underdegrow due to competiton, poor economics or management
incompetence ?
Is there only 5 years of history of good performance, i.e is there insufficient past history of performance
Does the company have a 10%+ potential for long term growth (10+yrs)

Corporate governance
Is the management hoarding cash with raising dividend or reinvesting it ?
Has the management allocated cash rationally and returned excess cash to shareholders ?
Is the management putting cash in other non core areas which has no relevance to the core biz ?
What is the % of non core income (other than operations). Is it more than 10%, does it look fishy ?
Has the management been reprimanded by SEBI or other bodies. Does the management has bad governance h
with other firms ? (check watchoutinvestors.com)
Is the management lending excess cash to sister firms via loans and advance, sometime even below market ra
Does the management make more than 3% of net profit as salary
Is the management buying or selling shares of the company?
Has the management does accquisitions in the past at high valuations and did they work out successfully ? Has
record been good ?
Does the company have an MNC management which has worked against shareholder interests in the past ?
Competition
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 competitor ?
Is the company getting impacted or will get impacted by low cost imports ?

Business economics
Is the company in commodity type biz with poor pricing poor and is not lowest cost mfg
Has the recent FCF or performance been due to bubble/ Cyclical high or am I looking at cylical earnings ?
Does the company operate in a business with poor ROE, high competiton, low barriers to entry and typical com
economics - i.e does it have sustainable competitive advantage
Does the company have product obsolesence ?
Are the NPM and Return on capital numbers comparable with other companies in the sector, if not why ?
Does the company have average ROE above WACC for 10 yrs ?
Does the company operate in an industry with ample growth opportunities ?

Portfolio setup
Will the company being analysed be impacted in terms of fundamentals and price by fairly same factors as oth
in the portfolio

General
Do all the stakeholders of the company benefit or is the company predatory with some stakeholder, for ex: selli
to poor customers

Test of competitive adv

One of Dominant firm in product or geo

segment ?
High ROE for last 10 years and the same is
being maintained ? If yes, displays
persistence of returns and hence CA
Does the company have customer or
production advantage
- analyse ROC and check if Margins > 10% of
Asset turns in excess of 1.
- If high margins, in excess of 10-12% then
customer advantage, if high asset turns then
production advantage. If both are high then
both advantage.
Low entry / exits ?
Market share stability

Source of competivite advantage - production advan

Strong competitive advantages create entry barriers for incumbents, preventing entry of competition and enab
Production advantage factors
- resulting in moat (cost based advantages).
Weaker than customer based advantages
expect in case of patents or government
regulation (like licenses ).
- indicator is high asset turns

1. Process economies (resulting in lower cost of production for

incumbent)
a. Indivisibility lead economies
b.complex , linked activities
c. learning curve process cost
d. patent/ copyright/ R&D advantage
e. resource uniqueness

1. Scale economies
a. In demand
b. Distribution
c. purchasing
d.production
e. R&D
f. Informational economies of scale such as in advertising would
prevent new competitor

Customer advantage - creates more durable

competitive advantage
- more common, indicator is high margins

Government/ Regulation based advantage

1. Habit forming and High Differentiation - No. 1

2. Experience goods (brand effect, trademarks) - No. 2
3. High switching cost (Lock-in) - No. 3 (for ex : change of busine
software by a co. such as SAP ERP etc)
4. High search cost ( where it is diffcult, expensive and risk for c
look for alternative ) like case of doctor or lawyer
4. Network effect (related to switching cost - network effect incre
switching cost)

1. License
2. Tariff / quota/ regulation

Moat analysis - does company has deep

1. Does co have multiple demand side advantages ?
competitive advantage or weak one ?
2. Does company has scale advantages - absolute advantage is
Customer advantages are more sustainable ! necessary. Local or product specific advantages are enough
3. Does the company has cost advantages with or without scale
Answer to these 3 questions decides whether competitive advan
strong or not

Franchise Analysis - Competitive advantage analysis ( part repe

Key factors of competitive advantage
Barriers to entry

Drivers
1. Patent
2. Governmental License
3. Consumer demand Preference (Brands / Trade marks)

Enduring Low cost position

1. Due to technology / Processes - not so enduring

2. Due to management skill - good but may not endure the curre
management

Econmies of scale barriers

1.Economies of scale in demand

2. Scale advantages in advertising, Procurement, Distribution
3. Informational economies of scale such as in advertising would
prevent new competitor

Switching costs

1. Switching cost to other supplier

2. Network effect - benefits are high in the current network ( like
telecom , e-mails, e-bay etc)

Distinctive capability analysis applied to specific market (product or geographic create the customer based or p
Analysis of Distinctive capabil
Type
Description

Relationships with all stakeholder / systems / process / Knowledg

Architecture
Strategic assets
Innovation
Cost
Finanical strength
Reputation

Distribution network / Customer relationships / plant / license mo

natural reserve /Patents / Media Properties/ Network effects / Sw
costs
R&D / Innovation history /NPD
Enduring Low Cost position
Strong Balance sheet
Brands / trademarks

The value chain analysis can be used to identify the key distinctive capabilities and how unique the capabilites
Value chain analysis
DESCRIPTION
Key Strenghts
Key Weakness
Cost analysis
Differentiation
Value adds

Procurement

List of the drivers/ factors (internal / external ) for the Superior Ec

Driver

Value driver
Sales

Value factors
Sales volume
Price and mix

Operating margins

Operating cost
Operating leverage

Economies of scale

Re-investment rate

Investment efficiency
Asset intensity

Test of competitive advantage

e of competivite advantage - production advantage / customer advantage factors

nts, preventing entry of competition and enables incumbents to earn high returns

mies (resulting in lower cost of production for

d economies
activities
process cost
ht/ R&D advantage
eness

onomies of scale such as in advertising would give

petitor

nd High Differentiation - No. 1

ds (brand effect, trademarks) - No. 2
cost (Lock-in) - No. 3 (for ex : change of business
such as SAP ERP etc)
t ( where it is diffcult, expensive and risk for custom to
e ) like case of doctor or lawyer
(related to switching cost - network effect increases

gulation

multiple demand side advantages ?

has scale advantages - absolute advantage is not
r product specific advantages are enough
any has cost advantages with or without scale
questions decides whether competitive advantage is

ompetitive advantage analysis ( part repeat of the previous table ) only to be read again
Analysis for the company
None

License
and Preference (Brands / Trade marks)

ogy / Processes - not so enduring

ment skill - good but may not endure the current

Mainly due to scale

ale in demand
es in advertising, Procurement, Distribution
conomies of scale such as in advertising would give
petitor

1. Economies of scale in demand

2. Moderate scale in purchasing and disribution

o other supplier
- benefits are high in the current network ( like
e-bay etc)

Low to moderate switching cost

or geographic create the customer based or production based advantages

Analysis of Distinctive capability for the firm
Description

Details for the firm

all stakeholder / systems / process / Knowledge base

rk / Customer relationships / plant / license monopoly /

atents / Media Properties/ Network effects / Switching
history /NPD
t position

eet

ks

ve capabilities and how unique the capabilites are and strenght of the fit
Operations

Outbound logisitic

s (internal / external ) for the Superior Economic returns ( ROE > 15 % )

Influenced by

Trigger
Y
Y

Y
No

How much

No

N
N

age factors

high returns

ble ) only to be read again

Analysis for the company

scale

of scale in demand
cale in purchasing and disribution

ate switching cost

ages
Details for the firm

Marketing

> 15 % )
Influenced by

Checklist

Economics models
Does the industry have good economics - a) High return on capital , Less price wars, barriers to
entry. Chk industry returns for last 10 years and see if the indsutry returns have been high or
characterised by high competition
Does the industry have scale - characterised by large competitors or a large no. of small firm
and intense competition - indicator of low Fixed cost and hence lower competitive advantage
Does the company operate as monopoly / duopoly / intense competition
Is the industry RM intensive / sensitive ( 40-50 % ) total cost and hence has low Variable costs
- hence high operating leverage ?
Does the industry have high Capital intensity ( sales / FA+NWCA <1.5 )
Can the company increase prices freely ahead of inflation/ Does it have untapped pricing
power ( VV IMP )
What is the earning power of the company through the complete business cycle (level of
cyclicality )
Does the industry have a high degree of change and obsolesence ?
Are they regulatory or technology shifts happening in the industry which will migrate value to a
different set of industry participants ? Does it impact the company ?
What is the % of installed capacity being used ? Will the company require substantial capex ?

Business model checklist

Is the Company a Low cost producer or among low cost producers (especially commodity ), if
yes why ?
Are the net margins higher than competition ? Why ?
Is the company strengthening its CA, if yes - how ?
Does the company have a recurring revenue stream
Is company gaining share in the industry profitably
Does the company have high concentration of sales with few customers
Does the company have a strong MKt/Sales organisation
Is the business model becoming less asset intensive and increasing the ROC
Does the company have high demand growth due to
a) growth in exisitng product/ market
b) growth in exisiting product / new market
c) growth in new product / existing market
d) growth in new product / new market
Is the company reducing the amount of capital invested ? i.e is the company freeing up capital
or increasing FCF
Does the company have investment which are expensed such as Advtg, R&D. how effective
have been these 'investments'
Does the business have intangible assets - brands, trademarks, patents, customer relationship
etc ?

Accounting checklist
Options grant as a % of O/s shares
Future dilutions due to ESOP
FCCB borrowing resulting in dilution (Indian companies)
Is sales booked agressively ?
Is sales got through liberal financing - AR is increasing as % of sales
Are earning managed by modifying reservers/ special charges ? - Retained earnings > increase
in book value
Does the management have aggressive pension accounting ?
Interest income as % of cash (looks correct ?)

do the provident fund charges look correct (PF amount / employee - compare with other
companies
Any MTM losses on the balance sheet or 'Shareholder' equity statements ? Due to derivative
instruments
Is the loan and advances too high and growing year on year ?
Does the company lease product on financial / operating leases on market terms ?
chk for losses in the loan portfolio (banks)
Knowledge economy models (creating consumer advantage)
Does the Business have network effects
Does the business have a lock in - once the product is bought the tendency to continue is high
Are switching cost high
Is company increasing the service component
Management factors
Is the management rational in capital allocation . Does management allocate capital well and
above current rate of return. If the management has excess capital, is it giving it back to
shareholders ?
Is the management having integrity
Does the management discuss both negative and positives of the company performance
candidly .
What is the compensation levels in the co. Is the CEO/owner being compensated heavily (cash
or options?)
Does the management / CEO have substantial ownership in the company ?
salary as % of sales
related party transaction - are they harmful to the co ( rights offer, sale of promoter owned
ventures to the company at high price)
Tax as a % of PBT ( is it too low , < 15%, why ?)
Plans for cash ?
Has the management been reprimanded by SEBI or other such govt bodies ? Does they have
any past cases or issues in other companies ? - check google and stock boards such as
moneycontrol , TED etc
Is the cash held in foreign banks ?
Has the management done accquisitions in the past ? What is the track record of these
accquisitions ?
Has the management done restructuring and taken such charges on a regular basis ?
What is the management track record in the last 10 yrs ? Have they followed through on their
statements in the past ? How is their execution track record
Probability / options models
Does the industry have high level of change - results in a larger no of real options
Does management has capability of identifying and utilising the real options
Physcological models
Am I working with recency bais - giving more wieght to recent data ( check if the projections
based on recent data or averages )
Am I working with Hindsight bais - thinking that fact was obvious beforehand ( check if the -ve
factor was noted before hand )
Am I framing issues correctly and in different manners - trying to look at situation using varying
models
Is there a data framing bais - influenced by the way data has been presented.
Am I too overconfident on the situation - assuming over familiarity , associating positive
unrelated feeling, too high wieght to optimistic scenario ( familiarity due to work / association
with the industry )

Have I done probability analysis for all negative factors

Am I having too much loss aversion - overwieghing negative factor
Am I working with sunk cost mentality - trying to average down the cost
Am I slow in changing opinion - not responding to negative news
Describe negative thesis for the company
Bais from commitment and consistency tendency - Make this spreadsheet hence committed to
buy ?
Pavlovian association - correlation being considered as cause effect relationship
social proof bais - stock being recommended by various analyst
Incorrect / low weightage of existing/ new negative information or even positive information
Status quo bais - unwilling to sell existing holding ( review discount to intrinsic value and sell
based on that )
False consensus bais : confirmation bais ,selective recall, baised evalution ( check all
information against you investment thesis and evalute objectively )
Have you questioned the consensus
Has the analysis been done with reverse thinking (working the problem forward and backward)
Catalyst
Shift of demand/supply to favor company ( relevant more for commodity company )
Change in the business cycle / economic cycle- imp for commodity business
Regulatory changes
Management action - Buy back, Bonus etc
Asset conversion - buyback / LBO/De-merger/Accquisitions - critical if the business is a holding
company or reason for buying is discount to asset
Value creation through access to capital market on very favorable terms
Sale / buying of any asset
Unexpected earnings increase
Time - Catalyst if self assesment of CAP is higher than market. With time market realises the
higher CAP and will give higher valuation
(value - Poor management not interested in enhancing value)
Other models
What are the key no-brainer questions ?
Any combination of factor effects

Biomodels
Will the business survive/adapt into a niche or is it a dominant player
Does the business have practise evolution
Describe how the company operates as part of the ecosystem - dominant firm or small firm in a
niche ?
Hidden assets
Does the company have subsidiary which are carried at cost and is worth more
Does the company has real estate which is at cost and worth more
Does the company have investments which are worth more than the cost
Hidden liability
Forex/ derivative liability
ESOP liability
Pension liability
Equity dilution via FCCB
Contigent liability as % of Net worth and annual profit (concern ?)
Munger Model

1. Solve the big no brainer points in the thesis - find the key points of the idea which define
success/ failure for the idea
2. Use math to support the reasoning the supporting/ opposing points for the idea
3. Think the problem forwards and backwards - find causes which will cause the company to fail
4. Use multidisciplinary approach - analyse the idea based on models on this page. Any specific
models point to a hidden factor not being considered and can cause it to fail ?
5.Properly consider results from a combination of factors or lollapalooza effects
Other questions
Based on DCF what factors would improve the CAP and growth further
Based on DCF what factors will cause a deterioration in performance
List 3-4 reasons why the idea will fail ?

Failure analysis (list factors which will cause the company/idea to fail) - describe
High debt level
Cyclical high in terms of margin
Management competency
Competition

Remarks
Read AR/ Google to answer questions on various models

not much

duopoly in local, with threat of import

yes
yes
none
around 13-14% ROE
no

chk
chk
yes
no
chk
chk
no

a. existing product/ market

b. growth in existing product / new market

none
none
none
none
none
chk
yes

chk

no
no
no
no

appears so
yes
yes
chk
yes
chk
chk
yes, keeps swinging up and down
none ..being invested in biz

no

Not much change

NA

yes, partly. Fixing that by considering normalised earnings

no
yes
no

no

TBD
no
no
no
ROE not too high, needs constant capital to grow. Asset turns not high and hence 4-5% is maintenance capex. He
fresh capital needed for growth
possible
NA
no
TBD
no
no
yes. Consensus does not consider the improved performance
TBD

Yes
Yes
None
None
None
None
None
Possible
None

how will the margins develop ? Will it reman above 12% ?

improvement in margins and growth will improve valuations

yes, a bit

none, consolidated numbers being considered

no
no

none
none
none

foreign operation improve and scale improve. CAP unlikely to increase

RM pricing could hurt margins

Competitor analysis - update data from financial websites

Avg 5
competitior names

ROE

NPM OPM

D/E

FA turns

Wcap turns

FCF/ sales
(%)

Sales - CY

Avg 5-10 yrs numbers

NP - CY Sales Gr
Profit Gr

% share of
industry

Analysis of performance

INDUSTRY ANALYSIS - The shaded factor contribute

maximum to the competitive advantage of the firm
Y/N
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

17
18
19
20
21
22
17

18
19
20
21
22

23

ENTRY BARRIER - No. 1 Factor for Competitive advantage analysis

Asset specificity
Economies of Scale
Proprietary Product difference
Brand Identity
Switching cost
Capital Requirement
Distribution strength
Cost Advantage
Government Policy
Expected Retaliation
Production scale
Anticipated payoff for new entrant
Precommitment contracts
Learning curve barriers
Network effect advantages of incumbents
No. of competitors - Monopoly / ologopoly or intense competition
(concentration ratio )
Total (average)
SUPPLIER POWER
Differentiation of input
Switching cost of supplier
Presence of substitute
Supplier Concentration
Imp of volume to supplier
Cost relative to total purchase
Threat of forward v/s Backward integration
Total (average)
BUYER POWER
Buyer conc. v/s firm concentration
Buyer volume
Buyer switching cost
Buyer information
Ability to integrate backward
Total (average)
Substitute product
Price sensitivity

M
M
M
H
L
H
L
NA

Remarks
moderate entry barriers. However chinese competition has an impact
High
High
Low
Not much
low to moderate
High
Low
Moderate to high
None
High
High
Low
High ??
Moderate
none
Duopoly
No direct supplier power. However companies in the industry are also price takers as RM
depends on crude prices

N
N
Y
N
N
L

L
L
L
H
N

Moderate to high
High
High
Moderate
High
None

None, but a lot of competition

High

24
25
26
27

28
29
30
31
32
33
34
35

Price / Total Purchase

Product difference
Switching cost
Buyer propensity to Subsititute
Total (average)
RIVALRY DETERMINANT
Industry growth
Fixed cost / value added
Intermittent overcapacity
Product difference
Informational complexity
Exit Barrier
Industry concentration
Demand variability
Total (average)
Total
Grand Total average

M
H
L

L
M
H
M
M
L

Low
low to moderate
low to moderate
??
High competition
Moderate to low
High
High
Low
Low
moderate to high
low
High

Low, Bad - 1
Med - 2
High, Good -3
Low CA = < 30
Med 30< , <50
High CA > 50
The Industry structure helps in identifying the critical competitive factors which have to be managed to create a sustainable CA

Industry mapping
Key segments
Single segment - graphite electrodes

Size Key companies in each segment

HEG

Points

Key CA factor
Y
Y
Y
Y
Y

#DIV/0!

#DIV/0!

Y
Y

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

Key Demand Drivers

Demand from steel industry
Growth in international markets - germany / EU

Operational Risk factors

RM prices
Demand slowdown

Positive factors
decent balance sheet
Decent pricing stenght inspite of recession

Sell criteria : Imp ( define clear quantitative and qualitative metrics )

Margins drops below 8% for 3 years
valuation exceeds 14 times earnings
Growth slows to 5% and margins drops with it for 2-3 years
Questions to be explored
What is the industry economics in india.
Why does this company have decent ROE inspite of being in a
moderately attractive indsutry

Impact
High

Remarks

Valuation ( neutral )
detail
PBDIT
excpl item & non operating inc.
Less :TAX
Less : Wcap change
Less : Capex
Less : Capex ( maint) **
FCFF- normal $$
FCFF(Mn) 5
shares ( mn)
fcff/ share
fcff / share ( maint)
discount ( 1.15 or 1+ WACC )
NPV ( maint)
terminal value : note 1
Intrinsic value estimate
Equity value / share : note 2

1998
0

2002
0

2003
836

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

40
1842
6752
2185.7
-7798
-1389.7
1404
-5.5541
-0.9898

24
48

1999
0

2000
0

2001
0

2004
792

actual
2005
2006
1010
1128

2007
1774

2008
3187

2009
3061

2010
3321

30
140
160
270
600
800
82
176
1050
1350
1800
1000
138
270
2150
2381
2749
1204
429.62 530.2 1481.2 1853.4 2369.8 1584.1
542
424 -2232 -2227 -1962
57
332.38 339.8 -513.2 -349.37 217.2 676.92
2802
2790
2726
3000
3398
3316
0.1934 0.152 -0.8188 -0.7423 -0.5774 0.0172
0.1186 0.1218 -0.1883 -0.1165 0.0639 0.2041
1
1
1
-0.1165 0.0639 0.2041

180
1400
3002
2096.22
-1261
1044.78
3154
-0.3998
0.33126
1
0.33126

Above FCFF should exclude income from cash if cash is being

Terminal value should be less 14 times

FCF + excess capital
MICAP calculation
Terminal value 3
total = terminal value+ cum of value 4
MICAP years
current price
Notes :
1. FCF ( n+1 th year )/ Wacc - g
Wacc : weighted cost of capital , g - long term growth / economy growth
2. Equity value = IV - ( LTD+STD-cash - cash equivalent ) + Non operating asset- ESOP value - contingent liability
3. Terminal value = current year NOPAT / WACC /(1.15 ^ no. of year)
4 cum of value = total of discounted fcff till year in question
5. FCFF adjusted for maintenance capex

$$ - adj for normal capex

** - capex for maintenance

cash/share

15.815 28.615 29.077 40.523 46.877

12.8 0.4615 11.446 6.3538
#DIV/0! -0.5283 11.565 6.4756
11.111

2011
16000

2012
16400

2013
17000

2014
18000

2015
19000

2016
19600

plan
2017
2018
20600
21400

2019
22600

2020
24000

4191
-8700
2354
-7230
9455
19039
3150
3.0
6.0
1.1
5.5

4324
0
500
1505
11576
10571
3150
3.7
3.4
1.2
2.8

4491
0
500
1540
12009
10969
3150
3.8
3.5
1.3
2.6

4765
0
1000
1610
12235
11625
3150
3.9
3.7
1.5
2.5

5056
1000
1500
2645
12444
11299
3150
4.0
3.6
1.6
2.2

5223
-1000
-500
680
14877
13697
3150
4.7
4.3
1.8
2.5

5497
0
1000
1750
14103
13353
3150
4.5
4.2
1.9
2.2

5946
-1000
1000
1100
15654
15554
3150
5.0
4.9
2.4
2.1

6343
500
1500
2670
16157
14987
3150
5.1
4.8
2.6
1.8

5644
1000
4000
2960
11756
12796
3150
3.7
4.1
2.1
1.9

come from cash if cash is being added back to valuation

38

39
47.4

41
51.4

43
56.3

45
47
60.8 59.1454

49
51
54
57
60.8983 62.29326 64.77367 67.62965

HIGH PROBABILITY - NEUTRAL

1998
sales
Sales Gr
Operating cost
% of sales
PBDIT
% Gr
% of sales
depriciation
dep %sales
dep % FA
Interest
% of sales
Tax
% of PBT
% of sales
Net Profit
% Gr
% of sales
wcap
Inc Wcap
wcap % of sales
Inc Wcap % of inc sales
capex
Capex as% of sales
Capex ( Maint )
Capex ( Maint ) %
fixed asset
Sales /FA
Debt
EPS
Cash
TA

1999

2000

2001

2002

2003
3249
#DIV/0!
2413
74.3%
836
#DIV/0!
25.7%
175
5.4%
3.6%
279
8.6%
40
10.5%
1.2%
342
#DIV/0!
10.5%
1842
1842
56.7%
56.7%
6752
207.8%
2185.7
67.3%
4910
0.7

2004
3469
6.8%
2677
77.2%
792
-5%
22.8%
198
5.7%
4.0%
231
6.7%
30
8.3%
0.9%
333
-3%
9.6%
1924
82
55.5%
37.3%
138
4.0%
429.62
12.4%
4966
0.7

2005
5374
54.9%
4364
81.2%
1010
28%
18.8%
205
3.8%
4.1%
128
2.4%
140
20.7%
2.6%
537
61%
10.0%
2100
176
39.1%
9.2%
270
5.0%
530.2
9.9%
5060
1.1

2006
5735
6.7%
4607
80.3%
1128
12%
19.7%
246
4.3%
4.0%
118
2.1%
160
20.9%
2.8%
604
12%
10.5%
3150
1050
54.9%
290.9%
2150
37.5%
1481.2
25.8%
6160
0.9

2007
7877
37.3%
6103
77.5%
1774
57%
22.5%
321
4.1%
4.5%
233
3.0%
270
22.1%
3.4%
950
57%
12%
4500
1350
57.1%
63.0%
2381
30.2%
1853.37
23.5%
7191
1.1

2008
11558
46.7%
8371
72.4%
3187
80%
27.6%
377
3.3%
4.6%
370
3.2%
600
24.6%
5.2%
1840
94%
15.9%
6300
1800
54.5%
48.9%
2749
23.8%
2369.8
20.5%
8140
1.4

0.2

0.1

0.2

0.2

0.3

0.5

6752.0

6890.0

7160.0

9310.0

11691.0

14440.0

Sales/ TA

ROC
cash / share
No. of shares

0.5
5%

0.5
5%

0.8
8%

0.6
6%

0.7
8%

0.8
13%

1404

2802

2790

2726

3000

3398

Projections
2015
2016
95000
98000
5.6%
3.2%
76000
78400
80%
80%
19000
19600
6%
3%
20%
20%
2350
2400
2.5%
2.4%
10.0%
10.0%
1330
1372
1.4%
1.4%
5055.6
5223.24
33%
33%
5.2%
5.2%
10264
10605
6%
3%
10.8%
10.8%
1000
0
1000
-1000
1.1%
0.0%
20.0%
-33.3%
1500
-500
1.6%
-0.5%
2645
680
2.8%
0.7%
23500
24000
4.0
4.1

2009
13609
17.7%
10548
77.5%
3061
-4%
22.5%
410
3.0%
4.9%
428
3.1%
800
36.0%
5.9%
1423
-23%
10.5%
7300
1000
53.6%
48.8%
1204
8.8%
1584.08
11.6%
8344
1.6

2010
15263
12.2%
11942
78%
3321
8%
21.8%
440
2.9%
4.4%
351
2.3%
180
7.1%
1.2%
2350
65%
15.4%
8700
1400
57.0%
84.6%
3002
19.7%
2096.22
13.7%
9946
1.5

2011
80000
424.1%
64000
80%
16000
382%
20%
2100
2.6%
10.0%
1200
1.5%
4191
33%
5.2%
8509
262%
10.6%
0
-8700
0.0%
-13.4%
2354
2.9%
-7230
-9.0%
21000
3.8

2012
82000
2.5%
65600
80%
16400
3%
20%
2150
2.6%
10.0%
1148
1.4%
4323.66
33%
5.2%
8778
3%
10.7%
0
0
0.0%
0.0%
500
0.6%
1505
1.8%
21500
3.8

2013
85000
3.7%
68000
80%
17000
4%
20%
2200
2.6%
10.0%
1190
1.4%
4491.3
33%
5.2%
9119
4%
10.7%
0
0
0.0%
0.0%
500
0.6%
1540
1.8%
22000
3.9

2014
90000
5.9%
72000
80%
18000
6%
20%
2300
2.6%
10.0%
1260
1.4%
4765.2
33%
5.2%
9675
6%
10.7%
0
0
0.0%
0.0%
1000
1.1%
1610
1.8%
23000
3.9

0.4

0.7

2.7

2.8

2.9

3.1

3.3

15644.0

18646.0

21000.0

21500.0

22000.0

23000.0

24500.0

2017
103000
5.1%
82400
80%
20600
5%
20%
2500
2.4%
10.0%
1442
1.4%
5497.14
33%
5.2%
11161
5%
10.8%
0
0
0.0%
0.0%
1000
1.0%
1750
1.7%
25000
4.1

2018
107000
3.9%
85600
80%
21400
4%
20%
2800
2.6%
10.0%
1498
1.4%
5643.66
33%
5.2%
11458
3%
10.7%
1000
1000
0.9%
25.0%
4000
3.7%
2960
2.8%
28000
3.8

2019
113000
5.6%
90400
80%
22600
6%
20%
3000
2.7%
10.0%
1582
1.4%
5945.94
33%
5.2%
12072
5%
10.7%
0
-1000
0.0%
-16.7%
1000
0.9%
1100
1.0%
30000
3.8

2020
120000
6.2%
96000
80%
24000
6%
20%
3100
2.6%
10.0%
1680
1.4%
6342.6
33%
5.2%
12877
7%
10.7%
500
500
0.4%
7.1%
1500
1.3%
2670
2.2%
31000
3.9

3.4

3.5

3.6

3.8

4.1

24000.0

25000.0

29000.0

30000.0

31500.0

0.9
9%

0.8
13%

3.8
41%

3.8
41%

3.9
41%

3.9
42%

3.9
42%

4.1
44%

4.1
45%

3.7
40%

3.8
40%

3.8
41%

3316

3154

3150

3150

3150

3150

3150

3150

3150

3150

3150

3150

Sensitivity analysis
Intrinsic value estimate

Eliminate cells which are lo

CAP = 8 years
Topline growth
5%

NPM

8%

10%

12%

8%

10%

12%

8%

10%

12%

8%
10%
12%

CAP = 10 years - optimisitic

Topline growth
5%

NPM
8%
10%
12%

CAP = 4 years - pessimistic

Topline growth
5%

NPM
8%
10%
12%

Answer the following questi

1. Is the company sensitive
2. What drive the growth or
3. Provide details on the mo

Eliminate cells which are low probability ones

Answer the following questions

1. Is the company sensitive to changes in growth or margins ?
2. What drive the growth or margin/ are current numbers sustainable ?
3. Provide details on the most probable scenario (mark it yellow)

Normalised earnings calculation

year

sales
np
eps
price - low
Price - high
no. of shares Mn
mcap
mcap/sales
p/e - low
p/e - high
Book value
Retained earning / share

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0
0
#DIV/0!
29

0
0
#DIV/0!
31

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

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

3249
342
0.2
40
60
1404
56160
17.3
164.2
246.3

3469
333
0.1
41
67
2802
114882
33.1
345.0
563.8

5374
537
0.2
49.5
70
2790
138105
25.7
257.2
363.7

5735
604
0.2
53
80
2726
144478
25.2
239.2
361.1

7877
950
0.3
54
90
3000
162000
20.6
170.5
284.2

11558
1840
0.5
62
100
3398
210676
18.2
114.5
184.7

13609
1423
0.4
62
110
3316
205592
15.1
144.5
256.3

15263
2350
0.7
56
110
3154
176624
11.6
75.2
147.6

PE based valuations (based on observed

Normalised earnings based valuation
PE values
Lower limit ( historical )
14
Upper limit ( historical )
25
Normalised PE
20

Price
50.4
90.0
72.0

Normalised PE based valuation

Earnings
Earnings in depressed
3.3
scenario
Earnings in optimistic scenario 4
Normalised Earnings
3.6
current odds based on past price behavior
Upper band price
90
Lower band price
50

price
66
80
72

Current price (buy)

Upside ( upper - current )
Downside ( current - down )
Risk / reward ratio *
Gain / loss value
* upside / downside

56
34.0
5.6
6.1
22

PE comparison based valution

Sector avg PE
times Mkt current PE
1.142857
Earning yield (latest)
Earning gr
Expected return without PE
expansion
Tot ret /PE ( between 1-2 )

1.3%
5%
6%
0.1

* compare the current PE with PE of other companies in the

same sector
** also do a rough comparison of PE with that of other
companies in the index

Comments

Normalised
values

15

Subjective Probablility based valuations

Optimistic scenario
Neutral scenario
Pesimisstic scenario
Intrinsic value
disocunt to int price

Price
100.0
48.1
60.0
58.3
0.0

Computation for 5 yrs

Profit growth
1746
Capex added
11486
Depreciation
1794
Net capex
9692
ROI in capex
15%

Probability
0.15
0.65
0.2

Expected value
15.0
31.3
12.0

ROI on net capex

18%

Asset valuation
Net cash ( Debt - cash )
Any investment
Asset = NFA (reproduction cost) + WCAP
Total asset (Slice 1) = Asset + Investment +
Net cash (or reduce debt ) - Any off balance
sheet liability
No growth value (NOPAT/WACC)- Slice 2
DCF Value (Slice 3)
Current Mcap

67

If slice 1 >= Slice 2

No competitive advantage
If slice 2 > Slice ( check the EVA / sales % )
competitive advantage
Slice 3 - slice 2 represents the value of growth of the excess return over cost of capital

Buisness
Net Profit Neutral val Optimistic valuation
Marico (india)
98.8
2470
2568.8
MBL
11.66
292
291.5
Sundari
-8.85
22
66 @ 20 % ROEarnings = 4.4 Cr
Kaya
-11.6
78
234 @ 20 % ROEarnings = 15.6 cr
Total
90.01
2862
3160
Shares
5.8
5.8
Per share
493
545

Logic of analysis
Marico india has high profitability and contributes to bulk of profits. Been valued at 27 times NP
MBL - marico bangaladesh has ROE of almost 40% +. Hence been valued at 25 times NP
Kaya and sundari have almost 100 Cr of invested capital. Currently are loss making and have accumu

Neutral assumes that kaya /sundari are at best worth the captial invested
Optimistic assumes that they will become fairly profitable and valued at 15 time earnings ( earnings

Key result of analysis - current price fully values marico india and MBL.. Upside are limited to how kay
some additional benefits will come from nihar acquisition

SAMPLE VALUATION

Capital = 22 Cr
capital = 78 Cr

n valued at 27 times NP
ed at 25 times NP
loss making and have accumulated losses

t 15 time earnings ( earnings calculated at 20 % of invested capital )

Upside are limited to how kaya and sundari will perform

operating lease cpnvertor

R&D convertor
other expense capitalise