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Stock template
INV theme
Business modelProduct
Segment breakup
Key Parameters
Reasons to buy
Reasons not to BUY
Prior probability
Industry history
Company history
What all went WRONG IN INUDSTRY
What can kill the idea
Ecosystem
Sh patternPromoters XX
FIIs & DIs
Valuation
AVG [2006]
Current [TTM]
PB
EV/EBITA
Owner Earnings ~ = EBITA
EBITA excluding
Profitability
BS analysis
Working capitalSee CF Analysis
DebtD/E =
leverage =Business model
Why Re-ratingSee key parameters
Why Not something else
% allocation
When to sell
Portfolio aggregation risk
Mental models
Guidance
Peers
Industry
History
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Segment breakup
Revenue mixProduct wise [FY14]
Other
EBITA mix
Capital employed
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Business model
Quality
Pricing power
Competitive advantageScale, capacity
Access to skilled labour
Capital intensive ?
Bullet proof capital structure?
Debt/EBITA
Debt/4yr avg OCF
Debt/4yr avg FCF
Debt repayment schedule
(EBITA+ interest )/Interest
Porter 5 forces
Entry Barriers
Brand power
Economies of scale
Easy/difficult for competitor to replicate
Does it make life difficult for competitors?
Environmental issues
Intensity of competition among existing players.
Threat of substitutes
Bargaining power of customers
Bargaining power of suppliers
Product level economics
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Product [Business]
Growth
Consistency
LT
Durablility
Predictability
No material growth Equities = Bonds
Very HIGH growth NOT require
Certainty matters MORE over HIGHER GROWT
ROCE
Capex + Working capital
Lower the better
Avoid businesses with Both HIGHCapex
Working capital
Strong entry barriers
High RoCE
Re-investment potential
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Key Parameters
Growth Scale of opportunity
Valuation
EV/EBITA [TTM]
Core EBITA FY14
PB
Ready to hold for 5-10 YRSYes
50% decline in price after 3 yrs
EBITA
Implied EV
Current EV
Key Risks
Price Risk
Business Risk
Mgt Risk
What will drive share price
Margin expansion
PE expansion/Contraction
Revenue growth
Market perception
Where are we in the cycle for this Industry?
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People
How to judge mgt
Objective
Capital Allocation Incl FA + Working capital
Capital distribution [Div]High Payout ratio, ROCE & Growth
High quality business
Good ROE over a PERIOD OF TIME
Subjective INTERVIEW
Vision
Size of opportunity
Threat
Mgt
Integrity
Probably OO 2 type operator
Basant rule: Innocent till proven guilty
Red flags
Competency Operating skills
Vision
Execution
Compensation
Good business High probability of good mgt
Remuneration
Bad quality business High probability of bad mgt.
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Strong competitive advantage
Gross profit
Capacity utilisation
CCC
1999-2002
2003-09
2010-14
2014
Receivable days
2002-08
2009-14
2014
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Reasons to buy
Other positives
Strong competitive adv
LT Trends
4Ps
People
Product
Potential
Predictability
Pain/Problems business solve
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Reasons not to BUY
Other negatives
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Other negatives
What went wrong in past
Possibility of equity dilution
No history of earnings power
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What can kill the idea
Do Pre-mortem
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Profitability
8 Y AVG Div Payout ratio
Capacity
1997-2004xx
2005xx
2007xx
2008-11xx
FY 14xx
Capacity Utilisation
1997-2001xx
FY03-10xx
FY11xx
FY 14xx
INR USD
1993-97INR 30-36
1998-2011INR 40-48
FY1253
FY1358
FY1460
Growth in earnings
Volume CAGR
FY04-14xx
FY09-14
FY11-14xx
USD terms
FY04-14xx
2009..14 = xx%
FY11-14xx
ASP CAGR
FY05-11x
FY99-2002
FY97-98
Sales CAGR
Operating leverage
Financial leverage
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Du Pont analysis [4yrs AVG]
Tax rateBook tax rate34%
Cash tax rate30%
ROIC [4yrs avg]
EBITA
Asset turnover
ROIC
SpreadROIC - Interest rate
Derived ROEROIC + Spread * Debt-equity ratio
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Margin analysis
EBITDA margin
Gross margin
FY 99-2001xx
FY03-10xx
FY12-14xx
Accounting adjustments
Emp cost
FY02-11 avg
FY12-14
Emp cost CAGR
FY04 to 08
Capacity
Core sales
xxx
FY09 to 147% CAGR
Capacity
Power
FY99-2010xx
FY11-14xx
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Gross margin
FY 99-2001
FY03-10
FY12-14
Reason Gross margin
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Ecosystem
State of labour
Regulations
SuppliersSubtopic 1
Customers
Changes in technology
Environmental issues
Exposure to inflation
Is it a win-win situation for ecosystem
Society trends
Distribution channels
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Customers
how customers make money
Understand business from Customers perspective?
Core customers
Diversified or concentrated customers
Aggressive sales tactics
Customer retention rate
What pain does the business alleviate for the customer?
Discretionary or critical product
Ability to raise prices
% spend of customer budget on product
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Industry
How Industry evolved over the years
Good or Bad Industry
Slow or fast change in Industry
Profit Pool
Consumer/Industry facing
Value chain
Strategy
See Michael porter checklist
Always start with INDUSTRY STRUCTURE, then study RELATIVE
CO. POSITION
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History
1995
1997
1998
1999
2000
2002
2004
2008
2014
2012
2011
2010
2009
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Cash flow analysis
NWC
Receivable days
FY01-08
FY10-14
FY 14 xx
Inventory
FG
RM days
FY 01-07 xx
FY08-13 xx
FY14 XX
% of sales
FY01-08 XX
FY11-14 XX
FY09 & 10 XX
Terms of trade
Debtors /Creditors
Favourable ratio < 1
> 80% of wealth creators had ratio < 1
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Mental models
Working for business
Working against business
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Other positives
Detailed Annual report Since 1999
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