Kalpesh's Portfolio

[kalpesh4430]

@Surender

Owner’s earning of FY-20 shall be 94 Cr. after building bottom up (shown below). Also, FY-20’s value was an outlier if you consider a window of 5 Yrs.

@Surender ji I saw a structural flaw in your calculations of owners earnings,

“owners earning is earnings produced by company considering as per its current plant capacity to be same over it’s lifetime”

“The existing manufacturing facility needs to do some capex to keep generating same unit volume in the future, is called maintenance capex”

and “Owners earning = Net profit + Dep.- Maintenance capex +/-Working capital changes if any”

What you have done is you subtracted entire capex instead of maintenance capex.

It is difficult to consider the future changes in working capital, So I consider working capital to be same in future, and ignore it,

“Owners earning = Net profit + Dep. - Maintenance capex”

So owners earnings calculated are approximate and everybody will come up with slightly different value.

We are only interested in present owners earnings(considering they will be same for the lifetime of company) and calculation of past owners earning are for reference only, we are not interested in them.

So for cyclical businesses some times I take average of 5 years, some times 3 years and some times 1 or 2 years, depending upon structural changes happened for which years in the company…

For Satia I choose to take only FY 20 owners earning,
not taking average of last some years because,

1. backward integration & operating leverage kicked in and these changes are structural in nature
2. As per management commentary margins have scope to improve further from here
3. Capex will kick in next 1-2 years and it provides additional margin of safety.

Owners earnings = 92+55-38 = 109 Cr (Approx.)

Todays value of company considering it will generate same unit volume over its lifetime(ignoring impact on demand due to covid lockdowns) = 109/0.08 = 1362Cr

@Surender

DEBT of ~ 300 Cr. needs to be added to arrive at the enterprise value.

Debt need not to subtract as owners earnings are calculated by factoring in interest component to be same over the years.
Calculating Enterprise value is a whole different method. You are mixing the two.

@Surender

Under Tax Head, a significant gap exists b/w the amount shown on the Income statement and the actual cash outflow in the CF statement | Not paying much to the government

Satia get income tax benefits, that is why tax is less.

@Surender

Promoter (family) pays itself reasonably well in a given year, but hardly anything as dividend to minority shareholders. The same might not change anytime soon as substantial Debt repayment will be due in FY-22 and FY-23. | Not paying much to the Equity Owner’s and I see clues where more capex will happen as soon as current one is in production.

As long as promotor remuneration is under regulatory limits and looking at value created by them for shareholder over the years, I don’t mind it.

Company is in the growth phase so I do not expect dividends to increase.

@Surender

Considering the above, retail investor will benefit only if the market values the business better in future. But, I do not see fundamental characteristics for which market value will be compounded YoY. Idea is not to discourage you, but share an outsider’s view on the same business.

By considering growth over the next 4-5 years I expect Intrinsic value close to 3000cr

One important thing I learned is “learn to decide what to ignore and what not to” I let go many excellent investment opportunities in past due to not ignoring the small issues.
This is everyone’s personal decision.

Disc: Invested and can be biased.