ValuePickr Forum

ValuePickr- Mumbai

Dear Valuepickrs,

Below are the notes from Valuepickr Mumbai session on 13th November 2016

Many thanks for Dhiraj bhai (Dhiraj Dave) for presenting “Reading between the lines” (what to read in an annual report of any company that you are currently looking forward to invest)

I have made a brief summary, i may have missed some points, please feel free to add

  1. Check the change in name of the company over the period of last 10-15-20 years. Rogue promoters will typically have a trend similar to below
    Early 90 - NBFC
    Late 90 - IT Company
    Early 2000 - Infra
    2010 - Healthcare company
    Above is a trend of a promoter who is just trying to ride the wave and is not into serious business
  2. Has the Company issued FCCB in last few years? If Yes, what have been the proceeds used for? Capital Expenditure or acquisition of a foreign company at a high valuation? The later is a sign of a cunning promoter wanting to siphon money off. 90% companies would have acquired a foreign company at obscene valuations where goodwill is more than 30-40% of the networth. Funding a bad company acquisition that too on debt is a poor idea, he could have used equity to obtain capital
  3. When you see rising share prices and rising profits, you would like to know, whats really happening? Nowadays companies dont disclose the volume and revenue growth both at same time. Thus one finds it difficult to check the company’s capacity utilization and scalability. One proxy to that is increase in power consumption. Any good mfg. company would see a sequential rise in power consumption. For pharma companies, one can see sequential rise in R&D expenses over a period of time
  4. Please check for SEC filing details of a company that has presence in USA. Companies that usually dont disclose too many details in their Indian filings, do so in SEC filings.
  5. For banks, check what is the size of their deposits and how many of their customers make up their total deposits ?
  6. It is worthwhile checking the number of pending legal cases against any company; use sources like legalpundits.com. Any company into serious operations would naturally have some active legal cases. However that gives you an idea that the company is actually doing that business and not faking facts
  7. Balance sheet - Fixed Assets
    Look for how much of gross block is made up by Plant & Machinery. In any mfg. company, plant & machinery would constitute about 50-60% or even more. If this num is seriously low, you have a reason to query. Check both consolidated & standalone nos. to verify these facts
  8. Also check related party transactions for that company to whether any loss making companies are being acquired & run by using the profits from this company
  9. Check whether the brand/trademark is owned by the company or its promoters. If it is owned by promoters, its a red flag for you, because in such cases, the promoters will keep drawing annual royalty from the company’s profits
  10. Check whether the company is empanelled or blacklisted in some of its reputed customer panels ? For e.g. if its an EPC company, then is it empanelled or blacklisted by reputed customers like ONGC ?
  11. Check whether the company has been making increasing investments into loss making subsidiary; thats a red flag and analysis of standalone and consolidated nos will make this clear
  12. Balance sheet - Current Assets
    Check for Loans and Advances recoverable in Cash & Kind - these are indeed doubtful practices and if used frequently must give rise to doubt
  13. Balance Sheet - Capital
    If preference capital or Share application money remains on the books for many years in succession, this is a red flag. PReference share holders receive priority in dividend distribution
  14. Balance Sheet - Reserves & Surplus
    If the reserves and surplus are being used for one time merger of a fully owed subsidiary after acquiring it from outside must give rise to questions. Especially so, if the purchase has been capitalized in the consolidated balance sheet
  15. Balance Sheet - Debts
    Increase in no. of bankers and presence of more than 12-14 bankers is a matter of concern
  16. Entry of a state finance corporation/cooperative bank allowing for exit of a reputed nationalised bank or foreign bank is certainly not a good sign. Especially so if the company has been in the business for long time
  17. Check for break-up of working capital as a percentage of Sales, if it is about 25% of Sales approx. its OK, but if it is considerably higher, you need to worry
  18. Check for security offered against loans, has promoter pledged any shares? Or he has offered some special / personal guarantee ? HAs auditor made this a part of their report?
  19. Check for interest accrued & due in current liabilities - IDeally banks should charge monthly interest and thus the interest accrued and due should be a small number as compared to revenue
  20. Ideally Revenue should be Nett of sales and trade discounts, if trade discounts have been treated separately, you have to be cautious
  21. IF for a manufacturing company Value of traded goods sold is higher than manufactured goods sold, you need to check in details, what exaclty is the company’s business model?
  22. Check for provision for tax, check for provision for doubtful debt, this shouldnt be more than 1% of overall debt
  23. Check for provision for investment
  24. Check for extra-ordinary income, especially those resulting from insurance claims. Many fraudulent companies will claim insurance from typical causes like fire to accounting office, fire to R&D building, virus attack on accounting software etc.
  25. If audit fees have grown significantly over recent past then thats a reason to worry. Also if there has been a frequent change in auditors earlier than 3-5 years, thats another reason to worry

These the the bytes that I could capture from the meeting, I may have made some mistakes in my notes. Please feel free in correcting me wherever you feel I need to be. I am not from accounting background and thus I am open for corrections.

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@ameydesai @andy161161

Thanks amey for the summary, will u guys also please share the presentations!

**Nov16 Meeting Report **
The Mumbai value investors meet saw its 3rd edition on 13 Nov 2016(Sunday), this time at Andheri(E) in a coworking space. People took advantage of the sofas and different settings, while still focusing
on the slides. There was a turnout of 55 people this time.

The presentations started at 2:30, with Dhiraj Dave @dd1474 presenting ‘Reading between the lines’. Dhiraj leveraged his rich credit experience(from origination to resolution) to cite examples from memory about audited balance sheets with arithmetic errors,
BIFR companies facing fire/accounting software corruption. He stressed the need to constantly innovate the metric you track, and ensure you don’t look at one metric in isolation. Otherwise, like how bacteria develop resistance with the same antibiotic, frausters manage metrics by reclassifying cashflows, advances etc. Qualitative metrics(empanelment, financial year extension, source of funds
for loans against securities, preference shares history) and quantitative(comparing raw material mix to reported realizations) saw its use. The session concluded with people seeking more. **Special Thanks to him for taking pains to redo the presentation for a public audience **

The 2nd presentation by Jatinder Agarwal @jatinderagarwal was the capstone session on insurance valuation. Jatinder presented a sample valuation of insurance companies, backing it up with actual FY15/16 numbers of ICICI
Prudential, and an industry comparison sheet. From an investor’s perspective, it was apparent that companies with the least commission and operating costs, would be best placed to yield better returns to shareholders and policyholders. The benefits of scale were also apparent, with larger companies usually more profitable.

The 3rd session by Veer Bhartiya @veerbhartiya93 saw an incisive analysis on Balaji Amines. While the stock has ramped up 3x in the last few months, further room for appreciation was seen. While there was some differences of opinion on whether the business is commodity or specialty, wisdom of further capacity investments by price taker in a market at risk by Chinese imports(eg Ammonia price/kg in India Rs 28 versus 6/tonne abroad) and on whether the hotel business is ‘diworsification’ or ‘throwing good money after bad’, the presentor’s mosaic approach of qualitative and quantitative lens, besides novel frameworks on cost of capital, empathy, management quality, catalysts was appreciated. Thanks to Rohit Balkrishnan @rohitbalakrish_ for adding value with the several questions.

The 4th session by Shekhar Sukhlani @sukhlani was about understanding sugar as a commodity, the present stage in the cycle, and an overview of listed Indian companies in the space. Sugar being a regulated agri commodity (sensitive at all political levels-state, national or international), understanding of political factors(draught situation reducing acreage in Maharashtra, elections affecting SAP level in UP) is critical. As someone said, ‘Sugarcane price is controlled but market sets the price of sugar’. The level
of integration with the global market having increased, Indian markets now increasingly track global sugar prices. From a valuation standpoint, it is extremely difficult to forecast industry level production which equals AcreageYieldRecovery Rate-all of which are hard to track. Hence, going by the
past records and sticking with players having clean balance sheets and who have ridden multiple market cycles in the past, would be good. This is not a conventional ‘investing’ topic, but this gave new perspectives to participants. Thanks to Samar Shrivastava @sansud and Yash Suba @ysubha for their supplementing the presentation, and making up in part for Prasad Shete’s absence.

Thanks also to @raahill and @kaustubhkale for taking pains to review the presentations and give their feedback, and also to @ameydesai for his detailed note above on Dhiraj’s PPT

Please note by downloading the below PPTs, you acknowledge this is only for private academic study and not intended as a report under the SEBI regulations.
A perspective on Sugar-final for ppt.pdf (1.1 MB)
BAL_10.28.pdf (898.4 KB)
November 2016 Reading between the lines by Dhiraj Dave Version 1.pdf (1011.5 KB)
Insurance - Oct 2016.pdf (1.4 MB)

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Those interesting in receiving notifications for the next event please sign up on https://groups.google.com/forum/#!forum/valueinvestormumbai. Those seeking to join the Whatsapp group please message @viv_vjti @hhhkaustubh @narender In the interest of privacy, I am NOT posting their mobile numbers

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Hello, I would like to attend these meetings, please keep me updated about these meetings and add me in this group.

Regards

The 4th monthly meeting took place at KJ Somaiya Polytechnic, VIdyavihar. The presentations followed the theme of 2 stock specific, 1 sector and 1 investing philosophy. The first meeting held on a Saturday, saw a turnout of ~45(versus registrations of 55). The presentations

  1. Justdial stock presentations by Anandh Sundar @andy161161 which explored the recent price dip, promise vs performance, global comparables, and probability weighted scenarios. The audience weighted in with comments on demonetization impact on clients(SMEs), disruption worst case scenario, H1’17 performance dip, scuttlebutt on spam calls post inquiry, and whether bear case was pessimistic enough considering dramatic website rank fall. Thanks to @gaurav_sun238 for questions and comments.
  2. The presentation on Shemaroo by Girish Singhi @SinghiGirish explored one of the most actively tracked stocks and its business model, risks and valuation. there was active participation from the members who gave inputs on its business model pivot, M&E industry dynamics in India, economics and interplay of cable/D2H vs online sales, and debate on whether negative FCF truly reflected economic earnings, impact of 3rd generation and extent of value creation. Thanks to @dd1474 for weighing in with his comments
  3. Yogesh Sane @Yogesh_s presented on popular demand, an overview of his post on Indian Banking Industry - PSU and Private This included an innovative layering of ratio analysis-presenting 3yrs of ratios for banks sorted by assets on a bar graph-it helped bust many myths for me about big bank vs small banks. Some interesting points included impact of cost of funds on business model choice(hint, smaller is better), correlation of operating cost to NIM, cumulative effect of provisioning, PSU vs private sector and agency effect therein, behaviour impact of implicit guarantee, why banks account for high share of index in emerging economies, and aligning ROE expectations for this regulated sector. He interposed comparisons of banks with other FI players(MFIs, NBFCs, HFCs).
  4. Prashant Vaishampayen @prashant presented on his experience of being a full time investor since 2010. The presentation despite being the last one, kept people engaged and appreciative of the experience sharing which did not skim over practical aspects like trade execution, family buy in, handling boredom etc.
    Life of full time investor.pdf (215.9 KB)
    Just Dial-An analysis.pdf (1.3 MB)
    Shemaroo PPT to be uploaded post some changes

As usual, thanks to the organizers including yours truly, @kaustubhkale and @raahill for presentations vetting, @Yogesh_s for ideas and suggestions and to @sekhar for organizing the venue+logistics.

PLEASE DO NOT POST YOUR NUMBERS AND EMAILS IDs IN THIS THREAD. INSTEAD, read this ValuePickr- Mumbai

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Thanks guys, you are doing great

Regards

Please scroll above and follow instructions in the post and seek addition to the groups.

To Mumbai whatsapp grp,
whatever I said abt Prof. Mankekar was all untrue.
Pls post on what’s app group. Since I didn’t quote Prof. Mankekar.

I don’t know what u all have said or posted. whatever I have said abt Prof. Mankekar’s views is not the truth. Since I have not met him. Those were biased views of my friends who have been in the markets.
I hope u can post this on the grp. And clear my conscience.

Let alone having lunch with him I have never seen him or met him

The things I have mentioned earlier in this group were biased and were mine alone. Anything I mentioned relating any stocks or economy in general were mine and had nothing to do with any body. I wanted people to believe me. And I’m realising the harm I’ve caused hence want to come out clean. I apologise for my actions. Thank you.

Hi,

Could you please add me to this group

Regards
Shashank

Limited seats open for the Jan 22nd(Sunday) meet. Those interested in attending but if seats are full can unicast for addition to the waitlist
https://www.instamojo.com/andy161161/value-investors-monthly-meet-somaiya-college/?ref=store

I have sent messages to the members specified but have not been added to the whats app group. Please let us know how to register. Thanks

The 5th monthly meeting saw a rather subdued attendance of ~40 possibly owing to the India England match. The session, held at the usual venue and time of KJ Somaiya Polytechnic and Sunday 2pm, saw a slightly different format of fewer ‘full’ PPTs, and more ‘my top stock idea’ sessions of 15-25min, where people discuss their top stock holdings.

The full PPT was by Dhruv Shah @dhruv hich featured Intrasoft Technologies, a Kolkata based company which operates 123storesInc, an ecommerce seller getting 70% revenues from Amazon. The session saw discussions on marketplace model, moat evaluation and debates on growth vs margins vs working capital tradeoffs. The investment thesis relies on EBITDA reaching ~5% of sales(from present levels of ~1.5%, and historic levels of 10%), and it remaining working capital negative and capex light.
The ‘my top stock idea’ session had the following PPTs(comments that follow are MY takeaways/thoughts, not necessary what the presenters said, see the PPTs for that)
Sastasundar Ventures(formerly Microsec securities) by @krishari -a NBFC turned core investment company turned epharmacy. Presently they are Kolkata based but have ambitions to scale up.
Indraprashtra Gas by @sharrmasks has seen things working out well on pricing freedom input costs, raw material allocation, friendly policy environment of PNG/CNG etc and hence trades at historically high multiples that factor these in. While it has a long growth runaway, and has a long track record across economic cycles such priced to perfection stocks could see multiples compression even if 1 engine stops firing.
Poddar Developers by @Samar is a Mumbai based affordable housing company, which has its marquee projects in Badlapur. Promoter has the affordable housing DNA as evident from pricing, marketing and construction decisions, and is debt free, thereby helping him resist the urge to ‘launch new projects at any cost’. It is still considered a story stock, but again has a long runaway due to ~21M housing units shortage by 2021.
Take Solutions by @mvmakadia is a Shriram Group promoted, pharma regulatory data management firm which pivoted in the last 5yrs from the supply chain business. They have a large addressable market, poised to explode due to regulatory factors of patent cliffs, filings need etc, and also as they solve a major customer pain point. This firm reminds me of hidden champions.
Kudos to Chandrasekhar @sekhar for helping with the venue+logistics, and Yogesh @Yogesh_s for the successful idea on the my top stock idea, and also reviewing the PPTs in detail, and to @raahill for PPT review.

Important note: Those interested in attending the next sessions please add yourself to the mailing list on https://groups.google.com/forum/#!forum/valueinvestormumbai Those desiring to join the Whatsapp group please inbox ANY(NOT ALL) of @andy161161 @Yogesh_s @narender -the direct link is suspended for now. DO NOT PUT YOUR MOBILE NUMBERS ON THIS THREAD. Those who wish to discuss their top stock holding can contact Yogesh, or me, and please put your details in this thread too https://docs.google.com/spreadsheets/d/1pEmAKdWglfA52KoX-APQME9xfM7ami9JrUlNJTFmRSw/edit#gid=0

Presentations are below. By downloading them, you agree that all investment decisions are at your own risk, and that this is a business analysis not necessarily an investment recomendation
Poddar Presentation.pptx (89.6 KB)
20170122 - Take Solutions presentation.pptx (109.9 KB)
Intrasoft Technologies - Valuepickr.pptx (2.4 MB)
IGL - Final .ppt (1.4 MB)
SastaSundarVentures.pptx (69.3 KB)

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The next meeting registrations are open in two categories-First Time attendees and regulars. please register under the one which suits you.
https://www.instamojo.com/andy161161/value-investors-meet-19th-feb-2017-somaiya-p/

The 6th monthly meet held in Feb-17 at Somaiya saw a turnout of ~40 people. This time, the format was one thematic presentation, and 3-4 short presentations on the top stock holding of the presentors. The presentors included
**Anandh Sundar on ‘Investors Guide to GST’-*__ @andy161161 *This presentation explained the GST provisions in brief, and highlighted the oft ignored risk/fine print.
Sagar Arya-on GHCL-@sagararya The presentation, based on a previous blog post(Sagar GHCL Post) and updated for current data, explained why the presentor was bullish on a ‘commodity stock’. The presentation Q&A helped people appreciate whether the company is ‘doing good’ or ‘going through a good time’, and of discounting earlier management sins
Avneesh-On HOEC-@avneesh The presentation started with the stock triggers of HOEC, and then a ballpark estimate of cash flows & P/E. While the company seemed to have a lot of options/projects, there also appeared a lot of uncertainty. Kudos to him for bringing up this little known company, and to audience for bringing up the technical points on reserves types, pricing freedom etc.
**Harshvardhan Agarwal-On Repco-**This low profile TamilNadu based MFI, has recently been the subject of an extremely active Valuepickr thread. In his presentation, Harsh dissected the company’s target segment, earnings, NPAs, valuations while also covering the company’s risks(eg-recent NPA spike in Q3’17 beyond the seasonal dip due to demonetisation). Harsh being an ex NBFC analyst in Motilal Oswal, he brought that institutional flair to the PPT.
Discussion on investing checklist Anandh @andy161161 presented some points on investing mistakes, which sparked some discussions.

Thanks to Yogesh @Yogesh_s @raahill @hhhkaustubh for helping coordinate, and Chandrasekhar for place arrangement @sekhar . Yogesh has been quite active on the VP forum as well on banks, NBFCs and most recently highlighting Ujaas inventory issue, and has sourced speakers for this time. Great job again.

Important note: Those interested in attending the next sessions please add yourself to the mailing list on https://groups.google.com/forum/#!forum/valueinvestormumbai Those desiring to join the Whatsapp group please inbox ANY(NOT ALL) of @andy161161 @Yogesh_s @narender -the direct link is suspended for now. DO NOT PUT YOUR MOBILE NUMBERS ON THIS THREAD. Those who wish to present or discuss their top stock holding can contact Yogesh, or me, and please put your details in this thread too https://docs.google.com/spreadsheets/d/1pEmAKdWglfA52KoX-APQME9xfM7ami9JrUlNJTFmRSw/edit#gid=06

Presentations are below. By downloading them, you agree that all investment decisions are at your own risk, and that this is a business analysis not necessarily an investment recomendation
GST-An investors perspective.pdf (822.0 KB)
Gujarat Heavy Chemicals Limited.pdf-1.pdf (292.9 KB)
InvestmentChecklistsmistakes.pdf (73.5 KB)
Repco-ValuePickr-Feb17(1).pdf (88.0 KB)
HOEC_Presentation.pptx (300.8 KB)

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Dear All,
Thanks to those who have attended and made the last 6mths meetings a success. For the subsequent meetings, basis feedback, it is decided to invite content well in advance on a structured theme. Please see the possible topics in below spreadhseet
Content Invite

Please volunteer in the above spreadsheet along with details so that it is transparent to all who might present. Once there is a critical mass(with redundancy for dropouts etc), we will announce the next meetup.

Registrations open for the 7th monthly meet. Link is below(with agenda)

Vinit Bhat(@VB1) presented on Deep Industries, an asset heavy company into gas compression and dehydration. The company has run up recently, but has ~3yrs revenue visibility in order book without additional capex. However, valuation concerns exist due to inability to demonstrate positive FCF generation, and limited earnings visibility due to Indian scenario of ~3-5yrs contracts. The stock has interesting points like signaling(PE investment in subsidiary signaling potential high IRRs), lender choice(HDFC involvement implying good quality).

Vatsal Shah(@vatsal29) presented on Premier Explosives, which is a Hyderabad based midcap whose investment thesis revolves on transitioning from industrial explosives to defense segment, and value migration to NHN explosives. He emphasized that defence changes are usually multi decades and show up slowly. However, near term triggers for the stock are the Rs 15,000 crore LR SAM missile tender, of which 1.5% could potentially accrue as revenue to the company. Those interested further can research the India Spends report on defence, as also ISRO report on NHN explosives(not included in this presentation).
Yogesh Sane(@Yogesh_s) presented on calculation of investment returns. He opined that for those who actively manage their portfolio spending tremendous time and effort(eg every month Sunday afternoon, reading, posting, whatsapp), they should measure whether they get that elusive alpha of 5%-8%. Besides, is this alpha due to strategy return(Time weighted return) or market timing(Market return)? The discussion burst many myths and while might be known to the CFAs among us, informed the broader audience.
Anandh Sundar(@andy161161) introduced the Stalwarts Advisors checklist, populated with examples of Indian companies, and covered the first 20 points. The next meetings will see further discussion of these points. Discussions brought out the point that checklists often have success stories, failures and counter examples behind them, and one cannot blindly take them for gospel without seeing interdependencies.

  1. As homework for next session, please update the investment checklist discussed yesterday. 2nd tab is for collaborative checklist.
    https://tinyurl.com/Checklist-Presentors
  2. Those seeking to volunteer please add your details in 1st tab of above sheet
  3. Those interested in being informed about future events by email, please sign up on the link below https://groups.google.com/forum/#!forum/valueinvestormumbai

20170319 - Deep Industries_vF-1.pdf (876.7 KB)
How to calculate Portfolio Performance.ppt (49 KB)
Performance Measurement.xls (32.5 KB)
Prem. Explosives.xlsx (51.1 KB)
Premier Explosives -R-24022017.pdf (211.1 KB)
Premier Explosives.pdf (510.8 KB)
Value Investors Mumbai Planning.xlsx (86.7 KB) This contains the checklist discussion in the 3rd tab

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