Factor 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 Investment / share Sales Seasonality analysis Cash on books (Crs) Interest income as % of cash Key no brainer questions

2001

2002

2003 2004 10.5% 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

screen 2005 2006 13.8% 14.1% 0.42 1.1 2.6 2.6 3.7 0.75 10.0% 54.9% 61.3% 2.4% 33.5% 34.0% 7.8% 20.9% 3.0 21% 3.8% 0.78 0.9 1.8 2.5 3.4 0.62 10.5% 6.7% 12.5% 2.1% 39.7% 35.4% 12.6% 21.1% 3.2 22% 4.3%

2007 2008 14.3% 28.6% 1.3 1.1 1.8 2.4 3.3 0.67 1.1 1.4 1.8 2.6 3.4 0.80

2009 18.8% 0.82 1.6 1.9 2.55 3.31 0.87 10.5% 17.7% -22.7% 3.1% 33.5% 40% 10% 36% 3.4 32% 3.0%

Sector no 2010 avg 21.0% 0.47 1.5 1.8 2.20 4.80 0.95 15.4% 12.2% 65.1% 2.3% 37.4% 37.8% 8.8% 8% 4.4 22% 2.9%

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%

12.1% 15.9% 37.3% 46.7% 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%

3249

3469

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 Company specific Key variables (Important and knowable/predictable) Factor 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 history with other firms ? (check watchoutinvestors.com) Is the management lending excess cash to sister firms via loans and advance, sometime even below market 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 the 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 commodity 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 other ideas in the portfolio

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

Test of competitive advantage 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 advantage / customer advanta

Strong competitive advantages create entry barriers for incumbents, preventing entry of competition and enables incumbents t Production advantage factors 1. Process economies (resulting in lower cost of production for - resulting in moat (cost based incumbent) advantages). Weaker than customer a. Indivisibility lead economies based advantages expect in case of b.complex , linked activities patents or government regulation (like c. learning curve process cost licenses ). d. patent/ copyright/ R&D advantage - indicator is high asset turns 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 give prevent new competitor

Customer advantage - creates more 1. Habit forming and High Differentiation - No. 1 durable competitive advantage 2. Experience goods (brand effect, trademarks) - No. 2 - more common, indicator is high margins 3. High switching cost (Lock-in) - No. 3 (for ex : change of business software by a co. such as SAP ERP etc) 4. High search cost ( where it is diffcult, expensive and risk for custom to look for alternative ) like case of doctor or lawyer 4. Network effect (related to switching cost - network effect increases switching cost)

1. License Government/ Regulation based advantage 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 not necessary. Local or product specific advantages are enough sustainable ! 3. Does the company has cost advantages with or without scale Answer to these 3 questions decides whether competitive advantage is strong or not

Franchise Analysis - Competitive advantage analysis ( part repeat of the previous ta Key factors of competitive advantage Drivers Barriers to entry 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 current 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 give 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 production based Type Architecture Strategic assets Innovation Cost Finanical strength Reputation Analysis of Distinctive capability for the firm Description Relationships with all stakeholder / systems / process / Knowledge base Distribution network / Customer relationships / plant / license monopoly / natural reserve /Patents / Media Properties/ Network 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 are and strengh Value chain analysis DESCRIPTION Key Strenghts Key Weakness Cost analysis Differentiation Value adds Procurement Operations

List of the drivers/ factors (internal / external ) for the Superior Economic returns ( ROE Driver

Value driver Sales

Value factors Sales volume Price and mix

Trigger Y Y

Operating margins

Operating cost Operating leverage Economies of scale Investment efficiency Asset intensity

Y No No N N

Re-investment rate

e advantage

dvantage / customer advantage factors

on and enables incumbents to earn high returns

repeat of the previous table ) only to be read again Analysis for the company None

Mainly due to scale

1. Economies of scale in demand 2. Moderate scale in purchasing and disribution

Low to moderate switching cost

er based or production based advantages Details for the firm

ability for the firm

e capabilites are and strenght of the fit Outbound logisitic Marketing

or Economic returns ( ROE > 15 % ) Influenced by

How much

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 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

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 ?

Business model checklist

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 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 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 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. Hence 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 competitior names Avg 5-10 yrs numbers ROE NPM OPM D/E FA turns Wcap turns FCF/ sales Sales - CY NP - CY Sales Gr (%)

g 5-10 yrs numbers Profit Gr

% share of industry

Analysis of performance

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

ENTRY BARRIER - No. 1 Factor for Competitive advantage 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)

INDUSTRY ANALYSIS - The shaded factor contribute maximum to the competitive advantage of the firm

Y/N Remarks M M M H L H L NA

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

Points Key CA factor Y Y Y Y Y

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 18 Buyer conc. v/s firm concentration 19 Buyer volume 20 Buyer switching cost 21 Buyer information 22 Ability to integrate backward Total (average) Substitute product 23 Price sensitivity 24 Price / Total Purchase 25 Product difference 26 Switching cost 27 Buyer propensity to Subsititute 17 18 19 20 21 22 17

N N Y N N L L L L H N H M H L

No direct supplier power. However companies in the industry are also price takers as RM depends on crude prices

####

Moderate to high
High High Moderate High None

####

None, but a lot of competition

High Low low to moderate low to moderate ??

28 29 30 31 32 33 34 35

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 Low, Bad - 1 Med - 2 High, Good -3 Low CA = < 30 Med 30< , <50 High CA > 50

L M H M M L

High competition

Moderate to low High High Low Low moderate to high low High

Y Y

#### #### ####

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

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

Impact High

Remarks

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 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

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 Terminal value should be less 14 times FCF + excess capital

actual 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0 0 0 0 0 836 792 1010 1128 1774 3187 3061 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! #### #### #### #### 40 30 140 160 270 1842 82 176 1050 1350 6752 138 270 2150 2381 2186 430 530 1481 1853 -7798 542 424 -2232 -2227 -1390 332 340 -513 -349 1404 2802 2790 2726 3000 -5.55 0.19 0.15 -0.82 -0.74 -0.99 0.12 0.12 -0.19 -0.12 1 -0.12 600 1800 2749 2370 -1962 217 3398 -0.58 0.06 1 0.06

p 2010 3321 2011 2012 2013 2014 16000 16400 17000 18000 4191 4324 4491 4765 -8700 0 0 0 2354 500 500 1000 -7230 1505 1540 1610 9455 11576 12009 12235 19039 10571 10969 11625 3150 3150 3150 3150 3.0 3.7 3.8 3.9 6.0 3.4 3.5 3.7 1.1 1.2 1.3 1.5 5.5 2.8 2.6 2.5

800 180 1000 1400 1204 3002 1584 2096 57 -1261 677 1045 3316 3154 0.02 -0.4 0.2 0.331 1 1 0.2 0.331

24 48

Above FCFF should exclude income from cash if cash is being added back to valuation

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

38

39 47.4

41 51.4

43 56.3

cash/share

15.8

28.6 29.1 12.8 0.46 #### -0.53

40.5 11.4 11.6

46.9 6.35 6.48 11.1

2015 2016 19000 19600 5056 5223 1000 -1000 1500 -500 2645 680 12444 14877 11299 13697 3150 3150 4.0 4.7 3.6 4.3 1.6 1.8 2.2 2.5

plan 2017 2018 20600 21400 5497 5644 0 1000 1000 4000 1750 2960 14103 11756 13353 12796 3150 3150 4.5 3.7 4.2 4.1 1.9 2.1 2.2 1.9

2019 2020 22600 24000 5946 6343 -1000 500 1000 1500 1100 2670 15654 16157 15554 14987 3150 3150 5.0 5.1 4.9 4.8 2.4 2.6 2.1 1.8

h is being added back to valuation

45 47 49 51 54 60.8 59.15 60.898 62.293 64.774

57 67.63

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 Sales/ TA 1999 2000 2001 2002 2003 2004 3249 3469 #DIV/0! 6.8% 2413 2677 74.3% 77.2% 836 792 #DIV/0! -5% 25.7% 22.8% 175 198 5.4% 5.7% 3.6% 4.0% 279 231 8.6% 6.7% 40 30 10.5% 8.3% 1.2% 0.9% 342 333 #DIV/0! -3% 10.5% 9.6% 1842 1924 1842 82 56.7% 55.5% 56.7% 37.3% 6752 138 207.8% 4.0% 2185.7 429.62 67.3% 12.4% 4910 4966 0.7 0.7 0.2 0.1 2005 2006 2007 2008 2009 2010 2011 5374 5735 7877 11558 13609 15263 80000 54.9% 6.7% 37.3% 46.7% 17.7% 12.2% 424.1% 4364 4607 6103 8371 10548 11942 64000 81.2% 80.3% 77.5% 72.4% 77.5% 78% 80% 1010 1128 1774 3187 3061 3321 16000 28% 12% 57% 80% -4% 8% 382% 18.8% 19.7% 22.5% 27.6% 22.5% 21.8% 20% 205 246 321 377 410 440 2100 3.8% 4.3% 4.1% 3.3% 3.0% 2.9% 2.6% 4.1% 4.0% 4.5% 4.6% 4.9% 4.4% 10.0% 128 118 233 370 428 351 1200 2.4% 2.1% 3.0% 3.2% 3.1% 2.3% 1.5% 140 160 270 600 800 180 4191 20.7% 20.9% 22.1% 24.6% 36.0% 7.1% 33% 2.6% 2.8% 3.4% 5.2% 5.9% 1.2% 5.2% 537 604 950 1840 1423 2350 8509 61% 12% 57% 94% -23% 65% 262% 10.0% 10.5% 12% 15.9% 10.5% 15.4% 10.6% 2100 3150 4500 6300 7300 8700 0 176 1050 1350 1800 1000 1400 -8700 39.1% 54.9% 57.1% 54.5% 53.6% 57.0% 0.0% 9.2% 290.9% 63.0% 48.9% 48.8% 84.6% -13.4% 270 2150 2381 2749 1204 3002 2354 5.0% 37.5% 30.2% 23.8% 8.8% 19.7% 2.9% 530.2 1481.2 1853.4 2369.8 1584.1 2096.2 -7230 9.9% 25.8% 23.5% 20.5% 11.6% 13.7% -9.0% 5060 6160 7191 8140 8344 9946 21000 1.1 0.9 1.1 1.4 1.6 1.5 3.8 0.2 7160.0 0.8 8% 0.2 0.3 0.5 0.4 0.7 2.7

ROC
cash / share

6752.0 6890.0 0.5 0.5 5% 5%

9310.0 11691.0 ###### 15644.0 18646.0 21000.0 0.6 0.7 0.8 0.9 0.8 3.8 6% 8% 13% 9% 13% 41%

No. of shares

1404

2802

2790

2726

3000

3398

3316

3154

3150

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 2.8 21500.0 3.8 41%

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 2.9 22000.0 3.9 41%

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 3.1 23000.0 3.9 42%

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 3.3 24500.0 3.9 42% 3.4 24000.0 4.1 44%

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 3.5 25000.0 4.1 45%

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 3.6 29000.0 3.7 40%

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 3.8 30000.0 3.8 40%

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 4.1 31500.0 3.8 41%

3150

3150

3150

3150

3150

3150

3150

3150

3150

Sensitivity analysis Intrinsic value estimate CAP = 8 years Topline growth 5% 8%

Eliminate cells which are low probability ones

NPM 8% 10% 12%

10%

12%

Answer the following questions 1. Is the company sensitive to changes in gro 2. What drive the growth or margin/ are curre 3. Provide details on the most probable scen

CAP = 10 years - optimisitic Topline growth 5% 8%

NPM 8% 10% 12%

10%

12%

CAP = 4 years - pessimistic Topline growth 5% 8%

NPM 8% 10% 12%

10%

12%

ch are low probability ones

ng questions sensitive to changes in growth or margins ? growth or margin/ are current numbers sustainable ? on the most probable scenario (mark it yellow)

2001 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 0 0 #DIV/0! 29

2002 0 0 #DIV/0! 31

2003

2004 3469 333 0.1 41 67 2802 114882 33.1 345.0 563.8

Normalised earnings calculation year 2005 2006 2007 2008 5374 537 0.2 49.5 70 2790 #### 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

2009 13609 1423 0.4 62 110 3316 205592 15.1 144.5 256.3

2010 15263 2350 0.7 56 110 3154 176624 11.6 75.2 147.6

Comments

3249 342 0.2 40 60 0 0 1404 0 0 56160 #DIV/0! #DIV/0! 17.3 #DIV/0! #DIV/0! 164.2 246.3

Normalise d values 15

PE based valuations (based on observed Normalised earnings based valuation PE Lower limit ( historical ) 14 Upper limit ( historical ) 25 Normalised PE 20 Normalised PE based valuation Earnings Earnings in depressed 3.3 scenario Earnings in optimistic 4 Normalised Earnings 3.6 current odds based on past Upper band price Lower band price Current price (buy) Upside ( upper - current ) Downside ( current - down Risk / reward ratio * Price 50.4 90.0 72.0 price 66 80 72

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

price behavior 90 50 56 34.0 5.6 6.1

Computation for 5 yrs Profit growth 1746 Capex added 11486 Depreciation 1794 Net capex 9692 ROI in capex 15% ROI on net capex 18%

Gain / loss value * upside / downside

22

PE comparison based valution Sector avg PE times Mkt current PE 1.14286 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

y based valuations Probability 0.15 0.65 0.2 Expected 15.0 31.3 12.0

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 valuation Optimistic valuation Marico (india) 98.8 2470 2568.8 MBL 11.66 292 291.5 Sundari -8.85 22 66 @ 20 % ROE Earnings = 4.4 Cr Capital = 22 Cr Kaya -11.6 78 234 @ 20 % ROE Earnings = 15.6 cr capital = 78 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 accumulated losses

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 calculated at 2

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

SAMPLE VALUATION

27 times NP and have accumulated losses

rnings ( earnings calculated at 20 % of invested capital ) limited to how kaya and sundari will perform

operating lease cpnvertor R&D convertor other expense capitalise