The document provides an overview of the NISM Research Analyst Certification Examination. It discusses the exam preparation, what topics will be covered, and how to study for and pass the exam. Some key points: - The exam covers topics like economic analysis, industry analysis, company analysis both qualitatively and quantitatively, and valuation. - Studying the NISM material, textbooks, and using online resources like mock tests on the NISM portal are recommended for preparation. - The exam should not be seen as a test but as an opportunity to learn lifelong skills in financial analysis that can help one's career. Understanding of concepts is more important than rote memorization. - Various valuation approaches

1. Preparation of NISM-Series-XV:
Research Analyst Certification
Examination
By
CA Sunny Sabharwal
(Investor, Educator, Financial Advisor)

2. About me
• A Chartered Accountant by qualification and financial professional with 17
years experience in investing, corporate credit, funding, business analysis, risk
assessment and startups.
• Currently, involved in:
• Advising corporations on credit ratings, fund tie-up (debt & equity)
• Mentoring startups on fund raising, cash flow management and entrepreneurship skills
• Visiting faculty at IIM Rohtak
• Professor of Practice at Jindal Global Business School
• Writing articles on varied topics including financial markets, economic happenings,
fundamental analysis, startups for leading media houses
• Mentoring people in their professional and personal journey
• Investrader by passion

3. What is NISM?
• NISM (National Institute of Securities Markets) is headquartered in Navi
Mumbai, India, and offers a wide range of courses to Indian students.
• It is a public trust established by SEBI (Securities and Exchange Board
of India).

4. Who is a research analyst
• primarily responsible for preparation of the research report or
• making ‘buy/sell/hold’ recommendation or
• give price target or
• offer an opinion concerning public offer with respect to securities that
are listed or to be listed in a stock exchange
• The analyst may or may not have the designation of ‘research analyst

5. Who is a research analyst
• How do you buy a mobile phone???
• Read reviews on websites (Quora, Google, Amazon, etc)
• Ask from a friend
• Go to mobile store
• What are we doing exactly???
• Taking/relying on the opinion of an expert/someone who is
knowledgeable about the topic we are seeking advice on

6. WHO SHOULD DO THIS COURSE?
• Suitable for anyone looking to advance their career or learn new skills as a
Research Analyst or Portfolio Manager.
• Students who have completed graduation.
• Aspirants who want to make career in:
• Banks
• Mutual Fund Houses
• Asset Management Companies
• Wealth Management
• Family Offices
• Advisory Firms
• Independent Financial Advisors who manage HNI clients and wish to
enhance their knowledge and competencies.

7. Learning outcomes
• Gain knowledge of stock market and financial analysis in India and
around the world.
• Gain the knowledge necessary to become a certified research analyst and
land a job in a brokerage firm, a research firm, or a financial institution.
• Know how to find the right stock or portfolio to choose from thousands
of companies – This is a life-long skill

8. How to pass?
• First, don’t think of it as an exam. Again, it is a life-skill just like swimming
• Go through the syllabus and mark important/difficult topics
• This can be different for every individual
• Make schedule for completing syllabus on time, considering MBA classes,
projects, etc. Keep provision for revision.
• Resources:
• NISM study material
• Textbooks available in University Library
• Professors
• Google
• Read the study material thoroughly.
• Complete free mock tests available on the NISM portal

9. Let’s take up some topics discussion
• Economic analysis
• Industry analysis
• Company analysis – qualitative
• Company analysis – quantitative
• Valuation

10. Economic Analysis
• How’s the economy doing???
• GDP
• Interest rates/Monetary Policy
• Inflation
• Unemployment levels
• Sources of information
• Newspapers
• Financial news websites (mostly free)
Interest rates are the cost of a business
borrowing money. When interest rates
increase, doing business is riskier and
more challenging. The high cost of
borrowing money to make investments in
the firm is the cause of this. Because it is
simpler to borrow money when interest
rates are low, capacity and activity can
increase.

11. INDUSTRY ANALYSIS
• Examining what impacts performance of an industry
• We don’t need to be engineers/technicians. Just basic common sense and some
online research will help
• Let’s take example of automobile sector. What do you think shall impact car
sales, be it any country?
• Income levels of individuals: Directly proportional
• Financing options/interest rates: Lower rates, more affordable
• Fuel prices: Lower running costs, more demand
• Insurance Cost/Road taxes: These ancillary costs add to the purchase cost /maintenance
• What else do you think???
• Alternatives (public transport system, cabs): inversely related
• Consumer preferences (WFH during Covid-19 pandemic)

12. Company Analysis – Qualitative Dimensions
(As Per NISM Module)
• Understand Business and Business Models
• Competitive Advantages/Points of differentiation over the Competitors
• Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis
• Quality of Management (Including Independent Directors) and Governance
• Pricing Power and Sustainability of This Power
• Organization Structure
• Critical Business Drivers/Success Factors
• Risks in the Business
• Documentation on Guidance v/s Actuals
• Sources of Information for Analysis

13. BCG Matrix

14. • Question marks: Low Market share but high growth
(BUILD)
• high uncertainty, yet great future
• The company needs to put lot of money for its development.
• This is during the introduction stages of the product.
• Stars: High market share and growth rate (HOLD)
• When the market is growing a slow pace but Stars are self-sufficient to
generate enough cash to sustain high growth and market share.
• Cash cows: High market share but low growth rate
(HARVEST)
• When the market matures, and product is able to keep its high market
share intact
• So, the cash flows from cash cow is milked to fund the question
marks.
• Dogs: Low market share and growth rate (DIVEST)
• Company is not able to sustain the relatively high market share
• Should be divested or must be managed carefully for meager amount
of cash they generate
Corporate Strategy - BCG matrix

15. Corporate Strategy - BCG matrix

16. Financial statement analysis
• Balance Sheet: What a company owns and owes!
16
Important ratios-
 Current Ratio: Current Assets / Current Liabilities
 Debt to Equity: Total Debt Liabilities / Shareholders’ equity

17. Financial statement analysis
• Income Statement: How much a company earned and how
17
Important ratios-
 Growth ratios:
• Sales & profitability
 Margins:
• Operating Profit, Net
Profit

18. Financial statement analysis
• Cash Flow Statement: Where is the CASH???
18
Cash flow from Operating
activity
Cash flow from Investing
activity
Cash flow from Financing
activity
transactions from all
operational business
activities such as sales,
purchase of material,
payment of salaries,
changes in current assets
and liabilities
transactions resulting in
investment gains /losses
such as purchase or sale of
a plant,
investment/divestment in a
new subsidiary, etc
transactions showing cash
used from debt and equity
such as new loans,
interest/dividend paid,
equity issues

19. Operating cycle

20. WHAT DRIVES VALUE?
• Benefits of an asset are potential cash flows (inflows or savings in
outflows) obtained directly or indirectly.
• Sources of CFs:
• Produce goods or provide services
• Using the asset to settle liabilities or reduce expenses
• Selling or exchanging the asset
• Pledging the asset to secure a loan

21. Price Vs Value
• “Price is what you pay, value is what you get”
• Price reflects
• Market sentiment as of a particular moment in time
• Subjective interests and expectations of the transaction parties
• Value is the price at which a typical, rational financial buyer would buy

22. Valuation - principles
• Value is determined at a specific point in time.
• Value is prospective. It is equivalent to the present value, or economic worth, of all
future benefits anticipated to accrue from ownership.
• Value is influenced by liquidity.
• The higher the underlying net tangible asset value base, the higher the going concern
value.

23. Valuation approaches
Valuation
Income
Approach
Market
Approach
Asset
Approach

24. Income Approach - DCF
• DCF measures efficiency of the firm’s assets - productivity of assets in terms of FCF (not profits)
generating capacity
• High CF generating capacity -> indication of -> good quality of assets
• All companies strive to include better and good quality assets
• DCF approach projects FCF. The cumulative value of these CFs signifies the worth of the firm
• Beyond the forecasted period, cash flows are taken to be perpetual in nature
Value of an asset = Present Value of expected FCFs + PV of Terminal Value
• FCF may be categorized as:
• Free cash flow to the firm (FCFF)
• Free cash flow to equity (FCFE)

25. Free Cash Flow to Equity
• Cash flow available to the equity owners
• Debt holders’ expenses are adjusted before calculating FCFE.

26. Discount Rate
• Used to calculate the present value of FCFs.
• For FCFF, the discount rate used is WACC.
• For FCFE, the discount rate used is cost of equity, Ke
Cost of Equity (Ke)
CAPM: Risk-Free Rate + Beta × (Market Rate of Return – Risk-Free Rate)
DDM:

27. Beta
• Beta (ß) is a measure of non-diversifiable risk
• Beta quantifies a stock’s volatility relative to the overall market
• Firms with high ratios of fixed to total costs and debt to total capital tend to display
high volatility and hence, high Betas

28. Market approach - Process
• The process starts with selecting a universe of comparable companies for
the target.
• Peer companies are benchmarked against each other, and the target
company based on selected financial data and ratios.
• These multiples give a valuation range for the target.
• The valuation metrics may vary by sector
• Common multiples used are EV/EBITDA, P/E ratio, EV/Sales ratio

29. Market approach - Process
• Selection of Comparable Companies
• Identifying and selecting the comparable companies which have similar assets,
similar business, and financial characteristics, similar operating and business risk
• The analysis of target firm involves a thorough understanding of the industry
sector, the value chain, and the key activities of the target.
• Normal SEBI filings, equity research reports, annual reports, and media release
serve the base for providing information about the target.

30. Market approach
Business characteristics Financial parameters
Sector-specific activities Revenue growth/mix
Products, services, and brand portfolio offerings Debt/equity structure
Customers, customer relationship management activities,
end markets positioning
Credit rating
Distribution channel Profitability and core growth prospects
Location and spread Growth profile, core and non-core growth, organic and
inorganic growth.
Infrastructure maintained Return on capital, return on investment, etc.

31. Market approach - Key financial metrics
Size Metrics Equity Value Equity Value = Share Price X × Fully Diluted Shares Outstanding
Fully diluted shares Fully diluted shares = shares o/s + in the money options and warrants + in the
money convertible securities
Enterprise value EV – equity value + Debt + non-controlling interest – cash and cash equivalents
Profitability Metrics Gross profit margin Gross profit margin = gross profit (sales − -COGS)/Sales sales
EBITDA margin EBITDA margin = EBITDA/sales
Net income margin Net income margin = Net net income/ Salessales
Return on Investment
Metrics
ROIC ROIC = EBIT/Average net debt + equity
ROE ROE = net income/average shareholders’ equity
ROA ROA = net income/ average total assets
Credit Metrics Leverage ratio Leverage ratio = Debt/EBITDA
Capitalization ratio Debt to total Capitalization ratio = debt/ debt + preferred stock+ non non-
controlling interest + equity
Interest coverage ratio Interest coverage ratio = EBITDA or EBIT/Interest expense.

32. Market approach – Sector specific multiples
Valuation Multiple Sector
Sales Startup companies
Subscriber Cable, direct to home-DTH, Mediamedia, Telecom
EBITDA All companies except banks, insurance, oil, real estate
EBITA Media, gaming, chemicals, transportation
Reserves Oil & and gas
Production Oil & and gas, airports
Capacity Oil & and gas
P/E Various
PEG ratio High Tech, high growth
Access lines/fiber miles/route miles Telecommunication
Broadcast cash flow-BCF Media Telecommunication
EBITDAR (Earnings before interest taxes, depreciation, amortization, rent
expense)
Casinos, restaurants, retail
EBITDAX (Earnings before interest taxes, depreciation, amortization, exploration
expense)
Natural resources and Oil & gas
Square footage Real estate, retail
Market cap/book value Technology, banks, insurance
Net asset value –NAV Financial institutions, mining, real estate

33. Conclusion of today’s session