Forensic research

1. Iii
Iii India independent insight
F2F – A Forensic Masterclass
Nitin Mangal
Independent Research Analyst
SEBI Reg. INH 000004723
+91 82 249 00 841
nitin@nmadvisors.com
TM

2. Disclaimers
• I am a SEBI Registered Analyst.
• The entire presentation is for educational purposes. Nothing is an
investment advice. No Investment decision should be taken on
what I am going to say
• Me and My family has no investment in any stock
• The attempt here is not to negatively implicate or accuse any of
the companies/promoters. I have respect for promoters. ☺

3. Do “Quality of Earnings” Matter ?
• Aberration exists till they don’t
• Massive Loss to concentrated Portfolios
• Massive Reputational Loss to Institutions
• Put stuff from AMBIT here

4. Forensics : Numbers & Narratives

5. What have we heard ??
• Pre 2008
• P&L Dekho , Baaki sab moh maaya hai
• Post 2008
• Balance Sheet Bhi Important hai, Cash Flow miss mat karna..
• Free Cash became a common parlance

9. CFO to Post tax
EBITDA
ROE
ROIC
Cash Flow Yield
Main headline number hi
change kar deta hun
Investors
Promoters
Evolution of Promoters

10. Examples

12. Expensing key assets at an early stage
0.10%
0.20%
0.20%
13.10%
45.30%
24.90%
F20 F21 F22
GROSS SOFTWARE AND TECH
DEVELOPMENT COST AS A % OF REVENUE
Company Peer
19,938
33,797
41,535
293,202
290,988
302,903
F20 F21 F22
COMPUTERS PER EMPLOYEE (INR) Company Peer

13. Beauty of Deferred tax assets
Particulars (INR mn) F21 F22 F23
PAT -763.4 -458.0 417.6
Margin% -1.1% -0.5% 0.4%
Deferred Tax Expense (credit) -256.5 77.0 -515.8
PAT- ex Deferred Tax -1,019.9 -381.0 -98.2
During the year ended March 31, 2023, the Company reduced its estimate, of dividend distribution from a wholly owned
subsidiary to the Company, from 90% to 50% of its accumulated profits and wrote back ₹ 240.34 millions of deferred tax
liability created on the accumulated profits.
On September 29, 2022, the Company entered into a binding agreement to buy the remaining stake of 4.79% in one of the
subsidiary company for a consideration of ₹ 71.88 million. These shares have been acquired on October 12, 2022. Consequent
to the management plans of merging a subsidiary company into the Company in the near future, deferred tax liability created
on undistributed reserves in the earlier years amounting to ₹ 288.50 million has been reversed to P&L account.

15. The innovative NCI Reserve and goodwill
amortization

16. Change in depreciation policy
Company A
During the year ended 31 March 2021, the management conducted an operational efficiency technical review of one of the
asset (included under the head Plant and Machinery) used in various projects, based on which, the management has revised
the estimate of useful life of such assets from 4 years to 8 years.
Had the useful life of that particular asset remained the same,
• Depreciation charged would have been higher and EBIT would have been lower by INR 87.3 million
• PPE, Net-worth would have been lower by INR 56.8 millions (net of tax impact of Rs. 30.52 millions).
Company
B
Asset Block useful life (Years) F19 F20 F21 F22
Leasehold improvement - Lease Period Lower of useful life of
asset or lease period
Lower of useful life of
asset or lease period
Buildings and Interiors 60 6 6 6
Computers 3 to 6 1 to 6 1 to 6 1 to 6
Air Conditioner 10 5 to 8 5 5
Furniture and Fixtures 10 1 to 5 1.67 1.67 to 10
Office Equipment 5 1.67 1.67 1.67 to 10
Vehicle 8 3 to 4 3 to 4 3 to 4

17. Deviation between RoU assets and Lease
Liabilities
385.9
405.9
591.0
571.9
308.2
340.7
318.7
302.2
F19 F20 F21 F22
ROU VS LEASE LIABILITIES (INR MN)
Right of use assets (Carring Value) Lease liabilities (Current + Non-Current)

18. Borrowings being under-reported?

19. Cheques in hand of 179 days?

21. Including acceptances in OCF
Particulars (INR mn) X1 X2
Net operating cash flow from
operating activities
1058.7 408.6
Adjustments:
Increase in acceptances 306.3 691.7
Interest cost paid 481.9 458.6
Capital expenditure 366.9 396.4
Free cash flow (96.6) (113.8)

22. Including capital creditors in OCF

23. Including short term borrowings in OCF

24. Including non-current investments in OCF

25. Including payables on behalf of third parties (receivables
factoring) in OCF
Particulars (INR mn) F18 F19 F20
Operating Cash Flow 10,999.30 5,012.80 8,267.10
Capex/ Acquisition 15,968.10 5,014.20 3,609.30
Interest Paid 236.20 135.40 51.70
Reported Free Cash Flow -5,205.00 -136.80 4,606.10
Adjustments:
Acceptances -2,895.00 77.40 -1,079.50
Payable to bank towards receivable buyout facilities 144.10 -111.80 -467.40
III Adjusted Free Cash Flow -7,955.90 -171.20 3,059.20
The Group has availed Receivable Buyout facility from banks against which a sum of INR 404.31
crores (March 31, 2019: INR 649.15 crores) has been utilized as on the date of Balance Sheet. The
Group has assigned all its rights and privileges to the bank and there is no recourse on the Group.
Accordingly the amount of utilization has been reduced from trade receivables.

26. High inventory in transit
38%
42%
28%
41%
46%
20%
25%
30%
35%
40%
45%
50%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
F18 F19 F20 F21 F22
(INR
mn)
Inventory (LHS) % of inventory in transit (RHS)

27. Inventory movements affecting EBITDA
Particulars (INR mn) F19 F20 F21 F22
Changes in inventory of FG, WIP and SIT -
39.7
-
92.9
-
138.9
-
83.3
Revenue
2,606.5 2,418.2 2,307.3 4,482.6
Changes in inventory to revenue -1.5% -3.8% -6.0% -1.9%
EBITDA Margin 11.6% 11.6% 11.2% 9.4%
EBITDA Margin ex- changes in inventory 10.1% 7.8% 5.1% 7.5%

28. Thanks
• Words of encouragement ?
Tweet your encouragements tagging @nrmangal
• Feedbacks ?
Email us at nitin@nmadvisors.com