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How to screen stocks so as to avoid common mistakes and uncommon losses

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This presentation covers several new case studies.

It covers investing principles to screen stocks, avoid common mistakes backed by several real case studies from the Indian market

Objectives-
Quick screening to avoid major mistakes
What are the parameters that you must see
Sources to get the lists
Case studies covering failures and frauds
Delayed gratification: Most important quality

Published in: Business
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How to screen stocks so as to avoid common mistakes and uncommon losses

  1. 1. Twitter - @niteen_india 1 Niteen S Dharmawat Website: https://aurumcapital.in Twitter: @CapitalAurum / @niteen_india Email: info@aurumcapital.in Be a wise investor… How to screen stocks so as to avoid common mistakes and uncommon losses
  2. 2. Twitter - @niteen_india 2 IMPORTANT DISCLAIMER: The information herein is used as per the available sources of bseindia.com/nseindia.com, company’s annual reports & other public/private database sources. Aurum Capital is not responsible for any discrepancy in the above mentioned data. Investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for necessary explanation of its contents. Future estimates mentioned herein are personal opinions & views of the analyst. Analyst Name – Niteen S Dharmawat. For queries / grievances – support@aurumcapital.in. SEBI registration No: INA000011024 Readers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in. This report indicates opinion of the author & is not a recommendation to buy or sell securities. Aurum Capital & its representatives have vested interest in above mentioned securities at the time of this publication, and its partners / company have positions / financial interest in the securities mentioned above. Aurum Capital, or its associates are not paid or compensated at any point of time, in last 12 months by any way from the companies mentioned in the report. Aurum Capital, or its representatives do not have more than 1% of the company’s total shareholding. Ownership of the stock: may have advised to clients. Served as a director / employee of mentioned companies in report: No. Any material conflict of interest at the time of publishing report: No The views expressed in this post accurately reflect the author’s personal views about any and all of the subject securities or issuers; and no part of the compensations, if any was, is or will be, directly indirectly, related to specific recommendation or views expressed in the report.
  3. 3. Twitter - @niteen_india 3 About OUR company: Aurum Capital is a SEBI registered investment advisory services company. Started by Jiten Parmar and Niteen Dharmawat, who together have more than 4 decades of experience investing in equities and guiding and mentoring fellow investors. This rich industry background helps us understand companies, complexities of business and tipping points that make or break a company. Our approach is not limited to just number crunching but going beyond. We focus on the business, strategic direction, the competitive landscape, the governance process, the background of the promoters, turnarounds, to name a few. Often these are more critical items than just numbers. Jiten and Niteen have successfully waded through multiple bear and bull market cycles.
  4. 4. Twitter - @niteen_india Agenda 4  We get tips (or interested to get tips)  Quick screening to avoid major mistakes  What are the parameters that you must see  How to generate your owns stock list  Delayed gratification: Most important quality
  5. 5. Twitter - @niteen_india Timing the market 5 Misconceptions 1) Bear markets are bad 2) Bull markets are all rosy
  6. 6. Twitter - @niteen_india The Wealth Creation Formula 6 Right Focus – Right results
  7. 7. Twitter - @niteen_india Which stock would you buy for 5 years? 7 Stock B Rs 9785 Stock A Rs 27
  8. 8. Twitter - @niteen_india Price v/s Value? 8 Penny stock mentality: How much it will fall from here? Do you know the name of this stock and current price? Bad Hint: Service industry, tyres and fuel important for this. Rs 27 in Feb2012 Rs 7 in Aug 2012 Ever high Rs 290 in Dec 2007 Rs 9785 in Feb2012 Rs 11000 in Aug 2012 Expensive stock mentality: How much it can go up from here? Do you know the name of this stock? Hint: Tyres manufacturer and crude is a critical item.  Ever high Rs 80800 in Jul 2018 Stock B Stock A Now 0 Now 71400 Source: Google graph, screener/ace database
  9. 9. Twitter - @niteen_india 9 Year 2000: A repetitive grim reality Date Price Shares 2-Feb-00 1,549 119,642 3-Feb-00 1,673 68,309 4-Feb-00 1,807 82,375 7-Feb-00 1,855 3,126,844 8-Feb-00 1,877 2,358,212 9-Feb-00 1,817 2,394,038 10-Feb-00 1,848 1,788,398 11-Feb-00 1,842 1,570,270 14-Feb-00 1,875 1,336,249 15-Feb-00 1,823 975,591 16-Feb-00 1,791 808,272 17-Feb-00 1,841 843,279 18-Feb-00 1,948 2,350,699 21-Feb-00 2,104 528,893 22-Feb-00 2,272 1,301,678 23-Feb-00 2,090 1,424,987 24-Feb-00 1,952 1,454,274 25-Feb-00 1,810 1,469,617 28-Feb-00 1,770 879,915 29-Feb-00 1,628 2,157,518 1-Mar-00 1,759 1,030,278 In year 2000 Low of 200 Rs High of 2000+ Time V/S Return V/S Valuations Rs 0.28
  10. 10. Twitter - @niteen_india 10 Year 2020: Nothing changes Investors lost 34K+ Crores in last 2 years in these 15 stocks… Company Name Market cap declined by Cox & Kings 99% Talwalkars Healthclubs 99% Reliance Home Finance 97% Reliance Capital 96% Sintex Plastics Technology 96% Mcleod Russel India 96% Kridhan Infra 96% Sical Logistics 95% Dewan Housing Finance 94% Sintex Industries 93% Jet Airways 90% Jain Irrigation Systems 89% Reliance Communications 89% Reliance Power 86% PC Jeweller 86% Total 34,435 Crore Majority of these end up in retail portfolio Please note: this is not an opinion/ recommendations of any sort on any of the stocks. This is just for education purpose. Source: ACE DatabaseThe market value decline is taken from 52 week high to price as on 13 Feb 2020
  11. 11. Twitter - @niteen_india 11 Before you put in money…  Make an Excel sheet (Detailed PPT/Word doc even better)  Write the name of the script, buy price  Write very briefly the reasons for investment: it could be your research finding or someone recommended you to buy  Also, your expectations from the investment Commitment
  12. 12. Twitter - @niteen_india 12 Classify your portfolio… My way… You may evolve yours  Portfolio A: 70-90% funds  High conviction  Long term: 3-5 Years  Not more than 5-10 stocks  Portfolio B: 10-20% funds  Still unsure about Long term  Want few more quarters, ratify investment thesis  Medium term: 1-3 years, move to A else drop  Portfolio C: 0-10%  Tips /Respect quota  Time duration: 1min-1year  If develops conviction based on research move to B Discipline is the key
  13. 13. Twitter - @niteen_india Annual Report 13Image Source: Google
  14. 14. Twitter - @niteen_india Key sections 14 Annual Reports 1. Financial statements • Cash flow statement (most important, least understood) • P&L • Balance-sheet 2. Chairman / CEO’s statement & Management Discussion and Analysis 3. Others
  15. 15. Twitter - @niteen_india Annual Report 15 Chairman / CEO’s statement and Management Discussion and Analysis  Must read the first two and last two paragraphs in detail.  Find the answer for:  Is management staying focused?  What are the management’s stated plans to take the business forward: Expanding capacity, Rationalizing underperforming areas, Introducing new products /services to existing customers, Investing to raise margins (e.g. new product features, service add-ons) via R&D, marketing, etc
  16. 16. Twitter - @niteen_india 16  Negative list: flowery language, away from the reality like throwing big industry numbers/future growth  Positive list: clearly elaborating risks while talking about opportunities, conservative in approach,  Look for: The results of operations, Changes in financial condition and Risk management strategies Annual Report Chairman / CEO’s statement and Management Discussion and Analysis Warning: These days Annual Reports are also written by the IR companies. They may use the language/terminologies that is liked by the investors. So beware. Important to see what was said in previous years and what has really been delivered the company management.
  17. 17. Twitter - @niteen_india 17  Always look for consolidated numbers and not standalone  Go through notes to the financial statements for details  (P&L): net profits and sales are positive, rising or falling;  (CF, P&L): operating cash flow after working capital adjustments is positive or negative and compare with NP  (B/S and P&L): net debt is rising or falling and interest amount; B/S: Balance Sheet CF: Cash Flow P&L: Profit and Loss Annual Report Financial statements
  18. 18. Twitter - @niteen_india 18  (CF, P&L): Is company paying Taxes while showing profits?  (P&L) Component of other income? If high then see previous years/quarters’ numbers also. If one off then remove from net profit, if consistent then dig more to find sustainability  (P&L) What are the main expenditure heads: employee costs, raw material dependencies (e.g. crude prices)  (P&L, CF): Interest paid v/s net profit v/s OCF  (P&L, B/S notes) Inventory trends: Finished good, WIP v/s sales numbers B/S: Balance Sheet CF: Cash Flow P&L: Profit and Loss Annual Report Financial statements
  19. 19. Twitter - @niteen_india 19 • Salary of the directors, revision in the salary, in line with the growth/profit numbers? • Members of audit and salary committees • Composition of board of directors, how many of them are independent? • Directors attendance in board meetings • Independent auditors report Annual Report Others
  20. 20. Twitter - @niteen_india 20 Skin in the game - Unpledged Holding - Promoters’ Holding – Buying or Selling - BSE Website SHP: - Quarterly Trend - Going in strong hand - Corporate Announcements Shareholding Pattern Governance
  21. 21. Twitter - @niteen_india 21 Availability of data on internet/Annual Reports Parameter Section P/E ratio/Earning Yield Key Financial Ratios Book Value Key Financial Ratios Return On Invested Capital (ROIC) Key Financial Ratios Dividend & dividend history Summary Revenue & profits of last 5 years P&L Inventories trend of last 5 years Balance sheet Current Assets & Current Liabilities Balance sheet Statements of the company executives Company websites/media reports Promoters’ Holding (Buying or selling) Corporate announcements in NSE/BSE websites
  22. 22. Twitter - @niteen_india 22 What are the free/paid resources for quick screening  bseindia.com / nseindia.com  Screener.in, researchbytes.com, reportjunction.com, Moneyworks4me.com, stockflare.com, capitalcube.com, paid database like CapitalMarket/ACE, free apps like StockEdge  Brokers websites for financial data  Annual reports (most important)
  23. 23. Twitter - @niteen_india What are the free resources for quick screening 23 Standard summary Customized summary Screener.in
  24. 24. Twitter - @niteen_india P&L 24 1) Sales trend 2) Operating performance 3) Interest component 4) Depreciation 5) Tax paid 6) Dividend payout ratio Screener.in Draw top 6 conclusions in 120 seconds and move on
  25. 25. Twitter - @niteen_india Quarterly results 25 1) Sales trend 2) Operating performance 3) Interest component 4) Depreciation 5) Tax paid Screener.in Draw top 5 conclusions in 90 seconds and move on
  26. 26. Twitter - @niteen_india Balance Sheet 26 1) Equity Dilution 2) Share capital (equity / preferential) 3) Borrowings (ST/LT) v/s interest component from last quarter Screener.in Draw top 3 conclusions in 60 seconds and move on
  27. 27. Twitter - @niteen_india Cashflow 27 1) CFO v/s NI 2) WC changes 3) Taxes Paid 4) CFI trend 5) CFF trend Screener.in Draw top 5 conclusions in 60 seconds and move on
  28. 28. Twitter - @niteen_india Reports and announcements 28 Screener.in
  29. 29. Twitter - @niteen_india Query Builder 29 Screener.in
  30. 30. Twitter - @niteen_india Fate of two infra companies 30 Jo jita wohi sikandar… Quarter Percent Holding Pledged % Unpledged % holding Dec-19 44.66% 23.68% 34.09% Sep-19 44.13% 23.96% 33.56% Jun-19 44.13% 23.96% 33.56% Mar-19 44.13% 23.96% 33.56% Dec-18 44.12% 23.96% 33.55% Sep-18 43.94% 31.58% 30.06% Jun-18 43.94% 31.58% 30.06% Mar-18 43.94% 31.58% 30.06% Quarter Percent Holding Pledged % Unpledged % holding Dec-19 55.17% 0 55.17% Sep-19 55.17% 0 55.17% Jun-19 55.17% 0 55.17% Mar-19 55.17% 0 55.17% Dec-18 55.38% 0 55.38% Sep-18 55.38% 0 55.38% Jun-18 55.38% 0 55.38% Mar-18 55.38% 0 55.38% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CFO -7 14 -1 -28 118 100 -25 59 64 -22 265 83 PAT 20 33 70 74 68 76 84 94 98 107 137 177 Share Capital 21 21 28 28 28 28 28 32 38 38 38 38 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CFO 133 41 66 89 3 239 78 246 366 221 256 PAT 31 44 66 58 47 49 60 70 112 115 243 271 Share Capital 28 28 28 28 28 28 28 28 28 28 28 28 • Both listed sometime in 2008-09 • Survived post 2009 correction in infra cos • Both had excellent execution track record. In fact, the first one enhanced capabilities in new areas so had the second • Keeping every valuation parameter aside, first co used to be at 150-200 and second at 100-130. This difference continued for a very long time. • First co trades today ~150 and second at ~300. • Fist is subdivided into 1:2 and second 1:5. Pre division price would be 300 and 1500 respectively. Source: screener/ace database/trendline Company A Company B Company A: 3X Company B: 15X
  31. 31. Twitter - @niteen_india 31 Manufacturing and exporting Public Address Systems - Woofers, Amplifiers, Computer Speakers, Personal Speaker System, Headphones, and Earphones • Some prominent investors in IPO/Post-IPO • Widely discussed/pushed in SM/WhatsApp groups • Promoter absconding now • Debt taken from Banks/FIs: NPA Listing At: NSE SME Issue Open: May 9, 2018 - May 11, 2018 Issue Price: ₹140 Per Equity Share Issue Size: 46.66 Cr CMP: Trading banned • The Company also trading in the fabric??? • Strong presence in African Continent, UAE, South America, Singapore, Dubai, Bangladesh, Vietnam, Nepal • Products sold in 56 countries across 6 continents • In India, 17 States, dealer network of more than 240 • Opened showrooms in Dehradun, Saharanpur, Chomu, Guwahati, Jeopur, Patna, Raxaul, Bhagalpur, Calicut and Hyderabad which are run by dealers. Source: company website, publically available info Board of directors Source: Google graph, screener/ace database, company website
  32. 32. Twitter - @niteen_india 32 One of the fastest growing private sector dairy companies with a new range of innovative products and enjoys a large presence in Northern India. Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 TTM Sales 149 329 577 1,048 1,604 2,394 3,692 4,578 5,268 5,658 6,131 6,725 556 Interest 2 5 12 21 37 65 93 114 136 151 172 235 68 Depreciation 1 1 1 2 4 8 10 13 25 23 22 126 86 Tax % 34% 34% 33% 40% 24% 2% 11% 16% 17% 34% 30% 51% Net Profit 4 5 9 18 46 91 97 127 141 135 164 71 -2,073 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 CFO -1 -11 -42 -96 -139 -135 -71 19 192 9 238 55 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Sep 2019 Share Capital 18 18 18 18 20 20 20 20 22 22 24 24 24 Borro wings 15 34 91 219 425 667 881 1,072 1,098 1,335 1,508 1,699 1,829 Recei vables 24 64 154 261 414 656 930 1199 1151 1419 1373 1700 49 Gross Block 17 19 21 32.2 59.74 89.14 108.31 147.38 119.3 146.16 532.31 667.23 - • Very low depreciation number, small gross block, no major change YoY • Still company’s debt going up, equity dilution happening, receivables numbers going up, company showing huge revenue- profit growth • Promoter pledging going up…. • CFO consistently negative • Now a NCLT case Milking the investors Source: Google graph, screener/ace database
  33. 33. Twitter - @niteen_india 33 A vertically integrated multinational medical technology Group From Rs140 to now Rs3 Rs 244 on Jan 4 2008* As on Dec 2007 • FII holding 25.49% • MFs holding 4.3% Rs 221 on Feb 17 2012* As on Dec 2012 • FII holding 37.34% • MFs holding 0.07% • Strong FII holding • Increased holding by 12% in 5 years (equity dilution) Year Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Share Capital 94 161 183 186 242 Source: Google graph, screener/ace database
  34. 34. Twitter - @niteen_india 34 A Small Cap company operating in Gas & Petroleum sector TIPs take you to PITs: after reading Google news/Forums • Someone I know bought few lac shares, despite my warning, believing Google news with a target price of 100 in next few years. 2006 2007 2008 2009 CFO 0.12 1.12 -27.87 112.69 2006 2007 2008 2009 Capital 5.03 5.03 794.00 794.00 2006 2007 2008 2009 Sales 0.02 0.03 0.08 0.03 • Corporate Insolvency filed • SEBI barred 8 entities from securities market for 10 years in the case of manipulations related to GDR issuance, while two have been asked to return 'unlawful gains' of $92 million Source: Google graph, screener/ace database
  35. 35. Twitter - @niteen_india 35 A leader in the Security Surveillance domain, the first company of its kind  “Big names” leaving dangerously  Promoters holding 21% (unpledged 8.4%)  Big stories => poor cash flow & receivables numbers In INR Crs Parameter March-08 March-09 March-10 March-11 March-12 March-13 March-14 March-15 Net Profit 1.45 19.36 15.03 44.46 16.84 30.32 41.94 50.59 CFO -9.02 -40.41 0.46 -114.28 -15.53 -42.34 2.87 -51.66 Signal Parameter March-12 March-13 March-14 March-15 Share Capital 12.7 17 17.6 20.2 Borrowings 160.37 318.3 436.82 555.7 Equity dilution + Borrowings From 185 to 3 in no time Source: Google graph, screener/ace database
  36. 36. Twitter - @niteen_india 36 A specialist across the varieties of cables Parameter Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Net Profit 10.59 15.22 23.81 57.91 100.09 159.99 163.48 CFO 4.81 4.47 14.81 31.12 20.89 -46.69 21.57 Signal  Fast growing cables manufacturer  High double digit growth in Profit and Sales  High 20s ROE and ROCE numbers From Rs235 to Rs29 in one month • Promoter holding 41.19% • 100% pledged  From Rs6 to now Rs235 in four year From 235 to now Rs0 Source: Google graph, screener/ace database
  37. 37. Twitter - @niteen_india 37 Education and training company based in Chennai  ‘Darling’ of punters  Several stories around the business model  FII holding close to 28%  Some prominent names on the board could also not save it  CBI caught one of the directors of the company in a bribery case Parameter Mar-11 Mar-10 Mar-09 Mar-08 Net Profit 67.64 45.45 22.08 13.8 CFO 16.01 25.13 -8.98 13.31 Signal In INR Crs Poor shareholding pattern From Rs350 to now Rs0 The company has gone into liquidation in 2016 Source: Google graph, screener/ace database
  38. 38. Twitter - @niteen_india 38 Education sector proved to be a perfect educator for investors… Source: Google graph, screener/ace database Part of a large corporate Claim to be tech savvy Now a part of a large corporate • Contingent liabilities of Rs.524.89 Cr. • Promoters have pledged 82.74% of their holding Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 CFO 26.99 16.69 17.02 32.34 -79.28 -65.4 -44.17 PAT 18.05 21.03 29.72 32.35 5.84 -131.83 9.12 Signal • Poor cashflow • Pledging by the promoter
  39. 39. Twitter - @niteen_india 39 Education sector proved to be a perfect educator for investors… Source: Google graph, screener/ace database • Part of that highly visible Modern Education club of 4 • Rest 3 are defunct From 1101 to 1 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 CFO 13 13 52 191 224 284 PAT 14 29 71 133 276 337 Signal • Poor shareholding pattern • Story led growth • Growth funded through debt, no cash flow backing Has shown Chand-taare to investors From Rs621 to Rs75 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 CFO -31.01 -67.42 42.73 -17.52 38.15 32.41 38.95 38.62 PAT 14.69 32.34 42.34 26.85 46.57 61.26 107.08 -66.92 Signal
  40. 40. Twitter - @niteen_india 40 Let’s learn from the history: Everything becomes rosy when peak comes: a case study of news analysis vs reality check Risks to understand when such news comes • Big acquisitions • Foreign country • Such news with a frenzy behaviour more often lead to disappointment later, need to be very very careful Please note that this is not a recommendation of any sort. This is just a case study for education purpose. Source: Google graph, media reports
  41. 41. Twitter - @niteen_india 41 The top and the results From 424 to now 2.35 Please note that this is not a recommendation of any sort. This is just a case study for education purpose. 11 Jan 2008 Source: Google graph, media reports
  42. 42. Twitter - @niteen_india 42 Imagine we have a time machine and we are going back to June 2007 with FY’07 numbers to understand if we can see the upcoming problems Please note that this is not a recommendation of any sort. This is just a case study for education purpose. Description 200903 200803 200703 200603 200503 200403 200303 200203 Cash Flow from Operations -1223.75 1204.30 737.23 -354.02 118.15 11.83 -10.56 -6.03 PAT 428.87 1017.15 864.80 760.52 365.12 144.92 37.21 111.67 Signal Source: ACE Database
  43. 43. Twitter - @niteen_india 43 We have a time machine and we are going back to June 2007 with FY’07 numbers to understand if we can see the upcoming problems Please note that this is not a recommendation of any sort. This is just a case study for education purpose. Description 200903 200803 200703 200603 200503 200403 200303 200203 Cash Flow (Consolidated) Cash Flow from Operations -1223.75 1204.30 737.23 -354.02 118.15 11.83 -10.56 -6.03 Cash Flow from Investing activities -6844.55 -4636.70 -3719.91 -380.46 -270.18 -108.57 -37.90 -49.24 Cash Flow from Finance activities 3396.56 8814.06 3969.49 1131.51 238.43 108.83 59.32 -1.95 Free Cash flow -6521.94 -2041.85 -718.65 -906.74 -161.16 -123.75 -19.12 -68.76 Cash flow (Standalone) Investment in Subsidiaries -2678.71 -4114.22 -527.02 0.00 0.00 0.00 0.00 0.00 Loans & advances given to subsidiaries / partnership firms etc. -709.91 -113.49 -269.43 -106.26 14.94 -45.31 -16.90 -8.60 Balance sheet (Consolidated) Equity Paid Up 299.66 299.39 287.76 287.53 86.92 24.35 12.17 12.17 Total Debt (Long Term plus Short Term) 14869.57 9934.59 5162.04 450.70 395.81 238.36 103.61 38.86 Balance sheet (Standalone) Loan To Subsidiaries 1655.79 556.35 442.87 162.14 55.88 70.82 25.50 8.60 P&L Total Income 26530.54 14001.79 8089.88 3915.49 1965.91 875.47 269.71 533.35 Total Expenditure 23290.18 11649.84 6673.48 2961.80 1473.40 713.07 228.17 399.73 PBIDT 3240.36 2351.95 1416.40 953.69 492.51 162.40 41.54 133.63 PBIDT % 12% 17% 18% 24% 25% 19% 15% 25% PAT 428.87 1017.15 864.80 760.52 365.12 144.92 37.21 111.67 Key Ratios Debt to Equity(x) 1.74 1.23 1.51 0.17 0.44 0.61 0.40 0.16 ROCE(%) 8.55 13.31 20.98 39.32 45.94 35.28 15.17 46.58 PE (x) 26.32 37.54 32.76 48.44 0.00 0.00 0.00 0.00 Investment in Subsidiaries (Consolidated cashflow) -3700.32 0.00 -2502.64 -3.39 -9.81 0.00 -5.50 0.00 Source: ACE Database
  44. 44. Twitter - @niteen_india When and how to sell? 44  Do not sell in one go. Sell incrementally: e.g. sell 10% on every 20% rise  You realize you made a mistake and the company is not working as you expected; give time before you take a decision though  Price target achieved (after re-evaluating assumptions and pricing)  When financial parameters are at unreasonably high levels  Over exuberance in the market (You hear buy call from all media channels, newspapers, Lift- wala/chai-wala/paan-wala) and your stocks are quoting at unreasonable levels…  A deterioration in the fundamentals  A better opportunity comes along (mostly avoid for such reasons unless you do not have any other reasons)  When Promoters are selling (may give a false indication, so see business environment for the company and who is buying)
  45. 45. Twitter - @niteen_india How to manage risk 45  Study by CFA Institute (number of stocks in the portfolio and diversifying risk)  Strict about the buy and sell pricing; esp. buy  Never run behind the stocks; if something is gone let it go; don’t crib let others earn too  Always study the company, business model and if you do not understand do not invest  Follow the rule of 3 parts of portfolio (A, B and C) covered initially  Keep a buy range; similar to sell range. If stock going below buy range reevaluate your assumptions/if anything fundamentally wrong with the company?
  46. 46. Twitter - @niteen_india Recommended (MUST) reading 46  The Intelligent Investor – Benjamin Graham (1949)  Value Investing & Behavioral Finance: Insights into indian stock market realities – Parag Parekh (2008)  Security Analysis – Benjamin Graham & David Dodd (1934)  Common Stocks and Uncommon Profits – Phil Fisher (1958)  Value Investing Today – Charles Brandes (2004)  Letter written by Warren Buffet to Shareholders (1977-till date)
  47. 47. Twitter - @niteen_india 47 The Test of Impulse Control/Will Power The Stanford Marshmallow Experiment
  48. 48. Twitter - @niteen_india The Test of Impulse Control/Will Power 48 https://vimeo.com/6591011 Click to play video The Stanford Marshmallow Experiment
  49. 49. Twitter - @niteen_india 49 About OUR company: Aurum Capital is a SEBI registered investment advisory services company. Started by Jiten Parmar and Niteen Dharmawat, who together have more than 4 decades of experience investing in equities and guiding and mentoring fellow investors. This rich industry background helps us understand companies, complexities of business and tipping points that make or break a company. Our approach is not limited to just number crunching but going beyond. We focus on the business, strategic direction, the competitive landscape, the governance process, the background of the promoters, turnarounds, to name a few. Often these are more critical items than just numbers. Jiten and Niteen have successfully waded through multiple bear and bull market cycles.
  50. 50. Twitter - @niteen_india Thank you Email: info@aurumcapital.in Twitter: @niteen_india @CapitalAurum 50
  51. 51. Twitter - @niteen_india IMPORTANT DISCLAIMER: The information herein is used as per the available sources of bseindia.com/nseindia.com, company’s annual reports & other public/private database sources. Aurum Capital is not responsible for any discrepancy in the above mentioned data. Investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for necessary explanation of its contents. Future estimates mentioned herein are personal opinions & views of the analyst. Analyst Name – Niteen S Dharmawat. For queries / grievances – support@aurumcapital.in. SEBI registration No: INA000011024 Readers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in. This report indicates opinion of the author & is not a recommendation to buy or sell securities. Aurum Capital & its representatives have vested interest in above mentioned securities at the time of this publication, and its partners / company have positions / financial interest in the securities mentioned above. Aurum Capital, or its associates are not paid or compensated at any point of time, in last 12 months by any way from the companies mentioned in the report. Aurum Capital, or its representatives do not have more than 1% of the company’s total shareholding. Ownership of the stock: may have advised to clients. Served as a director / employee of mentioned companies in report: No. Any material conflict of interest at the time of publishing report: No The views expressed in this post accurately reflect the author’s personal views about any and all of the subject securities or issuers; and no part of the compensations, if any was, is or will be, directly indirectly, related to specific recommendation or views expressed in the report.
  52. 52. Twitter - @niteen_india 52 Cash flow concept
  53. 53. Twitter - @niteen_india 53 A Scooter Manufacturer… A quick example Cash Credit Cash recorded in OCF P&L Sales, Profits recognized Cash Received Yes Bad debts No Warning sign: Check Receivables…
  54. 54. Twitter - @niteen_india 54 Exceptions - Companies that sells more and more cash through lending - e.g.: Banks and Financial Institutions Other helpful parameters along with OCF - Interest paid v/s net profit (a ratio of more than 0.4/0.5 is risk) - Equity dilution? - Promoters unpledged holding in the company - Trend in receivables - Investing and financial cash flows Exceptions
  55. 55. Twitter - @niteen_india 55 - OCF = Net Income + Depreciation & Amortization – Working Capital Investment - Positive OCF by decreasing inventory/receivables (non cash working capital) or increasing in payables - Decrease in inventory, receivable numbers - liquidating items like inventory, receivables (you are supposed to get this from your customers and sell it off in the market at some discount) or - Increase in payables numbers - Supposed to pay to suppliers but don’t pay at the time of preparing the Cash flow - These are not sustainable items Can OCF be manipulated? Caution: if you notice marked changes in these numbers from last year’s numbers

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