Understanding Markets

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Twitter - @niteen_india
Niteen S Dharmawat
Understanding markets
(Everything that you wanted to know about)
16th Sep 2022
Co-Founder, Aurum Capital
Website: https://aurumcapital.in
Twitter: @CapitalAurum / @niteen_india
Email: info@aurumcapital.in

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IMPORTANT DISCLAIMER:
The information herein is used as per the available sources of bseindia.com/nseindia.com/brokers websites, company’s annual
reports & other public/private database sources. Aurum Capital is not responsible for any discrepancy in the 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: INH000008118
Readers/attendees/viewers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in.
This presentation indicates opinion of the author to understand the case studies and it is not a recommendation to buy or sell
securities. Aurum Capital & its representatives may have vested interest in the mentioned securities at the time of this
publication, and its partners / company may have positions / financial interest in the securities discussed.
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 own/may have recommended 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.

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Aurum Capital is a SEBI registered Research Analyst (SEBI Registration No:
INH000008118) and Investment Advisory (SEBI Registration No: INA000011024)
services company. Started by Jiten Parmar and Niteen S 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.

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Understanding Markets
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Agenda…
 Pessimism v/s Optimism
 Wealth Creation Formula
 Case study: Which stock would you buy A or B
 Actors change, pattern repeats: Year 1720, 2000 and 2021
 Large companies safe?
 Portfolio construction
 Manage behavioural aspects
 Analyse stocks quick and fast
 Case studies
 Caselets

Buying the Pessimism v/s Optimism
5
Misconceptions
1) Bear markets are bad
2) Bull markets are all rosy

The Wealth Creation Formula
6
Right Focus – Right results
If a horse covers 10kms in 1 hour
and speed is maintained then
how much distance will it cover in
2nd hour and 3rd hour?
Add on…
Return charts in investment
10X, 20X, 30X…
Question to answer
Wealth
Creation
Formula
What investors
focus on
What investors
ignore

Which stock would you buy for 5 years?
7
Stock B
Rs 9785
Stock A
Rs 27
Please note that this is not a recommendation of any sort. This is just a case study for education purpose.

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 93,887 in Sep 2022
Stock B
Stock A
Now 0
Now 92,500+
Source: Google graph, screener/ace database
Please note that
these are not
recommendations of
any sort. This is just
a case study for
education purpose.

Twitter - @niteen_india 9
How many of you agree:
Investment in large companies is safe?
Raise your hands

Company Value lost from peak
99.6% from 2007 levels
98% from year 2014 levels
92% from 2015 levels
Scandal. Merged with Tech
Mahindra in 2009. Massive
wealth erosion
Large companies means lower risk: Not always
Once NIFTY 50 Constituents
Source: https://en.wikipedia.org/wiki/NIFTY_50, Aurum Capital Research
Please note: this is not an opinion/
recommendations of any sort on
any of the stocks. This is just for
education purpose.

Merged with Daiichi Sankyo,
later on sold to Sun Pharma.
Corp governance issues
reported
Large companies means lower risk: Not always
Once NIFTY 50 Constituents
Source: https://en.wikipedia.org/wiki/NIFTY_50, Aurum Capital Research
education purpose.

Pre-Covid Year 2020: Nothing changes
Investors lost 34K+ Crores in 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
education purpose.
Source: ACE Database
The market value decline is taken from 52 week high to price as on 13 Feb 2020
Many of these were
large companies

Year 1720: South Sea Company Stock
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Rush for the Gold…
This is a case study and not a recommendation
Source: Google, publically available data
Sir Isaac Newton lost fortunes and
went almost bankrupt to speculation in
The South Sea Company stock.
He is also quoted as stating:
"I can calculate the movement of the
stars, but not the madness of men”.

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

Year 2021: NASDAQ
15
Rush for the Gold post Covid…

NASDAQ
16

NASDAQ
17

International Funds & Equity Funds with overseas investments… from India
18
Source: - Returns, publically available data
This is a case study and
not a recommendation
• Out of total 89 fund analyzed
• 56 launched between 1998-2020 (67%)
• 33 Launched between 2020-2022(33%)
• Out of 33 funds launched between 2020-2022
• 21 are negative
• 11 are positive
• Out 11 positive
• Only 1 has beaten the benchmark index
in the last one year
• During this period, we have got several investor
enquires asking if we can provide research on
the NASDAQ listed company.
• In fact one investor showed us how to open
account and trade in the US market.
• None asked post carnage

Importance of human behaviour
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To win over Algo trades there is only one way: Control your emotions.
 Your biggest enemy, when investing, is within yourself.
 Success will only come when you learn to control your emotions.
 Apparently, one of the easiest ones but the most difficult to follow.

Manage behavioural aspects

Before we understand how to save ourselves from the potential landmines…
 Most important: prepare a list of what not to do?
 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

Classify your portfolio… My way… You may evolve yours
 Portfolio A: 70-90% funds
 High conviction
 Long term: 3-5 Years
 Not more than 5-15 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

Analyse stocks quick and fast
(Critical parameters so safeguard)

High Debt companies (Sustainability is the key, else failure is guaranteed)
How to avoid potential landmines
Majority of the failures are because of one/all of these
Poor operating cash flows (Failure guaranteed)
Consistent Equity dilution
Poor Skin in the game of the promoter(sometimes false alarm too)
Fancy/darling sector: Extremely high valuations of the company/sector (in majority of
the cases – time/value or both corrections)
When you see that the story is all-round, least you can do is “do not buy optimism”

How to quickly analyze a company
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Annual Reports
• Cash flow statement (most important, least understood)
• Balance-sheet
• P&L

Cash flow concept

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…

Exceptions
- Companies that sells more and more cash through lending
- e.g.: Banks and Financial Institutions
Other helpful parameters along with OCF
- Equity dilution?
- Promoters unpledged holding in the company
- Trend in receivables
- Interest paid v/s net profit
(a ratio of more than 0.4/0.5 is risk)
- Investing and financial cash flows
Exceptions

- 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

What are the free/paid resources for quick screening
 bseindia.com / nseindia.com
 Websites/app (Free/paid)
 Screener.in
 StockEdge
 tijorifinance.com
 trendlyne.com
 moneycontrol.com
 researchbytes.com
 reportjunction.com
 stockflare.com
 Paid database
 CapitalMarket/ACE
 Brokers websites for financial data
 Annual reports (most important)

Cashflow
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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

Balance Sheet
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1) Equity Dilution
2) Share capital (equity / preferential)
3) Borrowings (ST/LT) v/s interest component from last quarter
Screener.in

P&L
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1) Sales trend
2) Operating performance
3) Interest component
4) Depreciation
5) Tax paid
6) Dividend payout ratio
Screener.in

Quarterly results
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1) Sales trend
2) Operating performance
3) Interest component
4) Depreciation
5) Tax paid
Screener.in

Case studies

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
This is a case study and not a
recommendation

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
recommendation

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
recommendation

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
This is a case study and not
a recommendation

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
recommendation

Education sector proved to be a perfect educator for investors…
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
recommendation

Education sector proved to be a perfect educator for investors…
Source: Google graph, screener
Marquee funds got
educated
From Rs500 to Rs14
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
CFO 6 -14 35 59 -14
PAT 22 33 44 61 7
Signal
• 200Cr revenue in 2015 and 100Crs debt, Story led growth
• Growth funded through debt, no cash flow backing
• Poor shareholding (less than 30%), pledged too
• Whose who holding 46%+: Matrix Partners, FC VI India Venture, Bajaj
Holdings and Investment, Elara India,Aditya Birla Pvt Equity, ON Mauritius,
Reliance Capital, Macquarie Fund, Mondrian Emerging Markets, SwedBank
Robur Global, Credit Suisse, Marwadi Shares, Macquarie, Ontario Pension
• 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
recommendation

One more…Education case study 1/4
Source: screener
Complex case… but still can figure it out
2012
Shareholding
a
recommendation

Source: screener
2014
Shareholding
a
recommendation

Source: screener
Stock Price
• 2007: 500
• 2012: 350
• 2014: 11
• Now: 0
recommendation

Source: screener
FIIs + MFs+ Body
corp holding more
than 46% in 2012 got
educated
From Rs500 to Rs0
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
CFO 2 -3 25 76 106 136
PAT 5 12 45 81 112 124
Signal
• Operating Cashflow was not that bad.
• Devil was in detail, look at:
• Investing cash flow/Share capital/Borrowing numbers/ Receivables/
Interest paid
CF/BS/P&L Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Remarks
CFI -9 -44 -383 -105 -304 -567 CFI
Share Capital 4 14 17 17 20 22 Equity dilution
Borrowings 1 0 168 226 287 795 4.73X in 3 years
Trade receivables 9 26 71 176 191 245 3.45X in 3 years
Sales 21.00 69.70 200 347 418 516 2.58X in 3 years
Interest 0.02 1.5 2 13 31 58 Interest cost capitalized
Consistent equity dilution
Borrowings and Trade receivables growing faster than Sale
CFI numbers suggest that investments but where?
recommendation

Buying the Pessimism
(If executed well could lead to disproportionate returns )

What is pessimism?
48
Background…
A tendency to see the worst aspect of things or
believe that the worst will happen.
Examples
 End of markets when corrections happen
 End of sectors when darling sector collapse
 End of a company when events happen
• Evaluate each case
independently/ rationally

What is pessimism?
49
The news headline will look like this…
23 Mar 2020

What is pessimism?
50
23 Mar 2020
Non-market
& you get to read this

What is pessimism?
51
23 Mar 2020
Hugo Erken, Senior
economist & country
analyst for North
America, Mexico and
India, Robobank
FinTwit account with 400k+ followers asking to
stop short selling: 18 Mar 2020

Correction types and impact
52
Meme stock… Time correction
5 Year stagnation

Time Correction
53
Meme stock… but prior 10 years
10 years: 6.6X
CAGR: 21% in 10 years + Dividends
5 years stagnation
5 year: 4X+Dividend

Price corrections: permanently dead
54
Infra stocks… post 2009 carnage
Punj Lloyd, JP Associates, GMR, IVRCL: Lost 95-98%
(1 Lac became 2k or 5k)
It's only when the tide
goes out you know
who's swimming naked:
Warren Buffett

Winner-Takes-All
55
Infra stocks… post 2009 carnage
Price correction
by 50%+
Price correction
by almost 50%+

Braveheart?
56
During buoyancy or during decline
Should I consider buying
in this sector here?
Or here? Returns: 56X

Case study: Paper sector in 2020-21
(Cyclical and multiple parameters affecting it)

Paper Stocks
58
Headwinds & Tailwinds
Source: screener, publically available data
• Stocks were down by ~60-70% in a year and a half between 2018 –2020
• Stock were already coming down before COVID-19
• Sector was facing headwinds
• No one wanted to publically own this sector
• “Experts” were sighting lack of demand and deteriorating pricing power as a possible reasons for the “death” of the sector
• Difficult period did help companies put their acts together and there will come “external” unknown reasons to rebound
• Now when mojo is back everyone is on another extreme and counting on the “global shortfall”, “multi year bull run” and
“uninterrupted paper demand” and huge growth!!!
• There are certain things that never change

Paper Stocks
59
West Coast Paper Mills & JK Paper
Recommended stock to our clients, we own it too. We may exit too without any notice.
2018-2020 & 2020-2022
625
• Our estimate: in good times it could achieve
800-1000Crs EBITDA while it came to 261Crs in FY21
• Our estimate: in good times it could achieve
1200-1400Crs EBITDA while it came to 563Crs in FY21
Recommended on
02-Sep-2020 @185.
Still in coverage
Recommended on
22-Feb-2021 @137
Not under coverage anymore

Paper Stock
60
West Coast Paper Mills
It is a recommended stock to our clients, we own it too. We may exit too without any notice

Paper Stock
61
West Coast Paper Mills

Paper Stocks
62
JK Paper
It was a recommended stock to our clients, we own it too. We may exit too without any notice

Paper Stocks
63
JK Paper
It was a recommended stock to our clients, we own it too. We may exit too without any notice

Case study: Capital Goods 2020-2021
[Multiyear issues, tired (read “dead”) investors ]

Capital Goods sector
65
Headwinds, Headwinds and only Headwinds
Source:
IBEF Presentation 2019, Engineering & Capital Goods
Care Report, Capital goods sector Aug 2020
• Capital Goods industry is often called the ‘mother of all
manufacturing industry’.
• By definition, any good (plant, machinery, equipment) that
is used to manufacture other products (either directly or
indirectly) is called a Capital Good.
• The Capital Goods industry contributes ~2% of GDP in
India. In China it is 4.1%, in Germany 3.4%, and in South
Korea 2.8%.
• The performance of capital goods sector is directly linked
to the overall manufacturing sector.
• While the exports were stagnant during 8 years, the capex
in domestic economy was almost stagnant
• One of the major contributor in Engineering exports is Iron
and Steel & products made of Iron and Steel. If remove
this contribution then Capital Good sectors should have a
negative demand
• This sector has the highest number of stocks
recommended put together in in our two research services

66
Headwinds, Headwinds and only Headwinds
While imports were rising and expected to rise further
Titbit
• The country meets almost 40%
of its demand of Capital Goods
through imports.
Source:

67
Negative CAGR for a 6 year period & Stagnant Utilization
Source:

68
TD Power Systems Ltd
?

69
Zero debt; cash positive
No equity dilution; buy-back

70
IPO @ ₹261 on
Aug 26, 2011
Recommended here on 10-Feb-2021 @150

71
?

72
Q3FY21 results declared on 04-Feb-2021
Recommended on 10-Feb-2021 @150

73
Apar Industries Ltd

74
Apar Industries Ltd
Q3FY21 results declared on 04-Feb-2021
Recommended on 21-May-2021 @524

75
Apar Industries Ltd
Recommended here on 21-Ma-2021 @524
1321.05

Summary
76
 Cashflow, Debt, Equity dilution, promoters unpledged holding are very critical parameters
 Follow the rule of 3 parts of portfolio (A, B and C) covered initially
 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
 Keep a buy range; similar to sell range. If stock going below buy range reevaluate your
assumptions/if anything fundamentally wrong with the company?
 Always study the company, business model and if you do not understand do not invest
 Study by CFA Institute (number of stocks in the portfolio and diversifying risk)
 Patience, patience and patience
Critical factors

Case study: IPCA Labs
• 4.4X returns
• 40%+ XIRR
• 4.5 years

IPCA Labs
78
Brief profile
• Incorporated in 1949.
• Incorporated under the name The Indian Pharmaceutical Combine
Association (IPCA).
• Fully-integrated manufactures over 350 formulations and 80 APIs for
various therapeutic segments
• One of the 20 largest formulation companies in India
• Business segments:
• API Business (30% revenue):
• produces over 80 APIs at 12 production facilities
• Export of 79% of the APIs and Intermediates business to 70
countries
• Focus on backward integration, superior supply chain reliability
and cost competitiveness
• Formulations (70% revenue):
• Manufactures over 350 formulations
• Leaders in Pain, Rheumatology, Antimalarials, and Haircare
therapies
• Co's leading brands include Zerodol, Hydroxychloroquine Sulfate,
and Solvin.
• Three manufacturing sites still under US FDA import alert
• Geographical Mix – FY21: Europe -28%, Africa -20%, America – 21%,
Asia – 17%, CIS – 7%, Australia – 7%
2009-2014
• Post 2009 crash
• 15X in 5 years

Ban, Ban, Ban…
79
Test the patience…
• Outperforming pharma during last 5 years, peak in 2014
• IPCA peaked at ~450
• US FDA bans imports from IPCA Labs plant in MP: 2015
• US FDA issues import alert to 2 plants of IPCA Labs: 2015
• Bought 10% of quantity in 2015 @310
Peak of pharma sector in 2014
IPCA peaked at ~450
Price adjusted to split in the ratio of 2:1
2013-2015
2016-2018
• Brexit impacted
• Anti-malarial drug Hydroxychloroquine banned by WHO
• USA-China trade issues
• Chinese raw material supply/price issue
• 90% quantity between 2016-2018

IPCA Labs
80
Profit & Loss…
Topline: 2X
Bottomline: 2.33X
Stock price: 15X
Topline: 1.64X
Bottomline: 2.37X
How about buying the
pessimism?
Stock price: 2X Stock price: 4.4X
40%+ XIRR

IPCA Labs
81
Balance Sheet…

IPCA Labs
82
Cash Flows

IPCA Labs
83
Corporate actions
2016 ₹ 0.00

Patience, Patience, Patience…
84
Slow and steady accumulation helps…
• USFDA issue did not get resolve
• Operations in other countries started showing
results
• COVID happened in 2020: game changer
• Got special approval to ship Hydroxychloroquine
in the USA market
• Stock touched a peak of ~1250
• Peak revenue, peak profit, peak share price
• Fully exited in Oct 2020. Overall:
• 4.4X returns
• 40%+ XIRR
• Total duration ~4.5 years from start till end
• Did we consider recommending it to our clients?
• Yes at 425. But missed it: Why?
Overall
• 4.4X returns
• 40%+ XIRR
• 4.5 years (avg duration)

Case study: COVID wave
(should I invest in Hotel/Tourism sector in Apr-2021 (2nd wave peak in India)
• Negatively impacted sector
• Survival was in question

India’s 10 Hotels v/s IPCA
86
Buying The Pessimism
IPCA 27,500
During Corona 2nd Wave Peak
(Mar-Apr 2021)
No Company
Market cap
(in crores)
1 Indian Hotels 7,735
2 EIH Ltd 3,306
3 Chalet Hotels 3,160
4 Delta Corp 1,674
5 Lemon Tree 1,264
6 Wonderla 638
7 TajGVK 585
8 EIH Associated Hotels 552
9 Advani Hotels 139
10 Sinclairs Hotel 78
Total market cap 19,131
Total debt ~ 10,000
55,000 rooms + Restaurants + Iconic brands
available at a Market Cap of 19k + Debt 10k (EV 29K)
<<
ARR < INR 3500
Occupancy < 20-30%
No one wanted to talk about this sector publically

India’s Top 10 Hotels v/s IPCA
87
Buying The Pessimism
No Company
Market cap
(in crores)
1 Indian Hotels 38,860
2 EIH Ltd 10,040
3 Chalet Hotels 6,780
4 Delta Corp 5,640
5 Lemon Tree 5,510
6 Wonderla 1,910
7 TajGVK 1,118
8 EIH Associated Hotels 1,058
9 Advani Hotels 376
10 Sinclairs Hotel 282
Total market cap 71,574
IPCA 23,200
Today
• 1.4 year and basket is up 3.7X+ from bottom
• Even if bought staggered it is 1.5-2X
>>
ARR > INR 8000+
Occupancy > 70-75%
(Rooms not available at Leisure locations)
Everyone wants to own a hotel stock/book a hotel

Some of the Hotel properties
88
Pessimism gives the best price but it comes at the cost of patience

Some of the tweets on Hotel industry
89

Some of the tweets on Hotel industry
90

Caselets

Case 1: A cable manufacturer: Manufacturing numbers
1) a series of acquisitions
2) Cash from operating activity not in line with net profit declared by the company
3) Almost every year Equity dilution from 14Cr to 16Cr in to 18Cr to 21 Crs to 28Crs to 37Crs
4) Borrowing going up
5) Interest cost not in line with the debt amount. Interest cost capitalized
6) Receivable nos going up faster than revenue numbers
7) Other Liabilities going up too and need to see any contingent liabilities
8) Poor Promoters holding at 29% only but no pledging

Case 2: A pioneer in making ready to use steel for construction purposes
1) a series of acquisitions esp overseas
2) Cash from operating activity not in line with net profit declared by the company
3) Equity dilution from 12Cr in 2013 to 14Cr in 2015 to 15Cr in 2016
4) Borrowing going up
5) Receivable nos going up faster than revenue numbers
6) Fixed assets going up but no CWIP. Buying companies
7) High loans and advances. Need to investigate the related party transactions
8) Promoters holding is decent but pledging is a concern

Case 3: A leader in the Security Surveillance domain, the first company of its kind
1) Poor Cashflow from operations, consistently negative
2) Investing cashflow but no CWIP but Fixed Assets growing
3) Equity dilution from 13crs to 17 to 18crs
4) Trade receivables growing rapidly and numbers are likely to be hidden here
5) Loans and advances gone up 3X need to investigate further related party transactions
6) Sales growing faster than profit, the company does not have pricing power
8) Promoters holding is just 23.07% and in that also 42.48% of promoter holding pledged

Aurum Capital is a SEBI registered Research Analyst (SEBI Registration No:
INH000008118) and Investment Advisory (SEBI Registration No: INA000011024)
services company. Started by Jiten Parmar and Niteen S 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.

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.

Thank you
Email: info@aurumcapital.in
Twitter: @niteen_india
@CapitalAurum
97

Additional details
(Annual Reports, Concalls/Corporate announcements)

 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

 (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
Annual Report
Financial statements
B/S: Balance Sheet CF: Cash Flow P&L: Profit and Loss

• 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

- Corporate Announcements
- Esp. negative news (mandatory to disclose but still companies skip)
- Analyst conference calls
- Equal opportunity
- Treatment for negative/tough questions
Corporate announcements & Con-calls
Governance

Annual Report
103
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

 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 was delivered.

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