Check List_Mind Map_may 2015

7/23/2019 Check List_Mind Map_may 2015

http://slidepdf.com/reader/full/check-listmind-mapmay-2015 1/26

Stock template

INV theme

Business modelProduct

Segment breakup

Key Parameters

Reasons to buy

Reasons not to BUY

Prior probability

Industry history

Company history

What all went WRONG IN INUDSTRY

What can kill the idea

Ecosystem

Sh patternPromoters XX

FIIs & DIs

Valuation

AVG [2006]

Current [TTM]

PB

EV/EBITA

Owner Earnings ~ = EBITA

EBITA excluding

Profitability

BS analysis

Working capitalSee CF Analysis

DebtD/E =

leverage =Business model

Why Re-ratingSee key parameters

Why Not something else

% allocation

When to sell

Portfolio aggregation risk

Mental models

Guidance

Peers

Industry

History

ContrarianValueEdge.com



Segment breakup

Revenue mixProduct wise [FY14]

Other

EBITA mix

Capital employed




Business model

Quality

Pricing power

Competitive advantageScale, capacity

Access to skilled labour

Capital intensive ?

Bullet proof capital structure?

Debt/EBITA

Debt/4yr avg OCF

Debt/4yr avg FCF

Debt repayment schedule

(EBITA+ interest )/Interest

Porter 5 forces

Entry Barriers

Brand power

Economies of scale

Easy/difficult for competitor to replicate

Does it make life difficult for competitors?

Environmental issues

Intensity of competition among existing players.

Threat of substitutes

Bargaining power of customers

Bargaining power of suppliers

Product level economics




Product [Business]

Growth

Consistency

LT

Durablility

Predictability

No material growth Equities = Bonds

Very HIGH growth NOT require

Certainty matters MORE over HIGHER GROWT

ROCE

Capex + Working capital

Lower the better

Avoid businesses with Both HIGHCapex

Working capital

Strong entry barriers

High RoCE

Re-investment potential




Key Parameters

Growth Scale of opportunity

Valuation

EV/EBITA [TTM]

Core EBITA FY14

PB

Ready to hold for 5-10 YRSYes

50% decline in price after 3 yrs

EBITA

Implied EV

Current EV

Key Risks

Price Risk

Business Risk

Mgt Risk

What will drive share price

Margin expansion

PE expansion/Contraction

Revenue growth

Market perception

Where are we in the cycle for this Industry?




People

How to judge mgt

Objective

Capital Allocation Incl FA + Working capital

Capital distribution [Div]High Payout ratio, ROCE & Growth

High quality business

Good ROE over a PERIOD OF TIME

Subjective INTERVIEW

Vision

Size of opportunity

Threat

Mgt

Integrity

Probably OO 2 type operator

Basant rule: Innocent till proven guilty

Red flags

Competency Operating skills

Vision

Execution

Compensation

Good business High probability of good mgt

Remuneration

Bad quality business High probability of bad mgt.




Strong competitive advantage

Gross profit

Capacity utilisation

CCC

1999-2002

2003-09

2010-14

2014

Receivable days

2002-08

2009-14

2014

CCC = Cash conversion cycleContrarianValueEdge.com



Reasons to buy

Other positives

Strong competitive adv

LT Trends

4Ps

People

Product

Potential

Predictability

Pain/Problems business solve




Reasons not to BUY

Other negatives




Other negatives

What went wrong in past

Possibility of equity dilution

No history of earnings power




What can kill the idea

Do Pre-mortem




Profitability

8 Y AVG Div Payout ratio

Capacity

1997-2004xx

2005xx

2007xx

2008-11xx

FY 14xx

Capacity Utilisation

1997-2001xx

FY03-10xx

FY11xx

FY 14xx

INR USD

1993-97INR 30-36

1998-2011INR 40-48

FY1253

FY1358

FY1460

Growth in earnings

Volume CAGR

FY04-14xx

FY09-14

FY11-14xx

USD terms

FY04-14xx

2009..14 = xx%

FY11-14xx

ASP CAGR

FY05-11x

FY99-2002

FY97-98

Sales CAGR

Operating leverage

Financial leverage




Du Pont analysis [4yrs AVG]

Tax rateBook tax rate34%

Cash tax rate30%

ROIC [4yrs avg]

EBITA

Asset turnover

ROIC

SpreadROIC - Interest rate

Derived ROEROIC + Spread * Debt-equity ratio




Margin analysis

EBITDA margin

Gross margin

FY 99-2001xx

FY03-10xx

FY12-14xx

Accounting adjustments

Emp cost

FY02-11 avg

FY12-14

Emp cost CAGR

FY04 to 08

Capacity

Core sales

xxx

FY09 to 147% CAGR

Capacity

Power

FY99-2010xx

FY11-14xx




Gross margin

FY 99-2001

FY03-10

FY12-14

Reason Gross margin




Ecosystem

State of labour

Regulations

SuppliersSubtopic 1

Customers

Changes in technology

Environmental issues

Exposure to inflation

Is it a win-win situation for ecosystem

Society trends

Distribution channels




Customers

how customers make money

Understand business from Customers perspective?

Core customers

Diversified or concentrated customers

Aggressive sales tactics

Customer retention rate

What pain does the business alleviate for the customer?

Discretionary or critical product

Ability to raise prices

% spend of customer budget on product




Industry

How Industry evolved over the years

Good or Bad Industry

Slow or fast change in Industry

Profit Pool

Consumer/Industry facing

Value chain

Strategy

See Michael porter checklist

Always start with INDUSTRY STRUCTURE, then study RELATIVE

CO. POSITION




History

1995

1997

1998

1999

2000

2002

2004

2008

2014

2012

2011

2010

2009




Cash flow analysis

NWC

Receivable days

FY01-08

FY10-14

FY 14 xx

Inventory

FG

RM days

FY 01-07 xx

FY08-13 xx

FY14 XX

% of sales

FY01-08 XX

FY11-14 XX

FY09 & 10 XX

Terms of trade

Debtors /Creditors

Favourable ratio < 1

> 80% of wealth creators had ratio < 1




Mental models

Working for business

Working against business




Other positives

Detailed Annual report Since 1999


Check List_Mind Map_may 2015

Documents

Transcript of Check List_Mind Map_may 2015