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Showing posts with label 11th Anniversary Offer. Show all posts
Showing posts with label 11th Anniversary Offer. Show all posts

Thursday, August 5, 2021

10 Basic Principles Every Investor Should Know

10 Basic Principles of Stock Market Investing!

Dear Reader,

In the stock market there is no rule without an exception, there are some principles that are tough to dispute. Here are 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know while investing in equities.

1. Ride the winners not the losers

Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:

Riding a Winner - The theory is that much of your overall success will be due to a small number of stocks in your portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting.

Selling a Loser - There is no guarantee that a stock will bounce back after a decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well, as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.

In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses.

2. Avoid chasing hot tips

Whether the tip comes from your brother, your cousin, your neighbour or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so; get into the basics by doing research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out but they will never make you an informed investor, which is what you need to be to be successful in the long run. Find out what you should pay attention to - and what you should ignore.

3. Don't sweat on the small stuff

As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few bucks difference you might save from using a limit versus market order.

Active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself.

4. Don't overemphasize the P/E ratio

Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.  

5. Resist the lure of penny stocks

A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a Rs. 5 stock that plunges to Rs. 0 or a Rs. 75 stock that does the same, either way you've lost 100% of your initial investment. A lousy Rs. 5 company has just as much downside risk as a lousy Rs. 75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it.

6. Pick a strategy and stick with it

Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed.

7. Focus on the future

The tough part about investing is that we are trying to make informed decisions based on things that have yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.

A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with one of the stock he bought demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought it as stock price already went up twenty fold. But I checked the fundamentals, realized that company was still cheap, bought the stock, and made seven fold after that." The point is to base a decision on future potential rather than on what has already happened in the past.

8. Adopt a long-term perspective.

Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.

Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire.

9. Be open-minded

Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps; over the decades.

This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Small Cap Index, and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains. We have already experienced the multibagger returns from lesser known companies recommended under Hidden Gems service in past, our stock picks like Camlin Fine Sciences, TCPL Packaging, Kovai Medical, Wim Plast, Acrysil, Mayur Uniquoters, Balaji Amines, Cera Sanitaryware, Roto Pumps, Rane Brake Linings, Stylam Industries etc have delivered returns in the range of 500% to 6500% over period of 3 to 10 years.

10. Don't miss to diversify your equity portfolio

Its always wise to have stocks from different sectors and Industries. Do not expose your self to many stocks from the same sector. Be it IT, Consumers, Finance, Infrastructure, Pharmaceutical or any other sector, you must have a proper mix of all with suitable allocation based on future outlook of that sector and industry. Most of the companies from capital goods and Infrastructure sector have not performed since last decade but private banking stocks, NBFCs, consumers and automobile companies stocks are making new all time highs. Hence, its important to stay diversified with your stock investments.

Add power to your equity portfolio by investing in best of small and mid cap stocks - Hidden Gems and Value Picks. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns.

Wish you happy & safe Investing. 

Team - Saral Gyan

Wednesday, August 4, 2021

6 Important Rules for Picking Multibagger Stocks

Important Rules to follow while Picking Multibagger Stocks

multibagger stocks
During last decade post global financial crisis of 2009, there are numerous companies which have multiplied investor’s capital delivering super-duper multibagger returns. Similarly, there are plenty of companies which have destroyed investor’s capital to almost zero over last 10 years.

Hence, its important to know the basic criteria’s which make a company a right investment candidate with potential to multiply wealth in long term.

Rules to follow while Identifying Multibagger Stocks

Below are the 6 basic rules which we must follow to pick right companies having multibagger potential.

1. Quality management with high integrity

Alignment of management interest with minority shareholders is one of the key parameter. High standard of corporate governance ensures that company is not involved in any wrong doings. Proper and timely disclosures of shareholder related information by the companies build trust over time. Past track record of promoters, disclosures and dividend pay-out history can help us to check on this crucial parameter.

If the management is not honest, will they want to share the goodies with you? No, they will look for the first opportunity to siphon off the profits and pull the wool over your eyes. We have seen how the investors of LEEL Electricals have lost 95% of their capital over last 1 year due to personal enrichment of LEEL promoters by siphoning off company's profit from the sale of its consumer durable division to Havells.

2. High ROE & ROCE – Efficient use of capital

Return on Equity (ROE) measures a company's profitability by comparing its net income to shareholders equity (book value). ROE is a speed limit on self-funded growth (company's profit). That is, a company cant grow earnings faster than its ROE without raising cash by borrowing or selling more shares. For instance, a 15% ROE means that the company can’t grow earnings faster than 15% annually by relying only on profit to fuel growth. ROCE measures the overall returns for all stakeholders and is a relatively good measure of the overall efficiency of the company. A consistently low ROCE signifies that there is something inherently wrong with the business or the company.

Wealth creator stocks usually have very high ROE and the ROCE relative to the rest of the industry. Typically, companies with high ROCE and ROE would also be generating positive free cash flows consistently. Increasing ROE and ROCE every passing year with low / negligible debt on books is one of the key aspect in spotting multibagger stocks.

3. Low Debt and Free Cash Flows

Its important to learn the lesson from financial crisis of 2011 and now of 2019 that companies with high debt simply get slaughtered. While debt is not bad in case if the company is able to borrow at a lower rate and deploy it in its business at a higher rate as the operating leverage works in its favour, however excessive debt with high interest and repayment obligations can crunch the stock in times of downturn. So, as a long-term investment philosophy, it is best to steer clear of high-debt companies.

Recent episode of stock prices falling liking nine pins of ADAG companies (Reliance Power, Reliance Infra, Reliance Com, Reliance Capital), Essel group companies, Jain Irrigation etc indicates how unbearable high debt burden on books can destroy investors wealth in shortest span of time.

4. Asset Light Business Model - No High Capex Requirements

We know the demerits of investing in stocks like Suzlon & GMR Infra which have an insatiable appetite for more and more capital. To feed their perennial hunger, these companies dilute their equity by making FPOs, GDRs & FCCBs resulting in total destruction of shareholders wealth. This is the simple reason why we do not see multi-bagger opportunities from sectors like metals, infrastructure and utilities because of the capital intensive business model which leads to very high leverage and low return ratios.

Companies should be lean and mean requiring minimal capital but generating huge returns with free cash flows which can be used not only to reward shareholders but also to expand business in future. It is not necessary that company should be a zero-debt company as some amount of leverage can actually improve shareholders returns.

5. The Scale of Opportunity & Non-cyclical Business

Multi-bagger stocks are created because they are able to scale the opportunity rapidly. Titan Industries is a great example. In 2003-04, Titan was a small company with market capital of 500 crores. As on date, its a large cap with more than 1 lakh crores market cap. The fact that India is a booming marketplace of 132 crores consumers means that most products and services have a head start at trying to scale up their activities.

One key factor that creates value in the stock market is consistent growth across economic & market cycles. While markets values growth, it also pay higher premium on consistency in growth. Most of multi-baggers of past like Asian Paints, Titan, Page Industries, United Spirits, Marico, Aurobindo Pharma are typically high growth companies in non-cyclical businesses. It is extremely rare to find a multi-bagger in a typical commodity business like steel, aluminium or oil.

6. Valuations & Future Growth Prospects

Most investors are obsessed about valuations, refusing to buy any stock that is expensive. However, one must remember that expensive is a relative term. If a stock is compounding at 25% on an annual basis, paying a price to earning multiple (P/E ratio) of 30 may be very reasonable. A stock like Nestle or HUL, for instance, has always been expensive. However, a great company with an impeccable pedigree may not always be a good stock to buy. This could be due to the fact that most of the triggers are already in the price and future growth potential does not justify the valuations. The PEG ratio (which is PE ratio divided by sustainable growth) is a simple way to measure valuation relative to growth.

But it is equally important to consider other parameters like financial ratios and brands that the company has created which can go a long way in determining potential valuation. A particular company may look expensive to an investor who have a 2 years horizon but may be a screaming buy for investor who wish to hold it for next 5 to 7 years.

There is no guarantee that the above mentioned parameters would always help investors identify multi-baggers, but these parameters will surely help investors to invest in right set of companies and avoiding those which may end up being value destructors. Moreover, we can learn by following key traits of successful investors who have created enormous wealth in past.

Peter Lynch 2 Minutes Drill to Shortlist Potential Multibaggers

The key parameters involved in Peter Lynch’s ‘two minute drill’ are:

1. P/E Ratio: avoid stocks with excessively high P/E
2. Debt/Equity Ratio: should be low
3. Net Cash per Share: should be high
4. Dividend & Payout Ratio: should be adequate
5. Inventory levels: lower the better

Stay away from companies which are being actively tracked, followed & invested in by large institutional investors. News about buy back of shares or internal stakeholders increasing their stakes should be construed as positive.

Checks specific to Fast Growers:

1. The star product forms a majority of the company’s business.
2. Company’s success in more than one places to prove that expansion will work.
3. Still opportunity for penetration.
4. Stock is selling at its P/E ratio or near the growth rate.
5. Expansion is speeding up Or stable

One must judiciously walk the tightrope between the unquestioning belief that made the stock to be held for so long and the fear of the end from nose-diving prices due to a one-off bad year. The key is to always keep revisiting the story & ask some pertinent questions like ‘What would really keep them growing?’, ‘What is their next offering? or ‘Are their products & services still in vogue?’ It is here, that one must track the point of time when the phase 2 of the firm’s expansion comes to an end. This is usually the dead-end for organizations as success is difficult to be replicated. Unless, innovation happens, downfall is imminent & thus, an exit is necessary. P/E of these stocks is drummed up to unrealistically high levels by the madness of crowd towards the end. One must keep one’s eyes & ears open to signs, which mark the end of the road for these fast growers. A great case in point is Polaroid which had its P/E bid up to 50, only to be rendered obsolete later by new technologies.

A sure shot sign of a decline is a company which is everywhere! Such a company would simply find no place to expand any further. Sooner, rather than later, such a company would see its ‘Manhattans’ of earnings reduced to ‘plateaus’ of little or no growth, simply because no space is left to expand further.

1.The quarterly sales decline for existing stores.
2. New stores opening, though results are disappointing: weakening demand, over supply.
3. High level of attrition at the top level.
4. Company pitching heavily to institutional investors talking about what Peter Lynch calls ‘diversification’.
5. Stock trading at a P/E of 30 or more, when most optimistic estimates of earning growth are lower than 15-20%, thus, unable to justify the high price.

Fast Growers, which pay, are ephemeral & one misses them more often than not. It is a High Risk & High Gain Category of Stocks. One must remember along the classic risk & return principle, that when one loses, one loses big! So, if you are in the quest for magnificent returns, a Fast Grower can be your bet provided you know when to bid Goodbye!

Owning Multibagger Stocks which can multiply Investments in Future

The number of small-cap stocks is large and finding a quality stock that can give high returns over a long period is tough even for equity analysts. One reason is that such stocks usually have a short history and are not tracked by many analysts and brokerage houses. Then there are risks such as low liquidity, governance concerns and competition from larger players.

Scores of once small companies have over the years grown big, giving investors a 30-50 percent annual return over 10-15 years and creating fortunes for investors. However, more often than not, we find ourselves at the wrong side of the fence and regret our inability to spot such stocks on time.

Buying Strategy for Small Caps

1. Go for companies with low debt ratio (preferably less than one)

2. A high interest coverage ratio (above 3x) and a high return on equity are big advantages

3. Avoid companies with huge liabilities in the form of foreign currency convertible bonds / external commercial borrowings

4. Look at the quality of the management, its governance standards and how investor-friendly the company is.

5. Mid-cap and small-cap companies can be future market leaders, so be patient with your investments

Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run. If you are looking for multibaggers, stock must have high growth rates along with expanding PE ratios. The price we pay for the stock is important as it will determine whether there is enough scope left for a PE expansion to take place. 

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years,  you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up giving maximum gains to early entrants.  

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies.

Concerns while Investing in Small Caps

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one should not depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

Be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

Wish you happy & safe Investing. 

Team - Saral Gyan

Sunday, August 1, 2021

Kovai Medical Center - Our 13-Bagger Stock in 10 Years

Dear Reader,

Kovai Medical Multibagger Stock Analysis
Our equity analysts published Hidden Gem - Oct 2011 research report and shared it with all Hidden Gems members. Hidden Gem stock of Oct'11 was Kovai Medical Center & Hospital Ltd (KMCH) and Hidden Gem research report was published on 27th Oct'11 with buy recommendation at average price of Rs. 107.

KMCH stock made its life time high of Rs. 1600 recently and closed at Rs. 1404.50 on Friday giving absolute returns of 1212%. Kovai Medical is a 13-Bagger stock for our Hidden Gems members in period of 10 years.

Net profit of Kovai Medical Center & Hospital declined 19.80% to Rs 26.86 crore in the quarter ended March 2021 as against Rs 33.49 crore during the previous quarter ended March 2020. Sales rose 11.85% to Rs 198.10 crore in the quarter ended March 2021 as against Rs 177.12 crore during the previous quarter ended March 2020.

For FY2020-21, net profit declined 17.87% to Rs 77.69 crore in the year ended March 2021 as against Rs 94.59 crore during the previous year ended March 2020. Sales declined 3.03% to Rs 688.14 crore in the year ended March 2021 as against Rs 709.67 crore during the previous year ended March 2020

Below is the summary of Kovai Medical Center & Hospital Ltd published in our Hidden Gem research report - Oct'11.

Company Background

Kovai Medical Center and Hospital is 700-bed multi-disciplinary super-specialty hospital located in the NH 47, opposite to Airport, Coimbatore. The hospital has more than 50 medical disciplines managed by highly qualified and trained full time medical specialists providing round the clock service. Over 1000 in patients and out patients are treated every day at the hospital.

Kovai Medical Center & Hospital Analysis

KMCH is equipped with state-of-the art medical equipments such as MRI, 64 slice Volume CT Scanner, 4D Ultra Sound Scanner, Flat panel Cath Lab, Cardiac Electro-physiology Lab, Bone mineral Densitometer, Mammography, Laser equipments, Video endoscope, Operating Microscope, Auto analyzer, Computer Assisted Navigation for hip and knee replacements, ESWL for the removal of urinary stones etc.

KMCH is located on an 20 acres plot in a serene, clean and hygienic atmosphere. It has a very good ambience. The hospital is equipped with 11 operation theatres, and Super speciality procedures like Open heart surgeries and other Cardiac surgeries, Kidney transplants, Knee replacements, Hip replacements and Complex Neuro surgeries are done regularly at the hospital. Angiograms, Angioplasties, Stenting (Sirolimus stent - A drug eluted stent which has no relapse rate) are being done with good success rate. The hospital also has an excellent facility for providing Emergency and trauma care for treating various emergencies such as Cardiac arrests, Road Traffic Accidents (RTA), Snake bites, severe burn injuries, poisonous case, stab injuries and mass casualities.

KMCH is the only center in south India which has introduced a new technique known as GDC coils and clipping of Brain Aneurysms. KMCH has made a breakthrough in the treatment of Stroke Management and Uterine Fibroids with the latest technique in Interventional procedures. The state-of-the-art Fertility Center at KMCH is well equipped to do the Assisted Conception program like IVF, ICSI to the International standards. Most advanced treatment techniques are adopted here.

KMCH is recognized for organ transplant programmes by the Government of Tamil Nadu. Several Kidney transplants and corneal transplants from live donors and cadavers have been done. KMCH is also recognized by the Tamil Nadu Government to do Heart and Lung transplants.

KMCH has specialized clinics like Asthma clinic, Diabetic clinic, Slim clinic, Pain clinic, De-addiction clinic, Painless labour clinic, Andrology clinic, Diet clinic etc., Various specialized procedures like Chemoembolisation, stenting, fallopian tube recanalisation, Chemotherapy, Blood component therapy, Arthroscopic surgeries, Laparoscopic and Thorocoscopic surgeries are regularly done at the hospital. The hospital has a separate department for artificial limb manufacture.

There are 3 satellite centers attached to KMCH:

1. City Center (Ram Nagar)
2. Erode Speciality Hospital (100 bed)
3. Erode Center (100 bed) with both in-patient and out patient facilities.

It has a rural health center at Veeriampalayam to serve the rural community and the under privileged.

Hospital is recognized for Diplomate of National Board (Post Graduate Programmes) in departments like General surgery, Anaesthesiology, Cardiology, Cardiothoracic surgery and Obstetrics & Gynaecology. Hospital is recognized for training doctors in AFRCS programme in General Surgery.

State of the art Cancer treatment facility at KMCH

Hidden Gem Stock Kovai Medical

The state of the art cancer treatment center at the Kovai Medical Center & Hospital is headed by Dr.V.Kannan, a highly reputed radiation oncology specialist in India. He was the chief of radiation oncology services at Hinduja Hospital in Mumbai. Dr Kannan has now taken charge as Director of the KMCH Comprehensive Cancer Center.

KMCH comprehensive cancer center offers radiotherapy, chemotherapy and surgeries for the Cancer patients. It will be of international standard of care in terms of investigations and modern treatments including Radiotherapy.

The new facility is equipped with the latest Linear Accelerator the "Varian Triology with Rapid Arch" offering therapies like SRS, Image Guided Radiation Therapy, Intensity Modulated Radiation Therapy besides routine Radiation therapy. These Radiotherapy facilities at the cancer center of KMCH will match the best in the world that will have provision to perform 4 dimensional CT scan which accurately assess respiratory problems and movement of tumours in order to plan treatment of patients.

Recent Developments (as on 27 Oct'11)

Expansion Plan will increase Revenue & Profitability in FY 2012-13

In the year 2011 KMCH has invested Rs 200 Cr for expansion plans, equipment and providing specialty services. As per the planned expansion by the next year, it will start medical college so as to provide all paramedical courses for post graduation programmes. With the above plan under implementation the loan book has grown to Rs 192 Cr up by 78% on comparison to last year impacting profit margins of the company.

There will be significant rise in revenue and profitability once KMCH turns into a full-fledged medical college & hospital with all medical facilities available inside one campus.

Health Insurance – Another Key Factor for Growth

Insurance service is a potential area for growth with regard to healthcare services. In South India, Tamil Nadu has done well in this area and is on second position, next to Andhra Pradesh. In terms of insurance, both private insurance and government funded insurance schemes have shown rapid growth. Each year, there is 20-30% growth in private insurance claims. The insurance scheme has made a positive impact and effectively reduced the cost of healthcare services. Currently 20-25% of revenue is reported from the Insurance segment which is expected to go around 40-45% in coming years.

Financial Performance (as on 27th Oct'11)

Kovai Medical Center & Hospital net profit rises 200.00% in the June 2011 quarter

Net profit of Kovai Medical Center & Hospital rose 200.00% to Rs 2.43 crore in the quarter ended June 2011 as against Rs 0.81 crore during the previous quarter ended June 2010. Sales rose 38.53% to Rs 51.13 crore in the quarter ended June 2011 as against Rs 36.91 crore during the previous quarter ended June 2010

Kovai Medical Center & Hospital net profit rises 51.75% in the March 2011 quarter

Net profit of Kovai Medical Center & Hospital rose 51.75% to Rs 3.90 crore in the quarter ended March 2011 as against Rs 2.57 crore during the previous quarter ended March 2010. Sales rose 38.43% to Rs 47.94 crore in the quarter ended March 2011 as against Rs 34.63 crore during the previous quarter ended March 2010.

For the audited full year, net profit rose 4.40% to Rs 12.10 crore in the year ended March 2011 as against Rs 11.59 crore during the previous year ended March 2010. Sales rose 34.27% to Rs 174.64 crore in the year ended March 2011 as against Rs 130.07 crore during the previous year ended March 2010.

Sector Outlook

The Indian healthcare sector is predicted to reach US$ 280 billion by 2020, contributing an expected Gross Domestic Product (GDP) spend of 8 per cent by 2012 from 5.5 per cent in 2009, according to a report by an industry body. Growing population, increasing lifestyle related health issues, cheaper treatment costs, thrust in medical tourism, improving health insurance penetration, increasing disposable income, government initiatives and focus on Public Private Partnership (PPP) models are some of the driving factors for the growth of healthcare sector in India.

Some of the key players in the Indian healthcare industry who are helping in making the sector buyout include Apollo Hospitals Enterprise Ltd., Fortis Healthcare Ltd, Max Hospitals and Aravind Eye Hospitals.

Challenges and Opportunities

Owing to the fact that the healthcare sector is one of the largest service sector industries in India with an estimated revenue of US$ 35 billion, the industry has also emerged as on the of most challenging sectors as well.

 India would require another 1.75 million beds by the end of 2025 to reach a ratio of two beds per 1000 population.

 An additional 0.7 million doctors are needed to reach a doctor population ratio of 1:1000 by 2025.

 Although the health insurance sector is projected to grow to US$3.8 billion, the health insurance penetration rate still has a lot more scope to grow with only 2 per cent of the total population being insured at present.

The government recognised the significant challenges and potential in the sector and provided priority status to healthcare in the Eleventh Five Year Plan. Further, the sector is expected to witness added growth through a well-defined partnership between the government and the private sector.

Government initiatives in the public health sector have recorded some noteworthy successes over time with focus on investments related to better medical infrastructure, rural health facilities etc.

Government Policies

 100 per cent FDI is permitted for health and medical services under the automatic route.

 The National Rural Health Mission (NHRM) had allocated US$ 10.15 billion for the upgradation and capacity enhancement of healthcare facilities.

Moreover, in order to meet revised cost of construction, in March 2010 the Government allocated an additional US$ 1.23 billion for six upcoming AIIMS-like institutes and upgradation of 13 existing Government Medical Colleges.

Meanwhile, the total healthcare infrastructure expenditure is expected to reach US$ 14.2 billion in 2013, registering an increase of 50 per cent as compared to the 2006 figure, according to a report by KPMG.

Major Investments

The sector is undergoing significant changes driven by the continuing phase of rapid economic growth, with emerging markets, such as medical device manufacturers and diagnostic chains attracting increasing amounts of investments.

 Hospitals chain Apollo Hospitals Enterprise Ltd plans to invest around US$ 204.04 million- US$ 226.70 million over the next two years.

 Wockhardt Hospitals plans to invest up to US$ 158.32 million to double its bed capacity to 2,000 by 2013.

 Hospitals chain Fortis Healthcare plans to invest US$ 146.81 million and add 2,100 new beds.

 The BCG Group plans to build a multidisciplinary health facility, BCG Health square in Palarivattam in Kochi, Kerala, by August 2011. The company’s long-term plan is to set a 750,000 sq ft health village with an estimated cost of US$ 88.91 million.

 GE Healthcare will invest US$ 50 million to set up more facilities for developing diagnostic services.

 Manipal Hospitals plans to invest US$ 45.23 million in the next three years to double its capacity to 8,000 beds.

PPP Model

Private healthcare is emerging as one of the fasting growing sectors in India, with hospital chains exploring the markets in metros and tier II cities, private players seeking accreditation and developing new healthcare models. Further, the private and public sectors across various states such as Gujarat and Uttarakhand have launched innovative initiatives to attract PPP investments into healthcare.

While the government is exploring potential to establish state-funded healthcare insurance schemes for supporting healthcare delivery for the poorer sections of the population, the corporate segment is catering to the growing need of the general public for quality care. Thus, through a sustainable partnership, development and delivery of low cost, affordable, basic healthcare services, PPP models may help in improving the infrastructure and healthcare provision in the country.

Investment Rationale & Key Developments

 Rural healthcare sector in the country is also witnessing an upsurge. The rural health sector has added around 15,000 health sub-centres and 28,000 nurses and midwives during the last five years, according to the Rural Health Survey Report 2009, released by the Ministry of Health. The number of primary health centres has increased by 84 per cent, taking the number to 20,107, according to the report.

 Indian health insurance market represents one the fastest growing and second largest non-life insurance segment in the country, according to a report by research firm RNCOS. The health insurance premium is expected to grow at a Compound Annual Growth rate (CAGR) of over 25 per cent for the period spanning from 2009-10 to 2013-14, according to the report.

 India’s share in the global medical tourism industry is predicted to be around 3 per cent by the end of 2013, according to a report ‘Booming Medical Tourism in India’ by research firm RNCOS, released in December 2010. The sector is expected to generate around US$ 3 billion in revenues by 2013, with the number of medical tourists to grow at a CAGR of over 19 per cent during 2011-2013 to reach 1.3 million by 2013.

 Indian medical technology industry is expected to reach US$ 14 billion by 2020 from US$ 2.7 billion in 2008, according to a report by PwC and an industry body.

 The country’s first healthcare Special Economic Zone (SEZ), Frontier Mediville, is being set up by Frontier Lifeline Hospital at Elavoor, near Chennai.

 Major healthcare players such as Fortis and Apollo are expanding to tier-II and tier-III cities, along with urban cities, due to substantial demand for high-quality and specialty healthcare services in these cities.

 Healthcare majors such as Apollo, Max Healthcare and Manipal Group are targeting new segments such as primary care and diagnostics. Demographics, health awareness and increasing capacity to spend are the key drivers of the preventive healthcare segment in India.

 Computer-based bio-surveillance projects generating data about diseases and creating databases on healthcare in rural areas are gaining popularity in India with various organisations such as Narayana Hrudayalaya and the Mazumdar Shaw Cancer Centre entering into this sector.

Saral Gyan Recommendation (as on 27th Oct'11)

i) With Investment of Rs 200 Crore for expansion plans, equipment and providing specialty services, KMCH management is looking aggressive and more focused to achieve new milestones going forward. Company offers best treatment using modern facilities and new technologies in south region which distinguish KMCH from other hospitals.

ii) As per the planned expansion by the next year, KMCH will start medical college so as to provide all paramedical courses for post graduation programmes. This will not only add revenues but also improves the profit margins of the company.

iii) The Management holds 47.46% (June 2011 - Increased holding by 1.35% during last one year) equity in the company and is continuously increasing its stake at current valuations which gives confidence of growth prospects in coming quarters.

iv) Stock is available at low valuations, currently trading at a P/E ratio of 9, whereas peer stocks trade at a double digit PE multiple. Moreover, visibility of increased in earnings in FY 2012-13 make KMCH a good buy at current market price for investors who can hold it for period of 18-24 months.

v) On operating profits KMCH has out performed it performance for the quarter ended March 2011. EBIDTA witnessed a growth of 33% on yoy basis and 42% for full year 2011. Margins for the March quarter witnessed the highest ever at 21.6% vs 18.6% when compared for the same quarter last year. On consolidated basis EBIDTA margins stood at 21.2% vs 20%. KMCH’s profitability witnessed pressure mainly due to higher than expected interest cost from Rs 4.84 Crore in 2010 to Rs 11.11 Crore in 2011.

vi) At current market price of Rs 115.70, dividend yield works out to be 1.08%. On equity of Rs. 10.94 crore the estimated annualized EPS for FY 2011-12 & FY 2012-13 works out to Rs. 13.7 and Rs. 18.5 respectively. Book value per share is Rs. 46.38 and at CMP of Rs. 115.70, stock price to book value is 2.49. Currently, the scrip is trading at 8.5X FY 2011-12 and 6.5X FY 2012-13 estimated earnings which seem to be cheap in healthcare space.

Considering growth potential of Indian Hospital Industry, attractive valuations of KMPH and its expansion plans, Saral Gyan Team recommends “BUY” for Kovai Medical Center and Hospital for a target price of Rs. 245 over a period of 18-24 months.

Buying Strategy:

 60% at current market price of 115.70
 40% at price range of 97-102 (If stock price falls during market correction)

To Read/Download Hidden Gem - Oct'11 Research Report - Click Here 

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 3 months or 6 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky.

Wish you happy & safe Investing. 

Team - Saral Gyan

Saturday, July 31, 2021

Hidden Gem - Acrysil - Our 30-Bagger Stock in 9 Years

Dear Reader,

Our equity analysts published Hidden Gem - Nov 2012 research report and shared it with all Hidden Gems members. Research report was published 9 years back on 25th Nov 2012. Hidden Gem stock of Nov'12 was Acrysil India Ltd (BSE Code: 524091, NSE Code: ACRYSIL) and our team recommended buy at average price of Rs. 21 (stock split adjusted price, actual recommended price was Rs. 105) for target of Rs. 46 (adjusted stock split target price, actual target price was Rs. 230) in period of 18-24 months. Stock later achieved its target price and we informed our members to continue to hold it.

Acrysil stock has made its all time high of Rs. 666.80 recently and closed at Rs. 619.65 yesterday delivering as on date returns of 2852%. Acrysil is a 30-Bagger stock for our Hidden Gems members within period of 9 years.

Net profit of Acrysil rose 234.36% to Rs 13.04 crore in the quarter ended March 2021 as against Rs 3.90 crore during the previous quarter ended March 2020. Sales rose 56.38% to Rs 100.63 crore in the quarter ended March 2021 as against Rs 64.35 crore during the previous quarter ended March 2020.

For FY2020-21, net profit rose 77.17% to Rs 39.12 crore in the year ended March 2021 as against Rs 22.08 crore during the previous year ended March 2020. Sales rose 12.12% to Rs 309.72 crore in the year ended March 2021 as against Rs 276.23 crore during the previous year ended March 2020.

Below is the summary of Acrysil (India) Ltd shared by our team under Hidden Gem research report - Nov'12.

Company Background

Acrysil Multibagger Stock Analysis
Acrysil Ltd is a leading manufacturer and exporter of Composite Quartz and Granite Kitchen Sinks from India. Acrysil Limited was founded in 1987 as a joint venture with Schock & Co. GmbH (Germany), the inventors and world leaders in composite quartz technology, as well as in thermoplastic xtruded profiles. The company began in a small way with production of about 2800 sinks annually, along with thermoplastic co-extruded profiles for the domestic auto industry.

The company market’s its sinks under the Brand CARYSIL. They are also an OEM (Original Equipment Manufacturer) for major brands worldwide. Besides Quartz and Granite sinks which constitute more than 90% sales of the company, the company also sells Food waste disposers, faucets and stainless steel sinks under it’s own brand.

In the highly competitive market of lifestyle products and home fittings, Carysil stands literally in a class of its own. It is India’s only indigenous brand of kitchen sinks made of quartz bonded with resin, homogeneously moulded by a unique CNC-controlled polymerization process. That results in a product that is scratchresistance, dent-proof, stainresistant and heat-proof, with a glossy and truly lasting granite finish in several varieties. It has truly international looks and styling, and is available in a range of attractive colours. It is highlyfunctional, easy to clean, and safe in contact with food. Best of all, it remains as good as new even afteryears of use.

With domestic response being somewhat slow to take off, Acrysil began its focus on exports of quartz sinks in 1993. Sales jumped threefold, from Rs 359.19 lakhs in 1993 to Rs 1,036.68 lakhs in 1999. So encouraging was this response that in 1999, the company sold off its extrusion operation, choosing to focus all its efforts on the more promising quartz sinks division. 2001-02, the year that Acrysil first looked at India as a potential growth market for quartz sinks, ready for the introduction of carefully chosen models.

In just a decade, domestic sales multiplied from Rs 1.83 crores in 2001-02 to Rs 12.4 crores in 2011-12.The brand is available in more than 2000 outlets, and is a preferred choice of builders and Modular Kitchen Studios.

Carysil’s world-class quality is demonstrated in its export performance. Today, Carysil sinks are shipped to 30 countries, including U.S.A., France, U.K., Greece, many European markets, Far-East and Gulf Countries. In fact, at Rs 47 crores of Sales in FY 2011-12, exports today account for 80% of the company’s turnover. As a truly international product, Carysil also carries ISO9000-14000 certification.

Recent Developments (25th Nov 2012)

1. Addition of new Institutional Customers & Entry into new Geographies

Company has added some of the major institutional customers in the US and Germany, many of them are the result of acquisition of Acrysil GmbH as a subsidiary last year. These new buyers themselves have extensive networks for distribution and marketing, so there is considerable potential there. At the same time, Acrysil has made an entry into some entirely new geographies, most importantly Columbia, Hungary, Iran and Israel.

2. New Products offering for Global Clientele

Company has customized several new models – that is, new styling and designs – for the tastes of clientele in Europe, Russia, USA and the Far East. This represents a substantial investment and management is confident to get multifold sales through exports. Company has plans to show new range of products in many overseas trade fairs and exhibitions. Moreover, stainless steel sinks are finding excellent acceptance in Singapore as well as European markets, so much so that management of the company is now focusing on new technologies for even better quality and lower cost in their manufacture.

3. Targeting no. 1 position in Premium Kitchen Segment in India

Company is also giving a serious push in the domestic arena. Company management has set an objective to be No. 1 in the premium kitchen segment in not more than five years. Accordingly, company is expanding its product portfolio with a complete package of new products that includes various Appliances, Chimneys, Cooking Hobs and Ovens, slated to be launched in October-November 2012.

4. Optimizing Process to Improve Operating Margins

Company has taken corrective measures to improve existing systems and processes especially in R&D, HR skill acquisition, standards compliance and other quality drivers. Company is constantly upgrading its technologies with an eye on better productivity, more reliable high quality and economical operation as margins are under more pressure now compared to earlier years.

5. Rewarded Share holders by Issuing Bonus Share

Company management has recently rewarded its share holders by issuing bonus share in the proportion of 1 (one) Equity Share for every 2 (two) Equity Shares held by the Shareholders on 28th Sept’12.

Financial Performance (25th Nov 2012)

Acrysil net profit rises 149.38% in the September 2012 quarter 

Net profit of Acrysil rose 149.38% to Rs 20.2 million in the quarter ended September 2012 as against Rs 8.1 million during the previous quarter ended September 2011. Sales rose 43.26% to Rs 21.89 crore in the quarter ended September 2012 as against Rs 15.28 crore during the previous quarter ended September 2011.

Acrysil Multibagger Financials

Acrysil net profit declines 39.76% in the June 2012 quarter

Net profit of Acrysil declined 39.76% to Rs 10 million in the quarter ended June 2012 as against Rs 16.6 million during the previous quarter ended June 2011. Sales declined 6.77% to Rs 167.8 million in the quarter ended June 2012 as against Rs 180 million during the previous quarter ended June 2011

Future Outlook (25th Nov 2012)

Rising Incomes to Fuel Demand for Branded / Premium Quality Lifestyle Products

The Indian consumer market, which is primarily dominated by young generation, is becoming increasingly sophisticated and brand conscious. A typical upper middle class young consumer is beginning to look beyond the utility aspect of a product to seek intangibles like brand and lifestyle statement associated with the product.

According to a McKinsey study, there are 1.2 million affluent households, expected to reach 2.5 million households by 2015.

Accordingly, India is fast becoming a large market even for luxury goods and services, based on:
i) Ten-fold rise in India’s middle class: from 50 million to 580 million; with comfortable living standards 
ii) The upper middle class expected to swell from 25 million people to over 130 million by 2025
iii) 24 million upper crest Indians (income > Rs 1mn per year, or $ 117,000 PPP) with global lifestyles.

India is rapidly changing from a deprived and aspirer’s economy to seekers country and with that, people’s preference for lifestyle products is growing. The young generation of consumers is driving the demand for lifestyle products.

The Indian affluent class has shown lot of attraction towards premium branded goods and this fetish will continue. A recent luxury brands survey conducted by The Nielsen Company (a global information and media research company), has ranked India third after Greece and Hong Kong in the list of most brand conscious countries in the world.

Modularization of Kitchens – Market with Huge Growth Potential

According to Industry experts, the modular kitchens segment stands at around 1500Cr. In India the readymade kitchens are currently sold at the rate of 10,000 units per month.

The increasing number of nuclear families, rising disposable incomes, affordability, and easy budget, will drive awareness levels and demand for modular kitchen, which is already growing at the rate of 45-50% per annum.

Modular kitchen accounts for 40% of the furniture and fittings industry and the products in this market are largely focused towards establishments in urban India. Modular kitchen segment in India is expected to grow 8-10 times in the next three to five years.

Saral Gyan Recommendation (25th Nov 2012)

1. Sales turnover of the company has doubled in last 5 years, where as net profits have declined in last 4 years due to high raw material prices and slowdown in US and Europe. Company has made an entry into some entirely new geographies like Columbia, Hungary, Iran and Israel. Company has also customized several new models in terms of new styling and design for their existing clientele in Europe, Russia, USA and the Far East to drive growth.

2. Management is now looking aggressive to grab domestic market share for its premium quality products. Company is also increasing its product portfolio to offer complete package of new products to their clientele. Currently, company generates 80% of revenue from exports and now aims to increase their domestic sales from existing 20% to 30% in next couple of years.

3. Domestic sales of the company have increased from 1.1 crores in 2001-02 to 12.4 crores in 2011-12. In fact, in FY 2011-12, domestic sales of the company have grown by nearly 43%. Company is also opening galleries to show case their products in metro cities like Mumbai, Delhi and Ahmedabad to boost sales in domestic markets.

4. As per our estimates, Acrysil can deliver bottom line of 80 million for full financial year 2012 – 13, annualized EPS of Rs. 21.3 with forward P/E ratio of 5.4 X for FY 2012-13, which makes stock an attractive bet at CMP.

5. Management has rewarded share holders by paying consistent dividends since 2006. Dividend yield at current market price is above 3. Recently, company also issued bonus share to share holders at the ratio of 1:2

6. On equity of Rs. 44.58 million, the estimated annualized EPS for FY 12-13 works out to Rs. 21.3 and the Book Value per share is Rs. 73. At current market price of Rs. 113.95, stock price to book value is 1.56, which makes stock valuations reasonable with a long term view of 18-24 months.

Considering reasonable valuations and opportunities in domestic markets of using premium quality products for luxury homes, we find Acrysil Ltd an attractive pick. Saral Gyan Team recommends “BUY” on Acrysil Ltd. for a target of Rs. 230 over a period of 18-24 months.

Buying Strategy:

  • 50% at current market price of Rs. 113.95
  • 50% at price range of Rs. 95 - 100
To Read / Download Saral Gyan Hidden Gem - Nov'12 Research Report - Click Here

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 3 months or 6 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky.

Wish you happy & safe Investing. 

Team - Saral Gyan

Wednesday, July 21, 2021

How to Explore Multibagger Stocks for Investment?

Below are the 6 Important Steps to Explore Best Stocks for Investment

Step-1: Find out how the company makes money
Step-2: Do a Sector Analysis of the Company
Step-3: Examine the recent & historical performance of the Stock
Step-4: Perform competitive analysis of the firm with its Competitors
Step-5: Read and evaluate company’s Financial statements
Step-6: Buy or Sell

Step-1: Find out how the company makes money

Before you decide to invest in a company’s stock, find out how the company makes money. This is probably the easiest of all the steps. Read company’s annual and quarterly reports, newspapers and business magazines to understand the various revenue streams of the firm. Stock price reflects the firm’s ability to generate consistent or above expectation profits/earnings from its ongoing/core operations. Any income from unrelated activities should not affect the stock price. Investors will pay for its earnings from its core operations, which is its strength and stable operation, and not from unrelated activities. Thus, you need to find out which operations of the firm are generating revenues and profits. If you do not know that you are bound to get a hit in future.

Warren Buffet once said that “if you do not understand how a company makes money, do not buy its stock- you will always end up loosing money”. He never invested even a single penny in technology stocks and yet made billions and billions of dollars both during tech bubble and bust.

Step-2: Do a Sector Analysis of the Company

First is to figure out which sector the stock is in. Then, figure out what all factors affect the performance of the sector. For example, Infosys is in IT services sector, NTPC is in Power sector and DLF is in Real Estate sector. Half of what a stock does is totally dependent on its sector. Simple rule-Good factors help stocks while bad factors hurt stocks.

Let’s take an example of airlines industry. The factors that affect it are fuel prices, growth in air traffic and competition. If fuel prices are high, tickets would be expensive and hence fewer people will fly. This will hurt the airlines sectors and firms equally. This would make the sector less attractive because there would be less scope for growth of the firms.

The idea is to find out the good and bad factors for the sectors and figure out how much they will affect the stock and how. What we are really looking at are reasons that will make stock price good or bad or a company look more or less valuable, even though nothing about the company changes. This will give you a broader view whether the stocks will do well or poorly in the future.

Step-3: Examine the recent & historical performance of the Stock

By performance we mean both operational and financial performance of the company. Take out some time to find out how the company has done in its business over the years. Were there issues with its operations such as labor strike, frequent breakdowns, higher attrition or lagging deadlines? If any company has a history of serious problems, it does not make a good buy because chances are high it may have similar problems again. History is a good predictor of future! It is also extremely important to find out the historical financial performance of the company – growth in revenues, profits (earnings), profit margins, stock price movements etc.

Step-4: Perform competitive analysis of the firm with its Competitors

This is most important step in analyzing a stock. Unfortunately, most of the retail investors do not bother to do this. It takes time to do this step but it worth trying if you don’t want to loose your money. Many investors buy a stock because they have heard about the company or used the products or think companies have excellent technologies. However, if you do not evaluate or compare those features of the company with other similar firms, how will you figure out whether the firm is utilizing them effectively or is better/worse than others? We also need to find out whether company is growing rapidly or slowly or has no growth. We would like to cover couple of financial ratios here in brief and explain how to use them to figure out a good stock.

P/E: Price-to-earnings ratio is the most widely used ratio in stock valuation. It means how much investors are paying more for each unit of income. It is calculated as Market Price of Stock / Earnings per share. A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to the overall market, as investors are paying more for today's earnings in anticipation of future earnings growth. Hence, as a generalization, stocks with this characteristic are considered to be growth stocks. However, P/E alone may not tell you the whole story as you see it varies from one company to another because of different growth rates. Hence, another ratio, PEG (P/E divided by Earnings Growth rate) gives a better comparative understanding of the stock.

PEG = Stocks P/E / Growth Rate
We do not want to go into the calculation part as values for P/E are available on internet for most of the companies.
A PEG of less than 1 makes an excellent buy if the company is fundamentally strong. If it is above 2, it is a sell. If PEG for all the stocks are not very different, one with lowest P/E value would be a great BUY.

Step-5: Read and evaluate company’s Financial statements

This is the most difficult part of this process. It is generally used by sophisticated finance professionals, mostly fund managers who can understand different financial statements. However, there are few things that even you should keep in mind. There are three different financial statement- balance sheet, income statement and cash flow statement. You should focus only on balance sheet and cash flow statement.

Balance Sheet: It summarizes a company’s assets, liabilities (debt) and shareholders’ equity at a specific point in time. A typical Indian firm’s balance sheet has following line items:

• Gross block
• Capital work in progress
• Investments
• Inventory
• Other current assets
• Equity Share capital
• Reserves
• Total debt

Gross block: Gross block is the sum total of all assets of the company valued at their cost of acquisition. This is inclusive of the depreciation that is to be charged on each asset.

Net block is the gross block less accumulated depreciation on assets. Net block is actually what the asset is worth to the company.

Capital work in progress: Capital work in progress sometimes at the end of the financial year, there is some construction or installation going on in the company, which is not complete, such installation is recorded in the books as capital work in progress because it is asset for the business.

Investments: If the company has made some investments out of its free cash, it is recorded under it.

Inventory: Inventory is the stock of goods that a company has at any point of time.

Receivables include the debtors of the company, i.e., it includes all those accounts which are to give money back to the company.

Other current assets: Other current assets include all the assets, which can be converted into cash within a very short period of time like cash in bank etc.

Equity Share capital: Equity Share capital is the owner\'s equity. It is the most permanent source of finance for the company.

Reserves: Reserves include the free reserves of the company which are built out of the genuine profits of the company. Together they are known as net worth of the company.

Total debt: Total debt includes the long term and the short debt of the company. Long term is for a longer duration, usually for a period more than 3 years like debentures. Short term debt is for a lesser duration, usually for less than a year like bank finance for working capital.

One need to ask-How much debt does the company have? How much debt does it have the current year? Find out debt to equity ratio. If this ratio is greater than 2, the company has a high risk of default on the interest payments. Also, find out whether the firm is generating enough cash to pay for its working capital or debt. If total liabilities are greater than total assets, sell the stock as the firm is heading for disaster. This debt to equity ratio is extremely important for a company to survive in bad economy. What is happening now-a-days should make this extremely important. Companies having higher debt ratio have got hammered in the stock market. Look at real estate companies- their stocks are down by almost 90% from all time highs made in 2007 - 2008. This is because they have high debt level which means higher interest payments. In case of liquidity crisis and global slowdown, it would be extremely difficult for such companies to survive. Remember, a weak balance sheet makes a company vulnerable to bankruptcy!

Step-6: Buy or Sell

Follow all the steps from 1 to 5 religiously. It will take time but worth doing it. If you do it, you won’t have to see a situation where you loose more than 50% of stock value in a week! Buying or selling will depend on how your stock(s) perform on the above analysis.

Wish you happy & safe Investing. 

Team - Saral Gyan