Safal Niveshak

Value Investing Made Simple

www.safalniveshak.com

Basic Company Details

(Enter values only in red cells) Parameters Company Industry Business (As you understand it, in simple words) Current Stock Price (Rs) Face Value (Rs) No. of Shares (Crore) Market Capitalization (Rs Crore) Promoter Shareholding (Latest Quarter) Promoter Pledged Shareholding (Latest Quarter) Details Asian Paints Paints XYZ 4,665 10 10 44,747 52.8% 17.7%

Key Financials (Last 10-Years)

Parameters Sales Growth (10-Year CAGR) Gross Profit Growth (10-Year CAGR) Net Profit Growth (10-Year CAGR) Average Debt/Equity (x) Average Return on Equity
Note: Asian Paints' analysis in this excel is for representation purpose only.

Details 20.4% 18.1% 24.4% 0.3 35.4%

Warning!
Excel can be a wonderful tool to analyze the past. But it can be a weapon of mass destruction to predict the future! So be very careful of what you are getting into. Here, garbage in will always equal garbage out.

Remember!
Focus on decisions, not outcomes. Look for disconfirming evidence. Calculate. Pray!

Please! It's your money. Please don't blame me if results of this excel cause you to lose it all! I've designed this excel to aid your own thinking, but you alone are responsible for your actions. I want to live peacefully ever after! :-) I am not a sadist who wants you to do the hard work by analyzing companies on your own. But I'd rather give you a compass instead of a map, for you can confuse map with territory and lose it all! All the best!

it can be a weapon of reful of what you are l garbage out.

ng evidence. Calculate.

It's your use you to lose it all! I've one are responsible for I am not a companies on your own. you can confuse map est!

Buffett Checklist - Read, Remember,

Source - Buffettology by Mary Buffett & David Clark

Parameter

Consumer monopoly or commodity?

Understand how business works

Is the company conservatively financed?

Are earnings strong and do they show an upward trend?

Does the company stick with what it knows?

Has the company been buying back its shares?

Have retained earnings been invested well?

Is the companys return on equity above average?

Is the company free to adjust prices to inflation?

Does the company need to constantly reinvest in capital?

Conclusion

Never Forget

ett Checklist - Read, Remember, Follow!

Source - Buffettology by Mary Buffett & David Clark

Explanation Seek out companies that have no or less competition, either due to a patent or brand name or similar intangible that makes the product unique. Such companies will typically have high gross and operating profit margins because of their unique niche. However, don't just go on margins as high margins may simply highlight companies within industries with traditionally high margins. Thus, look for companies with gross, operating and net profit margins above industry norms. Also Try to invest in industries where you possess some specialized knowledge (where you work) or can more effectively judge a company, its industry, and its competitive environment (simple products you consume). While it is difficult to construct a quantitative filter, you should be able to identify areas of interest. You should "only" consider analyzing those companies that operate in areas that you can clearly grasp - your circle of competence. Of course you can increase the size of the circle, but only over time by learning about new industries. More important than the size of Seeks out companies with conservative financing, which equates to a simple, safe balance sheet. Such companies tend to have strong cash flows, with little need for long-term debt. Look for low debt to equity or low debt-burden ratios. Also seek companies that have history of consistently Rising earnings serve as a good catalyst for stock prices. So seek companies with strong, consistent, and expanding earnings (profits). Seek companies with 5/10 year earnings per share growth greater than 25% (alongwith safe balance sheets). To help indicate that earnings growth is still strong, look for companies where the last 3-years earnings growth rate is higher than the last 10-years growth rate. More important than the rate of growth is the consistency in such growth. So exclude companies with volatile earnings growth in the past, even if the "average" growth has Like you should stock to your circle of competence, a company should invest its capital only in those businesses within its circle of competence. This is a difficult factor to screen for on a quantitative level. Before investing in a company, look at the companys past pattern of acquisitions and new directions. They should fit within the primary range of operations for the firm. Buffett prefers that firms reinvest their earnings within the company, provided that profitable opportunities exist. When companies have excess cash flow, Buffett favours shareholderenhancing maneuvers such as share buybacks. While we do not screen for this factor, a follow-up examination of a company would reveal if it has a share buyback plan in place. Seek companies where earnings have risen as retained earnings (earnings after paying dividends) have been employed profitably. A great way to screen for such companies is by looking at those that have had consistent earnings and strong return on equity in the past. Consider it a positive sign when a company is able to earn above-average (better than competitors) returns on equity without employing much debt. Average return on equity for Indian companies over the last 10 years is approximately 16%. Thus, seek companies that earn atleast That's what is called "pricing power". Companies with moat (as seen from other screening metrics as suggested above (like high ROE, high grow margins, low debt etc.) are able to adjust prices to inflation without the risk of losing significant volume sales.

Companies that consistently need capital to grow their sales and profits are like bank savings account, and thus bad for an investor's long term portfolio. Seek companies that don't need high capital investments consistently. Retained earnings must first go toward maintaining current operations at competitive levels, so the lower the amount needed to maintain current operations, the better. Here, more than just an absolute assessment, a comparison against competitors will Sensible investing is always about using folly and discipline - the discipline to identify excellent businesses, and wait for the folly of the market to drive down the value of these businesses to attractive levels. You will have little trouble understanding this philosophy. However, its successful implementation is dependent upon your dedication to learn and follow the principles, and apply Focus on decisions, not outcomes. Look for disconfirming evidence. Pray!

Asian Paints - Balance Sheet

Year / Rs Crore SOURCES OF FUNDS / EQUITY & LIABILITIES Share Capital Reserves & Surplus Shareholder's Funds / Equity Minority Interest Non-Current Liabilities Long-Term Borrowings Current Liabilities Short-Term Borrowings Trade Payables Other Current Liabilities Short-Term Provisions APPLICATION OF FUNDS / ASSETS Non-Current Assets Tangible Assets Intangible Assets Capital Work-in-Progress Non-Current Investments Current Assets Current Investments Inventories Trade Receivables Cash and Bank Balance Short-Term Loans and Advances Other Current Assets (Enter values only in red cells) L-9 L-8 L-7 L-6 64 413 478 75 96 434 529 70 96 471 567 64 96 550 646 60

197 514 232 177 105

160 581 9 272 163 136

240 618 295 206 117

261 705 330 249 126

35 20 5 5 5 737 322 256 68 55 35

34 22 6 1 6 772 12 318 265 70 76 31

37 24 6 1 6 950 27 455 296 61 80 32

41 27 7 1 7 1,120 75 489 348 73 74 61

Balance Sheet
L-5 96 682 778 60 L-4 96 886 982 57 L-3 96 1,107 1,203 76 L-2 96 1,614 1,710 94 L-1 96 2,092 2,187 110 L 96 2,653 2,749 137

nly in red cells)

180 979 126 449 339 66

179 1,248 96 572 414 166

152 2,517 157 554 461 1,345

104 3,315 125 718 661 1,810

147 2,081 1,087 703 290

148 2,771 1,297 1,107 367

45 29 7 1 7 1,406 114 598 421 105 98 69

49 32 8 1 8 1,692 198 714 460 111 153 56

54 35 9 1 9 2,966 769 572 210 1,365 50

59 39 10 1 10 3,871 532 956 543 106 1,670 65

65 43 11 1 11 3,068 367 1,305 573 626 106 90

72 47 12 1 12 3,560 285 1,599 781 624 186 84

Asian Paints - P&L Account

Year / Rs Crore Net Sales Expenditure Increase/Decrease in Stock Raw Material Consumed Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Total Expenditure Gross Profit Operating Profit / EBITDA Other Income Depreciation Profit Before Interest & Tax (PBIT) Interest Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Minority Interest Share of Associate Consolidated Profit After Tax (PAT) Diluted EPS (Rs) Interim Equity Dividend Proposed Equity Dividend Total Equity Dividend (Enter values only in red cells) L-9 L-8 L-7 L-6 L-5 1,817 2,373 2,574 3,021 3,670

(38) 975 120 66 60 301 56 1,540 815 278 11 49 240 14 226 86 140 (1) 139 14.5 29 42 70

2 1,290 183 74 84 358 85 2,076 1,007 297 27 71 253 15 238 94 144 (3) 4 145 15.1 34 48 82

(61) 1,563 199 86 87 297 68 2,239 985 335 32 69 298 11 287 106 181 (7) 0 174 18.1 38 53 91

(10) 1,803 219 96 99 345 79 2,630 1,133 391 32 68 354 11 343 132 211 2 (1) 212 22.1 67 53 120

(70) 2,269 257 112 122 411 85 3,187 1,358 483 40 61 462 24 (8) 430 147 283 (2) (0) 281 29.3 115 10 125

count
L-4 4,407 L-3 5,464 L-2 6,681 L-1 7,722 L CAGR 9,632 20.4%

ells)

(36) 2,613 301 122 145 535 63 3,743 1,708 664 60 59 665 26 (7) 631 203 428 (19) 409 42.7 62 101 163

(27) 2,866 365 682 167 646 91 4,790 1,943 674 51 74 651 32 (1) 617 197 419 (22) 398 41.5 62 106 168

(102) 3,227 433 797 200 801 89 5,445 2,758 1,236 141 84 1,293 37 1 1,257 373 884 (48) 836 87.1 82 177 259

(151) 3,906 454 922 206 969 85 6,391 3,045 1,331 68 113 1,286 26 1,260 378 881 (38) 843 87.9 82 225 307

(173) 5,099 526 1,073 269 1,207 120 8,122 3,633 1,510 108 121 1,497 43 1,454 434 1,021 (32) 989 103.1 91 293 384

20.3% 18.1% 20.7%

22.6%

23.0% 24.7%

24.4%

20.8%

Asian Paints - Cash Flow Statement

(Enter values only in red cells) Year / Rs Crore L-9 L-8 L-7 Net cash (used in) / generated from operating activities 154 249 111 Payment for purchase of fixed assets (40) (44) (97) Free Cash Flow 114 205 14 Net cash (used in) / generated from investing activities (70) (113) (74) Net cash (used in) / generated from financing activities (59) (134) (42) Net increase in cash and cash equivalents 24 2 (5)

Sample Cash Flow Statement (from Annu

MINUS

sh Flow Statement
L-6 179 (87) 92 (125) (42) 12 L-5 258 (82) 176 (109) (111) 38 L-4 480 (308) 172 (335) (134) 11 L-3 389 (310) 79 (270) (230) (111) L-2 1,063 (395) 668 (299) (332) 432 L-1 762 (156) 606 (440) (334) (12) L 826 (673) 153 (512) (327) (12)

only in red cells)

Rememb

Cash flow, not reported earnin a company's long

h Flow Statement (from Annual Report)

Remember!
Cash flow, not reported earnings, is what determines a company's long-term value.

Asian Paints - Key Ratios

(Don't touch any cell on this sheet, as all are calculated figures)

Operational & Financial Ratios Diluted Earnings Per Share (Rs) Diluted Book Value Per Share (Rs) Tax Rate (%) Dividend Per Share (Rs) Dividend Pay Out Ratio (%) Profitability Ratios Gross Margin (%) EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) Performance Ratios Return on Equity (%) Return on Capital Employed (%) Return on Invested Capital (%) Sales/Working Capital (x) Efficiency Ratios Receivable Days Inventory Days Payable Days Growth Ratios Net Sales Growth (%) EBITDA Growth (%) PBIT Growth (%) PAT Growth (%) Financial Stability Ratios Total Debt/Equity (x) Debt Burden (x) Current Ratio (x) Quick Ratio (x) Interest Cover (x)

L-9 14.5 49.8 38% 7.3 50% L-9 45% 15% 13% 8% L-9 29% 60% 24% 8.2 L-9 51 65 47 L-9

L-8 15.1 55.2 40% 8.5 56% L-8 42% 13% 11% 6% L-8 27% 70% 25% 12.4 L-8 41 49 42 L-8 31% 7% 6% 4% L-8 0.3 0.8 1.3 0.8 16.6

L-7 18.1 59.1 37% 9.5 52% L-7 38% 13% 12% 7% L-7 31% 52% 26% 7.8 L-7 42 64 42 L-7 8% 13% 18% 20% L-7 0.4 16.7 1.5 0.8 27.5

L-6 22.1 67.4 39% 12.5 57% L-6 38% 13% 12% 7% L-6 33% 49% 29% 7.3 L-6 42 59 40 L-6 17% 17% 19% 22% L-6 0.4 2.8 1.6 0.9 31.0

L-5 29.3 81.1 34% 13.0 44% L-5 37% 13% 13% 8% L-5 36% 66% 35% 8.6 L-5 42 59 45 L-5 21% 24% 30% 32% L-5 0.4 1.0 1.4 0.8 19.3

L-4 42.7 102.4 32% 17.0 40% L-4 39% 15% 15% 9% L-4 42% 93% 47% 9.9 L-4 38 59 47 L-4 20% 37% 44% 46% L-4 0.3 1.0 1.4 0.8 25.2

L-9 0.4 1.7 1.4 0.8 17.5

atios
L-3 41.5 125.4 32% 17.5 42% L-3 36% 12% 12% 7% L-3 33% 90% 34% 12.2 L-3 38 51 37 L-3 24% 1% -2% -3% L-3 0.3 1.9 1.2 0.9 20.0 L-2 87.1 178.3 30% 27.0 31% L-2 41% 18% 19% 13% L-2 49% 150% 70% 12.0 L-2 30 52 39 L-2 22% 83% 99% 110% L-2 0.1 0.2 1.2 0.9 35.2 L-1 87.9 228.0 30% 32.0 36% L-1 39% 17% 17% 11% L-1 39% 86% 67% 7.8 L-1 27 62 51 L-1 16% 8% -1% 1% L-1 0.1 0.2 1.5 0.8 49.5 L 103.1 286.5 30% 40.0 39% L 38% 16% 16% 10% L 36% 124% 53% 12.2 L 30 61 49 L 25% 13% 16% 17% L 0.1 1.0 1.3 0.7 34.5

e calculated figures)

Remember!

Wh counts in the long run is the increase in "pe share value", not overall growth or size of a business.

Remember!

Gross margins suggest pricing power. Higher Better, but also invites competition. So watch o for consistency.

Remember!

ROE = Efficiency in allocating capital, which is CEO's #1 job. Higher = Better. Look for consistency.

r!

What he long run is the increase in "per e", not overall growth or size of a business.

Remember!

ins suggest pricing power. Higher = so invites competition. So watch out for consistency.

Remember!

ency in allocating capital, which is a #1 job. Higher = Better. Look for consistency.

Asian Paints: 2-Stage DCF

Figures in Rs Crore | Enter values only in red cells Initial Cash Flow Years FCF Growth Rate Discount Rate Terminal Growth Rate Shares Outstanding (Crore) Net Debt Level Year 1 2 3 4 5 6 7 8 9 10 Final Calculations Terminal Year PV of Year 1-10 Cash Flows Terminal Value Total PV of Cash Flows Number of Shares DCF Value / Share (Rs) 476 1-5 15% 12% 2% 10 (762) FCF 547 629 724 832 957 1,072 1,200 1,345 1,506 1,687 Growth 15% 15% 15% 15% 15% 12% 12% 12% 12% 12% Present Value 489 502 515 529 543 543 543 543 543 543 6-10 12%

1,720 5,292 5,539 10,831 10 1,209

Why DCF?
The value of a business is simply the present value of cash that investors can take out of the business over its lifetime.

Asian Paints - Buffett Valuation Spreadsheet

Source - Buffettology by Mary Buffett & David Clark | (Enter values only in red cells) Date of Analysis: 15/Aug/13 Current Stock Data Price: 4,665.0 EPS: 103.1 DPS: 40.0 BVPS: 286.5 P/E: 45.3 Earnings Yield: 2.2% Dividend Yield: 0.9% P/BV: 16.3 Govt. Bond Yield: 8.0% 10-Year Averages Return on Equity: Payout Ratio: P/E Ratio-High: P/E Ratio-Low: P/E Ratio: Sustainable Growth

Historical Company Data

Year L-9 L-8 L-7 L-6 L-5 L-4 L-3 L-2 L-1 L EPS 14.5 15.1 18.1 22.1 29.3 42.7 41.5 87.1 87.9 103.1 DPS 7.3 8.5 9.5 12.5 13.0 17.0 17.5 27.0 32.0 40.0 BVPS 49.8 55.2 59.1 67.4 81.1 102.4 125.4 178.3 228.0 286.5 Price High 324 361 471 862 972 1,316 1,264 2,545 3,017 3,762 Low 221 225 327 449 683 1,043 715 1,640 2,040 2,802 P/E Ratio High 22.4 23.9 26.0 39.0 33.2 30.8 30.5 29.2 34.3 36.5

Annually Compounded Rates of Growth

Factor 10-Year Growth 5-Year Growth EPS 24.4% 28.6% DPS 20.8% 25.2% BVPS High Price Low Price 21.5% 31.3% 32.6% 28.7% 31.1% 32.6%

Projected Company Data Using Historical Earnings Growth Rate

Year L (Current) L+1 L+2 L+3 L+4 EPS 103.1 128.2 159.4 198.2 246.5 DPS 46.2 57.5 71.4 88.8 110.5

911.5 Earnings after 10 years 1,896.4 Sum of dividends paid over 10 ye

23,170 Projected price (Average P/E * EP 25,066 Total gain (Projected Price + Div

L+5 L+6 L+7 L+8 L+9 L+10

306.5 381.2 474.0 589.5 733.0 911.5

137.4 170.8 212.5 264.2 328.5 408.5

18.3% Projected return using historical [(Total Gain / Current Price) ^ (1/

Projected Company Data Using Sustainable Growth Rate

Year L (Current) L+1 L+2 L+3 L+4 L+5 L+6 L+7 L+8 L+9 L+10 BVPS 286.5 342.6 409.5 489.6 585.2 699.6 836.4 999.9 1,195.3 1,429.0 1,708.3 EPS 101.5 121.3 145.1 173.4 207.3 247.8 296.3 354.2 423.4 506.2 605.2 DPS 45.5 54.4 65.0 77.7 92.9 111.1 132.8 158.8 189.8 226.9 271.2

605.2 Earnings after 10 years (BVPS * 1,426.1 Sum of dividends paid over 10 ye

15,383 Projected price (Average P/E * EP 16,809 Total gain (Projected Price + Div

13.7% Projected return using sustainab

dsheet

ues only in red cells)

ar Averages 35.4% 44.8% 30.6 20.3 25.4 19.5%

Past no predictor of the future. So be careful using numbers in this sheet - that are based on past numbers - into your fair value calculations. Of cou past can give some indications of the future, but t future is never always the same.

Warning!

P/E Ratio Low 15.2 14.9 18.0 20.3 23.3 24.4 17.2 18.8 23.2 27.2

ROEPayout Ratio 29.1% 50.5% 27.4% 56.3% 30.7% 52.3% 32.8% 56.5% 36.1% 44.4% 41.7% 39.8% 33.1% 42.2% 48.9% 31.0% 38.5% 36.4% 36.0% 38.8%

after 10 years vidends paid over 10 years

price (Average P/E * EPS) (Projected Price + Dividends)

return using historical EPS growth rate n / Current Price) ^ (1/10)] - 1

after 10 years (BVPS * ROE) vidends paid over 10 years

price (Average P/E * EPS) (Projected Price + Dividends)

return using sustainable growth rate

Past is ure. So be careful using that are based on past lue calculations. Of course tions of the future, but the lways the same.

Asian Paints - Fair Value Calculation

Year Diluted EPS (Rs) Stock Price - High (Rs) High P/E (x) Stock Price - Low (Rs) Low P/E (x) Average P/E (x) (Enter values only in red cells) L-9 L-8 L-7 L-6 L-5 14.5 15.1 18.1 22.1 29.3 324 361 471 862 972 22.4 23.9 26.0 39.0 33.2 221 225 327 449 683 15.2 14.9 18.0 20.3 23.3 18.8 19.4 22.0 29.6 28.2 L-4 42.7 1,316 30.8 1,043 24.4 27.6 L-3 41.5 1,264 30.5 715 17.2 23.9

Valuation - Different Methods (Rs) Graham Number 773 Avg P/E Ratio Valuation 2,356 EPV DCF Historical Earnings Growth Sustainable Earnings Growth 859 1,209 7,460 4,953

Rem

Give importance to a stock's fair v in "Yes" to these two questions understood? and (2) Can

Fair Value Range (Rs/Share) High End 2,935 Low End 1,578 Margin of Safety (MoS) 50% Fair Value after MoS 1,128 Current Mkt. Price (CMP, Rs) 4,665 Premium / (Discount) 313.5%

Don't try to quantify everything mathematical you are, the more your analysis and results. Grea env

Also, your calculated "fair value" don't invest your savings just b look for perfection. It is overrated Look for disconfir

n
L-2 87.1 2,545 29.2 1,640 18.8 24.0 L-1 87.9 3,017 34.3 2,040 23.2 28.8 L 103.1 3,762 36.5 2,802 27.2 31.8

Remember!

nce to a stock's fair value only "after" you have answered these two questions - (1) Is this business simple to be rstood? and (2) Can I understand this business?

o quantify everything. In stock research, the less nonal you are, the more simple, sensible, and useful will be is and results. Great analysis is generally "back-of-theenvelope".

culated "fair value" will be proven wrong in the future, so your savings just because you fall in love with it. Don't ction. It is overrated. Focus on decisions, not outcomes. Look for disconfirming evidence. Pray!