Y





Prof. Saurin Jhaveri

For AMSIMR ± Internal use only

! 


 ealth
 Role of risk in wealth creation

istorical returns from various asset classes
Ł Real estate, Equities, Bonds, Art, Insurance
 Equities
 Bonds
 MFs
 Financial Planning
 Asset allocation
 Behavioral aspects

For AMSIMR ± Internal use only

 Y
 

Y

hat???

ow ????
& hen!!!!!

Key lies in retaining it!!!

For AMSIMR ± Internal use only

j

For AMSIMR ± Internal use only

j
 efinition
Ł Variability in Cash flow
 ypes
 Impact of risk on various asset classes
Ł Equities
Ł Bonds
Ł Real estate
 A friend or foe - ???

For AMSIMR ± Internal use only

j 

 Is it important?
Ł Purposeful or self-defeating

ow can it be achieved?
 Variation in risk profile of assets

For AMSIMR ± Internal use only

j 

For AMSIMR ± Internal use only

m
! 
j 
 Best returns
 owest risk
 Risks exist across the board
Ł Equities
Ł Bonds
Ł Insurance
Ł Real estate

For AMSIMR ± Internal use only

@ 

For AMSIMR ± Internal use only

h 


 Fundamental analysis
 echnical analysis
 Market whispers , tipsters, etc

For AMSIMR ± Internal use only








 Art or science??
 Art
Ł All growth is linked to underlying economic growth
Ł rick lies in understanding the profile of growth!!
 Science
Ł If it were a mere study of nos. (an exact science-
ACCOUNING); accountants would be the richest lot
Ł
ardly ever the case!!
 A balanced act
Ł ets call it a ³Scientific Art´

For AMSIMR ± Internal use only

h 



 Advantages
Ł oes not focus on future variables
Ł Statistical analysis of past data
Ł Chart patterns tend to repeat
Ł Common across all asset classes
 isadvantages
Ł ough to call tops
Ł ough to call a through

A skillful technique that requires very specialized training.

For AMSIMR ± Internal use only









For AMSIMR ± Internal use only

!


 Risk v/s return
 Value v/s growth
 Rising v/s declining industry
Ł A comparative study of key industries
K BCG Matrix (2 x 2 grid)
K GE Matrix (3 x 3 grid)

O

Retail
Financial services
elecom
Pharma
Electronics
Automotive
Agriculture
Real estate
For AMSIMR ± Internal use only
extile
! 

 op down
Ł Macro Economy
Ł Industry
Ł Company
 Bottom up
Ł Company
Ł Company
Ł Company
Ł Company
Ł id I mention Company!!!
 ype of market ± Bull or Bear
 Selection of approach of any help???
Ł efinitely, YES

For AMSIMR ± Internal use only

@   

 
 International stalwarts
Ł Benjamin Graham
Ł arren Buffet
Ł Peter ynch
 Closer home
Ł Rakesh Jhunjhunwala
Ł Ramesh amani
 Con-men too
Ł BERNIE MA
OFF!

For AMSIMR ± Internal use only

 
 
 Invested in quality stocks
 Simple businesses
 Contrarians
 ³One pays a big price for a cheery consensus ³
 Out of the box thinking
 ong term market beater
 Average 18-20% returns!!
 arren ³he Oracle of Omaha´ @ > 20%
 h 




   

  


 ime/ Compounding makes a great friend of business that are lean
with some ³Moat´

For AMSIMR ± Internal use only


  

 Albert Einstein ± 8th onder of the orld!
j 

       
 108 110 112 114 116 118 120
 117 121 125 130 135 139 144
 126 133 140 148 156 164 173
 136 146 157 169 181 194 207
 147 161 176 193 210 229 249
 159 177 197 219 244 270 299
 171 195 221 250 283 319 358
 185 214 248 285 328 376 430
 200 236 277 325 380 444 516
h 
 216 259 311 371 441 523 619 j


  233 285 348 423 512 618 743
 252 314 390 482 594 729 892
 272 345 436 549 689 860 1,070
 294 380 489 626 799 1,015 1,284
 317 418 547 714 927 1,197 1,541
 343 459 613 814 1,075 1,413 1,849
 370 505 687 928 1,247 1,667 2,219
 400 556 769 1,058 1,446 1,967 2,662
 432 612 861 1,206 1,678 2,321 3,195
 466 673 965 1,374 1,946 2,739 3,834
Y


For AMSIMR ± Internal use only

@ 
    
 Product
 Brand
 Growth rate ± A comparison always helps!
 Market share & trends
 Industry analysis
Ł Michael Porter¶s Five forces model
 Financials

For AMSIMR ± Internal use only



 


For AMSIMR ± Internal use only

h 



 hat to look for??
Ł Sales growth
Ł Profitability
Ł ebt levels & Capital structures
Ł Return ratios
Ł Multiples & /O ratios
Ł Asset plays!

For AMSIMR ± Internal use only

@
 
 Absolute growth
Ł Value
Ł Volume
Ł YoY comparison (3 ± 5 year period)
 Relative growth
Ł Industry
Ł Some key competition
 SUSENANCE??
 ook out for cyclical industries and companies operating
within them!!
Ł hey make best bets when sales are very low
Ł ypically due to forward discounting nature of markets

For AMSIMR ± Internal use only



 EBIA, EBI, PB, PA
 Margin numbers
Ł OPM, GPM & NPM
Ł No dependence on other income
 Understand hidden numbers

igher depreciation can be a good thing!
 ow taxes may not last forever ± I
 Interest payments can impact ROE in a big way

 Some pointers
Ł Check historical rates of taxes ± Compare!
Ł See B/S along with P& ± Gross Block
Ł Understand long term EB trends
K ype and value in tandem
Ł Cost control mechanism ± Pass through
K MOA

For AMSIMR ± Internal use only

   

@ 
 rend is important
 Overall debt to equity ± lower the better???
Ł Addition may not always be bad
Ł A high growth industries¶ need
 Capital structure
Ł A historical perspective
Ł Earnings accretive??
Ł Expanding ROE/RON
 From an investor perspective
Ł Cash flow understanding is imperative
Ł Also is future business going to mar margin???
Ł Brands become important here
Ł Eg: Aviation,
ospitality etc¶
Ł ow entry barriers can be the death knell
 Some pointers
 oo much of short term debt can be dangerous ± why??
 Understand ratio like SCR w.r.t to principle repayment
 Interest cover

For AMSIMR ± Internal use only

j 

 ROE
 RON
 ax rate impact on these
 ACC ± A key factor in CF

For AMSIMR ± Internal use only

  h
j

 PE
 EV
Ł EV/ EBIA
EV/ Sales
 Mkt Cap / Sales
 Asset turnover
Ł uPont Analysis
 CM
Ł ebtor days
Ł Creditor days
Ł C t/o days

For AMSIMR ± Internal use only

 
 
 hat is it?
 oes it matter?
 hat does it attempt to explain
 Factors that affect it
Ł
istory of company
Ł Industry
Ł Growth expectations!!
 ower the better???
Ł Some cases
 ype of market ± Its impact on PE
 Impact of liquidity

For AMSIMR ± Internal use only

!  

hat are they??
Some examples

For AMSIMR ± Internal use only

@  

 Management quality
Ł Check for performance against past claims
Ł eployment of cash excesses if any
Ł Attitude towards dilution
Ł heir remuneration w.r.t Company performance

For AMSIMR ± Internal use only



 

 

For AMSIMR ± Internal use only

O
 

 Cash flow
 Balance sheets
 P&
Eg: Shipbuilding industry

For AMSIMR ± Internal use only




 ³Kyun paisa paisa karte ho´!!
 An equity holder has final claim on assets of
Company
 Only true measure of wealth creation
 Most difficult to ³fudge´
 Aim
Ł o understand
K Paisa kahan se aaya??
K Kahan gaya??
K Kitna bacha!

For AMSIMR ± Internal use only

ð

 
Next class!!!
Remember, Rome wasn¶t built in a day!!

For AMSIMR ± Internal use only

Not so soon!!
Next week:
Industry presentations and in depth analysis of 2 companies each
All ratios and your understanding here on

For AMSIMR ± Internal use only