Safal Niveshak

Investing Made Simple

www.safalniveshak.com

Basic Company Details (July 2015)

(Enter values only in red cells) | Data Source: Ace Equity
Note: Hero Motocorp's analysis in this excel is for representation purpose only.
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)

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

Value
Warning!

wonderful tool to analyze the past. Bu

So be very careful of what you are

om

July 2015)

Source: Ace Equity

r representation purpose only.
Details
Hero Motocorp
Automobiles
XYZ
2,650
2
20
52,921

Remember!

Focus on decisions, not outc

Please!

0-Years)
Details
14.6%
14.5%
11.2%
0.1
46.9%

blame me if results of this excel ca

thinking, but you alone are responsib
I am not a sadist who wa
own. But I'd rather give you a compas

ng!

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

r!

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

It's your money. Please don't

if results of this excel cause you to lose it all! I've designed this excel to aid your own
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
rather give you a compass instead of a map, for you can confuse map with territory and
lose it all! All the best!

Buffett Che

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

Buffett 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 in
companies will typically have high gross and operating profit margins because of their unique niche. Ho
simply highlight companies within industries with traditionally high margins. Thus, look for companies w
industry norms. Also look for strong growth in earnings and high return on equity in the past.

Try to invest in industries where you possess some specialized knowledge (where you work) or can mo
competitive environment (simple products you consume). While it is difficult to construct a quantitative f
should "only" consider analyzing those companies that operate in areas that you can clearly grasp - you
size of the circle, but only over time by learning about new industries. More important than the size of th

Seeks out companies with conservative financing, which equates to a simple, safe balance sheet. Such
need for long-term debt. Look for low debt to equity or low debt-burden ratios. Also seek companies tha
cash flows.

Rising earnings serve as a good catalyst for stock prices. So seek companies with strong, consistent, a
5/10 year earnings per share growth greater than 25% (alongwith safe balance sheets). To help indicate
where the last 3-years earnings growth rate is higher than the last 10-years growth rate. More importan
growth. So exclude companies with volatile earnings growth in the past, even if the "average" growth ha

Like you should stock to your circle of competence, a company should invest its capital only in those bu
difficult factor to screen for on a quantitative level. Before investing in a company, look at the companys
should fit within the primary range of operations for the firm. Be cautious of companies that have been v

Buffett prefers that firms reinvest their earnings within the company, provided that profitable opportunitie
favours shareholder-enhancing maneuvers such as share buybacks. While we do not screen for this fa
if it has a share buyback plan in place.

Seek companies where earnings have risen as retained earnings (earnings after paying dividends) hav
such companies is by looking at those that have had consistent earnings and strong return on equity in

Consider it a positive sign when a company is able to earn above-average (better than competitors) retu
return on equity for Indian companies over the last 10 years is approximately 16%. Thus, seek compan
Again, consistency is the key here.

That's what is called "pricing power". Companies with moat (as seen from other screening metrics as su
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,
companies that don't need high capital investments consistently. Retained earnings must first go toward
the lower the amount needed to maintain current operations, the better. Here, more than just an absolu
help a lot. Seek companies that consistently generate positive and rising free cash flows.

Sensible investing is always about using folly and discipline - the discipline to identify excellent busine
the value of these businesses to attractive levels. You will have little trouble understanding this philosop
dependent upon your dedication to learn and follow the principles, and apply them to pick stocks succe
Focus on decisions, not outcomes. Look for disconfirming evidence.

Hero Motocorp - Balance

Year / Rs Crore
SOURCES OF FUNDS / EQUITY & LIABILITIES
Share Capital
Reserves & Surplus
Shareholder's Funds / Equity

(Enter values only in red cells) | Data So

L-9
L-8
40
1,453
1,493

40
1,969
2,009

Non-Current Liabilities
Long-Term Borrowings

202

186

Current Liabilities
Short-Term Borrowings
Trade Payables
Other Current Liabilities
Short-Term Provisions

1,500
662
354
485

1,563
646
427
490

881
674
41
165

1,157
949
44
163

2,416
1,861
204
90
18
240
4

2,720
1,899
227
159
159
274
4

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

tocorp - Balance Sheet

in red cells) | Data Source: Ace Equity

L-7
L-6
L-5

L-4

L-3

L-2

L-1

L (FY14)

40
2,430
2,470

40
2,946
2,986

40
3,761
3,801

40
3,425
3,465

40
2,916
2,956

40
4,250
4,290

40
4,966
5,006

40
5,560
5,600

165

132

78

66

1,471

1,011

302

24

1,479
555
487
437

1,825
756
569
500

2,053
703
823
527

4,831
1,111
2,694
1,026

6,017
2,073
2,898
1,045

4,341
2,293
996
1,052

4,171
1,873
888
1,410

5,527
2,291
588
2,648

1,519
1,166
190
164

1,751
1,156
392
202

1,832
1,574
121
138

2,054
1,659
48
347

4,596
4,080
50
465

4,498
3,786
39
674

3,748
3,071
62
614

3,910
2,243
854
813

2,723
1,810
276
335
36
263
4

3,301
2,365
317
297
131
185
6

4,244
3,231
327
150
220
311
6

6,461
3,578
436
108
1,907
247
183

5,772
4,663
525
131
72
123
258

4,831
3,290
676
272
77
242
274

5,078
3,009
637
665
181
407
178

6,660
3,276
670
921
118
1,509
168

Hero Motocorp - P&L Accoun

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
Profit After Tax (PAT)
Diluted EPS (Rs)

(Enter values only in red cells) | Data Source: A

L-9
L-8
L-7
7,422
8,714
9,900

(12)
5,227
215
295
374
160
6
6,266
1,911
1,156
153
89
1,219
2

(12)
6,098
259
380
443
206
7
7,380
2,249
1,334
196
115
1,415
3

2
7,216
299
435
539
257
18
8,767
2,247
1,133
254
140
1,248
2

1,217
407
810
810
40.6

1,412
441
971
971
48.6

1,246
388
858
858
43.0

Motocorp - P&L Account

ly in red cells) | Data Source: Ace Equity

L-6
L-5
L-4
10,332
12,319
15,758

11
7,441
321
459
550
237
12
9,032
2,421
1,300
272
160
1,412
2

(18)
8,816
371
545
672
266
38
10,691
2,976
1,628
337
181
1,784
3

6
10,781
438
677
842
388
15
13,146
4,295
2,612
414
191
2,834
2

1,410
442
968
###
968
48.5

1,781
500
1,282
1,282
64.2

2,832
600
2,232
2,232
111.8

L-3
19,398

L-2
23,579

L-1
23,768

L (FY14)
25,275

(24)
14,190
619
674
605
383
393
16,840
4,558
2,558
344
402
2,500
15
(80)
2,405
477
1,928
1,928
96.5

(84)
17,449
736
363
774
366
440
20,044
5,851
3,535
448
1,097
2,886
21

33
17,458
821
412
855
469
530
20,577
5,865
3,191
492
1,142
2,541
12

8
18,314
930
508
960
493
614
21,828
6,444
3,447
539
1,107
2,879
12

2,865
487
2,378
2,378
119.1

2,529
411
2,118
2,118
106.1

2,867
758
2,109
2,109
105.6

CAGR
14.6%

14.9%
14.5%
12.9%

10.0%

10.0%
11.2%

11.2%

Hero Motocorp - Cash Flo

Year / Rs Crore
Net cash (used in) / generated from operating activities
Payment for purchase of fixed assets
Free Cash Flow
Net cash (used in) / generated from investing activities
Net cash (used in) / generated from financing activities
Net increase in cash and cash equivalents

(Enter values only in red cells) | Data

L-9
747
(219)
528
(563)
(204)
(20)

Sample Cash F

MINUS

Motocorp - Cash Flow Statement

lues only in red cells) | Data Source: Ace Equity

L-8
L-7
L-6
L-5
936
625
1,212
1,359
(399)
(519)
(375)
(315)
537
106
837
1,044
(323)
(273)
(781)
(861)
(471)
(493)
(432)
(500)
141
(142)
(2)
(2)

L-4
2,687
(212)
2,475
(528)
(2,109)
50

L-3
2,254
(364)
1,890
(1,322)
(955)
(23)

Sample Cash Flow Statement (from Annual Report)

L-2
2,360
(565)
1,795
93
(2,458)
(6)

L-1
1,890
(608)
1,283
(733)
(1,056)
101

L (FY14)
2,963
(937)
2,027
(1,619)
(1,415)
(71)

Remember!

Cash flow, not reported earnings, is what determines a com

long-term value.

gs, is what determines a company's

erm value.

Hero Motocorp - Key Ratios

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

Operational & Financial Ratios

Diluted Earnings Per Share (Rs)
Diluted Book Value Per Share (Rs)
Tax Rate (%)

L-9
40.6
74.8
33%

L-8
48.6
100.6
31%

L-7
43.0
123.7
31%

L-6
48.5
149.5
31%

Profitability Ratios
Gross Margin (%)
EBITDA Margin (%)
EBIT Margin (%)
Net Profit Margin (%)

L-9
26%
16%
16%
11%

L-8
26%
15%
16%
11%

L-7
23%
11%
13%
9%

L-6
23%
13%
14%
9%

Performance Ratios
Return on Equity (%)

L-9
54%

L-8
48%

L-7
35%

L-6
32%

51%
-442%
8.1

46%
708%
7.5

36%
109%
8.0

37%
156%
7.0

Efficiency Ratios
Receivable Days
Inventory Days
Payable Days

L-9
4
10
33

L-8
7
9
27

L-7
12
10
20

L-6
11
11
27

Growth Ratios
Net Sales Growth (%)
EBITDA Growth (%)
PBIT Growth (%)
PAT Growth (%)

L-9

L-8
17%
15%
16%
20%

L-7
14%
-15%
-12%
-12%

L-6
4%
15%
13%
13%

L-9
0.1
0.4
1.6
1.5
631.7

L-8
0.1
0.3
1.7
1.6
484.6

L-7
0.1
1.6
1.8
1.7
775.0

L-6
0.0
0.2
1.8
1.6
706.1

Return on Capital Employed (%)

Return on Invested Capital (%)
Sales/Working Capital (x)

Financial Stability Ratios

Total Debt/Equity (x)
Debt Burden (x)
Current Ratio (x)
Quick Ratio (x)
Interest Cover (x)

p - Key Ratios

et, as all are calculated figures)

L-5
64.2
190.3
28%

L-4
111.8
173.5
21%

L-3
96.5
148.0
20%

L-2
119.1
214.8
17%

L-1
106.1
250.7
16%

L (FY14)
105.6
280.4
26%

L-5
24%
13%
14%
10%

L-4
27%
17%
18%
14%

L-3
23%
13%
13%
10%

L-2
25%
15%
12%
10%

L-1
25%
13%
11%
9%

L
25%
14%
11%
8%

L-5
34%

L-4
64%

L-3
65%

L-2
55%

L-1
42%

L
38%

34%
299%
5.6

68%
-114%
9.7

52%
-651%
(79.2)

56%
124%
48.2

53%
100%
26.2

50%
95%
22.3

L-5
4
10
21

L-4
3
10
26

L-3
2
10
39

L-2
4
10
35

L-1
10
10
29

L
13
10
33

L-5
19%
25%
26%
32%

L-4
28%
60%
59%
74%

L-3
23%
-2%
-12%
-14%

L-2
22%
38%
15%
23%

L-1
1%
-10%
-12%
-11%

L
6%
8%
13%
0%

L-5
0.0
0.1
2.1
1.9
705.1

L-4
0.0
0.0
1.3
1.2
1,349.4

L-3
0.5
0.8
1.0
0.9
164.8

L-2
0.2
0.6
1.1
1.0
135.5

L-1
0.1
0.2
1.2
1.1
213.4

L
0.0
0.0
1.2
1.1
243.6

Remember!

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

Remember!
Gross margins suggest pricing power. Higher = Better, but
also invites competition. So watch out for consistency.

Remember!

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

Hero Motocorp: 2-Stage DCF

Figures in Rs Crore | Enter values only in red cells
Initial Cash Flow

1,701

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

1-5
12%
10%
2%
20
(3,369)
FCF
1,906
2,134
2,390
2,677
2,998
3,298
3,628
3,991
4,390
4,829

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)
Note: See the explanation of DCF here

6-10
10%

4,926
18,291
23,738
42,029
20
2,273

Growth
12%
12%
12%
12%
12%
10%
10%
10%
10%
10%

Why DCF?

value of a business is simply the present

of cash that investors can take out of t
business over its lifetime.

Present Value
1,732
1,764
1,796
1,829
1,862
1,862
1,862
1,862
1,862
1,862

The
siness is simply the present value
at investors can take out of the
siness over its lifetime.

Hero Motocorp - Fair Value Calculation

Year
Diluted EPS (Rs)
High P/E (x)
Low P/E (x)
Average P/E (x)
Valuation - Different Methods (Rs)
Avg P/E Ratio Valuation
DCF

L-9
40.6
15.0
10.4
12.7

1,830
2,273

Fair Value Range (Rs/Share)

High End
Low End
Margin of Safety (MoS)
Fair Value after MoS
Current Mkt. Price (CMP, Rs)
Premium / (Discount)

2,051
1,895
20%
1,578
2,650
67.9%

(Enter values only in red cells)

L-8
L-7
L-6
L-5
48.6
43.0
48.5
64.2
20.2
18.5
19.1
18.4
12.0
13.2
13.6
12.1
16.1
15.9
16.4
15.2

Remember!

to a stock's fair valu

Is this business

Don't try to quantify

more simple, sen

Also, your calculate

savings just because
on decisi

ue Calculation

d cells)
L-4
111.8
23.2
15.1
19.2

L-3
96.5
19.6
13.7
16.7

L-2
119.1
22.9
16.6
19.8

L-1
106.1
18.9
14.3
16.6

L (FY14)
105.6
21.5
13.6
17.5

Remember!

Give importance
to a stock's fair value only "after" you have answered in "Yes" to these two questions - (1)
Is this business simple to be understood? and (2) Can I understand this business?
Don't try to quantify everything. In stock research, the less non-mathematical you are, the
more simple, sensible, and useful will be your analysis and results. Great analysis is
generally "back-of-the-envelope".

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

Expected Return Model

Hero Motocorp
Profit After Tax (Rs Cr)
Earnings per Share (Rs )
Net Profit Margin
Return on Equity
Calculations
Esti. CAGR in EPS over next 10 years
Esti. EPS after 10 years
Current P/E
Esti. Stock Price @ 20x P/E
CMP (Rs)
Esti. CAGR Return in 10 Years
Note: See the explanation of this model here

L-9
810
41
11%
54%

10%
274
22.2
5,479
2,650
7.5%

L-8
971
49
11%
48%

L-7
858
43
9%
35%

L-6
968
48
9%
32%

L-5
1,282
64
10%
34%

L-4
2,232
112
14%
64%

L-3
1,928
97
10%
65%

L-2
2,378
119
10%
55%

L-1
2,118
106
9%
42%

L (FY14)
2,109
106
8%
38%

CAGR (10-Yr)
11%
11%

CAGR (5-Yr)
10%
10%