Safal Niveshak

Value Investing Made Simple

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

Key Financials (Last 10-Years)

Parameters Details
Sales Growth (10-Year CAGR) 20.4%
Gross Profit Growth (10-Year CAGR) 18.1%
Net Profit Growth (10-Year CAGR) 24.4%
Average Debt/Equity (x) 0.3
Average Return on Equity 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!
 Buffett Checklist - Read, R
Source - Buffettology by Mary B
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 company’s 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
the product unique. Such companies will typically have high gross and operating profit margins because
However, don't just go on margins as high margins may simply highlight companies within industries wi
margins. Thus, look for companies with gross, operating and net profit margins above industry norms. A
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
company, its industry, and its competitive environment (simple products you consume). While it is difficu
quantitative filter, you should be able to identify areas of interest. You should "only" consider analyzing
operate in areas that you can clearly grasp - your circle of competence. Of course you can increase the
only over time by learning about new industries. More important than the size of the circle is to know its

Seeks out companies with conservative financing, which equates to a simple, safe balance sheet. Such
have strong cash flows, with little need for long-term debt. Look for low debt to equity or low debt-burde
companies that have history of consistently generating positive free cash flows.

Rising earnings serve as a good catalyst for stock prices. So seek companies with strong, consistent, a
(profits). Seek companies with 5/10 year earnings per share growth greater than 25% (alongwith safe b
help indicate that earnings growth is still strong, look for companies where the last 3-years earnings gro
the last 10-years growth rate. More important than the rate of growth is the consistency in such growth.
with volatile earnings growth in the past, even if the "average" growth has been high.

Like you should stock to your circle of competence, a company should invest its capital only in those bu
circle of competence. This is a difficult factor to screen for on a quantitative level. Before investing in a c
company’s past pattern of acquisitions and new directions. They should fit within the primary range of o
Be cautious of companies that have been very aggressive in acquisitions in the past.

Buffett prefers that firms reinvest their earnings within the company, provided that profitable opportunitie
companies have excess cash flow, Buffett favours shareholder-enhancing maneuvers such as share bu
not screen for this factor, a follow-up examination of a company would reveal if it has a share buyback p

Seek companies where earnings have risen as retained earnings (earnings after paying dividends) hav
profitably. A great way to screen for such companies is by looking at those that have had consistent ear
return on equity in the past.

Consider it a positive sign when a company is able to earn above-average (better than competitors) retu
employing much debt. Average return on equity for Indian companies over the last 10 years is approxim
companies that earn atleast this much (16%) or more than this. Again, consistency is the key here.
That's what is called "pricing power". Companies with moat (as seen from other screening metrics as su
high ROE, high grow margins, low debt etc.) are able to adjust prices to inflation without the risk of losin
sales.

Companies that consistently need capital to grow their sales and profits are like bank savings account,
investor's long term portfolio. Seek companies that don't need high capital investments consistently. Re
first go toward maintaining current operations at competitive levels, so the lower the amount needed to
operations, the better. Here, more than just an absolute assessment, a comparison against competitors
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
folly of the market to drive down the value of these businesses to attractive levels. You will have little tro
this philosophy. However, its successful implementation is dependent upon your dedication to learn and
and apply them to pick stocks successfully.

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

 Asian Paints - Balance Sheet
(Enter values only in red cells)
Year / Rs Crore L-9 L-8 L-7 L-6 L-5
SOURCES OF FUNDS / EQUITY & LIABILITIES
Share Capital 64 96 96 96 96
Reserves & Surplus 413 434 471 550 682
Shareholder's Funds / Equity 478 529 567 646 778

Minority Interest 75 70 64 60 60

Non-Current Liabilities
Long-Term Borrowings 197 160 240 261 180

Current Liabilities 514 581 618 705 979

Short-Term Borrowings - 9 - - 126
Trade Payables 232 272 295 330 449
Other Current Liabilities 177 163 206 249 339
Short-Term Provisions 105 136 117 126 66

APPLICATION OF FUNDS / ASSETS

Non-Current Assets 35 34 37 41 45
Tangible Assets 20 22 24 27 29
Intangible Assets 5 6 6 7 7
Capital Work-in-Progress 5 1 1 1 1
Non-Current Investments 5 6 6 7 7

Current Assets 737 772 950 1,120 1,406

Current Investments - 12 27 75 114
Inventories 322 318 455 489 598
Trade Receivables 256 265 296 348 421
Cash and Bank Balance 68 70 61 73 105
Short-Term Loans and Advances 55 76 80 74 98
Other Current Assets 35 31 32 61 69
heet
)
L-4 L-3 L-2 L-1 L

96 96 96 96 96
886 1,107 1,614 2,092 2,653
982 1,203 1,710 2,187 2,749

57 76 94 110 137

179 152 104 147 148

1,248 2,517 3,315 2,081 2,771

96 157 125 - -
572 554 718 1,087 1,297
414 461 661 703 1,107
166 1,345 1,810 290 367

49 54 59 65 72
32 35 39 43 47
8 9 10 11 12
1 1 1 1 1
8 9 10 11 12

1,692 2,966 3,871 3,068 3,560

198 - 532 367 285
714 769 956 1,305 1,599
460 572 543 573 781
111 210 106 626 624
153 1,365 1,670 106 186
56 50 65 90 84
 Asian Paints - P&L Account
(Enter values only in red cells)
Year / Rs Crore L-9 L-8 L-7 L-6 L-5 L-4
Net Sales 1,817 2,373 2,574 3,021 3,670 4,407

Expenditure
Increase/Decrease in Stock (38) 2 (61) (10) (70) (36)
Raw Material Consumed 975 1,290 1,563 1,803 2,269 2,613
Employee Cost 120 183 199 219 257 301
Other Manufacturing Expenses 66 74 86 96 112 122
General and Administration Expenses 60 84 87 99 122 145
Selling and Distribution Expenses 301 358 297 345 411 535
Miscellaneous Expenses 56 85 68 79 85 63
Total Expenditure 1,540 2,076 2,239 2,630 3,187 3,743
Gross Profit 815 1,007 985 1,133 1,358 1,708
Operating Profit / EBITDA 278 297 335 391 483 664
Other Income 11 27 32 32 40 60
Depreciation 49 71 69 68 61 59
Profit Before Interest & Tax (PBIT) 240 253 298 354 462 665
Interest 14 15 11 11 24 26
Exceptional Income / Expenses - - - - (8) (7)
Profit Before Tax 226 238 287 343 430 631
Provision for Tax 86 94 106 132 147 203
Profit After Tax 140 144 181 211 283 428
Minority Interest (1) (3) (7) 2 (2) (19)
Share of Associate - 4 0 (1) (0) -
Consolidated Profit After Tax (PAT) 139 145 174 212 281 409
Diluted EPS (Rs) 14.5 15.1 18.1 22.1 29.3 42.7
Interim Equity Dividend 29 34 38 67 115 62
Proposed Equity Dividend 42 48 53 53 10 101
Total Equity Dividend 70 82 91 120 125 163
 L-3 L-2 L-1 L CAGR
5,464 6,681 7,722 9,632 20.4%

(27) (102) (151) (173)

2,866 3,227 3,906 5,099
365 433 454 526
682 797 922 1,073
167 200 206 269
646 801 969 1,207
91 89 85 120
4,790 5,445 6,391 8,122 20.3%
1,943 2,758 3,045 3,633 18.1%
674 1,236 1,331 1,510 20.7%
51 141 68 108
74 84 113 121
651 1,293 1,286 1,497 22.6%
32 37 26 43
(1) 1 - -
617 1,257 1,260 1,454 23.0%
197 373 378 434
419 884 881 1,021 24.7%
(22) (48) (38) (32)
- - - -
398 836 843 989 24.4%
41.5 87.1 87.9 103.1
62 82 82 91
106 177 225 293
168 259 307 384 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

MINUS
ow Statement
red cells)
L-6 L-5 L-4 L-3 L-2 L-1 L
179 258 480 389 1,063 762 826
(87) (82) (308) (310) (395) (156) (673) Remember!
92 176 172 79 668 606 153 Cash flow
(125) (109) (335) (270) (299) (440) (512) what determines a com
(42) (111) (134) (230) (332) (334) (327)
12 38 11 (111) 432 (12) (12)

low 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 L-9 L-8 L-7 L-6 L-5 L-4
Diluted Earnings Per Share (Rs) 14.5 15.1 18.1 22.1 29.3 42.7
Diluted Book Value Per Share (Rs) 49.8 55.2 59.1 67.4 81.1 102.4
Tax Rate (%) 38% 40% 37% 39% 34% 32%
Dividend Per Share (Rs) 7.3 8.5 9.5 12.5 13.0 17.0
Dividend Pay Out Ratio (%) 50% 56% 52% 57% 44% 40%

Profitability Ratios L-9 L-8 L-7 L-6 L-5 L-4

Gross Margin (%) 45% 42% 38% 38% 37% 39%
EBITDA Margin (%) 15% 13% 13% 13% 13% 15%
EBIT Margin (%) 13% 11% 12% 12% 13% 15%
Net Profit Margin (%) 8% 6% 7% 7% 8% 9%

Performance Ratios L-9 L-8 L-7 L-6 L-5 L-4

Return on Equity (%) 29% 27% 31% 33% 36% 42%
Return on Capital Employed (%) 60% 70% 52% 49% 66% 93%
Return on Invested Capital (%) 24% 25% 26% 29% 35% 47%
Sales/Working Capital (x) 8.2 12.4 7.8 7.3 8.6 9.9

Efficiency Ratios L-9 L-8 L-7 L-6 L-5 L-4

Receivable Days 51 41 42 42 42 38
Inventory Days 65 49 64 59 59 59
Payable Days 47 42 42 40 45 47

Growth Ratios L-9 L-8 L-7 L-6 L-5 L-4

Net Sales Growth (%) 31% 8% 17% 21% 20%
EBITDA Growth (%) 7% 13% 17% 24% 37%
PBIT Growth (%) 6% 18% 19% 30% 44%
PAT Growth (%) 4% 20% 22% 32% 46%

Financial Stability Ratios L-9 L-8 L-7 L-6 L-5 L-4

Total Debt/Equity (x) 0.4 0.3 0.4 0.4 0.4 0.3
Debt Burden (x) 1.7 0.8 16.7 2.8 1.0 1.0
Current Ratio (x) 1.4 1.3 1.5 1.6 1.4 1.4
Quick Ratio (x) 0.8 0.8 0.8 0.9 0.8 0.8
Interest Cover (x) 17.5 16.6 27.5 31.0 19.3 25.2
lated figures)
L-3 L-2 L-1 L
41.5 87.1 87.9 103.1 Remember!
125.4 178.3 228.0 286.5 counts in the long run is the increase in
32% 30% 30% 30% share value", not overall growth or size
17.5 27.0 32.0 40.0 business.
42% 31% 36% 39%

L-3 L-2 L-1 L

36% 41% 39% 38%
Remember!
12% 18% 17% 16% Gross margins suggest pricing p
12% 19% 17% 16% Higher = Better, but also invites competit
watch out for consistency.
7% 13% 11% 10%

L-3 L-2 L-1 L

33% 49% 39% 36% Remember!
ROE = Efficiency in allocating capital, wh
90% 150% 86% 124%
CEO's #1 job. Higher = Better. Look f
34% 70% 67% 53% consistency.
12.2 12.0 7.8 12.2

L-3 L-2 L-1 L

38 30 27 30
51 52 62 61
37 39 51 49

L-3 L-2 L-1 L

24% 22% 16% 25%
1% 83% 8% 13%
-2% 99% -1% 16%
-3% 110% 1% 17%

L-3 L-2 L-1 L

0.3 0.1 0.1 0.1
1.9 0.2 0.2 1.0
1.2 1.2 1.5 1.3
0.9 0.9 0.8 0.7
20.0 35.2 49.5 34.5
 What
g run is the increase in "per
t overall growth or size of a
business.

rgins suggest pricing power.

ut also invites competition. So
ut for consistency.

n allocating capital, which is a

Higher = Better. Look for
onsistency.
 Asian Paints: 2-Stage DCF
Figures in Rs Crore | Enter values only in red cells

Initial Cash Flow 476

Years 1-5 6-10

FCF Growth Rate 15% 12%
Discount Rate 12%
Terminal Growth Rate 2%

Shares Outstanding (Crore) 10

Net Debt Level (762)

Year FCF Growth Present Value

1 547 15% 489
2 629 15% 502
3 724 15% 515
4 832 15% 529
5 957 15% 543
6 1,072 12% 543
7 1,200 12% 543
8 1,345 12% 543
9 1,506 12% 543
10 1,687 12% 543

Final Calculations
Terminal Year 1,720
PV of Year 1-10 Cash Flows 5,292
Terminal Value 5,539
Total PV of Cash Flows 10,831
Number of Shares 10
DCF Value / Share (Rs) 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: 19/Apr/20

Current Stock Data 10-Year Averages

Price: 4,665.0 Return on Equity:
EPS: 103.1 Payout Ratio:
DPS: 40.0 P/E Ratio-High:
BVPS: 286.5 P/E Ratio-Low:
P/E: 45.3 P/E Ratio:
Earnings Yield: 2.2% Sustainable Growth
Dividend Yield: 0.9%
P/BV: 16.3

Govt. Bond Yield: 8.0%

Historical Company Data

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

Annually Compounded Rates of Growth

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

Projected Company Data Using Historical Earnings Growth Rate

Year EPS DPS
L (Current) 103.1 46.2 911.5 Earnings after 10 years
L+1 128.2 57.5 1,896.4 Sum of dividends paid over 10 yea
L+2 159.4 71.4
L+3 198.2 88.8 23,170 Projected price (Average P/E * EPS
 L+4 246.5 110.5 25,066 Total gain (Projected Price + Divid
L+5 306.5 137.4
L+6 381.2 170.8 18.3% Projected return using historical E
L+7 474.0 212.5 [(Total Gain / Current Price) ^ (1/10
L+8 589.5 264.2
L+9 733.0 328.5
L+10 911.5 408.5

Projected Company Data Using Sustainable Growth Rate

Year BVPS EPS DPS
L (Current) 286.5 101.5 45.5 605.2 Earnings after 10 years (BVPS * RO
L+1 342.6 121.3 54.4 1,426.1 Sum of dividends paid over 10 yea
L+2 409.5 145.1 65.0
L+3 489.6 173.4 77.7 15,383 Projected price (Average P/E * EPS
L+4 585.2 207.3 92.9 16,809 Total gain (Projected Price + Divid
L+5 699.6 247.8 111.1
L+6 836.4 296.3 132.8 13.7% Projected return using sustainable
L+7 999.9 354.2 158.8
L+8 1,195.3 423.4 189.8
L+9 1,429.0 506.2 226.9
L+10 1,708.3 605.2 271.2
dsheet
ues only in red cells)

ar Averages
35.4%
44.8%
30.6
Warning! Past
is no predictor of the future. So be careful using
20.3 numbers in this sheet - that are based on past
25.4 numbers - into your fair value calculations. Of
19.5% course past can give some indications of the
future, but the future is never always the same.

P/E Ratio
Low ROE ayout Ratio
15.2 29.1% 50.5%
14.9 27.4% 56.3%
18.0 30.7% 52.3%
20.3 32.8% 56.5%
23.3 36.1% 44.4%
24.4 41.7% 39.8%
17.2 33.1% 42.2%
18.8 48.9% 31.0%
23.2 38.5% 36.4%
27.2 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
ture. So be careful using
- that are based on past
ir value calculations. Of
some indications of the
never always the same.
 Asian Paints - Fair Value Calculation
(Enter values only in red cells)
Year L-9 L-8 L-7 L-6 L-5 L-4 L-3
Diluted EPS (Rs) 14.5 15.1 18.1 22.1 29.3 42.7 41.5
Stock Price - High (Rs) 324 361 471 862 972 1,316 1,264
High P/E (x) 22.4 23.9 26.0 39.0 33.2 30.8 30.5
Stock Price - Low (Rs) 221 225 327 449 683 1,043 715
Low P/E (x) 15.2 14.9 18.0 20.3 23.3 24.4 17.2
Average P/E (x) 18.8 19.4 22.0 29.6 28.2 27.6 23.9

Valuation - Different Methods (Rs)

Graham Number 773
Avg P/E Ratio Valuation 2,356 Remember!
Give importance to a stock's
EPV 859 answered in "Yes" to these two ques
DCF 1,209 to be understood? and (2) Can
Historical Earnings Growth 23,170
Sustainable Earnings Growth 15,383 Don't try to quantify everything. I
mathematical you are, the more sim
your analysis and results. Great an
Fair Value Range (Rs/Share) envelo
High End 7,292
Low End 2,481 Also, your calculated "fair value" wil
Margin of Safety (MoS) 50% don't invest your savings just beca
Fair Value after MoS 2,443 look for perfection. It is overrated. F
Look for disconfirmi
Current Mkt. Price (CMP, Rs) 4,665
Premium / (Discount) 90.9%
n

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

ber!
mportance to a stock's fair value only "after" you have
Yes" to these two questions - (1) Is this business simple
derstood? and (2) Can I understand this business?

o quantify everything. In stock research, the less non-

al you are, the more simple, sensible, and useful will be
is and results. Great analysis is generally "back-of-the-
envelope".

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!