STOCK ANALYSIS

TITAN SECURITIES

Prepared By:
Vansh Khanuja
Vanshkhanuja78@gmail.com
June 13, 2021

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PREFACE
This analysis report covers various aspects of stock selection.
Although my report is not something you should solely base
your investments on, but I'm sure it can surely serve as a guide.
Stock selection is a process of elimination, with an approach
like this, one should constantly find reasons not to buy the
stock. This will help you make better investment decisions as
stock selection can be quite tedious.
The reasons for eliminating a stock can be different and does
not necessary give a negative opinion about the company.
Everyone has different investment horizons and different risk
appetite; this makes it tough to make an analysis that will serve
everyone equally because of the bias towards different
companies we all have. Thus, it would be better for me to
explain my perspective so you can better understand the
reasons I select/reject a stock.
I’m looking for undervalued growth stocks. My time horizon
varies with kind of stocks but generally you expect it to be at
least 5 years. The company should have excellent management
and display consistent growth over a long term. While the latter
can be easily known just by analyzing the financials, The major
concern is regarding how to check if the management is
competent enough.

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The only thing one could do is again try to gain some insights by
looking at the financials. A healthy growth rate added with
better than average margins will display managerial
competency. Along with this, careful scrutinization of
management’s discussion section in the annual reports over the
last few years can surely yield some insights.
Valuation is the last step in stock analysis. The basic role is to
use all the facts obtained to find a price that is justified. This is
probably the most controversial part because there is no
perfect way to value a company. I will be using a DCF
(Discounted Cash Flow) model and use the risk-free-rate as the
discount rate. I understand the conventional method of DCF
includes calculation of weighted average cost of capital that is
used to discount the cash flows but I'm not using it because I
will deduct 25% of the calculated value to get a margin of
safety. Furthermore, I will be conservative in my projections so
using risk-free-rate is appropriate.
Given the fact that the intrinsic value of any given company
cannot be calculated with exact precision, it is important to
consider that I can be wrong in my projections. This is the
reason I will be deducting 25% of the calculated value. If then
the stock is selling at around the price I calculated, then only I
will be bullish on that particular investment.
The strategy I just mentioned is a rough explanation of what I
will follow. There can be certain adjustments that will vary
according to the company. Note that the valuation is based on
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forecasts of Future Cash Flows (FCFs) and thus carry an
inherent flaw I.e., predictions. Given that there are many
variables that can disrupt cash flows, you are advised to invest
only after you’ve understood all the points I've mentioned and
if you can hold the stock patiently for years until the
discrepancy between the price and value is fixed. This process
can be frustrating and you’ll be tempted to sell in bear markets,
but if you truly understand the principles of investing, I expect
you to buy more during such conditions. If there are any
questions concerning any phase of the report, I would welcome
hearing from you.

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TABLE OF CONTENTS:

(1) Overview
(2) Risk Factors
(3) Financial Statements and valuation
(4) Conclusion
(5) Appendix
(6) References

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 (1) Overview

Titan Securities Limited (incorporated: 1993) is an India-

based non-banking financial company. The company is
engaged in other financial services excluding insurance
and pension funding activities. The company operates
through two segments: sale and purchase of shares
(trading and investment), and Financing Business
(granting of unsecured loans). The company invests its
funds in financial services. The company deals in shares
and securities of all types of listed and unlisted securities,
bonds and debentures, among others. The company is
also dealing in short term or long-term finances for
business entities.
The market cap of the company as of June 13, 2021 is
29.8Cr (LTP: INR 11.92). The earnings per share (EPS) at
3.96 gives it a P/E ratio of 2.78. The return on equity is
6.7% and ROCE is 3.85%. The company has no debt. The
net margin is at the lower end being 4.82% (5Y average)
as against 16.34% for the industry. The book value per
share is 17.18 giving a P/BV of 0.89.
The promoter’s holding in the company has increased to
74.05% from 23.3% in the last year. Although the margins

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show average efficiency in operations, The room for
growth added with zero debt makes it an attractive stock. I
could not find how the company selects stocks to
invest/trade; I can only rely on the past performance as a
measure of what to expect in the future.

The holdings of the company include Titan Biotech

Limited, Peptech Biosciences Ltd, Micham Leather
Exports Ltd, Tee Eer Securities & Financial Ser.P.Ltd.,
Motilal Oswal Most Focused 25 Fund 14, Motilal Oswal
Most Focused 35 Fund, Franklin India High growth
Companies Fund, Franklin India Smaller Companies
Fund, Franklin India Prime Plus- growth Fund, Franklin
India Prime- growth Fund, Kotak Select Focus Fund-
Growth, HDFC Midcap opportunities Fund, Aditya Birla
Sun Life Frontline Equity Fund-growth, Sundaram Mid Cp
Reg-G, Aditya Birla Sunlife AMC Ltd.
The holdings are valued at cost, this can vastly
understate/overstate the holdings in a bull/bear market.
This also means that there will be a lot of opportunities
available in stocks like these.

In the next section, I will list out the risk factors associated
with the company.

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 (2) Risk Factors

The company deals in stocks, this makes the variations in

capital markets the obvious risk. This risk, along with the
skillset of the management to select stocks makes the
stock a bit speculative. I will explain why:

The accounting rule requires the company to state the

values of holdings at cost and when profits are realized, It
will be shown as capital gains. This rule is simple but has
an inherent disadvantage, The management might be
tempted to sell some holdings to inflate profits for any
particular year. This is just an example and a possibility,
The management might be really skillful in selection of
financial assets or it may be not, this is why this is a
speculative bet.

This excerpt given below was what I found in the 2020

annual report titled ‘Future Plans’.

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“The Company is planning to invest money in various
attractive investment schemes, good businesses for
investment for return. The Company has earned profits
with its investments in the last year and the company will
continue to invest in profitable investment schemes”
In the management discussion and analysis section, I
found the following under ‘opportunity and threats’:
“The Capital market witnessed ups and downs during
2019-20, by the early February, the COVID-19 Outbreak
acted as the major catalyst to a decline of the capital
market. The Global Economy had begun to slowdown in
the year 2019. However, the management took possible
steps to cash in on various opportunities and at times also
observed closely which may lead to the erosion of
investments.”

The other risk factors include credit risk, liquidity risk,

foreign exchange risk and interest rate risk.

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 (3) Financial statements analysis

The profits for the year ended 2020 were 2.4 Cr. The
earnings for FY16 were 2.04 Cr. The earnings have shown
no growth in these years. But it's not the earnings that I’m
concerned about, the company’s main operations consist
of buying and selling securities. Due to accounting rules,
the unrealized gains are hidden. This is a typical arbitrage
situation. The company holds stake (31.95%) in Titan
Biotech which is worth around 105Cr alone. Note that the
company’s market cap is 30Cr.
The company is cash flow negative, The company does
not have significant earnings growth, The company is not
efficient in its operations as also evident by the metrics
stated before. Thus, I will only focus on the balance sheet
of the company.

Standalone Balance sheet of Titan securities (Rs in lakhs)

Particulars 31.12.20 31.03.20
Assets
1. Financial assets

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A) cash and cash equivalents 19.18 10.39

B) bank balances 682.5 -

C) loans 306.78 528.12
D) investments 605.52 589.84
E) other 85.23 80.66
Total 1699.21 1209.01
2. Non-financial assets
A) inventories 1009.07 835.85
B) current tax assets(net) - -
C) property, plant and equipment 47.25 53.82
D) other 188.61 751.63
Total 1244.93 1641.30
TOTAL ASSETS 2944.14 2850.31

Liabilities and equity

1. Financial liabilities
A) borrowings - -
B) Other 3.01 19.04
Total 3.01 19.04
2. Non-financial liabilities
A) Provisions 2.11 2.66
B) Current tax liabilities(net) 9.66 0.91
C) Deferred tax liabilities(net) 21.92 10.76
Total 33.69 14.33
3. Equity
A) equity share capital 2501.62 2501.62
B) other equity 405.82 315.32
Total 2907.44 2816.94
Total Liabilities and Equity 2944.14 2850.31
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There is nothing to discuss in liabilities and equity section.
Due to very low liabilities, the company has a really strong
balance sheet and does not have any major credit risks.

In the assets section, the bank balance and cash are to be

taken at face value during valuation. The loans
outstanding are repayable at demand according to the
company. Other financial assets include security deposits,
The property, plant and equipment include vehicles and
office equipment. Inventories are the shares (valued at
cost).
Now I'll try to explain the investments section of the
balance sheet. Here, I will be referring to March 31, 2020
data because there are no notes available in the quarterly
results posted.

Investments include:

Investments No of shares/unit
Titan Biotech ltd. 26,40,466
Micham leather exports ltd. 100
Peptech biosciences ltd. 3,75,000
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Tee eer securities&financial 1,09,100
ser.P.ltd.
Motilal Oswal Most Focused 14,952
25 Fund
Motilal Oswal Most Focused 12,488
35 Fund
Franklin India High growth 8,234
Companies Fund
Franklin India Smaller 6,049
Companies Fund
Franklin India Prime Plus- 544
growth Fund
Franklin India Prime- growth 343
Fund
Kotak Select Focus Fund- 9,189
Growth
HDFC Midcap opportunities 5,974
Fund
Aditya Birla Sun Life Frontline 1,431
Equity Fund-growth
Sundaram Mid Cp Reg-G 20.69
Aditya Birla Sunlife AMC Ltd.

The most important thing to consider is that the stake in

Titan Biotech alone is worth around 105Cr. (Titan Biotech
is a publicly traded company with its current share price at
398 Rs)

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 (4) Conclusion
The data for many companies were not available because
they were private. The thing is that, there is no need to
calculate what the rest is worth. We know that this
company has the potential to grow at least three times. If
the stock price rises to 36 or more, then in my opinion, it
would be a good decision to sell.
The stock is undervalued as per my analysis. However,
this is not an excellent company as far as qualitative
aspects are considered. Anyone investing in this company
should be aware that I'm calling this undervalued on the
basis of book value. The company in all other aspects is
an average enterprise.
If you invest in this stock, you will have to wait until the full
value is realized. This means that it can take 1 year, 5
years or may 10 years. This is why if you're looking to
invest in this, make sure to diversify well. This is not the
company you would like to hold for a very long time.
The company might prove to be an excellent long-term
investment as well, but that would be speculative for me to
say because I don't see anything extraordinary in this one.
If you disagree with me and want to discuss anything, I
would welcome hearing from you.
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 (5) Appendix
Diversification
People always try to find a fixed answer for everything. It
has been assumed that diversification always lowers the
risk of a portfolio so there should also be a fixed number of
securities that would be enough to diversify. There are
even some articles which state that a minimum of 10
securities should be kept so as to protect an investor from
uncertainty.
Ray Dalio in his 'Holy grail of investing' presented how
diversification needs to be addressed in a unique way. His
basic idea is to invest in assets differing in correlation so
the overall risk reduces and the rate of returns remains
stable. However, this is not an easy task for an individual
investor.
What then should the investor do?
Diversification should be flexible according to the
strategies. The Dean of Value Investing, Benjamin
Graham always insisted that at least 15 to 20 securities
should be kept in a portfolio with a proper mix of stocks
and high-grade bonds.
Philip A. Fisher (author of common stocks and uncommon
profits) wrote that an investor should maintain a
concentrated portfolio and should only buy stocks in

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companies he/she understands well and has high growth
opportunity.
The philosophy of both the investors varies and thus, the
diversification requirements change too. Graham focused
on cheap stocks, The ones selling below book value. This
kind of approach surely required adequate diversification
because he did not do ay qualitative checks. There was a
high possibility that the stock will remain undervalued for a
long time. But this was his personal strategy, For the
average investor, He recommended buying into
companies with positive earnings growth over the last 5-10
years, He provided some accounting filters like interest
coverage ratio. For this too he recommended adequate
diversification because there still was no qualitative check.
Fisher invested in stocks with a strict checklist. He would
invest only when the stock met his stringent requirements.
This assured that the stock is worth purchasing in the long
term. This made his portfolio concentrated in stocks he
understood well. Other investors like Warren Buffett,
Charlie Munger, etc. also do not stress diversification. The
problem is that people diversify just for the sake of
diversifying. The usually end up trimming the positions of
great stocks and add up mediocre ones. The only way to
know how much to diversify is to understand your strategy
well.
With this, I end my report on Titan Securities. In the next
section, I have provided all the references.

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 (6) References

• Titan Securities: Annual report. [Online] 2020.

Available from
https://titansecuritieslimited.com/annual-report/
• Titan Securities: Financial results. [Online] 2021.
Available from
https://titansecuritieslimited.com/financial-result/
• Money: Titan Securities. Summary. [Online] 2021.
Available from https://www.msn.com/en-
in/money/stockdetails/fi-ahbu6h?duration=1D
• Money control: Titan Securities. Overview/ [Online]
2021.Available from
https://www.moneycontrol.com/india/stockpricequote/f
inance-leasinghire-purchase/titansecurities/TS07

(Accessed 15th June, 2021)

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