Wealth-Insight - Oct 2022

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October 2022
Volume XVI, Number 4
COVER STORY
THE
#1
EDITORIAL POLICY
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BUSINESS
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Read, learn and earn – and let’s grow
and evolve as we undertake this voyage
in trouble.
together.
Plus: A list of
KILLER
Editor
Dhirendra Kumar
Senior Editor
stocks to avoid
Vibhu Vats
Copyediting
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now.
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Research & Analysis
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and Udhayaprakash J INTERVIEW STOCK SCREEN
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Data support
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Data source for stocks
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Total pages 68, including cover
4 Wealth Insight October 2022

Columns
INSIGHT
EDIT
by DHIRENDRA KUMAR The full-time
The double-edged sword investor
Debt helps in business growth Utsav Shrivastava
but too much of it can also hurt the Twitter page
Followers
@utsav1711 53K
company. How to judge when
it’s good and when it’s not?
MARKET MOVES
Market Reporter Stock Story: ITC
Monthly Agenda: Decoding Big Moves
EVERYDAY ECONOMICS
by PUJA MEHRA the market recovery Index Watch
Melodious freebies
Indians’ reluctance to pay for
music is not only unfair to its WORDS WORTH WISDOM
creators but also harmful to the economy
The quest for a
compounding machinee
BHARAT SHAH
Executive Director, ASK Group
MAIN STREET
by SAURABH MUKHERJEA
An unusual indicator MARKET COMPASS

Whilst investors tend to focus on Market barometer IPO tracker
economic metrics, such as GDP Institutional moves Pledging/promoter stake
growth, to measure a country’s progress, an
equally effective way to assess the rise
of a nation is its success in sports ANALYST’S DIARY
Changing regulatory landscape
Efficient capex
Not the real earnings

STRAIGHT TALK
by ANAND TANDON
The market
VIS-A-VIS
outlook now
In the face of high inflation and STOCK ADVISOR
rising interest rates, the Indian markets The ugly, the bad
have done well. What should you expect now?
and the good WORDS WORTH NOW
',6&/$,0(5
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
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October 2022 Wealth Insight 5

EDIT
The double-edged sword

Debt helps in business growth but too much of it can also hurt the
company. How to judge when it’s good and when it’s not?
DHIRENDRA KUMAR
If you type the word ‘neither’ equity investor and the analyst. Surprised? Don’t be.
into a Google search box and wait for a moment for the Turn to page 36 and read ‘The #1 business killer’, our
autocomplete to kick in, one of the top suggestions is cover story of the month, along with the accompanying
going to be ‘Neither a borrower nor a lender be’. It’s a analysis and data. You will realise that in the context of
famous line from Shakespeare’s play ‘Hamlet’, which modern businesses, debt is an analyst’s friend. Anyone
forms part of the advice given by a father to a son. Of the trying to evaluate a company makes a nice indicator
many pithy lines of poetry that Shakespeare wrote, this that tells you a lot of things about a company, its
is among the ones that has become a widely recognised management and its future prospects. For the smart
proverb, one whose essential truth no one argues against. investor, debt-related numbers in a company’s financial
Of all the types of normal financial activities and statements are like a stethoscope in the hands of a
transactions that form part of routine commerce, both doctor, maybe even an MRI scan. They tell you a lot that
personal and professional, debt is the only one that has would otherwise be hidden.
historically been considered a moral failing, often as However, there’s an important caveat. Debt-related
something that is a sin, one that destroys people and analysis of stock can, at best, be a negative indicator. It
relationships. This underlying moral judgement about can tell you whether a stock should be avoided. It cannot,
debt also carries on in our modern business and by itself, tell you whether a stock is worthy of investing.
financial system. This is fine, of course. It’s something that will save you
Even though the modern economy’s foundation is in from losses, which is a stepping stone for profits.
debt, there is a moral judgement implicit in taking too For the cautious investor, the problem is that one
much debt and not being able to repay it. The names are can get carried away by the anti-debt rhetoric. The
familiar – Indian tycoons who borrowed too much and modern economy and most modern businesses cannot
could not repay it had their empires destroyed. Some had function without adequate debt. At a conceptual level,
to run away from the country, while others had to if everyone could only use the actual money that
swallow their pride and beg for help from family existed, then economic growth would be very slow,
members with whom they did not get along. perhaps stagnant. The interest rates in an economy are
Interestingly, unless some dishonesty is involved, the now considered a major input to the economy – witness
same moral judgement is not brought upon the head of the global concern about rising US rates in recent days.
those who destroy capital they have raised from To say that interest rates are central to growth is to
shareholders. Look at these new-age digital businesses really say that debt is central to the economy. Otherwise,
that have raised money from private and public investors why would interest rates matter?
and whose businesses are now floundering. They are The art of running a capital-intensive business is to
criticised as incompetent business people or as overly walk the fine line on debt. Take neither too much nor too
ambitious ones, but it’s not considered to be a shameful little, take at the right rates, at the right terms and at the
thing. Destroying equity is apparently fine, destroying right time. Judging all this is the hard part of investors’
borrowed money is a moral failing. job, and what we at ‘Wealth Insight’ are doing is to help
However, debt is actually a great convenience for the you get it right.

INSIGHT
The full-time
investor
If u don’t track the daily price of a stock you own, it means
that your study on the co as a investment is thorough.
Utsav Shrivastava This is key in making big money in a stock.
@utsav1711
Develop the process to buy a co for something which will
Followers happen 6-8 quarters down the road.
53K
I think less than 1% of mkt participants have this skill.
Lost lots of money in this fall?

- don’t quit the mkt
Why Follow - reduce yr bet size. Avoid big trades to recover yr loss. Ur
brain isn’t working u will end up losing more.
At the age of 49, Utsav - covert your donkeys to horses. Sell hope and buy cash
Shrivastava has retired flow
from the rate race and has - don’t lose hope and don’t spoil your personal lifeIf you
become a full-time investor. need to buy iPhone on EMI, then you don't need to buy an
Based in Pune, Utsav shares iPhone.
knowledge nuggets that help
investors stay on course.
Based on my experience that crowded spaces normally
signify the top, here are 2 predictions :
1. Earnings from Technical Analysis has topped out
2. Stock returns from Fundamental Analysis has bottomed
out
Thoda chart pe dhyaan kam do aur company pe zyaada
The weird thing about bear phases is that people become

disinterested in the mkt, at the precise point where they
should be watching it most keenly.
Most people enter mkts thinking it’s a straight road 2 riches

In reality it’s like a jungle where it’s easy to lose ur way
Most give up halfway through the journey
If u stay focussed+disciplined long enough, u will surely
cross the jungle & emerge richer on the other side

MARKET
MOVES MARKET REPORTER
Indian markets stay resilient

amid the global sell-off `13,400cr
In the last one month (as on September 20, 2022), THE CLAIM MADE BY
only the Sensex has given positive returns (of 0.1 RELIANCE INFRASTRUCTURE
per cent) as compared to the major indices of the
US and Europe. For the past three months, the
FROM ADANI TRANSMISSION
Sensex has led the pack, with a return of 16.3 per OVER A 2017 SHARE-
cent. This can be attributed to the rising interest PURCHASE AGREEMENT TO
rates globally and the energy crisis in Europe.
SELL RELIANCE’S
ELECTRICITY-GENERATION,
Q1 growth TRANSMISSION AND
misses estimate DISTRIBUTION BUSINESSES
The Indian economy grew
at the rate of 13.5 per cent
in the April–June quarter Sony–ZEE merger
of FY23 as against the
RBI’s projection of 16.2
comes under the
per cent. This was despite CCI lens
the low base in Q1FY22, The Competition Commission
PM launches the
which was affected by the of India (CCI) has initiated a
COVID Delta wave. Four preliminary inquiry into the
out of the eight
industries posted double-
National Logistics merger between ZEE
Entertainment and Sony
digit growth, with the
public administration,
Policy Networks. The CCI is of the
Primie Minister Narendra Modi prima-facie view that the
defence and other- merger may cause an
announced the logistics policy, which
services sector posting appreciable adverse effect on
has been designed to promote
the highest growth of the competition due to the sheer
seamless movement of goods across
26.3 per cent. size of both the companies.
the country. Logistics costs, as a
proportion of GDP, are around 13–14
per cent in India. Through this policy,
the government wants to bring them
down to a single digit. The National
Logistics Policy, coupled with PM Gati
Shakti, will help improve the
competitiveness of Indian goods in
the domestic as well as global
markets, thereby drawing investments
into the country.
Adani Enterprises enters the Nifty 50

Adani Enterprises, the flagship company of Adani Group, has entered the
Nifty 50 as part of a periodic review of the index. It replaced Shree
Cement. The changes will be effective from September 30, 2022. Adani
Enterprises would become the second group stock after Adani Ports to be
a part of the Nifty 50 Index.

MARKET
MARKET REPORTER MOVES
Adani to build
three giga- `5,000cr
factories, CAPEX ANNOUNCED BY TATA
POWER TRANSMISSION &
acquires NDTV DISTRIBUTION IN THE NEXT FIVE
Gautam Adani has announced
that the group would set up YEARS TO IMPROVE NETWORK
three gigafactories as a part AND INFRASTRUCTURE
of its commitment to
investing $70 billion in green-
energy businesses. The
gigafactories and other Ontario Teachers to
investments will generate 45 acquire 30 per cent
GW of energy in total, in
addition to the group’s
in Mahindra Susten
Ontario Teachers’ pension-plan
existing 20 GW. These
board is all set to acquire a 30
investments are expected to be
per cent stake in Mahindra
completed by 2030.
Susten for `2,371 crore. This
Separately, the Adani
transaction also has a plan for
Group purchased the junk
an infrastructure investment
debt issued by New Delhi
trust (InvIT) for renewable
Television (NDTV) and
energy with a capacity of
exercised the in-built option
Reliance on an around 1.54 GW. Mahindra
acquisition spree
to convert the debt into equity.
Group will receive `1,300 crore
This effectively gives the
and will deploy this with an
group a 29 per cent stake in Continuing with its acquisition
addition of up to `1,750 crore
NDTV. The group has also drive, along with investments in
into this business and the
launched an open offer to the renewable-energy segment,
planned InvIT.
purchase an additional 26 per Reliance Industries acquired a
cent stake. 79.4 per cent stake in SenseHawk
(a US-based company that
provides software-based
management tools for the solar-
energy-generation industry) for
$32 million (or about `255 crore).
Also, the company acquired the
polyester business of
Shubhalakshmi Polyesters and
Shubhlaxmi Polytex for `1,522
crore and `70 crore, respectively.
Takeover threat to McLeod Russel

McLeod Russel, India’s largest bulk-tea producer, is facing a takeover
threat from Carbon Resources, a manufacturer of input materials for
ferroalloys. On September 16, Carbon Resources bought more than a 5 per
cent stake in McLeod in the open market and also made a non-binding
offer to the company’s lenders for the settlement of dues. Abhinav Jalan,
Director of Carbon Resources, confirmed the intent of the takeover.

MARKET
MOVES MARKET REPORTER
ECONOMIC METRICS
Abrdn sells 2 per cent in HDFC Life .:;JVSSLJ[PVU
200000 In ` cr
One of HDFC Life’s promoters,
Abrdn (Mauritius Holdings) 2006, 150000
formerly known as Standard Life
100000
(Mauritius Holdings), sold a 2 per
cent stake in HDFC Life’s shares in 50000
the open market. Following the
0
transaction worth `2,469 crore, the
August 2020 August 2022
company is left with just a 1.7 per
cent stake in HDFC Life as compared
to nearly 30 per cent in 2017. 0UMSH[PVU!*VUZ\TLY7YPJL0UKL_
8 % change YoY
YES Bank scores a 6
victory with the exit 5

of Jawahar Goel 4
In a major victory for YES August 2020 August 2022
Bank, Jawahar Goel, Dish TV’s
chairman, announced that he
0UK\Z[YPHSHJ[P]P[`!0UKL_VM
would finally resign from the
0UK\Z[YPHS7YVK\J[PVU
company’s board of directors.
180 % change YoY
This comes after multiple
`1,220cr
rounds of litigation wherein 120
the company opposed the
60
bank’s attempt to replace the
existing management. 0
AMOUNT RAISED BY
-60
DIVESTING 5.4 PER CENT IN July 2020 July 2022
SYNGENE BY ITS PRIMARY
PROMOTER BIOCON. THE 059]Z<:+
PROCEEDS WOULD BE USED 82
TO FUND BIOCON’S 79
ACQUISITION OF VIATRIS’ 76
BIOSIMILARS BUSINESS.
73
70
Cyrus Mistry passes September 2020 September 2022
away in an accident *Y\KLVPS

The former chairman of Tata Sons and 150 Brent $/barrel
the current promoter of the Shapoorji
120
Pallonji group, Cyrus Mistry died in a
tragic car accident on September 4 at 90
the age of 54. Mistry was removed from
60
the board of Tata Sons after his
relationship with Ratan Tata soured. 30
September 2020 September 2022

MARKET
MOVES MONTHLY AGENDA
Decoding the
market recovery
T
he first half of FY23
can be further split
roughly into two
halves. The first one
witnessed markets respond
to rising interest rates and
the second one showed a
recovery taking Sensex back
to the levels seen at the start
of FY23. Between April 4,
2022, and June 17, 2022, the
Sensex fell 15.3 per cent,
while between June 20, 2022,
and September 14, 2022, the
Sensex rose by 17.5 per cent.
In total, the Sensex has
remained flat with a return
259.7
Companies with the highest volatility
of -0.4 per cent. In %
To capture the movement
of the broader market, we 195.4 180.1
have presented the returns 137.6 136.5 127.6 126.2 117.5 117.1 116.9
of the major sectoral indices
over the same periods. We
have also given the top 10
BSE 500 companies that
have given the highest and Brightcom MRPL Tanla Tata TV18 Elgi Jindal Zomato Adani Privi
lowest returns during the Group Platforms Teleservic- Broadcast Equipments Stainless Power Speciality
entire period and those that es (Maha.) (Hisar) Chemicals
have been most volatile. Volatility measured as the difference between the highest and the lowest prices during April 4 to September 14, 2022
Based on BSE 500
Companies with the highest return Companies with the lowest return
In % In %
6FKDHIÁHU,QGLD 87.0 %ULJKWFRP*URXS -59.2
Adani Power 81.9 79%URDGFDVW -48.0
7DWD,QYHVWPHQW&RUS 78.6 7DQOD3ODWIRUPV -45.2
(OJL(TXLSPHQWV 77.4 0DVWHN -43.8
Fine Organic 75.4 =HQVDU7HFK -39.6
$GDQL(QWHUSULVHV 72.9 'HOWD&RUS -37.0
9DUXQ%HYHUDJHV 68.8 0SKDVLV -37.0
KRBL 68.5 $PEHU(QWHUSULVHV -35.8
$PEXMD&HPHQWV 68.5 ,QWHOOHFW'HVLJQ$UHQD -35.4
+LQGXVWDQ$HURQDXWLFV 64.7 0HWURSROLV+HDOWKFDUH -34.5
Returns between April 4 and September 14, 2022 Returns between April 4 and September 14, 2022
Based on BSE 500 Based on BSE 500

MARKET
MOVES
16/19
Indices fell between
Sectoral performance
Return during the fall (%) Return during the recovery period (%) Return during the entire period (%)
April 4 and June 17 -30 -20 -10 0 10 20 30 40
13
Indices that gave a
S&P BSE Auto 20.3
positive return S&P BSE Bankex 14.3

between April 4 and
September 14 6 3%6(&DSLWDO*RRGV 15.2
277
6 3%6(&RPPRGLWLHV 2.2
Companies in the 6 3%6(&RQVXPHU'LVFUHWLRQDU\ 5.3

BSE 500 that gave
a positive return 6 3%6(&RQVXPHU'XUDEOHV -3.8
between April 4 and
September 14 S&P BSE Energy 14.9
96
6 3%6()LQDQFLDO6HUYLFHV 6.4
Companies in the 6 3%6()0&* 16.7

BSE 500 returned
more than 20% S&P BSE Healthcare -11.3
between April 4 and
September 14 6 3%6(,QGXVWULDOV 16.2
63
6 3%6(,7 -24.8
Companies in the S&P BSE Metal 0.6

BSE 500 fell by
20% or more 6 3%6(2LO *DV 12.5
between April 4 and
September 14 S&P BSE Power 49.1
23
S&P BSE Realty -2.4
Companies had a S&P BSE Teck -20.7

2
difference of at
least 100 per cent S&P BSE Telecommunication -1.3
between the high
and low prices 6 3%6(8WLOLWLHV 43.9
during April 4 to Fall period: April 4 to June 17, 2022
September 14 Rise period: June 20 to September 14, 2022

MARKET
MOVES STOCK STORY ITC
Cigarettes to conglomerate
Established almost 112 years ago, ITC has come a long way to diversify into
different brands across segments. Here is its story.
I
TC, which became the famous is trying to exit slowly. Over the over the last two years while
meme stock of Dalal Street years, ITC has launched a slew of maintaining a dividend yield of
because of its stagnant price, brands, including ‘Aashirvaad’, more than 3 per cent.
has started to move up lately. The ‘Sunfeast’, ‘Mangaldeep’, By Udhayaprakash
company’s history goes back to ‘Classmate’, and ‘Bingo’, which
almost 112 years ago in 1910, when have gained immense success.
it was established as a British- From being known just for its
owned company under the name tobacco business, ITC has now
‘Imperial Tobacco Company of become a conglomerate. In the
India’. As the name suggests, the past 28 years, it has never reported
company manufactured cigarettes a negative operating cash flow or
and other tobacco products. even a negative free cash flow. It
In 1969, Ajit Narain Haskar has also rewarded its investors
became the company’s first Indian consistently with dividends and
chairman. ITC then started to has had a median dividend-payout
diversify slowly and entered the ratio of 50 per cent since FY94!
hotel business in 1975 and the Owing to revenue stagnation
paperboard business in 1979. Its because of its tobacco business, its
diversification drive gained pace stock did not move anywhere from
after 1990, with its foray into the 2014 to 2020. However, the
agri business, IT business in 2000 conglomerate was able to
(ITC Infotech) and FMCG in the capitalise on the pandemic
early 2000s. It also had its own because of its rich portfolio and
financial-services arm, which was distribution network. It reflects in
eventually sold in 1998. Also, it has its share price too, as it gave
a clothing retail business which it returns of 36 per cent per annum
Sensex rebased to ITC

ITC Sensex
+LJ 4H` +LJ

Introduces Capstan Sells ITC Merger of ITC Launches ITC Infotech ties up with Microsoft
Menthol Filter, Classic Bhadrachalam Aashirvaad atta
Capstan Standard Finance to Paper Boards
and Bristo Standard ICICI with ITC
1\S (\N
Launches Merger of ITC
biscuits under hotels and Ansal
the Sunfeast hotels with ITC
brand
May 12, 2006

`
Jan 02, 1991

`

MARKET
STOCK STORY MOVES
5HYHQXHDQGQHWSURÀW 2SHUDWLQJSURÀWDQGPDUJLQ Dividend pay-out ratio ROE and ROCE

Revenue (` cr, left side) Operating profit (` cr, left side) In % ROE (%)
Net profit (` cr, right side) Operatinng profit margin (%, right side) ROCE (%)
75000 17500 20000 36.0 115 60
60000 14000 16000 34.8 100 50
45000 10500 12000 33.6 85 40
30000 7000 8000 32.4 70 30
15000 3500 4000 31.2 55 20
0 0 0 30.0 40 10
FY13 FY22 FY13 FY22 FY13 FY22 FY13 FY22
Revenue share: Tobacco vs

non-tobacco
Tobacco (%)
Non-tobacco (%)
100
80
60
40
20
0
FY13 FY22
4H` Sep 15, 2022

Jul 13, 2017 Acquires Sunrise `
` foods for `2,150 cr
(\N :LW
Crosses the Launches Oct 14, 2021
100-year mark noodles under `
the ‘Sunfeast’
brand
Sep 19, 2019
`
Jul 23, 2013

` Feb 25, 2016
`
Mar 25, 2020
-LI 1\S 5V] `
Acquires Johnson & Unveils Launches fruits
Mar 9, 2009 Johnson’s ‘Savlon’ premium and vegetable
and ‘Shower to coffee brand brand
`
Shower’ brands ‘Sunbean’ ‘Farmland’


MARKET
MOVES BIG MOVES
Large caps Price to earnings Net profit (` crore)

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
4,015
97.9 460.1 989

Adani Transmission
It acquired a 673 ckt km asset from Essar Power, while its
revenue increased by 11 per cent YoY. 18.7 17.2 2,029
3,836
83.0 448.7 689

Adani Enterprises
It ventured into the telecom business and saw a 109 per cent YoY
jump in its Q1 net profit. 3.9 -5.2 2,096
82.8
2,722
Tube Investments 64.0 1,076
Its subsidiary TI Clean Mobility acquired a 65 per cent stake in
23.6 57.5
1,489
IPL Tech Electric for `2,100 crore.
3,675
71.0 803.8 504

Adani Total Gas
A 113 per cent jump in Q1 revenue YoY and the group’s foray
into the telecom business augured well. 28.3 25.9
2,149
338
61.3 26.8 2,081

JSW Energy
While its subsidiary acquired 1,753 MW renewable-energy
capacity, its Q1 profits increased by 168 per cent YoY. 8.7 47.6 209
60.7
574
Ambuja Cements 48.2 3,022
Its revenue increased by 15 per cent YoY, while it was acquired
by Adani Group. 13.5 -2.7
357
1,264
56.7 2.0* 5,420

Indusind Bank
Q1 net profit grew by 61 per cent YoY.
11.0 17.6
807
55.8
6,974
Bajaj Holdings 1.8* 226
The company announced an interim dividend of
1,100 per cent. 0.4 6.2
4,477
1,803
53.1 6.8* 9,459

Bajaj Finserv
Q1 profits jumped 80 per cent YoY.
21.9 19.8 1,178
52.4
398
Adani Power 16.3 9,413
It acquired the assets of DB Power, while its Q1 profits
increased by 17 times YoY. 18.0 189.5 261
*Price-to-book value. Our large-cap universe has 103 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in
the last three months. Data as on September 20, 2022.

MARKET
BIG MOVES MOVES
Mid caps Price to earnings Net profit (` crore)

2,625
100.4 0.7* 227

Tata Investment Corp
Its Q1 profits jumped 58 per cent YoY.
1.2 15.6
1,310
67.9
456
Nuvoco Vistas – -62
Its revenue increased 20 per cent YoY, while it plans to
open a unit of 1.2 MTPA in Haryana. 1.6 49.6 272
64.2
288
Apollo Tyres 26.1 701
It announced new tyre brands for electric vehicles, while Q1
profits increased 49 per cent. 4.5 7.2
176
51
62.1 25.8 1,238

IDFC First Bank
The company posted its highest-ever quarterly profits.
-4.4 35.2
32
889
55.7 11.4 993

Deepak Fertilisers
ΖWV4QHWSURILWMXPSHGSHUFHQW<R<b
14.0 170.5
571
68
52.3 1.2* 98
IDFC
CCI approved the divestment of IDFC AMC.
0.01 -5.4
45
189
50.3 149.6 113

EIH
-2.0 -4.1 125
47.6
697
Westlife Development 196.6 55
It posted its highest ever sales and profit in Q1.
-6.9 70.6 472
23.4
480
Elgi Equipments 70.8 212
Its net profit increased by 288 per cent YoY.
12.1 28.7 389
-6.2
114
Tata Teleservices – -1,192
Of late, its shares have been up because of its partnership with
5HQHVDV(OHFWURQLFVb – -188.9 121
*Price-to-book value. Our mid-cap universe has 245 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in
the last three months. Data as on September 20, 2022.

MARKET
MOVES BIG MOVES
Small caps Price to earnings Net profit (` crore)

1,582
234.4 156.1 11.1

Gensol Engineering
It bagged solar projects worth `153 crore
28.9 -15.8
473
225.7
826
Vinyl Chemicals India 38.3 39.5
24.2 67.2
254
78
223.8 – -251.0
PC Jeweller
It posted profits of `74 crore after continuous losses in the last
four quarters. -2.0 -121.0 24
73
173.9 – -2.5
Tuticorin Alkali
Its Q1 net profit increased by 185 per cent YoY.
– 24.4 27
158.7 4.0 362.9

Imagicaaworld Entertainment
Malpani Group acquired a majority of stake in the company.
– 44.4 35
14
441
147.2 32.7 91.7

NDTV
Adani Group acquired a 29 per cent stake.
77.6 32.8
178
175
140.6 7.0 272.4

TGV SRACC
The board approved 15MW capacity addition to the
solar project. 11.5 51.7 73
131.8
1,225
Pondy Oxides 13.9 51.3
Its Q1 revenue and profits jumped 49 and 35 per cent YoY,
respectively. 16.0 25.7 528
1,610
125.4 29.2 25.3

Nikhil Adhesives
A 28 per cent YoY jump in Q1 revenue helped the shares
move up. 26.8 67.8 714
1,584
106.4 75.3 25.2

Jyoti Resins
Its Q1 revenue and profits jumped by 137 and 151 per cent
YoY, respectively. 59.5 76.4 767
Our small-cap universe (minimum market capitalisation `600 crore) has 888 small-cap companies, making the last 10 per cent of the total market capitalisation. The list mentions the stocks that
have fluctuated most wildly in the last three months. Data as on September 20, 2022.

MARKET
MOVES INDEX WATCH
S&P BSE Commodities

With returns of 28.6 per cent, the Commodities index is among the best performers over the last three
months. While it has underperformed the Sensex over the last five years, it has gained momentum
over the last couple of years. Valuation-wise, it is trading at a premium to its five-year median P/B but
at a discount to its median P/E. Its dividend yield is well above the five-year median.
2LÙ\TILYZ 0UKL_TV]LTLU[ BSE Commodities Sensex Median

7500
11.1
Price to earnings
2.2
Price to book
6000
4500
3000
2.29
Dividend yield (%)
30.40
Market cap (` lakh cr)
1500
0
Sensex rebased to index
Sep ’17 Sep ’18 Sep ’19 Sep ’20 Sep ’21 Sep ’22
0UKL_^LPNO[Z 7YPJL[VIVVR]HS\L7)
4.0
3.2
(KHUP,U[LYWYPZLZ
2.4
1:>:[LLS
;H[H:[LLS 1.6
1.8
<S[YH[LJO 0.8
.YHZPT0UK\Z[YPLZ 0
/PUKHSJV
7PKPSP[L
(TI\QH*LTLU[Z 7YPJL[VLHYUPUNZ7,

/PUK\Z[HUAPUJ 50

:9-
40
6[OLYZ
30
20
=HS\H[PVUZKP]PKLUKZHUKYL[\YUZ 10 16.8
Dividend
Company name P/B P/E yield (%) 1Y return (%) 0
Adani Enterprises 14.4 448.7 0.0 170.0
Ambuja Cements 4.5 48.2 1.1 39.8
SRF 8.7 37.8 0.6 26.4
Pidilite 21.4 107.4 0.4 20.1
+P]PKLUK`PLSK
3.0%
Grasim Industries 1.5 14.7 0.6 13.4
2.5
JSW Steel 2.5 10.7 2.5 8.6
Hindalco 1.1 6.3 0.9 -5.1 2.0
1.6%
Hindustan Zinc 3.2 11.0 6.5 -13.8 1.5
Ultratech 3.6 25.9 0.6 -14.5 1.0
Tata Steel 1.1 3.3 4.8 -15.5 0.5
Data as on September 20, 2022 Sep ’17 Sep ’18 Sep ’19 Sep ’20 Sep ’21 Sep ’22

WORDS WORTH
WISDOM
The quest for a

compounding machine
Excerpts from Bharat Shah’s book ‘Of Long-Term Value & Wealth Creation
from Equity Investing: Observations, Ideas & Reflections’
O
SIZE OF OPPORTUNITY QUALITY OF MANAGEMENT
ne of the greatest Indian
The idea of growth is derived from Capital allocation is the fundamen-
investors, Bharat Shah the idea of the size of opportunity tal test for judging the calibre, tem-
has more than 25 years of and the idea of sustainability of perament and character of the
investing experience. An high growth is derived from the management.
alumnus of IIM Calcutta, he is character of the opportunity, size …Wisdom lies in the ability of a
also a qualified chartered of opportunity and vision and com- management to know where to
accountant and cost accountant. petence of the management. When allocate capital (as well as where to
He is currently Executive the two get combined, it creates a deny it) and having courage and
Director at ASK Group, a wealth- power of compounding. conviction to remain focused (and
management company, where he yet have confidence to grow) and
has been on the board since 2008. EARNINGS GROWTH having the character to judiciously
He wrote a book in 2013 titled If earnings are real (which remain away from allocating incre-
‘Of Long-Term Value & Wealth means profits convert into real mental capital to businesses where
cash) and if they keep growing, there is lack of core competence.
Creation from Equity Investing:
then that will definitely reflect in …Corporate governance is not a
Observations, Ideas &
the price and the sustainability jargonistic buzz word. Honest
Reflections’. Here are some mistakes, even if significant, are
of earnings growth into the mar-
excerpts from the book on the ket cap compounding. punished less by the markets com-
five pillars of creating a …A quality growth sustained pared to relatively less significant
compounding machine. over time will enhance value. but deliberate violations of the
Therefore, even if one has mis- value system.
judged the value and overpaid,
rise in value over time will give OF VALUE AND VALUATIONS
a chance to catch up and will let The only predictable manner in
avoidance of permanent loss which you can hope to make con-
of capital. sistent and durable returns is by
ensuring that the value is ahead of
QUALITY OF BUSINESS the price, which calls for:
Quality of business, in simple 1. an ability to understand the real
terms, is its ability to generate value of the business,
superior, consistent, predictable 2. having the discipline to acquire
and durable ROCE. that asset at a price which is at a
…Quality of business really discount to that value
has two important facets - capi- 3. hunting as high a discount as is
tal intensity (whether a possible to the value so that you
business fundamentally improve your potential for return
requires high amount of capi- and also increase your margin of
tal) and capital efficiency (what- safety
ever be the amount of capital 4. having acquired a good asset at a
required in the business, good price, to sit it out and not flirt
whether it generates a superior with it unnecessarily for tactical
return or not). and ‘timing’ reasons.

MARKET
C MPASS
Market barometer
Here are some charts that will help you make sense of the current market
in terms of valuations and return potential
Sensex’s movement
In ’000 The Sensex is the most convenient
65
Max 61,766 indicator to tell the state of the Indian
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
market. The 10-year graph presented
55 alongside shows the secular run in the
Current
markets. However, this rally was
59,934 punctuated by several bearish phases.
45
The most prominent ones include the
following: Chinese growth concerns in
35
2015, demonetisation blues in 2016,
and the sell-off in 2018 due to US–China
25 trade war and the March 2020 COVID-19
shock. The markets staged a remarkable
15
Min 17,906 recovery from the lows of March 2020.
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Recently, however, rising interest rates
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 and the Russian invasion of Ukraine
have spooked the markets.
Sensex’s price to earnings

40 The price-to-earnings ratio of the Sensex
is a simple market-valuation ratio. A
35
Max 35.1 general guideline to help understand the
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
valuation is:
P/E > 24 = Dangerously
30
overvalued
P/E > 20 < 24 = Overvalued
25 Current 23.1 P/E > 16 < 20 = Fairly valued
Median 22.4 P/E > 12 < 16 = Undervalued
20 P/E < 12 = Highly underval-
ued (mouthwater-
Min 16.8 ing valuations)
15
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep This graph is based on standalone data of Sensex companies.
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 If one takes the consolidated data, the P/E will likely be lower.
Sensex’s price to book value

4.0 The price-to-book-value ratio tells us how
Max 3.83 many times an investor is ready to pay
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
for a rupee of net assets.

3.6
Current 3.41 Since book value is stable and less
volatile than earnings, some consider it
3.2
better than the P/E as a measure of
Median 2.96 valuation.
2.8
If
P/B > Median P/B = Overvalued
2.4 Min 2.36 P/B < Median P/B = Undervalued
2.0
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22

MARKET
C MPASS
Sensex’s dividend yield

1.7% Max 1.64 Dividend yield is nothing but the return
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
an investor gets in the form of dividend
on his investment. It is measured as
1.5 dividend per share divided by price
per share.
1.3 Generally speaking, when stocks are
Median 1.24 cheap, dividend yields are high.
Current 1.20 If
1.1
Dividend yield >
Median dividend yield = Undervalued
0.9
Dividend yield <
Median dividend yield = Overvalued
0.7 Min 0.72

Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22
Market cap to GDP

115% This measure is Buffett’s personal
Max 111 favourite. He said, “It is probably the
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
Current 105 single best measure of where valuations

100 stand at any given moment.”
Here we have considered the market
85 capitalisation of all the listed companies
Median 80 on the BSE.
If
70
Market cap > GDP = Overvalued
Market cap < GDP = Undervalued
55 Min 56
Considering market cap of all the listed companies on
the BSE, provisional estimate of FY22 nominal GDP and
advance estimate of FY23 nominal GDP
40
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
10Y G-sec yield vs Sensex’s earnings yield

4.0% Max 3.97 The spread between G-sec yield and
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
Sensex’s earnings yield is another

Current 2.83 valuation measure. G-sec yield is the
3.2 yield of the 10-year government bond.
Median 2.84 Sensex’s earnings yield is the inverse of
the Sensex’s P/E ratio. The greater the
2.4 deviation from the median in either
direction, the greater the degree of
overvaluation or the undervaluation of
1.6
the Sensex.
If
0.8
Min 0.94
Spread > Median = Overvalued
Spread < Median = Undervalued
0
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep All data as on September 15, 2022
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22

MARKET
C MPASS
Institutional moves
Top five companies across
market caps in which
mutual funds and foreign
institutions have
significantly changed their
holdings (in terms of per
cent of equity) between
March and June 2022
Increase in stake
Mutual funds FIIs
Large caps Change Change
Company name Sector Jun ’22 Mar ’22 (% pt) Company name Sector Jun ’22 Mar ’22 (% pt)
SBI Cards Finance 11.3 8.0 3.3 Varun Beverages FMCG 23.9 21.0 2.9
Hindalco Non-Ferrous Metals 13.2 10.5 2.7 Tata Elxsi IT 15.2 13.2 2.0
Tech Mahindra IT 12.8 10.6 2.2 HDFC Life Insurance 27.7 26.3 1.4
ICICI Lombard Insurance 13.5 11.5 2.0 Adani Power Power 12.5 11.3 1.2
HDFC Bank Bank 18.0 16.3 1.7 Hindustan Aeronautics Aviation 5.6 4.4 1.2
Mid caps Change Change

Motherson Sumi Wiring Iron & Steel 17.0 10.1 6.9 Max Healthcare Institute Healthcare 23.3 14.6 8.7
Zee Entertainment Media 21.4 15.4 6.0 PVR Media 36.6 33.3 3.3
Escorts Kubota Automobiles 6.1 0.3 5.8 IIFL Finance Finance 23.1 20.7 2.4
Gland Pharma Healthcare 15.5 11.2 4.3 Patanjali Foods FMCG 2.4 0.0 2.4
Campus Activewear FMCG 6.0 2.2 3.8 PB Fintech Retailing 19.7 17.7 2.0
Small caps Change Change

Mrs. Bectors Food FMCG 11.2 4.2 7.0 Vikas Lifecare Crude Oil 12.2 0.0 12.2
Care Ratings Ratings 10.6 3.7 6.9 Lancer Containers Lines Logistics 13.6 6.6 7.0
Barbeque-Nation Hospitality 17.3 11.3 6.0 Barbeque-Nation Hospitality 15.8 11.4 4.4
Gateway Distriparks Logistics 32.2 27.3 4.9 Axita Cotton Textile 10.0 6.0 4.0
Go Fashion Retailing 22.5 17.9 4.6 Raymond Textile 14.2 10.2 4.0

MARKET
C MPASS
Decrease in stake
Mutual funds FIIs
Large caps Change Change
Varun Beverages FMCG 4.4 5.9 -1.5 Hindalco Industries Non-Ferrous Metals 24.8 28.9 -4.1
IndusInd Bank Bank 12.1 13.5 -1.4 Tech Mahindra IT 30.4 34.3 -3.9
Tata Power Power 3.8 4.8 -1.0 HDFC Bank Bank 32.3 35.6 -3.3
Tata Steel Iron & Steel 9.2 10.1 -0.9 Mindtree IT 11.7 14.4 -2.7
HDFC Life Insurance 4.8 5.7 -0.9 Apollo Hospitals Healthcare 48.5 50.8 -2.3
Mid caps Change Change

Jindal Steel & Power Iron & Steel 11.8 13.7 -1.9 Zee Entertainment Media & Ent. 39.2 47.9 -8.7
KEI Industries Electricals 16.9 18.8 -1.9 IEX Power 20.8 27.1 -6.3
Angel One Finance 7.4 9.1 -1.7 Motherson Sumi Wiring Iron & Steel 8.6 14.9 -6.3
Aditya Birla AMC Finance 1.6 3.2 -1.6 Shriram Trpt Finance Finance 50.0 53.9 -3.9
PVR Media 17.9 19.2 -1.3 Mahindra CIE Auto Auto Ancillaries 6.9 10.7 -3.8
Small caps Change Change

Butterfly Gandhimathi Cons. Durables 0.5 8.6 -8.1 Care Ratings Ratings 17.5 25.7 -8.2
Navkar Corp Logistics 0.0 5.3 -5.3 Fiem Industries Auto & Anc. 4.0 10.8 -6.8
RBL Bank Bank 6.7 11.2 -4.5 IFB Industries Cons. Durables 0.6 7.0 -6.4
Indiabulls Housing Finance 1.0 4.2 -3.2 GMR Power and Urban Power 21.6 27.3 -5.7
Repco Home Finance Finance 16.6 19.7 -3.1 Dodla Dairy FMCG 4.3 8.9 -4.6
Top 10 holdings of mutual funds Top 10 holdings of FIIs

Market % of Amount % of Amount
cap equity invested Market cap equity invested
Company name Sector (` cr) held (` cr) Company name Sector (` cr) held (` cr)
Kalpataru Power Infrastructure 6,553 34.4 2,257 HDFC Finance 4,48,624 67.8 3,03,943
Greenply Industries Const. Materials 2,477 33.2 822 Shriram Transport Fin. Finance 35,930 50.0 17,954
Federal Bank Bank 25,756 32.6 8,407 IRB Infra Infrastructure 14,116 48.7 6,868
CG Consumer Cons. Durables 25,704 32.6 8,374 Apollo Hospitals Healthcare 62,590 48.5 30,344
Gateway Distriparks Logistics 3,542 32.2 1,140 Kiri Industries Chemicals 2,625 48.4 1,271
Equitas Holdings Finance 3,674 32.0 1,177 Axis Bank Bank 2,44,218 46.6 1,13,757
KNR Constructions Infrastructure 7,073 31.4 2,222 IndusInd Bank Bank 93,089 45.8 42,663
City Union Bank Bank 13,557 31.0 4,205 ICICI Bank Bank 6,43,105 43.5 2,80,008
MCX Finance 6,573 30.5 2,005 Sansera Engineering Auto Ancillaries 3,816 41.3 1,576
Ipca Laboratories Healthcare 22,323 29.4 6,565 Kotak Mahindra Bank Bank 3,84,817 40.6 1,56,043
M-cap as on September 15, 2022. Other data as of June 2022.

MARKET
C MPASS
Change in promoter stake

Companies that have seen a rise or decline in promoter stake in Q1 FY23
M
any investors track the change in promoter
holding. A significant rise in promoter
holding may mean that the promoter is
bullish about his company. That may translate into
good returns for the shareholder as well. On the
other hand, a significant fall in promoter stake is
taken as a negative development.
However, while tracking the change in promoter
stake, one should also be mindful that promoter
holdings can be impacted by corporate actions also.
For instance, a rights issue, a merger, a
reclassification of promoter can all cause the
reported promoter holding to change. Hence, dig deep
to make sense of the change in promoter stake.
The tables below list companies in which the
promoter stake has gone up/done notably over the
last quarter.
9PZLPUWYVTV[LYZ[HRL
Companies where the promoter stake in the previous quarter was at least 25 per cent and has risen by at least 3 percentage points
Promoters’ stake (%)
Company name Sector M-cap (` cr) Jun-22 Mar-22 Increase in promoter holdings (% pt) 3M return (%)
Escorts Kubota Auto & Anc. 26,437 72.9 28.1 44.8 -12.7
"UTTERmY'ANDHIMATHI #ONS$URABLES
4EJAS.ETWORKS #ONS$URABLES
*UPITER7AGONS !UTO!NCILLARIES
0OLY-EDICURE (EALTHCARE
,LOYDS-ETALS%NERGY )RON3TEEL
)NOX7IND #APITAL'OODS
,LOYDS3TEELS)NDS #APITAL'OODS
-ANGALAM#EMENT #ONST-ATERIALS
!$&&OODS &-#'
-HSSPUWYVTV[LYZ[HRL
Companies where the promoter stake in the previous quarter was at least 25 per cent and has fallen by at least 3 percentage points
Promoters’ stake (%)
Company name Sector M-cap (` cr) Jun-22 Mar-22 Decrease in promoter holdings (% pt) 3M return (%)
)MAGICAAWORLD (OSPITALITY
0ATANJALI&OODS &-#'
).%/33TYROLUTION #HEMICALS
3%0# )NFRASTRUCTURE
3AGAR#EMENTS #ONST-ATERIALS
- CAPMORETHAN`CROREASON3EPTEMBER2ETURNSASOF*UNE

MARKET
C MPASS
Pledging tracker
Companies that have seen a rise or decline in promoter pledging in Q1 FY23
P
romoter pledging is an important analytical
parameter. When promoters pledge shares, they
keep shares as collateral with a financial
institution, such as a bank, to raise money. It’s just like
mortgaging something for money.
Pledging is not always bad. Many times promoters
pledge their stake for sound business reasons and later
release their pledged shares. But pledging takes an ugly
turn when the pledged stake is high and the promoter
is unable to pay back the dues. This may force the
financing institution to sell the pledged stake, which
can result in a sudden fall in the stock price and the
dilution of promoter stake in the company.
Generally speaking, a high pledged stake also
indicates a bad management. Investors should stay away
from companies that have high levels of pledging.
0UJYLHZLPUWSLKNPUN
Companies in which promoter pledging has gone up by 10 percentage points and the minimum promoter stake is 25 per cent
M-cap Pledged stake (%) Increase Promoter 3M stock Debt to
Company name Sector (` crore) Jun-22 Mar-22 (% pt) stake (%) return (%) Z-Score F-Score equity
3AGAR#EMENTS #ONST-ATERIALS
'ENSOL%NGINEERING )NFRASTRUCTURE
-EDPLUS(EALTH3ERVICES (EALTHCARE
0RAKASH)NDUSTRIES )RON3TEEL
3HARE)NDIA3ECURITIES &INANCE
!$&&OODS &-#'
*37(OLDINGS &INANCE
+LJYLHZLPUWSLKNPUN
Companies in which promoter pledging has come down by 10 percentage points and the minimum promoter stake is 25 per cent
M-cap Pledged stake (%) Decrease Promoter 3M stock Debt to
Company name Sector (` crore) Jun-22 Mar-22 (% pt) stake (%) return (%) Z-Score F-Score equity
#-3)NFO3YSTEMS )4
$EEPAK&ERTILISERS #HEMICALS
!DITYA6ISION 2ETAILING
-ACROTECH$EVELOPERS 2EALTY
0UNJAB!LKALIES#HEMICALS #HEMICALS
)3-4 )RON3TEEL
%UREKA&ORBES #APITAL'OODS
3AMVARDHANA-OTHERSON !UTO!NCILLARIES
M-cap more than `1,000 crore as on September 15, 2022. Returns as of June 2022. : 3CORE0REDICTSACOMPANYmSÜNANCIALDISTRESSORTHEPOSSIBILITYOFITSGOINGBANKRUPTWITHINTWOYEARS!
: 3COREOFMORETHANTHREEISDESIRABLE& 3CORE(IGHLIGHTSÜNANCIALPERFORMANCEASCOMPAREDTOTHATINTHEPREVIOUSYEAR!N& 3COREOFSEVENORABOVEISGOOD

MARKET
C MPASS
Tracking IPOs
Here is how the S&P BSE IPO index has performed over the last one year
and how the biggest IPOs have fared
HIGHEST 076PUKL_]Z[OL:LUZL_ HIGHEST
LISTING-DAY GAIN The IPO index has corrected significantly over the last few months. SUBSCRIBED IPO
Paras Defence Latent View Analytics
171.4% 110 z IPO index z Sensex 326.5 times
HIGHEST
LISTING-DAY LOSS LOWEST
100 SUBSCRIBED IPO
Shriram Properties
101 Star Health
-20.3% 90 0.8 TIMES
HIGHEST
POST-LISTING GAIN BIGGEST
Adani Wilmar 80
IPO
231.9% 77
LIC
HIGHEST
70
`20,557 cr
POST-LISTING LOSS
Rebased to 100 TOTAL SUM
One97 Communications 60 RAISED
-63.9% September 2021 September 2022
`95,797 cr
;VW076ZI`PZZ\LZPaL
Seven of the top 15 IPOs of the last one year have fallen sharply since listing
Listing Subscription Issue Issue List Current Listing Change post Sensex Current
Company name date ratio (times) size (` cr) price (`) price (`) price (`) gain (%) listing (%) change (%) P/E
LIC 17-May-22 2.4 20,557 949 867 655 -8.6 -24.5 8.9 12.9*
One97 Communications (Paytm) 18-Nov-21 1.9 18,300 2,150 1,955 707 -9.1 -63.9 -0.8 –
Star Health 10-Dec-21 0.8 6,401 900 849 725 -5.7 -14.6 0.6 8.8*
PB Fintech 15-Nov-21 16.6 5,952 980 1,150 514 17.3 -55.3 -2.6 –
Delhivery 24-May-22 1.6 5,235 487 493 573 1.2 16.3 9.4 –
Vedant Fashions 16-Feb-22 2.6 3,149 866 936 1,368 8.1 46.2 2.0 89.8
FSN E-Commerce (Nykaa) 10-Nov-21 81.8 2,980 1,125 2,001 1,338 77.9 -33.2 -2.0 1,502.8
Adani Wilmar 08-Feb-22 17.4 2,819 230 221 733 -3.9 231.9 2.3 107.2
Aditya Birla Sun Life AMC 11-Oct-21 5.2 2,768 712 712 474 0.0 -33.5 -1.7 22.0
Sapphire Foods 18-Nov-21 6.6 2,073 1,180 1,311 1,453 11.1 10.9 -0.8 83.3
Rainbow Children’s Medicare 10-May-22 12.6 1,581 542 506 654 -6.6 29.2 8.8 45.4
Paradeep Phosphates 27-May-22 1.8 1,502 42 44 65 3.7 48.5 7.8 9.5
Campus Activewear 09-May-22 52.1 1,400 292 355 578 21.6 62.9 8.6 116.4
Medplus Health Services 23-Dec-21 52.6 1,399 796 1,015 666 27.5 -34.4 3.2 144.2
Metro Brands 22-Dec-21 3.6 1,368 500 436 816 -12.8 87.1 3.9 66.2
Price data as on September 19, 2022. *Price-to-book value.

ANALYST’S
DIARY
Changing
regulatory landscape
RBI’s new rules for microfinance lenders seem to be a mixed bag
I
t has been almost six months since the Reserve Bank unclear if the new law will actually improve the
of India (RBI) came out with a fresh law to regulate overall asset quality in the long run. Until then,
the microfinance industry. Two salient features of investors would do well to remember that in the
the new law are the changes to the underwriting lending business, it’s perhaps best to stick to lenders
process (evaluating a borrower’s creditworthiness) and who have a higher underwriting standard than the
the interest rate charged for microfinance loans. regulatory minimum.
In terms of the underwriting process, microfinance By Arul Selvan
institutions (MFIs) have now been mandated to ensure
that the post-disbursement EMI payments should not
exceed half of the borrower’s monthly income. But the
more critical change was that MFIs have to now start
considering the financial position of the entire
household (instead of just the borrower) and this would
include calculating both the income and borrowings
(from all sources) of the entire household. The second
change was the removal of the
For ceiling on interest rates,
microfinance thereby enabling MFIs to
(ZZL[IVVRNYV^[OYH[L8V8
borrowers, the charge appropriate risk- Q4FY22 Q1FY23 In %
adjusted interest rates (as long
current law may as they are not usurious). 8
14 14
push them Looking at these two 9
towards the features individually, the new 4
6
unorganised law seems like a mixed bag
-7 0 -2 -16 -6 -1
for MFIs. Although MFIs are
sector if they now largely free to price their
have higher loans appropriately (albeit
credit needs without knowing what
constitutes usury), the flip
Bandhan Ujjivan SFB Suryoday Spandana CreditAccess Satin Credit
side is that the restrictions on the quantum of Bank SFB* Sphoorty Grameen Care
unsecured loans given to a particular borrower could
put pressure on the short-term growth rates of their +PZI\YZLTLU[NYV^[OYH[L8V8
loan books. Q4FY22 Q1FY23 In % 206
Predictably, many microfinance lenders reported
lower disbursements and contractions in their asset 41
13
books during the first quarter of the ongoing financial 20
year. While higher yields may start reflecting in the 2
-64 1 -11 -12 -5 -60 -10
form of better profitability going forward, it remains
to be seen whether MFIs can expand their reach to
hitherto unbanked borrowers to neutralise the impact
of lower disbursements to existing borrowers. For
Bandhan Ujjivan SFB Suryoday Spandana CreditAccess Satin Credit
microfinance borrowers though, the current law may
Bank SFB* Sphoorty Grameen Care
push them towards the unorganised sector if they
*Only the microfinance part
have higher credit needs. For shareholders, it is still

ANALYST’S
DIARY
Efficient capex
A large capital expenditure completed in an efficient manner is likely to
reward shareholders very well
L
ately, many companies, big and small, have FY18–22 cumulative CFO should be greater than zero:
announced large capital-expenditure (capex) plans. 394 companies
But will these actually translate into an increase in FY18–22 cumulative capex should be at least 90 per
the cash flow from operations (CFO) in the following cent of cumulative CFO: 61 companies
years? To find it out, we put on our analyst hat. FY17 debt-to-equity should be less than one: 44
In a bid to find companies that incurred significant companies
capital expenditure and increased their CFO materially, FY18–22 median ROE and FY22 ROE should be greater
we started by dividing the last 10 years into two five-year than 15 per cent: 19 companies
periods (FY13–17 and FY18–22). We focused on non- To shorten the list further, we chose companies
financial companies in the BSE 500 universe and then trading at a discount to their five-year median P/E. We
we applied the following filters: ended up with seven companies. Their names appear in
Companies whose financials are available since FY13: the second table below.
400 companies By Karthik Anand Vijay
FY13–17 cumulative CFO should be greater than zero:
379 companies
FY13–17 cumulative capex should be at least 90 per *VTWHUPLZ[OH[OH]LPUJ\YYLKJHWL_LMMPJPLU[S`
cent of the cumulative CFO: 83 companies
Cumulative CFO (` cr) Median ROE (%)
FY17 debt-to-equity ratio of less than one (to ensure
5Y return
that capex is not funded by debt): 41 companies Company FY13–17 FY18–22 FY13–17 FY18–22 (% pa)
The increase in cumulative CFO from FY13–17 to
SRF 3,047 6,755 13.9 20.3 53.6
FY18–22 should be at least 100 per cent (i.e., should have
Navin Fluorine 316 728 12.4 16.9 47.8
at least doubled): 31 companies
We analysed the five-year annualised share price JB Chem. & Pharma 538 1,078 9.9 18.7 46.1
returns of these 31 companies. Of them, 27 companies Astral 589 2,236 18.6 18.8 40.2
had a five-year trading history. Of these 27 companies, 18 Jubilant FoodWorks 1,125 3,241 18.6 23.5 35.7
(or about 67 per cent) gave a return of more than 15 per Info Edge 499 1,862 9.2 28.2 28.2
cent per annum and only five companies (or about 19 per Bharat Electronics 1,524 12,698 15.2 19.9 14.1
cent) gave a negative return.
Oil India 12,517 29,994 12.4 15.1 -2.7
To drill down further and get efficient companies, as
measured by return on equity (ROE), we applied these Shyam Metalics 1,430 3,614 5.9 26.3 –
two filters: Price data as on September 16, 2022
Median ROE over FY18–22 should be greater than that
over FY13–17: 16 companies *VTWHUPLZ[OH[OH]L\UKLY[HRLUSHYNLJHWL_
FY18–22 median ROE and FY22 ROE should be greater V]LY[OLSHZ[MP]L`LHYZ
than 15 per cent: 9 companies
Cumulative Median
These nine companies (see the first table) not only CFO ROE 5Y
scaled their operations and doubled their cumulative (FY18–22) (FY18–22) FY22 median
Company (` cr) (%) ROE (%) P/E P/E
CFO but were also able to improve their efficiency.
The analysis above is backward-looking. To find Bharat Forge 4,927 17.4 18.1 31.7 37.2
companies that would efficiently scale their operations Aarti Industries 3,517 22.6 27.8 23.8 31.3
and deliver good returns, we prepared a list of Sona BLW 1,118 21.4 21.4 85.3 168.6
companies that have undertaken significant capital Devyani Int. 1,158 39.1 39.1 88.5 117.7
expenditure over the last five years.
Godrej Agrovet 911 18.6 18.6 26.3 29.3
We applied these filters to arrive at the current list of
Laxmi Organic Inds. 503 17.4 22.0 44.0 47.3
companies:
Companies whose financials are available since FY18: Rossari Biotech 229 31.8 16.1 54.1 55.5
415 companies Price data as on September 16, 2022

ANALYST’S
DIARY
Not the real earnings

How depreciation can impact the way you see
earnings per share
E
arnings per share, or EPS, is an important
consideration when it comes to assessing a
company. EPS reflects how much profit the
company has generated in a particular year on a per-
share basis. Comparing a company’s EPS growth with
that of other companies is quite common for
investors. Besides, EPS is used as a denominator for
the famous P/E ratio. Unfortunately, many investors
confuse profits with actual cash earned by companies,
which is not always right. To illustrate this point,
consider Tata Motors. In FY22, it posted a strong
EBITDA (earnings before interest, tax, depreciation
and amortisation) of `27,774 crore but on the net level,
it posted a loss of `11,442 crore! What caused this huge
change in its numbers? It was because of non-cash >OH[PZKLWYLJPH[PVU&
expenses called depreciation. Companies spend huge sums of money whenever they
buy any new properties or machinery and the amount
is paid off right away. But the accounting method does
*VTWHUPLZ^P[OHIPNKPMMLYLUJLIL[^LLU not allow recording this as an expense entirely in the
[OLPY,7:HUKJHZO,7: very first year. Instead, the method allocates the cost
Difference Deprecia-
between tion as a over the years, mostly based on the useful life of an
Cash EPS & cash % of asset. This is recorded as ‘depreciation’ in the income
Company EPS (`) EPS (`) EPS (%) PBDT
statement. As cash outflow is incurred at the
Wockhardt -16.94 0.21 8233 1300
beginning, depreciation essentially becomes a non-
Lupin -33.62 2.88 1269 580
cash expense. Capital-intensive industries often face
GE T&D India -1.94 0.32 702 -48
the brunt of depreciation and sometimes, even the
Arvind Fashions -20.19 -2.60 677 189 management may change the rate of depreciation to
GMR Airports Infra -1.70 -0.22 664 201 influence the profits.
Ashiana Housing -0.69 0.13 625 -421
Restaurant Brands Asia -3.98 0.76 620 989 /V^KV^LYLTV]L[OPZUVUJHZOLMMLJ[HUK
Coffee Day Enterprises -5.71 1.27 548 663 THRLP[LHZ`MVYJVTWHYPZVU&
Tejas Networks -5.47 1.23 546 -190 To remove the effect of depreciation, all we have to do
Inox Leisure -19.59 4.45 540 -1509 is to add this non-cash expense back to profits to
Vodafone Idea -8.79 -1.45 506 -490 arrive at cash EPS. Here is the formula you can use to
PVR -80.04 20.68 487 -927 calculate the cash EPS:
Indigo -159.94 -28.38 464 -467 (Net profit + Depreciation)
EIH -1.56 0.43 463 552 Cash EPS =
Oriental Hotels -1.13 0.34 437 318 Number of shares outstanding
Suzlon Energy -0.22 0.07 431 147
Swan Energy -3.32 -0.65 407 -62 You can find net profit and depreciation in the
Bajaj Hindusthan Sugar -2.15 -0.42 406 -424 income statement and for the number of shares, you
Reliance Infrastructure -35.68 13.12 372 263
can simply divide the net profit by the actual EPS
given. The following table presents a list of the top 20
Kesoram Industries -3.16 1.41 325 238
companies with huge differences between their EPS
PBDT = Profit before depreciation and tax. Negative per cent values indicate a loss at the PBDT level. and cash EPS.
Market cap greater than `1,000 crore. Data as of FY22.
By Udhayaprakash

VIS-A-VIS
On the road to possibilities

With India likely to become a leading tyre manufacturer in Asia-Pacific by
2026, here’s how CEAT and JK Tyre compare with each other
CEAT JK Tyre
Founded in 1958, CEAT is India’s fourth-largest tyre Founded in 1951, JK Tyre is India’s fifth-largest tyre
manufacturer in terms of market cap. With seven man- manufacturer in terms of market cap. With 12
ufacturing facilities, its total capacity is pegged at 35 manufacturing facilities, its total capacity is pegged
million tyres per annum. Having a presence in over 100 at 33 million tyres per annum. It derives 54 per cent
countries, it has over 50 per cent market share in Sri of revenue from the truck and bus segment, with a
Lanka. CEAT enjoys its partnership with some leading major contribution from the replacement market. It
automotive manufacturers, such as Maruti, Hyundai, has a large distribution network of 4,600 dealers and
Volkswagen and Honda. 350 distributors.
-PUHUJPHSZ All numbers in ` cr -PUHUJPHSZ All numbers in ` cr
Operating Net Net Total Cash from Market Operating Net Net Total Cash from Market
Revenue profit profit worth debt operations cap Revenue profit profit worth debt operations cap
10,275 257 56 3,273 2,097 619 6,624 13,018 669 201 2,848 5,115 346 4,376
7YPJLJOHY[ 7,JOHY[
150 CEAT JK Tyre 300 CEAT JK Tyre
120 240
90 180
60 120
30 60
0 0
September 2017 Rebased to 100 September 2022 September 2017 September 2022
5.1
2.5
117.3 2.0 0.2 0.6
0.5
1.5 21.8 1.5 0.8 1.8
Price to earnings Price to book Dividend yield (%) Debt to equity
Net margin (%) Operating margin (%)
-P]L`LHYHUU\HSPZLKNYV^[O
9.5
-12.0 -4.0 -28.0 -12.0
7.3
5.5 10.0 9.0
1.3
Revenue (%) Operating profit (%) EPS (%)
ROE (%) ROCE (%) Price data as on September 20, 2022.

Trailing 12-month data for revenue, operating profit, net profit, and margins. All other data as of FY22.

The Indian tyre industry came to a halt for two years, owing to the pandemic and supply-chain disruptions.
Now, the industry is standing at a crossroads, as companies are adapting to the changing landscape while
combating high input costs. But a surge in exports in FY22 came as a breather. Despite short-term hiccups,
India has the potential to become one of the top three tyre manufacturers in Asia Pacific by 2026.


COVER STORY
THE
BUSINESS
#1
KILLER

COVER STORY
The metric that has consistently spelled doom for

businesses and how you can spot companies in trouble.
Plus: A list of stocks to avoid now.
By Arul Selvan, Karthik Anand Vijay and Udhayaprakash
A
lthough the word ‘leverage’ has multiple come with certain problems, with the growing risk of
definitions, in the financial world, it bankruptcy being the most important one. This is the
translates into borrowing money. The word true consequence of ‘leverage’. Since potential
‘leverage’ came from the word ‘lever’ which negative ramifications are also magnified, they can, in
refers to a device that is used to amplify the theory, destroy the very existence of the company.
input force so as to produce a much larger output Hence, Peter Lynch, a legendary fund manager,
force. When it comes to a company, the addition of quipped, “Companies that have no debt can’t go
debt to its balance sheet paves the way for boosting its bankrupt!” Lynch’s words bear testament to the
shareholders’ returns, as the same quantum of profits attributes of conservative stock picking where it is,
will produce a higher ROE (return on equity) for a perhaps, better to pass up opportunities to invest in
levered company than one with no debt. deeply leveraged companies, even if it means forgoing
the possibility of higher returns. Besides, investors
Why a company takes debt must also realise that many times, the structure of
Corporations are (as a class) probably the second- debt transactions could precipitate the very
largest borrowers in the world (after countries). catastrophe that the borrowing company was trying to
Broadly, companies take on debt because of two avoid in the first place.
reasons – when a company goes through a rough This is due to the
patch, it needs to borrow money to endure it and the
second scenario is when a company wants to expand
“Companies presence of certain
‘events of default’
its operations and lacks the resources to fully finance
the expansion. To appreciate the different choices that
that have no clauses which force the
company to repay
a company has, it is critical to evaluate two costs: the
cost of equity and the cost of debt.
debt can’t go exactly at the point
when it needs the
From a purely economic standpoint, a company’s
profits signify the difference between its return on
bankrupt!” money the most. The
quote “A banker is a
capital and its cost of capital. Therefore, quite PETER LYNCH fellow who lends you his
understandably, most companies would (in an ideal umbrella when the sun
scenario) work towards lowering their cost of is shining, but wants it
capital in order to maximise profits. Against this back the minute it begins to rain,” by Mark Twain
backdrop, companies have the choice between debt shows the characteristics of lenders even as far back
and equity, as these two are the most commonly as the 19th century. Therefore, while investors need
available forms of capital (other forms of capital not worry about debt per se, they should be wary of
are effectively some version of a combination of heavily leveraged companies.
these two types). And even though interest rates are
currently rising, the cost of debt has been What this story has
historically lower than the cost of equity. Hence, for In this cover story, we tell you how high debt can spell
companies, it is a prudent financial decision to take the demise of a company. First, you will come across
on debt. In other words, as long as the cost of equity 10 cases of companies getting in trouble because of
is more than the cost of debt, companies are more excessive borrowing. Then, we have collated some
likely to raise debt capital (which also has other common reasons and learning for debt-led blow-ups.
benefits, such as quicker processing time, lesser We have also presented some quantitative, as well as
need for information sharing, etc.). qualitative metrics that will help you spot a disaster in
the making. Finally, we have prepared a list of
Why high debt could be deadly companies that are heavily indebted and have poor
But just like every rose has a thorn, debt capital does earning power.

COVER STORY
FUTURE RETAIL
Viral infection
F
uture Retail, the flagship when e-commerce opened up. categories. With a very low-
company of the Future With Flipkart and Amazon margin, retail businesses
Group, was a large Indian investing billions of dollars and depend on high levels of
retailer that owned multiple consumers getting familiar with turnover. Saddled with huge
retail stores such as Big Bazaar, online transactions, the debt, the company was already
Food Bazaar, fbb, etc. competition heated up in many in a bad shape prior to the
As it sought to diversify and pandemic. Finally, COVID drove
expand its operations, the the final nail, with the company
company took on +LI[]ZZ[VJRWYPJL incurring a revenue loss of
debt (from `390 Debt (` cr) Share price (`) around `7,000 crore in the first
crore in FY15 to 12,500 625 three-four months. Although
`8,889 crore in FY20). 10,000 500 the management swiftly
While riding on an attempted to execute a sale
7,500 375
acquisition spree, the of the company to
company also made 5,000 250 Reliance, a legal dispute
investments in private labels 2,500 125 with Amazon effectively
in a quest to earn higher 0 0 stalled it. Now the company
margins. FY17 FY18 FY19 FY20 FY21 is going through insolvency
However, the company’s debt- and it remains to be seen who
fuelled expansion was limited to will be the new shareholder of
physical stores only and this company.
therefore, it missed the bus
HLV
Riches to rags
H
LV (formerly known as to 198.32 times (as losses reduced was `502 crore. It defaulted on its
Hotel Leelaventure) owns net worth). On an absolute basis, payments and sold its hotels in
and manages luxury hotels. debt increased from `2,036 crore Goa and Kerala. It changed its
Building a hotel is a costly affair in FY08 to `4,905 crore in FY14. business model from owning and
and therefore requires both In FY14, its operating profit building hotels to managing
equity and debt capital. During was `195 crore and interest cost hotels (an asset-light model).
2003–08, the demand for hotel However, these were not enough
rooms was greater than the to strengthen its balance sheet.
supply. Therefore, the company’s Then in March 2019, HLV
revenue and net profit grew announced that it would sell its
significantly. hotels in Delhi, Bengaluru,
With the goal of diversifying
+LI[]ZZ[VJRWYPJL Chennai and Udaipur, as well as
Debt (` cr) Share price (`)
geographically, HLV set up a 6,000 100 the hotel-management
hotel in Udaipur in 2009 and operations to Brookfield for
4,800 80
bought land to set up `3,950 crore. The proceeds
3,600 60
hotels in Delhi and were used to repay the
Chennai. And then 2,400 40 lenders under a one-
came the recession in 1,200 20 time settlement. All
2008 and the company 0 0 that the company is
was saddled with 05 07 09 11 13 15 17 19
left with is its
debt because of its FY FY FY FY FY FY FY FY Mumbai hotel. In the
new projects. From 10 years to March
FY08 to FY14, its debt- 2019, the stock returned
to-equity ratio increased from 2.84 -5.1 per cent per annum.

COVER STORY
JAIPRAKASH ASSOCIATES JET AIRWAYS

Falling like ninepins Crash landing
J J
aiprakash Associates (the flagship company of et Airways was one of the first few private
Jaypee Group) caters to the engineering and airlines to start operations after the sector was
construction (hydropower projects), cement, liberalised in 1991. Promoted by Naresh Goyal,
power (hydro and thermal), real-estate development, the company was a full-service player which
expressways and hospitality segments. gradually increased its fleet strength and expanded
The company’s reliance on debt is high, owing to to international destinations.
its involvement in capital-intensive activities. Given that leasing planes (a type of operating
However, even with a debt-to-equity ratio of more leverage) is a preferred route to expand, the
than two times between FY04 and FY08, the stock company raised both debt and equity to scale up its
gave a return of 137 per cent per annum till operations. In 2007, the company acquired Air
January 2008. It was due to the 2003–08 bull run, Sahara, however, the acquisition not only decreased
coupled with the company’s strong fundamentals its brand value but also increased the company’s
(five-year median ROE of 23 per cent). debt. Between FY04 and FY09, its total debt
In 2008, the company undertook various growth quintupled from `2,964 crore to `16,323 amid cut-
plans across the segments it operated in. Over throat competition with low-cost airlines.
FY08–13, its capital expenditure was pegged at High oil prices, coupled with high taxation, a
`62,187 crore, while its cumulative operating cash very price-sensitive customer segment
flow was `13,032. As a result, the debt-to-equity and high competition, sounded
ratio increased from 2.74 to 5.15 in FY13. the death knell for the
Owing to rising interest costs and slower growth airline. With the
in the overall business, the company had to focus on competition
deleveraging. It had to sell a major chunk of its intensifying, a
cement capacity (about 67 per cent) to UltraTech cash
Cement in February 2016. It also divested its infusion of
profitable power assets. Thereafter, its debt has `2,030 crore
come down but so has the company’s earning power. by Etihad
The debt-to-equity ratio was 221 times in FY22. Airlines in 2013 helped little.
In September 2018, ICICI Bank (one of its As the company’s funding sources
lenders) filed an insolvency petition against the dried up, a massive loss of `5,535 in FY19 proved
company. Earlier this year, the company defaulted to be the last straw. After shutting operations and
on a payment of going through insolvency, the revived company
`2,897 crore to its (purchased by a consortium of Kalrock Capital
lenders. From its and Murari Lal Jalan) is awaiting clearance from
listing in June the aviation regulator to restart operations. The
2004, the stock company’s shares are currently trading at around
has returned -3 `100 per share and for every 100 shares held in
per cent per the company, existing shareholders are slated to
annum (as of get only one share of the new company (as equity
September 12, holders generally get wiped out during
2022). insolvency proceedings).
+LI[]ZZ[VJRWYPJL +LI[]ZZ[VJRWYPJL
75,000 Debt (` cr) Share price (`) 200 20,000 Debt (` cr) Share price (`) 1500
60,000 160 16,000 1200
45,000 120 12,000 900
30,000 80 8,000 600
15,000 40 4,000 300
0 0 0 0
FY08 FY10 FY12 FY14 FY16 FY18 FY20 FY22 FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19

COVER STORY
KINGFISHER AIRLINES
Flight to obscurity
W
ith the aim to take the However, as a result, its total debt existence, the company never
concept of ‘fun and good increased from `452 crore in FY06 reported a profit. It reported a
times’ to the sky by to `917 crore in FY07. cumulative loss of `12,408 crore
leveraging the ‘Kingfisher’ brand, Gradually, the company started over FY05–13. From its listing in
Vijay Mallya (the CEO and catering to the entire spectrum of June 2006 at `148 per share, the
chairman) founded the air-travel market, stock lost -41 per cent per annum
Kingfisher Airlines in right from the ‘price- till June 2015 (in other words, a 99
2004. However, the seeker’ to ‘service- per cent wipeout).
company is now defunct. seeker’. Then came the
Since the airline 2008-09 recession. A
industry is highly capital steep rise in crude- +LI[]ZZ[VJRWYPJL
intensive, the company oil prices, coupled Debt (` cr) Share price (`)
had to count on debt to fund with the appreciation in 10,000 300
its operations. In a bid to the US dollar, led the
8,000 240
grow amid the cut-throat company to take on more
6,000 180
price competition, it started its debt. Its financial position started
journey as a ‘no-frill, low-cost’ going downhill. It restructured its 4,000 120
airline. Therefore, it focused on debt several times and even failed 2,000 60
offering minimum services while to pay its employees’ salaries. 0 0
maximising aircraft utilisation. Finally, in October 2012, the FY07 FY09 FY11 FY13 FY15
In June 2007, it acquired a stake aviation regulator (DGCA) Steep rise in debt in FY09 due to the merger of Air
in Air Deccan and strengthened its suspended its flying licence. Deccan with Kingfisher. No data for debt after FY13 as
financials are not available.
position as the number-two airline. In its nine-year operational
NETWORK18 MEDIA AND INVESTMENTS

Biting off more than it can chew
H
aving its presence across channels were profitable, while from just `18 crore in FY06 to
television, internet and others, especially Viacom18 (a 1,084 crore in FY08. Despite that,
films, Network18 operates joint venture between Network18 the company raised more money
a number of famous channels and Viacom), were loss-making and entered more segments.
through its subsidiary TV18 and required additional capital. During FY13, the company
Broadcast and joint venture Network18’s total debt increased decided to make a rights issue
Viacom 18. and raised `3,995 crore on a
With a steadfast focus on consolidated basis to repay
the news-media segment, the +LI[]ZZ[VJRWYPJL most of the debt and paid
company had a fabulous run `1,043 crore in the same year
Debt (` cr) Share price (`)
till 2006, owing to its to bring down its debt to `957
2,500 600
partnerships with CNBC and crore. At last, the company
CNN Worldwide. Its strategy 2,000 480 was rescued by Reliance
to present news in a unique 1,500 360 Industries which acquired
way not only attracted 1,000 240 Network18 for `4,000 crore in
viewers but also investors. 500 120 2014.
Gradually, the company came Its market cap fell from
0 0
up with 11 television `3,050 crore in May 2007 to
07 08 09 10 11 12 13 14
channels across the news and FY FY FY FY FY FY FY FY `419 crore in September 2012,
entertainment segments, while its subsidiary TV18 also
which were funded through witnessed an 80 per cent fall in
debt. market cap during the same
However, only a few of these period.

COVER STORY
NEW DELHI TELEVISION (NDTV) RELIANCE NAVAL AND ENGINEERING

Flop show Turbulent waters
N S
ew Delhi Television, tarted by brothers Nikhil and Bhavesh Gandhi,
popularly known as Reliance Naval and Engineering (formerly
NDTV, was the first known as Pipavav Defence and Offshore
private news broadcaster in Engineering) was India’s largest integrated
India. It also has its presence shipbuilding company and the first private sector
in digital content and entity to get a licence to build warships for the
e-commerce business. Indian Navy.
Driven by its aspiration Being capital intensive, the shipbuilding
of becoming a ‘total media industry hinges much on debt and working capital.
organisation’, the company Although the company was heavily indebted (`7,000
decided to launch a slew of crore) before Reliance Group took control, the
channels, including some in other countries ultimate reason for the company’s downfall was the
through its partnership with NBC Universal. presence of a conflict of interest in the defence
For the company, the initial days were promising segment.
as it launched several channels, including NDTV Since the Indian Government is the sole
Arabia in the middle east. To fund all these new customer, as well as the principal competitor (by
ventures, the company raised $100 million (about `418 virtue of its status as the promoter of six PSU
crore) in convertible bonds. shipyards), it created a strong incentive for the
Unfortunately, NDTV’s ‘aspirational venture’ government to give orders on a ‘nomination’ basis
coincided with the 2008 financial crisis, which (i.e., by simply choosing a particular company)
impacted its advertising revenue. In October 2009, instead of a competitive basis. This resulted in
NDTV bought a 26 per cent stake of NBC Universal nearly 85 per cent of orders (by value) going to
in NDTV Networks Plc when the latter decided to PSUs by default from 2011 to 2019. Further, even in
exit the partnership. In the same year, the company the 15 per cent of orders given on a competitive
sold its stake in NDTV Imagine and shut down basis, PSUs were able to beat their private-sector
NDTV Arabia. peers in many cases. With idling capacity and
In FY10, eight of its subsidiaries were merged with depreciating equipment, a substantial part of the
NDTV, while the company liquidated its stake in private-sector shipbuilding industry in India got
many of its foreign subsidiaries. On the other side, decimated, with the three large players (ABG
its promoters faced income-tax allegations, which Shipyard, Bharati Defence and Infrastructure and
impacted its viewership and advertising revenue. It Reliance Naval) having gone bankrupt. Though a
struggled to stay afloat and decided to become a paid consortium led by Hazel Mercantile is set to
channel in 2018. acquire Reliance Naval, the fate
On the other hand, its market cap nosedived from of shareholders and the
`3,130 crore in January 2008 to `164 crore in company may not
December 2011. While its debt situation cooled down change materially.
over the years, its revenue has not reached the 2010
level again. Besides, the company still has various
ongoing litigations, including a tax-demand case +LI[]ZZ[VJRWYPJL
worth `450 crore.
15,000 Debt (` cr) Share price (`) 100
12,000 80
+LI[]ZZ[VJRWYPJL
600 Debt (` cr) Share price (`) 500 9,000 60
480 400 6,000 40
360 300 3,000 20
240 200 0 0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
120 100
0 0
FY08 FY10 FY12 FY14 FY16 FY18 FY20 FY22

COVER STORY
RUCHI SOYA INDUSTRIES

On a sticky wicket
R
uchi Soya, now rechristened them to its customers as
as Patanjali Foods, is one of they had other cheaper
the largest FMCG companies alternatives. In 2014-15,
in India and is the largest edible the company’s seed- +LI[]ZZ[VJRWYPJL
oil refiner in India. It is home to extraction business faced Debt (` cr) Share price (`)
some famous brands like Ruchi the brunt of a poor 10,000 150
Gold, Sunrich and Nutrela. monsoon. 8,000 120
Its main business (around 70 per All these factors,
6,000 90
cent of the revenue) was to import coupled with its business
4,000 60
crude palm oil from foreign model, affected its
countries (Indonesia mostly), refine working capital. Its short- 2,000 30
it and sell it to consumer-goods term borrowings 0 0
companies. Being a commodity increased to `3,475 crore 10 11 12 13 14 15 16 17 18 19
FY FY FY FY FY FY FY FY FY FY
business with low margins (3–5 per in FY11 from none in FY10.
cent), it was very much prone to Over the years, its receivable
change in duties and poor monsoon. days increased to 69 and its short- shares were suspended from
In 2011, Indonesia increased the term borrowings were on the rise. trading. Its market cap obviously
export duty on crude palm oil by In FY18, the company wrote off reacted to it as it fell from `4,250
1.5 per cent points but decreased debtors worth `5,000 crore and crore in October 2010 to `111 crore
the export duty of refined palm oil posted a negative net worth for the in November 2019 – a 97 per cent
by 7 percentage points. Hence, the first time! The RBI marked the fall! Later in 2020, Patanjali
company’s raw-material costs company as a bad-loan case and acquired Ruchi Soya.
jumped and it wasn’t able to pass dragged it to NCLT, while its
SUZLON ENERGY
Gone with the wind
A
leading player in the in FY08! failed to repay a debt
renewable-energy sector, Then came the 2008 financial obligation of $209
Suzlon Energy crisis, which made it difficult million in 2012.
manufactures and provides for wind firms to raise Its revenue remained
maintenance services for wind capital. Suzlon was flat and its loss
turbines. Leveraging the unable to get any widened from `990
potential of renewable energy new orders from its crore in FY10 to
almost 15 years ago, the major markets, `9,133 crore in
company rode high on the Europe and the US. Its FY15, while its
sectoral boom only to come down interest costs ballooned and it total debt increased
crashing. to `17,811 crore. Interest
Aiming at becoming one of cost as a percentage of
the top three turbine makers in
+LI[]ZZ[VJRWYPJL EBITDA was 654 per cent in
the world, the company spent a Debt (` cr) Share price (`) FY15! As of FY22, the
fortune on the acquisition, as 20000 300 company still has a total
well as expansion drive. With all 16000 240 debt of `6,391 crore with a
these, Suzlon emerged as the 12000 180
revenue of `6,582 crore. On
fourth largest wind-turbine the other hand, its market
8000 120
manufacturer. But an over- cap fell from a peak of
leveraged balance sheet became 4000 60 `68,067 in January 2008 to
a concern, with its total debt 0 0 `9,632 crore in September
having increased from a mere 08 10 12 14 16 18 20 22 2022, an 86 per cent fall!
FY FY FY FY FY FY FY FY
`451 crore in FY06 to `9,935 crore

COVER STORY
How to spot a crisis

in the making
Lessons from the past to help you avoid the next debt-led blow-up
I
nterestingly, lots of similarities companies try to diversify in order profitable ones.
are there in all the 10 cases to generate revenue from multiple The unchanged status quo: It is always
mentioned in the previous sources. However, when a company important for the management to
pages. So, if you look carefully, ventures into unknown territory assess and analyse ongoing changes
there are some common threads where it does not have any kind of in the sector. If you stick to old
and learnings from all these cases. experience, it can set alarm bells beliefs and ignore the changes, it
Here we have noted down some of ringing, as was the case with will come to bite you. Future Retail
them. Future Group. could have survived despite all the
Ambitious expansion: Being ambitious Imprudent capital allocation: When it issues if its promoters weren’t so
is good, as it drives a company to comes to capital allocation, steadfast in their stance against
grow bigger. Over the years, many companies should invest in those e-commerce, which was then
small companies have emerged as areas that can give above-average booming. It ultimately came to bite
multibaggers. However, one should returns on capital. Otherwise, it is them back as COVID forced them to
always remember that it is wise to better to distribute it to shut the shop.
grow slow and steady instead of shareholders. Network18 expanded High conflict of interest: Sometimes a
growing in spurts. A case in point into entertainment channels in the business shouldn’t even enter a
is Jaiprakash Associates and its TV segment but these ventures sector where the chance of
capex of `62,000 crore. were loss-making and cash- succeeding is very low and the
Unrelated diversification: All draining, which affected even conflict of interests is high, with

COVER STORY
Reliance Naval and Engineering Do check ‘net debt’

being a perfect example. The sector Readers must also know that some In the US, there are
had a fundamental conflict of
interest that should have scared
companies may look bad at the
debt-to-equity level but if we
some companies that
away companies but it did not and consider net debt, then the picture have high levels of debt
as a result, almost all private
players have failed.
may be different. Net debt is the
total debt subtracted by the current
with negative equity but
cash balance. This tells you the they still operate
Should you ignore all amount of debt that would remain
comfortably
companies with high debt? if the company uses its cash
The answer is no. While we have balance to prepay its debt. At times, laden firm is going down? You use
presented companies that have a company has more cash than some of the following metrics to
failed due to high levels of debt, debt. In such cases, the ratio would determine that:
some companies have also be negative, i.e., a net cash position. z The company does not generate
succeeded over the years despite As of FY22, Alkem Laboratories adequate operating income to
having high levels of debt. has a total debt of `2,580 crore in service its interest obligations
Companies, such as Hatsun Agro, its books but also has a robust cash properly – also famously known as
Adani Wilmar and PNC Infratech, balance of `2,579 crore, making it interest coverage ratio.
are some examples that have high almost net debt free. Since debt is z Debt repayment and interest paid
debt to equity but have also grown just a cheaper source of funds than take a major portion of its cash
in terms of revenue and operating raising equity, many companies from operations. While repayment is
profit in the last five years. prefer keeping debt in their books. good, investors must investigate
Debt is not bad. But one should If a company has adequate cash further to see whether it is
check how aggressively the flows, then it does not need to happening because the company
company is borrowing and where it worry about servicing its debt. simply has excess cash or whether it
is deploying it. The general purpose In the US, some companies have was forced to repay, the latter being
of debt also matters. So, one should high levels of debt with negative a bad sign and most probably the
check whether the debt is for capex equity but still they operate company will continue to borrow.
or working-capital needs, as the comfortably. This is because such z Revenue and operating profits
former will help the company grow companies have stable operations haven’t grown despite all the large
further and the latter just provides and therefore, they can afford to dole capex that was done.
a chance of survival. Every out large dividends and share z Short-term debt can also be
company should have a threshold buybacks. Moreover, since their detrimental to the company if it is
with regard to the level of debt it interest rates are very low, they the only source of working capital.
can manage without impairing its prefer running their operations Ruchi Soya failed not because it
earning power. The mere presence using debt. Yum! Brands (the owner had huge long-term loans but
of debt does not guarantee failure of KFC, Pizza Hut, and Taco Bells) because of short-term loans.
but certainly increases its has a net worth of negative $8 billion z High contingent liabilities (25 per
probability. Unfortunately, unlike but has high ROCE and generates a cent or more of net worth) can be
the aforesaid examples, many billion dollars in cash flows every risky. These are not captured by the
companies go down a dark path year. The same is the case for debt-to-equity ratio.
once they start taking debt and McDonald’s as well as Home Depot.
never return. Even now during the However, there are no such What should you do?
bull run, various mid-cap and companies in India. Should an investor look at
small-cap companies have companies that have high debt?
announced lavish plans despite Quantitative metrics for Depends. If you are a sophisticated
their small scale of operations that leveraged companies investor with access to resources
readers must be careful about. How can you assess whether a debt- and are able to do in-depth
research, then you can give it a go.
However, if you have limited skill/
Debt is not bad. But one should check time to do in-depth research, then it
how aggressively the company is borrowing is better to stay away from them as
there are still many options left on
and where it is deploying it. the plate for you.

COVER STORY
Stocks to avoid now

The companies in the list below have high debt, poor debt-
servicing ability and high chances of going bankrupt
S
o far, we have covered some companies with poor capability to
past examples of debt blow-ups service interest, we have taken an
and learned how to spot such interest-coverage ratio of less than
instances and stay away from such one. This implies that the interest
companies. Now, we present a list obligation is greater than the
of companies that may go through operating profit.
a similar experience in the future. Altman Z-score less than 1.81: This
These companies are highly metric is used to find out the
indebted and have the poor debt- likelihood of a business going
servicing ability. To get this list, we bankrupt. It has various underlying
have applied the following filters: fundamental components.
Market cap greater than `600 crore: As Companies with a Z-Score less than
per the dynamic criterion followed 1.81 are considered to be in the
by Value Research for the ‘distress’ zone.
determination of the market-cap companies that have large debt in After applying these filters, we
bracket, this is the lower cut-off for relation to their equity base. have arrived at these 13 companies.
small-cap companies. Companies Interest-coverage ratio less than one: In fact, you can apply these filters
below this are micro caps and they This ratio gives the number of yourself by going to www.
have been removed from the times operating profit (EBIT) valueresearchonline.com (https://
analysis. covers interest payment. The bit.ly/3SqJdF9). Here, you can
Debt-to-equity ratio greater than two: higher the number, the better it is. access the list in real time and track
This ensures that we select As we wanted to filter out any new entrants or exits.
:P[[PUNVUHWV^KLYRLN
Interest- 5Y sales 5Y operating
M-cap Net debt Debt to coverage Altman growth profit growth 5Y median 1Y stock
Company Sector (` cr) (` cr) equity ratio (times) Z-Score (% pa) (%, pa) ROCE (%) return (%)
Tata Motors Automobile 1,48,457 76,299 3.1 0.2 1.36 0.6 -25.1 -1.3 46.1
Shoppers Stop Services 8,194 37 2.9 0.6 1.79 -8.6 -5.8 24.8 197.7
Swan Energy Construction 6,313 3,160 3.3 0.0 1.24 6.8 -32.2 2.2 74.7
MMTC Services 5,723 2,420 24.2 -4.5 -0.76 -0.1 106.0 3.2 -17.2
Prime Focus Services 2,389 2,822 187.9 0.8 -1.05 9.4 21.3 7.4 -8.4
Jaiprakash Associates Materials 2,248 18,227 221.0 -0.4 1.31 -12.6 56.7^ 1.5 -2.1
JMC Projects Construction 1,752 1,479 3.3 0.9 1.34 17.4 7.0 14.5 1.1
NXT Digital Services 1,548 850 11.7 0.3 -1.87 6.6 27.5 -3.8 24.2
Bajaj Hindusthan Sugar Consumer Staples 1,434 2,841 2.1 -0.1 0.75 4.9 -143.5 1.7 -25.5
Welspun Specialty Sol. Metals & Mining 904 274 37.2 -0.8 0.85 -6.9 -2.8^ -3.2 23.4
Forbes & Company Consumer Discretionary 888 252 3.3 -7.0 0.04 -29.7 -13.4 3.2 -82.9
Spencer’s Retail Services 730 322 5.9 -0.3 -1.06 2.7 -13.1^ -5.8 -29.8
BGR Energy Systems Capital Goods 603 1,605 3.2 0.3 0.45 -18.7 -23.0 7.9 34.5
For Spencer’s Retail, sales and profit growth and median ROCE are for three years. ^ Indicates growth in loss. Net debt means debt minus cash. Price data as of September 15, 2022. Financials as of FY22.

NIKET SHAH,
INTERVIEW FUND MANAGER, MOTILAL OSWAL AMC
‘We live in a
globalised
world and thus
investors should
worry about global
interest-rate
developments’
A
fter falling due to rising interest
rates worldwide, the Indian
markets have smartly recovered.
However, correction is still
going on in developed markets. Amid
this scenario, we speak with 5PRL[:OHO,
Fund Manager, Motilal Oswal AMC,
about the market outlook now. Shah
co-manages Motilal Oswal Midcap Fund,
which has assets of over `3,000 crore (as of
August 2022). He also tells us how he manages this fund,
which has been one of the top performers over the last one
year. He shares his perspective on investing in companies
with high debt on their balance sheets, among other things.
The markets have smartly recovered after the brief meltdown

caused by rising interest rates. What’s your short- to medium-term
outlook for the market now?
Markets have moved up smartly and are hovering near the
previous highs. In the short term, markets could remain
volatile as not all headwinds have eased. While commodity
prices are moving lower, which should ease inflation concerns,
the growth outlook too is deteriorating, especially on the
external front. China’s growth slowdown, real-estate slowdown
and geopolitical risks related to Taiwan remain key risks. This
in turn could keep markets on tenterhooks, especially given the

INTERVIEW
We are very averse to buying companies with high debt.

Ninety-five per cent of our portfolio companies
ex-financials won’t have debt.
rally and market valuations. volatility will hurt India as well, I would avoid IT services for next
However, from a medium-term but the impact could perhaps be few years, given the slowdown in
perspective, I remain very bullish lower than what we have had in revenues which is seen due to
as India remains one of the few the past. global uncertainties,
growth bastions across the world. complemented by an increase in
Today, the world is heavily Motilal Oswal Midcap Fund has cost expected due to a rise in
indebted, working-age population done well over the last one year. selling, general and
is declining and there is an anti- What worked for you? How have you administrative expenses. The
China sentiment. In such a steered your portfolio over the last other sector to avoid will be
scenario, India remains one of few months? digital, given the road to
the few growth bastions. Further, We went overweight IT, cement profitability will be tough. On the
on the domestic front as well, and pharma during the COVID promising side, banks should do
bank and corporate balance period. However, in October 2021, extremely well, given credit
sheets are very strong; there is we relooked at the portfolio and growth picking up and lower
consolidation that is happening. saw that growth in some of the credit costs going forward. Auto
These things should result in sectors would slow down, the should see a comeback, given
strong earnings runway. earnings-upgrade cycle is coming lower raw-material costs and chip
to an end and valuations were issues getting solved.
While India has emerged as an expensive. So, we decided to go to
outlier amid the recent correction, zero per cent weight in IT, cement Since we have a cover story on
how much should investors worry and pharma at peak and moved to leverage (high debt on the balance
about interest-rate-led volatility in banking, auto and consumer, sheet) in this issue, can you please
developed markets? which has helped us. Our stock tell us your approach towards
We live in a globalised world and selection within sectors we select leverage in portfolio construction?
thus investors should worry has been the key for our How much debt is too much and how
about global interest-rate performance. do you assess that?
developments. However, there are We are very averse to buying
differences from the past as well How do you pick stocks for your companies with high debt.
as relative to other countries. portfolio? What’s your broad Ninety-five per cent of our
First, in the past, global interest- investment framework? portfolio companies ex-financials
rate volatility has hit Indian There are a few key things that won’t have debt. We like
shores very adversely – recall the we watch out for businesses which generate
2013 taper tantrum, 2018 IL&FS a) Size of opportunity – it has to sustainable free cash flows and
crisis. This time around the be very large have the ability to redeploy them.
differences are: b) Growth of that sector – has to Anything more than one to 1.5
a) Inflation is much lower in India be 1.2–1.5 times GDP times debt-to-equity is high in
compared to the rest of the world. c) Find the company which will our opinion.
As a result, domestic financial gain market share within that
conditions are not tightening as sector. In your investment career so far,
much as global financial conditions. d) Cash flows are more important. what have been your most precious
b) Domestic shock absorbers in e) Management quality investing lessons? Are there any
terms of bank and corporate mistakes that later became a
balance sheets are significantly Which sectors or trends look stepping stone to your success?
better, which was not there in promising to you over the next couple Have independent thinking,
the past. of years? Which would you avoid and visualise the big picture and focus
Thus, global interest-rate why? on management and cash flows.

STOCK ADVISOR
The ugly, the bad and the good

Fund-management legend Samir Arora is back in India and he
has advice for us on how to choose stocks and spouses
DHIRENDRA KUMAR
A few days ago, I had an interesting chat really struck me as worth emulating for equity investors,
with Samir Arora, who is the co-founder of Helios and that’s the way Arora classifies the universe of
Capital Management. The firm is in the process of investable stocks and the broad approach he has.
setting up a new mutual fund company in India and The first thing to do is to classify the companies into
expects to launch its first funds in six to eight months. good companies and bad companies. So far, so good.
However, mutual funds are not a topic for this magazine, Everyone does that. No, wait a minute. Everyone does
so let’s leave that for Value Research Online and NOT do that. Most investors are fully focused on
‘Mutual Fund Insight’. looking at companies and seeing if they are good
I’m here to talk about what we investors can learn companies whose stocks they should invest in. It sounds
from Samir Arora’s equity investing. Arora has a long like the logical thing to do.
and illustrious history as an equity fund manager and As Arora says, the job of the fund manager is to beat
I consider his approach to stock picking and the general the average of the investable universe (which is basically
philosophy of equity investing to be of tremendous equivalent to a broad-market index). As he says, you can
interest to all equity investors. start by choosing which companies are good or you can
During the 1990s, right at the dawn of the modern, start by choosing which companies are the bad ones. The
post-liberalisation mutual fund industry in India, Arora key point he makes is this: it’s very difficult to choose
was the Chief Investment Officer of Alliance Mutual between the good and the good, but it’s easy to choose
Funds in India. The performance of his equity funds between the good and the bad. You need to look at dozens
was phenomenal and went a long way in establishing of things to decide whether a company is worth investing
the attractiveness of Indian equity in the minds of a in but even one or two strong negative points are enough
new generation of investors. Alliance later sold its to decide that you must not invest in a company, no
India business to what was then Birla Sun Life AMC. matter how positive the rest of the factors are.
Arora shifted base to Singapore and started his own Arora, who has a great earthy wit, says that most
hedge-fund business named Helios, which invested in selections in life should be done like this, including
Indian equities. Now, Helios is starting an Indian arm. choosing whom to marry. I think he has a point there.
A video of my chat with Arora will soon be up on I’m well-settled in that department for many decades
Value Research Online but let me tell you something that now but those of you who are still looking could do well
to pay attention to his advice.
Armed with this idea, one can just eliminate half or
It’s very difficult to choose between more of the starting investable universe. This is a great
the good and the good, but it’s easy to starting point: doing just this much puts you above the
choose between the good and the bad average investor or the general market. Now, the task

STOCK ADVISOR
On the face of it, we choose some good stocks is as much a framework for rejecting bad
stocks. We have developed a set of conditions that are
stocks and recommend them. absolute no-go for stocks. No matter how good a stock
However, what we actually do is reject looks otherwise, if it qualifies on one of these negative
most stocks and recommend the rest. factors, then we absolutely will not consider it. After
that, we have a set of qualitative and quantitative factors
remains of choosing between the good and the good. that we apply to further narrow this down to a list of
However, a mistake in these good-vs-good choices is not investable companies that we recommend.
going to have a disastrous impact on your investment. The funny thing is that this is also the way we tell
You might do well or a bit better but you’ll be fine. mutual fund investors to use our universally trusted
You’ll meet your financial goals. start-rating system. Investors always keep asking what
The interesting thing is that this is exactly what Value to do if a fund falls from five to four stars or something
Research does for you. On the face of it, we choose some like that. In response, I always say that the real value of
stocks and recommend them. However, what we actually the system is in avoiding the one- and the two-star funds.
do is reject most stocks and recommend the rest. Over If you do that, don’t worry the rest will work out fine.
the years, at Value Research, we have evolved our own Doing this elimination task on scale (and
framework for evaluating and selecting good stocks. It continuously) is a big task for an individual investor
begins with the entire universe of listed companies and but at Value Research, we have a well-honed process
applies a series of conditions, filters and checks. and a team for it. To take advantage of this, you should
Interestingly, because of the perspective we have, we take up a membership of the service.
have always understood that a framework for selecting Let me just recap what you get when you become a
member:
z Access to all our (currently 54) stock picks
z Best Buy Stocks: 16 stocks selected from our
recommendations. Use this set to start building your
portfolio right away!
z The complete investment thesis for all recommended
stocks so that you understand why you are investing
z New recommendations as soon as they are released
z Continuous updates and analysis on all recommended
stocks straight from our dedicated analyst team
z Tools and data to research and analyse any other
stock
The entirety of the service is especially useful in a
bits-and-pieces, up-and-down market we have had for
some time now. What we do is to give you the selection,
as well as all the inputs you need for you to maintain the
strength of your convictions. A major part of our job is
to keep in touch and support you during times like this.
So, come and become a member, invest in our picks
and be secure in the knowledge that not investing in
what we have rejected is an important part of your
investing strategy.
Value Research Stock Advisor is a premium service where

you get promising stocks along with their full analyses.
We also actively track the underlying companies for you
and keep you posted on the major developments in them,
including when to sell a stock. Additionally, members
get exclusive access to a range of tools and data which
they can use to study any other stock. You can subscribe
to the service at www.valueresearchstocks.com.

EVERYDAY
ECONOMICS
Melodious freebies
Indians’ reluctance to pay for music is not only unfair
to its creators but also harmful to the economy
PUJA MEHRA
Have you heard that kitsch Punjabi zero price. The researchers led by my colleague Mansi
song ‘Kaala Chashma’ that is going viral from Spain to Kedia report that of every hundred hours Indians
Africa? Who do you think should ideally get royalties spend on listening to music, they spend 22 listening to
for it: the Punjab Police cop who wrote it; Bollywood music on YouTube, as more and more have low-cost
star Katrina Kaif, who danced to it, mainstreaming it; smartphones and access to ultra-cheap data plans.
or the Pakistani dance troupe that popularised it While this is excellent for music listeners and the
through its YouTube channel? formal segment of the music industry – just look at the
More importantly, have you thought of paying for zooming stock price of the company Saregama – the
listening to it? researchers find that the informal segment hasn’t
A team of researchers (colleagues of mine at the gained as much. Brass bands, local DJs, sound
think tank, ICRIER) have studied India’s music habits engineers, independent performers or live bands,
and markets (https://bit.ly/3LynsRa). music teachers, folk musicians,
An average Indian listens to 21.9 hours of We are probably instrument manufacturers and
music in a week as against the global craftsmen, and helpers, etc.,
average of 18.4 hours. Music is a big part
freeloaders until it’s could not leverage digitalisation
of our quotidian lives. Most of us who embarrassing to be so. to protect or grow their meagre
grew up in the Doordarshan era, or Our musicians are losing incomes. This was visible
before that the All India Radio or BBC out as a result. especially during the COVID-19
era, associate ‘khabrein’ or news with pandemic and lockdowns that
the signature tunes of these broadcasters. Younger dealt a blow to live performances, weddings, religious
people too probably have some other contemporary and social processions, production of films and music
music motifs in their everyday lives. People trained or videos, etc. Independent performances and non-film
untrained in music play instruments and sing in music as well as alternate forms of monetisation where
temples, gurudwaras, churches and dargahs. Same in live concerts shifted online and music streaming
weddings and other cultural celebrations and increased manifold resulted in gains for them, but
gatherings. In planes, cabs, restaurants or elevators, traditional musicians that depend exclusively on
there’s music, including pipe music, everywhere. performances at public gatherings lost out.
A change these days is that music is streamed The report provides the first estimate of the size of
digitally more often than performed and is no longer the informal music industry in India. Using surveys
played on owned discs, cassettes or CDs. Technology and other techniques and sources of information such
has lowered the costs at every level of the value chain as industry associations’ data intelligence for city-
of music production, including recording, mixing, wise numbers, the researchers estimate that the
publishing and distribution, thus, drastically reducing informal music industry is a source of livelihood for
the costs of consumption, while increasing the options almost 14 million people. A large proportion of them
to pick from. YouTube has brought nearly every piece earn less than `50,000 per month, and nearly half earn
of music ever created within our reach, and at near- less than `25,000 per month. The average monthly

EVERYDAY
ECONOMICS
income for sound engineers ranges from `16,000 to culture of exploitation of creators of music are great
`41,000. Less than 5 per cent of the respondents paid spoilers and depress the value created by the industry
income tax. Is this truly reflective of how much and the earnings of artists. The Copyright Amendment
Indians value music? Act of 2012 set the record straight on royalty owed to
We complain that we get very little (governance and the authors as well as the separation of access to
public service) for the taxes we pay but as consumers, literary and musical works and sound recordings for
we dislike paying for stuff like music, isn’t it? If we broadcasting organisations. However, many commercial
hear someone play the flute in CP, Delhi, we drop coins users continue to lift copyright-protected music without
or nothing at all. But at subway train stations in NYC paying for it despite there being a series of court cases,
or London, we happily leave $20 for musicians such as those seeking that restaurants, pubs, hotels,
performing live. It’s probably not that we don’t value etc., be disallowed from playing popular songs without
music. We are probably freeloaders until it’s obtaining a copyright licence.
embarrassing to be so. Our musicians are losing out as The Intellectual Property Appellate Board (IPAB) has
a result. And the economy’s size or GDP is seeming upheld the right to claim royalties from FM radio
smaller than it can actually be. stations. Besides stricter
In countries like the US enforcement, strengthening the law
What should be done? and the UK, even also ought to be a policy priority.
The report recommends building
religious institutions like The exemptions for educational
quality infrastructure for hosting institutions, resident bodies, non-
live performances and gigs and
churches pay royalty to profit clubs, religious institutions
blockbuster events such as concerts. local copyright societies and bona fide religious ceremonies,
Reluctance to let sports stadiums for music performances including weddings, must be phased
and other existing public out. India is one of the few countries
infrastructure host music events has been reported in that allows music to be performed at weddings and
the surveys. The cost of hosting a live event has educational institutions without any copyright licence.
escalated with infrastructure in short supply, as putting In countries like the US and the UK, even religious
up temporary structures is expensive. The live market institutions like churches pay royalty to local copyright
is not mature enough for shows to turn in profits solely societies for music performances.
from the sale of tickets. In fact, tickets cover less than a Legally, of course, whoever holds the copyright for
third of total costs in most performances. ‘Kaala Chashma’ will get paid to the extent the copyright
Second, single-window clearances for music and is enforced, but the fact is that the song’s going viral
related events, as well as special licences to perform in because of the peculiar dance moves choreographed by
other public venues, will help – given India’s poor troupes. In a perfect world, they would get paid for
record on red tape, etc. making people listen to it on a loop.
Finally, perhaps the most important thing is to do is
Puja Mehra is a Delhi-based journalist and the author of ‘The Lost
to improve the poor enforcement of IPR laws. The non- Decade (2008-18): How the India Growth Story Devolved into Growth
payment of royalty for consumption of music and the Without a Story’

MAIN STREET
An unusual indicator
Whilst investors tend to focus on economic metrics, such as GDP growth, to
measure a country’s progress, an equally effective way to assess
the rise of a nation is its success in sports
SAURABH MUKHERJEA
“A wind of change -- which started to India returned from Birmingham with 61 medals.
blow at the turn of the 21st century -- swept across most Interestingly, research on a country’s sporting
sports disciplines. Most categories, like boxing, success and economic development suggests that the
wrestling, archery, hockey etc. have given us former is an indicator of the latter. Research conducted
international stars.” (Source: Business Standard, by Den Butter and Van der Tak of the University of
https://bit.ly/3Lifv2p) Amsterdam showed that the number of medals won at
“Before even I started (playing badminton) it was the Olympics had a strong correlation with not only the
more like ‘Girls shouldn’t come out and play sport -- income of the country in GDP terms but also general
you need to stay at home.’ But in a few years back it has welfare indicators like the Human Development Index
changed [...] It’s no more that the girl should stay at (HDI) or the Quality of Life (QOL) index (source:
home…No one should think that men are strong, and ‘Olympic medals as an indicator of social welfare’,
women have nothing. Nobody should think that [...] Social Indicators Research 35, 27–37 (1995), Frank A G
Women are strong enough to do whatever they want.” Den Butter & Casper M van der Tak).
– P V Sindhu (source: CNN, https://cnn.it/3DnjlFL) Given that most Indians tend to live in a perpetual
state of angst regarding the softer factors which drive
A steady arc of improvement
India’s performance at the latest edition of the `LHY*(.9PULK\JH[PVUMVVKHUK
Commonwealth Games in Birmingham is a testimony
to the fact that the country’s performance in highly
OLHS[OTL[YPJZ
demanding sporting disciplines (beyond cricket) has Average daily Mortality at birth
improved steadily over the past 20 years. From earning Secondary school Kcal per (per 1000 live
less than 25 medals in the Commonwealth Games back enrolment growth person growth births) (de) growth
Countries (2009–2019, %) (2008–2018, %) (2010–2020, %)
in 1998, the medals tally for the country has consistently
stayed above the 60-medal mark in the last two decades. India 2.2 0.4 -5.0
In fact, had the organisers in Birmingham not removed United States 0.5 0.2 -1.4
shooting-related disciplines from the games, it is likely
China – 0.7 -7.9
that India’s medals tally in Birmingham would have
represented its best haul in such games. As it happened, Japan – -0.1 -2.8
South Korea 0.0 0.7 -2.9
The number of medals won at the Source: Marcellus Investment Managers, World Bank, Our World in Data by Max Hoser
Olympics had a strong correlation and Hannah Ritchie. Note: Average kcal or kilocalories data is the average kcal available
per person and not necessarily consumed; for all the metrics, 10-year CAGRs have been
with not only the income of the calculated; total secondary school enrolment growth data not available for China post 2010
and that for Japan not available after 1999. As a result, their CAGRs haven’t been
country in GDP terms but also calculated; for secondary school enrolment, only India had data for 2020, so for
comparability the CAGRs for all countries for secondary education in the table calculated
general welfare indicators from the 2009–2019 period.

MAIN STREET
human development, how can we reconcile India’s development on all three parameters of relevance
improving fortunes in sport with the pre-existing view when it comes to social indicators has been remarkable,
of pessimism about the country like lack of employment, especially in terms of the infant mortality rate, where
elevated levels of pollution and so on? the reduction has been the second only to China’s in the
There seem to be broadly three driving forces behind last 10 years. Improvement in these indicators, however,
India’s improving performance in sports – social takes time to turn into palpable economic development.
development, economic development and better access As is evident, the achievements of the last 10 years are
to information. now starting to bear fruit – and India’s performance in
sporting events is just one impact of this change,
Social development: The holy trinity of food, health, among many.
and education Research has shown that a country’s wealth has a
As table ‘10-year CAGR in education…’ suggests, India’s large bearing on performance in sports and especially,
in Olympics. A study done by Andrew Bernard and
Meghan Busse of Dartmouth and UC Berkeley,
.YV^[OPUWLYJHWP[H.+7 respectively, showed that a large population and higher
per capita income both played a significant role in
India United States China Japan South Korea generating higher medal tallies for countries in the
6.2 In % Olympics (source: ‘Who Wins the Olympic Games:
5.6 Economic Resources and Medal Totals, The Review of
4.3 Economics and Statistics 2004, 86 (1): 413–417, Andrew B
Bernard, Meghan R Busse).
2.7 Pursuant to this line of logic, if we look at the
2.1 2.2
1.4 1.4
0.7
As people increasingly use the
0 internet and have access to more
5Y CAGR 10Y CAGR information, the information on
Source: Marcellus Investment Managers, World Bank; the underlying data is in constant at
2015 USD terms; the latest datapoint available was for 2021, and therefore for all the
opportunities in the economy (and
CAGRs computed, the end point is considered 2021 sports) will increase too

MAIN STREET
:THY[WOVULWLUL[YH[PVUYH[LHUKPU[LYUL[\ZHNLVMPUKP]PK\HSZPU0UKPH
60 50
Smartphone-penetration rate in India (%)
45
50
40
(as a % of population) in India

Individuals using the internet
40 35
30
30 25
20
20 15
10 10
5
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Marcellus Investment Managers, Statista, World Bank; the numbers for 2021 onwards are estimates and therefore not included in the chart; the estimated 2022 rate is 66.21 per cent;
internet users are individuals who have used the internet from any location in the last three months.
growth in per-capita income for India India’s improving sport. Ditto for lawn bowls in the latest
and other countries like China, Japan, edition of the Commonwealth Games
South Korea, and the USA, it is evident
fortunes in a range where India returned home with a gold
that India’s growth has been respectable of demanding medal and a silver medal.
over the past decade (China has had the sports suggest
highest growth in per-capita income). that the underlying Implications for investors
See chart ‘Growth in per-capita GDP’. In There tends to be a lot of breast-beating
fact, India’s increase in per-capita
social factors in India about how badly the country
income in the last 10–20 years has been driving fares on softer factors underpinning
stable around the 4–5 per cent per annum development are economic development. Whilst India
mark. By a country mile, the last 20 showing a steady can do better on every one of these
years have been India’s best period ever fronts, the country’s improving fortunes
in terms of per-capita income growth. It
improvement in a range of demanding sports suggest
makes sense therefore that the that the underlying social factors
generation which grew up in the last 20 years is now driving development are actually showing a steady
making its presence felt in global games. improvement over time. This gradual strengthening of
The digital transformation that the country has the country on economic, social, and connectivity
witnessed, especially in terms of technology and parameters over the last 10–20 years has now started
digitisation (e.g., the coming together of the JAM or showing results. The recent success in the
Jan Dhan, Aadhaar, and mobile network), has helped Commonwealth Games is just a manifestation of the
integrate India’s vast but dispersed economy. This is broader winds of change sweeping across this vast
evident from chart ‘Smartphone-penetration rate…’, land. For those who are interested in more conventional
where in the last five-six years, the pace of technology analyses of India’s rise, we refer you to our 25th June
adoption in the country has risen astronomically. 2022 note, ‘India’s moment after a decade of structural
As people increasingly use the internet and have reforms’ (https://bit.ly/3LkcNJR):
access to more information, the information on “After a decade of pathbreaking structural reforms,
opportunities in the economy (and sports) will increase India is going through a similar phase. Massive
too. This democratisation of access to information – on improvements in transport & communication networks,
the range of sports available for one to participate in, in the banking system, in the tax regime and in the way
the training facilities available, the coaching and social security benefits are dispensed have allowed
nutrition techniques available – has played a critical enterprising companies to capitalize on these changes
role in sportspeople from the hinterland outperforming and create mouth-wateringly valuable franchises.”
the entrenched urban elites. For example, fencing as a Saurabh Mukherjea is part of the Investments team at Marcellus
Investment Managers (www.marcellus.in). He is the author of
sport may not be well known in India. However, in the
‘Diamonds in the Dust: Consistent Compounding for
last edition of the Olympics, India competed in the Extraordinary Wealth Creation’.

STRAIGHT TALK
The market outlook now

In the face of high inflation and rising interest rates, the Indian markets
have done well. What should you expect now?
ANAND TANDON
Year to date, the Indian equity markets

have shown amazing resilience in the face of significant 4:*00UKPH]Z4:*0(*(ZPHL_1HWHU
and persistent headwinds. In the past, geopolitical
110 MSCI India MSCI Asia
instability, high energy costs, equity selling by foreign 105
investors and rising inflation are all factors that have 100
adversely affected performance. Not so this year. Since 95
December 2021, MSCI India has outperformed MSCI 90
Asia ex Japan handily [see chart ‘MSCI India vs MSCI 85
AC Asia ex Japan’], even though MSCI India has fallen 80
in absolute terms – largely on account of the weakening 75
of the currency against the US dollar. Dec-21 Feb-22 Apr-22 Jun-22 Sep-22
Across a wider set of countries as well, Indian market In USD, rebased to 100. Source: www.msci.com
performance has been amongst the ‘least bad’ (see chart
‘India vs other markets’). In a world starved of growth,
the Indian economy’s potentially robust outlook offers 0UKPH]ZV[OLYTHYRL[Z
an island of growth for investors. But will that be
enough for the markets to offer positive returns? Korea -35.5
China -34.3
India isn’t uncorrelated with the world Japan -27.0
A narrative that has been gaining ground is that
Indian markets have ‘de-linked’ from global markets Europe -21.9
and that explains the outperformance. Reasons offered Russia -13.6
for the de-linking range from increased participation -10.6
UK
of retail investors that have continued to repose faith
in the markets, even as FII flows turned negative for South Africa -10.3
many months of 2022, to the increased allocation to US -8.8
equity permitted to pension funds. In reality, there is Thailand -8.3
no de-linking. The graph ‘Correlation of Indian
Mexico -8.3
markets’ shows that the one-year correlation has
increased over the past few months and is about the India -4.7
highest it has been since foreign investors were Brazil 0.1
allowed into India. This isn’t good news, especially 1Y performance
Indonesia (in USD terms) 13.9
since the economic outlook for the developed world is
rather bleak, with high inflation and tight labour Source: Bloomberg, IIFL Research. Note: Based on benchmark indices of respective
markets in the US and Europe looking at an countries; prices as on the close of 12-Sep-22
approaching winter with low gas availability.

STRAIGHT TALK
Earnings downgrades begin

Bottom-up earnings estimates are bullish, given the *VYYLSH[PVUVM0UKPHUTHYRL[Z
strong growth in earnings witnessed over the past few 100% 52-week corelation of returns of MSCI India with
quarters. However, persistent double-digit inflation MSCI EM MSCI ACWI
80
witnessed in producer prices has constrained margin
60
expansion in several industries (see chart ‘WPI vs CPI
in India’). 40
Most sectors have attempted to raise output prices but 20
at a lower rate than input price rises to allow absorption 0
by the market. There remains unabsorbed upward -20
pressure on consumer prices even if producer prices 1994 1998 2002 2006 2010 2014 2018 2022
moderate. Recent data shows softening of producer
EM = Emerging Markets; ACWI = All Country World Index
prices, and this has led to exuberance amongst investors
looking for a reason to buy. It would be prudent to wait
for a definitive and sustained fall in prices before >70]Z*70PU0UKPH
assuming that the inflation genie has been put back into 20% WPI CPI
the bottle. Already, central banks around the world have 15 Ex-food
been caught flat-footed in trying to control inflation
10
without an adequate increase in policy rates – leaving
5
them to play catch-up with heavy-handed policy-rate
increases to regain credibility. RBI too has had to 0
become more hawkish, though it remains reluctant to -5
increase policy rates enough to get into the positive-real- -10
interest-rate territory, despite inflation remaining well 1996 2000 2004 2008 2012 2016 2022
above its mandate for far longer than it should. Source: Bloomberg, RBI, CSO, CEIC, Morgan Stanley Research.
Macro headwinds are slowly working their way into
earnings estimates that have finally begun to be taken
down a notch. It is likely that this trend will continue ):,,7:LZ[PTH[LMVY-@
for some more time as growth assumptions moderate 390 FY23 BSE 200 EPS Estimate (7 dma)
(see chart ‘BSE 200 EPS estimate for FY23’). 380
370
Valuations offer little upside ~8
%
360 do
wn
Despite optimistic growth assumptions, market ear
in a y gra
350 grade d ef
valuations for leading indices are not cheap. On the ~8% up rom
forward P/E basis, the Nifty trades at more than one 340 pe
ak
standard deviation from its own historic valuation (see 330
chart ‘Large-cap valuations’). May-21 Sep-21 Jan-21 May-22 Sep-22
Importantly, in an increasing interest-rate scenario, Source: Bloomberg, IIFL Research
where a P/E expansion is not expected, this would also
mean that the actual overvaluation may be higher than
computed using historic earnings estimates. One often 3HYNLJHW]HS\H[PVUZ
hears an argument that opportunities are to be found in (x)
25 Nifty fwd P/E Average +/- 1SD +/- 2SD
non-index companies. While it is always possible
(especially in hindsight) to find a bunch of 25 companies 20
that have outperformed the index over any defined
period, the challenge is to find those companies in 15
advance. A structured approach to investing usually
10
requires a universe to search within. Using broad-
based indices is usually a workable approach. 5
Unfortunately, in the present scenario, mid-cap Jan-06 Mar-10 May-14 Jul-18 Sep-22
valuations too show elevated levels compared to Source: Bloomberg, IIFL Research
frontline companies – making the search for

STRAIGHT TALK
Most sectors are trading above their

4PKJHW]HS\H[PVUZ
(20 dma)
historic valuation range. Energy and
1.0 NSE MidCap trailing P/B relative to Nifty Average metals appear cheap only because of
0.9
elevated cyclical earnings.
0.8 outperformance even more difficult (see chart ‘Mid-
cap valuations’).
0.6 A comparison between equity and bond yields
reveals a market that is stretched. Only twice since
0.5
2000 has the equity-to-bond-yield ratio been at the
Jan-06 Sep-09 May-13 Feb-17 Sep-22
level that the market currently trades at, and both
Source: Bloomberg, IIFL Research
times the market corrected meaningfully. The timing
of the corrections would have been difficult to
,X\P[`]ZIVUKT\S[PWSL determine (in 2007, once 1.4x was breached, it took a
2.6 Equity multiple (using 12M fwd P/E) over bond few months before the market crashed), but the fact
Feb-00 multiple using 10-year bond yields) that markets were treading dangerous territory was
2.2
undeniable. We seem to be headed in a similar situation
1.8 Jan-08
(see chart ‘Equity vs bond multiple’).
1.4 Oct-10 Jun-14 Sep-18
1.0
Nov-16
Most sectors offer unattractive entry points
Jun-13 Mar-20
0.6 Most sectors are trading above their historic valuation
0.2 Mar-03 Dec-08 range. Exceptions like energy and metals appear
1996 2000 2004 2008 2012 2016 2022 cheap only because of elevated cyclical earnings. The
Source: RIMES, MSCI, BSE, Bloomberg, Morgan Stanley Research.
market expects that these earnings will revert to mean
soon and is not willing to pay for higher short-term
earnings. This is consistent with the assumption that
):,PUKPJLZ!TVU[OMVY^HYK7,Z inflation has peaked. All other sectors don’t offer
70 12m fwd P/E of BSE sector indices great opportunities (see chart ‘BSE indices: 12-month
60 forward P/Es’).
50
40
Banks are an exception, especially corporate-facing
30 banks. Credit growth has finally reached double digits,
20 bank balance sheets are relatively strong with non-
10 performing assets under control. Valuations remain
0
Oil & Metals Bank Nifty IT Auto Power Health- Capital FMCG Real Cons. relatively subdued. These offer a tactical buying
Gas care Goods Estate Durables opportunity, especially for state-owned banks. However,
Source: Bloomberg, IIFL Research. Legends: Orange dot = current P/E; top of black
vertical line = max; bottom of black vertical line = min; top line of the box = 1st/2nd a strong liability franchise will soon be required as
quartile border; middle line of the box = median; bottom line of the box = 3rd/4th deposit growth will need to be pumped up to match
quartile border. Data from Jan 2006.
credit growth and this will favour private-sector banks
(see chart ‘Industrial credit’).
0UK\Z[YPHSJYLKP[ Other sectors that may be preferred are those that
12 Industry credit YoY% 3mma, YoY % offer ‘affordable luxury’ to an upwardly mobile middle
10 class that has disposable income and possible wage
8
growth on account of increased industrial output.
6
4 Rural India will likely perform poorly, given the
2 disparities in rainfall witnessed in the current year,
0 and urban India may face stress at the gig-economy
-2
level as venture and growth funding for companies
-4
-6 with long paths to profitability dry up. Debt may offer
Jan-17 Jun-18 Oct-19 Mar-21 Jul-22 better opportunities than equity in the near term.
Source: CEIC, RBI, IIFL Research Anand Tandon is an independent analyst.

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STOCK
SCREEN
Value and dividend stocks

Stocks available at a deep discount to their book value and those that have
paid high dividends consistently
A
stock screen filters out companies based on you a margin of safety. However, that might not be
certain criteria. Its main advantage is that it true. Therefore, we have applied additional filters to
helps you generate stock ideas with just a few weed out poor companies.
clicks. Once you have the list of ‘deserving’ /PNOKP]PKLUK`PLSK! The screen spills out companies
stocks, you can research them further to find the ones that consistently pay out dividends and are available
worth investing in. at a reasonable dividend yield. This is useful for
The Value Research website provides you many investors looking for a steady income stream.
ready-made stock screens. Here we will be covering However, bear in mind that a company’s ability to
two such screens: ‘discount to book value’ and ‘high continue paying dividends is dependent on its future
dividend yield’. We have also given a concise stock earning power. So, don’t forget to assess that.
list from the other screens. To get the full list in real
time, visit https://www.valueresearchonline.com/ (^VYKVMJH\[PVU
stocks/selector/. Note that mere inclusion in a stock screen does not
mean that a stock is investment-worthy. Consider the
>OH[KV[OLZLZJYLLUZVMMLY& output of stock screens as the starting point for your
This month we have got two stock screens for you. research. You must apply your own analysis to select
The first one can help you profit from companies at companies.
a deep discount and the second one is for those However, if you are interested in a list of stocks to
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value investor’s dream. The usual belief is that Advisor. You can access the details by visiting: www.
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STOCK
SCREEN
Discount to book value

Stocks available at a discount to their book value indicate bargain and
inherent value, provided the business fundamentals are sound
No. of companies that
cleared the filters
REASONS TO INVEST THE FILTERS
1,237
Really cheap Market cap greater than Companies must have a five-year
Relatively undervalued `500 cr earnings growth of more than 1,063
Companies with assets Debt-equity ratio of less than 1.5 10%
Price-to-book should be between 712
times
Return on net worth of more than 0.01 and 1
440
10% in the most recent year
20
Bargain hunt
Company Stock 5Y EPS Dividend Debt-equity Market cap Share 52-week
Industry style P/E P/B growth (%) yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Century Enka
Synthetic Yarn
5.4 0.8 20 2.2 0.0 15.7 987 451 675-363
CESC
Electricity Generation
7.7 1.0 14 5.6 1.4 13.9 10,618 80 102-68
Elpro International
Electrical Machinery 1.1 1.0 176 0.0 0.0 151.3 1,187 70 86-53
GAIL (India)
Natural Gas Utilities 4.4 0.9 30 7.5 0.1 18.0 58,551 89 116-83
Garware Hi-Tech Films

Plastic Films 9.4 0.9 49 1.4 0.1 10.2 1,661 713 998-583
Indian Metals & Ferro Alloys

Ferro Alloys 2.6 0.8 15 4.8 0.3 34.3 1,414 262 514-230
Jindal Poly Films

Packaging & Containers 3.2 1.0 59 0.5 0.3 36.9 4,077 929 1449-880
Kirloskar Industries
Castings & Forgings 10.0 0.7 21 0.6 0.5 15.7 1,699 1,744 1815-1201
Nahar Polyfilms
Packaging & Containers 8.4 0.9 39 0.7 0.2 11.9 875 356 601-211
Nahar Spinning Mills

Cotton & Blended Yarn 2.6 0.7 113 1.0 0.6 40.2 1,209 335 692-273
Nava Bharat Ventures

Diversified 3.9 0.6 67 2.9 0.7 12.1 2,999 204 279-102

STOCK
SCREEN
Company Stock 5Y EPS Dividend Debt-equity Market cap Share 52-week
Industry style P/E P/B growth (%) yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Oil India
Oil & Gas Exploration
2.7 0.6 31 7.7 0.5 24.4 20,094 185 306-170
ONGC
Oil & Gas Exploration
3.2 0.6 14 3.0 0.4 19.9 1,64,361 131 195-120
Rain Industries
Misc.Chem. 5.5 0.8 21 0.6 1.4 11.9 5,980 178 260-129
RSWM
Cotton & Blended Yarn 3.0 0.8 19 6.9 1.1 26.3 848 358 574-287
Shipping Corp Of India

Shipping 6.7 0.6 37 0.3 0.3 10.0 5,499 118 160-86
Shree Global Tradefin

Trading 4.6 0.9 156 3.7 0.0 29.5 691 5 10-2
Steel Authority Of India

Finished Steel 3.6 0.6 45 10.9 0.3 24.6 33,086 80 132-64
Sunflag Iron & Steel Co

Finished Steel 1.5 0.7 27 0.0 0.4 16.7 1,599 89 137-57
Uflex
Packaging & Containers 4.6 0.8 28 0.4 0.7 18.0 5,512 764 811-432
Data as of September 21, 2022
High dividend yield

Good dividends are not just a bonus in addition to stock returns but they
also accumulate to become sizeable in the long run
No. of companies that
cleared the filters
REASONS TO INVEST THE FILTERS
Cushion against volatility Market cap greater than Stocks with a current dividend 1,237
Higher total return `500 cr yield of more than 3%
1,048
Generate regular tax-free Dividend payout ratio of less Stocks with sustained per
income than 40% share dividend and amount 32
over the past five years
10
Dear dividend
Company Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Industry style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
GIC Housing Finance

Housing Finance 3.5 1.07 4.5 3.3 14.0 9.3 737 135 172-108

STOCK
SCREEN
Company Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Industry style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
Gloster
Jute Prod.
10.0 0.30 35.0 3.1 29.3 25.4 620 1,135 1350-850
Hinduja Global Solutions
Misc. Other Services
0.9 0.01 245.0 17.8 16.8 25.4 5,753 1,373 1974-846
Indian Railway Fin Corp

DFIs
4.5 0.18 1.4 6.5 30.0 5.1 28,097 22 26-19
Kalyani Steels
Finished Steel
7.4 0.98 10.0 3.0 17.9 40.2 1,447 333 418-263
MOIL
Minerals
7.8 2.42 6.0 3.7 32.4 29.4 3,270 160 199-137
Morganite Crucible India

Refractories
15.1 0.60 0.0 4.9 0.0 13.7 621 1,134 1220-835
Power Finance Corporation

SIDCs/SFCs
2.1 0.04 12.0 10.6 22.6 9.9 29,754 113 154-97
Rail Vikas Nigam

Infrastructure
5.8 0.28 1.8 5.2 32.3 33.5 7,287 35 45-29
REC
SIDCs/SFCs
2.7 0.27 15.3 11.1 30.1 9.7 27,122 103 127-82
Data as on September 21, 2022
2L`[LYTZ
<UP]LYZLJVTWHUPLZ! Should have traded on all the days for the last the company has been able to utilise investors’ money.
two quarters and should have a market capitalisation of more than Rs +LI[[VLX\P[`YH[PV+,! Calculated as the ratio of total
600 crore, the lower cut-off for small-cap stocks as per the Value outstanding borrowings of the company to its total equity capital. Tells
Research criteria. us which companies use excessive leverage to achieve growth.
4JHW! Stands for market capitalisation. Obtained by multiplying the Conventionally, the debt-to-equity ratio of less than two is considered
stock price by the total number of shares. Shows a company’s market safe.
value or size. +P]PKLUK`PLSK! Defined as the percentage of the dividend paid per
7YPJL[VIVVR]HS\L7)!The ratio of the price of a stock to the share to the current market price of the stock. Since the
book value per share of the company. It shows how much premium denominator in this ratio is the market price, a stock’s dividend yield
investors are willing to pay for the underlying net assets of the changes every day.
company. +P]PKLUKWH`V\[YH[PV! The total dividend paid to shareholders as a
@,7:NYV^[O!The five-year annualised growth rate for EPS percentage of net profit.
:[VJR:[`SL! Derived from a combination of the Growth Value
7YPJLLHYUPUNZ[VNYV^[O7,.! Ratio of price to earnings to the
EPS growth of a stock. Demonstrates how high a price we are paying stock’s valuation – growth or value – and its Large
for the growth that we are purchasing. In all our analyses, we have market capitalisation – large, mid and small. For
Mid
taken five-year historic EPS growth. example, on the right, we have shown the stock
style of a large-cap growth stock. Small
9L[\YUVULX\P[`96,! Measured by taking profit after tax as a
percentage of the net worth of the company. Indicates how efficiently

STOCK
SCREEN
Want more? Here you go

Other screens available on the Value Research website, along with their
themes and some of their stocks
([[YHJ[P]LIS\L 1. Deepak Nitrite 6. Aarti Industries

JOPWZ 2. Coromandel International 7. Coforge
3. Sanofi India 8. Divi’s Laboratories
Gives you large caps with strong fundamentals 4. Emami
and solid growth that are trading at a 5. KPR Mills
reasonable valuation
9LHZVUHIS`WYPJLK 1. DCW 6. Allied Digital Services

NYV^[OZ[VJRZ 2. Elpro International 7. NCC
3. CSB Bank 8. WPIL
Combines growth and value investing and 4. Shree Global Tradefin 9. Nava Bharat Ventures
spills out companies with high earnings growth 5. Ramkrishna Forgings 10. HEG
trading at a cheap valuation
8\HSP[`Z[VJRZ 1. Saint-Gobain Sekurit India 6. Intellect Design Arena

H]HPSHISLJOLHW 2. Transport Corporation of India 7. Greenpanel Industries
3. Suven Pharmaceuticals 8. TV Today Network
Companies that clear our essential checks on 4. Supreme Petrochem 9. RPG Life Sciences
solvency, accounting, recent financial 5. AVT Natural Products 10. Everest Kanto Cylinder
performance and valuation
:THSSJHWNYV^[O 1. EKI Energy Services 6. Kama Holdings

JVTWHUPLZ 2. Gujarat Themis Biosyn 7. Share India Securities
3. Jyoti Resins & Adhesives 8. Shri Jagdamba Polymers
Wades through the small-cap maze and gives 4. Tips Industries 9. Apollo Tricoat Tubes
out fundamentally strong small caps that are
5. Dolat Algotech 10. Godawari Power & Ispat
available at a reasonable valuation
=HS\L.\Y\ 1. Cigniti Technologies 6. Gujarat State Petronet

ZJYLLUZ 2. Bhansali Engineering Polymers 7. Tamilnad Mercantile Bank
A set of five screens, these give you lists of 3. Sandur Manganese & Iron Ores 8. Steel Strips Wheels
companies based on the criteria of legendary 4. Coal India 9. Indian Metals & Ferro Alloys
investors, viz., Benjamin Graham, Joel Greenblatt, 5. Indus Towers 10. IST
John Neff , Peter Lynch and Walter Schloss.
For the complete lists of stocks in real

time and for customisable screens, visit
www.valueresearchonline.com/stocks/selector

WORDS WORTH
NOW
While India is the second-largest

Global growth is slowing sharply, with producer of cement in thee world,
further slowing likely as more countries our per capita consumption
on is
fall into recession. My deep concern is that just 250 kilos compared to
these trends will persist, with long-lasting China’s 1600 kilos. This is
consequences that are devastating for people almost a sevenfold headroom
oom
in emerging market and developing economies. for growth.
David Malpass Group President, World Bank, Gautam Adani Chairman,
Financial Express, September 17, 2022 Adani Group, Business
Standard, September 20, 2022
A policy isn’t an end in

itself. It’s a beginning.
Policy plus performance
is equal to progress. Once
the policy is in place,
the responsibility of the
government and industry
goes up. I hope goods The government is strongly
will move with the speed encouraging solar and wind
of a cheetah (due to the energy-based charging
mechanisms for electric
efficient implementation of mobility. We are also
the logistics policy). working on developing
Narendra Modi Prime Minister, electric highways, which
Financial Express, September 18, 2022 will be powered by solar
energy and this will
facilitate charging of heavy
I would equally want to know
now duty trucks and buses
from the Indian industry while running.
why it is hesitant to invest.t. Nitin Gadkari, Road transport
Is it like Hanuman? You and highways minister, Mint,
don’t believe in your own September 13, 2022
capacity…And there’s gott
to be someone standing
next to you and say you arere
Hanuman, do it?
Nirmala Sitharaman
Finance Minister,
Business Standard,
September 14, 2022

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Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

HDFC Flexi Cap Fund (Erstwhile HDFC Equity Fund) RISKOMETER#

Inception Date: August 16, 2004

• Long Term Wealth Creation

that their principal will

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

4 Wealth Insight October 2022

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

An unusual indicator  MARKET COMPASS

 Not the real earnings

October 2022 Wealth Insight 5

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

The double-edged sword

October 2022 Wealth Insight 7

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

Lost lots of money in this fall?

The weird thing about bear phases is that people become

Most people enter mkts thinking it’s a straight road 2 riches

8 Wealth Insight October 2022

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

Indian markets stay resilient

Adani Enterprises enters the Nifty 50

10 Wealth Insight October 2022

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

Takeover threat to McLeod Russel

October 2022 Wealth Insight 11

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

YES Bank scores a 6

victory with the exit 5

Cyrus Mistry passes September 2020 September 2022

away in an accident *Y\KLVPS

12 Wealth Insight October 2022

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

14 Wealth Insight October 2022

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

April 4 and June 17 -30 -20 -10 0 10 20 30 40

positive return S&P BSE Bankex 14.3

Companies in the 6 3%6(&RQVXPHU'LVFUHWLRQDU\ 5.3

Companies in the 6 3%6()0&* 16.7

Companies in the S&P BSE Metal 0.6

Companies had a S&P BSE Teck -20.7

October 2022 Wealth Insight 15

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

Sensex rebased to ITC

    +LJ  4H` +LJ

May 12, 2006

Jan 02, 1991

16 Wealth Insight October 2022

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

5HYHQXHDQGQHWSURÀW 2SHUDWLQJSURÀWDQGPDUJLQ Dividend pay-out ratio ROE and ROCE

60000 14000 16000 34.8 100 50

45000 10500 12000 33.6 85 40

30000 7000 8000 32.4 70 30

15000 3500 4000 31.2 55 20

Revenue share: Tobacco vs

4H` Sep 15, 2022

Jul 23, 2013

October 2022 Wealth Insight 17

Subscription copy of [rupeshbetala@hotmail.com]. Redistribution prohibited.

Large caps Price to earnings Net profit (` crore)

97.9 460.1 989

83.0 448.7 689

71.0 803.8 504

61.3 26.8 2,081

An unusual indicator MARKET COMPASS

Not the real earnings

+LJ 4H` +LJ

4H` Sep 15, 2022

(TI\QH*LTLU[Z 7YPJL[VLHYUPUNZ7,