An Initiative of ABC | INVESTMENTS

The Investment Fund of ABC | INVESTMENTS

Company Name: Man Industries

Current Price: Rs. 66.3

Market Capitalisation: 377 Cr
Analyst Take: Sell
Target Price:
Date: 3rd November 2020
Pitch by: Ishita Chawla and Satvik Agarwal
Research Team: Arindam Bhatia, Arnav Gupta, Anirudh Satheesh and Dheep George
Index
Company Overview
Business Model

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Production Milestones

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Clientele
Revenue Segmentation

The revenue generated

from sale of the pipes and
their coating services is
nearly equal in numbers.
Shareholding Pattern ❖

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Management Analysis

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 Management Analysis
Designation Whole Time Directors Independent Directors Other
non-executive
directors

Names R.C. Nikhil Mr Damania Mr. Tandon Ms. Jalan Ms. Kalantri
Mansukhani Mansukhani (Daughter of
RC)

Salaries 7,10,40,000 2,30,40,000 2,50,000 2,50,000 2,40,000 2,10,000

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Managerial Ratios

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Assessing the Quality of Management and The Board of Directors (9/18)

1) How experienced are the managers? 1

2) Have the managers stuck to their targets? 0

3) Is the management capable (refer to managerial efficiency ratios)? 0

4) Is the management transparent? 0

5) Does the business require exceptional management for it's basic operation? 1

6) Are the Promoters a part of the business' managements? 1

7) What are the business' ESOPs like? 0

8) Is the CEOs salary in line with the median salary of the position in said industry? 0

9) Is the CEOs growth in salary, in line to that of the business' Earnings Growth? 0

10) Does Management have an exemplary statistical track record under them? 1

11) Is the Management Honest? (look at disclosures and contingent liabilities in the AR) 1

12) The current management has no prior history of financial fraud/tax evasion? 1

13) Are the management's views in line with minority shareholders? 0

14) Does Management use Share Buybacks opportunistically? 1

15) The board of Directors consists of individuals with a minor to no stake in the business 1

16) In the case of family businesses, compare no. of family members as % of board size. Then compute family pay as a % of PBT. What is the trend like? 1

17) What other business' boards, are the companies board members part of? 0

18) Is the management qualified for the positions and roles they operate in? 0
Qualitative Analysis
 COVID Angle
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Industry Analysis and Macro Economic Trends
Demand and Supply

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Key Growth Drivers
 Porter’s 5 Forces
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 Score Total Comments
Moat Table

Moat Table
1 Monopoly- govt order, resource scarcity. 2 20 There are many companies in the sector
with competing or better manufacturing
practices.

2 Technological advantage - patents , R&D 0 20 Man Industries has no unique

product.

3 Cost - operating efficiency , economies of scale 2 10 Due to intensely fluctuating

financials and little re-investments,
efficiency cannot be reliably
determined.

4 Entry barrier - high capital investment, too many licenses, government order 8 15 Capex required is high.

5 Switching costs- high switching costs, change in consumer behaviour, investment is 8 10 Alternatives to metal pipes in the oil &
already made gas and construction industries are
almost non-existent.

6 Network effect 1 15 The metal pipes industry has

matured and has well established
use cases with a limited client base.

7 Brand - synonym with trusts 1 10 Carries little to no brand value due to

high competition.

23 100
Government Legislations
SWOT Analysis
Regulatory Red Flags

Source:
watchoutinvestors.com database
Quantitative Analysis
Revenue and Profit changes

● There has been either

low or negative revenue
growth over the past 5
years

● Apart from 2018, YoY

growth has been low
(high in 2018 due to
2017 being an
exceptionally poor year)

● Net Profit fell in 2020

Profit and Loss Statement
Profit and Loss Statement Analysis

● Although revenues have shown double digit growth (12.97% CAGR till FY
19), the cost of sales has gone up higher than the volume growth
● CAGR of Revenue till FY 20 is low (5.22%) owing to Covid
● Profit in 2020 has significantly fallen due to low sales despite only 15% tax
expense (as compared to an average of 21% over the period)
● Apart from increased cost of sales, other income has fallen significantly over
the period, which was inflating profit in the earlier years (2015-17)
● Interest and finance charges have gone up over the period due to significant
paying off of debt
Balance Sheet
Balance Sheet Analysis

● Equity (share capital) has remained constant over the period

● Reserves (other equity) has gone up 55% between 2015 and 2020
● Total debt has significantly reduced by almost 40% from 2015-20
● Capital employed has increased over the period by 12% which explains the
lower profitability in the past 2-3 years
● Loans have been steadily declining post 2017
● Working capital has decreased annually due to ---
● Investments have remained relatively constant while inventories have shot up
during the period
Balance Sheet Analysis ( 14 /23)

1) The business never uses short term sources of funds to finance long term uses of said funds (1pt) 1

2) Increase in PP&E is line with management's plans for expansion (if any) (1pt) 0

3) Inventories are not piling up (increasing at a rate faster than sales) (1pt) 0

4) The business is not undercharging depreciation relative to it's peers (1pt) 1

5) After observing the trend of receivables over the past 5 years, ensure they don’t form an increasing composition of sales in 0
the business. (1pt)

6) Ensure receivables aren't increasing at a rate faster than sales (1pt) 0

7) Earnings are not propped up through aggressive use of debt via the leveraging effect (1pt) 1

8) Ascertain the Degree Of Operating Leverage, the business experiences. (1pt) 1

9) The business does not experience the phenomena of high earnings and low cash flow. (1pt) 1

10) No subsidiaries (if any) of the business holds a large proportion of bad debts. (1pt) 1

11) The business has a strong liquid position (1pt) 0

12) The business has a short working capital cycle and thus sees high inventory turns (1pt) 0

13) The businesses earnings cover interest payments by a significant margin (1pt) 0

14) The business has a low amount of long term debt and thus no threat to solvency (1pt) 1

15) The business has no prior instance in recent history of defaulting on any obligations (such as bonds) (1pt) 1
16) The business has an appreciating balance sheet (Increase in cash, Decrease in Borrowings) (1pt) 1

17) The businesses' Equity Share Capital has remained constant or increased over a period of time (5 years) (1pt) 1

18) Increased trend in Investments could signal, in conjunction to stagnant revenues could signal the stagnation of the business' 0
primary business model. (1pt)

19) The business is not using debt to finance dividend payments (1pt) 1

20) Take into consideration Off-Balance Sheet Liabilities and ascertain their impact on the business (1pt)

21) No sign of Cash balances evaporating. (1pt) 1

22) The business does not have a high amount of intangibles such as goodwill. (1pt) 1

23) There has been no extension of the useful life of assets and hence a reduced chance of deferring expenses (1pt) 1
Cash Flow Statement Analysis

● Positive cash flow barring 2017.

● Cash from financing activities
has been largely negative due
to repayment of long and short
term borrowings (reflected by
the fall in debt)
● Cash flow from investments has
been erratic due to the
purchase and sale of property
and equipment
Cash Flow Statement Analysis ( 4 /5)

1) The business has had consistently increasing Cash Flow from Operations over the past `5 years (1pt) 1

2) The business has had a an increasing trend of FCFs for the past 5 years (1pt) 1

3) The business' CFOs are positive, indicating a functional business model. (1pt) 1

4) The analyst has successfully been able to ascertain where and why the dips in cash flow took place (1pt) 0

5) The business has adequate free cash flow to finance a share buyback (1pt) 1
Ratio Analysis
Ratio Analysis

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Ratio Analysis ( 9/22)

1) The business has enjoyed stability and increase in it's OPM % over the past 5 years (1pt) 0

2) The business has witnessed stability and increase in it's NPM % (1pt) 0

3) The business has a sufficiently high ROCE% and ROE % as per the classification the business falls under 0

4) ROE % and ROCE % are greater than Cost of Equity and Cost of Capital respectively (1pt) 0

5) The business has witnessed a stable/increasing ROA % over the past 5 years (>5%) (1pt) 0

6) The business has seen improving Inventory turns over the past 5 years (ITR) (1pt) 0

7) The business utilises its assets efficiently (2.5 ATR or greater) (1pt) 0

8) The Debtor Days have witnessed a consistent decrease, implying the bargaining power of customers has been reducing (1pt) 1

9) The business doesn't have liquidity problems (CR ≥ 1) (1pt) 1

10) If the first condition, applies then the business should also be sufficiently liquid to meet it's short term debt obligations (QR ≥ 0
1) (1pt)

11) The business has tolerable amounts of Debt (D/E < 1) (1pt) 1

12) The business p/e ratio should be akin to what type of business the stock comes under (1pt) 1

13) The business' should be selling at a valuation at/below it's 5 year historic p/e ratio 1

14) The business' earnings growth should mirror the expansion in p/e (PEG = 1 or below) (1pt) 1
15) Historic PEG, compares investor expectation over a period of time along with Earnings growth (1pt) 1

16) The business has a tolerable P/B ratio (<3) in the case of ROE and ROCE % being below 20% (1pt) 1

17) BONUS: The business has a P/B below 1 and a ROE % > 15% (1pt) 0

18) Free Cash Flow Ratio > 40 % (1pt) 0

19) Earnings Yield % > 5.5% (1pt) 0

20) Dividend Payout Ratio % < 50% (1pt) 1

21) Dividend Yield % (in the case of slow growers) > 3.9% (1pt) 0
Is the Business a Cyclical? (8 /11)

1) Does the business' fundamentals depend heavily on Macroeconomic Factors? 1

2) Does the business' revenues fluctuate in tandem with Macroeconomic Factors? 1

3) Does the business' earnings and as a result share price fluctuate with different stages of the economic cycle? 1

4) Is there a significant inventory pile-up during economic down-turn? 1

5) Do new entrants, (if any) cause a damaging effect to the industry at large? 0

6) Over the long run, has the business' p/e witnessed constant shrinkage and expansions? 1

7) Have these expansions and contractions of p/e been in tandem with economic down-turn and its' subsequent recovery 0
respectively?

8) Is the business' product/ service a luxury? 0

9) Earnings and Cash flows should be difficult to forecast in these industries. 1

10) Supply and Demand from an industry point of view is very prominent. 1

11) The business has a high degree of operating leverage. 1

Valuation
Comparable Company Analysis

As on 24
December 2020
DCF Analysis
Investment Thesis

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