Revenue Growth & Operating Leverage:

Operating leverage is a cost accounting formula by which company manage fixed cost to enhance
operating income. Therefore, the growth in profit is larger than sales growth. If sales growth is 15-20%
then Profit growth ( margin) should be 30-35% at least. The sales growth enables company to achieve
higher economies of scale as cost of producing products spread among large amount of products.

PEG negative (BM): company is loss making company. EPS negative, Market price never be negative,
company may be turn around, today loss may be profit in the future

Negative working capital (BM): its better when company buy by borrowing and sell at cash. Payment
after 15 days, cash accumulate as business expand, more cash accumulate. Upfront cash .business
expansion and ROE become higher.

Growth company with negative cash flow: putting more air in the ballon when it is licking putting hope
that lick would stop. With negative cash flow you can go 20-40 meter but not go to 200 meter. Cash flow
negative, every incremental.

Negative operating cash always lower ROE (12%).

Mutibagger stock: 10x-20x.

Why people money stock market? What you want from it. If you come to market 20000 you loose
10000. If you come to market 10 crore. Have to think big. whats the plan to make 10 crore.

P/E Ratio:
Britannia p/e -52, expanded in the market already pan india wise.

Mrs. Bector- north India wise. Gradually increase distribution. p/e also 52. It means both are equally
expensive or cheap ???

Look at p/e in standalone manner should not reach conclusion.

Why P/e is high ?? a) high pace of growth. Maket knows company grows at high rate. Small company
expand at south, west east. They have aspiration to become pan india company. Every one think its
going to be next Britannia. That’s why p/e 52.
Why Britannia p/e -52?? Britannia growth 9% but bector growth 26%. Why Britannia p/e ? 52. Answer is
trust. Everyone knows Britannia is not going to be bankrupt. Similar to Asian paints. 50-60% market
share, top line growth 7% Q2. But p/e – 70 because of trust.

But Indigo paints expand rapidly, p/e is also 70 growth rate is 30%. A) trust b) Higher pace of growth.

Bada hati p/e is high because of TRUST. Everyone knows that money is gong to be protected invest in
nestle, HDFC bank. But you can not make significant money invest in this type of company. No scope of
change in product mix.

Trust not make you mone, high pace of growth make you money

Adventurous people invest in mrs bector but those who look peace invest in Britannia.

Titan vs kalyan-> titan p/e-80 because of trust, not big money but compound 15%. Kalyan started south.
Operating store, francise owned operating store, coco model increamental., strong expansion with
distribution. Kalyan investor think its going to be next titan or titan think I own peace and compound
healthy

Kalyan p/e- 40-50/. You play trust or growth. Probability of going down in Britannia low. Risk is
ignorance for small company. Active investor for small capital who in 20s-30s.

Low market cap with high ROE expansion , operating lev get, have brand, mgmt. hungry, doing capex.
Increasing store 40%, ethos 40% store expansion for ethos. If get operating leverage in addition then
sone pe suhaga.

Financials do not have brand. Based on asset quality , collection not require brand.

Cyclical company single digit p/e, profit negative.

p/e tends to expand or contract oever a period of time. Company that represent maximum amount of
trust more p/e. Trust does not have anything to growth. I may not be fastest growing company but have
higher p/e. might be fastest growing company but have higher p/e. p/e is a function of growth. Peter
finch peg ratio. Price earning equal to growth. But if growth is 0 p/e can not be zero. If growth is 35%
p/e normally at 70. Peg ratio does not matter. Every one want s to own 35% growth company. p/e does
not remain capped at 35 it expand to 70/80/90. There are several ways to look at p/e . several driver of
p/e ratio.

Earning or Liquidity:

Prefer liquidity because liquidity chases earning. Earning itself means stock beautiful it wont go up till
the power of liquidity. Every bull market happens on liquidty. Liquidity driven bull market.

p/l account preferred over balance sheet. p/l account define the balance sheet. Balance sheet aggregate
your past profit and losses account. Profit and loss account is your current set up. If balance sheet and
p/l account destroyed , you have to look at the company. If balance sheet bad then still company works.
Better p/l account is required.
Market share preferred over sales growth. If company grows at 20%, market grow at 25%, competitior
grow at 30%, over period of time I am smaller to the market and to the guy who grow at 30%. Even on
20% growth I am not growth. Trent grow at 30%, pantaloons retail books not good but grow at 70% over
7-8 years they are far ahead over competititor. If company grow 15% market grow at 10%, are
preferred than earlier. The company grow at 30% p/e ratio 35 cheaper, than company grow 20% with
15 p/e. it telling its investor over 5 years I will clean this guy out.

Bull run-> super optimism, hopes of limitless growth, excess liquidity, leverage. new sector in a bull
market emerge. 1998 bull run IT, 2003-2007 real estate. Each bull market has something new. Liquidity
chase growth and stock price.

P/e contracts because growth has gone, if company has no growth but positive operating cash flows,
company declare dividend, the dividend payout ratio improve, dividend yield attractive, company does
not fall , negative free cash flow and growth stop, company debt, business encounter downcylcle debt
laden company, quick and complete collapse in p/e ratio than a company that has positive free cash
flow. And price held there and time correction take place.

GDP per capital income in india 2000 dollar like USA in 70s . automatic boom for financial services.
therefore, you show to bank your income and take loan and secure your future earning and take
leverage and income, therefore financial sectors will do exceedingly well. Govt pour money, more ability
of these guys to borrow. Nbfc space boom

Portfolio Allocation

Many of us doing portfolio allocation based on cost price

ROE and profit projections:

If a business generate 20 with capital of 100 then ROE is 20%. ROE break down Dupont analysis

Profit margin, asset turnover, leverage. Which component contribute to ROE more.??

For Daawat, FY 23 profit 420 , equity= 2800 crore, ROE= 420/2800=15%.

Management project ROE to 20% going forward. Therefore, PAT will become =560 crore with same
equity base by FY 24. PAT growth will be 25%.

Equity base 2800+ 560= 3350. Next year 25% , then pat will become 672 crore.

p/e=14, profit =25%. Q1 pat=137 crore, Q3 and Q4 better than Q1.

Seasonality in this company. It would be more than 560 crore.

For varun beverage sales goes down during winter season.

Valuations
Valuations is a subjective matter. The company grow 10-20 years at high pace. Eps grow happen and p/e
reduce. Everybody has their own valuations. Dcf with fcff.

Senco gold pat total fy 23 - 170 crore, and q1 fy 24 pat 17%, top line 29%. Management guidance for
remaining 3 quarter. 15-20% grow like earlier quarter. Based on guidance, 20% of 170 = 200 crore
approx.. forward earning.

Senco market cap 4000 crore. 200 crore earning. 4000/200=20 p/e.

Company do business In realty not in excel sheet.