Safal Niveshaks Stock Analysis Excel
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Transcript of Safal Niveshaks Stock Analysis Excel
Basic Company Details (July 2015)(Enter values only in red cells) | Data Source: Ace Equity
Note: Hero Motocorp's analysis in this excel is for representation purpose only.Parameters DetailsCompany Hero MotocorpIndustry AutomobilesBusiness (As you understand it, in simple words) XYZCurrent Stock Price (Rs) 2,650 Face Value (Rs) 2 No. of Shares (Crore) 20 Market Capitalization (Rs Crore) 52,921
Key Financials (Last 10-Years)Parameters DetailsSales Growth (10-Year CAGR) 14.6%Gross Profit Growth (10-Year CAGR) 14.5%Net Profit Growth (10-Year CAGR) 11.2%Average Debt/Equity (x) 0.1 Average Return on Equity 46.9%
Safal Niveshak Value Investing Made Simple
www.safalniveshak.com
Warning! Excel can be a wonderful tool to analyze the past. But it can be a weapon of mass destruction to predict the future! So be very careful of what you are
getting into. Here, garbage in will always equal garbage out.
Remember! Focus on decisions, not outcomes. Look for
disconfirming evidence. Calculate. Pray!
Please! It's your money. Please don't blame me if results of this excel cause you to lose it all!
I've designed this excel to aid your own thinking, but you alone are responsible for your actions. I want to live peacefully ever after! :-) I am not a sadist who wants you to do the hard work by analyzing companies on your own. But I'd rather give you a compass instead of a map, for you can
confuse map with territory and lose it all! All the best!
Excel can be a wonderful tool to analyze the past. But it can be a weapon of mass destruction to predict the future! So be very careful of what you are
getting into. Here, garbage in will always equal garbage out.
Remember! Focus on decisions, not outcomes. Look for
disconfirming evidence. Calculate. Pray!
Please! It's your money. Please don't blame me if results of this excel cause you to lose it all!
I've designed this excel to aid your own thinking, but you alone are responsible for your actions. I want to live peacefully ever after! :-) I am not a sadist who wants you to do the hard work by analyzing companies on your own. But I'd rather give you a compass instead of a map, for you can
confuse map with territory and lose it all! All the best!
Buffett Checklist - Read, Remember, Follow!Source - Buffettology by Mary Buffett & David Clark
Parameter
Consumer monopoly or commodity?
Understand how business works
Is the company conservatively financed?
Are earnings strong and do they show an upward trend?
Does the company stick with what it knows?
Has the company been buying back its shares?
Have retained earnings been invested well?
Is the company’s return on equity above average?
Is the company free to adjust prices to inflation?
Does the company need to constantly reinvest in capital?
Conclusion
Never Forget
Buffett Checklist - Read, Remember, Follow!Source - Buffettology by Mary Buffett & David Clark
Explanation
Seek out companies that have no or less competition, either due to a patent or brand name or similar intangible that makes the product unique. Such companies will typically have high gross and operating profit margins because of their unique niche. However, don't just go on margins as high margins may simply highlight companies within industries with traditionally high margins. Thus, look for companies with gross, operating and net profit margins above industry norms. Also look for strong growth in earnings and high return on equity in the past.
Try to invest in industries where you possess some specialized knowledge (where you work) or can more effectively judge a company, its industry, and its competitive environment (simple products you consume). While it is difficult to construct a quantitative filter, you should be able to identify areas of interest. You should "only" consider analyzing those companies that operate in areas that you can clearly grasp - your circle of competence. Of course you can increase the size of the circle, but only over time by learning about new industries. More important than the size of the circle is to know its boundaries.
Seeks out companies with conservative financing, which equates to a simple, safe balance sheet. Such companies tend to have strong cash flows, with little need for long-term debt. Look for low debt to equity or low debt-burden ratios. Also seek companies that have history of consistently generating positive free cash flows.
Rising earnings serve as a good catalyst for stock prices. So seek companies with strong, consistent, and expanding earnings (profits). Seek companies with 5/10 year earnings per share growth greater than 25% (alongwith safe balance sheets). To help indicate that earnings growth is still strong, look for companies where the last 3-years earnings growth rate is higher than the last 10-years growth rate. More important than the rate of growth is the consistency in such growth. So exclude companies with volatile earnings growth in the past, even if the "average" growth has been high.
Like you should stock to your circle of competence, a company should invest its capital only in those businesses within its circle of competence. This is a difficult factor to screen for on a quantitative level. Before investing in a company, look at the company’s past pattern of acquisitions and new directions. They should fit within the primary range of operations for the firm. Be cautious of companies that have been very aggressive in acquisitions in the past.
Buffett prefers that firms reinvest their earnings within the company, provided that profitable opportunities exist. When companies have excess cash flow, Buffett favours shareholder-enhancing maneuvers such as share buybacks. While we do not screen for this factor, a follow-up examination of a company would reveal if it has a share buyback plan in place.
Seek companies where earnings have risen as retained earnings (earnings after paying dividends) have been employed profitably. A great way to screen for such companies is by looking at those that have had consistent earnings and strong return on equity in the past.
Consider it a positive sign when a company is able to earn above-average (better than competitors) returns on equity without employing much debt. Average return on equity for Indian companies over the last 10 years is approximately 16%. Thus, seek companies that earn atleast this much (16%) or more than this. Again, consistency is the key here.
Focus on decisions, not outcomes. Look for disconfirming evidence.
That's what is called "pricing power". Companies with moat (as seen from other screening metrics as suggested above (like high ROE, high grow margins, low debt etc.) are able to adjust prices to inflation without the risk of losing significant volume sales.
Companies that consistently need capital to grow their sales and profits are like bank savings account, and thus bad for an investor's long term portfolio. Seek companies that don't need high capital investments consistently. Retained earnings must first go toward maintaining current operations at competitive levels, so the lower the amount needed to maintain current operations, the better. Here, more than just an absolute assessment, a comparison against competitors will help a lot. Seek companies that consistently generate positive and rising free cash flows.
Sensible investing is always about using “folly and discipline” - the discipline to identify excellent businesses, and wait for the folly of the market to drive down the value of these businesses to attractive levels. You will have little trouble understanding this philosophy. However, its successful implementation is dependent upon your dedication to learn and follow the principles, and apply them to pick stocks successfully.
Hero Motocorp - Balance Sheet(Enter values only in red cells) | Data Source: Ace Equity
Year / Rs Crore L-9 L-8 L-7 L-6SOURCES OF FUNDS / EQUITY & LIABILITIESShare Capital 40 40 40 40 Reserves & Surplus 1,453 1,969 2,430 2,946 Shareholder's Funds / Equity 1,493 2,009 2,470 2,986
Non-Current LiabilitiesLong-Term Borrowings 202 186 165 132
Current Liabilities 1,500 1,563 1,479 1,825 Short-Term Borrowings - - - - Trade Payables 662 646 555 756 Other Current Liabilities 354 427 487 569 Short-Term Provisions 485 490 437 500
APPLICATION OF FUNDS / ASSETSNon-Current Assets 881 1,157 1,519 1,751 Tangible Assets 674 949 1,166 1,156 Intangible Assets - - - - Capital Work-in-Progress 41 44 190 392 Non-Current Investments 165 163 164 202
Current Assets 2,416 2,720 2,723 3,301 Current Investments 1,861 1,899 1,810 2,365 Inventories 204 227 276 317 Trade Receivables 90 159 335 297 Cash and Bank Balance 18 159 36 131 Short-Term Loans and Advances 240 274 263 185 Other Current Assets 4 4 4 6
Hero Motocorp - Balance Sheet(Enter values only in red cells) | Data Source: Ace Equity
L-5 L-4 L-3 L-2 L-1 L (FY14)
40 40 40 40 40 40 3,761 3,425 2,916 4,250 4,966 5,560 3,801 3,465 2,956 4,290 5,006 5,600
78 66 1,471 1,011 302 24
2,053 4,831 6,017 4,341 4,171 5,527 - - - - - - 703 1,111 2,073 2,293 1,873 2,291 823 2,694 2,898 996 888 588 527 1,026 1,045 1,052 1,410 2,648
1,832 2,054 4,596 4,498 3,748 3,910 1,574 1,659 4,080 3,786 3,071 2,243 - - - - - - 121 48 50 39 62 854 138 347 465 674 614 813
4,244 6,461 5,772 4,831 5,078 6,660 3,231 3,578 4,663 3,290 3,009 3,276 327 436 525 676 637 670 150 108 131 272 665 921 220 1,907 72 77 181 118 311 247 123 242 407 1,509 6 183 258 274 178 168
Hero Motocorp - P&L Account(Enter values only in red cells) | Data Source: Ace Equity
Year / Rs Crore L-9 L-8 L-7 L-6 L-5Net Sales 7,422 8,714 9,900 10,332 12,319
ExpenditureIncrease/Decrease in Stock (12) (12) 2 11 (18)Raw Material Consumed 5,227 6,098 7,216 7,441 8,816 Employee Cost 215 259 299 321 371 Other Manufacturing Expenses 295 380 435 459 545 General and Administration Expenses 374 443 539 550 672 Selling and Distribution Expenses 160 206 257 237 266 Miscellaneous Expenses 6 7 18 12 38 Total Expenditure 6,266 7,380 8,767 9,032 10,691 Gross Profit 1,911 2,249 2,247 2,421 2,976 Operating Profit / EBITDA 1,156 1,334 1,133 1,300 1,628 Other Income 153 196 254 272 337 Depreciation 89 115 140 160 181 Profit Before Interest & Tax (PBIT) 1,219 1,415 1,248 1,412 1,784 Interest 2 3 2 2 3 Exceptional Income / ExpensesProfit Before Tax 1,217 1,412 1,246 1,410 1,781 Provision for Tax 407 441 388 442 500 Profit After Tax 810 971 858 968 1,282 Minority Interest - - - - - Share of Associate - - - - - Profit After Tax (PAT) 810 971 858 968 1,282 Diluted EPS (Rs) 40.6 48.6 43.0 48.5 64.2
Hero Motocorp - P&L Account(Enter values only in red cells) | Data Source: Ace Equity
L-4 L-3 L-2 L-1 L (FY14) CAGR 15,758 19,398 23,579 23,768 25,275 14.6%
6 (24) (84) 33 8 10,781 14,190 17,449 17,458 18,314 438 619 736 821 930 677 674 363 412 508 842 605 774 855 960 388 383 366 469 493 15 393 440 530 614 13,146 16,840 20,044 20,577 21,828 14.9% 4,295 4,558 5,851 5,865 6,444 14.5% 2,612 2,558 3,535 3,191 3,447 12.9% 414 344 448 492 539 191 402 1,097 1,142 1,107 2,834 2,500 2,886 2,541 2,879 10.0% 2 15 21 12 12
(80) 2,832 2,405 2,865 2,529 2,867 10.0% 600 477 487 411 758 2,232 1,928 2,378 2,118 2,109 11.2% - - - - - - - - - - 2,232 1,928 2,378 2,118 2,109 11.2% 111.8 96.5 119.1 106.1 105.6
Hero Motocorp - Cash Flow Statement(Enter values only in red cells) | Data Source: Ace Equity
Year / Rs Crore L-9 L-8 L-7 L-6Net cash (used in) / generated from operating activities 747 936 625 1,212 Payment for purchase of fixed assets (219) (399) (519) (375)Free Cash Flow 528 537 106 837 Net cash (used in) / generated from investing activities (563) (323) (273) (781)Net cash (used in) / generated from financing activities (204) (471) (493) (432)Net increase in cash and cash equivalents (20) 141 (142) (2)
MINUS
Sample Cash Flow Statement (from Annual Report)
Hero Motocorp - Cash Flow Statement(Enter values only in red cells) | Data Source: Ace Equity
L-5 L-4 L-3 L-2 L-1 L (FY14) 1,359 2,687 2,254 2,360 1,890 2,963 (315) (212) (364) (565) (608) (937) 1,044 2,475 1,890 1,795 1,283 2,027 (861) (528) (1,322) 93 (733) (1,619) (500) (2,109) (955) (2,458) (1,056) (1,415) (2) 50 (23) (6) 101 (71)
Remember! Cash flow, not reported earnings, is
what determines a company's long-term value.
Sample Cash Flow Statement (from Annual Report)
Remember! Cash flow, not reported earnings, is
what determines a company's long-term value.
Hero Motocorp - Key Ratios(Don't touch any cell on this sheet, as all are calculated figures)
Operational & Financial Ratios L-9 L-8 L-7 L-6 L-5Diluted Earnings Per Share (Rs) 40.6 48.6 43.0 48.5 64.2 Diluted Book Value Per Share (Rs) 74.8 100.6 123.7 149.5 190.3 Tax Rate (%) 33% 31% 31% 31% 28%
Profitability Ratios L-9 L-8 L-7 L-6 L-5Gross Margin (%) 26% 26% 23% 23% 24%EBITDA Margin (%) 16% 15% 11% 13% 13%EBIT Margin (%) 16% 16% 13% 14% 14%Net Profit Margin (%) 11% 11% 9% 9% 10%
Performance Ratios L-9 L-8 L-7 L-6 L-5Return on Equity (%) 54% 48% 35% 32% 34%
Return on Capital Employed (%) 51% 46% 36% 37% 34%Return on Invested Capital (%) -442% 708% 109% 156% 299%Sales/Working Capital (x) 8.1 7.5 8.0 7.0 5.6
Efficiency Ratios L-9 L-8 L-7 L-6 L-5Receivable Days 4 7 12 11 4 Inventory Days 10 9 10 11 10 Payable Days 33 27 20 27 21
Growth Ratios L-9 L-8 L-7 L-6 L-5Net Sales Growth (%) 17% 14% 4% 19%EBITDA Growth (%) 15% -15% 15% 25%PBIT Growth (%) 16% -12% 13% 26%PAT Growth (%) 20% -12% 13% 32%
Financial Stability Ratios L-9 L-8 L-7 L-6 L-5Total Debt/Equity (x) 0.1 0.1 0.1 0.0 0.0 Debt Burden (x) 0.4 0.3 1.6 0.2 0.1 Current Ratio (x) 1.6 1.7 1.8 1.8 2.1 Quick Ratio (x) 1.5 1.6 1.7 1.6 1.9 Interest Cover (x) 631.7 484.6 775.0 706.1 705.1
Hero Motocorp - Key Ratios(Don't touch any cell on this sheet, as all are calculated figures)
L-4 L-3 L-2 L-1 L (FY14) 111.8 96.5 119.1 106.1 105.6 173.5 148.0 214.8 250.7 280.4
21% 20% 17% 16% 26%
L-4 L-3 L-2 L-1 L27% 23% 25% 25% 25%17% 13% 15% 13% 14%18% 13% 12% 11% 11%14% 10% 10% 9% 8%
L-4 L-3 L-2 L-1 L64% 65% 55% 42% 38%
68% 52% 56% 53% 50%-114% -651% 124% 100% 95%
9.7 (79.2) 48.2 26.2 22.3
L-4 L-3 L-2 L-1 L 3 2 4 10 13 10 10 10 10 10 26 39 35 29 33
L-4 L-3 L-2 L-1 L28% 23% 22% 1% 6%60% -2% 38% -10% 8%59% -12% 15% -12% 13%74% -14% 23% -11% 0%
L-4 L-3 L-2 L-1 L 0.0 0.5 0.2 0.1 0.0 0.0 0.8 0.6 0.2 0.0 1.3 1.0 1.1 1.2 1.2 1.2 0.9 1.0 1.1 1.1 1,349.4 164.8 135.5 213.4 243.6
Remember! What counts in the long run is the increase in "per share value", not overall growth or size of a
business.
Remember! Gross margins suggest pricing power.
Higher = Better, but also invites competition. So watch out for consistency.
Remember! ROE = Efficiency in allocating capital, which is a
CEO's #1 job. Higher = Better. Look for consistency.
Remember! What counts in the long run is the increase in "per share value", not overall growth or size of a
business.
Remember! Gross margins suggest pricing power.
Higher = Better, but also invites competition. So watch out for consistency.
Remember! ROE = Efficiency in allocating capital, which is a
CEO's #1 job. Higher = Better. Look for consistency.
Hero Motocorp: 2-Stage DCF
Figures in Rs Crore | Enter values only in red cells
Initial Cash Flow 1,701
Years 1-5 6-10FCF Growth Rate 12% 10%Discount Rate 10%Terminal Growth Rate 2%
Shares Outstanding (Crore) 20 Net Debt Level (3,369)
Year FCF Growth Present Value1 1,906 12% 1,732 2 2,134 12% 1,764 3 2,390 12% 1,796 4 2,677 12% 1,829 5 2,998 12% 1,862 6 3,298 10% 1,862 7 3,628 10% 1,862 8 3,991 10% 1,862 9 4,390 10% 1,862
10 4,829 10% 1,862
Final CalculationsTerminal Year 4,926 PV of Year 1-10 Cash Flows 18,291 Terminal Value 23,738 Total PV of Cash Flows 42,029 Number of Shares 20 DCF Value / Share (Rs) 2,273
Note: See the explanation of DCF here
Why DCF? The value of a business is
simply the present value of cash that investors can take out of the business
over its lifetime.
Hero Motocorp - Fair Value Calculation(Enter values only in red cells)
Year L-9 L-8 L-7 L-6 L-5 L-4 L-3Diluted EPS (Rs) 40.6 48.6 43.0 48.5 64.2 111.8 96.5 High P/E (x) 15.0 20.2 18.5 19.1 18.4 23.2 19.6 Low P/E (x) 10.4 12.0 13.2 13.6 12.1 15.1 13.7 Average P/E (x) 12.7 16.1 15.9 16.4 15.2 19.2 16.7
Valuation - Different Methods (Rs)Avg P/E Ratio Valuation 1,830 DCF 2,273
Fair Value Range (Rs/Share)High End 2,051 Low End 1,895 Margin of Safety (MoS) 20%Fair Value after MoS 1,578 Current Mkt. Price (CMP, Rs) 2,650 Premium / (Discount) 67.9%
Remember! Give importance to a stock's fair value only "after" you have
answered in "Yes" to these two questions - (1) Is this business simple to be understood? and (2) Can I understand this business?
Don't try to quantify everything. In stock research, the less non-mathematical you are, the more simple, sensible, and useful will be your analysis and results. Great analysis is generally "back-of-the-envelope".
Also, your calculated "fair value" will be proven wrong in the future, so don't invest your savings just because you fall in love with it. Don't look for perfection. It is overrated. Focus on decisions, not outcomes. Look
for disconfirming evidence. Pray!
Hero Motocorp - Fair Value Calculation(Enter values only in red cells)
L-2 L-1 L (FY14) 119.1 106.1 105.6 22.9 18.9 21.5 16.6 14.3 13.6 19.8 16.6 17.5
Remember! Give importance to a stock's fair value only "after" you have
answered in "Yes" to these two questions - (1) Is this business simple to be understood? and (2) Can I understand this business?
Don't try to quantify everything. In stock research, the less non-mathematical you are, the more simple, sensible, and useful will be your analysis and results. Great analysis is generally "back-of-the-envelope".
Also, your calculated "fair value" will be proven wrong in the future, so don't invest your savings just because you fall in love with it. Don't look for perfection. It is overrated. Focus on decisions, not outcomes. Look
for disconfirming evidence. Pray!
Expected Return ModelHero Motocorp L-9 L-8 L-7 L-6 L-5Profit After Tax (Rs Cr) 810 971 858 968 1,282 Earnings per Share (Rs ) 41 49 43 48 64 Net Profit Margin 11% 11% 9% 9% 10%Return on Equity 54% 48% 35% 32% 34%
CalculationsEsti. CAGR in EPS over next 10 years 10%Esti. EPS after 10 years 274 Current P/E 22.2 Esti. Stock Price @ 20x P/E 5,479 CMP (Rs) 2,650 Esti. CAGR Return in 10 Years 7.5%
Note: See the explanation of this model here
L-4 L-3 L-2 L-1 L (FY14) CAGR (10-Yr) CAGR (5-Yr) 2,232 1,928 2,378 2,118 2,109 11% 10% 112 97 119 106 106 11% 10%
14% 10% 10% 9% 8%64% 65% 55% 42% 38%