This Video was presented by Vardharajan R at the Indian Investing Conclave (https://indianinvestingconclave.com/recordings/44)
Note: ALL Snapshots inserted are from the original presentation used by Vardha and IIC at the session.
Key Excerpts
Here he gave example like Let's say in textile industry if it costs 50 crores to buy 100 units of spindles manufacturing unit and there are majorly 3-4 suppliers of textile machinery from where textile companies in India either Imports or domestically buys textile machinery how can it be possible that some other company within the industry is buying same 100 units of spindles for 100 crores?
While checking Volatility of non operating items look at the investments - sometimes it can be genuinely volatile for example in case of Companies parking money in debt funds the yield can be different across years.
While checking CFO/EBITDA focus on variety of factors like tax rates are low, why working capital is low/high as compared to industry peers etc
Check if your Company has higher EBITDA margins and Asset turnover as compared to industry look for strong reasons like why are COGS lower, was there lot of Automation done, Why labor cost is low etc
Especially look to a scenario where working capital cycle is increasing, debt is increasing/equity is diluting and there are other issues like pledging of shares, contingent liabilities, huge related party loans
An example he used to explain the above statement was the below Financial snapshot
He Also emphasized a lot to conduct on ground research to get a sense of how business is doing and try to connect whether the direction about the business that financial statements are portraying matches on ground feedback or not.
For example a company is saying its growing a lot, whereas if you talk to employees of the company you get to know that majority of the employees are looking to change the organization, suppliers comment they payments are being very delayed - such contra statements will make to question the source of growth.
