Investment Opportunity

Investment opportunity
Risks
what if no/less growth?
consumption change? disruption? substitution?
what if margin contraction and high leverage?
what if increasing competition?
no strong entry barriers?
what if disruption?
what if opposing regulations?
what if promoter mis-alignment?
Peer Overview
market share?-geography/product/overall
strategies?
margin profile?
capital allocation?
strengths/weaknesses?
management?
competitor
Valuations
EV/EBITDA
EV/CFO
PE
PB
Investment Rationale
Growth seeming robust
Market not pricing strong future developments
market underpricing durability of consistent growth
operating leverage not priced in-hence favourable upside-downside ratio
Hypothesis
Growth story?
Margin Expansion?
Operating Leverage?
change in management?
changing trends?
Scale of opportunity?
Moat?
Deeply undervalued?
Management
Equity dilution
Salaries
Guidance and execution in sync?
Promoter search for any cases/frauds
Inter-related party transactions?
ROE/ROCE?
Cash Flows?
Capital allocation & rationale?
Financials
What is the story?margin expansion/revenue growth/product mix
Revenue growth
Volume Growth? why & product mix
Realization increase? pricing power?
Profitability Growth
Operating Leverage?
Raw material decrease? sustainable?
Margin Expansion
Gross margin? why?
Operating margin? why? Leverage?
IS-BS-CF in sync? link them
Sum of cash flows and net profits?
CFO to EBITDA?
Increase in assets and their components?
Is book value increasing?
Is fixed asset increasing?
Is working capital decreasing?
Is debt increasing?
Is equity being diluted?
cash flow and their components?
is CFO shown high and others CFI & CFF low?
CFO and its components?
Turnover ratios?
Due diligence of financials-ARs & checklists
Tax as % paid?
Excise duty paid?
Sum of CFOs and Net profits?
Growth of revenue vs growth of working capital?
Intangibles on balance sheet?
Leverage?
Equity dilution?
Return Ratios/Cash Conversion/Leverage
ROCE? ROE?
Net margin? Turnover? Financial Leverage?
Incremental ROCE?-Important
WC growth? WC turnover? Cash conversion cycle?
Fixed asset turnover?
Gross & Operating & Net margin?
Revenue & Profit growth?
Debt to Equity? Interest Coverage?
CFO to EBITDA? Stable?
Book value to inventory & recievables?
Tax as % paid?
Capital Allocation
Towards gross block?
Towards working capital?
Debt reduction?
Building cash?
Dividends?
Acquisition?
Industry Analysis
Porters Forces
Entry Barriers?
Brand visibility?
Difficult to replicate?
Limited access to resources
Regulatory barriers-license/patents?
First mover advantages?
Knowledge/skilled value creation?
Network effects?
Competitive intensity?
Substitution risk?
Consumer bargaining power?
Supplier bargaining power?
Current status-market share/players etc.
competitive structure & reasons for the same?
Level of Organized/unorganized market share
Differentiators
Industry growth and profitability
Potential market size
Growth of market and current size?
Profitability?
Fixed asset and working capital intensiveness?
Capital allocation happening in the industry?
competitive structure
Any threat from current disruptions?
4Ps
Product?
Potential?
Predictability?
People?
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