{"id":1682,"date":"2019-11-04T11:22:00","date_gmt":"2019-11-04T11:22:00","guid":{"rendered":""},"modified":"2025-03-11T12:13:19","modified_gmt":"2025-03-11T06:43:19","slug":"much-beyond-numbers","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/much-beyond-numbers\/","title":{"rendered":"Much Beyond Numbers! Invest in the right businesses &#8211; Research &#038; Ranking"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div>\n<p>Let me start with a practical example today \u2013 an example of the extent at which we go to ensure we present investors with the best of businesses to invest their hard earned money.<\/p>\n\n\n\n<p>After initial due diligence, over the past few months we have been tracking a particular business that seems to have a good potential.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Let me give you a glimpse of their financials:<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Net sales up by 15% in Q3FY19<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Total expenses up by only 12% YOY<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Expenses as a % to sales down by 160 bps<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>EBITDA saw a jump of 27% YOY \u2013 EBITDA margins expanded to 17.3% YOY<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Due to repayment of debt, interest expenses are down by 55% YOY.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>On a longer tenure \u2013 Net Sales, EBITDA &amp; PAT have been up by 7.7%, 13% &amp; 22% respectively (<a href=\"https:\/\/www.equentis.com\/blog\/what-is-cagr-compound-annual-growth-rate-meaning-formula\/\">CAGR<\/a>) over the past 5 years.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Company management:<\/h3>\n\n\n\n<p>The Promoter, Chairman &amp; Managing Director of the company carries over 45 years of experience in the industry and oversees the entire business and has transformed the company from being a small player to one of the leading manufacturers in their space of operation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What does future have in store?<\/h3>\n\n\n\n<p>Given the higher disposable incomes and changing demographics, this industry is poised for a strong growth. And hence we expect the company\u2019s revenue to grow at a CAGR of 9% over FY18-23E. We expect EBITDA to grow at a CAGR of 15 % and margins to average 17.2% on the back of strong volume growth and premiumization leading to operating leverage. Company has been continuously reducing debt and aims to be debt free in the next one and a half years. Thus, debt equity is expected to trend down going forward.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Aren\u2019t these strong and vital indicators for a business to be performing well? Yes they are.<\/h3>\n\n\n\n<p>But does it stop just there? It surely shouldn\u2019t!<\/p>\n\n\n\n<p>To be sure that the expectations we have from the businesses are actually delivered, we not just went ahead and met their management \u2013 but even before we met the management, we met some other stakeholders of that business \u2013 their distributors in Maharashtra.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Here are the key findings:<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Data related to consumption is reliable as it gets verified at 3 different levels<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Demand in the sector remains agnostic to price increase. There has never been a year when the industry has reported a drop-in volume.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Even after demonetization, there was no impact on volumes.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Volumes are fairly predictable. There may be small variations in volumes, but the industry has never seen huge variations. There is seasonality in this sector, but it is fairly predictable.<\/li>\n<\/ul>\n\n\n\n<p>After meeting the stakeholder \u2013 we went ahead and met the management of the company just to reiterate on our positive outlook towards the business.<\/p>\n\n\n\n<p>Here are the key findings:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Growth to be higher than industry \u2013 Company intends to grow at a rate higher than the industry which is expected to grow at 5-6% as the company is targeting to increase market its share. Growth is expected to be around 12-13% YoY in the next 2-3 years.<\/li>\n\n\n\n<li>Premiumization drive to continue \u2013 Along with the existing premium products new product launches will only be in the premium category going forward.<\/li>\n\n\n\n<li>Margin expansion \u2013 Company had targeted improvement of 150 bps margin improvement every year from FY16. Margins target will be met by FY21 \u2013 from 11.3% FY16 to ~ 18.5% by FY21. This margin expansion has been mainly on account of operating leverage due to increase in volumes and product mix change. Any price increase in the states will be over and above the stated margin expansion.<\/li>\n\n\n\n<li>Strengthening balance sheet:<\/li>\n<\/ol>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Debt reduction \u2013 Company plans to be debt free by FY21 and has been consistently reducing debt since FY17.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>No fresh capex \u2013 Existing capacity is sufficient to meet volume growth target for the next couple of years. Thus, no further capital expenditure will be required.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Working capital reduction \u2013 Favorable market structure changes in one of the key consuming states has led to reduction in debtors leading to working capital reduction and this in turn has boosted return ratios, i.e. <a href=\"https:\/\/www.equentis.com\/blog\/what-is-roce\/\">RoCE<\/a>.<\/li>\n\n\n\n<li>5.Industry outlook &#8211; Growth in the industry is likely to come on the back of rising disposable incomes, increasing young population and growing aspirations of the youth. Growth in industry volumes is expected at 2.5-3.0% from CY17-CY22. In terms of value, growth is expected at 6-7%.<\/li>\n<\/ul>\n\n\n\n<p>Yes, this is the length and breadth we go to ensure that investors invest in the right businesses.<\/p>\n\n\n\n<p>And would this not be a business you would also want to invest into?<\/p>\n\n\n\n<p>Identifying a fundamentally strong &amp; robust business is surely not an easy task, especially when it comes with an added responsibility that based on this, other investors are going to invest.<\/p>\n\n\n\n<p>It takes tremendous amount of scrutiny, analysis, number crunching, identifying the future potential, understanding the management pedigree and a lot more.<\/p>\n\n\n\t\t<div data-elementor-type=\"section\" data-elementor-id=\"9185\" class=\"elementor elementor-9185\" data-elementor-post-type=\"elementor_library\">\n\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-e92a158 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"e92a158\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-65b41f6\" data-id=\"65b41f6\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-a613ee7 elementor-widget elementor-widget-shortcode\" data-id=\"a613ee7\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t\t<div data-elementor-type=\"section\" data-elementor-id=\"6844\" class=\"elementor elementor-6844\" data-elementor-post-type=\"elementor_library\">\n\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-2efdbd0d elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"2efdbd0d\" data-element_type=\"section\" data-e-type=\"section\" data-settings=\"{&quot;background_background&quot;:&quot;classic&quot;}\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-783deaaa\" data-id=\"783deaaa\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-c60a2cc elementor-widget elementor-widget-heading\" data-id=\"c60a2cc\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\">Related investing topics<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<section class=\"elementor-section elementor-inner-section elementor-element elementor-element-3e3de9dd elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"3e3de9dd\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-25 elementor-inner-column elementor-element elementor-element-40fd5db7\" data-id=\"40fd5db7\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-757ca8cb ekit-equal-height-enable elementor-widget elementor-widget-elementskit-icon-box\" data-id=\"757ca8cb\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"elementskit-icon-box.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<div class=\"ekit-wid-con\" >        <!-- link opening -->\n                <a href=\"https:\/\/blog.researchandranking.com\/how-to-invest-in-share-market-guide\/\" class=\"ekit_global_links\" target=\"_blank\" rel=\"noopener\">\n                <!-- end link opening -->\n\n        <div class=\"elementskit-infobox text- text- icon-lef-right-aligin elementor-animation-  gradient-active  hover_from_left\">\n                        <div class=\"box-body\">\n                            <h3 class=\"elementskit-info-box-title\">\n                    How to Invest in Share Market?                <\/h3>\n                        \t\t  \t<p>Considering the volatility, investing in stock markets is both an art and science.<\/p>\n                                <\/div>\n        \n        \n                <\/div>\n                <\/a>\n        <\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<div class=\"elementor-column elementor-col-25 elementor-inner-column elementor-element elementor-element-601073c\" data-id=\"601073c\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-8b38507 ekit-equal-height-enable elementor-widget elementor-widget-elementskit-icon-box\" data-id=\"8b38507\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"elementskit-icon-box.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<div class=\"ekit-wid-con\" >        <!-- link opening -->\n                <a href=\"https:\/\/blog.researchandranking.com\/looking-for-one-multi-bagger-today-here-are-54-that-multiplied-investors-wealth\/\" class=\"ekit_global_links\" target=\"_blank\" rel=\"noopener\">\n                <!-- end link opening -->\n\n        <div class=\"elementskit-infobox text- text- icon-lef-right-aligin elementor-animation-  gradient-active  hover_from_left\">\n                        <div class=\"box-body\">\n                            <h3 class=\"elementskit-info-box-title\">\n                    5 Best Places To Live After Retirement In India                <\/h3>\n                        \t\t  \t<p>While some retired people set sail on voyages worldwide, others look forward to spending their time in relaxation and comfort.<\/p>\n                                <\/div>\n        \n        \n                <\/div>\n                <\/a>\n        <\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<div class=\"elementor-column elementor-col-25 elementor-inner-column elementor-element elementor-element-7e5723c\" data-id=\"7e5723c\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-551526b ekit-equal-height-enable elementor-widget elementor-widget-elementskit-icon-box\" data-id=\"551526b\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"elementskit-icon-box.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<div class=\"ekit-wid-con\" >        <!-- link opening -->\n                <a href=\"https:\/\/blog.researchandranking.com\/90-percent-lose-money-in-stocks\/\" class=\"ekit_global_links\" target=\"_blank\" rel=\"noopener\">\n                <!-- end link opening -->\n\n        <div class=\"elementskit-infobox text- text- icon-lef-right-aligin elementor-animation-  gradient-active  hover_from_left\">\n                        <div class=\"box-body\">\n                            <h3 class=\"elementskit-info-box-title\">\n                    90% People Lose Money in Stocks?                <\/h3>\n                        \t\t  \t<p>Isn't it shocking? But it is a fact. There are countless reasons why investors lose money in stock markets.<\/p>\n                                <\/div>\n        \n        \n                <\/div>\n                <\/a>\n        <\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<div class=\"elementor-column elementor-col-25 elementor-inner-column elementor-element elementor-element-6dc0c61\" data-id=\"6dc0c61\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-eb5233e ekit-equal-height-enable elementor-widget elementor-widget-elementskit-icon-box\" data-id=\"eb5233e\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"elementskit-icon-box.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<div class=\"ekit-wid-con\" >        <!-- link opening -->\n                <a href=\"https:\/\/blog.researchandranking.com\/is-long-term-investing-always-safe\/\" class=\"ekit_global_links\" target=\"_blank\" rel=\"noopener\">\n                <!-- end link opening -->\n\n        <div class=\"elementskit-infobox text- text- icon-lef-right-aligin elementor-animation-  gradient-active  hover_from_left\">\n                        <div class=\"box-body\">\n                            <h3 class=\"elementskit-info-box-title\">\n                    Is Long Term Investing Always Safe?                <\/h3>\n                        \t\t  \t<p>Let\u2019s understand what long-term means before we explain why Long Term Investing may not always be safe.<\/p>\n                                <\/div>\n        \n        \n                <\/div>\n                <\/a>\n        <\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t\n\n\n\n<p><strong>Read more: \u00a0<a href=\"https:\/\/timesofindia.indiatimes.com\/blogs\/voices\/long-term-investing-helps-create-life-changing-wealth\" target=\"_blank\" rel=\"noreferrer noopener\">How Long-term investing helps create life-changing wealth \u2013 TOI<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Let me start with a practical example today \u2013 an example of the extent at which we go to ensure [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":1683,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center 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