November 30, 2017

Finding Companies in Overvalued Markets, their Land bank, Cap on Management Salary, Attending AGMs (Q&A)

www.drvijaymalik.com has a section dedicated to answering queries from readers: “Ask Your Queries”. Over time, many readers have asked their queries related to many aspects of stock analysis and sought clarifications about investing. I have responded to these queries as replies to their comments.

“Q&A” series is an attempt to share the queries & their responses, which have featured on “Ask Your Queries” section, with all the readers. The primary aim of this new feature is to share the knowledge with other readers of the website, who might have similar queries.

The current article in this series provides responses related to:
  • What to do in overvalued markets/when no company meets the investment checklist parameters?
  • How to find assets/land bank owned by any company?
  • How to interpret ceiling on managements’ salary?
  • Should we attend AGMs of companies to get additional information?
  • When will our investment assumptions materialize?
  • How to track commodity prices?


How to find companies in overvalued markets, find land bank details, cap on management remuneration, Should one attend AGM, How to track commodity prices



What to do in overvalued markets/when no company meets the investment checklist parameters?



Hello Vijay sir, I tried to find some companies using the fundamental analysis so that I can start investing in them. I started with Screener with search criteria mentioned in above checklist. But after applying even only 5-7 filters from Financial Analysis, I couldn't find even single company.

Does that mean:
  1. Presently no single company is worth investing in?
  2. Or sometimes is it ok to ignore some parameters from above checklist?
  3. I feel that it is really hard to find a company that passes all the above parameters from the checklist, then how to choose stock for long-term investment?

Regards,

Author’s Response:

Hi,

Thanks for writing to us! We are happy that you are working towards your own stock analysis and selection.

If an investor finds that as per the parameters being used by her, she is not able to find any company, then she may keep tweaking the parameters as per her preference and keep checking the outcome (i.e. results from screener). In case she is ok with the relaxed parameters, then she may choose to study the companies ahead.


We advise that you keep tweaking different parameters, which are acceptable to you.

All the best for your investing journey!

Regards

Dr. Vijay Malik

How to find assets/land bank owned by any company?


Hi Sir,

I want to know how we can find out the amount of land bank that any company has got. People say BEML has 30,000 acres of land etc. So for any company where can we these values? I tried but couldn't find a clear way.

Thanks in advance.

Author’s Response:

Hi,

Thanks for writing to us!

The land bank is usually present in the detailed schedules/notes to financial statements in the fixed assets section. However, the value of the land in this section is usually the purchase cost value. Many a times companies revalue their land assets over time and then this section contains the revalued land price. However, companies usually do not provide the granular details of their land holdings in the annual report.


Analysts keep on tracking the land dealings of companies as reported in the media, get more details about such land holdings from the management in their personal meetings and by asking questions in the conference calls. Many times, companies provide more details about land holdings in their corporate presentations. Many times credit rating reports might include more details about land holdings.


Therefore, there is no one defined place where investors may get the details of land holdings. It is only possible by closely tracking the developments of the company and reading all the public sources/documents that an investor may get more insights into this aspect.

Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

How to interpret ceiling on managements’ remuneration?


Hello Sir,

There are some doubts in my mind, which I want to clear.
  1. I came across an article in finapp which says "The remuneration of any one Managing Director or Whole Time Director or Manager shall not exceed 5% of net profit. Where, there is more than one Managing Director or Whole Time Director, the overall limit is 10% of net profit.” Does it mean if there is more than one MD, we have to check overall limit rather than the individual limit? And if one MD has 6% and other 4% salary, then also it is in the specified limit?
  2. I have come across annual reports of good companies which have specified ceiling as per act. Is that a correct number and we don’t need to calculate them individually?
  3. After calculating these ceiling number, many companies use PBT instead of PAT. Why so? As it is mentioned in companies act that salary should be 10% (more than 1 MD) or 5% (one MD) of net profit, still, companies go ahead and calculate it in terms of PBT. Is it not the violation of corporate governance?


Author’s Response:

Hi,

Thanks for writing to us. We appreciate the time and effort being spent by you in the stock analysis. 
  1. Investors need to check both the individual as well as the overall limit.
  2. Misstating the applicable limit would be a serious issue. Therefore, we believe that there would be a low probability that the companies would falsify the applicable limit to them.
  3. The applicable limit is calculated on profits arrived as per specific sections of the companies act, which is different from the PBT and PAT of profit and loss statement. You may find many articles on the internet about calculating the profits as per those sections of companies act to arrive at the remuneration limits.


Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

Should we attend AGMs of companies to get additional information?


Hi Vijay, 

I want to attend AGM of one particular company, which constitutes a significant part of my portfolio.
  1. Would it be helpful?
  2. Will I get a chance to ask the questions?
  3. Will it provide me added information about company fundamentals?
  4. Is it a great way to meet a fellow investor?


Author’s Response:

Hi,

Thanks for writing to us. We appreciate that you are taking charge of your equity investments and are planning to invest time and effort to find out more information about the company.

The best way to experience something is to do it personally. Therefore, we believe that going to one AGM will give you answer to all of your queries and you may decide to go to future AGM of different companies on your own.

We have not attended any AGM until now. The primary reason is that we ask clarifications from the companies over email as and when we need to ask them instead of waiting for the AGM to get information.

All the best for your investing journey!

Regards

Dr. Vijay Malik

When will our investment assumptions materialize?


Thanks for the sharper and valuable insights sir, glad that people's like you are helping layman and newbies.

I just finished an article written by you about Screener. It is a true gem for Indian investors.

I just wanted to know, if I found growth scrips like those of PE<10 and sales CAGR >25 and after doing the research I found that the company is a good bet, then how long it usually take for the growth to materialize and whether does it materialize at all for all the companies?

I am asking this query because there is a huge risk of loss of capital

Author’s Response:

Hi,

Thanks for your feedback! We are happy that you found the articles useful!

Piyush, there is no certainty when the growth will materialize or it will materialize at all. This is how businesses and stock markets behave.

Investments are done based on the probability that the expected growth of a particular company might materialize in future.


Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

How to track commodity prices?


Hi,

How can we track prices of commodities like sugar, cotton, lead, pet coke, metals etc.? Is there any site from where we can do so?

Thanks.

Author’s Response:

Hi,

Thanks for writing to us!

For the commodities listed on stock exchanges like MCX etc., investors may track the prices of their contracts on such exchanges.

For other commodities, you may google their prices and will find different sources for different commodities, which will have price data updates.

Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

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DISCLAIMER


Registration Status with SEBI:

I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013

Details of Financial Interest in the Subject Company:

Currently, I do not own stocks of any of the companies discussed above