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Q&A: South Indian Bank, Nucleus Software, Gold ETF & Others

Modified on November 1, 2018

The current article in this series provides responses related to:

  • A reader’s (Hari Balaji) views about South Indian Bank Limited
  • A reader’s (Sridhar Govardhanan) views about Nucleus Software Exports Limited
  • Use of enterprise value in stock valuation
  • Clarifications about gold exchange traded funds (Gold ETFs)
  • Sources for finding production & capacity utilization information for a company
  • Finding opportunities in existing stocks in an investor’s existing portfolio first.
  • Reasons for not analysing stocks of banking & financial services on the website
  • Reasons for analysing financial performance for 10 years while doing stock selection
  • Clarification about demerger of companies


South Indian Bank Limited

Dear Vijay, I have been following your blog for quite some time and I find it extremely educative. Your work is nothing short of being service to society by creating awareness.

Based on you framework, I have analyzed the stock South Indian Bank Limited. Please find below my investment rationale.

  • Stock is trading at 0.89 times its book value
  • South Indian Bank Limited has good consistent profit growth of 21.21% over 5 years
  • It has a compounded annual sales growth of 25.35% over a period of 10 years
  • It been consistently paying dividend of over 15 percent in the past 10 years
  • It has consistently been improving its EPS
  • South Indian Bank Limited has been maintaining a decent Operating margin of a little over 15% on an average
  • No negative news about promoters or about the South Indian Bank Limited
  • The bank has been consistently gr owing its fee bases income. (Other income)
  • At the current market price of ₹24.25, it’s available at a PE of 8.80 which provides decent margin of safety
  • South Indian Bank Limited operates in an industry which has a strong entry barrier
  • South Indian Bank Limited has been maintaining non-performing assets (NPA) at below industry average
  • South Indian Bank Limited has a very strong regional presence in Kerala
  • The company has a positive cash flow from operations, the cumulative net profits for the past 5 years is ₹1,937 crores, whereas the CFO for the same period is ₹6,066 crores

Please let me know your opinion.


Hari Balaji

Author’s Response:

Hi Hari, thanks for your feedback & appreciation! I am happy that you found the articles useful!

If I see the points highlighted by you about South Indian Bank, it looks great. However, analysis of Banks/financial institutions involves many other factors like asset liability mismatch, sources & breakup of funding profile, capital adequacy ratio & its breakup, NPA movements and other weak credit parameters, borrower wise concentration analysis, which are not readily available in the data sources like screener.

Therefore, due to lack of ready availability of pertinent data, I am not able to provide any opinion about SIB.

However, you may learn more about analysing different industries which are new to you, in the following article:

How to Analyze Companies in Industries new to you?


Nucleus Software Exports Limited

Hi Vijay, I am presenting my views on Nucleus Software Exports Limited. I would be happy to hear your views on my analysis and about your view of future prospects of Nucleus Software Exports Limited.

  • Sales Growth was in an increasing trend from 2005-2008. Negative growth was observed during 2008-2011. Nucleus Software Exports Limited started to pick growth around 2013 and has been increasing since then. Sales growth in the last quarter was good
  • OPM is also in an increasing trend for last 3 Yr., fluctuating between 15%-20% between (2012-2015).
  • NPM is between 17% in last 3Yr.
  • Tax % is fluctuating no-line with corporate tax slab.
  • D/E is 0, which is really great.
  • Debtor days have been reduced from 113 to 43 days. Good sign.
  • Dividend payout is constantly good. Recently announced a ₹5/Share dividend.
  • Stock is in the process of getting re-rated. Recently, it has had a run-up of prices, which has pushed P/E from 10 to 15.
  • Its products are doing very good in global markets. Nucleus Software Exports Limited has showing promising growth.

With its specialization of lending & transaction banking products, Nucleus Software Exports Limited can command a higher P/E of above 25.

Below is an excerpt from Nucleus Software Exports Limited’s recent press release.

“For the 7th year in a row we were ranked as having the world’s best-selling lending solution. In FY2014-2015, Nucleus Software introduced FinnOne NeoTM the next-generation End-to-End Loan Lifecycle Management product that enables innovative banks and finance companies to manage all types of lending from personal and home loans to commercial lending and finance against securities. The new solution uses the latest, proven technology and can be delivered via public cloud, private cloud or on customer’s own servers.”

I am already invested in Nucleus Software Exports Limited for over a year and am bullish on it. I I would like to know your thoughts on Nucleus Software Exports Limited.

I am not taking much consideration on inventory turnover & fixed asset ratio, since it’s an IT company. Please suggest if this is the right approach.


  • Also please throw some light of enterprise value calculation. I hear a lot of experts and market gurus talk about on enterprise value and the gap between market-cap and enterprise value of the stock.
  • How can one calculate enterprise value and see if the stock is underpriced?


Sridhar Govardhanan

Author’s Response:

Hi Sridhar Govardhanan, thanks for writing to me. I am happy that you are doing stock analysis yourself. This is the motto of the website.

Enterprise Value (EV) is calculated as (value of equity + total debt -cash). Investors usually compare stocks within an industry by comparing their EV/EBITDA ratios.

Read: How to do Valuation Analysis of a Company

Regarding Nucleus Software Exports Limited, I do not track IT/ITeS companies, therefore, would not be able to help you. If you believe that it is a good company, then you should go ahead and invest.



Dear Sir, I am planning to invest in gold because of its present low rate. I want to buy an exchange traded fund (ETF). Regarding an ETF, I have a few doubts. Kindly clarify:

  • Are there any parameters to value gold like P/E, P/BV ratios of stocks?
  • Where do gold ETF managers invest our money? I mean in commodity market or physical gold or anywhere else?
  • If they invest in physical gold, where do they store that much gold quantity?
  • How to believe the managers of ETF or trust behind it (I mean are they really investing or running fake ETF)
  • Where can I check the quantity of Gold that an ETF is having?

Thanking you sir.

Author’s Response:

  1. Gold does not generate any cash flow like companies. So P/E etc. does not apply to it.
  2. As far as I know, ETF managers invest in physical gold.
  3. ETFs keep the gold in secure vaults.
  4. All ETFs are SEBI regulated and regularly audited. Chances of fraud are very low.
  5. You may not be able to check the quantity in person. However, the annual report of the ETF management company should have the details about the amount of gold they have.



Vijay, I thank you for posting the business & industry analysis (BIA) concepts. It’s amazing and easy to understand. Please keep up the good work.

Please let me know where we can find the below information for the “Increase in Production Capacity and Sales Volume” section:

  1. Production capacity (tonnes per annum)
  2. Quantity sold (tonnes) (A)
  3. Sales price per tonne (INR) (B)
  4. Total sales (INR Cr. /10 Million) (A*B)

I couldn’t find it in screener.

Author’s Response:

Thanks for your feedback & appreciation! I am happy that you found the articles useful!

You would find this information in the annual report of the company and in the credit rating report (if the company is rated by any credit rating agency).

Read: Understanding the Annual Report of a Company

Read: 7 Important Reasons Why Every Stock Investor should read Credit Rating Reports



Dear Sir, Good explanation on when to exit a particular stock.

(Read: When to Sell a Stock)

Your philosophy states very clearly that you invest in the company for its business and management strength and not on the basis of how the stock market views its stock.

If the fundamentals of the company are affected, then there is no reason to stay invested? It is a very good and sound advice.

I think it would be worthwhile if you explain to us: how you keep investing into your small portfolio over a period of time, considering that some of the stocks in your portfolio have done very well and some are still lagging behind purely from the stock markets point of view?

For example stocks like Vinati Organics Limited and Mayur Uniquoters Limited have done well and therefore have become expensive but others are still not expensive by way of PE value.

  • How do you channelize your investments in such cases?
  • Do you still invest more capital into the expensive stocks or you ignore the expensive stocks and buy into the ones that are still cheap?
  • If so, how do you re-balance your portfolio?

That would be very insightful for the new investors like me.


Author’s Response:

Thanks for writing to me!

I invest additional money in those existing stocks in my portfolio, which are still cheap. When I do not find any existing stock cheap enough to put additional money, then I look for a new stock.

However, I might write a separate article answering your query.



Hello Vijay, I am big fan of you. I am reading your articles daily at least one. I just want to know one thing from you:

Why are you not analysing any banking stocks? Any particular reason behind it?

Author’s Response:

Thanks for the appreciation!

The analysis of banks/financial institutions involves many special factors like asset liability mismatch, sources & breakup of funding profile, capital adequacy ratio & its breakup, NPA movements and other weak credit parameters, borrower wise concentration analysis, which are not readily available in the data sources like screener and moneycontrol.

Therefore, due to lack of ready availability of pertinent data, I do not provide analysis of bank/financial institutions on my website.

Hope it clarifies.



Hello Dr. Malik. Thanks for this outstanding piece of work.

I have a few questions:

  • We have analyzed data from 2004-2014 and bought at 2014, is it that we would be buying too late?
  • The reason that I am asking is: suppose we analyse a company financially for the past 10 years, it’s quite likely that the stock price would have run up a lot already. And since it is making profits since the past 10 years, one loss making year won’t affect it financially but the stock price may drop.
  • Are we having the odds in our favour in such a case?

Author’s Response:

An investor should buy a good stock whenever she comes across it. There is no such thing as early or late. I analyse stocks with history of 10 years because the period of 10 years provides me enough history of company’s performance over one or more business cycles and I can see the decisions taken by the management during different situations and the impacts of their decisions on the company.

If a company reports a loss after many years in profits and the loss is not due to any permanent factor, then the stock price fall is the best opportunity to buy more stocks.

Read: How to Monitor Stocks in Your Portfolio



Dear Vijay sir,

Sir I am invested in Sterlite Technologies Limited since last one year. Today it announced its March quarter results. Results are promising and Sterlite Technologies Limited shows potential of good growth in the future.

Today, it also announced the company restructuring plan, in which they are demerging Sterlite Power from Sterlite Technologies Limited.

Sir my query is that I am not able to understand the implication of the demerger?

It be helpful if you can guide me on this.

Thanking you,

Author’s Response:

Demerger means that some of the existing value of Sterlite Technologies Limited (parent), which is in the form of its power business (child) will be removed from it into a separate company.

The value of power business (child), which would be removed from the shareholder of Sterlite Technologies Limited (parent) would need to be compensated. As a compensation for this loss of value, the shareholders of parent are usually given shares of Child Company.

You need to analyse what is the form in which investors are being compensated by the management of Sterlite Technologies Limited for letting go the power business and whether the amount of compensation/shares being provided is a justifiable price for the value, which is being let go in power business.





  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above except Vinati Organics, in my portfolio.

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