Q&A: Investing Books, Alkyl Amines, Ruchira Papers, Management Remuneration & Others

Modified on July 13, 2018

The current article in this series provides responses related to:

  • Guidelines for improving investment skills, investing books etc.
  • Clarifications related to Self-Sustainable Growth Rate (SSGR)
  • Queries on Alkyl Amines Chemicals Limited and net fixed asset turnover (NFAT)
  • Queries on Ruchira Papers Limited and managerial remuneration
  • Importance of conference calls and investor presentations
  • Queries on turnaround stories & BIFR companies

 

Query 

Hello Vijay sir,

I am presently working as a software engineer. I wanted to learn about investing from 2 years back, but I didn’t know where to start, what courses to take. I tried reading a few books but of no use. A year back while surfing the internet, I came across your articles. That was the starting point and what exactly I wanted to learn and thanks for your articles as well. I have a few questions to ask

Question 1

I want to get in-depth understanding and knowledge of evaluating stocks, more than stock evaluation how to develop in-depth business analytical thinking. What can you suggest to me based on your experience like where to start?

Question 2

Since I can squeeze 3-4 hrs a day on investing. How do you want me to allocate my time? Reading books or analysing stocks.

Question 3

For reading other than books. What should I read (read more annual reports, research articles, case studies)?

Question 4

At present, I have no idea of valuation. Could you suggest a good book to understand valuation for non-finance backgrounds which is easy to understand?

Question 5

Any other suggestions apart from these to become a better investor. Doing what make us a better investor.

Thanks.

Author’s Response:

Hi,

Thanks for writing to me! I am happy that you found the article useful.

1, 2 &3) 

I advise readers of the website that the learning stock analysis and investing has two aspects: theoretical and practical.

The theoretical aspects gets adequately covered by reading two books:

i) The Intelligent Investor by Benjamin Graham

Read: Book Review – The Intelligent Investor by Benjamin Graham

ii) One Up on the Wall Street by Peter Lynch

Read: Book Review – One Up on the Wall Street

In addition, readers may go through the articles on www.drvijaymalik.com to get the simplified understanding of a lot of concepts.

For the practical aspect, the investor needs to read more and more annual reports and then do the company and stock analysis on her own.

I believe that the above-mentioned books would teach an investor most of the relevant stock analysis concepts and thereafter studying many annual reports would improve her stock analysis skills.

4) 

Valuation is a very subjective concept. I prefer to use P/E as the key criteria and have accordingly explained my thought on the P/E to be paid for any stock in the following article:

3 Principles to Decide the Investable P/E Ratio of Stocks

5) 

If choosing between reading more theoretical books and reading more annual reports, then I would advise investors that after reading the two books mentioned above, the investor should read more annual reports.

Hope it clarifies your queries!

All the best for your investing journey!

Regards

Dr Vijay Malik

 

Query

 

Article: Analysis: Alkyl Amines Chemicals Limited

Hello Sir,

Sorry, I had to go in your past article to understand more about ratios. I loved the way you have explained. Sir does it mean that if the company has CFO>PAT which means its operational efficiency is good. But if the company is still increasing its debt it is only because of poor NFAT even after the company has increased its NFAT at 2.9 as explained above. 

How did you come up to the conclusion that debt is increased because of its poor NFAT even after it is more than 1?

Read: How To Analyse Operating Performance of Companies

Author’s Response:

Hi,

Thanks for writing to me! I appreciate that you are going through the past articles and are reasoning out with different concepts to conduct the stock analysis.

In the case of Alkyl Amine, the debt seems to have increased due to the debt funded CapEx. As per the latest data available for FY2007-16 in screener export to excel:

FY2007-16 PAT: INR 223 cr. and CFO: INR 373 cr. Therefore, the profits have been converted into cash without any issues.

However, during the same period of 10 years (FY2007-16), the company has done CapEx of about INR 206 cr., Paid interest on its debt during this period of about INR 125 cr. and paid dividends of about INR 58 cr., leading to a total outflow of about INR 390 cr.

As a result, we notice that the debt of the company has increased from INR 82 cr. in FY2007 to INR 111 cr. in FY2016.

Hope it clarifies your queries!

All the best for your investing journey!

Regards

Dr Vijay Malik

 

Query

Article: Analysis: Ruchira Papers Limited

Hello Dr Vijay,

I think the act says that the remuneration should be 10% of net profit before tax (and not after tax) as per section 198 of companies act 2013. Can you please confirm?

Please refer to the article from EY on CSR spend guidelines.

According to this, the net profit is calculated as per section 198 of companies act 2013. Please refer page 7. In there the income tax falls under “non-permissible deductions”. So income tax cannot be deducted from profit for calculation of net profit (this would increase the CSR spend required).

Hence, as per the act, net profit for calculating CSR and WTD remuneration is inclusive of tax.

Regards,

Author’s Response:

Hi,

Thanks for writing to me and point out to this explanation.

It seems that for managerial remuneration, income tax as well as the remuneration of managers need to be adjusted. The applicable section is 197 of companies act 2013:

“The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven percent of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits”

Also, apparently, the company has declared that it does not have adequate profits for payment of managerial remuneration under section 197 or schedule 5 of companies act 2013. At page 34 of the FY2016 annual report:

“During the Financial Year ended 31st March 2016, the Company did not have adequate profits for payment of managerial remuneration under section 197 and Schedule V of the Companies Act, 2013. The profitability has increased during the year but the remuneration proposed does not fall under the limits as specified under section 197 resulted inadequacy of profits during the F.Y. 2015-16. “

Anyway, by any means, the salary being paid to the promoter managers and the relatives is higher than reasonable levels.

Read: Steps to Assess Management Quality before Buying Stocks (A) (Moneylife SessionPart-2)

Please revert for any further clarifications.

All the best for your investing journey!

Regards,

Dr Vijay Malik

 

 

Query

Hello sir,

I wanted to know how to use conference calls and other investment presentations on BSE as a part of our research. Do they matter a lot or is there any other way out?

Author’s Response:

Hi,

Thanks for writing to me!

Conference calls and investor presentations are essential to understanding the current status of business/ongoing projects etc. They are also helpful in understanding the short-term tweaks in the overall company strategy, which the company might do to tackle intermittent problems etc.

Read: How to Monitor Stocks in Your Portfolio

All the best for your investing journey!

Regards,

Vijay

 

Query 

Hi Vijay

Thanks for sharing your knowledge, it’s really a great work. One quick thing- I was not able to get the half-yearly balance sheet available in downloadable format? Any suggestions where to look for?

Author’s Response:

Hi,

Thanks for writing to me! I am happy that you found the article useful.

Companies publish half-yearly balance sheet is presented in its summary format as a pdf document along with the Sept quarter results. Currently, I do not know of any source, which might provide it in excel format. In case, you come to know any such source, then please intimate us as well.

Read: Understanding the Quarterly Results Filings of Companies

All the best for your investing journey!

Regards

Vijay

 

Query 

Dear Vijay Ji

How to look at companies coming out of BIFR and successful turnaround stories?

Author’s Response: 

Hi,

Thanks for writing to me!

I personally do not invest in turnaround companies and prefer to invest in companies which show a history of stable growth.

All the best for your investing journey!

Regards,

Vijay

P.S.

 

DISCLAIMER

  • 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 in my portfolio.

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The objective of “Peaceful Investing” approach is the selection of such stocks, where once an investor has put in her money, then she may sleep peacefully. Therefore, if later on, the stock prices rise, then the investor is happy as she is now wealthier. On the contrary, if the stock prices fall, even then the investor is happy as she can now buy more quantity of the selected fundamentally good stocks.

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