how to read annual report

7/31/2019 How to Read Annual Report

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For private circulation only

The date on which valuations are

based and investment opinion w as

formed along with the company

code

Analyst rating on the stock that

corresponds to a specific

investment outlook as explained

in rating rationale.

Know about the company's

background, including top

management and correspondence

details

Identify how much promoters and

institutional interest is there in the

company

A brief snapshot of the company's

size and of market returns

generated along with benchmark

indices return during a specified

period.

Graph showing how the stock has

performed compared to benchmark

indices over a period of time. It

throws insight into stock's return

potential relative to broader market

indices.

Looking for declining forward

P/E as it indicates company's

future growth as forecasted

earning would be higher than

current earnings.

EV/EBIDTA ratio determines the

value of a company. A lower

ratio indicates that the company

may be undervalued.

Improving ROCE/ ROE ratios

indicate the efficiency and

profitability of a company's

capital investments.

Look for consistent and

rising EPS growth.

This box gives the analyst's

estimate of target price of the

stock, the time horizon it would

take to reach and the appreciation

in percentage term during that

period from current price levels.

Key factors that we feel would

drive the anticipated future growth

in revenue & profitability.

HOW TO READ THIS REPORT

Know key financial trends and how

the company measures up on

different valuation parameters for

fair value estimates based on

current and estimated future

growth.

The valuation section of provides

our justification for a stock using a

variety of valuation techniques.

DEMOCO

PY


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MAKING SENSE OF THE NUMBERS

(Rs crore)

FY08E FY07E FY06ESales 603.32 440.29 311.99

% Growth 37.03% 41.12% 26.65%

Operating Profit 137.55 89.15 54.72

% Growth 54.29% 62.93% 25.96%

Other Income 3.72 2.79 1.98

Depreciation 7.51 8.34 9.26

EBIT 133.76 83.60 47.44

% Growth 60.00% 76.24% 29.96%

Interest 14.44 12.40 10.82

Profit Before Tax (PBT) 119.32 71.20 36.62

% Growth 67.60% 94.42% 47.25%

Taxation 22.67 13.53 6.96

Tax as % of PBT 19.00% 19.00% 19.00%

Net Profit 96.65 57.67 29.66

% Growth 67.6% 94.4% 45.3%

Shares O/S 3.35 3.35 3.35

EPS (Rs) 28.85 17.21 8.85

Profit and Loss Account

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(Rs crore)

FY08E FY07E FY06E

Source of Funds

Share Capital 49.44 49.44 49.44

Reserves & Surplus 236.84 140.19 82.52

Secured Loans 106.31 92.76 82.17

Unsecured Loans 229.32 229.32 229.32

Total 626.14 515.93 447.67

Appl icat ion of Funds

Net Block 76.52 84.04 92.38

Capital Work-in-progress 0.00 0.00 0.00

Investments 0.01 0.01 0.01

Inventory- Other 65.32 49.18 35.93

Cash 416.51 332.68 282.55

Loans & Advances 7.42 7.42 7.42

Less Current Liabilities & Prov. 88.81 66.84 48.80

Trade Receivables 147.00 107.28 76.02

Total 626.73 516.52 448.26

Balance Sheet

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Total expenses should be seen inrelation to revenue trends for previous

years and quarters, as it impact theoverall profit which is aviable to

shareholderes.

All things being equal, companies withhigher sales growth rates are generallymore preferable than those with slower

revenue growth rates.

Check for variations in non-operatingexpenses including interests,

depreiciation and taxes as these decidethe final profit which is available to

shareholders

Net profit growth is a very importantparameter to look into, however EPS

growth is even more important ascompanies with expanding equity base

may show restrictive EPS growth.

A Profit and Loss Account or an Income Statement represents how much money a company has made from selling its product/service during a specified time period (i.e. month, quarter, year, etc.), how much money it spent for selling and m aking those product/services and the money it actually earned during that period.

When we look for variations in abalance sheet from year-to-year, one

can detect the companys growthpotential and value. It shows us how

profits are used to finance thecompany's operations, and if the

company has enough cash for growth.

Leverage (long-term debt/total networth), represents how assets arefinanced by the company, that is,

whether by debt or retained earnings. Ifa company has a high amount of

leverage, or debt, then its earnings pershare (EPS) would be highly sensitive

and volatile depending upon thebusiness growth or de-growth.

Balance Sheet is a snapshot of a company's financial condition at a single point in time (often the end of a fiscal year) and givesinvestors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

Another important ratio is the currentratio (current assets/current liabilit ies),

that shows the ability of the company topay its short-term obligations. When

compared with industry average, alower ratio may indicate possible

liquidity problems..................................................................................................................................................


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(Rs crore)

FY08E FY07E FY06EProfit after Tax 96.65 57.67 29.66

Dividend Paid 0.00 0.00 0.00

Depn 7.51 8.34 9.26

Cashflow before WC Changes 104.17 66.01 38.92

Net Increase in Current Liab. 21.97 18.04 10.08

Net Increase in Current Assets 55.86 44.51 -2.09

Cashflow from operations 70.28 39.54 51.09

Purchase of Fixed Assets 0.00 0.00 -0.02

(Increase)/Decrease in Invt. 0.00 0.00 0.00

Cashflow from investing 0.00 0.00 -0.02

Increase/(Decrease) in Debt 13.56 10.59 221.74

Cashflow from financing 13.56 10.59 221.74

Op balance of cash 332.68 282.55 9.70

Closing balance of cash 416.51 332.68 282.55

Cash Flow Stat ement

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FY08E FY07E FY06E

EPS 28.57 16.93 8.57

Book Value Per Share 57.91 38.36 26.69

Enterprise Value 414.92 485.20 524.74

EV/Sales 0.69 1.10 1.68

EV/EBIDTA 3.02 5.44 9.59

Market Cap/Sales 0.82 1.13 1.59

Price/Book Value 2.56 3.86 5.54

Operating Margin (%) 22.80 20.25 17.54

Net Profit Margin (%) 15.92 13.02 9.45

RONW 33.43 29.91 21.76

ROCE 21.36 16.20 10.60

Debt/Equity 1.17 1.70 2.36

Current Ratio 7.16 7.43 8.24

Quick Ratio 6.43 6.69 7.50

Fixed Assets Turnover Ratio 7.88 5.24 3.38

Debtors Turnover Ratio 4.10 4.10 4.10

Inventory Turnover Ratio 9.24 8.95 8.68

Ratios

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Cash flow from operating activities shows thecash used or generated from normal operations.It shows the ability of the company to generate

positive on a sustained basis.

Cash flows from investing activities representall the cash used or provided for the

purchase/sale of income-producing assetssuch as fixed asset etc.

Cash flows from financing activities reflect theflow of cash between a firm and its owners

and creditors. An increase in cash in thissection could mean the company taking loanor issuing fresh equity to fund expansion etc.which would have a bearing on the earnings

per share of the company.

Negative or declining free cash flow indicatesthat the Company needs to issue shares, cut

costs, or borrow money to continue whereasa company with positive or increasing free

cash flow will be able to pay dividends, fundgrowth without raising more funds.

Cash Flow Statement shows the money flowing into a business from sales, borrowings etc. and the amount of money flowing out ofa business through paying for wages, rent, interest owing, paying back loans, buying raw materials etc. If the cash flowing into abusiness does not meet the cash flowing out, then the company would be unable to meet its debts and other obligations and couldbe forced to close down.

Investment ratios are important for investorsas they are good reference points for

ascertaining the value of a company shares.

Ratio Analysis helps us comparing a company against industry benchmarks along with its past performance and is a good way togauge what is "normal" and what is "abnormal" with the company.

Profitability ratios measure the ability of thebusiness to make a profit and tell us how

much profit, on average, business has earnedper rupee of turnover. Look at the trend from

one period to another and check for anyimprovements or deterioration

Liquidity ratios measure the company's capacityto pay its debts. These ratios are often used by

creditors to determine the ability of the businessto repay loans and are indicator of the

businesses' vulnerability to risk.

Efficiency ratios indicates the number of timessales had been generated by the availablecapital employed (CE). An increase in the

asset turnover in the current year over that ofthe previous year indicates efficient utilization

of assets which is expected to lead to anincrease in profitability.


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Assets

The resources owned by a company that is expected to provide

benefits to its business. Total assets are shown in Rupees crores

and represent the last day of the specified report ing period.

Asset Turnover

This figure represents how many dollars in revenue a company

has generated per dollar of assets. It is calculated by dividing total

revenues for the period by total assets for the same period. In

comparison, the industry average and S&P 500 are shown for the

most recent fiscal year. Asset turnover can give an indication of

how efficient a company is. A high asset turnover, which

expresses how many times a company sells-or turns over-its

assets in a year is a sign of high efficiency.Balance Sheet

Balance sheet represents how much a company owns (equivalent

to its assets), how much it owes (equivalent to its liabilities) and

the difference between the two i.e. equity, which is part owned

by shareholders.

Book Value

Book value is also known as equity or net worth which is the same

as total assets minus total liabilities. Book value per share is net

worth divided by shares outstanding and shows how much of

equity is represented by each share of stockCapital Expenditure

Capital expenditure is the money invested by the company in the

future growth of its business and includes land, plant, equipments,

intellectual property rights etc.

Cash Flow

Cash Flow shows the movement of cash in and out o f a business

from day-to-day operations and other indirect effects, such as

capital expenditure, tax and dividend payments etc. Cash flow

adjusts the income figures to a cash basis after including operating

differences such as depreciation, but before adjusting forinvestments (such as purchases of plants or equipment) or

financing.

Current Assets

Current assets include cash and anything that is expected to be

converted into cash within twelve months of the balance sheet

date. Current assets when used in comparison with current

liabilities is a good measure of company's short term liquidity.

Current Liabilit ies

Current liabilit ies are liabilities which the company expects to pay

within twelve months of the balance sheet date on account oftrade creditors, dividend etc. Current liabilities when used in

comparison with current assets is a good measure of company's

short term liquidity.

USERS GUIDE

Current Ratio

Current ration is equal to current assets divided by current liabilities

and is a measure of company's liquidity of a business, i.e. its abilityto meet its short-term obligations. Also referred to as the Liquidity

Ratio.

Debt to equity ratio

Debt/equity ratio equals company's total debt (including short term

and long term obligations) divided by shareholders equity (also

known as networth). This ratio indicates the amount of liabilities

the business has for every rupee of shareholders' equity. This

ratio is a good indicator of a business's capacity to repay its creditors

and is considered very important by most term lenders.

Depreciat ionDepreciation is a non cash charge taken against company's profit

for the deterioration of its asset value over its useful life

Div idend

Portion of profits that a company distributes to its shareholders.

Dividend payout ratio indicates percentage of the earnings paid to

shareholders in cash.

Dividend Yield %

The dividends per share of the company over the trailing one-

year period as a percentage of the current stock price

Earnings per share (EPS)

EPS is the amount of profit a company earns from its continuing

operations in a given year divided by the average number of shares

outstanding.

EBIDTA

EBIDTA (Earnings before interest depreciation and amortization)

is calculated by looking at earnings before the deduction of interest,

tax, depreciation amortization expenses. EBIDTA is useful in

analysis companies that have large amounts of fixed assets which

are subject to heavy depreciation charges (such as manufacturing

companies) or in the case where a company has a large amount ofacquired intangible assets on its books and is thus subject to large

amortization charges (such as a company that has purchased a

brand or a company that has recently made a large acquisition).

Enterprise Value (EV)

EV is a measure of what the market believes a company's ongoing

operations are worth. Enterprise value is equal to (company's

market capitalization + debt - cash and cash equivalents). EV is of

significant importance to both individual investors and potential

acquirers considering a takeover of the company.

EV/ EBITDA

EV/EBITDA is the enterprise value of a company divided by

earnings before interest tax depreciation and amortisation. EV/

EBITDA has an edge over P/E ratio as it is unaffected by company's


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financing structure as it compares the value of the business, free

of debt to earnings before interest. If a business has debt, a buyer

of that business clearly needs to take that debt into account in

valuing the business, which the EV reflects.

Forw ard P/ EA stock's current price div ided by the EPS estimate for the next

fiscal year. This ratio indicates how cheap or expensive a stock is

as compared to forward earnings estimates. The lower the forward

P/E, the cheaper the stock.

Intangible assets

Intangible assets as distinguished from tangible assets includes

items like goodwill, trademark, or patent and do not have any

physical existence

Free Reserves

Free reserves are profits retained by a company in its books and isavailable for d istribution to shareholders. These reserves do not

include capital redempt ion reserve, or asset revaluation reserve.

Leverage

Leverage is company's long-term debt in relation to equity in its

capital structure. The larger the long-term debt, the higher the

leverage.

Leveraged Company

A company which has higher proportion of debt in its capital

structure.

Market Capit alization

Market capitalization represents the total market value of the

company at the current price, of the total number of equity shares

issued by a company.

Net Profit

The final profit of a company, after all deductions including interest,

depreciation and taxes. It is also knows as the bot tom line.

Net profit margin

Net profit m argin is a measure of a company's profitability and

efficiency and is calculated by dividing net profits by sales.

P/ E Rati o (or Price-Earnings Rati o)

Market price per share divided by the firm 's earnings per share. It

is the most commonly used valuation tool and shows how much

investors are willing to pay for a rupee earned by the company.

PEG Ratio

PEG ratio is arrived by dividing forward P/E of a stock by its

projected EPS growth. PEG ratio represents how much the

investors are paying for company's growth.

Price/ Book Ratio

Price/Book Ratio compares a stock's market value to the value oftotal assets less total liabilit ies (book). It is also called market-to-

book and still is a popular tool and measures tangible assets of the

company.

Quick Ratio

The quick ratio is defined as current assets minus inventories and

then divided by current liabilities. It measures the liquidity of a

company and indicates whether the company can meet its

obligations from the current assets. It is also known as the acidtest ratio.

Return on Equity (ROE) or Return on Networth (RONW)

Return on equity is an important financial ratio & indicates how

well the company firm has used reinvested earnings to generate

additional earnings.

Return on Assets (ROA)

Return on Assets is equal to the net income divided by assets and

indicates how much profit a company generates on its total assets.

Unlike ROE, ROA does not get impacted by the firm taking in

more debt.

Return on capital employed (ROCE)

ROCE is a fundamental financial performance measure and is

arrived by dividing profit before interest against the money that is

invested in the business. (profit before interest and tax/capital

employed x 100) which indicates how much profit the company

is generating at the operating level.

Revenue Growth

Revenue growth represents the rate of revenue growth over the

trailing one-year period and gives a good picture of the rate at

which companies have been able to expand their businesses.

Retained Earnings

Retained earnings are part of a company's earnings which is not

distributed as dividends but held back and accumulated for its

growth.

Share

A share is one unit of ownership of a company.

Shareholders' funds

A measure of the shareholders' total interest in the company

represented by the total share capital plus reserves.

Tangible Assets

Tangible assets are assets that have a physical existence, like

cash, gold, real estate, machinery, etc.

Total Revenue

Revenue is a measure of how much money a company has brought

in within a given period. It is used in the context of revenue figures

for previous years and quarters and is a common w ay to measure

the size of a company.

Yield

Yield is arrived at by dividing the annual dividend per share by the

current stock price and displayed as a percentage.


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How should I use the detailed company reports for my investments?

The detailed company report is an ideal product for a long-term investor who is looking for decent returns over the next six to 18 months.

How do you select t he company and how are the recommendations made?The detailed company reports are prepared by analysts who are specialists in that particular sector and who have deep understanding of

the sector dynamics, business fundamentals, industry trends, etc. Every report is made only after meeting the management of the

company and understanding the future prospects. Detailed forecasting of the profit and loss and balance sheet is done subsequently to

give a fair picture of the future of the company to the investors.

What should I do if t he stock is above the recommended price?

You can buy the stock even if the stock has moved up by 10-15% after recommendation. An investor should look at the upside potential

from his entry price considering the target price. For example if the recommended price is Rs 100 and the target price is Rs 150 and the

current market price is Rs 115, one can still enter the stock for an upside potential of Rs 35.

When should I book profits?

Ideally one should w ait for the target price to be achieved. However, if you are satisfied with the profits you may exit the stock.

The recommended stock has not moved up for quite some time. What should I do?We come up with updates every quarter and you should look for any change in recommendation. If for some reason the performance fails

to live up to the expectation we may revise the rating and advise an appropriate action in the stock.

What happens if the stock falls below the recommended price?

Typically there will be few cases when the stock will fall below the recommended price. As the stock is for the long-term one should hold

on to the stock. However, due to some unforeseen circumstances the stock falls below the recommended price we would communicate

the next action in the updates.

What should I understand from the Profit and Loss Account, and Balance Sheet numbers?

See page 2.

How much money should I invest in one stock?

One should not invest more than 5-10% of the total investible surplus in one stock. For example if you have Rs 100,000 to inves t, not

more than Rs 5000-Rs 10,000 should be invested in the stock.

FAQs ABOUT DETAILED COMPANY REPORTS

Harendra Kumar Head - Research and Content [email protected]

ICICIdirect Research Desk

ICICI Brokerage Services Limited,

2nd Floor, Stanrose House,

Appasaheb M arathe Road,

Prabhadevi, Mumbai - 400 025

[email protected]

PH/15/12/06

Discla imer

ICICI Brokerage Services Ltd., a subsidiary company of ICICI Bank Ltd. offers products and services through www .icicidirect.com . The informationprovided herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would be contrary to lawor regulation. The availability of ICICIdirect services and products being mentioned herein are for your information only and shall not be deemedto constitute solicitation by IBSL and/ or by any of its affiliates for any such products and/or services.

The contents here above shall not be considered as an invitation or persuasion to trade or invest. Investors should m ake independent judgm ent withregard suitability, profitability, and fitness of any product or service offered herein above. Investors may note that past performances are notnecessarily indicative of future perform ances and IBSL assumes no liability for any inaccurate, delayed or incomplete inform ation, nor for any actionstaken in reliance thereon.

IBSL shall have no liability for any loss or injury caused either in whole or in part by acts, omissions or conditions beyond its control in procuring,compiling, delivering information or any omissions, errors or inaccuracies in the information or delays, interruptions in delivery of the informationor any decision made, action taken or damage caused in reliance upon the information furnished herein.

We do not have any presence in UAE and the products and services are offered from outside UAE. Kindly read the Risk Disclosure document beforeinvesting in Mutual Funds. Investments in Mutual Funds are subject to market risk, pl. read the offer document carefully before investing.

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0845 and is having Regd. Office: ICICI Brokerage Services Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, Ind ia.This marketing material is from the UAE Representative Office of ICICI Bank Ltd. Products and services of ICICI Bank and/or its affiliates mentionedherein are provided from the offices of ICICI Bank and/or its affiliates outside the UAE and are governed by specific terms and conditions. Fordetailed information on products, services and terms and conditions of ICICI Bank and/or its affiliates please contact the ICICI Bank Call center inDubai or visit our website www.icicibank.com/nri, and www.icicidirect.com. "ICICI Bank" and the "I man" logos are the trademarks and property ofICICI Bank.

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