January 20, 2012

Accounting Thematic
Indian Accounting Thematic

Accounting quality drives Analyst contact

Bhargav Buddhadev

investment returns Tel: +91 22 3043 3252

bhargavbuddhadev @ambitcapital.com

Along with everything else, accounting quality in India seems to have Our three sets of accounting checks*
stagnated at a low level. Our analysis of the last four years of
Revenue recognition checks
consolidated accounts of the BSE500 (excl Financials) points to
Expense manipulation checks
continuing divergence in accounting quality within the stock market.
Cash pilferage checks
The silver lining is that the relationship between good accounting and
positive investment performance seems to be tightening over time. Source: Company. *For each category of
accounting checks, we calculate a range of
As one would expect, accounting quality varies by sector (see table on the right) accounting ratios – see pg 3 for details.
with the usual suspects like Realty, Conglomerates and Construction bringing
up the rear. More importantly, the change in a sector’s accounting scores over Sector by sector accounting scores
time seem to have a bearing on investment returns (see exhibit 6 on page 5). Blended Accounting
Sector
Ironically, this puts Realty companies in a nice position as, inspite of being the Score (FY08-11)
bottom of the class on a blended basis over FY08-11, Realty is one of the most Logistics 201
improved sectors when it comes to change in accounting score across FY08-11. Cement 198
Media companies are also in a similar position. Fertilizers 192
Similarly, accounting scores vary across market cap buckets (see table below right Telecom 190
& Section 3). Whilst the “top 50” stocks have the best blended scores across FY08- Shipping 185
11, the improvement in accounting scores over FY08-11 has been the greatest in Auto Anc 181
the midcap bucket (bucket 3: the 100 stocks with mkt cap between $0.2-0.6bn). Chemicals 180
Most importantly, from an investors’ perspective accounting scores have a clear Infrastructure 178
impact on stock level returns. Whilst this is not apparent when you look at the Utilities 175
BSE500 as a whole, when you drill down to the sector level the relationship is Industrials 174
clear (see Exhibits below and Section 5). In fact, if you drill down further into a FMCG 173
specific market cap segment in a sector (see Exhibit on the right), the link between Oil & Gas 172
good accounting and positive investment performance becomes even clearer.
Media 171
Exhibit 1: IT companies - Impact of Exhibit 2: Large cap IT companies – Textiles 170
accounting on share prices Impact of accounting on share prices IT 169
40% y = 0.1215x + 0.0032 25% y = 1.0662x + 0.1322 Capital Goods 167
30% R2 = 0.0083 R2 = 0.901 TCS
20% Pharma 166
Price performance (FY08-11)

Price performance (FY08-11)

20%
10% 15% HCL Metals 165
Wipro Tech
0%
10%
Infosys Auto 163
-10%
CAGR

CAGR

-20% 5%
Agro 163
-30% Oracle Consumer Durable 158
0%
-40%
Retail 153
-50% -5%
-40% -20% 0% 20% 40% -15% -10% -5% 0% 5% 10% Mining 152
Avg change in accounting score (FY08-11) Avg change in accounting score (FY08-11) Miscellaneous 152
Source: Ambit Capital research Source: Ambit Capital research. Construction 148
Conglomerate 141
Whilst our analysis uses on an array of accounting ratios to detect financial
Realty 136
manipulation by listed companies, the most powerful ratios are:
Average 169
 CFO/EBITDA or the “cash conversion ratio” fluctuates widely across time and Source: Ambit Capital research
across companies. It appears that whenever promoters want to boost profits
(and do a QIP), working capital deteriorates and cash conversion suffers. Avg. accounting score by mcap bucket
BSE500 Bucket Avg. accounting score
 “Other Loans & Advances as a % of Networth” seems to be the most
widely favoured route when it comes to pulling cash out of the company (to Top 50 cos 175
fund whatever else has caught the promoters’ fancy outside the listed entity). Next 100 174
 “Provisioning for doubtful debtors as a % of gross debtors” also Next 100 162
fluctuates significantly across time and widely across sectors and companies. A
Next 85 cos 161
low score on this metric combined with poor cash conversion is arguably the
Source: Ambit Capital research
defining signature of a dodgy set of accounts.
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit
Capital may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to disclaimer section on the last page for further important disclaimer.
 Accounting Thematic

CONTENTS
Methodology ..............................................................................3

Accounting Scores by Sector ......................................................5

Accounting score by market cap bucket....................................8

Changes in Accounting Quality over Time ................................9

Accounting Quality and Investment Performance ..................10

Diving deeper into the ‘Bottom 50’ Companies ......................12

So What Should Investors Do? ................................................14

Appendix 1...............................................................................15

Appendix 2...............................................................................17

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 Accounting Thematic

1: Methodology
Using consolidated financials for FY08, FY09, FY10 and FY11 we have calculated
seven financial ratios for the BSE500 companies (excluding Financial Services
companies).
Our dataset comprises 335 companies since we are excluding:

 75 Financial Services companies (on the grounds that the forensic accounting
ratios used below do not do justice to these companies) and

 90 companies on the grounds that they have not been listed for the duration
of the four-year period that our study focuses on or have gone through
corporate actions like change in year end, de-merger etc.
Appendix 1 gives a full list of the excluded companies under these three headings.
Appendix 2 gives the names of the companies included in the study along with
their sectoral classification.
The accounting ratios that we are focusing on include:

 CFO/EBITDA: This ratio is a check on a company’s ability to convert EBITDA

(which can be relatively easily manipulated) into operating cash flow (which is
more difficult to manipulate). If this ratio is deteriorating over time then it
raises concerns about the company’s revenue recognition policy (as aggressive
EBITDA growth alongside poor growth in CFO may imply revenue
manipulation via methods like channel stuffing). Whilst on the face of it the
computation of the ratio might seem simple, in real terms it is not as the
computation of the ratio has gone through four layers of filtering. To give an
example, if both CFO and EBITDA are negative the resultant ratio is positive.
However our filter ensures that the ratio turns negative and in the process the
company gets penalized.

 Miscellaneous expenditure as a percentage of revenues: This ratio is a

check on the company’s expenditure policy. If this ratio is increasing
consistently then it raises concerns over the authenticity of such expense (as
consistent increase in miscellaneous expenses as a percentage of revenues
could imply cash pilferage by the promoter). Given that miscellaneous
expenses also includes notional items related to forex, we eliminate them
whilst computing the figure of miscellaneous expenses.

 Other loans and advances as a percentage of net worth: This ratio is a

check on the company’s cash management policy. If this ratio is increasing
consistently then it raises concerns over the veracity of loans given (as a
consistent increase in loans could imply diversion of cash to seemingly
unrelated companies).

 Provision for doubtful debts as a percentage of gross debtors: This ratio

is a check on the company’s provisioning policy. If this ratio is consistently
falling then it raises the spectre of earnings being boosted through aggressive
provisioning practices.

 Contingent liabilities as a percentage of net worth: This is a check on the

company’s off-balance sheet liabilities. If this ratio is increasing consistently
then it raises concerns regarding the strength of the company’s balance sheet
in the event the contingent liabilities materialize. Given that contingent liability
also includes genuine items like letter of credit, guarentees, bill discounting
and claims not acknowledged as debt, we eliminate them whilst computing the
figure of contingent liability.
These ratios can be broadly divided into three groups — revenue manipulation
checks, expense manipulation checks and cash pilferage checks — see exhibit 3.

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 Accounting Thematic

Exhibit 3: Defining the three broad categories of accounting checks (this is not an
exhaustive list of the ratios used)
Category Ratios
Revenue recognition checks CFO/EBITDA
Provision for doubtful debts as a % of gross debtors, contingent
Expense manipulation checks
liabilities as a % of net worth
Miscellaneous expenses as a % of revenues and other loans
Cash pilferage checks
and advances as a % of net worth
Source: Ambit Capital research

Then for each of the four years between FY08-11 we calculate an accounting score
for each company based on the above ratios. The best company gets a score of
335 (as there are 335 companies in the list) and the worst a score of 1 i.e. the
score drops by 1 point for every company as we go down the accounting quality
spectrum.
Occasionally, in exceptional circumstances, we also assign a ‘0’ score if the
company reports an inexplicably bad ratio. For example, if the company reports
negative CFO and negative EBITDA, we assign a ‘0’ score.
Note that whilst calculating scores we ascribe equal weightings to each of the
ratios since we do not want to make the method any more judgmental than what
it already is.
Once the scores for each year between FY08-11 are calculated, we take the
average accounting score across the four years to calculate the blended
accounting score across FY08-11.
All our financial data are sourced from CapitaLine and our share price data, from
Bloomberg

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 Accounting Thematic

2: Accounting Scores by Sector

Exhibit 4: Accounting score across sectors sorted by blended accounting score (the higher the score, the better the
sector; so Logistics is the best sector here)
No of Blended Avg annual % change Share price Outperformance
Sector companies in Accounting Score in accounting score performance relative to Sensex
the sector (FY08-11) (FY08-11) (FY08-11) (OVER FY08-11)
Logistics 4 201 4% 11% 0%
Cement 8 198 3% 12% 2%
Fertilizers 8 192 6% 32% 21%
Telecom 6 190 -5% -12% -22%
Shipping 6 185 1% -5% -16%
Auto Anc 13 181 0% 17% 7%
Chemicals 14 180 2% 19% 9%
Infrastructure 10 178 9% 14% 5%
Utilities 12 175 8% 14% 3%
Industrials 14 174 5% 14% 3%
FMCG 19 173 0% 44% 33%
Oil & Gas 12 172 8% 21% 11%
Media 8 171 28% 8% -2%
Textiles 9 170 7% 14% 3%
IT 29 169 1% 6% -5%
Capital Goods 23 167 1% 5% -6%
Pharma 26 166 4% 15% 4%
Metals 18 165 3% 30% 19%
Auto 7 163 2% 21% 10%
Agro 7 163 10% 30% 19%
Consumer Durable 3 158 5% 87% 77%
Retail 8 153 2% 29% 17%
Mining 4 152 4% 37% 26%
Miscellaneous 30 152 6% 20% 9%
Construction 13 148 1% 7% -3%
Conglomerate 10 141 4% 12% 2%
Realty 14 136 10% -8% -15%
Average 169 5% 18% 8%
Source: Ambit Capital research

Exhibit 5: “Share prices vs Blended accounting scores Exhibit 6: “Share prices vs Change in accounting scores
(FY08-11)” for all the sectors in the market (FY08-11)” for all the sectors in the market
Share price performance (FY08-

50% y = -0.0005x + 0.2412 50% y = 0.6041x + 0.1349

Share price change (FY08-11)

R2 = 0.0038 R2 = 0.0258
40% 40%

30% 30%
11)

20% 20%
10% 10%
0% 0%
130 150 170 190 210 -5% 0% 5% 10%
-10%
-10%
-20%
-20%
Blended Accounting Score (FY08-11) Avg annual chg in acctng score (FY08-11)

Source: Company, Ambit Capital research Source: Company, Ambit Capital research

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 Accounting Thematic

As one would expect, accounting scores different across sectors. Moreover, as

shown in Exhibit 6, the change in these scores across time has a bearing on the
investment performance of the sector. However, the absolute level of a sector’s
blended accounting score does not seem to have a bearing on the sector’s
investment performance (see exhibit 5).
 Based on the blended accounting score (across FY08-11) Construction,
Conglomerates and Realty emerge as the worst 3 sectors with average
scores of 148, 141 and 136 respectively (whereas the average sectoral score
for the BSE500 is 169). Interestingly, the share price performance of the
Construction and Realty sectors also reflects this (underperformance of 3% and
15% respectively).
 Logistics, Cement and Fertilizers emerge as the sectors with the strongest
accounting quality with scores of 201, 198 and 192 respectively which is
~15% above the BSE500 average score.
Exhibit 7: Out and under performance for the best 3 and bottom 3 sectors (figures in the table are absolute
ratios/values and not scores)
Growth in
CFO/ Chg in Other L&A/ Contingent
Misc Exps as PDD Audit fees/
Scores EBITDA Depreciation Networth liability as %
% of Rev (%) growth in
ratio (%) (bps) (%) of networth
revenues (%)
Best 3 sectors by sector outperformance
Logistics 78% 125 1% 0.4% 1% 7% 1.00
Cement 95% 133 2% 0.0% 8% 7% -0.17
Fertilizers 90% 21 2% 1.4% 5% 2% -1.13
BSE 500 Average 61% 142 3% 2% 12% 4% 1.17
Worst 3 sectors by sector underperformance
Construction 22% 100 1% 6.0% 5% 2% 0.80
Conglomerate 52% 62 5% 3.1% 14% 1% 0.50
Realty -145% 204 2% 4.4% 2% 1% 0.54
BSE 500 Average 61% 142 3% 2% 12% 4% 1.17
Source: Ambit Capital research Note: Cells with shading denote outperformance for the best sectors and underperformance for the bottom sectors.

 Realty companies can spring a share price surprise going forward given
their substantial share price underperformance (15% over FY08-11) and the
significant improvement in the accounting score (10% improvement over FY08-
11).
 Media companies could surprise on the positive side given the 28%
improvement in this sector’s accounting score over the FY08-11 (the highest
amidst peers) and share price underperformance relative to the Sensex.
 On the other hand Consumer Durables and FMCG may disappoint given
these sectors’ huge share price outperformance relative to the Sensex (77%
and 33% respectively) coupled with only modest improvements in their
accounting scores (5% and 0% respectively).
Exhibit 8 looks at the experience (from an accounting perspective) of the five
sectors whose scores have improved the most over FY08-11 – Media, Realty,
Agro, Infrastructure and Utilities – and five sectors whose scores have
deteriorated the most (or stagnated) over FY08-11 – Telecom, IT, FMCG, Capital
Goods and Construction.

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 Accounting Thematic

Exhibit 8: How the five best and worst performing sectors (from an accounting
perspective) have evolved over the past four years
Sectors showing the biggest improvement in accounting quality
Media has shown the most improvement (28% per annum) in its accounting score
Media over the past four years. This improvement has been mainly driven by better cash
generation and modest change in depreciation rate across all the four years.
Realty has also shown improvement (10% per annum) in its accounting score over
the past four years. This improvement has been mainly driven by better cash
Realty
generation, rising provision for doubtful debts, falling other loans as % of networth,
and modest change in depreciation rate across two years (FY10 and FY11).
Agro has also shown improvement (10% per annum) in its accounting score over
the past four years. This improvement has been mainly driven by better cash
generation, modest change in depreciation rate, falling miscellaneous expenses,
Agro
falling contingent liability, rising provision for doubtful debts, falling other loans as
% of networth and lower growth in audit fee relative to revenues across two years
(FY09 and FY10)
Infrastructure has also shown improvement (9% per annum) in its accounting score
over the past four years. This improvement has been mainly driven by better cash
Infrastructure generation, modest change in depreciation rate, falling miscellaneous expenses,
and lower growth in audit fee relative to revenues across two years (FY09 and
FY10)
Utilities has also shown improvement (8% per annum) in its accounting score over
the past four years. This improvement has been mainly driven by better cash
Utilities generation, modest change in depreciation rate, falling miscellaneous expenses,
lower growth in audit fee relative to revenues, falling contingent liability and rising
provisions on doubtful debts across two years (FY10 and FY11)
Sectors showing the biggest deterioration (or smallest improvement) in accounting quality
Telecom is the only sector whose accounting scores fell over FY08-11. This dramatic
deterioration is driven by rising other loans as % of networth, rising miscellaneous
Telecom
expenses, rising contingent liability as % of networth and falling provisions as % of
doubtful debts across two years ((FY08 and FY09).
FMCG’s accounting scores have stagnated over the past four years albeit at an
FMCG above average level (the FY08-11 blended average score for FMCG is 173 vs 169
for the BSE500).
IT’s accounting scores have stagnated over the past four years exactly in-line with
IT the market average level (the FY08-11 blended average score for IT is 169 vs 169
for the BSE500)
Capital Goods’ accounting scores have stagnated over the past four years BELOW
the market average level (the FY08-11 blended average score for Capital Goods is
167 vs 169 for the BSE500). This deterioration is driven by rising other loans as %
Capital Goods
of networth, rising contingent liability as % of networth, falling provisions as % of
doubtful debts and higher growth in audit fees relative to revenues over a period of
three years (FY09, FY10 and FY11).
Construction’s accounting scores have stagnated over the past four years WELL
BELOW the market average level (the FY08-11 blended average score for
Construction is 148 vs 169 for the BSE500). As highlighted in exhibit 7 on the
Construction
previous page, this sector fares very poorly on CFO/EBITDA (cash conversion ratio
of only 22% for this sector vs 61% for the BSE500 as a whole) and on “other loans
and advances” (amounting to 6% of networth vs 2% for BSE500 as a whole)
Source: Company, Ambit Capital research.

When we analyze the correlation between the blended accounting score and share
price performance across sectors, we find that in more than 50% of the sectors in
the BSE500, there is a direct correlation between share price performance and
blended accounting score (i.e. higher the score, higher the share price
performance for that particular sector). This issue (regarding the link between
accounting quality and share prices) is explored further on in this note.
In light of this correlation between accounting scores and share price performance
across sectors, exhibit 8 above becomes particularly relevant as:

 Some of the hottest sectors in terms of investment returns over the past two
years – IT, FMCG, etc –have not seen any improvement in their accounting
quality over the past four years.

 Some of the hammered sectors in terms of investment returns over the past
two years – Media, Realty, Infrastructure, Utilities, etc – have shown a strong
improvement in accounting quality over the past four years.

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 Accounting Thematic

3: Accounting score by market cap

bucket
Exhibit 9: Accounting score by market cap bucket
No of companies Blended Accounting Average annual change % share price
Bucket
in the sector score (FY08-11) in score (FY08-11) performance (FY08-11)
Bucket 1 50 175 3% 22%
Bucket 2 100 174 4% 21%
Bucket 3 100 162 6% 15%
Bucket 4 85 161 4% 8%
Source: Ambit Capital research

Based on the market capitalization of companies on December 8th, 2011, we have

divided the BSE500 into four market cap buckets:

 Bucket 1 comprises the 50 largest companies by market cap

 Bucket 2 consists of the next 100 largest companies by market cap

 Bucket 3 consists of the next 100 largest companies by market cap

 Bucket 4 comprises the bottom half of the BSE500.

The 335 companies in our study are split across these four buckets in the manner
shown in the table below.

Exhibit 10: Defining market cap buckets

Bucket Market cap range # of companies in bucket
Bucket 1 `162bn – `2,550bn (US$3.2bn -US$50bn) 50
Bucket 2 `30bn – `159bn (US$0.5bn -US$3.2bn) 100
Bucket 3 `12.5bn – `29.8bn (US$0.2bn -US$0.6bn) 100
Bucket 4 `1.9bn - `12.4bn (US$0.2bn -US$0.6bn) 85
Total 335
Source: Ambit Capital research

 We find that there is a direct relationship between share price performance

across buckets and the blended accounting score across FY08-11 (i.e. higher
the score, the better the share price performance for that particular bucket).
Buckets 1, 2, 3 and 4 with blended accounting scores across FY08-11 of 175,
174, 162 and 161 respectively have shown share price performance (FY08-11
CAGR) of 22%, 21%, 15% and 8% respectively.

 However, when we look at the average annual change in the blended

accounting score we note that bucket 1 has performed the worst - it has
the lowest improvement in its average annual accounting score over FY08-11.

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 Accounting Thematic

4: Changes in Accounting Quality

over Time
In this section we try to understand management’s behavior with regards to
meeting analysts’ expectations. Our analysis suggests a high degree of correlation
between analyst expectations (which is driven by market trends i.e. bull and bear
market) and accounting quality.

Exhibit 11: Changes in Accounting quality over time for the BSE500
FY08 FY09 FY10 FY11
Revenue Manipulation
CFO/EBITDA ratio (%) 40% 86% 58% 58%
Expense Manipulation
Contingent liability as a % of networth 9% 10% 15% 13%
Provision for doubtful debtors as a % of gross debtors 3.8% 3.9% 4.1% 3.7%
Cash Pilferage
Misc expenses as % of revenue 2.8% 3.2% 2.5% 2.7%
Other Loans & Advances as % of networth 1.4% 1.7% 1.8% 1.9%
Share price performance 45% -44% 168% 5%
Type of market Bull Bear Bull Bear
Source: Ambit Capital research

 Average CFO/EBITDA ratio of our universe (335 companies) increased to 86%

in FY09 from 40% in FY08. However, it sharply deteriorated to 58% in FY10 (a
year characterized by heavy QIP and IPO action). Clearly analyst expectations
in FY10 were significantly higher relative to FY09 given the bull market
conditions prevalent from March 2009 to August 2009. This sharp drop in
CFO/EBITDA in FY10 suggests that to meet the street’s expectation, companies
might have resorted to various types of aggressive revenue recognition (eg.
channel stuffing) which whilst ensuring EBITDA growth, adversely impacts
working capital hence lowers the CFO/EBITDA ratio.

 Contingent liabilities (as a % of networth) increased by 50% in FY10. Again this

might be a ploy to boost profitability in a bull market year. Given that that
there is no requirement to show any provisions in P&L on contingent liabilities,
companies might have preferred to classify actual liabilities as contingent
liabilities and thereby shore up both their Balance Sheet and P&L.

 Miscellaneous expenses as % of revenues declined from 3.2% in FY09 to 2.5%

in FY10. Again this might be a ploy to boost up profitability.

 Other loans and advances as % of networth increased from 1.4% in FY08 to

1.7% in FY09 and has since stayed at this level. Given that since FY09, with
the exception of the period from March-July 2009, raising fresh equity capital
has been difficult, promoters might have been motivated to siphon out cash
from the listed entities to their own private companies using other loan &
advances.

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5: Accounting Quality and Investment

Performance
So far in this note we have discussed the link between accounting scores and the
investment performance of sectors (Section 2) and market cap buckets (Section 3).
Obviously, the question arises “Do accounting scores drive investment
performance at the stock level?”

Exhibit 12: “Share prices vs Change in accounting Exhibit 13: “Valuation vs Blended accounting scores
scores (FY08-11)” for all stocks in the BSE500 (FY08-11)” for all stocks in the BSE500

250% y = -0.0298x + 0.1239 121 y = 2.7128x + 5.224

R2 = 0.0003 106 R2 = 0.0039
200%
Price performance (FY08-11)

150% 91
76

FY11 P/E
100%
61
CAGR

50%
46
0%
31
-50% 16
-100% 1
-50% 0% 50% 100% 150% 0 10 20 30 40
Avg change in accounting score (FY08-11) Blended Accounting Score (FY08-11)

Source: Company, Ambit Capital research Source: Company, Ambit Capital research

If you look at the BSE500 as a whole (see the Exhibits above) there does not
appear to be any link between accounting scores and share price returns.
However, when you drill down to the level of the sector and compare stocks within
a sector, a clear positive relationship emerges (the comparison becomes more
“apples vs apples” thereby allowing the power of accounting to drive share prices).
to come through between share price performance and change in accounting
score. Interestingly, we also find that companies with higher blended accounting
score command higher valuations (see exhibit 15).

Exhibit 14: Share prices vs Change in accounting scores Exhibit 15: “Valuations vs Blended accounting scores
(FY08-11)” for the Mining sector (FY08-11)” for the Mining sector

y = 0.7972x + 0.2993 y = 2.3829x + 3.0825

50% R2 = 0.5284 R2 = 0.1112
45%
Price performance (FY08-11)

40%
35%
FY11 P/E

30% 11
25%
CAGR

20%
15%
10%
5%
0% 1
-15% -10% -5% 0% 5% 10% 15% 0 1 2 3 4 5
Avg change in accounting score (FY08-11) Blended Accounting Score (FY08-11)

Source: Company, Ambit Capital research Source: Company, Ambit Capital research

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 Accounting Thematic

In fact if you take this a step further and you look at a specific size bucket within a
sector, the relationship becomes even more striking – see the Exhibits below for
large cap IT stocks.
Therefore, the more you isolate factors such as sector and the size of a company,
the more clearly you can see the role of accounting quality in driving share prices.

Exhibit 16: “Share prices vs Change in accounting Exhibit 17: “Share prices vs Change in accounting
scores (FY08-11)” for IT scores (FY08-11)” IT (Large caps)

40% y = 0.1215x + 0.0032 25% y = 1.0662x + 0.1322

30% R2 = 0.0083 R2 = 0.901 TCS
20%
Price performance (FY08-11)

Price performance (FY08-11)

20%
10% 15% HCL
Wipro Tech
0% Infosys
10%
-10%
CAGR

CAGR
-20% 5%
-30% Oracle
0%
-40%
-50% -5%
-40% -20% 0% 20% 40% -15% -10% -5% 0% 5% 10%
Avg change in accounting score (FY08-11) Avg change in accounting score (FY08-11)
Source: Company, Ambit Capital research Source: Company, Ambit Capital research

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6: Diving deeper into the ‘Bottom 50’

Companies
Exhibit 18: Bottom 50 companies by sector
Number of
# in worst 50 % of worst Probability of company in that sector being in
Sectors companies in the
(A) 50 the “bottom 50” (A/B)
sector (B)
Miscellaneous 8 16% 30 27%
Realty 7 14% 14 50%
IT 5 10% 29 17%
Metals 4 8% 18 22%
Construction 4 8% 13 31%
Conglomerate 4 8% 10 40%
Pharma 3 6% 26 12%
FMCG 2 4% 19 11%
Capital Goods 2 4% 23 9%
Agro 2 4% 7 29%
Retail 2 4% 8 25%
Telecom 1 2% 6 17%
Utilities 1 2% 12 8%
Oil & Gas 1 2% 12 8%
Media 1 2% 8 13%
Auto 1 2% 7 14%
Consumer Durable 1 2% 3 33%
Mining 1 2% 4 25%
Logistics 0 0% 4 0%
Cement 0 0% 8 0%
Fertilizers 0 0% 8 0%
Shipping 0 0% 6 0%
Auto Anc 0 0% 13 0%
Chemicals 0 0% 14 0%
Infrastructure 0 0% 10 0%
Industrials 0 0% 14 0%
Textiles 0 0% 9 0%
Source: Ambit Capital research.

Exhibit 19: Bottom 50 by market cap bucket

Probability of company in
# in worst 50 Number of companies
Buckets % of worst 50 that bucket being in the
(A) in that size bucket (B)
bottom 50 (A/B)
Bucket 1 5 10% 50 10%
Bucket 2 8 16% 100 8%
Bucket 3 19 38% 100 19%
Bucket 4 18 36% 85 21%
50 100% 335 15%
Source: Ambit Capital research.

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 Accounting Thematic

 Miscellaneous (includes companies across sectors like sugar, paper, Hotels,

Aviation and Trading) and Realty are the biggest contributors to the bottom
50 list of companies.

 That being said, since sectors which have a large number of companies in the
BSE500 are more likely to have a greater presence in the bottom 50, a better
way to gauge the accounting quality of a sector is to look at the ‘probability of
a company in that sector being the BSE500‘. This probability is calculated by
dividing the number of entrants (from the sector) in the bottom 50 by the
number of companies from that sector in the BSE500. From this perspective,
the two worst placed sectors are Realty (50% probability of a company in this
sector being ranked amongst “worst 50” companies in India) and
Conglomerate (40% probability).

 In the case of Realty companies the weak accounting score seems to be on

account of revenue manipulation (CFO/EBITDA is low and growth in audit
fee is higher than growth in revenues) and expense manipulation
(contingent liabilities is high and provision for doubtful debts is low).
Conglomerate companies’ weak accounting scores appear to be on account
of revenue manipulation (CFO/EBITDA is low and growth in audit fee is
higher than growth in revenues) and expense manipulation (change in
depreciation rate and provision for doubtful debts is low).

 The weak accounting performance of Realty stocks (worst in the sector) is due
to weak scores on the CFO/EBITDA metric. This is likely to be because of the
following reasons:
 90% of Indian companies in the Realty sector follow the ’percentage of
completion’ method of recognizing revenues — a method which can be
manipulated by overstating the percentage of completion.
 These companies also offer long credit periods. If we analyze the individual
ratios of companies we find that Realty companies seem to have poor cash
generation due to high debtor days.

Ambit Capital Pvt Ltd 13

 Accounting Thematic

7: So What Should Investors Do?

Investment implications
Whilst the key concluding message from our analysis is clear — accounting quality
has a clear impact on investment returns – the challenge for investors is twofold:

 There is no metric akin to our ‘Blended Accounting Score’ available in the

open market. Hence investors might not know what the accounting scores of
their portfolio companies are.

 There are other aspects of corporate governance distinct from accounting (eg.
promoter integrity in general and insider trading in particular), which drive
investment returns. These aspects of corporate governance are even more
opaque that accounting.
In response to these challenges facing our clients, we offer two types of services:

 For clients who are willing to share their portfolio composition with us, we can
share with them the blended accounting scores of these companies. For
companies receiving weak accounting scores, we can highlight the underlying
drivers of such scores. {Note: We can do this only for the BSE500 (ex-
Financials) universe that we have analysed.}

 Whilst in our ongoing published research we will focus on the broader aspects
of corporate governance, for clients who are interested in a deeper dive into
such issues, we provide a bespoke research service. Our bespoke research at
the stock-specific level gives investors a comprehensive analysis of the
promoter’s integrity, board composition and competence and insider trading
patterns.
Clients wishing to avail of these services should contact our sales team or the
author of this note.

Ambit Capital Pvt Ltd 14

 Accounting Thematic

Appendix 1
Exhibit 20: List of companies excluded from our accounting thematic
SN Companies Reason for Exclusion SN Companies Reason for Exclusion
Data not there for FY11 as annual report is
1 3M India Year end change in between the periods 84 JSW ISPAT
not ready
2 A2Z Maintenance Not listed for entire tenure 85 Jyothy Lab. Not listed for entire tenure
3 Abbott India Year end change in between the periods 86 Karnataka Bank BFSI
4 Adhunik Metal Not listed for entire tenure 87 Kemrock Inds. Year end change in between the periods
5 Allahabad Bank BFSI 88 KF Airlines Not listed for entire tenure
6 Allcargo Logist. Not listed for entire tenure 89 Kiri Indus. Not listed for entire tenure
June ending company, balance sheet not yet
7 Amtek Auto 90 K S Oils Year end change in between the periods
ready
June ending company, balance sheet not yet
8 Amtek India 91 Kotak Mah. Bank BFSI
ready
Cash flow for FY10 is not available. Also
9 Andhra Bank BFSI 92 Kirloskar Oil
company has done demergining exercise
10 Aptech Year end change in between the periods 93 KSK Energy Ven. Not listed for entire tenure
11 Aqua Logistics Not listed for entire tenure 94 L&T Fin.Holdings BFSI
12 ARSS Infra Not listed for entire tenure 95 LIC Housing Fin. BFSI
13 Axis Bank BFSI 96 M & M Financial BFSI
14 Bajaj Auto Demerger 97 Magma Fincorp BFSI
15 Bajaj Corp Not listed for entire tenure 98 Mahindra Holiday Not listed for entire tenure
16 Bajaj Fin. BFSI 99 Manappuram Fin. BFSI
17 Bajaj Finserv BFSI 100 Max India BFSI
18 Bajaj Holdings BFSI 101 Mindtree Not listed for entire tenure
19 Balrampur Chini Year end change in between the periods 102 MOIL Not listed for entire tenure
20 Bank of Baroda BFSI 103 Motil.Oswal.Fin. BFSI
21 Bank of India BFSI 104 MphasiS Year end change in between the periods
22 Bank of Maha BFSI 105 Muthoot Finance BFSI
Data not there for FY11 as annual report is
23 Bayer Crop Sci. Year end change in between the periods 106 MVL
not ready
24 BGR Energy Sys. Not listed for entire tenure 107 Netwrk.18 Media BFSI
25 Blue Circle Ser. BFSI 108 NHPC Ltd Not listed for entire tenure
26 BOC India Year end change in between the periods 109 Oil India Not listed for entire tenure
27 Brigade Enterpr. Not listed for entire tenure 110 Omaxe Not listed for entire tenure
28 C Mahendra Exp Not listed for entire tenure 111 OnMobile Global Not listed for entire tenure
29 Cairn India Not listed for entire tenure 112 Orbit Corpn. Not listed for entire tenure
30 Canara Bank BFSI 113 Oriental Bank BFSI
31 Central Bank BFSI 114 Parsvnath Devl. Not listed for entire tenure
32 City Union Bank BFSI 115 Persistent Sys Not listed for entire tenure
33 Clariant Chemica Year end change in between the periods 116 Pfizer Year end change in between the periods
34 Coal India Not listed for entire tenure 117 Pipavav Defence Not listed for entire tenure
35 Corporation Bank BFSI 118 Power Fin.Corpn. BFSI
They changed the year end from 30th June
36 Crisil BFSI 119 Prism Cement
2008 to 31st March 2009
Data not there for FY11 as annual report is
37 D B Corp Not listed for entire tenure 120 Prraneta Inds.
not ready
38 D B Realty Not listed for entire tenure 121 PTC India Fin BFSI
39 Dalmia Bhar.Ent. Corporate action in 2010 122 Pun. & Sind Bank BFSI
40 Den Networks Not listed for entire tenure 123 Punjab Natl.Bank BFSI
Rain
41 Dena Bank BFSI 124 Year end change in between the periods
Commodities
42 Dev.Credit Bank BFSI 125 Reliance Capital BFSI
43 Dewan Housing BFSI 126 Reliance Media Year end change in between the periods
44 Dhanlaxmi Bank BFSI 127 Reliance Power Not listed for entire tenure
45 eClerx Services Not listed for entire tenure 128 Religare Enterp. BFSI
46 Edelweiss.Fin. BFSI 129 Rural Elec.Corp. BFSI

Ambit Capital Pvt Ltd 15

 Accounting Thematic

SN Companies Reason for Exclusion SN Companies Reason for Exclusion

47 Eicher Motors Year end change in between the periods 130 S B T BFSI
48 Ess Dee Alumin. Not listed for entire tenure 131 Sh.Ashtavinayak Not listed for entire tenure
Data not there for FY11 as annual report is
49 Federal Bank BFSI 132 Sh.Global Trad.
not ready
50 Firstsour.Solu. Not listed for entire tenure 133 Sh.Renuka Sugar Year end change in between the periods
51 Fortis Health. Not listed for entire tenure 134 Shiv-Vani OilGas Year end change in between the periods
52 Future Capital BFSI 135 Shree Gan.Jew. Not listed for entire tenure
53 Future Ventures BFSI 136 Shriram Trans. BFSI
54 Greaves Cotton Year end change in between the periods 137 SJVN Not listed for entire tenure
55 GRUH Finance BFSI 138 SKS Microfinance BFSI
56 GTL Year end change in between the periods 139 South Ind.Bank BFSI
Data not there for FY11 as annual report is
57 GTL Infra. 140 SREI Infra. Fin. BFSI
not ready
58 Guj Pipavav Port Not listed for entire tenure 141 St Bk of Bikaner BFSI
59 H D F C BFSI 142 St Bk of India BFSI
60 Hathway Cable Not listed for entire tenure 143 St Bk of Mysore BFSI
61 HDFC Bank BFSI 144 Stand.Chart.PLC BFSI
Year end change from 30th June 07 to 30th
62 Hind. Unilever Year end change in between the periods 145 Sujana Towers
Sept 08
Year end change from 31st March 09 to 30th
63 H F C L 146 Syndicate Bank BFSI
Sept 10
64 I D F C BFSI 147 Tata Inv.Corpn. BFSI
65 I O B BFSI 148 Techno Elec. Corporate action in FY10
66 ICICI Bank BFSI 149 Time Technoplast Not listed for entire tenure
67 ICRA Not listed for entire tenure 150 Titagarh Wagons Not listed for entire tenure
68 IDBI Bank BFSI 151 Torrent Power Year end change in between the periods
Year end change from 31st March 06 to 30th
69 IFCI BFSI 152 Triven.Engg.Ind.
Sept 07
70 IL&FS Transport Not listed for entire tenure 153 TV18 Broadcast Not listed for entire tenure
71 Indiabulls Fin. BFSI 154 UCO Bank BFSI
72 India Securities BFSI 155 Union Bank (I) BFSI
73 Indiabulls Power Not listed for entire tenure 156 United Bank (I) BFSI
Data not there for FY11 as annual report is
74 India Infoline BFSI 157 United breweries
not ready
75 Indian Bank BFSI 158 Videocon Inds. Year end change in between the periods
76 IndusInd Bank BFSI 159 Vijaya Bank BFSI
77 ING Vysya Bank BFSI 160 Volt.Transform. Not listed for entire tenure
78 IRB Infra.Devl. Not listed for entire tenure 161 Wockhardt Year end change in between the periods
79 IVRCL Assets Not listed for entire tenure 162 Wyeth Year end change in between the periods
80 J & K Bank BFSI 163 Yes Bank BFSI
81 Jaypee Infratec. Not listed for entire tenure 164 Zylog Systems Not listed for entire tenure
82 JM Financial BFSI 165 SPARC Demerger became effective from Feb'07
83 JSW Holdings BFSI
Source: Ambit Capital research

Ambit Capital Pvt Ltd 16

 Accounting Thematic

Appendix 2
Exhibit 21: Name of the companies included in our accounting thematic
SN Companies Ambit Sector SN Companies Ambit Sector SN Companies Ambit Sector
1 Ent.Network Media 113 Chambal Fert. Fertilizers 225 Mah. Seamless Metals
2 Dr Reddy's Labs Pharma 114 Mundra Port Infrastructure 226 Akzo Nobel Chemicals
3 CPCL Oil & Gas 115 Hind.Zinc Metals 227 Ashok Leyland Auto
4 Aditya Bir. Nuv. Conglomerate 116 Rallis India Agro 228 HPCL Oil & Gas
5 Raymond Textiles 117 Grasim Inds Conglomerate 229 Kirl. Brothers Capital Goods
6 Moser Baer (I) IT 118 BHEL Capital Goods 230 Jai Balaji Inds. Metals
7 Jindal Stain. Metals 119 Tata Coffee FMCG 231 AIA Engg. Industrials
8 Finolex Inds. Chemicals 120 Zydus Wellness FMCG 232 Essar Ports Infrastructure
9 Finolex Cables Industrials 121 Jindal Poly Film Miscellaneous 233 HEG Capital Goods
10 Panacea Biotec Pharma 122 JSW Energy Utilities 234 Areva T&D Capital Goods
11 Rajesh Exports Retail 123 Balmer Lawrie Miscellaneous 235 Rel. Comm. Telecom
12 Shoppers St. Retail 124 Container Corpn. Logistics 236 Walchan. Inds. Capital Goods
13 Rel. Indl. Infra Infrastructure 125 Geodesic IT 237 Elecon Engg.Co Capital Goods
14 Noida Tollbridg. Infrastructure 126 Timken India Auto Anc 238 Tulip Telecom IT
15 Hexaware Tech. IT 127 ABB Capital Goods 239 Gammon India Construction
16 Alstom Projects Capital Goods 128 Tata Chemicals Chemicals 240 Piramal Health Pharma
17 CESC Utilities 129 NMDC Mining 241 Dredging Corpn. Shipping
18 H T Media Media 130 DLF Realty 242 K E C Intl. Capital Goods
19 Bharat Electron Industrials 131 Birla Corpn. Cement 243 Gulf Oil Corpn. Chemicals
20 GMR Infra. Infrastructure 132 HCL Technologies IT 244 Neyveli Lignite Utilities
21 ONGC Oil & Gas 133 Cummins India Capital Goods 245 Bhushan Steel Metals
22 GNFC Fertilizers 134 Jagran Prakashan Media 246 Hotel Leela Ven. Miscellaneous
23 Usha Martin Metals 135 MRF Auto Anc 247 M&M Auto
24 Tata Comm Telecom 136 Jindal Steel Metals 248 Uflex Miscellaneous
25 MRPL Oil & Gas 137 Bharat Bijlee Capital Goods 249 Adani Enterp. Conglomerate
26 Engineers India Construction 138 Ambuja Cem. Cement 250 Aurobindo Pharma Pharma
27 Tech Mahindra IT 139 Biocon Pharma 251 Monnet Ispat Metals
28 Jubilant Food. Retail 140 Guj Fluorochem Chemicals 252 Blue Star Miscellaneous
29 V I P Inds. Consumer Durable 141 Deepak Fert. Fertilizers 253 Sadbhav Engg. Construction
30 GSFC Fertilizers 142 Bosch Auto Anc 254 Peninsula Land Realty
31 TTK Prestige Consumer Durable 143 Amara Raja Batt. Auto Anc 255 Electrost.Cast. Industrials
32 Titan Inds. Retail 144 AP Paper Miscellaneous 256 Hind.Copper Metals
33 D C Holdings Media 145 Dishman Pharma. Pharma 257 Himadri Chemical Chemicals
34 JSW Steel Metals 146 Uttam Galva Metals 258 Kalpataru Power Capital Goods
35 3i Infotech IT 147 Rolta India IT 259 Jyoti Structures Capital Goods
36 Castrol India Chemicals 148 Novartis India Pharma 260 Orchid Chemicals Pharma
37 Havells India Industrials 149 Elgi Equipment Capital Goods 261 Ranbaxy Labs. Pharma
38 Thermax Capital Goods 150 Tata Elxsi IT 262 Ingersoll-Rand Capital Goods
39 Nestle India FMCG 151 Phoenix Mills Realty 263 Opto Circuits Miscellaneous
40 Fag Bearings Auto Anc 152 Sterlite Inds. Metals 264 HCL Infosystems IT
41 RCF Fertilizers 153 Oberoi Realty Realty 265 Madhucon Proj. Construction
42 Bharti Airtel Telecom 154 Everest Kanto Industrials 266 Sintex Inds. Industrials
43 Heidelberg Cem. Cement 155 Mcleod Russel Agro 267 Tata Global FMCG
44 Torrent Pharma. Pharma 156 NIIT Tech. IT 268 JP Associates Conglomerate
45 Natl. Aluminium Metals 157 Arvind Ltd Textiles 269 Jet Airways Miscellaneous
46 Whirlpool India Consumer Durable 158 Coromandel Inter Fertilizers 270 Alok Inds. Textiles
47 ACC Cement 159 Infosys IT 271 Vardhman Textile Textiles
48 EIH Miscellaneous 160 Monsanto India Agro 272 Vakrangee Soft. IT
49 Polaris Finan. IT 161 Unichem Labs. Pharma 273 Escorts Auto
50 Century Textiles Conglomerate 162 Tata Power Co. Utilities 274 McNally Bharat Capital Goods
51 Aban Offshore Shipping 163 Infotech Enterp. IT 275 Glodyne Techno. IT
52 Hero Motocorp Auto 164 Sun Pharma.Inds. Pharma 276 Zuari Inds. Fertilizers
53 Tata Steel Metals 165 Emami FMCG 277 Radico Khaitan FMCG
54 Hind.Oil Explor. Oil & Gas 166 BASF India Chemicals 278 Unitech Realty
55 Indraprastha Gas Utilities 167 Glaxosmit Pharma Pharma 279 Guj NRE Coke Mining
56 GMDC Mining 168 Lak. Mach. Works Industrials 280 Simplex Infra Construction

Ambit Capital Pvt Ltd 17

 Accounting Thematic

SN Companies Ambit Sector SN Companies Ambit Sector SN Companies Ambit Sector

57 Guj.St.Petronet Oil & Gas 169 Jubilant Life Pharma 281 Dish TV Media
58 Shree Cement Cement 170 BPCL Oil & Gas 282 Reliance Infra. Utilities
59 Power Grid Corpn Utilities 171 JP Power Ven. Utilities 283 Ruchi Soya Inds. FMCG
60 Exide Inds. Auto Anc 172 Asahi India Glas Auto Anc 284 Hind.Construct. Construction
61 GAIL (India) Oil & Gas 173 JBF Inds. Textiles 285 Everonn Educat. Miscellaneous
62 GlaxoSmith C H L FMCG 174 Strides Arcolab Pharma 286 Jain Irrigation Agro
63 Gammon Infra. Infrastructure 175 Aventis Pharma Pharma 287 Larsen & Toubro Construction
64 Colgate-Palm. FMCG 176 Berger Paints Chemicals 288 Sobha Developer. Realty
65 Natl.Fertilizer Fertilizers 177 Bombay Dyeing Textiles 289 Era Infra Engg. Construction
66 India Cements Cement 178 NIIT IT 290 Cox & Kings Miscellaneous
67 Idea Cellular Telecom 179 Balkrishna Inds Auto Anc 291 CORE Education IT
68 Ballarpur Inds. Miscellaneous 180 Divi's Lab. Pharma 292 IVRCL Construction
69 FDC Pharma 181 Wipro IT 293 NCC Construction
70 Britannia Inds. FMCG 182 Siemens Capital Goods 294 Prestige Estates Realty
71 Petronet LNG Oil & Gas 183 Lupin Pharma 295 Bharati Shipyard Infrastructure
72 Orient Paper Miscellaneous 184 Nava Bharat Vent Conglomerate 296 Redington India IT
73 Mercator Shipping 185 T N Newsprint Miscellaneous 297 Essar Oil Oil & Gas
74 Guj Alkalies Chemicals 186 Lanco Infratech Infrastructure 298 Bombay Rayon Textiles
75 Alfa Laval (I) Capital Goods 187 SAIL Metals 299 Adani Power Utilities
76 UltraTech Cem. Cement 188 Cadila Health. Pharma 300 S Kumars Nation Textiles
77 Tinplate Co. Metals 189 VST Inds. FMCG 301 Gitanjali Gems Miscellaneous
78 SRF Textiles 190 Voltas Miscellaneous 302 CCCL Construction
79 Supreme Inds. Industrials 191 United Phosp. Chemicals 303 Jai Corp Miscellaneous
80 Hindalco Inds. Metals 192 KPIT Infosys. IT 304 Bajaj Hindusthan Agro
81 Gateway Distr. Logistics 193 Bilcare Miscellaneous 305 Tube Investments Miscellaneous
82 Great Offshore Shipping 194 Info Edg.(India) IT 306 Puravankar.Proj. Realty
83 Sesa Goa Mining 195 SCI Shipping 307 Anant Raj Inds. Realty
84 GE Shipping Co Shipping 196 Sundram Fasten. Auto Anc 308 Patel Engg. Construction
85 Sterlite Tech. Industrials 197 Thomas Cook (I) Miscellaneous 309 Provogue (India) Retail
86 Guj Gas Company Utilities 198 Karuturi Global Miscellaneous 310 Punj Lloyd Construction
87 CMC IT 199 Navneet Publicat Miscellaneous 311 Pantaloon Retail Retail
88 Patni Computer IT 200 TVS Motor Co. Auto 312 BEML Ltd Capital Goods
89 Kansai Nerolac Chemicals 201 Gillette India FMCG 313 IOCL Oil & Gas
90 Pidilite Inds. Chemicals 202 Zee Entertainmen Media 314 Financial Tech. IT
91 Bharat Forge Auto Anc 203 Godrej Consumer FMCG 315 SpiceJet Miscellaneous
92 Sun TV Network Media 204 Glenmark Pharma Pharma 316 ICSA (India) IT
93 Suzlon Energy Capital Goods 205 Motherson Sumi Auto Anc 317 Delta Corp Conglomerate
94 BF Utilities Utilities 206 Reliance Inds. Oil & Gas 318 Trent Retail
95 Prakash Inds. Metals 207 Tata Tele. Mah. Telecom 319 STC Miscellaneous
96 ITC FMCG 208 Ipca Labs. Pharma 320 Godrej Inds. Conglomerate
97 Indian Hotels Miscellaneous 209 Blue Dart Exp. Logistics 321 Mahindra Life. Realty
98 P & G Hygiene FMCG 210 Bajaj Electrical Industrials 322 HMT Industrials
99 Crompton Greav Capital Goods 211 MMTC Miscellaneous 323 Fres.Kabi Onco. Pharma
100 Tata Motors Auto 212 GVK Power Infra. Infrastructure 324 MTNL Telecom
101 SKF India Auto Anc 213 Praj Inds. Capital Goods 325 REI Agro Agro
102 Bata India Retail 214 EID Parry Agro 326 U B Holdings Conglomerate
103 ABG Shipyard Infrastructure 215 Polyplex Corpn Miscellaneous 327 HDIL Realty
104 Dabur India FMCG 216 Cipla Pharma 328 PTC India Miscellaneous
105 Maruti Suzuki Auto 217 Marico FMCG 329 Kwality Dairy FMCG
106 NTPC Utilities 218 Apollo Hospitals Pharma 330 Ansal Properties Realty
107 Oracle Fin.Serv. IT 219 Graphite India Industrials 331 Subex IT
108 Asian Paints Chemicals 220 Kesoram Inds. Conglomerate 332 Godrej Propert. Realty
109 Madras Cement Cement 221 Carborundum Uni. Industrials 333 KGN Industries Miscellaneous
110 TCS IT 222 Arshiya Intl. Logistics 334 UTV Software Media
111 Apollo Tyres Auto Anc 223 United Spirits FMCG 335 Sunteck Realty Realty
112 J B Chem & Pharm Pharma 224 Educomp Sol. Miscellaneous
Source: Ambit Capital research

Ambit Capital Pvt Ltd 18

 Accounting Thematic

Institutional Equities Team

Saurabh Mukherjea, CFA Head of Equities (022) 30433174 saurabhmukherjea@ambitcapital.com

Research

Analysts Industry Sectors Desk-Phone E-mail

Aadesh Mehta Banking / NBFCs (022) 30433239 aadeshmehta@ambitcapital.com
Anand Mour FMCG (022) 30433169 anandmour@ambitcapital.com
Ankur Rudra, CFA Technology / Telecom / Education (022) 30433211 ankurrudra@ambitcapital.com
Ashvin Shetty Automobile (022) 30433285 ashvinshetty@ambitcapital.com
Bhargav Buddhadev Power / Capital Goods (022) 30433252 bhargavbuddhadev@ambitcapital.com
Chandrani De, CFA Metals & Mining (022) 30433210 chandranide@ambitcapital.com
Chhavi Agarwal Construction / Infrastructure (022) 30433203 chhaviagarwal@ambitcapital.com
Dayanand Mittal Oil & Gas (022) 30433202 dayanandmittal@ambitcapital.com
Gaurav Mehta Derivatives Research (022) 30433255 gauravmehta@ambitcapital.com
Hardik Shah Technology / Education Services (022) 30433291 hardikshah@ambitcapital.com
Krishnan ASV Banking (022) 30433205 vkrishnan@ambitcapital.com
Nitin Bhasin Construction / Infrastructure / Cement (022) 30433241 nitinbhasin@ambitcapital.com
Pankaj Agarwal, CFA NBFCs (022) 30433206 pankajagarwal@ambitcapital.com
Parita Ashar Metals & Mining / Media / Telecom (022) 30433223 paritaashar@ambitcapital.com
Puneet Bambha Power / Capital Goods (022) 30433259 puneetbambha@ambitcapital.com
Rakshit Ranjan, CFA Mid-Cap (022) 30433201 rakshitranjan@ambitcapital.com
Ritika Mankar Mukherjee Economy (022) 30433175 ritikamankar@ambitcapital.com
Ritu Modi Cement (022) 30433292 ritumodi@ambitcapital.com
Shariq Merchant Consumer (022) 30433246 shariqmerchant@ambitcapital.com
Sales
Name Regions Desk-Phone E-mail
Deepak Sawhney India / Asia (022) 30433295 deepaksawhney@ambitcapital.com
Dharmen Shah India / Asia (022) 30433289 dharmenshah@ambitcapital.com
Dipti Mehta India / Europe (022) 30433053 diptimehta@ambitcapital.com
Pramod Gubbi, CFA India / Asia (022) 30433228 pramodgubbi@ambitcapital.com
Sarojini Ramachandran UK +44 (0) 20 7614 8374 sarojini@panmure.com
Production
Sajid Merchant Production (022) 30433247 sajidmerchant@ambitcapital.com
Kausalya Vijapurkar Editor (022) 30433284 kausalyavijapurkar@ambitcapital.com
Praveen Mascarenhas Database (022) 30433251 praveenmascarenhas@ambitcapital.com

Ambit Capital Pvt Ltd 19

 Accounting Thematic

Explanation of Investment Rating

Investment Rating Expected return

(over 12-month period from date of initial rating)
Buy >5%

Sell <5%

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therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or
required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading
securities held by a research analyst account.
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