Top 3 Stocks

July 12, 2018
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TABLE OF CONTENTS
Page
Introduction 3
Stock # 1
6
TVS Srichakra Ltd
Stock # 2
18
Newgen Software Technologies Ltd
Stock # 3
30
Karur Vysya Bank Ltd
Disclosure 45
Disclaimer 48
Index | 2
The Top 3 ‘Regulation 31’ Stocks
Dear valued subscriber,
We at Smart Money Secrets believe there are two ways to invest in stocks – the hard
way and the easy way.
You can either do all the hard work yourself…
Or you can follow the smart money…and let them do the hard work for you.
No prizes for guessing the way we prefer!
You see, Sarvajeet and I have been studying the smart money in India for quite a
while. We’ve identified more than 40 top investors. We call them the Super Investors
of India.
We didn’t stop there. We created a system that combines the best practices of India’s
super investors. We call it the Smart Money Score.
But it’s not easy tracking the moves of India’s super investors.
After all, they are not likely to talk a lot about their stock picks.
Why should they? They have every reason to be secretive.
Now we know how to pick the best stocks from their ‘buy list’. But how do we find
their buy list? They’re not going to tell anyone.
The good news is they don’t have to…and we don’t need to ask them.
There is a way.
3 | Introduction
Regulation 31
On 30 November 2015, the Indian securities regulator released ‘Regulation 31’.
This new legislation makes it compulsory for all listed companies to share certain
information with the regulator – every three months.
If you’ve seen company filings on the BSE website, you will know they’re full of dry
shareholder information…the kind of facts only government departments could get
excited about.
That’s true but…
Regulation 31 filings are different…and they certainly get us excited.
Why?
These filings share a critical piece of data that can be used to identify stocks with
huge upside potential.
This regulation tells you where the smart money is moving.
You see, anytime anyone purchases a holding of 1% or more of any listed company’s
shares – the company is required by law to disclose it…in a regulation 31 filing.
The filing also contains details of the proportion of shares the promoter of the
company holds – and the proportion held by members of the general public.
What does all this mean?
Four times a year – once each in March, June, September, and December, the
holdings of the super investors of India are exposed to the whole world.
That’s great, right?
Introduction | 4
Well not exactly…
Having all this information is great. But you will still need to make sense out of it…
and then act on it.
There are about 7,000 listed companies on the BSE and NSE combined. All of them
release 4 of these reports every year. So that’s 28,000 documents just to start with.
Even if you read these 28,000 documents, how would you know which stocks are the
best investment opportunities?
Well, you don’t have to read all of them! You just need to read this one report.
Sarvajeet and I have identified the top 3 ‘Regulation 31 Stocks’.
Read on...
Kunal Thanvi (Research Analyst)

Editor, Smart Money Secrets
5 | Introduction
Stock 1#
TVS Srichakra Ltd
A Two-Wheeler Tyre Specialist

A tyre is one of the most important components of any automobile.
Choosing the right tyre plays a key role in a smooth ride and efficiency. This is the
reason the industry is dominated by top ten players (85-90%).
Tyres are engineered differently to fit a specific purpose and application while
boosting performance of the vehicle.
It is impossible to drive an automobile without tyres; and any OEM cannot afford to
fail on the quality of the tyres.
However, if we look at the cost of the tyre, in the overall cost of automobile, it is
negligible. Even though the cost of a tyre is low, one cannot afford to fail on its quality.
Now, this brings me to one of the patterns Professor Bakshi prefers to see in the
companies he invests:
'Low Cost of Ownership, High cost of Failure'
However, this does not diminish the fact about tyres being a commodity business.
Here is one more pattern the professor looks for in the companies he invests:
'Buy Commodity and Sell Brand'
The tyre industry is nothing more than a commodity business. The profitability is a
function of OEM pricing and raw material cost, both of which are not in control of
the players in the industry.
From history, we know that a niche player, with some uncommon characteristics in
a commodity business, commands a very strong moat in the long run.
The Top 3 ‘Regulation 31’ Stocks | 6

Some patterns that we see emerging for TVS Srichakra:
Pattern 1#: TVS Srichakra (TVSSC) is a TVS group company.
Apart from the third largest two-wheeler player, i.e. TVS Motors, there are many
group companies like Sundaram Fasteners, Sundaram Clayton, etc. which dominate
their respective markets.
All these group companies deal with the same Original Equipment Manufacturers
(OEMs). They have a very good standing in their own market (high quality, good
brand value among the OEMs). This increases the dependence on the group.
Now, this not only helps the company in cross-selling its products, it also helps the
company to better pricing terms (Read - Pricing Formula agreement with the OEMs).
In fact, this helps in increasing client stickiness.
Pattern 2#: While major tyre companies have diversified into all segments, TVSSC
has been very focused on the two and three-wheeler segment. Not only does it
dominate the OEM segment, it now ranks third in the aftermarket.
Again, all the auto-ancillary group companies cater to the aftermarket. The TVS
brand enjoys good recall value.
The strong dealer network of more than 3,000 dealers across the country is
strengthening the company's resilience to commodity prices (higher realization in
the after-market).
Lately, the company has been focusing on the brand. This is a sign we like to see in
any company in the commodity business.
Consider these magical lines by the management in this year's annual report:
"Further to this, your company focuses upon the better utilization of assets to improve
efficiencies, reduce working capital requirements, and build a stronger brand with future
prospects in mind."
Pattern 3#: After aggressively increasing market share in the domestic aftermarket,
the company is now targeting the export replacement market. As we know in
the last decade, two-wheeler players have created a huge two and three-wheeler
market in African and Middle East countries.
7 | Stock 1 # TVS Srichakra Ltd

The increasing use of Indian automobiles have created a huge aftermarket for two
and three-wheeler industry in those countries.
Now, the management is targeting that market aggressively, which will again lead to
better realisations, and hence better margins. This is what the management quoted
in their annual report FY17:
'Exports will be in the focus area to leverage upon the large base of Indian manufactured
vehicles on foreign soil'.
We see the initial signs of patterns that can take this company from a pure
commodity player to the 'buy commodity, sell brand' state.
So even if these patterns don't play out, the company is well poised to benefit from
the revival of the auto industry in India.
At current levels, the stock trades at about 19.6 times price to earnings ratio. This
valuation provides sufficient margin of safety as well as upside potential.
Thus, one could consider buying the stock at the maximum buy price of Rs
3,250 or lower.
According to us, in a scenario of ideal

allocation of funds, predominantly
mid and small-cap stocks could be One could consider
considered to comprise of not more buying the stock of
than 30-40% of your total equity TVS Srichakra Ltd at
portfolio. Further, we believe a single the maximum buy
small cap stock should not form more
price of Rs 3,250 or
than 2-3% of the total portfolio. Please
note that this allocation will vary from lower.
person to person. For something that
works best for you, we recommend you
talk to your investment advisor.

Smart Money Score
We believe, any good business needs to pass our checklist i.e. smart money
score. You can find a detailed explanation of what the smart money score in our
guide. Smart Money Secrets - A Quick Start Guide.
1. Smart Money Invested – One of the important catalysts we look in a stock is

the smart money. Based on the holding (higher the better) and our comfort with
super investor we assign a rating on a scale of 10.
We also like to see either the super investor or the promoters of the company
increase their stake in the company.
In the case of TVS Srichakra Ltd, two super investors have a good stake in the
company. As we have highlighted earlier, one of the super investors is Professor
Sanjay Bakshi, whose Value Quest India Moat Fund picked up 1.49% stake in the
company in March 2017.
The other investor is Gagandeep Credit Capital led by super investor Anuj
Anantrai Sheth. Gagandeep increased its stake in TVS Srichakra to a sizeable
4.53% in March 2012 and has held on to this position for the last 6 years.
The promoters also have a robust stake in the company. The promoter group
holds around 45.36% with around 28% held by TVS Group's holding company T
V Sundram Iyengar & Sons Pvt Ltd. Ms Shobhana Ramachandran, who has been
the Managing Director of the company since August 1986, increased her stake
from 3.32% in March 2014 to 3.58% in March 2015 and has maintained her stake
since then.
The Executive Vice Chairman Mr R Naresh also increased his stake from 1.28%
in March 2014 to 1.67% in March 2015 and has maintained his stake since then.
Keeping in mind that there is a super investor catalyst (Prof Bakshi recently
picking up stake) and the promoters also increasing their stake, we assign a
rating of 10 to TVS Srichakra Ltd.

2. Business Quality - One reason that makes TVS Srichakra such a compelling
story is that it has robust financials despite operating in 'commodity-type
business' i.e. the tyre industry.
For starters, the company is a market leader in the two and three-wheeler
domestic OEM tyre market and the No.3 in the aftermarket segment. Since
inception, the company has focused on what it does well: manufacturing two-
wheeler tyres. This strategy helped TVS Srichakra in many ways.
First, the company has become a specialist and a leader in the two and three-
wheeler segment. Over the years, TVS Srichakra has built strong relationships
with leading two-wheeler manufacturers. This includes Hero Motocorp, Bajaj
Auto, Honda Motorcycle & Scooter, TVS Motor, Yamaha Motors, and Suzuki
Motorcycles.
With strong in-house R&D, testing, and design capabilities, TVS Srichakra works
closely with its OEM partners to produce top quality tyre products customised to
suit specific brand and variant fits. No wonder TVS Srichakra derives more than
50% of its revenue from the OEM segment.
Second, with its specialist knowledge of products and services, TVS Srichakra has
a marketing and distribution advantage. For a non-niche business, knowing a
little about a lot of things is not a convincing USP.
TVS Srichakra has displayed a very strong performance over the years. Not only
has the growth in both operating and net profits been strong, but the company's
return ratios have been healthy too.
Having said that, despite the robust return ratios - Return on Equity and Return
of Capital employed being north of 30%, lean balance sheet, and robust cash flow
generation - the company does not score too well on the debt to equity front.
This ratio stood at around 1 times in the last five years, although we expect it to
come down going forward (D/E~0.5 times in FY17). Hence, we assign a rating of
8 on business quality.

3. Competitive Advantage: Generally, it is not easy to enjoy a competitive
advantage or moat in commoditized industries. One reason is because
commodities lack differentiation. Which means there are hardly any entry
barriers. As a result, commodity based companies face intense competition and
have low pricing power. The other reason is that commodities are influenced by
demand cycles, making earnings inconsistent.
So what has made TVS Srichakra stand out?
First, the company is a specialized player focusing only on the two-wheeler

and three-wheeler tyre segment. Which means that it does not want to be in a
situation where it is the jack of all trades but a master of none.
Second, TVS Srichakra has strong in-house R&D and design capabilities.
Third, TVS Srichakra boasts of a robust distribution reach. Thus, with a network
of more than 3,000 dealers and strong marketing promotions, the company has
been able to expand in the two-wheeler aftermarket where it is the third largest
player after MRF and Ceat.
Fourth, TVSSC is a TVS group company. Apart from the third largest two-
wheeler player i.e. TVS Motors, there are many group companies like Sundaram
Fasteners, Sundaram Claytons etc which dominate their respective markets.
All these group companies deal with the same OEMs. Now all these group
companies have a very good standing in their own market (high quality, good
brand value among the OEMs). This increases the dependence on the group as
whole.
Now, this not only helps the company in cross-selling its products, it also helps
the company in better pricing terms.
Thus, after doing a detailed analysis regarding Industry Rivalry, Bargaining Power
of Buyers, Bargaining Power of Suppliers, Threat of New Entrants, and Threat of
Substitutes, we assign a rating of 8 to TVS Srichakra for its economic moat.

4. Soul in the Game – The idiom of soul in the game stands for the owner operated
companies i.e. companies where owners and operators of the business are
same. We believe higher stake and active involvement in the business puts the
incentives perfectly aligned.
The largest promoter holding is by T V Sundram Iyengar & Sons Pvt Ltd at around
28%. This is the holding company of the TVS Group; the latter being a diversified
industrial and automotive conglomerate. TVS Group has a myriad of companies
under its belt, the largest and the most recognized is the two-wheeler player TVS
Motors. TVS Srichakra is also part of the TVS Group.
The other factor that gives us comfort is that the Managing Director (MD), Ms
Shobhana Ramachandran has also increased her stake in the company from
3.32% in March 2014 to 3.58% in March 2015 and has maintained her stake since
then.
We believe, management has put its soul in the business. This is a kind of pattern
our Super Investors look out for. Thus, we assign a rating of 9 on this parameter.
5. Capital allocation - One of the patterns our super investors and we seek for
is the efficient capital allocation by the management. The best way to evaluate
this could be to look at both the sources and the application of the funds by the
management over a period.
We believe that TVS Srichakra Ltd has been a good allocator of capital.
We believe the management understands capital allocation well and has been
very prudent in allocating capital in the past. We assign a rating of 10 for capital
allocation.
6. Earnings Quality - One of the key challenges while evaluating small and mid-
cap companies is the quality of their earnings.
For TVS Srichakra Ltd both accounting and cash operating profits were close.
Further, the company also has a comfortable cash conversion cycle of just above
50 days. We assign a rating of 10 for earnings quality.

7. Scalability of the Business - Identifying a good business is one thing,
identifying a good business with potential to grow at decent rates for years to
come is another. One crucial factor for a business is the size of the market it
caters to.
TVS Srichakra's strategy is to focus on the two-wheeler and three-wheeler tyre

segment. This means that growth in two-wheeler volumes will also be extremely
beneficial to TVS Srichakra.
The growth potential for the two-wheeler market is robust in terms of scope of
penetration in the rural markets (this is a big market for the segment), increasing
proportion of working women, and various new models being launched by the
two-wheeler manufacturers both in the scooters and motorcycles space.
Since TVS Srichakra has strong relationships with most of the major two-wheeler
players it stands to benefit from this trend.
Also, there is an even bigger potential in the replacement market, an area where
the TVS brand is well known. This means that in very lean years where volumes
to OEMs are not growing, the company can still rely on the replacement segment
to do well.
Given the cyclicality of the revenue (automobile industry), we assign a

rating of 8.
8. Market Leadership - TVS Srichakra has made a conscious decision to stick to

the two-wheeler and three-wheeler market instead of having a presence across
all the segments of the auto industry. In fact, the company has no plans of
getting into car and truck tyres mainly because of large investment required and
competition. This strategy has worked well for the company as its specialized
focus has enabled it to strengthen its position in the two-wheeler tyre space.
Thus, the company has emerged as the market leader in the two and three-
wheeler domestic OEM tyre market and the No 3 in the aftermarket segment.

Not only does the company have strong relationships with major two-wheeler
players but it has also developed robust technological capabilities.
All of this is very apparent when one looks at the company's profitability profile.
Operating margins have improved from 9% in FY11 to 14.5% in FY17. These
margins are good in an otherwise commodity type industry.
Keeping these aspects in mind, we have assigned a rating of 9 to the company

on this parameter.
Considering the above analysis, the total ranking assigned to the company is 72
(out of 80). On a weighted basis, it stands at 9.0. This indicates that fundamentals
of the business are robust.

Equitymaster Smart Money ScoreTM
Equitymaster's Weightage Weighted

Points Smart Money Score (A)
Smart Money Score (B) (A*B)
High - Medium - Low
1 2 3 4 5 6 7 8 9 10
Smart Money Invested 10.0 15.0% 1.5
Business Quality 8.0 15.0% 1.2
Competitive Advantage 8.0 10.0% 0.8
Soul in the Game 9.0 10.0% 0.9
Capital Allocation 10.0 10.0% 1.0
Earnings Quality 10.0 15.0% 1.5

Scalablilty in the Business 8.0 15.0% 1.2
Market Leadership 9.0 10.0% 0.9
Final Rating 72 9.0

Consolidated Financials
(Rs m) FY16 FY17 FY18

Sales 21,680 19,605 21,524
Sales growth (%) 7.5% -9.6% 16.7%
Gross Profit 9,599.6 8,717.3 8,820.8
Gross Profit Margin (%) 44.3% 44.5% 41.0%
Operating Profit 3,248.10 2,872.20 2,672.50
Operating Profit Margin (%) 15.0% 14.7% 12.4%
Net Profit 1,911.70 1,496.90 1,173.40
Net Profit Margin (%) 8.8% 7.6% 5.5%
Balance Sheet
Fixed Assets 3,846 5,061 5,951
Other Assets 1,440 1,959 1,739
Inventories 2,079 4,118 3,315
Receivables 1,739 2,037 2,437
Cash and Bank Balances 202.1 162 218.8
Current Assets 383.1 573.6 590
Total Assets 9,690 13,910 14,251
Net Worth 4,121 5,611 6,389.0
Long Term Debt 440 238 76.5
Short Term Debt 866 2,761 2,932.20
Other Non Current Liabilities 923 955 974
Current Liabilities 3,340 4,345 3,879
Total Liabilities 9,690 13,910 14,251

Market Data
Price (Rs) 2,981.45
52 week H/L 4,020 / 2,936
NSE symbol TVSSRICHAK
BSE code 509243
No. of shares (m) 7.7
Face value (Rs) 10.0
FY18 dividend/share (Rs) 40.0
Dividend yield (%) 1.3%
Free float (%) 54.6%
Market cap (Rs m) 22,838
Price to earnings* (times) 19.7

*Based on TTM
Shareholding (%, March 2018)
Category (%)
Promoters 45
Banks, MFs and FIs 5
Foreign portfolio investors 3
Indian public 47
Total 100

Stock # 2
Newgen Software Technologies Ltd
Have you heard of Catching Sam Walton Early?
Warren Buffett and Charlie Munger has always made a case of 'Finding great
companies with stellar management when they are just starting out'.
Well, they have quoted owner and manager of world's biggest retail chain, i.e. Sam
Walton of Wal-Mart.
The basic idea is to find a great company when it is small and young. This gives you
an opportunity ride along with the success of the great entrepreneurs like Sam
Walton.
Well, both I and my super investors don't like investing in IPOs. The basic reason
behind it is they are in general expensive.
However, Newgen Software Technologies Limited (Newgen) is an exception to the

rule. The company recently has recently gone public (January 2018).
And we believe, both the business and the management has got all the ingredients
of being a future Sam Walton.
No denying, the business for Walmart and Newgen are entirely different, but there
are some common patterns that we see.
Why we call Newgen a Niche IT company?
Reason #1 - It is not an IT services company which is a commoditized business, with

big players like Infosys and TCS. The only advantage these companies have is the
cost arbitrage. However, Newgen is one of the few software product companies in
India.

Reason #2 - One of the common characteristics of a typical IT company is its
concentration with respect to - clients, products, and geography.
Smart diversification in all these three parameters has been instrumental in

Newgen building a highly resilient business model. (Please read below segments to
understand the diversification).
Reason #3 - The company has got multiple patents under its belt. To be specific it
has got four patents in India.
In fact, it has also filed around twenty-eight patents in India and two in the US. In
addition to filing a dozen of copyrights and patents. Put together, we term these as
'Intellectual Property Rights'.
These Intellectual Property Rights provides an unsaid competitive advantage to the

company.
Reason #4 - Newgen has a sticky business model. Newgen is one of the few
companies in the world which provides multiple products in the industries it caters
(Banking, Insurance, Government, PSUs, Healthcare, Telecom etc).
Once it acquires a client, it has a huge opportunity for client deepening and cross-
selling its products.
Just to give you an example, in FY17, around 80% of total revenue was generated
from repeat customers. This is in the light of the fact that it has more than four fifty
total clients.
Reason #5 - Newgen has got the ability to stay ahead of the curve. One of the key
challenges in the IT companies across spectrum is innovation and disruption.
Newgen has always stayed ahead of the curve and spends around 7-8% of total
revenues on the Research and Development.
In fact, given this ability, it has been recognized by market research firms like
Gartner and Forrester (Read about the company section for details) as one of the
19 | Stock 2 # Newgen Software Technologies Ltd

leading players in innovation.
The niche characteristics of Newgen are visible in the financials.
Financial Highlights: FY13-17
Parameters Average/CAGR 5 Yr
Return on Equity 24%
Sales (CAGR 4 Yrs) 21%
Bottomline (CAGR 4 Yrs) 9%
D/E 0.18
Source: RHP, Equitymaster
Mind you, Newgen is the only company from India competing with global giants like
IBM, Microsoft, Oracle, Open Text, Appian etc.
In fact, in the past players like IBM, Microsoft, and Oracle has tried acquiring
Newgen.
We believe our Super Investor, Sumeet Nagar, and we have spotted a future Sam
Walton in the Niche IT space.
At current levels, the stock trades at

about 23 times price to earnings ratio.
This valuation provides sufficient margin One could consider
of safety as well as upside potential. buying the stock of
Newgen Software
Thus, one could consider buying the Technologies Ltd at
stock at the maximum buy price of Rs
the maximum buy
260 or lower.
price of Rs 260 or
According to us, in a scenario of ideal lower.
allocation of funds, predominantly
mid and small-cap stocks could be

considered to comprise of not more than 30-40% of your total equity portfolio.
Further, we believe a single small cap stock should not form more than 2-3% of the
total portfolio. Please note that this allocation will vary from person to person. For
something that works best for you, we recommend you talk to your investment
advisor.
Smart Money Score

1. Smart Money Invested – One of the important catalysts we look for in a stock
is the smart money. Based on the holding (higher the better) and our comfort
with super investor we assign a rating on a scale of 10.
In the case of Newgen Software Technologies, the smart money has got interested
at the time of IPO itself and funds like HDFC, Goldman Sachs have participated
as anchor investors.
However, what got our attention was our super investor Sumeet Nagar of Malabar
India Fund also participated in the IPO as an anchor investor and bought around
1.2% at the time of IPO.
In fact, he has continued buying into the company post the IPO and has bought
twice via bulk deals. As of writing this report Malabar India holds around 2.9%.
HDFC mutual fund and Goldman Sachs holds 2.1% and 1.9% respectively.
The owners of the company also hold a sizable stake in the company. Nigam and
Varadarajan family owns around 70% in the company and have not diluted their
holding in the recent IPO.
We believe smart money is adequately invested in the company with promoters

having their soul in the game. Hence, we assign a rating of 10 to the company.

2. Business Quality - As many of you are aware both Smart Money Secrets
Team and our super investors avoid IPOs because IPOs are generally expensive.
However, there are times when we find quality businesses with huge run way
ahead.
We believe one of the reasons that Newgen is a good bet for long term is the
quality and strength of its business and management. Over the years it has not
only portrayed strong execution skills but has created a very sticky business.
Newgen has been recognized by top two market research firms Forester and
Gartner for its product innovation and expertise in R&D.
The company owns around 4 patents and has filed 28 patents in India and two
patents in the US. It has also filed dozens of copyrights and trademarks. Together
we call them 'Intellectual Property Rights'.
The company has a lean balance sheet with a minimal working capital debt and
strong return ratios in the north of 20%. In fact, the company has grown at a
robust pace in last five years by introducing newer products and entering new
geographies (top-line grew at a CAGR of 21% in last four years).
The company in last two years has invested a lot in the R&D and marketing which
has resulted in lower profits. In last five years, profits have grown at a slower
pace as compared to the sales.
Even though we believe, the current investments in the R&D and marketing will
yield benefits in the future and this is short term pain for long term gain, we
still penalize the company for lower profit growth. We assign a rating of 8.5 on
business quality front.
3. Competitive Advantage: One of the important factors super investors look for

is sustainable competitive advantages aka economic moats. They love to invest
in companies focusing on widening of moats.

In fact, Smart Money Secrets is also always on the look out for strong competitive
advantages. Newgen has over the years built a very strong and differentiated
business model.
It has also managed to build a strong and sticky client base with more than 400
customers. (Food for thought - around 80% of the revenue in FY17 was from
repeat customers). The company has been recognized by distinguished analyst
firms, including Gartner and Forrester. In fact, Newgen is the only player from
India to feature in Gartner and Forrester.
However, the company faces competition from global giants like Open Text,
Appian and IBM etc, thus we assign a rating of 8.
4. Soul in the Game – The idiom of soul in the game stands for the owner operated
companies i.e. companies where owners and operators of the business are
same. We believe higher stake and active involvement in the business puts the
incentives perfectly aligned.
So, we look out for companies owned and operated by good managers.
As indicated earlier Newgen Software Technologies limited is owned and run by

owner operators. The owners own around 70% in the company and have not
diluted their stake during the IPO. In fact, management does not intent to dilute
its stake going ahead.
We believe, management has put its soul in the business. This is a kind
of pattern our Super Investors look out for. However, given the fact that
management diluted some stake in FY15 we penalize the company by one
point and assign a rating of 10 on this parameter.
5. Capital allocation - One of the patterns our super investors and we seek for
is the efficient capital allocation by the management. The best way to evaluate
this could be to look at both the sources and the application of the funds by the
management over a period.

Newgen has over the years been able to generate RoEs in the north of 20% while
its competitors have been making losses on the operating levels.
Even though the business has been able to generate good return ratios we have
penalized it for low cash generation and assigned a rating of 7 for capital
allocation.
6. Earnings Quality - One of the key challenges while evaluating small and mid-
cap companies is the quality of their earnings.
The growth in the sales and profits should translate into cash flows for the
company. There should be a good comparison between the accounting and cash
profits to understand the quality of the earnings.
Given the stickiness in the business the company has elongated debtor days.
With no inventory and minimal creditor days it has made the business working
capital heavy. This has put pressure on the cash flows.
As a thumb rule, for a manufacturing company NCFO as a percentage of

GCFO should not be significantly below sixty percent. This simply means
ideally not more than forty percent of the money should be stuck in working
capital.
However, the company in question is not a typical manufacturing company. It is

a IT software company catering to government/PSUs, banks etc.
Given the stickiness in the business the company has elongated debtor days.
With no inventory and minimal creditor days it has made the business working
capital heavy. This has put pressure on the cash flows.
In spite of business specific issue, we have applied our rule on Newgen and over
FY13-17 this number on average stood at 32% which is below our sixty percent
rule.
However, the company has been able to maintain positive cash flow from

operations and earnings to cash conversion ratio of around 100% in last five
years. We have penalized the company big way on the subdued cash flows and
high working capital requirements and assign a rating of 5 on earnings quality.
7. Scalability of the Business - Identifying a good business is one thing,

identifying a good business with potential to grow at decent rates for years to
come is another. One crucial factor for a business is the size of the market it
caters to.
For Newgen, the growth looks stronger because of its presence in multiple
geographies and the consolidation happening in the segment. The software
industry in recent years has seen industry consolidation i.e. one product
companies being acquired by multiple product companies.
This gives opportunity to the multiple product companies (like Newgen) to grow
faster than the industry.
Further, as mentioned earlier, Newgen has recently forayed in the US market and
is in negotiation with around 150 mid-sized banks which are in final stages. This
could bring a J-shape curve for Newgen and may result in doubling of revenue in
couple of years.
We expect company to enjoy an operating leverage in coming years (with

majority of R&D and marketing expenditure already done) with profits growing
faster than the revenues at a CAGR of 25% over FY17-22.
Thus, given all these factors, we assign a rating 10 based on scalability of

business parameter.
8. Market Leadership - The software product segment is a smaller market as

compared to the commoditized IT service market. Historically, there has been
a consolidation in the market with smaller and single product companies being
acquired by global giant with multiple product companies.

In fact, global giants like IBM, Microsoft and Oracle in the past tried to acquire
Newgen which shows the capability they foresaw in the business of Newgen.
In fact, now with multiple products, multiple geographies and a strong client
base Newgen stands tall in the global software product industry. As indicated
in the report it is the only company from India to be recognized by Gartner and
Forrester in the magic quadrant.
Even though it faces sound competition from the global giants like Appian, Open
Text etc, Newgen has created a strong footing for itself in the global arena. In
fact, in terms of technology, innovation it has been rated above or in par with
these global giants.
Further, it is one of the few companies with multiple products as most of the
global giants are either single products or are involved in other businesses apart
from the software product business.
So, even though the company has got all the right ingredients to be the market
leader but given the competition form the global giants in the industry we assign
a rating of 8 on market leadership.
Considering the above analysis, the total ranking assigned to the company
is 66.5 (out of 80). On a weighted basis, it stands at 8.3. This indicates that
fundamentals of the business are robust.


High - Medium - Low
1 2 3 4 5 6 7 8 9 10
Soul in the Game 10.0 10.0% 1.0
Capital Allocation 7.0 10.0% 0.7
Earnings Quality 5.0 15.0% 0.8

Scalablilty in the Business 10.0 15.0% 1.5
Market Leadership 8.0 10.0% 0.8
Final Rating 66.5 8.3

Financial At Glance

Sales 3,468 4,271 5,124
Sales growth (%) 12% 23% 20%
Operating Profit 397 700 975
Operating Profit Margin (%) 11% 16% 19%
Net Profit 287 524 729
Net Profit Margin (%) 8% 12% 14%
Balance Sheet
Fixed Assets 569 549 676
Other Assets 278 359 613
Inventories - - -
Receivables 2,055 2,394 2,220
Cash and Bank Balances 236 348 1,455
Current Assets 3,045 3,558 1,126
Total Assets 3,892 4,467 6,090
Net Worth 2,293 2,746 4,052
Long Term Debt 0 0 0
Short Term Debt 588 523 132
Other Non Current Liabilities 248 249 166
Current Liabilities 1,351 1,471 1,740

Market Data
Price (Rs) 240
52 week H/L 272 / 215
NSE symbol NEWGEN
BSE code 540900
Face value (Rs) 10.0
Free float (%) 30.6%
Price to earnings* (times) 22.2

*Based on TTM
Shareholding (%, June 2018)
Category (%)
Promoters 66
Banks, MFs and FIs 6
Foreign portfolio investors 10
Indian public 19
Total 100

Stock # 3
Karur Vysya Bank Ltd
A 100-year-Old Young Bank Focusing on its Core Strength.
Completing for 100 years is by no means easy for most businesses.
Think about it. Businesses that are still operating for a century. Very few businesses
have achieved this rare feat.
Let's rewind a 100 year and look at some key events that took place.
First World War. The Great Depression of 1929. Second World War. India's
Independence. Three wars with Pakistan and one with China. The Emergency period
(1975-77). The Gulf war (1990-91). The financial crisis of 2007-08.
One century packed with full of events.
There are only a handful of Indian companies who have seen all the action.
Karur Vysya Bank Limited (KVB) is one of them. KVB traversed these treacherous
times with flying colors.
KVB was founded in 1916. The initial objective of the bank was to encourage locals
to save money and to provide financial assistance to traders and agriculturists in the
region.
Despite several difficulties and challenges, KVB was quick to embrace all emerging
opportunities in the Indian economy.
The government focused on employment-intensive sectors like textiles and

automotive in the 1980s. And that resulted in these sectors booming in various
pockets across the country.

Tamil Nadu was at the forefront.
Several regions in Tamil Nadu such as Karur, Namakkal, Dindigul, Tiruchirapalli, and
Tiruppur became thriving hubs for textiles, automotive, and agri-based businesses.
Thousands of small and medium enterprises (SMEs) mushroomed in this region.
KVB became the banker of these small businesses. Over the years, KVB has developed
their expertise in lending to the SME segment. The bank has developed long-term
relations with its customers. This, in turn, created customer stickiness.
Going forward, the bank is positioning itself as a niche bank for the SME sector. KVB
has launched new customized products to cater to the special needs of each type of
trade and industry in the sector.
With banking landscape set to change in the future, KVB is transforming itself into a
two-pronged strategy of differentiated banking and going digital.
On the digital banking side, KVB will provide complete solutions for retail as well
as SMEs anchored on convenience. Similarly, KVB is adopting the latest technology,
digitizing its operations and using algorithms in its core operations.
Apart from above, KVB is doing several other things right - increasing focus on retail
loans, aggressive cleanup of the corporate loan book, or hiring the right people at
the top.
We believe, KVB is ready to ride the next leg of the journey.
Here's why...
Karur Vysya Bank Ltd is one of the oldest private sector banks with an operating
history of more than 100 years. KVB has over the years build a solid liability franchise
with more than 6.5 million depositors.
Over the years, the bank has also created a stronghold in the SME segment where
both growth and asset quality are relatively better than the corporate segment.
31 | Stock 3 # Karur Vysya Bank Ltd

It specialises in working capital loans (forms around 80% of the total loan book) which
helps KVB to re-price its loans faster than the term loans. This has helped the bank in
stable net interest margins (NIMs).
In FY12-13 the bank deviated from its path and started lending aggressively towards
big ticket loans (corporate loans) and that too in consortium. This shifted banks focus
from high quality lending and starting FY17 it started seeing an increase in the non-
performing assets.
Finally, the management changed in late 2017, when Mr Seshadari took charge as MD
& CEO. With strong background and experience, the new management has started
leveraging on the existing core strengths of KVB.
Along with focusing on the right areas, like growing SME and Retail loans over
corporate loans, the management has also done a cleanup exercise.
It has also put systems to improve credit sourcing and underwriting. In fact, the
management is rightfully converting its huge liability franchise (6.75 million customers)
to cross-sell its retail advances.
We believe, with strong reach in the tier 2 & 3 towns, KVB is well placed to leverage
its core strengths.
The current valuations provide a decent

margin of safety as the stock trades 1.2 times
on price to book basis. If we compare with One could consider
other banks both regional and national, buying the stock of
KVB is available at a reasonable discount.
With a strong historical background and
Karur Vysya Bank
the new management change we believe, Ltd at the maxi-
KVB is well placed compared to its peers. mum buy price of
Thus, one could consider buying the Rs 115 or lower.
stock at the maximum buy price of Rs
115 or lower.

According to us, in a scenario of ideal allocation of funds, predominantly mid and
small-cap stocks could be considered to comprise of not more than 30-40% of
your total equity portfolio. Further, we believe a single small cap stock should not
form more than 2-3% of the total portfolio. Please note that this allocation will vary
from person to person. For something that works best for you, we recommend you
talk to your investment advisor.
Smart Money Score

1. Smart Money Invested - One of the important catalysts we look for in a stock
is the smart money. Based on the holding (higher the better) and our comfort
with super investor we assign a rating on a scale of 10.
We also like to see either the super investor or the promoters of the company
increase their stake in the company.
However, in case of banks, promoters do not hold a majority stake. One should
understand for a bank both the raw material and finished goods is cash (think
Borrowing and Lending).
This simply means, it requires more capital as it grows and promoters dilute
their stake for the same.
While it is common in the banking sector to have low promoter holdings, we

have still penalized the company due to its low promoter holding.
Apart from management, we see smart money invested in the company, funds
like SAIF (2.3%), HDFC (4.3%), and Sundaram (1.6%) (some of the funds we really
like) are invested.

Keeping in mind the low promoter holding, we assign a rating of 6 to KVB.
2. Business Quality - One reason that makes KVB such a compelling story is its
long history of operations and superior profitability over the years.
Being a regional player, it has survived for hundred years and has built a strong
business franchise.
In case of the falling interest rate regime, term loans are locked at fixed rates
which hurts banks in case of interest rate reversal (increase in the borrowing
cost without an increase in the lending rate).
As mentioned above, around 80% of its loan book is into working capital loans,
which means the company has the power to immediately re-price its loans. The
same is reflected in strong NIMs (north of 3%) across business cycles.
Food for Thought - In case of Term Loans: 1) Fixed rate loans - No re-pricing;
2) Floating rate - Re-pricing but with a lag. In case of Working capital -
Immediate re-pricing hence, pricing power.
The re-pricing ability gives stability to the profitability which is reflected in

superior return ratios since FY2000.
Interestingly, if we keep last five years aside, where the bank lost its path, KVB
used to be the undisputed champion in regional private bank space.
While the long-term return ratios demand full rating, but the recent worsening
of the asset quality and return ratios (FY18E ROE - 6.8%) has made us penalise
the company for two points and we assign a rating of 8 on business quality.
3. Competitive Advantage - For a bank, the quality of the balance sheet is very
important, as indicated earlier, for a bank both raw material and the finished
product is cash. This means a bank should have a very strong balance sheet.
For analyzing the balance sheet quality, we look at four metrics, i.e. 1) Loan Book
Growth; 2) Credit to Deposit Ratio; 3) Current Account & Saving Account (CASA);

and 4) Capital Adequacy Ratio (CAR).
• Loan Book Growth - To put it simply this implies at what rate the bank has
been able to grow its loan book over the period. To put things in perspective,
we have compared KVB with other regional players:
KVB again stands strong in the top quartile in terms of loan book growth. In
the last seventeen years (FY00-17), KVB has grown its loan book at a CAGR
of 21.7%. Interestingly, the growth has been profitable as well.
• Credit to Deposit Ratio (C/D Ratio) - This implies the efficiency with regards
to lending the borrowed money. For instance, if a bank receives deposits of
Rs 100 and lends 60 out of it, the C/D ratio is 60%. (Higher the better).
Current Account, Saving Account Deposits (CASA) - A bank lends money out
of the deposits it receives. The deposits can be in two forms i.e. term deposits
(attracts higher cost - think FD) and CASA deposits (low-cost funds).
A bank with higher CASA funds has an advantage of lower cost funds and
hence better profitability.
While in FY 17 the bank has managed to reach 27.7%, but that was largely
driven by the demonetization. Over the years, the bank has not been able to
increase its CASA deposits and it falls in the lower quartile as far as CASA
deposits are compared.
While the current level of CASA is comfortable, but we penalize the company
for lower level of CASA deposits in the past.
• Capital Adequacy Ratio (CAR) - This is one of the most important factors that
are used to judge the soundness and sustainability of a financial institution's
business over the longer term.
It shows the ratio of capital to assets financed. The RBI has stipulated a
minimum CAR of 9% for banks as per Basel III.

The CAR also indicates the ability of a bank to grow. The better a bank is
capitalized, better it can grow.
While, historically KVB has been able to maintain a decent capital adequacy
of 14.6% in (17 Y Avg), but the recent worsening of the asset quality (NPAs)
has led to multiple rounds of fund raising to maintain the CAR above the
statutory requirements.
Recently, KVB raised Rs 8.9 billion through a rights issue. With this, the capital
adequacy ratio (CAR) increased to 13.9% in 3QFY18 compared to 12.5%
for the year ended FY17. The recent rights issue provides KVB with
adequate capital for near-term growth.
Even though, current CAR ratio stands at 13.9 times (post the recent rights
issue), the bank may need to further raise capital to augment the
growth in FY19 or early FY20.
We have again penalized the bank for capital adequacy ratio.
Hence, we assign a rating of 7 on Balance Sheet Quality.
4. Profit & Loss Account Quality - Apart from balance sheet, one should also
look at profit and loss account. This helps in understanding the quality of the
profits and efficiency of the bank's operations.
To understand the quality of a Profit and loss account, we broadly look at three
metrics, i.e. 1) Net Interest Margins; 2) Cost to Income Ratio; 3) Net Profit Growth.
Net Interest Margins (NIMs) - NIMs are operating margins for the bank i.e. Net
Interest Earned (Interest Income - Interest Expense) on average earning assets.
As discussed earlier, working capital loan comprises around 80% of KVB's loan
book which means it can reprice the loans quickly resulting in stable NIMs.
The above table shows KVB's strength in maintaining its margins across business

cycles. In fact, as of December 2017, the bank had NIMs of 3.8% (when it is
going through the worst phase - asset quality going for a toss), this shows the
company's strength in terms of pricing its working capital loans.
Cost to Income Ratio (C/I Ratio) - Cost to income ratio implies the operating
efficiency of a bank. It basically measures operating expenses (administrative
and fixed expenses) as a percentage of operating income (Net Interest Income +
Other Income).
To put simply, it shows how efficiently a bank operates, lower the C/I ratio higher
is the efficiency and hence the profitability.
KVB has over the years had managed to have a tighter control over its cost to
income ratio. As on December 2017, it has inched above 44%, which is closer
to the historical average. One of the reasons has been increasing in number of
branches and employees in the last two years.
However, the new management has indicated that there would be fewer new
branches and employees in years to come and we expect this would lead to
improvement in cost to income ratio and hence the profitability.
Net Profit Growth - The ultimate metric to see a bank's performance is to look
at growth in its profitability. Net profit considers both the operating efficiency
and the quality of the loan book (Non-Performing Assets).
While historically net profit growth has been quite robust, the growth in net
profits has hit a roadblock in last five years. With ballooning of Non-Performing
Assets (NPAs) the asset quality of the bank has gone for the toss (read about the
company) and it has resulted in lower profitability, hence lower growth in profits.
However, we believe, the worst is behind it. With new management and renewed
focus, the profit and loss account statement will change drastically in next two to
three years with NPAs coming under control.

We assign on a rating of 8 for Profit & Loss Account Quality.
5. Management Quality - One of the important aspects in the banking industry

is the right management in place. A management that understands capital
allocation and has a perfect mix of conservatism and aggression (Growth in Loan
book should not be at the cost of Profits).
If one looks at the history of Indian banking sector, the biggest difference between
a successful and failed bank has been the 'quality of the management'.
As discussed above, KVB has recently gone through a management change. The
new management team headed by Mr P.R. Seshadri as its managing director
(MD) and chief executive officer (CEO).
He is an alumnus of Indian Institute of Management (IIM) Bengaluru, Seshadri

has over 25 years of experience in commercial and retail banking.
Previously, Seshadri had served Citibank India in various capacities, including

the managing director, Citi Financial Consumer Finance Ltd, Citi Financial Retail
Services India. He had also served London-based BFC Bank Ltd as the CEO.
The new management understands capital allocation and has already started
cleaning exercise and turning around the operations of the bank. (For details
read management change section).
We assign a rating of 9 on management and capital allocation.
6. Asset quality - The biggest problem that the Indian banking sector is going
through right now is the worsening asset quality. The elongated slowdown in the
economy has led to the inability of big corporates paying up their loans.
While historically, KVB has always focused more on the MSME side of the business,
however, in FY12-13 it also followed the path of high growth by lending to the
corporate sector. As a result, the loan book grew at 16% CAGR, it has impacted

the asset quality.
The bank is in the midst of writing off bad loans around Rs 12 billion.
While if we look at historical numbers, KVB stands out on the asset quality front
as it has always been conservative in lending and focused on working capital
loans (which are less riskier).
However, the recent cleanup will make sure the asset quality remains solid.
But the provision coverage (i.e. writing of the provisions in the Profit and Loss
account) will increase which will again lead to lower profitability.
We have penalized the bank on the recent worsening of the asset quality
and assign a rating of 6 on asset Quality.
7. Competitive Advantage - While banking business per se does not have any
competitive advantage because it is highly regulated trading business.
However, over the years, some banks have outperformed others on many areas
like low-cost funds (high CASA deposits), cost efficiencies (control over cost to
income ratios), process efficiencies and niche client profile (SMEs), niche lending
(working Capital loans) among other things.
Now what sets KVB apart from other regional banks:
Focus on SMEs (Commercial Loans) - KVB is situated in Karur district of Chennai.

It is well known for SMEs in various sectors, especially textiles, paper, and bus
body works. Karur is also a major agricultural hub and a leading trading hub in
Tamil Nadu.
KVB has a strong presence in the textile belt of Coimbatore-Karur-Tirupur region

and has strong relationships with the local textile manufacturers.
Going forward, the bank is positioning itself as a niche bank for the SME sector,
with a customized package of products to cater to the special needs of each type

of trade and industry in this sector.
Currently, SMEs forms around 34% of the total loan book, management expects
to take this to around 40% in next two to three years. One should note that most
of, many of these loans are working capital and small ticket size loans.
Working Capital Loans - As indicated above around 80% of the advances are
working capital loans. The short-term nature of the loans makes them more
predictable (in terms of the quality) and allows the bank to re-price their loans
quickly.
The same is reflected in strong operating margins of the bank (Net Interest
margins). We believe, this coupled with improvement in the efficiency (cost to
income ratio) and asset quality will completely change the bank's course going
ahead.
Strong Liability Side - As indicated above KVB is one of the few banks, which has
survived for long 100 years. Over the years, it has created a very strong liability
profile with around 6.5 million depositors.
As per the latest data, top 20 depositors contribute only 7% of deposits. Term
deposits (contributes 72% of total deposits) are primarily retail deposits.
However, what the new management has identified is - the bank over the years
has not milked the liability franchise to cross-sell its products.
Now, one of the safest lending in the banking industry is retail (with high growth
and low NPAs). We believe, KVB is well poised to take the advantage of huge
liability franchise and cross sell them retail products like Home Loans, Vehicle
loans, Education Loans etc.
While, there are no big competitive advantages that KVB has over its competitors,
but we strongly believe, it is better placed with the new management identifying
the right things to do. Hence, we assign a rating of 7.
Considering the above analysis, the total ranking assigned to the company

is 51 (out of 70). On a weighted basis, it stands at 7.4. This indicates that the
fundamentals of the business are decent.


High - Medium - Low
1 2 3 4 5 6 7 8 9 10
Balance Sheet Quality 7.0 10.0% 1.1
P & L Quality 8.0 10.0% 1.2

Management Quality
9.0 10.0% 1.4
Capital Allocation
Asset Quality 6.0 15.0% 0.9
Final Rating 51 7.7

Financial At Glance

Interest Income 54,434 56,224 56,997
YoY (%) 1% 3% 1%
Interest Expense 36,620 35,486 34,015
Net Interest Income 17,814 20,737 22,981
YoY (%) 22% 16% 11%
Other Income 7,068 7,822 8,999
Other Expense 12,528 12,528 14,207
Operating Profit (Pre-Provisioning Profits) 5,286 8,210 8,774
YoY (%) 46% 55% 7%
Provisions & Cont. 3,238 6,875 12,737
YoY (%) -33% 112% 85%
Profit before tax 9,116 9,157 5,037
Tax 3,440 2,775 1,580
Profit after Tax 5,676 6,382 3,457
YoY (%) 25% 12% -46%
Net profit margin 10% 11% 6%
Balance Sheet
Net Fixed Assets 4,201 4,411 5,282
Cash and balances with RBI 25,291 27,905 29,601
Balance with banks & money at call 2,625 15,546 13,368
Advances 390,844 409,077 448,002
Investments 132,217 148,575 158,032
Other assets 21,459 15,342 15,007
Total Assets 576,637 620,856 669,291
Networth 45,730 50,357 62,642
Deposits 500,789 536,998 568,901
Borrowings 15,732 16,957 23,817
Other liabilities 14,386 16,544 13,932

Market Data
CMP (Rs) 102
52 week H/L 150 / 93
NSE symbol KARURVYSYA
BSE code 590003
Face value (Rs) 1.0
Free float (%) 98%
Price to Book* (times) 1.2

*Based on TTM
Shareholding (%, Mar 2018)
Category (%)
PROMOTERS 2.08
FRANKLIN TEMPLETON FRANKLIN INDIA (VARIOUS FUNDS) 4.8
HDFC STANDARD LIFE INSURANCE COMPANY LIMITED 2.19
HDFC TRUSTEE COMPANY LTD - A/C HDFC MID 2.78
ICICI PRUDENTIAL (VARIOUS FUNDS) 1.56
SAIF INDIA IV FII HOLDING LIMITED 2.32
SUNDARAM MUTUAL FUND (VARIOUS FUNDS) 1.55

Others 82.72
Total 100

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS)
REGULATIONS, 2014
INTRODUCTION:
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was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information
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under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.
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views, opinions and recommendations on various investment opportunities across asset classes.
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DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
aa 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in

this Research Report.
bb Equitymaster holds 1 share of Newgen Software as per the guidelines prescribed by the Board of
Directors of the Company. The investment is made for research purposes only.
cc Equitymaster has no other financial interest in Newgen Software.
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ee Equitymaster's investment in the subject company is as per the guidelines prescribed by the
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July 12, 2018

Dear valued subscriber,

You can either do all the hard work yourself…

No prizes for guessing the way we prefer!

Why should they? They have every reason to be secretive.

On 30 November 2015, the Indian securities regulator released ‘Regulation 31’.

That’s true but…

Regulation 31 filings are different…and they certainly get us excited.

This regulation tells you where the smart money is moving.

What does all this mean?

That’s great, right?

Kunal Thanvi (Research Analyst)

A Two-Wheeler Tyre Specialist

'Low Cost of Ownership, High cost of Failure'

'Buy Commodity and Sell Brand'

The Top 3 ‘Regulation 31’ Stocks | 6

Pattern 1#: TVS Srichakra (TVSSC) is a TVS group company.

In fact, this helps in increasing client stickiness.

7 | Stock 1 # TVS Srichakra Ltd

According to us, in a scenario of ideal

The Top 3 ‘Regulation 31’ Stocks | 8

1. Smart Money Invested – One of the important catalysts we look in a stock is

9 | Stock 1 # TVS Srichakra Ltd

The Top 3 ‘Regulation 31’ Stocks | 10

So what has made TVS Srichakra stand out?

First, the company is a specialized player focusing only on the two-wheeler

11 | Stock 1 # TVS Srichakra Ltd

The Top 3 ‘Regulation 31’ Stocks | 12

TVS Srichakra's strategy is to focus on the two-wheeler and three-wheeler tyre

Given the cyclicality of the revenue (automobile industry), we assign a

8. Market Leadership - TVS Srichakra has made a conscious decision to stick to

13 | Stock 1 # TVS Srichakra Ltd

Keeping these aspects in mind, we have assigned a rating of 9 to the company

The Top 3 ‘Regulation 31’ Stocks | 14

Equitymaster's Weightage Weighted

Smart Money Invested 10.0 15.0% 1.5

Business Quality 8.0 15.0% 1.2

Competitive Advantage 8.0 10.0% 0.8

Soul in the Game 9.0 10.0% 0.9

Capital Allocation 10.0 10.0% 1.0

Earnings Quality 10.0 15.0% 1.5

Final Rating 72 9.0

15 | Stock 1 # TVS Srichakra Ltd

(Rs m) FY16 FY17 FY18

Sales growth (%) 7.5% -9.6% 16.7%

Gross Profit 9,599.6 8,717.3 8,820.8

Gross Profit Margin (%) 44.3% 44.5% 41.0%

Operating Profit 3,248.10 2,872.20 2,672.50

Operating Profit Margin (%) 15.0% 14.7% 12.4%

Net Profit 1,911.70 1,496.90 1,173.40

Net Profit Margin (%) 8.8% 7.6% 5.5%

Other Assets 1,440 1,959 1,739

Inventories 2,079 4,118 3,315

Receivables 1,739 2,037 2,437

Cash and Bank Balances 202.1 162 218.8

Current Assets 383.1 573.6 590

Total Assets 9,690 13,910 14,251

Net Worth 4,121 5,611 6,389.0

Long Term Debt 440 238 76.5

Short Term Debt 866 2,761 2,932.20

Other Non Current Liabilities 923 955 974

Current Liabilities 3,340 4,345 3,879

Total Liabilities 9,690 13,910 14,251