Bangalore Investors Group

The Competitive
Analysis Tool
Kumar Saurabh (Twitter: @suru27)
Bangalore Investor Group Presentation
7th Jan. 2018
Agenda
 The competitive Analysis tool : Why, how it started, purpose?

 The Ingredients of Tool?

 Set the tool and how to use it?

 Demonstration and Deep Dive through Case Study

Please note that there are multiple frameworks for investment analysis. I am comfortable to start with quantitative (numbers) analysis to
get a basic business sense and then get into detailed qualitative analysis(The inherent assumption is 1. Quality reflects in quantity 2.
Conviction in history is required for confidence in future 3.Time is limited and must be applied judiciously). However, this is not the only way
but one of ways. The tool is an addition to toolkit used in this investment framework process mentioned.
Expectation

Users must have basic understanding of financial statements

and ratios to make full utilization of tool else it could be more

misleading than helping

Bangalore Investors Group

The Competitive
Analysis Tool
Purpose and How this
Started
The Tool: How it started?

Ambika looks a good

option in textile

Why not Vardhman

Textiles

Point hai…

Point hai…
So, what to do given limited time in hand?
 I realized that I had nothing handy for comparing various
companies and manual process was way too complex and
lengthy and non-intuitive

 Also, I cant keep analyzing so many companies one by one

being in a full time job. Too much effort and limited time

 So, question was – the way company analysis tool was created
(shared last year and will be shared as a part of current toolkit),
can we create something similar for competitive analysis? An
automated one with minimal human intervention?
The Result was “Competitive Analysis Tool”
Are you expecting this to be answer of
all the questions?
May be “No”, but it would help to
Ask more relevant QUESTIONS?
 The pointed questions
 The questions of outlier behavior
 The questions of differentiation
 The questions of uniqueness
 The questions of pattern
 And may be some of the answers…

Investment Decisions: No Direction, Multiple Direction, Selectively Chosen Direction??

Well thought through QUESTIONS can lead to option 3 while deciphering ANSWERS

But the ultimate question is what are those QUESTIONS? The tool may be the ANSWER
Bangalore Investors Group

The Competitive
Analysis Tool
Tool Structure and Coverage
Declarations/Assumptions
 This purpose of tool is to democratize purpose of stock analysis and not to do any stock recommendation

 If you uses this tool to highlight any analysis, Kindly give credit to the author and screener.in for their contribution

 This is tool for macroscopic relative/competitive analysis to find key/unique behavior/patterns/symptoms to

ask/investigate deeper pointed questions while performing qualitative analysis

 The usage of various metric is subjective to respective domain and knowledge of user to apply these metrics in

respective parlance. So, user must have understanding of various metrics used

 This is a generic tool for all industries excluding BFSI. However, more niche approach may be applied to specific

industries like core cyclic, real estate etc.

 The source data is from screener.in till March’2017 (Financials) & Price (Sept’17) and author is not responsible for errors

 Author has tried to validate formula used but does not guarantee it to be error proof
***THE STOCKS USED IN ANALYSIS ARE PURELY FOR DEMONSTRATION AND NOT A RECOMMENDATION. AUTHOR HOLDS POSITION
IN SOME OF COMPANIES FROM PAST FEW MONTHS BUT BY NO MEANS, HE IS RECOMMENDING ANY OF THESE STOCKS
Coverage : 70 KPIs across 11 Dimensions
Dimension Key Performance Indicators Count

Profitability Gross, EBITDA, EBIT,PAT, CFO Margin Ratios 5

Expense Revenue per Unit : Net Fixed Asset, Employee Cost, SGA, COGS Ratios 4

Cash flow CFO/PAT, FCF/PAT, CFO/Sales, FCF/Sales Ratios 4

Leverage Debt to Equity, Quick, Current, Interest Coverage, Interest as % of Debt Ratios 4

Growth Revenue, PAT, EPS, CFO, CFO/Shares Growth Ratios 5

Operations WC/Sales, Debtor Days, Inventory Days, WC Cycle 4

Expansion WCIP/Net Fixed Asset, CAPEX/GFA, Capex/Revenue 3

Assets Depreciation/GFA, ROTNA,ROTPNA,NFAT, Capex per Unit Revenue/PAT/CFO 9

Audit Receivables/Sales, Inventory/Sales, Depreciation/GFA, Tax Rate, Other Income/PAT, 10

Other Expense/Total Expense, Equity Dilution, NFA/Total Assets, PAT Growth/Revenue
Growth, CFO per Share/Revenue
Return Du pont Analysis, ROA, ROIC, ROIIC, ROCE, EPA/Sales, Dividend Yield, Capital Turn 13
Reenue/PAT
Valuation P/E,P/CFO, PEG,PCG,EV/EBITDA,EV/EBIT,EV/CFO,E/FCF 8
Features for Analysis
 Analyzed for 10 years of data

 Benchmarking against industry average (mean of 5 companies)

 3 Year, 5 Year, Across the years Performance

 Conditional formatting for relative performance

 Variance Analysis of journey, current performance

 Charts for better visualization

 Relative Comparison : Self, Competitors, Industry in different time bands

How to Use
 Download the 6 excels files (one.xlsx to five.xlsx and competitive_analysis.xlsx) from this link:

https://drive.google.com/open?id=1JAih2MRK-T_c6sjvCGbHgY5uYAVQplzL

 `Put all these 6 files in a common folder on your local hard drive

 Open 1st one.xlsx to five.xlsx and then open competitive_analysis.xlsx and click on automatically update button if
it asks for update. Once done, close all these 6 files. This will ensure that all links are updated as per local folder
structure

 Create an account on screener.in and upload this company analysis tool excel template here :
https://www.screener.in/excel/

 Identify your focus company and 4 other companies in similar business to analyze together

 Download excel of for all these 5 companies from screener by selecting the respective company and clicking
“export to excel” and keep all these 5 excels in a common folder
How to Use
 One done, create an account on screener.in
and upload one.xlsx excel template here :
https://www.screener.in/excel/

 Download excel of for all these 5 companies

from screener by selecting the respective
company and clicking “export to excel” and
keep all these 5 excels in the same folder where
you had downloaded those 6 files
How to Use

 One by one, delete previous files named one.xlsx to five.xlsx and rename
the new excels as one, two, three, four and five

 Open “Competitive_Analysis.xlsx” file and go to mapping sheet and type

actual name of companies which have been replaced by one, two, three,
four and five respectively

 First open one to five excel files

 Once above files are open, open competitive_analysis.xlsx excel file

Bangalore Investors Group

The Competitive
Analysis Tool
Demonstration and Deep Dive through
Case Study: Hotel Industry (Sinclairs Hotel)

Not a recommendation, but only for academic

demonstration purposes. Presenter may hold
stake in some of the companies discussed

5 stocks which either looked interesting from

community feedback or have cleared
presenter’s 1st level checklist have been selected
for deeper study
Profitability: Key Hypothesis/Question/Insight
Profitability: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 Industry works on very high and uniform Gross Margin. So, is it wise to assume that there is no commodity
COGS type risk?
 Though similar on GM, on EBITDA margins, variations emerge. So, how these companies are different on
expense basis?
 The industry seemed to create a low point in 2012 and then seems to be improving since then (excluding
Mahindra Holidays). What is happening?

Company Hypothesis/Questions?
 Why Mahindra Holidays has uniquely super high gross margin?
 Why in 2013 Sinclair had abnormally high EBITDA margins?
 Why Mahindra holiday margins are continuously falling till 2016?
 Why EIH margins are continuously increasing?

Summary:
o High gross margin industry with double digit healthy PAT margins and healthy CFO undergoing
structural margin improvement with some unique company specific behavior

o On most of the metric, Sinclair seems to be doing well with higher degree of consistency and leads
in terms of cash flow generation ability
Expense: Key Hypothesis/Question/Insight
Expense: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 There seems to be 3 different business models 1. Mahindra 2. Byke 3. Rest
 There is an improvement in most of metrics at industry level during last few years. Is this due to operating leverage
fueled by demand revival?

Company Hypothesis/Questions?
 Byke has a distinctly high return metric. Do they have a differentiated business model?
 Revenue per unit Net fixed asset
 Revenue per unit employee cost
 Why Sinclair has lowest “Revenue per unit Net fixed asset”. Lower utilization with scope for operating leverage or
they are not able to churn their assets well? Location disadvantage?
 Sinclair has above industry “Revenue per unit SGA” and improving continuously. Do they have some marketing
strength? Why Mahindra holiday is poorest among all - scope for operating leverage or weakness?

Summary:
o Some of companies seem to have differentiated business model. Identify various models
o Sinclair seems to be doing well on marketing front but has been poor in churning assets
o There is sort of stability in overall industry behavior
Cash Flow: Key Hypothesis/Question/Insight
Cash Flow: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?

 Industry generates higher cash flows from operations than PAT which is good

 However, FCF is pretty low which means most of cash flows are exhausted in some form

 CFO/Sales ratio of industry looks very healthy

Company Hypothesis/Questions?

 EIH is only company to generate significant free cash flow

 CFO/PAT has improved a lot for Sinclairs and also for Mahindra. Off late, Sincclairs has started generating FCF

 Why Byke’s CFO/Sales ratio is so low compared to overall industry?

Summary:
o High cash flow generating industry but very low free cash flow
o Some of companies generate or have started generating good free cash flow
Leverage: Key Hypothesis/Question/Insight
Leverage: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?

 Most of the players in industry have been asset light and despite of headwinds in industry, some of the
platers have been able to pare up debt

Company Hypothesis/Questions?

 Can we learn something from EIH debt reduction story?

 Why Mahindra Holidays have got a shoot up in debt equity ratio? Any big expansion done in last 2 years?

 Why interest rates differ so much across companies? What are sources of loan?

Summary:
o Sinclair look again a clear winner in terms of being asset light
o To my contrary belief of this industry being an asset heavy industry, there is companies with asset
light balance sheet and even some with high leverage have been able to reduce it even in tough
circumstances. Was I biased in my thoughts?
Growth: Key Hypothesis/Question/Insight
Growth: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 Why some of the companies are having very low revenue growth and some very high?
 Most of the companies have been able to deliver way higher PAT growth than revenue growth? What is
happening? Is it operating leverage playing across industry? Demand revival with supply constraint?
 Looks like whole industry gets into equity dilution? The good PAT growth does not convert into equally
good EPS growth?
 The industry seemed to create a low point in 2012 and then seems to be improving since then (excluding
Mahindra Holidays). What is happening?
 There is high level of non-uniformity across industry in YoY growth numbers. Why so?

Company Hypothesis/Questions?
 Though both Mahindra and Byke have shown tremendous revenue growth, the former has been not able
to convert all that into PAT

Summary:
o High gross margin industry with double digit healthy PAT margins and healthy CFO undergoing
structural margin improvement with some unique company specific behavior

o On most of the metric, Sinclair seems to be doing well with higher degree of consistency and leads
in terms of cash flow generation ability
Operation: Key Hypothesis/Question/Insight
Operation: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 Overall industry seems to work on reasonable working capital requirement with exceptions on either side.
 Though similar on GM, on EBITDA margins, variations emerge. So, how these companies are different on
expense basis?
 The industry seemed to create a low point in 2012 and then seems to be improving since then (excluding
Mahindra Holidays). What is happening?

Company Hypothesis/Questions?
 What is reason behind Sinclair well managed working capital, inventory and receivable management?
 Why Mahindra has such high receivable days and why inventory days has deteriorated significantly in last
2 years?
 Why Byke How Mahindra works with –ve working capital and why it is higher for Byke. So, there seems to be
3 different business model – 1. Mahindra’s 2.Byke 3. Rest

Summary:
o Though, industry looks pretty good on operational parameters with few exceptions like Mahindra,
Sinclair steals the show with relatively better working capital management, inventory and
receivable days

o There are multiple business models in this industry

Expansion: Key Hypothesis/Question/Insight
Expansion: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 Except foment, the capex plan has been idle during last 3 years where most of companies underwent
some capex during 2010-15
 The maintenance capex range lies somewhere between 4-12% of revenues for various companies

Company Hypothesis/Questions?
 Sinclair and Byke underwent major capex during 2010-15. Can we analyze pre-capex and post capex
revenue per unit asset t get a sense of possibility of operating leverage? Because bulk of asset has been
added recently, is this the reason, “revenue per unit NFA” for Sinclair is lowest?
 Fomento is undergoing a major capex. Does valuations factor this opportunity?
 Why EIH has not undergone any capex in last 10 years? Has done major capex between 2011-15. So, if
demand improves and supply is constrained, could it lead to operating leverage play?

Summary:
o The pace of capex has slowed down recently in last 3 years
o Companies without any capex program has been able to pare up debt and generate lot of cash
flows. Can this be an indicator for companies who have done or are doing lot of capex and are still
in comfortable debt?
o Has Sinclair and Fomento valuation covered capex impact?
Asset: Key Hypothesis/Question/Insight
Asset: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 Looks like as assets get old without add on, asset turnover increases and decreases when new assets added
 0.4 to 0.7 looks like generic hotel business model asset turnover and 7-9% as industry average return on asset (Sinclair,
Fomento, EIH with similar numbers)
 Ignoring ROE due to leverage, if we look at ROCE, without capex, EIH has managed 16-21% ROCE which is decent.
Now, if with so much capex going/gone, if Sinclair and Fomento could generate satisfactory ROCE, with more
beneifts of capex kicking in, can they improve ROCE? Then, why we say, hotel business is a bad business? Are we
stereotype? Is it such a bad business or average business worth looking at attractive valuation cycles?
Company Hypothesis/Questions?
 Post capex, asset turnover of Sinclair has gone up but is it optimum? Fomento is at all time low due to ongoing
capex, so, will it go up from here which means higher ROE?
 Can EIH be considered tentative optimum asset turnover point as they have not undergone any capex?
 Why Byke has substantially high asset turnover?
 Mahindra holiday ROE improvement so far is a result of leverage (ROCE is falling) and better asset churn damped by
margins but again, is there scope of margin improvement? Why asset turns is going up and margins going down?
 How Byke has significantly improved its return on assets?

Summary:
o Asset turnover could be a good play to time stocks if one is sure of demand and valuations
o Deeper analysis is required to understand potential long term normalized ROCE
Audit: Key Hypothesis/Question/Insight
Audit: Key Hypothesis/Question/Insight
Audit: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 Does variation in “Depreciation/GFA” tells anything about age of assets?
 The industry seems to be paying reasonable taxes
 “Other Incomes” share significantly high share of PAT(except Byke). Why? No demand and hence piling
cash?
 Most of the players have gone through equity dilution in last 10 years (except Fomento)

Company Hypothesis/Questions?
 Why Mahindra has high receivables and inventory numbers?
 Why Byke has high “Depreciation/GFA” ratio?
 Why Fomento’s NFA to total asset has undergone drastic change recently?
 Why Sinclair Depreciation to GFA is rising?

Summary:
o Raises issues over core business profitability contribution
o Difference in asset structure and depreciation need deeper understanding
Return: Key Hypothesis/Question/Insight
Return: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 Industry works on high PAT margins but lower Asset turnover. An improvement in asset turnover could have
significant impact on return ratios.
 Companies go through cycles of asset turnover fluctuation. History suggests to pick when they are at
bottom of asset turnover to reap better benefits if there is a demand in market
 lower asset turnover and higher PAT margins. Though ROE looks good, it is leverage effect and
 The ROCE numbers of industry are not as bad as it looks from outside, specially considering that last 5 years
were worst period for industry. Further, not to forget , it is a high cash flow industry safeguarded from
commodity, receivables etc risk. Demand supply imbalance could play havoc though

Company Hypothesis/Questions?
 Why Fomento is at bottom of asset turnover?
 Why Byke has a higher asset turnover?

Summary:
o ROCE also suggests that industry created a low in 2012-13 and improving since then it is improving
o Are the numbers really bad or we are partially blinded by recency bias, specially considering if
there is a scope for asset turnover improvement
Valuation: Key Hypothesis/Question/Insight
Valuation: Key Hypothesis/Question/Insight
Valuation: Key Hypothesis/Question/Insight
Industry Hypothesis/Questions?
 The variation in relative valuation is relatively higher on PE,P/CFO.PEG basis. However, on EV/EBITDA, EV/EBIT
companies are relatively closer
 As on March 2017, Industry seemed decently valued on EV/EBITDA basis at around 11 with range being 8.5-13
 On EV/CFO basis considering relative valuations with others and with self historic numbers, Sinclairs look better
placed and Byke looks higher unless future growth stories going to be different
 Do these valuation metric suffer from imbalanced nominator and denominator in various years of valuations?
 Think 3 year forward and capacity utilization, expansion impact kicking in. If take these valuation ratios as
standard, how the numbers will look 3 years down the line?

Company Hypothesis/Questions?
 Why Byke valuation on EV/CFO is always higher? Is it justified?
 Is there any company whose valuations look depressed?

Summary:
o Considering capex, assets added , asset turnover, operational excellence, leverage position, return
ratios and future outlook (post industry research), which of the companies look better in terms of
valuation?
o Are we paying too much to buy companies in this sector?
My Final Summary Notes : Views may differ
o High gross margin industry with double digit healthy PAT margins and healthy CFO undergoing structural margin
improvement with some unique company specific behavior

o Raises issues over core business profitability contribution

o Difference in asset structure and depreciation need deeper understanding

o Growth comes but in a non-uniform manner and profitability growth is more a operating leverage play

o Though, industry looks pretty good on operational parameters with few exceptions like Mahindra, Sinclair steals
the show with relatively better working capital management, inventory and receivable days

o To my contrary belief of this industry being an asset heavy industry, there is companies with asset light balance
sheet and even some with high leverage have been able to reduce it even in tough circumstances. Was I
biased in my thoughts?
My Final Summary Notes : Views may differ
o There are multiple business models in this industry

o The pace of capex has slowed down recently in last 3 years

o Companies without any capex program has been able to pare up debt and generate lot of cash flows.

o ROCE also suggests that industry created a low in 2012-13 and improving since then it is improving and
considering the headwind industry has faced, it is not such a bad industry to permanently ignore

o Valuations look reasonable

o Monitoring Asset turnover, Future supply and demand could be a good play to time stocks if one is sure of
demand and valuations to time the cycle

o Deeper analysis is required to understand potential long term normalized ROCE

We have got some pointed questions, some patterns and some insights for 5 companies
together including industry which can help us in more focused deeper research to help us to
take right decision
Different users may interpret the same data in different ways
and may derive different/additional insights and hypothesis

So, tool is just a medium and focus should be on “How to

extract maximum value out of it”

“Return on Insights/Time”
We have a basic base understanding now to go ahead and
do all the qualitative analysis. Read Annual Reports, Industry
Reports, Conference call Transcripts…

Do remember to find answers to all questions/behaviors

identified during qualitative deep dive

Pick best bet from the 5. It could be 1, more or none…..

Expectation
Tool is just the science and automation part, the art lies in understanding,

interpreting and associating various numbers together and build a usable story

An successful user of tool is someone who collects multiple

pieces from various places in the tool and then tries to assemble
them using the ART side of investment to see if they can be perfect
constituents of a jigsaw puzzle. If yes, ride it, if no, discard it.
How You can Contribute
 The tool will be posted here along with instructions: http://factsbeyondnumbers.wordpress.com/

 Please post all your queries, doubts, suggestions etc. on the blog page link so that wider audience

can get benefitted

 A VP thread will also be created to get contribution from target audience. So, you can use that

platform also

 If you find it useful and valuable, then, please help to take it to wider public in case you find it

useful by tweet/Retweet.

 We learn a lot from open forums and this could be one of ways to give something back
Bangalore Investors Group

The Competitive
Analysis Tool
Questions???
Version 2.0, 3.0, 4.0 ???
 The PPT and session helped to identify few immediate improvement areas and will be

upgraded soon in next version

 Keep an eye over blog for all future version upgrades. You can follow blog for future

upgrades

 Modification of current KPIs (the current session has given few ideas)

 More insightful KPIs

 TTM Analysis

 Industry Specific Tools : BFSI, Real Estate, Cyclic

Bangalore Investors Group

The Competitive
Analysis Tool
Thank You