1. Evaluating Investment Opportunities
Seminar : “Awareness on Islamic or Sharia Compliant Investment Opportunities to NRIs in Kuwait & India
FIMA; Dec 18, 2009
…… a presentation by R.Kuppanna, GM, Kuwait India

2. '...in the short term, the market is a 'voting' machine whereon countless individuals register choices that are product partly of reason and partly of emotion. However, in the long-term, the market is a 'weighing' machine on which the value of each issue (business) is recorded by an exact and impersonal mechanism.‘ Benjamin Graham

3. General Tenets Invest for the Long term
Systematic & Disciplined Approach
Study, Study & Study
Independence in Thought & Action
A public opinion poll is no substitute for thought
…..Warren Buffett A

4. The Power of Compounding
A sum of Rs. 100 invested would add up to:
Compounding, says Einstein, is “the eighth wonder of the world”
CAGR (%)/
YEARS 8 10 15 20
216
259
405
619
317
418
814
1541
466
673
1637
3834

5. Risk – Return Graph

6. Qualitative Aspects Manage Greed & Fear Avoid emotional attachment
Avoid actions based on hearsay/rumours/sentiments
Avoid over-leveraging
Don’t try to time the market
An investment in knowledge always pays the best interest
……… Benjamin Franklin

7. Some Key Perspectives Cost is a fact Price is policy
Profit is an opinion
CASH is Real
Although it’s easy to forget sometimes, a share is not a lottery ticket…it’s part-ownership of a business ……. Peter Lynch

8. Quantitative Aspects Operating profit margin Return on net worth
Return on invested capital
Debt-Equity ratio
Interest coverage ratio
PE ratio
Cash Flow per share
Warren Buffet’s Rules :1. Do not lose money
2. Do not forget rule # 1

9. Definitions of Terms OPM = EBIDTA/Sales*100 RONW = PAT/Networth*100
ROIC = EBIT/Invested Capital*100
D/E = Total Debt/Equity Shareholders’ Funds
Interest Coverage Ratio = EBIT/Interest Charges
PER = Market Price/Earnings Per Share(EPS)

10. An Example
Company
OPM %
RONW %
ROIC %
DE Ratio
Interest
Coverage
(X)
PE Ratio
Cement 1
5.40
-5.60
4.10
1.40
0.60 13
Cement 2
28.40
11.20
10.90
0.80
2.30 5
FMCG
50.90
47.90
0.10
48.80 37
Comparison across companies , intra-industry and inter-industry

11. Stock Picking -- Case A basket of mouth watering brands
Track record of high returns on capital
(over 25% over past 10 years; about 90% over past 5 years)
Generates a huge amount of capital
(over , cash flows generated Rs. 39bn; capex Rs. 11bn)
Low risk (strong brands, superior product quality, distribution strength)
Stability in market share
Pricing power
Honest and able management
Despite all of the above, the ruling price of the stock, its intrinsic value and the margin of safety would decide entry/investment levels

12. Ethical or Sharia-Compliant Funds
Funds Available
Shariah BeES – ETF of Benchmark AMC
(invests in securities of S & P CNX Nifty Shariah Index)
Taurus Ethical Fund (Taurus AMC)
(open-ended diversified equity fund – benchmark S & P CNX 500 Shariah Index)

13. SCREEN TEST Two-stage screening Sectoral Screen Financial Ratio Screen
(based on leverage, receivable & cash compliance; account for revenue share of non-compliant activities)

14. The Broken Window
The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups – Henry Hazlitt

15. Conclusion
On a lighter note:
OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks . The other months are July, January, September, April, November, May, March, June, December, August, and February.
- Pudd'nhead Wilson's Calendar
There are two times in a man's life when he should not speculate: when he can't afford it and when he can.
- Following the Equator, Pudd'nhead Wilson's New Calendar
(Both quotes from Mark Twain)

16. THANK YOU