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Strategy
Whizdom
If cash is king, Whizdom is the grand Vizier. Whizdom is KIE’s proprietary decision
support tool using a discounted cash flow valuation methodology at its core. The rulebased
tool recommends unbiased stock actions for its universe of stocks by identifying
whether current market prices imply a reasonable growth rate in perpetuity along with
the distribution of the stock’s intrinsic value.
Whizdom: The framework in brief
Whizdom is a decision support tool which builds primarily on a three-stage DCF valuation model.
Analyst estimates for terminal year financials and the hyper-growth phase are consolidated for a
universe of 111 stocks. The framework comprises of two main building blocks – one involves
observing the distribution of the intrinsic value of a stock across time in order to decipher where
the value of growth resides; the second involves comparing the implied growth rate in perpetuity
(derived from current market prices) with the reasonable terminal growth estimates as specified by
our analysts. Whizdom’s rule-based decision tool uses these two observations as inputs and
recommends potential stock actions for its universe.
Key recommendations from Whizdom: Book profit for 49% of the universe
On the basis of the rule-based decision support tool, Whizdom is currently generating positive
results for only 46% of the total universe of stocks. While Reliance Industries, Coal India and
ONGC feature amongst the 14 ‘Value holding’ recommendations, Whizdom has a ‘Book profit’
recommendation for most of the Consumer products companies under our coverage. Implied
growth rate in perpetuity for many of these companies is significantly higher than reasonable
growth estimates specified by our analysts. Wipro, Infosys, Sun Pharma and Maruti are some of
the ‘Growth holding’ recommendations. Out of the five ‘Rerating’ candidates, IOC and BPCL are
the most prominent. Three of the four ‘Indecisive’ recommendations were from the mid-cap IT
space featuring Mahindra Satyam, Patni Computers and Polaris Software.
Limitations and benefits – Keeping Whizdom interactive
One of the key limitations of the Whizdom framework is that it critically depends on analyst
assumptions of near-term, medium-term and terminal-year financials. Hence, the results of the
framework will only be as good as the input assumptions. In order to offer Whizdom as a decisionsupport
tool, we provide a dashboard in which users can model their own business assumptions
like cost of capital, hyper growth phase and terminal year estimates. The dashboard is also capable
of conducting sensitivity analysis for some of the business assumptions like risk-premium, risk-free
rate, beta and reasonable growth in perpetuity. While the Whizdom Interactive dashboard is
currently available in an excel template, it will soon be available on KINSITE as a web-based
application. Please feel free to ask for the interactive excel template.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Strategy
Whizdom
If cash is king, Whizdom is the grand Vizier. Whizdom is KIE’s proprietary decision
support tool using a discounted cash flow valuation methodology at its core. The rulebased
tool recommends unbiased stock actions for its universe of stocks by identifying
whether current market prices imply a reasonable growth rate in perpetuity along with
the distribution of the stock’s intrinsic value.
Whizdom: The framework in brief
Whizdom is a decision support tool which builds primarily on a three-stage DCF valuation model.
Analyst estimates for terminal year financials and the hyper-growth phase are consolidated for a
universe of 111 stocks. The framework comprises of two main building blocks – one involves
observing the distribution of the intrinsic value of a stock across time in order to decipher where
the value of growth resides; the second involves comparing the implied growth rate in perpetuity
(derived from current market prices) with the reasonable terminal growth estimates as specified by
our analysts. Whizdom’s rule-based decision tool uses these two observations as inputs and
recommends potential stock actions for its universe.
Key recommendations from Whizdom: Book profit for 49% of the universe
On the basis of the rule-based decision support tool, Whizdom is currently generating positive
results for only 46% of the total universe of stocks. While Reliance Industries, Coal India and
ONGC feature amongst the 14 ‘Value holding’ recommendations, Whizdom has a ‘Book profit’
recommendation for most of the Consumer products companies under our coverage. Implied
growth rate in perpetuity for many of these companies is significantly higher than reasonable
growth estimates specified by our analysts. Wipro, Infosys, Sun Pharma and Maruti are some of
the ‘Growth holding’ recommendations. Out of the five ‘Rerating’ candidates, IOC and BPCL are
the most prominent. Three of the four ‘Indecisive’ recommendations were from the mid-cap IT
space featuring Mahindra Satyam, Patni Computers and Polaris Software.
Limitations and benefits – Keeping Whizdom interactive
One of the key limitations of the Whizdom framework is that it critically depends on analyst
assumptions of near-term, medium-term and terminal-year financials. Hence, the results of the
framework will only be as good as the input assumptions. In order to offer Whizdom as a decisionsupport
tool, we provide a dashboard in which users can model their own business assumptions
like cost of capital, hyper growth phase and terminal year estimates. The dashboard is also capable
of conducting sensitivity analysis for some of the business assumptions like risk-premium, risk-free
rate, beta and reasonable growth in perpetuity. While the Whizdom Interactive dashboard is
currently available in an excel template, it will soon be available on KINSITE as a web-based
application. Please feel free to ask for the interactive excel template.
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