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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily27032012.pdf
Strategy: Recommendations turn positive as the horizon rolls forward
` Whizdom: The framework in brief
` Whizdoms key recommendations: Positive recommendations move up to
59%
` Changes in recommendation due to rolling of the horizon period to
FY2014E from FY2013E
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 109 stocks. The framework comprises two main building blocks: one involves
observing the distribution of the intrinsic value of a stock across time to decipher where the value
of growth resides; the second involves comparing the implied growth rate in perpetuity (derived
from current market prices) with reasonable terminal growth estimates as specified by our
analysts. Whizdom’s rule-based decision tool uses the two observations as inputs and recommends
potential stock action for its universe.
Whizdom’s key recommendations: Positive recommendations move up to 59%
Out of 109 companies in the Whizdom universe, 64 have positive recommendations as 40
companies feature as “Growth holdings” (implying reasonable terminal growth and significant
value after FY2014E). Sectors like industrials and consumer products have seen a large number of
negative recommendations as many companies in the sectors imply unreasonable growth in
perpetuity after the terminal year. On a consolidated basis, 40 companies imply an unreasonable
terminal growth rate.
Changes in recommendation due to rolling of the horizon period to FY2014E from FY2013E
As we have moved the horizon period to FY2014E from FY2013E, several changes in
recommendation have occurred in the framework. Positive recommendations climbed to 59%
from 41% of the universe. The number of Rerating candidates increased to 13 companies from
five. Industrials and utilities companies featured on the list. The framework defines Rerating
candidates as companies with a low value today (based on FY2012E cash flows remaining
constant into perpetuity), significant value in the next two years (FY12-14) and a reasonable
implied terminal growth rate. Bharat Forge, Crompton Greaves, CESC, GAIL, Tata Chemicals and
Sterlite are a few of the companies that matched the criteria. Oil India featured as an undervalued
candidate with value based on current cash flows exceeding the market price and no significant
value erosion expected in the horizon period (FY12-14). Reliance Industries (value holding to Book
profits) and Cadila (Growth holding to Book profits) saw their recommendations move from
positive to negative due to the rolling forward. The consumer products space benefited from
moving the horizon period forward as negative recommendations in the space decreased to six
companies (from nine earlier).
The Whizdom DCF-based decision-support tool is available online (on our website) where the
interactive dashboard allows users to tweak and save model assumptions for a universe of 109
companies. Please follow this link:
https://kie.kotak.com/kinsite/index.php?module=whizdom
Note: Please get in touch with us incase you do not have your login details.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily27032012.pdf
Strategy: Recommendations turn positive as the horizon rolls forward
` Whizdom: The framework in brief
` Whizdoms key recommendations: Positive recommendations move up to
59%
` Changes in recommendation due to rolling of the horizon period to
FY2014E from FY2013E
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 109 stocks. The framework comprises two main building blocks: one involves
observing the distribution of the intrinsic value of a stock across time to decipher where the value
of growth resides; the second involves comparing the implied growth rate in perpetuity (derived
from current market prices) with reasonable terminal growth estimates as specified by our
analysts. Whizdom’s rule-based decision tool uses the two observations as inputs and recommends
potential stock action for its universe.
Whizdom’s key recommendations: Positive recommendations move up to 59%
Out of 109 companies in the Whizdom universe, 64 have positive recommendations as 40
companies feature as “Growth holdings” (implying reasonable terminal growth and significant
value after FY2014E). Sectors like industrials and consumer products have seen a large number of
negative recommendations as many companies in the sectors imply unreasonable growth in
perpetuity after the terminal year. On a consolidated basis, 40 companies imply an unreasonable
terminal growth rate.
Changes in recommendation due to rolling of the horizon period to FY2014E from FY2013E
As we have moved the horizon period to FY2014E from FY2013E, several changes in
recommendation have occurred in the framework. Positive recommendations climbed to 59%
from 41% of the universe. The number of Rerating candidates increased to 13 companies from
five. Industrials and utilities companies featured on the list. The framework defines Rerating
candidates as companies with a low value today (based on FY2012E cash flows remaining
constant into perpetuity), significant value in the next two years (FY12-14) and a reasonable
implied terminal growth rate. Bharat Forge, Crompton Greaves, CESC, GAIL, Tata Chemicals and
Sterlite are a few of the companies that matched the criteria. Oil India featured as an undervalued
candidate with value based on current cash flows exceeding the market price and no significant
value erosion expected in the horizon period (FY12-14). Reliance Industries (value holding to Book
profits) and Cadila (Growth holding to Book profits) saw their recommendations move from
positive to negative due to the rolling forward. The consumer products space benefited from
moving the horizon period forward as negative recommendations in the space decreased to six
companies (from nine earlier).
The Whizdom DCF-based decision-support tool is available online (on our website) where the
interactive dashboard allows users to tweak and save model assumptions for a universe of 109
companies. Please follow this link:
https://kie.kotak.com/kinsite/index.php?module=whizdom
Note: Please get in touch with us incase you do not have your login details.
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