Strategy

November 2013

Accounting Thematic Accounting quality drives alpha

Gaurav Mehta, CFA Saurabh Mukherjea, CFA

gauravmehta@ambitcapital.com saurabhmukherjea@ambitcapital.com
Tel: +91 22 3043 3255 Tel: +91 99877 85848

Karan Khanna
karankhanna@ambitcapital.com
Tel: +91 22 3043 3251
 Strategy

CONTENTS

Strategy: Accounting quality drives alpha………………………………………….. 3

Methodology……………………………………………………………………………. 4

Accounting quality and investment returns - Absolute scores…………………… 6

Accounting quality and investment returns - Change in scores………………..10

Myths around accounting quality..................................................................13

Sample bespoke - World Cargo……………………………………………..…… 16

22 November 2013 Ambit Capital Pvt. Ltd. Page 2

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THEMATIC November 22, 2013

Accounting quality drives alpha Sector-neutral accounting buckets

show strong link between accounting
Forensic accounting has been a key component of our research over quality and investment returns
the last few years. Our forensic accounting model allows investors to Accounting Accounting Share price
bucket score performance
screen the BSE500 through proprietary tools which provide a quick
assessment of the health of their portfolios. Such a health check is Bucket A 227 8.8%
essential given the strong influence of accounting quality on Bucket B 198 7.7%
shareholder returns: the top decile of BSE500 stocks on accounting Bucket C 176 4.7%
quality outperforms the bottom decile by 26% per annum. Bucket D 146 -2.5%
Source: Ambit Capital research, Bloomberg
Quantifying accounting quality
Our model looks at the following key categories of accounting irregularities: Accounting quality versus share price
balance sheet misstatement, profit & loss misstatement, cash pilferage and performance for the Utility sector
audit quality. We use 11 ratios across these categories to quantify the
accounting quality for the BSE500 stocks (excluding banks and financial 20% R² = 52%

Share price performance

services firms). The caveat, however, is that whilst these aggressive accounting
10%
policies raise red flags, they may not necessarily imply accounting fraud.
0%
Accounting quality drives investment returns 100 200 300
-10%
Our analysis suggests that accounting quality is a significant driver of stock
returns in India. Deciles constructed based on accounting scores show a tight -20%
relationship with stock price performance, with D1 (i.e. the top 10% of BSE500
-30%
stocks on accounting quality) outperforming D10 by a whopping 26% CAGR
Accounting score
since April 2007. Importantly, the conclusion holds true even after controlling
for sector effects (i.e. sector effects or business model effects are NOT driving
this outperformance – see the table in the right margin). Furthermore, even Source: Ace Equity, Capitaline, Bloomberg,
within a sector, we find that accounting quality has a major bearing on share Ambit Capital research; Note: Accounting score
prices – see the chart on the right. is based on annual financials over FY08-13;
stock price performance is from April 2007 to
Accounting quality drives investment performance November 2013.

20%
R² = 84%
15%
Average share price

D2 D1
10% D6
performance

D5 D3
D7
5% D4
D8
0%
100 150 200 250 300
-5%
D9
-10%
D10
-15%
Average decile accounting score

Analyst Details
Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on
annual financials over FY08-13; stock price performance is from April 2007 to November 2013. Gaurav Mehta, CFA
+91 22 3043 3255
How can we help?
gauravmehta@ambitcapital.com
Our forensic accounting model allows us to conduct a first-level health check Karan Khanna
of your portfolio and helps identify potential red flags in your portfolio. This is +91 22 3043 3251
a critical input to both our Good & Clean portfolios as well as to our bottom-up karankhanna@ambitcapital.com
research coverage. On a bespoke basis for clients, we also supplement these Saurabh Mukherjea, CFA
screen-driven red flags with bottom-up investigative research on individual +91 22 3043 3174
companies. Please contact your Ambit sales representative in case your saurabhmukherjea@ambitcapital.com
portfolio has not been screened yet by our forensic accounting model.
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
 Strategy

Methodology
We use 11 ratios to score the BSE500 universe of firms (excluding, banks and financial
services firms) based on their accounting qualities. These ratios can broadly be
categorised into four buckets.
Exhibit 1: Key categories of accounting checks

Category Ratios We focus on four categories of

P&L misstatement checks
Balance sheet misstatement checks
accounting checks: P&L
(1) CFO/EBITDA, (2) change in depreciation rate, and (3) misstatement, Balance sheet
non-operating expenses as a proportion of total misstatement, cash pilferage and
revenues.
audit quality.
(1) Cash yield, (2) change in reserves (excluding share
premium) to net income excluding dividends, (3)
provisions for doubtful debts as a proportion of debtors
more than six months, and (4) contingent liability as a
proportion of net worth.

(1) CWIP to gross block, and (2) cumulative CFO plus CFI
Cash pilferage checks
to median revenues

(1) Audit fees as a proportion of standalone revenues,

Audit quality checks and (2) audit fees as a proportion of total auditor’s
remuneration

Source: Ambit Capital research

Here is a brief description of the accounting ratios:

I - P&L misstatement checks

1 CFO/EBITDA: This ratio checks a company’s ability to convert EBITDA (which can
be relatively easily manipulated) into operating cash flow (which is more difficult
to manipulate). A low ratio raises concerns about the company’s revenue
recognition policy (because this may imply aggressive revenue recognition
through methods such as channel stuffing). We use a six-year median for this
measure.
2 Change in depreciation rate: We calculate change in depreciation rates for A total of eleven ratios
each of the past six years (FY08-13). We then calculate the median of absolute encompassing the four categories
changes and then sort the companies on this ratio such that the company with the of checks are used to score
smallest change in its depreciation rate receives the best score. The rationale is to BSE500 firms on their accounting
penalise companies that have high volatility in their depreciation rate on a YoY quality.
basis.
3 Non-operating expenses as a proportion of total revenues: This ratio checks
a company’s expenditure policy. A high ratio raises concerns on the authenticity of
such expenses. We use a six-year median for this measure.

II - Balance sheet misstatement checks

4 Cash yield: This ratio is calculated as the yield earned on cash, investments and
deposits. A low ratio could be a cause for concern, as it could mean that either the
balance sheet has been misstated or that the cash is not being used in the best
interests of the firm. We use a six-year median for this measure.
5 Change in reserves (excluding share premium) to net income excluding
dividends: This ratio is calculated by dividing the change in reserves (excluding
share premium) on a YoY basis and dividing it by that year’s PAT excluding
dividends. We then take a six-year median of this ratio. A ratio less than one
indicates direct write-offs to equity without routing these through the Profit & Loss
account and may indicate aggressive accounting policies.

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6 Provision for doubtful debts as a proportion of debtors more than six

months: This ratio checks a company’s provisioning policy. A low ratio raises the
spectre of earnings being boosted through aggressive provisioning practices. We
use a six-year median for this measure.
7 Contingent liabilities as a proportion of net worth: This is a check on a
company’s off-balance-sheet liabilities. If this ratio is high it raises concerns on the
strength of the company’s balance sheet in the event that the contingent liabilities
materialise. Given that contingent liabilities also include genuine items such as
letters of credit, guarantees, bill discounting and capital commitments, we
eliminate them whilst computing the figure for contingent liabilities. We use a six-
year median for this measure.

III - Cash pilferage checks

8 CWIP to gross block: We calculate the proportion of capital work in progress to
gross block for each of the last six years and take a median. A high ratio is
penalised; the idea is to punish firms that show consistently high CWIP relative to
gross block, as this may indicate either unsubstantiated capital expenditure or
delay in recognition of depreciation expense. We use a six-year median for this
measure.
9 Cumulative CFO plus CFI to median revenues: We calculate the cumulative
CFO (cash flow from operations) plus cumulative CFI (cash flow from investing
activities) over the last six years and divide this by the last six-year median List of firms whose FY13 data is
revenues for the company. Higher the ratio, the better. The idea is to penalise not available (cut-off date is
firms which over such large periods have been unable to either generate positive 5th Nov)
cash flows from operations or alternatively where cash flow from investments have
Company Financial year end
consistently eaten away cash generated from operations.
ABG Shipyard Mar
Alok Inds. Mar

IV - Audit quality checks Amtek Auto Jun

Amtek India Jun
10 Audit fees as a proportion of standalone revenues: We calculate standalone
audit fees as a proportion of standalone revenues for all the six years (FY08-13). Bajaj Hindusthan Sep
A lower ratio receives a high score. The rationale is to penalise companies which Ballarpur Inds. Jun
are paying their auditors too much as compared to their revenues. We use a six- BF Utilities Sep
year median for this measure. Elder Pharma Mar
11 Audit fees as a proportion of total auditor’s remuneration: A low proportion Escorts Sep
of audit fees to total remuneration paid to that auditor indicates that the share of HMT Mar
audit in the total business that the auditor derives from the firm is low and may be KGN Enterprises Mar
a cause for caution. Again, we use a six-year median for this measure.
Monnet Ispat Mar
Cumulating scores: We cumulate scores across these 11 parameters to arrive at the Orchid Chemicals Mar
final accounting score for each firm. Based on these parameters, we rank 374 firms
Parsvnath Devl. Mar
on accounting quality in this year’s forensic exercise. We have excluded 84 banks and
financial services firms. Another, 20 firms are excluded because their FY13 annual Pipavav Defence Mar
reports have not been published (see table on the right). A further 22 firms are P & G Hygiene Jun
excluded due to sketchy data availability/corporate restructuring/year-end Rolta India Jun
change/limited listed history. Symphony Jun
Data sources: We have used Ace Equity and Capitaline as data sources for the Turbotech Engg. Mar
underlying financial data whilst stock price data has been sourced from Bloomberg. Videocon Inds. Dec
We had to use Ace Equity for some data items and Capitaline for some others in order Source: Ace Equity, Ambit Capital
to minimize data errors to the best of our understanding. Unfortunately neither is research
entirely reliable by itself. Note: For the purpose of this exercise,
we have included HCL Technologies
Please note, however, that several adjustments need to be made to each of the (June ending), MRF and Siemens
individual variables which we have not detailed here. For further details on these (September ending) based on their FY07-
adjustments, kindly email the authors of this note FY12 financials.

November 22, 2013 Ambit Capital Pvt. Ltd. Page 5

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Accounting quality and investment returns

Absolute scores
In this section, we seek to answer the following question: ‘Does accounting quality, as
quantified by our model, impact stock market performance?’ For this we assess the link
between the blended forensic accounting scores for the BSE500 universe of firms,
derived based on the methodology explained above using the last six years’ data, and
the stock price performance for these stocks from April 2007 to November 2013.
1. Universe level: We find that for the BSE500 universe as a whole, stock-specific
accounting scores and stock price returns do not have a significant relationship
(see the exhibit below). Such a lack of correlation is not surprising given the
multitude of other factors (such as the underlying fundamental performance)
which influences stock price returns.
Exhibit 2: Scatter plot of accounting scores vs stock price performance for all BSE500
stocks does not bring out any significant relationship

100%
Share price performance

R² = 14%
80%
60%
40% Stock level noise leads to weak
20% relationship between accounting
scores and stock returns at the
0%
universe level (374 firms)…
50 100 150 200 250 300
-20%
-40%
-60%
Accounting score

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual
financials over FY08-13; stock price performance is from April 2007 to November 2013.

2. Decile level: To control for noise around individual stocks, we arrange these
stocks into deciles based on their accounting scores. We then find a strong
relationship between the average accounting scores of these deciles and the
average stock price performance of their constituent stocks, suggesting that
accounting quality is a significant driver of stock returns.
Exhibit 3: Decile-level analysis points to a strong link between accounting scores and
stock price performance …however, deciles constructed
on accounting scores
demonstrate the power of
20%
R² = 84% accounting quality in shaping
15% stock returns
D2 D1
Average share price

10% D6 D3
performance

D7 D5
5% D4
D8
0%
100 120 140 160 180 200 220 240 260
-5%
D9
-10%
D10
-15%
Average decile accounting score

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accouting score is based on annual
financials over FY08-13; stock price performance is from April 2007 to November 2013.

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In terms of individual decile performances, the first decile (D1) has delivered stock
price returns of 13.4% CAGR since April 2007 whilst the last decile (D10) has
delivered returns of -12.6% CAGR over this period, thus implying a close to 26%
CAGR outperformance for D1 vs D10. The performance differential across deciles
becomes more evident from exhibit below.
Exhibit 4: Decile-level analysis suggests accounting quality is important

15%

10%
Average share price
performance

5%

0% Top accounting decile

D1 D2 D3 D4 D5 D6 D7 D8 D9 D10 outperforms the bottom decile by
-5% 26% on a CAGR basis
-10% Accounting score based deciles

-15%

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual
financials over FY08-13; stock price performance from April 2007 to November 2013.

3. Sector-agnostic buckets: One may argue that in the decile construction above,
sector effects have not been nullified and some sectors may do better than others
on our accounting model by virtue of the nature of their businesses. The decile
performances thus might reflect serendipitous sector effects. To control for the
sector effects, we now construct four sector-agnostic buckets such that ‘bucket A’
comprises the first quartile of each sector on accounting scores, ’bucket B’
comprises the second quartile of each sector, ‘bucket C’ comprises the third
quartile of each sector and ‘bucket D’ comprises the last quartile of each sector.
Hence, every bucket has an equal number of stocks from each sector, implying
that the buckets are sector agnostic.
Each bucket in this case will have similar sectoral compositions and hence a
performance assessment of these buckets should enable one to assess the impact
of accounting quality on stock price performance in a sector-agnostic manner.
Exhibit 5 below displays these four buckets with their respective stock price
performances. Clearly, the performance differential points to a strong link
between accounting quality and stock price performances even after controlling
for sector effects.
Exhibit 5: Strong link between accounting quality and stock performance even after
controlling for sector effects (the first entry is the accounting score over FY08-13, the
second entry is the avg CAGR stock returns in that bucket from Apr 2007 to Nov 2013)

10% 227, 8.8%

198, 7.7%
8%
Average price performance

Sector agnostic buckets

6% 176, 4.7% constructed with homogenous
sectoral make and differentiated
4% only on accounting quality show
2% accounting quality drives
investment performance even
0% after controlling for sector effects.
A B C D
-2%
Sector neutral accounting buckets
-4% 146, -2.5%

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual
financials over FY08-13; stock price performance is from April 2007 to November 2013.

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4. Sector level: Next, arranging BSE500 firms into sectors and assessing the link
between the average accounting scores of these sectors and the average stock
price performance of their constituent stocks suggests that accounting quality
makes a difference at the sector level as well (i.e. sectors with higher accounting
quality, such as Auto, Cement, and Consumer, perform better than sectors with
poor accounting quality such as Realty, Engineering & Construction, and
Infrastructure). However, this relationship is not as strong as the decile analysis in
point 2 above.
Exhibit 6: Link between accounting quality and stock price performance at the sector level is moderate

40% R² = 29%
Consumer Durables
30% FMCG
Average share price

Auto
Retail
performance

20% Agro
Auto Anc
Textiles Pharma Fertilizers
10% Industrials Chemicals Logistics
Conglomerate Miscellaneous IT Cement Mining
Oil&Gas
Media 0% Metals
140 150 160 170 180 Utilities
190 200 210 220 230
Cap
E&C -10%
Infra Goods Telecom
Realty Shipping
-20%
Average accounting score

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual financials over FY08-13; stock price performance is
from April 2007 to November 2013.

With an average score of 218, Auto is amongst the best sectors in our accounting
model. The sector has generated average stock price returns of 20% CAGR over
Link between accounting scores
the last six-year period since April 2007. On the other hand, Realty is the worst
sector on accounting on our model with an average score of 150. The average and price performance is
stock price performance in the sector has been -15% CAGR over the last six-year moderate at the sector level…
period.
Also, stocks within the same sector exhibit a significant link between accounting
scores and stock price returns in many cases. Three sectors which show strong
links are Utilities, Engineering & Construction and IT.

Exhibit 7: Within the sector, the link between accounting and price performance—
Utilities

20% R² = 52%
Share price performance

15%
10%
5%
… however, within a sector stock
0% returns show significant
100 150 -5% 200 250 300 dependence on accounting
-10% scores
-15%
-20%
-25%
Accounting score

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual
financials over FY08-13; stock price performance from April 2007 to November 2013.

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Exhibit 8: Within the sector, the link between accounting and price performance—E&C

20% R² = 39%
Share price performance

15%
10%
5%
0%
50 100 150 -5% 200 250 300
-10%
-15%
-20%
-25%
-30%
Accounting score

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual
financials over FY08-13; stock price performance is from April 2007 to November 2013.

Exhibit 9: Within the sector, link between accounting and price performance—IT

50% R² = 38%
Share price performance

40%
30%
20%
10%
0%
50 100 150 -10% 200 250 300
-20%
-30%
-40%
Accounting score

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual
financials over FY08-13; stock price performance is from April 2007 to November 2013.

5. Size buckets: Finally to address the size dimension, we split our universe of
stocks into four size buckets, as shown below. Bucket 1 comprises the largest 50 Accounting quality is better for
stocks on market cap, Bucket 2 of the next 100, Bucket 3 of the next 100 and larger caps on average
Bucket 4 of the lowest 124 stocks on market cap (thus, taking the total to 374
firms).
Exhibit 10: Larger capitalisation firms have better accounting scores on average
Number of firms Market cap range Market cap range Avg accounting Avg share price
Bucket
in the bucket (INR bn) (USD bn) score performance
Bucket 1 top 50 `256-4,000bn US$4.2bn-65bn 210.9 11.3%
Bucket 2 next 100 `40bn-244bn US$0.6bn-4.0bn 191.5 10.9%
Bucket 3 next 100 `15.7bn-39.5bn US$0.3bn-0.6bn 184.5 7.8%
Bucket 4 remaining 124 `1.1bn-15.7bn US$0.02bn-0.3bn 174.7 -5.6%
Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score is based on annual financials over FY08-13; stock price performance is
from April 2007 to November 2013.

As one would expect, we find that the average accounting score as well as the
stock price performance varies directly with market cap, i.e. the largest market cap
bucket has the best accounting score as well as the best stock price performance
and so on.

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Accounting quality and investment returns

Change in scores
The decile level and sector-agnostic buckets from the previous section suggest that
accounting quality is a significant driver of stock prices and that this holds true even
after controlling for sector effects. In this section, we seek to answer the question:
‘Does a change in accounting score impact stock market performance?’
To calculate the change in accounting score, we break the six-year period (from FY08
With accounting quality showing
to FY13) that we have used so far to calculate absolute accounting scores into two
strong link with stock price
sub-periods—FY08-10 and FY11-13. We then use the 11 parameters to quantify
performance, change in
accounting scores for each of the two sub-periods separately using the same
accounting quality is another
methodology as earlier (but for a three-year period now vs a six-year period earlier).
dimension meriting attention
Change in accounting score is calculated as the change in the FY11-13 sub-period’s
score over the FY08-10 sub-period’s score. Finally, we assess the link between this
change in accounting score for the BSE500 universe of firms and the stock price
performance for these stocks from April 2010 to November 2013.
1. Universe level: We find that for the BSE500 universe as a whole, the change in
accounting scores and individual stock prices do not have a meaningful
relationship (see the exhibit below). Such a lack of correlation is not surprising
given the multitude of other factors (such as the underlying fundamental
performance) which influences stock price returns.
Exhibit 11: Scatter plot of change in accounting scores vs stock price performance for
all BSE500 stocks does not bring out any significant relationship

160%
R² = 1%
120%
Share price performance

80% Again stock level noise prevents

any strong link between change
40%
in accounting scores and stock
0% performance
(150) (100) (50) - 50 100 150
-40%

-80%
Change in score (FY11-13 over FY08-10)

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score change is for the
FY10-13 subperiod over FY08-10; stock price performance is from April 2010 to November 2013.

2. Decile level: Similar to the methodology used in the preceding section to control
for noise around individual stocks, we arrange these stocks into deciles based on
their accounting scores. Arranging these stocks into deciles based on the change
in accounting scores points to a moderately strong relationship between the
change in accounting scores of these deciles and the average stock price
performance of their constituent stocks.

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Exhibit 12: Decile level analysis points to some link between the change in accounting
scores and stock price performance but only a moderate one

12% R² = 33%
Average share price

8%
performance

4%

0%
-80 -60 -40 -20 0 20 40 60 80
-4%

-8%

-12%
Average change in decile score

Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score change is for the
FY10-13 subperiod over FY08-10; stock price performance is from April 2010 to November 2013.

3. Market and sector level: Surely, when one is looking at changes in accounting
scores over time, one is keen to know: (1) At the market level, are accounting
ratios improving or worsening over time? (2) At the sector level, are accounting
ratios improving or worsening over time?
In the exhibit below, we highlight the proportion of ratios that are improving over
time (i.e. in the FY11-13 period vs the FY08-10 period). It is heartening to see that
on aggregate 70% of ratios have improved for India Inc.
Exhibit 13: Improvement in accounting ratios at the overall market and sector level
Auto Anc, Media, Auto, Infra are
Proportion of ratios improving Stock price CAGR
Sector
(FY11-13 over FY08-10) since April 2010 amongst the most improved
Universe 70% sectors on accounting quality…
Auto Anc 80% 18%
Media 80% 2%
Auto 70% 17%
Cement 70% 1%
Infrastructure 70% -22%
Logistics 70% 6%
Pharma 70% 12%
Retail 70% 18%
IT 60% 4%
Realty 60% -12%
Agro 50% 13%
Capital Goods 50% -8%
Chemicals 50% 12%
Consumer Durable 50% 18%
Fertilizers 50% 4%
Oil & Gas 50% -9%
Shipping 50% -25%
Telecom 50% -5%
Conglomerate 40% -13%
Engineering & Construction 40% -24%
FMCG 40% 26%
Industrials 40% -3% …while Textiles, Mining, Utilities,
Metals 40% -20% FMCG and E&C show
Mining 40% -16% deterioration
Utilities 40% -16%
Textiles 30% 14%
Source: Ambit Capital research, Bloomberg

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At the sector level, the ratios of Auto Ancillaries, Media, Auto, Cement and
Infrastructure have improved. Utilities, Textiles, Metals & Mining and Engineering
& Construction bring up the rear of this table, as most ratios have deteriorated for
these sectors.
4. Size buckets: Finally, we split our universe of stocks into four size buckets exactly
in accordance with the method described in the preceding section. We find that
the improvement in accounting scores is the most for the lower market cap
buckets.
Exhibit 14: Not much of a link between capitalisation and change in accounting scores
Number of Proportion Average stock
Market cap range Market cap range
Bucket firms in the of ratios price
(INR bn) (USD bn)
bucket improving performance
Bucket 1 top 50 `256bn-4,000bn US$4.2bn-65bn 50% 8.1%
Bucket 2 next 100 `40bn-244bn US$0.6bn-4.0bn 60% 6.2%
Bucket 3 next 100 `15.7bn-39.5bn US$0.3bn-0.6bn 70% 6.9%
Bucket 4 remaining 124 `1.1bn-15.7bn US$0.02bn-0.3bn 70% -14.2%
Source: Ace Equity, Capitaline, Bloomberg, Ambit Capital research; Note: Accounting score change is for the
FY10-13 subperiod overt FY08-10; stock price performance is from April 2010 to November 2013.

Overall, here are some of the key findings from an analysis of accounting quality Improvement in accounting is
change over time: most for lower capitalization
 At the universe level, the accounting quality of India Inc seems to be stocks helped by a lower base to
improving. start with

 At the sector level, Auto Ancillaries, Media, Auto, Cement and Infrastructure
have improved the most.
 At the sector level, Utilities, Textiles, Metals & Mining, FMCG and Engineering
& Construction have deteriorated the most.
 Improvement in accounting ratios is more prominent for lower market cap
stocks.

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Myths around accounting quality

We now turn to some common myths around accounting quality that we have
encountered over the years and show why they are incorrect.
Myth 1: Accounting quality is secondary to published financial results. We
have long believed that accounting score is a better indication of a firm’s underlying Accounting quality is a better
health than the published results, especially in a market like India where the term indication of a firm’s health than
‘independent auditor’ is often an oxymoron given that the auditor is, in effect, the published results
compensated by the promoter (rather than by the minority shareholder).
In this regard Financial Technologies stands as an interesting example. Over the past
several years, this company has received low scores in our forensic accounting model.
However, based on the reported financials, the firm has shown 24% EPS CAGR and
33% BVPS CAGR since FY07. Using our forensic accounting model, we find that
amongst the key drivers of Financial Technologies’ low accounting scores are a high
proportion of non-operating expenses to total revenues along with a consistently
negative and high CFI with respect to CFO.

Myth 2: The market already knows and discounts firms which have poor Accounting quality has predictive
accounting quality. After all Satyam did trade at a P/E discount to Infosys and Wipro power
before the promoter owned up to aggressive accounting. However, the stock still
crashed by over 90% within two days of the fraud being made public.
We also find no correlation between P/E and accounting scores at the market level
nor do we find anything significant at an intra-sector level. The market simply does
not know which companies books are cooked.

Exhibit 15: No correlation between accounting quality Exhibit 16: No correlation between accounting quality
and P/E at the market level and P/E for E&C stocks

120 60
100 R² = 2%
R² = 1%
80 40
trailing P/E

trailing P/E

60
40 20

20
0
0
50 100 150 200 250 300
50 150 250
Accounting score
Accounting score

Source: Company, Ambit Capital research Source: Company, Ambit Capital research

Myth 3: In sectors such as E&C, Utilities and Capital Goods, weak accounting Not all firms from E&C, Utilities
quality is a certainty. Several firms in these sectors have accounting scores that are and Capital Goods have weak
far superior to the market average, including Elgi Equipment, Cummins India, accounting…
Thermax, Engineers India, NTPC, Gujarat Gas and Torrent Power.

Myth 4: Nifty firms have good accounting quality. Whilst size bucket 1 (Exhibit 10
on page 9) has the best accounting scores, this overall average hides a great deal of
variation. For example, the accounting scores of 33% of Nifty firms are well below the
market average. For the weakest five of these firms, the accounting scores are actually … and not all firms from the Nifty
so low that these firms are in the lowest three deciles of accounting quality for the have clean accounting
BSE500.

November 22, 2013 Ambit Capital Pvt. Ltd. Page 13

 Strategy

Myth 5: It takes too much time and effort to assess accounting quality on a
stock-by-stock basis. We can give interested clients an accounting heatmap of their
portfolio within five working days of receiving their portfolio if the constituent stocks
are in our accounting model. A sample screenshot of what such a diagnostic looks like
is presented below.
Exhibit 17: Indicative portfolio heatmap
Scores
PFD-% of
Cont Audit fee- Audit fee-% Non-oper Cum. Change in
Ambit CFO Change in Cash debtors Overall
Companies Liab-% of % of stan of auditor's exps-% of FCF/medi reserves/(PAT
sector EBITDA depr rate yield more than Score
NW net revs remuneration total revs an revs ex dividend)
six months
ABC Industrials 11 12 13 8 2 13 6 13 11 3 8.5
XYZ Utilities 13 8 12 9 5 12 2 7 7 3 7.3
PPP Utilities 1 5 8 10 8 8 11 11 6 3 7.4
DEF Metals 12 10 4 5 6 3 3 6 13 3 7.1
GHI Metals 10 6 7 6 1 2 12 5 12 3 6.6
RRR IT 3 2 10 12 7 10 8 10 5 3 6.7
TTT Oil & Gas 6 11 5 4 4 7 1 1 10 2 5.3
PQR Oil & Gas 7 13 3 2 3 1 4 1 2 3 4.3
ORANGE denotes underperformance relative to the sector average

For a more detailed analysis, we also do extensive company specific bespoke research
for clients. A sample report has been attached in the next section.

November 22, 2013 Ambit Capital Pvt. Ltd. Page 14

 Strategy

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November 22, 2013 Ambit Capital Pvt. Ltd. Page 15

 World Cargo
Sample Bespoke Analysis – World Cargo
SAMPLE BESPOKE ANALYSIS

High hopes but poor accounts

Whilst the Real Estate and Metals background of the promoter couple may not
provide relevant industry experience, they do provide them with capital and
relationships. Using these advantages the promoters have built World Cargo
into a force to be reckoned with in the logistics industry. Whilst primary data
and peers highlight the long-term potential of the business being created by
World Cargo through superstar employees, a marquee advisory board and the
“right regulatory reach”, the company’s accounts raise lots of questions.

Plenty of RED FLAGS

Revenue booking seems aggressive
World Cargo’s industry leading debtor days rose at a much faster pace than its
peers (Gateway, Allcargo and Concor) in FY10 whilst its revenues increased
marginally by 4%. Despite the highest receivable days in the industry,
provisions for doubtful debts remain very low at 0.3% compared to 2-20% for
its peers. Concerns on revenue booking are accentuated by the appallingly
low investment income return rates for FY09 (4.8%) and FY10 (1.4%) on cash
holdings whilst peers have posted 3-5% investment returns on cash.
Understated depreciation expenses boosting earnings?
Significantly low depreciation rates vis-à-vis peers on buildings and the Rail
License Fee appear to be inflating the net earnings of the company. Despite
peers amortising the Rail License Fees on a straight line method over the 20
years of concession period, World Cargo’s choice of amortising it using
management estimates of revenues and operational usage over 20 years
appears to be aggressive (given that investments and operations may not pan
out as expected by the management).
Auditor certification for not even half of the income and balance sheet!
World Cargo changed its auditors at the beginning of FY10 to ABC & Co. from
Big4 as Big4 expressed its unwillingness to continue (source: BSE). Whilst we
do not consider the accounts of other companies audited by ABC & Co. (Zee
Group and Welspun) as topnotch, what worries us the most that neither Big4
nor ABC has audited ~50% of revenues and Balance Sheet for the last
2-3 years. Whilst international revenues dominance does explain the gap on
account of audited revenues, we fail to understand that why the main auditor
does not audit the nearly 10% of consolidated revenues and 30% of the
consolidated assets of the Indian subsidiary World Cargo Rail Infrastructure
(audited by LMN & Associates).

Snapshot
Section Notable findings
Accounting analysis RED FLAG in respect of CFO/EBITDA and debtor days
Expense manipulation RED FLAG in respect of depreciation
Cash manipulation RED FLAG in respect of unclassified loans and advances
Fictitious revenues booking RED FLAG in respect of investment income returns
Debtors provision RED FLAG
Auditors RED FLAG Analyst Details
Source: Ambit Capital research Nitin Bhasin
+91 22 3043 3241
nitinbhasin@ambitcapital.com

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
 Sample Bespoke Analysis – World Cargo

Accounting analysis
Exhibit 1: Revenue Recognition
Company\Metric CFO as a % of EBITDA Debtor days
FY08 FY09 FY10 FY08 FY09 FY10
Gateway Distriparks (Gateway) 85% 75% 132% 38 38 46
Allcargo Global Logistics*(Allcargo) 88% 37% 86% 47 41 47
World Cargo 18% 44% 24% 59 83 143
Container Corporation of India (Concor) 78% 86% 65% 1 2 2
Average (A) 67% 60% 77% 36 41 60
Average (ex-Concor) (B) 64% 52% 81% 48 54 79
World Cargo divergence from peer group
-49% -16% -53% 23 42 83
average (A)
World Cargo divergence from peer group
-45% -8% -57% 11 29 64
(excl Concor) average (B)
Source: Company, Ambit Capital research, Note: (a)* Dec year end, year end for other companies is March; (b) We have used Annual report of CY07, CY08 and
CY09 for Allcargo and Annual report of FY08, FY09 and FY10 for other companies; (c)CFO/EBITDA for Allcargo is calculated after adjusting for the exceptional
items of Rs-26.3mn and Rs5.6mn in CY08 and CY09, respectively and World Cargo’s EBITDA for FY08, FY09and FY10 is adjusted for the forex losses and loss on
sale of asset included under other expenses

 World Cargo’s CFO/EBITDA declined significantly in FY10 as CFO declined

by 35% due to increased working capital investments while EBITDA increased
21% on a YOY basis. However, after detailed analysis of the CFO and EBITDA for
World Cargo for FY09 and FY10, we find the following “unexplained anomalies”,
which raise a RED FLAG:
1 In FY10, World Cargo reported “Loss on foreign exchange fluctuations (net)”
of Rs31.3mn under “Administrative and Other Expenses” in its P&L while
reporting a GAIN under “Exchange Adjustments” of Rs167.3mn in the
cashflow statement, and
2 In FY09, World Cargo reported “Gains on foreign exchange fluctuations
(net)” of Rs37.7mn under “Other Income “in its P&L while reporting a LOSS
under “Exchange Adjustments” of Rs161mn in the cashflow statement.
 If the above amounts were to be adjusted from CFO and EBITDA (considering
that such foreign exchange investments were on account of operations) then the
CFO/EBITDA for FY09 and FY10 would be 18% and 52%, thus trending in line
with its peers. Non-disclosure of the nature of these foreign exchange
adjustments needs explanation by the company.
 World Cargo’s debtor days have always been ahead of its peers and have shot up
significantly in FY10. Debtor days for Gateway and Allcargo have been
considerably lower and more stable compared to World Cargo. Whilst World
Cargo’s debtors increased nearly 100% on a YOY basis (Rs2.7bn in FY10 from
Rs1.47bn in FY09), revenues grew by a nominal 4%. Part of the increase in
debtors can be explained by a substantial increase in revenues from the rail
freight business (FY10 revenues of Rs482 mn from Rs20 mn in FY09). But such a
high jump in debtor days (when the industry has not witnessed such a trend) and
a low and declining provision for doubtful debts (see exhibit 6) raise a RED FLAG.

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 Sample Bespoke Analysis – World Cargo

Exhibit 2: Depreciation rate comparison

YoY change in depreciation
Company\Metric Depreciation rate (%)
rate (bps)
FY08 FY09 FY10 FY09 FY10
Gateway 5.1% 5.4% 4.7% 33 (69)
Allcargo* 5.6% 7.1% 6.7% 145 (39)
World Cargo 17.1% 8.7% 4.9% (838) (376)
Concor 5.0% 4.7% 4.8% (25) 6
Average 8.2% 6.5% 5.3% (171) (120)
World Cargo divergence
8.9% 2.2% -0.3% (666) (257)
from peer group average
Source: Company, Ambit Capital research , Note: (a)* Dec year end, year end for other companies is March.(b)
We have used Annual report of CY07, CY08 and CY09 Allcargo and Annual report of FY08, FY09 and FY10 for
other companies

 The depreciation rate for World Cargo has sharply declined over FY08-10
because World Cargo has added nearly Rs2.3bn of gross block in its logistics
business over last two years on the Rs301mn of gross block of its erstwhile
technology business. Moreover, a high proportion of land in the gross block
(FY10: 22%, FY09: 14%, FY08: NIL) and a significant decline in the software
gross block (FY10:0.3%, FY09: 21%, FY08:71%) has led to a sharp decline in the
depreciation rate. Freehold land accounts for 3% and 17% of the gross block of
Allcargo and Gateway, respectively.
 Despite a lower proportion of land in gross block, Allcargo’s high depreciation
rate is on account of high depreciation rates (9-13%) on Plant & Machineries,
heavy equipment and furniture (which account for 42% of gross block).
 Whilst World Cargo’s FY10 depreciation rate is closer to the peer , we highlight
that World Cargo’s depreciation policy should be read taking note of the
following:
1 World Cargo depreciates “Rail License fees” after considering the matching
concept of revenue, on a weighted of the agreement period, projected
numbers of rakes to be utilized over the said period and annual usage period
of the operational rakes since put to use. The Rail License agreement period is
20 years from the date of commencement of commercial operations in 2007.
This depreciation policy is materially different to Gateway’s policy of
amortising Rail License Fees on a straight line method over the life of the
agreement i.e., 20 years. Effective Rail License Fee amortisation rate for World
Cargo in FY10 was 0.8% as against 5% for Gateway. Underreporting of
depreciation forms the basis of management’s comment “Our unique model
has resulted in World Cargo Rail being the most profitable private container rail
operator in India” in FY10 annual report (see pg27).
2 Depreciation rate on buildings (2% of FY10 gross block) for FY10 is 2.6%,
which is lower than the 3.3% and 4% provided by Allcargo and Gateway,
respectively.
3 World Cargo provides depreciation on its “logistics operations and related
services’” tangible assets on a written down value (WDV) method whereas
others depreciate it on a straight line method. However, adoption of WDV
policy is not visible in the reported low depreciation charges.
4 The depreciation rate for World Cargo would have been higher at 5.5%
in FY10 had it not capitalized pre-operative depreciation of Rs12mn.
Considering the above points, the company’s reported depreciation charge
seems low to us. RED FLAG

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 Sample Bespoke Analysis – World Cargo

Exhibit 3: Cash Manipulation?

Loans and adv to
Unclassified loans and Loans and adv to
related parties as a %
Company\Metric adv as a % of net related parties as a %
of total loans and
assets of net assets
advances
FY08 FY09 FY10 FY08 FY09 FY10 FY08 FY09 FY10
Gateway 1.2% 1.8% 1.9% 3.1% 2.0% 1.0% 0.1% 0.1% 0.1%
Allcargo* 14.5% 23.2% 19.3% 0.5% 11.8% 7.0% 0.1% 3.6% 1.6%
World Cargo 3.4% 3.7% 6.5% 6.9% 4.8% 6.6% 0.3% 0.2% 0.6%
Concor 2.7% 2.3% 2.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Average 5.5% 7.8% 7.4% 2.6% 4.7% 3.7% 0.1% 1.0% 0.6%
World Cargo divergence
-2.0% -4.0% -1.0% 4.3% 0.2% 3.0% 0.2% -0.7% 0.0%
from peer group
Source: Company, Ambit Capital research Note: (a)* Dec year end, year end for other companies is March.(b)
We have used Annual report of CY07, CY08 and CY09 for Allcargo and Annual report of FY08, FY09 and FY10
for other companies (c) Employees, directors, promoters, promoter group companies and associates form part of
related parties (d) Loans and advances to related parties include receivables as well

 Whilst World Cargo’s “unclassified loans and advances” as % of net assets are
lower than its peer , the concerning fact is that the ratio nearly doubled in FY10
when the peer numbers either declined or remained stable. World Cargo’s ratio
doubled as the unclassified loans rose by 94% to Rs434mn, whilst net assets and
revenues grew by a nominal 12% and 4%, respectively. Such a sudden increase
without adequate disclosure and a proportionate increase in revenues is
concerning. RED FLAG
 World Cargo’s loans and advances to related parties mainly comprise of
receivables from “Enterprise owned or significantly influenced by Key
Management Personnel or their relatives.” Whilst revenues from these entities
have declined by 31% YoY in FY10 to Rs371mn, the receivables from these
entities increased by 178% to Rs39mn (31 receivable days on these revenues in
FY10 as against 9 days in FY09). Revenues from these entities account for 7% of
consolidated revenues but receivables from these entities account for just 1% of
receivables.
Exhibit 4: Fictitious Revenue Booking?
Investment income as a % of cash and marketable
Company\Metric
investments
FY08 FY09 FY10
Gateway 7.8% 8.1% 4.0%
Allcargo * 6.1% 6.1% 14.9%
World Cargo 4.2% 4.8% 1.4%
Concor 9.8% 10.3% 7.8%
Average 7.0% 7.3% 7.0%
World Cargo divergence from peer group -2.8% -2.5% -5.6%
Source: Company, Ambit Capital research Notes: (a)* Dec year end, year end for other companies is March.(b)
We have used Annual report of CY07, CY08 and CY09 for Allcargo and Annual report of FY08, FY09 and FY10
for other companies. (c) Investment income comprises of interest income, dividend income, profit/loss on sale of
(current and not strategic) investments (d) Investments comprise of marketable/current investments and exclude
investments in associates.

Whilst high holdings of cash can be the reason for low level of investment income
returns for World Cargo in FY09 (cash accounted for 100% of “cash and marketable
investments”), the significant drop in investment return rate in FY10 despite cash
levels rising raises a RED FLAG. Cash accounted for 99% of “cash and marketable
investments” and grew by 10% in FY10 to Rs723mn. However, cash also accounts for
84% and 100% of “cash and marketable investments” for Gateway and Concor,
respectively, and yet those firms post higher investments return rates.
Whilst Concor’s cash holding is relatively very high (Rs16 bn), World Cargo’s cash
holding (Rs688mn) is very close to Allcargo’s (Rs964mn) and Gateway’s (Rs775mn).

Ambit Capital Pvt. Ltd. Page 19

 Sample Bespoke Analysis – World Cargo

Hence prima facie there should not be much of a difference between the cash returns
posted by the latter three.
Concor’s high investment return rates can be explained by the interest income that
the company may be booking on its loans to employees that does not form part of
the cash and marketable investments and high cash holdings parked in high return
fixed deposits. Allcargo’s high investment return in FY10 was on account of
“unexplained” “profit from sale of shares” of Rs204mn (81% of the investment
income) from untraceable and undisclosed shares in the balance sheet. Adjusting for
all other investment incomes, Allcargo and Gateway posted 4% and 4.4%
income on cash holdings as against 1.4% reported by World Cargo. Could it
be the case that the company has under-reported investment income?
Detailed analysis of World Cargo’s investment income return is more
concerning as it shows that despite cash and marketable securities remaining nearly
stable in FY10 (see exhibit 6), investment income has shown a sharp dip. Further
analysis highlights that the interest income includes interest received on loans and
advances and cash deposits. As highlighted in exhibit 4 loans and advances have
doubled in FY10, which means that interest income should increase in FY10
compared to FY09, but there is a sharp decline in interest income of Rs31mn in FY10.
This inconsistency supports our earlier ascribed RED FLAG on this front.
Exhibit 5: Interest and Dividend Income for World Cargo as % of Loans and
Advances, Investments and Cash
Rs mn, unless otherwise stated FY08 FY09 FY10
Interest income on loans, deposits etc. 25 41 10
Dividend on Investments in liquid mutual funds 35 31 0.4
Total Interest and other income 60 71 10
Loans and Advances 186 273 547
Cash and Marketable Investments 2,313 657 723
Total Loans +Investments+ Cash 2,500 930 1,270
Other Income as % of loans, investment and
3.9% 4.1% 0.9%
cash (%)
Source: Company, Ambit Capital research

Exhibit 6: Debtors Provisions

Company\Metric Provision for bad debts as % of Debtors
FY08 FY09 FY10
Gateway 20.6% 17.4% 20.0%
Allcargo* 0.4% 1.8% 1.7%
World Cargo 0.3% 0.7% 0.3%
Concor 6.4% 9.0% 12.0%
Average 6.9% 7.2% 8.5%
World Cargo divergence from peer group -6.6% -6.6% -8.2%
Source: Company, Ambit Capital research Note: (a)* Dec year end, year end for other companies is March.(b)
We have used Annual report of CY07, CY08 and CY09 for Allcargo and Annual report of FY08, FY09 and FY10
for other companies.

 Despite World Cargo having the highest debtor days (see exhibit 2) amongst its
peer set, World Cargo has maintained the lowest provisioning for its doubtful
debtors. Given such a low number and given that it is early days for World
Cargo’s logistics business, we assign a RED FLAG on this front.

Ambit Capital Pvt. Ltd. Page 20

 Sample Bespoke Analysis – World Cargo

Exhibit 7: Contingent Liabilities for World Cargo

FY09 FY10 Contingent Liability Contingent Liability
Particulars
(Rsmn) (Rsmn) as a % of Networth as a % of Networth

Disputed Income -tax demands 22 7 0.40% 0.10%

Claims against the company not
16 30 0.30% 0.40%
acknowledged as debts
Guarantees issued by bank on behalf of
18 58 0.30% 0.90%
the group
Guarantees and counter guarantees
609 4,359 10.20% 65.10%
given by the company
Amount outstanding towards Letters of
544 644 9.10% 9.60%
credit given to bank
Custom duty on pending export
obligation against import of capital 60 138 1.00% 2.10%
goods
Total Contingent Liabilities 1,268 5,236 21.20% 78.20%
Source: Company, Ambit Capital research

 Contingent liabilities as a % of networth has increased by 2.7X because the

guarantees and counter guarantees given by the company have increased by
6.2X in FY10. These guarantees are given to the banks in respect of secured loan
facilities granted to wholly owned subsidiaries of the company for Rs2.1bn in
FY10 (Rs495mn in FY09); these numbers for guarantees and counter guarantees
remain same as in the stand-alone accounts.

Auditors
World Cargo International changed its auditors in FY10 (Aug-09) from Big4 to
ABC & Co., a firm engaged in business consultancy, tax regulation, advisory services,
internal audit and risk consultancy.
ABC & Co also audits the accounts of Zee Group and Welspun Corp (flagship
company of Welspun Group) neither of whom are corporates whose accounts would
be rated first rate by us.
We assign a RED FLAG for World Cargo’s audit quality:
1. Big4’s unwillingness to audit the accounts of World Cargo at the end of FY09;
and
2. Continuing non-disclosure of the auditors auditing nearly 50% of revenues
and now 58% of the group’s assets. What is more concerning is the fact that
nearly 29% of these assets are from an Indian subsidiary “World Cargo
Rail Infrastructure.” Accounts of World Cargo Rail Infrastructure are audited by a
Mumbai based firm, LMN & Co for the last two years.
Exhibit 8: Rising share of unaudited balance sheet by the main auditor
Sales Assets
In mn, unless otherwise stated FY08 FY09 FY10 FY08 FY09 FY10
Consolidated (A) 4,012 5,034 5,259 5,061 7,291 12,431
Amounts not audited by the main auditor (B) 2,018 2,499 2,530 929 3,364 7,182
B as % of A 50.3% 49.6% 48.1% 18.4% 46.1% 57.8%
Source: Company, Ambit Capital research

Ambit Capital Pvt. Ltd. Page 21

 Sample Bespoke Analysis – World Cargo

Exhibit 9: Audit Fees comparison with peers

Company\Metric Audit fees as % of sales
FY08 FY09 FY10
Gateway 0.10% 0.07% 0.06%
Allcargo * 0.18% 0.11% 0.19%
World Cargo 0.16% 0.17% 0.18%
Concor 0.01% 0.01% 0.01%
Average 0.11% 0.09% 0.11%
World Cargo divergence from peer group 0.05% 0.08% 0.07%
Source: Company, Ambit Capital Research: Notes: (a)* Dec year end, year end for other companies is March.(b)
We have used Annual report of CY07, CY08 and CY09 for Allcargo and Annual report of FY08, FY09 and FY10
for other companies. (c) Audit Fees includes - Statutory fees, Out of pocket expenses and other audit expenses

Whilst the audit fees as % of sales has marginally increased over the years for World
Cargo, it is significantly higher compared to the Gateway and Concor on account of
higher out of pocket expenses and other audit expenses. These expenses have
doubled in FY10 compared to FY09. Hence we attach a RED FLAG.
Exhibit 10: Break-up of Audit fees of World Cargo International
FY09 FY10 % of total % of total
Auditors' Remuneration
(Rs mn) (Rs mn) audit fees audit fees
Statutory audit 7.9 7.0 91.3% 73.2%
Other Services 0.6 1.6 7.3% 16.4%
Out of Pocket Expense 0.1 1.0 1.4% 10.4%
Total 8.7 9.5 100.0% 100.0%
Source: Company, Ambit Capital research

Ambit Capital Pvt. Ltd. Page 22

 Sample Bespoke Analysis – World Cargo

Institutional Equities Team

Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 saurabhmukherjea@ambitcapital.com

Research
Analysts Industry Sectors Desk-Phone E-mail
Aadesh Mehta Banking & Financial Services (022) 30433239 aadeshmehta@ambitcapital.com
Achint Bhagat Cement / Infrastructure (022) 30433178 achintbhagat@ambitcapital.com
Ankur Rudra, CFA Technology / Telecom / Media (022) 30433211 ankurrudra@ambitcapital.com
Ashvin Shetty, CFA Automobile (022) 30433285 ashvinshetty@ambitcapital.com
Bhargav Buddhadev Power / Capital Goods (022) 30433252 bhargavbuddhadev@ambitcapital.com
Dayanand Mittal, CFA Oil & Gas (022) 30433202 dayanandmittal@ambitcapital.com
Gaurav Mehta, CFA Strategy / Derivatives Research (022) 30433255 gauravmehta@ambitcapital.com
Karan Khanna Strategy (022) 30433251 karankhanna@ambitcapital.com
Krishnan ASV Banking & Financial Services (022) 30433205 vkrishnan@ambitcapital.com
Nitin Bhasin E&C / Infrastructure / Cement (022) 30433241 nitinbhasin@ambitcapital.com
Nitin Jain Technology (022) 30433291 nitinjain@ambitcapital.com
Pankaj Agarwal, CFA Banking & Financial Services (022) 30433206 pankajagarwal@ambitcapital.com
Pratik Singhania Real Estate / Retail (022) 30433264 pratiksinghania@ambitcapital.com
Parita Ashar Metals & Mining (022) 30433223 paritaashar@ambitcapital.com
Rakshit Ranjan, CFA Consumer / Real Estate (022) 30433201 rakshitranjan@ambitcapital.com
Ravi Singh Banking & Financial Services (022) 30433181 ravisingh@ambitcapital.com
Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 ritikamankar@ambitcapital.com
Ritu Modi Automobile / Healthcare (022) 30433292 ritumodi@ambitcapital.com
Shariq Merchant Consumer (022) 30433246 shariqmerchant@ambitcapital.com
Tanuj Mukhija, CFA E&C / Infrastructure (022) 30433203 tanujmukhija@ambitcapital.com
Utsav Mehta Telecom / Media (022) 30433209 utsavmehta@ambitcapital.com
Sales
Name Regions Desk-Phone E-mail
Deepak Sawhney India / Asia (022) 30433295 deepaksawhney@ambitcapital.com
Dharmen Shah India / Asia (022) 30433289 dharmenshah@ambitcapital.com
Dipti Mehta India / USA (022) 30433053 diptimehta@ambitcapital.com
Nityam Shah, CFA USA / Europe (022) 30433259 nityamshah@ambitcapital.com
Parees Purohit, CFA USA (022) 30433169 pareespurohit@ambitcapital.com
Praveena Pattabiraman India / Asia (022) 30433268 praveenapattabiraman@ambitcapital.com
Sarojini Ramachandran UK +44 (0) 20 7614 8374 sarojini@panmure.com
Production
Sajid Merchant Production (022) 30433247 sajidmerchant@ambitcapital.com
Joel Pereira Editor (022) 30433284 joelpereira@ambitcapital.com
E&C = Engineering & Construction

Ambit Capital Pvt. Ltd. Page 23

 Sample Bespoke Analysis – World Cargo

Explanation of Investment Rating

Investment Rating Expected return

(over 12-month period from date of initial rating)
Buy >5%

Sell <5%

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