We want to invest in companies with the following characteristics:
- Average Business @ deep discount or above average business @ moderate discount.
- Small companies with big market shares in niche sectors.
- Strong companies in cyclical downturn.
- EV/EBITDA < 5x & EV/OCF < 10x *[EV = Enterprise Value, EBITDA = Earnings before Interest, Tax, Depreciation & Amortisation ,OCF = Operating Cash Flow]
- Companies operating at low capacity utilization with strong orders expected to ramp up in the near future.
- Strong promoter track record of delivery & smart capital allocation.
- We generally stay away from Financials, Real Estate, Gems & Jewelry & Technology.
- Business insulated from technological disruption.
- Business with high value addition.
- Scope for earning & multiple expansion.
- Companies with very low or negative EV due to cash, investments or surplus real estate.
- Track record of volume & unit realization growth without debt and equity dilution.
- Companies operating at low or negative Working Capital.
- We avoid companies in tender business or where the company is unable to pass on increases in input prices to its customers.
- Businesses with low CAPEX requirements.
- Thinly traded counters with low volumes.
- Cos. doing regular share buy backs (which provides insurance in a bear market as the company would be able to take advantage of lower share price by extinguishing more shares via buy back thereby reducing share capital & increasing EPS permanently.)
- Cos. with change in management leading to improvement in efficiency & corporate governance.
- Unpopular, hated, hopeless, tainted (unfairly) cos.
- We generally avoid cos. with fixed price contracts or annual price reduction contracts with customers.
