SIR ALE IMRAN SIDDIQI

Presented To

ORACLE OF OMAHA

Presented by

• Ahsan Naeem

• Aneeka Imtiaz

• Hafiz Ali Hussain Sajid

• Abdul Mannan

• Aadil Naveed

• INTRODUCTION

• BUFFET’S WAY

• HOW HE DOES IT ?

• LECTURE’S REVIEW

• CASE STUDY

Warren Buffet

Warren buffet, The oracle of Omaha.

Warren is the third richest person in the world. He is estimated to be worth 52 billion dollars. He has signed four fifths of his fortune to the bill and Malinda Gates foundation. Although he is rich Warren is famous for his modest lifestyle, he still lives in his home in Idaho which he purchased for 38,000$ in 1958.

WARREN BUFFETT Full Name: Warren Edward Buffett Born : August 30, 1930 (age 83)in Omaha U.S. Nationality : American Occupation : Chairman & CEO of Berkshire Hathaway Inc. Spouse : Susan Buffett(1952-2004) Salary: US$100,000 Net worth : US$53.5 billion (March 2013) Children : Susan Alice Buffett

Howard graham Buffett Peter Andrew Buffett

BERKSHIRE HATHAWAY INC.

The 8th largest public company in the world. Market capital is $186.05 billion Averaged an annual growth in book value

of 20.3% Share price $ 113,700.00 per share Stock produced a total return of 76% 63 subsidiaries

It is an American multinational conglomerate holding companyFounded by Oliver Chase in 1839.Employees : 260,519Headquartered in Omaha, Nebraska, America It oversees and manage a number of subsidiary companies, and owns or has a stake in over 70 business such as Coca Cola, IBM, American Express etc.

BERKSHIRE HATHAWAY INC.

EARLY LIFE

Ever since he was a child, Buffet displayed an interest in making and saving Money

Did many petty jobs like went door to door selling chewing gum, Coca-Cola, Newspaper or weekly magazines etc

From that money he and his friend purchased pin-ball machine @ 25 $ and placed in the local barber shop at the age of 15

Filing his first income tax return in 1944, Buffett took a $35 deduction for the use of his bicycle and watch on his paper route.

Later took control of a textile manufacturing firm, Berkshire Hathaway

He bought first stock at the age of 11 and now he regrets that he started too late

By the time he finished college he had accumulated more than $ 90000 in savings

He received M.S. in Economics from Columbia business school in 1951.

His Role-models:Benjamin Graham(1894-1976)Phil Fisher(1907-2004)

BUFFETT’S EDUCATION

At the age of nineteen; He Graduated with a Bachelor of Science in Business Administration from University of Nebraska-Lincoln.

He earned a Master of science in Economics in 1951 from Columbia Business School.

He also attended the New York Institute of finance

ORACLE OF OMAHA

Oracle (/ˈɒrək(ə)l/)a priest acting as a medium through whom

advice or prophecy was sought from the gods in ancient times

OmahaOmaha is the largest city in the state of

Nebraska, United States

The richest man who has

donated $31 billion to charity.

Money is nothing Attitude is everything

His House

He still lives in the same small 3 bedroom house in mid-town Omaha , which he bought after he got married 50 years ago. He says that he has everything he needs…..

His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. Assign right work to right

people

He drives his own car everywhere and does not have a driver or security people around him.

Life style

SimplicityHe never travels by private jet, although he owns the world's largest private jet company.

He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch television.

His advice to young people: Stay away from credit cards

Avoid bank loans and invest in yourself.

Buffet as philanthropist

He is not only a good investor but also a patron.

Buffett once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing".

June 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill and Melinda gates foundation .

Recently he talked about tax system in their country .

A textile mill purchased in 1962 , Suffering from a $2.2m loss at time of purchase. Priced at $8/sharethough it had $16.50/share of working capital. Buffett currently holds 38% of shares, valued at total of $36bn.

Warren Buffet does not carry a cell phone, nor has a computer on his desk.

PROFESSIONAL/BUSINESS CAREER Warren Buffet was employed from 1951-54 at buffett-falk &

Co., as an investment salesman.

Worked as a Security Analyst at Graham-Newman Corp. From 1954-1956,

From 1956-1969 at Buffet Partnership Ltd, as a General Partner,

From 1970 Present as Berkshire Hathaway Inc, as its Chairman, CEO.

FEW MAJOR STAKES Comdisco Holdings Co Inc.

38.18%

Washington Post Co. 22.38%

USG Group 16.21%

American Express 13.05%

Moody’ Crop 12.8%

Coca Cola Co. 6.85%

Kraft Foods Inc. 5.08%

BUFFETT’S WAY

Warren Buffet- The Sage of OMAHA

•Warren Buffet was one of the most successful investors of this world.

•Noted for his adherence to valve investing.

•Born in 1930

Warren Buffet- The Sage of OMAHA

• Bought 40 acres of land.

• Went to Columbia to study under Benjamin Graham.

• He refused to hire him.

• Came back and got married.

Warren Buffet- The Sage of OMAHA

• Valve investing Strategy of selecting stocks that trade for less than their intrinsic value.

• BUFFET went a step beyond value investing.

• Launched buffet associates.

• In 1962 he joined forces with Charles Munger.

Warren Buffet- The Sage of OMAHA

• This collaboration resulted in investment philosophy of value investing which helped buffet to get where he is today.

• Along his way he bought a dying textile mill.

• Buffet picks stocks in what he believes were managed under valued companies.

Warren Buffet- The Sage of OMAHA

• He holds stock for infinite period of time.

• He also purchased companies outrights and let mgt team perform their day to day business.

Warren Buffet- The Sage of OMAHA

• He believed that an investor or business man should look at the company in the same way.

• The question that businessman should ask is WHAT IS THE CASH GENERATING POTENTIAL OF THE COMPANY.

THREE MAJOR CATAGORIES OF INVESTMENT

• In 2011 in his letter to shareholders, Chairman Warren Buffet puts investments into 3 major categories.

• CURRENCY BASED INVESTMENT• SPECULATIVE INVESTMENT• PRODUCTIVE INVESTMENT

CURRENCY BASES INVESTMENT

• Deals with the bonds and bank deposits

• Warren buffet said ‘ IN TRUTH THEY ARE AMONG THE MOST DANGEROUS ASSETS’.

SPECULATIVE INVESTMENT

• Are the assets that one buys with the hope of selling them to someone else with high price.

• Physical gold is example.

• Stock prices at certain companies are easily inflated with speculative buyer. The investors are prone to loose a lot of money.

Productive asset

• This is buffet most favourite kind of investment.

• Used to produce goods in any business.

• Buffet prefers productive assets eg farmland, company, real estate.

HOW HE DOES IT ?

CONTENTSO Buffett's PhilosophyO investment philosophyO consumer monopoliesO Buffett's MethodologyO Buffet’s TenetsO Income InvestingO Some piece of advices

Buffett's Philosophy

O He chooses stocks solely based on their overall potential as a company - he looks at each as a whole.

O Holding these stocks as a long-term play, Buffett seeks not capital gain but ownership in quality companies extremely capable of generating earnings.

O When Buffett invests in a company, he isn't concerned with whether the market will eventually recognize its worth; he is concerned with how well that company can make money as a business.

Warren Buffet –his investment philosophy

O Buffett seeks businesses whose product or service will be in constant and growing demand. In his view, businesses can be divided into basic types:

• Consumer monopolies, selling products where there is no effective competitor, either due to a patent or brand name or similar intangible that makes the product or service unique.

• Buffet is interested in consumer monopolies

As per Warren Buffet Types of consumer monopolies

O there are three types of consumer monopolies

.

1 Businesses that make products that wear out fast or are used up quickly and have brand-name appeal that merchants must carry to attract customers.

.

As per Warren Buffet – there are three types of consumer monopolies

2 Businesses that provide repetitive consumer services that people and businesses are in constant need of.

.

As per Warren Buffet – there are three types of consumer monopolies• Communications firms that provide a repetitive

service that manufacturers must use to persuade the public to buy the manufacturer's products. Advertising agencies, magazine publishers, newspapers, and telecommunications networks are good examples

Buffett's Methodology

O Here we look at how Buffett finds low-priced value by asking himself some questions when he evaluates the relationship between a stock's level of excellence and its price. Keep in mind that these are not the only things he analyzes but rather a brief summary of what Buffett looks for:

Buffett's Methodology

O 1. Has the company consistently performed well?

O 2. Has the company avoided excess debt? O 3. Are profit margins high? Are they

increasing? O  4. How long has the company been public?O  5. Do the company's products rely on a

commodity?O 6. Is the stock selling at a 25% discount to

its real value?

1. Has the company consistently performed well?

O Sometimes return on equity (ROE) is referred to as "stockholder's return on investment." It reveals the rate at which shareholders are earning income on their shares.

O Buffett always looks at ROE to see whether a company has consistently performed well compared to other companies in the same industry

O . ROE is calculated as follows:= Net Income / Shareholder's Equity

• Looking at the ROE in just the last year isn't enough. The investor should view the ROE from the past five to 10 years to gauge historical performance.

2. Has the company avoided excess debt? 

O The debt/equity ratio is another key characteristic Buffett considers carefully.

O Buffett prefers to see a small amount of debt so that earnings growth is being generated from shareholders' equity as opposed to borrowed money.

O The debt/equity ratio is calculated as follows:= Total Liabilities / Shareholders' EquityO This ratio shows the proportion of equity and

debt the company is using to finance its assets; and the higher the ratio, the more debt - rather than equity - is financing the company

debt/equity ratioO A high debt level compared to equity

can result in volatile earnings and large interest expenses.investors sometimes use only long-term debtinstead of total liabilities in the calculation above

3. Are profit margins high? Are they increasing?

O A company's profitability depends not only on having a good profit margin but also on consistently increasing it

O This margin is calculated by dividing net income by net sales

O For a good indication of historical profit margins, investors should look back at least five years

O high profit margin indicates the company is executing its business well, but increasing margins means management has been extremely efficient and successful at controlling expenses

4. How long has the company been public?

O Buffett typically considers only companies that have been around for at least 10 years

O It makes sense that one of Buffet's criteria is longevity: value investing means looking at companies that have stood the test of time but are currently undervalued

O Never underestimate the value of historical performance, which demonstrates the company's ability (or inability) to increase shareholder value

O Do keep in mind, however, that a stock's past performance does not guarantee future performance - the value investor's job is to determine how well the company can perform as it did in the past

O . Determining this is inherently tricky, but evidently Buffett is very good at it

5. Do the company's products rely on a commodity

O Initially you might think of this question as a radical approach to narrowing down a company.

O Buffett, however, sees this question as an important one

O . He tends to shy away (but not always) from companies whose products are indistinguishable from those of competitors, and those that rely solely on a commodity such as oil and gas

Buffett calls a company's economic moat, or competitive advantage.

O If the company does not offer anything different than another firm within the same industry, Buffett sees little that sets the company apart. Any characteristic that is hard to replicate is what Buffett calls a company's economic moat, or competitive advantage.

O The wider the moat, the tougher it is for a competitor to gain market share

6. Is the stock selling at a 25% discount to its real value?

O it's Buffett's most important skill.O To check this, an investor must determine a

company's intrinsic value by analyzing a number of business fundamentals including earnings, revenues and assets

O a company's intrinsic value is usually higher (and more complicated) than its liquidation value - what a company would be worth if it were broken up and sold today

O The liquidation value doesn't include intangibles such as the value of a brand name, which is no

Buffet’s Tenets:

Investment Tenets

O Business TenetsO Is the business simple and understandable?O Does the business have a consistent operating

history?O Does the business have favorable long-term

prospects?

O Management TenetsO Is management rational?O Is management candid with the shareholders?O Does management resist the institutional

imperative?

Investment Tenets

O Financial TenetsO Focus on ROE, not EPSO Calculate owner earnings to get a true reflection

of valueO Look for companies with high profit marginsO For every dollar retained, make sure the company

has created at least one dollar of market value.

O Market TenetsO What is the value of the business?O Can the business be purchased at a significant

discount to its value?

Buffett’s Four Steps to Investing

1. Turn off the stock market.2. Don’t worry about the economy.3. Buy a business, not a stock.

Change your perspective to that of a business owner and learn as much as possible about the business and industry.4. Manage a portfolio of businesses. Don’t diversify for diversification’s sake.

Buffet’s Yearly Check-up:

O - Calculate return on beginning shareholder’s equity

O - Check the changes in operating margins, debt levels, and capital expenditures.

O - Check the company’s cash generating ability

Income Investing

Income InvestingO Buying stocks primarily for the stream

of dividends they can generateO Typically found in mature slow-growth

industries (Utilities, Real Estate Investment Trust)

O Desire companies with strong stability

O Note: Dividends may be offset by changes in stock price

Income InvestingDividend Yield

O Annual Dividends / Share PriceO measure how much cash flow getting for each dollar

invested

O Example. Two companies pay annual dividends of $1 / share

ABC company's stock is trading at $20 while XYZ company's stock is trading at $40.

Then ABC has a dividend yield of 5% while XYZ is only yielding 2.5%.

Warren Buffet –The sage of Omaha

• He believes that an investor and a businessperson should look at a company in the same way. The businessperson wants to buy the entire company while an investor wants a part

• The first question any businessperson will ask is, ‘‘What is the cash generating potential of this company?’’

• Over time, there will always be a direct correlation between the value of a company and its cash generating capacity. The investor would benefit by using the same business purchase criteria as the businessperson

Warren Buffet –The sage of Omaha

O Buffet picks up stocks in what he believes are well managed under valued companies

O When he purchases any stock – his intention is to hold the stocks for infinite period of time

O Coke, Amex, Gillette etc are such stocks held by him for many decades

O He also purchases companies outright and let’s their management teams handle their day to day business

From warren buffet

Some piece of advices

His Advice to people………. Money doesn't create man but it is the man who created money. Live your life as simple as you are. Don't do what others say, just listen to

them, but do what you feel is good. Don't go on brand name; just wear those

things in which u feel comfortable. Don't waste your money on unnecessary

things; just spend on them who are really in need rather.

After all it's your life then why give chance to others to rule our life."

Some Useful Advice from him

O Encourage your children to invest.O Encourage your children to start some

kind of business .

O Don't buy more than what you "really need" and encourage your children to do and think the same.

O Stay away from credit cards (bank loans).O You are what you are.O Assign the right people to the right jobs

He has given his CEO's only 2 rules. 1: Do not lose any of your share holder's money. 2: Do not forget rule number 1.

LECTURE’S REVIEW

HIGHLIGHTS OF WARREN BUFFET’S LECTURE

Introduction Keys to Investment Success Require a Statement Before Being

Allowed to Buy a Stock Tests of a Good Business Agony vs. Ecstasy Businesses

Highlights of warren baffet’s lectures

• Introduction after becoming the richest person in world many of universities invited him to deliver lecture to their business community.Florida university , Columbia university, Akron university, Kansas university business school and Notre Dam university.

Key to investment success

Temperament….The most important quality is not how much IQ you have got. IQ is not a scarce factor in business.Need of reasonable amount of intelligence, but temperamaent is 90% of it.

Require a statement before being allowed to buy a stock

• Never buy a stock, considering the factors of business

• Make a peace of paper

Tests of a good business

• Great business you are looking a marvelous business when you look in mirror and say mirror, mirror on the wall, how much should I charge on this product in this fall. And mirror replies ‘’ more’’. This will a great busuness.

Day and night business

• If u are doing textile business and raise only one cent on one yard .

• Some people pay and some not pay that will a night and day business.

Good business

• If u go into a drugstore and ay ‘’ I’d like a Hershay bar chocolate. And the man says I don’t have any hershay bar , but I’ve this unmarked chocolate bar, and this is a nickel cheaper than hershay bar chocolate . You just go out the store and go in another store and buy hershay bar.

• This is a good business.• The ability to raise price- the ability to differentiate

yourself in a real way,and a real way means you can charge a different price.

Keys to avoiding trouble and leading a happy life

• You really don’t need leverage in this world .• Keys.• Never borrow a significant amount of money

for business• Never took interest • Always happy with present money

•example

CASE STUDY

CASE STUDY

There are 14 QUESTIONS that we need to answer

We will take one corporate example –Asian Paints and analyze the stock to find out

Whether is it worth at all? And if yesAt what price one must buy the Asian Paints

stock

AN OVERVIEWType Public

Traded as BSE: 500820NSE: ASIANPAINT

Industry Chemicals

Founded 1942

Headquarters Mumbai, India

Area served Global

Key people K.B.S. Anand (MD & CEO)

Products Paints and speciality products

Revenue US$1.6 billion(2012)

Profit US$160 million(2012)

Employees 4,937 (2012)

Website www.asianpaints.com

AN OVERVIEW

The company recorded revenues of approximately $1,708.1 million in the fiscal year ended March 2011. An increase of 14.2% over 2010.

The company's operating profit was approximately $306.1 million in fiscal 2011, an increase of 2% over 2010.

Its net profit was approximately $184.9 million in fiscal 2011, an increase of 0.9% over 2010.

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QUESTIONS TO DETERMINE THE

ATTRACTIVENESS OF BUSINESS

.

Q 1Is it a consumer monopoly or commodity

business –does it have an identifiable durable competitive advantage?

Consumer monopolies typically have high profit margins because of their unique niche

Beyond high profit margins, look for companies with operating margins and net profit margins above their industry norms

Also look for strong earnings and high return on equity (ROE) will also help to identify consumer monopolies

Look at a detailed study of the firm's position in the industry and how it might change over time

.

Q1 (cont’d)Operating profit Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05

Asian Paints 15.03% 15.98% 17.18% 12.18% 14.24% 12.31% 13.20% 13.05%

Berger Paints 9.50% 9.41% 7.35% 7.38% 8.66% 8.77% 9.18% 8.58%

Net Profit Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05

Asian Paints 9.93% 10.69% 12.27% 7.30% 9.15% 7.18% 6.91% 6.82%

Berger Paints 5.64% 5.94% 6.08% 4.58% 5.87% 6.34% 6.38% 5.60%

RONW Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05

Asian Paints 31.68% 34.82% 43.52% 26.58% 32.99% 25.18% 22.21% 21.26%

Berger Paints 22.78% 21.77% 20.18% 21.26% 25.67% 30.36% 31.20% 26.28%

.

Q1 (cont’d)Is it a consumer monopoly or commodity business –

does it have an identifiable durable competitive advantage?

Consumer monopolies typically have high profit margins because of their unique niche

Beyond high profit margins, look for companies with operating margins and net profit margins above their industry norms

Also look for strong earnings and high return on equity will also help to identify consumer monopolies

Look at a detailed study of the firm's position in the industry and how it might change over time.

YES - Asian Paints has an identifiable durable competitive advantage in the form of it’s brand leadership and it’s distribution network in India

.

Q2Do you understand how the product /service/business

model works? Only invest in industries that you understand – for

example Buffet refused to invest in ecommerce companies during the dot com boom because he did not understand their business

YES - Asian Paints – the company buys or makes raw materials, manufactures the paints, distributes it through it’s network and sells it to B2C and B2B customers – profitability comes from efficient operations, volumes and ability to get a premium due to brand positioning

.

Q3What is the chance that the product /service/business

model would be obsolete in the next 20 years? Will there be a market for this product 20 years from

now If there is going to be technological changes predicted,

then will this company have an upper hand still?YES - Asian paints – The paint product may evolve

technically – but paints as a category will survive and Asian paints is expected to have an upper hand due to it’s size and reach.

.

Q4

Does the company allocate capital exclusively in the realm of expertise?

Where have been their investments in the

past 5-10 years? Does the company stick with what it knows? YES - Asian Paints has not invested in

unrelated diversification in the past 10 years

Q5What has been the company’s EPS history and

growth rate

The company must show a consistent growth in EPS over the past 10 years

Erratic growth and dips in EPS would mostly make the company unattractive for investment unless there is a clear enough reason visible as to why it happened.

YES - Asian Paints has a consistent EPS growth in the past decade and has a EPS CAGR of 26.1%

.

Q6

Is the company consistently earning high Return on equity

The company must show a consistently high ROE over the past 10 years

ROE = reported net profit /Net worth YES – Asian paints has an ROE ranging from

27.16% to 51.69% with an average ROE of 37.0%

.

Q7Is the company consistently earning high Return

on total capital?

The company must show a consistently high Return on total capital employed over the past 10 years

ROCE = Reported net profit /Total liabilities in BSYES -Asian paints has a high ROCE ranging from

18.71% to 43.52% with an average ROCE of 28.76%

.

Q8Is the company conservatively financed?

Consumer monopolies tend to have strong cash flows, with little need for long-term debt

Screen for companies with no debt or low debt – look at the interest coverage ratio –compare with industry peers

YES -Asian paints has a debt ranging from Rs. 169 crores to Rs.336 crores and a net profit ranging from Rs. 143 crores to Rs. 1159 crores – the company is conservatively financed

.

Q9Has the company been buying back its shares?

Buffett prefers that firms reinvest their earnings within the company, provided that profitable opportunities exist. When companies have excess cash flow, Buffett favours shareholder- enhancing manoeuvres such as share buybacks

This answer if Yes is good - but a NO answer does not disqualify the stock.

NO –Asian paints has not bought back any shares in the past 10 years

.

Q10Is the company free to adjust prices during

inflation?True consumer monopolies are able to adjust

prices during inflation without the risk of losing significant unit sales.

Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05 Mar '04

Total Income 11,736.56 10,277.18 8,246.96 7,206.23 5,749.05 4,679.72 3,948.81 3,051.92 2,655.86 2,234.49

Reported Net Profit 1159.52 1020.58 881.35 883.91 419.48 428.05 283.49 210.75 181.04 143.81

Profitability 9.88% 9.93% 10.69% 12.27% 7.30% 9.15% 7.18% 6.91% 6.82% 6.44%

.

Q10 (cont’d)

Is the company free to adjust prices to inflation?

True consumer monopolies are able to adjust prices to inflation without the risk of losing significant unit sales.

YES – Profitability ratio of Asian paints is consistently around 8.65% over the past 10 years – that means that inflation does not impact the profits of Asian Paints

.

Q11Does company need to constantly reinvest in capital?

Retained earnings must first go toward maintaining current operations at competitive levels, so the lower the amount needed to maintain current operations, the better.

NOT REALLY – Asian Paints does not have a large capex for investment in plant and machinery – the main investments are in branding and the SG&A as a % of Net sales is around 18% for the past decade – this is around what any FMCG company would spend

.

Q12What is the relative value to a Govt bond?

EPS for the year divided by the long-term government bond interest rate. The resulting figure is the relative value - the price that would result in an initial return equal to the return paid on government bonds.

We then have to look at the CAGR of the EPS as well.Asian Paints – assuming a 8% govt. bond rate – and based

on the current EPS of 120.88 – the relative value of govt. bond would be –Rs 1511

With the current share price of Rs. 4553 – the Asian Paints share gives a pretax return of 2.65% with the returns growing at 26.1% p.a.

.

Q13What is the projected share value and return on

investment using historical earnings growth rate:

Calculate the EPS for the next 10 years as follows:EPS (Year 2) = EPS (Year 1) * CAGR of EPS

Calculate the dividend payout for the next 10 years as follows:

Dividend payout (Year 2) =EPS (Year 2) * Avg. DP ratio

Calculate the sum of all the dividends paid for the next 10 years

.

Q13(cont’d)What is the projected share value and return on

investment using historical earnings growth rate:

Calculate the CAGR of EPS for the past 10 yearsCalculate the average dividend payout ratio

(DPS/EPS) for the past 10 yearsCalculate the average PE for the last 10 yearsFor Asian Paints we have CAGR of EPS is 26.10%Average Dividend payout ratio is 42.58%Average PE for the last 10 years has been – 23.49

Historical Earnings Growth Rate Method

Year Ending EPS DPS

2013 120.88 46

2014 152.43 64.91

2015 192.23 81.85

2016 242.40 103.22

2017 305.68 130.17

2018 385.47 164.14

2019 486.10 206.99

2020 612.99 261.02

2021 773.00 329.16

2022 974.78 415.08

2023 1229.24 523.44

Total 2279.99

.

Q13 (cont’d)What is the projected share value and return on

investment using historical earnings growth rate:

Projected share price at 10th year = EPS at 10th year * Average PE ratio

Total estimated gain at the end of 10th year = Projected share price at 10th year + Sum of all

dividends for 10 years

Calculate the CAGR of your investment in 10 years – FOR ASIAN PAINTS THIS IS 23.82%

Historical Earnings Growth Rate Method

Year Ending EPS DPS EPS after 10 years 1229.24

2013 120.88 46 Sum of Dividend for 10 years 2279.99

2014 152.43 64.91 Average PE of the stock (last 10 yrs) 23.49

2015 192.23 81.85

2016 242.40 103.22 Projected share price in 2023 28874.47

2017 305.68 130.17 Total gain including dividends 31154.47

2018 385.47 164.14

2019 486.10 206.99 Current share price 4553

2020 612.99 261.02 CAGR of investment 23.82%

2021 773.00 329.16

2022 974.78 415.08 Target share price (20% CAGR) 6037.94

2023 1229.24 523.44

Total 2279.99

.

Q14What is the projected share value and return

on investment using sustainable growth rate:

Calculate the average PE ratio for the past 10 years -23.49

Calculate the average ROE for the past 10 years -37%

Calculate the average dividend payout ratio for the past 10 years – 42.58%

.

Q14 (cont’d)What is the projected share value and return on

investment using sustainable growth rate:

Calculate the Book value of the share for the next 10 years using the formula:

BV (Year 2)= BV (Year 0) + Retained earnings (Year1)Retained earnings (Year1)

= Projected EPS (Year1)– Projected Dividend Payout (Year1)

Projected EPS (Year 1) = Avg. ROE * BV (Year 0)Projected dividend payout (Year1)

= EPS (Year1)* Average DP ratio for past 10 yrs

SUSTAINABLE GROWTH RATE MODEL

Year BVPS EPS DPS Retained Earnings

2013 352.8 120.9 46.0 74.9

2014 427.7 158.2 67.4 90.9

2015 518.6 191.8 81.7 110.2

2016 628.7 232.6 99.0 133.6

2017 762.3 282.0 120.1 161.9

2018 924.2 341.9 145.6 196.3

2019 1,120.5 414.5 176.5 238.0

2020 1,358.5 502.6 214.0 288.6

2021 1,647.1 609.3 259.5 349.9

2022 1,997.0 738.8 314.6 424.2

2023 2,421.2 895.7 381.4 514.3

Total 1859.81

.

Q14 (cont’d)What is the projected share value and return on

investment using sustainable growth rate:

Calculate the EPS for Year 10 – Rs. 895.7Calculate the expected Share Price for Year 10

= EPS (FY10)* Average PE = Rs. 21040To this share price estimate, add the estimated

dividends paid for the next 10 years = Rs 22900Calculate the expected CAGR of your investment

today – 19.66%

SUSTAINABLE GROWTH RATE MODEL

Year BVPS EPS DPS Retained Earnings

2013 352.8 120.9 46.0 74.9 EPS in 2023 895.72

2014 427.7 158.2 67.4 90.9 Average PE 23.489

2015 518.6 191.8 81.7 110.2 Share price in 2023 21040.23

2016 628.7 232.6 99.0 133.6

2017 762.3 282.0 120.1 161.9 Total gain including dividends 22900.04

2018 924.2 341.9 145.6 196.3 Current share price 4553

2019 1,120.5 414.5 176.5 238.0

2020 1,358.5 502.6 214.0 288.6 CAGR of investment 19.66%

2021 1,647.1 609.3 259.5 349.9

2022 1,997.0 738.8 314.6 424.2 Target Share Price (20% CAGR) 4438

2023 2,421.2 895.7 381.4 514.3 Total 1859.81

.

At What Price Should One Buy Asian Paints Stocks

Based on Historical earnings method:Total gain in 10 years – Rs 31554Based on sustainable earnings method:Total gain in 10 years – Rs 22900Taking the conservative of the two estimates –

we will take the sustainable earnings method in this case.

FOR A 20% CAGR, THE CURRENT PRICE FOR BUYING NEEDS TO BE RS. 4438

CONCLUSION

As you have probably noticed, Buffett's investing style reflects a practical, down-to-earth attitude. Buffett maintains this attitude in other areas of his life.

He doesn't live in a huge house, he doesn't collect cars and he doesn't take a limousine to work. The value-investing style is not without its critics, but whether you support Buffett or not, the proof is in the pudding.

He is one of the richest people in the world, with a net worth of more than $53 billion (Forbes 2013).

CONCLUSION

His investment strategy is long term and selective, incorporating a stringent set of requirements prior to an investment decision being made.

Buffett also benefits from a huge cash "war chest" that can be used to buy millions of shares at a time, providing an ever-ready opportunity to earn huge returns.

Thank You For Your Time

Any Questions ?