Titan Company Ltd.

Incorporated in 1998, IGL took over Delhi City Gas Distribution Project in 1999 from GAIL
(India) Limited (Formerly Gas Authority of India Limited). The project was started to lay the
network for the distribution of natural gas in the National Capital Territory of Delhi to
consumers in the domestic, transport, and commercial sectors. With the backing of strong
promoters GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL) IGL plans to
provide natural gas in the entire capital region. The two main business objectives of the company
are - To provide safe, convenient and reliable natural gas supply to its customers in the
domestic and commercial sectors.
To provide a cleaner, environment-friendly alternative as auto fuel to Delhis residents. This will
considerably bring down the alarmingly high levels of pollution. The transport sector uses
natural gas as Compressed Natural Gas (CNG), the domestic and commercial sectors use it as
Piped Natural Gas (PNG) and R-LNG is being supplied to industrial establishments.

1. I nput the 5-year annual reports in the formats and attempt the financial
projections for the next two years

2. Draw The Business Model of the company and explain the determinants of
the cost sheet using basics defined by Goldratt.
Business Structure Value Creation Customers
Indraprastha Gas Ltd (IGL) is a
city gas distribution(CGD)
company, operating in the
national capital territory (NCT)
region of Delhi.
Indraprastha Gas Ltd (IGL) is
the sole supplier of compressed
natural gas (CNG) and piped
natural gas (PNG) in the national
capital territory (NCT) region of
Delhi..
markets of Delhi, Greater
Noida, Ghaziabad, Sonepat
and Panipat

Through Put:
Year Mar-10 Mar-11 Mar-12 Mar-13
Gross Sales 1222.63 1968.96 2812.45 3744.69
Contribution 555.85 751.21 978.49 1195.67
ThroughPut 45.46% 38.15% 34.79% 31.92%
From above it has been seen that throughput kept reducing from 2010 to 2013, this is due
to the rise in production cost which has ultimately increased the prices of CNG and as well as
PNG. As the CNG and PNG prices are rising there has been a decline trend in the throughput.
We will see an upward trend in the coming years.
Operating Expense:
Year Mar-10 Mar-11 Mar-12 Mar-13
Gross Sales 1222.63 1968.96 2812.45 3744.69
Fixed Cost 37.01 31.09 46.01 55.94
Depreciation 77.45 102.87 143.21 186.66
Operating Expense 9.36% 6.80% 6.72% 6.47%
Indraprastha Gas Ltd is working well towards bringing it operating expense down. Over
the last four years we can see that the operating expense has been dropping every year, from
9.36% in 2010 Indraprastha Gas Ltd has successfully reduced their operating expense to 6.47%
by 2013.


Inventory:
Year Mar-10 Mar-11 Mar-12 Mar-13
Gross Sales 1222.63 1968.96 2812.45 3744.69
Inventories 29.41 35.90 37.38 39.65
Cash and Bank 121.25 17.31 31.99 50.96
Sundry Debtors 33.49 74.48 129.80 178.86
Trade Payables 121.68 142.57 179.25 211.52
Other Current Liabilities 4.50 94.92 375.87 391.63
Inventory 10% 11% 12% 14%
Inventory or the money required to keep the business operational has been increasing
over the year. This is due to the expansion plan that the company is working on. Every year
several new stores are being added to the Indraprastha Gas Ltd.

3. Define the profit Model to which the business belongs (The Slywotzky
framework)
Titan Company follows Pyramid Profit of Slywotzky Framework. It has a different brand
that caters to different segment i.e. from mass to niche.



The base of the pyramid consists of low-priced high-volume products such as Sonata,
Gold Plus, Eye+, while the apex is made up of high-priced low-volume products like Zoya. The
bulk of profitability is concentrated at the top of the product pyramid, but the base plays a
strategic role -- often through a "firewall" brand -- in protecting the profitability at the top.



4. Explain the competitive position of the company using Porters model
From Porters Five Force model we can seethat Titan has a strong Bargaining
PoweroverSuppliers & being a domestic marketleader in watch segment it has also powerover
buyers.Titan holds a major share inMid market& Mass market with brandslike Titan, Zoop, Fast
track& Sonata whichindicates it has no stiff competition & threatof new entrants in Mid & Mass
market.
Thus Titan has a Competitive advantageoverothers.Porter Five Force Model


5. Evaluate the company on the four tenets of Buffett.
Business Tenets
Is the business simple and understandable?
Buffett believes in investing in companies within your circle of competence. When you
investoutside this circle, you risk not understanding the business. When you dont understand
thebusiness, you cant understand what drives its success and what threatens it with failure.You
must be convinced that the business you are buying will perform well over time, and the only
way to be convinced of this.
Does the business have a consistent operating history?
Buffett buys businesses for the long run. Because no one can predict the future, he uses
historical performance as a reasonable proxy for the future. If the company has been able to
weather storms in the past and perform consistently in different operating environments, then it
will likely continue to do so in the future. Stay away from companies that have not been
consistent in the past and are in the midst of changing strategic direction, as this removes your
ability to be confident in the companys future.
Does the business have favourable long-term prospects?
Favourable long-term prospects depend on the companys long-term competitive
advantage. Buffett calls this the moat which franchise businesses have. You are looking for
companies with products or services that (1) are needed or highly desired, (2) have no close
substitute and (3) are not regulated. You might also want to consider how the company stacks up
to Porters Five Forces, which help determine its level of market power. The bigger the
companys moat, the more sustainable its franchise.

Management Tenets
Management Tenets
Incorporated in 1998, IGL took over Delhi City Gas Distribution Project in 1999 from GAIL
(India) Limited (Formerly Gas Authority of India Limited). The project was started to lay the
network for the distribution of natural gas in the National Capital Territory of Delhi to
consumers in the domestic, transport, and commercial sectors. With the backing of strong
promoters GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL) IGL plans to
provide natural gas in the entire capital region. The two main business objectives of the company
are - To provide safe, convenient and reliable natural gas supply to its customers in the
domestic and commercial sectors.
To provide a cleaner, environment-friendly alternative as auto fuel to Delhis residents. This will
considerably bring down the alarmingly high levels of pollution. The transport sector uses
natural gas as Compressed Natural Gas (CNG), the domestic and commercial sectors use it as
Piped Natural Gas (PNG) and R-LNG is being supplied to industrial establishments.
Value Tenets
In 2010-11, sales were 1222.63 crores and net profit after tax was 215.49 crores. The
Compound Annual Growth Rate over the last five years is 30% in sales and 18% in net profit
after tax. Indraprastha Gas Ltd is the leader in the supply of CNG and PNG in the market for the
last 10 years.
Business Tenets
Indraprastha Gas Limited (IGL) is engaged in retail gas distribution business for supply
of compressed natural gas (CNG) to transport sector and piped natural gas (PNG) to domestic,
industrial & commercial sectors in Delhi and National Capital Region. It is also engaged in the
manufacture CNG. IGL is a joint venture between GAIL (India) Limited and Bharat Petroleum
Corporation Limited. IGL had a network of 308 stations for supply of CNG as on March 31,
2012, which included 258 stations in Delhi and 50 stations in National Capital Region. During
the fiscal year ended March 31, 2012 (fiscal 2012), the Company sold 937.55 million standard
cubic meters of CNG and 282.45 million standard cubic meters of PNG. As of March 31, 2012,
the Company was providing CNG to over 5, 50,000 vehicles, PNG to 3,30,000 domestic
households and around 860 commercial and industrial customers. In June 2013, Indraprastha Gas
Ltd acquired a 50% interest in Central UP Gas Co Ltd.
Financial Tenets
Analyzing the company statements led to several interesting discoveries.
The companys total debt has increased from 79.80 cr of in 2010 year to 780.27cr in
2013
The Reserves & Surplus has increased 97% from 685.45 crores in 2010 to
1352.99crores in 2013. Sales of the company have been increasing.
Net profit has increased 18% from 215.50 crores to 354.13 crores. Net profit margin has
decreased from 18% to 9%.
The Proposed Dividend forms 24% of Net Profit as compared to 22% for the previous
year.

6. Using Dhandho I nvestor basics explain the business arbitrage. What is
the price at which you would buy this stock? Further, given Rs.1.0 mn, how
much money would you put in this stock using Kellys formula for best and
worst case returns?
Lets assume you were offered the following odds on a $1 bet:
80 percent chance of winning $21.00
10 percent chance of winning $7.50
10 percent chance of losing it all
(0.8 $21) + (0.1 $7.50) + (0.1 $1) = $17.45
Edge/odds = 17.45/21 = 0.83 = 83%

7. Use Magic Formula and identify the stock that you would buy from the
sector in which the company as assigned to you.
1. Establish a minimum market capitalization (usually greater than $50 million).
2. Exclude utility and financial stocks
3. Exclude foreign companies (American Depositary Receipts)
4. Determine companys earnings yield = EBIT / enterprise value.
5. Determine companys return on capital = ebit / (net fixed assets + working
capital)
6. Rank all companies above chosen market capitalization by highest earnings yield
and highest return on capital (ranked as percentages).
7. Invest in 2030 highest ranked companies, accumulating 23 positions per month
over a 12-month period.
8. Re-balance portfolio once per year, selling losers one week before the year-mark
and winners one week after the year mark.
9. Continue over a long-term (35+ year) period.
8. Explain FCFE and FCFF and there linkage using the data of the
company! Using the ValuePro valuation framework define the intrinsic
value of the stock for the company. Explain the diverse range of value
across scenarios. Distinctly assign various components of value? Explain
the value assigned to growth?

9. Explain whether you would invest in this stock based on CANSLI M
principles?
CANSLIM: A system for selecting stocks created by Investor's Business Daily founder
William J. O'Neil. Each letter in the acronym stands for a key factor to look for in a company.
The seven-part criteria is as follows:
C - Current quarterly earnings per share have increased sharply from the same quarters'
earnings reported in the prior year. (Beware of items in financial statements that can cause
earnings distortions.)
Quarter Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
EPS 0.85 1.55 1.85 2.3 1.86

CAGR
22%
The CAGR of last 5 years quarter has 22%. This indicates that the company has been
growing at the rate of 22% over the last five years.
The EPS has dropped in the last quarter due to the changes in the Gold import policies.

A - Annual earnings increase over the last five years.
Mar-13 Mar-12 Mar-11 Mar-10 Mar-09
8.17 6.76 4.85 2.82 1.79

CAGR

0.46



N - New products, management, and other new events. In addition, the company's stock
has reached new highs.
SKINN
Helmet
Encircle Card

S - Small supply and large demand for a stock creates excess demand, and an
environment in which stock prices can soar. A company acquiring their own stock reduces
market supply and can indicate their expectation of future profitability. Look for low debt-equity
ratios.

L - Choose leaders over laggard stocks within the same industry. Use the relative strength
index as a guide.

I - Pick stocks who have institutional sponsorship by a few institutions with recent above
average performance. Be cautious of stocks that are over owned by institutions.

M - Determining market direction by reviewing market averages daily.

10. Compare the performance of the company with any of the competition over
the same time period. Which business is better and how much would you
pay more for the one that is better?