Important metrics for choosing a MULTI-BAGGER portfolio

GOOD & CLEAN portfolio- AMBIT Capital

(A) Framework- attributes
1. Judicious capex
2. Conversion of capex to sales
3. pricing discipline
4. balance sheet discipline
5. cash generation
6. net profit improvement
7. return ratio improvement
(B) The framework studies structural performance with focus not on ABSOLUTES but
rather on improvements and
consistency of these improvements
(C) This framework works only if there are no structural breaks in the company o
r Industry. Further, structral
break is an exception rather than a rule
(D) This framework will separate the wheat from the chaff, wont cook it for you
(E)Details of Parameters
1. Investments a. Above median gross block increase(FY 13-15 over F
Y 10-12)
b. Above median gross block increase to standard dev
iation
2. Conversion to salesa. Improvement in asset turnover (FY 13-15 over FY
10-12)
b. Positive improvement in asset tuenover adj. for
standard dev.
c. Above median sales increase(FY 13-15 over FY 1012)
d. Above median sales increase to standard deviatio
n
3. Pricing disciplinea. Above median PBIT margin increase (FY13-15 over F
Y10-12)
b. Above median PBIT margin increase to standard dev
iation
4. Balance sheet discipline a. Below median debt-equity decline (FY13-15 over
FY10-12)
b. Below median debt-equity decline to standard de
viation
c. Above median cash ratio increase (FY13-15 over
FY10-12)
d. Above median cash ratio increase to standard de
viation
5. Cash generation and PAT improvement
a. Above median CFO increase (FY13-15 over FY10-12)
b. Above median CFO increase to standard deviation
c. Above median adj. PAT increase (FY13-15 over FY1
0-12)
d. Above median adj. PAT increase to standard devia
tion
6. Return ratio improvement a. Improvement in RoE (FY13-15 over FY10-12)
b. Positive improvement in RoE adjusted for standa
rd deviation
c. Improvement in RoCE (FY13-15 over FY10-12)
d. Positive improvement in RoCE adjusted for stand
ard deviation
NOTE: Rather than comparing one annual endpoint to another annual endpoint
(say, FY10 to FY15), we prefer to average the data out over FY10- 12 and compare
that to the averaged data
from FY13-15. This gives a more consistent picture of performance (as opposed to
simply comparing FY10 to

FY15).