Take a Shot at BFBV End Term Exam

Here is the BFBV end term exam administered in early December 2013. Students had been provied with extensive information on two companies beforehand which can be downloaded from here.

You’re welcome to post your answers here. I may not be able to give one-to-one feedback to everyone, however.

BFBV ENDTERM EXAM

OPEN BOOK

TIME:150 MINUTES

 SHRIRAM TRANSPORT FINANCE (60 marks)

Based on the information supplied to you earlier about this company, answer the following questions. Assume market interest rates to be 10% p.a.

  1. Provide quantitative evidence supporting the presence of a moat in this business. (5 marks)
  2. Prepare a table depicting per share book value of this business over time including book value as on 30 September 2013. (5 marks)
  3. Prepare a table depicting the relationship between growth in the company’s net worth and market capitalization over time. (5 marks)
  4. Describe the competitive landscape (who does the company compete with, and how strong is the company as compared to its competitors) of this company. (5 marks)
  5. What has been the dividend payout policy of the company over the years? Do you agree with this policy? Why or why not? (5 marks)
  6. What is the current price/book value ratio of the stock based on book value as of 30 September 2013 and how does that ratio compare with year end price/book value ratios over the last several years? (5 marks)
  7. List and explain the multiple sources of this company’s competitive advantage over its existing and potential competitors. (15 marks)
  8. Describe the credit risk management practices of the company. (15 marks)

SYMPHONY LIMITED (50 marks)

Based on the information supplied to you earlier about this company, answer the following questions. Assume market interest rates to be 10% p.a.

  1. Provide quantitative evidence supporting the presence of a moat in this business. (5 marks)
  2. What is the core ROCE of this business (pre-tax operating cash flows on operating assets)? (5 marks)
  3. Prepare a table depicting the relationship between the company’s revenues, earnings and market capitalization over time (5 marks)
  4. What is the current market value of the company’s business (market cap less non operating assets) as compared to its recent earnings? (5 marks)
  5. List and explain the multiple sources of this company’s competitive advantage over its existing and potential competitors. (15 marks)
  6. Describe, with quantitative evidence, the evolution of this business from bankruptcy to prosperity. What key lessons has the management claimed to have learnt from this experience? (15 marks)

 OTHER QUESTIONS (30 marks)

  1. List and explain the multiple sources of Thomas Cook India Limited’s competitive advantage over its existing and potential competitors in the wholesale forex business. (10 marks)
  2. List and explain the multiple sources of Relaxo Footwear’s competitive advantage over its existing and potential competitors. (10 marks)
  3. Explain the difference between book value and intrinsic value as explained by Warren Buffett in “A Few Lessons for Investors and Managers From Warren E. Buffett by Peter Bevelin” (10 marks)

Disclosure: Long on all four companies mentioned above.

24 thoughts on “Take a Shot at BFBV End Term Exam

  1. Thank you Sir, is this an Open book or Closed book exam?

  2. Are you long in STFC through Piramal’s 10% stake or do you hold it separately too?

  3. vryadav says:

    According to Moneylife, Symphony has given the maximum returns last ten years of more than 400 times. Truly a mulibagger. A simple business and great returns.

  4. i wonder why Vinayak Sukhtankar (IIT+IIM-A with a background of leading consumer goods companies) joined Symphony as CEO in May of 2013 and resign within 3 months. Whats the back story here?

  5. Sir,

    Pardon my ignorance but this picture of 4 ppl as i open this blog intrigues me..what is this about… sorry for the completely unrelated question.but this is what mere mention of word “exam” can do to reluctant unprepared exam takers… 🙂
    Also sir, i see that slides that you post are now being classified in term VI.. so this exam is for term V which we call BFBV,right?

    Term VI would be about FSG as you ve mentioned elsewhere.
    Would the “other” lot of your students get any transcript on the shenanigans part..would request you to do shenanigans with special reference to cash flows.

    Cant thank enuf for the inspiring work that you do..

    Thanks
    Ashish

  6. Nidhesh Jain says:

    Dear Sir,

    I have been following you for last one year and your posts have been full of wisdom and keep on amazing me. I have some questions about Shriram Transport Finance.

    What are your views on the change in management in Shriram Tranport during last year when Mr Umesh Ravankar had taken up the position of MD of the company?

    What are your views on the changing economics of second hand truck operators as the diesel prices are increasing? My rough calculations suggest that the economics for second hand truck operators have deteriorated more than new truck operators, which may explains shriram’s move of moving towards newer trucks in last few quarters.

    What are your views on the size of the company? My calculations suggests that the company has become 75% of the old CV market in India?

  7. Dear Sanjay,

    An unrelated question. Would love to have your thoughts on 2 topics:

    1. At what valuations should one sell Moat companies – absolute decision and not relative (Market View, Relative Opportunity, Change in Fundamentals etc.)

    2. Constructing a portfolio – Moat vz Non Moat, Different Types of Moat etc.

    Regards

    Vishal

    • Buzzonomics says:

      Hello Vishal, I love this blog too and follow it very closely. If you are interested, I have written a post about different kinds of moats companies can have and how to confirm them. Its on my blog buzzonomics.wordpress.com

      You’ll also find lots of articles on Value investing…

      Let me know what you think,
      Georges

  8. hardik501 says:

    Professor, would you be willing to discuss as to how do you make your allocation amongst the various good businesses that you can invest in? For e.g. How do You decide as to how much money should You put in Ashiana vs Piramal Ent vs Thomas Cook vs Shriram Trans vs Others etc? Is there any rule of thumb in the allocation or do you make the allocation on the basis of how comfortable you are with the overall outlook for a particular company? Your thoughts would be highly welcome!

  9. anil1820 says:

    I think one most important indication of moat is when company peers says they do not want to compete with it. In one of the conference call of M&M Financial services, management said [without taking name of Shriram Transport] that one the largest player in second hand vehicle finance is doing a excellent job in second hand vehicles finance and they do not intent to enter the same business.

  10. Sir, Where to apply for MDI BFBV?
    Your website http://www.sanjaybakshi.net/ does not have option for admission.

  11. anil1820 says:

    STFC – Q 8) Credit Risk management:

    1. Finances trucks aged between 5-12 years [though recently started financing less than 5 yrs old truck too] and ONLY to operators who owns less than 5 trucks. [This ensures two things, first that equity contribution is affordable to truck owners and secondly company gets better yields as large operators won’t pay yields between 18-21%]. In a downturn old truck is much more viable than a new truck. Company has intentionally going slow over new trucks.

    2. LTV restricted to 65-70% [In downturn further reduced by 5%]

    3. Control on exposure per borrower

    4. Authority and responsibility for loan authorisation and collection delegated to branches. Employee recruited locally who have knowledge of ‘willingness of repayment’ of borrowers. Moreover, same officer is responsible for collection who authorised loan and incentives are based on collection.

    5. the company lends on relationship-based model and not on information-based model

    6. The identity and references of the proposed customer are thoroughly identified a t the lead generation stage

    7. Local presence enable the Company to keep regular contacts with the customer

    8. Each loan compulsorily needs to be guaranteed by the truck owner of the same community where the borrower belongs.

    9. Demarcated risky areas for each asset class, thereby ensuring that defaults are kept in check.

    Anil Tulsiram

  12. […] decades and explained how this sector provides a natural hedge against inflation. Finally I read Prof Bakshi post on STFC, which provided few clues to the excellent business model of […]

  13. […] decades and explained how this sector provides a natural hedge against inflation. Finally I read Prof Bakshi post on STFC, which provided few clues to the excellent business model of […]

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