6.1 Reading an Indian listed company from the outside

Motivation

Inside your company you see daily cash, the pipeline and the cohort data. A public-market investor sees four documents a year plus an annual report, and must reconstruct the business from them. The skill is knowing where the information is and which parts managements can shade.

6.1.1The disclosure documents#

Setup: the documents

Quarterly results (filed with the exchanges under SEBI's Listing Obligations and Disclosure Requirements Regulations, "LODR"): P&L for the quarter, and a balance sheet every half-year. Limited review by the auditor, not a full audit.
Annual report (AR): audited standalone and consolidated statements, notes, auditor's report, Board's report, Management Discussion and Analysis (MD&A), corporate governance report, and the Business Responsibility and Sustainability Report (BRSR). Read the consolidated statements; the standalone entity often excludes the subsidiaries where problems hide.
Earnings call ("concall") recordings and transcripts. Under the LODR (Second Amendment) Regulations notified 5 May 2021, listed companies must post audio/video recordings of earnings calls (within 24 hours or before the next trading day) and transcripts within five working days; reported as voluntary from 1 Apr 2021 and mandatory from 1 Apr 2022 (secondary summaries of the notification; check the SEBI text).
Shareholding pattern (quarterly): promoter (the controlling group, in Indian usage), promoter shares pledged, foreign portfolio investors (FPIs), domestic institutions (DIIs: mutual funds, insurers), and public. Every holder above 1% is named. This is how "superstar portfolio" trackers know what Rakesh Jhunjhunwala held, and why they cannot know what he paid.
Exchange announcements: credit-rating actions, auditor changes, insider (SEBI Prohibition of Insider Trading) disclosures, bulk and block deals (large trades published daily by NSE/BSE), pledge creation and invocation.

6.1.2Reading the filings#

A reading order for the annual report

Chairman/MD letter. Compare it with last year's letter. Were last year's promises delivered?
MD&A: segment economics, capacity, industry structure.
Auditor's report: Key Audit Matters, any qualification or Emphasis of Matter, and the CARO 2020 annexure (Companies (Auditor's Report) Order: specific auditor statements on fixed assets, loans to related parties, defaults, frauds).
Consolidated statements and their notes: revenue recognition, related-party transactions (RPTs), contingent liabilities, borrowings, ageing of receivables and capital work in progress (CWIP).
Cash-flow statement, before the P&L headline.
Corporate governance report: board composition, attendance, KMP (key managerial personnel) pay against profit.

What concalls are for Treat management guidance as a forecast with a track record. Keep a table of what was guided ("margin of 18–20% next year") against what was delivered. Managements whose guidance systematically overshoots deserve a haircut on every future number. The Q&A section is more informative than the prepared remarks; note which questions get evasive answers.

Shareholding signals Rising promoter stake through open-market purchases is informative (insiders buying with their own money). Rising pledge percentage is a warning: a pledge is a loan secured on the promoter's shares, and a falling price can trigger margin calls and forced sales ("invocation"), which push the price down further. Mutual-fund accumulation is informative but slow.

6.1.3Free data and screener ratios#

Practitioner notes

Free data: the statements themselves come from the annual reports (each company's investor-relations page) and the results filed on the NSE and BSE corporate-announcement pages; build the ten-year table from them, and the reconciliation is the first piece of analysis. Shareholding patterns, pledges and insider-trading disclosures are filed on the same exchange pages. To narrow a universe before reading reports, a free screener such as https://oicharts.com/screener is enough. Never scrape against a site's terms.
Indian "ROCE" in screeners is usually EBIT / (equity + debt) on average capital, without subtracting cash. ROIC in this module subtracts excess cash and uses after-tax operating profit. Know which one a source uses.