Mumbai, 22^nd December 2020:Motilal Oswal Financial Services Ltd. today announced the Motilal Oswal 25^thAnnual Wealth Creation Study, 2020.

Everyyear for 25 years now, Mr. Raamdeo Agrawal, Chairman of Motilal Oswal Group,commissions an Annual Wealth Creation Study.

The Motilal Oswal 25^th Annual Wealth Creation Study isa special Study with several sections:
1)  Findings on Wealth Creation duringthe 25-year period 1995-2020
2)  25-for-25: A logical approach toshortlist stocks for the next 25 years
3)  Theme 2021:  The QGLP Checklist – 25 questions, 25frameworks

4)  Summary of the previous24 Wealth Creation Studies and

5)  The regular section - Findings on WealthCreation during the last 5-year period 2015-2020.

Key Conclusions of Motilal Oswal 25^thAnnual Wealth Creation Study

·        Infosys,Reliance and Kotak Mahindra – Fastest,Biggest, & Most Consistent Wealth Creator, respectively,between 1995 and 2020. Kotak Mahindra is also the top All-round Wealth Creator.

·        Consumer/Retailsector is the largest wealth creating sector between 1995 and2020.

·        In the last 5 years, TastyBite Eatables is the Fastest Wealth Creator, Reliance is the Biggest and Pidiliteis the Most Consistent.

·        Time is a friend of good companies and enemy of bad companies. In25 years, successful companies grow to unimaginable levels in sales, profitsand market cap

·        Of the 1,300 companies listed in 1995, only 100 companies have createdmeaningful wealth.

·        Stock returns are slaves of earnings power and growth. In the verylong run, valuations matter less.

·        The future always holds a lot more promise. Over 50% of currentmarket cap is made up of listings post 1995.

·        Equity investing is complex. A checklist is an excellent tool tobring discipline to the process.

·        The 25 questions and the 25 related frameworks covered in thereport are a good starting point for an investor to eventually arrive at theirown checklist over time.

25-for-25

Having studied how wealth got created inthe last 25 years, we thought it an interesting idea to attempt shortlisting 25stocks likely to deliver handsome returns over the next 25 years. We describethe approach below and stick our neck out with the names.

The 25-for-25 approach

Step 1:  Observe the top 25 WealthCreators of the last 25 years

Our observations here are follows. Almost allcompanies …

·        Were small to mid in size in the base year 1995

·        Were consumer-facing, bestowing them a secular business model

·        Were very profitable (average base RoE was a robust 17%)

·        Grew to emerge as market leaders (among top 3) in theirrespective business

·        Had management with high integrity and competence.

Step 2:  Build a portfolio of the potential 25Wealth Creators for the next 25 years

Based on the learnings above, we used alogical approach to build a portfolio of 25 stocks which are potential WealthCreators over the next 25 years.

1.    SIZE: We started with a list of 150 midcaps i.e. companies ranked 101 to 250 bycurrent market cap.

2.    BUSINESS MODEL: We preferred consumer-facing, secular business models. So we eliminatedcyclical businesses like Auto ancillaries, Capital Goods, Chemicals, Oil &Gas and Realty. This reduced the list of companies from 150 to 114.

3.    VERY PROFITABLE: To ensure this, we chose companies with last 5-year average RoE greater than15%. This reduced the list from 114 to 63.

4.    BUSINESS POTENTIAL &MANAGEMENT POTENTIAL:  Next, to the best of our ability, we judged the businesspotential and management potential of the companies, and selected only thosewhich qualified on both counts. This reduced the list from 63 to 28.

5.    MARKET LEADERSHIP: We flagged off market leaders from the 28 companies to arrive at a list of 13companies.

6.    VALUE MIGRATION: We have observed that in situations of Value Migration, all companies benefitirrespective of market leadership. So, of the 28 in Point 4, we selected 5beneficiaries of Value Migration, taking the total list of shortlisted stocksto 18.

7.    LARGE CAPS FOR FINANCIALS: We believe Financial Services is quite a risky business, and here size begetssize. So, we mainly resorted to large caps for financials, and roped in 6leader names for the portfolio, taking the total to 24.

8.    DIGITAL PLAY: Finally, we opted for a pure digital play, even if it didn’t meet some of theabove filters, taking the total to 25.

9.    VALUATION: We believe in the very long run, valuations matter less. So we ignored the samein the shortlisting process.

We present the 25-for-25 stocks below.

The 25-for-25 stocks

Wealth Creation Study Theme: The QGLP Checklist

The25^th edition of the Motilal Oswal Annual Wealth Creation Study has aspecial theme – The QGLP Checklist – 25questions, 25 frameworks.

QGLP is Motilal Oswal’s equityinvestment philosophy. It stands for Quality, Growth, Longevity at reasonablePrice.

·        Q stands for Quality of Business andQuality of Management

·        G stands for Growth in earnings

·        L stands for Longevity of both Q and G

·        P stands for reasonable Price.

The checklist weaves 25 key questionsrelated to a company with 25 relevant frameworks as under –

The QGLP Checklist

CHECKLIST BACKDROP

Frameworks:  (1)Investment v/s Speculation, (2) Discounted Free Cash Flow to Equity, (3) Powerof Compounding, and (4) QGLP

BUSINESS CHECKLIST

Q#1 What is the history of the company and management?

Framework:  (5) LindyEffect

Q#2 Is the company’s business model understandable? How does it make money?

Q#3 Is the company profitable? If not, is it expected to emerge?

Frameworks:  (6) Great,Good, Gruesome, (7) Emergence

Q#4 Are its terms of trade favorable? Is Cash flow healthy?

Framework:  (8) Terms ofTrade

Q#5 What is its cost and margin structure? How has it changed in the past?

Framework:  (9) CommonSize Analysis

Q#6 How’s the Du Pont Analysis for the company?

Framework:  (10) Du PontAnalysis

Q#7 What is the competitive landscape? What is the role of regulation in thebusiness?

Framework:  (11)Porter’s 5 Forces

Q#8 Does the company enjoy an Economic Moat? What are its sources?

Frameworks:  (12) EconomicMoat, (13) Porter’s Strategy Framework, (14) CAP & GAP

GROWTH CHECKLIST

Q#9  What is the addressable market opportunity and its key drivers?

Frameworks:  (15) ValueMigration, (16) India – the NTD Opportunity, (17) Winner Categories, CategoryWinners

Q#10 What is the company''s growth plan?How sustainable is the growth?

Frameworks:  (18) CVPMAnalysis, (19) 100x, (20) Mid to Mega, (21) Large unpopular

MANAGEMENT CHECKLIST

Q#11 Is the management high on Integrity & transparency?

Framework:  (22) SharpPractices

Q#12 Is the management competent?

Q#13 Does the management have passion / growth mindset?

Framework:  (23) Fixedv/s Growth Mindset

Q#14 Does the company have a rational capital allocation policy?

Q#15 Does the company have a suitable organization structure and depth ofmanagement?

Q#16 What is the organization culture?

Q#17 Does the company have a sound succession plan?

Q#18 Do the owners have enough skin in the game?

Q#19 Have the promoters pledged a large portion of their holding & why?

PRICE CHECKLIST

Q#20 Has the financial modeling been done with earnings estimates for atleast 3 years?

Q#21 Is it a QGL stock?

Q#22 Is valuation reasonable?

Framework:  (24) PEG,(25) Payback Ratio

Q#23 Is there enough Margin of Safety?

Q#24 Is the stock reasonably liquid?

RISK CHECKLIST

Q#25 What can go wrong with the company narrative & numbers?

In closing …

·        Equity investing is complex and multivariate. Achecklist is an excellent tool to bring discipline to the stock pickingprocess.

·        No investment checklist can be cast in stone. Itneeds to be continuously updated based on the learnings from its application.

·        We believe the 25 questions here and the 25 relatedframeworks are a good starting point for an investor to eventually arrive attheir own checklist over time.

IMPORTANTDISCLAIMER

•       Thisstudy is primarily an analysis of economic data, company financials and stockprices.

•       Thecompanies mentioned here should not be construed as our investmentrecommendations or opinions.