After strength (L01), comes one who accords it. The ALMIGHTY? No. This edition we discuss promoters, the backers, the creators, the substructure that bolsters the foundational principles of a public ltd. A quintessential 'good promoter' represents the qualities of integrity, credibility and proficiency which coincidentally rhyme but are not often seen together. A rational investor must find a business which is run by someone with those hackneyed traits.
Secondly, we detour to ponder over an essential concept pertaining to these peeps i.e. pledging of equity owned by these promoters. In addition to promoters' skin in the game, we've got to interpret something from it's collateralization. Typically, pledging of these shares represent an insubstantial debt situation, liquidity tightness and is understood as a last resort for capital funding. Also by convention and picked data (source: moneycontrol), a 10-15% of stake pledged is considered organic and safe. But still a rational investor must perform thorough analysis of such companies via balance sheets and computation of ratios such as DSCR (Debt Service Coverage Ratio), DE etc. to see better gains.
And That is all for Lesson 2. Stay tuned cause next up you don't know what we discuss and that is the thrill of it :P By Ishan Nagpal
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