UTI AMC fund manager Ankit Agarwal shares insight to avoid investment pitfalls

While Agarwal joined UTI AMC in 2019, he has been a part of the industry for over a decade.

Ankit Agarwal is a fund manager at UTI Asset Management Company (AMC), where he is responsible for the management of the UTI Mid Cap Fund. The fund manager, in his blog on the UTI AMC’s website, provided some meaningful insights into how some undesirable practices undertaken by a company can spell disaster for the investors.  

As per the fund manager, poor governance, misallocation of capital, poor management, etc, were some of the common aspects found between companies that have destroyed shareholders' wealth in the past.  

To avoid these investment mishaps, he advised the investors to look at the following aspects while carrying out their due diligence.   

• Promoters of the company- The fund manager believes that promoters are the ones who can make or break the company. While looking at the promoters, investors should look at their integrity, capability to run a business, and long-term promoter's vision.   
• Cashflow analysis- The EBITDA to CFO ratio is a prime metric used by the fund manager while analyzing the cash flows of a company. As per his observation, when the EBITDA to CFO conversion starts deteriorating, the performance of companies also takes a hit.   
• Related party transactions and unlisted entities- As per the fund manager, if a company is doing a lot of business with related entities, of which many are unlisted, there could be a possibility that the firm is accounting for costs elsewhere.   
• Using a common-size P&L for comparison with other companies in the sector - A sharp divergence observed between a company and its peers should be questioned.  
• Use of fraud detection tools such as the Beinish m-score.  

Further, promoter salaries, CFO salaries, board composition, attrition in the board, etc. are some of the aspects that investors should look at during the due diligence process. These are the areas in which investors can spot the potential red flags.