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Public Equities & Securities Analysis
1Equity Research Fundamentals
Equity ResearchHow to write an…How to build an…SecuritiesCommon StockSecurity AnalysisEquity vs Debt SecurityEquity Research vs Security AnalysisThe ShareholderPreferred StockHow Market Price, Value…
2Equity Markets and Listings
The Public CompanyPublic vs Private CompanyHow Listing Changes a…BuybackBuyback vs Rights IssueFollow-On OfferingIPO vs Follow-on OfferingThe Primary MarketThe Secondary MarketBonus Issue vs Stock SplitHow to read an…How Corporate Actions Affect…
3Market Data and Liquidity
Market PriceFair Value vs Market PriceHow to Read Equity…How Liquidity Affects Equity…Volume, Delivery Volume and TurnoverMarket Capitalisation, Free Float…Market Capitalisation and Free FloatShare PricePrice Return and Total ReturnVolume Growth vs Price GrowthPrice Return vs Total ReturnHow to Analyse Share…Market DepthVolatility in Equity MarketsLiquidity vs VolatilityThe IndexTrading ActivityLarge, Mid and Small…
4Sector Research
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5Earnings Analysis
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6Quality of Earnings
Quality of EarningsRevenue Growth vs Earnings GrowthRecurring vs Non-Recurring EarningsReading an Earnings Release,…How to Read an…One-Off ItemsAdjusted EBITDAReported vs Adjusted EarningsEBITDA vs Free Cash FlowDisclosure QualityEarnings Quality Checks You…Accounting Red Flags
7Valuation Application
The Target a Share…Implied ExpectationsUpsideDownsideThe MultipleThesis DisciplineDiscounted Cash Flow and MultiplesThesis Risk and Valuation RiskHow Valuation Ranges Inform…
8Research Thesis and Models
The Investment ThesisModel AssumptionsHow to build an…Thesis DriversFact vs ThesisCatalysts and the Expectation GapDisconfirming EvidenceTime HorizonVariant PerceptionRe-RatingScenario vs SensitivityConfidence vs CertaintyHow Estimate Revisions Can…
9Corporate Events
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10Governance and Disclosure
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The Public Company: What Changes Once Shares Are Listed

A public company is one whose shares are listed and can be bought by anybody, so the people holding it change all day without asking it and without telling it. Listing brings a published reporting rhythm, a price the company does not set, and a much wider room of people it has to answer. Listing buys capital from strangers.

Most people, asked what makes a company public, reach for size. A public company is a big one. Such a company has thousands of staff, its name is on hoardings, it advertises during cricket. Every part of that is wrong, and the wrongness is not harmless. A reader who believes it cannot say what actually happened to a business on the day it listed, and therefore cannot read anything that happened to it afterwards.

The real distinction can be felt through a comparison. A housing society flat that can only be sold with the committee's approval sits against one that can be sold to whoever turns up with the money. The two flats may be identical. The building may be identical. The difference is whether somebody else stands between the seller and the buyer, and that single difference changes who the neighbours will be, how quickly the owner could leave, and how much has to be explained to the people already living there. A company becomes public when the committee is taken out of the picture: its shares can be transferred to anybody, without its permission and without its knowledge, and every other consequence of listing grows out of that one change.

Free transferability is where the change starts, and its consequences run from who holds a company all the way down to what its share count means. A security is a security precisely because it can be transferred without anybody's leave. A shareholder holds a residual claim, and a residual claim sits behind every other claimant in the queue. What a share costs today, what it might be worth and what people are quietly expecting of it pull against one another in every quoted price. The statements themselves, and the ladder running from revenue down to the per share line, are set out under the profit ladder.

What actually makes a company public, if it is not size or profit?

Take Sarvani Coatings Limited, an invented maker of decorative and industrial paints. In year three it sold Rs 2,415 crore of paint and earned Rs 278 crore after tax. Both numbers establish a substantial business. Neither establishes anything at all about whether it is public. A private company can post exactly the same ladder, and many do.

One procedural fact makes Sarvani Coatings public. Its shares are admitted to trading on a recognised exchange. Anybody with a trading account can buy them, at whatever price is on the screen, without asking Sarvani Coatings for anything. The company is not a party to that transaction. It does not approve the trade, it is not told about it in advance, and it learns of it afterwards only through filings that arrive on a delay.

ONE FACT, AND THE FOUR THINGS THAT GROW OUT OF IT Read the arrows one way only. Nothing on the right causes anything on the left. THE DEFINING FACT The shares are admitted to trading on an exchange. Anybody may buy one. The company is not asked, is not told, and cannot refuse. That is the whole of the legal change. Everything to the right is a consequence of it, and none of them is the cause. SARVANI COATINGS LIMITED 24,00,00,000 shares in issue, held by people it never chose. IT STOPS CHOOSING WHO HOLDS IT A holding may change hands a thousand times in a day, and the company is not a party to any of it. IT PUBLISHES ON SOMEBODY ELSE'S RHYTHM Results, events and the holder list go out on a timetable set by the regulator, not by the board. A PRICE ATTACHES TO IT EVERY DAY Somebody else's opinion of the business is printed in public, and the company cannot switch it off. THE ROOM IT ANSWERS TO GETS WIDER Not a known list of backers any more, but whoever happens to be holding on the day of the meeting. NONE OF THESE MAKES A COMPANY PUBLIC Rs 2,415 crore of revenue A large payroll Being profitable A brand people recognise
Listing changes one thing in law, that the shares may be transferred to anybody without the company's involvement, and the four changes people usually describe as the meaning of being public are all downstream consequences of that single fact.

Getting the direction wrong is the commonest muddle here, so notice which way the arrows point in that drawing. A company does not become public because it started publishing results. A company publishes results because it became public, and it became public because its shares were let loose. The disclosure is a condition attached to the freedom, not the thing itself. Free transferability is the cause and every other feature of a listed company is an effect. A reader who holds that one sentence can derive most of the rest without being told.

The small print matters slightly here. In Indian company law the words private and public also describe a status a company takes under the Companies Act 2013, and a company can hold that status without ever being listed. The statutory distinction is a real one, and it is set out under public vs private company. Public here means the version a researcher deals with daily: shares listed, quoted and freely tradeable.

Try it out

Sarvani Coatings Limited is listed. A stranger buys ten thousand of its shares on a Tuesday morning. How much say does the company have in it?

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Who is holding the shares now, and how would the company find out?

Consider the finance chair at Sarvani Coatings on an ordinary Wednesday. Somebody asks who holds the company. The finance head cannot answer, and not because the records are poor. The register of membersThe company's own list of who holds its shares. For a listed company almost all of it is maintained electronically by the depositories rather than at the company, and it is read on a stated day rather than watched continuously. is being updated by machinery the company does not run, in response to transactions it was not told about, at a pace nobody at the company can follow.

The company does have the last shareholding pattern it filed. Sarvani Coatings' most recent one appears below, and the words stamped above the four lines matter more than the four lines themselves.

THE ARTEFACT ITSELF, AND WHAT IT QUIETLY ADMITS SHAREHOLDING PATTERN AS FILED AS ON ONE STATED DATE, AND NOT A DAY AFTER IT CATEGORY PER CENT SHARES Promoter and promoter group 52.4 12,57,60,000 Foreign portfolio investors 18.2 4,36,80,000 Domestic institutions 14.6 3,50,40,000 Retail and others 14.8 3,55,20,000 Total shares in issue 100.0 24,00,00,000 PROMOTER BLOCK FOREIGN DOMESTIC RETAIL The last three blocks together are 47.6 per cent, and the company chose nobody in any of them. A photograph, not a record. Between this filing and the next, the shares changed hands many thousands of times and not one line above moved, because a line only moves when the next photograph is taken. Every figure here belongs to an invented company. The four categories are the shape an Indian filing takes, and what must go inside each of them is set by the regulator.
A shareholding pattern states who held the shares on one named day, so it is a photograph rather than a live record, and that is precisely why it is filed at intervals instead of being maintained continuously.

Read the last line of that drawing again. A shareholding pattern is filed as on a date. The pattern was true on that date. It began going out of date the following morning, and by the time anybody reads it the composition inside every category except the first has moved, in ways nobody has recorded anywhere a reader can see. The company knows the shape of its holder base at intervals and the identity of almost none of it at any moment. Ignorance of that kind is not a failure of its systems but the direct price of free transferability.

The categories themselves repay a second look. The promoter groupWhoever the regulator counts as being in control of a company, shown in an Indian filing as one line rather than holder by holder. The company does not decide who lands inside that definition. line, at 52.4 per cent, is the one part Sarvani Coatings can genuinely speak about. Those holders are known, named and largely static. The other three lines together are the free floatWhatever remains of a company's shares once the controlling block is taken out, which is the portion that can realistically change hands. Measuring it, and what it does to a size figure, is covered under market data., 47.6 per cent, and the company selected nobody in any of them. The foreign portfolio investorsInvestors registered from outside India who buy listed shares as an investment rather than to run the business. Such investors appear as their own line in an Indian shareholding pattern. holding 18.2 per cent arrived because they decided to; they can leave the same way.

Compare that with how a share moved before the listing. Somebody wanting to sell had to find a buyer themselves, agree a price with no screen to refer to, and then get the transfer recorded, a process the company was necessarily part of because the company was keeping the book. Every one of those steps put the company in the room.

THE SAME EVENT, ONE SHARE CHANGING HANDS, BY TWO ROUTES Watch only where the company box sits. That is the whole of the comparison. BEFORE LISTING A holder wanting out goes looking for somebody willing to buy. A price is argued out, with no screen anywhere to refer to. THE COMPANY records the transfer, because it is the one keeping the book. It knows, at once, exactly who the new holder is. AFTER LISTING A buyer places an order from wherever they are. It is matched and settled by machinery described in another sequence. The holding has moved. Nobody asked anybody. THE COMPANY, OUTSIDE THE PATH It finds out at the next filing, on a delay. How an order is matched, and how it settles, is taught elsewhere.
Before listing the company sits inside the path a share takes when it changes hands, and after listing it sits outside that path and learns what happened only when the next filing is due.

How an order is actually matched, what a venue does with it and how the two sides settle form a separate subject with a sequence of its own, covered elsewhere. Only the shape matters. The company was in the left picture and it is not in the right one.

Try it out

Sarvani Coatings Limited files a shareholding pattern showing foreign portfolio investors at 18.2 per cent. Six weeks later, what does that figure show?

Equity Research Bootcamp — Fin Maverick

What does a listed company have to tell everybody, and when?

Once a company has holders it did not choose and cannot identify, it has a problem it did not have before. The unknown holders are making decisions about it, and they cannot ring up and ask. So the obligation that comes with listing is essentially an obligation to make information public in a form and on a schedule that lets a total stranger read the business without knowing anybody inside it.

The shape of it is worth holding in three parts. There are the periodic results, published on a fixed rhythm so a reader can compare like with like. There is the shareholding pattern, filed so that anybody can see the composition set out above. And there is the part people underestimate: anything that happens which a reasonable investor would want to know before deciding what to do, disclosed when it happens.

Sarvani Coatings' own year three record shows the rhythm plainly. Four separate times in the year it put out a revenue figure. First Rs 590 crore, second Rs 545 crore, third Rs 700 crore across the festive stretch, fourth Rs 580 crore. The four quarters add to the Rs 2,415 crore sitting in its annual accounts. Profit after tax behind them ran Rs 66 crore, next Rs 53 crore, then Rs 92 crore in that same busy quarter, and lastly Rs 67 crore. The four together add to Rs 278 crore. A private maker of the same size publishes one set of figures a year, months after the year has closed, to a readership of its lenders and its own holders.

A PUBLISHING YEAR, AND THE THING THAT REFUSES TO WAIT FOR IT Bars are Sarvani Coatings Limited's published year three revenue. The red arrow is not on any calendar. SOMETHING MATERIAL HAPPENS HERE It goes out now. It does not wait for the next marker. Rs 590 cr Rs 545 cr Rs 700 cr Rs 580 cr first quarter second quarter third quarter fourth quarter GREEN MARKERS: RESULTS PUBLISHED, ON A RHYTHM FIXED IN ADVANCE THE RHYTHM Fixed, published, and known to everybody in advance. THE OBLIGATION Continuous, and completely indifferent to the calendar.
Results arrive on a rhythm anybody can mark in a diary, while the duty to disclose something material attaches the moment it happens, so the two obligations run on entirely separate clocks.

The distinction between the two clocks is the one worth carrying away. The obligation is continuous in principle and the reporting calendar is only the floor under it, so a listed company that learns something material three weeks before its results are due does not wait three weeks. Think about what the alternative would mean. For those three weeks, everybody inside the company would know something the market did not, and every share bought or sold in that window would trade on a false picture. The whole architecture of a public market rests on that gap being closed as fast as it opens.

Jurisdiction: India

Where the actual requirements are set, and why only their current text can be relied on

Two instruments do the work described above.

InstrumentWhat it governs, in outlineRead it at
The listing and disclosure obligations made by the Securities and Exchange Board of IndiaWhat a listed company must publish, in what form, and how quickly, including the periodic results, the shareholding pattern and the disclosure of eventssebi.gov.in
The Companies Act 2013, administered by the Ministry of Corporate AffairsWhat a company is, what its members may decide, and the approvals needed before its share capital is alteredmca.gov.in

Every period, deadline, proportion and approval level is set in the text of one of those two instruments, and each of those instruments is amendable. The current text, read on the day the figure is needed, is the only reliable source.

Try it out

On a Monday in the middle of a quarter, Sarvani Coatings Limited learns something that would clearly change how a reader values the business. Its results are due in three weeks. What happens?

What is a Bonus Issue, and what does it actually move?

Now to the two actions a listed company takes on its own share count most often. Both look, to a holder watching their account, like something happened. In one of them something genuinely moved inside the accounts, and in the other nothing moved anywhere at all.

A bonus issue hands every existing holder further shares, free, in the same ratio as the holding they already have. Sarvani Coatings did a one for one at the end of its year one: everybody holding a share received a second one. The count went from 12,00,00,000 shares to 24,00,00,000.

The list of what did not happen is longer, so start there. No money came in. No money went out. Everybody received in the same ratio, so nobody's proportion of the company changed. The business was not larger the next morning, the factories had not grown, and Sarvani Coatings owed exactly what it owed the night before. A holder with one share in every 24,000 in issue before the bonus held one share in every 24,000 after it.

Something did move, though, and it moved inside the equity section of the balance sheet. Every share has a face value stamped on it, Rs 2/- for Sarvani Coatings, and the total of those face values is the company's share capitalThe part of a company's equity standing against the shares themselves, being the number in issue multiplied by the face value on each. Share capital is a recorded amount in the accounts and has nothing to do with what a share fetches in the market.. Putting out 12,00,00,000 more shares, each stamped at a face value of Rs 2/-, adds Rs 24 crore to that line. Share capital goes from Rs 24 crore up to Rs 48 crore. The company received nothing for them, so the Rs 24 crore has to come out of the other half of equity, its accumulated reservesThe half of shareholders' funds that is not the shares themselves, built mostly out of profits a company held back rather than paying away. How they accumulate, and what may legally leave them, belongs to the accounting layer..

WHAT THE BONUS MOVED, AND WHAT IT LEFT ALONE Drawn on the year three balance sheet, where the arithmetic can be checked against a published total. PANEL ONE: THE WHOLE OF EQUITY, Rs 1,486 CRORE, AT TRUE SCALE Had there been no bonus Rs 1,486 cr in all Reserves, Rs 1,462 crore As it stands, after the bonus Rs 1,486 cr in all Reserves, Rs 1,438 crore At true scale the dark segment is under twenty pixels wide in both bars, so panel two redraws its left end. PANEL TWO: THE FIRST Rs 60 CRORE OF THE SAME BAR, AT TEN TIMES THE SCALE SHARE CAPITAL Rs 24 cr reserves, running on past the right edge SHARE CAPITAL Rs 48 cr Rs 24 CRORE CROSSES THE LINE The internal boundary slid. The outer edge of the bar did not move by a hair, in either panel. Invented figures. What may be capitalised, and what approvals it takes, is set out in the Companies Act 2013.
A bonus issue slides Rs 24 crore across an internal line inside Sarvani Coatings' equity, from reserves into share capital, while the total the company is worth to its holders in the accounts does not move at all.

So the honest description of a bonus issue is a transfer between two lines that both sit inside the same total. Rs 1,486 crore of equity went into that action and Rs 1,486 crore came out of it. The change sits in the split between the two lines. Share capital cannot simply be paid out, and reserves are what distributions come out of. Which reserves may be capitalised and which may be distributed are set out in the Companies Act 2013.

Here is the everyday version. A household has Rs 2,00,000/- of savings, some in a current account and some in a deposit that cannot be broken for a while. Moving Rs 24,000/- from the current account into the deposit changes what the household can reach on short notice. The move does not change what the household has. A bonus issue does exactly that, inside a company. The shares it drops into a holder's account feel like receiving something, and that is why people misread it.

Try it out

A holder owns shares in Sarvani Coatings Limited when it issues one bonus share for every share held. How does that holder's proportion of the company change?

What is a Stock Split, and where does it part company with a bonus?

A stock split divides each existing share into a larger number of smaller ones. Sarvani Coatings did this at the start of its year one, cutting the face value from Rs 10/- to Rs 2/- so that one share became five. The count went from 2,40,00,000 shares to 12,00,00,000.

To a holder that is indistinguishable from a bonus. A hundred shares held at bedtime become five hundred by morning, with nothing paid and nothing done. The proportion of the company held is identical. The value of the holding is identical.

In the accounts the two actions are nothing alike, and this is the point most readers miss. Look at the share capital line. Before the split, 2,40,00,000 shares at a face value of Rs 10/- each is Rs 24 crore. After the split, 12,00,00,000 shares at Rs 2/- each is Rs 24 crore. The same. Nothing was capitalised, nothing came out of reserves, and no entry was needed at all beyond restating the description of the shares. A bonus issue is funded out of reserves and leaves face value where it was. A split re-cuts the same share capital into more shares, so it needs no funding at all.

FIVE ROWS, AND ONLY THREE OF THEM DISAGREE BONUS ISSUE STOCK SPLIT Shares in issue Rises Rises Face value on each share Untouched at Rs 2/- Cut, in this case from Rs 10/- down to Rs 2/- Share capital shown in the accounts Rises, Rs 24 crore going to Rs 48 crore Still Rs 24 crore Reserves Fall by Rs 24 crore Never touched at all Holder's proportion Exactly as before Exactly as before Pale rows agree, green rows differ. The two actions set against each other in full, including why a board picks one, is covered separately.
The two actions are identical from where a holder sits and differ in three places in the accounts, of which the movement out of reserves under a bonus is the one that decides which action a company has actually taken.

The price arithmetic is worth doing once. Then it stops being mysterious. Sarvani Coatings trades at an illustrative Rs 486/- on the date fixed here. Twice as many shares now stand against the same business, so a one for one bonus applied to that price would leave it around Rs 243/-. A one into five split would leave it around Rs 97.20/-. Either result multiplied back out by the new count gives Rs 11,664 crore both times, the figure the arithmetic started from. Nothing of value moved in either action, and a price that halves is not a fall any more than changing a Rs 500/- note for five hundreds is a loss.

A share whose price has climbed a long way is awkward to buy in small quantities, and both actions bring the price per share down without touching what the company is. The reason is presentational, and it is a real one. Whether either action is good for a holder depends entirely on what else was available, and no corporate action can reveal that.

Try it out

Two listed companies each double their share count overnight and neither raises a rupee. One did it by a bonus issue, one by a split. Where, in their accounts, does the difference between them show?

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What did those two actions do to Sarvani Coatings' own published figures?

Now the part worth sitting with. Here the arithmetic stops being tidy and starts being a trap. Sarvani Coatings did both actions inside a single year. The split landed at the opening of year one, lifting the count from 2,40,00,000 shares to 12,00,00,000. Twelve months later, with that same year closing, the bonus carried it from 12,00,00,000 up to 24,00,00,000. In twelve months the count went up tenfold, and no holder's proportion of the company moved by a hair at any point.

In year one Sarvani Coatings brought Rs 143 crore down to the bottom of its ladder, after tax. The Rs 143 crore is fixed. Selling paint earned it, and it does not care how many parts the equity has been cut into. But earnings per shareThe bottom rung of a profit ladder: one year's profit spread across however many shares stand against it. Building that ladder, from revenue downwards, is taught in the accounting layer. divides it by a count, and there are three different counts that were genuinely in issue during that year.

Year one, one profitBefore the splitAfter the split, before the bonusAfter both, as published now
Profit after taxRs 143 croreRs 143 croreRs 143 crore
Shares it is divided by2,40,00,00012,00,00,00024,00,00,000
Earnings per shareRs 59.58/-Rs 11.92/-Rs 5.96/-

All three of those figures are arithmetically correct, all three were true of Sarvani Coatings at some point in year one, and exactly one of them may be set beside year two and year three. That one is Rs 5.96/-, because the Rs 8.21/- of year two and the Rs 11.58/- of year three both sit on 24,00,00,000 shares and a comparison is only a comparison when the denominator is the same on both sides.

ONE PROFIT, THREE COUNTS, THREE CORRECT ANSWERS Nothing about Sarvani Coatings Limited's year one differs between these three columns except the divisor. Rs 143 CRORE OF PROFIT AFTER TAX, IDENTICAL IN ALL THREE Rs 59.58/- Rs 11.92/- Rs 5.96/- on 2,40,00,000 shares on 12,00,00,000 shares on 24,00,00,000 shares before the split between the two actions as published today THE SAME HOLDER'S SLICE, REDRAWN AT ALL THREE COUNTS one in every 24,000 one in every 24,000 one in every 24,000
The same Rs 143 crore of profit produces earnings per share of Rs 59.58/-, Rs 11.92/- or Rs 5.96/- depending only on which count it is divided by, while the slice a holder actually owned was the same size in all three drawings.

The two halves of that drawing are the whole lesson, so hold them together. The bar moves by a factor of ten and the square does not move at all. A holder who put money into 1,000 shares before the split held one share in every 24,000 in issue. After the split they held 5,000 shares, one in every 24,000. After the bonus they held 10,000 shares, still one in every 24,000. The count changed tenfold, the per share figure changed tenfold in the opposite direction, and the thing a holder actually had did not change at all. At the illustrative Rs 486/- those 10,000 shares are worth Rs 48,60,000/- and drew Rs 40,000/- when Sarvani Coatings declared its Rs 4.00/- dividend in year three.

Play with it

Step the divisor through the three counts, and watch which of the two drawings refuses to move

One control, and it changes one thing: the share count that Sarvani Coatings Limited's year one profit of Rs 143 crore is divided by. The profit is nailed at Rs 143 crore at every setting, and years two and three are nailed at Rs 8.21/- and Rs 11.58/- because their count never changed. The chart rescales itself to whatever the tallest bar happens to be, and the axis top is printed so the movement is visible. The panel on the right is drawn from the same holding at every setting and is identical each time.

The share count year one is divided by

24,00,00,000 shares, giving year one earnings per share of Rs 5.96/-

THE BAR MOVES. THE SQUARE DOES NOT. AXIS TOP Rs 11.58/- Rs 5.96/- Rs 8.21/- Rs 11.58/- year one year two year three the control moves this one both fixed on 24,00,00,000 shares THE WHOLE COMPANY, WITH ONE HOLDING INSIDE IT one share in every 24,000 10,000 held of 24,00,00,000 in issue COMPARABLE WITH YEAR TWO AND YEAR THREE Read across the three years, this count compounds at 39.39 per cent a year.
Arithmetically correct on its own count
Matches the count years two and three use
Safe to put in a growth series

Year one profit of Rs 143 crore divided by 24,00,00,000 shares gives earnings per share of Rs 5.96/-. That is the count years two and three also use, so the three years may be read as one series, and across them the figure compounds at 39.39 per cent a year. A holding of 10,000 shares is one share in every 24,000 in issue, which is what it was at every other setting too.

Educational illustration. Profit is held at the published Rs 143 crore at all three settings, and the only thing the control changes is the divisor. Sarvani Coatings Limited took no action on its count after the end of year one, so years two and three never move. All three answers are correct arithmetic, so the first chip stays lit at every setting, and the other two go out whenever the count in use is not the count the later years are on. The holding the square on the right stands for never changed, so it is drawn from the same coordinates every time.

Push the control to the left and watch the chart tear itself apart. At 2,40,00,000 shares the year one bar reaches Rs 59.58/- and years two and three shrink to stubs against it. The picture reads as a business that collapsed and never recovered. Push it to the middle and the damage is subtler and therefore worse. Rs 11.92/- sits just above year three's Rs 11.58/-, and three flat years is what that looks like. Only at 24,00,00,000 shares does the picture match what the business did, growing profit from Rs 143 crore to Rs 197 crore to Rs 278 crore.

Try it out

Sarvani Coatings Limited's year one earnings per share appears in one place as Rs 11.92/- and in another as Rs 5.96/-. Which figure is wrong?

The failure: a collapse and a recovery that never happened

An analyst is building a three year picture of Sarvani Coatings. Year one comes off an old note written before the bonus, where the figure printed is Rs 11.92/-. Years two and three come off the current annual report, at Rs 8.21/- and Rs 11.58/-. Nobody made an arithmetic mistake anywhere. Every number is quoted correctly from a real document.

The series reads: down 31.1 per cent, then up just over 41 per cent. A sharp reverse followed by a full recovery, right back to where it started. The series tells a story, and it is the kind of story that gets written up: something went wrong in year two, management fixed it, watch for whether the fix holds. Every word of it is about an event that did not occur.

Set it against the restated series, Rs 5.96/-, Rs 8.21/-, Rs 11.58/-. The restated series reads: up about 37.8 per cent, then up just over 41 per cent. Two strong years, one after the other, exactly what the profit line did. The entire apparent collapse is a share count that doubled at the end of year one, and nothing else.

Put a number on the damage. Compounded across the two years, the restated series runs at 39.39 per cent a year. The mixed series runs at minus 1.44 per cent a year. One of the two figures in it is divided by half the count of the other, so the ratio of year three to year one comes out at exactly half what it truly is. A reader handed the second number would conclude the business had gone nowhere in two years. In fact it had nearly doubled its earnings per share.

The fix is mechanical and takes a minute. Any per share series that crosses a corporate action must be restated onto one count before a single comparison is drawn, and the restated figure is the only one a comparison may use. The place to check is the corporate action history, which every listed company publishes, and the tell is a per share figure that moves sharply in a year when the profit line did not.

TWO SERIES THAT AGREE ABOUT EVERYTHING EXCEPT YEAR ONE Same company, same profits, same documents. One figure is quoted on the wrong count. 12 10 8 6 4 2 0 Rs 11.92/- quoted from the old note Rs 5.96/- restated for the bonus from here on the two series are the same figure year one year two year three THE MIXED SERIES, AS THE ANALYST ASSEMBLED IT Rs 11.92/- Rs 8.21/- Rs 11.58/- one cell on the wrong count THE RESTATED SERIES, ALL THREE ON 24,00,00,000 SHARES Rs 5.96/- Rs 8.21/- Rs 11.58/- every cell on one count Invented figures throughout. The two series differ in exactly one cell and disagree about the whole two year story.
Setting a figure reported before a corporate action beside figures restated after it produces a fall and a recovery that is entirely an artefact of the share count, from a series in which only one cell is on the wrong basis.
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Why can a listed company rearrange its share count so readily?

Sarvani Coatings did two count changing actions inside twelve months. Only a listed company could get away with that, or so the popular version has it. The popular version is wrong in a way that matters, so it is worth being precise about what is actually easier.

The approvals are not easier. Altering share capital, and capitalising reserves to fund a bonus, both run through the Companies Act 2013 and both need the holders to decide. The Companies Act applies to an unlisted maker of exactly the same size in exactly the same way. On top of it, and only because it is listed, Sarvani Coatings also has to disclose the proposal and the outcome under the obligations the Securities and Exchange Board of India sets. Listing adds a duty here; it removes none.

Everything after the decision is genuinely easier. There is a depository system that credits 24,00,00,000 new shares into several lakh accounts without anybody posting a certificate. There is a filing route that reaches every holder and every reader on the same morning. Reaching them all at once matters enormously when the company cannot name most of them. And there is a market that reprices the share on the day it goes ex, so nobody has to negotiate what the new shares are worth. The ease is plumbing rather than permission, and the plumbing exists because the company gave up knowing who its holders are.

An unlisted company doing the same bonus has to reach its holders one by one, and each of them then holds twice as many shares in something that still has no price and no buyer waiting. The action is legally available and practically far less useful.

Try it out

Sarvani Coatings Limited wants to split its shares again. Which of these actually makes it easier than for an unlisted maker of the same size?

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What does a company give up by listing, and why do plenty stay private?

Everything so far has been mechanics. The judgement comes last, and it is worth saying plainly rather than as a footnote. A reader who thinks listing is straightforwardly good cannot understand why substantial, profitable businesses decline it year after year.

Sarvani Coatings has 24,00,00,000 shares at an illustrative Rs 486/-, so its market capitalisationThe number of shares in issue multiplied by the price at which one of them last changed hands. Market capitalisation is a size measure, and how it is read and what free float does to it is covered under market data. is Rs 11,664 crore. The figure is printed every day whether the board likes it or not. Market capitalisation moves on things the company said, things it did not say, and things that have nothing to do with it at all. A management team that has just delivered its best year can watch the figure fall, and there is no reply available.

THE TRADE, SET OUT WITHOUT A VERDICT ATTACHED Both columns are real. Which one weighs more is a question about a particular business, not about listing. WHAT LISTING BUYS CAPITAL FROM STRANGERS Money from people the company has never met and will never meet. A HOLDING THAT CAN BE SOLD Early backers and staff can turn a stake into cash without asking anybody. A PRICE EVERYBODY CAN SEE Shares become usable as payment, because both sides can see what they are worth. Each of these is a reason companies choose to list. WHAT LISTING COSTS A PRICE IT DOES NOT SET A public verdict attaches every day and the board cannot switch it off. DISCLOSURE RIVALS ALSO READ Whatever goes out to investors reaches competitors on the same morning. A STANDING CALL ON ATTENTION Reporting, meetings and questions take management time every single period. Each of these is a reason companies choose not to. Nothing here is scored.
Listing buys access to capital from people the company will never meet, and it costs continuous disclosure, a price the company does not set, and a standing claim on management time every reporting period.

The disclosure cost is the one people underrate, so look at it through Sarvani Coatings. Its cost of materials is 54.0 per cent of revenue, and it publishes that. Its split between decorative and industrial paint is published. The Rs 118 crore parked in capital work in progress, a coatings line waiting to be switched on, is published. Nandivarman Paints Limited and Kesaria Surface Solutions Limited read all of it on the morning it appears, for free, and neither has to publish anything back unless it is listed too.

Think of a street food stall that has to chalk its costs and its margin on a board facing the pavement. Every customer can check they are being treated fairly, and that is worth something real. Every competitor on that street can also read it and undercut precisely. Genuine boards weigh these genuine costs, and that is exactly why plenty of large and profitable companies never list. A reader who treats listing as an unmixed good has no way to explain them.

Try it out

A large and profitable coatings maker decides to stay unlisted. Which of these is a real reason rather than a caution added for balance?

How this actually gets used, on a Tuesday

A credit officer sizing up a loan to Sarvani Coatings gets four sets of figures a year instead of one arriving nine months late, plus a disclosure the moment anything material happens. The practical value of listing to a lender is not better numbers, but numbers that arrive before the decision has gone stale. Against an unlisted borrower of identical quality, the same officer is working with a picture that is always several months old.

An analyst opening a new company does one thing before touching any per share figure, and it takes about two minutes: pull the corporate action history and write down every split, bonus and consolidation with its date. Every per share number in the model then gets checked against that list. The tell that this step was skipped is a per share line that lurches in a year when the profit line walked.

And for somebody holding a few thousand shares, the useful reading is the shareholding pattern rather than the price. The pattern shows what proportion of the company is held by people who are not going anywhere, and what proportion is free float and can move. None of that requires an opinion about the share.

Try it out

Across year one, Sarvani Coatings Limited's share count went from 2,40,00,000 to 24,00,00,000. A holder who did nothing at all throughout now holds what proportion of the company?

The subjects left alone here, alongside where each one is taken up.

Not covered hereWhere it is covered
The status of public and private under company law, set against each other in fullPublic vs Private Company
What listing does to the capital a company can reach and the position it must disclose fromHow Listing Changes a Company's Capital and Disclosure Context
Returning cash to holders by buying shares back, and what it does per shareBuyback: Mechanics and the Per-Share Effect
The two count actions set against each other in detailBonus Issue vs Stock Split
Every per share figure a corporate action touches, and how each is restatedHow Corporate Actions Affect Shares and Per-Share Metrics
How an order is displayed, matched and settledThe Order Book: How Buy and Sell Interest Is Displayed
How a declared action reaches an individual holder's accountCorporate Action Processing: How a Dividend or Split Reaches the Holder
The ladder running from revenue down to the per share lineThe Profit Ladder: Revenue to Earnings Per Share
Share capital in each of its forms, and what each form meansShare Capital: Authorised, Issued, Subscribed, Paid-Up and Shares Held in Itself
How a company came to be listed in the first placeInitial Public Offering
Reading a company's size against the market, and what free float does to itMarket Capitalisation: Free Float, and the Large, Mid and Small Cap Bands

Every period, deadline, proportion and approval level lives inside an instrument that gets amended, so the only safe place to read one is the instrument itself. Whether listing suits a particular company, and whether either corporate action leaves a holder better off, are judgements about a particular business.

Reading a Sector Before a Company teaches you to establish what moves a sector before forming any view on a company inside it.

Where the rules described here are written down in full

Everything described in outline above is written down properly somewhere, and the table below says where.

Named forWhere that was readSiteRead on
What a listed company must publish, on what rhythm, and when an event has to be disclosedThe listing and disclosure obligations made by the Securities and Exchange Board of Indiasebi.gov.in27 August 2026. These obligations are amended; read the current text
The approvals behind a bonus issue and behind any alteration of share capitalThe Companies Act 2013, as administered by the Ministry of Corporate Affairsmca.gov.in27 August 2026. The Act is amended; read the section itself
How a declared corporate action is announced, and the record a listed issuer leaves behind itThe corporate action and company announcement records kept by the exchangesnseindia.com and bseindia.com27 August 2026. These records change during the trading day

Sarvani Coatings Limited, Nandivarman Paints Limited and Kesaria Surface Solutions Limited are invented.
Educational material. Not advice on any investment, tax, budget or market position.

Covered in this topic

Subtopics

Bonus IssueStock Split
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