Answer key — Mock 6 (Stock-pitch mock)¶
This key scores the two example pitches on the rubric and gives model answers to five questions from the question bank for Example A. Q&A (criterion 9) cannot be scored on a written pitch, so both examples are scored out of 105 (21 weight × 5) and scaled to 100.
Example A — "Priced for a 21% RoE, earning 15%"¶
| # | Criterion | Score | × Weight | Why |
|---|---|---|---|---|
| 1 | Decision and clarity | 5 | 15 | Call, range, entry price and size all in the header |
| 2 | Expectations and variant perception | 5 | 15 | Implied RoE of 21% against a best-ever 15.9%; one precise variant claim |
| 3 | Evidence | 4 | 12 | Every point is a number with a source. No evidence the market lacks (for example, used-CV auction prices or dealer checks) |
| 4 | Business and moat | 2 | 4 | Almost silent on the franchise: branch economics in tier-3/4 towns, the underwriting edge, why borrowers choose Nirmal |
| 5 | Valuation | 4 | 12 | Right method (P/B–RoE) and three scenarios. Two gaps: the bear case assumes the same 13% book growth, when losses would slow it, and there is no sensitivity to kₑ |
| 6 | Risks and thesis-breakers | 4 | 12 | A specific pre-mortem and dated breakers. Breaker 3 is vague ("without yield cuts" — by how much?) |
| 7 | Accounting and governance | 3 | 6 | Calls accounting Green without showing the work. It should address stage-2 loans, write-offs (derived ₹57 Cr → ₹85 Cr) and the ECL model's assumptions. The PE overhang is well spotted |
| 8 | Sizing | 4 | 4 | Size derived from the max-loss rule and staged. Not checked against quarter-Kelly: with a −80% tail at 10%, it is 8.0%, so the 6.8% max-loss target binds, which is correct |
| 10 | Communication | 5 | 5 | Conclusion first, tight, no filler |
| Total | 85 / 105 → 81 |
How to lift it to 90+:
- Add one piece of primary evidence, such as used-CV resale prices from auction platforms or two dealer conversations on repossessions.
- Show the kₑ sensitivity.
- Slow book growth in the bear case.
- Put the stage-2 trend in thesis point 1.
Example B — "India's next compounding lender"¶
| # | Criterion | Score | × Weight | Why |
|---|---|---|---|---|
| 1 | Decision and clarity | 2 | 6 | A clear "BUY" and target, but no range, size or entry plan |
| 2 | Expectations and variant perception | 1 | 3 | No view of what ₹402 implies. The "only 18×" comparison is with lenders earning 20%+ RoE, the very thing Nirmal lacks |
| 3 | Evidence | 1 | 3 | Macro story, management guidance and a chart pattern. None of it is evidence about this company's returns |
| 4 | Business and moat | 1 | 2 | "High-quality" and "experienced" are adjectives, not analysis |
| 5 | Valuation | 1 | 3 | The wrong method for a lender (P/E, not P/B–RoE), and internally inconsistent. FY28E EPS of ₹24 is only ~5% a year above FY26's ₹21.8, which contradicts the 25% AUM growth it cites. Management guided AUM, not EPS |
| 6 | Risks and thesis-breakers | 1 | 3 | Generic risks, "well managed"; no bear case, no breakers (criterion capped at 2 anyway) |
| 7 | Accounting and governance | 1 | 2 | Reads a GNPA that is rising (2.5% → 2.9%) as "well controlled", and a 17% PE stake near the end of its fund life as a "vote of confidence" rather than an overhang |
| 8 | Sizing | 1 | 1 | None |
| 10 | Communication | 2 | 2 | Short, but hype ("multi-bagger", "very confident") in place of reasoning |
| Total | 25 / 105 → 24 | The cap for no bear case (60) does not bind |
The instructive part. Every fact in Example B is true. The pitch fails on what it leaves out and on the method. It anchors on management's framing, compares against the wrong peers, uses a multiple that ignores returns, and never asks what the price already assumes. Most bad pitches look like this: accurate, confident and useless.
Model Q&A answers for Example A¶
Q1 — What does the price imply, and why is the market wrong? At 2.61× book, with kₑ at 13% and g at 8%, implied RoE = 8% + 2.61 × 5% = 21%. The market is extrapolating 20% AUM growth and assuming returns rise. I think returns fall first, because stage-3 loans are compounding faster than the book (+71% against +47% over two years).
Q2 — Most sensitive assumption? Sustainable RoE. Each 1 pp of RoE is 0.2× book, or about ₹35/share on FY27E book of ₹174. Next is kₑ: at 12% the base case is worth ₹348, and at 14% ₹232. The call survives any kₑ from 12% to 14% unless sustainable RoE is above ~17%.
Q10 — What does the best bear on your call (the bull) say? "Nirmal compounds book at 13–15% while growing AUM at 20%. The CV cycle is supported by five years of infrastructure spending. Tractors and MSME loans are 45% of the book and diversify the cycle. Quality vehicle financiers have traded at 2.5–3.5× book for a decade." The fair response is that the premium financiers earn 18–22% RoE; Nirmal earns 15%.
Q16 — What would make you change your mind within three months? A Q2 FY27 print with stage-3 below 2.7%, credit cost below 1.6% and used-CV disbursements still growing. That would say the uptick was a blip, and I would move to Watch-Buy at ₹330.
Q25 — Why hasn't someone smarter arbitraged this away? They may have, partly; the stock is 4% below its March 2025 price of ₹420. The edge is small and rests on three things:
- the stage-3 inflection is in the annual-report notes, not the headline presentation;
- the market anchors on AUM growth;
- the PE overhang is a supply technical that fundamentals-only investors ignore.
If I am wrong about the cycle, I lose nothing, because I own nothing at ₹402.