Ajay Tyagi, Executive Vice President & Fund Manager – Equity at UTI AMC Ltd, has nearly two decades of experience under his name. He manages Asset Under Management (AUM) of about Rs 17,000 crore and trusts return on capital employed while picking stocks.
In a special podcast, ‘D-Street Talk’ with Moneycontrol, Tyagi said that the main pillar behind UTI Equity Fund is buying great businesses, as well as high-quality businesses, and quality is quantifiable which translates into high return on capital employed.
Capital Employed is defined as total assets less current liabilities. Return on Capital Employed is the ratio that shows the efficiency and profitability of a company's capital investments.
Theoretically, in an ideal scenario, the ROCE should always be higher than the rate at which the company borrows money. However, the definition would change with every sector.
Profitability can be measured by way of a high return on capital employed, in some cases, it is by way of a high return on equity, and in the case of banks, it could be measured by RoA or return on assets, explains Tyagi.
High ROCE businesses generate high cash flows and the economic value is created by businesses which creates strong cash flows. Businesses that are not generating enough cash flows have to eventually resort to debt financing.
Tyagi further added that they want the source of wealth creation to be the underlying economic value creation by the company rather than their ability to buy them cheap or sell them high.
“We remained disciplined in our investment style which is ‘bottom-up’. The portfolio is a combination of high growth as well as high quality and once we figure out these businesses, we hold them patiently for a long period,” explains Tyagi.
(Tune in to the podcast for more)
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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