Saurabh Mukherjea warns of 'Superman Complex' in annual reports. Here’s what it means

Promoter-focused annual reports show 'Superman Complex,' it should have capex and cash flow numbers; says Saurabh Mukherjea

If the core focus of a company's annual report is the promoter's personality while cash flows and capex are not addressed, it suggests a "Superman Complex," where the promoter believes everything is happening because of him, said Saurabh Mukherjea, founder and chief investment officer at Marcellus Investment Managers.

"If cash flow and capex are missing from the overall discussion, and the tone of the annual report suggests that the promoter's face needs to be everywhere, that's a red flag," Mukherjea said. He was speaking at the Institute of Internal Auditors (IIA) conference in Mumbai.

He further explained that if cash flow and capex are at a certain level but the report primarily highlights pictures of new products or a newly set-up factory without discussing capital allocation, it indicates a lack of focus.

Mukherjea also added that it is a concern if the company makes charts and tables to highlight revenue and PAT (Profit After Tax) but does not shed light on ROIC (Return on Invested Capital) or ROKI (possibly Return on Capital Invested). "Unless you show how much capital has been invested, just displaying the PAT number does not make sense," Mukherjea added.

Mukherjea said that one should analyse the company's annual reports over a decade to understand the company's journey.

"In this journey, if the promoter has discussed future capital allocation, made those allocations, gotten some decisions wrong, some right, and, on balance, improved both business growth and return on capital over a 10-year cycle, that tells you 70 percent of the company's corporate culture," he said.

"The remaining 30 percent comes from meeting them, asking the same questions every time, and cross-checking their responses with past statements," Mukherjea added.

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